<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-6645
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INFORMATION STATEMENT PROSPECTUS
VALLEY INDUSTRIES, INC. JP FOODSERVICE, INC.
AND
"Z" LEASING CO.
300 W. BONANZA ROAD 9830 PATUXENT WOODS DRIVE
LAS VEGAS, NEVADA 89106 COLUMBIA, MARYLAND 21046
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This Information Statement of Valley Industries, Inc. and "Z" Leasing Co.
and Prospectus of JP Foodservice, Inc. (the "Information Statement/Prospectus")
relates to the acquisition (the "Acquisition") by JP Foodservice, Inc., a
Delaware corporation ("JP"), of a foodservice distribution business conducting
operations from Las Vegas, Nevada in consideration for the assumption by JP of
certain liabilities of the acquired business and the issuance by JP of its
common stock as described herein. The Acquisition has two components: (i) the
merger (the "Merger") of Valley Industries, Inc., a Nevada corporation
("Industries"), with and into JP Foodservice Distributors, Inc., a Delaware
corporation ("JPF Distributors") and wholly-owned subsidiary of JP, and (ii) the
acquisition (the " 'Z' Leasing Transaction") of all of the assets and assumption
of all of the liabilities by JP of "Z" Leasing Co., a Nevada general partnership
(" 'Z' Leasing") affiliated with Industries.
The Merger will be consummated pursuant to an Agreement and Plan of Merger,
dated as of May 17, 1996 (the "Merger Agreement"), among JP, JPF Distributors,
Industries, E & H Distributing Co., Inc., a Nevada corporation doing business as
Valley Food Distributors of Nevada and a wholly-owned subsidiary of Industries
("Valley"), and the stockholders of Industries (collectively, the
"Stockholders"). As a result of the Merger, Industries will merge with and into
JPF Distributors, the separate existence of Industries will cease and JPF
Distributors will be the surviving corporation. Following the Merger, Valley
will be operated as a subsidiary of JPF Distributors.
The "Z" Leasing Transaction will be consummated pursuant to a purchase and
sale contract, dated as of May 17, 1996 (the " 'Z' Leasing Contract"), between
JP and "Z" Leasing. Upon consummation of the "Z" Leasing Transaction, JP will
acquire all of the assets and assume all of the liabilities of "Z" Leasing.
Substantially all of "Z" Leasing's assets are used in Valley's foodservice
distribution business.
The consideration (net of JP's assumption of indebtedness) to be paid by JP
in connection with the Acquisition (the "Acquisition Purchase Price") is
approximately $42.5 million, subject to adjustment for actual acquisition fees
as of the closing of the Acquisition, and will be payable in approximately
2,022,941 shares of common stock, par value $.01 per share, of JP (the "JP
Common Shares") valued at $21.01 per share. Pursuant to the Merger Agreement,
$32.2 million of the Acquisition Purchase Price (or approximately 1,532,675 JP
Common Shares) is allocated to the Merger and $10.3 million of the Acquisition
Purchase Price (or approximately 490,266 JP Common Shares) is allocated to the
"Z" Leasing Transaction.
Each JP Common Share issued in connection with the Acquisition will have
attached one preferred share purchase right which will be initially represented
by such JP Common Share.
AN INVESTMENT IN JP COMMON SHARES INVOLVES A HIGH DEGREE OF RISK. SEE
"SUMMARY -- RISK FACTORS" BEGINNING ON PAGE X.
THE SECURITIES TO WHICH THIS INFORMATION STATEMENT/PROSPECTUS RELATES 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 INFORMATION STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement/Prospectus is August 2, 1996.
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The Industries Board of Directors is soliciting proxies from the
Stockholders and R. Phillip Zobrist, a general partner of "Z" Leasing, is
soliciting consents from the general partners of "Z" Leasing (the "Partners"),
for use at the Special Meeting of the Stockholders and the Partners scheduled to
be held on August 30, 1996 (the "Special Meeting"). At the Special Meeting, the
Stockholders will consider and vote upon the approval and adoption of the Merger
Agreement and the Merger and the Partners will consider and vote upon the
approval and adoption of the "Z" Leasing Contract and the "Z" Leasing
Transaction.
This Information Statement/Prospectus constitutes both (i) the information
statement of Industries and "Z" Leasing relating to the solicitation of proxies
by the Industries Board of Directors and the solicitation of consents by R.
Phillip Zobrist of "Z" Leasing for use at the Special Meeting, and (ii) the
prospectus of JP with respect to the issuance of 2,022,941 JP Common Shares
(subject to adjustment) in connection with the Acquisition. This Information
Statement/Prospectus and the enclosed proxy and consent are first being sent to
the Stockholders and the Partners on or about August 2, 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
INFORMATION STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON. THIS INFORMATION STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE,
THE SECURITIES OFFERED BY THIS INFORMATION STATEMENT/PROSPECTUS, OR THE
SOLICITATION OF A PROXY OR CONSENT, IN ANY JURISDICTION TO OR FROM ANY PERSON TO
WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR
PROXY OR CONSENT SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
INFORMATION STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT TO
THIS INFORMATION STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR
INCORPORATED HEREIN BY REFERENCE OR IN THE AFFAIRS OF JP, INDUSTRIES OR "Z"
LEASING SINCE THE DATE OF THIS INFORMATION STATEMENT/PROSPECTUS. ALL INFORMATION
REGARDING JP IN THIS INFORMATION STATEMENT/PROSPECTUS HAS BEEN SUPPLIED BY JP,
ALL INFORMATION REGARDING INDUSTRIES HAS BEEN SUPPLIED BY INDUSTRIES, AND ALL
INFORMATION REGARDING "Z" LEASING HAS BEEN SUPPLIED BY "Z" LEASING.
AVAILABLE INFORMATION
JP is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, is
required to file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices
of the SEC: Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and
Seven World Trade Center, New York New York 10048. Copies of such material may
be obtained at prescribed rates from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants such as JP which file
electronically with the SEC.
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JP has filed with the SEC a registration statement on Form S-4 (together
with any amendments thereto, the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the JP Common
Shares to be issued in connection with the Acquisition. This Information
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the SEC. Such additional information may be
obtained from the SEC's principal office in Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Information Statement/Prospectus incorporates certain documents by
reference which are not presented herein or delivered herewith. These documents
are available upon request from JP Foodservice, Inc., 9830 Patuxent Woods Drive,
Columbia, Maryland 21046, Attention: Corporate Secretary, telephone number (410)
312-7100. In order to ensure timely delivery of these documents, any request
should be made by August 22, 1996.
JP hereby undertakes to provide without charge to each person, including
any Stockholder or any Partner, to whom a copy of this Information
Statement/Prospectus has been delivered, upon the written or oral request of any
such person, a copy of any and all of the documents referred to below which have
been or may be incorporated herein by reference, other than exhibits to such
documents, unless such exhibits are specifically incorporated herein by
reference. Requests for such documents should be directed to the person
indicated in the immediately preceding paragraph.
The following documents, which have been filed with the SEC pursuant to the
Exchange Act, are hereby incorporated herein by reference:
(a) JP's Annual Report on Form 10-K for the fiscal year ended July 1,
1995;
(b) JP's Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1995, December 30, 1995 and March 30, 1996; and
(c) JP'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
and July 17, 1996.
All documents filed by JP pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date hereof and prior to the date of the Special
Meeting shall be deemed to be incorporated herein by reference and to be a part
hereof from the date of filing of such documents. All information appearing in
this Information Statement/Prospectus or in any document incorporated herein by
reference is not necessarily complete and is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated herein by reference and should be read together with such
information and documents.
Any statements contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Information Statement/Prospectus to the extent that a
statement contained therein or in any other subsequently filed document that is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Information
Statement/Prospectus.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION................................................................. ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... iii
SUMMARY............................................................................... v
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA............................ xiii
COMPARATIVE PER SHARE MARKET DATA..................................................... xvii
UNAUDITED COMPARATIVE PER SHARE DATA.................................................. xvii
THE SPECIAL MEETING................................................................... 1
OWNERSHIP OF INDUSTRIES COMMON STOCK AND OF "Z" LEASING............................... 4
THE ACQUISITION....................................................................... 5
INFORMATION CONCERNING JP............................................................. 23
INFORMATION CONCERNING INDUSTRIES, VALLEY AND "Z" LEASING............................. 24
JP FOODSERVICE, INC. AND COMBINED VALLEY GROUP UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS................................................................ 36
JP FOODSERVICE, INC., COMBINED VALLEY GROUP AND ARROW UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS....................................................... 41
COMPARATIVE MARKET PRICE DATA......................................................... 46
DESCRIPTION OF JP CAPITAL STOCK....................................................... 47
COMPARISON OF RIGHTS OF STOCKHOLDERS OF INDUSTRIES AND STOCKHOLDERS OF JP............. 51
LEGAL MATTERS......................................................................... 56
EXPERTS............................................................................... 56
SOLICITATION OF PROXIES............................................................... 57
INDEX TO FINANCIAL STATEMENTS OF VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND "Z"
LEASING CO.......................................................................... F-1
Exhibit A -- Agreement and Plan of Merger............................................. A-1
Exhibit B -- Purchase and Sale Agreement.............................................. B-1
Exhibit C -- Nevada Dissenters' Rights Statute........................................ C-1
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Information Statement/Prospectus. Reference is made to, and this
summary is qualified in its entirety by, the detailed information appearing
elsewhere in this Information Statement/Prospectus or incorporated herein by
reference. Capitalized terms used and not otherwise defined in this summary
have the meanings given them elsewhere herein. The Stockholders and the
Partners are urged to read carefully this Information Statement/Prospectus in
its entirety.
THE ACQUISITION
This Information Statement of Valley Industries, Inc. and "Z" Leasing
Co. (the "Combined Valley Group") and Prospectus of JP Foodservice, Inc. (the
"Information Statement/Prospectus") relates to the acquisition (the
"Acquisition") by JP Foodservice, Inc., a Delaware corporation ("JP"), of a
foodservice distribution business conducting operations from Las Vegas, Nevada
in consideration for the assumption by JP of certain liabilities of the
acquired business and the issuance by JP of its common stock as described
herein. The Acquisition has two components: (i) the merger (the "Merger") of
Valley Industries, Inc., a Nevada corporation ("Industries"), with and into JP
Foodservice Distributors, Inc., a Delaware corporation ("JPF Distributors") and
wholly-owned subsidiary of JP, and (ii) the acquisition (the "'Z' Leasing
Transaction") of all of the assets and assumption of all of the liabilities by
JP of "Z" Leasing Co., a Nevada general partnership ("'Z' Leasing") affiliated
with Industries.
The consideration (net of JP's assumption of indebtedness) to be paid
by JP in connection with the Acquisition (the "Acquisition Purchase Price") is
approximately $42.5 million, subject to adjustment for actual acquisition fees
as described below, and will be payable in approximately 2,022,941 shares of
common stock, par value $.01 per share, of JP (the "JP Common Shares") valued
at $21.01 per share (the "Merger Share Price"). The Merger Share Price
represents the price of a JP Common Share rounded to the nearest cent
calculated as the average of the closing bid and ask prices for the JP Common
Shares as reported on the Nasdaq National Market for the 20 trading days
immediately preceding May 17, 1996. Pursuant to the Merger Agreement, $32.2
million of the Acquisition Purchase Price (or approximately 1,532,675 JP Common
Shares) is allocated to the Merger (the "Merger Consideration") and $10.3
million of the Acquisition Purchase Price (or approximately 490,266 JP Common
Shares) is allocated to the "Z" Leasing Transaction (the "'Z' Leasing
Consideration"). See "THE SPECIAL MEETING -- Purpose of the Meeting."
The Merger will be consummated pursuant to an Agreement and Plan of
Merger, dated as of May 17, 1996 (the "Merger Agreement"), among JP, JPF
Distributors, Industries, E & H Distributing Co., Inc., a Nevada corporation
doing business as Valley Food Distributors of Nevada ("Valley") and a
wholly-owned subsidiary of Industries, and Lloyd K. Benson, Duane H. Zobrist,
E. Mark Zobrist, Gerry R. Zobrist, R. Phillip Zobrist and Richard D.
Zobrist, the stockholders of Industries (collectively, the "Stockholders").
As a result of the Merger, Industries will merge with and into JPF Distributors
and JPF Distributors will be the surviving corporation. As consideration
for the Merger, each outstanding share of common stock, par value $.001 per
share, of Industries (the "Industries Common Stock") will be converted to the
right to receive that number of JP Common Shares determined by dividing (x) the
Merger Consideration, subject to adjustment for actual acquisition fees as
described below, by (y) the Merger Share Price, and dividing that number by the
number of shares of Industries Common Stock outstanding at the effective time
of the Merger. Based on this calculation, the Stockholders will be entitled to
receive approximately 20/100th's of a JP Common Share for each outstanding share
of Industries Common Stock. See "THE ACQUISITION -- The Merger Agreement."
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The "Z" Leasing Transaction will be consummated pursuant to a purchase
and sale contract, dated as of May 17, 1996 (the "'Z' Leasing Contract") between
JP and "Z" Leasing. The general partners of "Z" Leasing (the "Partners") are
the same persons as the Stockholders. As a result of the "Z" Leasing
Transaction, JP will acquire all of the assets and assume all of the liabilities
of "Z" Leasing. "Z" Leasing will receive the "Z" Leasing Consideration, the
determination of which is set forth in the Merger Agreement, subject to
adjustment for actual acquisition fees as described below, payable in JP Common
Shares valued at the Merger Share Price. See "THE ACQUISITION -- The "Z"
Leasing Contract."
The Acquisition Purchase Price was determined based in part upon the
amount of indebtedness, including projected acquisition fees of approximately
$4.1 million (the "Projected Acquisition Fees"), of the Combined Valley Group
that JP expected, as of the date of the Merger Agreement, to assume upon
consummation of the Acquisition. The Projected Acquisition Fees consist of
projected real estate closing costs, investment banking fees, attorneys' fees,
accounting fees and other transaction costs that will be incurred by the
Combined Valley Group in connection with the Acquisition. At the closing of the
Acquisition (the "Closing"), Industries and Valley will certify to JP the
actual acquisition fees that were incurred by the Combined Valley Group in
connection with the Acquisition (the "Actual Acquisition Fees"). Because JP
will assume indebtedness of the Combined Valley Group in connection with the
Acquisition, and such indebtedness will include the Actual Acquisition Fees, to
the extent that the Actual Acquisition Fees exceed the Projected Acquisition
Fees, the amount of indebtedness to be assumed by JP will increase and the
number of JP Common Shares issuable to the Stockholders and the Partners will
decrease by an amount equal to the amount of such excess based on the Merger
Share Price. To the extent that the Actual Acquisition Fees are less than the
Projected Acquisition Fees, the amount of indebtedness to be assumed by JP will
decrease and the number of JP Common Shares issuable to the Stockholders and
the Partners will increase by an amount equal to the amount of such difference
divided by the Merger Share Price. Accordingly, any adjustment to the
Acquisition Purchase Price as a result of a difference between the Actual
Acquisition Fees and the Projected Acquisition Fees will change the form, but
not the amount, of the overall consideration (including assumption of
indebtedness by JP) to be received by the Combined Valley Group. See "THE
ACQUISITION -- The Merger Agreement -- Acquisition Purchase Price."
Each JP Common Share issued in connection with the Acquisition will
have attached one preferred share purchase right which will be initially
represented by such JP Common Share. See "DESCRIPTION OF JP CAPITAL STOCK --
Preferred Stock."
The texts of the Merger Agreement and the "Z" Leasing Contract are
attached to this Information Statement/Prospectus as Exhibits A and B,
respectively, and should be read carefully in their entirety.
THE COMPANIES
JP. JP is a 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. JP was
incorporated under the name JPF Holdings, Inc. under the laws of the State of
Delaware on June 22, 1989 and 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. JP completed its
initial public offering of Common Stock in November 1994 as part of a
recapitalization plan. JP conducts business through three wholly-owned
operating subsidiaries, including JPF Distributors, and had approximately 2,600
employees at May 31, 1996. JP's principal executive offices are located at
9830 Patuxent Woods Drive, Columbia, Maryland 21046 and its telephone number is
(410) 312-7100. See "INFORMATION CONCERNING JP."
Industries, Valley and "Z" Leasing. Valley, a wholly-owned subsidiary
of Industries, is the largest privately-held institutional foodservice
distributor based in the Las Vegas, Nevada area. Industries is the parent
company and sole stockholder of Valley. Valley leases from "Z" Leasing a
distribution center located on a site of approximately 20 acres in downtown Las
Vegas. At May 31, 1996, Valley had approximately 440 employees. Valley's
principal executive offices are located at 300 W. Bonanza Road, Las Vegas,
Nevada 89106 and its telephone number is (702) 380-5555. See "INFORMATION
CONCERNING INDUSTRIES, VALLEY AND "Z" LEASING."
RECENT DEVELOPMENTS
Arrow Acquisition. On July 17, 1996, JP entered into a definitive
agreement to purchase Arrow Paper and Supply Co., Inc. (together with its
affiliates, "Arrow"), a broadline distributer 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, JP has agreed to assume
certain liabilities of Arrow and to pay $29.6 million (subject to adjustment).
Of such consideration, approximately $1.7 million will be paid in the form of
JP Common Shares and the remainder will be paid in cash. Consummation of the
Arrow Acquisition, which is subject to satisfaction of certain conditions
(including the obtaining of financing by JP), is currently expected to occur on
or before August 31, 1996.
Offering. On July 1, 1996, JP filed with the SEC a Registration
Statement on Form S-3 under the Securities Act to register an offering of up
to 3,000,000 JP Common Shares (excluding 450,000 shares to cover
over-allotment options, if any) (the "Offering"). The net proceeds of the
Offering are primarily expected to be used to repay indebtedness to be assumed
by JP in connection with the Acquisition and the Arrow Acquisition and to fund
the cash portion of the Arrow Acquisition. The balance of the net proceeds will
be used for working capital and other general corporate purposes.
Acquisition of NBC. On June 14, 1996, Valley, through a newly-formed,
wholly-owned subsidiary, Nevada Baking Company, Inc., a Nevada corporation
("New NBC"), acquired substantially all of the operating assets and business of
Baird's Bread Company, a Nevada corporation doing business as Nevada Baking
Company ("NBC"), for a purchase price of approximately $5.1 million. The
purchased assets included real property located in Las Vegas, Nevada and
related improvements and equipment constituting a bread baking facility,
together with vehicles and other assets utilized in the sale and distribution
of bread products. In connection with this acquisition, New NBC obtained the
rights to bake and distribute bread and rolls in the Las Vegas area under the
Holsum, Roman Meal, Gail's, Familee and Taliano labels.
JPF Distributors loaned Valley approximately $5.5 million to finance
the acquisition of the NBC assets and business by New NBC and provide working
capital. The loan is evidenced by a demand promissory note accruing interest
at an annual rate of prime plus 1%. Principal and all interest under the note
are payable on demand, or, if no demand has been made on or before
August 14, 1996, on such date.
Except as expressly noted, the information set forth in this
Information Statement/Prospectus regarding the Combined Valley Group excludes
data relating to NBC and New NBC.
THE SPECIAL MEETING
The Industries Board of Directors (the "Industries Board") is
soliciting proxies from the Stockholders and R. Phillip Zobrist, a Partner of
"Z" Leasing, is soliciting consents of the Partners, respectively, for use at a
Special Meeting of the Stockholders and the Partners (the "Special Meeting").
At the Special Meeting, the Stockholders will consider and vote upon the
approval and adoption of the Merger Agreement and the Merger and the Partners
will consider and vote upon the approval and adoption of the "Z" Leasing
Contract and the "Z" Leasing Transaction. The Special Meeting is scheduled to
be held at 10:00 a.m., local time, on August 30, 1996, at the offices of Lionel
Sawyer & Collins, 1700 Bank of America Plaza, 300 South Fourth Street, Las
Vegas, Nevada 89101. The Industries Board has fixed the close of business on
August 15, 1996 as
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the record date (the "Record Date") for the determination of holders of
Industries Common Stock entitled to notice of and to vote at the Special
Meeting. See "THE SPECIAL MEETING."
RECOMMENDATION OF THE INDUSTRIES BOARD OF DIRECTORS
The Industries Board believes that the terms of the Merger are fair
to, and in the best interests of, Industries and the Stockholders.
ACCORDINGLY, THE INDUSTRIES BOARD UNANIMOUSLY HAS APPROVED THE MERGER AGREEMENT
AND THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. In making this
recommendation, the Industries Board considered a number of factors, which are
described in detail under the heading "THE ACQUISITION -- Recommendation of the
Industries Board of Directors; Industries' Reasons for the Acquisition."
NO RECOMMENDATION OF "Z" LEASING
The rights of the Partners with respect to their interests in "Z"
Leasing are governed by applicable Nevada law, including the Nevada Uniform
Partnership Act (the "Partnership Act"), and by the "Z" Leasing partnership
agreement among the Partners (the "Partnership Agreement"). Neither the
Partnership Act nor the Partnership Agreement requires that any action by
Partners with respect to "Z" Leasing be taken pursuant to the recommendation of
a Partner. Accordingly, no recommendation with respect to the "Z" Leasing
Transaction is being made to the Partners in this Information
Statement/Prospectus.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the Acquisition, the Stockholders and the Partners
should be aware that certain members of Industries management and the
Industries Board have interests in the Acquisition that are in addition to the
interests of the Stockholders and the Partners generally. See "THE ACQUISITION
- --- Interests of Certain Persons in the Acquisition; Employment Agreements."
REQUIRED VOTE; SHARE OWNERSHIP OF MANAGEMENT
The affirmative vote of the holders of a majority of the outstanding
shares of Industries Common Stock is required to approve and adopt the Merger
Agreement and the Merger. If a Stockholder returns a signed proxy card, but
does not indicate how his shares are to be voted, the shares represented by the
proxy card will be voted "FOR" approval and adoption of the Merger Agreement
and the Merger.
The affirmative vote of Partners holding a majority interest in the
profits of "Z" Leasing is required to approve and adopt the "Z" Leasing
Contract and the "Z" Leasing Transaction. If the vote of the Partners, either
in person or by consent, is not unanimous, written notice that the requisite
approval of the "Z" Leasing Transaction has been obtained must be sent by
registered or certified mail to all of the Partners at least 15 days before the
effective time of the Merger.
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Six of the nine members of the Industries Board are also the
Stockholders of Industries and the Partners of "Z" Leasing. Such six persons
own all of the Industries Common Stock outstanding and entitled to vote at the
Special Meeting and all of the partnership interests of "Z" Leasing entitled to
vote at the Special Meeting.
No vote of the stockholders of JP is required to approve or adopt the
Acquisition or the transactions contemplated thereby or to authorize the
issuance of JP Common Shares in connection with the Acquisition.
RISK FACTORS
An investment in JP Common Shares involves a number of risks,
including the following:
Low Margin Business; Economic Sensitivity. The foodservice
distribution industry is characterized by relatively high inventory turnover
with relatively low profit margins and is sensitive to national and regional
economic conditions. JP's operating results also are particularly sensitive
to, and may be adversely affected by, difficulties with the collectibility of
accounts receivable, inventory control, competitive price pressures and
unexpected increases in fuel or other transportation-related costs. Although
these factors have not had a material adverse impact on JP's past operations,
there can be no assurance that one or more of such factors will not adversely
affect future operating results.
Acquisition Strategy. JP's business strategy emphasizes
supplementing internal expansion with acquisitions. There can be no assurance
that JP will successfully identify suitable acquisition candidates, complete
acquisitions (including 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 JP's
operating results, particularly in quarters immediately following the
consummation of such transactions, while the operations of the acquired
businesses are being integrated into JP's operations. Once integrated,
acquired operations may not achieve levels of net sales or profitability
comparable to those achieved by JP'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 JP. Equity financing of any such acquisition may
dilute the ownership of JP's stockholders. There can be no assurance that JP
will be able to obtain financing on acceptable terms.
Competition. JP 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. JP encounters
competition from a variety of sources, including specialty and system
foodservice distributors and other broadline distributors. Some of JP's
competitors have substantially greater financial and other resources than JP.
Dependence on Senior Management. JP'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 JP's senior management could have a material adverse
effect on JP's business development. To date, JP generally has been successful
in retaining the services of its senior management.
Potential Influence by Certain Stockholders. Sara Lee Corporation
("Sara Lee") beneficially owns 32.0% of the JP Common Shares. 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 JP's business by virtue of their voting power with respect to the
election of directors and actions requiring stockholder approval. JP and Sara
Lee engage in a material amount of transactions in the ordinary course of their
businesses. The Sara Lee Foundation beneficially owns 6.2% of the JP Common
Shares.
Provisions with Possible Anti-Takeover Effects. JP is subject to the
provisions of the "business combination" statute contained in Section 203 of
the Delaware General Corporation Law. Those provisions as well as provisions
contained in JP's certificate of incorporation and by-laws may have the effect
of discouraging certain transactions involving an actual or threatened change
of control of JP. See "DESCRIPTION OF JP CAPITAL STOCK."
-viii-
<PAGE> 9
Dividend Policy. JP does not anticipate paying dividends on JP Common
Shares in the foreseeable future. JP's ability to pay dividends is restricted
by the terms of its existing credit facilities.
Restrictions on Resales of JP Common Shares. Because the Stockholders
and the Partners are considered to be "affiliates" (as such term is defined for
purposes of Rule 145 under the Securities Act) of Industries and "Z" Leasing,
respectively, at the time of the Special Meeting, the Stockholders and the
Partners may not sell their JP Common Shares acquired in connection with the
Acquisition except pursuant to (i) an effective registration statement under
the Securities Act covering such shares, (ii) paragraph (d) of Rule 145 under
the Securities Act or (iii) any other applicable exemption under the
Securities Act. In addition, to preserve JP's ability to account for the
Acquisition as a "pooling of interests" for financial reporting purposes, the
Stockholders and the Partners have each agreed not to dispose of more than a
minimal number of JP Common Shares during the period beginning 30 days before
the Merger and ending when financial results covering at least 30 days of
post-Merger operations of the combined enterprise have been published. See "THE
ACQUISITION--Resales of Common Shares Issued in the Acquisition."
CONDITIONS TO THE MERGER
The obligations of the parties to consummate the Merger are subject to
the satisfaction or waiver of certain conditions specified in the Merger
Agreement. Such conditions include, among others: (i) the approval and
adoption by the Stockholders of the Merger Agreement and the Merger; (ii) the
approval and adoption by the Partners of the "Z" Leasing Contract and the "Z"
Leasing Transaction; (iii) the expiration of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"); and (iv) the authorization of the JP Common Shares to be issued
in connection with the Acquisition for listing on the Nasdaq National Market,
subject to official notice of issuance.
The obligation of JP to consummate the Merger is subject to the
satisfaction or waiver of certain additional conditions. Such additional
conditions include, among others: (i) execution by certain management
personnel of Valley of employment agreements with Valley; (ii) execution of
certain representation letters by the Stockholders; (iii) delivery to JP by
KPMG Peat Marwick LLP, independent public accountants for Industries, Valley
and "Z" Leasing, of an opinion that KPMG Peat Marwick LLP is not aware of any
circumstance related to such entities that would prevent the Acquisition from
being accounted for as a pooling of interests for financial reporting purposes;
(iv) delivery to JP by Price Waterhouse LLP, independent public accountants
for JP, of an opinion that the Acquisition will be accounted for as a pooling
of interests for financial reporting purposes; (v) the absence, as of the
closing date of the Acquisition (the "Closing Date"), of any event or
circumstance that has or could have a material adverse effect on the financial
condition, assets or
-ix-
<PAGE> 10
prospects of Industries, Valley or "Z" Leasing; (vi) satisfaction by
Industries of its obligations under its Incentive Compensation Plan and
termination of the Plan; and (vii) purchase by Industries or Valley (or a
wholly-owned subsidiary of either Industries or Valley) of the assets,
properties and business of NBC. New NBC, a subsidiary of Valley, acquired NBC
on June 14, 1996. See "INFORMATION CONCERNING INDUSTRIES, VALLEY AND "Z"
LEASING -- Recent Developments."
The obligations of Industries and "Z" Leasing to consummate the Merger
are subject to the satisfaction or waiver of certain additional conditions,
including execution of an agreement by JP granting to the Stockholders certain
registration rights with respect to JP Common Shares.
The Merger Agreement may be terminated upon the occurrence of certain
events. See "THE ACQUISITION -- The Merger Agreement -- Termination."
EFFECTIVE TIME
The Merger Agreement provides that unless otherwise agreed to by the
parties, after all the conditions in the Merger Agreement have been satisfied
or waived, the Merger will become effective. Such time is hereinafter referred
to as the "Effective Time," which time will be the later to occur of the date
and time when the Certificate of Merger required under Delaware law is filed
with the Delaware Secretary of State or the date and time when the Articles of
Merger required under Nevada law are filed with the Nevada Secretary of State.
Such filings will be made simultaneously with the Closing, which JP, Industries
and "Z" Leasing anticipate will occur on the day of the Special Meeting. See
"THE ACQUISITION -- Closing; Effective Date."
The "Z" Leasing Contract provides that the "Z" Leasing Transaction
will be consummated at or about the Effective Time.
TERMINATION FEE
If the Acquisition is not consummated because of Industries' or "Z"
Leasing's receipt and acceptance of a third-party offer to acquire any
of Industries, "Z" Leasing or NBC, then Industries, Valley and "Z" Leasing will
be required to pay a $2 million fee to JP. See "THE ACQUISITION -- The Merger
Agreement -- Termination."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
It is anticipated that the Merger will constitute a reorganization
within the meanings of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended. In contrast, the "Z" Leasing Transaction
will constitute a taxable sale of assets by "Z" Leasing. See "THE ACQUISITION
- -- Certain Federal Income Tax Consequences" for a discussion of certain federal
income tax consequences of the Merger and the "Z" Leasing Transaction.
-x-
<PAGE> 11
REGULATORY MATTERS
Pursuant to the HSR Act, and the rules promulgated thereunder, JP,
Industries and "Z" Leasing each provided the required notifications with
respect to the Acquisition to the Federal Trade Commission and the Antitrust
Division of the U.S. Department of Justice on June 25, 1996. The Federal Trade
Commission granted the parties' request for early termination of the 30-day
waiting period under the HSR Act effective on July 8, 1996.
ACCOUNTING TREATMENT
JP, Industries and "Z" Leasing believe that the Acquisition will
qualify as a pooling of interests for financial reporting purposes. It is a
condition to JP's obligation to consummate the Acquisition that JP receive an
opinion from KPMG Peat Marwick LLP, independent public accountants for
Industries, Valley and "Z" Leasing, that it is not aware of any circumstance
related to such entities that would prevent the Acquisition from being
accounted for as a pooling of interests for financial reporting purposes, and
an opinion from Price Waterhouse LLP, independent public accountants for JP,
that the Acquisition will be accounted for as a pooling of interests for
financial reporting purposes. See "THE ACQUISITION -- The Merger Agreement --
Conditions to the Merger" and "-- Accounting Treatment."
DISSENTERS' RIGHTS
Under applicable Nevada law, the Stockholders have the right to
receive a cash payment for their Industries Common Stock instead of receiving
JP Common Shares. See "THE ACQUISITION -- Dissenters' Rights." SUCH A
PAYMENT, HOWEVER, WOULD CAUSE THE ACQUISITION TO BE DISQUALIFIED FROM BEING
TREATED AS A POOLING OF INTERESTS FOR FINANCIAL REPORTING PURPOSES, WHICH, IN
TURN, WOULD CAUSE ONE OF THE CONDITIONS TO JP'S OBLIGATION TO CONSUMMATE THE
ACQUISITION TO BE UNSATISFIED. See "THE ACQUISITION -- The Merger Agreement
- -- Conditions to the Merger Agreement" and "-- Accounting Treatment."
COMPARISON OF RIGHTS OF THE STOCKHOLDERS OF INDUSTRIES WITH THE RIGHTS OF THE
STOCKHOLDERS OF JP UNDER APPLICABLE LAWS
The rights of the Stockholders currently are governed by applicable
Nevada law, including the Nevada General Corporation Law (the "Nevada Law"), and
by the Articles of Incorporation of Industries, as amended (the "Industries
Articles") and the Industries By-Laws, as amended (the "Industries By-Laws").
Upon consummation of the Merger, the Stockholders will become stockholders of
JP, a Delaware corporation, and their rights as stockholders of JP will be
governed by applicable Delaware law, including the General Corporation Law of
the State of Delaware (the "Delaware Law"), and by the Restated Certificate of
Incorporation of JP (the "JP Certificate") and the Amended and Restated By-Laws
of JP (the "JP By-Laws").
There are numerous important differences between the rights of the
Stockholders under the Nevada Law, the Industries Articles and the Industries
By-Laws, and the rights of stockholders of JP under the Delaware Law, the JP
Certificate and the JP By-Laws. See "DESCRIPTION
-xi-
<PAGE> 12
OF JP CAPITAL STOCK" and "COMPARISON OF RIGHTS OF STOCKHOLDERS OF INDUSTRIES
AND STOCKHOLDERS OF JP."
RIGHTS OF THE PARTNERS OF "Z" LEASING FOLLOWING CONSUMMATION OF THE "Z" LEASING
TRANSACTION
"Z" Leasing may, depending upon a decision of the Partners and
applicable pooling rules, continue in existence following the exchange of all
its assets and liabilities for JP Common Shares in the "Z" Leasing Transaction.
Following consummation of the "Z" Leasing Transaction, the rights of the
Partners as general partners of a Nevada general partnership will continue to
be governed by the Partnership Act and the Partnership Agreement.
-xii-
<PAGE> 13
SELECTED UNAUDITED HISTORICAL AND UNAUDITED
PRO FORMA FINANCIAL DATA
The following tables present selected unaudited historical financial
data of JP and the Combined Valley Group and selected unaudited pro forma
combined financial data after giving effect to the Acquisition under the
pooling of interests method of accounting. The selected unaudited historical
financial data of JP and the Combined Valley Group as of the end of and for
each of the last five fiscal years of each such company have been derived from
annual financial statements including the last three fiscal years' audited
financial statements of each such company which are incorporated by reference
or included herein. Interim selected unaudited historical financial data have
been derived from unaudited financial statements and, in the opinion of the
management of JP and the Combined Valley Group, respectively, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results of operations for such interim period.
The selected unaudited pro forma financial data have been derived from
or prepared consistently with the unaudited pro forma condensed combined
financial statements included herein. The pro forma data are presented for
illustrative purposes only and are not necessarily indicative of the financial
position or operating results that would have occurred or that will occur upon
consummation of the Acquisition, the Arrow Acquisition and the Offering. For
information on the Arrow Acquisition and the Offering, see "INFORMATION
CONCERNING JP -- Recent Developments." The following selected financial data
should be read in conjunction with such historical and pro forma combined
financial statements and notes thereto incorporated by reference or included
herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "JP
FOODSERVICE, INC. AND COMBINED VALLEY GROUP UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS" and "JP FOODSERVICE, INC., COMBINED VALLEY
GROUP AND ARROW UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
-xiii-
<PAGE> 14
SELECTED UNAUDITED HISTORICAL FINANCIAL DATA
JP FOODSERVICE, INC.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
----------------------------------------------------------------------------------
June 29, 1991 June 27, 1992 July 3, 1993 July 2, 1994 July 1, 1995(2)
------------- ------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
AND PER SHARE DATA:
Net sales . . . . . . . . . $ 951,912 $1,014,679 $1,025,854 $1,029,000 $ 1,108,253
Income from operations . . . 25,601 23,886 26,579 29,537 32,951
Net income (loss). . . . . . (9,056) (9,307) (7,596) (1,815) 1,980
Preference dividends . . . . 1,788 2,081 2,427 504 40
Net income (loss)
applicable to common
stockholders . . . . . . . (10,844) (11,388) (10,023) (2,319) 1,940
Net income (loss) per
common share . . . . . . . $ (2.73) $ (2.86) $ (2.55) $ (0.59) $ 0.17
Weighted average number of
shares of common stock
outstanding. . . . . . . . 3,975,851 3,981,940 3,932,748 3,932,748 11,122,343
BALANCE SHEET DATA:
Total assets . . . . . . . . $ 323,183 $ 334,982 $ 343,285 $ 350,089 $ 373,038
Long-term debt, excluding
current maturities . . . . 280,037 298,243 309,998 264,260 146,557
Mandatorily redeemable
stock . . . . . . . -- -- -- 2,388 --
<CAPTION>
NINE MONTHS ENDED(2)(3)
-------------------------------
April 1, 1995 March 30, 1996
------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS
AND PER SHARE DATA:
Net sales . . . . . . . . . $ 810,804 $ 908,905
Income from operations . . . 22,083 25,596
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 . . . . . . . $ (0.25) $ 0.51
Weighted average number of
shares of common stock
outstanding . . . . . . . 9,599,520 15,944,455
BALANCE SHEET DATA:
Total assets . . . . . . . . $ 360,528 $ 411,041
Long-term debt, excluding
current maturities . . . . 148,520 160,467
Mandatorily redeemable
stock . . . . . . . . . -- --
</TABLE>
(1) JP reports its annual financial results on a 52/53-week financial year
ending on the Saturday closest to June 30.
(2) During the second quarter of fiscal 1995, JP completed a recapitalization
plan which included an extraordinary charge related to the early extinguishment
of debt for $4.6 million (after-tax) or $0.42 per share for the fiscal year
ended July 1, 1995 and $0.48 per share for the nine months ended April 1, 1995.
(3) During the third quarter of fiscal 1996, JP wrote off costs of
approximately $1.5 million incurred in connection with the termination of
discussions of a proposed business combination. The after-tax impact of this
nonrecurring charge was $0.9 million or $0.06 per share.
-xiv-
<PAGE> 15
SELECTED UNAUDITED HISTORICAL FINANCIAL DATA
COMBINED VALLEY GROUP
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED(1)
------------------------------------------------------------------------ -----------------------------
Jan. 31, 1992 Jan. 31, 1993 Jan. 31, 1994 Jan. 31, 1995 Jan. 31, 1996 Mar. 31, 1995 Mar. 31, 1996
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales . . . . . . . $54,686 $71,075 $84,496 $105,406 $ 121,504 $82,603 $94,647
Income from operations . 2,040 2,034 2,503 2,830 3,679 2,102 3,041
Net income . . . . . . . 483 185 900 1,525 1,824 1,037 1,578
Net income per common
share . . . . . . . . 0.06 0.02 0.11 0.15 0.18 0.10 0.16
BALANCE SHEET DATA:
Total assets . . . . . $17,981 $18,318 $20,854 $ 24,207 $ 27,176 $26,280 $27,568
Long-term debt,
excluding current
maturities . . . . . . . 11,649 12,187 11,004 10,241 9,583 10,566 9,610
</TABLE>
(1) The unaudited historical data for the nine months ended March 31, 1995
and 1996 include seven months (July 1995 through January 1996) which are also
included in the statements of operations for the fiscal years ended January 31,
1995 and 1996. Results of operations for the seven months ended January 31,
1995 and 1996 consist of net sales of $66,595 and $73,063 and net income of $836
and $1,102, respectively.
-xv-
<PAGE> 16
SELECTED UNAUDITED COMBINED PRO FORMA FINANCIAL DATA
JP FOODSERVICE, INC. AND COMBINED VALLEY GROUP
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (1)
---------------------------------------------------------------------------------------------
June 29, 1991 June 27, 1992 July 3, 1993 July 2, 1994 July 1, 1995 July 1, 1995(2)
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales . . . . . . $1,006,598 $1,085,754 $1,110,350 $1,134,406 $1,229,757 $1,304,347
Income from operations 27,641 25,920 29,082 32,367 36,630 39,374
Net income (loss)
applicable to common
stockholders . . . . . (10,361) (11,203) (9,189) (1,037) 3,530 6,238
Net income per common
share . . . . . . . $ (2.32) $ (2.50) $ (2.08) $ (0.23) $ 0.28 $ 0.40
BALANCE SHEET DATA:
Total assets . . . . . 341,164 353,300 364,073 374,053 400,214 N/A(3)
Long-term debt,
excluding current
maturities . . . . . . 291,686 310,430 321,002 274,501 156,140 N/A(3)
Mandatorily redeemable
stock . . . . . . . -- -- -- 2,388 -- N/A(3)
<CAPTION>
NINE MONTHS ENDED(1)
--------------------------------------------
April 1, 1995 Mar. 30, 1996 Mar. 30, 1996(2)
------------- ------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales . . . . . . $893,407 $1,003,552 $1,063,745
Income from operations 24,185 28,637 30,095
Net income (loss)
applicable to common
stockholders . . . . . (1,468) 9,451 11,116
Net income per common
share . . . . . . . . $ (0.14) $ 0.53 $ 0.53
BALANCE SHEET DATA:
Total assets . . . . . 386,532 438,608 492,758
Long-term debt,
excluding current
maturities . . . . . 159,086 170,076 159,813
Mandatorily redeemable
stock . . . . . . . -- -- --
</TABLE>
(1) The Combined Valley Group has a January 31 year-end and, accordingly, the
Combined Valley Group's financial information as of and for the years ended
January 31, 1994, 1995 and 1996 have been combined with JP's financial
information as of and for the years ended July 3, 1994, July 2, 1995 and July
1, 1996, respectively. The unaudited pro forma combined financial information
as of and for the nine months ended April 1, 1995 and March 30, 1996 include
seven months (July 1995 through January 1996) which are also included in the
unaudited historical statements of operations of the Combined Valley Group for
the fiscal years ended January 31, 1995 and 1996 consist of net sales of
$66,595 and $73,063 and net income of $874 and $1,114 respectively.
(2) Assumes (i) consummation of the Acquisition and the Arrow Acquisition
and (ii) the receipt and application of the estimated net proceeds of the
Offering, each as of the first day of each period indicated. See "JP
FOODSERVICE, INC., COMBINED VALLEY GROUP AND ARROW UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS."
(3) Balance sheet data reflecting the Arrow Acquisition and the Offering are
only applicable as of March 30, 1996 (most recent balance sheet date).
-xvi-
<PAGE> 17
COMPARATIVE PER SHARE MARKET DATA
The JP Common Shares began trading on the Nasdaq National
Market under the symbol "JPFS" in November 1994.
<TABLE>
<CAPTION>
JP Common Shares
Date (historical) (1)
---- ----------------
<S> <C>
May 16, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22.00
July 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23.00
</TABLE>
(1) The chart reflects the closing sale price of the JP Common Shares on May
16, 1996, the trading day immediately prior to the public announcement of
the Acquisition, and on July 29, 1996, the latest practicable date.
There is no established public trading market for Industries Common
Stock or for "Z" Leasing partnership interests. At February 1, 1994, the
stockholders of Industries were the current six Stockholders and "Z" Leasing.
Effective February 1, 1995, in connection with a restructuring, "Z" Leasing
distributed all of its shares of Industries Common Stock to the other
Stockholders. Since February 1, 1995, there have been no transactions
involving Industries Common Stock, and the identity of the Stockholders and the
amounts of Industries Common Stock owned by them since February 1, 1995 are as
set forth under "OWNERSHIP OF INDUSTRIES COMMON STOCK AND OF "Z" LEASING."
Since its formation, there have been no transactions involving "Z" Leasing
partnership interests.
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth, for the periods indicated, the
following information: (i) the historical net income (loss) per common share
and the historical book value per share data of the JP Common Shares, (ii) the
historical net income per common share and the historical book value per share
data of the Combined Valley Group common stock (assuming for the purposes hereof
that the Combined Valley Group constituted a single corporate entity), (iii) the
pro forma net income (loss) per share of the JP Common Shares and the pro forma
book value per JP Common Share after giving effect to the Acquisition on a
pooling of interests basis, and (iv) the pro forma net income (loss) per share
of common stock and the unaudited book value per share, assuming solely for the
purpose of this calculation an exchange ratio of 20/100th's of a JP Common Share
for each share of the Combined Valley Group common stock (assuming for the
purposes hereof that the Combined Valley Group constituted a single corporate
entity). The information presented in the table should be read in conjunction
with the separate historical consolidated financial statements of JP and the
Combined Valley Group, the unaudited pro forma condensed financial statements of
JP and the Combined Valley Group, and the unaudited interim condensed combined
financial statements of JP and the Combined Valley Group and the accompanying
notes thereto incorporated herein by reference or included elsewhere in this
Information Statement/Prospectus.
