<PAGE>
As filed with the Securities and Exchange Commission on September 23, 1997
Registration No. 333-32711
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
JP Foodservice, Inc.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 5141 52-1634568
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
----------------------
9830 Patuxent Woods Drive
Columbia, Maryland 21046
(410) 312-7100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------------
David M. Abramson
Senior Vice President and General Counsel
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
(410) 312-7100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
Copies to:
<TABLE>
<S> <C> <C>
Richard J. Parrino Edward D. Herlihy Elizabeth C. Kitslaar
Hogan & Hartson, L.L.P. Wachtell, Lipton, Rosen & Katz Jones, Day, Reavis & Pogue
555 Thirteenth Street, N.W. 51 West 52nd Street 77 West Wacker
Washington, D.C. 20004 New York, NY 10019 Chicago, Illinois 60601-1692
(202) 637-5600 (212) 403-1000 (312) 782-3939
</TABLE>
----------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of a subsidiary of JP Foodservice,
Inc. and Rykoff-Sexton, Inc., as described in the Agreement and Plan of Merger,
dated as of June 30, 1997, as amended (the "Merger Agreement"), attached as
Appendix A to the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Offering Price
securities to be registered Per Unit Aggregate Offering Price Amount of Registration Fee
registered
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 25,680,118 (1) N.A. $ 746,252,000 (2) $ 226,137 (2)
$.01 par value per share
- ----------------------------------------------------------------------------------------------------------------------
Warrants to
purchase Common
Stock, par value $.01
per share (3) (4) $ 3,496,002 (4) $ 1,060
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------------
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
(1) Includes the maximum number of shares of Common Stock to be registered
hereunder that may be issuable pursuant to the Merger as described herein.
Based upon the product of (a) 30,571,569, the number of shares of Common
Stock, par value $.10 per share, of Rykoff-Sexton, Inc. outstanding,
assuming (i) the exercise of all Rykoff-Sexton stock options currently
expected to be exercisable prior to January 1, 1998, plus (ii) the issuance
of shares under all Rykoff-Sexton performance share awards times (b) 0.84,
the Exchange Ratio (as defined in the Merger Agreement). Such shares of
Common Stock were previously registered. Also includes, pursuant to Rule
416 under the Securities Act, such indeterminate number of shares of Common
Stock as may be issuable upon exercise of the Warrants.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act. Such registration fee
was previously paid.
(3) Reflects Warrants to purchase an aggregate of 278,679 shares of Common
Stock as of August 31, 1997. Pursuant to Rule 416 under the Securities Act,
an indeterminate number of shares of Common Stock is being registered to
cover any adjustments in the number of shares issuable upon exercise of the
Warrants.
(4) Reflects a Warrant aggregate exercise purchase price of $3,496,002.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[JP FOODSERVICE, INC. LOGO] JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Telephone: (410) 312-7100
Dear Stockholder:
It is my pleasure to invite you to attend the 1997 Annual Meeting of
Stockholders (the "JP Foodservice Annual Meeting") of JP Foodservice, Inc. ("JP
Foodservice"), which will be held on _____________ ___, 1997 at _____ a.m.,
local time, at ____________________________.
At the meeting, you will be asked to approve the issuance of JP Foodservice
Common Stock in connection with an Agreement and Plan of Merger described herein
(the "Merger Agreement") pursuant to which Rykoff-Sexton, Inc. ("Rykoff-Sexton")
will be merged with and into a wholly-owned subsidiary of JP Foodservice (the
"Merger") and will become a wholly-owned subsidiary of JP Foodservice. As
discussed in the accompanying Joint Proxy Statement/Prospectus, in the Merger
each outstanding share of Common Stock of Rykoff-Sexton will be converted into
the right to receive 0.84 of a share of JP Foodservice Common Stock. Current
stockholders of JP Foodservice and current stockholders of Rykoff-Sexton will
each own approximately one-half of JP Foodservice Common Stock outstanding
immediately after the Merger.
Rykoff-Sexton is the nation's third largest broadline distributor of food
and related non-food products. It currently offers more than 40,000 products to
over 100,000 customers in 32 service areas throughout the United States,
including many important metropolitan areas.
We believe that this business combination brings together two strong
companies with highly complementary operations, geographies, product lines and
management resources. The Merger will result in a combined enterprise that will
constitute the nation's second largest broadline foodservice distributor. JP
Foodservice after the Merger will have a nationwide distribution network capable
of serving an area covering more than 85% of the country's population.
Following the Merger, I will continue to serve as Chairman and Chief
Executive Officer of JP Foodservice. Mark Van Stekelenburg, currently Chairman
<PAGE>
and Chief Executive Officer of Rykoff-Sexton, will become Vice Chairman and
President of JP Foodservice. JP Foodservice's Board of Directors after the
Merger will consist of the nine current JP Foodservice directors, five current
Rykoff-Sexton directors, two Merrill Lynch designees and one new, independent
director to be added after closing of the Merger.
The accompanying Notice of Annual Meeting of Stockholders and Joint Proxy
Statement/Prospectus contain information about the Merger and the JP Foodservice
Annual Meeting, including information about a number of other important
proposals you will be asked to approve. The Joint Proxy Statement/Prospectus
also contains information about Rykoff-Sexton. We urge you to give this material
your complete attention.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS DETERMINED THE
MERGER TO BE IN THE BEST INTERESTS OF JP FOODSERVICE AND ITS STOCKHOLDERS.
ACCORDINGLY, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ALL JP FOODSERVICE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE ISSUANCE OF JP FOODSERVICE COMMON STOCK
IN CONNECTION WITH THE MERGER.
It is important that your shares be represented at the JP Foodservice
Annual Meeting. Therefore, whether or not you plan to attend the meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage prepaid envelope. If you attend the JP Foodservice Annual
Meeting, you may vote in person if you wish, even though you previously have
returned your proxy card.
We hope you will find it possible to attend the JP Foodservice Annual
Meeting. We look forward to the successful combination of JP Foodservice and
Rykoff-Sexton, and to your continued support as a stockholder of JP Foodservice.
Sincerely,
James L. Miller
Chairman, President and Chief
Executive Officer
<PAGE>
JP FOODSERVICE, INC.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on ________ ___, 1997
TO THE STOCKHOLDERS OF JP FOODSERVICE, INC.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of JP
Foodservice, Inc., a Delaware corporation ("JP Foodservice"), will be held on
__________, 1997 at _______ a.m., local time, at _______________________________
(the "JP Foodservice Annual Meeting"), or at any adjournment or postponement
thereof, for the following purposes:
1. To consider and vote upon the issuance of shares of JP
Foodservice Common Stock, par value $.01 per share (the "JP Foodservice
Common Shares"), in connection with an Agreement and Plan of Merger, dated
as of June 30, 1997, as amended (the "Merger Agreement"), among JP
Foodservice, Rykoff-Sexton, Inc., a Delaware corporation ("Rykoff-Sexton"),
and Hudson Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of JP Foodservice ("Merger Sub"), pursuant to which, among other
things, (i) Rykoff-Sexton will be merged with and into Merger Sub (the
"Merger") and (ii) each outstanding share of Common Stock, par value $.10
per share (the "Rykoff-Sexton Common Shares"), of Rykoff-Sexton will be
converted into the right to receive 0.84 (the "Exchange Ratio") of a JP
Foodservice Common Share. The Exchange Ratio, which was determined through
negotiations between JP Foodservice and Rykoff-Sexton, is fixed pursuant to
the Merger Agreement and will not be subject to increase or decrease based
on changes in the market values of the JP Foodservice Common Shares or the
Rykoff-Sexton Common Shares. JP Foodservice expects to issue approximately
24,000,000 JP Foodservice Common Shares as of the effective time of the
Merger. No time of fractional JP Foodservice Common Shares will be issued
in connection with the Merger. In lieu of such fractional shares, a holder
of Rykoff-Sexton Common Shares will receive an amount in cash equal to the
fractional portion of a JP Foodservice Common Share such holder would have
received based on the Exchange Ratio multiplied by the average closing
price of a JP Foodservice Common Share over the ten trading days ending on
the fifth day preceding consummation of the Merger. The aggregate amount of
such cash to be paid cannot be precisely determined until the effective
time of the Merger, but will
<PAGE>
not exceed such average JP Foodservice Common Share price, multiplied by
the number of holders of Rykoff-Sexton Common Shares at the effective time
of the Merger. THE MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING
JOINT PROXY STATEMENT/ PROSPECTUS AND THE APPENDICES THERETO WHICH FORM A
PART OF THIS NOTICE, AND A COPY OF THE MERGER AGREEMENT IS ATTACHED AS
APPENDIX A THERETO.
2. To consider and vote upon a proposal to elect three directors of
JP Foodservice for terms expiring at the JP Foodservice Annual Meeting of
Stockholders in the year 2000.
3. To consider and vote upon a proposal to amend JP Foodservice's
Restated Certificate of Incorporation to increase the number of authorized
JP Foodservice Common Shares from 75,000,000 shares to 150,000,000
shares.
4. To consider and vote upon a proposal to (i) amend the 1994 JP
Foodservice Stock Incentive Plan (the "Stock Incentive Plan") to increase
the number of JP Foodservice Common Shares authorized for issuance under
the Stock Incentive Plan from 1,532,404 shares to 2,600,000 shares and (ii)
amend the Stock Incentive Plan for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and regulations thereunder.
5. To consider and vote upon a proposal to amend the JP Foodservice
Stock Option Plan for Outside Directors (the "Director Plan") to (i)
increase the number of JP Foodservice Common Shares authorized for issuance
under the Director Plan from 100,000 shares to 200,000 shares, (ii)
increase the number of JP Foodservice Common Shares subject to annual
option grants under the Director Plan from 1,000 shares to 2,000 shares and
(iii) modify the eligibility requirements for awards under the Director
Plan.
6. To transact such other matters as may arise relating to the
conduct of the JP Foodservice Annual Meeting or any one or more
adjournments or postponements thereof.
Only holders of record of JP Foodservice Common Shares at the close of
business on ________, 1997, the record date for the JP Foodservice Annual
Meeting, are entitled to notice of, and to vote at, the JP Foodservice Annual
Meeting and any adjournments or postponements thereof. Approval of the issuance
of JP Foodservice Common Shares in connection with the Merger will require the
affirmative vote of the holders of a majority of the JP Foodservice Common
Shares present or represented at the JP Foodservice Annual Meeting and entitled
to vote.
<PAGE>
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE JP FOODSERVICE ANNUAL
MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE JP FOODSERVICE ANNUAL
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF A PROXY IS SIGNED BUT NO VOTING
INSTRUCTIONS ARE INDICATED THEREON, SUCH PROXY WILL BE VOTED "FOR" EACH OF THE
PROPOSALS SET FORTH IN THIS NOTICE OF ANNUAL MEETING. IF YOU ATTEND THE JP
FOODSERVICE ANNUAL MEETING, YOU MAY WITHDRAW THE PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
David M. Abramson
Secretary
Columbia, Maryland
, 1997
- -------------
<PAGE>
[RYKOFF-SEXTON LOGO] Rykoff-Sexton, Inc.
613 Baltimore Drive
East Mountain Corporate Center
Wilkes-Barre, Pennsylvania 18702
Telephone: (717) 831-7500
Dear Fellow Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Rykoff-Sexton Special Meeting") of Rykoff-Sexton, Inc. ("Rykoff-Sexton"), which
will be held on ____________, 1997 at _____________ a.m. (local time) at
___________________________.
At this important meeting, you will be asked to consider and vote upon the
adoption of the Agreement and Plan of Merger (the "Merger Agreement") described
herein pursuant to which Rykoff-Sexton will be merged (the "Merger") with and
into a wholly-owned subsidiary of JP Foodservice, Inc. ("JP Foodservice"). As
discussed in the accompanying Joint Proxy Statement/Prospectus, in the Merger
each outstanding share of Rykoff-Sexton Common Stock will be converted into the
right to receive 0.84 of a share of JP Foodservice Common Stock. Current
Rykoff-Sexton stockholders will hold approximately one half of JP Foodservice
Common Stock outstanding after the Merger.
JP Foodservice is the nation's fifth largest broadline distributor of food
and related products to restaurants and institutional foodservice
establishments. JP Foodservice markets and distributes 30,000 national, private
and signature brand items to over 34,000 foodservice customers, including
restaurants, hotels, healthcare facilities, cafeterias and schools, in the
MidAtlantic, Midwestern and Northeastern regions of the United States and in Las
Vegas, Nevada. JP Foodservice's diverse customer base encompasses both
independent and chain businesses, including Old Country Buffet, Perkins Family
Restaurants, Subway, Eurest Dining Services, Ruby Tuesday and Pizzeria Uno.
We believe that the strategic combination between Rykoff-Sexton and JP
Foodservice offers a significant opportunity for our stockholders, customers and
employees. The merger of Rykoff-Sexton and JP Foodservice will result in a
combined enterprise with pro forma fiscal 1997 annual sales of more than $5.1
billion, constituting the nation's second largest broadline foodservice
distribution company.
<PAGE>
It will enhance our nationwide distribution capabilities and create a
company with a customer base of more than 130,000 restaurant, hotel and
institutional foodservice customers throughout the United States. Following
completion of the Merger, the combined company will be known as JP Foodservice,
Inc. and will be headquartered in Columbia, Maryland. Its Common Stock will
continue to trade on the New York Stock Exchange under the JPF symbol.
As a result of the Merger, we expect to build upon the progress that we
have made in recent years in sharpening our strategic focus, improving our
operational efficiency, and positioning the company for sustained, profitable
growth. We are pleased to be a part of a combined enterprise whose product mix
will include a broad range of domestic and imported offerings, and whose
distribution, technological and marketing skills will form a strong foundation
for enhanced growth.
Following the Merger, Jim Miller, current Chairman, President and Chief
Executive Officer of JP Foodservice, will be Chairman and Chief Executive
Officer of the combined company, and I will become Vice Chairman and President
and a director of the combined company. After the Merger, the company's Board of
Directors will consist of the nine current JP Foodservice directors, five
current Rykoff-Sexton directors, two Merrill Lynch designees and one new,
independent director to be added after completion of the Merger.
The accompanying Notice of Special Meeting of Stockholders and Joint Proxy
Statement/Prospectus contain information about the Merger and the Rykoff-Sexton
Special Meeting. The Joint Proxy Statement/Prospectus also contains information
regarding JP Foodservice. We urge you to give this material your complete
attention.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of a majority of shares of Rykoff-Sexton Common Stock outstanding on
_______________, 1997, the record date for the Rykoff-Sexton Special Meeting.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF RYKOFF-SEXTON HAS
DETERMINED THAT THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
RYKOFF-SEXTON, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
RYKOFF-SEXTON STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
It is important that your shares be represented at the Rykoff-Sexton
Special Meeting. Therefore, whether or not you plan to attend the meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the
<PAGE>
enclosed postage prepaid envelope. If you attend the Rykoff-Sexton Special
Meeting, you may vote in person if you wish, even though you previously have
returned your proxy card.
We hope you will find it possible to attend the Rykoff-Sexton Special
Meeting. As fellow stockholders, we are excited by the opportunities created by
the Merger. We believe that the combined company will be a larger, more diverse
company with increased financial stability that will be well-positioned to
capitalize on strategic and other opportunities. We therefore urge you to return
your proxy card promptly.
Sincerely yours,
Mark Van Stekelenburg
Chairman, President and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN AND DATE AND RETURN
THE ENCLOSED PROXY CARD.
<PAGE>
RYKOFF-SEXTON, INC.
613 Baltimore Drive
East Mountain Corporate Center
Wilkes-Barre, Pennsylvania 18702
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on __________, 1997
TO THE STOCKHOLDERS OF RYKOFF-SEXTON, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Rykoff-Sexton, Inc., a Delaware corporation ("Rykoff-Sexton"), will be held at
___________________, on ___________, ________________, 1997 at ________ a.m.
(local time) (the "Rykoff-Sexton Special Meeting"), or at any adjournment or
postponement thereof, for the following purposes:
1. To consider and vote upon the adoption of the Agreement and Plan
of Merger, dated as of June 30, 1997, as amended (the "Merger Agreement"),
by and among Rykoff-Sexton, JP Foodservice, Inc., a Delaware corporation
("JP Foodservice"), and Hudson Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of JP Foodservice ("Merger Sub"), pursuant to
which, among other things (a) Rykoff-Sexton will be merged with and into
Merger Sub (the "Merger"), and (b) each outstanding share of Rykoff-Sexton
Common Stock, par value $.10 per share (the "Rykoff-Sexton Common Shares"),
will be converted into the right to receive 0.84 (the "Exchange Ratio") of
a share of JP Foodservice Common Stock, par value $.01 per share (the "JP
Foodservice Common Shares"). The Exchange Ratio, which was determined
through negotiations between JP Foodservice and Rykoff-Sexton, is fixed
pursuant to the Merger Agreement and will not be subject to increase or
decrease based on changes in the market values of the JP Foodservice Common
Shares or the Rykoff-Sexton Common Shares. JP Foodservice expects to issue
approximately 24,000,000 JP Foodservice Common Shares as of the effective
time of the Merger. No fractional JP Foodservice Common Shares will be
issued in connection with the Merger. In lieu of such fractional shares, a
holder of Rykoff-Sexton Common Shares will receive an amount in cash equal
to the fractional portion of a JP Foodservice Common Share such holder
would have received based on the Exchange Ratio multiplied by the average
closing price of a JP Foodservice Common Share over the ten trading days
ending on the fifth day preceding consummation of the Merger. The aggregate
amount of such cash to be paid cannot be precisely determined until the
effective time of the
<PAGE>
Merger, but will not exceed such average JP Foodservice Common Share price,
multiplied by the number of holders of Rykoff-Sexton Common Shares at the
effective time. THE MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES THERETO THAT FORM A
PART OF THIS NOTICE, AND A COPY OF THE MERGER AGREEMENT IS ATTACHED AS
APPENDIX A THERETO.
2. To transact such other matters as may arise relating to the
conduct of the Rykoff-Sexton Special Meeting or any one or more
adjournments or postponements thereof.
Only holders of record of Rykoff-Sexton Common Shares at the close of
business on _____________, 1997, the record date for the Rykoff-Sexton Special
Meeting, are entitled to receive notice of, and to vote at, the Rykoff-Sexton
Special Meeting and any adjournments or postponements thereof.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of record of a majority of Rykoff-Sexton Common Shares outstanding on
the record date for the Rykoff-Sexton Special Meeting.
Pursuant to the Delaware General Corporation Law, Rykoff-Sexton
stockholders are not entitled to appraisal rights in connection with the Merger,
because the Rykoff-Sexton Common Shares are listed on the New York Stock
Exchange and such stockholders will receive as consideration in the Merger only
JP Foodservice Common Shares, which are listed on the New York Stock Exchange,
and cash in lieu of fractional shares.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE RYKOFF-SEXTON SPECIAL
MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE RYKOFF-SEXTON SPECIAL
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF A PROXY IS SIGNED BUT NO
VOTING INSTRUCTIONS ARE INDICATED THEREON, SUCH PROXY WILL BE VOTED "FOR"
ADOPTION OF THE MERGER AGREEMENT. IF YOU ATTEND THE RYKOFF-SEXTON SPECIAL
MEETING, YOU MAY WITHDRAW THE PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
Robert J. Harter, Jr.
Secretary
Wilkes-Barre, Pennsylvania
, 1997
- -----------
<PAGE>
Subject to Completion, Dated September 22, 1997
JP FOODSERVICE, INC.
AND
RYKOFF-SEXTON, INC.
JOINT PROXY STATEMENT
---------------
PROSPECTUS OF JP FOODSERVICE, INC.
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of JP Foodservice, Inc., a Delaware corporation ("JP Foodservice"),
in connection with the solicitation of proxies by the JP Foodservice Board of
Directors for use at the 1997 Annual Meeting of Stockholders of JP Foodservice
(including any adjournments or postponements thereof, the "JP Foodservice Annual
Meeting") to be held on ___________, 1997 at ____ a.m., local time, at
_____________________________________________________________________________,
for the purposes set forth in the accompanying Notice to the stockholders of JP
Foodservice.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Rykoff-Sexton, Inc., a Delaware corporation ("Rykoff-Sexton"),
in connection with the solicitation of proxies by the Rykoff-Sexton Board of
Directors for use at a Special Meeting of Rykoff-Sexton stockholders (including
any adjournments or postponements thereof, the "Rykoff-Sexton Special Meeting")
to be held on _____________, 1997 at ____ a.m., local time, at
__________________________ ___________________________________________, for the
purposes set forth in the accompanying Notice to the stockholders of
Rykoff-Sexton.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of JP
Foodservice relating to shares of its common stock, par value $.01 per share
(the "JP Foodservice Common Shares"), and common stock purchase warrants
evidencing the right to purchase JP Foodservice Common Shares to be issued by JP
Foodservice in accordance with the terms of the Agreement and Plan of Merger,
dated as of June 30, 1997, as amended as of September 3, 1997 (the "Merger
Agreement"), described in this Joint Proxy Statement/Prospectus and attached
hereto as Appendix A, by and among JP Foodservice, Hudson Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of JP Foodservice ("Merger
Sub"), and Rykoff-Sexton. Pursuant to the
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement becomes+
+effective. This prospectus shall not constitute an offer to sell or the +
+solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated August 1, 1997
JP FOODSERVICE, INC.
AND
RYKOFF-SEXTON, INC.
JOINT PROXY STATEMENT
---------------
PROSPECTUS OF JP FOODSERVICE, INC.
__________ SHARES OF COMMON STOCK
---------------
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of JP Foodservice, Inc., a Delaware corporation ("JP Foodservice"),
in connection with the solicitation of proxies by the JP Foodservice Board of
Directors for use at a Special Meeting of JP Foodservice stockholders (including
any adjournments or postponements thereof, the "JP Foodservice Special Meeting")
to be held on ___________, 1997 at ____ a.m., local time, at
__________________________________ ___________________________________________,
for the purposes set forth in the accompanying Notice to the stockholders of JP
Foodservice.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Rykoff-Sexton, Inc., a Delaware corporation ("Rykoff-Sexton"),
in connection with the solicitation of proxies by the Rykoff-Sexton Board of
Directors for use at a Special Meeting of Rykoff-Sexton stockholders (including
any adjournments or postponements thereof, the "Rykoff-Sexton Special Meeting")
to be held on _____________, 1997 at ____ a.m., local time, at
__________________________ ___________________________________________, for the
purposes set forth in the accompanying Notice to the stockholders of Rykoff-
Sexton.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of JP
Foodservice relating to 25,680,118 shares of its Common Stock, par value $.01
per share (the "JP Foodservice Common Shares"), to be issued by JP Foodservice
in accordance with the terms of the Agreement and Plan of Merger, dated as of
June 30, 1997 (the "Merger Agreement"), described in this Joint Proxy
Statement/Prospectus and attached hereto as Appendix A, by and among JP
Foodservice, Hudson Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of JP Foodservice ("Merger Sub"), and Rykoff-Sexton. Pursuant to the
Merger Agreement, Rykoff-Sexton will be merged with and into Merger Sub (the
"Merger") and each outstanding share of Common Stock, par value $.10 per share,
of Rykoff-Sexton (the "Rykoff-Sexton Common Shares") will be converted into the
right to receive 0.84 of a JP Foodservice Common Share.
See "RISK FACTORS" beginning on page 30 for a discussion of certain risks.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of JP Foodservice and Rykoff-Sexton on or
about ___________________, 1997.
This Joint Proxy Statement/Prospectus does not cover any resales of JP
Foodservice Common Shares to be received by Rykoff-Sexton stockholders upon
consummation of the Merger, and no person is authorized to make use of this
Joint Proxy Statement/Prospectus in connection with any such resale.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
The date of this Joint Proxy Statement/Prospectus is _________, 1997.
<PAGE>
Merger Agreement, Rykoff-Sexton will be merged with and into Merger Sub (the
"Merger") and each outstanding share of Common Stock, par value $.10 per share,
of Rykoff-Sexton (the "Rykoff-Sexton Common Shares") will be converted into the
right to receive 0.84 of a JP Foodservice Common Share.
See "RISK FACTORS" beginning on page 33 for a discussion of certain risks.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of JP Foodservice and Rykoff-Sexton on or
about ___________________,1997.
This Joint Proxy Statement/Prospectus does not cover any resales of JP
Foodservice Common Shares or Warrants (or underlying JP Foodservice Common
Shares) to be received by Rykoff-Sexton stockholders upon consummation of the
Merger, and no person is authorized to make use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The date of this Joint Proxy Statement/Prospectus is _________, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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AVAILABLE INFORMATION................................................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................................1
FORWARD-LOOKING STATEMENTS...........................................................................4
SUMMARY..............................................................................................5
The Companies..................................................................................5
Meetings of Stockholders.......................................................................6
The Merger.....................................................................................9
Dividends and Market Prices of JP Foodservice and Rykoff-Sexton Common Shares..................24
Summary Unaudited Pro Forma Combined Consolidated Financial Data of JP Foodservice and
Rykoff-Sexton................................................................................27
Summary Historical Consolidated Financial Data of JP Foodservice...............................29
Summary Historical Consolidated Financial Data of Rykoff-Sexton................................30
Comparative Unaudited Per Share Data...........................................................31
RISK FACTORS.........................................................................................33
Uncertainties in Integrating Business Operations and Achieving Cost Savings; Possible
Dilution.....................................................................................33
Effect of Significant Indebtedness on Results of Operations and Financial Condition of
Combined Company.............................................................................34
Offer to Purchase Rykoff-Sexton Senior Subordinated Notes......................................35
Shares Eligible for Future Sale................................................................36
Potential Influence by and Relationship with ML Investors......................................36
Factors Relating to Future Acquisitions........................................................37
JP Foodservice Dividend Policy.................................................................38
Fixed Exchange Ratio...........................................................................38
THE JP FOODSERVICE ANNUAL MEETING....................................................................40
Date, Time and Place of Meeting................................................................40
Record Date and Outstanding Shares.............................................................40
Voting of Proxies..............................................................................40
Vote Required..................................................................................40
Quorum; Broker Non-Votes.......................................................................41
Solicitation of Proxies and Expenses...........................................................42
THE RYKOFF-SEXTON SPECIAL MEETING....................................................................44
Date, Time and Place of Meeting................................................................44
Record Date and Outstanding Shares.............................................................44
Voting of Proxies..............................................................................44
Vote Required..................................................................................44
Quorum; Broker Non-Votes.......................................................................45
Solicitation of Proxies and Expenses...........................................................45
THE MERGER...........................................................................................47
General........................................................................................47
Background of the Merger.......................................................................48
Recommendation of the JP Foodservice Board of Directors; Reasons for the Merger................50
Recommendation of the Rykoff-Sexton Board of Directors; Reasons for the Merger.................61
Potential Cost Savings and Operating Synergies.................................................64
Opinions of Financial Advisors to JP Foodservice...............................................66
</TABLE>
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<TABLE>
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Opinions of Financial Advisors to Rykoff-Sexton................................................75
Interests of Certain Persons in the Merger.....................................................83
Certain Federal Income Tax Consequences........................................................88
Restrictions on Resale of JP Foodservice Common Shares by Affiliates...........................91
Amendments to Rights Plans.....................................................................92
Clearance Under Federal Antitrust Laws.........................................................92
Accounting Treatment...........................................................................93
Listing of JP Foodservice Common Shares on the NYSE............................................93
Absence of Dissenters' Rights..................................................................94
Exchange of Certificates.......................................................................94
THE MERGER AGREEMENT.................................................................................96
General........................................................................................96
Effective Time.................................................................................98
Representations and Warranties.................................................................98
Business of Rykoff-Sexton Pending the Merger...................................................100
Business of JP Foodservice Pending the Merger..................................................102
No Solicitation................................................................................104
Certain Other Covenants........................................................................104
Conditions; Waivers............................................................................107
Amendment; Termination.........................................................................109
Termination Fees...............................................................................111
Expenses.......................................................................................112
OTHER AGREEMENTS.....................................................................................113
Support Agreement..............................................................................113
Stock Option Agreements........................................................................115
Standstill Agreement...........................................................................120
Registration Rights Agreement..................................................................127
UNAUDITED PRO FORMA COMBINING CONSOLIDATED FINANCIAL STATEMENTS FOR THE MERGER.......................130
DESCRIPTION OF PROPOSED NEW FINANCING ARRANGEMENTS...................................................137
New Credit Facility............................................................................137
Receivables Securitization.....................................................................140
OWNERSHIP OF JP FOODSERVICE COMMON SHARES............................................................141
MANAGEMENT OF JP FOODSERVICE AFTER THE MERGER........................................................145
Directors......................................................................................145
Executive Officers.............................................................................150
JP Foodservice Executive Compensation..........................................................152
Rykoff-Sexton Executive Compensation...........................................................164
JP FOODSERVICE ANNUAL MEETING PROPOSALS..............................................................175
JP Foodservice Director Election Proposal......................................................175
JP Foodservice Charter Amendment Proposal......................................................179
JP Foodservice Stock Incentive Plan Amendment Proposal.........................................181
JP Foodservice Director Plan Amendment Proposal................................................194
Independent Accountants........................................................................202
Section 16(a) Beneficial Ownership Reporting Compliance........................................203
Stockholder Proposals for 1998 JP Foodservice Annual Meeting...................................203
DESCRIPTION OF JP FOODSERVICE........................................................................205
DESCRIPTION OF RYKOFF-SEXTON.........................................................................207
DESCRIPTION OF JP FOODSERVICE CAPITAL STOCK..........................................................208
General........................................................................................208
Common Shares, Rights and Series A Preferred Stock.............................................209
Preferred Stock................................................................................214
WARRANTS.............................................................................................215
DESCRIPTION OF RYKOFF-SEXTON CAPITAL STOCK...........................................................217
</TABLE>
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<TABLE>
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General........................................................................................217
Common Shares, Rights and Series A Preferred Stock.............................................217
Preferred Stock................................................................................222
COMPARATIVE RIGHTS OF JP FOODSERVICE STOCKHOLDERS AND RYKOFF-SEXTON STOCKHOLDERS.....................223
Authorized Shares of Capital Stock; Dividend Rights............................................223
Voting Rights..................................................................................224
Supermajority Voting Requirements; Business Combinations.......................................224
Appraisal Rights...............................................................................226
Special Meetings of Stockholders...............................................................227
Stockholder Action Without a Meeting...........................................................228
Stockholder Proposal Procedures................................................................228
Stockholder Rights Plan........................................................................228
Classified Board of Directors..................................................................229
Nominations of Directors.......................................................................229
Removal of Directors...........................................................................230
Vacancies in the Board of Directors............................................................230
Indemnification................................................................................230
Limitation of Personal Liability of Directors..................................................230
Amendment of Charter Documents.................................................................231
Amendment of By-Laws...........................................................................232
LEGAL MATTERS........................................................................................233
EXPERTS..............................................................................................233
STOCKHOLDER PROPOSALS................................................................................233
OTHER MATTERS........................................................................................234
</TABLE>
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<PAGE>
AVAILABLE INFORMATION
JP Foodservice and Rykoff-Sexton are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Copies of
such reports, proxy statements and other information filed by JP Foodservice and
Rykoff-Sexton can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's Regional Offices located at Citicorp Center, 500 West Madison, 14th
Floor, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such documents may also be obtained, at
prescribed rates, from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, DC 20549. The SEC also maintains a Web site (http//:
www.sec.gov) that contains reports, proxy statements and other information
regarding registrants such as JP Foodservice and Rykoff-Sexton that file
electronically with the SEC. This Joint Proxy Statement/Prospectus was filed
electronically with the SEC. In addition, material filed by JP Foodservice and
Rykoff-Sexton can be inspected at the offices of the New York Stock Exchange
(the "NYSE"), 20 Broad Street, New York, New York 10005, on which the JP
Foodservice Common Shares and the Rykoff-Sexton Common Shares are listed.
JP Foodservice has filed with the SEC a registration statement on Form S-4
(herein, together with any amendments, supplements and exhibits, referred to as
the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the JP Foodservice Common Shares to be issued
in connection with the transactions contemplated by the Merger Agreement. This
Joint Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement. Statements contained in
this Joint Proxy Statement/Prospectus as to the contents of any contract or
other document referred to herein are necessarily summaries of such documents,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. JP Foodservice or
Rykoff-Sexton, as applicable, will provide without charge to each person to whom
this Joint Proxy Statement/Prospectus is delivered a copy of any or all of such
documents which are incorporated
1
<PAGE>
herein by reference (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference into the documents that this Joint
Proxy Statement/Prospectus incorporates). Oral or written requests for JP
Foodservice documents should be directed to JP Foodservice, Inc., 9830 Patuxent
Woods Drive, Columbia, Maryland 21046, telephone number (410) 312-7100,
attention: David M. Abramson, Senior Vice President and General Counsel. Oral or
written requests for Rykoff-Sexton documents should be directed to Rykoff-
Sexton, Inc., 613 Baltimore Drive, East Mountain Corporate Center, Wilkes-Barre,
Pennsylvania 18702, telephone number (717) 831-7500, attention: Richard J.
Martin, Executive Vice President and Chief Financial Officer. To ensure timely
delivery of the documents, any request should be made by _________, 1997.
The following documents or portions of documents filed by JP Foodservice
with the SEC pursuant to the Exchange Act are incorporated herein by reference:
1. JP Foodservice's Annual Report on Form 10-K for the fiscal
year ended June 28, 1997, including the information
incorporated by reference from JP Foodservice's 1997 Annual
Report to Stockholders (the "JP Foodservice Annual Report on
Form 10-K");
2. JP Foodservice's Current Reports on Form 8-K dated June 30,
1997 and September 3, 1997;
3. the description of the JP Foodservice Common Shares which is
contained in JP Foodservice's Registration Statement on Form
8-A filed pursuant to the Exchange Act on December 19, 1996,
including any amendments or reports filed for the purpose of
updating such description; and
4. the description of the preferred share purchase rights
attached to the JP Foodservice Common Shares which is
contained in JP Foodservice's Registration Statement on Form
8-A filed pursuant to the Exchange Act on December 19, 1996,
including any amendments or reports filed for the purpose of
updating such description.
All documents filed by JP Foodservice pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the JP Foodservice Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date any such document is
filed.
The following documents previously filed by Rykoff-Sexton with the SEC
pursuant to the Exchange Act are incorporated herein by reference:
2
<PAGE>
1. Rykoff-Sexton's Annual Report on Form 10-K for the year ended June
28, 1997 (the "Rykoff-Sexton Annual Report on Form 10-K"); and
2. Rykoff-Sexton's Current Reports on Form 8-K dated June 30,
1997 and September 3, 1997.
All documents filed by Rykoff-Sexton pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the Rykoff-Sexton Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date any such document is
filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed modified or superseded for
purposes of this Joint Proxy Statement/Prospectus to the extent that a statement
contained herein (or in any other subsequently filed document that also is
incorporated by reference herein) modifies or supersedes such statement.
Statements herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
in any subsequently filed document that is incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part of this Joint Proxy
Statement/Prospectus except as so modified or superseded. All information
appearing in this Joint Proxy Statement/Prospectus is qualified in its entirety
by the information and financial statements (including notes thereto) appearing
in the documents incorporated herein by reference, except to the extent set
forth in the immediately preceding statement.
No person is authorized to give any information or to make any
representations with respect to the matters described in this Joint Proxy
Statement/Prospectus other than those contained herein or in the documents
incorporated by reference herein. Any information or representations with
respect to such matters not contained herein or therein must not be relied upon
as having been authorized by JP Foodservice or Rykoff-Sexton. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of JP Foodservice or Rykoff-Sexton since the date hereof
or that the information in this Joint Proxy Statement/Prospectus or in the
documents incorporated by reference herein is correct as of any time subsequent
to the date hereof or thereof. All information regarding JP Foodservice and
Merger Sub, and all pro forma financial information,
3
<PAGE>
in this Joint Proxy Statement/Prospectus has been supplied by JP Foodservice,
and all information regarding Rykoff-Sexton herein has been supplied by Rykoff-
Sexton.
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements regarding JP Foodservice, Rykoff-Sexton or the
combined company's expected future financial position, business strategy, cost
savings and operating synergies, projected costs and plans, and objectives of
management for future operations are forward-looking statements. Although JP
Foodservice and Rykoff-Sexton believe their respective expectations reflected in
such forward-looking statements are based on reasonable assumptions, no
assurance can be given that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include, among
others, the factors set forth under the caption "Risk Factors," general economic
and business and market conditions, changes in federal laws, difficulties in
achieving expected cost savings and operating synergies from the Merger,
increased competitive pressure in the combined company's industry, costs or
difficulties relating to the integration of the businesses of JP Foodservice and
Rykoff-Sexton, and the ability of JP Foodservice and Rykoff-Sexton to achieve
the goals described under the caption "The Merger."
4
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and the Appendices hereto. This summary
is not intended to be complete and is qualified in its entirety by reference to
the more detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the Appendices and the documents incorporated herein by
reference. References to Rykoff-Sexton after the Effective Time (as defined
herein) refer to Merger Sub, which will be the surviving corporation in the
Merger and will be renamed Rykoff-Sexton, Inc. as of the Effective Time. Unless
otherwise indicated or the context otherwise requires, references to the number
of JP Foodservice Common Shares to be issued in connection with the Merger (i)
are based upon the number of Rykoff-Sexton Common Shares outstanding as of
August 31, 1997, Performance Share Awards (as defined herein) outstanding as of
September 15, 1997 and other Rykoff-Sexton Common Shares issuable as of the
Effective Time and (ii) assume no JP Foodservice Common Shares have been issued
pursuant to the exercise of any Assumed Options or Assumed Warrants (as defined
herein). Stockholders of JP Foodservice and Rykoff-Sexton are urged to read this
Joint Proxy Statement/Prospectus and the Appendices hereto in their entirety.
The Companies
JP Foodservice. JP Foodservice is a leading broadline distributor of food
and related products to restaurants and other institutional foodservice
establishments in the Mid-Atlantic, Midwestern and Northeastern regions of the
United States and in Las Vegas, Nevada. JP Foodservice ranks as the nation's
fifth largest broadline distributor based on pro forma 1996 calendar year net
sales, including the results of foodservice distribution businesses acquired by
it in fiscal 1997. JP Foodservice markets and distributes from its 15
full-service distribution centers over 30,000 national, private and signature
brand items to over 34,000 foodservice customers, including restaurants, hotels,
healthcare facilities, cafeterias and schools. This diverse customer base
encompasses both independent (or "street") and multi-unit (or "chain")
businesses. JP Foodservice's comprehensive product line provides its customers
with a single source to satisfy substantially all of their foodservice needs.
The principal executive offices of JP Foodservice are located at 9830 Patuxent
Woods Drive, Columbia, Maryland 21046, and JP Foodservice's telephone number is
(410) 312-7100. See "Description of JP Foodservice."
Rykoff-Sexton. Rykoff-Sexton is a leading distributor and manufacturer of
high-quality food and related non-food products for the foodservice industry
throughout the United States. Rykoff-Sexton distributes its product line of more
than 40,000 items to over 100,000 foodservice customers, including restaurants,
industrial cafeterias, healthcare facilities, schools and colleges, supermarket
service delicatessen departments, lodging establishments and other segments of
the travel and leisure markets. It also offers equipment and supplies and design
and engineering services for all types of foodservice operations. Established in
1911,
5
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Rykoff-Sexton has grown from a regional distributor to its present position as
the third largest broadline foodservice distributor in the nation. The principal
executive offices of Rykoff-Sexton are located at 613 Baltimore Drive, East
Mountain Corporate Center, Wilkes-Barre, Pennsylvania 18702, and Rykoff-Sexton's
principal telephone number is (717) 831-7500. See "Description of Rykoff-
Sexton."
Merger Sub. Merger Sub, a wholly-owned subsidiary of JP Foodservice, was
formed by JP Foodservice solely for the purpose of effecting the Merger. The
mailing address of Merger Sub's executive offices is c/o JP Foodservice, Inc.,
9830 Patuxent Woods Drive, Columbia, Maryland 21046, and Merger Sub's telephone
number is (410) 312-7100.
Meetings of Stockholders
Date, Time and Place
JP Foodservice Annual Meeting. The JP Foodservice Annual Meeting will be
held on ________, 1997 at _____ a.m., local time, at __________________________.
Rykoff-Sexton Special Meeting. The Rykoff-Sexton Special Meeting will be
held on ________, 1997 at _____ a.m., local time, at __________________________.
Matters to be Considered at Meetings
JP Foodservice Annual Meeting. At the JP Foodservice Annual Meeting,
stockholders of record of JP Foodservice as of the close of business on the JP
Foodservice Record Date (as defined herein) will be asked to consider and vote
upon the following proposals:
(i) a proposal to approve the issuance of JP Foodservice Common Shares in
connection with the Merger (the "JP Foodservice Merger Proposal");
(ii) a proposal to elect three directors of JP Foodservice for terms
expiring at the JP Foodservice Annual Meeting of Stockholders in the year 2000
(the "JP Foodservice Director Election Proposal");
(iii) a proposal to amend JP Foodservice's Restated Certificate of
Incorporation (the "JP Foodservice Charter Amendment") to increase the number of
authorized JP Foodservice Common Shares from 75,000,000 shares to 150,000,000
shares (the "JP Foodservice Charter Amendment Proposal");
(iv) a proposal to (a) amend the 1994 JP Foodservice Stock Incentive Plan
(the "Stock Incentive Plan") to increase the number of
6
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JP Foodservice Common Shares authorized for issuance under the Stock Incentive
Plan from 1,532,404 shares to 2,600,000 shares and (b) amend the Stock Incentive
Plan for purposes of Section 162(m) of the Internal Revenue Code of 1986, as
amended, and regulations thereunder (collectively, the "JP Foodservice Stock
Incentive Plan Amendment") (the "JP Foodservice Stock Incentive Plan Amendment
Proposal"); and
(v) a proposal to amend the JP Foodservice Stock Option Plan for Outside
Directors (the "Director Plan") to (a) increase the number of JP Foodservice
Common Shares authorized for issuance under the Director Plan from 100,000
shares to 200,000 shares, (b) increase the number of JP Foodservice Common
Shares subject to annual option grants under the Director Plan from 1,000 shares
to 2,000 shares and (c) modify the eligibility requirements for awards under the
Director Plan (the "JP Foodservice Director Plan Amendment Proposal").
Approval of the JP Foodservice Merger Proposal is not conditioned upon
approval of any of the other proposals. If approved by the JP Foodservice
stockholders at the JP Foodservice Annual Meeting, the JP Foodservice Charter
Amendment and the JP Foodservice Stock Incentive Plan Amendment will become
effective only upon consummation of the Merger. See "JP Foodservice Annual
Meeting Proposals."
JP Foodservice stockholders must approve the issuance of the JP Foodservice
Common Shares in connection with the Merger in order to comply with requirements
of the NYSE, on which the JP Foodservice Common Shares are listed. Stockholder
approval is required if a company whose common stock is listed on the NYSE
issues common stock in a transaction such as the Merger in an amount equal to or
greater than 20% of the number of shares of common stock outstanding prior to
such issuance.
Rykoff-Sexton Special Meeting. At the Rykoff-Sexton Special Meeting,
stockholders of record of Rykoff-Sexton as of the close of business on the
Rykoff-Sexton Record Date (as defined herein) will be asked to (i) consider and
vote upon the adoption of the Merger Agreement (the "Rykoff-Sexton Proposal")
and (ii) transact such other matters as may arise relating to the conduct of the
Rykoff-Sexton Special Meeting.
Record Dates; Outstanding Shares
JP Foodservice Annual Meeting. Holders of record of JP Foodservice Common
Shares at the close of business on ________, 1997 (the "JP Foodservice Record
Date") are entitled to notice of and to vote at the JP Foodservice Annual
Meeting. At the close of business on the JP Foodservice Record Date, there were
___________ JP Foodservice Common Shares outstanding, each of which will be
7
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entitled to one vote on each matter to be acted upon at the JP Foodservice
Annual Meeting.
Rykoff-Sexton Special Meeting. Holders of record of Rykoff-Sexton Common
Shares at the close of business on ____________, 1997 (the "Rykoff-Sexton Record
Date") are entitled to notice of and to vote at the Rykoff-Sexton Special
Meeting. At the close of business on the Rykoff-Sexton Record Date, there were
________ Rykoff-Sexton Common Shares issued and outstanding, each of which will
be entitled to one vote on each matter to be acted upon at the Rykoff-Sexton
Special Meeting.
Quorum
The required quorum for the transaction of business at the JP Foodservice
Annual Meeting is a majority of the issued and outstanding JP Foodservice Common
Shares. The required quorum for the transaction of business at the Rykoff-Sexton
Special Meeting is a majority of the issued and outstanding Rykoff-Sexton Common
Shares. Abstentions and broker non-votes each will be counted for purposes of
determining the presence of a quorum.
Vote Required
JP Foodservice Annual Meeting. The JP Foodservice Merger Proposal, the JP
Foodservice Stock Incentive Plan Amendment Proposal and the JP Foodservice
Director Plan Amendment Proposal will be approved upon receipt of the
affirmative vote of the holders of a majority of the JP Foodservice Common
Shares present or represented at the JP Foodservice Annual Meeting and entitled
to vote, assuming a quorum is present. The JP Foodservice Charter Amendment
Proposal will be approved upon receipt of the affirmative vote of the holders of
a majority of the JP Foodservice Common Shares outstanding on the JP Foodservice
Record Date. The election to the JP Foodservice Board of Directors of each of
the nominees specified in the JP Foodservice Director Election Proposal will
require the affirmative vote of a plurality of the votes cast at the JP
Foodservice Annual Meeting. Abstentions will have the same effect as votes
against the JP Foodservice Merger Proposal, the JP Foodservice Charter Amendment
Proposal, the JP Foodservice Stock Incentive Plan Amendment Proposal and the JP
Foodservice Director Plan Amendment Proposal. Broker non-votes on the JP
Foodservice Charter Amendment Proposal will have the same effect as a vote
against the JP Foodservice Charter Amendment Proposal.
On the JP Foodservice Record Date, directors and executive officers of JP
Foodservice, together with their affiliates as a group, beneficially owned
approximately ___% of the issued and outstanding JP Foodservice Common Shares.
It is currently expected that each director and executive officer of JP
Foodservice will vote the JP Foodservice Common Shares beneficially owned by
such director or
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executive officer for approval of the JP Foodservice Merger Proposal and the
other proposals submitted to stockholders at the JP Foodservice Annual Meeting.
See "Ownership of JP Foodservice Common Shares."
Rykoff-Sexton Special Meeting. The Rykoff-Sexton Proposal will be approved
upon receipt of the affirmative vote of the holders of a majority of the
Rykoff-Sexton Common Shares outstanding on the Rykoff-Sexton Record Date.
Abstentions and broker non-votes will have the same effect as votes against the
Rykoff-Sexton Proposal. On the Rykoff-Sexton Record Date, directors and
executive officers of Rykoff-Sexton, together with their affiliates as a group
(other than the ML Entities (as defined herein) and their designees on the
Rykoff-Sexton Board Directors), beneficially owned approximately ____% of the
issued and outstanding Rykoff-Sexton Common Shares. It is currently expected
that each director and executive officer of Rykoff-Sexton will vote the
Rykoff-Sexton Common Shares beneficially owned by such director or executive
officer for approval of the Rykoff-Sexton Proposal. The ML Investors (as defined
herein), who hold in the aggregate approximately 36% of the Rykoff-Sexton Common
Shares outstanding as of the Rykoff-Sexton Record Date, have agreed to vote the
Rykoff-Sexton Common Shares beneficially owned by them for approval of the
Rykoff-Sexton Proposal. See "Other Agreements--Support Agreement." The ML
Investors are entities affiliated with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), an international investment banking and advisory
firm. See "The Merger--Interests of Certain Persons in the Merger." The ML
Entities consist of the ML Investors and Merrill Lynch Capital Partners, Inc.
("MLCP"), the general partner of certain of the ML Investors. See "Other
Agreements-Standstill Agreement--ML Entities."
The Merger
Effect of the Merger
Pursuant to the terms of the Merger Agreement, Rykoff-Sexton will be merged
with and into Merger Sub, a wholly-owned subsidiary of JP Foodservice, at the
Effective Time. Merger Sub will be the surviving corporation ("the Surviving
Corporation") in the Merger, will be renamed Rykoff-Sexton, Inc. as of the
Effective Time and will continue to be a wholly-owned subsidiary of JP
Foodservice.
Conversion of Rykoff-Sexton Common Shares
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, at the Effective Time, each issued and outstanding
Rykoff-Sexton Common Share (other than such shares, if any, owned by JP
Foodservice, Merger Sub or Rykoff-Sexton, which will be canceled) will be
converted into the right to receive 0.84 (the "Exchange Ratio") of a JP
Foodservice Common Share. The Exchange Ratio is fixed pursuant to the Merger
Agreement and will not be subject to increase or decrease based on changes in
the market values of the JP
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Foodservice Common Shares or the Rykoff-Sexton Common Shares. If, prior to the
Effective Time, the outstanding Rykoff-Sexton Common Shares or JP Foodservice
Common Shares are changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities is declared thereon with a
record date within such period, the Exchange Ratio will be adjusted accordingly
to provide the holders of Rykoff-Sexton Common Shares with the same economic
effect as contemplated by the Merger Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend. No fractional JP
Foodservice Common Shares will be issued in connection with the Merger. In lieu
of such fractional shares, a holder of Rykoff-Sexton Common Shares will receive
an amount in cash equal to the fractional portion of a JP Foodservice Common
Share such holder would have received based on the Exchange Ratio multiplied by
the average closing price of a JP Foodservice Common Share over the ten trading
days ending on the fifth day preceding consummation of the Merger.