-xvii-
<PAGE> 18
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA EQUIVALENT
HISTORICAL JP AND FOR ONE
COMBINED COMBINED COMBINED
HISTORICAL VALLEY VALLEY VALLEY GROUP
JP GROUP GROUP SHARE
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE(1):
Nine months ending March 30, 1996 . . . . . . . $ 0.51 $0.16 $ 0.53 $ 0.11
Fiscal year ended July 1, 1995 . . . . . . . . 0.17 0.18 0.28 0.06
Fiscal year ended July 2, 1994 . . . . . . . . (0.59) 0.15 (0.23) (0.05)
Fiscal year ended July 3, 1993 . . . . . . . . (2.55) 0.11 (2.07) (0.41)
CASH DIVIDENDS DECLARED PER SHARE(1):
Nine months ending March 30, 1996 . . . . . . . $ 0.00 $0.04 $ 0.02 $ 0.00
Fiscal year ended July 1, 1995 . . . . . . . . 0.00 0.05 0.04 0.01
Fiscal year ended July 2, 1994 . . . . . . . . 0.00 0.04 0.08 0.02
Fiscal year ended July 3, 1993 . . . . . . . . 0.00 0.01 0.02 0.00
BOOK VALUE PER SHARE(1):
Nine months ending March 30, 1996 . . . . . . . $ 7.07 $0.27 $ 6.43 $ 1.29
Fiscal year ended July 1, 1995 . . . . . . . . 6.49 0.23 5.90 1.18
</TABLE>
------------------
(1) Per share amounts have been calculated based (i) on the number of shares
of Industries Common Stock outstanding as of the date of this Information
Statement/Prospectus and (ii) on the assumption that the Combined Valley
Group constituted a single corporate entity. As set forth under
"OWNERSHIP OF INDUSTRIES COMMON STOCK AND OF "Z" LEASING," the
Stockholders have identical beneficial ownership interests in each of
Industries and "Z" Leasing.
-xviii-
<PAGE> 19
INFORMATION STATEMENT PROSPECTUS
VALLEY INDUSTRIES, INC. JP FOODSERVICE, INC.
AND
"Z" LEASING CO.
300 W. BONANZA ROAD 9830 PATUXENT WOODS DRIVE
LAS VEGAS, NEVADA 89106 COLUMBIA, MARYLAND 21046
This Information Statement/Prospectus (the "Information
Statement/Prospectus") is provided to the stockholders (the "Stockholders") of
Valley Industries, Inc., a Nevada corporation ("Industries"), and the partners
(the "Partners") of "Z" Leasing Co., a Nevada general partnership ("'Z'
Leasing") affiliated with Industries, in connection with the special meeting of
the Stockholders and the Partners (the "Special Meeting") and any adjournments
or postponements thereof. The Special Meeting will be held on the date, at the
time and in the location, and will be held to consider the matters, set forth
under "THE SPECIAL MEETING." The Board of Directors of Industries (the
"Industries Board") is soliciting consents of the Stockholders for use at the
Special Meeting and R. Phillip Zobrist, a Partner of "Z" Leasing, is soliciting
consents of the Partners for use at the Special Meeting. A form of proxy is
being provided to the Stockholders and a form of consent is being provided to
the Partners with this Information Statement/Prospectus. Information with
respect to the execution and the revocation of proxies and the execution and
revocation of consents is provided under "THE SPECIAL MEETING."
This Information Statement/Prospectus also serves as the prospectus of
JP Foodservice, Inc., a Delaware corporation ("JP"), under the Securities Act
of 1933, as amended (the "Securities Act"), for the issuance of the shares of
common stock, par value $.01 per share, of JP (the "JP Common Shares") in
connection with the Acquisition as described herein.
THE SPECIAL MEETING
PURPOSE OF THE MEETING
JP, JP Foodservice Distributors, Inc., a Delaware corporation ("JPF
Distributors") and wholly-owned subsidiary of JP, Industries, E & H Distributing
Co., Inc., a Nevada corporation doing business as Valley Food Distributors of
Nevada ("Valley") and a wholly-owned subsidiary of Industries, and Lloyd K.
Benson, Duane H. Zobrist, E. Mark Zobrist, Gerry R. Zobrist, R. Phillip
Zobrist and Richard D. Zobrist, who constitute all of the Stockholders, have
entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated as
of May 17, 1996, which relates to the proposed merger (the "Merger") of
Industries with and into JPF Distributors. JP and "Z" Leasing have entered
into a purchase and sale contract (the " 'Z' Leasing Contract"), dated as of
May 17, 1996, pursuant to which JP will acquire all of the assets and assume
all of the liabilities of "Z" Leasing (the " 'Z' Leasing Transaction").
Substantially all of "Z" Leasing's assets are used in Valley's food service
distribution business. At the Special Meeting, the Stockholders will be
<PAGE> 20
asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement and the Merger and the Partners will be asked to consider and vote
upon a proposal to approve the "Z" Leasing Contract and the "Z" Leasing
Transaction. The Merger and the "Z" Leasing Transaction are collectively
referred to herein as the "Acquisition."
The consideration (net of JP's assumption of indebtedness) to be paid
by JP in connection with the Acquisition (the "Acquisition Purchase Price") is
approximately $42.5 million, subject to adjustment for actual acquisition fees
as described below, and will be payable in approximately 2,022,941 JP Common
Shares valued at $21.01 per share (the "Merger Share Price"). The Merger Share
Price represents the price of a JP Common Share rounded to the nearest cent
calculated as the average of the closing bid and ask prices for the JP Common
Shares as reported on the Nasdaq National Market for the 20 trading days
immediately preceding May 17, 1996. Pursuant to the Merger Agreement, $32.2
million of the Acquisition Purchase Price (or approximately 1,532,675 JP Common
Shares) is allocated to the Merger (the "Merger Consideration") and $10.3
million of the Acquisition Purchase Price (or approximately 490,266 JP
Common Shares) is allocated to the "Z" Leasing Transaction (the "'Z'
Leasing Consideration").
As a result of the Merger, Industries will merge with and into JPF
Distributors and JPF Distributors will be the surviving corporation. As
consideration for the Merger, each outstanding share of common stock, par value
$.001 per share, of Industries (the "Industries Common Stock") will be
converted to the right to receive that number of shares of common stock, par
value $.01 per share of JP (the "JP Common Shares") determined by dividing (x)
the Merger Consideration, subject to adjustment for actual acquisition fees as
specified below, by (y) the Merger Share Price, and dividing that number by the
number of shares of Industries Common Stock outstanding at the Effective Time.
Based on this calculation, the Stockholders will be entitled to receive
approximately 20/100th's of a JP Common Share for each outstanding share of
Industries Common Stock.
As a result of the "Z" Leasing Transaction, JP will acquire all of the
assets and assume all of the liabilities of "Z" Leasing. "Z" Leasing will
receive the "Z" Leasing Consideration, subject to adjustment for actual
acquisition fees as described below, payable in JP Common Shares valued at the
Merger Share Price.
The Acquisition Purchase Price was determined based in part upon the
amount of indebtedness, including projected acquisition fees of approximately
$4.1 million (the "Projected Acquisition Fees"), of Industries and "Z" Leasing
(the "Combined Valley Group"), that JP expected, as of the date of the Merger
Agreement, to assume upon consummation of the Acquisition. The Projected
Acquisition Fees consist of projected real estate closing costs, investment
banking fees, attorneys' fees, accounting fees and other transaction costs that
will be incurred by the Combined Valley Group in connection with the
Acquisition. At the Closing, Industries and Valley will certify to JP the
actual acquisition fees that were incurred by the Combined Valley Group in
connection with the Acquisition (the "Actual Acquisition Fees"). Because JP
will assume indebtedness of the Combined Valley Group in connection with the
Acquisition, and such indebtedness will include the Actual Acquisition Fees, to
the extent that the Actual Acquisition Fees exceed the Projected Acquisition
Fees, the amount of indebtedness to be assumed by JP will increase and the
number of JP Common Shares issuable to the Stockholders and the Partners will
decrease by an amount equal to the amount of such excess based on the Merger
Share Price. To the extent that the Actual Acquisition Fees are less than the
Projected Acquisition Fees, the amount of indebtedness to be assumed by JP will
decrease and the number of JP Common Shares issuable to the Stockholders and
the Partners will increase by an amount equal to the amount of such difference
divided by the Merger Share Price. Accordingly, any adjustment to the
Acquisition Purchase Price as a result of a difference between the Actual
Acquisition Fees and the Projected Acquisition Fees will change the form, but
not the amount, of the overall consideration (including assumption of
indebtedness by JP) to be received by the Combined Valley Group.
Each JP Common Share issued in connection with the Acquisition will
have attached one preferred share purchase right which will be initially
represented by such JP Common Share. See "DESCRIPTION OF JP CAPITAL STOCK --
Preferred Stock."
THE INDUSTRIES BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. SEE "THE
ACQUISITION -- RECOMMENDATION OF THE INDUSTRIES BOARD OF DIRECTORS; INDUSTRIES'
REASONS FOR THE MERGER." NO RECOMMENDATION WITH RESPECT TO THE "Z" LEASING
TRANSACTION IS BEING MADE.
DATE, TIME AND PLACE; RECORD DATE
The Special Meeting is scheduled to be held at 10:00 a.m., local time,
on August 30, 1996 at the offices of Lionel Sawyer & Collins, 1700 Bank of
America Plaza, 300 South Fourth Street, Las Vegas, Nevada 89101. The
Industries Board has fixed the close of business on August 15, 1996 as the
record date (the "Record Date") for the determination of holders of Industries
Common Stock entitled to notice of and to vote at the Special Meeting. On the
Record Date, there were six Stockholders each holding 16.67% of the 9,999,996
shares of Industries Common Stock issued and outstanding. On the Record Date,
there were six Partners each holding a 16.67% partnership interest in "Z"
Leasing.
VOTING RIGHTS
The affirmative vote of the holders of at least a majority of the
outstanding shares of Industries Common Stock is required under the Nevada
General Corporation law (the "Nevada
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<PAGE> 21
Law") and the Articles of Incorporation of Industries, as amended (the
"Industries Articles"), to approve and adopt the Merger Agreement and the
Merger. Holders of record of Industries Common Stock on the Record Date are
entitled to one vote per share on the proposal to be presented to the
Stockholders at the Special Meeting. The presence, either in person or by
proxy, of the holders of a majority of the outstanding shares of Industries
Common Stock entitled to vote at the Special Meeting is necessary to constitute
a quorum of Stockholders at the Special Meeting.
If a Stockholder attends the Special Meeting, he may vote by ballot.
A Stockholder unable to attend the Special Meeting may vote by proxy on the
proposal to be considered at the Special Meeting. When a proxy card is
returned properly signed and dated, the shares represented thereby will be
voted in accordance with the instructions on the proxy card. If a Stockholder
does not return a signed proxy card, his shares will not be voted and, thus,
will have the effect of a vote against the Merger Agreement and the Merger.
Each Stockholder is urged to mark the box on the proxy card to indicate how his
shares are to be voted. If a Stockholder returns a signed proxy card but does
not indicate how his shares are to be voted, the shares represented by the
proxy card will be voted "FOR" approval and adoption of the Merger Agreement
and the Merger. If a Stockholder returns a signed proxy card but marks the box
indicating an abstention, his shares will be considered present at the Special
Meeting, but because the shares have not been voted "FOR" approval of the
Merger Agreement and the Merger, the abstention will have the effect of a vote
against the proposal. The proxy card also confers discretionary authority on
the individuals appointed by the Industries Board and named on the proxy card
to vote Industries Common Stock represented thereby on any other matter that is
properly presented for action at the Special Meeting.
Any Stockholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Corporate
Secretary of Industries at 300 W. Bonanza Road, Las Vegas, Nevada 89106, (ii)
granting a subsequent proxy or (iii) appearing in person and voting at the
Special Meeting. Attendance at the Special Meeting will not in and of itself
constitute revocation of a proxy.
The affirmative vote of Partners holding a majority interest in the
profits of "Z" Leasing is required to approve and adopt the "Z" Leasing
Contract and the "Z" Leasing Transaction. If the vote of the Partners, either
in person or by consent, is not unanimous, written notice that the requisite
approval of the "Z" Leasing Transaction has been obtained must be sent by
registered or certified mail to all of the Partners at least 15 days before the
Effective Time.
Any Partner who executes and returns a consent may revoke such consent
at any time prior to the vote at the Special Meeting relating to the "Z"
Leasing Contract and the "Z" Leasing Transaction by (i) executing a subsequent
consent or (ii) appearing in person and voting at the Special Meeting.
Attendance at the Special Meeting will not in and of itself constitute
revocation of a consent.
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<PAGE> 22
OWNERSHIP OF INDUSTRIES COMMON STOCK AND OF "Z" LEASING
There are nine directors on the Industries Board. All of the
Stockholders of Industries and the Partners of "Z" Leasing are members of the
Industries Board. The remaining three members of the Industries Board do not
own Industries Common Stock or "Z" Leasing partnership interests. Accordingly,
as of the Record Date, six of the nine members of the Industries Board owned,
in the aggregate, all of the Industries Common Stock outstanding and entitled
to vote at the Special Meeting and all of the "Z" Leasing partnership interests
entitled to vote at the Special Meeting.
The following table sets forth the beneficial ownership of Industries
Common Stock and partnership interests of "Z" Leasing as of the Record Date.
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF "Z" LEASING
NUMBER OF SHARES INDUSTRIES PARTNERSHIP
NAME OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED COMMON STOCK (2) INTERESTS (2)
------------------------ ------------------ ------------ -----------
<S> <C> <C> <C>
Lloyd K. Benson.......................... 1,666,666 16.67% 16.67%
Duane H. Zobrist......................... 1,666,666 16.67% 16.67%
E. Mark Zobrist.......................... 1,666,666 16.67% 16.67%
Gerry R. Zobrist......................... 1,666,666 16.67% 16.67%
R. Phillip Zobrist(3).................... 1,666,666 16.67% 16.67%
Richard D. Zobrist....................... 1,666,666 16.67% 16.67%
</TABLE>
----------------------
(1) Each beneficial owner is a member of the Industries Board.
(2) Does not total 100.00% due to rounding.
(3) R. Phillip Zobrist serves as President and Chief Executive Officer
of Industries and Valley.
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<PAGE> 23
THE ACQUISITION
The following is a brief summary of certain aspects of the
Acquisition. This summary does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement and the "Z" Leasing Contract,
which are attached to this Information Statement/Prospectus as Exhibits A and
B, respectively, and are incorporated herein by reference.
GENERAL DESCRIPTION OF THE ACQUISITION
At the Effective Time, Industries will be merged with and into JPF
Distributors, Industries will cease to exist as a separate corporation and JPF
Distributors will be the surviving corporation. Following the Merger, Valley
will be operated as a subsidiary of JPF Distributors. In the Merger, each
share of Industries Common Stock then outstanding will be converted into that
number of JP Common Shares determined by dividing the excess of the
Acquisition Purchase Price over the "Z" Leasing Consideration by the Merger
Share Price, and dividing such number by the number of shares of Industries
Common Stock outstanding at the Effective Time. Concurrently with the
consummation of the Merger, JP will acquire all of the assets and assume all of
the liabilities of "Z" Leasing in consideration of the "Z" Leasing
Consideration. The "Z" Leasing Consideration will be payable in JP Common
Shares at the Merger Share Price. No fractional JP Common Shares will be
issued in the Acquisition, and the Stockholders and the Partners will be
entitled to a cash payment in lieu of fractional JP Common Shares as described
under "-- No Fractional Shares."
A description of the relative rights, privileges and preferences of
the JP Common Shares, including certain differences between the rights of
holders of JP Common Shares and Industries Common Stock and "Z" Leasing
partnership interests, is set forth under "DESCRIPTION OF JP CAPITAL STOCK" and
"COMPARISON OF RIGHTS OF STOCKHOLDERS OF INDUSTRIES AND STOCKHOLDERS OF JP."
BACKGROUND OF THE ACQUISITION
The execution of the Merger Agreement and the "Z" Leasing Contract
followed a series of contacts between representatives of JP and representatives
of Industries and "Z" Leasing that extended from November 6, 1995 through
May 17, 1996.
On November 6, 1995, Jourdi deWerd, a Managing Director of Grief &
Co., a financial advisory firm acting on behalf of the Combined Valley Group,
contacted James Miller, Chairman of the Board of Directors, President and Chief
Executive Officer of JP, regarding a potential acquisition by JP of an
unidentified "West Coast" foodservice distributor. Mr. Miller indicated to Mr.
deWerd that JP was not then in a position to consider such an acquisition, but
invited Grief & Co. to contact JP again in early 1996 about the proposed
transaction.
On March 4, 1996, Mr. deWerd contacted JP regarding the acquisition
opportunity. JP entered into a Confidentiality Agreement dated March 4, 1996
with Grief & Co. on behalf of Valley and on March 7, 1996 received a
confidential information memorandum prepared by
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<PAGE> 24
Grief & Co. describing Valley. Included with the memorandum was a supplemental
letter dated March 6, 1996 which described new contracts between Valley and
two casinos, the pending NBC purchase and certain pro forma financial
information.
On March 11, 1996, Lewis Hay, III, Senior Vice President and Chief
Financial Officer of JP, spoke with Mr. deWerd regarding information set
forth in the confidential information memorandum.
On March 15, 1996, Messrs. Miller and Hay met in Las Vegas with Mr.
deWerd and four executive officers of Valley: R. Phillip Zobrist, President
and Chief Executive Officer; Lloyd Neher, Chief Operating Officer; Bradley
Shultis, President-Retail Sales; and Gregory Clow, Chief Financial Officer.
The purpose of the meeting was to discuss Valley's business and business
philosophy and to begin JP's business due diligence concerning Valley. In
connection with the meeting, Messrs. Hay and Miller toured the Valley
distribution center.
Following the March 15, 1996 meeting, Mr. Hay provided Mr. deWerd
with a list of due diligence questions. Mr. deWerd responded to the questions
on March 22, March 25, April 2 and April 23, 1996. Between March 28, 1996
and April 16, 1996, representatives of Smith Barney Inc., an investment banking
firm representing JP, met with representatives of Grief & Co. to discuss the
terms of a potential transaction.
The parties to the Merger Agreement and the "Z" Leasing Contract
executed a letter of intent regarding the Acquisition on April 16, 1996.
On April 24, 1996, representatives of JP and the Combined Valley
Group conferred regarding matters relevant to the qualification of the
Acquisition as a pooling of interests for financial reporting purposes.
On April 25, 1996, Messrs. Miller and Hay and other representatives
of JP presented a summary of the terms of the Acquisition to the Executive
Committee of the Board of Directors of JP.
Due diligence sessions involving senior management of the Combined
Valley Group, JP and their respective counsel and independent public
accountants were conducted in Las Vegas on April 30 and May 1, 1996.
The Merger Agreement was negotiated by the parties on May 14, 15 and
16, 1996.
On May 16, 1996, the Executive Committee of the Board of Directors of
JP reviewed the proposed Merger Agreement and recommended that it be submitted
to the full Board of Directors of JP for its approval. Also on May 16, 1996,
the Industries Board and the Partners of "Z" Leasing approved the Acquisition
and execution of the Merger Agreement.
On May 17, 1996, the Boards of Directors of JP and JPF Distributors
approved the Acquisition and execution of the Merger Agreement.
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<PAGE> 25
On May 17, 1996, the parties to the Merger Agreement executed the
Merger Agreement and JP issued a press release with respect to the Acquisition
and execution of the Merger Agreement.
RECOMMENDATION OF THE INDUSTRIES BOARD OF DIRECTORS; INDUSTRIES' REASONS FOR
THE ACQUISITION
The Industries Board believes that Industries and the Stockholders
will achieve three benefits from the consummation of the Merger. First,
through the Merger, Industries will obtain access to JP's financial strength
and business resources, including its line of signature brands and chain
accounts and vendor relationships, all of which should help Valley's efforts to
expand its sales and customer base in the Las Vegas market. Second, the Merger
will give the Stockholders greater liquidity in their investment. Third, by
investing in a foodservice enterprise conducting business over a wider
geographical area, the Stockholders will be less exposed to the risk of
downturns in the Las Vegas economy.
THE INDUSTRIES BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND MERGER.
"Z" LEASING'S REASONS FOR THE ACQUISITION
"Z" Leasing executed the "Z" Leasing Contract because its principal
business activity is leasing to Valley its distribution facility, and because
the Partners are also the Stockholders of Industries, the sole stockholder of
Valley.
The rights of the Partners with respect to their interests in "Z"
Leasing are governed by applicable Nevada law, including the Nevada Uniform
Partnership Act (the "Partnership Act") and by the "Z" Leasing partnership
agreement among the Partners (the "Partnership Agreement"). Neither the
Partnership Act nor the Partnership Agreement requires that any action by
Partners with respect to "Z" Leasing be taken pursuant to the recommendation of
a Partner. Accordingly, no recommendation with respect to the "Z" Leasing
Transaction is being made to the Partners in this Information
Statement/Prospectus.
JP'S REASONS FOR THE ACQUISITION
JP is entering into the Acquisition as part of its business strategy
to supplement internal growth with a program of strategic acquisitions. JP
believes that it can reduce the operating expenses and enhance the sales and
profit margins of an acquired business by providing the acquired business with
access to its information systems, centralized purchasing operations and broad
product line and value-added services. Pursuant to this strategy, in the
second quarter of fiscal 1996 JP acquired for approximately $6 million certain
inventory, accounts receivable and customer lists of a Pennsylvania-based
institutional foodservice business, and in the fourth quarter of fiscal 1995,
JP acquired for approximately $2.9 million a Pittsburgh, Pennsylvania-based
foodservice distribution company specializing in custom-cut meat products,
frozen seafood and other complementary canned, dry and frozen food products.
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<PAGE> 26
The Board of Directors of JP believes that the Acquisition is in the
best interests of JP and JP's shareholders. Valley is the largest private
foodservice distributor based in the Las Vegas, Nevada area, which JP believes
to be one of the fastest growing foodservice markets in the country. JP
further believes that the Acquisition will establish the basis for JP's future
growth in the western region of the United States.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION; EMPLOYMENT AGREEMENTS
In considering the Acquisition, the Stockholders and the Partners
should be aware that certain members of Industries' management, the Industries
Board and a Partner of "Z" Leasing have certain interests in the Acquisition
that are in addition to the interests of Stockholders and Partners generally.
The Industries Board and "Z" Leasing were aware of these interests and
considered them in evaluating whether to approve the Acquisition and, in the
case of the Industries Board, to recommend to the Stockholders approval of the
Merger Agreement and the Merger.
Duane H. Zobrist, a Stockholder, member of the Industries Board and a
Partner, is a partner in the law firm of Carlsmith Ball Wichman Case & Ichiki,
counsel to Industries, Valley and "Z" Leasing. See "LEGAL MATTERS."
The current executive officers of Industries or Valley are parties to
employment agreements with either Industries or Valley, each of which is
expected to be terminated at the Effective Time. Effective at the Effective
Time, Valley, which will be operated as a subsidiary of JPF Distributors
following the Merger, will enter into employment agreements (collectively, the
"Employment Agreements") with R. Phillip Zobrist, the President and Chief
Executive Officer of Industries, and with six other individuals, each of whom
is currently an executive officer of Valley (the "Executives"). The execution
and delivery of the Employment Agreements are a condition to the obligations of
JP and JPF Distributors to consummate the Acquisition. The Employment
Agreement with Mr. Zobrist is intended to be comparable to his existing
compensation arrangement with Industries and to other employees of JPF
Distributors in a similar position. The six other Employment Agreements are
intended to provide compensation arrangements similar to such Executives'
current arrangements with Valley or Industries.
Term and Compensation. Each of the Employment Agreements provides
that during the term of the Agreement, the Executive will receive an annual
salary and be permitted to participate in (i) the annual bonus program
available to other officers of Valley and of JPF Distributors, based upon the
actual performance of Valley, (ii) any hospitalization or disability insurance
plans, health programs, pension plans, bonus plans or similar benefits
(including the JP 1994 Stock Incentive Plan) that may be available to other
executives of Valley and JP of comparable position and responsibility, to the
extent the Executive is eligible under the terms of such plans or programs, and
(iii) an automobile allowance and reimbursement for automobile oil and gasoline
expenses. Mr. Zobrist's annual salary will be $131,000, and his Employment
Agreement is for a term of three years. The six other Employment Agreements
provide for salaries comparable to each Executive's salary with Valley and
are for three year terms.
Termination. The Employment Agreements terminate on the date of the
Executive's death or by Valley on not less than 30 days written notice to the
Executive if the Executive is
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<PAGE> 27
unable to perform substantially and continuously the duties assigned to him for
a period in excess of six consecutive months or non-consecutive months out of
any consecutive 12-month period. The Employment Agreements also may be
terminated by Valley for "cause" at any time within 30 days of the occurrence
of an event which constitutes "cause." "Cause" is defined in the Employment
Agreements to mean (i) conviction of the Executive of a felony or any crime
involving Valley (other than pursuant to actions taken at the direction or with
the approval of Valley's board of directors) or (ii) a determination by the
Valley board of directors that the Executive engaged in (A) willful and
repeated failure to perform his duties under the Employment Agreement or gross
neglect with respect thereto, in each case at least 30 days after notice to
the Executive of the offending conduct and failure of the Executive to cure
such conduct, if curable, (B) fraud, (C) misappropriation, (D) embezzlement in
the performance of his duties under the Employment Agreement, or (E) acts
evidencing moral turpitude of such level as substantially to interfere with the
Executive's ability to perform his duties under the Employment Agreement. The
Employment Agreements may be terminated by the Executive with or without cause
on the part of Valley, which is defined in the Employment Agreement as a
material breach by Valley of any material provision of the Employment
Agreement, which, if curable remains uncured for 30 days following written
notice of such breach to Valley from the Executive. If terminated by the
Executive for cause, all compensation and benefits earned or accrued under the
Employment Agreement up to the date of termination will continue for the
balance of the term without deduction of compensation the Executive may receive
from other sources.
Covenants and Agreements. The Employment Agreements also contain
covenants and agreements of the Executive, including that (i) during the term
and for three years thereafter, the Executive will not compete, directly or
indirectly, with Valley in any state where Valley or any of its affiliates is
then conducting business, (ii) during the term and thereafter, the Executive
shall keep secret and retain in strictest confidence confidential information
relating to Valley, its business and its affiliates, and (iii) for three years
following termination of the Employment Agreement, the Executive shall not,
without the Valley's prior written consent, directly or indirectly (A) solicit
or encourage any employee of Valley or its affiliates to leave such employment
or hire any employee who has left the employment of Valley or its affiliates
within one year of termination of such employee's employment with Valley or its
affiliates, or (B) on behalf of the Executive or any entity, business or person
other than Valley, contact, solicit or sell to any of the customers or
prospective customers of Valley with which the Executive had contact while
employed by Valley, with respect to any product or service which is competitive
with any product or service sold by Valley or any of its affiliates or planned
to be sold by Valley or any of its affiliates during the Executive's employment
with Valley or during the one year period following his termination.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, which is attached to this
Information Statement/Prospectus as Exhibit A and is incorporated herein by
reference.
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<PAGE> 28
The Merger Agreement provides for the amount of JP Common Shares to be
received by both Industries and "Z" Leasing in connection with the Merger and
the "Z" Leasing Transaction, respectively. If, between May 17, 1996 and
the Effective Time, the issued and outstanding JP Common Shares are changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, reorganization, split-up, combination,
exchange of shares or readjustment, or a stock dividend or other extraordinary
distribution (other than a nonliquidating cash dividend) is declared with a
record date within such period, the Merger Share Price and the number of JP
Common Shares into which Industries Common Stock are to be converted in
connection with the Merger will be correspondingly adjusted after negotiations
conducted in good faith and promptly concluded among the parties to the Merger
Agreement.
The Stockholders are parties to the Merger Agreement for purposes of
joining with Industries and Valley in making certain representations,
warranties and covenants and assuming certain indemnification obligations as
provided in the Merger Agreement.
Acquisition Purchase Price. The Acquisition Purchase Price is
approximately $42.5 million, subject to adjustment for actual acquisition fees
as described below, and will be payable in approximately 2,022,941 JP Common
Shares valued at the Merger Share Price. The Acquisition Purchase Price was
determined based in part upon the amount of indebtedness, including Projected
Acquisition Fees of approximately $4.1 million of the Combined Valley Group,
that JP expected, as of the date of the Merger Agreement, to assume upon
consummation of the Acquisition. The Projected Acquisition Fees consist of
projected real estate closing costs, investment banking fees, attorneys' fees,
accounting fees and other transaction costs that will be incurred by the
Combined Valley Group in connection with the Acquisition. At the Closing,
Industries and Valley will certify to JP the Actual Acquisition Fees that were
incurred by the Combined Valley Group in connection with the Acquisition.
Because JP will assume indebtedness of the Combined Valley Group in connection
with the Acquisition, and such indebtedness will include the Actual Acquisition
Fees, to the extent that the Actual Acquisition Fees exceed the Projected
Acquisition Fees, the amount of indebtedness to be assumed by JP will increase
and the number of JP Common Shares issuable to the Stockholders and the
Partners will decrease by an amount equal to the amount of such excess based on
the Merger Share Price. To the extent that the Actual Acquisition Fees are less
than the Projected Acquisition Fees, the amount of indebtedness to be assumed
by JP will decrease and the number of JP Common Shares issuable to the
Stockholders and the Partners will increase by an amount equal to the amount of
such difference divided by the Merger Share Price. Accordingly, any adjustment
to the Acquisition Purchase Price as a result of a difference between the
Actual Acquisition Fees and the Projected Acquisition Fees will change the
form, but not the amount, of the overall consideration (including assumption of
indebtedness by JP) to be received by the Combined Valley Group.
Representations and Warranties. The Merger Agreement contains various
representations and warranties relating to, among other things, the following:
(i) matters relating to the organization and corporate qualification of JP,
JPF Distributors, Industries and Valley; (ii) the capital structure of JP,
Industries and Valley; (iii) for each of JP, JPF Distributors, Industries and
Valley, the authorization, execution, delivery and performance of the Merger
Agreement and related matters; (iv) for each of JP, JPF Distributors,
Industries and Valley, the absence of conflicts
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<PAGE> 29
with such company's charter and by-laws and the absence of violations of any
agreements or court or administrative orders which would have a material adverse
effect on the business of such company, or as to which required consents or
waivers have not been obtained prior to the closing date of the Acquisition (the
"Closing Date"); (v) the accuracy of specified information to be provided by JP
in the registration statement of which this Information Statement/Prospectus
forms a part; (vi) the ownership of Industries Common Stock, Valley common stock
and "Z" Leasing partnership interests; (vii) the title to assets of Industries,
Valley and "Z" Leasing; (viii) the absence, since January 31, 1996, of certain
events or changes relating to the business or financial condition of Industries
or Valley; (ix) the absence of material undisclosed liabilities of Industries
and Valley; (x) certain matters relating to property owned, leased or used by
Industries, Valley and "Z" Leasing; (xi) certain matters relating to
Industries', Valley's and "Z" Leasing's ownership of and right to use
intellectual property; (xii) certain matters relating to material contracts of
Industries, Valley and "Z" Leasing; (xiii) labor union membership of Industries
or Valley employees and involvement of such employees in any union
organizational activity; (xiv) compliance by Industries and Valley with the
Employee Retirement Income Security Act of 1974 ("ERISA"); (xv) certain matters
relating to litigation against Industries and Valley; (xvi) maintenance of
insurance by Industries, Valley and "Z" Leasing; (xvii) compliance by Industries
and Valley with applicable laws and the possession of necessary permits and
licenses; (xviii) absence of any agreement not to compete to which Industries
or Valley is subject or under which either company is a beneficiary; (xix)
maintenance and disposition of assets by Industries and Valley; (xx) certain
matters involving purchase orders, sales contracts and commitments of Industries
and Valley relating to customers and suppliers of Industries and Valley; (xxi)
compliance by Industries, Valley and "Z" Leasing with environmental laws and
regulations; and (xxii) certain matters relating to the tax returns and tax
liabilities of Industries and Valley.
Certain Covenants. Pursuant to the Merger Agreement, Industries and
Valley have agreed that, among other things, each such company will do the
following during the period between May 17, 1996, the date of the Merger
Agreement, and the Effective Time: (i) operate its business only in the normal
course and consistent with past practice; (ii) use all reasonable efforts to
preserve intact its business organization and goodwill; (iii) use all
reasonable efforts to keep available the services of its key officers and
employees; (iv) use all reasonable efforts to maintain its relationships with
significant customers, suppliers and others having business dealings with it;
(v) not amend its articles of incorporation or by-laws; (vi) not issue, sell
or redeem any of its securities; (vii) other than as specified, not declare
any dividends with respect to Industries Common Stock or Valley common stock;
(viii) except for the acquisition of Baird's Bread Company, a Nevada
corporation doing business as Nevada Baking Company ("NBC"), not make any
acquisitions or dispositions; (ix) not incur any indebtedness other than in
the ordinary course of business or guarantee any such indebtedness other than
in connection with construction of a specified facility or the acquisition of
NBC; (x) except for certain payments and bonuses, not grant compensation or
bonuses other than as specified; (xi) not amend or enter into new benefit
plans or employment agreements; and (xii) provide JP and JPF Distributors
reasonable access to its properties, books, contracts and records.
JP, JPF Distributors, Industries and Valley each have agreed (i) to
cooperate in connection with filings, submissions and responses under the
Hart-Scott-Rodino Antitrust
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<PAGE> 30
Improvements Act of 1976, as amended (the "HSR Act"), and (ii) to refrain from
taking any action that could result in the Acquisition not being accounted for
as a pooling of interests for financial reporting purposes.
JP has agreed that if the Closing occurs on or after August 31, 1996,
it will cause to be filed with the Commission a Current Report on Form 8-K at
the end of the first monthly accounting period which is at least 30 days after
the Effective Time, and that the report will contain at least 30 days of
combined post-Merger results of operations for JP, Industries, Valley and "Z"
Leasing.
Conditions to the Merger Agreement. The obligations of JP and JPF
Distributors on the one hand and of Industries and Valley on the other hand to
consummate the Merger are subject to a number of conditions, including among
others, the following: (i) the truth and correctness of the other parties'
representations and warranties; (ii) the performance by the other parties of
all material agreements and covenants required by the Merger Agreement; (iii)
the expiration or termination of all waiting periods under the HSR Act; (iv)
the absence of an order enjoining or restraining the transactions contemplated
by the Merger Agreement; (v) approval of the Merger Agreement and the Merger
by the Stockholders; (vi) approval of the "Z" Leasing Contract and the "Z"
Leasing Transaction by the Partners; (vii) the effectiveness of, and no stop
order suspending the effectiveness of, the registration statement of which this
Information Statement/Prospectus forms a part; (viii) approval of the JP Common
Shares to be issued in connection with the Acquisition for listing on the
Nasdaq National Market, subject to official notice of insuance; and (ix)
satisfaction of certain conditions set forth in the "Z" Leasing Contract. JP,
Industries and "Z" Leasing made the required filings under the HSR Act on June
25, 1996, and the Federal Trade Commission granted the parties' request for
early termination of the 30-day waiting period under the HSR Act effective on
July 8, 1996.
In addition to the conditions set forth above, the obligations of JP
and JPF Distributors to consummate the Merger are subject to certain other
conditions, including the conditions that: (i) Industries and Valley deliver
to JP and JPF Distributors any consents, waivers, approvals, permits, licenses
or authorizations which if not obtained prior to the Effective Time would have
a material adverse effect on the ability of JPF Distributors to conduct
business as conducted by Industries and Valley at the Effective Time; (ii) the
Executives execute the Employment Agreements; (iii) Valley use its best
efforts to have members of the Valley sales force execute non-competition
agreements; (iv) the Stockholders execute and deliver to JP certain
representation letters; (v) KPMG Peat Marwick LLP, independent public
accountants for Industries, Valley and "Z" Leasing, deliver to JP an opinion
that it is not aware of any circumstance related to such entities that would
prevent the Acquisition from being accounted for as a pooling of interests for
financial reporting purposes and that Price Waterhouse LLP, independent public
accountants for JP, deliver to JP an opinion that the Acquisition will be
accounted for as a pooling of interests for financial reporting purposes; (vi)
there not exist, as of the Closing Date, any event or circumstance that has or
could have a material adverse effect on the financial condition, assets or
prospects of Industries, Valley or "Z" Leasing; (vii) Industries shall have
satisfied in full its obligations under its Incentive Compensation Plan and the
Plan shall have been terminated as of the Closing Date; and (viii) Industries
or Valley (or a subsidiary of either of them) shall have purchased the assets,
properties and business of NBC. A subsidiary of Valley acquired NBC on June
14, 1996.
See
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"INFORMATION CONCERNING INDUSTRIES, VALLEY AND "Z" LEASING -- Recent
Developments."
In addition to the conditions set forth above, the obligation of
Industries and Valley to consummate the Merger is subject to certain other
conditions, including the execution and delivery of an agreement by JP granting
to the Stockholders certain registration rights with respect to JP Common
Shares. Under this agreement, the Stockholders would be entitled to require JP
to register the sale of the Stockholders' JP Common Shares if JP proposes to
register any JP Common Shares, subject to certain conditions.
Termination. Subject to applicable Delaware and Nevada law, the
Merger Agreement may be terminated and abandoned at any time prior to the date
of the Effective Time, whether before or after approval by the Stockholders,
(i) by mutual written consent of all of the parties to the Merger Agreement,
(ii) by Industries, Valley, JPF Distributors or JP if (A) any court of
competent jurisdiction in the United States or any governmental body issues an
order, decree or ruling or takes any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such ruling or other action
is final and nonappealable, or (B) the Merger is not consummated by September
14, 1996, but such right to terminate will not be available to any party whose
failure to fulfill any of its obligations under the Merger Agreement results in
the failure of the Merger to occur on or before such date, (iii) by JPF
Distributors or JP if (A) Industries, Valley or the Stockholders fail to
perform in any material respects their respective obligations under the Merger
Agreement, or "Z" Leasing or the Partners fail to perform in any material
respect their obligations under the "Z" Leasing Contract or (B) any material
representation or warranty of Industries, Valley, the Stockholders or "Z"
Leasing contained in the Merger Agreement or the "Z" Leasing Contract is not
true and correct on and as of the Effective Time, and any such failure shall
not have been cured in a timely manner, or (iv) by Industries or Valley if (A)
JP or JPF Distributors shall have failed to perform in any material respect its
obligations under the Merger Agreement or the "Z" Leasing Contract or (B) any
material representation or warranty of JP or JPF Distributors contained in the
Merger Agreement or the "Z" Leasing Contract is not true and correct on and as
of the Effective Time, and any such failure is not cured in a timely manner.
The Merger Agreement provides that in the event the Merger Agreement
is terminated and abandoned, the Merger Agreement will become void and have no
effect, without any liability on the part of the terminating party or its
affiliates, directors, officers or stockholders, except that if a transaction
is not consummated with JP because of Industries' or "Z" Leasing's
receipt and acceptance of a third-party offer to acquire any of
Industries, "Z" Leasing or NBC, Valley will pay JP a fee of $2 million. No
provision in the Merger Agreement regarding termination relieves any party from
liability for any breach of the Merger Agreement.
Amendment and Waiver. JP, JPF Distributors, Industries, Valley and
the Stockholders may waive any of their respective conditions to effecting the
transactions contemplated by the Merger Agreement, but any such waiver will not
constitute a waiver of any other conditions not so waived. Notice or knowledge
of any matter will not constitute a waiver of any representation or warranty
with respect to such matter.
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No modification, termination or waiver of any part of the Merger
Agreement will be binding upon a party unless it is in writing and executed by
the other parties to the Merger Agreement.
THE "Z" LEASING CONTRACT
The following is a brief summary of certain provisions of the "Z"
Leasing Contract. This summary does not purport to be complete and is
qualified in its entirety by reference to the "Z" Leasing Contract, which is
attached to this Information Statement/Prospectus as Exhibit B and is
incorporated herein by reference.
The "Z" Leasing Contract provides that at the Effective Time, JP will
acquire all of the assets and assume all of the liabilities of "Z" Leasing in
consideration of the "Z" Leasing Consideration, the determination of which is
set forth in the Merger Agreement. The assets of "Z" Leasing include a site of
approximately 20 acres in Las Vegas, Nevada (the "Land"), the office/warehouse
building located on the Land containing approximately 200,000 square feet of
area, the maintenance garage, parking lots and other improvements (the
"Improvements" and collectively with the Land, the "Real Property"), and
personal property owned by "Z" Leasing, including personal property that is a
part of or is used in connection with the Improvements (all of such assets
collectively, the "Property"). The liabilities of "Z" Leasing are principally
indebtedness secured by the Real Property, indebtedness to Valley and notes
payable to certain third parties.
Representations and Warranties. The "Z" Leasing Contract contains
various representations and warranties of "Z" Leasing to JP, with respect to,
among other things, the following: (i) possession by "Z" Leasing of good and
marketable title to the Property; (ii) the right of specified tenants and no
others to occupy the Real Property; (iii) compliance of the Real Property with
applicable laws; (iv) possession by "Z" Leasing of all necessary permits; (iv)
existence of zoning permitting the current uses of the Real Property; (v) the
absence of hazardous materials and compliance with environmental laws; (vi) the
status of leases and subleases of the Real Property; (vii) the status of
assessments for public improvements and utilities; (viii) the organization and
capacity of "Z" Leasing; (ix) the absence of structural, mechanical, physical
or other defects in the Improvements or personal property and compliance of
heating, air conditioning, refrigerating, ventilating, plumbing, life safety
and electrical systems with applicable laws; and (x) the location of the Real
Property outside the 100-year flood plain for Clark County, Nevada.
Certain Covenants. Pursuant to the "Z" Leasing Contract, "Z" Leasing
has agreed that, among other things, it will do the following during the period
between May 17, 1996, the date of the "Z" Leasing Contract, and the Effective
Time: (i) operate the Property according to its usual course of business
consistent with past practices; (ii) maintain the Improvements and personal
property in the condition as they existed as of May 17, 1996; (iii) without the
prior written consent of JP, not enter into any service, supply, construction
or other operating agreement; (iv) without the prior written consent of JP, not
enter into any new lease for the Property or modify any tenant lease; (v)
advise JP promptly of any litigation or arbitration proceeding or any
administrative hearing before any governmental agency which concerns or affects
the Property; (vi) without JP's prior written consent, not permit any further
modifications or additions to the Improvements except as necessary to complete
the current construction work; and (vii) not make
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ordinary or extraordinary distributions to the Partners (except for a
distribution to Partners up to an aggregate amount of $100,000 as adjusted
pursuant to the Merger Agreement), not amend the "Z" Leasing partnership
agreement, or admit new partners or permit any Partner to withdraw or convey
his partnership interest in "Z" Leasing.
Certain Conditions. The obligation of JP to consummate the "Z"
Leasing Transaction is subject to certain conditions, including the conditions
that: (i) there not exist any law, ordinance, rule, regulation, standard or
guideline of any political subdivision exercising jurisdiction over JP or the
Real Property which could have a material adverse effect on the existence or
operation of the Real Property as contemplated; (ii) "Z" Leasing's
representations and warranties are true and correct and "Z" Leasing has
performed all material covenants required to be performed by it; (iii) JP will
have been issued, or will be reasonably satisfied that it will be issued or
able to obtain immediately after the Closing Date, all material permits and
licenses necessary to continue operating the Real Property in the present
manner; (iv) the Merger Agreement has not been permissibly terminated by JP or
JPF Distributors and all of the conditions to the obligations of JP and JPF
Distributors under the Merger Agreement have been satisfied or waived; (v)
there is not in effect any statute, rule, regulation, decree, injunction or
other order of a court or governmental agency directing that the "Z" Leasing
Transaction not be consummated; and (vi) "Z" Leasing shall have delivered to JP
written consents from all necessary and appropriate parties to the obligations
to be assumed by JP.
The obligation of "Z" Leasing to consummate the "Z" Leasing
Transaction is subject to certain conditions, including the conditions that:
(i) JP's representations and warranties are true and correct and JP has
performed all material covenants required to be performed by it; (ii) the
Merger Agreement has not been permissibly terminated by Industries or Valley
and all of the conditions to the obligations of Industries, Valley and/or the
Stockholders the Merger Agreement have been satisfied or waived; (iii) there is
not in effect any statute, rule, regulation, decree, injunction or other order
of a court or governmental agency directing that the "Z" Leasing Transaction
not be consummated; and (iv) the "Z" Leasing Contract has been approved by the
Partners.
Termination. The rights and obligations of the parties with respect
to any termination of the "Z" Leasing Contract are substantially similar to
those pursuant to the Merger Agreement as described above.
CLOSING; EFFECTIVE TIME
The Closing will take place on the day of approval of the Merger
Agreement and the "Z" Leasing Contract at the Special Meeting or on the date on
which the last of the conditions set forth in the Merger Agreement is satisfied
or waived, or at such other time as the parties agree. JP and Industries
anticipate that the Closing will take place on the day of the Special Meeting.
The Merger Agreement provides that the Merger will become effective at the
Effective Time, which is the later of the date and time of the filing of the
Articles of Merger with the Secretary of State of Nevada as required by the
Nevada Law or the date and time of the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware as required by Delaware law or
at such time as is provided in the Articles of Merger or the Certificate of
Merger. Such filings
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will be made as soon as practicable after the Special Meeting. The "Z" Leasing
Contract provides that the "Z" Leasing Transaction will close on the closing
date of the Merger.
EXCHANGE AND TRANSMITTAL OF STOCK CERTIFICATES
Promptly after the Effective Time, The Bank of New York, which serves
as transfer agent for the JP Common Shares and has been designated by JP as the
exchange agent (the "Exchange Agent"), will mail a letter of transmittal (the
"Letter of Transmittal") to each Stockholder. The Letter of Transmittal will
contain instructions for use in surrendering the certificates which
immediately prior to the Effective Time represented Industries Common Stock
(the "Certificates") in exchange for certificates representing JP Common
Shares. See "DESCRIPTION OF JP CAPITAL STOCK." Stockholders should not
submit their certificates for exchange unless and until they have received the
letter of transmittal from the Exchange Agent.
Upon surrender of a Certificate for exchange to the Exchange Agent,
together with the duly executed Letter of Transmittal, the holder of such
Certificate will be entitled to receive in exchange therefor a certificate or
certificates representing the number of JP Common Shares that such holder is
entitled to receive pursuant to the Merger Agreement, plus cash in lieu of
fractional JP Common Shares. All Certificates so surrendered will be
canceled.
If any certificate representing JP Common Shares is to be issued in a
name other than that in which the surrendered Certificate is registered, the
Certificate so surrendered must be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise must be in proper form for
transfer, and the person requesting such exchange must pay the Exchange Agent
any transfer or other taxes required by law, or establish to the satisfaction
of the Exchange Agent that such tax has been paid or is outstanding immediately
prior to Effective Time. If, after the Effective Time, Certificates
representing such shares are presented for transfer to the Exchange Agent or
Industries, they will be canceled and exchanged for certificates representing
JP Common Shares pursuant to the terms of the Merger Agreement.
The Exchange Agent will contact the Partners to arrange the
transmittal to the Partners of certificates evidencing the JP Common Shares
issued with respect to the "Z" Leasing Consideration.
Each JP Common Share issued in connection with the Acquisition will be
deemed to have been issued on the Effective Time.
NO FRACTIONAL SHARES
No certificates or scrip representing fractional JP Common Shares will
be issued in the Acquisition. In lieu of fractional shares, the Exchange Agent
will pay to any holder who would be entitled to a fractional JP Common Share,
upon surrender of such holder's Certificates together with a duly executed
Letter of Transmittal, an amount of cash (without interest) equal to the
product of such fractional interest multiplied by the Merger Share Price.
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RESALES OF JP COMMON SHARES ISSUED IN THE ACQUISITION
The JP Common Shares to be issued in the Acquisition will have been
registered under the Securities Act. Because the Stockholders and the Partners
are considered to be "affiliates" of Industries and "Z" Leasing, respectively,
at the time of the Special Meeting (as such term is defined for purposes of
Rule 145 under the Securities Act, an "Affiliate"), the Stockholders and the
Partners may not sell their JP Common Shares acquired in connection with the
Acquisition except pursuant to (i) an effective registration statement under
the Securities Act covering such shares, (ii) paragraph (d) of Rule 145 or
(iii) any other applicable exemption under the Securities Act (such as Rule
144 under the Securities Act in the case of persons who are or become
Affiliates of JP).
SEC guidelines indicate further that the "pooling of interests" method
of accounting generally will not be challenged on the basis of sales of shares
by Affiliates of the acquiring or acquired company if the Affiliates do not
dispose of more than a minimal number of the shares of the acquiring or
acquired company that the Affiliates own, or shares of a corporation they
receive in connection with the merger, during the period beginning 30 days
before the merger and ending when financial results covering at least 30 days
of post-merger operations of the combined enterprise have been published. It
is a condition to consummation of the Acquisition that the Stockholders and the
Partners have each entered into written agreements containing appropriate
representations and covenants intended to ensure compliance with the Securities
Act and to preserve the ability of JP to account for the Acquisition as a
pooling of interests for financial reporting purposes.
NASDAQ LISTING OF JP COMMON SHARES
The Merger Agreement provides that JP shall use its best efforts to
obtain, prior to the Effective Time, approval for the listing on the Nasdaq
National Market, subject to official notice of issuance, of the JP Common
Shares to be issued in connection with the Acquisition. Such listing approval
is a condition to the parties' obligations to consummate the Acquisition.
REGULATORY MATTERS
Pursuant to the HSR Act, and the rules promulgated thereunder, JP,
Industries and "Z" Leasing each provided the required notifications with
respect to the Acquisition to the Federal Trade Commission and the Antitrust
Division of the U.S. Department of Justice on June 25, 1996. The Federal Trade
Commission granted the parties' request for early termination of the 30-day
waiting period under the HSR Act effective on July 8, 1996.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The following is a general discussion of the principal federal income
tax consequences of the Acquisition. This discussion is based on laws,
regulations, rulings and decisions in effect as of the date of this Information
Statement/Prospectus, all of which are subject to change, retroactively or
prospectively, or possibly differing interpretations. Moreover, no rulings
will be obtained from the Internal Revenue Service (the "IRS") regarding the
federal income tax
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consequences of the Acquisition or any other matters, and neither the opinion
of counsel (referred to below) nor this discussion is binding upon either the
IRS or the courts. Further, this discussion does not purport to deal with the
federal income tax consequences applicable to all categories of investors, some
of which may be subject to special rules, or with state, local or foreign law.
Thus, Stockholders and Partners receiving JP Common Shares in the Acquisition
are urged to consult their own tax advisers as to the particular tax
consequences to them of the Acquisition under federal, state, local, foreign or
other applicable law.
The Merger. Carlsmith Ball Wichman Case & Ichiki, counsel to
Industries, Valley and "Z" Leasing, has rendered an opinion to
the Stockholders to the effect that, among other things, the Merger
will constitute a reorganization within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
Assuming that the Merger constitutes such a reorganization:
1. No gain or loss will be recognized by Industries, Valley, JP
or JPF Distributors as a result of the Merger.
2. No gain or loss will be recognized by any Stockholder solely
on such Stockholder's receipt of JP Common Shares in the Merger
(except to the extent of cash received in lieu of a fractional share
thereof) in exchange for such Stockholder's shares of Industries
Common Shares.
3. Each Stockholder will take a basis for federal income tax
purposes in the JP Common Shares he receives as a result of the Merger
equal to such Stockholder's basis in his Industries Common Stock
surrendered therefor (reduced by an amount allocable to a fractional
share interest for which cash is received).
4. Each Stockholder will have a holding period for federal income
tax purposes with respect to the JP Common Shares he receives as a
result of the Merger that includes such Stockholder's holding period
with respect to the Industries Common Stock surrendered therefor,
provided that such Stockholder held his shares of Industries Common
Stock as capital assets immediately prior to the Effective Time.
5. Each Stockholder receiving cash in lieu of a fractional share
interest generally should be treated as if such Stockholder actually
received such fractional share interest and such interest was
subsequently redeemed by JP. This redemption generally should result
in either (i) capital gain or loss measured by the difference between
the amount of cash received and the portion of the Stockholder's basis
in his Industries Common Stock allocable to the fractional JP Common
Share deemed redeemed or (ii) a dividend in an amount equal to the
amount of cash received, depending, among other things, on the
Stockholder's percentage ownership of JP, including ownership by
attribution.
The foregoing, including the opinion of Carlsmith Ball Wichman Case &
Ichiki, is conditioned upon the accuracy, as of the date hereof and as of the
Effective Time, of certain assumptions, including, but not limited to the
following: (i) the fair market value of the JP Common
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Shares received by each Stockholder will be approximately equal to the fair
market value of the Industries Common Stock exchanged therefor; (ii) JPF
Distributors will acquire at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets held by
Industries immediately prior to the Merger (treating the assets of Industries
used to pay its reorganization expenses or to redeem Industries Common Stock
during the past 36 months as assets held by Industries immediately prior to the
Merger); (iii) JP has no plan or intention to sell and JPF Distributors has no
plan or intention to issue JPF Distributors capital stock if the effect of such
sale or issuance would be to reduce JP's ownership of JPF Distributors capital
stock to an amount that is less than the amount required for JP to be deemed to
be in control of JPF Distributors for purposes of Section 368(a)(2)(D) of the
Code; (iv) JP has no plan or intention to reacquire any of the JP Common Shares
issued as a result of the Merger; (v) JP has no plan or intention to liquidate
JPF Distributors, to merge JPF Distributors with and into another corporation,
to sell or otherwise dispose of the capital stock of JPF Distributors, or to
cause JPF Distributors to sell or otherwise dispose of any of the assets
acquired in the Merger, except for sales or dispositions in the ordinary course
of business or transfers described in Section 368(a)(2)(C) of the Code; (vi)
the liabilities of Industries assumed by JPF Distributors or by JP and the
liabilities to which the transferred assets of Industries are subject were
incurred by Industries in the ordinary course of its business or in connection
with investigating the possible acquisition of Industries by other potential
acquiring parties or are liabilities incurred by Industries in connection with
the Merger, except that JP or JPF Distributors will bear the expense of HSR Act
filings; (vii) after the Merger, JPF Distributors will continue the historic
business of Industries or use a significant portion of the assets of Industries
in a business; (viii) there is no intercorporate indebtedness existing between
JP and Industries or between JPF Distributors and Industries that was issued,
acquired or will be settled at a discount; (ix) the fair market value of the
assets of Industries transferred to JPF Distributors will equal or exceed the
sum of liabilities assumed by JPF Distributors, plus the amount of liabilities,
if any, to which the transferred assets are subject; (x) as of the Effective
Time, the value of the JP Common Shares received by the Stockholders as a
result of the Merger was greater than 50% of the value of all the Industries
Common Stock outstanding immediately prior to the Effective Time (treating
fractional share interests for which cash is received, and stock redeemed
within the past 36 months, as outstanding Industries Common Stock); and (xi)
the Stockholders have no plan or intention to sell, exchange or otherwise
dispose of a number of JP Common Shares received in the Merger that would
reduce the Stockholders' ownership of JP Common Shares to a number of shares
having a value as of the Effective Time of less than 50% of the value of all
the formerly outstanding Industries Common Stock immediately prior to the
Effective Time (treating fractional share interests for which cash is received,
and stock redeemed within the past 36 months, as outstanding Industries Common
Stock).
In the event that the IRS were successfully to assert that a liability
or expense paid by JP or paid or assumed by JPF Distributors in the
Merger (other than a liability or expense solely and directly related to the
Merger) was a liability or expense that primarily benefited the Stockholders,
then such assumption of liability or expense would give rise to tax liability
for the Stockholders.
The "Z" Leasing Transaction. The "Z" Leasing Transaction will be
treated as a taxable sale of assets by "Z" Leasing. As a consequence, each
Partner will recognize gain or loss equal
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to his distributive share of the difference between (a) the fair market value
of the "Z" Leasing Consideration as of the Effective Time (increased by the
amount of any "Z" Leasing liabilities assumed by JP) and (b) "Z" Leasing's
adjusted tax basis in its assets. The Partners of "Z" Leasing will generally
have Code Section 1231 gain with respect to the portion of the gain realized in
the "Z" Leasing Transaction which is allocable to the sale of assets which are
(i) used in "Z" Leasing's trade or business and (ii) are real property held
for more than one year or property of a character subject to the allowance for
depreciation and held for more than one year. Each Partner's distributive
share of "Z" Leasing's Code Section 1231 gain will be combined with such
Partner's other Code Section 1231 gains and losses, and if such Code Section
1231 gains for the taxable year exceed the Partner's Code Section 1231 losses
for the taxable year, such gains and losses will be treated as long-term
capital gains and long term capital losses, as the case may be. However, if
"Z" Leasing has assets as to which certain depreciation or amortization
deductions are allowable or have been allowed, some of the gain realized on
the sale of "Z" Leasing's assets may be taxed as ordinary income. Generally,
there is no such ordinary income recapture for nonresidential real property
placed in service after 1986 if the property has been held for more than one
year. Each Partner's share of gains from the sale of "Z" Leasing's capital
assets which have been held for more than one year would also be long term
capital gains. A Partner's share of gains (if any) from the sale of "Z"
Leasing assets which do not give rise to Code Section 1231 gains, as described
above, or which are not capital assets held for more than one year, would be
taxed as ordinary income. In the case of any gain recognized on "Z" Leasing's
disposition of any installment obligation held by the partnership, the gain
will be considered as resulting from the sale or exchange by "Z" Leasing of the
property for which it received the installment obligation.
Each Partner will increase his basis for federal income tax purposes
in his "Z" Leasing partnership interest by his distributive share of any gain
recognized in the "Z" Leasing Transaction. "Z" Leasing will take a basis for
federal income tax purposes in the JP Common Shares it receives in the "Z"
Leasing Transaction equal to the amount by which the fair market value of the
"Z" Leasing assets as of the Effective Time exceeds the "Z" Leasing liabilities
assumed by JP.
To the extent that JP assumes "Z" Leasing liabilities as part of the
"Z" Leasing Transaction, and such liabilities have been included in the
adjusted tax basis of the Partners in their "Z" Leasing partnership interests
under Section 752 of the Code, each of the Partners will be deemed to have
received a cash distribution equal to his share of the liabilities assumed by
JP. This deemed distribution first will decrease each Partner's adjusted basis
in his "Z" Leasing partnership interest, with any excess being treated as gain
from the sale or exchange of such Partner's interest in "Z" Leasing, even
though no cash distribution will actually be made to such Partner.
No taxable gain or loss will be recognized by JP as a result of the
"Z" Leasing Transaction. JP will take a basis for federal income tax purposes
in the "Z" Leasing assets equal to its cost under Section 1012 of the Code.
ACCOUNTING TREATMENT
JP and the Combined Valley Group believe that the Acquisition will
qualify as a "pooling of interests" for financial reporting purposes as it
relates to attributes of each member of the Combined Valley Group. The pooling
of interests method is intended to present
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as a single interest two or more common shareholder interests which were
previously independent. The pooling of interests method assumes that the
combining companies have been merged from inception. Consequently, the
historical financial statements for periods prior to the consummation of the
combination are restated as though the companies had been combined. See "JP
AND THE COMBINED VALLEY GROUP UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS."
It is a condition to the obligation of JP to consummate the
Acquisition that it receive an opinion from KPMG Peat Marwick LLP, independent
public accountants for Industries, Valley and "Z" Leasing, that it is not aware
of any circumstance related to such entities that would prevent the Acquisition
from being accounted for as a pooling of interests for financial reporting
purposes, and an opinion from Price Waterhouse LLP, independent public
accountants for JP, that the Acquisition will be accounted for as a pooling of
interests for financial reporting purposes. See "-- The Merger Agreement --
Conditions to the Merger."
DISSENTERS' RIGHTS
A Stockholder who complies with the provisions of Chapter 92A of the
Nevada Revised Statutes ("NRS") has the right to receive payment for his
Industries Common Stock instead of receiving JP Common Shares. The following
summary of the provisions of Chapter 92A is not intended to be a complete
statement of such provisions and is qualified in its entirety by reference to
the full text of Chapter 92A, a copy of which is attached to this Information
Statement/Prospectus as Exhibit C.
Stockholders of a Nevada corporation have the right, in certain
circumstances, to dissent from certain corporate actions, including the
consummation of a plan of merger by a Nevada corporation which requires the
approval of such corporation's stockholders. Stockholders who are entitled to
dissent are also entitled to obtain payment in the amount of the fair value of
their shares.
Pursuant to Section 92A.410 of NRS, the notice of the Special Meeting
must state that the Stockholders are or may be entitled to dissenters' rights
under Sections 92A.300 to 92A.500 of NRS and be accompanied by a copy of those
sections. A Stockholder who wishes to assert dissenters' rights must (i)
deliver to Industries, before the vote is taken at the Special Meeting, written
notice of his intent to demand payment for his Industries Common Stock if the
Merger Agreement is effectuated, and (ii) not vote his shares in favor of the
Merger Agreement. A Stockholder failing to satisfy these requirements will not
be entitled to dissenters' rights under Chapter 92A. JPF Distributors (the
"Subject Corporation") must send a written dissenter's notice (the "Dissenter's
Notice") within ten days of effectuation of the Merger Agreement to all
Stockholders who satisfied these requirements. The Dissenter's Notice must
include (i) a statement of where the demand for payment is to be sent and
where and when certificates for Industries Common Stock are to be deposited;
(ii) a statement informing the holders of Industries Common Stock not
represented by certificates to what extent the transfer of such shares will be
restricted after the demand for payment is received; (iii) a form for
demanding payment that requires the Stockholder asserting the dissenters'
rights to certify whether or not he acquired beneficial ownership of the shares
before the date when the terms of the merger were announced to the news media
or the Stockholders (the "Announcement Date"); (iv) a date by which the
Subject
- 21 -
<PAGE> 40
Corporation must receive the demand for payment, which may not be less than 30
or more than 60 days after the date the Dissenter's Notice was delivered; and
(v) a copy of Sections 92A.300 to 92A.500 of NRS.
A Stockholder who wishes to obtain payment for his Industries Common
Stock must demand payment, certify whether he acquired beneficial ownership of
his Industries Common Stock before the Announcement Date, and deposit his
Certificates, if any, in accordance with the terms of the Dissenter's Notice.
A Stockholder for whom dissenters' rights are asserted will retain all other
rights of a Stockholder until those rights are canceled or modified by the
Merger. The Subject Corporation may restrict the transfer of any shares not
represented by a certificate from the date the demand for payment is received.
Pursuant to Section 92A.440 of NRS, a Stockholder who fails to demand payment
or deposit his certificates where required by the dates set forth in the
Dissenter's Notice will not be entitled to payment for his shares as provided
under Chapter 92A.
Pursuant to Section 92A.460 of NRS, within 30 days of receipt of a
demand for payment, the Subject Corporation will pay each dissenter who became
beneficial owner of their Industries Common Stock prior to the Announcement Date
and complied with Section 92A.440 of NRS the amount that the Subject
Corporation estimates to be the fair market value of his shares, plus accrued
interest. The payment must be accompanied by (i) copies of the Subject
Corporation's balance sheet, statement of income, and statement of changes in
shareholder's equity; (ii) a statement of the Subject Corporation's estimate
of the fair market value of the shares; (iii) an explanation of how the
interest was calculated; (iv) a statement of the dissenter's rights to demand
payment under Section 92A.480 of NRS; and (v) a copy of Sections 92A.300 to
92A.500 of NRS.
Pursuant to Section 92A.470 of NRS, the Subject Corporation may elect
to withhold payment from dissenters who became the beneficial owners of their
shares on or after the Announcement Date. After consummation of the Merger,
however, the Subject Corporation is required to estimate the fair value of such
shares, plus accrued interest, and offer to pay this amount to each dissenter
in full satisfaction of his demand. The Subject Corporation will send this
offer with a statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated and a statement of the
dissenter's rights to demand payment under Section 92A.480 of NRS.
Pursuant to Section 92A.480 of NRS, a dissenter who believes that the
amount paid pursuant to Section 92A.460 of NRS or offered pursuant to Section
92A.470 of NRS is less than the full value of his shares or that the interest
due is incorrectly calculated, may, within 30 days after the Subject
Corporation made or offered payment for his shares, either (i) notify the
Subject Corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due and demand payment of his estimate less
any payments made under Section 92A.460 of NRS, or (ii) reject the offer for
payment made by the Subject Corporation under Section 92A.470 of NRS and demand
payment of the fair value of his shares and interest due.
If a demand for payment remains unsettled, the Subject Corporation
must commence a court proceeding within 60 days after receiving a demand and
petition the court to determine the fair value of the shares and accrued
interest. All dissenters whose demands remain unsettled
- 22 -
<PAGE> 41
would be made a party to such proceeding. Each dissenter is entitled to a
judgment for the fair value of his shares, plus accrued interest, less any
amount paid pursuant to Section 92A.460 of NRS. The court would assess the
costs of the proceedings against the Subject Corporation unless the court finds
that all or some of the dissenters acted arbitrarily, vexatiously or not in
good faith in demanding payment, in which case the court may assess the costs
in the amount the court finds equitable against some or all of the dissenters.
The court may also assess the fees and expenses of the counsel and experts for
the respective parties, in the amount the court finds equitable, against the
Subject Corporation or the dissenters. If the Subject Corporation does not
commence a proceeding within the 60 day period, it must pay each dissenter
whose demand remains unsettled the amount demanded.
Each Stockholder owns approximately 16.67% of the Industries Common
Stock and of the partnership interests in "Z" Leasing. To qualify as a pooling
of interests for financial reporting purposes, not more than a "de minimis"
amount of the consideration paid in the combination may be in cash. "De
minimis" is interpreted to be not more than 10% of the shares issued in the
combination, and includes, but is not limited to, cash paid upon the exercise
of dissenters' rights and cash paid for fractional shares. BECAUSE OF THE SIZE
OF THE INTERESTS HELD BY EACH STOCKHOLDER IN INDUSTRIES AND EACH PARTNER IN "Z"
LEASING, A PAYMENT TO A STOCKHOLDER PURSUANT TO THE DISSENTERS' RIGHTS
PROVISIONS OF NRS WOULD CAUSE THE ACQUISITION TO BE DISQUALIFIED FROM BEING
TREATED AS A POOLING OF INTERESTS FOR FINANCIAL REPORTING PURPOSES, WHICH, IN
TURN, WOULD CAUSE ONE OF THE CONDITIONS TO JP'S OBLIGATION TO CONSUMMATE THE
ACQUISITION TO BE UNSATISFIED. THEREFORE, UNLESS JP WERE TO WAIVE THIS
CONDITION, THE EXERCISE OF DISSENTERS' RIGHTS BY ANY STOCKHOLDER WILL
EFFECTIVELY CONSTITUTE DISAPPROVAL OF THE ACQUISITION. See "THE ACQUISITION --
The Merger Agreement -- Conditions to the Merger Agreement" and " -- Accounting
Treatment."
OPERATIONS AFTER THE ACQUISITION
At the Effective Time, Industries will be merged with and into JPF
Distributors, and JPF Distributors, as the surviving corporation in the Merger,
will continue as a wholly-owned subsidiary of JP. Following the Merger, Valley
will be operated as a wholly-owned subsidiary of JPF Distributors, and will
continue to use the distribution facility previously leased from "Z" Leasing in
connection with its foodservice distribution business. The current officers
and directors of Valley will continue to be officers and directors of Valley at
the Effective Time.
INFORMATION CONCERNING JP
GENERAL
JP is a 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. JP was
incorporated under the name JPF Holdings, Inc. under the laws of the State of
Delaware on June 22, 1989 and 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. JP completed its
initial public offering of Common Stock in November 1994 as part of a
recapitalization plan. JP conducts business through three wholly-owned
operating subsidiaries, including JPF Distributors, and had approximately 2,600
employees at May 31, 1996. JP's principal executive offices are located at
9830 Patuxent Woods Drive, Columbia, Maryland 21046 and its telephone number is
(410) 312-7100.
RECENT DEVELOPMENTS
Arrow Acquisition. On July 17, 1996, JP entered into a definitive
agreement to purchase Arrow Paper and Supply Co., Inc. (together with its
affiliates, "Arrow"), a broadline distributer 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, JP has agreed to assume
certain liabilities of Arrow and to pay $29.6 million (subject to adjustment).
Of such consideration, approximately $1.7 million will be paid in the form of JP
Common Shares and the remainder will be paid in cash. Consummation of the Arrow
Acquisition, which is subject to satisfaction of certain conditions (including
the obtaining of financing by JP), is currently expected to occur on or before
August 31, 1996.
Offering. On July 1, 1996, JP filed with the SEC a Registration
Statement on Form S-3 under the Securities Act to register on offering of up to
3,000,000 JP Common Shares (excluding 450,000 shares to cover over-allotment
options, if any) (the "Offering"). The net proceeds of the Offering are
primarily expected to be used to repay indebtedness to the assumed by JP in
connection with the Acquisition and the Arrow Acquisition and to fund the cash
portion of the Arrow Acquisition. The balance of the net proceeds will be used
for working capital and other general corporate purposes.
- 23 -
<PAGE> 42
Additional information concerning JP is contained in JP's Annual
Report on Form 10-K for the fiscal year ended July 1, 1995, its Quarterly
Reports on Form 10-Q for the fiscal quarters ended September 30, 1995, December
30, 1995 and March 30, 1996, and its Current Reports on Form 8-K 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 and
July 17, 1996. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
INFORMATION CONCERNING INDUSTRIES, VALLEY AND "Z" LEASING
GENERAL
Valley is a leading institutional food service distributor located in
the Las Vegas, Nevada area. Industries is the parent company and sole
stockholder of Valley. Valley leases from "Z" Leasing a distribution center
located on a site of approximately 20 acres in downtown Las Vegas. At May 31,
1996, Valley had approximately 440 employees. Its principal executive offices
are located at 300 W. Bonanza Road, Las Vegas, Nevada 89106 and its telephone
number is (702) 380-5555.
BUSINESS
Valley's business includes (i) broadline and limited menu grocery,
(ii) bread and baked goods and (iii) transportation and brokerage.
Broadline and Limited Menu Grocery. Since entering the institutional
foodservice distribution business in 1965, Valley has expanded its product line
to include all major categories of broadline grocery products. Valley carries
approximately 4,000 different stock keeping units ("SKUs") encompassing canned
and dry food products, fresh meats, poultry and other "center-of-the-plate"
entree selections, frozen foods, fresh produce, dairy and other refrigerated
products. Valley also offers paper products, disposable eatingware (e.g.,
napkins, plates, cups, utensils), cleaning supplies and other nonfood items, as
well as coffee and beverage equipment, supplies and service. Principal
customers include hotel-casinos such as Mirage, Excalibur, Treasure Island,
Luxor, Circus Circus, Rio and the Flamingo Hilton. Major chain accounts
include Fat Burger, Kenny Rogers' Roasters, Outback Steakhouse, Subway and
Wendy's.
Bread and Baked Goods. Since its formation in 1955, Valley has served
as a distributor of bakery products. Valley now carries over 700 bread and
bakery items and is the exclusive Clark County, Nevada distributor for the
leading brands in white bread (Wonder), specialty breads (Oroweat), snack cakes
(Hostess) and gourmet cakes (Entemann's). Valley also distributes Sanborn
sourdough breads, DiCarlo French breads and several other brand name breads and
baked goods.
Valley serves both the retail and institutional markets for bread and
baked goods. In the fiscal year ended January 31, 1995, retail accounts,
which include supermarkets, convenience
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<PAGE> 43
stores, and discount "club" stores, constituted approximately 70% of Valley's
bread sales. Among the Valley's customers are Las Vegas' four largest
supermarket chains: Albertson's (17 stores); Lucky's (21 stores); Smith Food
King (11 stores) and Von's (16 stores). Together, these four chains represent
almost 45% of all retail bread and baked goods sold in Las Vegas. In addition,
Valley sells to all of Las Vegas' large "club" stores as well as most of its
over 300 convenience stores. Institutional accounts consist primarily of
hotels, casinos and chain restaurants as well as independent restaurants.
Approximately 350 institutions purchasing bread and bakery products from Valley
also purchase groceries from Valley.
Transportation and Brokerage. Valley vehicles pick up the majority of
its grocery products (and substantially all of its bread) purchased outside Las
Vegas. At May 31, 1996, Valley owned or operated under long-term capital or
operating leases approximately 60 tractors and trailers and provided
transportation and brokerage services to approximately 300 customers.
By employing its own fleet of trucks rather than relying on common
carriers, Valley incurs lower inbound freight costs while also ensuring timely
and efficient delivery to its own customers. Valley estimates that its total
inbound freight costs are approximately 6% lower than common carrier rates. In
addition, Valley's drivers check orders for accuracy and completeness at the
supplier's dock as goods are loaded onto the truck, enabling any incorrect or
incomplete orders to be corrected in time to meet scheduled deliveries.
Valley also generates revenues from "back-hauling" third-party freight
from Las Vegas while en route to picking up bakery and grocery inventory
purchased from out-of-town suppliers. Since 1992, Valley has also brokered
loads for others to increase efficient use of its vehicle fleet.
CUSTOMERS
Valley has developed a broad base of customers in all major market
segments for institutional foodservice distribution, including casinos, hotels,
traditional restaurants, multi-unit "chain" restaurants, schools, hotels,
cafeterias, hospitals, supermarkets and convenience stores.
Valley's low cost structure and local, full-service capabilities have
enabled it to expand its grocery customer base from approximately 1,100 grocery
customers in fiscal 1992 to approximately 2,200 in fiscal 1995. New customers
in fiscal 1995 included four major hotels and casinos, Las Vegas' largest
sports arena and six new locations opened by three of Valley's limited-menu
chain accounts.
FACILITIES
The Valley distribution center, completed in April 1991, is a
warehouse containing dry, refrigerated and frozen storage areas, loading docks,
and office space housing Valley's executive management, purchasing, sales,
marketing and administrative functions. The facility is situated on a
lot in downtown Las Vegas, which is in proximity to many of Valley's
customers.
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<PAGE> 44
The facility currently utilizes 41 loading docks for dry, canned
groceries and/or refrigerated and frozen goods. Valley has 70 smaller loading
docks on the opposite side of the building used by the bread division.
The building was designed and sited to facilitate a buildout of either
dry or cold storage capacity as needed and to provide flexibility to respond to
changing market demands. The refrigerated and frozen storage areas are
adjacent to one another and comprise separate, temperature-controlled
compartments. These compartments can be reconfigured to achieve different
combinations of refrigerated and frozen storage capacities. Loading docks can
be added in either direction by extending the facility outward from its
position at the center of the site.
Bread operations and certain parking areas may be relocated to provide
substantial additional space which can be converted into either dry or cold
storage (or a combination thereof). Bread loading docks have been positioned
to permit "cross-docking" of inventories, so that as bread arrives at the
facility it is unloaded and immediately loaded on to bread trucks for delivery
to customers. This cross-docking results in a substantial saving in both
warehouse space as well as time spent loading and unloading trucks.
Valley leases its distribution facility, vehicle garage, fueling
station and underlying site of approximately 20 acres from "Z" Leasing. Under
the lease, Valley is responsible for payment of insurance, property taxes and
maintenance costs. The base annual rent for the facility is subject to annual
adjustments indexed to changes in the Consumer Price Index.
VEHICLE FLEET
At May 31, 1996, Valley operated approximately 290 separately licensed
pieces of transportation equipment. The average age of Valley's over-the-road
tractors is five years and the average age of Valley's other vehicles is
approximately ten years. Most vehicle fueling, maintenance and repair is
performed at the on-site garage and fueling station by Valley maintenance
personnel.
MARKETS AND MARKETING
The Las Vegas Market. Valley generates the substantial majority of
its sales (over 85% in fiscal 1995) from the Clark County area, which, in
addition to Las Vegas, includes Laughlin, Henderson, Lake Mead and Mesquite.
Clark County's population currently exceeds 1,000,000 residents. Its principal
city, Las Vegas, is the fastest-growing metropolitan area in the United States,
based on published statistics.
Clark County's tourist population has experienced significant annual
growth in recent periods and the tourist growth is expected to continue. Nine
new major hotel-casinos, as well as numerous smaller gaming and hospitality
venues, are scheduled to open in Las Vegas during the next four years.
Due to the large number of tourists, Las Vegas is suited to benefit
from the increasing number of meals being eaten away from home. Casinos
historically have used meals as a means
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<PAGE> 45
to attract customers. The trend toward eating meals away from home, combined
with a wide array of inexpensive alternative eateries made available to local
residents and tourists by the area's casinos, represent a growth prospect for
foodservice distributors such as Valley.
Marketing Strategy. Valley's marketing strategy is to provide
superior service and a wide selection of "core," high-volume broadline products
to large-volume institutional foodservice customers at competitive prices.
Accordingly, Valley targets large-volume foodservice customers in its local
markets who prefer or require same-day delivery, fresh produce, reliably cold
refrigerated and frozen goods, and consistent service.
Advertising and Promotion. Valley utilizes its direct sales force to
communicate directly with existing and potential new customers regarding
products and value-added service capabilities. Valley does not advertise
through print or other media, but instead uses sales promotions to increase
sales to existing customers. Customer-driven promotions are used to increase
sell-through, while "product-driven" promotions are used to sell slow-moving
inventory. These promotions are administered directly by Valley's sales force.
Valley's bread and baked goods suppliers typically make available
advertising allowances, slotting fees and other sales incentives directly to
Valley's customers. Valley takes no part in these programs and makes no
payments to customers.
EMPLOYEES
Sales Force. At May 31, 1996, broadline marketing activities were
conducted primarily by 37 sales representatives. Of these sales
representatives, 27 "outside" salespersons focused primarily on generating new
account sales, while ten "inside" salespeople managed ongoing customer
relations and focused on achieving further penetration of existing accounts.
All sales personnel service customers, accept and process orders, review
account balances and disseminate new product information.
Valley also employs a separate sales and marketing staff to solicit
and manage relationships with multi-unit, limited menu accounts such as
fast-food restaurant chains. In addition to soliciting orders, sales personnel
are trained to advise customers on menu selection, merchandising techniques,
unit cost controls and other operating procedures geared to these customers'
high-volume, high-service and often exacting demands. Valley provides its
limited menu customers with full-service ordering, delivering, stocking and
inventorying of all items. Valley sales representatives are given keys to some
clients' facilities and generally make deliveries at night during periods of
slow customer traffic. Usage reports and invoices are generated, providing
customers with data and assisting Valley in processing and collecting
receivables. Valley's "door-to-door" service allows customers to focus their
resources on core activities.
Valley does business with certain large hotel and casino chains under
a special corporate sales program, under which Valley services some or all of
the customer's locations throughout the state of Nevada, providing a limited
menu of items at a discounted price.
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<PAGE> 46
Valley emphasizes educating its sales representatives about Valley's
products and the tools necessary to provide added value to the basic delivery
of foodservice products. An in-house training program is offered to all sales
representatives which includes seminars, on-the-job training and direct
one-on-one supervision by experienced sales personnel.
Broadline grocery sales representatives are compensated through a
combination of salary and commissions based on a combination of factors
relating to sales, profitability and collections. Valley's commission program
is designed specifically to reward account profitability as well as to promote
sales growth. Valley systematically measures the profitability of each account
and product segment and as necessary modifies its incentive program
accordingly.
Bread and bakery sales representatives receive a small salary and earn
the bulk of their compensation through commissions based on sales. Each bread
sales representative has his own route and customers and operates in a manner
similar to an independent contractor. In order to attempt to ensure that
customers receive high-quality products and service, Valley requires use of
hand-held computers and other operating controls which are designed to prevent
the sales representative from overcharging customers, or from selling day-old
bread, by strictly limiting transactions to present price lists and fresh
inventory available on the sales representative's truck.
Other Employees. In addition to sales representatives, Valley employs
other employees who fulfill a variety of different functions, including
management, accounting, clerical, management information systems, human
resources, inventory, warehouse and dock work, long-haul driving, purchasing,
sanitation, maintenance, and freight brokerage.
COMPETITION
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 a few
product categories. System distributors typically supply a narrow range of
products to a limited number of multi-unit "chain" businesses operating in a
geographically diverse area.
Nationally, the foodservice distribution industry is extremely
fragmented, with an estimated 3,000 companies in operation in 1994. The
largest participant, Sysco Corporation, holds approximately a 9% share of the
total market, more than the next six largest competitors combined. However, in
recent years, the industry has experienced substantial consolidation,
permitting large foodservice distributors to benefit from various economies of
scale made possible by big, low-cost distribution facilities, increased
purchasing power and the elimination of redundant management and other overhead
expenses.
In the Las Vegas market for broadline foodservice distribution, Valley
has two significant, local-based competitors: HO Foods and Shetakis
Wholesalers. Valley believes that it is larger than both of its local
competitors. Valley also competes with small, mostly family-owned firms
carrying a narrow range of low-volume, "specialty" products which Valley
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<PAGE> 47
prefers not to carry. HO Foods is currently owned by SE Rycoff, a national
foodservice distributor.
Valley also competes with several large national and regional
broadline foodservice distributors, including Sysco Corporation and
Rykoff-Sexton, Inc., which primarily service Las Vegas customers from
distribution centers in Los Angeles, California and Phoenix, Arizona. Valley
believes that its local distribution center and efficient, low-cost operations
allow it to provide faster, more responsive service than its out-of-town
competitors. Moreover, Valley believes that it is the only broadline
distributor with the capability to deliver a full range of refrigerated and
frozen goods on a same day basis in Las Vegas.
Valley's largest competitor in the distribution of bread and baked
goods to the retail (supermarkets, club stores and convenience stores) market
segment is Interstate Bakeries, Inc. ("Interstate"), distributors of Weber's
white bread and Dolly Madison snack cakes. In August 1995, Interstate merged
with Continental Baking Co. ("Continental"), Valley's largest bread and baked
goods supplier. Interstate has indicated its commitment to retaining Valley as
its exclusive Clark County distributor of Hostess, Wonder, DiCarlo and other
former Continental brands.
RECENT DEVELOPMENTS
On June 14, 1996, Valley, through a newly-formed, wholly-owned
subsidiary, Nevada Baking Company, Inc., a Nevada corporation ("New NBC"),
acquired substantially all of the operating assets and business of Baird's
Bread Company, a Nevada corporation doing business as Nevada Baking Company
("NBC"), for a purchase price of approximately $5.1 million. The purchased
assets included real property located in Las Vegas, Nevada and related
improvements and equipment constituting a bread baking facility, together with
vehicles and other assets utilized in the sale and distribution of bread
products. In connection with this acquisition, New NBC obtained the rights to
bake and distribute bread and rolls in the Las Vegas area under the Holsum,
Roman Meal, Gail's, Familee and Taliano labels.
JPF Distributors loaned Valley approximately $5.5 million to finance
the acquisition of the NBC assets and business by New NBC and provide working
capital. The loan is evidenced by a demand promissory note accruing interest
at an annual rate of prime plus 1%. Principal and all interest under the note
are payable on demand, or, if no demand has been made on or before
August 14, 1996, on such date.
Except as expressly noted, the information set forth in this
Information Statement/Prospectus regarding Industries, Valley, and/or "Z"
Leasing excludes data relating to NBC and New NBC.
LEGAL PROCEEDINGS, INSURANCE AND REGULATORY MATTERS
Legal Proceedings and Insurance. Valley is not subject to any
material litigation, nor to its knowledge is any material litigation threatened
against it. Valley carries general liability insurance in the amount of
$1,000,000 per specific claim and $2,000,000 in aggregate, and carries
"umbrella" liability insurance in the amount of $9,000,000 in aggregate.
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<PAGE> 48
Regulatory Matters. Valley's operations are subject to regulation by
state and local health departments, the U.S. Department of Agriculture and the
Food and Drug Administration, each of which generally imposes standards for
product quality and sanitation. The distribution facility is inspected at
least annually by state and federal authorities.
Valley is not aware of any material violations of environmental laws
affecting its business operations. The distribution facility has three
underground storage tanks for gasoline, diesel fuel and used oil, each of which
is equipped with an alarm-based leakage monitoring system. Valley's tanks are
subject to laws regulating such storage, and Valley believes that it is and has
been in full compliance with all such laws. Valley subleases a portion of the
land on which the distribution facility is located to Nevada Fast Fuels for use
as a card-key fueling station (gasoline, diesel and natural gas). Valley
believes that Nevada Fast Fuels is in compliance with applicable environmental
laws. The underground storage tanks located on the premises subleased by
Nevada Fast Fuels are equipped with alarm-based leakage monitoring systems.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Overview. In fiscal 1996, the Combined Valley Group achieved net
sales growth of 15.3%. The Combined Valley Group's net sales have increased
at a compounded annual rate of 19.9% since the end of fiscal 1994. Such
increases in net sales were due primarily to increased sales volume and the
addition of new products, rather than increases in sales prices. The
Combined Valley Group moved into its current distribution facility in May of
1991, which gave it the capacity to handle significant sales growth.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 31, QUARTER ENDED APRIL 30,
-------------------------------------------- ------------------------------
1994 1995 1996 1995 1996
-------------------------------------------- ------------------------------
Unaudited
<S> <C> <C> <C> <C> <C>
Net Sales.................... $ 84,496 $105,406 $121,504 $ 28,497 $ 33,067
Annual growth................ 24.7% 15.3% 16.0%
</TABLE>
Results of Operations. The following table sets forth, for the last
three fiscal years and for the quarters ended April 30, 1995 and 1996, certain
income and expense items expressed as a percentage of net sales.
<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
------------------------------------ -------------------------
1994 1995 1996 1995 1996
------------------------------------ -------------------------
Unaudited
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales.................................... 100.0% 100.00% 100.00% 100.00% 100.00%
Cost of sales................................ 81.71% 82.35% 82.61% 83.08% 82.95%
Gross profit................................. 18.29% 17.65% 17.39% 16.92% 17.05%
Operating expenses........................... 15.33% 14.97% 14.37% 14.55% 14.27%
</TABLE>
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<PAGE> 49
<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
------------------------------------ -------------------------
1994 1995 1996 1995 1996
------------------------------------ -------------------------
Unaudited
<S> <C> <C> <C> <C> <C>
Income from operations......................... 2.96% 2.68% 3.02% 2.37% 2.78%
Interest and other expenses.................... 1.40% 0.80% 1.02% 1.09% 0.88%
----- ----- ----- ----- -----
Income before taxes............................ 1.56% 1.88% 2.00% 1.28% 1.90%
Income taxes (1)............................... 0.50% 0.43% 0.50% 0.42% 0.57%
----- ----- ----- ----- -----
Net income..................................... 1.06% 1.45% 1.50% 0.85% 1.33%
===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) Includes only income taxes payable by Industries and Valley. The
partners of "Z" Leasing are responsible for the payment of taxes with
respect to income earned by "Z" Leasing.
The principal components of expenses include cost of sales, which
represents amounts paid to manufacturers, packers and vendors for products
sold, and operating expenses, which include selling (primarily labor-related)
expenses, warehousing, transportation and other distribution costs, and
administrative expenses.
The Combined Valley Group 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.
QUARTER ENDED APRIL 30, 1996 TO QUARTER ENDED APRIL 30, 1995
Net Sales. Net sales increased 15.8% to $33.0 million in the quarter
ended April 30, 1996 from $28.5 million in the quarter ended April 30, 1995.
Increased sales to all customer types contributed to the Combined Valley
Group's sales growth in the quarter ended April 30, 1996; however, the most
significant increases in net sales were to casino/resort and chain restaurant
customers. (For the purposes of this discussion, casino/resort and chain
restaurant customers include only such customers that are located in the Las
Vegas metropolitan area. Casino/resort and chain restaurant customers located
outside the Las Vegas metropolitan area are classified as out-of-town
customers.)