In connection with the Merger, the holders of Rykoff-Sexton Common Shares
immediately before the Merger will receive an aggregate of 24,129,445 JP
Foodservice Common Shares, which is expected to represent approximately 51.6% of
the outstanding JP Foodservice Common Shares immediately after the Merger. The
ML Investors will receive an aggregate of 8,463,843 JP Foodservice Common
Shares, which is expected to represent approximately 18.1% of the outstanding JP
Foodservice Common Shares immediately after the Merger. See "Description of the
Merger Agreement--General--Conversion of Rykoff-Sexton Common Shares."
Assumption of Stock Options and Warrants
As of August 31, 1997, Rykoff-Sexton had outstanding options (the
"Options") to purchase 2,313,463 Rykoff-Sexton Common Shares under certain
director and employee stock plans (the "Rykoff-Sexton Stock Plans") and
outstanding warrants (the "Warrants") to purchase 331,761 Rykoff-Sexton
Common Shares. The Merger Agreement provides that, at the Effective Time, each
Option which is outstanding immediately prior to the Effective Time
(collectively, the "Assumed Options") and each Warrant which is outstanding
immediately prior to the Effective Time (collectively, the "Assumed Warrants")
will be assumed by JP Foodservice. Each Assumed Option and each Assumed Warrant
will be converted into an option or warrant, as the case may be, to purchase, on
the same terms and conditions as were applicable to such Options (subject to
adjustment of the applicable exercise prices thereunder based on the Exchange
Ratio) and Warrants, an adjusted number of JP Foodservice Common Shares based on
the Exchange Ratio. Based on the outstanding Options and the Warrants described
above, 2,221,988 JP Foodservice Common Shares will be
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reserved for issuance upon the exercise of the Assumed Options and the Assumed
Warrants. See "The Merger Agreement--General--Assumption of Options and
Warrants" and "Warrants."
Recommendations of the Boards of Directors
JP Foodservice Board of Directors. On June 29, 1997, the JP Foodservice
Board of Directors unanimously determined that the Merger is in the best
interests of JP Foodservice and its stockholders, approved the Merger Agreement
and the Merger and the issuance of the JP Foodservice Common Shares in
connection with the Merger and recommended that the stockholders of JP
Foodservice vote "for" approval of the issuance of the JP Foodservice Common
Shares in connection with the Merger. In making this recommendation, the JP
Foodservice Board of Directors carefully considered the factors discussed under
"The Merger--Background of the Merger," "--Recommendation of the JP Foodservice
Board of Directors; Reasons for the Merger" and "--Opinions of Financial
Advisors to JP Foodservice."
Rykoff-Sexton Board of Directors. On June 29, 1997, the Rykoff-Sexton Board
of Directors unanimously determined that the Merger and the other transactions
contemplated by the Merger Agreement are fair to and in the best interests of
the stockholders of Rykoff-Sexton, approved the Merger Agreement and recommended
that the stockholders of Rykoff-Sexton vote "for" adoption of the Merger
Agreement. In making this recommendation, the Rykoff-Sexton Board of Directors
carefully considered the factors discussed under "The Merger--Background of the
Merger," "--Recommendation of the Rykoff-Sexton Board of Directors; Reasons for
the Merger" and "--Opinions of Financial Advisors to Rykoff-Sexton."
Opinions of Financial Advisors
Opinions of Financial Advisors to JP Foodservice. JP Foodservice retained
Goldman, Sachs & Co. ("Goldman Sachs") and Smith Barney Inc. ("Smith Barney") to
act as financial advisors to JP Foodservice in connection with the proposed
Merger. Goldman Sachs and Smith Barney have each delivered to the Board of
Directors of JP Foodservice a written opinion dated June 30, 1997 to the effect
that, as of such date and based upon and subject to certain matters stated
therein and such other matters as Goldman Sachs and Smith Barney considered
relevant, the Exchange Ratio was fair (in the case of Smith Barney, from a
financial point of view) to JP Foodservice. The full texts of the written
opinions of Goldman Sachs and Smith Barney dated June 30, 1997, which set forth
the assumptions made, matters considered and limitations on the review
undertaken, are attached as Appendix B and Appendix C, respectively, to this
Joint Proxy Statement/Prospectus and should be read carefully in their entirety.
The opinions of Goldman Sachs and Smith Barney are directed to the Board of
Directors of JP Foodservice and relate only to the fairness of the Exchange
Ratio (in the case of Smith Barney, from a financial point of view) to JP
Foodservice, do not address any other aspect of the
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Merger or related transactions and do not constitute a recommendation to any
stockholder as to how such stockholder should vote at the JP Foodservice Annual
Meeting. See "The Merger--Opinions of Financial Advisors to JP Foodservice."
Opinions of Financial Advisors to Rykoff-Sexton. In deciding to approve the
Merger, the Rykoff-Sexton Board of Directors considered, among other things,
separate, but substantially identical, opinions of its financial advisors,
Merrill Lynch and Wasserstein Perella & Co., Inc. ("Wasserstein Perella"), as to
the fairness of the Exchange Ratio from a financial point of view to the
stockholders of Rykoff-Sexton (other than JP Foodservice and its affiliates).
The opinion of Merrill Lynch (the "Merrill Lynch Opinion") and the opinion of
Wasserstein Perella (the "Wasserstein Perella Opinion" and together with the
Merrill Lynch Opinion, the "Rykoff-Sexton Fairness Opinions") are attached to
this Joint Proxy Statement/Prospectus as Appendix D and Appendix E,
respectively. Rykoff-Sexton stockholders are encouraged to read these opinions
in their entirety as they contain the assumptions made, the procedures followed,
the other matters considered and the limits of the review conducted by each of
Merrill Lynch and Wasserstein Perella in arriving at their respective opinions.
See "The Merger-Opinions of Financial Advisors to Rykoff-Sexton" and
"--Interests of Certain Persons in the Merger."
Interests of Certain Persons in the Merger; Management and Operations of JP
Foodservice After the Merger
Certain members of the Boards of Directors and management of JP Foodservice
and Rykoff-Sexton and certain holders of Rykoff-Sexton Common Shares have
certain interests (described below and under the captions "The Merger--Interests
of Certain Persons in the Merger," "--Opinions of Financial Advisors to
Rykoff-Sexton" and "Management of JP Foodservice After the Merger") in the
Merger that are different from, or in addition to, the interests generally of
stockholders of JP Foodservice or Rykoff-Sexton, as applicable. The JP
Foodservice Board of Directors and the Rykoff-Sexton Board of Directors were
each aware of these interests of their respective directors and officers and, in
the case of Rykoff-Sexton, certain stockholders and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Employment, Change in Control and Severance Agreements. The consummation of
the Merger will constitute a "change in control" of Rykoff-Sexton under certain
compensation agreements and arrangements between Rykoff-Sexton and each of Mark
Van Stekelenburg, Chairman, President and Chief Executive Officer of
Rykoff-Sexton, Harold E. Feather, Executive Vice President, Strategic Planning
of Rykoff-Sexton, Robert J. Harter, Senior Vice President, Administration and
General Counsel of Rykoff-Sexton, Richard J. Martin, Executive Vice President
and Chief Financial Officer of Rykoff-Sexton, and David F. McAnally, former
Senior Vice President and
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Chief Financial Officer of Rykoff-Sexton. As a result of such change in control
provisions, Messrs. Van Stekelenburg and Harter and, if the Merger is
consummated before September 2, 1998, Mr. McAnally will receive specified
payments and other benefits upon consummation of the Merger. Messrs. Feather and
Martin are expected to become executive officers of JP Foodservice as of the
Effective Time. If their employment is terminated under certain circumstances,
Messrs. Feather and Martin also could receive specified payments and other
benefits upon or after consummation of the Merger. In addition, the Merger
Agreement provides that JP Foodservice will enter into an employment agreement
with Mr. Van Stekelenburg, pursuant to which he will become the Vice Chairman
and President of JP Foodservice as of the Effective Time. See "The Merger--
Interests of Certain Persons in the Merger" and "Management of JP Foodservice
after the Merger--Rykoff-Sexton Executive Compensation."
Merrill Lynch Advisory Services. Rykoff-Sexton retained Merrill Lynch to
act as one of Rykoff-Sexton's financial advisors in connection with the proposed
business combination with JP Foodservice. Merrill Lynch is an affiliate of the
ML Investors, who beneficially owned approximately 36% of the Rykoff-Sexton
Common Shares outstanding as of the Rykoff-Sexton Record Date. See "The
Merger-Opinions of Financial Advisors to Rykoff-Sexton" for a discussion of
amounts payable to Merrill Lynch for such financial advisory services.
Board Designations; Directors. JP Foodservice has agreed in the Merger
Agreement that, prior to the Effective Time, it will increase the size of the JP
Foodservice Board of Directors from nine to 17 directors. In addition, the
Merger Agreement provides that the JP Foodservice Board of Directors,
immediately following the Effective Time, will consist of (i) nine individuals,
including each of the incumbent members of the JP Foodservice Board of Directors
(or their replacements), no fewer than five of whom will be outside directors,
as selected by JP Foodservice prior to the Effective Time, (ii) seven
individuals, two of whom will be individuals designated by MLCP, one of whom
will be Mr. Van Stekelenburg and four of whom (James I. Maslon, Bernard Sweet,
Neil I. Sell and James P. Miscoll) will be current incumbents of the
Rykoff-Sexton Board of Directors who are not employees of Rykoff-Sexton or its
subsidiaries or affiliated with MLCP and (iii) one additional person to be
designated by the Chairman of JP Foodservice following the Merger. See
"Management of JP Foodservice After the Merger--Directors."
Combined Company Management. See "Management of JP Foodservice After the
Merger" for information concerning the expected composition of the senior
management of JP Foodservice after the Effective Time.
Registration Rights Agreement. In connection with the acquisition by
Rykoff-Sexton of US Foodservice Inc. ("US Foodservice") on May 17, 1996 (the "US
Foodservice Acquisition"), Rykoff-Sexton entered into an agreement (the
"Registration Rights Agreement"), pursuant to which the ML Investors were
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granted certain "demand" and "piggyback" rights, and the Equitable Entities
named therein and Frank H. Bevevino, former President of Rykoff-Sexton, were
granted certain "piggyback" rights, requiring Rykoff-Sexton to register under
the Securities Act the transfer of all or a portion of the Rykoff-Sexton Common
Shares issued to them pursuant to the US Foodservice Acquisition (the
"Registrable Securities"). Such "demand" and "piggyback" rights will remain in
effect until the resale of such Registrable Securities is no longer subject to
restrictions under the Securities Act. Pursuant to the Support Agreement, JP
Foodservice has agreed, as of the Effective Time, to assume Rykoff-Sexton's
rights and obligations under the Registration Rights Agreement and will be
required, subject to certain limitations and qualifications, to register under
the Securities Act the transfer of all or a portion of the 9,693,618 JP
Foodservice Common Shares that will be issued in the Merger pursuant to the
Exchange Ratio in exchange for Registrable Securities to holders thereof who
have rights under the Registration Rights Agreement. See "Other Agreements--
Registration Rights Agreement."
Stock Options and Other Rights. Of the 2,313,463 Options outstanding under
the Rykoff-Sexton Stock Plans as of August 31, 1997, 1,515,968 were fully vested
and exercisable as of that date. Of the remaining Options, 397,388 will
automatically become fully vested upon stockholder approval of the Rykoff-Sexton
Proposal. As of August 31, 1997, directors and executive officers of
Rykoff-Sexton held 936,728 Options that are expected to be Assumed Options.
As of August 31, 1997, 101,520 Rykoff-Sexton Common Shares were issued and
outstanding under the Rykoff-Sexton Stock Plans and subject to a risk of
forfeiture and restrictions on transfer (the "Restricted Shares") and 405,000
Rykoff-Sexton Common Shares were subject to outstanding performance share awards
(the "Performance Share Awards") granted under the Rykoff-Sexton Stock Plans. As
of August 31, 1997, directors and executive officers of Rykoff-Sexton held
451,758 Restricted Shares and Performance Share Awards. Subsequent to August 31,
1997, the number of outstanding Performance Share Awards was reduced to 349,000.
Upon stockholder approval of the Rykoff-Sexton Proposal, all Restricted Shares
then outstanding will automatically become nonforfeitable and freely
transferable (subject to any transfer restrictions under applicable securities
laws and described under the caption "The Merger--Restriction on Resale of JP
Foodservice Common Shares by Affiliates"), and all Rykoff-Sexton Common Shares
subject to Performance Share Awards then outstanding will become issuable. Such
Restricted Shares and all of such Rykoff-Sexton Common Shares will thereafter be
converted, at the Effective Time, into the right to receive JP Foodservice
Common Shares at the Exchange Ratio.
Indemnification; Insurance. Pursuant to the Merger Agreement, JP
Foodservice has agreed to maintain in effect in accordance with their terms all
rights to indemnification and exculpation from liabilities for acts or omissions
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occurring at or prior to the Effective Time existing as of the date of the
Merger Agreement in favor of the current or former directors or officers of
Rykoff-Sexton and its subsidiaries (and any of their respective predecessors,
including, without limitation, US Foodservice) as provided in their respective
certificates of incorporation or by-laws (or comparable organizational
documents) and any indemnification agreements of Rykoff-Sexton or in Section
7.13 of the merger agreement governing the US Foodservice Acquisition. In
addition, the Merger Agreement provides that, from and after the Effective Time,
directors and officers of Rykoff-Sexton who become directors or officers of JP
Foodservice will be entitled to the same indemnity rights and protections, and
directors' and officers' liability insurance, as are afforded from time to time
to other directors and officers of JP Foodservice. See "The Merger-Interests of
Certain Persons in the Merger--Indemnification; Insurance."
Certain Other Agreements
Support Agreement. Under an agreement (as amended and restated as of June
30, 1997, the "Support Agreement") among JP Foodservice and the ML Investors
entered into concurrently with the Merger Agreement on June 30, 1997, each ML
Investor has agreed, among other things, (i) to vote its Rykoff-Sexton Common
Shares for adoption of the Merger Agreement and (ii) not to engage in certain
activities relating to business combinations involving JP Foodservice,
Rykoff-Sexton or their respective subsidiaries other than the Merger (including,
without limitation, not directly or indirectly to solicit or encourage, or
engage in certain activities with respect to, any third party proposal to
acquire, by way of merger, consolidation or otherwise, the business, assets or
voting securities of JP Foodservice or Rykoff-Sexton or such subsidiaries). See
"Other Agreements--Support Agreement." The Support Agreement was entered into by
the ML Investors as an inducement to JP Foodservice to enter into the Merger
Agreement.
Stock Option Agreements. Concurrently with their execution of the Merger
Agreement, JP Foodservice and Rykoff-Sexton entered into reciprocal stock option
agreements (the "Stock Option Agreements") on June 30, 1997 with substantially
identical terms. The Stock Option Agreements are intended to increase the
likelihood that the Merger will be consummated in accordance with its terms and
to compensate the holder of the option for certain expenses, losses and costs
that may be incurred by it in connection with the proposed transaction if the
Merger is not consummated under certain circumstances involving an acquisition
or proposed acquisition by a third party of more than a specified level of
voting securities or assets of the issuer of the option.
Rykoff-Sexton has granted JP Foodservice an option (the "Rykoff-Sexton
Option") to purchase up to 5,564,140 Rykoff-Sexton Common Shares, representing
approximately 19.9% of the Rykoff-Sexton Common Shares outstanding as of the
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date of the Rykoff-Sexton Option, at an exercise price of $25.305 per
Rykoff-Sexton Common Share, which is the product of (x) the closing sale price
of the JP Foodservice Common Shares on the NYSE on June 27, 1997, the last
trading day preceding public announcement of the execution of the Merger
Agreement, and (y) the Exchange Ratio. The Rykoff-Sexton Option is exercisable
by JP Foodservice upon the occurrence of certain specified events or
transactions, including the acquisition of (or the initiation of a tender offer
or exchange offer for) more than 20% of the outstanding Rykoff-Sexton Common
Shares by a third party and the agreement by Rykoff-Sexton to engage in a
business combination other than the Merger or to sell all or a material portion
of its assets to a third party.
JP Foodservice has granted Rykoff-Sexton an option (the "JP Foodservice
Option") to purchase up to 4,495,149 JP Foodservice Common Shares, representing
approximately 19.9% of the JP Foodservice Common Shares outstanding as of the
date of the JP Foodservice Option, at an exercise price of $30.125 per JP
Foodservice Common Share, which is the closing sale price of the JP Foodservice
Common Shares on the NYSE on the last trading day preceding public announcement
of the execution of the Merger Agreement. The JP Foodservice Option is
exercisable by Rykoff-Sexton upon the occurrence of certain specified events or
transactions, including the acquisition of (or the initiation of a tender offer
or exchange offer for) more than 20% of the outstanding JP Foodservice Common
Shares by a third party and the agreement by JP Foodservice to engage in a
business combination other than the Merger or to sell all or a material portion
of its assets to a third party. See "Other Agreements--Stock Option Agreements."
Standstill Agreement. In connection with the US Foodservice Acquisition,
Rykoff-Sexton and the ML Entities entered into an agreement (the "Standstill
Agreement"), which imposes certain standstill, voting and transfer restrictions
on the ML Entities and provides for representation on the Rykoff-Sexton Board of
Directors and certain committees thereof by individuals selected by the ML
Entities. From and after the Effective Time, the Standstill Agreement will be
for the benefit of, and will be enforceable by, JP Foodservice to the same
extent and in the same manner as the Standstill Agreement benefits and is
enforceable by Rykoff-Sexton prior to the Merger. See "Other
Agreements--Standstill Agreement."
Registration Rights Agreement. Pursuant to the Support Agreement, as of the
Effective Time, JP Foodservice will assume the rights and obligations of
Rykoff-Sexton under the Registration Rights Agreement. See "Other
Agreements--Support Agreement" and "--Registration Rights Agreement."
New Credit Facility
In connection with the Merger and effective as of the Closing Date, JP
Foodservice proposes to obtain funding of up to $750 million through a new
revolving credit facility and a new revolver/term loan facility (collectively,
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the "New Credit Facility"). Pursuant to commitment letters (collectively, the
"Commitment Letter") with JP Foodservice, NationsBank, N.A. ("NationsBank"), The
Chase Manhattan Bank, N.A. ("Chase"), Bank of America, The First National Bank
of Chicago and PNC Bank, National Association have committed to provide JP
Foodservice funding of up to $750 million toward the New Credit Facility,
subject to the terms and conditions of the Commitment Letter, and affiliates of
NationsBank and Chase have agreed to act as co-arrangers in the syndication of
the New Credit Facility to other financial institutions. Borrowings under the
New Credit Facility will be used primarily to refinance indebtedness of JP
Foodservice and Rykoff-Sexton outstanding under their existing senior bank
credit facilities (collectively, the "Existing Bank Credit Facilities"), which
totaled approximately $479 million as of June 28, 1997, to pay estimated fees
and expenses of approximately $33 million incurred in connection with the Merger
and to finance capital expenditures and on-going working capital needs. The
availability of financing under the New Credit Facility or otherwise is not a
condition to consummation of the Merger. Such financing will be subject to
certain terms and conditions, which will include the negotiation, execution and
delivery of definitive credit documents. There can be no assurance as to
whether, or the definitive terms on which, the New Credit Facility actually will
be available to JP Foodservice. See "Description of Proposed New Financing
Arrangements--New Credit Facility."
Risk Factors
The matters set forth under the caption "Risk Factors" should be carefully
considered by JP Foodservice stockholders in deciding whether to approve the
issuance of JP Foodservice Common Shares in connection with the Merger and by
Rykoff-Sexton stockholders in deciding whether to adopt the Merger Agreement.
Clearance Under Federal Antitrust Laws
The Merger is subject to the applicable provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (collectively, the "HSR Act"), which provide that certain acquisition
transactions (including the Merger) may not be consummated until certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and certain waiting period requirements have been satisfied. JP Foodservice and
Rykoff-Sexton filed the required information and material with respect to the
Merger with the Antitrust Division and the FTC on July 3, 1997. The required
waiting period under the HSR Act with respect to such filings expired on August
2, 1997. Merrill Lynch & Co., Inc., Merrill Lynch Capital Appreciation
Partnership No. B-XVIII, L.P. and Merrill Lynch Capital Appreciation Partnership
No. XIII, L.P. and JP Foodservice filed the required information with the
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Antitrust Division and the FTC on September 8, 1997. The required waiting period
under the HSR Act with respect to such filings will expire on October 8, 1997,
unless extended by a request for additional information or documentary material
or unless early termination of the waiting period is granted. ML Offshore LBO
Partnership No. B-XVIII filed the required information with the Antitrust
Division and the FTC on September 10, 1997. The required waiting period under
the HSR Act with respect to such filing will expire on October 10, 1997, unless
extended or terminated early. Satisfaction or termination of the waiting period
requirement with respect to any such filing does not preclude the Antitrust
Division, the FTC or any other party either before or after the Effective Time
from challenging or seeking to delay or enjoin the Merger on antitrust or other
grounds. There can be no assurance that such a challenge will not be made or, if
made, would not succeed.
Effective Time of the Merger
The Merger will be consummated and become effective at the time (the
"Effective Time") of the filing of the certificate of merger pursuant to the
DGCL with the Secretary of State of the State of Delaware (or at such later date
and time as JP Foodservice and Rykoff-Sexton may specify in such certificate),
which will be as soon as practicable on the closing date of the transactions
contemplated by the Merger Agreement (the "Closing Date"). See "The Merger
Agreement--Effective Time."
Exchange of Certificates in the Merger
As soon as reasonably practicable after the Effective Time, _____ (the
"Exchange Agent") will mail a transmittal letter and instructions to each holder
of record (other than JP Foodservice, Merger Sub or Rykoff-Sexton) of
certificates which immediately prior to the Effective Time represented
outstanding Rykoff-Sexton Common Shares. Such transmittal letter and
instructions are to be used in forwarding such certificates for surrender and
exchange for (i) certificates representing that number of whole JP Foodservice
Common Shares that such holder has the right to receive pursuant to the Merger
Agreement and (ii) cash for any fractional JP Foodservice Common Shares to which
such holder otherwise would be entitled (the "Merger Consideration").
RYKOFF-SEXTON STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR
EXCHANGE UNTIL SUCH TRANSMITTAL FORM AND INSTRUCTIONS ARE RECEIVED. Following
the Effective Time, holders of certificates formerly representing Rykoff-Sexton
Common Shares will not be entitled to receive dividends, if any, or any other
distributions from JP Foodservice until such certificates are so surrendered,
and in any event will not be entitled to receive interest on such dividends or
other distributions. Upon consummation of the Merger, the Rykoff-Sexton Common
Shares will cease to be traded on the
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NYSE, and there will be no further market for the Rykoff-Sexton Common Shares.
See "The Merger--Exchange of Certificates."
Listing of JP Foodservice Common Shares on the NYSE
It is a condition to each party's obligation to consummate the Merger that
the JP Foodservice Common Shares to be issued in connection with the Merger
(including shares issuable upon exercise of the Assumed Options and Assumed
Warrants) be approved for listing on the NYSE, subject only to official notice
of issuance. JP Foodservice has agreed to use its best efforts to cause such
shares to be so approved for listing, subject only to official notice of
issuance, prior to the Effective Time.
Business of Rykoff-Sexton and JP Foodservice Pending the Merger
Each of Rykoff-Sexton and JP Foodservice has agreed that, prior to the
Effective Time or earlier termination of the Merger Agreement, it and its
subsidiaries will each conduct its operations according to its ordinary course
of business consistent with past practice, with certain exceptions permitted by
the Merger Agreement. In addition, unless the other party agrees in writing or
except as otherwise permitted pursuant to the Merger Agreement or as previously
disclosed to the other party, none of Rykoff-Sexton, JP Foodservice or any of
their respective subsidiaries is permitted to engage prior to the Effective Time
in any of a number of actions specified in the Merger Agreement. See "The Merger
Agreement--Business of Rykoff-Sexton Pending the Merger" and "--Business of JP
Foodservice Pending the Merger."
Conditions of the Merger; Termination
The consummation of the Merger is conditioned upon the fulfillment or
waiver (where permissible) of certain conditions set forth in the Merger
Agreement. Such conditions include the following: approval of the JP Foodservice
Merger Proposal and the Rykoff-Sexton Proposal by JP Foodservice and
Rykoff-Sexton stockholders, respectively; termination or expiration of any
applicable waiting period under the HSR Act; procurement of all required
consents and approvals of, and completion of all notices to and filings with,
governmental entities, except where the failure to do so would not have a
material adverse effect on JP Foodservice, Rykoff-Sexton or the Surviving
Corporation; absence of action by a court or other governmental entity
preventing consummation of the Merger or which is reasonably likely to have a
material adverse effect on JP Foodservice or Rykoff-Sexton; approval of NYSE
listing of the JP Foodservice Common Shares issuable to Rykoff-Sexton's
stockholders; delivery of legal opinions of counsel to JP Foodservice and
Rykoff-Sexton as to certain federal income tax consequences of the Merger and
letters of the independent accountants of JP Foodservice and Rykoff-Sexton as to
pooling of
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interests accounting relative to Rykoff-Sexton and the Merger. Other conditions
include the continued accuracy of representations and warranties by JP
Foodservice and Rykoff-Sexton contained in the Merger Agreement, except where
the failure to be accurate does not have, and is not likely to have, a material
adverse effect on the party making such representations and warranties;
performance by JP Foodservice and Rykoff-Sexton in all material respects of
their obligations under the Merger Agreement; absence of any material adverse
change relating to JP Foodservice or Rykoff-Sexton; and absence of exercise or
distribution of rights under the JP Foodservice Rights Agreement (as defined
herein) or the Rykoff-Sexton Rights Agreement (as defined herein).
The Merger Agreement may be terminated (i) by mutual consent of JP
Foodservice and Rykoff-Sexton, (ii) by either JP Foodservice or Rykoff-Sexton if
the Merger has not been consummated by April 1, 1998 and (iii) under certain
other circumstances. See "The Merger Agreement--Amendment; Termination."
Termination Fees
JP Foodservice and Rykoff-Sexton each have agreed to pay the other a
termination fee of $30 million (a "Termination Fee") in substantially identical
circumstances that result in the termination of the Merger Agreement and
abandonment of the Merger.
Each company has agreed to pay the other company (the "Terminating Party")
a Termination Fee in the event that: (i) the Terminating Party terminates the
Merger Agreement and abandons the Merger as a result of a willful breach or
failure by the other company to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach or failure (x) has or is likely to have,
individually or in the aggregate, a material adverse effect on the other
company, and (y) is incapable of being cured or is not cured within 45 days of
written notice; (ii) the Terminating Party terminates the Merger Agreement and
abandons the Merger because the Board of Directors of the other company shall
have (A) failed to make its recommendation to stockholders in favor of the JP
Foodservice Merger Proposal (in the case of JP Foodservice) or the Rykoff-Sexton
Proposal (in the case of Rykoff-Sexton), (B) withdrawn such recommendation or
(C) modified or changed such recommendation in a manner adverse to the interests
of the Terminating Party; or (iii) either company terminates the Merger
Agreement and abandons the Merger as a result of the failure of the other
company's stockholders to approve the applicable proposal if at the time of such
failure any event has occurred that would give the Terminating Party the right
to exercise the Rykoff-Sexton Option (in the case of JP Foodservice) or the JP
Foodservice Option (in the case of Rykoff-Sexton), including an acquisition or
proposed acquisition by a third party of 20% or more of the
20
<PAGE>
outstanding Common Shares of the other party or a material portion of the assets
of the other party.
If JP Foodservice exercises the Rykoff-Sexton Option or Rykoff-Sexton
exercises the JP Foodservice Option, any Termination Fee payable by JP
Foodservice or Rykoff-Sexton, as applicable, pursuant to the Merger Agreement
will be reduced by the amount of any profit realized by JP Foodservice or
Rykoff-Sexton, as the case may be, upon the sale or other disposition by such
company of any shares acquired by it pursuant to exercise of the applicable
Option. A Termination Fee payment by JP Foodservice or Rykoff-Sexton will reduce
the amount of any cash payment required to be made by such company in
cancellation of the Option granted by it under the circumstances specified in
the applicable Stock Option Agreement. See "The Merger Agreement--Termination
Fees" and "Other Agreements--Stock Option Agreements."
Expenses
Each of JP Foodservice and Rykoff-Sexton will bear its own expenses
incurred in connection with the transactions contemplated by the Merger
Agreement, except with respect to the Termination Fee payable by each party and
except that each party will pay one-half of (i) the costs of registering the JP
Foodservice Common Shares issuable pursuant to the Merger Agreement and of
printing and mailing this Joint Proxy Statement/Prospectus and (ii) the costs of
all filings under the HSR Act related to the Merger. See "The Merger
Agreement--Expenses."
Absence of Dissenters' Rights
Both JP Foodservice and Rykoff-Sexton are incorporated under the laws of
the State of Delaware, and, accordingly, are governed by the provisions of the
DGCL. Pursuant to Section 262(b)(1) of the DGCL, the stockholders of
Rykoff-Sexton are not entitled to appraisal rights in connection with the Merger
because Rykoff-Sexton Common Shares are listed on the NYSE and such stockholders
will receive as consideration in the Merger only shares of JP Foodservice Common
Shares, which shares will be listed on the NYSE upon the closing of the Merger,
and cash in lieu of fractional shares. In addition, JP Foodservice stockholders
are not entitled to appraisal rights under Section 262 of the DGCL because, even
though approval of such stockholders is required for the issuance of JP
Foodservice Common Shares in connection with the Merger pursuant to the
requirements of the NYSE, JP Foodservice is not a constituent corporation in the
Merger.
Resale of JP Foodservice Common Shares
The issuance of the JP Foodservice Common Shares to Rykoff-Sexton
stockholders in connection with the Merger has been registered under the
Securities Act. Such shares may be traded freely and without restriction by
those Rykoff-
21
<PAGE>
Sexton stockholders who are not deemed to be "affiliates" of Rykoff-Sexton
within the meaning of the Securities Act. Any subsequent transfer of JP
Foodservice Common Shares issued in the Merger by any person who is an affiliate
of Rykoff-Sexton at the time adoption of the Merger Agreement is submitted for
stockholder approval at the Rykoff-Sexton Special Meeting will, under existing
law, require either (i) the registration of such transfer under the Securities
Act, (ii) compliance with Rule 145 promulgated under the Securities Act (which
permits limited sales under certain circumstances) or (iii) the availability of
another exemption from registration. The foregoing restrictions are expected to
apply to, among other persons, directors and executive officers of Rykoff-Sexton
and the holders of 10% or more of the Rykoff-Sexton Common Shares converted in
the Merger, including the ML Investors. See "The Merger--Restrictions on Resale
of JP Foodservice Common Shares by Affiliates."
From and after the Effective Time, the ML Investors will have the right
under the Registration Rights Agreement to require JP Foodservice, for a
specified period and subject to certain limitations and qualifications, to
register under the Securities Act the transfer of all or a portion of the JP
Foodservice Common Shares issued to them in the Merger in exchange for
Registrable Securities, thus permitting the sale of such Rykoff-Sexton Common
Shares to the general public in the circumstances and subject to the conditions
and restrictions set forth therein. The ML Investors and other parties to the
Registration Rights Agreement also will have "piggyback" registration rights
with respect to JP Foodservice Common Shares issued to them in the Merger in
exchange for Registrable Securities. See "Risk Factors--Shares Eligible for
Future Sale" and "Other Agreements--Registration Rights Agreement."
Certain Federal Income Tax Consequences
The consummation of the Merger is conditioned, among other things, upon the
receipt by JP Foodservice of an opinion of Wachtell, Lipton, Rosen & Katz,
counsel for JP Foodservice, and the receipt by Rykoff-Sexton of an opinion of
Jones, Day, Reavis & Pogue, counsel to Rykoff-Sexton, substantially to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). Such opinions will be dated the Closing Date,
will be based upon certain customary representations, and will be subject to
certain assumptions and limitations set forth therein. Such customary
representations include representations relating to the absence of plans to
engage in certain transactions with respect to Merger Sub and the assets of
Rykoff-Sexton, the continued operation of Rykoff-Sexton's historic business
after the Merger, payment of Merger expenses, limitation on cash paid for
fractional shares in connection with the Merger, and the nature of compensation
paid to employee-stockholders of Rykoff-Sexton after the Merger. No ruling
regarding the Merger will be sought from the Internal Revenue
22
<PAGE>
Service, which will not be bound by the conclusions expressed in such opinions
of counsel.
In accordance with such opinions, (i) neither JP Foodservice nor
Rykoff-Sexton will recognize any gain or loss as a result of the Merger and (ii)
no gain or loss will be recognized by stockholders of Rykoff-Sexton upon the
exchange of their Rykoff-Sexton Common Shares pursuant to the Merger, except
with respect to cash, if any, received in lieu of fractional JP Foodservice
Common Shares. See "The Merger--Certain Federal Income Tax Consequences."
EACH HOLDER OF RYKOFF-SEXTON COMMON STOCK IS ADVISED TO CONSULT SUCH
HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
THE MERGER UNDER FEDERAL, STATE, LOCAL, FOREIGN OR ANY OTHER APPLICABLE LAW.
To provide assurances in connection with the qualification of the Merger as
a tax-free reorganization for federal income tax purposes, each ML Investor has
agreed in the Support Agreement that, at or prior to the Effective Time, it will
represent to Rykoff-Sexton and JP Foodservice or their respective counsel that,
as of the Effective Time, and subject to certain exceptions, (i) it has no plan
or intention to sell, exchange or otherwise dispose of, or to enter into an
agreement to sell, exchange or otherwise dispose of, JP Foodservice Common
Shares during the two-year period immediately following the Effective Time and
(ii) it is not subject to or obligated to enter into an agreement to sell,
exchange or dispose of JP Foodservice Common Shares , if any resulting sale,
exchange or disposition would (when taken in combination with actions by other
ML Investors and assuming all agreements referred to in clause (i) are
consummated) cause the ML Investors in the aggregate to retain ownership for
federal income tax purposes of less than the lesser of (i) 25% of the JP
Foodservice Common Shares received by the ML Investors in the aggregate in the
Merger or (ii) a specified percentage of the JP Foodservice Common Shares issued
in the Merger to stockholders of Rykoff-Sexton. See "Other Agreements --Support
Agreement."
Accounting Treatment
It is intended that the Merger will be accounted for by JP Foodservice as a
pooling of interests in accordance with generally accepted accounting
principles. It is a condition to the consummation of the Merger that (i)
Rykoff-Sexton and JP Foodservice receive a letter, dated as of the Closing Date,
from Rykoff-Sexton's independent accountants stating that Rykoff-Sexton will
meet the criteria for pooling of interests accounting under Accounting
Principles Board ("APB") Opinion No. 16 and applicable SEC rules and regulations
and (ii) JP Foodservice and Rykoff-Sexton receive a letter, dated as of the
Closing Date, from JP Foodservice's
23
<PAGE>
independent accountants stating that the Merger will qualify for accounting as a
pooling of interests under APB Opinion No. 16 and applicable SEC rules and
regulations. See "The Merger Agreement--Conditions; Waivers--Conditions to Each
Party's Obligations to Effect the Merger."
Dividends and Market Prices of JP Foodservice and Rykoff-Sexton Common
Shares
JP Foodservice
The JP Foodservice Common Shares have been listed on the NYSE under the
symbol "JPF" since December 31, 1996. From November 16, 1994 until December 31,
1996, the JP Foodservice Common Shares were quoted on the Nasdaq National Market
under the symbol "JPFS." The table below sets forth, for the periods indicated,
the reported high and low bid prices of JP Foodservice Common Shares on the
Nasdaq National Market prior to December 31, 1996 and, beginning on December 31,
1996, the reported high and low sale prices on the NYSE Composite Tape.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Fiscal Year Ended July 1, 1995
Second Quarter (from November 16, 1994).......... $11.50 $9.25
Third Quarter.................................... 13.25 9.25
Fourth Quarter................................... 14.38 10.75
Fiscal Year Ended June 29, 1996
First Quarter.................................... $18.00 $12.75
Second Quarter................................... 19.75 15.25
Third Quarter.................................... 22.75 18.00
Fourth Quarter................................... 25.00 18.00
Fiscal Year Ended June 28, 1997
First Quarter............................... .... $26.00 $20.50
Second Quarter................................... 28.75 20.38
Third Quarter.................................... 29.25 25.75
Fourth Quarter................................... 30.19 26.00
Fiscal Year Ending June 27, 1998
First Quarter (through September 15, 1997)....... $32.44 $28.25
</TABLE>
JP Foodservice has never declared or paid a cash dividend and does not
anticipate declaring or paying a cash dividend for the foreseeable future.
Financial covenants and other restrictions contained in agreements relating to
JP Foodservice's indebtedness require JP Foodservice prior to the Merger, and
will require JP Foodservice after the Merger, to meet certain financial tests
and may restrict its ability to pay cash dividends. See "Risk Factors--JP
Foodservice Dividend Policy."
24
<PAGE>
Rykoff-Sexton
The Rykoff-Sexton Common Shares are listed on the NYSE under the symbol
"RYK." The table below sets forth, for the periods indicated, the reported high
and low sale prices of Rykoff-Sexton Common Shares on the NYSE Composite Tape
and the semi-annual cash dividends per share paid by Rykoff-Sexton on such
shares. In December 1994, the Rykoff-Sexton Board of Directors declared a
five-for-four stock split, payable January 24, 1995, to stockholders of record
on December 21, 1994. Share prices shown below have been adjusted to give effect
to this stock split. Effective May 17, 1996, Rykoff-Sexton changed its fiscal
year-end from the Saturday closest to April 30 to the Saturday closest to June
30. Accordingly, the information presented in the table below for the First
Quarter of the Fiscal Year Ended June 28, 1997 represents information from April
29, 1996 through September 27, 1996.
<TABLE>
<CAPTION>
Cash
Dividends
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
Fiscal Year Ended April 29, 1995
First Quarter............................... $16.88 $14.38 ---
Second Quarter.............................. 17.88 15.00 ---
Third Quarter............................... 16.75 15.88 ---
Fourth Quarter.............................. 17.88 14.88 $0.03
Fiscal Year Ended April 27, 1996
First Quarter............................... $20.63 $17.25 $0.03
Second Quarter.............................. 24.63 19.63 ---
Third Quarter............................... 22.50 15.63 0.03
Fourth Quarter.............................. 16.25 13.88 ---
Fiscal Year Ended June 28, 1997
First Quarter (from April 29, 1996
through September 27, 1996)................ $16.38 $13.50 $0.03
Second Quarter.............................. 16.00 13.38 ---
Third Quarter............................... 18.50 15.13 0.03
Fourth Quarter.............................. 20.00 17.00 ---
Fiscal Year Ending June 27, 1998
First Quarter (through September 15, 1997). $26.88 $22.63 ---
</TABLE>
In December 1994, Rykoff-Sexton announced the reinstatement of its cash
dividend on a semi-annual basis in the amount of $0.03 per Rykoff-Sexton Common
Share. Rykoff-Sexton's policy to declare a dividend is based on a decision made
by the Rykoff-Sexton Board of Directors from time to time following
consideration of the results of operations and financial condition of
Rykoff-Sexton, terms of debt instruments that may restrict Rykoff-Sexton's
ability to pay dividends and such
25
<PAGE>
other factors as the Rykoff-Sexton Board of Directors considers relevant. In
light of the pending Merger, the Rykoff-Sexton Board of Directors has determined
not to declare a dividend in the first quarter of fiscal 1998.
Comparative Share Prices
The following table sets forth the closing sale prices per JP Foodservice
Common Share and per Rykoff-Sexton Common Share on the NYSE on June 27, 1997,
the last full trading day prior to public announcement of the execution of the
Merger Agreement, and on __________, 1997, the latest practicable date before
the printing of this Joint Proxy Statement/Prospectus for which sales price
information was available, and the equivalent per share prices for Rykoff-Sexton
Common Shares based on the prices of JP Foodservice Common Shares.
<TABLE>
<CAPTION>
Rykoff-Sexton
JP Foodservice Rykoff-Sexton Equivalent
Common Shares Common Shares Common Share(1)
-------------- ------------- ------------
<S> <C> <C> <C>
June 27, 1997 $30.13 $ 19.63 $ 25.31
_______, 1997 $ $ $
</TABLE>
(1) Represents the equivalent price of one Rykoff-Sexton Common Share in the
Merger, calculated by multiplying the closing sale price per JP Foodservice
Common Share on such date by the Exchange Ratio.
Stockholders are urged to obtain current quotations for the market prices
of JP Foodservice Common Shares and Rykoff-Sexton Common Shares. No assurance
can be given as to the market price of JP Foodservice Common Shares or
Rykoff-Sexton Common Shares at the Effective Time. Because the Exchange Ratio is
fixed in the Merger Agreement and neither JP Foodservice nor Rykoff-Sexton has
the right to terminate the Merger Agreement based on changes in the market price
of either party's stock, the market value of the JP Foodservice Common Shares
that holders of Rykoff-Sexton Common Shares will receive in the Merger may vary
significantly from the prices shown in the preceding tables.
26
<PAGE>
Summary Unaudited Pro Forma Combined Consolidated Financial Data of JP
Foodservice and Rykoff-Sexton
The following table presents (i) summary unaudited pro forma combined
consolidated statement of operations data for the years ended July 1, 1995,
June 29, 1996 and June 28, 1997 of JP Foodservice and Rykoff-Sexton reflecting
the consummation of the Merger and (ii) unaudited pro forma combined balance
sheet data as of June 28, 1997 of JP Foodservice and Rykoff-Sexton reflecting
consummation of the Merger and the one-time charges to be incurred in connection
with the Merger. See "Unaudited Pro Forma Combining Consolidated Financial
Statements for the Merger." The unaudited combined and pro forma consolidated
financial data have been prepared giving effect to the Merger using the pooling
of interests method of accounting.
The summary unaudited pro forma combined consolidated statement of
operations data do not reflect any operating or interest costs savings that
management believes may be realized following the Merger. Management of JP
Foodservice and Rykoff-Sexton have estimated that the combination of JP
Foodservice and Rykoff-Sexton could create opportunities for operating cost
savings of approximately $12 million during the first twelve-month period
following the Effective Time, $18 million during the second twelve-month period
following the Effective Time and $25 million annually thereafter. These cost
savings are expected to be realized primarily through the restructuring of
operations. In addition, in connection with the Merger, JP Foodservice expects
to enter into the New Credit Facility, which will provide for lower borrowing
costs than the overall borrowing costs under the Existing Bank Credit
Facilities. Management estimates the New Credit Facility will provide annual
interest cost savings of approximately $5 million. See "Description of Proposed
New Financing Arrangements." No assurances can be made as to the amount of cost
savings that will actually be realized.
The unaudited pro forma combined results of JP Foodservice and of
Rykoff-Sexton are not necessarily indicative of results of operations that would
have resulted if the Merger had been consummated at the beginning of the periods
indicated or of the results that will be achieved in the future.
27
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined
Fiscal Year Ended (1)
----------------------------------------------------
July 1, June 29, June 28,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
(in thousands, except per share amounts)
Statement of Operations Data:
Net sales....................................... $ 2,857,334 $3,238,781 $ 5,169,406
Gross profit.................................... 594,515 652,685 1,003,074
Amortization of intangible assets............... 2,792 4,244 15,349
Impairment of long-lived assets................. - 29,700 -
Executive severance compensation................ - - 4,000
Reversal of restructuring charge................ - (6,441) (4,000)
Income from operations ......................... 64,852 34,736 145,824
Interest expense and other financing costs, net. 32,941 32,527 76,063
Income from continuing operations before
income taxes.................................. 31,911 692 64,361
Income from continuing operations............... 18,303 133 38,286
Net income ..................................... 37,209 133 38,286
Per share data:
Income from continuing operations
per common share............................ $0.72 $0.00 $0.83
Net income per common share.................. 1.46 0.00 0.83
Weighted average number of shares of common
stock and common stock equivalents
outstanding................................. 25,477 31,359 45,923
<CAPTION>
Pro Forma
Combined
As of
June 28, 1997
-------------
<S> <C>
Balance Sheet Data:
Total assets.......................................................................... $ 1,729,628
Long-term debt, excluding current maturities ......................................... 655,246
Stockholders' equity ................................................................ 530,049
</TABLE>
- ---------------------
(1) Unaudited pro forma combined consolidated statement of operations data
for the years ended July 1, 1995 , June 29, 1996 and June 28, 1997
include historical consolidated financial results of Rykoff-Sexton for
the fiscal years ended April 29, 1995, April 27, 1996 and June 28, 1997,
respectively.
28
<PAGE>
Summary Historical Consolidated Financial Data of JP Foodservice
The following summary of consolidated financial data for JP Foodservice
should be read in conjunction with the consolidated financial statements of JP
Foodservice as of and for the fiscal years ended July 1, 1995, June 29, 1996
and June 28, 1997 incorporated herein by reference. The consolidated statement
of operations data and balance sheet data for the four fiscal years ended June
28, 1997 have been derived from JP Foodservice's audited consolidated financial
statements and notes thereto. The consolidated statement of operations data for
the fiscal year ended July 3, 1993 are unaudited.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------
July 3, July 2, July 1, June 29, June 28,
1993(1) 1994 1995 1996 1997
------- ------- ------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.......................... $1,152,709 $1,178,826 $1,288,315 $1,449,303 $1,691,913
Gross profit....................... 199,008 199,718 218,821 250,506 295,690
Amortization of intangible assets.. 2,266 2,265 2,263 2,338 2,918
Stock compensation charge.......... - - 709 - -
Income from operations............. 29,779 33,758 38,359 45,215 60,337
Nonrecurring charges............... - - - 1,517 5,400
Interest expense and other
financing costs, net............. 38,577 32,255 22,074 15,187 16,522
Income (loss) before income taxes
and extraordinary item........... (8,811) 1,281 16,285 28,511 38,415
Income (loss) before extraordinary
item............................. (6,620) (298) 8,927 16,913 22,248
Net income (loss).................. (6,620) (298) 4,337 16,913 22,248
Per share data:
Income (loss) per common share
before extraordinary item...... $ (1.95) $ (0.17) $ 0.68 $ 0.90 $ 1.02
Net income (loss) per common
share.......................... (1.95) (0.17) 0.33 0.90 1.02
Weighted average number of shares
of common stock outstanding.... 4,633 4,633 13,104 18,809 21,862
<CAPTION>
As of
June 28, 1997
--------------
(in thousands)
<S> <C>
Balance Sheet Data:
Total assets........................................................................... $524,148
Long-term debt, excluding current maturities........................................... 168,515
Stockholders' equity................................................................... 228,946
</TABLE>
- ----------------
(1) 53-week fiscal year.
29
<PAGE>
Summary Historical Consolidated Financial Data of Rykoff-Sexton
The following summary of consolidated financial data for Rykoff-Sexton
should be read in conjunction with the consolidated financial statements of
Rykoff-Sexton as of and for the fiscal years ended April 29, 1995 , April 27,
1996 and June 28, 1997 and the nine-week transition period ended June 29, 1996
incorporated herein by reference. The consolidated statements of operations data
and balance sheet data for the four fiscal years ended April 27, 1996 and for
the fiscal year ending June 28, 1997 have been derived from Rykoff-Sexton's
audited consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------
May 1, April 30, April 29, April 27, June 28,
1993 1994 1995 1996(1) 1997(2)
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales......................... $1,412,943 $1,444,226 $1,569,019 $1,789,478 $3,477,943
Gross profit(3)................... 348,016 352,247 375,694 402,179 707,384
Amortization of intangible assets. 460 156 529 1,906 12,431
Executive severance compensation.. - - - 4,000
Impairment of long-lived assets... - - - 29,700 -
Restructuring charge (reversal)... 31,000 - - (6,441) (4,000)
Income (loss) from operations..... (25,951) 18,872 26,493 (10,479) 85,487
Interest expense and other
financing costs, net............ 12,401 11,946 10,867 17,340 59,541
Income (loss) from continuing
operations before income taxes.. (38,352) 6,926 15,626 (27,819) 25,946
Income (loss) from continuing
operations...................... (24,150) 4,121 9,376 (16,780) 16,038
Net income (loss)................. (18,960) 5,918 32,872 (16,780) 16,038
Per share data:
Income (loss) from continuing
operations per common share... $ (1.66) $ 0.28 $ 0.64 $ (1.12) $ 0.56
Net income (loss) per common
share......................... (1.30) 0.40 2.24 (1.12) 0.56
Weighted average number of
shares of common stock and
common stock equivalents
outstanding................... 14,508 14,601 14,730 14,941 28,644
<CAPTION>
As of
June 28, 1997
--------------
(in thousands)
<S> <C>
Balance Sheet Data:
Total assets......................................................................... $1,219,022
Long-term debt, excluding current maturities......................................... 486,731
Stockholders' equity................................................................. 354,173
</TABLE>
- ----------------
(1) Includes amounts for H&O Foods, Inc. from November 1, 1995 to
April 27, 1996.
(2) Includes amounts for US Foodservice for the full fiscal year.
(3) Reflects certain reclassifications in fiscal 1993, 1994, 1995 and 1996 to
conform to the fiscal 1997 presentation.
30
<PAGE>
Comparative Unaudited Per Share Data
The following table sets forth (i) selected historical per share data for
both JP Foodservice and Rykoff-Sexton and (ii) selected unaudited pro forma
combined per share data which reflect consummation of the Merger as if the
Merger had been consummated at the beginning of the period presented. The
unaudited pro forma combined data have been prepared giving effect to the Merger
using the pooling of interests method of accounting. The Rykoff-Sexton
equivalent pro forma amounts have been calculated by multiplying the
corresponding pro forma per share amounts of JP Foodservice by the Exchange
Ratio of 0.84.
The summary unaudited pro forma combined consolidated statement of
operations data do not reflect any operating or interest cost savings that
management believes may be realized following the Merger. Management of JP
Foodservice and Rykoff-Sexton have estimated that the combination of JP
Foodservice and Rykoff-Sexton could create opportunities for operating cost
savings of approximately $12 million during the first twelve-month period
following the Effective Time, $18 million during the second twelve-month period
following the Effective Time and $25 million annually thereafter. These cost
savings are expected to be realized primarily through the restructuring of
operations. In addition, in connection with the Merger, JP Foodservice expects
to enter into the New Credit Facility, which will provide lower borrowing costs
than the overall borrowing costs under the Existing Bank Credit Facilities.
Management estimates the New Credit Facility will provide annual interest cost
savings of approximately $5 million. See "Description of Proposed New Financing
Arrangements." No assurances can be made as to the amount of cost savings that
will actually be realized.
31
<PAGE>
The per share data presented herein are based on and derived from, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of JP Foodservice and Rykoff-Sexton,
both of which are incorporated herein by reference. The unaudited pro forma
combined results of JP Foodservice and of Rykoff-Sexton are not necessarily
indicative of results of operations that would have resulted if the Merger had
been consummated at the beginning of the periods indicated or of the results
that will be achieved in the future.
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
July 1, June 29, June 28,
JP Foodservice 1995 1996 1997
<S> <C> <C> <C>
Income from continuing operations per common share:
Historical..................................... $0.68 $0.90 $1.02
Pro forma..................................... 0.72 0.00 0.83
Cash dividends per common share (1)................ 0.00 0.00 0.00
Book value per common share:
Historical..................................... 10.13
Pro forma...................................... 11.39
<CAPTION>
As of and for the Fiscal Year Ended
April 29, April 27, June 28,
Rykoff-Sexton 1995 1996 1997
<S> <C> <C> <C>
Income (loss) from continuing operations
per common share:
Historical..................................... $0.64 $(1.12) $0.56
Equivalent pro forma........................... 0.60 0.00 0.70
Cash dividends per common share.................... 0.03 0.06 0.06
Book value per common share:
Historical..................................... 12.64
Equivalent pro forma........................... 9.57
</TABLE>
- --------------------
(1) JP Foodservice has never paid cash dividends on the JP Foodservice
Common Shares and does not anticipate declaring or paying cash dividends for the
foreseeable future following the Merger.
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RISK FACTORS
The following risk factors should be carefully considered by JP Foodservice
stockholders in deciding whether to approve the issuance of JP Foodservice
Common Shares in connection with the Merger and by Rykoff-Sexton stockholders in
deciding whether to adopt the Merger Agreement.
Uncertainties in Integrating Business Operations and Achieving Cost Savings;
Possible Dilution
In determining that the Merger is in the best interests of their respective
stockholders, the JP Foodservice Board of Directors and the Rykoff-Sexton Board
of Directors considered the cost savings, operating efficiencies and other
synergies expected to result from the integration of the JP Foodservice and
Rykoff-Sexton businesses. See "The Merger--Recommendation of the JP Foodservice
Board of Directors; Reasons for the Merger" and "--Recommendation of the
Rykoff-Sexton Board of Directors; Reasons for the Merger." Management of JP
Foodservice and Rykoff-Sexton have estimated that the combination of JP
Foodservice and Rykoff-Sexton could create opportunities for operating cost
savings of approximately $12 million during the first twelve-month period
following the Effective Time, $18 million during the second twelve-month period
following the Effective Time and $25 million annually thereafter. These cost
savings are expected to be realized primarily through the restructuring of
operations. See "The Merger--Potential Cost Savings and Operating Synergies."
The foregoing cost savings estimates were developed by JP Foodservice and
Rykoff-Sexton solely for purposes of evaluating the Merger, do not include
non-recurring adjustments that will be recorded in conjunction with the Merger,
and should not be relied upon as an estimate of actual cost savings that may be
achieved. These estimates are based upon assumptions and operating synergies
that are inherently uncertain, though considered reasonable by JP Foodservice
and Rykoff-Sexton, and are subject to significant business, economic and
competitive uncertainties which are difficult to predict and often beyond the
control of management. See "The Merger --Potential Cost Savings and Operating
Synergies." Several of the cost savings estimates are premised on the assumption
that certain levels of efficiency presently maintained by either JP Foodservice
or Rykoff-Sexton can be achieved by JP Foodservice following the Merger. Other
estimates are based on management's opinion as to what levels of enhanced
purchasing leverage and operating efficiencies should be achievable by an entity
the size of the combined entity.
The consolidation of functions, the integration of operations, systems,
marketing methods and procedures and the relocation of staff present significant
management challenges. There can be no assurance that such actions will be
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accomplished successfully or as rapidly as currently expected. Moreover,
although the primary purpose of such actions will be to realize direct cost
savings and other operating efficiencies, there can be no assurance of the
extent to which such cost savings and efficiencies will be achieved or that
unforeseen costs and expenses or other factors will not offset the projected
cost savings in whole or in part. To the extent management of the combined
company is unable to integrate successfully the operations of the combined
company or such cost savings and efficiencies are not otherwise achieved or
achieved on a timely basis, JP Foodservice's operating results could be
negatively affected and the Merger could be dilutive to holders of JP
Foodservice Common Shares. Dilution to earnings per JP Foodservice Common Share
could be experienced by a JP Foodservice shareholder if, as a result of an
inability of the combined company to realize expected operating efficiencies,
the increment in aggregate earnings obtained through the integration of
Rykoff-Sexton is more than offset by the number of JP Foodservice Common Shares
required to be issued in the Merger based on the Exchange Ratio. See "The
Merger--Opinions of Financial Advisors to JP Foodservice."
Effect of Significant Indebtedness on Results of Operations and Financial
Condition of Combined Company
Following the consummation of the Merger, JP Foodservice will have
significant indebtedness and debt service obligations. Giving effect to the
Merger and the other acquisitions described under the caption "Unaudited Pro
Forma Combining Consolidated Financial Statements for the Merger," and assuming
such transactions had occurred on June 28, 1997, JP Foodservice's total
indebtedness (excluding current maturities) would have been approximately $655
million on such date. JP Foodservice may incur additional indebtedness in the
future, subject to certain limitations contained in the instruments governing
its indebtedness. Anticipated borrowings under the New Credit Facility will
result in indebtedness with lower average interest rates for the combined entity
than the Rykoff-Sexton indebtedness to be refinanced with such borrowings,
although average interest rates under the New Credit Facility are expected to be
generally higher than average interest rates historically paid by JP Foodservice
on borrowings under its existing senior bank credit facility. In the fiscal year
ended June 28, 1997, JP Foodservice's borrowings under its existing senior bank
credit facility accrued interest at an overall weighted average rate of 6.1% per
annum and Rykoff-Sexton's borrowings under its existing senior bank credit
facility accrued interest at an overall weighted average rate of 8.6% per annum.
There can be no assurance as to whether, or the definitive terms on which, the
New Credit Facility actually will be available to JP Foodservice. See
"Description of Proposed New Financing Arrangements--New Credit Facility."
Based upon the current level of operations and anticipated cost savings, JP
Foodservice believes that after the Merger its cash flow from operations,
together
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with borrowings under the New Credit Facility (or, if JP Foodservice
does not obtain the New Credit Facility, the Existing Bank Credit Facilities)
and its other sources of liquidity, will be adequate to meet its anticipated
requirements for working capital, capital expenditures and debt service over the
next several years. There can be no assurance, however, that the combined
company's business will continue to generate cash flow at or above the cash flow
levels attained by JP Foodservice and Rykoff-Sexton in the aggregate or that
anticipated cost savings can be fully achieved. The failure of JP Foodservice to
generate sufficient cash flow from operations in the future could have a
material adverse effect on the results of operations and financial condition of
the combined company. If JP Foodservice is unable to generate sufficient cash
flow from operations in the future to service its debt and make necessary
capital expenditures, JP Foodservice may be required to refinance all or a
portion of its existing debt, sell assets or obtain additional financing. There
can be no assurance as to whether, or the terms on which, any such refinancing
or asset sales would be consummated or any additional financing could be
obtained.
Offer to Purchase Rykoff-Sexton Senior Subordinated Notes
Consummation of the Merger will constitute a "change of control" of
Rykoff-Sexton as defined in the indenture (the "Indenture") pursuant to which
$130 million principal amount of Rykoff-Sexton's 8 7/8% Senior Subordinated
Notes due 2003 (the "Rykoff-Sexton Public Notes") were outstanding as of June
28, 1997. Pursuant to the Indenture, within 30 business days after the Merger is
consummated, the Surviving Corporation will be required to make an offer to
purchase the Rykoff-Sexton Public Notes at a purchase price equal to 101% of
their principal amount ($131.3 million as of June 28, 1997), plus accrued
interest from the most recent preceding semi-annual interest payment date to the
redemption date. Because the Rykoff-Sexton Public Notes have traded in recent
periods at prices at or above 101% of their principal amount, JP Foodservice
does not currently anticipate that the holders of a material principal amount of
Rykoff-Sexton Public Notes will accept the offer to purchase. JP Foodservice
expects to fund any payments required pursuant to the purchase offer with
borrowings under the New Credit Facility. See "Description of Proposed New
Financing Arrangements--New Credit Facility." The application of such borrowings
to fund the offer to purchase will reduce the amounts available under the New
Credit Facility or, if JP Foodservice does not obtain the New Credit Facility,
under the Existing Bank Credit Facilities for working capital, capital
expenditures and other general corporate purposes. The adverse impact, if any,
of the repurchase of Rykoff-Sexton Public Notes on the combined company's
results of operations and financial condition will be partially offset by the
fact that the interest rate borne by the Rykoff-Sexton Public Notes exceeds the
interest rate expected to accrue on borrowings applied to fund the offer to
purchase.
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Shares Eligible for Future Sale
Immediately following the Merger, the ML Investors will beneficially own
approximately 18.1% of the outstanding JP Foodservice Common Shares. The ML
Investors may not sell the JP Foodservice Common Shares issued to them in the
Merger except pursuant to an effective registration statement under the
Securities Act covering such sale or in compliance with Rule 145 promulgated
under the Securities Act or another applicable exemption from the registration
requirements of the Securities Act. See "The Merger--Restrictions on Resale of
JP Foodservice Common Shares by Affiliates." The ML Investors will have the
right following the Merger, pursuant to the Registration Rights Agreement, to
require JP Foodservice, for a specified period and subject to certain
limitations and qualifications, to effect the registration under the Securities
Act of the sale of the JP Foodservice Common Shares issued to them in the Merger
in exchange for Registrable Securities. The ML Investors and other parties will
also have "piggyback" registration rights under the Registration Rights
Agreement with respect to the JP Foodservice Common Shares that will be issued
to them in the Merger in exchange for Registrable Securities. See "Other
Agreements--Registration Rights Agreement." The holders of the Assumed Warrants
will be entitled to certain "demand" and "piggyback" registration rights with
respect to the JP Foodservice Common Shares issued or issuable upon exercise of
the new warrants issued by JP Foodservice in exchange for the Assumed Warrants.
See "Warrants."
In addition, JP Foodservice has previously granted certain "shelf" and
"piggyback" registration rights with respect to JP Foodservice Common Shares
issued in connection with the acquisition of other foodservice businesses. Such
registration rights are subject to certain notice requirements, timing
restrictions and volume limitations which may be imposed by the underwriters of
an offering in which such persons are participants.
No predictions can be made as to the effect, if any, that market sales of
JP Foodservice Common Shares by the ML Investors or other stockholders pursuant
to such registration rights, or the availability of such shares for such future
sales, will have on the market price of JP Foodservice Common Shares prevailing
from time to time. Sales of substantial amounts of JP Foodservice Common Shares,
or the perception that such sales could occur, could adversely affect prevailing
market prices for the JP Foodservice Common Shares and could impair JP
Foodservice's future ability to raise capital through an offering of its equity
securities.
Potential Influence by and Relationship with ML Investors
Immediately following the Merger, the 18.1% of outstanding JP Foodservice
Common Shares beneficially owned by the ML Investors is expected to constitute
the largest percentage of such shares beneficially owned by any person or
group.
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The Merger Agreement entitles the ML Entities to designate two nominees to the
JP Foodservice Board of Directors. See "Management of JP Foodservice After the
Merger--Directors." In addition, pursuant to the Standstill Agreement, the ML
Entities have agreed to vote the Rykoff-Sexton Common Shares and other voting
securities owned by them and their affiliates for Rykoff-Sexton's nominees to
the Rykoff-Sexton Board of Directors, in accordance with the recommendation of
the Nominating Committee of the Rykoff-Sexton Board of Directors, subject to
certain exceptions. The ML Entities also have agreed that neither they nor any
of their affiliates will (subject to certain exceptions) participate in proxy
solicitations, acquire additional Rykoff-Sexton Common Shares or otherwise
engage in transactions, or take actions involving a change of control of
Rykoff-Sexton. The Rykoff-Sexton Common Shares and other voting securities owned
by the ML Investors are subject to certain restrictions on sale or transfer. The
ML Entities are prohibited from soliciting, offering, seeking to effect and
negotiating with any person with respect to sales or transfers of Rykoff-Sexton
Common Shares and other voting securities held by the ML Entities unless
otherwise permitted by the Standstill Agreement. See "Other
Agreements--Standstill Agreement." From and after the Effective Time, the
Standstill Agreement will be for the benefit of, and will be enforceable by, JP
Foodservice to the same extent and in the same manner as the Standstill
Agreement benefits and is enforceable by Rykoff-Sexton prior to the Merger.
The JP Foodservice Common Shares to be received by the ML Investors in the
Merger will constitute a significant block of the voting power of the JP
Foodservice Common Shares. The voting of such shares as required by the
Standstill Agreement will make it easier for the JP Foodservice Board of
Directors to obtain the approval of JP Foodservice stockholders for the election
of JP Foodservice's nominees to the JP Foodservice Board of Directors. Such a
voting block also could facilitate or impede the approval of any other matter
requiring approval of JP Foodservice stockholders, including a merger,
consolidation or other business combination involving JP Foodservice, or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of JP Foodservice.
Factors Relating to Future Acquisitions
JP Foodservice's growth strategy emphasizes supplementing internal
expansion with acquisitions, and a significant portion of the growth of JP
Foodservice's revenues in fiscal 1997 resulted from acquisitions. See "The
Merger--Background of the Merger." There can be no assurance that JP Foodservice
will successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired operations into its existing operations or
expand into new markets in the future. Further, there can be no assurance that
acquisitions will not have an adverse effect upon JP Foodservice's operating
results, particularly in periods following the consummation of such
transactions, during which the
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operations of the acquired businesses are being integrated into JP Foodservice's
operations. Once integrated, acquired operations may not achieve levels of net
sales or profitability comparable to those achieved by JP Foodservice's existing
operations, or otherwise perform as expected. There can be no assurance that,
following the Merger, JP Foodservice will be able to increase its revenues or
earnings through future acquisitions at the same rates it achieved through the
acquisitions it completed in fiscal 1997. Management may determine that it is
necessary or desirable to obtain financing for such acquisitions through
additional bank borrowings or the issuance of additional debt or equity
securities. Debt financing of any such acquisition could increase the leverage
of JP Foodservice and will be subject to restrictions contained in the New
Credit Facility and other agreements relating to JP Foodservice's indebtedness.
Equity financing of any such acquisition may dilute the ownership of JP
Foodservice's stockholders. There can be no assurance that JP Foodservice will
be able to obtain financing on acceptable terms. See "--Effect of Significant
Indebtedness on Results of Operations and Financial Condition of Combined
Company."
JP Foodservice Dividend Policy
In December 1994, Rykoff-Sexton announced the reinstatement of its cash
dividend on a semi-annual basis in the amount of $0.03 per Rykoff-Sexton Common
Share. JP Foodservice has never paid cash dividends on the JP Foodservice Common
Shares and does not anticipate declaring or paying cash dividends for the
foreseeable future following the Merger. See "Summary--Dividends and Market
Prices of JP Foodservice and Rykoff-Sexton Common Shares." Financial covenants
and other restrictions contained in the Existing Bank Credit Facilities and JP
Foodservice's outstanding senior notes currently require, and the New Credit
Facility will require, JP Foodservice to meet certain financial tests and may
restrict its ability to pay cash dividends. See "Description of Proposed New
Financing Arrangements--New Credit Facility."
Fixed Exchange Ratio
The Exchange Ratio is fixed at 0.84 of a JP Foodservice Common Share for
each outstanding Rykoff-Sexton Common Share and will not be subject to increase
or decrease based on changes in the market values of the JP Foodservice Common
Shares or the Rykoff-Sexton Common Shares. See "The Merger Agreement--General."
The market prices of the JP Foodservice Common Shares and the Rykoff-Sexton
Common Shares at the Effective Time can be expected to vary from the market
prices as of June 27, 1997, the last trading day prior to public announcement of
the execution of the Merger Agreement, and the prices as of the date of this
Joint Proxy Statement/Prospectus and the date or dates on which the JP
Foodservice Annual Meeting and the Rykoff-Sexton Special Meeting are held,
because of changes in the business, operations or prospects of JP Foodservice,
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Rykoff-Sexton or the combined entity, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, general market and
economic conditions, and other factors. See "Summary -- Dividends and Market
Prices of JP Foodservice and Rykoff-Sexton Common Shares."
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THE JP FOODSERVICE ANNUAL MEETING
Date, Time and Place of Meeting
The JP Foodservice Annual Meeting will be held on __________ __, 1997, at
____ a.m., local time, at __________________________________.
Record Date and Outstanding Shares
Holders of record of JP Foodservice Common Shares at the close of business
on __________, 1997 (the "JP Foodservice Record Date") are entitled to notice
of, and to vote at, the JP Foodservice Annual Meeting. At the close of business
on the JP Foodservice Record Date, there were ___________ JP Foodservice Common
Shares outstanding, each of which will be entitled to one vote on each matter to
be acted upon at the JP Foodservice Annual Meeting.
Voting of Proxies
The JP Foodservice proxy accompanying this Joint Proxy Statement/Prospectus
is solicited on behalf of the JP Foodservice Board of Directors for use at the
JP Foodservice Annual Meeting. Stockholders are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail it to JP Foodservice. If no instructions are indicated, such
proxies will be voted for approval of each proposal considered at the JP
Foodservice Annual Meeting. The JP Foodservice Board of Directors is not
currently aware of any matters other than those referred to herein which will
come before the JP Foodservice Annual Meeting. If any other matter arising from
the conduct of the meeting should be properly presented at the JP Foodservice
Annual Meeting for action, the persons named in the accompanying proxy card will
vote the proxy in their own discretion.
Vote Required
The consummation of the Merger is conditioned on, among other things, the
approval of the JP Foodservice Merger Proposal at the JP Foodservice Annual
Meeting. JP Foodservice stockholders must approve the JP Foodservice Merger
Proposal in connection with the Merger in order to comply with requirements of
the NYSE, on which the JP Foodservice Common Shares are listed. Stockholder
approval is required if a company whose common stock is listed on the NYSE
issues common stock in a transaction such as the Merger in an amount equal to or
greater than 20% of the number of shares of common stock outstanding prior to
such issuance.
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JP Foodservice is not a constituent corporation in the Merger and,
therefore, specific approval of the Merger or the Merger Agreement by JP
Foodservice's stockholders is not required under the DGCL, the JP Foodservice
Certificate of Incorporation or the JP Foodservice By-laws.
The JP Foodservice Merger Proposal, the JP Foodservice Stock Incentive
Plan Amendment Proposal and the JP Foodservice Director Plan Amendment Proposal
will be approved upon receipt of the affirmative vote of the holders of a
majority of the JP Foodservice Common Shares present or represented at the JP
Foodservice Annual Meeting and entitled to vote, assuming a quorum is present.
The JP Foodservice Charter Amendment Proposal will be approved upon receipt of
the affirmative vote of the holders of a majority of the JP Foodservice Common
Shares outstanding on the JP Foodservice Record Date. The election to the JP
Foodservice Board of Directors of each of the nominees specified in the JP
Foodservice Director Election Proposal will require the affirmative vote of a
plurality of the votes cast at the JP Foodservice Annual Meeting.
On the JP Foodservice Record Date, directors and executive officers of JP
Foodservice, together with their affiliates as a group, beneficially owned
approximately ___% of the issued and outstanding JP Foodservice Common Shares.
It is currently expected that each director and executive officer of JP
Foodservice will vote the JP Foodservice Common Shares beneficially owned by
such director or executive officer for approval of the JP Foodservice Merger
Proposal and the other proposals submitted to stockholders at the JP Foodservice
Annual Meeting. See "Ownership of JP Foodservice Common Shares."
Quorum; Broker Non-Votes
The holders of a majority of the JP Foodservice Common Shares issued and
outstanding and entitled to vote at the JP Foodservice Annual Meeting, present
in person or by proxy, will constitute a quorum at the JP Foodservice Annual
Meeting. Abstentions and broker non-votes will be counted for purposes of
determining the presence of a quorum at the JP Foodservice Annual Meeting.
Votes cast in person or by proxy at the JP Foodservice Annual Meeting will
be tabulated by the inspectors of election appointed for the JP Foodservice
Annual Meeting, who will determine whether or not a quorum is present. Votes may
be cast for, against or as abstentions. Because abstentions will be counted for
purposes of determining the shares present or represented at the JP Foodservice
Annual Meeting and entitled to vote, abstentions will have the same effect as a
vote against the JP Foodservice Merger Proposal, the JP Foodservice Charter
Amendment Proposal, the JP Foodservice Stock Incentive Plan Amendment Proposal
and the JP Foodservice Director Plan Amendment Proposal. Broker/dealers who hold
their customers' shares in street name may,
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under the applicable rules of the exchange and other self-regulatory
organizations of which the broker/dealers are members, sign and submit proxies
for such shares and may vote such shares on routine matters, which, under such
rules, typically include the election of directors, but broker/dealers may not
vote such shares on certain other matters, which typically include transactions
related to mergers, including the issuance of shares in connection therewith,
without specific instructions from the customer who owns such shares. Proxies
signed and submitted by broker/dealers which have not been voted on certain
matters as described in the previous sentence are referred to as broker non-
votes. Broker non-votes on a particular matter are not deemed to be shares
present and entitled to vote on such matter and, assuming presence of a quorum,
will not affect whether any proposal other than the JP Foodservice Charter
Amendment Proposal is approved at the JP Foodservice Annual Meeting. Broker non-
votes on the JP Foodservice Charter Amendment Proposal will have the same effect
as a vote against the JP Foodservice Charter Amendment Proposal.
Each stockholder who signs and returns a proxy in the form enclosed with
this Joint Proxy Statement/Prospectus may revoke the same at any time prior to
its use by giving notice of such revocation to JP Foodservice in writing to the
Secretary of JP Foodservice, by signing and returning a later dated proxy, or by
voting in person at the JP Foodservice Annual Meeting. Unless so revoked, the JP
Foodservice Common Shares represented by each such proxy will be voted at the
meeting and any adjournment thereof. Presence at the meeting of a stockholder
who has signed a proxy but does not provide a notice of revocation or request to
vote in person does not revoke that proxy.
Solicitation of Proxies and Expenses
Pursuant to the Merger Agreement, JP Foodservice will bear one-half of
the costs and expenses incurred in connection with the printing and mailing of
this Joint Proxy Statement/Prospectus. Except as otherwise provided in the
Merger Agreement, JP Foodservice will bear the cost of soliciting proxies for
the JP Foodservice Annual Meeting. JP Foodservice also will reimburse brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding the soliciting material to beneficial owners of stock.
Proxies are being solicited primarily by mail, but officers and regular
employees of JP Foodservice may also solicit proxies personally, by telephone or
by special letter. JP Foodservice will also use the services of Shareholder
Communications Corporation to aid in the solicitation of proxies at an
anticipated fee of $5,000, plus reasonable out-of-pocket expenses.
THE BOARD OF DIRECTORS OF JP FOODSERVICE HAS UNANIMOUSLY DETERMINED THE
MERGER TO BE IN THE BEST INTERESTS OF JP FOODSERVICE AND ITS STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
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APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT ALL
JP FOODSERVICE STOCKHOLDERS VOTE "FOR" THE ISSUANCE OF JP FOODSERVICE COMMON
SHARES IN CONNECTION WITH THE MERGER. THE BOARD OF DIRECTORS ALSO UNANIMOUSLY
RECOMMENDS THAT ALL JP FOODSERVICE STOCKHOLDERS VOTE "FOR" THE OTHER PROPOSALS
SUBMITTED TO STOCKHOLDERS AT THE JP FOODSERVICE ANNUAL MEETING.
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THE RYKOFF-SEXTON SPECIAL MEETING
Date, Time and Place of Meeting
The Rykoff-Sexton Special Meeting will be held on __________, __, 1997, at
____ a.m., local time, at __________________________________.
Record Date and Outstanding Shares
Holders of record of Rykoff-Sexton Common Shares at the close of business
on _______________, 1997 (the "Rykoff-Sexton Record Date") are entitled to
notice of, and to vote at, the Rykoff-Sexton Special Meeting. At the close of
business on the Rykoff-Sexton Record Date, there were ________ Rykoff-Sexton
Common Shares outstanding, each of which will be entitled to one vote on each
matter to be acted upon at the Rykoff-Sexton Special Meeting.
Voting of Proxies
The Rykoff-Sexton proxy accompanying this Joint Proxy Statement/ Prospectus
is solicited on behalf of the Rykoff-Sexton Board of Directors for use at the
Rykoff-Sexton Special Meeting. Stockholders are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail it to Rykoff-Sexton. If no instructions are indicated, such
proxies will be voted for adoption of the Merger Agreement. The Rykoff-Sexton
Board of Directors is not currently aware of any matters other than those
referred to herein which will come before the Rykoff-Sexton Special Meeting. If
any other matter arising from the conduct of the meeting should be properly
presented at the Rykoff-Sexton Special Meeting for action, the persons named in
the accompanying proxy card will vote the proxy in their own discretion.
Vote Required
The Rykoff-Sexton Proposal will be approved upon receipt of the affirmative
vote of the holders of a majority of the Rykoff-Sexton Common Shares outstanding
on the Rykoff-Sexton Record Date. Abstentions and broker non-votes will have the
same effect as votes against the Rykoff-Sexton Proposal. On the Rykoff-Sexton
Record Date, directors and executive officers of Rykoff-Sexton, together with
their affiliates as a group (other than the ML Entities and their designees on
the Rykoff-Sexton Board of Directors), beneficially owned approximately ___% of
the issued and outstanding Rykoff-Sexton Common Shares. It is currently expected
that each director and executive officer of Rykoff-Sexton will vote the
Rykoff-Sexton Common Shares beneficially owned by such director or executive
officer for the approval of the Rykoff-Sexton Proposal. The ML Investors, who
hold in the aggregate
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approximately 36% of the Rykoff-Sexton Common Shares outstanding as of the
Rykoff-Sexton Record Date, have agreed to vote the Rykoff- Sexton Common Shares
owned by them for approval of the Rykoff-Sexton Proposal. See "Other
Agreements -- Support Agreement."
Quorum; Broker Non-Votes
The holders of a majority of the Rykoff-Sexton Common Shares issued and
outstanding and entitled to vote at the Rykoff-Sexton Special Meeting, present
in person or by proxy, will constitute a quorum at the Rykoff-Sexton Special
Meeting. Abstentions and broker non-votes will be counted for purposes of
determining the presence of a quorum at the Rykoff-Sexton Special Meeting.
Votes cast in person or by proxy at the Rykoff-Sexton Special Meeting will
be tabulated by the inspectors of election appointed for the Rykoff-Sexton
Special Meeting, who will determine whether or not a quorum is present. Votes
may be cast for, against or as abstentions. Abstentions will have the same
effect as a vote against the Rykoff-Sexton Proposal. Broker/dealers who hold
their customers' shares in street name may, under the applicable rules of the
exchange and other self-regulatory organizations of which the broker/dealers are
members, sign and submit proxies for such shares and may vote such shares on
routine matters, which, under such rules, typically include the election of
directors, but broker/dealers may not vote such shares on certain other matters,
which typically include transactions related to mergers, without specific
instructions from the customer who owns such shares. Proxies signed and
submitted by broker/dealers which have not been voted on certain matters as
described in the previous sentence, which includes the Rykoff-Sexton Proposal,
are referred to as broker non-votes. Broker non-votes on the Rykoff-Sexton
Proposal will have the same effect as a vote against the Rykoff-Sexton Proposal.
Each stockholder who signs and returns a proxy in the form enclosed with
this Joint Proxy Statement/Prospectus may revoke the same at any time prior to
its use by giving notice of such revocation to Rykoff-Sexton in writing to the
Secretary of Rykoff-Sexton, by signing and returning a later dated proxy, or by
voting in person at the Rykoff-Sexton Special Meeting. Unless so revoked, the
Rykoff-Sexton Common Shares represented by each such proxy will be voted at the
meeting and any adjournment thereof. Presence at the meeting of a stockholder
who has signed a proxy but does not provide a notice of revocation or request to
vote in person does not revoke that proxy.
Solicitation of Proxies and Expenses
Pursuant to the Merger Agreement, Rykoff-Sexton will bear one-half of the
costs and expenses incurred in connection with the printing and mailing of this
Joint Proxy Statement/Prospectus. Except as otherwise provided in the Merger
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Agreement, Rykoff-Sexton will bear the cost of soliciting proxies for the
Rykoff-Sexton Special Meeting. Rykoff-Sexton will also reimburse brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding the soliciting material to beneficial owners of stock.
Proxies are being solicited primarily by mail, but officers and regular
employees of Rykoff-Sexton may also solicit proxies personally, by telephone or
by special letter. Rykoff-Sexton will also use the services of Chase Mellon
Shareholder Services, L.L.C. to aid in the solicitation of proxies at an
anticipated fee of $5,000, plus reasonable out-of-pocket expenses.
THE BOARD OF DIRECTORS OF RYKOFF-SEXTON HAS UNANIMOUSLY DETERMINED THAT THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR
TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF RYKOFF-SEXTON, HAS APPROVED
THE MERGER AGREEMENT AND RECOMMENDS THAT RYKOFF-SEXTON STOCKHOLDERS VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT.
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THE MERGER
The discussion in this Joint Proxy Statement/Prospectus of the Merger and
the Merger Agreement's principal terms is qualified in its entirety by reference
to the Merger Agreement, which is attached to this Joint Proxy
Statement/Prospectus as Appendix A and incorporated herein by reference.
General
Upon the terms and subject to the conditions of the Merger Agreement,
Rykoff-Sexton will be merged with and into Merger Sub, a wholly-owned subsidiary
of JP Foodservice, at the Effective Time. Merger Sub will be the Surviving
Corporation in the Merger, will be renamed "Rykoff-Sexton, Inc." as of the
Effective Time and will continue to be a wholly-owned subsidiary of JP
Foodservice.
At the Effective Time, each issued and outstanding Rykoff-Sexton Common
Share (other than such shares, if any, owned by JP Foodservice, Merger Sub or
Rykoff-Sexton, which will be canceled) will be converted into the right to
receive 0.84 of a JP Foodservice Common Share. Holders of Rykoff-Sexton Common
Shares immediately before the Merger will receive an aggregate of 24,129,445 JP
Foodservice Common Shares, which is expected to represent approximately 51.6% of
the JP Foodservice Common Shares outstanding immediately after the Merger. The
ML Investors will receive an aggregate of 8,463,843 JP Foodservice Common
Shares, which is expected to represent approximately 18.1% of the JP Foodservice
Common Shares outstanding immediately after the Merger.
At the Effective Time, each Assumed Option to purchase Rykoff-Sexton Common
Shares and each Assumed Warrant to purchase Rykoff-Sexton Common Shares will be
assumed by JP Foodservice. Each Assumed Option and each Assumed Warrant will be
converted into an option or warrant, as the case may be, to purchase, on the
same terms and conditions as were applicable to such Options (subject to
adjustment of the applicable exercise prices thereunder based on the Exchange
Ratio) and Warrants, an adjusted number of JP Foodservice Common Shares based on
the Exchange Ratio. Based on the Options and Warrants outstanding as of August
31, 1997, 2,221,988 JP Foodservice Common Shares will be reserved for issuance
upon the exercise of the Assumed Options and the Assumed Warrants. See "The
Merger Agreement--General--Assumption of Options and Warrants" and
"Warrants."
The Merger Agreement provides that the JP Foodservice Board of Directors,
immediately following the Effective Time, will consist of (i) nine individuals,
including each of the incumbent members of the JP Foodservice Board of Directors
(or their replacements), no fewer than five of whom will be outside directors,
as selected by JP Foodservice prior to the Effective Time, (ii) seven
individuals, two of
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whom will be individuals designated by MLCP, one of whom will be Mr. Van
Stekelenburg and four of whom will be current incumbents of the Rykoff-Sexton
Board of Directors who are not employees of Rykoff-Sexton or its subsidiaries or
affiliated with MLCP and (iii) one additional person to be designated by the
Chairman of JP Foodservice following the Merger.
Following the Merger, James L. Miller will continue to serve as Chairman
and Chief Executive Officer of JP Foodservice. As of the Effective Time, Mr. Van
Stekelenburg, the current Chairman and Chief Executive Officer of Rykoff-Sexton,
will become Vice Chairman and President of JP Foodservice. See "Management of JP
Foodservice After the Merger."
Background of the Merger
Foodservice Industry Trends
Companies in the U.S. foodservice distribution industry purchase, store,
market and transport food products, paper products and other supplies and
food-related items to establishments that prepare and serve meals to be eaten
away from home. Net sales for the industry were approximately $134 billion in
1996. For the three-year period ended 1996, foodservice distribution sales
increased at a compounded annual rate of 2.4%, which was comparable to the rate
of increase in the U.S. gross national product during the same period.
The foodservice distribution industry is extremely fragmented, with over
3,000 companies in operation in 1996. Nevertheless, over the last 20 years, the
industry has experienced substantial consolidation as larger distributors have
acquired small and regional distributors. The resulting consolidation has
permitted large foodservice distributors to benefit from lower-cost distribution
facilities resulting from various economies of scale, increased net purchasing
power, more efficient delivery systems, more efficient use of personnel and
other overhead savings. Larger distributors also have been able to take
advantage of more sophisticated management techniques and the development of
management information systems specifically designed to enhance customer service
and increase operating efficiency.
JP Foodservice and Rykoff-Sexton management anticipate further
consolidation in the industry as more companies seek to obtain the efficiencies
of operating larger distribution centers, maintaining modern fleets of delivery
vehicles and developing the sophisticated information systems required for
cost-efficient operations. JP Foodservice and Rykoff-Sexton believe that large,
well-capitalized broadline distributors generally will benefit from continuing
industry consolidation as well as from certain forecasted demographic and
economic trends that are expected to increase expenditures on meals eaten away
from home. These trends include an increasing number of two wage-earner families
who eat meals
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away from home, the increasing availability of convenient take-out meals and
restaurant home delivery services and the increasing affluence of the "baby
boomer" segment of the population. In addition, forecasted expansion of many
chain restaurants is anticipated to generate additional sales volume for large
regional or national broadline distributors that can satisfy the product and
delivery requirements of this customer segment.
JP Foodservice has supplemented its internal expansion with an active
program of strategic acquisitions to take advantage of growth opportunities from
ongoing consolidation in the fragmented foodservice distribution industry. In
the first quarter of fiscal 1997, JP Foodservice extended the scope of its
distribution network into the Western region of the United States through its
acquisition of Valley Industries, Inc., a broadline distributor located in Las
Vegas, Nevada. As consideration for the acquisition, JP Foodservice assumed or
discharged certain liabilities of the acquired business and issued 1,936,494 JP
Foodservice Common Shares with an approximate value of $40.7 million. Also in
the first quarter of fiscal 1997, pursuant to JP Foodservice's strategy to
increase penetration in its existing service areas, JP Foodservice acquired
Arrow Paper and Supply Co., Inc., a broadline distributor located in Connecticut
serving the New England, New York, New Jersey and Pennsylvania markets. JP
Foodservice assumed or discharged certain liabilities of the acquired business
and paid consideration of $28.9 million, of which $27.2 million was paid in cash
and $1.7 million in the form of 73,977 JP Foodservice Common Shares. In the
second quarter of fiscal 1997, JP Foodservice filled a gap in its Midwestern
distribution network by acquiring Squeri Food Service, Inc., a broadline
distributor located in Ohio serving the Greater Cincinnati, Dayton, Columbus,
Indianapolis, Louisville and Lexington markets. As consideration for the
acquisition, JP Foodservice assumed or discharged certain liabilities of the
acquired business and issued 1,079,875 JP Foodservice Common Shares with an
approximate value of $24.8 million. In the fourth quarter of fiscal 1997, JP
Foodservice strengthened its presence in the Mid-Atlantic region through its
acquisition of Mazo-Lerch Company, Inc., a broadline distributor located in
Virginia serving the District of Columbia, Virginia, Maryland, southern New
Jersey and northern North Carolina markets. JP Foodservice acquired this
business in exchange for the issuance of 279,268 JP Foodservice Common Shares
valued at approximately $8 million. See "Description of JP Foodservice."
Over the past two years, Rykoff-Sexton also has pursued strategic business
combinations as part of its effort to sharpen its strategic focus, improve
operational efficiency and position itself for sustained, profitable growth. In
the fourth quarter of fiscal 1995, Rykoff-Sexton extended the scope of its
distribution network in the Mid-Atlantic region through the acquisition of
substantially all of the assets of Continental Foods, Inc. ("Continental"), a
broadline distributor located in Maryland serving the metropolitan Baltimore and
Washington, D.C. markets, for
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an aggregate cash purchase price of approximately $27.0 million (including costs
of acquisition). In the first quarter of fiscal 1996, Rykoff-Sexton increased
its penetration of the Midwestern region through the acquisition of the
Specialty Foods Division of Olfisco, Inc. ("Olfisco"), a Minneapolis-based
subsidiary of Noon Hour Food Products, for an aggregate cash purchase price of
approximately $4.0 million (including costs of acquisition). In the third
quarter of fiscal 1996, Rykoff-Sexton enhanced its distribution network
throughout the State of Nevada when it acquired substantially all of the assets
of H&O Foods, Inc. ("H&O Foods"), a regional, full-line institutional
foodservice distributor, for an aggregate cash purchase price of approximately
$29.6 million (including costs of acquisition). Effective May 17, 1996, Rykoff-
Sexton completed the US Foodservice Acquisition, which significantly expanded
the geographic coverage of its distribution network in the Southeastern,
Southwestern and Mid-Atlantic regions. The US Foodservice Acquisition also
enabled Rykoff-Sexton to enhance its product mix and to decentralize the
management of the Rykoff-Sexton distribution centers. As consideration for the
US Foodservice Acquisition, Rykoff-Sexton assumed or discharged certain
liabilities of US Foodservice and issued approximately 12.9 million Rykoff-
Sexton Common Shares with an approximate value of $210.0 million. Prior to the
US Foodservice Acquisition, US Foodservice had enhanced its distribution network
in the Southeastern region through the 1995 acquisitions of certain divisions of
Clark Foodservice, Inc. in Florida, for an aggregate cash purchase price of
approximately $27.3 million (including costs of acquisition), the assets of Fort
Myers Meat & Seafood Company, Inc., in Fort Myers, Florida, for an aggregate
cash purchase price of approximately $2.1 million (including costs of
acquisition), the assets of City Provisioners, Inc., in Ormond Beach, Florida,
for an aggregate cash purchase price of approximately $36.6 million (including
costs of acquisition), and the assets of Goode Foodservice, Inc. in Georgia, for
an aggregate cash purchase price of approximately $8.9 million (including costs
of acquisition). "See Description of Rykoff-Sexton."
Chronology of Events Leading up to the Merger
Since the early 1990's, the management of JP Foodservice has periodically
analyzed various potential strategic options that might be available to JP
Foodservice, including possible business combinations with other foodservice
companies. In the fall of 1994, in the period preceding consummation of JP
Foodservice's initial public offering, JP Foodservice engaged in exploratory
discussions with several large foodservice companies, including Rykoff-Sexton,
regarding a possible business combination. Those discussions did not advance
beyond a preliminary stage and were terminated when the JP Foodservice Board
determined that JP Foodservice should complete its initial public offering.
Following consummation of the offering in November 1994, the
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management of JP Foodservice, with the assistance of various financial advisors,
looked at many of the country's 50 largest foodservice distributors to evaluate
their suitability as potential candidates for a business combination, and
periodically briefed the JP Foodservice Board with respect to such matters. In
the fall of 1995, the managements of JP Foodservice and US Foodservice conducted
extensive discussions regarding a possible combination transaction, but
ultimately did not pursue such a transaction. In November 1995, Sara Lee
Corporation ("Sara Lee") made a proposal to JP Foodservice that JP Foodservice
combine with Sara Lee's wholly-owned foodservice distribution subsidiary,
PYA/Monarch, Inc. JP Foodservice and Sara Lee terminated discussions regarding
this proposal in February 1996.
Beginning in 1993, Rykoff-Sexton implemented various initiatives and
analyzed strategic options that were designed to improve its operations and
market position. Such initiatives and strategic options included possible
acquisitions of, and business combinations with, other foodservice companies.
From 1993 through 1995, Rykoff-Sexton met with several other foodservice
companies, including JP Foodservice, regarding possible acquisitions and
business combinations. Those discussions resulted in the consummation of the
Continental, Olfisco and H&O Foods acquisitions discussed above under
"--Foodservice Industry Trends" and enabled Rykoff-Sexton to expand selectively
its distribution network and market penetration. Throughout the same period,
Rykoff-Sexton, with the assistance of various financial advisors, evaluated the
suitability of possible business combinations with many of the other large
foodservice distributors that would enable Rykoff-Sexton to significantly expand
its distribution network. This evaluation eventually culminated in the US
Foodservice Acquisition in May 1996. Rykoff-Sexton's management devoted a
significant amount of its time and resources from late 1995 through 1996 to the
consummation of the US Foodservice Acquisition and the subsequent consolidation
of functions and integration of operations of the two companies and, therefore,
did not seriously address the possibility of further business combinations until
early 1997, at which time senior management of Rykoff-Sexton began to study
possible combinations with other large foodservice distributors.
In February 1997, the management of JP Foodservice had a number of
discussions with JP Foodservice's financial advisor, Goldman Sachs, regarding
significant foodservice distributors who might be approached by JP Foodservice
to discuss a possible business combination. On February 19, 1997, James L.
Miller, Chairman, President and Chief Executive Officer of JP Foodservice,
contacted Frank H. Bevevino, then President of Rykoff-Sexton, to express JP
Foodservice's interest in initiating discussions regarding a possible business
combination between JP Foodservice and Rykoff-Sexton. Mr. Miller and Mr.
Bevevino and Mark
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Van Stekelenburg, then Chairman and Chief Executive Officer of Rykoff-Sexton,
had known each other for a number of years and had spoken periodically by
telephone and in person at business and social occasions. From late February
through the end of March, Messrs. Miller and Bevevino engaged in a number of
exploratory discussions regarding the concept of a business combination between
JP Foodservice and Rykoff-Sexton. During the week of March 24, 1997, Mr.
Bevevino, at the request of Mr. Van Stekelenburg, contacted Mr. Miller about
arranging a meeting of the managements of JP Foodservice and Rykoff-Sexton to
begin formal discussions regarding a possible business combination between the
two companies.
On April 1, 1997, Mr. Miller and Lewis Hay, III, Senior Vice President and
Chief Financial Officer of JP Foodservice, on behalf of JP Foodservice, and
Messrs. Van Stekelenburg and Bevevino and David McAnally, then Senior Vice
President and Chief Financial Officer of Rykoff-Sexton, on behalf of
Rykoff-Sexton, met to discuss trends in the foodservice distribution industry,
certain strategic issues in the context of a possible business combination
between the two companies and procedures for the commencement of due diligence
investigations and the exchange of financial information. The representatives
generally discussed the operations of their respective companies, and management
of Rykoff-Sexton provided the JP Foodservice representatives with information
regarding Rykoff-Sexton's progress in integrating the operations of US
Foodservice. Discussions regarding a combination transaction focused on the
different categories of potential operating synergies that might be achieved, on
the magnitude of such potential synergies as independently estimated by each
company and on the appropriate accounting treatment for a business combination.
The two management teams identified the exchange ratio for a combination,
management succession, board composition and location of the corporate
headquarters of the combined company as important issues that would have to be
resolved.
On or about April 1, 1997, Rykoff-Sexton engaged Merrill Lynch to provide
financial advisory services and to act as financial advisor in connection with a
possible business combination with JP Foodservice.
On April 2, 1997, JP Foodservice and Rykoff-Sexton each agreed to provide
the other company with certain confidential information for use in evaluating a
possible business combination. On the same date, JP Foodservice signed a
confidentiality agreement pursuant to which JP Foodservice and its affiliates
and representatives agreed to maintain as confidential certain information
received from Rykoff-Sexton in connection with such an evaluation and Rykoff-
Sexton signed a substantially identical confidentiality agreement pursuant to
which Rykoff-Sexton and its affiliates and representatives agreed to maintain as
confidential certain
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information received from JP Foodservice for the same purpose. In addition, JP
Foodservice and Rykoff-Sexton each agreed that, for a period of one year,
neither it nor its affiliates or representatives would acquire the other
company's voting securities, engage in the solicitation of proxies with respect
to the other company's voting securities or form any "group" within the meaning
of the Exchange Act relating to the other company's voting securities without
the other company's written consent. Following execution of the confidentiality
agreements, JP Foodservice and Rykoff-Sexton exchanged information (including
financial models and projections), which information was not and is not publicly
available, regarding their respective companies and businesses and initiated
their financial, business and legal due diligence review.
On April 7, 1997, members of senior management of JP Foodservice and
Rykoff-Sexton and their respective financial advisors met to discuss a possible
business combination and to exchange and review financial information and other
due diligence materials, which were not and are not publicly available,
concerning the two companies. Members of JP Foodservice management attending the
meeting included Messrs. Miller and Hay. Members of Rykoff-Sexton management
attending the meeting included Messrs. Van Stekelenburg, Bevevino and McAnally
and Richard J. Martin, then Senior Vice President, Corporate Development of
Rykoff-Sexton. Management representatives of each company made a presentation
that included information about the company's business (including customer and
product mix), organizational structure and management philosophy, distribution
facility locations and capacity, financial condition, and strategic plan and
financial projections. In its presentation, Rykoff-Sexton briefed JP Foodservice
management on the performance and prospects of the manufacturing division and
the Targeted Specialty Services, Inc. division, Rykoff-Sexton's efforts to sell
the manufacturing division, projected and realized synergies from the US
Foodservice Acquisition and the effect of the US Foodservice Acquisition on
Rykoff-Sexton's sales and sales growth rates. Representatives of the companies
discussed various matters relating to financial reporting. Both management teams
also focused on identifying and quantifying the potential cost savings from
synergies expected to result from a combination transaction. The financial
advisors exchanged views on the structure of a combination, the exchange ratio
and management of the combined company.
On April 17, 1997, the financial advisors to JP Foodservice and
Rykoff-Sexton met to discuss financial information about the two companies. The
information included comparative trading data for the JP Foodservice Common
Shares and the Rykoff-Sexton Common Shares and other financial data relating to
JP Foodservice and Rykoff-Sexton. The financial advisors also discussed
management succession issues, matters relating to each company's
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financial projections and the appropriate accounting treatment of a potential
business combination between JP Foodservice and Rykoff-Sexton.
On April 24, 1997, the JP Foodservice Board of Directors met in a regularly
scheduled meeting at which JP Foodservice's senior management advised the
directors of the status of discussions with Rykoff-Sexton and provided the
directors with information regarding Rykoff-Sexton and its business.
Management's presentation included estimates of potential cost savings that
could result from synergies expected from a combination transaction and the
estimated effects on earnings per JP Foodservice Common Share that a transaction
could have at different potential exchange ratios and at different levels of
synergy realization.
On or about April 24, 1997, JP Foodservice engaged Goldman Sachs to provide
financial advisory services and to act as financial advisor in connection with a
possible business combination with Rykoff-Sexton.
On or about April 26, 1997, Rykoff-Sexton engaged Wasserstein Perella to
provide financial advisory services and to act as financial advisor in
connection with a possible business combination with JP Foodservice.
On April 30, 1997, the financial advisors to JP Foodservice and
Rykoff-Sexton met to discuss the financial information provided and the
positions of the two companies regarding the terms of a possible business
combination, including an appropriate exchange ratio.
During the first week of May 1997, JP Foodservice and Rykoff-Sexton
exchanged additional detailed financial and accounting information and, together
with their respective financial advisors, discussed due diligence matters. The
two companies provided historical financial data on a division-by-division
basis, information on distribution facility capacity in terms of potential sales
volume, information regarding accounting practices and policies, data on recent
and projected capital expenditures, assumptions underlying previously supplied
financial projections, and information regarding collective bargaining
agreements and employee relations.