Gross Profits. Gross profit margin increased to 17.1% in the quarter
ended April 30, 1996 from 16.9% in the quarter ended April 30, 1995. The
increase was a result of changes in product mix toward higher margin items.
Operating Expenses. Operating expenses increased 14.6% to $4.7
million in the quarter ended April 30, 1996 from $4.1 million in the quarter
ended April 30, 1995, primarily as a result of increases in net sales. As a
percentage of total net sales, operating expenses decreased to 14.3% in the
quarter ended April 30, 1996 from 14.6% in the quarter ended April 30, 1995.
The decrease resulted primarily from operating cost efficiencies made possible
by the growth in total net sales.
Income from Operations. As a result of the increases in net sales and
gross profit, income from operations increased 28.6% to $0.9 million in the
quarter ended April 30, 1996 from $0.7
- 31 -
<PAGE> 50
million in the quarter ended April 30, 1995. Operating margin increased to
2.8% in the quarter ended April 30, 1996 from 2.4% in the quarter ended April
30, 1995.
Interest Expense. Interest expense remained constant at $0.3 million
for the quarter ended April 30, 1996 and in the quarter ended April 30, 1995.
Income Taxes. Industries and Valley recorded an income tax provision
of $0.2 million in the quarter ended April 30, 1996, compared to an
income tax provision of $0.1 million in the quarter ended April 30, 1995. The
increase was due to an increase in taxable income.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased 15.3% to $121.5 million in fiscal 1996
from $105.4 million in fiscal 1995. Higher sales to all customer types
contributed to the Combined Valley Group's sales growth in fiscal 1996;
however, the most significant increases in net sales occurred from sales to
casino/resort and chain restaurant customers. An increase of 35.7% in
casino/resort sales and an increase of 35.3% in chain restaurant sales
reflect the continued growth and development in the Combined Valley Group's
larger customers. As a percentage of total net sales, sales to casinos/resorts
increased to 29.6% of net sales in fiscal 1996 from 25.1% of net sales in
fiscal 1995. Chain restaurant sales increased to 14.7% of net sales for fiscal
1996 from 12.6% of net sales for fiscal 1995.
Gross Profits. Gross profit margin decreased to 17.4% in fiscal 1996
from 17.7% in fiscal l995. The decrease resulted primarily from the increase in
sales to lower margin casino/resort and chain restaurant customers. The
Combined Valley Group also experienced a shift in sales toward higher-priced,
lower-margin product categories such as refrigerated and center-of-the-plate
items.
Operating Expenses. Operating expenses increased 10.8% to $17.5
million in fiscal 1996 from $15.8 million in fiscal 1995, primarily as a result
of increases in net sales. As a percentage of total net sales, operating
expenses decreased to 14.4% in fiscal 1996 from 15.0% in fiscal 1995. The
decrease is primarily attributable to the increase in sales to casino/resort
and chain restaurant customers, for which the Combined Valley Group typically
incurs lower operating expenses as a percentage of sales.
Income from Operations. As a result of the increases in net sales and
gross profit, income from operations increased 32.1% to $3.7 million in fiscal
1996 from $2.8 million in fiscal 1995. Operating margin increased to 3.0% in
fiscal 1996 from 2.7% in fiscal 1995.
Interest Expense. Interest expense increased 8.3% to $1.3 million in
fiscal 1996 from $1.2 million in fiscal 1995. The increase was primarily
attributable to increases in the Combined Valley Group's indebtedness for
capital expenditures and working capital borrowings.
Income Taxes. Industries and Valley recorded an income tax provision
of $0.6 million in fiscal 1996, compared to an income tax provision of $0.5
million in fiscal 1995. The increase was due to an increase in taxable income.
- 32 -
<PAGE> 51
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased 24.7% to $105.4 million in fiscal 1995
from $84.5 million in fiscal 1994. Higher sales to all customer types
contributed to the Combined Valley Group's sales growth in fiscal 1995. In
particular, sales to chain restaurants and out-of-town customers grew at a
faster rate, 27.6% and 45.2%, respectively. Sales to casino/resort customers
increased by 20.l%. Net sales to chain restaurant, out-of-town and
casino/resort customers represented 12.3%, 9.6% and 26.1%, respectively, of
total net sales in fiscal 1995 versus 12.3%, 9.6% and 26.1%, respectively, of
total net sales in fiscal 1994.
Gross Profits. Gross profit margin decreased to 17.7% in fiscal 1995
from 18.3% in fiscal 1994. This decrease was primarily due to the increase in
sales to lower margin casino/resort and chain restaurant customers. The
Combined Valley Group has also experienced a shift in sales toward
higher-priced, lower-margin product categories such as refrigerated and
center-of-the-plate items.
Operating Expenses. Operating expenses increased 21.5% to $15.8
million in fiscal 1995 from $13.0 million in fiscal 1994, primarily as a result
of increases in net sales. As a percentage of total net sales, operating
expenses decreased to 15.0% in fiscal 1995 from 15.3% in fiscal 1994.
Income from Operations. As a result of the increases in net sales and
gross profit, income from operations increased 12.0% to $2.8 million in fiscal
1995 from $2.5 million in fiscal 1994. Operating margin decreased to 2.7% in
fiscal 1995 from 3.0% in fiscal 1994.
Interest Expense. Interest expense remained constant at $1.2 million
for both fiscal 1995 and fiscal 1994.
Income Taxes. Industries and Valley recorded an income tax provision
of $0.5 million in fiscal 1995, compared to an income tax provision of $0.4
million in fiscal 1994. The increase was due to an increase in taxable income.
LIQUIDITY AND CAPITAL RESOURCES.
The Combined Valley Group historically has financed its operations and
growth primarily with cash flow from operations, borrowings under credit
facilities, operating and capital leases and normal trade credit terms. The
Combined Valley Group finances investments in inventory primarily with trade
accounts payable.
The Combined Valley Group began expanding its building facility in
October 1995. The expansion will add approximately 31,500 square feet
to the frozen warehouse, refrigerated dock/warehouse and office areas. The
project is scheduled for completion in June 1996. The total estimated cost of
expansion is approximately $3.2 million, of which $0.6 million was funded
through January 31, 1996. The Combined Valley Group has arranged for
construction financing in the amount of $2.1 million and will finance the
balance of $1.0 million out
- 33 -
<PAGE> 52
of its line of credit facility. Upon completion of construction, permanent
financing is expected to replace the construction financing and to repay a
portion of the line of credit facility.
In February 1996, the Combined Valley Group began another expansion of
approximately 50,000 square feet to the dry warehouse. The estimated cost of
the additional expansion is expected to be $1.7 million and will be funded out
of the line of credit facility until construction and permanent financing is
completed in June 1996. In the quarter ended April 30, 1996, capital
expenditures for the frozen warehouse expansion were approximately $0.7 million
and capital expenditures for the dry warehouse expansion were approximately
$0.7 million.
As of January 31, 1996, Valley had a $6.0 million revolving credit
facility expiring June 30, 1996 and bearing interest at the rate of prime plus
1%. As of January 31, 1996, $4.7 million of borrowings were outstanding under
this credit facility and an additional $1.3 million remained available to
finance Valley's working capital requirements. In April of 1996, this credit
facility was replaced by a $10.0 million revolving credit line which expires in
May of 1998 and bears interest at the bank's "reference rate" plus .25%
and/or the London Interbank Offered Rate plus 200 basis points.
Collateral for the line of credit consists of accounts receivable, inventories
and equipment.
On June 14, 1996, Valley, through a newly-formed, wholly-owned
subsidiary, acquired substantially all of the operating assets and business of
NBC for a purchase price of approximately $5.1 million. The acquisition was
financed by a loan from JPF Distributors. See " -- Recent Developments."
The Combined Valley Group's investment in working capital (exclusive
of current maturities of debt) was $9.1 million at January 31, 1996 and $6.6
million at January 31, 1995, and $8.7 million at April 30, 1996 and $8.2
million at April 30, 1995. The increased investment in fiscal 1996 and the
quarter ended April 30, 1996 was primarily attributable to increased sales
volume.
In addition to the capital expenditures for expansion of its building
facility which are described above, the Combined Valley Group made capital
expenditures of $1.2 million in fiscal 1996, $1.5 million in fiscal
1995, $0.6 million in fiscal 1994, $0.3 million in the quarter ended April 30,
1996 and $0.2 million in the quarter ended April 30, 1995, primarily for new
trucks, trailers, materials handling equipment and computer equipment. These
capital expenditures were funded from capital leases and loans. Charges to
operations for all operating leases totaled $0.2 million in fiscal 1996, $0.1
million in fiscal 1995, $0.0 million in fiscal 1994, $0.1 million in the
quarter ended April 30, 1996 and $0.0 million in the quarter ended April 30,
1995.
The Combined Valley Group believes that the combination of cash flow
generated by operations, additional capital leasing activity and borrowings
under its credit facilities or from JPF Distributors will be sufficient to
enable it to finance its growth and meet projected capital expenditures and
other short-term and long-term liquidity requirements.
- 34 -
<PAGE> 53
QUARTERLY RESULTS AND SEASONABILITY
The following table sets forth certain summary information with
respect to the Combined Valley Group's operations for the most recently
completed fiscal years.
<TABLE>
<CAPTION>
(Dollars in thousands)
Fiscal Year Ended 1/31/96 Fiscal Year Ended 1/31/95
-------------------------------------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr 3rd Qtr. 4th Qtr.
-------- --------- --------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................$28,491 $29,536 $31,770 $31,707 $25,181 $25,097 $27,792 $27,336
Income from
operations..............$ 675 $ 774 $ 925 $ 1,305 $ 617 $ 637 $ 820 $ 756
Operating margin............ 2.4% 2.6% 2.9% 4.1% 2.5% 2.5% 3.0% 2.8%
</TABLE>
- 35 -
<PAGE> 54
JP FOODSERVICE, INC. AND COMBINED VALLEY GROUP
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements assume a business combination between JP and the Combined Valley
Group accounted for as a pooling of interests. The unaudited pro forma
condensed combined financial statements are based upon the respective
historical financial statements and the notes thereto, certain of which are
incorporated by reference or included elsewhere in this Information
Statement/Prospectus. The unaudited pro forma condensed combined statements of
income combine JP's historical condensed consolidated statements of operations
for the three fiscal years ended July 3, 1993, July 2, 1994, and July 1,
1995, and the unaudited condensed consolidated statements of operations for the
nine months ended April 1, 1995 and March 30, 1996 with the corresponding
Combined Valley Group's historical condensed consolidated statements of income
for the three years ended January 31, 1994, 1995 and 1996, and the unaudited
condensed consolidated statements of income for the nine months ended March
31, 1995 and 1996, respectively. The unaudited pro forma condensed combined
balance sheets combine JP's historical condensed consolidated balance sheets as
of July 2, 1995, July 1, 1995 and March 30, 1996 with Combined Valley
Group's historical condensed consolidated balance sheets as of January 31,
1995, January 31, 1996 and March 31, 1996, respectively.
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 Acquisition had been consummated as
presented in the accompanying unaudited pro forma condensed combined financial
statements, nor is it necessarily indicative of future operating results.
The unaudited pro forma condensed combined financial statements should
be read in conjunction with the historical consolidated financial statements
and the related notes thereto of JP and the Combined Valley Group incorporated
by reference or included elsewhere therein.
- 36 -
<PAGE> 55
JP FOODSERVICE, INC. AND COMBINED VALLEY GROUP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
----------------------------------------------- -----------------------------
July 3, 1993 July 2, 1994 July 1, 1995 April 1, 1995 March 30, 1996
------------ ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . $1,110,350 $1,134,406 $1,229,757 $893,407 $1,003,552
Cost of sales . . . . . . . . . . . 919,847 943,918 1,022,272 743,387 830,822
----------- ----------- ---------- -------- ----------
Gross profit . . . . . . . . . . . . 190,503 190,488 207,485 150,020 172,730
Operating expenses . . . . . . . . . 159,155 155,856 167,883 123,429 142,352
Amortization of intangible assets . 2,266 2,265 2,263 1,697 1,741
Stock compensation charge . . . . . 0 0 709 709 0
----------- ----------- ---------- -------- ----------
Income from operations . . . . . . . 29,082 32,367 36,630 24,185 28,637
----------- ----------- ---------- -------- ----------
Other (income) expenses
Interest expense . . . . . . . . 38,190 31,908 21,732 17,871 10,893
Nonrecurring charges . . . . . . 0 0 0 0 1,517
Other expenses . . . . . . . . . (38) (348) (69) (320) (68)
----------- ----------- ---------- -------- ----------
Total other expenses . . . . . . . . 38,152 31,560 21,663 17,551 12,342
----------- ----------- ---------- -------- ----------
Income (loss) before income taxes . (9,070) 807 14,967 6,634 16,295
Recovery of (provision for) income
taxes . . . . . . . . . . . . . 2,308 (1,340) (6,807) (3,472) (6,844)
----------- ----------- ---------- -------- ----------
Net income (loss) before
extraordinary charge . . . . . . (6,762) (533) 8,160 3,162 9,451
Extraordinary charge on early
extinguishment of debt . . . . . 0 0 4,590 4,590 0
----------- ----------- ---------- -------- ----------
Net income (loss) . . . . . . . . . (6,762) (533) 3,570 (1,428) 9,451
Preference dividend . . . . . . . . (2,427) (504) (40) (40) 0
----------- ----------- ---------- -------- ----------
Net income (loss) applicable to
common shareholders . . . . . . . $(9,189) $(1,037) $3,530 $(1,468) $9,451
=========== =========== ========== ======== ==========
Net income (loss) per common
share:
Before extraordinary item . . . . $(2.08) $(0.23) $0.65 $0.28 $0.53
Extraordinary item. . . . . . . . -- -- (0.37) (0.42) --
----------- ----------- ---------- -------- ----------
Net income (loss) . . . . . . . . . $(2.08) $(0.23) $0.28 $(0.14) $0.53
=========== =========== ========== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
- 37 -
<PAGE> 56
JP FOODSERVICE, INC. AND COMBINED VALLEY GROUP
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
July 2, 1994 July 1, 1995 March 30, 1996
------------ -------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . $ 11,341 $ 15,840 $ 8,414
Receivables, net of allowance . . . . . . . . . . . . 111,179 134,838 153,575
Inventories . . . . . . . . . . . . . . . . . . . . . 70,873 73,551 86,791
Current deferred tax asset . . . . . . . . . . . . . 3,091 434 540
Other current assets . . . . . . . . . . . . . . . . 6,926 8,708 11,153
---------- ---------- -----------
Total current assets . . . . . . . . . . . . . . . 203,410 233,371 260,473
---------- ---------- -----------
Property and equipment, net . . . . . . . . . . . . . . 90,444 89,570 100,168
---------- ---------- -----------
Goodwill and other intangible assets, net . . . . . . . 75,898 75,062 77,424
Loan acquisition costs, net . . . . . . . . . . . . . . 3,547 1,532 0
Other noncurrent assets . . . . . . . . . . . . . . . . 754 679 543
---------- ---------- -----------
Total noncurrent assets . . . . . . . . . . . . . . 80,199 77,273 77,967
---------- ---------- -----------
Total assets . . . . . . . . . . . . . . . . . . . $ 374,053 $ 400,214 $ 438,608
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturities of senior debt . . . . . . . . . . $ 4,387 $ 1,282 $ 768
Current obligations under capital leases . . . . . . 4,955 4,092 5,759
Accounts payable
Trade . . . . . . . . . . . . . . . . . . . . . . . 83,505 99,815 117,761
Related parties . . . . . . . . . . . . . . . . . . 5,816 5,060 0
Accrued expenses . . . . . . . . . . . . . . . . . . 12,034 11,744 12,545
Revolver . . . . . . . . . . . . . . . . . . . . . . 2,700 4,700 3,800
---------- ---------- -----------
Total current liabilities . . . . . . . . . . . . . 113,397 126,693 140,633
Noncurrent liabilities
Senior debt . . . . . . . . . . . . . . . . . . . . . 137,715 137,692 146,438
Subordinated debt with related parties . . . . . . . 123,756 5,891 6,189
Obligations under capital leases . . . . . . . . . . 13,030 12,557 17,449
Noncurrent deferred tax liability . . . . . . . . . . 12,364 11,669 11,925
---------- ---------- -----------
Total noncurrent liabilities . . . . . . . . . . . 286,865 167,809 182,001
---------- ---------- -----------
Total liabilities . . . . . . . . . . . . . . . . . 400,262 294,502 322,634
---------- ---------- -----------
Mandatorily redeemable stock . . . . . . . . . . . . . 2,388 -- --
---------- ---------- -----------
Stockholders' equity
Common stock and paid-in-capital . . . . . . . . . . 58,086 188,928 190,736
Accumulated deficit . . . . . . . . . . . . . . . . . (41,740) (38,273) (29,819)
Distribution in excess of book value . . . . . . . . (44,943) (44,943) (44,943)
---------- ---------- -----------
Total stockholders' equity . . . . . . . . . (28,597) 105,712 115,974
---------- ---------- -----------
Total liabilities and stockholders' equity . . . . . . $ 374,053 $ 400,214 $ 438,608
========== ========= ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
- 38 -
<PAGE> 57
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE A. The unaudited pro forma condensed combined financial
statements of JP and the Combined Valley Group give retroactive effect to the
Acquisition which is being accounted for as a pooling of interests and, as a
result, the unaudited pro forma condensed combined balance sheets and
statements of income are presented as if the combining companies had been
combined for all periods presented. The unaudited pro forma condensed combined
financial statements will become the historical financial statements of JP upon
issuance of financial statements for a period that includes the date of the
Acquisition. The unaudited pro forma condensed combined financial statements,
including the notes thereto, should be read in conjunction with the historical
consolidated financial statements of JP and the Combined Valley Group
incorporated by reference or included elsewhere in this Information
Statement/Prospectus.
The pro forma combined net income per share is based on the combined
weighted average number of JP Common Shares and the Combined Valley Group
common stock for each period (assuming for the purposes hereof that the
Combined Valley Group constituted a single corporate entity), based on JP's and
Combined Valley Group's ownership percentages of the combined entity after the
Acquisition. The pro forma condensed combined balance sheets reflect the
issuance of 2,022,941 JP Common Shares in exchange for all shares of Combined
Valley Group common stock outstanding at each balance sheet date (assuming for
the purposes hereof that the Combined Valley Group constituted a single
corporate entity), based on such exchange ratio.
NOTE B. The Combined Valley Group has a January 31 year-end and,
accordingly, the Combined Valley Group statements of income for the years ended
January 31, 1994, 1995 and 1996 have been combined with the JP statement of
operations for the fiscal years ended July 3, 1993, July 2, 1994 and July 1,
1995, respectively. In order to conform the Combined Valley Group's year-end
to JP's fiscal year-end, the unaudited pro forma condensed combined statement
of income for the nine months ended March 30, 1996 includes seven months
(February 1995 through January 1996) for Combined Valley Group which are also
included in the unaudited pro
- 39 -
<PAGE> 58
forma condensed combined statement of income 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 Combined Valley Group include net sales of $73.1 million, income
before taxes of $1.7 million, and income taxes of $0.6 million. The unaudited
pro forma condensed combined financial data for the nine months ended March
30, 1996 combined JP's financial statements for the nine months ended March
30, 1996 with the Combined Valley Group' financial statements for the nine
months ended March 30, 1996.
NOTE C. The additional unaudited pro forma condensed combined
financial data are based upon historical combined income before taxes, adjusted
to reflect a provision for income taxes as if the Combined Valley Group and its
combining companies had all been C corporations.
NOTE D. Certain reclassifications, none of which are material, have
been made to the Combined Valley Group financial statements in the unaudited
pro forma condensed combined financial statements to conform to JP
classifications. There are no other material adjustments required to the
historical financial statements of JP and Combined Valley Group to arrive at
the unaudited pro forma condensed combined balance sheets and statements of
income.
NOTE E. Total costs to be incurred by JP and Combined Valley Group in
connection with the 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.
- 40 -
<PAGE> 59
JP FOODSERVICE INC., COMBINED VALLEY GROUP AND ARROW
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
assume a business combination between JP and the Combined Valley Group
accounted for as a pooling of interests, a business combination between JP and
Arrow accounted for as a purchase and the Offering. For a further discussion of
the Arrow Acquisition and the Offering, see "INFORMATION CONCERNING JP -- Recent
Developments." 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) JP for the
fiscal year ended July 1, 1995; (ii) the Combined Valley Group 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) JP for the nine months
ended March 30, 1996; (ii) the Combined Valley Group 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
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 JP as of March 30, 1996 with the historical condensed
consolidated balance sheets of the Combined Valley Group 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 of March 30,
1996.
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 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.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
the related notes thereto of JP, the Combined Valley Group and Arrow
incorporated by reference and included elsewhere herein. For historical
consolidated statements of income and consolidated balance sheets of the
Combined Valley Group, see JP'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
JP's Current Report on Form 8-K for the reportable event dated July 17, 1996
incorporated herein by reference.
- 41 -
<PAGE> 60
JP FOODSERVICE, INC., COMBINED VALLEY GROUP AND ARROW
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 COMBINED VALLEY --------------------------
FOODSERVICE, INC. GROUP 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) $ 0.69(e)
Extraordinary item.............. (0.42) (0.29)
-------------- -----------
Net income.......................... $ 0.17(e) $ 0.40(e)
============= ===========
Weighted average number of common
shares outstanding................ 11,122,343 15,607,340
============= ===========
</TABLE>
- ---------------
(a) Represents a reduction in officer compensation for the Combined Valley
Group and Arrow of $400 and $1,531, respectively, based on employment
agreements to be entered into upon consummation of the Acquisition and the
Arrow Acquisition.
(b) 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 comprised of $1,313 for the Combined Valley Group,
$1,055 for Arrow and $82 for JP ($1,276 reduction in JP's revolving credit
facility at an average interest rate of 6.50%).
(d) Represents (i) an increase in tax expense to reflect the Combined Valley
Group and Arrow as C corporations for federal income tax purposes of $370
and $541, respectively, and (ii) an increase in tax expense of $885
relating to adjustment (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.
- 42 -
<PAGE> 61
JP FOODSERVICE, INC., COMBINED VALLEY GROUP AND ARROW
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 COMBINED VALLEY --------------------------
FOODSERVICE, INC. GROUP 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 21,038,179
============= ===========
</TABLE>
- ---------------
(a) Represents a reduction in officer compensation for the Combined Valley Group
and Arrow of $280 and $924, respectively, based on employment agreements
to be entered into upon consummation of the Acquisition and the Arrow
Acquisition.
(b) 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 comprised of $980 for the Combined Valley Group,
$775 for Arrow and $33 for JP ($654 reduction in JP's revolving credit
facility at an average interest rate of 6.50%).
(d) Represents (i) an increase in tax expense to reflect the Combined Valley
Group and Arrow as C corporations for federal income tax purposes of $291
and $203, respectively, and (ii) an increase in tax expense of $644
relating to adjustment (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.
- 43 -
<PAGE> 62
JP FOODSERVICE, INC., COMBINED VALLEY GROUP AND ARROW
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 30, 1996
-----------------------------------------------------------------------
PRO FORMA
JP COMBINED VALLEY --------------------------
FOODSERVICE, INC. GROUP 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 JP in the
Arrow Acquisition.
(b) Represents goodwill associated with the Arrow Acquisition.
(c) Application of net proceeds from the Offering.
(d) Accrued Arrow Acquisition transaction costs.
(e) Represents the issuance of 3,000,000 JP Common Shares and related
net proceeds of $59,000 received in the Offering, the issuance of 80,952
JP Common Shares 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) Elimination of Arrow's retained earnings account.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
- 44 -
<PAGE> 63
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE A -- In order to conform the Combined Valley Group's year-end to
JP'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 the Combined Valley Group 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 the Combined Valley Group include net sales of
$73.1 million, income before taxes of $0.6 million and income tax benefits of
$1.7 million.
NOTE B -- Certain reclassifications, none of which is material, have been
made to the financial statements of the Combined Valley Group and Arrow in the
unaudited pro forma condensed combined financial statements to conform to
classifications of JP. Other than as reflected in the foregoing statements
and the notes thereto, there are no material adjustments required to the
historical financial statements of JP, the Combined Valley Group and Arrow
to arrive at the unaudited pro forma condensed combined balance sheet and
statements of income.
NOTE C -- Total costs to be incurred by JP and the Combined Valley
Group in connection with the 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 JP 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.
- 45 -
<PAGE> 64
COMPARATIVE MARKET PRICE DATA
MARKET PRICE DATA
The JP Common Shares began trading on the Nasdaq National Market under
the symbol "JPFS" in November 1994. The following table sets forth the range
of high and low trading sales prices for the JP Common Shares as reported by
the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR (1)
-------------------------
HIGH LOW
--------- ----------
<S> <C> <C>
Fiscal year ended July 1, 1995
Second quarter.............................................. $ 11 1/2 $ 9 1/4
Third quarter............................................... 13 1/4 9 1/4
Fourth quarter.............................................. 14 3/8 10 3/4
Fiscal year ended June 29, 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
Fiscal year ending June 28, 1997
First quarter (through July 29, 1996)....................... $ 26 $ 20 1/2
</TABLE>
- ---------------------
(1) JP reports its annual financial results on a 52/53-week fiscal year
ending the Saturday closest to June 30. Since its inception, JP has
paid no dividends on the JP Common Shares.
On May 16, 1996, the last trading day immediately prior to the public
announcement of the Acquisition, the closing price of the JP Common Shares as
reported on the Nasdaq National Market was $22.00 per share. Following the
consummation of the Acquisition, the JP Common Shares will continue to be
traded on the Nasdaq National Market under the symbol "JPFS."
There is no established public trading market for Industries Common
Stock or for "Z" Leasing partnership interests. At February 1, 1994, the
stockholders of Industries were the current six Stockholders and "Z" Leasing.
Effective February 1, 1995, in connection with a restructuring, "Z" Leasing
distributed all of its shares of Industries Common Stock to the other
Stockholders. Since February 1, 1995, there have been no transactions
involving Industries Common Stock, and the identity of the Stockholders and the
amounts of Industries Common Stock owned by them since February 1, 1995 are as
set forth under "OWNERSHIP OF INDUSTRIES COMMON STOCK AND OF "Z" LEASING."
Since its formation, there have been no transactions involving "Z" Leasing
partnership interests.
- 46 -
<PAGE> 65
DESCRIPTION OF JP CAPITAL STOCK
The following is a description of the capital stock of JP as provided
for in the JP Restated Certificate of Incorporation (the "JP Certificate").
This description does not purport to be complete and is qualified in its
entirety by references to the full text of the JP Certificate, which is an
exhibit to the Registration Statement of which this Information
Statement/Prospectus is a part. The JP Certificate authorizes issuance of
45,000,000 JP Common Shares, $.01 par value, and 5,000,000 shares of preferred
stock, $.01 par value (the "Preferred Stock"). At May 31, 1996, 16,025,014 JP
Common Shares were outstanding and no shares of Preferred Stock were
outstanding.
COMMON SHARES
Holders of JP Common Shares are entitled to one vote per share for
each share held of record on all matters submitted to a vote of the
stockholders. Holders of JP Common Shares are entitled to receive ratably such
dividends as may be declared by the Board on the Common Shares out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding-up of the affairs of JP, the holders of JP Common Shares are entitled
to share ratably in the assets available for distribution after payments to
creditors and to the holders of any Preferred Stock that may be outstanding at
such time. The holders of JP Common Shares have no preemptive rights,
cumulative voting right or rights to convert shares of JP Common Shares into
any other securities and are not subject to future calls or assessments by JP.
All outstanding JP Common Shares are, and the shares issued in the Acquisition,
will be fully paid and nonassessable.
The Common Stock is traded on the Nasdaq National Market under the
symbol "JPFS." The Bank of New York is the registrar and transfer agent for
the JP Common Shares.
PREFERRED STOCK
The Board of Directors of JP (the "JP Board"), is authorized without
further stockholder action to provide for the issuance from time to time of up
to 5,000,000 shares of Preferred Stock, in one or more series with such powers,
designations, preferences and relative, participating optional or other special
rights, qualifications, limitations or restrictions as will be set forth in the
resolutions providing for the issue of such series adopted by the Board. The
holders of Preferred Stock will have no preemptive rights (unless otherwise
provided in the applicable certificate of designation) and will not be subject
to future assessments by JP. Such Preferred Stock may have voting or other
rights which could adversely affect the rights of holders of the JP Common
Shares. In addition, the issuance of Preferred Stock, while providing JP with
financial flexibility in connection with possible acquisitions and other
corporate purposes, could, under certain circumstances, make it more difficult
for a third party to gain control of JP, discourage bids for the JP Common
Shares at a premium, or otherwise adversely affect the market price of the JP
Common Shares. See " --- Stockholder Rights Plan."
In connection with the establishment of the Stockholders rights plan
described below, the JP Board has authorized creation of a series of Preferred
Stock designated as Series A Junior
- 47 -
<PAGE> 66
Participating Preferred Stock. The number of shares initially constituting
such series is 350,000. See "-- Stockholders Rights Plan."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS
General. The JP Certificate and the Amended and Restated By-Laws of
JP (the "JP By-Laws") contain certain provisions that could make more difficult
the acquisition of JP by means of a tender offer, a proxy contest or
otherwise.
Classified Board. The JP Certificate and the JP By-Laws provide that
the JP Board will be divided into three classes of directors, with the classes
to be as nearly equal in number as possible. As a result, approximately
one-third of the JP Board will be elected each year. The classification of
directors will have the effect of making it more difficult for stockholders to
change the composition of the JP Board. The JP Certificate provides that,
subject to any rights of holders of Preferred Stock to elect additional
directors under specified circumstances, the number of directors will be fixed
in the manner provided in the JP By-Laws. The JP By-Laws provide that, subject
to any rights of holders of Preferred Stock to elect directors under specified
circumstances, the number of directors will be fixed from time to time
exclusively pursuant to a resolution adopted by directors constituting a
majority of the total number of directors that JP would have if there were no
vacancies on the JP Board. In addition, the JP Certificate provides that,
subject to any rights of holders of Preferred Stock, and unless the JP Board
otherwise determines, any vacancies will be filled only by the affirmative vote
of a majority of the remaining directors, though less than a quorum.
Stockholder Action. The JP Certificate provides that, subject to the
rights of any holders of Preferred Stock to elect additional directors under
specified circumstances, stockholder action may be taken only at an annual or
special meeting of stockholders and may not be taken by written consent in lieu
of a meeting. Failure to satisfy any of the requirements for a stockholder
meeting could delay, prevent or invalidate stockholder action.
Stockholder Advance Notice Procedure. The JP Certificate establishes
an advance notice procedure for stockholders to make nominations of candidates
for election as directors, or to bring other business before an annual meeting
of stockholders of JP. The stockholder notice procedure provides that only
persons who are nominated by a majority of the JP Board, or a duly authorized
committee thereof, or by a stockholder who has given timely written notice to
the Secretary of JP prior to the meeting at which directors are to be elected,
will be eligible for election as directors of JP. The stockholder notice
procedure also provides that only such business may be conducted at an annual
meeting as has been brought before the meeting by, or at the direction of, the
JP Board or by a stockholder who has given timely written notice to the
Secretary of JP of such stockholder's intention to bring such business before
such meeting.
STOCKHOLDER RIGHTS PLAN
On February 19, 1996, the JP Board adopted a stockholder rights plan
for the purpose of ensuring that all of JP's stockholders receive fair and
equal treatment in the event of any proposed takeover of JP. The rights plan
would be triggered by the acquisition (or certain actions
- 48 -
<PAGE> 67
that would result in the acquisition) of 10% or more of JP Common Shares by any
person or group and by the acquisition (or certain actions that would result in
the acquisition) of any additional JP Common Shares by any person or group
owning 10% or more of the JP Common Shares on February 19, 1996.
Pursuant to this plan, the JP Board declared a dividend of one
preferred share purchase right (a "Right") for each outstanding JP Common
Share. 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
of JP Common Shares to purchase from JP, upon the occurrence of the specified
triggering events, one one-hundredth of a share of a newly authorized issue of
Series A Junior Participating Preferred Stock at a price of $95, subject to
adjustment. Until the occurrence of a triggering event, each newly issued JP
Common Share will be entitled to one Right. JP may redeem the Rights at a
price of $.01 per Right prior to a triggering event. The Rights expire on
February 19, 2006.
The rights plan was amended as of May 17, 1996 to exempt from the
operation of the plan the JP Common Shares to be issued to the Stockholders and
"Z" Leasing in connection with the Acquisition. Upon issuance, such JP Common
Shares will be entitled to receive Rights under the plan.
SECTION 203 OF THE DELAWARE LAW
JP is subject to Section 203 of the Delaware Law, the "business
combination" statute. In general such statute prohibits a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years
after the date of the transaction in which the person became an "interested
stockholder," unless (i) the transaction is approved by the board of directors
of the corporation prior to the date the interested stockholder obtained such
status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding, those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the "interested
stockholder". On the basis of the foregoing exclusions, any business
combination with Sara Lee or its affiliates are not subject to Section 203. A
"business combination" includes (i) mergers and sales or other dispositions of
10% or more of the assets of a corporation with or to an "interested
stockholder," (ii) certain transactions resulting in the issuance or transfer
to an "interested stockholder" of any stock of the corporation or its
subsidiaries, (iii) certain transactions that would increase the proportionate
share of the stock of a corporation or its subsidiaries owned by an "interested
stockholder" and (iv) the receipt by an "interested stockholder" of the benefit
(except proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial benefits. An
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<PAGE> 68
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within three years, did own) 15% or more of the
corporation's voting stock The JP Certificate does not exclude JP from the
restrictions imposed under the statute, and the statute could prohibit or delay
the accomplishment of mergers or other takeover or change in control attempts
with respect to JP and, accordingly, may discourage attempts to acquire JP.
DIRECTOR LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware Law provides that a corporation may limit the liability
of each director to the corporation or its stockholders for monetary damages
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The JP Certificate provides for the elimination and
limitation of the personal liability of directors of JP for monetary damages to
the fullest extent permitted by the Delaware Law. In addition, the JP
Certificate provides that if the Delaware Law is amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of the directors shall be eliminated or limited to the fullest extent
permitted by the Delaware Law, as so amended. The effect of this provision is
to eliminate the rights of JP and its stockholders (through stockholders'
derivative suits on behalf of JP) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. The provision does not
limit or eliminate the rights of JP or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of care. In addition, the JP By-Laws provide that JP shall, to
the full extent permitted by the Delaware Law, as amended from time to time,
indemnify and advance expenses to each of its currently acting and former
directors, officers, employees and agents.
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<PAGE> 69
COMPARISON OF RIGHTS OF
STOCKHOLDERS OF INDUSTRIES AND STOCKHOLDERS OF JP
If the Merger is consummated, stockholders of Industries, a Nevada
corporation, will become stockholders of JP, a Delaware corporation, and the
rights of such stockholders will be governed by applicable Delaware law,
including the Delaware Law, and by the JP Certificate and the JP By-Laws. The
following discussion summarizes certain important differences between the rights
of stockholders of Industries under the Nevada General Corporation Law (the
"Nevada Law"), the Articles of Incorporation of Industries, as amended (the
"Industries Articles") and the Industries By-Laws, as amended (the "Industries
By-Laws"), and the rights of stockholders of JP under the Delaware Law, the JP
Certificate and the JP By-Laws.
AUTHORIZED CAPITAL STOCK
Under the JP Certificate, JP currently has authority to issue
50,000,000 shares of capital stock. Of that number, 5,000,000 shares are
Preferred Stock, par value $.01 per share, and 45,000,000 shares are JP Common
Shares, par value $.01 per share. For a further description of JP's capital
stock, including certain restrictions with respect to the issuance, holding,
transfer and voting thereof, see "DESCRIPTION OF JP CAPITAL STOCK."
Under the Industries Articles, Industries currently has authority to
issue 20,000,000 shares of common stock, par value $.001 per share.
PREFERRED STOCK
Under the JP Certificate, the JP Board has the authority to issue
Preferred Stock and to fix the relative rights and preferences of the shares of
any series of Preferred Stock generally. See "DESCRIPTION OF JP CAPITAL STOCK
- -- Preferred Stock."
Under the Industries Articles, the Industries Board is not authorized
to issue preferred stock.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Under Section 228(a) of the Delaware Law, unless otherwise provided in
a corporation's certificate of incorporation, any action required to be taken
at an annual or special meeting of the stockholders may be taken in the absence
of a meeting, without prior notice and without a vote. Such action may be
taken by the written consent of stockholders in lieu of a meeting setting forth
the action so taken and signed by the holders of outstanding stock representing
the number of shares necessary to take such action at a meeting at which all
shares entitled to vote were present and voted.
Under Section 78.320 of the Nevada Law, unless otherwise provided in a
corporation's articles of incorporation or by-laws, any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if a written consent thereto is signed by
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<PAGE> 70
stockholders holding at least a majority of the voting power, except that if a
different proportion of voting power is required for such an action at a
meeting, then that proportion of written consents is required.
SPECIAL MEETINGS OF SHAREHOLDERS
Under Section 211(d) of the Delaware Law, special meetings of
stockholders may be called by the board of directors and by such other person or
persons as may be authorized to do so by the corporation's certificate of
incorporation or by-laws. The JP By-Laws provide that the Chairman of the JP
Board or a majority of the JP Board may call a special meeting of the
stockholders of JP. Under Section 78.310 of the Nevada Law, special meetings
may be held in the manner provided by the by-laws of the corporation. The
Industries By-Laws provide that a special meeting of the Stockholders may be
called by the President, the Board of Directors or at the written request of 51%
of the Stockholders.
CUMULATIVE VOTING
Both Section 214 of the Delaware Law and Section 78.360 of the Nevada
Law allow a corporation to provide for cumulative voting in the certificate of
incorporation or the articles of incorporation. Neither the JP Certificate nor
the Industries Articles provide for cumulative voting.
RESTRICTIONS ON BUSINESS COMBINATIONS/CORPORATE CONTROL
Both the Delaware Law and the Nevada Law contain provisions
restricting the ability of a corporation to engage in business combinations
with an interested stockholder. Under the Delaware Law, except under certain
circumstances, a corporation is not permitted to engage in a business
combination with any "interested stockholder." See "DESCRIPTION OF JP CAPITAL
STOCK -- Section 203 of the Delaware Law."
The Delaware Law and the Nevada Law do not permit business combinations
with interested stockholders for a period of three years following the date such
stockholder became an interested stockholder. The Nevada Law defines an
interested stockholder, generally, as a person who owns 10% or more, rather than
15% or more under the Delaware Law, of the outstanding shares of the
corporation's voting stock.
In addition, the Nevada Law generally disallows the exercise of voting
rights with respect to "control shares" of an "issuing corporation" held by an
"acquiring person", unless such voting rights are conferred by a majority vote
of the disinterested stockholders. "Acquiring person" means (subject to
certain exceptions) any person who individually or in association with others,
acquires or offers to acquire, directly or indirectly, a controlling interest
in the issuing corporation. "Control shares" are the voting shares of an
issuing corporation acquired in connection with the acquisition of a
"controlling interest." "Controlling interest" is defined in terms of
threshold levels of voting share ownership of outstanding voting shares of an
issuing corporation sufficient to enable the acquiring person, individually or
in association with others, directly or indirectly, to exercise (i) one-fifth
or more but less than one-third, (ii) one-third or more but less than a
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<PAGE> 71
majority, or (iii) a majority or more of the voting power of the issuing
corporation in the election of directors, and voting rights must be conferred
by a majority of the disinterested shareholders as each threshold is reached
and/or exceeded. The Delaware Law does not contain a similar control shares
statute.
APPRAISAL RIGHTS; DISSENTERS' RIGHTS
Both Section 262 of the Delaware Law and Sections 92A.380 and 92A.390
of the Nevada Law provide that stockholders have the right, in some
circumstances, to dissent from certain corporate reorganizations and to instead
demand payment of the fair cash value of their shares. Unless a corporation's
certificate of incorporation provides otherwise, dissenters do not have rights
of appraisal with respect to (i) a merger or consolidation by a corporation,
the shares of which are either listed on a national securities exchange,
designated as a national market system security on an inter-dealer quotation
system by the National Association of Securities Dealers, Inc., or held by at
least 2,000 stockholders, if the stockholders receive cash (in the case of the
Nevada Law), shares in the surviving corporation, shares of another corporation
that are publicly listed or held by more than 2,000 stockholders, cash in lieu
of fractional shares or any combination of the above or (ii) stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger.
REDEEMABLE SHARES
Section 151(b) of the Delaware Law provides that the certificate of
incorporation or a resolution of the board of directors may make any class of
stock subject to redemption at the option of the corporation or the
shareholders or upon the happening of a specified event, as long as at the time
of redemption one class of voting stock is not subject to redemption.
Section 78.196 of the Nevada Law provides that the articles of
incorporation or a resolution of the board of directors may authorize one or
more classes of stock that are redeemable or convertible at the option of the
corporation, the shareholders or another person or upon the occurrence of a
designated event.
RIGHTS, WARRANTS OR OPTIONS
Under Section 157 of the Delaware Law, rights or options to purchase
shares of any class of stock may be authorized by a corporation's board of
directors subject to the provisions of the certificate of incorporation. The
terms of such rights or options must be fixed and stated in the certificate of
incorporation or in a resolution or resolutions adopted by the board of
directors. The JP Board has adopted a stockholder rights plan. See
"DESCRIPTION OF JP CAPITAL STOCK --- Stockholder Rights Plan."
Under Section 78.200 of the Nevada Law, a corporation may create and
issue rights or options entitling the holders thereof to purchase from the
corporation shares of its stock of any class or classes. The terms of such
rights or options must be fixed and stated in the articles of incorporation or
in a resolution or resolutions adopted by the board of directors. Industries
has not created or issued any such rights or options.
- 53 -
<PAGE> 72
PREEMPTIVE RIGHTS
Under Section 102(b)(3) of the Delaware Law, absent an express
provision in a corporation's certificate of incorporation, a stockholder does
not, by operation of law, possess preemptive rights to subscribe to an
additional issue of stock. Nevada corporations organized on or after October
1, 1991 do not have preemptive rights unless they include the same in their
articles of incorporation, and stockholders in Nevada corporations organized
prior to October 1, 1991 have preemptive rights unless their articles expressly
exclude the same. Holders of JP Common Shares and the holders of Industries
Common Stock have no preemptive rights.
AMENDMENT OF ARTICLES OF INCORPORATION AND BY-LAWS
Section 242 of the Delaware Law and Sections 78.385 and 78.390 of the
Nevada Law permit a corporation to amend its certificate or articles of
incorporation in any respect provided the amendment contains only provisions
that would be lawful in an original certificate or articles of incorporation
filed at the time of amendment. To amend a certificate or articles of
incorporation, the board must adopt a resolution presenting the proposed
amendment. In addition, a majority of the shares entitled to vote, as well as
a majority of shares by class of each class entitled to vote, must approve the
amendment to make it effective. When the substantive rights of a class of
shares will be affected by an amendment, the holders of those shares are
entitled to vote as a class even if the shares are non-voting shares. When
only one or more series in a class of shares, and not the entire class, will be
adversely affected by an amendment, only the affected series may vote as a
class. Under Section 242 (b)(2) of the Delaware Law, the right to vote as a
class may be limited in certain circumstances. Any provision in the
certificate or articles of incorporation which requires a greater vote than
required by law cannot be amended or repealed except by such greater vote.
Section 242(c) of the Delaware Law provides that, in its resolution proposing
an amendment, the board may insert a provision allowing the board to abandon
the amendment, without concurrence by stockholders, after the amendment has
received stockholder approval but before its filing with the Secretary of
State.
Section 109 of the Delaware Law provides that the power to amend the
by-laws rests with the stockholders entitled to vote, although the certificate
of incorporation may confer the power to amend the by-laws upon the board of
directors. Section 109 further provides that the fact that the certificate of
incorporation confers such power upon the board of directors neither limits nor
divests the stockholders of the power to amend the by-laws. The JP Certificate
authorizes the JP Board to adopt, amend or repeal the JP By-Laws. Section
78.120 of the Nevada Law, on the other hand, provides that, subject to the
by-laws, if any, adopted by the stockholders, the directors may amend the
by-laws of the corporation.