On May 7, 1997, the Rykoff-Sexton Board of Directors met in a regularly
scheduled meeting at which Rykoff-Sexton's senior management and financial
advisors advised the directors of the status of discussions with JP Foodservice
and provided the directors with information regarding JP Foodservice and its
business, and related financial data. Management's presentation included
estimates of the value of Rykoff-Sexton based on different exchange ratios,
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management succession issues and potential synergistic opportunities provided by
a combination transaction.
On May 8 , 1997, Mr. Miller and Mr. Hay met with Matthias B. Bowman, Albert
J. Fitzgibbons, III, Jan W. Jeurgens, Sunil C. Khanna, James I. Maslon and James
P. Miscoll, each of whom is a director of Rykoff-Sexton, for general discussions
regarding a possible business combination. The discussions centered on issues
relating to the operation of a combined company, including the capabilities of
JP Foodservice senior management, the position of the company in the industry
and the post-combination strategic plan, competition from other distributors,
the location of the corporate headquarters, the corporate name, the proposed
organizational structure, and integration of the operations of JP Foodservice
and Rykoff-Sexton.
On May 12, 1997, Messrs. Miller and Hay met with Richard M. Fink, Neil I.
Sell and Bernard Sweet, each of whom is a director of Rykoff-Sexton, for similar
discussions.
On May 12, 1997, the Rykoff-Sexton Board of Directors met in a special
meeting and discussed, among other things, the discussions between members of
the board and representatives of JP Foodservice (described above), certain
management issues and other issues related to a possible combination
transaction. The Rykoff-Sexton Board of Directors requested that management
prepare a presentation for the Rykoff-Sexton Board of Directors regarding the
long-term strategy of Rykoff-Sexton in light of a possible business combination
with JP Foodservice.
During the period from late May 1997 to June 17, 1997, members of senior
management of JP Foodservice and Rykoff-Sexton, and their financial and legal
advisors, held discussions and meetings pertaining to the terms of the proposed
business combination and general business issues , and conducted due diligence
investigations. The discussions regarding terms of a combination transaction
related principally to agreeing upon an exchange ratio, defining management
structure and roles, including the terms of Mr. Van Stekelenburg's employment by
the combined company, and determining the composition of the combined company's
board. Working groups composed of employees of both companies and their
independent accountants and financial advisors were formed to examine various
issues, including the structure and accounting treatment of a business
combination, the impact of change in control and severance arrangements, the
compatibility and integration of information systems, the debt levels and debt
coverage of the two companies and the prospects for combination of existing
credit facilities, and potential operational synergies by division and function.
Accounting due diligence
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encompassed a number of financial reporting matters, including conformity of
accounting policies and status of accruals and reserves.
On June 5, 1997, the Rykoff-Sexton Board of Directors met in a special
meeting at which Rykoff-Sexton's senior management reviewed with the Board the
status of discussions with JP Foodservice in the context of Rykoff-Sexton's
strategic plan and developments in the foodservice industry. Management's
presentation addressed primarily industry trends and the potential advantages
and synergies of a combination transaction. Management also commented on
observations resulting from due diligence activities, accounting treatment of a
combination transaction and potential valuations and exchange ratios.
On or about June 17, 1997, JP Foodservice formally engaged Smith Barney to
provide financial advisory services and to act as financial advisor in
connection with a possible business combination with Rykoff-Sexton.
On June 17, 1997, Messrs. Miller and Van Stekelenburg confirmed that they
would be prepared to recommend to their respective Boards of Directors a tax
free, all stock business combination involving conversion of the outstanding
Rykoff-Sexton Common Shares into the right to receive JP Foodservice Common
Shares at the Exchange Ratio, and the other material terms of the transaction as
described herein, subject to negotiation of definitive transaction documents and
approval of the combination by the JP Foodservice Board and the Rykoff-Sexton
Board.
On June 18, 1997, the JP Foodservice Board of Directors held a special
meeting with members of JP Foodservice's senior management to review the terms
of the proposed transaction. The JP Foodservice Board authorized the members of
senior management to proceed to negotiate the terms of the definitive
transaction documents. On the same date, the Rykoff-Sexton Board of Directors
held a special meeting with members of Rykoff-Sexton's senior management to
review the terms of and reasons for the proposed transaction. The Rykoff-Sexton
Board of Directors authorized the members of senior management to proceed to
negotiate the terms of the definitive transaction documents.
During the ten days following June 19, 1997, members of senior management
of JP Foodservice and Rykoff-Sexton, together with their financial and legal
advisors, negotiated the terms of the Merger Agreement and related transaction
documents, including the Stock Option Agreements and the Support Agreement.
During this period, JP Foodservice and its advisors also negotiated the terms of
the Support Agreement with representatives of the ML Entities and their
advisors. The parties continued during this time to exchange financial, business
and legal due diligence materials and conducted additional due diligence.
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On June 26, 1997, Mr. Miller and JP Foodservice's counsel, together with
Mr. Van Stekelenburg, met separately with representatives of the ML Entities
(Messrs. Bowman and Fitzgibbons) and their counsel to discuss matters relating
to the Support Agreement and the proposed transaction.
On June 27, 1997, the JP Foodservice Board of Directors met in a regularly
scheduled meeting, at which JP Foodservice's senior management advised the
directors of the status of JP Foodservice's due diligence review and the
negotiations relating to the definitive transaction documents.
On June 28, 1997, Messrs. Miller and Hay and David M. Abramson, Senior Vice
President and General Counsel of JP Foodservice, for JP Foodservice, and Messrs.
Van Stekelenburg, Martin and McAnally, for Rykoff-Sexton, held a meeting to
discuss outstanding issues relating principally to financial projections and to
the financial terms of the proposed Merger Agreement and related transaction
documents.
On June 29, 1997, the Rykoff-Sexton Board of Directors met in a special
meeting. At this meeting, members of Rykoff-Sexton's senior management,
Wasserstein Perella and Merrill Lynch, together with counsel to Rykoff-Sexton,
reviewed with the Rykoff-Sexton Board, among other things, the background of the
proposed Merger, the financial and legal aspects of the transaction, the
proposed composition of the board of directors and management of the combined
entity, the terms of the Merger Agreement, the Stock Option Agreements, the
Support Agreement and related transaction documents, and the other matters
described below under "--Recommendation of the Rykoff-Sexton Board of Directors;
Reasons for the Merger." Part of the meeting was attended by Mr. Miller, who,
together with Mr. Van Stekelenburg, made a presentation to the Rykoff-Sexton
Board regarding the management of the combined entity. Members of the
Rykoff-Sexton Board discussed the terms of the proposed merger, including the
proposed composition of the board of directors and proposed management of the
combined entity, during the meeting and during a recess that followed the
presentation. Mr. Abramson and Mr. Miller met separately with the
representatives of the ML Entities on the Rykoff-Sexton Board and their counsel
and Mr. Van Stekelenburg to discuss matters relating to the Support Agreement
and the Standstill Agreement. Following further discussions between
representatives of JP Foodservice and the Rykoff-Sexton Board during the recess,
the Board reconvened. Wasserstein Perella and Merrill Lynch each delivered their
oral opinion to the Rykoff-Sexton Board, which oral opinions were subsequently
confirmed in written opinions dated June 30, 1997, to the effect that, as of
such date, the Exchange Ratio was fair from a financial point of view to the
holders of Rykoff-Sexton Common Shares, other than JP Foodservice and its
affiliates. After discussion and consideration, the Rykoff-Sexton Board
unanimously determined that the Merger and the other transactions contemplated
by the Merger Agreement are fair to and in the best interests of the
stockholders of Rykoff-Sexton,
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unanimously approved the Merger Agreement and recommended that the Merger
Agreement be submitted for adoption by the stockholders of Rykoff-Sexton.
On June 29, 1997, the JP Foodservice Board met in a special meeting. At
this meeting, members of JP Foodservice's senior management, together with JP
Foodservice's legal and financial advisors, reviewed with the Board, among other
things, the financial and legal aspects of the transaction, the terms of the
Merger Agreement, the Stock Option Agreements, the Support Agreement and related
transaction documents, and the other matters described below under "--
Recommendation of the JP Foodservice Board of Directors; Reasons for the
Merger." Goldman Sachs and Smith Barney each delivered its oral opinion to the
Board of Directors, which oral opinions were subsequently confirmed by delivery
of written opinions dated June 30, 1997, to the effect, that as of such date and
based upon and subject to certain matters stated therein and such other matters
as Goldman Sachs and Smith Barney considered relevant, the Exchange Ratio was
fair (in the case of Smith Barney, from a financial point of view) to JP
Foodservice. See "--Opinions of Financial Advisors to JP Foodservice." After
discussion and consideration, the JP Foodservice Board unanimously determined
that the Merger Agreement and the transactions contemplated thereby are in the
best interests of JP Foodservice and its stockholders, unanimously approved the
Merger Agreement and the Merger and the issuance of JP Foodservice Common Shares
in connection with the Merger and unanimously recommended that the issuance of
JP Foodservice Common Shares in connection with the Merger be submitted for
approval by the stockholders of JP Foodservice. In addition, on June 29, by
unanimous written consent, the Board of Directors of Merger Sub approved and
adopted the Merger Agreement, and JP Foodservice, as the sole stockholder of
Merger Sub, approved and adopted the Merger Agreement.
On June 30, 1997, the Merger Agreement was executed and delivered by JP
Foodservice, Rykoff-Sexton and Merger Sub, the Stock Option Agreements were
executed and delivered by JP Foodservice and Rykoff-Sexton, and the Support
Agreement was executed and delivered by JP Foodservice and the ML Entities and
acknowledged by Rykoff-Sexton.
Recommendation of the JP Foodservice Board of Directors; Reasons for the Merger
The JP Foodservice Board of Directors believes that the Merger Agreement
and the transactions contemplated thereby are in the best interests of JP
Foodservice and its stockholders. Accordingly, the JP Foodservice Board of
Directors has unanimously approved the Merger Agreement and the Merger and the
issuance of the JP Foodservice Common Shares in connection with the Merger and
unanimously recommends that the JP Foodservice stockholders vote "for" the
approval
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of the issuance of JP Foodservice Common Shares in connection with the Merger.
In evaluating a business combination with Rykoff-Sexton, the JP Foodservice
Board of Directors reviewed presentations from, and discussed the terms and
conditions of the Merger Agreement and the Merger with, senior executive
officers of JP Foodservice and JP Foodservice's legal and financial advisors.
The JP Foodservice Board of Directors considered a number of factors, including,
in addition to the factors referred to in "--Background of the Merger" and
"Management of JP Foodservice After the Merger," the factors listed below, in
reaching its determination to approve the Merger Agreement and the transactions
contemplated thereby. The following list is not exhaustive, but includes all
material factors considered by the JP Foodservice Board. In view of the wide
variety of factors considered by the JP Foodservice Board in connection with its
evaluation of the Merger, the JP Foodservice Board did not consider it
practicable to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific factors it considered in reaching its determination. In
addition, individual members of the JP Foodservice Board may have given
different weights to different factors.
(i) Strategic Benefits in Consolidating Industry. The JP
Foodservice Board considered management's view of recent trends in the
U.S. foodservice industry, particularly the trend toward consolidation,
and management's view that the Merger with Rykoff-Sexton would further
JP Foodservice's strategic objective of supplementing internal growth
with a program of acquisitions and business combinations to increase JP
Foodservice's existing market presence and expand its operations into
new markets. The JP Foodservice Board took into account that the
combination of JP Foodservice and Rykoff-Sexton would create the second
largest broadline foodservice distributor in the United States based on
projected pro forma fiscal 1997 net sales of over $5 billion. The JP
Foodservice Board considered that the combined enterprise would have a
nationwide distribution network through which it could offer its
products and services across a broad geographic area encompassing more
than 85% of the U.S. population. The JP Foodservice Board noted the
complementary nature of the businesses of the two companies, with
Rykoff-Sexton conducting large-scale distribution operations in the
Southeastern, Southwestern and Western regions of the United States, in
which JP Foodservice has had a significantly smaller presence. The JP
Foodservice Board considered management's view that the establishment
of nationwide operations would give the combined entity the ability to
leverage its existing regional relationships with chain customers on a
national basis, would strengthen its regional market positions and
would enable it to compete more effectively with traditional national
broadline foodservice distribution competitors, such as SYSCO Corp. and
Alliant Foodservice, Inc. The JP Foodservice Board considered the
potential
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of the combined entity to increase sales by offering complementary
product lines and services to customers now only partially served by JP
Foodservice and/or Rykoff-Sexton and the potential positive impact on
gross margins of the combined entity that would result from increased
percentages of sales attributable to sales of imported and specialty
items and private label products in the Rykoff-Sexton product line. The
JP Foodservice Board also considered the economies of scale, cost
savings and synergies that management of JP Foodservice believes over
time may result from the combination of JP Foodservice and Rykoff-
Sexton, as discussed under "--Potential Cost Savings and Operating
Synergies."
(ii) Information Concerning JP Foodservice and Rykoff-Sexton.
In evaluating the terms of the Merger, the JP Foodservice Board of
Directors considered, among other things, information (including the
results of its due diligence review of Rykoff-Sexton's business) with
respect to the financial condition, results of operations, businesses
and prospects of JP Foodservice and Rykoff-Sexton, and current
industry, economic and market conditions. In evaluating Rykoff-Sexton's
prospects, the JP Foodservice Board considered, among other things, the
strengths of Rykoff-Sexton's food distribution and related businesses,
including particularly the fact that Rykoff-Sexton, directly and
through US Foodservice and its other subsidiaries, (i) operates in 32
service areas throughout the United States and has a significant
presence in many key metropolitan areas, (ii) has strong nationwide
distribution capabilities, which enable it to offer more than 40,000
products to over 100,000 customers through 32 distribution centers,
(iii) generates approximately 65% of its sales volume from sales to
street accounts, which generally have higher gross margins than sales
to chain accounts, (iv) offers a wide array of high-quality proprietary
private and signature brand products, which generally have higher gross
margins than national brand products of comparable quality, and (v)
offers, as part of its value-added services, design and engineering
services for diverse types of foodservice operations through its
contract/design group. The JP Foodservice Board also took into account
the quality, experience and breadth of Rykoff-Sexton's senior
management team, distribution center management and sales force. In its
evaluation, the JP Foodservice Board considered its management's view
that Rykoff-Sexton's management has successfully integrated a number of
significant regional acquisitions and that, since acquiring US
Foodservice in May 1996, Rykoff-Sexton has realized significant cost
savings and synergies.
(iii) Integration of Rykoff-Sexton. The JP Foodservice Board
considered the record of JP Foodservice in integrating and realizing
the benefits of prior acquisitions and the potential issues, including
operational, marketing, administrative, financial and personnel issues,
in integrating Rykoff-Sexton and realizing the benefits of the Merger.
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(iv) Opinions of Goldman Sachs and Smith Barney. The JP
Foodservice Board of Directors considered the opinions and financial
analysis of Goldman Sachs and Smith Barney described below under
"--Opinions of Financial Advisors to JP Foodservice."
(v) Terms and Conditions of the Merger Agreement. The JP
Foodservice Board of Directors considered the terms and conditions of the
Merger Agreement. In its review, the JP Foodservice Board noted that the
Exchange Ratio represented a premium to the market price of Rykoff-Sexton
Common Shares as of the last trading day prior to public announcement of
execution of the Merger Agreement, the fixed Exchange Ratio provides
certainty as to the number of JP Foodservice Common Shares to be issued in
the Merger, and the Merger is intended to qualify as a reorganization
within the meaning of Section 368(a) of the Code and for pooling of
interests accounting treatment. The JP Foodservice Board took into account
the provisions of the Merger Agreement that would require JP Foodservice to
pay to Rykoff-Sexton a Termination Fee of $30 million if the Merger
Agreement is terminated and the Merger is abandoned in certain
circumstances and the effects of the change of control payments,
accelerated vesting of certain Rykoff-Sexton employee stock awards and the
rights of holders of the Rykoff-Sexton Public Notes in connection with the
Merger. The JP Foodservice Board considered the terms of the Stock Option
Agreements, the Support Agreement and related transaction documents and the
fact that JP Foodservice would succeed to Rykoff-Sexton's rights and
obligations under agreements to which Rykoff-Sexton is a party, including
the Standstill Agreement and the Registration Rights Agreement. The JP
Foodservice Board also considered the proposed arrangements with respect to
the current directors and executive officers of JP Foodservice and Rykoff-
Sexton, as described below under "--Interests of Certain Persons in the
Merger" and "Management of JP Foodservice After the Merger."
(vi) Effect on Public Market for JP Foodservice Common Shares.
The JP Foodservice Board of Directors took into account the effects of the
issuance of additional JP Foodservice Common Shares in connection with the
Merger. Among such effects, the JP Foodservice Board considered that the
issuance of JP Foodservice Common Shares would result in a more liquid
public market for such shares, which would facilitate JP Foodservice's
ability to consummate future acquisitions by offering potential acquisition
targets an interest in JP Foodservice Common Shares.
Recommendation of the Rykoff-Sexton Board of Directors; Reasons for the Merger
The Board of Directors of Rykoff-Sexton has unanimously determined that the
Merger and the other transactions contemplated by
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the Merger Agreement are fair to and in the best interests of the stockholders
of Rykoff-Sexton, has approved the Merger Agreement and recommends that Rykoff-
Sexton stockholders vote "for" adoption of the Merger Agreement.
In reaching its determination to approve the Merger Agreement and the
transactions contemplated thereby, the Rykoff-Sexton Board of Directors
considered a number of factors, including, in addition to the factors referred
to in "--Background of the Merger" and "Management of JP Foodservice After the
Merger," the factors listed below. The following list is not exhaustive, but
includes all material factors considered by the Rykoff-Sexton Board of
Directors. In view of the wide variety of factors considered in connection with
its evaluation of the Merger, the Rykoff-Sexton Board of Directors did not
consider it practicable to, nor did it attempt to, quantify or otherwise assign
relative weights to the specific factors it considered in reaching its
determination. In addition, individual members of the Rykoff-Sexton Board may
have given different weights to different factors.
(i) Management's Recommendation. The Rykoff-Sexton Board of
Directors reviewed presentations from, and discussed the terms and
conditions of the Merger Agreement and the Merger with, senior executive
officers of Rykoff-Sexton, representatives of Rykoff-Sexton's legal counsel
and representatives of Rykoff-Sexton's financial advisors. The Rykoff-
Sexton Board considered management's view of recent trends in the United
States foodservice industry. In particular, the Rykoff-Sexton Board of
Directors considered management's view that a combination of Rykoff-Sexton
with JP Foodservice, the fifth largest broadline food distribution company
in the United States, would create the second largest U.S. foodservice
distribution company and a strong competitor in the foodservice
distribution industry, with increased presence in many of Rykoff-Sexton's
existing service areas. In making its determination, the Rykoff-Sexton
Board also considered the view expressed by Rykoff-Sexton's management that
the Merger with JP Foodservice would further Rykoff-Sexton's strategic
objectives. Rykoff-Sexton's management's view is based on its belief that
the pattern of consolidation in the foodservice industry will continue, and
that sales growth and expansion in existing and into new markets through
acquisitions will be essential to compete as a low-cost, high-quality
national distributor in the foodservice industry. The Rykoff-Sexton Board
also considered management's view as to the importance of a transaction
with JP Foodservice in creating a larger organization in order to maintain
historical growth rates in an increasingly consolidating industry and
competitive environment.
(ii) JP Foodservice's Business, Condition, Prospects and
Management. In evaluating the terms of the Merger, the Rykoff-Sexton Board
of Directors considered information with respect to the financial
condition, results of operations and businesses of JP Foodservice, on both
a
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historical and prospective basis, and JP Foodservice's success in
increasing sales and profitability and implementing strategic acquisitions
over the last several years. The Rykoff-Sexton Board of Directors also
considered the quality, experience and breadth of JP Foodservice's senior
management team and the growth-oriented corporate culture of JP
Foodservice's management. In evaluating JP Foodservice's prospects, the
Rykoff-Sexton Board of Directors considered, among other things, the
strengths of JP Foodservice's food distribution businesses, including its
customer relationships, and the challenges facing the foodservice
distribution business, including competition from traditional broadline
foodservice distribution competitors (such as SYSCO Corp. and Alliant
Foodservice, Inc.) and specialized system distributors (such as Prosource,
Inc. and AmeriServ Food Company).
(iii) Strategic Benefits. In reviewing the Merger and JP
Foodservice's assets and operations, the Rykoff-Sexton Board of Directors
considered Rykoff-Sexton's strategic plan as an independent company and the
belief that Rykoff-Sexton's ability to pursue its plan would be enhanced by
the Merger. In particular, Rykoff-Sexton's Board of Directors reviewed the
complementary nature of the businesses of the two companies, the potential
of the combined entity to increase sales by offering complementary product
lines and services to customers now only partially served by Rykoff-Sexton
and/or JP Foodservice, the economies of scale, cost savings and synergies
that management of Rykoff-Sexton believes over time may result from the
combination of Rykoff-Sexton and JP Foodservice, as discussed below under
"--Potential Cost Savings and Operating Synergies," and the availability of
experienced management to address the challenges associated with
successfully integrating the businesses of the two corporations. In
particular, the Rykoff-Sexton Board of Directors considered the role of
Rykoff-Sexton management in its recent acquisition history, focusing on the
successful integration of a number of significant regional foodservice
distributors and the significant cost savings and operating synergies that
have been realized since the consummation of the US Foodservice Acquisition
in May 1996.
(iv) Terms and Conditions of the Merger Agreement. The Rykoff-
Sexton Board of Directors considered the terms and conditions of the Merger
Agreement (including the Exchange Ratio), together with the terms of the
Stock Options, the Support Agreement, the proposed amendment of the Rykoff-
Sexton Rights Plan (as defined herein) and the JP/Van Stekelenburg
Employment Agreement (as defined herein).
(v) Tax and Accounting Treatment. The Rykoff-Sexton Board of
Directors also approved the transaction relying upon its belief that the
Merger would be accomplished on a tax-free basis for federal income tax
purposes (other than cash received in lieu of fractional shares) and
accounted for as a pooling of interests transaction.
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(vi) Opinions of Merrill Lynch and Wasserstein Perella. The
Rykoff-Sexton Board of Directors considered as favorable to its
determination the oral opinions delivered by each of Merrill Lynch and
Wasserstein Perella on June 29, 1997, each of which was subsequently
confirmed in a written opinion to the Rykoff-Sexton Board of Directors
dated June 30, 1997, to the effect that, as of such date, the Exchange
Ratio was fair from a financial point of view to the holders of Rykoff-
Sexton Common Shares (other than JP Foodservice and its affiliates). The
Rykoff-Sexton Board of Directors reviewed a financial comparison of Rykoff-
Sexton and JP Foodservice, studied the potential impact of the Merger on
the balance sheet and earnings per share of Rykoff-Sexton, and analyzed
certain historical and estimated financial information (including sales,
net income, earnings before interest, taxes, depreciation and amortization
("EBITDA") and earnings before interest and taxes ("EBIT")) for Rykoff-
Sexton, JP Foodservice and the pro forma combined entity resulting from the
Merger and the relative contributions of Rykoff-Sexton and JP Foodservice
to the combined entity. The Rykoff-Sexton Board also considered the
expectation that, based upon the Exchange Ratio, the Merger would be
accretive to holders of Rykoff-Sexton Common Shares on an earnings per
share basis and that holders of Rykoff-Sexton Common Shares would receive a
premium over market for their shares in connection with the Merger. See "--
Opinion of Financial Advisors to Rykoff-Sexton." Copies of Merrill Lynch's
and Wasserstein Perella's written opinions to the Rykoff-Sexton Board of
Directors are attached as Appendix D and Appendix E, respectively, to this
Joint Proxy Statement/Prospectus and are incorporated herein by reference.
(vii) Financial Flexibility; Equity Markets. The Rykoff-Sexton
Board of Directors considered the fact that the combined company will have
improved financial flexibility and a more attractive currency with which to
pursue future strategic acquisitions. Specifically, the Board of Directors
considered the fact that following the Merger, JP Foodservice could be
expected to have greater borrowing capacity than Rykoff-Sexton would have
on a stand-alone basis, the likelihood that the debt of the combined
company would be rated at a level above the current rating of Rykoff-
Sexton's indebtedness, and the greater public float that would be available
to Rykoff-Sexton stockholders in the form of JP Foodservice Common Shares
compared to the current public float of Rykoff-Sexton Common Shares. The
Board also considered the fact that the combined entity should attract a
stronger equity analyst following in the public markets following the
Merger due to the combined company's size and enhanced position in the
foodservice industry.
Potential Cost Savings and Operating Synergies
Management of JP Foodservice and Rykoff-Sexton have estimated that the
combination of JP Foodservice and Rykoff-Sexton could create opportunities for
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operating cost savings of approximately $12 million during the first twelvemonth
period following the Effective Time, $18 million during the second twelvemonth
period following the Effective Time and $25 million annually thereafter. These
cost savings are expected to be realized primarily through the restructuring of
operations. See "Unaudited Pro Forma Combining Consolidated Financial Statements
for the Merger." In addition, in connection with the Merger, JP Foodservice
proposes to enter into the New Credit Facility, which is expected to provide for
lower borrowing costs than the overall borrowing costs available under the
Existing Bank Credit Facilities. See "Description of Proposed New Financing
Arrangements--New Credit Facility." Management estimates that the New Credit
Facility will provide annual interest cost savings of approximately $5 million.
The estimates of cost savings through the restructuring of operations were based
on preliminary evaluations of opportunities for the combined foodservice
businesses of JP Foodservice and Rykoff-Sexton to benefit from operating a
larger business with cost savings and other synergies associated with the
operation of larger-scale distribution facilities that benefit from various
economies of scale. Such economies of scale result from increased net purchasing
power, more efficient delivery systems, more efficient use of personnel and
reduction of overhead costs through elimination of redundant management and
overhead expenses. Although no assurances can be given as to the amount, nature
and timing of such synergies, the managements of JP Foodservice and
Rykoff-Sexton expect that the bulk of these cost savings should be derived from
the following opportunities:
(i) enhanced purchasing leverage (resulting in a lower cost of
goods), selection among the most advantageous purchasing programs currently
in effect at JP Foodservice and Rykoff-Sexton, and more favorable sales and
marketing allowances from suppliers resulting from the increased purchasing
power of the combined entity;
(ii) opportunities to achieve operating efficiencies and
synergies, including (a) the consolidation of overlapping distribution
centers and related management teams, and reduction of redundant facility
costs, and (b) rationalization of routing logistics for facilities with
overlapping service areas;
(iii) opportunities to increase the sales volume and related
earnings for self-manufactured items through JP Foodservice's sales force;
(iv) the combination of certain management and administrative
functions of JP Foodservice and Rykoff-Sexton, and the elimination of costs
associated with redundant departments and functions, including (a) cost
efficiencies in information system operations as a result of the
consolidation of such operations and related economies of scale, (b) cost
savings from integrated, combined purchasing of equipment and miscellaneous
supplies,
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labels and packaging and (c) rationalization and consolidation of employee
benefit plans, including combined purchasing of insurance;
(v) opportunities to lower borrowing costs by refinancing certain
of the outstanding indebtedness of Rykoff-Sexton, which accrues interest at
higher rates than are expected to be charged on borrowings by the combined
entity under the New Credit Facility or other financing sources; and
(vi) the capacity of the combined entity to increase sales by
expanding existing regional relationships with chain customers on a
national scale and by offering additional product lines and services to
customers now only partially served by JP Foodservice and/or Rykoff-Sexton,
including, in particular, (a) opportunities for JP Foodservice to offer
equipment and supplies, contract and design services and specialty and
imported products to additional customers through JP Foodservice's sales
force and (b) opportunities for Rykoff-Sexton to offer in certain markets
JP Foodservice's "center-of-the-plate" (or entree) selections and commodity
products.
The foregoing cost savings estimates were developed jointly by JP
Foodservice and Rykoff-Sexton solely for purposes of evaluating the Merger, do
not include non-recurring adjustments that will be recorded in conjunction with
the Merger, and should not be relied upon as an estimate of actual cost savings
that may be achieved, which may vary materially from such estimates. These
estimates are based upon assumptions that are inherently uncertain, though
considered reasonable by JP Foodservice and Rykoff-Sexton, and are subject to
significant business, economic and competitive uncertainties which are difficult
to predict and often beyond the control of management.
Opinions of Financial Advisors to JP Foodservice
JP Foodservice retained Goldman Sachs and Smith Barney to act as financial
advisors to JP Foodservice in connection with the proposed Merger. On June 29,
1997, at a meeting of the Board of Directors of JP Foodservice held to evaluate
the proposed Merger, Goldman Sachs and Smith Barney each delivered an oral
opinion (which oral opinions were subsequently confirmed by delivery of written
opinions dated June 30, 1997, the date of execution of the Merger Agreement) to
the Board of Directors of JP Foodservice to the effect that, as of such date and
based upon and subject to certain matters stated therein and such other matters
as Goldman Sachs and Smith Barney considered relevant, the Exchange Ratio was
fair (in the case of Smith Barney, from a financial point of view) to JP
Foodservice.
In arriving at their respective opinions, each of Goldman Sachs and Smith
Barney reviewed the Merger Agreement and held discussions with certain senior
officers, directors and other representatives and advisors of JP Foodservice and
certain senior officers and other representatives and advisors of Rykoff-Sexton
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concerning the businesses, operations and prospects of JP Foodservice and
Rykoff-Sexton. Each of Goldman Sachs and Smith Barney examined certain publicly
available business and financial information relating to JP Foodservice and
Rykoff-Sexton as well as certain financial forecasts and other information and
data for JP Foodservice and Rykoff-Sexton which were provided to or otherwise
discussed with Goldman Sachs and Smith Barney by the respective managements of
JP Foodservice and Rykoff-Sexton, including information relating to certain
strategic implications and operational benefits anticipated to result from the
Merger. Each of Goldman Sachs and Smith Barney reviewed the financial terms of
the Merger as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of JP
Foodservice Common Shares and Rykoff-Sexton Common Shares; the historical and
projected earnings and other operating data of JP Foodservice and Rykoff-Sexton;
and the capitalization and financial condition of JP Foodservice and
Rykoff-Sexton. Each of Goldman Sachs and Smith Barney also considered, to the
extent publicly available, the financial terms of certain other similar
transactions recently effected which Goldman Sachs and Smith Barney considered
relevant in evaluating the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations Goldman Sachs and Smith Barney considered relevant in
evaluating those of JP Foodservice and Rykoff-Sexton. Each of Goldman Sachs and
Smith Barney also evaluated the potential pro forma financial impact of the
Merger on JP Foodservice. In addition to the foregoing, each of Goldman Sachs
and Smith Barney conducted such other analyses and examinations and considered
such other financial, economic and market criteria as Goldman Sachs and Smith
Barney deemed appropriate in arriving at their respective opinions. Each of
Goldman Sachs and Smith Barney noted that their respective opinions were
necessarily based upon information available, and financial, stock market and
other conditions and circumstances existing and disclosed, to Goldman Sachs and
Smith Barney as of the date of such opinions.
In rendering their respective opinions, each of Goldman Sachs and Smith
Barney assumed and relied, without independent verification, upon the accuracy
and completeness of all financial and other information and data publicly
available or furnished to or otherwise reviewed by or discussed with Goldman
Sachs and Smith Barney. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with
Goldman Sachs and Smith Barney, the managements of JP Foodservice and
Rykoff-Sexton advised each of Goldman Sachs and Smith Barney that such forecasts
and other information and data were reasonably prepared reflecting the best
currently available estimates and judgments of the respective managements of JP
Foodservice and Rykoff-Sexton as to the future financial performance of JP
Foodservice and Rykoff-Sexton and the strategic implications and operational
benefits anticipated to result from the Merger. Each of Goldman Sachs and Smith
Barney assumed, with the consent of the Board of Directors of JP Foodservice,
that the Merger will be treated as a pooling of interests in accordance with
generally accepted accounting principles and
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as a tax-free reorganization for federal income tax purposes. Goldman Sachs and
Smith Barney also assumed, with the consent of the Board of Directors of JP
Foodservice, that the Merger will not constitute a change of control of JP
Foodservice. The respective opinions of Goldman Sachs and Smith Barney, as set
forth therein, relate to the relative values of JP Foodservice and Rykoff-
Sexton. Neither Goldman Sachs nor Smith Barney expressed any opinion as to what
the value of the JP Foodservice Common Shares actually will be when issued to
Rykoff-Sexton stockholders pursuant to the Merger or the price at which the JP
Foodservice Common Shares will trade subsequent to the Merger. Neither Goldman
Sachs nor Smith Barney made, and neither Goldman Sachs nor Smith Barney was
provided with, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of JP Foodservice or Rykoff-Sexton, nor
did Goldman Sachs or Smith Barney make any physical inspection of the properties
or assets of JP Foodservice or Rykoff-Sexton. Neither Goldman Sachs nor Smith
Barney was requested to consider, and neither the opinion of Goldman Sachs nor
the opinion of Smith Barney addresses, the relative merits of the Merger as
compared to any alternative business strategies that might exist for JP
Foodservice or the effect of any other transaction in which JP Foodservice might
engage. Although each of Goldman Sachs and Smith Barney evaluated the fairness
to JP Foodservice of the Exchange Ratio (in the case of Smith Barney, from a
financial point of view), neither Goldman Sachs nor Smith Barney was asked to
recommend, and neither Goldman Sachs nor Smith Barney recommended, the specific
consideration payable in the Merger, which was determined through negotiation
between JP Foodservice and Rykoff-Sexton. No other limitations were imposed by
JP Foodservice on either Goldman Sachs or Smith Barney with respect to the
investigations made or procedures followed by Goldman Sachs or Smith Barney in
rendering their respective opinions.
The full texts of the written opinions of Goldman Sachs and Smith Barney
dated June 30, 1997, which set forth the assumptions made, matters considered
and limitations on the review undertaken, are attached hereto as Appendix B and
Appendix C, respectively, and should be read carefully in their entirety. The
opinions of Goldman Sachs and Smith Barney are directed to the Board of
Directors of JP Foodservice and relate only to the fairness of the Exchange
Ratio (in the case of Smith Barney, from a financial point of view) to JP
Foodservice, do not address any other aspect of the Merger or related
transactions and do not constitute a recommendation to any stockholder as to how
such stockholder should vote at the JP Foodservice Annual Meeting. The summary
of the respective opinions of Goldman Sachs and Smith Barney set forth in this
Joint Proxy Statement/Prospectus is qualified in its entirety by reference to
the full text of such opinions.
In preparing their respective opinions, each of Goldman Sachs and Smith
Barney separately performed a variety of financial and comparative analyses,
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including those described below. The summary of such analyses does not purport
to be a complete description of the analyses underlying the opinion of Goldman
Sachs or the opinion of Smith Barney. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, each of Goldman
Sachs and Smith Barney believes that their respective analyses must be
considered as a whole and that selecting portions of their respective analyses
and factors, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying such analyses and
opinions. In their respective analyses, each of Goldman Sachs and Smith Barney
made numerous assumptions with respect to JP Foodservice, Rykoff-Sexton,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of JP
Foodservice and Rykoff-Sexton. The estimates contained in such analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. The respective opinions and
analyses of Goldman Sachs and Smith Barney were only one of many factors
considered by the Board of Directors of JP Foodservice in its evaluation of the
Merger and should not be viewed as determinative of the views of the Board of
Directors or management of JP Foodservice with respect to the Exchange Ratio or
the proposed Merger. Neither JP Foodservice nor Rykoff-Sexton publicly discloses
internal management estimates of the type provided to Goldman Sachs and Smith
Barney in connection with their review of the financial terms of the Merger.
The following is a summary of the material analyses performed by Goldman
Sachs and Smith Barney in connection with their respective opinions dated June
30, 1997:
Selected Company Analysis. Using publicly available information, each of
Goldman Sachs and Smith Barney analyzed, among other things, the market values
and trading multiples of Rykoff-Sexton and the following selected publicly
traded companies in the foodservice distribution industry: JP Foodservice;
Performance Food Group Company; and SYSCO Corp. (collectively, the "Selected
Companies"). Goldman Sachs compared equity market values as a multiple of
estimated net income for the fiscal years ending June 30, 1997 and 1998 and
adjusted market values (equity market value, plus total debt, less cash and cash
equivalents) as multiples of latest twelve months (i) sales, (ii) earnings
before interest, taxes, depreciation and amortization ("EBITDA") and (iii)
earnings before interest and taxes ("EBIT"). The range of multiples for the
Selected Companies for the latest
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twelve months was (i) 0.4x to 0.6x sales, (ii) 10.2x to 14.1x EBITDA and
(iii) 13.2x to 18.5x EBIT.
Smith Barney compared market values as a multiple of, among other things,
estimated calendar 1998 net income and adjusted market values (equity market
value, plus total debt and the book value of preferred stock, less cash and cash
equivalents) as multiples of, among other things, estimated calendar 1997
revenues, EBITDA and earnings before interest, taxes and amortization ("EBITA").
All multiples were based on closing stock prices as of June 27, 1997. Applying a
range of multiples for the Selected Companies of estimated calendar 1998 net
income and estimated calendar 1997 revenues, EBITDA and EBITA of 16.1x to 19.1x,
0.23x to 0.47x, 8.0x to 10.7x and 10.5x to 12.7x, respectively, to corresponding
financial data for Rykoff-Sexton resulted in an equity reference range for
Rykoff-Sexton of approximately $14.38 to $28.33 per share, as compared to the
equity value implied by the Exchange Ratio of approximately $25.31 per share
based on a closing stock price of JP Foodservice Common Shares on June 27, 1997.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, each of Goldman Sachs and Smith Barney analyzed the
purchase price and implied transaction value multiples paid in selected
transactions in the foodservice distribution industry effected, in the case of
Goldman Sachs, from 1984 through 1997 and, in the case of Smith Barney, in 1995
and 1996. The selected transactions analyzed by Goldman Sachs consisted of
(acquiror/target): JP Foodservice/Mazo-Lerch Co.; Performance Food Group
Company/McLane Food Service; Nash Finch/Super Food Services; JP
Foodservice/Squeri Food Service, Inc.; JP Foodservice/Arrow Paper Supply & Food
Co.; JP Foodservice/Valley Food Distributors; Rykoff-Sexton/US Foodservice;
Rykoff-Sexton/Continental Foods; Unifax/White Swan; SUPER VALU/Wetterau;
Wal-Mart/McLane; Kraft Foodservice/Three Branches of PYA; Chase Manhattan
Bank/PYA North and Midwest (JP Foodservice): Management/White Swan; SYSCO
Corp./CFS Continental; Management/IU Foodservice; Marriott Corp./Saga Corp.; ARA
Holding Company/ARA Services, Inc.; Staley Manufacturing/CFS Continental, Inc.;
and Kraft Foodservice/Clayton Dubilier & Rice (collectively, the "Goldman Sachs
Selected Transactions"). The selected transactions analyzed by Smith Barney
consisted of (acquiror/target): (i) transactions announced or effected in 1996:
JP Foodservice/Squeri Food Service, Inc.; JP Foodservice/Arrow Paper and Supply
Co., Inc.; JP Foodservice/Valley Industries, Inc.; and Rykoff-Sexton/US
Foodservice Inc. (collectively, the "1996 Transactions"); and (ii) transactions
announced or effected in 1995: JP Foodservice/Foodservice Distribution of
Rotelle; Rykoff-Sexton/H&O Foods Inc.; Shamrock Foods Co./Dairy Maid Foods
Corp.; Fresh America Corp./Lone Star Produce, Inc.; Proficient Acquisition
Corp./Proficient Food Company (Flagstar); Rykoff-Sexton/Olfisco Inc.-Specialty
Foods Division; JP Foodservice/Tri-River Foods Inc.; Performance Food Group
Company/Cannon Foodservice, Inc.; US Foodservice Inc./City Provisioners Inc.;
ProSource Distribution Services/Martin-Brower-60
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National Accounts; and Clayton Dubilier & Rice/Kraft Foodservice (collectively,
the "1995 Transactions" and, together with the 1996 Transactions, the "Smith
Barney Selected Transactions"). Each of Goldman Sachs and Smith Barney compared,
among other things, the transaction values in such transactions as multiples of
latest 12 months revenues, EBITDA and EBIT. All multiples for the Goldman Sachs
Selected Transactions and the Smith Barney Selected Transactions were based on
information available at the time of announcement of the applicable transaction.
With respect to the Goldman Sachs Selected Transactions analyzed, Goldman Sachs
focused primarily on the larger acquisitions, such as the acquisition by Clayton
Dubilier & Rice of Kraft Foodservice (0.2x latest twelve months sales) and the
acquisition by Rykoff-Sexton of US Foodservice (0.4x latest twelve months sales,
9.7x latest twelve months EBITDA and 13.4x latest twelve months EBIT). In
general, the comparability of this transaction to many of the Goldman Sachs
Selected Transactions was limited as a result of the smaller sizes and limited
publicly available information on those transactions.
With respect to the Smith Barney Selected Transactions analyzed, Smith
Barney focused primarily on the 1996 Transactions. Applying a range of multiples
(excluding outliers) for the 1996 Transactions of latest 12 months revenue,
EBITDA and EBIT of 0.38x to 0.49x, 8.5x to 10.3x and 9.9x to 13.8x,
respectively, to corresponding financial data for Rykoff-Sexton for fiscal year
1997 resulted in an equity reference range for Rykoff-Sexton of approximately
$19.06 to $29.91 per share, as compared to the equity value implied by the
Exchange Ratio of approximately $25.31 per share based on a closing stock price
of JP Foodservice Common Shares on June 27, 1997.
No company, transaction or business used in the "Selected Company Analysis"
or the "Selected Merger and Acquisition Transactions Analysis" as a comparison
is identical to JP Foodservice, Rykoff-Sexton or the Merger. Accordingly, an
analysis of the results of the foregoing is not entirely mathematical; rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the Selected Companies, Selected
Transactions or the business segment, company or transaction to which they are
being compared.
Contribution Analysis. Goldman Sachs analyzed the respective contributions
of JP Foodservice and Rykoff-Sexton to the estimated revenue, EBITDA, EBIT, net
income and net income plus goodwill of the combined company for fiscal years
1997 through 1999, based on internal estimates of the managements of JP
Foodservice and Rykoff-Sexton, before giving effect to certain cost savings and
other potential synergies anticipated by the managements of JP Foodservice and
Rykoff-Sexton to result from the Merger. This analysis indicated that in fiscal
year 1997, JP Foodservice would contribute approximately 32.7% of revenues,
36.7% of EBITDA, 38.0% of EBIT, 58.7% of net income, and 48.3% of net income
plus goodwill, of the
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combined company; in fiscal year 1998, JP Foodservice would contribute
approximately 35.3% of revenues, 37.7% of EBITDA, 40.6% of EBIT, 56.5% of net
income, and 49.7% of net income plus goodwill, of the combined company; and in
fiscal year 1999, JP Foodservice would contribute approximately 36.0% of
revenues, 36.3% of EBITDA, 38.3% of EBIT, 49.5% of net income, and 58.7% of net
income plus goodwill, of the combined company.
Smith Barney analyzed the respective contributions of JP Foodservice and
Rykoff-Sexton to the estimated revenue, gross profit, EBITDA, EBITA and net
income of the combined company for fiscal years 1997 through 2000, based on
internal estimates of the managements of JP Foodservice and Rykoff-Sexton, both
before and after giving effect to certain cost savings and other potential
synergies anticipated by the managements of JP Foodservice and Rykoff-Sexton to
result from the Merger and after excluding non-recurring charges, with
particular focus on such contributions before giving effect to such cost savings
and other potential synergies. This analysis indicated that before giving effect
to certain cost savings and other potential synergies, in fiscal year 1997, JP
Foodservice would contribute approximately 32.7% of revenues, 29.4% of gross
profit, 36.7% of EBITDA, 38.3% of EBITA and 61.7% of net income, of the combined
company; in fiscal year 1998, JP Foodservice would contribute approximately
35.3% of revenues, 32.0% of gross profit, 37.7% of EBITDA, 38.8% of EBITA and
56.4% of net income, of the combined company; in fiscal year 1999, JP
Foodservice would contribute approximately 36.0% of revenues, 32.9% of gross
profit, 36.3% of EBITDA, 36.9% of EBITA and 49.1% of net income, of the combined
company; and in fiscal year 2000, JP Foodservice would contribute approximately
36.7% of revenues, 33.7% of gross profit, 36.2% of EBITDA, 36.6% of EBITA and
46.2% of net income, of the combined company. Based on the Exchange Ratio,
current stockholders of JP Foodservice and Rykoff-Sexton would own approximately
48.6% and 51.4%, respectively, of the combined company upon consummation of the
Merger, and JP Foodservice and Rykoff-Sexton would constitute approximately
38.6% and 61.4%, respectively, of the adjusted equity value (equity market
value, plus total debt, less cash and cash equivalents) of the combined company.
Discounted Cash Flow Analysis. Each of Goldman Sachs and Smith Barney
performed a discounted cash flow analysis of the projected free cash flow of
Rykoff-Sexton for the fiscal years 1998 through 2002, based on internal
estimates of the management of Rykoff-Sexton. The stand-alone discounted cash
flow analysis of Rykoff-Sexton was determined by (i) adding (x) the net present
value of projected free cash flows over the five-year period from 1998 to 2002
and (y) the present value of Rykoff-Sexton's estimated terminal value in year
2002 and (ii) subtracting the current net debt of Rykoff-Sexton. The range of
estimated terminal values for Rykoff-Sexton at the end of the five-year period
was calculated by applying terminal value multiples ranging, in the case of
Goldman Sachs, from 7.0x to 9.0x and, in the case of Smith Barney, from 8.0x to
9.0x, to Rykoff-Sexton's projected 2002 EBITDA, representing Rykoff-Sexton's
estimated value beyond the year 2002. The
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cash flows and terminal values of Rykoff-Sexton were discounted to present value
using discount rates ranging, in the case of Goldman Sachs, from 10% to 11% and,
in the case of Smith Barney, from 10% to 12%. Utilizing such terminal multiples
and discount rates, this analysis resulted in an equity reference range for
Rykoff-Sexton of, in the case of Goldman Sachs, approximately $22.49 to $35.01
per share and, in the case of Smith Barney, approximately $24.82 to $34.39 per
share, as compared to the equity value implied by the Exchange Ratio of
approximately $25.31 per share based on a closing stock price of JP Foodservice
Common Shares on June 27, 1997.
Pro Forma Merger Analysis. Each of Goldman Sachs and Smith Barney analyzed
certain pro forma effects resulting from the Merger, including, among other
things, the impact of the Merger on the projected earnings per share ("EPS") of
JP Foodservice for the fiscal years 1998 through 2000, based on internal
estimates of the managements of JP Foodservice and Rykoff-Sexton. The results of
the pro forma merger analysis suggested that the Merger could be accretive to JP
Foodservice's EPS in each of the fiscal years analyzed, assuming certain cost
savings and other potential synergies anticipated by the managements of JP
Foodservice and Rykoff-Sexton to result from the Merger were achieved in the
amounts and in the time period contemplated and excluding non-recurring charges.
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
Exchange Ratio Analysis. Goldman Sachs compared the Exchange Ratio with the
historical ratio of the daily closing prices of JP Foodservice Common Shares and
Rykoff-Sexton Common Shares over the last six-month and twelve-month periods and
the period from JP Foodservice's initial public offering of JP Foodservice
Common Shares on November 15, 1994 through June 25, 1997. The average exchange
ratios during such periods were 0.643, 0.631 and 0.985, respectively, as
compared to the Exchange Ratio of 0.84. Smith Barney compared the Exchange Ratio
with the historical ratio of the daily closing prices of JP Foodservice Common
Shares and Rykoff-Sexton Common Shares over the three-month, six-month and
12-month periods ending June 27, 1997 and the period from JP Foodservice's
initial public offering through June 27, 1997. The average exchange ratios
during such periods were 0.673, 0.644, 0.634 and 0.988, respectively, as
compared to the Exchange Ratio of 0.84.
Other Factors and Comparative Analyses. In rendering their respective
opinions, each of Goldman Sachs and Smith Barney considered certain other
factors and conducted certain other comparative analyses, including, among other
things, a review of (i) JP Foodservice's and Rykoff-Sexton's historical and
projected financial results; (ii) the history of trading prices and volume for
JP Foodservice Common Shares and Rykoff-Sexton Common Shares and, in the case of
Smith Barney, the relationship between movements in such Common Shares,
movements in the common stock of the Selected Companies and movements in the S&P
500 Index;
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and (iii) selected published analysts' reports on JP Foodservice and Rykoff-
Sexton, including analysts' estimates as to the earnings growth potential of JP
Foodservice and Rykoff-Sexton. Smith Barney also reviewed the premiums paid in
selected transactions with transaction values of $1.0 billion to $1.5 billion
and the pro forma ownership of the combined company.
Pursuant to the terms of its engagement of Goldman Sachs, JP Foodservice
has agreed to pay Goldman Sachs for its services in connection with the Merger
an aggregate financial advisory fee of $2.5 million. In addition, if in certain
circumstances JP Foodservice is entitled to a break-up or similar fee or
payment, Goldman Sachs will be entitled to a fee equal to 7.5% of such payment.
JP Foodservice has also agreed to reimburse Goldman Sachs for reasonable out-
of-pocket expenses incurred by Goldman Sachs in performing its services,
including the fees and expenses of its legal counsel, and to indemnify Goldman
Sachs and related persons against certain liabilities, including liabilities
under the federal securities laws, arising out of its engagement of Goldman
Sachs.
Pursuant to the terms of Smith Barney's engagement, JP Foodservice has
agreed to pay Smith Barney for its services in connection with the Merger an
aggregate financial advisory fee of approximately $1.6 million. In addition, if
in certain circumstances JP Foodservice is entitled to a break-up or similar fee
or payment, Smith Barney will be entitled to a fee based on such payment. JP
Foodservice has also agreed to reimburse Smith Barney for reasonable travel and
other out-of-pocket expenses incurred by Smith Barney in performing its
services, including the fees and expenses of its legal counsel, and to indemnify
Smith Barney and related persons against certain liabilities, including
liabilities under the federal securities laws, arising out of Smith Barney's
engagement.
The terms of the fee arrangements for Goldman Sachs and Smith Barney
described above which JP Foodservice believes are customary for transactions
similar to the proposed Merger, were negotiated at arm's length between JP
Foodservice, on the one hand, and each of Goldman Sachs and Smith Barney, on the
other.
Each of Goldman Sachs and Smith Barney has advised JP Foodservice that, in
the ordinary course of business, Goldman Sachs or Smith Barney and their
respective affiliates may actively trade or hold the securities of JP
Foodservice and Rykoff-Sexton for their own account or for the account of
customers and, accordingly, may at any time hold a long or short position in
such securities. Goldman Sachs and Smith Barney have in the past provided
investment banking services to JP Foodservice unrelated to the Merger, for which
services they have received compensation, and may provide investment banking
services to JP Foodservice in the future. JP Foodservice has engaged Goldman
Sachs to provide financial advisory services with respect to JP Foodservice's
capital structure and other matters for a period of one year following the
Merger. Smith Barney is
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currently providing JP Foodservice with similar financial advisory services. In
addition, Goldman Sachs and its affiliates and Smith Barney and its affiliates
(including Travelers Group Inc. and its affiliates) may maintain relationships
with JP Foodservice and Rykoff-Sexton.
Each of Goldman Sachs and Smith Barney is an internationally recognized
investment banking firm and was selected by JP Foodservice based on its
experience, expertise and familiarity with JP Foodservice and its business. Each
of Goldman Sachs and Smith Barney regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes.
Opinions of Financial Advisors to Rykoff-Sexton
Rykoff-Sexton retained Merrill Lynch and Wasserstein Perella to act as its
financial advisors in connection with a possible business combination.
Representatives of Merrill Lynch and Wasserstein Perella attended the meeting of
the Rykoff-Sexton Board of Directors on June 29, 1997 at which the Rykoff-Sexton
Board of Directors considered and approved the Merger Agreement. At that
meeting, each of Merrill Lynch and Wasserstein Perella orally rendered its
respective opinion (subsequently confirmed in a written opinion dated June 30,
1997) that, as of such date (and based upon the matters, assumptions,
qualifications and limitations to be set forth in the written opinion, forms of
which were presented to the Rykoff-Sexton Board of Directors), the Exchange
Ratio was fair to the holders of Rykoff-Sexton Common Shares (other than JP
Foodservice and its affiliates) from a financial point of view.
The full texts of the Rykoff-Sexton Fairness Opinions, which set forth the
assumptions made, matters considered, and qualifications and limitations on the
review undertaken by each of Merrill Lynch and Wasserstein Perella, are attached
as Appendix D and Appendix E, respectively, to this Joint Proxy
Statement/Prospectus and are incorporated herein by reference. Stockholders of
Rykoff-Sexton are urged to and should read such Rykoff-Sexton Fairness Opinions
in their entirety. The summary of the Rykoff-Sexton Fairness Opinions set forth
in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full texts of such Rykoff-Sexton Fairness Opinions. The
Rykoff-Sexton Fairness Opinions were provided to the Rykoff-Sexton Board of
Directors for its use and benefit and are directed only to the fairness from a
financial point of view of the Exchange Ratio to the holders of Rykoff-Sexton
Common Shares (other than JP Foodservice and its affiliates), do not address the
merits of the underlying decision by Rykoff-Sexton to engage in the Merger and
do not constitute a
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recommendation to any Rykoff-Sexton stockholder as to how such stockholder
should vote with respect to the Merger Agreement or any transaction related
thereto.
The Exchange Ratio was determined through negotiations between JP
Foodservice and Rykoff-Sexton and was approved by the Rykoff-Sexton Board of
Directors. Merrill Lynch and Wasserstein Perella provided advice to
Rykoff-Sexton during the course of such negotiations.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Rykoff-Sexton Fairness Opinions or the
presentation made by Merrill Lynch and Wasserstein Perella to the Rykoff-Sexton
Board of Directors. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In arriving at their
respective opinions, Merrill Lynch and Wasserstein Perella did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Merrill Lynch and Wasserstein Perella believe that their
analyses must be considered as a whole and that selecting portions of their
analyses, without considering all analyses, would create an incomplete view of
the process underlying each of their opinions.
In performing their analyses, numerous assumptions were made with respect
to industry performance, general business, regulatory, economic, market and
financial conditions and other matters, many of which are beyond the control of
Merrill Lynch, Wasserstein Perella, Rykoff-Sexton and/or JP Foodservice. Any
estimates contained in the analyses performed by Merrill Lynch and Wasserstein
Perella are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither Merrill Lynch nor Wasserstein
Perella assume any responsibility for their accuracy. In addition, as described
above, the Rykoff-Sexton Fairness Opinions and the joint presentation to the
Rykoff-Sexton Board of Directors by Merrill Lynch and Wasserstein Perella were
among several factors taken into consideration by the Rykoff-Sexton Board of
Directors in making its determination to approve the Merger Agreement.
Consequently, the Merrill Lynch and Wasserstein Perella analyses described below
should not be viewed as determinative of the decision of the Rykoff-Sexton Board
of Directors or Rykoff-Sexton's management with respect to the fairness of the
Exchange Ratio.
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In arriving at their respective opinions, each of Merrill Lynch and
Wasserstein Perella, among other things: (i) reviewed certain publicly available
business and financial information relating to each of Rykoff-Sexton and JP
Foodservice which each of Merrill Lynch and Wasserstein Perella deemed relevant;
(ii) reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
Rykoff-Sexton and JP Foodservice, as well as the amount and timing of the cost
savings and related expenses and synergies expected to result from the Merger
(the "Expected Savings and Synergies"), in each case furnished to Merrill Lynch
and Wasserstein Perella by Rykoff-Sexton and JP Foodservice; (iii) conducted
discussions with members of senior management and representatives of
Rykoff-Sexton and JP Foodservice concerning the matters described in clauses (i)
and (ii) above, as well as their respective businesses and prospects before and
after giving effect to the Merger and the Expected Savings and Synergies; (iv)
reviewed the market prices and valuation multiples for Rykoff-Sexton Common
Shares and JP Foodservice Common Shares and compared them with those of certain
publicly traded companies which each of Merrill Lynch and Wasserstein Perella
deemed relevant; (v) reviewed the results of operations of Rykoff-Sexton and JP
Foodservice and compared them with those of certain publicly traded companies
which each of Merrill Lynch and Wasserstein Perella deemed relevant; (vi)
compared the proposed financial terms of the Merger with the financial terms of
certain other transactions which each of Merrill Lynch and Wasserstein Perella
deemed relevant; (vii) participated in certain discussions and negotiations
among representatives of Rykoff-Sexton and JP Foodservice and their financial
and legal advisors; (viii) reviewed the potential pro forma impact of the
Merger; (ix) reviewed the Merger Agreement; and (x) reviewed such other
financial studies and analyses and took into account such other matters as each
of Merrill Lynch and Wasserstein Perella deemed necessary, including Merrill
Lynch's and Wasserstein Perella's assessment of current general economic, market
and monetary conditions.
In connection with their review, each of Merrill Lynch and Wasserstein
Perella relied on the accuracy and completeness of all information supplied or
otherwise made available to each of Merrill Lynch and Wasserstein Perella,
discussed with or reviewed by or for each of Merrill Lynch and Wasserstein
Perella, or publicly available and further relied on the assurances of
management of Rykoff-Sexton and JP Foodservice that they were not aware of any
facts that would make such information inaccurate or misleading. Each of Merrill
Lynch and Wasserstein Perella has not assumed any responsibility for
independently verifying such information, has not undertaken an independent
evaluation or appraisal of the assets or liabilities of Rykoff-Sexton or JP
Foodservice and has not been furnished with any such evaluation or appraisal. In
addition, each of Merrill Lynch and Wasserstein Perella has not assumed any
obligation to conduct a physical inspection of the properties or facilities of
Rykoff-Sexton or JP Foodservice. With respect to the financial forecasts and the
Expected Savings and Synergies furnished to or discussed with Merrill Lynch and
Wasserstein Perella by Rykoff-Sexton or JP
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Foodservice, each of Merrill Lynch and Wasserstein Perella assumed that they
were reasonably prepared in good faith and reflected the best currently
available estimates and judgments of Rykoff-Sexton's and JP Foodservice's
managements as to the expected future financial performance of, and expenses and
benefits to, Rykoff-Sexton or JP Foodservice, as the case may be, and the
Expected Savings and Synergies, and that such forecasted results and Expected
Savings and Synergies will be realized in the amounts and at the times indicated
thereby. Each of Merrill Lynch and Wasserstein Perella expressed no view as to
such financial forecasts and Expected Savings and Synergies or the assumptions
on which they were based. In addition, each of Merrill Lynch and Wasserstein
Perella assumed that the Merger will qualify for pooling-of-interests accounting
treatment in accordance with generally accepted accounting principles and as a
tax-free reorganization for United States Federal income tax purposes. Each
Rykoff-Sexton Fairness Opinion is necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Neither Merrill Lynch nor Wasserstein Perella was authorized by
Rykoff-Sexton or the Rykoff-Sexton Board of Directors to solicit, nor did
Merrill Lynch or Wasserstein Perella solicit, third-party indications of
interest for the acquisition of all or any part of Rykoff-Sexton. In addition,
neither Merrill Lynch nor Wasserstein Perella was asked to consider, and neither
Rykoff-Sexton Fairness Opinion in any manner addresses, the price at which or
the trading ranges in which JP Foodservice Common Shares will actually trade
following the announcement or consummation of the Merger.
Set forth below is a brief summary of the material analyses presented
jointly by Merrill Lynch and Wasserstein Perella to the Rykoff-Sexton Board of
Directors in connection with the rendering of the Rykoff-Sexton Fairness
Opinions.
Premium Analysis. Merrill Lynch and Wasserstein Perella calculated the
percentage stock premium paid for all announced merger of equals transactions
between April 20, 1995 and April 20, 1997 with total transaction values greater
than $500 million at one day, one week and four week periods prior to the
announcement of the merger. The median premium paid by the acquiror for such
mergers for the one day, one week and four week periods was 8.9%, 10.2% and
13.6%, respectively.
Merrill Lynch and Wasserstein Perella then analyzed the premium to the
historic stock price of Rykoff-Sexton Common Shares by comparing the $25.10
implied transaction value per share to the closing price of Rykoff-Sexton Common
Shares on June 26, 1997, March 27, 1997, December 27, 1996 and June 27, 1996.
The $25.10 implied transaction value per share was determined by multiplying the
0.84x Exchange Ratio by the closing price of JP Foodservice Common Shares on
June 26, 1997. Based on such comparisons, Merrill Lynch and Wasserstein Perella
calculated that the implied transaction value per share exceeded such stock
prices by 27.1%, 41.4%, 59.3% and 77.7%, respectively. Merrill Lynch and
Wasserstein Perella also calculated the percentage premium represented by the
Exchange Ratio
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over the average exchange ratio (i.e., the average of the ratios of the closing
stock prices of Rykoff-Sexton Common Shares to JP Foodservice Common Shares) for
30 days, 60 days, 90 days and 12 months prior to June 26, 1997 and determined
that the Exchange Ratio represented a premium of 20.7%, 24.1%, 27.0% and 32.6%,
respectively, over such average exchange ratio.
Leveraged Contribution Analysis. Merrill Lynch and Wasserstein Perella
compared the relative contributions by each of Rykoff-Sexton and JP Foodservice
to the implied combined Market Value of the two companies ("Market Value" being
defined for each company as total shares outstanding times a recent closing
price per share plus the option spread (options deemed outstanding times average
exercise price)) at June 26, 1997 and noted that Rykoff-Sexton's contribution to
the Market Value of the combined entity was 45.6%. Merrill Lynch and Wasserstein
Perella also compared the relative contributions by each of Rykoff-Sexton and JP
Foodservice to a hypothetical implied combined market value of the two companies
based on (a) a value derived by applying median trading multiples (obtained from
the Comparable Company Analysis described below) to estimated 1997 and 1998
Revenues, EBITDA and EBIT for each of Rykoff-Sexton and JP Foodservice (as
provided by the respective managements of Rykoff-Sexton and JP Foodservice) and
(b) subtracting, in each case, net debt. Based on estimated 1997 financial data,
Rykoff-Sexton's rates of contribution to such hypothetical implied combined
market value based on Revenues, EBITDA and EBIT were 60.8%, 54.1% and 47.7%,
respectively. Such contribution rates correspond to implied exchange ratios of
1.240, .942 and .728, respectively. Based on estimated 1998 financial data,
Rykoff-Sexton's rates of contribution to such hypothetical implied combined
market value based on Revenues, EBITDA and EBIT were 56.8%, 52.7% and 47.5%,
respectively. Such contribution rates correspond to implied exchange ratios of
1.048, .888 and .723, respectively. Merrill Lynch and Wasserstein Perella
further compared the relative contributions by each of Rykoff-Sexton and JP
Foodservice to a hypothetical implied combined market value of the two companies
based on a value derived by applying median trading multiples (obtained from the
Comparable Company Analysis described below) to estimated 1997 and 1998 net
income for each of Rykoff-Sexton and JP Foodservice (as provided by the
respective managements of Rykoff-Sexton and JP Foodservice). Based on estimated
1997 and 1998 financial data as provided by the respective managements of
Rykoff-Sexton and JP Foodservice, Rykoff-Sexton's rates of contribution based on
net income were 41.0% and 42.6%, respectively, to such hypothetical implied
combined market value. Such contribution rates correspond to implied exchange
ratios of .555 and .593, respectively.
The contribution analyses pertaining to net income, EBITDA and EBIT
(especially those using the estimated 1998 financial data) are believed by
Merrill Lynch and Wasserstein Perella to be the most relevant measures primarily
because such measures are the most reflective of profitability. Accordingly,
based on such measures, Merrill Lynch and Wasserstein Perella calculated a range
of implied
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exchange ratios based on the contribution analysis described above of 0.60x to
0.90x.
Comparable Company Analysis. In order to analyze the Exchange Ratio in
relationship to the relative public market valuations of Rykoff-Sexton and JP
Foodservice, Merrill Lynch and Wasserstein Perella compared the stock price and
operating performance of Rykoff-Sexton and JP Foodservice with certain selected
comparable public foodservice distributors (i.e., SYSCO Corp., Performance Food
Group Company, International Multifoods Corporation and ProSource, Inc.).
Merrill Lynch and Wasserstein Perella calculated the following market trading
multiples for each of such companies based on last twelve months ("LTM") data as
of June 26, 1997 and estimates for each of their respective next fiscal years
("NFY") (in the cases of Rykoff-Sexton and JP Foodservice based on projections
provided by the respective managements and in the cases of the other companies,
based on research analyst reports): Market Value (as of June 26, 1997) as a
multiple of net income and book value; and "Adjusted Market Value" (defined as
Market Value minus cash and cash equivalents plus total debt (including asset
securitization), capitalized leases, preferred stock and minority interest) (as
of June 26, 1997) as a multiple of sales, EBITDA and EBIT.
Finding the results for SYSCO Corp. ("SYSCO") and Performance Food Group
Company ("PFGC") most relevant for comparison purposes with Rykoff-Sexton and JP
Foodservice, Merrill Lynch and Wasserstein Perella compared Rykoff-Sexton, JP
Foodservice, SYSCO and PFGC and determined that (i) Market Values as a multiple
of LTM net income were 36.0x, 29.8x, 22.1x and 21.8x, respectively; (ii) Market
Values as a multiple of LTM book value were 1.6x, 3.0x, 4.5x and 2.5x,
respectively; (iii) Adjusted Market Values as a multiple of LTM sales were 0.4x,
0.5x, 0.5x and 0.3x, respectively; (iv) Adjusted Market Values as a multiple of
LTM EBITDA were 9.6x, 11.7x, 10.3x and 11.4x, respectively; and (v) Adjusted
Market Values as a multiple of LTM EBIT were 13.7x, 14.6x, 13.4x and 14.9x,
respectively. Additionally, Merrill Lynch and Wasserstein Perella determined
that (i) Market Values as a multiple of NFY net income were 22.3x, 19.7x, 19.5x
and 18.8x, respectively; (ii) Market Values as a multiple of NFY book value were
1.5x, 2.5x and 4.1x for Rykoff-Sexton, JP Foodservice and SYSCO, respectively
(NFY book value was not available for PFGC); (iii) Adjusted Market Values as a
multiple of NFY sales were 0.3x, 0.4x, 0.4x and 0.2x, respectively; (iv)
Adjusted Market Values as a multiple of NFY EBITDA were 8.3x, 9.7x, 9.3x and
9.5x, respectively; and (v) Adjusted Market Values as a multiple of NFY EBIT
were 11.5x, 12.1x, 11.9x and 11.7x, respectively.
Based on the calculation of such ranges, Merrill Lynch and Wasserstein
Perella derived ranges of hypothetical implied adjusted market values and
hypothetical implied market values for each of Rykoff-Sexton and JP Foodservice
by applying what Merrill Lynch and Wasserstein Perella judged to be the
appropriate multiples derived therefrom to the relevant LTM (fiscal year ended
June 30, 1997)
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financial information (as provided by the respective managements of Rykoff-
Sexton and JP Foodservice) of each of Rykoff-Sexton and JP Foodservice. Assuming
net debt of $669.4 million for Rykoff-Sexton and $207.0 million for JP
Foodservice, the hypothetical implied adjusted market value range was $1,173
million to $1,340 million for Rykoff-Sexton and $787 million to $876 million for
JP Foodservice; and the hypothetical implied market value range was $503 million
to $671 million for Rykoff-Sexton and $580 million to $669 million for JP
Foodservice. The range of hypothetical implied market values of each of Rykoff-
Sexton and JP Foodservice was then divided by 28.0 million shares for Rykoff-
Sexton and 22.3 million shares for JP Foodservice, respectively, to yield a
range of hypothetical implied market values per share of $18.00 to $24.00 for
Rykoff-Sexton and $26.00 to $30.00 for JP Foodservice. From such hypothetical
implied ranges, Merrill Lynch and Wasserstein Perella calculated a range of
implied exchange ratios of 0.60x to 0.92x.
No company utilized in the Comparable Company Analysis was identical to
Rykoff-Sexton or JP Foodservice. Accordingly, an analysis of the results of this
comparison is not purely mathematical; rather, it involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the comparable companies and other
factors that could affect the value of such companies and consequently, the
comparisons with Rykoff-Sexton and JP Foodservice.
Relative Discounted Cash Flow Analysis. Merrill Lynch and Wasserstein
Perella performed discounted cash flow ("DCF") analyses for the five-year period
ending with the 2002 fiscal year on the stand-alone unlevered free cash flows of
Rykoff-Sexton and JP Foodservice, based on estimates of projected financial
performance prepared by the respective managements of Rykoff-Sexton and JP
Foodservice. Unlevered free cash flows were calculated as the after-tax
unlevered earnings of Rykoff-Sexton and JP Foodservice, respectively, plus
depreciation and amortization and other non-cash items, plus (or minus) net
changes in working capital, minus projected capital expenditures. Merrill Lynch
and Wasserstein Perella calculated terminal values by applying a range of
terminal EBITDA multiples of 7.0x to 10.0x to the projected year 2002 EBITDA of
Rykoff-Sexton and JP Foodservice, respectively. The unlevered free cash flows
and terminal values were then discounted to the present using a range of
discount rates of 9.0% to 11.0% to yield a range of Adjusted Market Values and,
after subtracting current net debt, Market Values.
Based on such calculations, Merrill Lynch and Wasserstein Perella
determined ranges of hypothetical implied adjusted market values and
hypothetical implied market values for each of Rykoff-Sexton and JP Foodservice
by applying what Merrill Lynch and Wasserstein Perella judged to be the most
relevant discount rates and terminal multiples. Assuming net debt of $669.4
million for Rykoff-Sexton and $207.0 million for JP Foodservice, such analyses
yielded a range of hypothetical implied adjusted market values for Rykoff-Sexton
of $1,368 million
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to $1,508 million and $854 million to $943 million for JP Foodservice and a
range of hypothetical implied market values of $699 million to $839 million for
Rykoff-Sexton and $647 million to $736 million for JP Foodservice. The range of
hypothetical implied market values was then divided by 28.0 million shares for
Rykoff-Sexton and 22.3 million shares for JP Foodservice to yield a range of
hypothetical implied market values per share of $25.00 to $30.00 for Rykoff-
Sexton and $29.00 to $33.00 for JP Foodservice. From such hypothetical ranges,
Merrill Lynch and Wasserstein Perella calculated a range of implied exchange
ratios of 0.76x to 1.03x.
With respect to the Relative DCF Analysis, Merrill Lynch and Wasserstein
Perella believe that the selection of an appropriate discount rate is an
inherently subjective process and is affected by such factors as Rykoff-Sexton's
and JP Foodservice's cost of capital, the uncertainty associated with achieving
the projections provided by the managements of Rykoff-Sexton and JP Foodservice
and transaction risks generally. Merrill Lynch and Wasserstein Perella also
believe that the Relative DCF Analysis is a widely used valuation methodology,
but that it relies on numerous assumptions regarding the future performance of a
company and the future economic environment, including earnings growth rates,
unlevered free cash flows, terminal values and discount rates, all of which are
inherently uncertain because they are predicated upon future events and
circumstances.
Pro Forma Merger Analysis. Based on projections (including the Expected
Savings and Synergies) prepared by the managements of JP Foodservice and
Rykoff-Sexton, Merrill Lynch and Wasserstein Perella compared Rykoff-Sexton's
projected EPS on a stand-alone basis to the portion of the pro forma projected
EPS of the combined company allocable to the holders of JP Foodservice Common
Shares to be owned on a pro forma basis by the Rykoff-Sexton stockholders. The
analysis indicated that, for the Rykoff-Sexton stockholders, the Merger would be
42.2%, 20.1% and 15.0% accretive for the fiscal years ended June 30, 1998, 1999
and 2000, respectively.
Pursuant to a letter agreement, dated April 15, 1997, among Rykoff-Sexton,
Merrill Lynch and Wasserstein Perella, Rykoff-Sexton agreed to pay Merrill Lynch
and Wasserstein Perella (such fee to be divided equally) 0.52% of the implied
transaction value minus the amount (if any) paid to Merrill Lynch and
Wasserstein Perella pursuant to the succeeding sentence. In addition, if, in
certain circumstances, Rykoff-Sexton is entitled to a break up or similar fee or
payment or obtains any profit resulting from any option on any shares of JP
Foodservice, Merrill Lynch and Wasserstein Perella shall be entitled to 20% of
the excess (if any) of such fees, payments and profits over Rykoff-Sexton's
direct out-of-pocket expenses incurred in connection with the business
combination giving rise to such fees, payments or profits, subject to a cap of
the maximum amount that would have been payable to Merrill Lynch and Wasserstein
Perella had the Merger been consummated. Rykoff-Sexton has also agreed to
reimburse Merrill Lynch and
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Wasserstein Perella for their reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of its legal counsel, and to indemnify Merrill
Lynch and Wasserstein Perella and certain related persons for certain
liabilities related to or arising out of their engagement, including certain
liabilities under the Federal securities laws.
The terms of the fee arrangement with Merrill Lynch and Wasserstein
Perella, which each of Merrill Lynch, Wasserstein Perella and Rykoff-Sexton
believe are customary in transactions of this nature, were negotiated at arm's
length among Rykoff-Sexton, Merrill Lynch and Wasserstein Perella, and the
Rykoff-Sexton Board of Directors was aware of such arrangement, including the
fact that a significant portion of the aggregate fee payable to Merrill Lynch
and Wasserstein Perella is contingent upon consummation of the Merger.
Rykoff-Sexton retained Merrill Lynch and Wasserstein Perella based upon
their experience and expertise. Each of Merrill Lynch and Wasserstein Perella
are internationally recognized investment banking and advisory firms and members
of Merrill Lynch and Wasserstein Perella have substantial experience in
transactions such as the Merger and in valuing companies. Each of Merrill Lynch
and Wasserstein Perella, as part of its investment banking business, is
continuously engaged in, among other things, the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Merrill Lynch has, in the past, provided financial advisory and
financing services to Rykoff-Sexton and/or its affiliates and may continue to do
so and has received fees for the rendering of such services. In the ordinary
course of its business, each of Merrill Lynch and Wasserstein Perella may
actively trade in the securities of Rykoff-Sexton and JP Foodservice for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. Certain affiliates of Merrill
Lynch own, prior to the Merger, approximately 36% of the outstanding
Rykoff-Sexton Common Shares and have representatives serving on the
Rykoff-Sexton Board of Directors. See "--Interests of Certain Persons in the
Merger." Certain stockholders of Rykoff-Sexton who are affiliates of Merrill
Lynch are parties to contractual arrangements related to the Merger and with
respect to their existing Rykoff-Sexton Common Shares and the JP Foodservice
Common Shares to be received by them in the Merger. Neither of the Rykoff-Sexton
Fairness Opinions took into account or in any way addressed the implications to
such stockholders of such contractual arrangements.
Interests of Certain Persons in the Merger
Certain members of the Boards of Directors and management of JP Foodservice
and Rykoff-Sexton and certain holders of Rykoff-Sexton Common Shares have
certain interests in the Merger that are different from, or in addition
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to, the interests generally of stockholders of JP Foodservice or Rykoff-Sexton,
as applicable. Such interests relate to or arise from, among other things, the
terms of the Merger Agreement providing for (i) the JP Foodservice Board of
Directors after the Effective Time to consist of certain members from the board
of directors of each of the companies, (ii) the division of senior management
positions of JP Foodservice after the Effective Time among the existing senior
management of each of the companies, (iii) certain employment, severance and
change in control agreements for executive officers of Rykoff-Sexton and
provisions for the treatment of certain employee benefits for which executive
officers of Rykoff-Sexton are eligible, (iv) the assumption of employee stock
options and other rights granted to employees of Rykoff-Sexton, including
executive officers, and the fact that, under the terms thereof, substantially
all existing stock options and other rights held by executive officers and
directors of Rykoff-Sexton become fully vested by reason of stockholder approval
of the Rykoff-Sexton Proposal, and (v) the indemnification of existing directors
and officers of Rykoff-Sexton. In addition, Merrill Lynch, which was retained by
Rykoff-Sexton as one of its financial advisors in connection with the Merger, is
an affiliate of the ML Investors. Such additional interests, which are believed
to be all of the material interests, are described below. The JP Foodservice
Board of Directors and the Rykoff-Sexton Board of Directors were each aware of
these interests of their respective directors and officers and, in the case of
Rykoff-Sexton, certain stockholders and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby.
Employment, Change in Control and Severance Agreements. Prior to the
execution of the Merger Agreement, Rykoff-Sexton entered into the Original Van
Stekelenburg Employment Agreement (as defined herein) and a Change in Control
Agreement with Mark Van Stekelenburg, the Chairman, President and Chief
Executive Officer of Rykoff-Sexton. Three other executive officers (Harold E.
Feather, Executive Vice President, Strategic Planning; Richard J. Martin,
Executive Vice President and Chief Financial Officer; and Robert J. Harter, Jr.,
Senior Vice President, Administration and General Counsel) of Rykoff-Sexton and
David F. McAnally, former Senior Vice President and Chief Financial Officer of
Rykoff-Sexton, also are parties to Change in Control Agreements. These
agreements, as well as certain other Rykoff-Sexton compensation arrangements,
provide, under specified circumstances, payments and other benefits to the
executives who are parties to these agreements and arrangements upon or after a
"change of control" of Rykoff-Sexton. The consummation of the Merger will
constitute a "change in control" of Rykoff-Sexton under these agreements and
arrangements. As a result, Messrs. Van Stekelenburg and Harter and, if the
Merger is consummated before September 2, 1998, Mr. McAnally will receive
specified payments and other benefits upon consummation of the Merger. If their
employment is terminated under certain circumstances, Messrs. Feather and Martin
also could receive specified payments and other benefits upon or after
consummation of the Merger. For a description of such specified benefits, see
"Management of
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JP Foodservice after the Merger--Rykoff-Sexton Executive Compensation."
Mr. Van Stekelenburg will receive $2,616,250 and 62,168 Rykoff-Sexton
Common Shares and Mr. Harter will receive $964,992 and 22,079 Rykoff-Sexton
Common Shares at or prior to the Effective Time in payment of amounts owing
under the foregoing agreements and arrangements. If the Merger is consummated by
September 2, 1998, Mr. McAnally will receive $919,425 and 21,041 Rykoff-Sexton
Common Shares at or prior to the Effective Time in payment of amounts owing
under such agreements and arrangements. If the employment of Messrs. Feather or
Martin is terminated under circumstances giving rise to benefits under such
agreements and arrangements, it is anticipated, based on current compensation
levels, that Mr. Feather would receive $1,300,650 and 29,012 Rykoff-Sexton
Common Shares and Mr. Martin would receive $968,760 and 22,166 Rykoff-Sexton
Common Shares. Messrs. Martin and Feather are expected to become executive
officers of JP Foodservice as of the Effective Time (see "Management of JP
Foodservice After the Merger--Executive Officers") and such individuals will not
receive benefits under the foregoing agreements and arrangements unless their
employment is terminated under circumstances described under the caption
"Management of JP Foodservice After the Merger--Rykoff-Sexton Executive
Compensation." Any Rykoff-Sexton Common Shares to be received by such executive
officers in payment of amounts owing under such agreements and arrangements will
be converted into the right to receive, or will be paid directly as, JP
Foodservice Common Shares at the Exchange Ratio. In addition, the Merger
Agreement provides that JP Foodservice will enter into the JP/Van Stekelenburg
Employment Agreement with Mr. Van Stekelenburg, who will, as of the Effective
Time, become the Vice Chairman and President of JP Foodservice. See "Management
of JP Foodservice after the Merger--Rykoff-Sexton Executive Compensation."
Merrill Lynch Advisory Services. Rykoff-Sexton retained Merrill Lynch to
act as one of Rykoff-Sexton's financial advisors in connection with the proposed
business combination with JP Foodservice. Merrill Lynch is an affiliate of the
ML Investors, who beneficially owned approximately 36% of the Rykoff-Sexton
Common Shares outstanding as of the Rykoff-Sexton Record Date. See "--Opinions
of Financial Advisors to Rykoff-Sexton" for a discussion of amounts payable to
Merrill Lynch for such financial advisory services.
Board Designations; Directors. JP Foodservice has agreed in the Merger
Agreement that, prior to the Effective Time, it will increase the size of the JP
Foodservice Board of Directors from nine to 17 directors. In addition, the
Merger Agreement provides that the JP Foodservice Board of Directors,
immediately following the Effective Time, will consist of (i) nine individuals,
including each of
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the incumbent members of the JP Foodservice Board of Directors (or their
replacements), (ii) seven individuals, two of whom will be individuals
designated by MLCP, one of whom will be Mr. Van Stekelenburg and four of whom
(Messrs. Maslon, Sweet, Sell and Miscoll), will be current incumbents of the
Rykoff-Sexton Board of Directors who are not employees of Rykoff-Sexton or its
subsidiaries or affiliated with MLCP and (iii) one additional person to be
designated by the Chairman of JP Foodservice following the Merger. Mr. Van
Stekelenburg will be appointed to the class of directors of the JP Foodservice
Board of Directors whose term expires in 1998. The two directors who will be
designated by MLCP will be appointed, one each, to the class of directors whose
terms expire in 1999 and 2000, respectively. Of the four directors to be
selected by Rykoff-Sexton pursuant to clause (ii) above, Mr. Maslon will be
appointed to the class of directors whose term expires in 1998 and Mr. Sweet
will be appointed to the class of directors whose term expires in 1999.
The Merger Agreement also provides that, as of the Effective Time, the JP
Foodservice Board of Directors will initially have an audit committee, a
compensation committee and a nominating committee. Each committee will consist
of four directors, two of whom will be designated by JP Foodservice, one of whom
will be designated by Rykoff-Sexton and one of whom will be designated by mutual
agreement of JP Foodservice and Rykoff-Sexton. The initial chairman of each of
the audit committee, the compensation committee and the nominating committee
will be the JP Foodservice director who is currently the incumbent chairman of
such committee until such chairman's replacement is duly designated by the JP
Foodservice Board of Directors. If any of such committee chairs becomes vacant
for any reason prior to the Effective Time, the chairman will be the person
thereafter designated by the JP Foodservice Board of Directors pursuant to the
Certificate of Incorporation and By-Laws of JP Foodservice. One member of the
nominating committee of the JP Foodservice Board of Directors (and of an
executive committee thereof, if such a committee is established) will be
designated by MLCP as Rykoff-Sexton's designee thereon. See "Management of JP
Foodservice After the Merger--Directors."
Combined Company Management. See "Management of JP Foodservice After the
Merger" for information concerning the expected composition of the senior
management of JP Foodservice after the Effective Time.
Registration Rights Agreement. In connection with the US Foodservice
Acquisition, Rykoff-Sexton executed the Registration Rights Agreement, pursuant
to which the ML Investors have certain "demand" and "piggyback" rights, and the
Equitable Entities named therein and Frank H. Bevevino have certain "piggyback"
rights, requiring Rykoff-Sexton to register under the Securities Act the
transfer of all or a portion of the Registrable Securities. Such "demand" and
"piggyback" rights will remain in effect until the resale of such Registrable
Securities is no longer subject to restrictions under the Securities Act.
Pursuant to the
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Support Agreement, JP Foodservice has agreed, as of the Effective Time, to
assume Rykoff-Sexton's rights and obligations under the Registration Rights
Agreement and will be required, subject to certain limitations and
qualifications, to register under the Securities Act the transfer of all or a
portion of the 9,693,618 JP Foodservice Common Shares that will be issued in the
Merger pursuant to the Exchange Ratio in exchange for Registrable Securities to
holders thereof who have rights under the Registration Rights Agreement. See
"Other Agreements--Registration Rights Agreement."
Stock Options and Other Rights. As of August 31, 1997, 2,313,463 Options
were outstanding under the Rykoff-Sexton Stock Plans, of which 1,515,968 Options
were fully vested and exercisable as of that date. Of the remaining Options,
397,388 will automatically become fully vested upon stockholder approval of the
Rykoff-Sexton Proposal. The 5,000 unvested Options that are currently
outstanding under the Rykoff-Sexton 1993 Director Stock Option Plan became fully
vested and exercisable on September 5, 1997, and the unvested Options currently
outstanding under the Amended and Restated US Foodservice 1993 Stock Option Plan
will become fully vested and exercisable on January 1, 1998, in accordance with
their terms. In addition, effective August 5, 1997, Rykoff-Sexton granted
350,500 additional Options, which will not vest automatically in connection with
the Merger, but will become fully vested and exercisable in accordance with
their terms. As of August 31, 1997, directors and executive officers of Rykoff-
Sexton held 936,728 Options that are expected to be Assumed Options and that may
be converted into the right to receive 786,851 JP Foodservice Common Shares at
the Exchange Ratio.
As of August 31, 1997, 101,520 Restricted Shares were issued and
outstanding under the Rykoff-Sexton Stock Plans and subject to a risk of
forfeiture and restrictions on transfer and 405,000 Rykoff-Sexton Common Shares
were subject to outstanding Performance Share Awards granted under the Rykoff-
Sexton Stock Plans. As of August 31, 1997, directors and executive officers of
Rykoff-Sexton held 451,758 Restricted Shares and Performance Share Awards.
Subsequent to August 31, 1997, the number of outstanding Performance Share
Awards was reduced to 349,000. Upon stockholder approval of the Rykoff-Sexton
Proposal, all Restricted Shares then outstanding will automatically become
nonforfeitable and freely transferable (subject to any transfer restrictions
under applicable securities laws and described in "The Merger--Restrictions on
Resale of JP Foodservice Common Shares by Affiliates"), and all Rykoff-Sexton
Common Shares subject to Performance Share Awards then outstanding will become
issuable. Such Restricted Shares and all of such Rykoff-Sexton Common Shares
subject to Performance Share Awards will thereafter be converted, at the
Effective Time, into the right to receive 378,436 JP Foodservice Common Shares
at the Exchange Ratio.
Indemnification; Insurance. Pursuant to the Merger Agreement, JP
Foodservice has agreed to maintain in effect in accordance with their terms all
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rights to indemnification and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time existing as of the date of the
Merger Agreement in favor of the current or former directors or officers of
Rykoff-Sexton and its subsidiaries (and any of their respective predecessors,
including, without limitation, US Foodservice) as provided in their respective
certificates of incorporation or by-laws (or comparable organizational
documents) and any indemnification agreements of Rykoff-Sexton or in Section
7.13 of the merger agreement governing the US Foodservice Acquisition. Rykoff-
Sexton's Certificate of Incorporation provides for indemnification by Rykoff-
Sexton, to the fullest extent permitted by the DGCL, of its officers, directors,
employees and agents. Rykoff-Sexton also has entered into separate
indemnification agreements with each of its executive officers and each of its
directors (other than the Merrill Lynch designees) pursuant to which Rykoff-
Sexton has agreed to indemnify such individuals to the fullest extent permitted
by law. In addition, the Merger Agreement provides that, from and after the
Effective Time, directors and officers of Rykoff-Sexton who become directors or
officers of JP Foodservice will be entitled to the same indemnity rights and
protections, and directors' and officers' liability insurance, as are afforded
from time to time to other directors and officers of JP Foodservice. The JP
Foodservice By-Laws provide for indemnification by JP Foodservice, to the
fullest extent permitted by the DGCL, of its officers, directors, employees and
agents.
Certain Federal Income Tax Consequences
The following is a summary of the material federal income tax consequences
of the Merger, without regard to the particular facts and circumstances of each
stockholder of Rykoff-Sexton, and assumes that the Merger is completed as
contemplated herein. The summary assumes that the Rykoff-Sexton Common Shares
converted in the Merger are held as capital assets. It does not discuss all of
the consequences that may be relevant to stockholders of Rykoff-Sexton subject
to special treatment under the Code (such as insurance companies, financial
institutions, dealers in securities, exempt organizations or foreign persons) or
to stockholders of Rykoff-Sexton who acquired their Rykoff-Sexton Common Shares
pursuant to the exercise of employee stock options or otherwise as compensation.
The summary does not purport to be a complete analysis of all potential tax
effects of the transactions contemplated by the Merger Agreement or of the
Merger itself. No information is provided herein with respect to the tax
consequences, if any, of the Merger under state, local, foreign or other tax
laws.
JP Foodservice and Rykoff-Sexton expect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code and that for
federal income tax purposes no gain or loss will be recognized by stockholders
of Rykoff-Sexton upon the receipt of JP Foodservice Common Shares in exchange
for Rykoff-Sexton Common Shares pursuant to the Merger (except with respect to
the
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receipt of cash by a holder of Rykoff-Sexton Common Shares in lieu of a
fractional share interest in JP Foodservice Common Shares). The Internal Revenue
Service (the "Service") has not been and will not be asked to rule on the tax
consequences of the Merger. Instead, JP Foodservice will rely on the opinion of
Wachtell, Lipton, Rosen & Katz, counsel to JP Foodservice, and Rykoff-Sexton
will rely on the opinion of Jones, Day, Reavis & Pogue, counsel to Rykoff-
Sexton, as to certain federal income tax consequences of the Merger. Such
opinions will be based upon facts and assumptions described therein and certain
representations that are expected to be made as of the Closing Date by JP
Foodservice and Rykoff-Sexton and certain stockholders of Rykoff-Sexton. Such
customary representations include representations relating to the absence of
plans to engage in certain transactions with respect to Merger Sub and the
assets of Rykoff-Sexton, the continued operation of Rykoff-Sexton's historic
business after the Merger, payment of Merger expenses, limitation on cash paid
for fractional shares in connection with the Merger, and the nature of
compensation paid to employee-stockholders of Rykoff-Sexton after the Merger.
The opinions of Wachtell, Lipton, Rosen & Katz and Jones, Day, Reavis & Pogue
will be dated as of the Closing Date and will be based on current laws and
interpretations thereof, including the Code, the regulations promulgated
thereunder, administrative rulings and practice and judicial authority, all of
which are subject to change, possibly with retroactive effect. An opinion of
counsel is not binding on the Service and there can be no assurance, and none is
hereby given, that the Service will not take a position contrary to one or more
positions reflected in such opinions or that such opinions will be upheld by the
courts if challenged by the Service. Each holder of Rykoff-Sexton Common Shares
is urged to consult such stockholder's own tax and financial advisors as to the
federal income tax consequences of the Merger under such stockholder's own
particular facts and circumstances and also as to any state, local, foreign or
other tax consequences arising out of the Merger.
The obligation of each of JP Foodservice and Rykoff-Sexton to consummate
the Merger is conditioned on, among the other material conditions described in
"The Merger Agreement--Conditions; Waivers," the receipt (or waiver thereof) by
JP Foodservice of the opinion of Wachtell, Lipton, Rosen & Katz described above
and the receipt (or waiver thereof) by Rykoff-Sexton of the opinion of Jones,
Day, Reavis & Pogue described above substantially to the following effect:
(a) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code;
(b) JP Foodservice and Rykoff-Sexton will each be party to such
reorganization within the meaning of Section 368(b) of the Code;
(c) no gain or loss will be recognized by JP Foodservice or Rykoff-
Sexton as a result of the Merger;
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(d) no gain or loss will be recognized by the stockholders of
Rykoff-Sexton upon the exchange of their Rykoff-Sexton Common Shares solely
for JP Foodservice Common Shares pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional JP Foodservice
Common Shares;
(e) the aggregate tax basis of the JP Foodservice Common Shares
received by Rykoff-Sexton stockholders solely in exchange for Rykoff-Sexton
Common Shares pursuant to the Merger (including fractional JP Foodservice
Common Shares for which cash is received) will be the same as the aggregate
tax basis of the Rykoff-Sexton Common Shares surrendered in exchange
therefor; and
(f) the holding period for JP Foodservice Common Shares received in
exchange for Rykoff-Sexton Common Shares pursuant to the Merger will
include the holding period of the Rykoff-Sexton Common Shares exchanged
therefor, provided such Rykoff-Sexton Common Shares were held as capital
assets by the stockholder at the Effective Time.
The receipt by a holder of Rykoff-Sexton Common Shares of cash in lieu of a
fractional share interest in JP Foodservice Common Shares will be treated as
though the fractional share interest in JP Foodservice Common Shares was
received as a part of the reorganization exchange and then redeemed by JP
Foodservice, and, assuming that the redemption of the fractional share interest
in JP Foodservice Common Shares is characterized as a sale or exchange of such
stock and not as a dividend, a Rykoff-Sexton stockholder will recognize gain or
loss at the Effective Time in an amount equal to the difference between the
amount of cash received and the basis of the fractional share interest in JP
Foodservice Common Shares deemed to be surrendered (determined as described in
(e) above), which gain or loss will be capital gain or loss if the JP
Foodservice Common Shares constituted a capital asset in the hands of the
Rykoff-Sexton stockholder at the Effective Time. Any such capital gain or loss
will be long-term capital gain or loss if such stockholder's holding period for
the fractional share interest in JP Foodservice Common Shares (determined as
described in (f) above) is more than one year.
JP Foodservice has received from Wachtell, Lipton, Rosen & Katz, and
Rykoff-Sexton has received from Jones, Day, Reavis & Pogue, such firm's opinion,
dated the date of this Joint Proxy Statement/Prospectus, that, based upon and
subject to certain facts, representations and assumptions set forth therein, the
foregoing discussion, except as otherwise indicated, represents such firm's
opinion as to the material federal income tax consequences of the Merger under
applicable law in effect as of such date.
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Restrictions on Resale of JP Foodservice Common Shares by Affiliates
The issuance of JP Foodservice Common Shares to Rykoff-Sexton stockholders
in connection with the Merger has been registered under the Securities Act. Such
shares may be traded freely and without restriction by those Rykoff-Sexton
stockholders who are not deemed to be "affiliates" of Rykoff-Sexton within the
meaning of the Securities Act. An affiliate of Rykoff-Sexton, as defined by the
rules promulgated pursuant to the Securities Act, is a person who directly, or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with, Rykoff-Sexton. Any subsequent transfer of JP
Foodservice Common Shares issued in the Merger by any person who is an affiliate
of Rykoff-Section at the time adoption of the Merger Agreement is submitted for
stockholder approval at the Rykoff-Sexton Special Meeting will, under existing
law, require either (i) the registration of such transfer under the Securities
Act, (ii) compliance with Rule 145 promulgated under the Securities Act (which
permits limited sales under certain circumstances) or (iii) the availability of
another exemption from registration. The foregoing restrictions are expected to
apply to, among other persons, directors and executive officers of Rykoff-Sexton
and the holders of 10% or more of the Rykoff-Sexton Common Shares converted in
the Merger, including the ML Investors.
SEC guidelines regarding qualifying for the pooling of interests method of
accounting also limit sales of shares of the acquiring and acquired company by
affiliates of either company in a business combination. SEC guidelines indicate
further that the pooling of interests method of accounting generally will not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if such affiliates do not dispose of any of the shares of the
corporation they own or shares of a corporation they receive in connection with
a business combination during the period beginning 30 days before the
consummation of the business combination and ending when financial results
covering at least 30 days of post-merger operations of the combined entity have
been published.
Each of JP Foodservice and Rykoff-Sexton has agreed in the Merger Agreement
to use its best efforts to cause each person who is an affiliate of such party
(for purposes of qualifying the Merger for pooling of interests accounting
treatment and, in the case of Rykoff-Sexton, for purposes of Rule 145) to
deliver to the other party prior to the Effective Time a written agreement
intended to preserve the ability to treat the Merger as a pooling of interests
and to ensure compliance with the Securities Act.
JP Foodservice has agreed in the Merger Agreement to use its best efforts
to publish, not later than 45 days after the end of the first month after the
Effective Time in which there are at least 30 days of post-Merger combined
operations, combined sales and net income figures as contemplated by and in
accordance with the terms of the SEC Accounting Series Release No. 135.
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From and after the Effective Time, the ML Investors will have the right
under the Registration Rights Agreement to require JP Foodservice, for a
specified period and subject to certain limitations and qualifications, to
register under the Securities Act the transfer of all or a portion of the JP
Foodservice Common Shares acquired by them in the Merger in exchange for
Registrable Securities, thus permitting the sale of such Rykoff-Sexton Common
Shares to the general public in the circumstances and subject to the conditions
and restrictions set forth therein. The ML Investors and other parties to the
Registration Rights Agreement will also have "piggyback" registration rights
with respect to JP Foodservice Common Shares issued to them in the Merger in
exchange for Registrable Securities. See "Risk Factors--Shares Eligible for
Future Sale" and "Other Agreements--Registration Rights Agreement."
Amendments to Rights Plans
JP Foodservice Rights Plan. JP Foodservice has amended the terms of the JP
Foodservice Rights Agreement (as defined under "Description of JP Foodservice
Capital Stock--Common Shares, Rights and Series A Preferred Stock") to provide
that the execution, delivery and performance of the Merger Agreement, the Stock
Option Agreements and the Support Agreement will not (i) cause any "Rights" (as
defined in the JP Foodservice Rights Agreement) to become exercisable or (ii)
cause Rykoff-Sexton or the ML Investors or any of its or their affiliates or
associates to become an "Acquiring Person" (as defined in the JP Foodservice
Rights Agreement). For a more complete description of the JP Foodservice Rights
Agreement, see "Description of JP Foodservice Capital Stock--Common Shares,
Rights and Series A Preferred Stock."
Rykoff-Sexton Rights Plan. Rykoff-Sexton has amended the terms of the
Rykoff-Sexton Rights Agreement (as defined under "Description of Rykoff-Sexton
Capital Stock--Common Shares, Rights and Series A Preferred Stock") to provide
that the execution, delivery and performance of the Merger Agreement, the Stock
Option Agreements and the Support Agreement will not (i) cause any "Rights" (as
defined in the Rykoff-Sexton Rights Agreement) to become exercisable, (ii) cause
JP Foodservice or any of its affiliates or associates to become an "Acquiring
Person" (as defined in the Rykoff-Sexton Rights Agreement) or (iii) give rise to
a "Distribution Date" or "Triggering Event" (as each such term is defined in the
Rykoff-Sexton Rights Agreement). For a more complete description of the
Rykoff-Sexton Rights Agreement, see "Description of Rykoff-Sexton Capital
Stock--Common Shares, Rights and Series A Preferred Stock."
Clearance Under Federal Antitrust Laws
The Merger is subject to the requirements of the HSR Act, which provides
that certain acquisition transactions (including the Merger) may not be
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consummated until certain information has been furnished to the Antitrust
Division and the FTC and certain waiting period requirements have been
satisfied. JP Foodservice and Rykoff-Sexton filed the required information and
material with respect to the Merger with the Antitrust Division and the FTC on
July 3, 1997. The required waiting period under the HSR Act with respect to such
filings expired on August 2, 1997. Merrill Lynch & Co., Inc., Merrill Lynch
Capital Appreciation Partnership No. B-XVIII, L.P. and Merrill Lynch Capital
Appreciation Partnership No. XIII, L.P. and JP Foodservice filed the required
information with the Antitrust Division and the FTC on September 8, 1997. The
required waiting period under the HSR Act with respect to such filing will
expire on October 8, 1997, unless extended by a request for additional
information or documentary material or unless early termination of the waiting
period is granted. ML Offshore LBO Partnership No. B-XVIII filed the required
information with the Antitrust Division and the FTC on September 10, 1997. The
required waiting period under the HSR Act with respect to such filing will
expire on October 10, 1997, unless extended or terminated early. Satisfaction or
termination of the waiting period requirement with respect to any such filing
does not preclude the Antitrust Division, the FTC or any other party either
before or after the Effective Time from challenging or seeking to delay or
enjoin the Merger on antitrust or other grounds. There can be no assurance that
such a challenge will not be made or, if made, would not succeed.