REMOVAL OF DIRECTORS
JP has a classified board of directors. Under the Delaware Law, in
the case of a corporation with a classified board of directors, directors may
be removed only for cause, unless otherwise provided by the certificate of
incorporation. Under the Nevada Law, any one or all of the directors of a
corporation may be removed without cause by the holders of not less than two-
- 54 -
<PAGE> 73
thirds of the voting power of a corporation's stock. In the case of
corporations that have provided in their articles of incorporation for the
election of directors by cumulative voting, no directors may be removed from
office without the vote of stockholders owning sufficient shares to have
prevented his election to office in the first instance. The Nevada Law permits
the articles of incorporation to require the concurrence of a greater
percentage of the voting stock in order to remove a director. The Industries
Articles do not provide for a greater percentage vote to remove directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES
Delaware and Nevada have nearly identical provisions regarding
indemnification by a corporation of its officers, directors, employees and
agents for claims against such persons as a result of their position. Delaware
and Nevada Law differ slightly in their provisions for advancement of expenses
incurred by an officer or director in defending a civil or criminal action,
suit or proceeding. The Delaware Law provides that expenses incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined that he is not entitled to be indemnified
by the corporation. Thus, a corporation has the discretion to decide whether
or not to advance expenses. The JP By-Laws, however, require that JP make
advance payment of expenses so long as the party seeking indemnification
undertakes to repay all such amounts if indemnification is not granted.
The Nevada Law provides for similar advancement of expenses. In
addition, however, the articles of incorporation, bylaws or an agreement made
by the corporation may provide that the corporation must pay advancements of
expenses as they are incurred in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined that
he or she is not entitled to be indemnified by the corporation. The Industries
By-Laws, however, do not require payment of advancement, and Industries may
make such advancements at its discretion.
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS
Delaware corporations are permitted to adopt charter provisions
limiting, or even eliminating, the liability of a director of a company and its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such liability does not arise from certain proscribed conduct,
including breach of the duty of loyalty, acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law or liability
to the corporation based on unlawful dividends or distributions or improper
personal benefit. The JP Certificate provides for the elimination and
limitation of the personal liability of directors of JP for monetary damages to
the fullest extent permitted by the Delaware Law. See "DESCRIPTION OF JP CAPITAL
STOCK -- Director Liability and Indemnification of Directors and Officers."
The Nevada Law provision permitting the adoption of provisions in the
articles of incorporation limiting personal liability is similar to Delaware's,
but differs in two respects. First, the Nevada provision applies to both
directors and officers. Second, while the Delaware provision excepts from
limitation on liability a breach of the duty of loyalty, the Nevada counterpart
does not contain this exception. The Industries Articles provide for the
elimination of personal liability for the directors and officers of Industries
for damages for breach of fiduciary duty except for
- 55 -
<PAGE> 74
acts or omissions involving intentional misconduct, fraud or a knowing
violation of law or for the payment of dividends in violation of Nevada Law.
Under the laws of either state, the charter provision will not have
any effect on the availability of equitable remedies such as an injunction or
rescission based upon a breach of the duty of care, or on liabilities which
arise under certain federal statutes such as the securities laws.
LEGAL MATTERS
The validity of the shares of JP Common Shares to be issued in the
Acquisition is being passed upon by Shaw, Pittman, Potts & Trowbridge, a
partnership including professional corporations, Washington, D.C., counsel to
JP. Carlsmith Ball Wichman Case & Ichiki, Los Angeles, California, counsel to
Industries, Valley and "Z" Leasing, will issue a legal opinion concerning
certain federal income tax consequences of the Merger. Duane H. Zobrist, a
Stockholder, a member of the Industries Board and a Partner, is a member of
Carlsmith Ball Wichman Case & Ichiki.
EXPERTS
The consolidated financial statements of JP incorporated by reference
in this Information Statement/Prospectus by reference to JP's Annual Report on
Form 10-K for the year ended July 1, 1995 have been so incorporated 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 Industries, Valley and "Z" Leasing
as of January 31, 1994, 1995 and 1996 and for each of the three years in the
period ended January 31, 1996 have been so included herein in reliance on the
report of KPMG Peat Marwick LLP, independent public accountants, given on the
authority of such firm as experts in auditing and accounting.
The combined financial statements of Arrow Paper and Supply Co., Inc.
and Affiliate as of December 29, 1995 incorporated by reference in this
Information Statement/Prospectus by reference to JP's Current Report on Form 8-K
for the reportable event dated July 17, 1996 have been so incorporated in
reliance on the report of Blum, Shapiro & Company, P.C., independent
accountants, given on authority of said firm as experts in auditing and
accounting.
- 56 -
<PAGE> 75
SOLICITATION OF PROXIES
Industries and "Z" Leasing will share equally the expenses in
connection with the copying and mailing of this Information
Statement/Prospectus. The costs of solicitation of proxies will be borne by
Industries, and the costs of solicitation of consents will be borne by "Z"
Leasing. Proxies may be solicited by directors, officers or regular employees
of Industries in person, by letter or by telephone or telegram.
BY ORDER OF THE BOARD OF DIRECTORS OF
VALLEY INDUSTRIES, INC.
/s/ Richard D. Zobrist
--------------------------------
Richard D. Zobrist
Secretary
"Z" LEASING CO.
By: R. PHILIP ZOBRIST
/s/ R. Philip Zobrist
-----------------------------------
R. Philip Zobrist
General Partner
- 57 -
<PAGE> 76
INDEX TO FINANCIAL STATEMENTS
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND "Z" LEASING CO.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-2
Combined Balance Sheets at January 31, 1994, 1995 and 1996 F-3
Combined Statements of Earnings for Fiscal Year Ended
January 31, 1994, 1995 and 1996 F-4
Combined Statements of Stockholders' and Partners' Equity for
Fiscal Years ended January 31, 1994, 1995 and 1996 F-5
Combined Statements of Cash Flows for Years ended
January 31, 1994, 1995 and 1996 F-6
Notes to Combined Financial Statements F-7
Condensed Combined Balance Sheets at April 30, 1995 and 1996 F-17
Condensed Combined Statements of Earnings for Periods Ended
April 30, 1995 and 1996 F-18
Condensed Combined Statements of Cash Flows for Periods Ended
April 30, 1995 and 1996 F-19
Notes to Condensed Combined Financial Statements F-20
</TABLE>
F-1
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
The Board of Directors, Stockholders and Partners
Valley Industries, Inc. and Subsidiaries and Z Leasing Company (A General
Partnership):
We have audited the accompanying combined balance sheets of Valley Industries,
Inc. and subsidiaries and Z Leasing Company (A General Partnership)
(collectively, the Company) as of January 31, 1994, 1995 and 1996, 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. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company as of January 31, 1994, 1995 and 1996, and the combined results of
their operations and their cash flows for each of the years in the three-year
period ended January 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
June 17, 1996
F-2
<PAGE> 78
<TABLE>
<CAPTION>
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING COMPANY
(A GENERAL PARTNERSHIP)
Combined Balance Sheets
January 31, 1994, 1995 and 1996
- -------------------------------------------------------------------------------------------
1994 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43,348 43,411 422,323
Trade accounts receivable, net (Note 3 and 6) 7,914,638 9,734,596 11,346,721
Inventories (Notes 6 and 15) 4,203,034 5,062,972 5,922,436
Prepaid expenses and other assets 148,411 305,945 389,466
Income taxes receivable -- 62,634 --
- -------------------------------------------------------------------------------------------
Total current assets 12,309,431 15,209,558 18,080,946
- -------------------------------------------------------------------------------------------
Property and equipment, net (Notes 4 and 6) 8,191,428 8,242,757 8,417,116
Due from related parties 236,384 224,540 124,516
Other assets 116,502 529,590 554,268
- -------------------------------------------------------------------------------------------
Total assets $20,853,745 24,206,445 27,176,846
===========================================================================================
LIABILITIES AND STOCKHOLDERS' AND PARTNERS'
EQUITY
Current liabilities:
Revolving bank line of credit (Notes 6 and
13) $ 2,399,000 2,700,000 4,700,000
Bank overdraft 1,252,465 2,386,146 2,581,148
Accounts payable 3,920,009 4,804,239 5,412,148
Accrued payroll and related taxes 527,767 954,630 422,126
Other accrued liabilities 245,732 402,850 465,837
Income taxes payable 155,478 -- --
Current deferred tax liability, net (note 9) 74,869 13,824 117,314
Current portion of notes payable to related
parties (Note 11) 385,596 493,873 416,019
Short-term notes payable 116,500 121,053 145,114
Current portion of long-term debt and
capital lease obligations (Note 7) 772,892 893,444 865,906
- -------------------------------------------------------------------------------------------
Total current liabilities 9,850,308 12,770,059 15,125,612
- -------------------------------------------------------------------------------------------
Noncurrent liabilities:
Long-term debt and capital lease
obligations, less current portion (Note 7) 8,171,756 8,093,658 7,692,104
Notes payable to related parties (Note 11) 2,311,001 1,937,128 1,741,111
Noncurrent deferred tax liability (Note 9) 92,370 138,939 127,434
Minority interest (Note 2) 520,641 209,541 149,941
- -------------------------------------------------------------------------------------------
Total noncurrent liabilities 11,095,768 10,379,266 9,710,590
- -------------------------------------------------------------------------------------------
Total liabilities 20,946,076 23,149,325 24,836,202
- -------------------------------------------------------------------------------------------
Stockholders' and partners' equity (Notes 16
and 17):
Common stock, $.001 par value, 20,000,000
shares authorized, 8,474,576 shares issued 1,151,000 1,151,000 1,151,000
and outstanding in 1994, 10,000,000 shares
in 1995 and 1996
Retained earnings (107,331) (93,880) 1,189,644
- -------------------------------------------------------------------------------------------
1,043,669 1,057,120 2,340,644
Less treasury stock, common, at cost,
1,525,424 in 1994. (1,136,000) -- --
- -------------------------------------------------------------------------------------------
Total stockholders' and partners'
equity (92,331) 1,057,120 2,340,644
- -------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 8 and 14)
- -------------------------------------------------------------------------------------------
Total liabilities and stockholders'
and partners' equity $20,853,745 24,206,445 27,176,846
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE> 79
<TABLE>
<CAPTION>
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING COMPANY
(A GENERAL PARTNERSHIP)
Combined Statements of Earnings
Fiscal Year Ended January 31, 1994, 1995 and 1996
- ---------------------------------------------------------------------------------------------------
1994 1995 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $84,495,826 $105,405,967 $121,503,567
Cost of sales 69,039,124 86,800,836 100,370,115
- ---------------------------------------------------------------------------------------------------
Gross profit 15,456,702 18,605,131 21,133,452
Operating expenses:
Delivery and sales expenses 8,352,557 9,893,361 11,005,766
General and administrative expenses 4,600,832 5,881,996 6,449,053
- ---------------------------------------------------------------------------------------------------
12,953,389 15,775,357 17,454,819
- ---------------------------------------------------------------------------------------------------
Earnings from operations 2,503,313 2,829,774 3,678,633
- ---------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 14,782 25,894 41,676
Interest expense (1,233,881) (1,222,714) (1,312,640)
Other income 72,566 386,401 39,187
Minority interest in earnings of subsidiary (34,699) (38,383) (12,260)
- ---------------------------------------------------------------------------------------------------
(1,181,232) (848,802) (1,244,037)
- ---------------------------------------------------------------------------------------------------
Earnings before provision for income 1,322,081 1,980,972 2,434,596
taxes
Provision for income taxes (note 9) 422,068 456,521 611,072
- ---------------------------------------------------------------------------------------------------
Net earnings $ 900,013 $ 1,524,451 $ 1,823,524
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 80
<TABLE>
<CAPTION>
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING COMPANY
(A GENERAL PARTNERSHIP)
Combined Statements of Stockholders' and Partners' Equity
Years ended January 31, 1994, 1995 and 1996
- -------------------------------------------------------------------------------------
TREASURY
COMMON RETAINED STOCK,
STOCK EARNINGS COMMON TOTAL
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at February 1, 1993 $ 1,151,000 $ (902,344) $(1,136,000) $ (887,344)
Dividends and distributions (105,000) (105,000)
Net earnings 900,013 900,013
- -------------------------------------------------------------------------------------
Balance at January 31, 1994 1,151,000 (107,331) (1,136,000) (92,331)
- -------------------------------------------------------------------------------------
Treasury stock issued (1,136,000) 1,136,000
Dividends and distributions (375,000) (375,000)
Net earnings 1,524,451 1,524,451
- -------------------------------------------------------------------------------------
Balance at January 31, 1995 1,151,000 (93,880) -- 1,057,120
- -------------------------------------------------------------------------------------
Dividends and distributions (540,000) (540,000)
Net earnings 1,823,524 1,823,524
- -------------------------------------------------------------------------------------
Balance at January 31, 1996 $ 1,151,000 $ 1,189,644 $ -- $2,340,644
=====================================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 81
<TABLE>
<CAPTION>
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING COMPANY
(A GENERAL PARTNERSHIP
Combined Statements of Cash Flows
Years ended January 31, 1994, 1995 and 1996
- -------------------------------------------------------------------------------------------------
1994 1995 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 900,013 $ 1,524,451 $ 1,823,524
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 1,071,076 1,048,645 1,022,071
(Gain) loss on sale of property and equipment 6,729 (306,099) 3,938
Minority interest in earnings of subsidiary 34,699 38,383 12,260
Provision for bad debts 111,239 109,714 251,824
Increase (decrease) in deferred income taxes 111,175 (14,476) 91,985
Changes in operating assets and liabilities:
Increase in trade accounts receivable (2,275,535) (1,929,672) (1,863,949)
Increase in inventories (1,350,692) (859,938) (859,464)
Increase in prepaid expenses and other assets (101,781) (220,622) (108,199)
Increase (decrease) in income tax
payable/receivable 292,949 (218,112) 62,634
Increase in accounts payable 381,934 845,847 595,649
Increase (decrease) in accrued expenses 131,411 583,981 (469,517)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (686,783) 602,102 562,756
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 9,450 317,455 9,000
Purchase of property and equipment (609,097) (865,538) (701,685)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (599,647) (548,083) (692,685)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in bank overdraft 257,805 1,133,681 195,002
(Increase) decrease in due from related parties (236,384) 11,844 100,024
Decrease in notes payable to related parties (458,247) (265,596) (273,871)
Increase (decrease) in short-term notes payable (65,140) 4,553 24,061
Net borrowings under line-of-credit agreement 1,899,000 301,000 2,000,000
Proceeds from issuance of long-term debt 2,220,994 450,272 --
Payments on long-term debt and capital lease
obligations (2,944,683) (1,003,610) (936,775)
Dividends and Distributions (105,000) (375,000) (540,000)
Issuance of minority interest preferred stock 116,000 -- --
Purchase of minority interest preferred stock into
treasury (33,300) (311,100) (59,600)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 651,045 (53,956) 508,841
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (635,385) 63 378,912
Cash and cash equivalents:
Beginning of year 678,733 43,348 43,411
- -------------------------------------------------------------------------------------------------
End of year $ 43,348 $ 43,411 $ 422,323
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 82
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements
January 31, 1994, 1995 and 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND BUSINESS
Valley Industries, Inc. ("Industries") was formed on January 27, 1988 through a
stock exchange with the then existing shareholders of E & H Distributing Co.,
Inc. dba Valley Food Distributors of Nevada ("Foods"). Industries functions
principally as a holding company. Foods was incorporated on February 1, 1955,
is a wholly owned subsidiary of Industries, and is the principal operating
subsidiary of Industries. Foods is a wholesaler of groceries, bakery and other
related items to hotels, restaurants, and grocery stores primarily in Nevada. Z
Leasing Company ("Z Leasing") is a general partnership that was formed January
1, 1983. It is owned by the same six individuals that own the outstanding
common stock, directly or indirectly, of Industries. Z Leasing owns, and leases
to Foods, the distribution and warehouse facility used by Foods in its
operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION AND COMBINATION
The combined financial statements include the combined accounts of Industries,
Foods and Z Leasing (collectively, the Company). All entities included in the
combination are under the common management and control of the stockholders of
Industries. The combined financial statements have been presented on a combined
basis because the owners of the combined entities have entered into an
agreement the result of which will be a business combination with an unrelated
public company. Significant intercompany transactions have been eliminated in
the combination.
B. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
C. REVENUE AND RECEIVABLES
Revenue is recognized when product is delivered 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, and
are valued at the lower of cost or market using the first-in, first-out (FIFO)
method.
F-7
<PAGE> 83
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
E. PROPERTY AND EQUIPMENT
Property and equipment, including significant betterments to existing
facilities, are stated at cost, less accumulated depreciation. Expenditures for
maintenance and repairs are expensed when incurred. Property and equipment
under capital leases are stated at the present value of minimum lease payments.
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 earnings.
Depreciation is computed by straight-line and accelerated methods at rates
adequate to recover the cost of the applicable assets over their estimated
useful lives as follows:
<TABLE>
<S> <C>
Machinery, computers and other equipment 2-7 years
Vehicles 3-5 years
Furniture and fixtures 2-7 years
Building improvements 5-31 years
</TABLE>
Property and equipment held under capital leases and leasehold improvements
are amortized on a straight-line basis over the shorter of the lease term or
estimated useful life of the asset.
F. INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Since Z Leasing is a partnership, the partners separately account for the
partnership's items of income, deductions, losses, and credits. Accordingly, no
provision for federal or state income taxes is included in the accompanying
combined financial statements for net income related to the operations of Z
Leasing. However, pro forma income tax adjustments applicable to Z Leasing are
as follows, for the years ended January 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Combined net earnings $ 900,013 1,524,451 1,823,524
Pro forma income tax adjustments:
Current 65,875 184,436 236,710
Deferred -- 58,469 (3,146)
- -----------------------------------------------------------------------------------
68,875 242,905 233,564
Pro forma combined net earnings after pro
forma income tax adjustments related to Z
Leasing earnings $ 834,138 1,281,546 1,589,960
===================================================================================
</TABLE>
F-8
<PAGE> 84
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
G. USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
H. PER SHARE DATA
Per share data is not relevant since the Company is a presentation of the
combined operations of corporations and a partnership.
I. MINORITY INTEREST
Minority interest represents 8% cumulative, non-voting preferred stock of
Foods held by persons outside of the Company. 50,000 shares are authorized,
9,836 shares issued, and 4,599, 7,846 and 8,442 shares in treasury at January
31, 1994, 1995 and 1996, respectively.
(3) ACCOUNTS RECEIVABLE
Receivables at January 31, 1994, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1994 1995 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer accounts and notes $7,469,888 $8,767,616 $10,115,563
Less allowance for doubtful accounts (150,425) (155,030) (189,596)
- ---------------------------------------------------------------------------------------------
7,319,463 8,612,586 9,925,967
From suppliers 595,175 1,122,010 1,420,754
- ---------------------------------------------------------------------------------------------
$7,914,638 $9,734,596 $11,346,721
=============================================================================================
</TABLE>
(4) PROPERTY AND EQUIPMENT
The components of property and equipment at January 31, 1994, 1995 and 1996
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 1,283,596 $ 1,238,596 $ 1,238,596
Buildings 5,772,099 5,482,021 6,081,194
Machinery and equipment 1,314,912 1,659,945 2,010,545
Vehicles 4,054,379 4,670,752 4,924,841
Furniture and fixtures 154,260 229,070 249,872
Leasehold improvements 504,210 552,280 487,075
Computer equipment 355,256 405,556 414,014
- --------------------------------------------------------------------------------------------
13,438,712 14,238,220 15,406,137
Less accumulated depreciation (5,247,284) (5,995,463) (6,989,021)
- --------------------------------------------------------------------------------------------
$ 8,191,428 $ 8,242,757 $ 8,417,116
============================================================================================
</TABLE>
F-9
<PAGE> 85
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
(5) NONCASH FINANCING AND INVESTING ACTIVITIES
Noncash investing and financing activities for the years ended January 31,
1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquisition of equipment through financing
arrangements $ -- 595,792 507,683
Note received in connection with sale of
property and equipment 350,000
Disclosure of cash flow information:
Cash paid for interest 1,236,160 1,219,655 1,304,511
Cash paid for income taxes 261,846 762,000 495,000
</TABLE>
(6) REVOLVING BANK LINE OF CREDIT
The Company has a line of credit arrangement with a commercial bank, expiring
June 30, 1996 permitting borrowings up to a maximum of $6,000,000. The interest
rate is prime plus 1.0%. Prime rate at January 31, 1996 was 8.5%. Collateral on
the line of credit consists of accounts receivable, inventories and equipment.
Subsequent to January 31, 1996, this line of credit was replaced with a new
line of credit with a different financial institution (see Note 13).
F-10
<PAGE> 86
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
(7) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at January 31, 1994, 1995 and
1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
- ----------------------------------------------------------- -------------------------------
<S> <C> <C> <C>
Notes payable to financing company, secured
by fleet vehicles; maturing at various
dates from 1997 to 2000, interest
rates from 7% to 11%; aggregate
monthly principal and interest
payments of $44,005 $1,402,123 $1,176,453 $ 797,958
Notes payable to former employees, unsecured,
interest rate of 8%; maturity at various
dates from 1996 to 1997. 54,139 33,314 16,166
Notes payable to financing company, secured
by fleet vehicles; maturing in 1997;
interest at 6.9%; aggregate monthly
principal and interest payments of $734. 17,293 9,862 1,454
Notes payable to bank, secured by real estate;
maturing at various dates from 2003 to
2009; interest from 9% to 10%; aggregate
monthly principal and interest payments of
$60,969. 7,179,271 7,045,562 6,900,182
Notes payable to unrelated party, unsecured;
maturing in August 1996; interest
at 11%; monthly principal and interest
payments of $11,247. 291,822 183,941 64,468
Capital lease obligations (note 8) -- 537,970 777,782
- --------------------------------------------------------------------------------------------
8,944,648 8,987,102 8,558,010
Less current portion (772,892) (893,444) (865,906)
- --------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations,
less current portion $8,171,756 $8,093,658 $7,692,104
============================================================================================
</TABLE>
The aggregate maturities of long-term debt and capital lease obligations for
each of the five years subsequent to January 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years ended January 31:
<S> <C>
1997 $ 865,906
1998 598,391
1999 509,209
2000 394,247
2001 221,632
Thereafter 5,968,625
-------------------------------------------------------------------
Total $8,558,010
===================================================================
</TABLE>
F-11
<PAGE> 87
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
(8) LEASES
The Company entered into a noncancelable operating lease for vehicles and
machinery in February 1996 providing for rental payments that include minimum
monthly rentals of $9,571 plus contingent rentals based on mileage. This lease
expires November 2001.
The Company entered into a master operating lease agreement for computer
equipment which consists of three components ("schedules"): two for hardware
and one for software. Regular lease payments of $8,468 commenced for the first
lease schedule in August of 1995 for a period of 48 months.
Subsequent to January 31, 1996, the Company finalized the second and third
lease schedules. Regular lease payments of $3,635 and $6,103, respectively,
commenced for the second and third lease schedules for periods of 48 months and
36 months, respectively.
Included in property and equipment at January 31, 1996 and 1995 are vehicles
held under capital leases totaling $980,372 and $595,793, respectively. For the
years ended January 31, 1996 and 1995, amortization of $168,267 and $55,491,
respectively, is included in vehicle and equipment depreciation expense.
Set forth below are the future minimum lease payments as of January 31, 1996
under capital leases and operating leases with noncancelable terms beyond one
year.
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
- -------------------------------------------------------------------------------------
Years ended January 31:
<S> <C> <C>
1997 $ 336,573 $ 246,319
1998 329,673 246,319
1999 308,973 246,319
2000 183,997 166,819
2001 114,852 4,800
- -------------------------------------------------------------------------------------
$ 1,274,068 $ 910,576
Less interest portion -- (132,794)
- -------------------------------------------------------------------------------------
Total $ 1,274,068 $ 777,782
=====================================================================================
</TABLE>
(9) INCOME TAXES
The provision for federal income taxes is comprised of the following for the
years ended January 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 310,893 $ 470,997 $ 519,087
Deferred 111,175 (14,476) 91,985
- --------------------------------------------------------------------------------------
Total $ 422,068 $ 456,521 $ 611,072
======================================================================================
</TABLE>
F-12
<PAGE> 88
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
Total income taxes for the years ended January 31, 1994, 1995 and 1996 differ
from the "expected" income taxes (computed by applying the U.S. Federal
corporate tax rate of 34%) as follows:
<TABLE>
<CAPTION>
1994 1995 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" income taxes $461,305 $ 688,470 $ 831,931
Nondeductible expenses 26,638 10,956 12,705
Nontaxable income, principally Partnership
earnings (65,875) (242,905) (233,564)
- ------------------------------------------------------------------------------------
$422,068 $ 456,521 $ 611,072
====================================================================================
</TABLE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at January 31, 1994,
1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1994 1995 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 51,145 $ 52,710 $ 64,463
Deferred costs due to accrual for
self insured workers compensation
claims -- 57,800 --
Compensated absences, accrued for
financial reporting purposes, not
currently deductible -- -- 9,520
Other -- 735 --
- ----------------------------------------------------------------------------------
Gross deferred tax assets 51,145 111,245 73,983
Less valuation allowance -- -- --
- ----------------------------------------------------------------------------------
Net deferred tax assets 51,145 111,245 73,983
- ----------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment principally
due to difference in depreciation 92,370 80,470 72,111
Inventory(change in inventory
valuation (Note 15) 126,014 125,069 191,297
Deferred gain -- 58,469 55,323
- ----------------------------------------------------------------------------------
Gross deferred tax
liabilities 218,384 264,008 318,731
- ----------------------------------------------------------------------------------
Net deferred tax liabilities $167,239 $152,763 $244,748
==================================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
F-13
<PAGE> 89
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
(10) PROFIT SHARING AND SALARY REDUCTION PLAN
The Company has a profit sharing and salary reduction plan that covers
substantially all full-time non-union employees. The Company matches the lesser
of 50% of the employee's salary reduction or 8.33% of the employee's salary,
reduced by the employee's salary reduction. Additional amounts may be
contributed at the discretion of the Company's Board of Directors. For the
years ended January 31, 1994, 1995 and 1996, matching contributions charged to
expense totaled $173,633, $190,047 and $243,019, respectively.
(11) RELATED PARTY TRANSACTIONS
The following is a summary of related party transactions and outstanding
related party balances at January 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes from related parties, interest at rates
between 9% and 10%; unsecured, with maturity
dates to September 1998 87,959 103,623 --
Notes due from shareholders, interest rates
between 9% and 10%; unsecured, with maturity
dates to September 1998 148,425 120,917 124,516
- --------------------------------------------------------------------------------------
Due from related parties 236,384 224,540 124,516
- --------------------------------------------------------------------------------------
Notes to related parties, interest at rates
between 6% and 11.5%; unsecured, with
maturity dates to May 2002 1,866,681 1,601,085 1,379,496
Notes to shareholders, interest at 10%;
unsecured, maturing on January 1, 2005. These
notes were interest bearing only until April
1995, at which time the Company began
making monthly principal and interest
payments of $10,885. 829,916 829,916 777,634
- --------------------------------------------------------------------------------------
Notes payable to related parties 2,696,597 2,431,001 2,157,130
Less current portion 385,596 493,873 416,019
- --------------------------------------------------------------------------------------
Notes payable to related parties, less current
portion 2,311,001 1,937,128 1,741,111
======================================================================================
</TABLE>
The Company sells groceries to a related company. For the years ended January
31, 1994, 1995 and 1996 sales totaled $521,524, $1,399,384 and $1,501,122,
respectively.
F-14
<PAGE> 90
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES, DUE FROM RELATED PARTIES, PREPAID
EXPENSES, ACCOUNTS PAYABLE, BANK OVERDRAFT, ACCRUED LIABILITIES AND SHORT-TERM
NOTES PAYABLE
The carrying amount approximates fair value because of the short maturity of
these instruments.
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE TO RELATED
PARTIES
The fair values of the Company's notes payable and capital lease obligations
and notes payable to related parties are estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. The estimated fair market
values of the notes payable and capital lease obligations and notes payable to
related parties, respectively, at January 31, 1996 are approximately $8,400,000
and $2,060,000 using a market rate of 9.5%.
(13) SUBSEQUENT EVENTS
In April 1996, the Company entered into a revolving line of credit with a
commercial bank expiring May 31, 1998 permitting borrowings up to a maximum of
$10,000,000. The interest rate is based on the banks "reference rate" plus .25%
and/or the LIBOR rate plus 2%. In June 1996, the Company formed a wholly owned
subsidiary of Foods, Nevada Baking Company, Inc., and through this subsidiary
purchased an unrelated company operating in the bakery business for $5,100,000.
(14) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations or liquidity.
F-15
<PAGE> 91
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING
COMPANY (A GENERAL PARTNERSHIP)
Notes to Combined Financial Statements, Continued
- --------------------------------------------------------------------------------
(15) OTHER MATTERS
For purposes of these combined financial statements, Foods changed its method
of determining the cost of inventories from the LIFO method to the FIFO method.
This change was made so that the Company's accounting policies would conform to
those of an acquiring company for purposes of a business combination. This
change has been applied by retroactively restating the financial statements of
Foods which are included in the combined accounts comprising these combined
financial statements. This change results in increasing (decreasing) net income
for Foods by approximately ($83,000), $3,000 and ($195,000) for the years ended
January 31, 1994, 1995 and 1996, respectively, from net income previously
reported in stand alone financial statements of Foods. The balance of retained
earnings of Foods for the year ended January 31, 1993 has been adjusted by
$287,982 (net of related income taxes of $97,914) for the effect of applying
retroactively the new method of valuing inventories.
(16) INCENTIVE COMPENSATION PLAN
Effective February 1, 1995, Industries implemented an incentive compensation
plan (the Plan) governed by a Compensation Committee comprised of certain
members of the Board of Directors. The Committee determines in its sole
discretion subject to the provisions of the Plan, the persons who shall
participate in the Plan, and the number of Units to be awarded each
participant. Units are essentially "phantom" options whose value is tied to
the share value of Industries' common stock as determined annually by the
Shareholders pursuant to their buy/sell agreement. Up to 1,000,000 units may be
awarded, in the aggregate, as of any particular time. Units vest 20% multiplied
by the number of anniversaries that have occurred since the Award Date for that
Unit. The only units awarded by the Board of Directors were 80,000 in April
1995. The per unit value at the date of award was $1.42. Compensation expense
related to this plan is not material to the Company's results of operations for
the year ended January 31, 1996. No units were vested as of January 31, 1996.
In connection with the proposed business combination, the Board of Directors of
the Company intend to terminate this plan.
(17) STOCK SPLIT AND PARTNERSHIP EQUITY
On February 1, 1995, the Company's Board of Directors declared a
14,124.2937-for-1 stock split distributable to shareholders on that date. All
references in these financial statements to number of shares have been restated
to reflect the stock split.
For purposes of these combined financial statements., partnership equity of Z
Leasing is classified as a component of paid-in capital (or retained earnings
if paid-in capital is zero or less) in the accompanying combined balance
sheets. Since this partnership equity was previously taxed to the partners of
Z Leasing, it has been treated as a distribution to the partners and a capital
contribution from the partners in the same amount.
F-16
<PAGE> 92
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING COMPANY
Condensed Combined Balance Sheets
April 30, 1995 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Assets
Current Assets
Cash & Equivalents $ 397,704 $ 587,029
Accounts Receivable 11,440,208 11,479,231
Inventories 5,523,013 6,593,573
Due From Related Parties 201,268 123,280
Income Taxes Receivable 62,634 0
Prepaid Expenses and Other Current Assets 333,290 705,574
------------ ------------
Total Current Assets $ 17,958,117 $ 19,488,687
Property and Equipment
Land $ 1,238,596 $ 1,238,596
Building 5,482,021 7,028,634
Machinery and Equipment 1,666,373 2,007,012
Vehicles 4,687,286 5,168,284
Other Property and Equipment 1,119,331 1,203,640
Less: Account Depreciation and Amortization (6,251,799) (7,238,548)
----------- -----------
Net Property and Equipment $ 7,941,808 $ 9,407,618
Other Assets
Note Receivable $ 343,439 $ 336,831
Net Deferred Tax Asset 0 0
Other Assets, Net 150,781 205,721
------------ ------------
Total Other Assets 494,220 542,552
------------ ------------
Total Assets $ 26,394,145 $ 29,438,857
============ ============
Liabilities
Current Liabilities
Bank Line of Credit $ 3,900,000 $ 5,000,000
Bank Overdraft 3,207,906 3,300,341
Accounts Payable 5,397,634 5,958,746
Accrued Liabilities 1,153,716 1,453,425
Short Term Notes Payable 121,053 133,500
Due to Related Parties 120,000 120,000
Current deferred tax liability, net 13,824 117,314
Current Portion of Long-term Debt 1,047,343 1,076,081
------------ ------------
Total Current Liabilities $ 14,961,476 $ 17,159,407
Long-Term Liabilities
Long Term Debt, less current portion $ 7,675,505 $ 7,392,176
Notes Payable to Related Parties 2,242,813 1,965,311
Deferred Tax Liability 133,939 127,434
Minority Interest 209,541 149,941
------------ -----------
Total Long-Term Liabilities $ 10,266,798 $ 9,834,862
Stockholders' Equity
Common Stock $ 1,151,000 $ 1,151,000
Additional Paid-in Capital 0 0
Retained Earnings 14,871 1,493,588
------------ ------------
Total Stockholders Equity 1,165,871 2,644,588
------------ ------------
Total Liabilities and Equity $ 26,394,145 $ 29,438,857
============ ============
</TABLE>
F-17
<PAGE> 93
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING COMPANY
Condensed Combined Statements of Earnings
For period ended April 30, 1995 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenue
Sales 28,496,516 33,067,046
Cost of Sales 23,676,320 27,429,934
---------- ----------
Gross Profit 4,820,196 5,637,112
Operating Expenses
Sales and Delivery 2,695,103 3,044,928
General and Administrative 1,450,566 1,673,083
--------- ---------
Total Operating Expenses 4,145,669 4,718,011
Income from Operations 674,527 919,101
Other Income (Expenses)
Interest Income 10,392 10,290
Interest Expense (326,137) (314,128)
Misc. Income (Expenses) 4,918 11,831
Gain/(Loss) on Sale of Assets 0 0
---------- ----------
Total Other Income (Expense) (310,827) (292,007)
Net Income Before Taxes 363,700 627,094
Federal Income Tax Accrued 119,949 188,150
--------- --------
Net Income 243,751 438,944
========= ========
</TABLE>
F-18
<PAGE> 94
VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND Z LEASING COMPANY
Condensed Combined Statements of Cash Flows
For periods ended April 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash Flow from Operating Activities:
Net Income 243,751 438,944
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and Amortization 300,949 261,678
(Gains) Losses on sale of fixed assets --- (500)
Bad debt expense 39,825 57,000
Deferred tax provision --- ---
Contributed capital --- ---
Changes in operating assets and liabilities:
Decrease (increase) in inventory (460,041) (671,137)
Decrease (increase) in accounts receivable (1,745,437) (189,510)
Decrease (increase) in trade notes receivable --- ---
Decrease (increase) in deferred tax asset --- ---
Decrease (increase) in prepaid expenses (27,345) (316,108)
Decrease (increase) in other assets --- (8,914)
Increase (decrease) in accounts payable and accrued liabilities 308,065 936,170
Increase (decrease) in income tax payable 119,949 188,150
Total Adjustments: (1,464,035) 256,829
Net Cash Provided by (Used in) Operating Activities: (1,220,284) 695,773
Cash Flow from Investing Activities:
Proceeds from sale of property and equipment --- 500
Purchase of property and equipment --- (1,252,180)
Decrease (increase) in notes receivable 35,370 20,630
Sale of marketable securities --- ---
Net Cash Provided by (Used in) Investing Activities: 35,370 1,231,050
Cash Flow from Financing Activities:
Net increase (decrease) in bank overdraft 821,760 719,193
Decrease (increase) in due from related parties 23,272 1,236
Increase (decrease) in due to related parties --- ---
Net borrowing under line-of-credit agreements 1,200,000 300,000
Proceeds from long-term debt --- 67,650
Payments on long-term debt and capital lease obligations (332,442) (240,836)
Dividends paid (173,383) (147,260)
Purchase of treasury stock --- ---
Issuance of preferred stock --- ---
Capital Distribution --- ---
Net Cash Provided by (Used in) Financing Activities: 1,539,207 699,983
Net Increase (Decrease) in Cash 354,293 164,706
Cash at Beginning of Period 43,411 422,323
Cash at End of Period 397,704 887,029
</TABLE>
F-19
<PAGE> 95
NOTES TO CONDENSED COMBINED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The Condensed Combined Financial Statements of Valley Industries, Inc.
and Subsidiaries and "Z" Leasing Co. (collectively, the "Combined Valley
Group") at April 30, 1996 and for the three months ended April 30, 1995 and
1996, respectively, included herein are unaudited, but include all adjustments
(consisting only of normal recurring entries) which the Combined Valley Group's
management believes to be necessary for fair presentation of the financial
position, results of operations and cash flows of the Combined Valley Group at
and for the periods presented. The January 31, 1996 Condensed Combined Balance
Sheet was derived from the Combined Valley Group's annual audited financial
statements. Interim results are not necessarily indicative of results that may
be expected for the full year. Each member of the Combined Valley Group is
under the common management control of the stockholders of Industries. The
condensed combined financial statements have been presented on a combined basis
because the owners of each member of the Combined Valley Group have entered
into an agreement the result of which will be a business combination with an
unrelated public company. Significant intercompany transactions have been
eliminated in the combination of the Combined Valley Group.
NOTE 2 - PER SHARE DATA
Per share data is not relevant since the Combined Valley Group is a
presentation of the combined operations of corporations and a partnership.
NOTE 3 - SUBSEQUENT EVENTS
In June 1996, Industries formed a wholly owned subsidiary of Valley,
Nevada Baking Company, Inc., and through this subsidiary purchased an unrelated
company operating in the bakery business for $5,100,000.
NOTE 4 - CONTINGENCIES
The Combined Valley Group is involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Combined Group's combined financial position, results of
operations or liquidity.
F-20
<PAGE> 96
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AMONG
JP FOODSERVICE, INC.,
JP FOODSERVICE DISTRIBUTORS, INC.
AND
VALLEY INDUSTRIES, INC.,
E & H DISTRIBUTING CO., INC.
AND THE
STOCKHOLDERS
OF
VALLEY INDUSTRIES, INC.
DATED AS OF MAY 17, 1996
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
I. THE MERGER; EFFECTIVE TIME; CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. CERTIFICATE OF INCORPORATION; BY-LAWS AND DIRECTORS AND OFFICERS OF SURVIVING
CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. MERGER SHARE CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER;
DETERMINATION OF ACQUISITION PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . 4
3.1 Merger Share Consideration; Conversion or Cancellation of Shares in the
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Determination of Acquisition Purchase Price . . . . . . . . . . . . . . . . . . 6
IV. REPRESENTATIONS AND WARRANTIES OF INDUSTRIES, VALLEY AND THE STOCKHOLDERS . . . . . 8
4.1 Organization, Qualification and Corporate Power . . . . . . . . . . . . . . . . 8
4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . 9
4.5 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . 10
4.6 Ownership of Industries Shares . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Ownership of Valley Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Partnership Interests in "Z" Leasing . . . . . . . . . . . . . . . . . . . . . 11
4.9 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.11 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.12 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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4.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.15 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.16 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.17 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.18 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.19 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.20 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.22 Collective Bargaining Agreements . . . . . . . . . . . . . . . . . . . . . . . 19
4.23 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.24 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.25 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.26 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.27 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.28 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.29 Officers, Directors and Employees . . . . . . . . . . . . . . . . . . . . . . 22
4.30 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.31 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.32 Purchase Orders, Sales Contracts or Commitments . . . . . . . . . . . . . . . 22
4.33 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.34 Other Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.35 Relationships with Customers and Suppliers . . . . . . . . . . . . . . . . . . 23
4.36 Employee and Stockholder Indebtedness . . . . . . . . . . . . . . . . . . . . 24
4.37 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.38 Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.39 Bonuses and Profit-Sharing Distributions . . . . . . . . . . . . . . . . . . . 26
4.40 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.41 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.42 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.43 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.44 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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V. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND JP . . . . . . . . . . . . . . . 28
5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.3 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . 28
5.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . 29
5.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.6 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
VI. ADDITIONAL COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 31
6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.2 Acquisition of NBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Approval by the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4 JP Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.5 HSR Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.6 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.7 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.8 Nasdaq Stock Market Listing . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.9 Pooling of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
VII. CONDITIONS TO OBLIGATIONS OF INDUSTRIES, VALLEY AND THE STOCKHOLDERS . . . . . . . . 36
7.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . 37
7.2 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.3 No Injunction or Decree . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.4 Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 JP Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.7 Nasdaq Stock Market Listing . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.8 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.9 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . 38
7.10 "Z" Leasing Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.11 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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7.12 Acquisition Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.13 Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
VIII. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND JP . . . . . . . . . . . . . . . . . . 39
8.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . 39
8.2 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.3 No Injunction or Decree . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.4 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.5 Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.7 JP Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.8 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.9 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.10 Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.11 Stockholder Representation Letters . . . . . . . . . . . . . . . . . . . . . . 42
8.12 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.13 Opinion of Certified Public Accountants . . . . . . . . . . . . . . . . . . . 42
8.14 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.15 Nevada Baking Company Purchase . . . . . . . . . . . . . . . . . . . . . . . . 43
8.16 "Z" Leasing Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.17 Nasdaq Stock Market Listing . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.18 Incentive Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.19 Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
IX. POST-CLOSING COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
X. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.1 Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . 44
10.2 Termination by any of Industries, Valley, the Purchaser or JP . . . . . . . . 44
10.3 Termination by the Purchaser or JP . . . . . . . . . . . . . . . . . . . . . . 45
10.4 Termination by Industries or Valley . . . . . . . . . . . . . . . . . . . . . 46
10.5 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
XI. INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 47
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11.1 Indemnity Obligations of the Stockholders . . . . . . . . . . . . . . . . . . 47
11.2 Indemnity Obligations of the Purchaser and JP . . . . . . . . . . . . . . . . 48
11.3 Appointment of Representative . . . . . . . . . . . . . . . . . . . . . . . . 49
11.4 Notification of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.6 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
XII. EXPENSES OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
XIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
13.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
13.4 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
13.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
13.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
SCHEDULES
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3.2(b)-1 . . . . . . . . . . . Projected May Balance Sheet
3.2(b)-2 . . . . . . . . . . . Adjustments to Initial Acquisition Purchase Price - Acquisition
Fees
7.8 . . . . . . . . . . . . . Form of Escrow Agreement
7.9 . . . . . . . . . . . . . Form of Registration Rights Agreement
7.10 . . . . . . . . . . . . . Form of Purchase and Sale Contract
8.9 . . . . . . . . . . . . . Form of Employment Agreement
8.10 . . . . . . . . . . . . . Form of Non-Competition Agreement
8.11 . . . . . . . . . . . . . Form of Stockholder Representation Letter
8.14 . . . . . . . . . . . . . Financial Projections for Station Casinos, Inc. and Stratosphere
Gaming Corp.
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the
17th day of May 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, VALLEY INDUSTRIES,
INC., a Nevada corporation ("Industries"), E & H DISTRIBUTING CO., INC., a
Nevada corporation d/b/a VALLEY FOOD DISTRIBUTORS OF NEVADA ("Valley") and a
direct wholly owned subsidiary of Industries, and LLOYD K. BENSON, DUANE H.
ZOBRIST, E. MARK ZOBRIST, GERRY R. ZOBRIST, R. PHILLIP ZOBRIST AND RICHARD D.
ZOBRIST, the sole stockholders of Industries (collectively, the
"Stockholders").