Accounting Treatment
It is intended that the Merger will be accounted for by JP Foodservice as a
pooling of interests in accordance with generally accepted accounting
principles. It is a condition to the consummation of the Merger that (i)
Rykoff-Sexton and JP Foodservice receive a letter, dated as of the Closing Date,
from Rykoff-Sexton's independent accountants stating that Rykoff-Sexton will
meet the criteria for pooling of interests accounting under APB Opinion No. 16
and applicable SEC rules and regulations and (ii) JP Foodservice and
Rykoff-Sexton receive a letter, dated as of the Closing Date, from JP
Foodservice's independent accountants stating that the Merger will qualify for
accounting as a pooling of interests under APB Opinion No. 16 and applicable SEC
rules and regulations. See "The Merger Agreement--Conditions; Waivers--
Conditions to Each Party's Obligations to Effect the Merger."
Listing of JP Foodservice Common Shares on the NYSE
It is a condition to each party's obligation to consummate the Merger that
the JP Foodservice Common Shares to be issued pursuant to the Merger (including
shares issuable upon exercise of the Assumed Options and Assumed Warrants) be
approved for listing on the NYSE, subject only to official notice of issuance.
JP Foodservice has agreed to use its best efforts to cause such shares to be so
approved for listing, subject only to official notice of issuance, prior to the
Effective Time.
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Absence of Dissenters' Rights
Both JP Foodservice and Rykoff-Sexton are incorporated under the laws of
the State of Delaware, and, accordingly, are governed by the provisions of the
DGCL. Pursuant to Section 262(b)(1) of the DGCL, the stockholders of
Rykoff-Sexton are not entitled to appraisal rights in connection with the Merger
because Rykoff-Sexton Common Shares are listed on the NYSE and such stockholders
will receive as consideration in the Merger only shares of JP Foodservice Common
Shares, which shares will be listed on the NYSE upon the closing of the Merger,
and cash in lieu of fractional shares. In addition, JP Foodservice stockholders
are not entitled to appraisal rights under Section 262 of the DGCL because, even
though approval of such stockholders is required for the issuance of JP
Foodservice Common Shares in the Merger pursuant to the requirements of the
NYSE, JP Foodservice is not a constituent corporation in the Merger.
Exchange of Certificates
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail a letter of transmittal and instructions to each holder of
record (other than JP Foodservice, Merger Sub or any other subsidiary of JP
Foodservice) of certificates that immediately prior to the Effective Time
represented outstanding Rykoff-Sexton Common Shares (the "Certificates"). Such
letter of transmittal and instructions are to be used in forwarding the
Certificates for surrender and exchange for the Merger Consideration. After the
Effective Time there will be no further registrations of transfers on the stock
transfer books of the Surviving Corporation of the Rykoff-Sexton Common Shares
which were outstanding immediately prior to the Effective Time. RYKOFF-SEXTON
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE
UNTIL SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. At and after the
Effective Time and until surrendered as provided above, Certificates will
represent solely the right to receive the Merger Consideration and the holders
of Certificates will not be entitled to receive dividends or any other
distributions from JP Foodservice after the Effective Time in respect of such JP
Foodservice Common Shares until such Certificates are so surrendered. Upon
surrender of a Certificate, there will be paid to the person in whose name such
JP Foodservice Common Shares are issued any dividends or other distributions
with a record date after the Effective Time and which became payable prior to
such surrender with respect to such JP Foodservice Common Shares. After such
surrender, there will be paid to the person in whose name the JP Foodservice
Common Shares are issued any dividends or other distributions on such shares
that have a record date after the Effective Time and a payment date after such
surrender, and such payment will be made on such payment date. In no event shall
the persons entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions. Upon
consummation of
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the Merger, the Rykoff-Sexton Common Shares will cease to be traded on the NYSE,
and there will be no further market for Rykoff-Sexton Common Shares.
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THE MERGER AGREEMENT
This section of the Joint Proxy Statement/Prospectus describes all material
terms of the Merger Agreement. The following description, however, does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, which is attached hereto as Appendix A and is incorporated
herein by reference. Capitalized terms used herein and not otherwise defined
have the meanings given to such terms in the Merger Agreement.
General
Subject to the terms and conditions of the Merger Agreement, Rykoff-Sexton
will be merged with and into Merger Sub at the Effective Time. The separate
corporate existence of Rykoff-Sexton will then cease, and Merger Sub will be the
Surviving Corporation and will continue to be governed by the laws of the State
of Delaware.
Certificate of Incorporation and By-laws of Surviving Corporation. The
Merger Agreement provides that the certificate of incorporation of Merger Sub as
in effect immediately prior to the Effective Time will become the certificate of
incorporation of the Surviving Corporation, except that Article First of such
certificate of incorporation will be amended to change the name of Merger Sub to
"Rykoff-Sexton, Inc." The by-laws of Merger Sub in effect at the Effective Time
will become the by-laws of the Surviving Corporation.
Directors and Officers of Surviving Corporation. The directors and officers
of Merger Sub at the Effective Time will become the directors and officers of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal.
Directors and Executive Officers of JP Foodservice. See "Management of JP
Foodservice After the Merger" for a description of terms of the Merger Agreement
providing for (i) the JP Foodservice Board of Directors after the Effective Time
to consist of nine directors of JP Foodservice, five persons who are currently
directors of Rykoff-Sexton, two persons to be designated by MLCP, and one
additional person to be selected by the Chief Executive Officer of JP
Foodservice, and (ii) the division of senior management positions of JP
Foodservice after the Effective Time among the existing senior management of JP
Foodservice and Rykoff-Sexton.
Conversion of Rykoff-Sexton Common Shares. At the Effective Time, each
issued and outstanding Rykoff-Sexton Common Share (other than such shares, if
any, owned by JP Foodservice, Merger Sub or Rykoff-Sexton, which will be
canceled) will be converted into the right to receive 0.84 of a JP Foodservice
Common Share. If, prior to the Effective Time, the outstanding Rykoff-Sexton
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Common Shares or JP Foodservice Common Shares are changed into a different
number of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or any dividend payable in stock or other
securities is declared thereon with a record date within such period, the
Exchange Ratio will be adjusted accordingly to provide the holders of
Rykoff-Sexton Common Shares with the same economic effect as contemplated by the
Merger Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange or dividend.
Fractional Shares. No fractional JP Foodservice Common Shares will be
issued in the Merger. In lieu of any such fractional shares, each holder of
Rykoff-Sexton Common Shares pursuant to the Merger will be paid an amount in
cash (without interest) determined by multiplying (a) the fractional interest to
which such holder otherwise would be entitled by (b) the average of the closing
prices of JP Foodservice Common Shares as reported on the NYSE Composite
Reporting Tape (as reported in The Wall Street Journal, or, if not reported
therein, any other authoritative source) during the ten trading days preceding
the fifth trading day prior to the Closing Date. As soon as practicable after
the determination of the amount of cash, if any, to be paid to former
stockholders of Rykoff-Sexton in lieu of any fractional interests, JP
Foodservice will deposit with the Exchange Agent the cash necessary for such
purpose.
Assumption of Options and Warrants. At the Effective Time (i) each Option
will be converted into an option (an "Assumed Option") to acquire, on the same
terms and conditions that were applicable under such Option, a number of JP
Foodservice Common Shares equal to the product, rounded to the nearest whole
share, of the number of Rykoff-Sexton Common Shares subject to such Option
immediately prior to the Effective Time and the Exchange Ratio, at a price per
share equal to the aggregate exercise price per Rykoff-Sexton Common Share
subject to such Option divided by the Exchange Ratio and rounded to the nearest
whole cent; and (ii) each Warrant will be assumed by JP Foodservice and will
constitute a warrant (an "Assumed Warrant") to acquire, on the same terms and
conditions that were applicable under such Warrant, a number of JP Foodservice
Common Shares equal to the number of JP Foodservice Common Shares that a holder
of such Warrant would have received in the Merger if such holder had exercised
such Warrant for Rykoff-Sexton Common Shares immediately prior to the Effective
Time, at a price per share equal to the aggregate exercise price for the
Rykoff-Sexton Common Shares subject to such Warrant divided by the number of JP
Foodservice Common Shares that a holder of such Assumed Warrant would have
received in the Merger if such holder had exercised such Warrant for
Rykoff-Sexton Common Shares immediately prior to the Effective Time. As soon as
practicable following the Effective Time, and upon surrender of the outstanding
Options and Warrants, JP Foodservice will deliver to holders of Assumed Options
and Assumed Warrants appropriate option and warrant agreements representing the
right to acquire JP Foodservice Common Shares on the same terms and conditions
as
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contained in the Assumed Options and Assumed Warrants (subject to any
adjustments required by the preceding sentence). JP Foodservice will take all
corporate action necessary to reserve for issuance a sufficient number of JP
Foodservice Common Shares for delivery upon exercise of the Assumed Options and
Assumed Warrants.
JP Foodservice will file one or more registration statements on Form S-8
(or any successor form) or another appropriate form, effective as of, or
reasonably promptly following, the Effective Time, with respect to JP
Foodservice Common Shares subject to Assumed Options and will use commercially
reasonable efforts to maintain the effectiveness of such registration statement
or registration statements (and the prospectus or prospectuses contained
therein) for so long as the Assumed Options remain outstanding.
Effective Time
The Merger will be consummated and become effective at the time of the
filing of a certificate of merger pursuant to the DGCL with the Secretary of
State of the State of Delaware (or at such later date and time as JP Foodservice
and Rykoff-Sexton shall agree and specify in such certificate), which will be as
soon as practicable on the Closing Date.
Representations and Warranties
The Merger Agreement contains various representations and warranties of the
parties thereto. The following summary lists all material representations and
warranties contained in the Merger Agreement.
The Merger Agreement includes representations and warranties by
Rykoff-Sexton as to, among other things, the following: (a) the corporate
organization, standing and power of Rykoff-Sexton and its subsidiaries and the
nature of Rykoff-Sexton's investments in its significant subsidiaries, (b)
Rykoff-Sexton's capitalization, (c) the authorization of the Merger Agreement
and the Option Agreements, (d) the noncontravention by the Merger Agreement or
the Option Agreements of any agreement, law, order or charter or by-law
provision, the absence of the need (except as specified) for governmental or
third-party consents to the Merger, (e) the accuracy of Rykoff-Sexton's
documents required to be filed with the SEC, (f) the absence of any undisclosed
liabilities, (g) the accuracy of information to be supplied by Rykoff-Sexton for
inclusion in this Joint Proxy Statement/Prospectus and in the Registration
Statement, (h) the conduct of Rykoff-Sexton's business in the ordinary course,
and the absence of any material adverse change in the business, financial
condition, results of operations, properties, assets or liabilities of
Rykoff-Sexton and its subsidiaries since April 27, 1996, (i) compliance with
applicable laws, (j) pending or threatened litigation, (k) the terms, existence,
operations, liabilities and compliance with applicable laws of employee
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plans of Rykoff-Sexton and its subsidiaries, certain other matters relating to
the Employee Retirement Income Security Act of 1974, as amended, and certain
labor matters, (l) payment of taxes and certain other tax matters, (m) the
stockholder vote required for the adoption of the Merger Agreement, (n) the
inapplicability of state takeover statutes and certain provisions of Rykoff-
Sexton's Certificate of Incorporation, (o) the absence of any action by Rykoff-
Sexton or its affiliates that would prevent the Merger from being accounted for
as a pooling of interests, (p) brokers and finders employed by Rykoff-Sexton,
(q) the fairness opinions received by Rykoff-Sexton, (r) ownership of JP
Foodservice Common Shares, (s) ownership of and rights to use certain
intellectual property, (t) certain contracts of Rykoff-Sexton, (u) the
nonapplicability of the Rykoff-Sexton Rights Agreement and (v) certain
environmental matters.
The Merger Agreement also includes representations and warranties by JP
Foodservice and Merger Sub as to, among other things, the following: (a) the
corporate organization, standing and power of JP Foodservice and its
subsidiaries and the nature of JP Foodservice's investments in its significant
subsidiaries, (b) JP Foodservice's capitalization, (c) the authorization of the
Merger Agreement, (d) the noncontravention by the Merger Agreement or the Option
Agreements of any agreement, law, order or charter or by-law provision and the
absence of the need (except as specified) for governmental or third-party
consents to the Merger, (e) the accuracy of JP Foodservice's documents required
to be filed with the SEC, (f) the absence of any undisclosed liabilities, (g)
the accuracy of information to be supplied by JP Foodservice for inclusion in
this Joint Proxy Statement/Prospectus and in the Registration Statement, (h) the
conduct of JP Foodservice's business in the ordinary course and the absence of
any material adverse change in the business, financial condition, results of
operations, properties, assets or liabilities of JP Foodservice and its
subsidiaries since June 29, 1996, (i) compliance with applicable laws, (j)
pending or threatened litigation, (k) the terms, existence, operations,
liabilities and compliance with applicable laws of employee plans of JP
Foodservice and its subsidiaries, and certain other matters relating to the
Employee Retirement Income Security Act of 1974, as amended, and certain labor
matters, (l) payment of taxes and certain other tax matters, (m) the stockholder
vote required for the adoption of the Merger Agreement and the Merger and the
issuance of JP Foodservice Common Shares in connection therewith, (n) the
inapplicability of state takeover statutes, (o) the absence of any action by JP
Foodservice or its affiliates that would prevent the Merger from being accounted
for as a pooling of interests, (p) brokers and finders employed by JP
Foodservice, (q) the fairness opinions received by JP Foodservice, (r) ownership
of Rykoff-Sexton Common Shares, (s) ownership of and rights to use certain
intellectual property, (t) certain contracts of JP Foodservice, (u) the
nonapplicability of the JP Foodservice Rights Agreement and (v) certain
environmental matters.
The representations and warranties of each of the parties contain various
customary exceptions for materiality, knowledge and previously disclosed
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information. The representations and warranties of each of the parties are
deemed to be conditions to the Merger to the extent provided for in the Merger
Agreement, but will not survive the Merger.
Business of Rykoff-Sexton Pending the Merger
Rykoff-Sexton has agreed that, among other things, prior to the Effective
Time, except as contemplated by the Merger Agreement, as set forth in
Rykoff-Sexton's Disclosure Statement or as otherwise permitted by the prior
written consent of JP Foodservice, Rykoff-Sexton and its subsidiaries will (i)
each conduct its business in the ordinary course consistent with past practice
and in compliance with all material laws, and (ii) use all reasonable efforts to
preserve intact its current business organizations, use reasonable efforts to
keep available the services of its current officers and other key employees and
preserve its relationships with those persons having business dealings with it
so that their goodwill and ongoing businesses will be unimpaired at the
Effective Time. Rykoff-Sexton has agreed that, unless JP Foodservice agrees in
writing or except as previously disclosed to JP Foodservice or otherwise
permitted pursuant to the Merger Agreement, prior to the Effective Time neither
Rykoff-Sexton nor any of its subsidiaries will:
(a) other than dividends and distributions by a direct or indirect
wholly-owned subsidiary of Rykoff-Sexton to its parent, or by a subsidiary that
is partially owned by Rykoff-Sexton or any of its subsidiaries, provided that
Rykoff-Sexton or any such subsidiary receives or is to receive its proportionate
share thereof, or regular semi-annual dividends not to exceed $.03 per share,
(i) declare, set aside or pay any dividends on, make any other distributions in
respect of, or enter into any agreement with respect to the voting of any of its
capital stock, (ii) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, except for issuance of
Rykoff-Sexton Common Shares upon the exercise of Rykoff-Sexton Employee Stock
Options or the Assumed Warrants, in each case, outstanding as of the date of the
Merger Agreement in accordance with their terms (including cashless exercise) or
issued pursuant to paragraph (b) below or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of Rykoff-Sexton or any of its subsidiaries
or any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities (except, in the case of this clause (iii),
for the deemed acceptance of shares upon cashless exercise of Rykoff-Sexton
Employee Stock Options outstanding on the date of the Merger Agreement, or in
connection with withholding obligations relating thereto);
(b) issue, deliver, sell, pledge or otherwise encumber or subject to any
Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than the
issuance of Rykoff-Sexton Common Shares upon the exercise or conversion of
Rykoff-Sexton Employee Stock
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Options or the Assumed Warrants, in each case, outstanding as of the date of the
Merger Agreement in accordance with their terms or the issuance of Rykoff-Sexton
Employee Stock Options (and Rykoff-Sexton Common Shares upon the exercise
thereof) granted after the date of the Merger Agreement in the ordinary course
of business consistent with past practice for employees (so long as such
additional amount of Rykoff-Sexton Common Shares subject to Rykoff-Sexton
Employee Stock Options issued to such employees does not exceed the lesser of
(i) 400,000 Rykoff-Sexton Common Shares in the aggregate and (ii) the number of
Rykoff-Sexton Common Shares subject to Rykoff-Sexton Employee Stock Options
issued during Rykoff-Sexton's fiscal year ended June 28, 1997, and so long as no
such options will be subject to accelerated vesting in connection with the
Merger);
(c) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any person, or, except for transactions in the ordinary course of
business consistent with past practice pursuant to contracts or agreements in
force at the date of the Merger Agreement or pursuant to Rykoff-Sexton's capital
and operating budgets that were current as of the date of the Merger Agreement,
make any material investment either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other individual, corporation or other entity other than a
subsidiary of Rykoff-Sexton;
(e) sell, lease, license, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of business consistent with
past practice;
(f) take any action that would cause the representations and warranties
set forth in the Merger Agreement and qualified as to materiality to be no
longer true and correct or, if not so qualified, to be no longer true and
correct in all material respects;
(g) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person for borrowed money, other than
pursuant to a revolving credit facility or receivables facility in effect as of
the date of the Merger Agreement, in the ordinary course of business consistent
with past practice;
(h) settle any material claim, action or proceeding involving money
damages, except in the ordinary course of business consistent with past
practice;
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(i) enter into or terminate any material contract or agreement, or make any
change in any of its material leases or contracts, other than amendments or
renewals of contracts and leases without material adverse change of terms; or
(j) authorize, or commit or agree to take, any of the foregoing actions.
Business of JP Foodservice Pending the Merger
JP Foodservice has agreed that, among other things, prior to the Effective
Time, except as contemplated by the Merger Agreement, as set forth in the JP
Foodservice Disclosure Statement or as otherwise permitted by the prior written
consent of Rykoff-Sexton, JP Foodservice and its subsidiaries will (i) each
conduct its business in the ordinary course consistent with past practice, and
(ii) use all reasonable efforts to preserve intact its current business
organizations, use reasonable efforts to keep available the services of its
current officers and other key employees and preserve its relationships with
those persons having business dealings with it so that its goodwill and ongoing
businesses will be unimpaired at the Effective Time. JP Foodservice has agreed
that, unless Rykoff-Sexton agrees in writing or except as previously disclosed
to Rykoff-Sexton or otherwise permitted by the Merger Agreement, prior to the
Effective Time neither JP Foodservice nor any of its subsidiaries will:
(a) other than dividends and distributions by a direct or indirect
wholly-owned subsidiary of JP Foodservice to its parent, or by a subsidiary that
is partially owned by JP Foodservice or any of its subsidiaries, provided that
JP Foodservice or any such subsidiary receives or is to receive its
proportionate share thereof, (i) declare, set aside or pay any dividends on,
make any other distributions in respect of, or enter into any agreement with
respect to the voting of, any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, except for issuances of JP Foodservice Common Shares upon the
exercise of JP Foodservice Employee Stock Options outstanding as of the date of
the Merger Agreement in accordance with their terms (including cashless
exercise) or issued pursuant to paragraph (b) below, or (iii) purchase, redeem
or otherwise acquire any shares of capital stock of JP Foodservice or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities (except, in the case of clause
(iii), for the deemed acceptance of shares upon cashless exercise of JP
Foodservice Employee Stock Options, or in connection with withholding
obligations relating thereto);
(b) issue, deliver, sell, pledge or otherwise encumber or subject to any
Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than the
issuance of JP Foodservice
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Common Shares upon the exercise of JP Foodservice Employee Stock Options
outstanding as of the date of the Merger Agreement in accordance with their
terms or the issuance of JP Foodservice Employee Stock Options (and JP
Foodservice Common Shares upon the exercise thereof) granted after the date of
the Merger Agreement in the ordinary course of business consistent with past
practice for employees (so long as such additional amount of JP Foodservice
Common Shares subject to JP Foodservice Employee Stock Options issued to such
employees does not exceed 300,000 JP Foodservice Common Shares in the
aggregate);
(c) except as contemplated by the Merger Agreement, amend its certificate
of incorporation, by-laws or other comparable organizational documents;
(d) acquire or agree to acquire by merger or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any person or, except for transactions in the ordinary course of
business consistent with past practice pursuant to contracts or agreements in
force at the date of the Merger Agreement or pursuant to JP Foodservice's
capital and operating budgets that were current as of the date of the Merger,
make any material investment either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other individual, corporation or other entity other than a
subsidiary of JP Foodservice;
(e) sell, lease, license, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of business consistent with
past practice;
(f) take any action that would cause the representations and warranties set
forth in the Merger Agreement and qualified as to materiality to be no longer
true and correct or, if not so qualified, to be no longer true and correct in
all material respects;
(g) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person for borrowed money, other than
pursuant to a revolving credit facility or receivables facility in effect as of
the date of the Merger Agreement, in the ordinary course of business consistent
with past practice;
(h) settle any claim, action or proceeding involving money damages, except
in the ordinary course of business consistent with past practice;
(i) enter into or terminate any material contract or agreement, or make any
change in any of its material leases or contracts, other than amendments or
renewals of contracts and leases without material adverse changes of terms; or
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(j) authorize, or commit or agree to take, any of the foregoing actions.
No Solicitation
Under the Merger Agreement, Rykoff-Sexton and JP Foodservice have agreed
that, prior to the Effective Time, they will not directly or indirectly solicit
or encourage (including by way of furnishing information), or authorize any
individual, corporation or other entity to solicit or encourage (including by
way of furnishing information), from any third party any inquiries or proposals
relating to, or conduct negotiations or discussions with any third party with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes, or that may reasonably be expected to lead to,
any proposal or offer relating to the disposition of its business or assets, or
the acquisition of its voting securities, or the merger or consolidation of it
or any of its subsidiaries with or into any corporation or other entity other
than as provided in the Merger Agreement, the Option Agreements or the Support
Agreement (and each party is required to notify promptly the other of all of the
relevant details relating to all inquiries and proposals which it may receive
relating to any such matters).
Certain Other Covenants
Under the Merger Agreement, both JP Foodservice and Rykoff-Sexton have
agreed as follows: (a) to use best efforts to take, or cause to be taken, all
actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by the Merger Agreement; (b) to
afford access to officers, employees, counsel, accountants and other authorized
representatives of the other party, during the period prior to the Effective
Time, to their respective properties, books, contracts, commitments, personnel
and records and, during such period, to furnish promptly to such representatives
(i) all information filed by it pursuant to the requirements of federal and
state securities laws and (ii) all information concerning their respective
businesses, properties and personnel as may reasonably be requested; (c) that
Rykoff-Sexton will use best efforts to cause each person deemed to be an
affiliate of Rykoff-Sexton to deliver to JP Foodservice not less than 30 days
prior to the Effective Time, an affiliate letter with respect to Rule 145 under
the Securities Act, in the form attached to the Merger Agreement; (d) that JP
Foodservice will use its best efforts to cause the JP Foodservice Common Shares
issuable pursuant to the Merger Agreement (including shares issuable upon
exercise of the Assumed Options and Assumed Warrants) to be approved for listing
on the NYSE, subject only to official notice of issuance prior to the Closing
Date; (e) to use their best efforts to cause the Merger to qualify as a
reorganization under the provisions of Rule 368 of the Code; (f) to use their
best efforts to cause the Merger to be accounted for as a pooling of interests
under APB Opinion No. 16 and applicable SEC rules and regulations; (g) to
cooperate in the preparation, execution
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and filing of all returns, questionnaires, applications or other documents
regarding certain transfer, recording, registration and similar taxes and fees
payable in connection with the transactions contemplated by the Merger
Agreement; and (h) not to treat the Merger as a change in the ownership or
effective control of Rykoff-Sexton or a change in the ownership of a substantial
portion of the assets of Rykoff-Sexton, each within the meaning of Section 280G
of the Code. Under the Merger Agreement, Rykoff-Sexton and JP Foodservice have
agreed to take all action necessary in accordance with applicable law to convene
the Rykoff-Sexton Special Meeting and the JP Foodservice Special Meeting as
promptly as practicable after the Registration Statement is declared effective
under the Securities Act. In addition, the Merger Agreement provides that the
Boards of Directors of both JP Foodservice and Rykoff-Sexton will recommend and
declare advisable such approval. Under the Merger Agreement, Rykoff-Sexton and
JP Foodservice have also agreed to cooperate and prepare the Registration
Statement which JP Foodservice has agreed to file with the SEC as soon as
practicable after the date of the Merger Agreement.
Under the Merger Agreement, (a) JP Foodservice has agreed that (i) it will,
and will cause Merger Sub to, honor in accordance with their respective terms,
and assume and agree to perform, in the same manner and to the same extent that
Rykoff-Sexton would be required to do if the Merger had not taken place, the
Rykoff-Sexton Benefit Plans, the Rykoff-Sexton Stock Plans (subject to the
provisions of the Merger Agreement relating to the Assumed Options and the
Assumed Warrants) and all employment, severance and change in control agreements
in effect as of the date of the Merger Agreement and (ii) the consummation of
the Merger constitutes a change of control for the purpose of any such Plan or
agreement that contains a provision relating to a change in control of Rykoff-
Sexton that is disclosed in the Rykoff-Sexton Disclosure Schedule and (b)
JP Foodservice and Rykoff-Sexton have agreed to cooperate on and after the date
of the Merger Agreement to develop appropriate employee benefit plans, programs
and arrangements, including, but not limited to, executive and incentive
compensation, stock option, and supplemental executive retirement plans, for
employees and directors of the Surviving Corporation, provided that nothing in
the foregoing will prevent the Surviving Corporation from amending, modifying or
terminating any Rykoff-Sexton Stock Plans or Rykoff-Sexton Benefit Plans, or
other contracts, arrangements, commitments or understandings, in accordance with
their terms and applicable law, or be deemed to constitute an employment
contract between JP Foodservice or the Surviving Corporation and any individual,
or a waiver of JP Foodservice's or the Surviving Corporation's right to
discharge any employee at any time without cause.
At or prior to the Effective Time, JP Foodservice and Rykoff-Sexton will
terminate Mark Van Stekelenburg's employment with Rykoff-Sexton (which
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termination will be deemed to be involuntary and without "cause") and pay Mark
Van Stekelenburg all amounts owing under his existing employment and change in
control agreements, and other plans and agreements to which he is a party,
subject to the provisions of the JP/Van Stekelenburg Employment Agreement, and
JP Foodservice will execute and deliver the JP/Van Stekelenburg Employment
Agreement. At the Effective Time, Rykoff-Sexton may pay the amounts due under
the change in control agreement of any executive that terminates his employment
for good reason based upon the management and other changes occurring on the
Effective Date. Mr. Van Stekelenburg is the only officer of Rykoff-Sexton who is
a party to an employment or change in control agreement entitling him to
terminate his employment following a change in control at his sole discretion,
for any reason whatsoever, with rights to severance compensation. See "-Interest
of Certain Persons in the Merger" and "Management of JP Foodservice After the
Merger--Executive Compensation."
Under the Merger Agreement, JP Foodservice has agreed to maintain in effect
in accordance with their terms all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the Effective
Time existing as of the date of the Merger Agreement in favor of the current or
former directors or officers of Rykoff-Sexton and its subsidiaries (and any of
their respective predecessors, including, without limitation, US Foodservice,
that was merged within and into USF Acquisition Corporation on May 17, 1996) as
provided in their respective certificates of incorporation or by-laws (or
comparable organizational documents) and any indemnification agreements of
Rykoff-Sexton or in the Agreement and Plan of Merger dated February 2, 1996
among Rykoff-Sexton, USF Acquisition Corporation and US Foodservice. In
addition, JP Foodservice has agreed to cause the directors and officers of
Rykoff-Sexton who become directors or officers of JP Foodservice to be entitled
to the same indemnity rights and protections, and directors' and officers'
liability insurance, as are afforded from time to time to other directors and
officers of JP Foodservice from and after the Effective Time. JP Foodservice has
agreed to use its best efforts to provide to Rykoff-Sexton's current directors
and officers, for six years after the Effective Time, liability insurance
covering acts or omissions occurring prior to the Effective Time with respect to
those persons who are currently covered by Rykoff-Sexton's directors' and
officers' liability insurance policy on terms with respect to such coverage and
amount no less favorable than those of such policy in effect on the date of the
Merger Agreement, provided that in no event will JP Foodservice be required to
expend more than 200% of the current amount expended by Rykoff-Sexton to
maintain such coverage.
Under the Merger Agreement, JP Foodservice and Rykoff-Sexton have agreed
that from the date of the Merger Agreement through the Effective Time, except as
they may subsequently agree in writing, neither will terminate, amend, modify or
waive any provision of any confidentiality or standstill agreement to which it
or its
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subsidiaries is a party and each will enforce, to the fullest extent permitted
under applicable law, the provisions of any such agreement.
Under the terms of the Merger Agreement, following the Effective Time, JP
Foodservice will maintain its headquarters and principal corporate offices in
Columbia, Maryland.
Conditions; Waivers
Conditions to Each Party's Obligations to Effect the Merger. The respective
obligations of JP Foodservice, Rykoff-Sexton and Merger Sub to effect the Merger
are subject to the fulfillment at or prior to the Effective Time of each of the
following conditions (any of which may be waived in whole or in part under the
Merger Agreement by the party benefiting thereby, to the extent permitted by
applicable law): (a) the Rykoff-Sexton stockholders shall have approved the
Rykoff-Sexton Proposal and the JP Foodservice stockholders shall have approved
the JP Foodservice Proposal; (b) the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired; (c) all consents, approvals and actions of, filings with and
notices to any Governmental Entity required to consummate the Merger and the
other transactions contemplated by the Merger Agreement other than the filing of
a certificate of merger in accordance with the DGCL, shall have been obtained
except as would not have a material adverse effect on any of Rykoff-Sexton, JP
Foodservice or the Surviving Corporation; (d) there shall not be any judgment,
order, decree, statute, law, ordinance, rule or regulation entered, enacted,
promulgated, enforced or issued by any court or other Governmental Entity of
competent jurisdiction or other legal restraint or prohibition in effect (i)
preventing the consummation of the Merger or (ii) which otherwise is reasonably
likely to have a material adverse effect on Rykoff-Sexton or JP Foodservice; (e)
the Registration Statement shall have become effective under the Securities Act
and no stop order or proceedings seeking a stop order shall be threatened by the
SEC or shall have been initiated by the SEC; (f) the JP Foodservice Common
Shares issuable to Rykoff-Sexton's stockholders shall have been approved for
listing on the NYSE subject to official notice of issuance; (g) JP Foodservice
shall have received from Wachtell, Lipton, Rosen & Katz, counsel to JP
Foodservice, and Rykoff-Sexton shall have received from Jones, Day, Reavis &
Pogue, counsel to Rykoff-Sexton, an opinion, dated the Closing Date,
substantially to the effect that: (i) the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and JP
Foodservice and Rykoff-Sexton will each be a party to such reorganization within
the meaning of Section 368(b) of the Code, (ii) no gain or loss will be
recognized by JP Foodservice or Rykoff-Sexton as a result of the Merger, (iii)
no gain or loss will be recognized by the stockholders of Rykoff-Sexton upon the
exchange of their Rykoff-Sexton Common Shares solely for JP Foodservice Common
Shares pursuant to the Merger, except with respect to cash, if any, received in
lieu of fractional JP Foodservice Common Shares, (iv) the aggregate tax basis of
the JP Foodservice Common Shares received
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solely in exchange for Rykoff-Sexton Common Shares pursuant to the Merger
(including fractional JP Foodservice Common Shares for which cash is received)
will be the same as the aggregate tax basis of the Rykoff-Sexton Common Shares
exchanged therefor and (v) the holding period for JP Foodservice Common Shares
received in exchange for Rykoff-Sexton Common Shares pursuant to the Merger will
include the holding period of the Rykoff-Sexton Common Shares exchanged
therefor, provided such Rykoff-Sexton Common Shares were held as capital assets
by the stockholder at the Effective Time; and (h) Rykoff-Sexton and JP
Foodservice shall have received a letter, dated as of the Closing Date, from
Rykoff-Sexton's independent accountants stating that Rykoff-Sexton will meet the
criteria for pooling of interests accounting under APB Opinion No. 16 and
applicable SEC rules and regulations and JP Foodservice and Rykoff-Sexton shall
have received a letter, dated as of the Closing Date, from JP Foodservice's
independent accountants stating that the Merger will qualify for accounting as a
pooling of interests under APB Opinion No. 16 and applicable SEC rules and
regulations.
Conditions to the Obligations of JP Foodservice. The obligation of JP
Foodservice to effect the Merger is subject to the fulfillment at or prior to
the Effective Time of each of the following conditions (any and all of which may
be waived in whole or in part under the Merger Agreement by JP Foodservice to
the extent permitted by applicable law): (a) each of the representations and
warranties of Rykoff-Sexton in the Merger Agreement shall be true and correct
both when made and at and as of the Closing Date, as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations or warranties
to be so true and correct (without giving effect to any limitation as to
materiality or material adverse effect set forth therein) does not have, and is
not likely to have, individually or in the aggregate, a material adverse effect
on Rykoff-Sexton; (b) Rykoff-Sexton shall have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date; (c) there shall not have occurred any
material adverse change relating to Rykoff-Sexton; and (d) the Rykoff-Sexton
Rights issued pursuant to the Rykoff-Sexton Rights Agreement shall not have
become nonredeemable, exercisable, distributed or triggered pursuant to the
terms of such agreement.
Conditions to the Obligations of Rykoff-Sexton. The obligation of
Rykoff-Sexton to effect the Merger is subject to the fulfillment at or prior to
the Effective Time of each of the following conditions (any and all of which may
be waived in whole or in part under the Merger Agreement by Rykoff-Sexton to the
extent permitted by applicable law): (a) each of the representations and
warranties of JP Foodservice shall be true and correct both when made and at and
as of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations or warranties to be so true and
correct (without giving effect to any limitation as to materiality or material
adverse effect set forth therein) does not
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have, and is not likely to have, individually or in the aggregate, a material
adverse effect on JP Foodservice; (b) JP Foodservice shall have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date; (c) there shall not have
occurred any material adverse change relating to JP Foodservice; and (d) the JP
Foodservice Rights issued pursuant to the JP Foodservice Rights Agreement shall
not have become nonredeemable, exercisable, distributed or triggered pursuant to
the terms of such agreement.
Amendment; Termination
Amendment. The parties to the Merger Agreement may not amend the Merger
Agreement except by an instrument in writing signed on behalf of all the parties
to the Merger Agreement and duly approved by the parties' respective Boards of
Directors or a duly designated committee thereof. The Merger Agreement may be
amended by the parties thereto, at any time before or after approval of matters
presented in connection with the Merger by the stockholders of JP Foodservice,
Rykoff-Sexton and Merger Sub, but after any such stockholder approval, no
amendment may be made that changes the amount or form of the consideration to be
delivered to holders of Rykoff-Sexton Common Shares or which by law otherwise
requires the further approval of stockholders without obtaining such approval.
The Merger Agreement was amended as of September 3, 1997 to provide for certain
matters relating to the Assumed Options and the business of Rykoff-Sexton
pending the Merger. The description of the Merger Agreement set forth herein
describes the Merger Agreement as amended.
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of matters presented in connection with the Merger by
stockholders of Rykoff-Sexton or stockholders of JP Foodservice, by the mutual
written consent of Rykoff-Sexton and JP Foodservice, if the Board of Directors
of each so determines by a vote of a majority of its entire Board of Directors.
Termination by Either Rykoff-Sexton or JP Foodservice. The Merger Agreement
may also be terminated and the Merger may be abandoned by action of the Board of
Directors of either Rykoff-Sexton or JP Foodservice at any time prior to the
Effective Time, before or after approval of matters presented in connection with
the Merger by stockholders of Rykoff-Sexton or stockholders of JP Foodservice,
if (a) the Merger is not consummated by April 1, 1998 (provided that the right
to terminate the Merger Agreement under such provision will not be available to
any party whose failure to perform any of its obligations under the Merger
Agreement resulted in the failure of the Merger to occur on or before such
date), (b) the approval of Rykoff-Sexton's stockholders required under the
Merger Agreement shall not have been obtained at the Rykoff-Sexton Special
Meeting, (c) the approval
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of JP Foodservice's stockholders required under the Merger Agreement shall not
have been obtained at the JP Foodservice Special Meeting or (d) any court of
competent jurisdiction in the United States or governmental body in the United
States shall have issued a judgment, order, decree, statute, law, ordinance,
rule or regulation or taken any other action preventing the consummation of the
Merger or which otherwise is reasonably likely to have a material adverse affect
(as defined) on Rykoff-Sexton or JP Foodservice and such order, decree, statute,
law, ordinance, rule, regulation or other action shall have become final and
nonappealable (provided that the party seeking to terminate the Merger Agreement
pursuant to such provision shall have used all reasonable efforts to remove such
order, decree, ruling or other action).
Termination by JP Foodservice. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of matters presented in connection with the Merger by holders
of JP Foodservice Common Shares or Rykoff-Sexton Common Shares, by action of the
JP Foodservice Board of Directors, if (a) Rykoff-Sexton shall have breached or
failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in the Merger Agreement,
which breach or failure (x) has, or is likely to have, individually or in the
aggregate, a material adverse effect on Rykoff-Sexton or (y) is incapable of
being cured or is not cured within 45 days of written notice thereof, and JP
Foodservice is not then in material breach of any representation, warranty,
covenant or other agreement contained in the Merger Agreement or (b) at any time
prior to the Rykoff-Sexton Special Meeting, if the Rykoff-Sexton Board of
Directors fails to make its recommendation in favor of approval of the Merger
Agreement and the Merger to the Rykoff-Sexton stockholders prior to the date of
the first mailing of this Joint Proxy Statement/Prospectus to such stockholders,
or, once made, withdraws such recommendation or modifies or changes such
recommendation in a manner adverse to the interests of JP Foodservice.
Termination by Rykoff-Sexton. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of matters presented in connection with the Merger by holders
of JP Foodservice Common Shares and Rykoff-Sexton Common Shares, by action of
the Rykoff-Sexton Board of Directors, if (a) JP Foodservice shall have breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in the Merger Agreement,
which breach or failure (x) has, or is likely to have, individually or in the
aggregate, a material adverse effect on JP Foodservice or (y) is incapable of
being cured or is not cured within 45 days of written notice thereof, and
Rykoff-Sexton is not then in material breach of any representation, warranty,
covenant or other agreement contained in the Merger Agreement or (b) at any time
prior to the JP Foodservice Special Meeting, if the JP Foodservice Board of
Directors fails to make its recommendation in favor of approval of issuance of
JP Foodservice Common Shares in connection
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with the Merger to the JP Foodservice stockholders prior to the date of the
first mailing of this Joint Proxy Statement/Prospectus to such stockholders or,
once made, withdraws such recommendation or modifies or changes such
recommendation in a manner adverse to the interests of Rykoff-Sexton.
Certain Consequences of Termination. In the event of termination of the
Merger Agreement as provided above, no party to the Merger Agreement will have
any liability or further obligation under the Merger Agreement, other than with
respect to the obligations of the parties pursuant to the Termination Fee
provisions and the provisions of the Merger Agreement dealing with
confidentiality, expenses and certain miscellaneous matters, except that nothing
in the Merger Agreement will relieve any party from liability for any willful
breach of any provision of the Merger Agreement.
Termination Fees
JP Foodservice and Rykoff-Sexton each have agreed to pay the other a
Termination Fee of $30 million in substantially identical circumstances that
result in the termination of the Merger Agreement and abandonment of the Merger.
Payment of the Termination Fee by either company will not be subject to approval
by stockholders.
Rykoff-Sexton has agreed to pay JP Foodservice a Termination Fee in the
event that: (i) JP Foodservice terminates the Merger Agreement and abandons the
Merger as a result of a willful breach or failure by Rykoff-Sexton to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement, which breach or failure (x) has or
is likely to have, individually or in the aggregate, a material adverse effect
on Rykoff-Sexton and (y) is incapable of being cured or is not cured within 45
days of written notice; (ii) JP Foodservice terminates the Merger Agreement and
abandons the Merger at any time before the Rykoff-Sexton Special Meeting because
the Rykoff-Sexton Board of Directors shall have (A) failed to make its
recommendation in favor of approval and adoption of the Merger Agreement, the
Merger and the other transactions contemplated by the Merger Agreement no later
than the date of the first mailing of this Joint Proxy Statement/Prospectus to
the Rykoff-Sexton stockholders, (B) withdrawn such recommendation or (C)
modified or changed such recommendation in a manner adverse to the interests of
JP Foodservice; or (iii) JP Foodservice or Rykoff-Sexton terminates the Merger
Agreement and abandons the Merger as a result of the failure of the
Rykoff-Sexton stockholders to approve the Merger Agreement and the Merger if at
the time of such failure any event has occurred that would give JP Foodservice
the right to exercise the Rykoff-Sexton Option, including an acquisition or
proposed acquisition by a third party of 20% or more of the outstanding
Rykoff-Sexton Common Shares or a material portion of the assets of
Rykoff-Sexton.
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JP Foodservice has agreed to pay Rykoff-Sexton a Termination Fee in the
event that: (i) Rykoff-Sexton terminates the Merger Agreement and abandons the
Merger as a result of a willful breach or failure by JP Foodservice to perform
in any material respect any of its representations, warranties, covenants or
other agreements contained in the Merger Agreement, which breach or failure (x)
has or is likely to have, individually or in the aggregate, a material adverse
effect on JP Foodservice and (y) is incapable of being cured or is not cured
within 45 days of written notice; (ii) Rykoff-Sexton terminates the Merger
Agreement and abandons the Merger at any time before the JP Foodservice Special
Meeting because the JP Foodservice Board of Directors shall have (A) failed to
make its recommendation in favor of approval of the JP Foodservice Proposal no
later than the date of the first mailing of this Joint Proxy
Statement/Prospectus to the JP Foodservice stockholders, (B) withdrawn such
recommendation or (C) modified or changed such recommendation in a manner
adverse to the interests of Rykoff-Sexton; or (iii) Rykoff-Sexton or JP
Foodservice terminates the Merger Agreement and abandons the Merger as a result
of the failure of the JP Foodservice stockholders to approve the JP Foodservice
Proposal if at the time of such failure any event has occurred that would give
Rykoff-Sexton the right to exercise the JP Foodservice Option, including an
acquisition or proposed acquisition by a third party of 20% or more of the
outstanding JP Foodservice Common Shares or a material portion of the assets of
JP Foodservice.
If JP Foodservice exercises the Rykoff-Sexton Option or Rykoff-Sexton
exercises the JP Foodservice Option, any Termination Fee payable by JP
Foodservice or Rykoff-Sexton, as applicable, pursuant to the Merger Agreement
will be reduced by the amount of any profit realized by JP Foodservice or
Rykoff-Sexton, as the case may be, upon the sale or other disposition by such
company of any shares acquired by it pursuant to exercise of the applicable
Option. A Termination Fee payment by JP Foodservice or Rykoff-Sexton will reduce
the amount of any cash payment required to be made by such company in
cancellation of the Option granted by it under the circumstances specified in
the applicable Stock Option Agreement. See "Other Agreements--Stock Option
Agreements."
Expenses
Except as provided under "--Termination Fees," each party to the Merger
Agreement will bear its own expenses, except that each of JP Foodservice and
Rykoff-Sexton shall bear and pay one-half of the costs and expenses incurred in
connection with (a) the filing, printing and mailing of the Form S-4
Registration Statement and this Joint Proxy Statement/Prospectus (including SEC
filing fees) and (b) the filing of the pre-merger notification and report forms
under the HSR Act (including filing fees).
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OTHER AGREEMENTS
Support Agreement
JP Foodservice and the ML Investors entered into the Support Agreement
concurrently with the execution of the Merger Agreement on June 30 1997. The
Support Agreement, which was acknowledged by Rykoff-Sexton, will automatically
terminate if the Merger Agreement is terminated in accordance with its terms.
The Support Agreement was entered into by the ML Investors as an inducement to
JP Foodservice to enter into the Merger Agreement.
Agreement to Vote; No Solicitation. Pursuant to the Support Agreement, each
ML Investor has agreed that it will vote or cause to be voted at the
Rykoff-Sexton Special Meeting, or any adjournment or postponement thereof, and
at any other meeting of Rykoff-Sexton stockholders at which the Merger Agreement
and the Merger are submitted for approval, all of the Rykoff-Sexton Common
Shares and other voting securities, if any, of Rykoff-Sexton which it owns or
has the right to vote, for adoption of the Merger Agreement. Each ML Investor
also has agreed that it will not, directly or indirectly, solicit or encourage
(including by way of furnishing information), or authorize any individual,
corporation or other entity to solicit or encourage (including by way of
furnishing information), from any third party any inquiries or proposals
relating to, or conduct negotiations or any discussions with any third party
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or that may reasonably be expected to
lead to, any proposal or offer relating to the disposition of the business or
assets, or the acquisition of the voting securities, of JP Foodservice or
Rykoff-Sexton, or the merger or consolidation of JP Foodservice or Rykoff-Sexton
or any of their respective subsidiaries with or into any corporation or other
entity other than as provided in the Merger Agreement, the Option Agreements or
the Support Agreement (and each ML Investor has agreed to notify promptly JP
Foodservice of all the relevant details relating to all inquiries and proposals
which such ML Investor may receive relating to any such matters).
Pooling Covenants. To preserve the ability of JP Foodservice to account for
the Merger as a pooling of interests for financial reporting purposes, each ML
Investor has agreed not to sell, transfer or otherwise dispose of any securities
of Rykoff-Sexton or any JP Foodservice Common Shares received by such ML
Investor in the Merger or other shares of capital stock of JP Foodservice during
the period beginning 30 days prior to the Effective Time and ending at such time
as results covering at least 30 days of combined operations of Rykoff-Sexton and
JP Foodservice have been published by JP Foodservice in any authorized filing
with the SEC or in any public announcement which includes the combined results
of operations, except for transfers or other dispositions that, taking into
account the actions of other affiliates of Rykoff-Sexton, will not prevent JP
Foodservice from accounting for the Merger as a pooling of interests.
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Tax Representations. To provide assurances in connection with the
qualification of the Merger as a tax-free reorganization for federal income tax
purposes, each ML Investor has agreed that, at or prior to the Effective Time,
it will represent to Rykoff-Sexton and JP Foodservice or their respective
counsel that, as of the Effective Time, (i) it has no plan or intention to sell,
exchange or otherwise dispose of, or to enter into an agreement (a "Sales
Agreement") to sell, exchange or otherwise dispose of, JP Foodservice Common
Shares during the two-year period immediately following the Effective Time and
(ii) it is not subject to or obligated to enter into an agreement to sell,
exchange or otherwise dispose of JP Foodservice Common Shares, if any resulting
sale, exchange or disposition would (when taken in combination with actions by
other ML Investors and assuming all Sales Agreements are consummated) cause the
ML Investors in the aggregate to retain ownership for federal income tax
purposes of less than the lesser of (i) 25% of the JP Foodservice Common Shares
received by the ML Investors in the aggregate in the Merger or (ii) the
Shortfall Percent of the JP Foodservice Common Shares issued in the Merger to
stockholders of Rykoff-Sexton. For purposes of these representations, the phrase
"sell, exchange or otherwise dispose of" includes entry into transactions in
which the ML Investor gives up substantially all of the benefits and burdens of
ownership of JP Foodservice Common Shares or which otherwise constitute a
transfer of ownership of such stock for federal income tax purposes. "Shortfall
Percent" means the greater of zero or that percentage which, when added to the
following percentage, equals 45%: 100% minus the sum of (i) the percent of JP
Foodservice Common Shares issuable in the Merger that are issuable to the ML
Investors and (ii) the percent of JP Foodservice Common Shares issuable in the
Merger to stockholders of Rykoff-Sexton that are issuable to any other persons
that can be identified immediately prior to the Effective Time as holding 5% or
more of the total number of Rykoff-Sexton Common Shares outstanding at such time
(for which purposes shares held by a family of mutual funds will, to the extent
possible, be identified with separate funds within such family and, to the
extent so separately identifiable, treated as separate stockholders).
The foregoing representations will not apply to any transfers of JP
Foodservice Common Shares during the two-year period that are incident to an
extraordinary business transaction involving JP Foodservice (such as a merger,
consolidation, tender or exchange offer, share exchange, restructuring,
recapitalization or other similar transaction), so long as any such transaction
is not arranged as part of an overall plan to which the transferring ML Investor
is a party and pursuant to which the Merger is also being consummated.