RECITALS
WHEREAS, in consideration of the mutual agreements of the parties as
set forth herein, the boards of directors of Industries, Valley, the Purchaser
and JP deem it in the best interests of their respective stockholders that
Industries be merged with and into the Purchaser upon the terms and subject to
the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger (as defined in Section 1.1) shall qualify as a reorganization under
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code"), pursuant to which the common stock of Industries shall be converted
into the right to receive common stock of JP;
WHEREAS, the Merger is part of an overall transaction (the
"Acquisition") which includes JP's acquisition of all of the assets and
assumption of all of the liabilities of "Z" Leasing
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Co. (the " 'Z' Leasing Transaction"), a Nevada general partnership (" 'Z'
Leasing") whose sole general partners are the Stockholders;
NOW THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, the parties hereby agree as
follows:
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1 The Merger. Subject to the terms and conditions of
this Agreement and the General Corporation Law of the State of Delaware (the
"DGCL") and the applicable law of the State of Nevada (the "Nevada GCL"), at
the Effective Time (as defined in Section 1.2), the Purchaser and Industries
shall consummate a merger (the "Merger") in which (i) Industries shall be
merged with and into the Purchaser and the separate corporate existence of
Industries shall thereupon cease, (ii) the Purchaser shall be the successor or
surviving corporation in the Merger and shall continue to be governed by the
laws of the State of Delaware and (iii) the separate corporate existence of the
Purchaser with all its rights, privileges, immunities, powers and franchises
shall continue unaffected by the Merger. The corporation surviving the Merger
is sometimes hereinafter referred to as the "Surviving Corporation." The Merger
shall have the effects set forth in the DGCL and the Nevada GCL.
1.2 Effective Time. On the date of the Closing (as
defined in Section 1.3), subject to the terms and conditions of this Agreement,
Industries, the Purchaser and JP shall (i) cause to be executed (A) a
Certificate of Merger in the form required by the DGCL (the
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"Delaware Certificate of Merger") and (B) Articles of Merger in the form
required by the Nevada GCL (the "Nevada Articles of Merger"), and (ii) cause
the Delaware Certificate of Merger to be filed with the Delaware Secretary of
State as provided in the DGCL and the Nevada Articles of Merger to be filed
with the Nevada Secretary of State as provided in the Nevada GCL. The Merger
shall become effective at (i) such time as the Delaware Certificate of Merger
has been duly filed with the Delaware Secretary of State and the Nevada
Articles of Merger have been duly filed with the Nevada Secretary of State or
(ii) such other time as is agreed upon by Industries and JP and specified in
the Delaware Certificate of Merger and the Nevada Articles of Merger. Such
time is hereinafter referred to as the "Effective Time."
1.3 Closing. The closing of the Merger (the "Closing")
shall take place either (i) at the offices of Lionel Sawyer & Collins, 1700
Bank of America Plaza, 300 South Fourth Street, Las Vegas, Nevada 89101 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 other place, time and date as
Industries and JP may mutually agree. The date on which the Closing shall
occur is hereinafter referred to as the "Closing Date."
ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS
AND DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of
Incorporation of the Purchaser, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided therein and under the DGCL.
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2.2 By-Laws. The By-Laws of the Purchaser, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation.
2.3 Directors and Officers. The directors and officers of
the Purchaser immediately prior to the Effective Time shall be the directors
and officers of the Surviving Corporation from and after the Effective Time
until their successors have been duly elected, appointed or qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws.
ARTICLE III
MERGER SHARE CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER;
DETERMINATION OF ACQUISITION PURCHASE PRICE
3.1 Merger Share Consideration; Conversion or Cancellation of
Shares in the Merger.
(a) At the Effective Time, by virtue of the Merger and
without any action by the parties, (i) each outstanding share of common
stock, $.001 par value, of Industries (the "Industries Common Shares")
shall be converted into the right to receive the number of shares of common
stock, $.01 par value, of JP (the "JP Common Shares") determined as specified
in Section 3.2(c) (the "Per Share Consideration") and (ii) each Industries
Common Share to be converted into the right to receive JP Common Shares
pursuant to this Section 3.1(a) shall cease to be outstanding, shall be
canceled and retired and shall cease to exist, and the Stockholder, as the
holder of the certificate (the "Industries Common Share Certificate")
representing such Industries Common Share shall cease to have any rights with
respect thereto, except the right to receive the Per Share Consideration
therefor upon the surrender of such certificate in accordance with Section
3.1(c).
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(b) If, between the date hereof and the Effective Time, the issued
and outstanding JP Common Shares shall have been changed into a different
number of shares or a different class of shares by reason of any
reclassification, recapitalization, reorganization, split-up, combination,
exchange of shares or readjustment, or a stock dividend or other extraordinary
distribution (other than a nonliquidating cash dividend) thereon shall be
declared with a record date within such period, the Merger Share Price and the
number of JP Common Shares into which Industries Common Shares are to be
converted shall be correspondingly adjusted after negotiations conducted in
good faith and promptly concluded between the parties, and the Delaware
Certificate of Merger and the Nevada Articles of Merger shall be amended to
reflect such adjustment.
(c) At the Closing, upon surrender of the Industries Common Share
Certificates to JP for cancellation, the Stockholders shall be entitled to
receive certificates representing the Share Consideration (as defined in
Section 3.2(c)), registered in the names requested by the Stockholders prior to
the Closing (subject to applicable pooling restrictions), and the Industries
Common Share Certificates so surrendered shall forthwith be canceled.
(d) Notwithstanding any other provision of this Agreement, no
certificates representing fractional JP Common Shares shall be issued upon
surrender of any Industries Common Share Certificates. In lieu of any
fractional JP Common Shares, there shall be paid to each holder of Industries
Common Shares who otherwise would be entitled to receive a fractional JP Common
Share an amount of cash (without interest) determined by multiplying such
fraction by the Merger Share Price (as defined in Section 3.2(c)).
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3.2 Determination of Acquisition Purchase Price. (a) The
purchase price for the Acquisition payable by the Purchaser and JP shall be
$42,228,000 (the "Initial Acquisition Purchase Price"), as adjusted pursuant to
Section 3.2(b) (as so adjusted, the "Acquisition Purchase Price"). The two
components of the Acquisition Purchase Price shall be (i) the Share
Consideration as determined pursuant to Section 3.2(c) and (ii) the
consideration in the form of JP Common Shares payable in connection with the
"Z" Leasing Transaction (the " 'Z' Leasing Consideration") as determined
pursuant to Section 3.2(d).
(b) The Initial Acquisition Purchase Price was determined on
the basis of the projected pro forma combined balance sheet of Industries,
Valley and "Z" Leasing (collectively, the "Combined Group") at May 31, 1996
which is attached as Schedule 3.2(b)-1 hereto (the "Projected May Balance
Sheet") and the projected real estate closing costs, investment banking fees,
attorneys' fees, accounting fees and all other transaction costs that will be
incurred by the Combined Group in connection with the Acquisition which are set
forth in Schedule 3.2(b)-2 hereto (the "Projected Acquisition Fees"). As soon
as practicable after May 31, 1996, but in no event later than June 30,1996,
Industries and Valley shall prepare, and cause to be audited by KPMG Peat
Marwick LLP, independent accountants to the Combined Group, a combined balance
sheet of the Combined Group at May 31, 1996 (the "Audited May Balance Sheet").
In preparing the Audited May Balance Sheet, KPMG Peat Marwick shall follow the
accounting notes set forth in Schedule 3.2(b)-2 hereto. Industries shall (i)
deliver to JP a copy of the Audited May Balance Sheet promptly after KPMG Peat
Marwick LLP has furnished its report with respect thereto and (ii) provide JP
and its authorized representatives (or cause JP and its
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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 Audited May Balance Sheet. At the Closing, Industries and Valley
shall deliver to JP a certificate setting forth the actual real estate closing
costs, investment banking fees, attorneys' fees, accounting fees and other
transaction costs that were incurred by the Combined Group in connection with
the Acquisition (the "Actual Acquisition Fees") and allocating the Actual
Acquisition Fees between Industries and Valley, on the one hand, and "Z"
Leasing, on the other hand. The Acquisition Purchase Price shall then be
computed in accordance with Schedule 3.2(b)-2.
(c) The Share Consideration shall equal that number of JP
Common Shares obtained by dividing (x) the excess (A) of the Acquisition
Purchase Price over (B) the "Z" Leasing Consideration by (y) the Merger Share
Price. The Per Share Consideration shall equal that number of JP Common Shares
obtained by dividing (x) the Share Consideration by (y) the number of
Industries Common Shares outstanding at the Effective Time. The Merger 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 Stock Market, over the 20 trading days
immediately preceding the date of the public announcement of this Agreement.
(d) The "Z" Leasing Consideration to be paid at the Closing
shall be equal to $18,000,000 minus the total indebtedness of "Z" Leasing
included in the Audited May Balance
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Sheet and the portion of the Actual Acquisition Fees which is allocated to "Z"
Leasing and shall be payable in JP Common Shares at the Merger Share Price.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
INDUSTRIES, VALLEY AND THE STOCKHOLDERS
Industries, Valley and the Stockholders 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"):
4.1 Organization, Qualification and Corporate Power.
Each of Industries and Valley (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, (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 and (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.
4.2 Capitalization. The entire authorized capital stock
of Industries consists of 20,000,000 Industries Common Shares, of which
9,999,996 Industries Common Shares are issued and outstanding and no Industries
Common Shares are held in treasury. The entire authorized capital stock of
Valley consists of (i) 25,000 shares of a single class of common stock, $1.00
par value, 15,000 shares of which are issued and outstanding and none are held
in treasury and (ii) 50,000 shares of preferred stock, $100 par value (the
"Valley Preferred Stock"), 1,394 shares of which are issued and outstanding and
8,497 shares are held in treasury (collectively, the
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"Valley Shares"). All of the issued and outstanding Industries Common Shares
and Valley Shares have been duly authorized and are validly issued, fully paid
and nonassessable. There are no outstanding or authorized options, warrants,
calls, rights (including preemptive rights), commitments or any other
agreements of any character to which Industries or Valley is a party, or by
which Industries or Valley may be bound, requiring Industries or Valley to
issue, transfer, sell, purchase or redeem any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of its capital stock. There are no
stockholder agreements, voting trusts or other agreements or understandings to
which Industries or Valley is a party or by which it is bound relating to the
voting of any shares of its capital stock.
4.3 Equity Interests. Industries, Valley and "Z" Leasing
do not own capital stock in any corporation or any equity or other ownership
interest in any partnership or other form of business enterprise.
4.4 Authority Relative to this Agreement. Each of
Industries and Valley has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the consummation by Industries and
Valley of the transactions contemplated hereby have been duly and validly
authorized by the boards of directors of Industries and Valley and no other
corporate proceedings on the part of Industries and Valley are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than the approval of this Agreement by the stockholders of Industries in
accordance with the Nevada GCL). This Agreement has been duly
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and validly executed and delivered by Industries, Valley and the Stockholders
and, assuming this Agreement constitutes the valid and binding agreement of the
Purchaser and JP, constitutes the valid and binding agreement of Industries,
Valley and the Stockholders, enforceable against each such party in accordance
with its 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.
4.5 Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement nor the consummation by Industries,
Valley and the Stockholders of the transactions contemplated hereby will: (i)
conflict with or result in any breach of any provision of the Articles of
Incorporation or By-Laws of Industries or Valley; (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"), (B) the filing of the Delaware Certificate of
Merger pursuant to the DGCL and the Nevada Articles of Merger pursuant to the
Nevada GCL and (C) the filing by JP with the Securities and Exchange
Commission (the "SEC") of a registration statement on Form S-4 (the "JP
Registration Statement") for the registration under the Securities Act of 1933,
as amended (the "Securities Act"), of the JP Common Shares to be issued in
connection with the Acquisition and any related state "Blue Sky" or 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
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(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 Industries or
Valley may be bound or to which any of the assets or property of Industries or
Valley may be subject; or (iv) violate any order, injunction, statute, rule or
regulation applicable to Industries or Valley.
4.6 Ownership of Industries Shares. Each of the
Stockholders (i) owns the number of outstanding Industries Common Shares set
forth opposite the name of such Stockholder in the Disclosure Schedule and (ii)
owns such outstanding Industries Common Shares free and clear of all claims,
security interests, mortgages, pledges, liens and other encumbrances of every
nature whatsoever (collectively, "Liens"). The Stockholders constitute all of
the record and beneficial holders of the outstanding Industries Common Shares.
Notwithstanding anything in this Agreement to the contrary, the representations
and warranties in this Section 4.6 are made by the Stockholders severally and
not Jointly.
4.7 Ownership of Valley Shares. Industries (i) owns of
record and beneficially, and has good and marketable title to, all outstanding
Valley Shares and (ii) owns such outstanding Valley Shares free and clear of
all Liens.
4.8 Partnership Interests in "Z" Leasing. The
Stockholders constitute all of the partners in "Z" Leasing. The percentage
interest of each Stockholder in the partnership interests of "Z" Leasing is
identical to the percentage interest of each such Stockholder in the
outstanding Industries Common Shares.
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4.9 Title to Assets. Industries, Valley and "Z" Leasing
have good and marketable title to all of their respective assets, free and
clear of all 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
Valley at January 31, 1996 and the unaudited balance sheet of Industries at
January 31, 1996 (collectively, the "Balance Sheet") or disclosed in the notes
thereto.
4.10 Undisclosed Liabilities. Industries and Valley have
no 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
date of the Balance Sheet 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.
4.11 Financial Statements. The audited balance sheets
and the related statements of operations, stockholders' equity (deficit) and
cash flows, including the related notes thereto, of Valley at January 31, 1994,
January 31, 1995 and January 31, 1996 and for the years then ended have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods, and present fairly in all material respects the financial position of
Valley as of their respective dates and the results of operations and cash
flows for the periods presented therein. The foregoing balance sheets and the
Projected May Balance Sheet have been, and the Audited May
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Balance Sheet shall be, measured under the accounting principles and practices
described in the Disclosure Schedule. The books and records of Industries and
Valley adequately disclose all of the respective assets and liabilities of
Industries and Valley and all information necessary to reflect properly the
financial condition of Industries or Valley, as applicable.
4.12 Brokers' Fees. The Disclosure Schedule sets forth
all liabilities or obligations of Industries, Valley or "Z" Leasing to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
4.13 Real Property. The Disclosure Schedule lists all
real property owned by Industries, Valley and "Z" Leasing. The ownership of
such real property and the uses being made thereof by Industries, Valley and
"Z" Leasing comply with all applicable laws.
4.14 Leases. All leases pursuant to which Industries,
Valley and "Z" Leasing lease to or from others any real or personal property
which have aggregate remaining lease payments due of $50,000 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 Industries, Valley or "Z" Leasing or, to the
knowledge of Industries, Valley or the Stockholders, by any other party
thereto. The Disclosure 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
Industries, Valley or "Z" Leasing comply with all applicable laws.
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4.15 Inventory. The inventory of Industries and Valley
is in good and marketable condition and is capable of being sold in the
ordinary course of business without discounts to the LIFO purchase cost at
which such inventory is recorded on the books and records of Industries or
Valley, as applicable.
4.16 Licenses. Industries, Valley and "Z" Leasing have
all licenses which are necessary for the conduct of their respective
businesses, including, without limitation, all licenses that may be required by
the Nevada Gaming Commission or other state or local authorities to transact
business with hotels and casinos. 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 Industries,
Valley and "Z" Leasing in the conduct of their respective businesses are listed
in the Disclosure Schedule. None of Industries, Valley or "Z" Leasing has
received any notice of conflict with the asserted rights of others in
connection with such licenses, contracts or commitments, and Industries, Valley
and "Z" Leasing are not infringing such rights of others. None of Industries,
Valley or "Z" Leasing is aware of any such conflict or claim of such
infringement or any basis therefor.
4.17 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 Industries, Valley
or "Z" Leasing. All of the rights of
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Industries, Valley or "Z" Leasing in the Intellectual Property are valid and
subsisting. Industries, Valley and "Z" Leasing are the sole and exclusive
owners of, and 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. None of Industries, Valley or "Z" Leasing 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 Industries, Valley or "Z"
Leasing aware of any basis for any such claim.
4.18 Material Adverse Effect. Since January 31, 1996
(the "Balance Sheet Date"), no event has occurred and no circumstance exists
that has or could have a material adverse effect on the financial condition,
business, assets or prospects of Industries or Valley. 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 Industries or Valley, any material increase in the compensation
payable by Industries or Valley to any officer, director, employee or
stockholder, 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 or stockholder.
4.19 Disposition of Assets. Since the Balance Sheet
Date, (i) neither Industries nor Valley has sold or otherwise disposed of, or
committed to dispose of, any assets other than in the ordinary course of
business and (ii) Industries and Valley have maintained their inventories at
customary levels. Since the Balance Sheet Date or except as otherwise provided
herein, neither
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Industries nor Valley has paid or declared any dividends, made or committed to
make any distribution of assets, or made or committed to make any loan.
4.20 Tax Returns. All federal, state, local and foreign
tax returns of Industries and Valley, including, without limitation, returns of
income, sales, social security, withholding and unemployment taxes that are
required to have been filed by Industries and Valley, 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 Industries and
Valley with respect to federal and state income tax, sales tax, unemployment
tax and use tax are not currently being audited and neither Industries nor
Valley has been contacted by any federal or state official regarding any future
audit. The Disclosure Schedule sets forth, for each of the foregoing
categories of tax, the latest taxable year for which the returns of Industries
or Valley have been audited. Neither Industries nor Valley has 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 Industries
or Valley prior to the date hereof. All payroll taxes that Industries or
Valley is required by law to withhold have been withheld and properly
deposited.
4.21 Employee Benefit Plans. Neither Industries nor
Valley has 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"), or any accrued obligation
thereunder, or any current or prospective obligation for the payment of
severance pay to any current or former employee. If any such agreement, plan
or obligation is
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disclosed in the Disclosure Schedule, Industries and Valley have 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, as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("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 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 pension 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 Industries nor any person
required to be aggregated with Industries 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) Industries and Valley are and always have 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 reports required to be
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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, Industries and Valley have 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, Industries and Valley have made or accrued or will have
made or accrued all contributions required to be paid for all periods through
and including the Closing Date. Neither Industries nor Valley has any
obligation to provide retiree health or other welfare benefits. 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. Neither Industries nor Valley has incurred any
liability on account of a termination of an Employee Benefit Plan which has not
been satisfied. Neither Industries nor Valley has 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 Industries or
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Valley subject to the regulations promulgated under the Code and the
regulations of the Pension Benefit Guaranty Corporation. All benefits earned
by employees of Industries and Valley pursuant to any 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 Industries and Valley is set forth in the Disclosure Schedule.
The officers and directors of Industries and Valley have not made any
representation to their employees with respect to the continuation of their
employment after the Closing Date.
4.22 Collective Bargaining Agreements. Neither
Industries nor Valley is a party to any collective bargaining or other labor
union agreement. There is no employee dispute pending or threatened against
Industries or Valley, and neither Industries nor Valley has knowledge of any
existing basis for any such dispute.
4.23 Premises. Except for ordinary wear and tear
attributable to the routine and ordinary day-to-day conduct of the businesses
of Industries and Valley, all of the offices and other equipment of Industries
and Valley which are necessary for their respective business operations are in
good operating condition and repair, and all software utilized by Industries
and Valley is properly licensed and all fees in connection therewith have been
paid or accrued. There are no structural defects or infestations by wood
damaging pests in any of the premises in which Industries or Valley conducts
its business, including, without limitation, the real property located at 300
West Bonanza Road, Las Vegas, Nevada (the "Premises"). Industries and Valley
have properly maintained and repaired all heating, air conditioning,
refrigeration, plumbing and
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electrical systems in all of the Premises, and all such systems and related
equipment, whether owned or leased, are operating satisfactorily.
4.24 Certain Agreements. Neither Industries nor Valley
is 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. Neither
Industries nor Valley is a party to any guaranty or endorsement or has any
contingent obligations under any such agreement.
4.25 Compliance with Laws. The conduct by Industries,
Valley or "Z" Leasing of any of their respective businesses does not 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 none of
Industries, Valley or "Z" Leasing has received a notice of violation of any
such laws, statutes, ordinances, regulations, decrees or orders other than
violations which have been cured. To the knowledge of Industries, Valley and
the Stockholders, no law, statute, ordinance, regulation, decree or order is
proposed to be adopted, the enforcement of which would adversely affect any of
such businesses or the value of the properties or assets of Industries, Valley
or "Z" Leasing.
4.26 Litigation. None of Industries, Valley or "Z"
Leasing is involved in any pending or, to the knowledge of Industries, Valley
or the Stockholders, 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
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any judgment, award, order or decree. Industries, Valley and the Stockholders
do not know of, and have no reason to know of, any material action, claim,
suit, proceeding or investigation threatened against or affecting Industries,
Valley or "Z" Leasing or any of their respective properties or assets. None of
Industries, Valley or any Stockholder has been investigated by, or is currently
being investigated by, the Nevada Gaming Commission or any other state or local
gaming regulatory authority.
4.27 Judgments. None of Industries, Valley or "Z"
Leasing 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 Industries, Valley or "Z" Leasing or (ii) the Acquisition.
4.28 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 Industries, Valley or "Z"
Leasing, 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
Industries, Valley or "Z" Leasing. There has been no default in the payment of
premiums on any such policy, and to the knowledge of Industries, Valley and the
Stockholders, 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.
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4.29 Officers, Directors and Employees. All officers,
directors and employees of Industries and Valley are listed by title or
position in the Disclosure Schedule. No officer, director, employee or
stockholder of Industries or Valley is entitled to any indemnification from
Industries or Valley, has any substantial financial interest, direct or
indirect, in any supplier, customer, lessor or lessee of Industries or Valley
(other than "Z" Leasing), is indebted to Industries or Valley on account of
loans or advances of any kind, or has in his possession or under his control
any property or assets belonging to Industries or Valley. All transactions,
commitments, contracts and agreements between Industries or Valley and any
supplier, customer or any other business entity in which any officer, director,
employee or stockholder of Industries or Valley has a financial interest (other
than "Z" Leasing) are on arms-length terms and at reasonable market prices.
4.30 Employment Agreements. Neither Industries nor
Valley has any employment, service or consulting agreement with any person or
entity which may not be terminated within 30 days' notice without liability to
Industries or Valley.
4.31 Indebtedness. All mortgages and deeds of trust
affecting the Premises are listed in the Disclosure Schedule.
4.32 Purchase Orders, Sales Contracts or Commitments.
The Disclosure Schedule sets forth all of the open purchase orders, sales
contracts and commitments of Industries and Valley which either (i) were not
entered into in the ordinary course of business by Industries or Valley or (ii)
as of the date hereof are in excess of $100,000.
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4.33 Customers. The names and addresses of the customers
of Industries and Valley with orders as of the date hereof in excess of $50,000
are listed in the Disclosure Schedule. To the knowledge of Industries, Valley
and the Stockholders, (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.
4.34 Other Material Contracts. None of Industries,
Valley or "Z" Leasing has any material contract, commitment or agreement that
has not been otherwise disclosed in the Disclosure Schedule. To the knowledge
of Industries, Valley and the Stockholders, (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 Industries, Valley or "Z" Leasing by any such
party under any such contract, commitment or agreement.
4.35 Relationships with Customers and Suppliers. Neither
Industries nor Valley knows 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 Industries or Valley:
(i) any current customer of Industries or Valley
which accounted for over 1% of total consolidated net sales of
Industries or Valley for its most recently completed fiscal
year; or
(ii) any current supplier to Industries or Valley
of items essential to the conduct of the businesses of
Industries or Valley, which items cannot be replaced
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at comparable cost and the loss of which would have an adverse
effect on Industries and Valley, taken as a whole.
Since the Balance Sheet Date, (A) Industries and Valley have 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 $500,000 in products and services on a yearly basis has
terminated its relationship with Industries or Valley.
4.36 Employee and Stockholder Indebtedness. The
Disclosure Schedule sets forth all indebtedness to Industries or Valley of the
Stockholders or the officers, directors or employees of each such company. All
of such indebtedness has been or will be repaid on or before the Closing Date.
All credit cards issued for the account of Industries or Valley shall be
canceled on or before the Closing Date and, upon cancellation, paid in full.
4.37 Environmental Matters. Each of Industries, Valley
and "Z" Leasing is currently in compliance, and has fully complied with, all
laws, ordinances, regulations and orders, including, without limitation, all
zoning, safety and environmental laws, ordinances, regulations and orders,
applicable to its business or properties, and the present uses by each of
Industries, Valley or "Z" Leasing of its properties, whether leased or owned,
do not violate any such laws, ordinances, regulations or orders. There is not
currently and in the past there has not been (i) any 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
any of the properties of Industries, Valley or "Z" Leasing, whether leased or
owned, (ii) any spill, leakage, discharge or release of any hazardous substance
or
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material or pollutant thereon or therefrom, (iii) any off-site disposal by
Industries, Valley or "Z" Leasing of any hazardous substance or material or
pollutant in any location or (iv) any hazardous condition in existence on any
of the properties of Industries, Valley or "Z" Leasing, whether leased or
owned, including, without limitation, the real property leased by Valley and
Industries located at 300 West Bonanza Road, Las Vegas, Nevada. Industries,
Valley and the Stockholders have furnished, or have caused "Z" Leasing to
furnish, to the Purchaser the test results for all tests conducted on the
underground storage tanks located on the Premises. None of Industries, Valley
or "Z" Leasing has purchased or sold asbestos, or any other hazardous substance
or material or pollutant. None of Industries, Valley or "Z" Leasing is
subject, nor shall they be subject, to any 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.
Notwithstanding the foregoing, no environmental representations are made
hereunder with respect to the real property currently owned by NBC to be
acquired by Industries or Valley after the date hereof.
4.38 Product Liability. Except to the extent covered by
insurance, neither Industries nor Valley has liability (and, to the knowledge
of Industries, Valley and the Stockholders, there is no basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against Industries or Valley 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 Industries or Valley.
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4.39 Bonuses and Profit-Sharing Distributions. The total
amount paid and accrued by Industries for the fiscal year 1996 management
bonuses and fiscal year 1996 profit-sharing distributions was $0 and the total
amount paid and accrued by Industries for management bonuses through May 31,
1996 was $0. The total amount paid and accrued by Valley for the fiscal year
1996 management bonuses and fiscal year 1996 profit-sharing distributions
(exclusive of contributions to the 401(k) plan) was $385,669 and the total
amount paid and accrued by Valley for management bonuses through May 31, 1996
will be 17% of Valley's net income before any taxes and bonuses. All bonuses
and profit-sharing distributions earned by employees of Industries and Valley
through May 31, 1996 have been or will be accrued by Industries and Valley.
4.40 Bank Accounts. The Disclosure Schedule sets forth
all bank accounts and marketable securities (both debt and equity) of
Industries, Valley and "Z" Leasing.
4.41 Related Party Agreements. The Disclosure Schedule
sets forth all agreements between (i) Industries and its employees, (ii)
Industries and the Stockholders, (iii) Valley and its employees, (iv) Valley
and the Stockholders, (v) Industries and Valley, (vi) "Z" Leasing and its
general partners, (vii) "Z" Leasing and the Stockholders, (viii) "Z" Leasing
and Industries and (ix) "Z" Leasing and Valley. Furthermore, Industries,
Valley and the Stockholders have disclosed to the Purchaser and JP all
compensation payments made to, or for the benefit of, the Stockholders.
4.42 Margin Stock. None of the JP Common Shares issued
in connection with the Merger shall be used for the purpose of purchasing or
carrying any "margin stock" as defined
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in Regulation U, Regulation X or Regulation G promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 221, 224 and 207,
respectively, or for the purpose of reducing or retiring any indebtedness which
was originally incurred to purchase or carry a "margin stock" or for any other
purpose which might constitute this transaction as a "purpose credit" within
the meaning of any of such Regulations.
4.43 Change in Control. None of Industries, Valley or
"Z" Leasing 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 Industries, Valley or "Z" Leasing to any person or give any person the
right to terminate or alter the provisions of any agreement to which
Industries, Valley or "Z" Leasing is a party.
4.44 Disclosure. The information with respect to
Industries, Valley or the Stockholders included in the JP Registration
Statement in conformity with information furnished in writing to JP by
Industries, Valley or the Stockholders for use in the JP Registration Statement
shall not, as of the effective date of the JP Registration Statement, contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
contained therein not misleading. Neither this Agreement, including, without
limitation, the Disclosure Schedule, the Schedules and the attachments hereto,
furnished by Industries to JP, contains or shall contain any untrue statement
of a material fact or omits or shall omit to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading. For purposes of
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this Agreement, disclosure in one section of the Disclosure Schedule shall
constitute disclosure for the purposes of the other sections of the Disclosure
Schedule.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND JP
The Purchaser and JP jointly and severally represent and warrant to
Industries, Valley and the Stockholders that, except as set forth in the
Disclosure Schedule:
5.1 Organization. The Purchaser and JP are corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
5.2 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.
5.3 Authority Relative to this Agreement. Each of the
Purchaser and JP has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement and the consummation by the Purchaser and JP of the transactions
contemplated hereby have been duly 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 this Agreement or to
consummate
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the transactions contemplated hereby (other than the approval of this Agreement
by the stockholder of the Purchaser in accordance with the DGCL). This
Agreement has been duly and validly executed and delivered by the Purchaser and
JP and, assuming this Agreement constitutes the valid and binding agreement of
Industries, Valley and the Stockholders, constitutes the valid and binding
agreement of the Purchaser and JP, enforceable against each such party in
accordance with its 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.
5.4 Consents and Approvals; No Violation. Neither the
execution and the delivery of this Agreement nor the consummation by the
Purchaser and JP of the transactions contemplated hereby 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, (B) the filing of the Delaware
Certificate of Merger pursuant to the DGCL and the Nevada Articles of Merger
pursuant to the Nevada GCL and (C) the filing by JP of the JP Registration
Statement with the SEC and any related filings under state "Blue Sky" or
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
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assets or property of the Purchaser or JP may be subject, provided the
Purchaser obtains such consents or waivers, if any, as may be required pursuant
to the terms of (A) the Note Purchase Agreements dated as of November 10, 1994
between the Purchaser and the purchasers identified therein, (B) the Credit
Agreement dated as of November 10, 1994 among the Purchaser and the lenders
party thereto or (C) any agreements to which the Purchaser is a party relating
to the Enterprise Trade Receivable Purchase Facility; or (iv) violate any
order, injunction, statute, rule or regulation applicable to the Purchaser or
JP.
5.5 Brokers' Fees. The Disclosure Schedule sets forth 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.
5.6 Disclosure. No 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 or the JP Registration Statement (excluding
information furnished for use therein by Industries, Valley or the
Stockholders) as of the effective date of the JP Registration Statement filed
with the SEC pursuant to this Agreement 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.
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ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 Conduct of Business. (a) During the period from the
date of this Agreement to the Effective Time (the "Standstill Period"), each of
Industries and Valley 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 preserve intact its current business organization and shall use
all 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.
(b) Without limiting the generality of Section 6.1(a),
during the Standstill Period, except as otherwise provided in this Agreement or
authorized in writing in advance by JP, neither Industries nor Valley shall:
(i) issue, deliver, sell, dispose of, pledge or
otherwise encumber, or authorize or propose the issuance,
sale, disposition or pledge or other encumbrance of, (A) any
Industries Common Shares or Valley Shares, or any securities
or rights convertible into, exchangeable for, or evidencing
the right to subscribe for any shares of capital stock of
Industries or Valley of any class, or any rights, warrants,
options, calls, commitments or any other agreements of any
character to purchase or acquire any shares of capital stock
or any securities or rights convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of
capital stock of Industries or Valley of any class, or (B)
any other securities of any other class in respect of, in lieu
of, or in substitution for, Industries Common Shares or Valley
Shares outstanding on the date hereof;
(ii) redeem, purchase or otherwise acquire, or
propose to redeem, purchase or otherwise acquire, any
Industries Common Shares or Valley Shares;
(iii) except for the $100,000 payment described in
Section 6.1(b)(vii), and except for dividends paid by Valley
to Industries for purposes of Industries debt service, split,
combine, subdivide or reclassify any Industries Common Shares
or Valley Shares, or declare, set aside for payment or pay any
dividend, or make any other actual, constructive or deemed
distribution in respect of any shares of its
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capital stock or otherwise make any payments to Stockholders
in their capacity as such;
(iv) adopt any amendments to its Articles of
Incorporation or By-Laws or alter its corporate structure
through merger, liquidation, reorganization, restructuring or
in any other fashion;
(v) make any acquisition (other than the
acquisition of NBC referred to in Section 6.2), by means of
merger, consolidation or otherwise, or disposition, of
assets or securities;
(vi) incur any indebtedness for borrowed money,
other than in the ordinary course of business, or guarantee
any such indebtedness or make any loans, advances or capital
contributions to, or investments in, any other person, except
that members of the Combined Group may make loans or advances
to each other and may borrow money to finance the ongoing
construction at the facility located at 300 West Bonanza Road,
Las Vegas, Nevada (the "Bonanza Premises") or the acquisition
of NBC;
(vii) except for the $100,000 payment made
collectively by Valley and "Z" Leasing to the Stockholders
(individually, and in their capacity as general partners of
"Z" Leasing) on or prior to June 30, 1996, grant compensation
to any of its directors, officers, key employees or
stockholders that is not in accord with the compensation as
adjusted and set forth in Exhibit VIII (page 2 of 2) to the
letter dated March 6, 1996 from Greif & Co. to JP;
(viii) except for bonuses to be paid that have
properly been earned and accrued by Industries and Valley in
the ordinary course of business and payable in June of 1996,
pay any bonuses to directors, officers, key employees or
stockholders;
(ix) maintain inventory levels in a manner that
would not otherwise be maintained in the ordinary course of
business, except for increases in inventory levels associated
with the Station Casinos, Inc. and Stratosphere Gaming Corp.
prime vendor agreements;
(x) fail to maintain any or all insurance
policies, including, without limitation, general liability,
workers' compensation, product liability, automobile and
property insurance policies;
(xi) after May 31, 1996, pay any rental payments
on the Bonanza Premises to "Z" Leasing that are not in
accordance with the rental payments as adjusted and set forth
in Exhibit VIII (page 2 of 2) to the letter dated March 6,
1996 from Greif & Co. to JP;
(xii) 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
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arrangements as in effect on the date hereof to any director,
officer, key employee or stockholder whether past or present;
(xiii) except for the employment agreements
described in Section 8.9 herein, enter into any new, or amend
any existing, employment or severance or termination agreement
with any director, officer, key employee or stockholder;
(xiv) 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;
(xv) except for the payment of normal debt
service payments and the payment of any Actual Acquisition
Fees which Valley and Industries shall elect to pay prior to
the Closing, 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;
(xvi) offer, negotiate, consummate or solicit (by
furnishing any information concerning the business, properties
or assets of Industries or Valley or otherwise) any offer or
proposal for a merger or other business combination involving
the assets or securities of Industries or Valley; or
(xvii) 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) Each of Industries and Valley and each Stockholder 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.
6.2 Acquisition of NBC. The parties acknowledge that
Industries has entered into an agreement to purchase the assets, properties and
business of Baird's Bread Company, a Nevada corporation d/b/a Nevada Baking
Company ("NBC"), under the terms of a purchase agreement dated April 12, 1996.
Industries shall allow the JP Representatives (as defined in Section 6.6) to
have reasonable access during normal business hours throughout the Standstill
Period, to any properties, books and records of NBC and, during such period,
shall furnish
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promptly to the JP Representatives all information concerning the business,
properties and personnel of NBC as the JP Representatives may reasonably
request. Such due diligence shall be deemed to supersede any express or
implied representations or warranties by Industries, Valley and the
Stockholders with respect to the assets, properties and business and any
related obligations of NBC acquired pursuant to the NBC purchase agreement.
Industries, Valley and the Stockholders hereby acknowledge that JP shall have
the right to approve in advance any amendments or modifications to the NBC
purchase agreement, including any such amendment or modification to the final
purchase price. JP shall loan, or cause to be loaned, sufficient funds to
enable Industries or Valley to close the acquisition of NBC subject to the
negotiation of a customary loan agreement and any other necessary collateral
documents. In the event that JP loans money to Industries or Valley for the
purchase of NBC, the term of such loan shall be for no more than one year and
in the event that there is a change of control of Industries or Valley prior to
the maturity of such loan (other than pursuant to this Agreement), the
outstanding balance plus all accrued and unpaid interest under the loan shall
become immediately due and payable.
6.3 Approval by the Stockholders. As soon as practicable
after the definitive Prospectus forming a part of the JP Registration Statement
is filed with the SEC and the satisfaction of related requirements under SEC
rules and regulations, Industries shall take all action necessary to convene a
meeting of the Stockholders for the purpose of voting upon this Agreement and
the transactions contemplated hereby. Industries shall, through its board of
directors, recommend approval of this Agreement and the transactions
contemplated hereby.
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Notwithstanding the foregoing, the board of directors of Industries may
withdraw, modify or change such recommendation if, in the reasonable,
good-faith Judgment of such board of directors upon the advice of its
external counsel, the failure to do so would breach its fiduciary duties to the
Stockholders under applicable law.
6.4 JP Registration Statement. As promptly as
practicable after the date hereof, JP shall prepare and file the JP
Registration Statement with the SEC. Industries, Valley and the Stockholders
shall cooperate with JP in the preparation of the JP Registration Statement.
JP shall use all reasonable efforts to have the JP Registration Statement
declared effective by the SEC at the earliest practicable date and to maintain
the effectiveness of the JP Registration Statement through the Effective Time.
JP shall take any action required to be taken under state "Blue Sky" or
securities laws in connection with the issuance of JP Common Shares pursuant to
this Agreement.
6.5 HSR Act Filings. As promptly as practicable after
the date hereof, JP and Industries 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.
6.6 Access to Information. Upon reasonable notice, each
of Industries and Valley 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
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Industries and Valley, respectively, and, during such period, shall furnish
promptly to the JP Representatives all information concerning the business,
properties and personnel of Industries and Valley, respectively, 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).
6.7 Publicity. Industries 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 Stock Market, in which case the party proposing to issue such
public announcement shall use all reasonable efforts to consult in good faith
with the other party before issuing any such public announcement.
6.8 Nasdaq Stock Market Listing. JP shall use all
reasonable efforts to cause the JP Common Shares to be issued in connection
with the Acquisition to be authorized for listing on the Nasdaq Stock Market,
subject to notice of official issuance thereof.
6.9 Pooling of Interests. None of Industries, Valley,
the Purchaser or JP shall take any action which would prevent the Acquisition
from being accounted for as a pooling of interests for financial reporting
purposes.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF
INDUSTRIES, VALLEY AND THE STOCKHOLDERS
The obligations of Industries, Valley and the Stockholders to
effect the Merger are subject to the satisfaction or waiver at or prior to the
Effective Time of the following conditions:
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7.1 Representations, Warranties and Covenants. All
representations and warranties of the Purchaser and JP contained in Article V
shall be true and correct in all material respects at and as of the Effective
Time as if such representations and warranties were made at and as of the
Effective Time, 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 Effective Time. At the Closing, there shall be delivered to Industries a
certificate signed by an authorized officer of each of the Purchaser and JP to
the foregoing effect.
7.2 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 6.5 shall have expired or been earlier terminated.
7.3 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 reasonable efforts to
have such decree, injunction or order vacated.
7.4 Approval. This Agreement and the Acquisition shall
have been approved by the stockholders of Industries and the general partners
of "Z" Leasing in accordance with applicable law.
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7.5 Certificates. The Purchaser and JP shall have
furnished Industries 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 Industries.
7.6 JP Registration Statement. The JP Registration
Statement shall have become effective and shall have been effective at all
times thereafter to and including the Effective Time, no stop order suspending
the effectiveness thereof shall have been issued during such period and not
withdrawn, and no stop order shall be pending at the Effective Time.
7.7 Nasdaq Stock Market Listing. The JP Common Shares to
be issued in connection with the Acquisition shall have been authorized for
listing on the Nasdaq Stock Market, subject to official notice of issuance.
7.8 Escrow Agreement. The Purchaser and JP shall have
executed and delivered counterparts of the Escrow Agreement in the form
attached hereto as Schedule 7.8, together with any counterparts signed by the
Escrow Agent.
7.9 Registration Rights Agreement. JP shall have
executed and delivered counterparts of the Registration Rights Agreement in the
form attached hereto as Schedule 7.9.
7.10 "Z" Leasing Transaction. The Purchase and Sale
Contract in the form attached hereto as Schedule 7.10 (the " 'Z' Leasing
Agreement") has not been terminated pursuant to Section 6.5 thereof and all
conditions set forth in Section 7.6 of the "Z" Leasing Agreement shall have
been satisfied or waived.
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7.11 Opinion of Counsel. Industries, Valley and the
Stockholders shall have received an opinion, dated as of the Closing Date, from
counsel to Purchaser and JP, addressed and in form satisfactory to Industries,
Valley and the Stockholders.
7.12 Acquisition Fees. As of the Closing Date, the
Purchaser and JP shall cause to be paid the Actual Acquisition Fees not
otherwise paid by the Combined Group.
7.13 Other Documents. The Purchaser and JP shall have
executed and delivered to Industries such other certificates, documents and
instruments as Industries may reasonably request.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS
OF THE PURCHASER AND JP
The obligations of the Purchaser and JP to effect the Merger are
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
8.1 Representations, Warranties and Covenants. All
representations and warranties of Industries, Valley and the Stockholders
contained in Article IV shall be true and correct in all material respects at
and as of the Effective Time as if such representations and warranties were
made at and as of the Effective Time, and Industries, Valley and the
Stockholders shall have performed all material agreements and covenants
required hereby to be performed by them prior to or at the Effective Time. At
the Closing, there shall be delivered to the Purchaser and JP a certificate
signed by an authorized officer of each of Industries and Valley and by each
Stockholder to the foregoing effect.
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8.2 Consents and Approvals. Except for consents or
approvals from First Interstate Bank of Nevada, N.A./Wells Fargo, Bank of
America Nevada and ComSource, Industries and Valley 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
Surviving Corporation's ability to conduct business as conducted by Industries
and Valley at the Closing Date.
8.3 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 reasonable efforts to
have such decree, injunction or order vacated.
8.4 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 6.5 shall have expired or been earlier terminated.
8.5 Approval. This Agreement and the Acquisition shall
have been approved by the stockholders of Industries and the general partners
of "Z" Leasing in accordance with applicable law.
8.6 Certificates. Industries and Valley shall have
furnished to the Purchaser and JP such certificates of the respective officers
of Industries and Valley and others to evidence
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compliance with the conditions set forth in this Article VIII as may be
reasonably requested by the Purchaser and JP.
8.7 JP Registration Statement. The JP Registration
Statement shall have become effective and shall have been effective at all
times thereafter to and including the Effective Time, no stop order suspending
the effectiveness thereof shall have been issued during such period and not
withdrawn, and no stop order shall be pending at the Effective Time.
8.8 Escrow Agreement. Industries, Valley and the
Stockholders shall have executed and delivered counterparts of the Escrow
Agreement in the form attached hereto as Schedule 7.8, together with any
counterparts signed by the Escrow Agent and blank stock powers executed by each
of the Stockholders with respect to the JP Common Shares to be held in the
Escrow Deposit (as defined in Section 11.6(b)).
8.9 Employment Agreements. Employment Agreements for R.
Phillip Zobrist, Lloyd D. Neher, Brad Shultis, Douglas Wood, Charles R.
Jackson, Jr., Michael LaFond and Gregory Clow in the form attached hereto as
Schedule 8.9 shall have been executed and delivered to the Purchaser.
8.10 Non-Competition Agreements. Within 30 days after the
execution of this Agreement, management of Valley shall use its best efforts to
have members of the Valley sales force execute Non-Competition Agreements in
the form attached hereto as Schedule 8.10.
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8.11 Stockholder Representation Letters. Stockholder
Representation Letters in the form attached hereto as Schedule 8.11 shall have
been executed by all of the Stockholders and delivered to JP.
8.12 Opinion of Counsel. The Purchaser and JP shall have
received an opinion, dated as of the Closing Date, from counsel to Industries
and Valley addressed and in form satisfactory to the Purchaser and JP.
8.13 Opinion of Certified Public Accountants. JP shall
have received an opinion from KPMG Peat Marwick LLP, certified public
accountants and independent accountants to Industries, Valley and "Z" Leasing,
addressed to JP, and dated as of the Closing Date, that KPMG Peat Marwick LLP
is not aware of any circumstance related to such entities that would prohibit
the Acquisition from being accounted for as a pooling of interests for
financial reporting purposes. JP shall have received an opinion from Price
Waterhouse LLP, certified public accountants and independent accountants to JP,
addressed to JP, and dated as of the Closing Date, that the Acquisition shall
be accounted for as a pooling of interests for financial reporting purposes;
provided, however, prior to invoking this condition, JP shall use all
reasonable efforts to obtain such opinion from Price Waterhouse LLP.
8.14 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 Industries, Valley or "Z" Leasing. For the purposes of this
Agreement, and without limiting the generality of the foregoing, a material
adverse effect shall be deemed to have occurred in the event that Valley and
Industries fail to
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meet during the Standstill Period at least 80% of the projected gross margin
dollars set forth on Schedule 8.14 for each of the Station Casinos, Inc. or
Stratosphere Gaming Corp. prime vendor agreements.
8.15 Nevada Baking Company Purchase. Subject to the
receipt of acquisition financing, Industries or Valley (or a direct wholly
owned subsidiary of either of them) shall have purchased the assets, properties
and business of NBC under the terms of the NBC purchase agreement referred to
in Section 6.2.
8.16 "Z" Leasing Transaction. The "Z" Leasing Agreement
has not been terminated pursuant to Section 6.5 thereof and all conditions set
forth in Section 7.5 of the "Z" Leasing Agreement shall have been satisfied or
waived.
8.17 Nasdaq Stock Market Listing. The JP Common Shares to
be issued in connection with the Acquisition shall have been authorized for
listing on the Nasdaq Stock Market, subject to official notice of issuance.
8.18 Incentive Compensation Plan. The obligation of
Industries pursuant to the Industries Incentive Compensation Plan shall have
been satisfied in full and the Industries Incentive Compensation Plan shall
have been terminated.
8.19 Other Documents. Industries, Valley and the
Stockholders shall have executed and delivered to the Purchaser and JP such
other certificates, documents and instruments as the Purchaser and JP may
reasonably request.
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ARTICLE IX
POST-CLOSING COVENANT
In the event that the Closing Date is on or after August 30, 1996, JP
will cause to be filed with the SEC a report on Form 8-K. Such report shall be
filed at the end of the first monthly accounting period which is at least 30
days after the Effective Time and shall contain at least 30 days of combined
post-Merger results of operations for JP, Industries, Valley and "Z" Leasing.
ARTICLE X
TERMINATION
10.1 Termination by Mutual Consent. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the
Effective Time by the mutual written consent of Industries, Valley, the
Stockholders, the Purchaser and JP.
10.2 Termination by any of Industries, Valley, the
Purchaser or JP. This Agreement may be terminated and the Merger may be
abandoned by any of Industries, Valley, 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 Merger and such order,
decree, ruling or other action shall have become final and nonappealable or
(ii) the Merger shall not have been consummated within 120 days following the
date of this Agreement; provided, that the right to terminate this Agreement
pursuant to this Section 10.2 shall not be available to any party whose failure
to fulfill any of its obligations under this Agreement results in the failure
of the Merger to occur on or before such date. Upon any termination of this
Agreement pursuant to
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Section 10.1 or this Section 10.2, this Agreement and the "Z" Leasing 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.
10.3 Termination by the Purchaser or JP. This Agreement
may be terminated by the Purchaser or JP and the Merger may be abandoned prior
to the Effective Time if (i) Industries, Valley or the Stockholders shall have
failed to perform in any material respect its obligations under this Agreement
theretofore to be performed by Industries, Valley or the Stockholders, or "Z"
Leasing or the general partners of "Z" Leasing shall have failed to perform in
any material respect their obligations under the "Z" Leasing Agreement
theretofore to be performed by "Z" Leasing or the general partners of "Z"
Leasing, which failure to perform has not been cured within ten days following
receipt by Industries, Valley, the Stockholders, "Z" Leasing or the general
partners of "Z" Leasing of notice of such failure to perform from the Purchaser
or JP, or (ii) any material representation or warranty of Industries, Valley or
the Stockholders or "Z" Leasing contained in this Agreement or the "Z" Leasing
Agreement shall not be true and correct when made or on and as of the Effective
Time as if made on and as of the Effective Time (except to the extent any such
representation or warranty relates to a particular date); provided, that such
failure to be true and correct has not been cured within ten days following
receipt by Industries, Valley or the Stockholders of notice of such failure to
be true and correct from the Purchaser or JP. Notwithstanding anything to the
contrary contained in this Section 10.3, the termination rights of the parties
arising as a result of any "Objectionable
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Matters," as defined in the "Z" Leasing Agreement," shall be exclusively
governed pursuant to Section 6.5 of the "Z" Leasing Agreement.
10.4 Termination by Industries or Valley. This Agreement
may be terminated by Industries or Valley and the Merger may be abandoned prior
to the Effective Time if (i) the Purchaser or JP shall have failed to perform
in any material respect its obligations under this Agreement or the "Z" Leasing
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 Industries or Valley, or (ii)
any material representation or warranty of the Purchaser or JP contained in
this Agreement or in the "Z" Leasing Agreement shall not be true and correct
when made or on and as of the Effective Time as if made on and as of the
Effective Time (except to the extent any such representation or warranty
relates to a particular date); 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 Industries or
Valley.
10.5 Effect of Termination. In the event of the
termination and abandonment of this Agreement pursuant to Section 10.3 or 10.4,
this Agreement and the "Z" Leasing 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 stockholders, other than the
provisions of this Section 10.5 and the provisions of Articles XI and XII, and
Sections 13.3 and 13.6. Nothing contained in this Section 10.5 shall relieve
any party from liability for any breach of this Agreement or the "Z" Leasing
Agreement, including the non-breaching party's right to
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seek damages from the breaching party as well as such other relief that may be
available at law or in equity.
ARTICLE XI
INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
11.1 Indemnity Obligations of the Stockholders. Each of
the Stockholders (which for the purposes of this Article XI also includes each
Stockholder in his capacity as a general partner of "Z" Leasing) hereby jointly
and severally agrees to indemnify and hold the Purchaser and JP harmless from,
and to reimburse the Purchaser and JP for, any Purchaser Indemnity Claims
arising under the terms and conditions of this Agreement and in the "Z" Leasing
Agreement (collectively, 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 Industries, Valley, "Z" Leasing or the
Stockholders 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 Industries, Valley, "Z" Leasing or the Stockholders which are contained in
or made pursuant to the Acquisition Agreements; (iii) the excess, if any, of
the amounts paid by the Purchaser or JP in excess of $45,000 in connection with
the settlement of the Turner Judgment (as defined in Section 11.6) and (iv)
all interest, penalties and costs and expenses (including, without limitation,
all reasonable fees and
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disbursements of counsel) arising out of or related to any indemnification made
under this Section 11.1. Notwithstanding the foregoing, the indemnification
obligations of the Stockholders shall not be applicable to any loss, damage,
deficiency, claim, liability, obligation, suit, action, fee, cost or expense
that is covered by insurance or that would have otherwise been covered by
insurance had the Purchaser, JP or Valley (or its successor) maintained
insurance comparable to that insurance carried by Industries, Valley or "Z"
Leasing prior to the Closing Date.
11.2 Indemnity Obligations of the Purchaser and JP. The
Purchaser and JP jointly and severally agree to indemnify and hold each of the
Stockholders harmless from, and to reimburse each of the Stockholders for, any
Stockholder Indemnity Claims arising under the terms and conditions of the
Acquisition Agreements. For purposes of the Acquisition Agreements, the term
"Stockholder Indemnity Claim" shall mean any loss, damage, deficiency, claim,
liability, suit, action, fee, cost or expense of any nature whatsoever incurred
by the Stockholders (including, without limitation, in their capacities as
general partners of "Z" Leasing) 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 or made pursuant to the terms and conditions of the Acquisition
Agreements; (iii) the excess, if any, of $45,000 over the amount paid in
connection with the settlement of the Turner Judgment (as defined in Section
11.6) and (iv) all interest, penalties, costs and expenses (including, without
limitation, all
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reasonable fees and disbursements of counsel) arising out of or related to any
indemnification made under this Section 11.2. Notwithstanding the foregoing,
the Purchaser and JP shall indemnify the Stockholders 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 and any
indebtedness of Valley which is guaranteed by the Stockholders.
11.3 Appointment of Representative. Each of the
Stockholders hereby appoints R. Phillip Zobrist as his exclusive agent to act
on his behalf with respect to any and all Stockholder 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 Stockholders. Such agent is hereinafter referred to as the
"Representative." The Representative shall take, and the Stockholders 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 Stockholders, as fully as if the
Stockholders were acting on their own behalf, including, without limitation,
asserting Stockholder Indemnity Claims against the Purchaser and JP, defending
all Purchaser Indemnity Claims, consenting to, compromising or settling all
Stockholder 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 11.6(b) with respect to all matters arising
under such 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 each of the Stockholders.
11.4 Notification of Claims. Subject to the provisions
of Section 11.5, in the event of the occurrence of an event which any party
asserts constitutes a Purchaser Indemnity Claim or a Stockholder 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 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
indemnifying 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. An indemnified
party's failure to give timely notice 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
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material prejudice to the indemnifying party. If so desired by any
indemnifying party, such 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 the indemnified
parties, 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 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.
11.5 Survival. All representations and warranties, and,
except as otherwise provided in this Agreement, all covenants and agreements of
the parties 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
earlier of (i) the date of issuance of the report of JP's independent
accountants with respect to the audited consolidated financial statements of JP
for the fiscal year ending June 30, 1997 or (ii) the first anniversary of the
Closing Date.
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11.6 Limitations. (a) Notwithstanding the foregoing, any
claim by an indemnified party against any indemnifying party under the
Acquisition Agreements shall be payable by the indemnifying party only in the
event, and to the extent, that the accumulated amount of the claims in respect
of such indemnifying party's obligations to indemnify under the Acquisition
Agreements shall exceed the amount of $500,000 in the aggregate (the
"Indemnification Threshold"); provided, however, the Indemnification Threshold
shall not be applicable to Purchaser Indemnity Claims and Third-Party Indemnity
Claims resulting from breaches by Industries, Valley, "Z" Leasing or the
Stockholders of the representations and warranties contained in Sections 4.26
and 4.37 (solely insofar as such representations and warranties in Section 4.37
relate to environmental matters) of this Agreement or Section 7.1.12 of the "Z"
Leasing Agreement (solely insofar as such representations and warranties in
Section 7.1.12 relate to environmental matters), which upon resolution of such
Claims or judgment, shall be paid on a dollar-for-dollar basis. In no event
shall the aggregate liability of the Stockholders under the Acquisition
Agreements exceed the aggregate fair market value of the Share Consideration
received by such Stockholders in the Merger and the "Z" Leasing Consideration
received by "Z" Leasing or such Stockholders in their capacity as general
partners of "Z" Leasing in the "Z" Leasing Transaction (whether or not the JP
Common Shares constituting the "Z" Leasing Consideration are held individually
or by "Z" Leasing), with such fair market value to be determined on the basis
of the Merger Share Price; provided, however, that any Purchaser Indemnity
Claims for breach of the representations and warranties of Industries, Valley
and the Stockholders set forth in Section 4.2 of this Agreement or any
Stockholder Indemnity Claims for
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breach of the representation and warranty of the Purchaser and JP set forth in
Section 5.2 of this Agreement shall not be subject to the Indemnification
Threshold, but shall be payable on a dollar-for-dollar basis without any
exclusion therefor.
Notwithstanding the foregoing, in the event that the judgment in favor
of Wilbert Turner (the "Turner Judgment") is not satisfied prior to the
termination of the Escrow, the parties hereto shall negotiate in good faith the
deemed liability with respect to the Turner Judgment and shall be indemnified
based on such determination pursuant, as applicable, to Sections 11.1 or 11.2.
Further, the parties acknowledge and agree that the indemnification obligations
in respect of the Turner Judgment (whether under Section 11.1 or Section 11.2)
shall not be subject to the Indemnification Threshold, but shall be payable on
a dollar-for-dollar basis in the manner provided herein without any exclusion
therefor.
(b) The Stockholders shall deposit into escrow, with the
Escrow Agent named in the Escrow Agreement, a total of 10% of the JP Common
Shares (such deposit being referred to as the "Escrow Deposit") issued in
connection with the Acquisition. Until 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 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, 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 Merger Share Price.
At such time as the aggregate amount of Purchaser Indemnity Claims which have
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been definitively resolved to be payable in favor of the Purchaser or JP
shall exceed the Deemed Escrow Value, each of the Stockholders shall thereafter
be jointly and severally liable to the Purchaser and JP for such claims. The
liability of the Stockholders for payable Purchaser Indemnity Claims in excess
of the Deemed Escrow Value may be satisfied, at the election of each
Stockholder, through (i) the delivery of JP Common Shares to the Purchaser or
JP, such shares to be valued at the Merger 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 the value of the JP Common Shares to be transferred by the Stockholders
into the Escrow Deposit, determined by multiplying such number of JP Common
Shares times the Merger Share Price. With respect to any JP Common Shares to
be returned to the Purchaser or JP by the Stockholders in settlement of
Purchaser Indemnity Claims pursuant to this Section 11.6(b), 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, provided that the value of such dividends shall not be taken
into account for purposes of determining the value of such returned JP Common
Shares, as contemplated under paragraph 47g of Accounting Principles Board
Opinion No. 16 (Interpretation No. 121).
(c) Notwithstanding anything to the contrary herein, any
liability of the Purchaser or JP under the Acquisition Agreements for
Stockholder Indemnity Claims (other than pursuant to item (iv) of Section 11.2)
shall be satisfied solely through the issuance of additional JP Common Shares,
such additional JP Common Shares to valued at the Merger Share Price
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(subject to equitable adjustment to account for any reclassification,
recapitalization, reorganization, split-up, combination, exchange of shares or
readjustment, or a stock dividend or other extraordinary distribution (other
than a nonliquidating cash dividend) in respect of or affecting the JP Common
Shares which is effected after the Effective Date and prior to the issuance of
such additional JP Common Shares) and to be issued on a pro rata basis to the
Stockholders based on their relative equity interests in Industries as of the
Closing Date.
ARTICLE XII
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 this Agreement and the
consummation of the transactions contemplated by this Agreement 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.
Notwithstanding the foregoing, the Purchaser and JP shall bear the expense of
any HSR Act filings made pursuant to Section 6.5 by any of the parties hereto.
ARTICLE XIII
MISCELLANEOUS
13.1 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
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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 Industries, Valley and the Stockholders:
c/o Valley Food Distributors of Nevada
300 W. Bonanza Road
Las Vegas, Nevada 89106
Attention: Mr. R. Phillip Zobrist
Telecopy: (702) 598-0508
With a copy to:
Randolph G. Muhlestein, Esq.
Carlsmith Ball Wichman Case & Ichiki
555 South Flower Street
25th Floor
Los Angeles, California 90071
Telecopy: (213) 623-0032
If to the Purchaser:
JP Foodservice Distributors, Inc.
c/o JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: Lewis Hay, III
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
13.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
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THE STATE OF DELAWARE, EXCLUDING THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
13.3 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 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.
13.4 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.
13.5 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
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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.
13.6 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 April
16, 1996 (except for paragraph 14 thereto). This Agreement inures to the
benefit of and shall be binding on each of the 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.
13.7 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.
13.8 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.
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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.
/s/ LEWIS HAY III
-----------------------------------
By: Lewis Hay III
--------------------------------
Title: SVP & CFO
-----------------------------
JP:
JP FOODSERVICE, INC.
/s/ LEWIS HAY III
-----------------------------------
By: Lewis Hay III
--------------------------------
Title: SVP & CFO
-----------------------------
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INDUSTRIES:
VALLEY INDUSTRIES, INC.
-----------------------------
By: /s/ R. PHILLIP ZOBRIST
--------------------------
Title: President
-----------------------
VALLEY:
E & H DISTRIBUTING CO., INC. d/b/a
VALLEY FOOD DISTRIBUTORS OF NEVADA
-----------------------------
By: /s/ R. PHILLIP ZOBRIST
--------------------------
Title: President/CEO
-----------------------
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STOCKHOLDERS:
/s/ LLOYD K. BENSON
----------------------------
Lloyd K. Benson
/s/ DUANE H. ZOBRIST
----------------------------
Duane H. Zobrist
/s/ E. MARK ZOBRIST
----------------------------
E. Mark Zobrist
/s/ GERRY R. ZOBRIST
----------------------------
Gerry R. Zobrist
/s/ R. PHILLIP ZOBRIST
----------------------------
R. Phillip Zobrist
/s/ RICHARD D. ZOBRIST
----------------------------
Richard D. Zobrist
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SCHEDULE 3.2(b)-2
The following accounting notes apply to the Projected May Balance Sheet,
and shall also apply to the Audited May Balance Sheet:
1. The NBC transaction is not taken into account.
2. No liability is reflected in respect of Acquisition Fees.
3. Except as otherwise described in these accounting notes, the
same accounting policies and practices are consistently used as have
been consistently used in the past by KPMG Peat Marwick LLP in preparing
audited financial statements for Valley and have been applied in a
consistent fashion with past practices.
4. The liability with respect to the Wilbert Turner litigation
and judgment shall be valued at zero. Upon the settlement or other
final disposition of the case, the final liability of Valley thereunder
shall be determined. If the case is not resolved at the time of the
termination of the Escrow, such final liability shall be estimated in good
faith by the parties. If such final liability (as determined or estimated)
shall exceed $45,000, the Stockholders shall be assessed an amount equal
to the excess. If such final liability (as so determined or estimated) shall
be less than $45,000, the Stockholders shall be compensated by an amount
equal to the difference. All adjustments shall be effected through the
Escrow or through the indemnification provisions of the Agreement, and in
each case through JP Common Shares valued at the Merger Share Price.
5. The liability with respect to the consulting agreements entered into
on ______________, between Industries and Richard Zobrist and Lloyd Benson
shall be valued at zero.
6. Subject to the foregoing, the Balance Sheets are prepared per
GAAP and the accounting policies and practices shown in Exhibit "C*" to the
Disclosure Statements.
The Projected Acquisition Fees are as follows:
<TABLE>
<S> <C>
Real Estate Transaction and Closing Costs $40,000
Investment Banking Fees 3,921,000
Accounting Fees 75,000
Attorney's Fees 150,000
-------
Total $4,186,000
</TABLE>
The Actual Acquisition Price shall be the Initial Acquisition Price:
(i) increased by the amount (if any) that the total stockholders'
equity reflected on the Audited May Balance Sheet exceeds
$2,616,000;
(ii) increased by the amount (if any) that the Projected
Acquisiton Fees exceed the Actual Acquistion Fees;
(iii) decreased by the amount (if any) that the total stockholders'
equity reflected on the Audited May Balance Sheet is less than
$2,616,000; and
(iv) decreased by the amount (if any) that the Projected
Acquisition Fees are less than the Actual Acquisition Fees.
<PAGE> 164
EXHIBIT B
PURCHASE AND SALE CONTRACT
This Purchase and Sale Contract ("CONTRACT"), dated as of May 17,
1996 (the "EFFECTIVE DATE") is made between "Z" LEASING CO., a Nevada general
partnership ("SELLER"), and JP FOODSERVICE, INC., a Delaware corporation
("PURCHASER").
RECITALS
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the
"MERGER AGREEMENT"), made as of even date herewith, by and between Purchaser,
JP Foodservice Distributors, Inc. ("JP DISTRIBUTORS"), Valley Industries, Inc.
("INDUSTRIES"), E&H Distributing Co., Inc. and the stockholders of Industries
(who are identical to the partners of Seller), such parties have agreed to the
merger of Industries with and into JP Distributors, in accordance with the
terms contained therein (the "MERGER"); and
WHEREAS, in connection with the Merger, Purchaser has agreed to
purchase all of the assets and assume all of the liabilities of Seller (the
"ACQUISITION") in accordance with the following terms and conditions:
NOW THEREFORE, in consideration of the mutual covenants contained
herein, it is agreed as follows:
1. PARTIES.
The parties to this Contract are the Purchaser and Seller as set forth
above.
2. PROPERTY.
On the terms and conditions stated in this Contract, Seller hereby
agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from
Seller, all of the following described property (collectively, the "PROPERTY"):
2.1 LAND. Fee simple title in and to all of those certain tracts
of land situated in Clark County, Nevada, and described more particularly in
Exhibit A attached hereto and incorporated herein by reference, together with
all rights and appurtenances pertaining to such land, including, without
limitation, all of Seller's right, title and interest, if any, in and to (i)
all minerals, oil, gas, and other hydrocarbon substances thereon, (ii) all
adjacent strips, gores, streets, roads, alleys and rights-of-way, public or
private, open or proposed, (iii) all
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easements, privileges, and hereditaments, whether or not of record, and (iv)
all access, air, water, riparian, development, utility, and solar rights
(collectively, the "LAND").
2.2 IMPROVEMENTS. The office/warehouse building located on the
Land containing approximately 203,000 square feet of area, the maintenance
garage, parking lots, and all other improvements and structures owned by Seller
and constructed on the Land (collectively, the "IMPROVEMENTS"). The Land and
Improvements are referred to herein as the "REAL PROPERTY."
2.3 PERSONAL PROPERTY. All
(1) mechanical systems, fixtures and equipment owned by
Seller which comprise a part of or are attached to or located upon the
Improvements;
(2) maintenance equipment and tools owned by Seller and
used in connection with the Improvements;
(3) site plans, surveys, plans and specifications, and
floor plans in Seller's possession which relate to the Land or Improvements and
which are owned by Seller;
(4) pylons and other signs owned by Seller;
(5) art work, paintings, posters and other graphics owned
by Seller;
(6) keys, and any stoves, refrigerators, chilling
equipment, compressors, ice makers, rack systems, generators, telephones,
switchboards, fixtures, telex and fax machines, computers, and other machinery
or appliances owned by Seller; and
(7) accounts, cash and other personal property of every
kind and character owned by Seller, including, but not limited to, the personal
property identified as such on the disclosure schedule attached hereto and
incorporated herein (the "DISCLOSURE SCHEDULE") (collectively, the "PERSONAL
PROPERTY").
2.4 LEASE RIGHTS. Seller's interest in leases and rental
agreements with tenants occupying space on the Land or in the Improvements (the
"LEASES"), and any guaranties applicable thereto and all security deposits,
advance rental, or like payments, if any, held by Seller in connection with the
Leases.
2.5 OTHER CONTRACT RIGHTS. Seller's interest in all accounts,
accounts receivable, notes and contract rights (collectively, the "CONTRACT
RIGHTS") related to the Land, Improvements, Personal Property or Leases, or
related to any other real or personal property owned or leased by Seller
("OTHER PROPERTY"), including Seller's interest in the following: management,
maintenance, construction, commission, architectural, engineering, parking,
supply or service contracts, warranties, guarantees and bonds and other
agreements related to
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the Improvements, Personal Property, or Leases that will remain in existence
after Closing (collectively, the "OPERATING CONTRACTS"), subject to the
limitations of Section 7.5.12.
2.6 PERMITS. All permits, licenses, certificates of occupancy,
and governmental approvals held by Seller which relate to the Land,
Improvements, Personal Property, Leases, the Contract Rights, the Operating
Contracts or Other Property (collectively, the "PERMITS").
2.7 GOODWILL AND INTELLECTUAL PROPERTY RIGHTS. Any and all
rights, titles and interests of Seller in and to the use of tradenames or
trademarks used in connection with the Property or its business and any
goodwill related to the Property.
2.8 PENDING AWARDS. Any pending or future award made with respect
to condemnation of the Land or Improvements, any award or payment for damage to
the Land or Improvements or claim or cause of action for damage, injury or loss
with respect to the ownership, maintenance and operation of the Land,
Improvements or Other Property.
2.9 OTHER RIGHTS. All right, title and interest of Seller in and
to all other real and personal property, whether tangible or intangible, and
any and all other rights owned by Seller.
3. PURCHASE PRICE.
As the purchase price (the "PURCHASE PRICE") for the Property, the
Purchaser agrees to assume all of the obligations, debts and other liabilities
of the Seller and to issue and deliver to Seller (or, if so designated by
Seller and permitted by applicable pooling restrictions, Seller's partners)
Purchaser's common stock (the "JP STOCK") in the amounts as determined in
Article III of the Merger Agreement, less the amount of any reductions
determined in accordance with Section 6.5 of this Contract.
4. [INTENTIONALLY DELETED]
5. TITLE AND SURVEY.
5.1 TITLE COMMITMENT AND DOCUMENTS. As soon as practicable after
the Effective Date and, in any event, within twenty (20) Business Days after
the Effective Date, Seller, at Seller's sole cost and expense, will cause the
following to be delivered to Purchaser:
(i) a current Commitment for Title Insurance (the "TITLE
COMMITMENT") issued by Nevada Title Company (the "TITLE COMPANY"), on behalf of
a title insurance company reasonably acceptable to Purchaser (the "TITLE
UNDERWRITER"), setting forth the state of title to the Real Property, including
a schedule of all liens, mortgages, security interests, encumbrances, pledges,
assignments, claims, charges, leases (surface, space, mineral, or otherwise),
conditions, restrictions, options, conditional sale contracts, rights of first
refusal, restrictive covenants, exceptions, easements (temporary or permanent),
rights-of-way,
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encroachments, overlaps, or other outstanding claims, interests, estates, or
equities of any nature which affect title to the Real Property (collectively,
the "TITLE EXCEPTIONS") that would appear in an owner's title policy, if one
were issued, and
(ii) true, correct, and legible copies of all instruments
that create or evidence Title Exceptions, including those described in Schedule
B and Schedule C of the Title Commitment.
The Title Commitment will contain the express commitment of the Title Company
to issue the Title Policy (as hereinafter defined) to Purchaser in the amount
of $18,000,000, insuring the title to the Real Property as is specified in the
Title Commitment, with the standard printed exceptions (as modified in
accordance with Section 9.2.2 hereof).
5.2 UCC SEARCHES. As soon as practicable after the Effective Date
and, in any event, within twenty (20) Business Days after the Effective Date,
Seller will also cause to be delivered to Purchaser a currently dated search of
the Uniform Commercial Code Records of Clark County, Nevada, and the Nevada
central filing location under the name of Seller, any subsidiary of Seller and
any predecessor in interest to the Property reasonably requested by Purchaser
(the "UCC SEARCHES").
5.3 SURVEY. Within fifty-five (55) days after the Effective Date,
Seller will cause to be delivered to Purchaser at Seller's sole cost a
currently dated as-built, on-the-ground, ALTA survey of the Real Property
prepared by a surveyor acceptable to the Underwriter and Purchaser, dated no
earlier than the Effective Date, conforming to the requirements set forth on
Exhibit B (the "SURVEY").
5.4 REVIEW OF TITLE COMMITMENT, SURVEY AND EXCEPTION DOCUMENTS.
Purchaser will have a period of ten (10) Business Days (the "TITLE REVIEW
PERIOD") after Purchaser's receipt of the Title Commitment, UCC Searches,
Survey, and other items described in Section 5.1 in which to give written
notice to Seller specifying Purchaser's objections to any one or more of those
items ("TITLE OBJECTIONS"), if any.
5.5 SELLER'S RIGHT TO CURE; PURCHASER'S RIGHT TO TERMINATE. If
Purchaser timely notifies Seller in writing of Title Objections, the respective
rights and obligations of Seller and Purchaser shall be governed by the
provisions of Section 6.5 of this Contract and Article X of the Merger
Agreement.
5.6 PERMITTED EXCEPTIONS. For purposes of this Contract the term
"PERMITTED EXCEPTIONS" will mean (i) liens for property taxes not yet due and
payable, (ii) mortgages, deeds of trust or other security agreements
encumbering the Property in favor of First Interstate Bank of Nevada (Wells
Fargo), (iii) the encroachment onto land owned by the State of Nevada which is
expressly described in the disclosure schedule accompanying the Merger
Agreement, (iv) any liens or encumbrances placed on the Real Property after
the Effective Date with Purchaser's written consent, (v) the Tenant Lease and
Sublease (hereinafter
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defined), and (vi) any liens, encumbrances or exceptions in the nature of
covenants, conditions, restrictions, easements, rights of way, encroachments,
gaps or overlaps or the like which collectively do not interfere with the
existing use or operation of the Property and, in the reasonable judgment of
Purchaser, do not render title unmarketable or non-financeable by an
institutional lender.
6. DUE DILIGENCE.
6.1 ITEMS TO BE DELIVERED BY SELLER. Within fifteen (15) Business
Days following the Effective Date, Seller will deliver to Purchaser for
Purchaser's review the following items (collectively, the "PROPERTY
INFORMATION") if not previously delivered and if applicable to Seller or the
Property:
6.1.1 OPERATING CONTRACTS. True and complete copies of any
written Operating Contracts currently existing, including all modifications,
supplements or amendments, and a list of all unwritten Operating Contracts.
6.1.2 OPERATING CONTRACT SCHEDULE. A complete list and
description of all Operating Contracts including (i) the name(s) of the parties
to each Operating Contract, (ii) the service(s) rendered or to be rendered or
the goods supplied or to be supplied under each such Operating Contract, (iii)
the compensation or other amount payable by or to Seller under each Operating
Contract, (iv) the terms and conditions for terminating each Operating
Contract, and (v) notations as to which Operating Contracts are oral.
6.1.3 LEASES. True and complete copies of all Leases,
subleases, sub-subleases, rental applications, occupancy inspections, rental
deposit agreements, lease guaranties, estoppels and subordination,
nondisturbance and attornment agreements relating to the Property, and all
amendments with respect thereto.
6.1.4 RENT ROLL. A current "RENT ROLL" (herein so called),
certified by Seller and containing (i) a complete list of the Leases, (ii) the
rental rate and deposits paid by each tenant, and (iii) the term of each Lease.
6.1.5 TAX STATEMENTS. Copies of the real estate and
personal property tax statements covering the Property for the three (3)
previous tax years and, if received by Seller, the valuation notice issued with
respect to the Property for the year of Closing, together with evidence of
payment of all taxes currently due or past due.
6.1.6 INSURANCE POLICIES. Copies of all existing
liability, property, rental value, title and other insurance policies
pertaining to the Property.
6.1.7 PERMITS. Copies of all Permits.
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6.1.8 DEVELOPMENT CONDITIONS. A copy of all proffers, if
any, and any land use agreements or other agreements imposing restrictions or
conditions or limiting development of the Real Property.
6.1.9 PLANS AND SPECIFICATIONS. Copies of any surveys,
site plans, subdivision plans, and as-built plans and specifications for the
Real Property and leasehold improvements in the possession of Seller.
6.1.10 WARRANTIES. Copies of all unexpired warranties and
guaranties covering the Personal Property and the roof, elevators, heating and
air conditioning system, refrigeration and chilling equipment, compressors,
rack systems, generators and any other component of the Improvements and a list
and description of any third party bonds, warranties and guaranties which will
be in effect after Closing with respect to the Property.
6.1.11 UTILITY BILLS. Copies of all utility bills payable
by Seller and related to the Real Property received during the prior
twenty-four (24) months.
6.1.12 TESTS AND INSPECTIONS. Copies of soils and other
engineering inspections (including copies of any current elevator inspections),
tank pressure or leakage test results, tests, surveys, studies and reports
pertaining to the Land or Improvements or any portion thereof, and all
inspection reports or audits and information regarding the existence of
hazardous substances or underground storage tanks on the Property or use or
storage of hazardous substances on the Property, and any and all reports and
audits with respect to compliance of the Property with the Americans with
Disabilities Act (the "ADA") and any plan in existence for compliance with ADA
and similar state or local laws with respect to disabled persons.
6.1.13 INVENTORY. A complete, itemized and detailed
inventory of the Personal Property.
6.1.14 DISPUTES. Copies of any and all written claims,
demands or notices from any third party which concern or otherwise affect the
Property received by Seller during its ownership of the Property, including,
without limitation, written notice of potential litigation, written notices
from any governmental or quasi-governmental body, copies of any reports issued
by the local fire marshall regarding inspection of the Improvements during
Seller's ownership of the Real Property and a list of major repairs (excluding
tenant improvements) and major casualties occurring during Seller's ownership
of the Real Property, together with any internal lists of claims or anticipated
litigation related to the Property prepared by or on behalf of the Seller.
6.1.15 INCOME AND EXPENSE STATEMENTS. Copies of income and
expense statements with respect to the Property, including capital
expenditures, for the three (3) most recent calendar years, accurately
reflecting the operating history of the Property during such period.
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6.1.16 OPERATING INFORMATION. Projected capital
expenditures for the Property for the current year and immediately subsequent
year.
6.1.17 FILES. Correspondence and working files relating to
the Property shall be made available for Purchaser's review at the Real
Property.
6.1.18 APPRAISALS. Copies of any appraisals of the Real
Property prepared in the three (3) most recent years.
6.2 INSPECTION PERIOD. During the period commencing with the day
on which all items enumerated in Section 6.1 have been delivered to Purchaser
and ending at 12:00 midnight on the date which is forty-five (45) days
thereafter (the "INSPECTION PERIOD"), Purchaser will have the option and right
to conduct such title and other investigations, inspections, audits, analyses,
surveys, tests, examinations, studies, and appraisals of the Property and to
examine all applicable books and records relating to the Property and its
operation and maintenance, as Purchaser deems necessary or desirable, at
Purchaser's sole cost and expense, for Purchaser's due diligence.
6.3 ACCESS. To facilitate the due diligence contemplated in
Article 6 during the Inspection Period, Seller will provide Purchaser and
Purchaser's agents and representatives access to the Property. Purchaser will
conduct any such physical inspections, tests, examinations, studies, and
appraisals only on Business Days and will use reasonable efforts to minimize
interference with Seller's operations at the Property.
6.4 INDEMNITY. Purchaser agrees to indemnify and hold Seller
harmless from and against any liens, claims, or damages including, without
limitation, any and all demands, actions or causes of action, assessments,
losses, costs, liabilities, interest and penalties, and reasonable attorneys'
fees suffered or incurred by Seller as a result of the negligence or willful
misconduct of Purchaser or Purchaser's agents or representatives in the conduct
of the review. Purchaser will repair or cause to be repaired (i) any damages
caused by the negligence or willful misconduct of Purchaser or Purchaser's
agents or representatives in the conduct of the review, and (ii) to the extent
practical, any other damage arising from Purchaser's inspections, tests,
examinations, studies and approvals. Notwithstanding anything set forth herein
to the contrary, the indemnification obligations of Purchaser in this Section
6.4 will survive the termination of this Contract for any reason.
6.5 OBJECTIONABLE MATTERS. If Purchaser determines during the
Inspection Period that the condition of the Property or related matters or the
results of the title search (collectively a "Breach Matter") constitute a
breach of any of the representations, warranties or agreements of Seller (or
its partners) under this Contract or the Merger Agreement, and the cost to
remedy such condition, as reasonably estimated by Purchaser and Seller, will
exceed Ten Thousand Dollars ($10,000) (except for unsatisfactory environmental
conditions for which there will be no threshold), or if any other matter
related to the Property, or the operation thereof, first discovered during the
Inspection Period (collectively a "Discovered Matter") is not reasonably
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satisfactory to Purchaser, and the cost to remedy such condition, as reasonably
estimated by Purchaser and Seller, will exceed Ten Thousand Dollars ($10,000)
(except for unsatisfactory environmental conditions for which there will be no
threshold) (a Breach Matter and a Discovered Matter together being referred to
herein as an "OBJECTIONABLE MATTER"), Purchaser shall give Seller written
notice of such Objectionable Matter on or before the expiration of the
Inspection Period. Provided, that the estimated cost to remedy the
Objectionable Matter, as reasonably estimated by Purchaser and Seller, does not
exceed Five Hundred Thousand Dollars ($500,000) (the "CAP AMOUNT"), Seller
shall endeavor to remedy the Objectionable Matter on or before the Closing
Date. The Purchase Price, as calculated in accordance with Section 3.2(d) of
the Merger Agreement, shall be reduced in the amount equal to the cost incurred
by Seller or its affiliates to remedy or attempt to remedy the Objectionable
Matter. In the event that Seller or its affiliates fail to remedy an
Objectionable Matter (and pay for such remedy) on or before the Closing Date,
the Purchase Price shall be reduced in an amount equal to the cost, as
reasonably estimated by Purchaser and Seller, to remedy the Objectionable
Matter. The parties acknowledge and agree that the reductions, if any, to the
Purchase Price pursuant to this Section 6.5 or Section 7.1.26 below shall not
affect in any way the calculation of the Z Leasing Consideration solely for
purposes of calculating the Share Consideration determined pursuant to Section
3.2(c) of the Merger Agreement. Purchaser shall not be deemed to have waived
any breach of a representation or warranty of Seller contained in this Contract
or the Merger Agreement because of Purchaser's failure to notify Seller of an
Objectionable Matter before the expiration of the Inspection Period. If the
estimated cost to remedy the Objectionable Matter exceeds the Cap Amount (and
unless Seller agrees to remedy the Objectionable Matter on or before the
Closing Date or agrees to a reduction in the Purchase Price), then Purchaser
may terminate this Contract and the Merger Agreement by giving written notice
to Seller before the end of the Inspection Period, in which case the parties
will have no further obligations under this Contract or the Merger Agreement.
Purchaser agrees to consent to any loans from E&H Distributing Co., Inc. to
Seller which may be necessary to enable Seller to remedy any Objectionable
Matter raised by Purchaser pursuant to this Section 6.5.
7. WARRANTIES, REPRESENTATIONS AND COVENANTS.
7.1 EXPRESS WARRANTIES. Seller, and each of its general partners
in their individual capacities, jointly and severally make the following
warranties and representations to Purchaser:
7.1.1 TITLE TO PROPERTY. Seller has good, marketable and
indefeasible title to the Property, and will convey such title to Purchaser on
the Closing Date free and clear of all options, rights, covenants, easements,
liens and other rights in favor of third parties except the Permitted
Exceptions. Neither Seller nor any of its affiliates owns any parcel of land
which is contiguous with any portion of the Land. The Property is free and
clear of all mechanic's liens, liens, mortgages, or encumbrances of any nature,
except as set forth in the Permitted Exceptions. None of the Property is held
by Seller as lessee, vendor or vendee under a lease or installment sale
contract. The Property is not subject to any outstanding agreements of sale
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or any options, liens, or other rights of third parties to acquire any interest
therein, except as described in this Contract, and upon execution and delivery
by Seller of the conveyancing documents required to be executed by Seller
hereunder, Purchaser will be vested with good, marketable and indefeasible
title to the Property subject to the Permitted Exceptions. Seller does not
own, lease or have any ownership interest whatsoever in any real property other
than the Land and Improvements. Seller does, however, own a promissory note
secured by a wrap-around deed of trust covering a parcel of real property
located in Henderson, Nevada which was formerly owned by Seller. None of the
representations and warranties of Seller relating to the "Property" hereunder
shall be deemed to refer to such parcel of real property in Henderson, but
shall instead be deemed to refer to such secured promissory note.
7.1.2 [INTENTIONALLY DELETED]
7.1.3 PARTIES IN POSSESSION. There are no tenants or other
parties in possession of any part of the Real Property, except (1) E&H
Distributing Co., Inc., d/b/a/ Valley Food Distributors of Nevada, as tenant
(the "TENANT") under a lease dated August 29, 1991, and amended April 1,
1992, February 28, 1994, and August 1, 1994 (and by subsequent annual CPI
rental adjustments) (the "TENANT LEASE"), and (2) Nevada Fast Fuel, Inc., a
Nevada corporation, as Tenant's subtenant (the "Subtenant") thereunder of a
portion of the Land (the "NEVADA FAST FUEL PREMISES") pursuant to a ground
lease dated April 23, 1993, and amended by letter agreement dated as of April
23, 1993 (the "SUBLEASE"), and (3) Fleet Star, Inc., a Delaware corporation
("SUB-SUBTENANT") as Subtenant's subtenant of a portion of the Nevada Fast Fuel
Premises under a Lease Agreement dated as of June 1, 1994 (the "SUB-SUBLEASE")
and no one other than Tenant, Subtenant and Sub-Subtenant has any right to
occupy any part of the Real Property.
7.1.4 BANKRUPTCY. Seller is not aware of any attachments,
executions, assignments for the benefit of creditors, or voluntary or
involuntary bankruptcy proceedings, or proceedings under any debtor relief
laws, contemplated by or pending or threatened against Seller, Tenant,
Subtenant or Sub-Subtenant.
7.1.5 CONDEMNATION. No condemnation, eminent domain or
similar proceedings have been instituted or, to the best of Seller's knowledge,
threatened against the Property.
7.1.6 MATERIAL CHANGE. Seller has not received notice of,
and has no other knowledge or information of, any pending or contemplated
change in any regulation, code, ordinance or law, or private restriction
applicable to the Property, or any natural or artificial condition upon or
affecting the Property, or any part thereof, which would result in any material
change in the condition of the Property or any part thereof, or would in any
way limit or impede the operation of the Property. Except as contemplated by
the Merger Agreement and this Contract, Seller has not, during the prior two
(2) years, sold or otherwise disposed of or committed to dispose of any assets
otherwise than in the ordinary course of business.
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7.1.7 EFFECTIVE CONTRACTS. Except for the list of
Operating Contracts to be delivered to Purchaser pursuant to Article 6 and the
Permitted Exceptions, there are no contracts of construction, employment,
management, service, supply or any other matter which will affect the Property
after Closing.
7.1.8 COMPLIANCE WITH LAWS. The Improvements and Personal
Property and the current operation thereof comply in all material respects with
all laws, regulations, ordinances, rules, orders and other requirements of all
governmental authorities having jurisdiction over the Property or affecting all
or any part thereof or bearing on its construction or operation, and with all
private covenants or restrictions.
7.1.9 LICENSES, PERMITS AND ACCESS. Seller has acquired
all Permits, easements, and rights-of-way, including, without limitation, all
building and occupancy permits, from all governmental authorities having
jurisdiction over the Real Property or from private parties for the normal use,
maintenance, occupancy, and operation of the Real Property and to ensure
unimpeded access, ingress and egress to and from the Real Property as required
to permit normal usage of the Improvements, and all such Permits, easements and
rights-of-way are in full force and effect, and all Permit fees or taxes have
been paid. The Real Property has direct access to and from roads which have
been dedicated to public use and accepted by the appropriate governmental
authority for public use and maintenance. Purchaser acknowledges that it was
disclosed, in the Merger Agreement disclosure schedule, that the State of
Nevada owns an approximately one-acre strip of land between the Land and
Interstate 15 which Seller uses (without express permission) for parking,
landscaping, ingress, egress and the like which uses are convenient but not
critical to the existing operation or use of the Property.
7.1.10 INSURANCE COMPLIANCE. Seller currently has in place
the public liability, casualty and other insurance coverage with respect to the
Property in the amounts reflected in the insurance policies included in the
Property Information. Each of such policies is in full force and effect, and
all premiums due and payable thereunder have been, and on the Closing Date will
be, fully paid when due. No notice of cancellation has been received or
threatened with respect thereto. No insurance company insuring either the
Improvements or the Personal Property nor the Board of Fire Underwriters has
delivered to Seller oral or written notice (i) that any insurance policy now in
effect would not be renewed or (ii) that Seller or any tenant under the Leases
has failed to comply with insurance requirements or (iii) that defects or
inadequacies exist in the Property, or in any part thereof, which could
adversely affect the insurability thereof or the cost of such insurance.
7.1.11 ZONING; SUBDIVISION. Present zoning regulations of
the City of Las Vegas and Clark County, Nevada, permit the current use of the
Real Property, the Real Property complies with all applicable parking and
vehicle maintenance requirements, and there are no governmental or private
regulations, orders, agreements or instruments restricting the current use and
operation of the Land, except rights of occupancy as are set forth in the
Lease, the Sublease and the Sub-Sublease or will be shown in the Title
Commitment.