Notwithstanding the foregoing, no ML Investor will be required to provide
the representations described herein if, as a result of a change in law
(including, without limitation, a change pursuant to Treasury regulations that
may be applied, by election or otherwise, to the Merger), the facts intended to
be reached by such representation are not a necessary condition for
qualification of the Merger under Section 368 of the Code. Wachtell, Lipton,
Rosen & Katz, counsel to JP
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Foodservice, and Jones, Day, Reavis & Pogue, counsel to Rykoff-Sexton, will each
rely on the tax representations to be made pursuant to the Support Agreement in
rendering their tax opinions at the closing of the Merger to JP Foodservice and
Rykoff-Sexton, respectively, with regard to the treatment of the Merger as a
tax-free reorganization for federal income tax purposes. See "The Merger
Agreement -Conditions; Waivers."
Assumption of Registration Rights Agreement. JP Foodservice has agreed, as
of the Effective Time, to assume the rights and obligations of Rykoff-Sexton
under the Registration Rights Agreement. See "-- Registration Rights Agreement."
Stock Option Agreements
As an inducement and condition to JP Foodservice's willingness to enter
into the Merger Agreement and the JP Foodservice Stock Option Agreement,
Rykoff-Sexton entered into the Rykoff-Sexton Stock Option Agreement on June 30,
1997 with JP Foodservice, pursuant to which Rykoff-Sexton granted to JP
Foodservice the Rykoff-Sexton Option. As an inducement and condition to
Rykoff-Sexton's willingness to enter into the Merger Agreement and the
Rykoff-Sexton Stock Option Agreement, JP Foodservice entered into the JP
Foodservice Stock Option Agreement on June 30, 1997 with Rykoff-Sexton, pursuant
to which JP Foodservice granted to Rykoff-Sexton the JP Foodservice Option.
Except as otherwise noted below, the terms and conditions of the
Rykoff-Sexton Stock Option Agreement and the JP Foodservice Stock Option
Agreement are identical in all material respects. For purposes of the following
summary, as applicable, (i) "Issuer" refers to Rykoff-Sexton with respect to the
Rykoff-Sexton Option and JP Foodservice with respect to the JP Foodservice
Option, (ii) "Grantee" refers to JP Foodservice with respect to the
Rykoff-Sexton Stock Option Agreement and Rykoff-Sexton with respect to the JP
Foodservice Stock Option Agreement, (iii) "Option" refers to the Rykoff-Sexton
Option or the JP Foodservice Option, (iv) "Option Agreement" refers to the
Rykoff-Sexton Stock Option Agreement or the JP Foodservice Stock Option
Agreement and (v) "Issuer Common Stock" refers to JP Foodservice Common Shares
with respect to the JP Foodservice Option and to Rykoff-Sexton Common Shares
with respect to the Rykoff-Sexton Option.
Arrangements such as the Option Agreements are customarily entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be consummated in accordance with their
terms, and to compensate the Grantee for the efforts undertaken and the
expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated under certain circumstances involving
an acquisition or potential acquisition of the Issuer by a third party. The
Option Agreements were entered into to accomplish these objectives. Certain
aspects of the Option Agreements may have the effect of discouraging persons who
might now or at any
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other time prior to the Effective Time be interested in acquiring all of, or a
significant interest in, JP Foodservice or Rykoff-Sexton from considering or
proposing such an acquisition, even if, in the case of Rykoff-Sexton, such
persons were prepared to offer to pay consideration to the Rykoff-Sexton
stockholders which had a higher current market price than the JP Foodservice
Common Shares to be received for each Rykoff-Sexton Common Share pursuant to the
Merger Agreement. The acquisition of JP Foodservice Common Shares or Rykoff-
Sexton Common Shares could cause the JP Foodservice Option or the Rykoff-Sexton
Option, as the case may be, to become exercisable. The existence of the Options
could significantly increase the cost to a potential acquiror of acquiring
either Issuer compared to its cost had the Option Agreements and the Merger
Agreement not been entered into. Such increased cost might discourage a
potential acquiror from considering or proposing an acquisition or might result
in a potential acquiror proposing to pay a lower per share price to acquire such
Issuer than it otherwise might have proposed to pay. Moreover, following
consultation with their respective independent accountants, JP Foodservice and
Rykoff-Sexton believe that the exercise by a Grantee of provisions contained in
the Option Agreements requiring an issuer to pay certain Cancellation Amounts
(as defined herein) is likely to prohibit any other acquiror of an Issuer from
accounting for any acquisition of such Issuer using the pooling of interests
accounting method for a period of two years following such payment.
The Rykoff-Sexton Option permits JP Foodservice to purchase up to 5,564,140
Rykoff-Sexton Common Shares, which represents approximately 19.9% of the number
of Rykoff-Sexton Common Shares outstanding as of the date of the Rykoff-Sexton
Stock Option Agreement. The exercise price of the Rykoff-Sexton Option is
$25.305 per Rykoff-Sexton Common Share (the product of (x) the closing sale
price of the JP Foodservice Common Shares on the trading day preceding public
announcement of the execution of the Merger Agreement and (y) the Exchange
Ratio), subject to adjustment under specified circumstances (such exercise
price, as so adjusted, being referred to herein as the "Rykoff-Sexton Option
Price").
The JP Foodservice Option permits Rykoff-Sexton to purchase up to 4,495,149
JP Foodservice Common Shares, which represents approximately 19.9% of the number
of JP Foodservice Common Shares outstanding as of the date of the JP Foodservice
Stock Option Agreement. The exercise price of the JP Foodservice Option is
$30.125 per JP Foodservice Common Share (the closing sale price of the JP
Foodservice Common Shares on the trading day preceding public announcement of
the execution of the Merger Agreement), subject to adjustment under specified
circumstances (such exercise price, as so adjusted, being referred to herein as
the "JP Foodservice Option Price"). The Rykoff-Sexton Option Price and the JP
Foodservice Option Price are each referred to herein as an "Option Price."
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Each of the Stock Options will become exercisable in whole or in part upon
public disclosure of, or the Grantee's having learned of, the occurrence of any
of a number of specified events or transactions (each, a "Triggering Event")
with respect to the Issuer prior to the expiration of the Stock Option (the
"Expiration Date"). The purchase of any Rykoff-Sexton Common Shares or JP
Foodservice Common Shares pursuant to an Option is subject to compliance with
applicable law, including the HSR Act. Based on the number of JP Foodservice
Common Shares and Rykoff-Sexton Common Shares outstanding on the date of the
grant of the Options, if the Grantee of either Option were to exercise its right
to acquire the full 19.9% of the outstanding shares of Issuer Common Stock
subject to such Grantee's Option, such Grantee would hold approximately 16.6% of
the outstanding shares of Issuer Common Stock immediately after such exercise.
A Triggering Event under the Option means any of the following events or
transactions:
(i) any person or group (1) other than the Grantee or its affiliates
or, in the case of the Rykoff-Sexton Stock Option Agreement only,
the ML Entities, shall have acquired or become the beneficial
owners of more than 20% of the outstanding Issuer Common Stock, or
(2) other than the Grantee or its affiliates shall have been
granted any option or right, conditional or otherwise, to acquire
more than 20% of the outstanding Issuer Common Stock;
(ii) any person other than the Grantee and its affiliates shall have
made, or entered into an agreement to make, a tender offer or
exchange offer for at least 20% of the outstanding Issuer Common
Stock;
(iii) the Issuer shall have entered into a written definitive agreement
or written agreement in principle with any person other than the
Grantee or its affiliates in connection with a liquidation,
dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the assets
of the Issuer and its subsidiaries, taken as a whole, or all or a
material portion of the equity interest in the Issuer and its
subsidiaries, taken as a whole, or other similar transaction or
business combination (each, an "Acquisition Transaction");
(iv) any person other than the Grantee or its affiliates shall have
made a proposal to the Issuer or its stockholders to engage in an
Acquisition Transaction; or
(v) in the case of the Rykoff-Sexton Stock Option Agreement only, the
ML Entities and their affiliates in the aggregate (1) shall have
acquired or become the beneficial owners of a percentage of the
outstanding Rykoff-Sexton Common Shares greater than the sum of
(A) the ML
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Entities' proportionate ownership of such outstanding Rykoff-
Sexton Common Shares on the date of the Rykoff-Sexton Stock Option
Agreement and (B) the Additional Percentage (as defined in the
Standstill Agreement) to the extent acquired pursuant to the
Standstill Agreement, or (2) shall have been granted any option or
right, conditional or otherwise, other than any such option or
right in existence immediately prior to the date of the Rykoff-
Sexton Stock Option Agreement and previously disclosed to JP
Foodservice, to acquire any outstanding Rykoff-Sexton Common
Shares that, together with any other Rykoff-Sexton Common Shares
then beneficially owned by such ML Entities, would exceed the sum
of (A) the ML Entities' proportionate ownership of such
outstanding Rykoff-Sexton Common Shares on the date of the Rykoff-
Sexton Stock Option Agreement and (B) the Additional Percentage to
the extent acquired pursuant to the Standstill Agreement. See
"Other Agreements--Standstill Agreement."
The Options define the term "Expiration Date" to mean the earliest of the
following: (i) the Effective Time; (ii) one year after termination of the Merger
Agreement (x) if, in the case of the Rykoff-Sexton Option, the Rykoff-Sexton
stockholders shall not have approved the Rykoff-Sexton Proposal at the
Rykoff-Sexton Special Meeting or if, in the case of the JP Foodservice Option,
the JP Foodservice stockholders shall not have approved the JP Foodservice
Proposal at the JP Foodservice Special Meeting (in each case, if the
Rykoff-Sexton Option or the JP Foodservice Option, as the case may be, is
exercisable at the time of such event of termination of the Merger Agreement) or
(y) if (A), in the case of the Rykoff-Sexton Option, the Rykoff-Sexton Board of
Directors shall have failed to make its recommendation in favor of approval and
adoption of the Merger, the Merger Agreement and the other transactions
contemplated by the Merger Agreement no later than the date of the first mailing
of this Joint Proxy Statement/Prospectus to the Rykoff-Sexton stockholders or
shall have withdrawn such recommendation or modified or changed such
recommendation in a manner adverse to the interests of JP Foodservice or (B), in
the case of the JP Foodservice Option, the JP Foodservice Board of Directors
shall have failed to make its recommendation in favor of the JP Foodservice
Proposal no later than the date of the first mailing of this Joint Proxy
Statement/Prospectus to the JP Foodservice stockholders or shall have withdrawn
such recommendation or modified or changed such recommendation in a manner
adverse to the interests of Rykoff-Sexton; or (iii) the date of termination of
the Merger Agreement, other than as contemplated by clause (ii) above.
If an Option becomes exercisable, it may be exercised in whole or in part
within 30 business days following the date notice of exercise is given. The
Grantee's right to exercise the Option is subject to an extension until the date
of expiration or termination of any applicable waiting period under the HSR Act.
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The Option Price and the number of shares issuable under the Option are
subject to adjustment in the event of any change in the number of issued and
outstanding shares of Issuer Common Stock by reason of any stock dividend, stock
split, recapitalization, merger, rights offering, share exchange or other change
in the corporate or capital structure of the Issuer. Upon the occurrence of a
Triggering Event that occurs prior to the Expiration Date, the Grantee will have
two "demand" registration rights and "piggyback" registration rights with
respect to the shares of Issuer Common Stock issued or issuable pursuant to the
Option.
Each Option also provides that at any time after the occurrence of a Share
Proposal, a Merger Proposal, an Asset Proposal or a Share Acquisition (each as
defined below), upon request by the Grantee, the Issuer will be obligated to pay
to the Grantee an amount in cash (the "Cancellation Amount") in cancellation of
the Option if the Option is then exercisable and the Grantee chooses to request
cancellation of, rather than to exercise, the Option. The Cancellation Amount
will be equal to (i) the excess over the Option Price of the greater of (A) the
last sale price of a share of Issuer Common Stock as reported on the last
trading day prior to the date of the exercise notice, or (B)(1) the highest
price per share of Issuer Common Stock offered or proposed to be paid or paid by
any person or group pursuant to or in connection with a Share Proposal, a Share
Acquisition or a Merger Proposal or (2) the aggregate consideration offered to
be paid or paid in any transaction or proposed transaction in connection with an
Asset Proposal, divided by the number of shares of Issuer Common Stock then
outstanding, multiplied by (ii) the number of Option Shares then covered by the
Option. The Cancellation Amount will be reduced by the amount of any Termination
Fee actually paid to the Grantee by the Issuer pursuant to the Merger Agreement.
See "The Merger Agreement -- Termination Fees." The Options define (i) a Share
Proposal to mean a bona fide, publicly disclosed proposal with respect to a
tender offer or exchange offer for 50% or more of the outstanding Issuer Common
Stock, (ii) a Merger Proposal to mean a bona fide, publicly disclosed proposal
with respect to a merger, consolidation or other business combination with the
Issuer, (iii) an Asset Proposal to mean a bona fide, publicly disclosed proposal
with respect to any acquisition of a material portion of the assets of the
Issuer and (iv) a Share Acquisition to mean the acquisition of 50% or more of
the outstanding Issuer Common Stock, in each case by a person or group other
than the Grantee or its affiliates.
If the Grantee exercises the Option, and subsequently sells, pledges or
otherwise disposes of the Option Shares (a "Sale"), any Termination Fee due and
payable by the Issuer following such time will be reduced (but not below zero)
to the extent of the amounts received by the Grantee in such Sale less the
exercise price of such Option Shares sold in the Sale (the "Option Share
Profit"). If the Issuer has paid to the Grantee the Termination Fee prior to a
Sale, the Grantee will be required to pay over to the Issuer the Option Share
Profit realized in such Sale, but only to the extent that such Option Share
Profit, in the aggregate with any other Option Share Profit realized in a Sale
subsequent to payment of the Termination
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Fee, is less than or equal to the amount of the Termination Fee. To the best
knowledge of JP Foodservice and Rykoff-Sexton, no event giving rise to the right
to exercise either Option has occurred as of the date of this Joint Proxy
Statement/Prospectus.
Each Stock Option Agreement provides that the Issuer may not assign any of
its rights or obligations thereunder and that the Option may be exercised only
by Grantee or its designee (which must be a wholly-owned subsidiary of the
Grantee).
Standstill Agreement
In connection with the US Foodservice Acquisition, Rykoff-Sexton and the ML
Entities entered into the Standstill Agreement, which imposes certain
standstill, voting and transfer restrictions on the ML Entities, and provides
for representation on the Rykoff-Sexton Board of Directors and certain
committees thereof by individuals selected by the ML Entities. From and after
the Effective Time, the Standstill Agreement will be for the benefit of, and
will be enforceable by, JP Foodservice to the same extent and in the same manner
as the Standstill Agreement benefits and is enforceable by Rykoff-Sexton prior
to the Merger. The following description of the Standstill Agreement summarizes
provisions of the Standstill Agreement as in effect immediately prior to the
Effective Time.
ML Entities. The ML Entities consist of Merrill Lynch Capital Partners,
Inc., ("MLCP") the general partner of certain of the ML Investors, and the
following entities (the "ML Investors"): Merrill Lynch Capital Appreciation
Partnership No. B-XVIII, L.P., Merrill Lynch KECALP L.P. 1994, ML Offshore LBO
Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II,
MLCP Associates L.P. No. IV, Merrill Lynch KECALP L.P. 1991, Merrill Lynch
Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No.
XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch KECALP L.P. 1987
and Merchant Banking L.P. No. II.
Standstill Provisions. During the term of the Standstill Agreement, except
as otherwise expressly provided therein or as approved by the prior affirmative
vote of a majority of the directors of Rykoff-Sexton who are not affiliated with
the ML Entities, the ML Entities will not, and will not permit any of their
respective affiliates to, directly or indirectly, (i) acquire, propose to
acquire (or publicly announce or otherwise disclose an intention to propose to
acquire) or offer to acquire, by purchase or otherwise, any securities entitled
to vote generally for the election of directors ("Rykoff-Sexton Voting
Securities") of Rykoff-Sexton if the effect of such acquisition would be to
increase the number of shares of Rykoff-Sexton Voting Securities beneficially
owned by the ML Entities and their affiliates to an amount representing more
than 36.4% of the aggregate number of votes which may be cast by holders of
outstanding shares of Rykoff-Sexton Voting Securities ("Total Voting Power")
(such percentage to be automatically reduced to reflect the actual
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percentage of Rykoff-Sexton Voting Securities owned by the ML Entities and their
affiliates from time to time); (ii) propose (or publicly announce or otherwise
disclose an intention to propose), solicit, offer, seek to direct, negotiate
with or provide any confidential information relating to Rykoff-Sexton or its
business to any other person with respect to any tender offer or exchange offer,
merger, consolidation, share exchange, business combination, restructuring,
recapitalization or similar transaction involving Rykoff-Sexton; provided that
the ML Entities will not be prohibited from soliciting, offering, seeking to
effect and negotiating with any person with respect percentage of Rykoff-Sexton
Voting Securities owned by the ML Entities and their to sales or transfers of
Rykoff-Sexton Voting Securities held by the ML Entities if otherwise permitted
by the Standstill Agreement; (iii) make, or in any way participate in, any
solicitation of proxies to vote, solicit any consent with respect to the voting
of any Rykoff-Sexton Voting Securities or become a participant in any election
contest with respect to Rykoff-Sexton; (iv) form, participate in or join any
person or group with respect to any Rykoff-Sexton Voting Securities, or
otherwise act in concert with any third person (other than an ML Entity) for the
purpose of acquiring any Rykoff-Sexton Voting Securities or holding or disposing
of Rykoff-Sexton Voting Securities for any purpose otherwise prohibited by the
Standstill Agreement; (v) deposit any Rykoff-Sexton Voting Securities into a
voting trust or similar arrangement; (vi) initiate, propose or otherwise solicit
stockholders for the approval of one or more stockholder proposals with respect
to Rykoff-Sexton, or induce or attempt to induce any other person to initiate
any stockholder proposal; (vii) except as specifically provided for in the
Standstill Agreement, seek election to or seek to place a representative on the
Board of Directors of Rykoff-Sexton, or seek the removal of any member of the
Board of Directors of Rykoff-Sexton; (viii) call or seek to have called any
meeting of the stockholders of Rykoff-Sexton for any purpose otherwise
prohibited by the Standstill Agreement; (ix) take any other action to seek to
control Rykoff-Sexton; (x) demand, request or propose to amend, waive or
terminate the foregoing provisions; or (xi) agree to do any of the foregoing, or
advise, assist, encourage or persuade any third party to take any action with
respect to any of the foregoing.
Each of the ML Entities will notify Rykoff-Sexton promptly if any inquiries
or proposals are received by, or any negotiations or discussions are initiated
or continued regarding any of the foregoing matters with, any ML Entity or, to
its knowledge (subject to applicable confidentiality policies), any of their
respective affiliates.
Notwithstanding the above restrictions, the Standstill Agreement provides
that Merrill Lynch and its affiliates (other than the ML Entities) may effect or
recommend transactions in the ordinary course of its or their business, in,
relating to or involving Rykoff-Sexton Voting Securities provided that Merrill
Lynch and its affiliates (other than the ML Entities) do not acquire beneficial
ownership of Rykoff-Sexton Voting Securities representing more than 2% of the
Total Voting Power, subject to increase to (i) 3% in the event that the ML
Entities beneficially own Rykoff-Sexton Voting Securities representing less than
30%, but at least 22%, of the
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Total Voting Power; (ii) 4% in the event that the ML Entities beneficially own
Rykoff-Sexton Voting Securities representing less than 22%, but at least 16%, of
the Total Voting Power; and (iii) 5% in the event that the ML Entities
beneficially own Rykoff-Sexton Voting Securities representing less than 16%, but
at least 10%, of the Total Voting Power. Such permitted activities may include
transactions in which Merrill Lynch or its affiliates are acting as an
investment banking organization providing advisory services, an investment
adviser, an investment company, a broker or dealer in securities, an underwriter
or placement agent of securities, a market maker, a specialist, an arbitrageur
or a block positioner. Such permitted activities may not, however, include any
activities or transactions which have the purpose or effect of seeking to
control or influence the management, policies or affairs of Rykoff-Sexton,
including, without limitation, through advising any person with respect to any
unsolicited bid for control of, or any other offer for securities of or any
business combination involving, Rykoff-Sexton.
Board Representation. In accordance with the Standstill Agreement, at the
effective time of the US Foodservice Acquisition, Rykoff-Sexton increased the
size of its Board of Directors to 12 directors and filled four of the vacancies
thereby created with directors designated by a representative of the ML Entities
(the "ML Directors"). Of the four initial ML Directors, one was appointed (and
reelected in September 1996) to Class A (term expiring in 1999), one was
appointed to Class B (term expiring in 1998) and two were appointed to Class C
(terms expiring in 1997). Any designees of ML Directors who are not employees of
either an ML Entity which is controlled by Merrill Lynch & Co. or an affiliate
of an ML Entity which is controlled by Merrill Lynch & Co. must be reasonably
acceptable to the Rykoff-Sexton directors other than the ML Directors. Pursuant
to the Merger Agreement, JP Foodservice has agreed that two of directors to be
designated by Rykoff-Sexton for service on the JP Foodservice Board of Directors
will be designated by MLCP. See "Management of JP Foodservice After the Merger."
Until such time as the ML Entities no longer beneficially own Rykoff-Sexton
Voting Securities representing at least 10% of the Total Voting Power, except as
contemplated by the Standstill Agreement or otherwise agreed to by a majority of
ML Directors, Rykoff-Sexton will not take or recommend to its stockholders any
action which would (i) cause the Rykoff-Sexton Board of Directors to consist of
any number of directors other than 12 directors divided into three classes of
four directors each, or (ii) result in any amendment to the bylaws of
Rykoff-Sexton or the bylaws or regulations of any subsidiary of Rykoff-Sexton in
effect at the effective time of the US Foodservice Acquisition that would impose
any qualifications to the eligibility of directors of Rykoff-Sexton or any
subsidiary of Rykoff-Sexton to serve on any committee of the Board of Directors
of Rykoff-Sexton or on the Board of Directors (or any committee thereof) of any
subsidiary of Rykoff-Sexton, except as may be required by applicable law.
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In addition, Rykoff-Sexton will use its best efforts to cause the
Nominating Committee of its Board of Directors (or if the Nominating Committee
makes no such recommendation, the Rykoff-Sexton Board of Directors) to recommend
for election in the applicable year in which the respective class term expires,
in each case as designated by the ML Entities, (i) four ML Directors, consisting
of one ML Director in each of Class A and Class B and two ML Directors in Class
C, so long as the ML Entities beneficially own Rykoff-Sexton Voting Securities
representing at least 34% of the Total Voting Power; (ii) three ML Directors,
consisting of one ML Director in each of Class A, Class B and Class C, so long
as the ML Entities beneficially own Rykoff-Sexton Voting Securities representing
less than 34%, but at least 27%, of the Total Voting Power; (iii) two ML
Directors, consisting of one ML Director in Class A and one ML Director in Class
B or Class C, so long as the ML Entities beneficially own Rykoff-Sexton Voting
Securities representing less than 27%, but at least 16%, of the Total Voting
Power; and (iv) one ML Director in Class A, so long as the ML Entities
beneficially own Rykoff-Sexton Voting Securities representing less than 16%, but
at least 10%, of the Total Voting Power.
Until such time as the ML Entities no longer beneficially own Rykoff-Sexton
Voting Securities representing at least 16% of the Total Voting Power, to the
extent that, and for so long as, any of the ML Directors is qualified under the
then-current rules of the NYSE, the rules and regulations under the Code, the
rules and regulations under Section 16(b) of the Exchange Act and
Rykoff-Sexton's bylaws, Rykoff-Sexton will use its best efforts to cause the
Rykoff-Sexton Board of Directors to designate one of the ML Directors to serve
on each of the committees of the Rykoff-Sexton Board of Directors to the same
extent, and on the same basis, as the other members of the Rykoff-Sexton Board
of Directors. In addition, subject to the same director qualification
requirements, in the event that, and for so long as, the ML Entities own
Rykoff-Sexton Voting Securities representing less than 16% but at least 10% of
the Total Voting Power, Rykoff-Sexton will use its best efforts to cause the
Rykoff-Sexton Board of Directors to designate one of the ML Directors to serve
on the Nominating Committee and the Management Development -- Compensation and
Stock Option Committee of the Rykoff-Sexton Board of Directors to the same
extent, and on the same basis, as the other members of the Board of Directors.
Pursuant to the Merger Agreement, a designee of MLCP will serve on the
Nominating Committee of the JP Foodservice Board of Directors as Rykoff-Sexton's
designee thereon. See "Management of JP Foodservice After the Merger."
The Standstill Agreement also provides that, so long as the ML Entities
beneficially own Rykoff-Sexton Voting Securities representing at least 10% of
the Total Voting Power, the ML Directors will have representation on the board
of directors (and any committees thereof) of any subsidiaries of Rykoff-Sexton
in a manner similar to their rights to representation on the Rykoff-Sexton Board
of Directors, but only to the extent that any directors of Rykoff-Sexton who are
not officers or employees of Rykoff-Sexton are members of the board of directors
of any such subsidiary of Rykoff-Sexton.
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The ML Entities have the right, with cause, to request the removal of any
ML Director from the Rykoff-Sexton Board of Directors, subject to the applicable
provisions of the Rykoff-Sexton Charter and Bylaws as well as applicable
statutory provisions, and Rykoff-Sexton will use its best efforts to have such
removal approved by the Rykoff-Sexton Board of Directors. The ML Entities also
have the right to designate nominees for vacancies caused by a ML Director
ceasing to serve as a member of the Board of Directors, subject to certain
restrictions, provided that the filing of the vacancy is to be made by action of
the Rykoff-Sexton Board of Directors in accordance with the terms of the
Rykoff-Sexton Charter (as defined herein). In addition, in the event that the
percentage of Total Voting Power represented by the Rykoff-Sexton Voting
Securities beneficially owned in the aggregate by the ML Entities at any time
decreases below any of the minimum percentages specified above entitling the ML
Entities to board and committee representation, the ML Entities will cause such
number of ML Directors to resign as is necessary to adjust the number of
remaining ML Directors to the number (if any) to which the ML Entities would
have otherwise been entitled under the Standstill Agreement if the nominations
to the Board or Directors (or any committee thereof) of Rykoff-Sexton or any
subsidiary of Rykoff-Sexton were made at such time. Any subsequent increase in
the percentage of the Total Voting Power represented in the aggregate by the
Rykoff-Sexton Voting Securities beneficially owned by the ML Entities above any
such minimum percentage will not entitle the ML Entities to have any additional
ML Directors named or elected.
Nothing in the Standstill Agreement requires the ML Entities to designate
any ML Directors or requires an ML Director to serve in office. Until such time
as the ML Entities no longer beneficially own Rykoff-Sexton Voting Securities
representing in the aggregate at least 10% of the Total Voting Power, in the
event there is a vacancy created on the Rykoff-Sexton Board of Directors by the
resignation or removal of an ML Director or the failure of the ML Entities to
designate an ML Director (other than a resignation as a result of a decrease in
the percentage of the aggregate number of votes of all outstanding Rykoff-Sexton
Voting Securities represented by Rykoff-Sexton Voting Securities owned by the ML
Entities below the minimum percentages specified above for representation on the
Rykoff-Sexton Board of Directors), upon the written request of the ML Entities,
Rykoff-Sexton will reduce the size of the Rykoff-Sexton Board of Directors by
the number of such vacancies and thereafter, the ML Entities will have no right
to designate any ML Directors to the extent of such reduction.
The Standstill Agreement provides that the rights to board and committee
representation described above will extend only to those ML Entities which are
controlled by Merrill Lynch & Co., and in the event of any transaction resulting
in Merrill Lynch & Co. no longer controlling such ML Entity, such ML Entity will
no longer have any rights to such board and committee representation, but will
be bound by the other terms of the Standstill Agreement.
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Rykoff-Sexton's obligations described above regarding board and committee
representation are subject to compliance with the provisions of the
Rykoff-Sexton Charter and Bylaws and the fiduciary duties of Rykoff-Sexton's
Board of Directors and Nominating Committee to the stockholders of
Rykoff-Sexton. Nothing set forth in such provisions will require Rykoff-Sexton
to violate any such provisions or require any director of Rykoff-Sexton to
breach any such fiduciary duty.
Voting Provisions. During the term of the Standstill Agreement, until such
time as the ML Entities no longer beneficially own Rykoff-Sexton Voting
Securities representing at least 10% of the Total Voting Power, the ML Entities
will take all such action as may be required so that all Rykoff-Sexton Voting
Securities owned by the ML Entities and their affiliates, as a group, are (i)
voted for Rykoff-Sexton's nominees to the Rykoff-Sexton Board of Directors, in
accordance with the recommendation of the Nominating Committee of the
Rykoff-Sexton Board of Directors, and (ii) voted on all matters to be voted on
by holders of Rykoff-Sexton Voting Securities. The foregoing obligation referred
to in clause (i) is subject to (A) Rykoff-Sexton having performed its
obligations under the Standstill Agreement to use its best efforts to cause the
Rykoff-Sexton Board of Directors to designate one of the ML Directors to serve
on such Nominating Committee as long as the ML Entities own Rykoff-Sexton Voting
Securities representing at least 10% of the Total Voting Power, if the ML
Entities have requested such representation on the Nominating Committee; and (B)
the right of the ML Entities to abstain from, or to vote against, any one (and
only one) nominee for election to the Rykoff-Sexton Board of Directors at an
annual meeting of stockholders (other than any nominee who was a member of the
Rykoff-Sexton Board of Directors as of the date of the merger agreement related
to the US Foodservice Acquisition, which would include all of the directors
(other than directors appointed by ML Entities) who will become members of the
JP Foodservice Board of Directors pursuant to the Merger Agreement) if the ML
Entities have a reasonable, good faith objection to any such nominee based on
such nominee's personal qualifications to serve as a member of the Rykoff-Sexton
Board of Directors and if the board of directors of any such ML Entity
determines in good faith that such action is required to fulfill its fiduciary
duties. In addition, the ML Entities agree to be present, in person or by proxy,
at all duly held meetings of stockholders of Rykoff-Sexton so that all
Rykoff-Sexton Voting Securities held by the ML Entities may be counted for
determining the presence of a quorum at such meetings.
Transfer Restrictions and Right of First Refusal. During the term of the
Standstill Agreement, except as described below, the ML Entities have agreed not
to, directly or indirectly, sell, transfer or assign any Rykoff-Sexton Voting
Securities, except (i) to Rykoff-Sexton, (ii) pursuant to a merger or
consolidation of Rykoff-Sexton which has been approved by the affirmative vote
of a majority of the members of the Rykoff-Sexton Board of Directors then in
office, (iii) pursuant to a bona fide public offering registered under the
Securities Act, in which the ML Entities will use commercially reasonable
efforts to effect as wide a distribution of
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<PAGE>
such Rykoff-Sexton Voting Securities as is reasonably practicable and to prevent
any person or group from acquiring pursuant to such offering beneficial
ownership of Rykoff-Sexton Voting Securities representing more than 5% of the
Total Voting Power, (iv) pursuant to Rule 144 under the Securities Act, (v)
pursuant to a pro rata distribution (including any such distribution pursuant to
any liquidation or dissolution of any ML Entity) by any ML Entity to its
partners or stockholders, if no ultimate successor or distributee, as the case
may be, and no person who controls such ultimate successor or distributee,
acquires from any ML Entity in such distribution beneficial ownership of Rykoff-
Sexton Voting Securities representing more than 3% of the Total Voting Power,
(vi) transfers of Rykoff-Sexton Voting Securities to any person or group which,
after giving effect to such transfer, would beneficially own Rykoff-Sexton
Voting Securities representing less than 5% of the Total Voting Power, (vii)
transfers of Rykoff-Sexton Voting Securities representing less than 10% of the
Total Voting Power to any person or group eligible to file a short-form
statement on Schedule 13G under Rule 13d-1 under the Exchange Act based on its
ownership of Rykoff-Sexton Voting Securities, (viii) transfers of Rykoff-Sexton
Voting Securities made on or after January 1, 2000, in connection with the
required dissolution of any ML Entity, to any person or group (A) which, after
giving effect to such transfer, would beneficially own Rykoff-Sexton Voting
Securities representing in the aggregate less than the greater of (x) 15% of the
Total Voting Power or (y) such other percentage of the Total Voting Power as
would make such person or group an "Acquiring Person" under Rykoff-Sexton's
shareholders' rights plan or (B) approved by the prior affirmative vote of a
majority of the members of the Rykoff-Sexton Board of Directors other than the
ML Directors, (ix) pursuant to a tender offer or exchange offer that the Rykoff-
Sexton Board of Directors, by action taken by the affirmative vote of a majority
of the members of the Board of Directors then in office, has determined not to
oppose, or (x) following compliance with procedures with respect to the right of
first refusal described below, provided, that, in the case of transfers
described in clauses (iii) - (vii) above, the rights of the ML Entities under
the Standstill Agreement will not transfer to any transferee.
Pursuant to the right of first refusal, except as otherwise permitted under
the Standstill Agreement, if any ML Entity (the "Selling ML Entity") receives an
offer from, or enters into any agreement or understanding with, a third party to
purchase or otherwise acquire Rykoff-Sexton Voting Securities from the Selling
ML Entity, the Selling ML Entity will have the right, provided that the rights
of the Selling ML Entity under the Standstill Agreement will not transfer to
such third party, to sell or otherwise transfer the amount of Rykoff-Sexton
Voting Securities which are the subject of such offer by, or agreement or
understanding with, such third party if, prior to such transfer, Rykoff-Sexton
has been given the opportunity to purchase such Rykoff-Sexton Voting Securities
pursuant to the following procedures. The Selling ML Entity must give written
notice of such proposed transfer to Rykoff-Sexton specifying the amount of
Rykoff-Sexton Voting Securities proposed to be transferred, the proposed price
therefor (the "Transfer Consideration"), the identity
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<PAGE>
of the offeror and other material terms of the proposed transfer. Rykoff-Sexton
will thereafter have a period of 15 business days to provide the Selling ML
Entity with written notice of the exercise of its right to purchase all such
Rykoff-Sexton Voting Securities for cash in an amount equivalent to the Transfer
Consideration. Rykoff-Sexton may also specify a designee as purchaser under the
right of first refusal. The closing of the purchase pursuant to the exercise of
the right of first refusal must take place within 60 days after Rykoff-Sexton
gives notice of such exercise (such period to be extended for up to an
additional 60 days, if necessary, to comply with applicable laws and
regulations). If Rykoff-Sexton elects not to exercise its right of first
refusal, the Selling ML Entity will be free, during the following 60-day period
(such period to be extended for up to an additional 60 days, if necessary, to
comply with applicable laws and regulations), to transfer the Rykoff-Sexton
Voting Securities in accordance with the terms of the original offer.
Term. The Standstill Agreement will continue in effect until the earlier of
(i) the tenth anniversary of the effective date of the US Foodservice
Acquisition (May 17, 1996) and (ii) the date on which the ML Entities and their
affiliates beneficially own Rykoff-Sexton Voting Securities representing less
than 10% of the Total Voting Power. The Standstill Agreement will be reinstated,
however, if, after termination of the Standstill Agreement due to a reduction in
beneficial ownership below such 10% threshold and prior to the tenth anniversary
of such effective date, (i) the ML Entities subsequently become the beneficial
owners of Rykoff-Sexton Voting Securities representing 10% or more of the Total
Voting Power or (ii) the ML Entities and their affiliates subsequently become
the beneficial owner of 5% or more of all outstanding Rykoff-Sexton Voting
Securities in a manner which requires the filing of a Schedule 13D under the
Exchange Act.
Registration Rights Agreement
In connection with the US Foodservice Acquisition, Rykoff-Sexton executed
and delivered the Registration Rights Agreement, pursuant to which the ML
Investors have certain "demand" and "piggyback" rights, and the Equitable
Entities named therein and Frank H. Bevevino, former President of Rykoff-Sexton,
have certain "piggyback" rights, to require Rykoff-Sexton to register under the
Securities Act the transfer of all or a portion of the Registrable Securities
held by them. In connection with the Merger, pursuant to the Support Agreement,
JP Foodservice has agreed, as of the Effective Time, to assume Rykoff-Sexton's
rights and obligations under the Registration Rights Agreement and will be
required, for a specified period and subject to certain limitations and
qualifications, to register under the Securities Act the transfer of all or a
portion of the JP Foodservice Common Shares that will be issued in the Merger in
exchange for Registrable Securities to holders thereof who have rights under the
Registration Rights Agreement (collectively, the "Holders"). The following
description of the Registration Rights Agreement summarizes provisions of the
Registration Rights Agreement as in effect immediately prior to the Effective
Time.
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The ML Investors holding a majority of the Registrable Securities held by
the ML Investors may make a written demand of Rykoff-Sexton to effect the
registration of all or part of the ML Investors' Registrable Securities.
Rykoff-Sexton will not be required to take any action if, among other things,
(i) four demand registrations have been previously effected, or (ii) the
Registrable Securities requested to be registered have a then current market
value of less than $50 million, unless such demand is for registration of all
remaining Registrable Securities held by the ML Investors. Rykoff-Sexton will be
required to file the registration statement within 30 days after exercise of any
demand right. Rykoff-Sexton will not be required to effect a registration during
certain "blackout periods" during which Rykoff-Sexton has determined in good
faith that such registration (i) could materially impair or delay a pending
transaction (up to 180 days) or (ii) would require disclosure of confidential
information (up to 90 days).
If Rykoff-Sexton seeks to register, in a proposed public offering for its
own account or for the account of any holder of Rykoff-Sexton Common Shares
(other than pursuant to a registration statement on Form S-4 or Form S-8 or any
successor form under the Securities Act, or filed in connection with an exchange
offer or an offering of securities solely to existing stockholders or employees
of Rykoff-Sexton), any Rykoff-Sexton Common Shares while the Registration Rights
Agreement is in effect, the Holders will have the right to request that
Rykoff-Sexton include any or all of their Registrable Securities in the proposed
offering. Rykoff-Sexton must provide each Holder with at least 20 business days'
notice prior to the filing of the registration statement. Such notice must
specify the approximate date on which Rykoff-Sexton proposes to file such
registration statement and advise the Holder of the Holder's right to have any
or all of the Holder's Registrable Securities included in such registration. A
Holder, in a written request given to Rykoff-Sexton within 15 days after such
Holder's receipt of written notice from Rykoff-Sexton, may include such Holder's
Registrable Securities in such registration statement, subject to constraints of
marketability of the proposed offering, as determined in good faith by the lead
managing underwriter. In the event that marketing constraints prevent the
registration of all Registrable Securities requested to be registered, such
Registrable Securities shall be registered, to the extent marketable, on a pro
rata basis.
In registering Registrable Securities, Rykoff-Sexton will be obligated to
use its reasonable best efforts to make relevant filings with the SEC, to
provide appropriate notices and necessary disclosures to requesting parties, to
make customarily required warranties and representations to underwriters, and to
take certain other specified actions.
Each Holder will be required to pay all underwriting discounts,
commissions, transfer taxes and documentary stamp taxes related to the
Registrable Securities offered for sale by such Holder as well as the fees and
disbursements of its counsel (other than counsel representing the Holders as a
group). All other fees and
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expenses in connection with the Registration of Registrable Securities,
including those of counsel representing the Holders as a group, will be borne by
Rykoff-Sexton. Rykoff-Sexton will agree to indemnify the Holders and the
prospective underwriters of registrations of Registrable Securities for
liabilities for material misstatements and omissions, other than any material
misstatements or omissions based on information provided by the Holders,
included in the registration statement. Each Holder will agree to indemnify
Rykoff-Sexton, all other Holders or any underwriter for liabilities for material
misstatements and omissions made in the registration statement in reliance on
information provided to Rykoff-Sexton by such Holders, subject to certain
limitations. To the extent that indemnification from an indemnifying party is
unavailable, contribution will also be available, with certain limitations, to
any of the above parties in relation to relative fault.
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UNAUDITED PRO FORMA COMBINING CONSOLIDATED FINANCIAL STATEMENTS FOR THE MERGER
The accompanying unaudited pro forma combining consolidated financial
statements give effect to the Merger, which will be accounted for as a pooling
of interests. Accordingly, the unaudited pro forma combining consolidated
balance sheet as of June 28, 1997 and the unaudited pro forma combining
consolidated statements of operations for the years ended July 1, 1995, June 29,
1996 and June 28, 1997 reflect the combining of the historical financial results
of Rykoff-Sexton with the historical financial results of JP Foodservice. The
unaudited pro forma combined results of JP Foodservice and of Rykoff-Sexton are
not necessarily indicative of results of operations that would have resulted if
the Merger had been consummated at the beginning of the periods indicated or the
results that will be achieved in the future.
The unaudited pro forma combining consolidated financial statements reflect
adjustments for the pooling of JP Foodservice and Rykoff-Sexton, including
reclassifications to conform to the presentation expected to be used by the
combined company and the JP Foodservice Common Shares to be issued as
consideration in connection with the Merger.
The unaudited pro forma combining consolidated balance sheet includes
onetime charges expected to be incurred in connection with the Merger. The
charges include professional fees incurred in the Merger and severance and
change in control costs, facility consolidations and other related costs
associated with the integration of the JP Foodservice and Rykoff-Sexton
businesses. JP Foodservice estimates the charges will be approximately $82.0
million before related income tax benefits. Such charges have not been included
in the pro forma combining consolidated statement of operations for the year
ended June 28, 1997 as such charges are nonrecurring.
The unaudited pro forma combining consolidated statements of operations do
not reflect operating and interest cost savings that management believes may be
realized following the acquisition. Management of JP Foodservice and
Rykoff-Sexton have estimated that the combination of JP Foodservice and
Rykoff-Sexton could create opportunities for operating cost savings of
approximately $12 million during the first twelve-month period following the
Effective Time, $18 million during the second twelve-month period following the
Effective Time and $25 million annually thereafter. These cost savings are
expected to be realized primarily through the restructuring of operations. See
"The Merger--Potential Cost Savings and Operating Synergies." In addition, upon
consummation of the Merger, JP Foodservice expects to enter into the New Credit
Facility, which is expected to provide for lower borrowing costs than the
overall borrowing costs available under
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the Existing Bank Credit Facilities. See "Description of Proposed New Financing
Arrangements."
Management estimates that the New Credit Facility will provide annual
interest cost savings of approximately $5 million. No assurances can be made as
to the amount of cost savings that actually will be realized from restructuring
of operations, the New Credit Facility, or otherwise.
Upon consummation of the New Credit Facility, the combined company will
incur an extraordinary charge of $9.1 million, net of an income tax benefit of
$5.9 million (principally related to loan prepayment charges and the write-off
of deferred financing costs). The unaudited pro forma combining consolidated
financial statements do not reflect such extraordinary charge.
The unaudited pro forma combining consolidated financial statements are
based on certain assumptions and adjustments described in the following
unaudited pro forma combining consolidated financial information and should be
read in conjunction therewith and with the consolidated financial statements and
related notes thereto of JP Foodservice and Rykoff-Sexton previously filed with
the SEC, which are incorporated by reference in this Joint Proxy
Statement/Prospectus.
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JP FOODSERVICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING CONSOLIDATED BALANCE SHEET
As of June 28, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
---------------------------- Pro Forma
JP Rykoff- Pro Forma Combined
Foodservice Sexton Adjustments Companies
----------- ------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents.............. $ 11,139 $ 63,293 $ - $ 74,432
Accounts receivable, net............... 138,754 122,963 - 261,717
Inventories............................ 110,030 210,547 - 320,577
Prepaid expenses and other assets...... 9,664 19,755 - 29,419
Deferred income taxes.................. 2,282 24,797 12,350 (a) 39,429
------------- ------------- --------- -----------
Total current assets................. 271,869 441,355 12,350 725,574
------------- ------------- --------- -----------
Property, plant and equipment, net......... 141,724 296,012 (22,000) (a) 415,736
Goodwill, net.............................. 104,158 437,361 - 541,519
Deferred income taxes...................... - 21,337 (3,892) (a) 17,445
Other assets, net.......................... 6,397 22,957 - 29,354
------------- ------------- --------- -----------
Total assets........................ $ 524,148 $ 1,219,022 $ (13,542) $ 1,729,628
============= ============= ========= ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities
Current maturities of long-term debt
and capital lease obligations........ $ 9,411 $ 18,771 $ - $ 28,182
Accounts payable....................... 89,923 231,791 - 321,714
Accrued expenses....................... 19,111 106,371 43,770 (a) 169,252
------------- ------------- --------- -----------
Total current liabilities............ 118,445 356,933 43,770 519,148
------------- ------------- --------- -----------
Noncurrent liabilities
Senior debt............................ 144,414 343,446 - 487,860
Subordinated debt...................... 4,641 129,287 - 133,928
Obligations under capital leases....... 19,460 13,998 - 33,458
Deferred income taxes.................. 8,242 - (8,242) (a) -
Other noncurrent liabilities........... - 21,185 4,000 (a) 25,185
------------- ------------- --------- -----------
Total liabilities.................... 295,202 864,849 39,528 1,199,579
------------- ------------- --------- -----------
Stockholders' equity
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued.......................... - - - -
Common stock, $.01 par value,
75,000,000 shares authorized,
22,589,913 issued and 46,522,151
pro forma............................ 225 2,829 (2,589) (b) 465
Additional paid-in-capital............. 226,709 300,757 11,691 (b) 539,157
Retained earnings (deficit)............ 2,012 53,685 (65,270) (a) (9,573)
Treasury stock......................... - (3,098) 3,098 (b) -
------------- ------------- --------- -----------
Total stockholders' equity........... 228,946 354,173 (53,070) 530,049
------------- ------------- --------- -----------
Total liabilities and stockholders'
equity.............................. $ 524,148 $ 1,219,022 $ (13,542) $ 1,729,628
============= ============= ========= ===========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
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<PAGE>
JP FOODSERVICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Fiscal Year ended July 1, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
---------------------------- Pro Forma
JP Rykoff- Pro Forma Combined
Foodservice Sexton(c) Adjustments Companies
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $ 1,288,315 $ 1,569,019 $ - $ 2,857,334
Cost of sales.............................. 1,069,494 1,193,325 - 2,262,819
------------- -------------- --------- -----------
Gross profit........................ 218,821 375,694 - 594,515
Operating expenses......................... 177,490 348,672 - 526,162
Amortization of intangible assets.......... 2,263 529 - 2,792
Stock compensation charge.................. 709 - - 709
------------- -------------- --------- -----------
Income from operations.............. 38,359 26,493 - 64,852
Interest expense and other financing
costs, net............................... 22,074 10,867 - 32,941
------------- -------------- --------- -----------
Income from continuing operations
before provision for income taxes
and extraordinary charge.......... 16,285 15,626 - 31,911
Provision for income taxes................. 7,358 6,250 - 13,608
------------- -------------- --------- -----------
Income from continuing operations
before extraordinary charge....... 8,927 9,376 - 18,303
Gain on disposal of, and income from,
discontinued operations, net of income
taxes $15,782............................ - 23,496 - 23,496
------------- -------------- --------- -----------
Income before extraordinary charge.. 8,927 32,872 - 41,799
Extraordinary charge, net of income tax
benefit of $3,100........................ (4,590) - - (4,590)
------------- -------------- --------- -----------
Net income.......................... 4,337 32,872 - 37,209
Preference dividends....................... (40) - - (40)
------------- -------------- --------- -----------
Net income applicable to common
shareholders...................... $ 4,297 $ 32,872 $ - $ 37,169
============= ============== ========= ===========
Net income per common share:
Income from continuing operations
before extraordinary charge....... $ 0.68 $ 0.64 $ 0.72
Gain on disposal of, and income
from, discontinued operations..... - 1.60 $ 0.92
Extraordinary charge................ (0.35) - (0.18)
------------- -------------- --------- -----------
Net income per common share................ $ 0.33 $ 2.24 $ 1.46
============= ============== ========= ===========
Weighted average common shares and common
stock equivalents outstanding............ 13,104 14,730 (2,357) (e) 25,477
============= ============== ========= ===========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
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JP FOODSERVICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Fiscal Year ended June 29, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
--------------------------- Pro Forma
JP Rykoff- Pro Forma Combined
Foodservice Sexton(d) Adjustments Companies
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $ 1,449,303 $ 1,789,478 $ - $ 3,238,781
Cost of sales.............................. 1,198,797 1,387,299 - 2,586,096
------------- -------------- ------------- -------------
Gross profit........................ 250,506 402,179 - 652,685
Operating expenses......................... 202,953 387,493 - 590,446
Amortization of intangible assets.......... 2,338 1,906 - 4,244
Impairment of long-lived assets............ - 29,700 - 29,700
Reversal of restructuring charge........... - (6,441) - (6,441)
------------- -------------- ------------- -------------
Income (loss) from operations....... 45,215 (10,479) - 34,736
Interest expense and other financing
costs, net.......................... 15,187 17,340 - 32,527
Nonrecurring charges....................... 1,517 - - 1,517
Income (loss) before income taxes
(benefit)......................... 28,511 (27,819) - 692
Provision for income taxes (benefit)....... 11,598 (11,039) - 559
------------- -------------- ------------- -------------
Net income (loss)................... $ 16,913 $ (16,780) $ - $ 133
============= ============== ============= =============
Net income (loss) per common share......... $ 0.90 $ (1.12) $ 0.00
============= ============== =============
Weighted average common shares outstanding. 18,809 14,941 (2,391) (e) 31,359
============= ============== ============= =============
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
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<PAGE>
JP FOODSERVICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Fiscal Year ended June 28, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
------------------------------- Pro Forma
JP Rykoff- Pro Forma Combined
Foodservice Sexton Adjustments Companies
------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 1,691,913 $ 3,477,493 $ - $ 5,169,406
Cost of sales.............................. 1,396,223 2,770,109 - 4,166,332
------------- -------------- ---------- -------------
Gross profit ....................... 295,690 707,384 - 1,003,074
Operating expenses ........................ 232,435 609,466 - 841,901
Amortization of intangible assets ......... 2,918 12,431 - 15,349
Executive severance compensation........... - 4,000 - 4,000
Reversal of restructuring charge........... - (4,000) - (4,000)
------------- -------------- ---------- -------------
Income from operations ............. 60,337 85,487 - 145,824
Interest expense and other financing
costs, net.......................... 16,522 59,541 - 76,063
Nonrecurring charges....................... 5,400 - - 5,400
------------- -------------- ---------- -------------
Income before income taxes ......... 38,415 25,946 - 64,361
Provision for income taxes ................ 16,167 9,908 - 26,075
------------- -------------- ---------- -------------
Net income ........................ $ 22,248 $ 16,038 $ - $ 38,286
============= ============== ========== =============
Net income per common share................ $ 1.02 $ 0.56 $ 0.83
============= ============== =============
Weighted average common shares outstanding. 21,862 28,644 (4,583)(e) 45,923
============= ============== ========== =============
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
135
<PAGE>
JP FOODSERVICE, INC. and Subsidiaries
NOTES TO UNAUDITED PRO FORMA COMBINING
CONSOLIDATED FINANCIAL STATEMENTS
Certain reclassifications have been made to the historical consolidated
statements of operations of JP Foodservice and Rykoff-Sexton to conform to the
presentation expected to be used by the combined company. The pro forma
adjustments are as follows:
(a) Reflects costs associated with employee severance and change in
control costs, facility consolidations, and Merger-related
professional fees, based on management's preliminary estimates (in
thousands):
<TABLE>
<S> <C>
Professional fees................................ $ 14,645
Severance and change in control costs............ 23,000
Facility consolidations.......................... 32,000
Other transaction related costs.................. 12,325
---------
One-time charges, pre-tax........................ 81,970
Tax benefit of deductible charges
(effective tax rate 38.0%)..................... 16,700
---------
After-tax charge................................. $ 65,270
=========
</TABLE>
The one-time charges of $65.3 million have not been included in
the pro forma combining consolidated statement of operations
because such charges are nonrecurring.