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7.1.12 HAZARDOUS SUBSTANCES. (a) Neither the Property
nor Seller's operation and management thereof is in violation of any
Environmental Law (as hereinafter defined) or is subject to any clean-up order
or pending or threatened litigation or inquiry by any governmental authority or
to any remedial action or obligations under any Environmental Law; (b) except
as disclosed in Section 4.37 of the Disclosure Schedule attached to the Merger
Agreement, the Property is not now and never has been used for industrial
purposes or for the storage, treatment or disposal of hazardous waste,
hazardous material, chemical waste, or other toxic substance; and (c) no
hazardous substances or toxic wastes have been disposed of or are now located
upon the Property in violation of applicable Environmental Law (including,
without limitation, asbestos and PCB's). As used herein, the term
"ENVIRONMENTAL LAW" means any law, statute, ordinance, rule, regulation, order
or determination of any governmental authority or agency affecting the Property
and pertaining to health or the environment including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of 1982,
the Resource Conservation and Recovery Act of 1986, and the Toxic Substance
Control Act. The hydrocarbon contamination of the Property identified in 1989
has been remediated or has subsided below applicable action levels in
accordance with all Environmental Laws. Prior to Closing, Seller agrees to
promptly notify Purchaser of any fact of which Seller acquires actual knowledge
which would cause this representation to become false and of any written notice
that Seller receives regarding the matters set forth in this Section 7.1.12.
Except for a 10,000 gallon gasoline, 20,000 gallon diesel, and 1,000 gallon
used oil tank, and 10,000 and 6,000 gallon gasoline tanks and a 20,000 gallon
diesel tank located on the Nevada Fast Fuel Premises (the "IDENTIFIED TANKS"),
no underground storage tanks have been or are now located on the Property.
There has been no release, leak or spill from or associated with the Identified
Tanks. The existence, use and operation of the Identified Tanks is in full
compliance with all laws, regulations, ordinances, rules, orders and other
requirements of all governmental authorities.
7.1.13 AGREEMENTS AFFECTING PROPERTY. There are no
contracts or other material obligations, other than those matters set forth in
the Title Commitment, Survey, Operating Contracts, Tenant Lease, Sublease and
Sub-Sublease, the Merger Agreement and this Contract, outstanding (i) for the
sale, exchange or transfer of the Property or any portion thereof or the
business operated thereon by Seller, or (ii) creating or imposing any burdens,
obligations or restrictions on the use or operation of the Property and the
business conducted thereon.
7.1.14 STATUS OF LEASE. Neither the Tenant Lease, Sublease
or Sub-Sublease nor any other contract or agreement delivered by Seller to
Purchaser has been amended, modified or supplemented in any way that will not
be disclosed to Purchaser in writing at the time of delivery to Purchaser of
the Property Information pursuant to Article 6. Other than the Merger
Agreement, there are no written or oral agreements of any kind that could
constitute a lease or contract relating to the Property (including any
agreements for free rent, rent reduction or abatement, expense reimbursement,
construction or remodeling allowance, lease takeover or rent reimbursement, or
other agreements of a tenant inducement nature) that will not be disclosed to
Purchaser in writing at the time of delivery of the Property Information
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pursuant to Article 6. A full and complete copy of the Tenant Lease, the
Sublease and the Sub-Sublease and all amendments thereto have been or will be
provided to Purchaser at the time of delivery of the Property Information
pursuant to Article 6. The Tenant Lease is in full force and effect. Seller
is the owner of the entire lessor's interest in and to the Tenant Lease, and
neither the lessor's interest in the Tenant Lease nor the rents payable
thereunder have been assigned, pledged or encumbered in any manner except as
set forth in the Title Exceptions or disclosed under the Merger Agreement.
Neither the Tenant nor Subtenant nor Sub-Subtenant has any right or option to
purchase or otherwise acquire the Property or any portion thereof or interest
therein (other than certain leasehold extension rights set forth in the Tenant
Lease and Sublease), including, without limitation, any rights of first
refusal. Except as indicated on the Rent Roll attached hereto as Exhibit J,
(i) no rentals or other amounts due under the Tenant Lease or Sublease have
been paid more than one (1) month in advance, (ii) all security and other
deposits of any type required under the Tenant Lease have been paid in full and
are being held by Seller, (iii) except for any failure by Tenant to pay all or
a portion of the monthly rent due after May 31, 1996, there exists no
circumstance or state of facts that constitutes a default by Seller or Tenant
under the Tenant Lease, or that would, with the passage of time or the giving
of notice, or both, constitute a default on the part of Seller or by Tenant, or
that entitles Tenant to defenses against the prompt, current payment and
performance of rent and/or other payments and obligations thereunder, and (iv)
the Tenant has not asserted any defenses, set-offs or claims in connection with
the Tenant Lease. Seller has no knowledge of any pending or threatened
litigation by Tenant against the Seller with regard to the Tenant Lease. There
do not exist any unpaid leasing commissions due with regard to the Tenant Lease
or Sublease. Seller has performed all of the duties, liabilities and
obligations imposed upon Seller by the terms, provisions and conditions
contained in the Tenant Lease and accruing on or prior to the date hereof.
7.1.15 ASSESSMENTS AND UTILITIES. There are no unpaid
assessments for public improvements against the Property, and Seller has no
knowledge of any proposed assessments against the Property. The Property is
not subject to assessments for any street paving or curbing heretofore laid.
All sewer, water, gas, electric, telephone and drainage lines and facilities
required by law and for the normal operation of the Real Property are fully
installed, currently function properly and service the Real Property adequately
for its current use and there are no unpaid assessments or charges for the
installation of existing utilities or for making connection thereto that have
not been fully paid.
7.1.16 TAXES. To the knowledge of Seller, (i) there are no
public plans or proposals for changes in road grade, access or other municipal
improvements which would affect the Property or result in any assessment, (ii)
no ordinance authorizing improvements, the cost of which might be assessed
against Purchaser or the Property is pending, and (iii) no tax proceeding is
pending for the reduction or increase of the assessed tax valuation of the
Property or any portion thereof.
7.1.17 ORGANIZATION AND ENFORCEABILITY. Seller is duly
organized, validly existing and in good standing under the laws of the State of
Nevada. This Contract and all
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instruments, documents and agreements to be executed by Seller in connection
herewith are, or when delivered shall be, duly and validly executed and
delivered by Seller to Purchaser and are, or when delivered shall be, legal,
valid and binding obligations of Seller, enforceable against Seller in
accordance with their respective terms, except as such enforcement may be
limited by bankruptcy, conservatorship, receivership, insolvency, moratorium,
fraudulent transfer or similar laws affecting creditors' rights generally or by
general principles of equity. Each individual executing this Contract on
behalf of Seller represents and warrants to Purchaser that he is duly
authorized to do so. Seller does not own stock or any other equity interest in
any corporation, partnership or enterprise.
7.1.18 CAPACITY. Seller has the capacity and complete
authority to enter into and perform this Contract, and no consent, approval or
other action by any other party or entity will be needed thereafter to
authorize Seller's execution and performance of this Contract. None of the
execution and delivery of this Contract by Seller, the consummation by Seller
of the transaction contemplated hereby or compliance by Seller with any of the
provisions hereof will (i) conflict with or result in any breach of any
provisions of the formation documents of Seller; (ii) except as disclosed to
Purchaser under the Merger Agreement 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 to termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Seller is a party or by which Seller or the Property may be bound; or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller or the Property; except in the case of clauses (ii) or
(iii) above for violations, breaches or defaults for which waivers or consents
have been or will be obtained or are contemplated by the Merger Agreement not
to be obtained prior to the Closing Date (as herein defined).
7.1.19 FOREIGN PERSON. Seller is not a "foreign person",
"foreign trust" or "foreign corporation" within the meaning of the United
States Foreign Investment and Real Property Tax Act of 1980 and the Internal
Revenue Code of 1986, as subsequently amended.
7.1.20 BOOKS AND RECORDS: FINANCIAL OPERATION. All books
and records relating to operating income and expenses of the Property furnished
or made available to Purchaser by Seller were and shall be those maintained by
Seller in regard to the Property in the normal course of business.
7.1.21 NO DEFECTS. There are no structural, physical,
mechanical or other defects, infestations or faults affecting or relating to
all or any part of the Improvements or Personal Property, including, without
limitation, the heating, air conditioning, refrigerating, ventilating,
plumbing, life safety and electrical systems, all of which are in good
operating condition and repair and in material compliance with all applicable
government laws, ordinances, regulations and requirements.
7.1.22 EMPLOYEES. Seller has no employees or employee
benefits plans.
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7.1.23 FLOOD PLAIN. No portion of the Real Property is
located inside the one hundred (100) year flood plain for Clark County, Nevada,
as such plain is determined by the Federal Emergency Management Agency and
published in a Flood Insurance Rate Map for the area including the Real
Property.
7.1.24 SOILS. There are no defects or faults in connection
with the soils, subsoils, grading or compaction of the Land and any prior
environmental contamination has been reduced or remediated to the level
required by all laws, regulations, ordinances, rules, orders and other
governmental requirements.
7.1.25 ASSETS AND LIABILITIES. Set forth on the Disclosure
Schedule is a true, accurate and complete list of all assets and liabilities of
the Seller other than the Land and Improvements permanently affixed thereto.
7.1.26 PREPAYMENT. Except for the indebtedness to First
Interstate Bank (Wells Fargo), there will not be any prepayment fees or
penalties associated with the payoff in cash at or after the Closing of any of
the obligations to be assumed by Purchaser. To the extent any prepayment fees
or penalties or other costs (the "COSTS") are associated with the payoff in
cash at or after Closing of any of the obligations to be assumed by Purchaser,
such Costs will be calculated at Closing and will reduce, dollar for dollar,
the Purchase Price.
7.1.27 DEVELOPMENT. To Seller's knowledge, zoning and
other private and governmental restrictions currently in effect would permit
the construction of approximately 2,000,000 cubic feet of additional warehouse
storage space on the Land.
7.1.28 DISCLOSURE. Neither the Contract, including,
without limitation, the Disclosure Schedule and the other schedules and
exhibits attached hereto, contains any untrue statement of a material fact or
omits or shall omit to state a material fact (considered together with the
disclosures made in connection with the Merger Agreement) necessary in order to
make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
7.2 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser
represents to Seller that, as of the date hereof:
7.2.1 ORGANIZATION. Purchaser is duly organized, validly
existing and in good standing under the laws of the state of its organization.
7.2.2 AUTHORITY. Purchaser has all the requisite power
and authority, has taken all actions required by its organizational documents
and applicable law, and has obtained all necessary consents, to execute and
deliver this Contract and to consummate the transactions contemplated in this
Contract. Each individual executing this Contract on behalf of Purchaser
represents and warrants to Seller that he is duly authorized to do so.
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7.2.3 DISCLOSURE. The representation and warranty of
Purchaser under Section 5.6 of the Merger Agreement is by this reference
incorporated herein.
7.3 REMEDIES. Purchaser's execution of this Contract has been
made, and the purchase of the Property by Purchaser will have been made, in
material reliance by Purchaser on Seller's representations and warranties
contained in this Section. Section 6.5 of this Contract (with respect to
matters raised during the Inspection Period) and the provisions of Article X
of the Merger Agreement shall govern the rights and remedies of Purchaser
hereunder if any of the foregoing warranties and representations proves to be
untrue or incorrect in any material respect prior to Closing. The
representations and warranties set forth in this Section will be true, accurate
and correct in all material respects upon the Effective Date and will survive
the Closing in the manner set forth in Article XI of the Merger Agreement.
7.4 SELLER'S COVENANTS. Except to the extent otherwise permitted
in the Merger Agreement, Seller agrees that during the period from the date
hereof through the Closing Date Seller will perform the following covenants:
7.4.1 OPERATION. Seller will (i) operate the Property
according to its ordinary and usual course of business consistent with past
practice, (ii) continue to offer services and amenities in accordance with
past practices, (iii) permit no material change in presently existing policies
or agreements with tenants, suppliers and customers without, in each instance,
the prior written approval of the Purchaser, (iv) maintain the Improvements
and Personal Property in as good a condition and state of repair as that
existing on the date of this Contract, and (v) pay as they become due all
liabilities of the Seller.
7.4.2 NEW CONTRACTS. Seller will not, without the prior
written consent of Purchaser, (i) enter into any Operating Contract that will
not be fully performable by Seller on or before the Closing Date, (ii) amend,
modify or supplement any existing Operating Contract or Permit in any material
respect, (iii) enter into any new lease for the Property, (iv) amend, modify,
supplement or terminate the Tenant Lease, (v) incur any additional
indebtedness for borrowed money or guarantee any such indebtedness or make any
loans, advances or capital contributions to, or investment in, any other entity
except, in each case, in connection with the current construction on the Real
Property or curing any Objectionable Matter, or (vi) hire or otherwise engage
any employees. Any consent requested by Seller pursuant to this Section 7.4.2
will be deemed rejected if Purchaser does not respond by written notice to
Seller within ten (10) days after Purchaser's receipt of Seller's written
request.
7.4.3 LITIGATION. Seller will advise Purchaser promptly
of any litigation or any arbitration proceeding or any administrative hearing
(including condemnation) before any governmental agency which concerns or
affects the Property in any manner and which is instituted after the Effective
Date.
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7.4.4 CONSTRUCTION. Seller will not, without the prior
written consent of the Purchaser, permit any further modifications or additions
to the Improvements except as necessary to complete the current construction
work. All existing construction will be completed and paid or accrued for in
full and a "notice of completion" recorded among the land records of Clark
County, Nevada on or before June 30, 1996 and a certificate of occupancy for
all space in the Improvements obtained prior to Closing.
7.4.5 SALE OF PERSONAL PROPERTY. Seller will not transfer
or dispose of, or permit to be sold, transferred or otherwise disposed of, or
acquire any item or group of items constituting Personal Property, except in
connection with the current construction work, and except for the use and
consumption of inventory, office and other supplies and spare parts, and the
replacement of worn out, obsolete and defective tools, equipment and
appliances, in the ordinary course of business.
7.4.6 INSURANCE. Seller will maintain Seller's existing
insurance coverage with respect to the Property.
7.4.7 FURTHER ENCUMBRANCES. Seller will not encumber or
permit further encumbrance of the Property in any manner without the prior
written consent of Purchaser.
7.4.8 PERFORMANCE UNDER LEASE. Seller will perform all
its obligations of landlord or lessor under the Tenant Lease, including any
condition for a Tenant's occupancy of the Real Property.
7.4.9 COOPERATION. Seller will assist and co-operate with
Purchaser prior to Closing (i) in obtaining all Permits to continue operating
the Real Property in the present manner and (ii) with any evaluation,
inspection, audit or study of the Real Property prepared by, for or at the
request of Purchaser.
7.4.10 CONSENTS. Seller will promptly file or submit and
diligently prosecute any and all applications or notices with federal, state
and/or local authorities and all other requests with any private persons or
entities for consents, approvals, authorizations and permissions which are
reasonably considered necessary or appropriate for consummation of this
transaction by Seller or to prevent the termination of any Lease, Operating
Contract or Permit subject to exceptions contemplated by the Merger Agreement.
7.4.11 TERMINATION OF OPERATING CONTRACTS. Seller will
terminate effective as of Closing all Operating Contracts which are rejected
pursuant to written notice delivered by Purchaser to Seller during the
Inspection Period.
7.4.12 NOTIFICATION OF SUBSEQUENT EVENTS. Prior to
Closing, Seller will notify Purchaser of any notice received by Seller,
promptly after receipt by Seller, of any material change in or to the Property.
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7.4.13 DISTRIBUTIONS. Between the Effective Date and
Closing, Seller shall not make ordinary or extraordinary distributions to its
partners (except that, during May 1996, Seller may make payments to its
partners in the ordinary course and except that Seller may make distributions
to its partners up to an aggregate amount of $100,000 less any amounts received
by such individuals pursuant to Section 6.1(b)(vii) of the Merger Agreement) of
any kind or accept any contributions. The partnership agreement of Seller will
not be amended or modified. No new partners shall be admitted to Seller and no
existing partners shall withdraw or assign, transfer, pledge or convey their
respective partnership interests in Seller.
7.5 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. Purchaser's
obligation to consummate this transaction is expressly conditional upon the
conditions precedent set forth below in this Contract. In the event that all
of the conditions precedent are not satisfied or waived in writing by the
Closing Date, and in addition to any other remedy Purchaser may have for the
failure of such condition, Purchaser may terminate this Contract.
7.5.1 ABILITY TO OPERATE. At the time of Closing there
will not exist any law, ordinance, rule, regulation, standard or guideline
("GOVERNMENTAL REQUIREMENT") of the United States, State of Nevada, County of
Clark, City of Las Vegas, or any other political subdivision in which the Real
Property is located, or any other political subdivision, agency or
instrumentality exercising jurisdiction over Purchaser or the Real Property,
which Governmental Requirement could have a material adverse effect on the
existence and/or operation of the Real Property as contemplated.
7.5.2 ACCURACY OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. Each of the representations and warranties made by Seller in this
Contract will be true and complete in all material respects on the Closing Date
as if made on and as of such date, and Seller shall have performed all material
agreements and covenants required hereby to be performed by it prior to or on
the Closing Date. At the Closing, there shall be delivered to Purchaser a
certificate signed by an authorized representative of Seller to the foregoing
effect.
7.5.3 TENANT LEASE EFFECTIVE. The Tenant Lease will be in
full force and effect.
7.5.4 ESTOPPEL CERTIFICATES. Seller will have obtained
and delivered to Purchaser not later than ten (10) days prior to the Closing
Date "ESTOPPEL CERTIFICATES" (herein so called), executed by Tenant and
Subtenant in form reasonably acceptable to Purchaser. Prior to delivering the
Estoppel Certificates to Tenant and Subtenant, Seller shall provide Purchaser
five (5) Business Days to review the content of such Estoppel Certificates and
to respond to Seller with noted discrepancies between the Rent Roll attached
hereto as Exhibit J, lease documents provided to Purchaser as a part of the
Property Information pursuant to Article 6 and the Estoppel Certificates.
Also, Seller will use its best efforts to obtain an Estoppel Certificate from
Sub-Subtenant.
7.5.5 CONSISTENCY WITH RENT ROLL. Except as contemplated
by the Merger Agreement, the information in the Estoppel Certificates will not
materially vary from the
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information included in the Rent Roll attached hereto as Exhibit J and the
copies of the Tenant Lease, Sublease and Sub-Sublease delivered to Purchaser
for its review as a part of the Property Information.
7.5.6 UPDATED RENT ROLL. Seller shall have delivered to
Purchaser an updated Rent Roll for the Real Property substantially in the form
of Exhibit J attached hereto, and, except as contemplated by the Merger
Agreement, the information in such updated Rent Roll will not materially vary
from the information included in the Rent Roll attached hereto as Exhibit J.
7.5.7 PERMITS. Purchaser will have been issued, or will
be reasonably satisfied that Purchaser will be issued or able to obtain
immediately after Closing, all material permits and licenses necessary to
continue operating the Real Property in the present manner.
7.5.8 MERGER . The Merger Agreement has not been
permissibly terminated by the Purchaser or JP Distributors and all of the
conditions set forth in Article VIII of the Merger Agreement shall have been
satisfied or waived.
7.5.9 TITLE. The Title Company will have irrevocably
committed to issue the Title Policy.
7.5.10 NO INJUNCTION. 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 reasonable efforts to have
such decree, injunction or order vacated.
7.5.11 ASSUMPTION OF OBLIGATIONS. Except as provided for
in the Merger Agreement, Seller shall have delivered to Purchaser written
consents from all necessary and appropriate parties to the obligations to be
assumed by Purchaser.
7.5.12 OPINION. The Purchaser shall have received the
written, legal opinion of counsel for the Seller related to the Seller, this
Contract, the documents to be delivered at Closing, and consummation of this
transaction, satisfactory in form and content to Purchaser.
7.6 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. Seller's
obligation to consummate this transaction is expressly conditional upon the
conditions precedent set forth below in this Contract. In the event that all
of the conditions precedent are not satisfied or waived in writing by the
Closing Date, and in addition to any other remedy Seller may have for the
failure of such condition, Seller may terminate this Contract.
7.6.1 ACCURACY OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. Each of the representations and warranties made by Purchaser in
this Contract will be true and complete in all material respects on the Closing
Date as if made on and as of such date, and Purchaser
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shall have performed all material agreements and covenants required hereby to
be performed by it prior to or on the Closing Date. At the Closing, there
shall be delivered to Seller a certificate signed by an authorized officer of
Purchaser to the foregoing effect.
7.6.2 MERGER. The Merger Agreement has not been
permissibly terminated by Industries or E&H Distributing Co., Inc. and all of
the conditions set forth in Article VII of the Merger Agreement shall have
been satisfied or waived.
7.6.3 NO INJUNCTION. 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 reasonable efforts to have
such decree, injunction or order vacated.
7.6.4 OPINION. The Seller shall have received the
written, legal opinion of counsel for the Purchaser related to the Purchaser,
this Contract, the documents to be delivered at Closing, and consummation of
this transaction, satisfactory in form and content to Seller.
7.6.5 APPROVAL. This Contract shall have been approved by
the general partners of Seller in accordance with applicable law.
8. INDEMNITY.
8.1 PURCHASER'S INDEMNITY. The Purchaser's indemnification
obligations for breach of any representation, warranty or covenant of Purchaser
contained in this Contract, and the survival thereof, the thresholds applicable
thereto, and the mechanism for addressing claims related thereto, are
exclusively as set forth in Articles XI and X of the Merger Agreement, it
being understood and agreed that any recovery against Purchaser for any such
breach shall be disbursed to Seller's partners in accordance with the
provisions of such Article XI.
8.2 SELLER'S INDEMNITY. Seller's and Seller's partners'
indemnification obligations for breach of any representation, warranty or
covenant of Seller contained in this Contract, and the survival thereof, and
thresholds applicable thereto, and the mechanism for addressing claims related
thereto, are exclusively as set forth in Articles XI and X of the Merger
Agreement.
9. CLOSING.
9.1 CLOSING DATE. The consummation of this transaction (the
"CLOSING") will take place at the offices of the Title Company, or at such
other location upon which Seller and Purchaser mutually agree, at 10:00 a.m. on
the date set for the Merger under the Merger
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Agreement (the "CLOSING DATE"), unless Seller and Purchaser mutually agree to
an earlier or later date or time.
9.2 SELLER'S OBLIGATIONS AT THE CLOSING. At the Closing, Seller
will do, or cause to be done, the following:
9.2.1 DOCUMENTS. Seller will execute, acknowledge (if
necessary), and deliver the following documents:
9.2.1.1 Grant, Bargain, Sale Deed substantially
in the form and substance of Exhibit D, subject only to the Permitted
Encumbrances;
9.2.1.2 Assignment of Landlord's Interest in
Lease substantially in the form and substance of Exhibit E;
9.2.1.3 Blanket Conveyance, Bill of Sale,
Assignment, and Assumption substantially in the form and substance of Exhibit
F; and
9.2.1.4 Certificate of Non-Foreign Status
substantially in the form and substance of Exhibit G.
9.2.2 TITLE POLICY. Seller will cause the Title Company
to issue to Purchaser a standard 1970 Extended Coverage A.L.T.A. Form B Policy
of Owner's Title Insurance (or other form acceptable to Purchaser in its sole
discretion) (the "TITLE POLICY"), in the amount of the Purchase Price, and
insuring that Purchaser has good, marketable and indefeasible fee simple title
to the Real Property, subject only to the Permitted Exceptions and the standard
printed exceptions modified as follows:
9.2.2.1 The exception for restrictive covenants
will be modified to read either "None" or "None except for restrictions to
which Purchaser has either not objected or waived any objections,"
9.2.2.2 The area and boundary lines,
encroachments and overlapping of improvements exception will be modified so as
to refer only to "shortages in area,"
9.2.2.3 The exception as to the lien for taxes
will be limited to those which are a lien but not yet due and payable, and
9.2.2.4 Any exception for "parties in possession"
will be limited to the rights of lessees or tenants under the Tenant Lease, the
Sublease and the Sub-Sublease as disclosed to Purchaser.
In addition, paragraph 14 of the Conditions and Stipulations of the Title
Policy will be deleted, and the Title Policy shall include the following
endorsements to coverage to the extent
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available for title insurance covering real property in the State of Nevada:
access, survey, contiguity, zoning (ALTA 3.1), subdivision, an endorsement
deleting creditor's rights exceptions to coverage, an inflation protection
endorsement, an endorsement providing that the liability limit applies to the
Real Property as a whole and cannot be split by parcels of land, and such other
endorsements as may be reasonably requested by Purchaser (the "ENDORSEMENTS").
The Title Policy will be issued by the Title Company, on behalf of the Title
Underwriter.
9.2.3 ORIGINAL DOCUMENTS. Seller will deliver (outside of
escrow) to Purchaser originals within Seller's possession of all items
enumerated in Section 6.1 of this Contract.
9.2.4 POSSESSION. Seller will deliver possession of the
Property, subject to the Tenant Lease, the Sublease and the Sub-Sublease.
9.2.5 KEYS. Seller will deliver (outside of escrow) all
keys and master keys to all locks located on the Real Property, properly tagged
for identification, as well as combinations, card keys and cards for the
security systems, if any.
9.2.6 ADDITIONAL DOCUMENTS. Seller will execute and
deliver or obtain for delivery to the Title Company any other instruments
reasonably necessary to consummate this Contract, including, by way of example,
closing statements, releases, evidence of the authority of the party executing
instruments on Seller's behalf and (subject to the terms of this Contract and
the Merger Agreement) delivery of instruments required by the Title Company
under Schedule B, Section 1 of the Title Commitment.
9.2.7 COSTS. Seller or Purchaser will pay all costs
allocated to Seller pursuant to Section 9.4 of this Contract, as contemplated
pursuant to the Merger Agreement.
9.3 PURCHASER'S OBLIGATIONS AT THE CLOSING. At the Closing,
Purchaser will do, or cause to be done, the following:
9.3.1 PAYMENT OF CONSIDERATION. Purchaser will pay to
Seller the Purchase Price in JP Stock, as adjusted in accordance with the
provisions of this Contract and the Merger Agreement, and assume all debts,
liabilities and other obligations of Seller in accordance with the Blanket
Conveyance, Bill of Sale, Assignment and Assumption Agreement.
9.3.2 ADDITIONAL DOCUMENTS. Purchaser will execute and
deliver or obtain for delivery to the Title Company any instruments reasonably
necessary to consummate this Contract, including by way of example, closing
statements, a certified copy of corporate resolutions, evidence of
qualification to do business in Nevada and evidence of the authority of the
party executing instruments on behalf of Purchaser reasonably required by the
Title Company.
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9.3.3 COSTS. Purchaser will pay all costs allocated to
Purchaser pursuant to Section 9.4 of this Contract.
9.4 COSTS AND ADJUSTMENTS AT CLOSING.
9.4.1 EXPENSES. Seller will be responsible for the title
examination fees and the Title Policy premium (including the cost of any
special deletions from standard printed exceptions on the Title Policy, the
Endorsements and other endorsements to the Title Policy required by Purchaser),
the cost of the UCC Searches, the cost of preparing the Survey, all transfer
taxes, all of the recording fees, and one-half of the escrow fees charged by
the Title Company (collectively, the "CREDIT EXPENSES"). Purchaser shall
receive a credit against the Purchase Price in the amount of the Credit
Expenses in accordance with Schedule 3.2(b)-2 of the Merger Agreement.
Purchaser will be responsible for one-half of the escrow fees charged by the
Title Company. Seller and Purchaser will be responsible for the fees and
expenses of their respective attorneys.
9.4.2 REAL ESTATE TAXES. Because the Tenant of the Real
Property pays all taxes there will be no proration of real estate taxes.
9.4.3 RENTS. All rents, additional rents and other sums
actually paid under the Tenant Lease for the month of Closing will be prorated
as of the Closing Date.
10. REMEDIES.
10.1 DEFAULT BY SELLER. In the event that Seller wrongfully fails
or refuses to consummate the sale of the Property pursuant to this Contract or
if Seller fails to perform any of Seller's other obligations hereunder either
prior to or at the Closing, the provisions of Section 6.5 of this Contract and
the provisions of Articles X and XI of the Merger Agreement shall exclusively
govern Purchaser's rights and remedies, including any right to terminate this
Contract.
10.2 DEFAULT BY PURCHASER. In the event that Purchaser wrongfully
fails or refuses to consummate the purchase of the Property pursuant to this
Contract or if Purchaser fails to perform any of Purchaser's other obligations
hereunder either prior to or at the Closing, the provisions of Articles X and
XI of the Merger Agreement shall govern Seller's rights and remedies, including
any right to terminate this Contract. Any rights, remedies or recoveries of
Seller against Purchaser shall, pursuant to the Merger Agreement, be exercised
and retained directly by Seller's partners.
11. RISK OF LOSS, DESTRUCTION, AND CONDEMNATION.
11.1 RISK OF LOSS. Subject to the other provisions of this Article
11, risk of loss or damage to the Property, or any part thereof, by fire or
other casualty from the effective date of
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this Contract through the Closing Date will be on Seller. Upon Closing, full
risk of loss with respect to the Property will pass to Purchaser.
11.2 CASUALTY DAMAGE. If, prior to the Closing, the Property, or
any portion thereof, is damaged by fire, or any other cause of whatsoever
nature, Seller will promptly give Purchaser written notice of such damage.
Purchaser will have the option either (i) to require Seller to convey the
Property to Purchaser, in its damaged condition and to assign to Purchaser all
of Seller's right, title and interest in and to any claims Seller may have
under the property insurance policies covering the Property, in which event
Seller will pay to Purchaser the amount of any deductible under applicable
insurance policies but Seller will have no liability or obligation to repair or
replace the Property, or (ii) if the damage constitutes an event or occurrence
which has or could have a "material adverse effect" within the contemplation of
Section 8.14 of the Merger Agreement, to terminate this Contract by written
notice to Seller within twenty (20) Business Days after receipt of Seller's
notice (but not later than the Closing Date).
11.3 CONDEMNATION. If during the pendency of this Contract and
prior to Closing, condemnation proceedings are commenced with respect to the
Property or any portion thereof, which event or occurrence has or could have a
"material adverse effect" within the contemplation of Section 8.14 of the
Merger Agreement,, Purchaser may, at Purchaser's election, terminate this
Contract by written notice to Seller within twenty (20) Business Days after
Purchaser has been notified of the commencement of such condemnation
proceedings (but not later than the Closing Date). If Purchaser does not
exercise such right to terminate within the period prescribed, then Purchaser
shall consummate the purchase of the Property without any reduction in the
Purchase Price as a result thereof, and the right to collect any condemnation
award shall be assigned by Seller to Purchaser.
12. COMMISSIONS AND FEES.
Seller represents and warrants to Purchaser that Seller has not
contacted or entered into any agreement with any real estate broker, agent,
finder, or any party in connection with this transaction and that Seller has
not taken any action which would result in any real estate broker's or finder's
fees or commissions being due and payable to any party with respect to the
transaction contemplated hereby except for Greif & Co., the payment of which
fee has been provided for under the Merger Agreement. Purchaser hereby
represents and warrants to Seller that Purchaser has not contracted or entered
into any agreement with any real estate broker, agent, finder, or any party in
connection with this transaction and that Purchaser has not taken any action
which would result in any real estate broker's or finder's fees or commissions
being due or payable to any party with respect to the transaction contemplated
hereby. Indemnity obligations with respect to this Section 12 are as provided
for in Article XI of the Merger Agreement.
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13. NOTICES.
13.1 WRITTEN NOTICE. All notices, demands and requests which may
be given or which are required to be given by either party to the other party
under this Contract must be in writing.
13.2 METHOD OF TRANSMITTAL. All notices, demands and requests
required to be in writing must be sent by United States certified or registered
mail, postage fully prepaid, return receipt requested, or by Federal Express or
a similar nationally recognized overnight courier service, or by facsimile with
a confirmation copy delivered by a nationally recognized overnight courier
service. Notice will be considered effective on the earlier to occur of actual
receipt or twenty-four (24) hours after depositing same with the overnight
courier service.
13.3 ADDRESSES. The addresses for proper notice under this
Contract are as follows:
Purchaser: JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attn: Lewis Hay, III, Senior Vice President
with a copy to: Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attn: Richard J. Parrino, Esq.
Seller: "Z" Leasing Co.
300 West Bonanza Road
Las Vegas, Nevada 89106
Attn: R. Phillip Zobrist
with a copy to: Carlsmith Ball Wichman Case & Ichiki
555 South Flower Street, 25th Floor
Los Angeles, California 90071
Attn: Randolph G. Muhlestein, Esq.
Either party may from time to time by written notice designate a different
address to the other party.
14. ASSIGNMENT.
Neither party will have the right to assign this Contract, except that
Purchaser will (subject to compliance with applicable pooling requirements)
have the right to assign this Contract or any of its rights hereunder without
the prior written consent of Seller to an affiliate
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of Purchaser. However, no such assignment shall relieve JP Foodservice, Inc.
from any of its obligations hereunder.
15. INTERPRETATION.
15.1 ENTIRE AGREEMENT. This Contract and the Merger Agreement
embody the entire agreement among the parties with respect to the subject
matter hereof and thereof and cannot be varied except by the written agreement
of the parties.
15.2 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section
14, this Contract will be binding upon and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns.
15.3 MULTIPLE COUNTERPARTS. This Contract may be executed in
several counterparts, each of which will be deemed an original, and all of
which will constitute but one and the same instrument.
15.4 CONTROLLING LAW. This Contract will be construed under,
governed by and enforced in accordance with the laws of the State of Nevada.
15.5 EXHIBITS. All exhibits, attachments, annexed instruments and
addenda referred to herein will be considered a part hereof for all purposes
with the same force and effect as if copied verbatim herein.
15.6 NO RULE OF CONSTRUCTION: Seller and Purchaser have each been
represented by counsel in the negotiations and preparation of this Contract;
therefore, this Contract will be deemed to be drafted by both Seller and
Purchaser, and no rule of construction will be invoked respecting the
authorship of this Contract.
15.7 SEVERABILITY. All agreements and covenants contained in this
Contract are severable. In the event any agreement or covenant is held to be
invalid by any court, this Contract will be interpreted as if such invalid
agreement or covenant were not contained herein unless as a result thereof
there would arise a material failure of consideration.
15.8 CONSTRUCTION OF CERTAIN WORDS. "Any" will be construed as
"any and all." "Including" will be construed as "including but not limited
to."
15.9 TIME OF ESSENCE. Time is important to both Seller and
Purchaser in the performance of this Contract, and both parties have agreed
that strict compliance is required as to any date set out in this Contract.
15.10 BUSINESS DAYS. "Business Day" means any day on which
business is generally transacted by banks in Clark County, Nevada. If the
final date of any period which is set out
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in any paragraph of this Contract falls upon a day which is not a Business Day,
then, and in such event, the time of such period will be extended to the next
Business Day.
16. IRS REPORTING REQUIREMENTS.
For the purpose of complying with any information reporting
requirements or other rules and regulations of the Internal Revenue Service
("IRS") that are or may become applicable as a result of or in connection with
the transaction contemplated by this Contract, including, but not limited to,
any requirements set forth in proposed Income Tax Regulation Section 1.6045-4
and any final or successor version thereof (collectively the "IRS REPORTING
REQUIREMENTS"), Seller and Purchaser hereby designate and appoint the Title
Company to act as the "Reporting Person" (as that term is defined in the IRS
Reporting Requirements) to be responsible for complying with any IRS Reporting
Requirements. The Title Company hereby acknowledges and accepts such
designation and appointment and agrees to fully comply with any IRS Reporting
Requirements that are or may become applicable as a result of or in connection
with the transaction contemplated by this Contract. Without limiting the
responsibility and obligations of the Title Company as the Reporting Person,
Seller and Purchaser hereby agree to comply with any provisions of the IRS
Reporting Requirements that are not identified therein as the responsibility of
the Reporting Person, including, but not limited to, the requirement that
Seller and Purchaser each retain an original counterpart of this Contract for
at least four (4) years following the calendar year of the Closing.
17. EFFECTIVE DATE.
This Contract will be deemed executed as of the day and year first
written above.
SELLER:
"Z" LEASING CO., a Nevada general
partnership
Date: By:
-------------------------- -------------------------------------
Lloyd K. Benson, General Partner
Date: By:
-------------------------- -------------------------------------
Duane H. Zobrist, General Partner
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Date: By:
-------------------------- -------------------------------------
E. Mark Zobrist, General Partner
Date: By:
-------------------------- -------------------------------------
Gerry R. Zobrist, General Partner
Date: By:
-------------------------- -------------------------------------
R. Phillip Zobrist, General Partner
Date: By:
-------------------------- -------------------------------------
Richard D. Zobrist, General Partner
PURCHASER:
JP FOODSERVICE, INC., a Delaware
corporation
Date: By:
-------------------------- ----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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JOINDER BY TITLE COMPANY
The undersigned, Nevada Title Insurance Company (referred to in this
Contract as the "TITLE COMPANY"), hereby acknowledges that it received this
Contract executed by Seller and Purchaser on the ____day of _________, 1996,
and accepts the obligations of the Title Company as set forth herein.
NEVADA TITLE INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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EXHIBIT C
RIGHTS OF DISSENTING OWNERS
92A.300 DEFINITIONS.-As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
92A.305 "BENEFICIAL STOCKHOLDER" DEFINED.-"Beneficialstockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
92A.310 "CORPORATE ACTION" DEFINED.-"Corporate action" means the
action of a domestic corporation.
92A.315 "DISSENTER" DEFINED.-"Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.410 to
92A.480, inclusive.
92A.320 "FAIR VALUE" DEFINED.-"Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
92A.325 "STOCKHOLDER" DEFINED.-"Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
92A.330 "STOCKHOLDER OF RECORD" DEFINED.-"Stockholder of record" means
the person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
92A.335 "SUBJECT CORPORATION" DEFINED.-"Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective
or the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
92A.340 COMPUTATION OF INTEREST.-Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED
PARTNERSHIP.-A partnership agreement of a domestic limited partnership or,
unless otherwise provided in the partnership agreement, an agreement of merger
or exchange, may provide that contractual rights with respect to the
partnership interest of a dissenting general or limited partner of a domestic
limited partnership are available for any class or group of partnership
interests in connection with any merger or exchange in which the domestic
limited partnership is a constituent entity.
92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED LIABILITY
COMPANY.-The articles of organization or operating agreement of a domestic
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limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT
CORPORATION.-1. Except as otherwise provided in subsection 2 and unless
otherwise provided in the articles or bylaws, any member of any constituent
domestic nonprofit corporation who voted against the merger may, without prior
notice, but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his
resignation and is thereby entitled to those rights, if any, which would have
existed if there had been no merger and the membership had been terminated or
the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or
bylaws, no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services described in
chapter 704 of NRS to its members only, and no person who is a member of a
domestic nonprofit corporation as a condition of or by reason of the ownership
of an interest in real property, may resign and dissent pursuant to subsection
1.
92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS
AND TO OBTAIN PAYMENT FOR SHARES.-1. Except as otherwise provided in NRS
92A.370 to 92A.390, a stockholder is entitled to dissent from, and obtain
payment of the fair value of his shares in the event of any of the following
corporate actions:
(a) Consummation of a plan of merger to which the domestic
corporation is a party:
(1) If approval by the stockholders is required for the merger by
NRS 92A.120 to 92A. 160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or (2) If the domestic corporation is a
subsidiary and is merged with its parent under NRS 92A. 180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests will
be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the
stockholders to the event that the articles a incorporation, bylaws or a
resolution of the board of directors provides that voting or nonvoting
stockholders are entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment
under NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN
CLASSES OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.-1.
There is no right of dissent with respect to a plan of merger or exchange in
favor of stockholders of any class or series which, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or exchange is to be acted on, were either
listed on a national securities exchange,
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included in the national market system by the National Association of
Securities Dealers, Inc., or held by at least 2,000 stockholders of record,
unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan
of merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of
Securities Dealers, Inc., or held of record by a least 2,000 holders of owner's
interests of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph
(b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require action of
the stockholders of the surviving domestic corporation under NRS 92A. 130.
92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS
ONLY TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL
STOCKHOLDER.-1. A stockholder of record may assert dissenter's rights as to
fewer than all of the shares registered in his name only if he dissents with
respect to all shares beneficially owned by any one person and notifies the
subject corporation in writing of the name and address of each person on whose
behalf he asserts dissenter's rights. The rights of a partial dissenter under
this subsection are determined as if the shares as to which he dissents and-his
other shares were registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to
shares held on his behalf only if:
(a) He submits to the subject corporation the written consent of
the stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and (b) He does so with respect to all
shares of which he is the beneficial stockholder or over which he has power to
direct the vote.
92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.-1.
If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken
without a vote of the stockholders, the domestic corporation shall notify in
writing all stockholders entitled to assert
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dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.-1. If a
proposed corporate action creating dissenters' rights is submitted to a vote at
a stockholders' meeting, a stockholder who wishes to assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is
taken, written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of
subsection 1 is not entitled to payment for his shares under this chapter.
92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO
ASSERT RIGHTS; CONTENTS.-1. If a proposed corporate action creating
dissenters' rights is authorized at a stockholders' meeting, the subject
corporation shall deliver a written dissenter's notice to all stockholders who
satisfied the requirements to assert those rights.
2. The dissenter's notice must be sent no later than 10 days
after the effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and
when certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates
to what extent the transfer of the shares will be restricted after the
demand for payment is received;
(c) Supply a form for demanding payment that includes the date of
the first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days after
the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF STOCKHOLDER.-1. A stockholder to whom a dissenter's notice is sent
must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms
of the notice.
2. The stockholder who demands payment and deposits his
certificates, if any, retains all other rights of a stockholder until those
rights are canceled or modified by the taking of the proposed corporate action.
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3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenter's
notice, is not entitled to payment for his shares under this chapter.
92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER
DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.-1. The subject
corporation may restrict the transfer of shares not represented by a
certificate from the date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to
shares not represented by a certificate retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.-1. Except as
otherwise provided in NRS 92A.470, within 30 days after receipt of a demand for
payment, the subject corporation shall pay each dissenter who complied with NRS
92A.440 the amount the subject corporation estimates to be the fair value of
his shares, plus accrued interest. The obligation of the subject corporation
under this subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its
registered office in this state, of the county where the dissenter resides or
has its registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date of payment, a
statement of income for that year, a statement of changes in the stockholders'
equity for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under
NRS 92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.-1. A subject corporation may elect to withhold payment
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenter's notice as the date of the first announcement
to the news media or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold
payment, after taking the proposed action, it shall estimate the fair value of
the shares, plus accrued interest, and shall offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
subject corporation shall send with its offer a statement of its estimate of
the fair value of the
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shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.-1. A dissenter may notify the
subject corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due, and demand payment of his estimate, less
any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS
92A.470 and demand payment of the fair value of his shares and interest due, if
he believes that the amount paid pursuant to NRS 92A.460 or offered pursuant to
NRS 92A.470 is less than the fair value of his shares or that the interest due
is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to
this section unless he notifies the subject corporation of his demand in
writing within 30 days after the subject corporation made or offered payment
for his shares.
92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF
SUBJECT CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.-1. If a demand for
payment remains unsettled, the subject corporation shall commence a proceeding
within 60 days after receiving the demand and petition the court to determine
the fair value of the shares and accrued interest. If the subject corporation
does not commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the
district court of the county where its registered office is located. If the
subject corporation is a foreign entity without a resident agent in the state,
it shall commence the proceeding in the county where the registered office of
the domestic corporation merged with or whose shares were acquired by the
foreign entity was located.
3. The subject corporation shall make all dissenters, whether or
not residents of Nevada, whose demands remain unsettled, parties to the
proceeding as in an action against their shares. All parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is
commenced under subsection 2 is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or any amendment thereto. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is
entitled to a judgment:
(a) For the amount, if any, by which the court finds the fair
value of his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his
after-acquired shares for which the subject corporation elected to withhold
payment pursuant to NRS 92A.470.
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92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES.-1. The court in a proceeding to determine fair value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel
and experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters
if the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor
of any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the subject
corporation, the court may award to those counsel reasonable fees to be paid
out of the amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court
may assess the costs against the subject corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding
commenced pursuant to NRS 92A.460 or 92A.490 from applying the provisions of
N.R.C.P. 68 or NRS 17.115.
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