(b) Reflects the reclassification of equity in connection with
issuance of JP Foodservice Common Shares to the Rykoff-Sexton
stockholders, as well as issuance of the equivalent number of JP
Foodservice Common Shares in exchange for the Performance Stock
Awards, the cost of which has been included as part of the
severance and change in control costs described above in (a).
(c) Historical results for Rykoff-Sexton are for the fiscal year ended
April 29, 1995.
(d) Historical results for Rykoff-Sexton are for the fiscal year ended
April 27, 1996.
(e) Reflects the application of the Exchange Ratio to the Rykoff-
Sexton Common Shares to be exchanged in the Merger.
136
<PAGE>
DESCRIPTION OF PROPOSED NEW FINANCING ARRANGEMENTS
In connection with the Merger and effective as of the Closing Date, JP
Foodservice proposes to enter into the New Credit Facility. JP Foodservice will
apply amounts drawn under the New Credit Facility, which will provide funding of
up to $750 million, primarily to (i) refinance the indebtedness of JP
Foodservice and Rykoff-Sexton outstanding under the Existing Bank Credit
Facilities (which totaled approximately $479 million as of June 28, 1997), (ii)
pay estimated fees and expenses of approximately $33 million incurred in
connection with the Merger and (iii) finance capital expenditures and on-going
working capital needs. Borrowings under the New Credit Facility also will be
used to repurchase any Rykoff-Sexton Public Notes tendered pursuant to an offer
to purchase required to be made following consummation of the Merger. See "Risk
Factors--Offer to Purchase Rykoff-Sexton Senior Subordinated Notes." If the
terms of the New Credit Facility are completed on the terms set forth below, JP
Foodservice expects that annual interest costs for the combined companies will
be approximately $5 million less than the overall interest costs that would be
incurred under the Existing Bank Credit Facilities. The availability of
financing under the New Credit Facility or otherwise is not a condition to
consummation of the Merger. Such financing will be subject to certain terms and
conditions, which will include the negotiation, execution and delivery of
definitive credit documents. There can be no assurance as to whether, or the
definitive terms on which, the New Credit Facility actually will be available to
JP Foodservice.
JP Foodservice also intends after the Merger to increase the size of the
existing receivables securitization programs currently operated by it and
Rykoff-Sexton by $50 million to $100 million. The proceeds of the additional
securitization will be used to reduce revolving credit borrowings.
New Credit Facility
The following is a summary of the proposed material provisions of the New
Credit Facility as set forth in the Commitment Letter. Defined terms that are
used but not defined in the summary have the meanings given to such terms in the
Commitment Letter. Because the terms, conditions and covenants of the Credit
Facility are subject to the negotiation, execution and delivery of definitive
credit documents, certain of the actual terms, conditions and covenants of the
New Credit Facility may differ in material respects from those described below.
The obligor or obligors under the New Credit Facility (collectively, the
"Borrowers") will be one or more wholly-owned subsidiaries of JP Foodservice,
including the Surviving Corporation.
The New Credit Facility will include a $550 million revolving credit
facility (the "Revolving Credit Facility") and a $200 million 364-day
revolver/term loan (the "Revolver/Term Loan Facility"). The Revolving
137
<PAGE>
Credit Facility will include a $75 million facility for standby and commercial
letters of credit and a $50 million swing-line facility for same day borrowings.
The Revolving Credit Facility and the Revolver/Term Loan Facility will be due
and payable on the fifth anniversary of the closing of the Revolving Credit
Facility (the "Revolving Credit Facility Closing"). The Borrowers may draw down
amounts under the Revolver/Term Loan Facility until 364 days after the Revolving
Credit Facility Closing, provided that at the end of such 364 day period the
lenders under the New Credit Facility (the "Lenders") may, at their option,
extend the Revolver/Term Loan Facility for an additional 364-day period. The
Commitment Letter contemplates that the final documentation for the New Credit
Facility will include a mechanism to increase the amount available to the
Borrowers under the New Credit Facility by $200 million.
Amounts drawn under the Revolving Credit Facility and the Revolver/Term
Loan Facility will initially bear interest at a rate equal to LIBOR plus 45.0
basis points and LIBOR plus 47.5 basis points, respectively. The Borrowers may,
subject to availability, select interest periods of 1, 2, 3 or 6 months. The
Commitment Letter contemplates that if the Borrowers are in compliance with all
the terms of the New Credit Facility for the quarter ending March 31, 1998,
amounts drawn under the New Credit Facility will, at the Borrowers' option, bear
interest at the Applicable Margin for LIBOR Loans or the Alternative Base Rate.
The Applicable Margin for LIBOR Loans will fluctuate based on the Borrowers'
ratio of Indebtedness to Operating Cash Flow (each as defined below), from time
to time, between LIBOR plus 17.5 basis points and LIBOR plus 55.0 basis points
for the Revolving Credit Facility and between LIBOR plus 19.5 basis points and
LIBOR plus 57.5 basis points for the Revolver/Term Loan Facility. The
Alternative Base Rate will be the higher of (i) NationsBank's prime rate and
(ii) the Federal Funds rate plus .50%.
The Commitment Letter contemplates that the Borrowers will initially pay a
Facility Fee on amounts drawn under the Revolving Credit Facility and the
Revolver/Term Loan Facility of 17.5 basis points and 15.0 basis points,
respectively. If the Borrowers are in compliance with all the terms of the New
Credit Facility for the quarter ending March 31, 1998, the Facility Fee will
fluctuate based on the Borrowers' ratio of Indebtedness to Operating Cash Flow
(each as defined below), from time to time, between 7.5 basis points and 20.0
basis points for the Revolving Credit Facility and between 5.5 basis points 17.5
basis points for the Revolver/Term Loan Facility.
The Commitment Letter contemplates that the Borrowers' obligations under
the New Credit Facility will be guaranteed by JP Foodservice and certain
existing or subsequently acquired subsidiaries
138
<PAGE>
(the "Restricted Subsidiaries") of JP Foodservice and the Borrowers. The
Commitment Letter contemplates that amounts drawn under the New Credit Facility
will be unsecured general obligations of the Borrowers ranking pari passu with
all other unsubordinated obligations of the Borrowers and that the assets of the
Borrowers and their Restricted Subsidiaries as well as the capital stock of the
Restricted Subsidiaries will be subject to a negative pledge.
The Commitment Letter contemplates that the New Credit Facility will
contain a number of covenants, including, among others, covenants limiting the
ability of the Borrowers and their Restricted Subsidiaries to (i) create liens,
(ii) engage in sale and lease-back transactions, (iii) incur debt, (iv) pay
dividends or make certain other restricted payments, (v) sell or otherwise
dispose of assets, (vi) engage in consolidations or mergers or sell, lease or
convey substantially all of their assets , (vii) engage in transactions with
affiliates other than on an arms-length basis and (viii) change their business.
In addition, the Commitment Letter contemplates that the New Credit Facility
will contain additional affirmative covenants as are typical in transactions of
this type.
The Commitment Letter also contemplates that the Borrowers will be required
to comply with certain financial tests and to maintain certain financial ratios
on a consolidated basis. The Borrowers must maintain (i) a Fixed Charge Coverage
Ratio no less than 1.5:1.0 initially, and 1.75:1.0 at and after June 30, 1998,
(ii) a ratio of Indebtedness to Operating Cash Flow of 5.0:1.0 initially, with
subsequent reductions, and (iii) a Consolidated Net Worth of at least the sum of
(a) 85% of the Consolidated Net Worth of the Borrowers at the Closing, (b) 50%
of the cumulative Consolidated Net Worth of the Borrowers and their Restricted
Subsidiaries from the date of the Closing to the date of determination, taken as
one accounting period and (c) 80% of Acquired Net Worth (whether positive or
negative).
"Consolidated Net Income" means, for any period, the net income of the
Borrowers and their Restricted Subsidiaries excluding extraordinary gains and
losses, all in accordance with generally accepted accounting principles, and
excluding other non-cash, non-recurring charges and other expenses funded by
equity. "Consolidated Net Worth" means, at the date of determination, the
consolidated stockholders' equity of the Borrowers and their Restricted
Subsidiaries. "Fixed Charges" means, at the date of the determination, with
respect to the Borrowers and their Restricted Subsidiaries, the sum for the
period of the four consecutive fiscal quarters then ended of (i) interest on
Indebtedness and (ii) operating rentals for leased properties. "Fixed Charge
Coverage Ratio" means, at the date of determination, the ratio of (i) the sum,
computed with respect to the Borrowers and their Restricted Subsidiaries for the
period of the four
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<PAGE>
consecutive fiscal quarters ended on such date of determination, of (a) the
Consolidated Net Income of the Borrowers and their Restricted Subsidiaries, (b)
income taxes paid or accrued, (c) interest on Indebtedness, (d) operating
rentals for leased properties and (e) provisions for amortization and
depreciation, to (ii) Fixed Charges. "Indebtedness" means, without duplication,
(i) all obligations of the Borrowers and their Restricted Subsidiaries for
borrowed money or evidenced by bonds, debentures, notes or similar instruments,
(ii) all obligations of the Borrowers and their Restricted Subsidiaries for the
deferred purchase price of property and services, except certain trade accounts
payable, (iii) all Capital Lease Obligations of the Borrowers and their
Restricted Subsidiaries, (iv) all preferred stock issued by the Borrowers or
their Restricted Subsidiaries which is required by its terms to be redeemed, or
for which mandatory sinking fund payments are due, by a fixed date, (v) all
Indebtedness of others secured by a lien on any properties, assets or revenues
of the Borrowers or their Restricted Subsidiaries or guaranteed by the Borrowers
or their Restricted Subsidiaries and (vi) all obligations of the Borrowers or
their Restricted Subsidiaries with respect to outstandings under receivable
purchase facilities. "Operating Cash Flow" means, with respect to the Borrowers
and their Restricted Subsidiaries, the sum for the relevant period of (a) the
Consolidated Net Income of the Borrowers and their Restricted Subsidiaries, (b)
income taxes paid or accrued, (c) interest on Indebtedness, (d) depreciation and
amortization and (e) the Pro Forma Amount of Operating Cash Flow of any assets
or entities acquired by any Borrower or any of their Restricted Subsidiaries
during the relevant period, less the amount of Operating Cash Flow of any assets
or entities sold by any Borrower or their Restricted Subsidiaries during such
period.
Failure to satisfy any of the foregoing covenants would constitute an event
of default under the New Credit Facility, notwithstanding the ability of the
Borrower to meet its debt service obligations. The New Credit Facility also will
include other customary events of default, including, without limitation, a
cross-default to other indebtedness, material undischarged judgments, bankruptcy
and a change of control of the Borrower or JP Foodservice.
Receivables Securitization
JP Foodservice and Rykoff-Sexton currently operate receivables
securitization programs of $50 million and $200 million, respectively. JP
Foodservice intends to increase the aggregate size of the existing programs by
$50 million to $100 million depending on the volume of eligible receivables. The
securitizations are structured as sales of certain accounts receivable to
special-purpose subsidiaries of JP Foodservice or Rykoff-Sexton. The
special-purpose
140
<PAGE>
subsidiaries, in turn, convey the receivables they purchase, or undivided
interests in such receivables, to unaffiliated financing vehicles for cash or
cash equivalents.
OWNERSHIP OF JP FOODSERVICE COMMON SHARES
The following table sets forth certain information regarding the beneficial
ownership of JP Foodservice Common Shares as of August 31, 1997, and as adjusted
to reflect the issuance by JP Foodservice of 24,129,445 JP Foodservice Common
Shares in connection with the Merger as of the Effective Time, by (i) each
person or entity known by JP Foodservice to be the beneficial owner of more than
5% of the JP Foodservice Common Shares, (ii) each person or entity known by JP
Foodservice to be a beneficial owner of Rykoff-Sexton Common Shares that would
become a beneficial owner of more than 5% of the JP Foodservice Common Shares as
a result of the Merger, (iii) each director of JP Foodservice, (iv) certain
executive officers of JP Foodservice, (v) certain directors and executive
officers of Rykoff-Sexton who are expected to serve as directors or executive
officers of JP Foodservice following consummation of the Merger and (vi) all
such executive officers and directors of JP Foodservice and Rykoff-Sexton as a
group.
<TABLE>
<CAPTION>
Before the Merger After the Merger
----------------- ----------------
Shares Percentage Shares Percentage
Name and Address Beneficially of Beneficially of
of Beneficial Owner Owned (1) Class Owned (1) Class
- ------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
T. Rowe Price Associates............ 2,651,550 (2) 11.7% 2,651,550 5.7%
100 E. Pratt Street
Baltimore, Maryland 21202
Palisade Capital Management, L.L.C.. 1,173,500 (3) 5.2 1,173,500 2.5
1 Bridge Plaza, Suite 695
Fort Lee, New Jersey 07024
William Blair & Company,
L.L.C............................... 1,462,204 (4) 6.5 1,462,204 3.1
222 West Adams Street
Chicago, Illinois 60606
ML Investors (5).................... 0 0 8,463,843 18.1
c/o Merrill Lynch Capital
Partners, Inc.
225 Liberty Street
New York, New York 10080
David M. Abramson................... 12,426 (6) * 12,426 *
Michael J. Drabb.................... 4,750 (7) * 4,750 *
Harold E. Feather................... 0 0 172,730 (16) *
Eric E. Glass....................... 3,400 (8) * 3,400 *
Lewis Hay, III...................... 113,945 (9) * 113,945 *
Mark P. Kaiser...................... 66,504 (10) * 66,504 *
Paul I. Latta, Jr. ................. 3,500 (11) * 3,500 *
Richard J. Martin................... 0 0 140,403 (17) *
James I. Maslon..................... 0 0 292,446 (18) *
George T. Megas..................... 24,216 (12) * 24,216 *
James L. Miller..................... 280,200 (13) 1.2 280,200 *
James P. Miscoll.................... 0 0 11,130 (19) *
Neil I. Sell........................ 0 0 14,966 (20) *
Jeffrey D. Serkes................... 1,250 (14) * 1,250 *
Dean R. Silverman................... 2,500 (15) * 2,500 *
Mark Van Stekelenburg............... 0 0 521,367 (21) 1.1
Bernard Sweet....................... 0 0 17,702 (22) *
All directors and executive officers
as a group (10 persons before the
Merger and 17 persons after the
Merger)............................. 512,691 2.2 1,683,435 (23) 3.5
</TABLE>
- ----------------
* Less than 1%.
141
<PAGE>
(1) The information regarding beneficial ownership of the JP
Foodservice Common Shares has been presented in accordance with
rules of the SEC and is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial
ownership of JP Foodservice Common Shares includes any shares as
to which a person has sole or shared voting power or investment
power and also any shares which a person has the right to acquire
within 60 days through the exercise of any stock option or other
right.
(2) As reported in a Schedule 13G dated February 11, 1997 filed with
the SEC. Voting power with respect to all but 336,750 shares is
exercised by other persons. T. Rowe Price New Horizons Fund, Inc.
has sole voting power with respect to 1,200,000 of the 2,651,550
shares reported by T. Rowe Price Associates.
(3) As reported in a Schedule 13G dated February 12, 1997 filed with
the SEC.
(4) As reported in a Schedule 13G dated February 18, 1997 filed with
the SEC. Voting power with respect to all but 699,754 shares is
exercised by other persons.
(5) The ML Investors consist of the following entities, each of which
after the consummation of the Merger will beneficially own the
percentage of outstanding JP Foodservice Common Shares indicated
after its name: Merrill Lynch Capital Appreciation Partnership No.
B-XVIII, L.P. (7.90%), ML Offshore LBO Partnership No. B-XVIII
(3.98%), ML IBK Positions, Inc. (2.61%), MLCP Associates L.P. No.
II (0.10%), MLCP Associates No. IV (0.03%), Merrill Lynch KECALP
L.P. 1994 (0.12%), Merrill Lynch KECALP L.P. 1991 (0.34%), Merrill
Lynch Capital Appreciation Partnership No. XIII, L.P. (2.94%), ML
Offshore LBO Partnership No. XIII (0.08%), ML Employees LBO
Partnership No. I (0.07%), Merrill Lynch KECALP L.P. 1987 (0.05%)
and Merchant Banking L.P. No. II (0.05%). The ML Investors are
affiliates of Merrill Lynch & Co. and Merrill Lynch & Co.
disclaims beneficial ownership of all such shares for all
purposes.
142
<PAGE>
(6) Includes (i) 80 shares credited to participant account in JP
Foodservice's 401(k) retirement savings plan, which are voted by
the plan's trustees, (ii) outstanding options exercisable within
60 days to purchase 9,971 shares and (iii) 2,000 shares held by a
family trust for the benefit of Mr. Abramson's minor children, of
which Mr. Abramson acts as the trustee and with respect to which
he exercises voting power and investment power.
(7) Includes outstanding options exercisable within 60 days to
purchase 4,750 shares.
(8) Includes outstanding options exercisable within 60 days to
purchase 3,000 shares.
(9) Includes (i) 642 shares credited to participant account in JP
Foodservice's 401(k) retirement savings plan, which are voted by
the plan's trustees, and (ii) outstanding options exercisable
within 60 days to purchase 43,185 shares. Also includes 381 shares
held by Mr. Hay's wife as a custodian for their minor children.
Mr. Hay disclaims any beneficial interest in such shares.
(10) Includes (i) 678 shares credited to participant account in JP
Foodservice's 401(k) retirement savings plan, which are voted by
the plan's trustees, and (ii) outstanding options exercisable
within 60 days to purchase 34,398 shares.
(11) Includes outstanding options exercisable within 60 days to
purchase 2,500 shares.
(12) Includes (i) 579 shares credited to participant account in JP
Foodservice's 401(k) retirement savings plan, which are voted by
the plan's trustees, and (ii) outstanding options exersiable
within 60 days to purchase 14,153 shares.
(13) Includes (i) 11,332 shares credited to participant account in JP
Foodservice's 401(k) retirement savings plan, which are voted by
the plan's trustees, and (ii) outstanding options exercisable
within 60 days to purchase 95,338 shares. Also includes 1,195
shares owned by members of Mr. Miller's family. Mr. Miller
disclaims any beneficial interest in such shares.
143
<PAGE>
<TABLE>
<S> <C>
(14) Includes outstanding options exercisable within 60 days to purchase
1,250 shares.
(15) Includes outstanding options exercisable within 60 days to purchase
2,500 shares.
(16) Includes (i) Assumed Options to purchase 106,575 shares that are or
will be immediately exercisable upon stockholder approval of the Rykoff-
Sexton Proposal and (ii) 47,040 shares subject to Performance Share
Awards that will be issuable upon stockholder approval of the Rykoff-
Sexton Proposal.
(17) Includes (i) Assumed Options to purchase 71,662 shares that are or will
be immediately exercisable upon stockholder approval of the Rykoff-
Sexton Proposal, (ii) 48,720 shares subject to Performance Share Awards
that will be issuable upon stockholder approval of the Rykoff-Sexton
Proposal and (iii) 18,619 shares issuable in payment of amounts owing
under certain agreements and arrangements with Rykoff-Sexton discussed
under the caption "Management of JP Foodservice After the Merger--
Rykoff-Sexton Executive Compensation."
(18) Includes (i) 11,397 shares held of record by Mr. Maslon as trustee for
his children, (ii) 170,906 shares held of record by Mr. Maslon as co-
trustee for his mother and (iii) 105 shares owned by his spouse. Also
includes Assumed Options to purchase 9,030 shares that will be
immediately exercisable as of the Effective Time.
(19) Includes Assumed Options to purchase 9,030 shares that will be
immediately exercisable as of the Effective Time.
(20) Includes Assumed Options to purchase 9,030 shares that will be
immediately exercisable as of the Effective Time.
(21) Includes (i) Assumed Options to purchase 332,325 shares that are or
will be immediately exercisable upon stockholder approval of the
Rykoff-Sexton Proposal, (ii) 100,800 shares subject to Performance
Share Awards that will be issuable upon stockholder approval of the
Rykoff-Sexton Proposal and (iii) 52,221 shares issuable in payment of
amounts owing under certain agreements and arrangements with Rykoff-
Sexton discussed under the caption "Management of JP Foodservice After
the Merger--Rykoff-Sexton Executive Compensation."
(22) Includes 1,181 shares owned by Mr. Sweet's spouse. Also includes
Assumed Options to purchase 9,030 shares that will be immediately
exercisable as of the Effective Time.
(23) Pursuant to the Merger Agreement, MLCP will be entitled to designate
two nominees to the JP Foodservice Board of Directors. Because such
nominees have not yet been identified, the beneficial ownership of JP
Foodservice Common Shares of all directors and executive officers as a
group after the Merger does not give effect to the share holdings of
such nominees.
</TABLE>
The information contained in the foregoing footnotes is for explanatory
purposes only.
Information regarding the beneficial ownership of Rykoff-Sexton Common
Shares is contained under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Rykoff-Sexton Annual Report on Form 10-K, which is
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Additional Information" and "Incorporation of Certain Documents by Reference."
144
<PAGE>
MANAGEMENT OF JP FOODSERVICE AFTER THE MERGER
Directors
JP Foodservice has agreed in the Merger Agreement that, prior to the
Effective Time, it will increase the size of the JP Foodservice Board of
Directors from nine to 17 directors. In addition, the Merger Agreement provides
that the JP Foodservice Board of Directors, immediately following the Effective
Time, will consist of (i) nine individuals, including each of the incumbent
members of the JP Foodservice Board of Directors (or their replacements), no
fewer than five of whom will be outside directors, as selected by JP Foodservice
prior to the Effective Time, (ii) seven individuals, no fewer than four of whom
will be outside directors, two of whom will be individuals designated by MLCP,
one of whom will be Mr. Van Stekelenburg, and four of whom will be current
incumbents of the Rykoff-Sexton Board of Directors who are not employees of
Rykoff-Sexton or its subsidiaries or affiliated with MLCP, and (iii) one
additional person to be designated by the Chairman of JP Foodservice following
the Merger. Rykoff-Sexton has selected, pursuant to clause (ii) above, James I.
Maslon, Bernard Sweet, Neil I. Sell and James P. Miscoll to serve as directors
after the Merger. In addition, the Merger Agreement obligates JP Foodservice to
take such action as may be necessary such that two of the three classes of the
JP Foodservice Board of Directors will consist of six directors each, three of
whom will be incumbent directors of the JP Foodservice Board of Directors
pursuant to clause (i) above and three of whom will be designated by
Rykoff-Sexton pursuant to clause (ii) above, and the third class of the JP
Foodservice Board of Directors will consist of five directors, three of whom
will be incumbent members of the JP Foodservice Board of Directors pursuant to
clause (ii) above, one of whom will be designated by Rykoff-Sexton pursuant to
clause (ii) above and one of whom will be designated as a director by the
Chairman of JP Foodservice following the Merger pursuant to clause (iii) above.
Mr. Van Stekelenburg will be appointed to the class of directors of the JP
Foodservice Board of Directors whose term will expire in 1998. The two directors
who will be designated by MLCP will be appointed, one each, to the class of
directors whose term will expire in 1999 and 2000, respectively. Of the four
directors to be selected by Rykoff-Sexton pursuant to clause (ii) above, Mr.
Maslon will be appointed to the class of directors whose term will expire in
1998 and Mr. Sweet will be appointed to the class of directors whose term will
expire in 1999.
The By-laws of JP Foodservice provide that directors elected to the Board
subsequent to June 29, 1997 who are 70 or more years of age are not eligible for
re-nomination to the JP Foodservice Board of Directors. Based upon their ages at
the Effective Time, it is expected that Messrs. Maslon and Sweet will retire as
directors in classes of the JP Foodservice Board whose terms will expire in 1998
and 1999, respectively. It is currently contemplated that the first three
vacancies on the JP Foodservice Board of Directors to occur following the
Effective Time will not be
145
<PAGE>
filled, so that the total number of directors constituting the JP Foodservice
Board of Directors thereafter will be reduced to 14.
The Merger Agreement also provides that, as of the Effective Time, the JP
Foodservice Board of Directors will initially have an audit committee, a
compensation committee and a nominating committee. Each committee will consist
of four directors, two of whom will be designated by JP Foodservice, one of whom
will be designated by Rykoff-Sexton and one of whom will be designated by mutual
agreement of JP Foodservice and Rykoff-Sexton. The initial chairman of each of
the audit committee, the compensation committee and the nominating committee
will be the JP Foodservice director who is currently the incumbent chairman of
such committee until such chairman's replacement is duly designated by the JP
Foodservice Board of Directors. If any of such committee chairs becomes vacant
for any reason prior to the Effective Time, the chairman will be the person
thereafter designated by the JP Foodservice Board of Directors pursuant to the
Certificate of Incorporation and By-laws of JP Foodservice. One member of the
nominating committee of the JP Foodservice Board of Directors (and of an
executive committee thereof, if such a committee is established) will be
designated by MLCP as Rykoff-Sexton's designee thereon.
Set forth below is certain information about each person who is expected to
be a member of the Board of Directors of JP Foodservice as of the Effective
Time, except that MLCP has not yet designated the two persons to be designated
by it under the Merger Agreement for service as directors. Following the
designation of such persons, the JP Foodservice Board will have 16 members as of
the Effective Time.
146
<PAGE>
<TABLE>
<CAPTION>
Term as
Year Became Director
Name a Director Expires Age
- ---- ---------- ------- ---
<S> <C> <C> <C>
James L. Miller.................. 1989 2000 48
Chairman of the Board of Directors
and President and Chief Executive
Officer of JP Foodservice since
July 1989. From 1986 to 1989,
Mr. Miller served as Executive
Vice President and Chief Operating
Officer of the Northern Division
of PYA/Monarch, Inc.
("PYA/Monarch"), a wholly owned
subsidiary of Sara Lee Corporation.
From 1983 to 1985, Mr. Miller
served as Vice President and
General Manager of PYA/Monarch's
Northeast Division. Before joining
PYA/Monarch, from 1972 to 1983,
Mr. Miller was employed by SYSCO
Corp., where he held the positions
of Vice President of Operations,
Vice President of Sales, Vice
President and General Manager.
Lewis Hay, III................. 1991 1999 42
Senior Vice President and Chief
Financial Officer of JP Food-
service since 1991. Before
joining JP Foodservice, Mr. Hay
was a Vice President and partner
of Mercer Management Consulting
(formerly Strategic Planning
Associates), where he led the
strategy consulting practice in
the firm's Washington, D.C.
office. Mr. Hay joined Mercer
Management Consulting in 1982
and, beginning in 1986, partici-
pated in a number of consulting
projects for PYA/Monarch,
including the management-led
leveraged acquisition of certain
operations of PYA/Monarch in
connection with the formation of
JP Foodservice. Mr. Hay also
serves as a member of the Council
on Finance for the Graduate
School of Industrial Administra-
tion of Carnegie Mellon
University.
David M. Abramson................ 1994 2000 44
Senior Vice President and General
Counsel of JP Foodservice since
July 1, 1996 and Secretary since
September 2, 1996. Mr. Abramson
was the President and Managing
Principal of the law firm of
Levan, Schimel, Belman & Abramson,
P.A. from 1992 to 1996.
Previously, Mr. Abramson was a
Vice President and Principal of
that firm. Mr. Abramson serves as
a director of Monocacy Bancshares,
Inc., which is the parent corpor-
ation of Taneytown Bank & Trust
Company in Taneytown, Maryland.
</TABLE>
147
<PAGE>
<TABLE>
<CAPTION>
Term as
Year Became Director
Name a Director Expires Age
- ---- ---------- ------- ---
<S> <C> <C> <C>
Mark P. Kaiser................. 1996 1999 40
Senior Vice President-Sales,
Marketing and Procurement of JP
Foodservice since 1993. Mr.
Kaiser served as the JP Food-
service's Vice President-Sales
and Marketing from 1989 to 1991
and as Executive Vice President-
Sales, Marketing and Procurement
from 1991 to 1993. Mr. Kaiser
previously held a number of
positions at PYA/Monarch,
including Vice President-Sales
from 1985 to 1989.
Michael J. Drabb............... 1994 1998 63
Executive Vice President of
O'Brien Asset Management, Inc.,
an institutional asset manage-
ment firm, since August 1993.
From April 1992 to July 1993,
Mr. Drabb was retired. Mr.
Drabb served as an Executive
Vice President and a member of
the cabinet of The Mutual Life
Insurance Company of New York
("MONY") from 1989 to 1992 and
was employed by MONY from 1961
until his retirement in 1992.
Mr. Drabb also serves as a
director of the New York Life
Fund, Inc., the New York Life
MFA Series Fund, Inc., the MONY
Series Fund, Inc. and United
States Leather, Inc.
Eric E. Glass.................. 1996 1998 57
Chairman of the Board for The
Taney Corporation, a manu-
facturer of wooden stairway
components and stairways, since
1995. Previously, from 1962 to
1995, Mr. Glass served as
President of The Taney
Corporation. Mr. Glass also
serves as a director of the
Gettysburg Hospital in
Gettysburg, Pennsylvania and
Chairman of the Board and Vice
Chairman of the Executive
Committee of Monocacy Bancshares,
Inc., which is the parent corpor-
ation of Taneytown Bank & Trust
Company in Taneytown, Maryland.
Paul I. Latta, Jr.............. 1996 1998 54
Senior Vice President of The
Rouse Company, a real estate
development and management
company, where he is responsible
for all retail properties.
Mr. Latta previously held a
number of positions with The
Rouse Company, where he has been
employed since 1968.
</TABLE>
148
<PAGE>
<TABLE>
<CAPTION>
Term as
Year Became Director
Name a Director Expires Age
- ---- ---------- ------- ---
<S> <C> <C> <C>
Jeffrey D. Serkes.............. 1996 1999 38
Vice President and Treasurer of
International Business Machines
Corporation ("IBM") since
January 1995 and Assistant
Treasurer of IBM from August
1994 to December 1994. From 1987
to August 1994, Mr. Serkes held
a number of positions with RJR
Nabisco, Inc., including Vice
President and Deputy Treasurer
and Vice President and Assistant
Treasurer, Corporate Finance.
Mr. Serkes serves as a director
of IBM Credit Corporation.
Dean R. Silverman.............. 1996 2000 46
President of Dean & Company, a
strategic management consulting
company located in Vienna,
Virginia since 1993. Prior to
1993, Mr. Silverman was
Executive Vice President and a
partner of Mercer Management
Consulting.
Mark Van Stekelenburg.......... 1997 1998 46
Vice Chairman and President of
JP Foodservice as of the
Effective Time. Mr. Van
Stekelenburg was President of
Rykoff-Sexton since August 1997,
Chairman of the Board of
Directors of Rykoff-Sexton since
December 1995, Chief Executive
Officer since December 1992 and
a director since September 1992.
Mr. Van Stekelenburg joined
Rykoff-Sexton in 1991, and was
Executive Vice President until
December 1992, at which time he
was elected President and Chief
Executive Officer of Rykoff-
Sexton. He was previously
President and Chief Executive
Officer of Grootverbruik Ahold,
the foodservice division of
Royal Ahold, N.V.
James I. Maslon................ 1997 1998 70
A director of Rykoff-Sexton
since 1962. Mr. Maslon has been
retired since 1992. Mr. Maslon
was previously Vice President--
Manufacturing of Rykoff-Sexton's
S.E. Rykoff & Co. division.
</TABLE>
149
<PAGE>
<TABLE>
<CAPTION>
Term as
Year Became Director
Name a Director Expires Age
- ---- ---------- -------- ---
<S> <C> <C> <C>
Bernard Sweet.................. 1997 1999 73
A director of Rykoff-Sexton
since 1978. Mr. Sweet has been
retired since 1985. Mr. Sweet
was previously President and
Chief Executive Officer of
Republic Airlines, Inc. He is a
director of G&K Services, Inc.
Neil I. Sell................... 1997 1999 56
A director of Rykoff-Sexton
since 1982. Mr. Sell is a
partner in the firm of Maslon
Edelman Borman & Brand, L.L.P.,
a position that he has held
since 1968. He is a director of
Grand Casinos, Inc.
James P. Miscoll............... 1997 2000 62
A director of Rykoff-Sexton
since 1992. Mr. Miscoll has
been retired since 1992.
Mr. Miscoll was previously Vice
Chairman of BankAmerica
Corporation. He is a director of
American International Group,
Inc., Coast Federal Financial,
Inc., MK Gold Company,
MotivePower Industries, Inc. and
U.S. Rentals, Inc.
</TABLE>
Executive Officers
James L. Miller, who currently serves as the Chairman, President and Chief
Executive Officer of JP Foodservice, will serve as Chairman and Chief Executive
Officer of JP Foodservice following the Merger. As of the Effective Time Mark
Van Stekelenburg, who currently serves as Chairman, President and Chief
Executive Officer of Rykoff-Sexton, will become the Vice Chairman and President
of JP Foodservice.
Frank H. Bevevino, former President of Rykoff-Sexton and Chief Executive
Officer of Rykoff-Sexton's US Foodservice subsidiary, and Thomas G. McMullen,
former Executive Vice President of Rykoff-Sexton, resigned from their executive
officer positions at Rykoff-Sexton in July 1997 and will not be executive
officers of JP Foodservice after the Merger. Mr. Bevevino also resigned as a
member of the Rykoff-Sexton Board of Directors during July 1997.
Following the Merger, Lewis Hay, III, who currently serves as Senior Vice
President and Chief Financial Officer of JP Foodservice, will become
150
<PAGE>
Executive Vice President and Chief Financial Officer of JP Foodservice, and
Richard J. Martin, who currently serves as Executive Vice President and Chief
Financial Officer of Rykoff-Sexton, will be named to a newly created position of
Executive Vice President, Finance and Administration of JP Foodservice.
Set forth below is certain information about each person who is expected to
be an executive officer of JP Foodservice as of the Effective Time and who is
not described above as a current or designated member of the JP Foodservice
Board of Directors.
<TABLE>
<CAPTION>
Year Became
Name an Executive Officer Age
<S> <C> <C>
Harold E. Feather................... As of Effective Time 58
Executive Vice President-Operations of JP
Foodservice as of the Effective Time. Mr.
Feather currently serves as Executive Vice
President, Strategic Planning of Rykoff-
Sexton (since January 1997). Mr. Feather joined
Rykoff-Sexton in 1983 and served as
President of Rykoff-Sexton's Distribution
Division from 1992 until 1994 and as
Executive Vice President, Corporate
Planning of Rykoff-Sexton from 1994 until
January 1997.
Richard J. Martin.................... As of Effective Time 51
Executive Vice President--Finance and
Administration of JP Foodservice as of the
Effective Time. Mr. Martin has served as
Executive Vice President and Chief
Financial Officer of Rykoff-Sexton since
September 1997 and previously served as
Senior Vice President, Corporate
Development of Rykoff-Sexton from January to
September 1997. Mr. Martin joined Rykoff-
Sexton in August 1988 and served as Vice
President thereof from 1988 until 1993 and
as Senior Vice President and Chief Financial
Officer from 1993 through 1996.
George T. Megas...................... 1991 44
Vice President-Finance, Assistant Secretary
and Assistant Treasurer of JP Foodservice.
Mr. Megas is responsible for accounting,
</TABLE>
151
<PAGE>
treasury and finance functions. Mr. Megas
previously served as Corporate Controller
for Strategic Planning Associates, Inc., a
management consulting firm, from 1979 to
1990, when it was acquired by Mercer
Management Consulting, and served as
Controller for certain regions of Mercer
Management Consulting until 1991.
152
<PAGE>
JP Foodservice Executive Compensation
The following table (the "Summary Compensation Table") sets forth the
compensation paid to the Chief Executive Officer of JP Foodservice and to each
of the other most highly compensated executive officers for fiscal 1997.
<TABLE>
<CAPTION>
Summary Compensation Table Long Term
Compensation
Annual Compensation ------------
------------------------------------------------ Securities
Name and Fiscal Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(1) Options Compensation(2)
<S> <C> <C> <C> <C> <C> <C>
James L. Miller ........... 1997 $ 347,307 $ 448,875 - 127,097 $ 5,364
Chairman of the Board, 1996 266,245 352,914 $ 45,433 30,895 3,473
President and
Chief Executive Officer 1995 233,337 220,383 47,210 68,489 5,086
Lewis Hay, III ............. 1997 248,346 320,625 - 65,864 5,117
Senior Vice President and 1996 202,498 221,768 - 13,116 3,655
Chief Financial Officer 1995 192,559 154,589 - 29,054 4,976
David M. Abramson .......... 1997 220,673 288,562 - 25,000 5,056
Senior Vice President and 1996 - - - - -
General Counsel 1995 - - - - -
Mark P. Kaiser ............. 1997 222,500 288,562 - 35,395 5,056
Senior Vice President-Sales, 1996 155,192 131,913 - 13,118 2,736
Marketing and 1995 125,192 75,115 27,457 26,333 3,433
Procurement
George T. Megas ............ 1997 109,364 81,200 - 23,571 4,593
Vice President-Finance 1996 104,364 63,000 - 4,184 2,599
1995 100,589 60,353 - 8,956 3,336
</TABLE>
- ----------------------
(1) The amounts shown in the "Other Annual Compensation" column include the
following: (i) for Mr. Miller, $21,774 and $22,699 relating to the personal
use of a JP Foodservice-owned automobile in fiscal 1997 and 1996,
respectively, and $20,059 and $20,911 representing reimbursement of federal
and state taxes in connection with such use in fiscal 1996 and 1995,
respectively; and (ii) for Mr. Kaiser, $12,415 relating to the personal use
of a JP Foodservice-owned automobile in fiscal 1995 and $11,442
representing reimbursement by JP Foodservice of federal and state taxes in
connection with such use in fiscal 1995.
(2) The amounts shown in the "All Other Compensation" column consist of the
following: (i) for Mr. Miller, $4,500, $2,782 and $4,410 in matching
contributions by JP Foodservice to the JP Foodservice 401(k) Plan, a
defined contribution plan (the "401(k) Plan") in fiscal 1997, 1996 and
1995, respectively, and $861, $691 and $676 in premiums paid by JP
Foodservice for group term life Insurance for Mr. Miller in fiscal 1997,
1996 and 1995, respectively; (ii) for Mr. Hay, $4,500, $3,082 and $4,418 in
matching contributions by JP Foodservice to the 401(k) Plan in fiscal 1997,
1996 and 1995, respectively, and $617, $573 and $556 in premiums paid by JP
Foodservice for group term life insurance for Mr. Hay in fiscal 1997, 1996
and 1995, respectively; (iii) for Mr. Abramson, $4,500 in matching
contributions by JP Foodservice to the 401(k) Plan and $558 in premiums
paid by JP Foodservice for group term life insurance for Mr. Abramson in
fiscal 1997; (iv) for Mr. Kaiser, $4,500, $2,341 and $3,044 in matching
contributions to the 401(k) Plan in fiscal 1997, 1996 and 1995,
respectively, and $556, $395 and $389 in premiums paid by JP Foodservice
for group term life insurance for Mr. Kaiser in fiscal 1997, 1996 and 1995,
respectively; and (iv) for Mr. Megas, $4,321, $2,296 and $3,042 in matching
contributions by JP Foodservice to the 401(k) Plan in
153
<PAGE>
fiscal 1997, 1996 and 1995, respectively, and $272, $303 and $294 in
premiums paid by JP Foodservice for group term life insurance for Mr. Megas
in fiscal 1997, 1996 and 1995, respectively.
154
<PAGE>
Stock Option Grants in Fiscal 1997
The following table sets forth information concerning all stock options
granted during fiscal 1997 to the executive officers of JP Foodservice named in
the Summary Compensation Table. As of the date of this Joint Proxy
Statement/Prospectus, JP Foodservice has not granted any stock appreciation
rights ("SARs").
<TABLE>
<CAPTION>
Option/SAR Grants in Fiscal Year 1997
Individual Grants
% of Total Potential Realizable
Number of Options/SARs Value of Assumed
Shares Granted to Exercise Annual Rates of Stock
Underlying Employees In Price Price Appreciation for
Options Fiscal Year 1996 ($/Share) Expiration Option Term(3)
Name Granted (1) Date(2) 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James L. Miller ...... 27,537 (4) 6.09% $21.00 7/16/06 363,675 921,625
99,560 (5) 22.01% $21.25 11/14/06 1,330,521 3,371,801
Lewis Hay, III ....... 14,270 (4) 3.15% $21.00 7/16/06 188,461 477,597
51,594 (5) 11.40% $21.25 11/14/06 689,503 1,747,335
David M. Abramson .... 5,417 (4) 1.20% $21.00 7/16/06 71,541 181,299
19,583 (5) 4.33% $21.25 11/14/06 261,707 663,218
Mark P. Kaiser ....... 7,669 (4) 1.70% $21.00 7/16/06 101,283 256,671
27,726 (5) 6.13% $21.25 11/14/06 370,531 938,997
George T. Megas ...... 5,107 (4) 1.13% $21.00 7/16/06 67,447 170,924
18,464 (5) 4.08% $21.25 11/14/06 246,753 625,321
</TABLE>
- -------------------
(1) The exercise price may be paid in cash or in JP Foodservice Common Shares
valued at fair market value on the exercise date.
(2) The term of each option may not exceed ten years.
(3) There is no assurance provided to any executive officer or any other holder
of JP Foodservice Common Shares that the actual stock price appreciation
over the term of the applicable options will be at the assumed 5% and 10%
levels or at any other defined level. Unless the market price of the JP
Foodservice Common Shares does in fact appreciate over the option term, no
value will be realized from the option grants made to the executive
officers.
(4) One-third of each such option granted vests on the first, second and third
anniversary dates of the option grant date. Upon a change in control of JP
Foodservice, all previously unvested options will vest and become
immediately exercisable.
(5) One-fifth of each such option granted vested on the option grant date.
One-fifth of each such option vests on the first, second, third and fourth
anniversary dates of the option grant date. Upon a change in the control of
JP Foodservice, all previously unvested options will vest and become
immediately exercisable.
155
<PAGE>
Stock Option Exercises in Fiscal 1997
The following table sets forth information concerning all stock options
exercised during fiscal 1997 and unexercised stock options held at the end of
that fiscal year by the executive officers of JP Foodservice named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Fiscal Year 1997
and Fiscal Year-End Option/SAR Values
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/SARs at
6/28/97 6/28/97 (1)
------------------------------------------------------------------
Shares Unexercisable
Acquired on Value Exercisable (# of Exercisable Unexercisable
Name Exercise(#) Realized (# of Shares) Shares) ($ Value) ($ Value)
<S> <C> <C> <C> <C> <C> <C>
($)
James L. Miller .... - - 75,863 150,618 $ 1,213,696 $ 1,722,617
Lewis Hay, III ..... - - 34,057 73,979 531,542 821,015
David M. Abramson .. - - 8,166 22,834 113,702 219,683
Mark P. Kaiser ..... - - 27,470 47,376 454,456 573,833
George T. Megas .... - - 11,056 25,656 169,128 279,249
</TABLE>
- -----------------------
(1) Value based on the closing price of a JP Foodservice Common Share of
$30.13 on June 27, 1997, as reported on the NYSE, minus the exercise price.
156
<PAGE>
Executive Employment Contracts and Severance Agreements
JP Foodservice has entered into an employment agreement with James L.
Miller, dated July 3, 1989 and amended as of June 27, 1995, pursuant to which
Mr. Miller is employed by JP Foodservice as the Chairman of the Board, President
and Chief Executive Officer. The agreement provides for successive renewals
unless JP Foodservice gives written notice at least one year in advance of its
intention not to renew. The employment agreement provides that JP Foodservice
will pay Mr. Miller a base salary of $170,000 per annum, subject to such
increases as the Board may determine on an annual basis. The agreement also
provides that Mr. Miller has the right to participate in JP Foodservice's annual
bonus program, under which he may earn a percentage of his annual base salary
for such year based on the achievement by JP Foodservice of certain financial
and operating targets set by the Compensation Committee of the JP Foodservice
Board of Directors. If JP Foodservice's performance meets these targets, Mr.
Miller's annual bonus will be 100% of his annual base salary. If JP
Foodservice's performance is higher or lower than such targets, Mr. Miller's
bonus will be a higher or lower percentage of his base salary.
JP Foodservice has entered into an employment agreement with Lewis Hay,
III, dated August 9, 1991 and amended as of June 27, 1995, pursuant to which Mr.
Hay is employed by JP Foodservice as Senior Vice President and Chief Financial
Officer. The agreement provides for successive one-year renewals unless JP
Foodservice gives written notice at least 360 days in advance of its intention
not to renew. The employment agreement provides that JP Foodservice will pay Mr.
Hay a base salary of $170,000 per annum, subject to such increases as the Board
may determine on an annual basis. Mr. Hay's employment agreement also provides
that Mr. Hay has the right to participate in JP Foodservice's annual bonus
program, under which he may earn a percentage of his annual base salary for such
year based on the achievement by JP Foodservice of certain financial and
operating targets set by the Compensation Committee of the JP Foodservice Board
of Directors. If JP Foodservice's performance meets the targets, Mr. Hay's
annual bonus will be 85% of his annual base salary. If JP Foodservice's
performance is higher or lower than such targets, Mr. Hay's bonus will be a
higher or lower percentage of his base salary.
JP Foodservice's employment agreements with Mr. Miller and Mr. Hay, as well
as JP Foodservice's severance agreements dated as of September 27, 1995 with
Mark P. Kaiser, Senior Vice President-Sales, Marketing and Procurement, and
George T. Megas, Vice President-Finance, provide for the payment of certain
severance benefits to each such officer if the officer's employment is
terminated by JP Foodservice without cause or if the officer terminates his
employment for cause. In the latter case, "cause," as defined, includes a
material reduction in the executive's duties, certain relocations of the
executive's office, a reduction in the
157
<PAGE>
executive's base salary, and notification to the executive that his employment
agreement will not be renewed. Upon such a termination, the executive will be
entitled to receive (i) a lump-sum payment in an amount equal to three times
(for Messrs. Miller and Hay) or two times (for Messrs. Kaiser and Megas) the
executive's base salary and bonus for the preceding fiscal year (reduced, in
certain circumstances, by any amount attributable to the acceleration of the
vesting of outstanding stock options) and (ii) welfare and similar benefits for
three years substantially equivalent to those provided prior to termination. If
the payment is deemed to result from a change in control (as defined) of JP
Foodservice and the amount payable to either officer under these agreements
exceeds certain threshold amounts, federal excise tax could be imposed on the
officer and JP Foodservice could lose a tax deduction for a portion of the
payment. If the amount payable would result in such effects, the amount payable
will be reduced by the amount the payment exceeds the threshold.
JP Foodservice has entered into employment agreements with Messrs. Miller,
Hay, Kaiser and Megas, dated as of January 4, 1996, which will supersede the
foregoing employment and severance agreements at such time, if any, as there is
a change of control (as defined) of JP Foodservice. Each agreement provides for
a three-year employment term. Each executive will be entitled to receive a base
salary at least equal to twelve times the highest monthly base salary paid or
payable to the executive during the twelve months immediately preceding
commencement of the employment term. In addition, each executive will be
eligible to receive annual cash and non-cash bonuses in an amount at least equal
to the bonuses for which such executive previously was eligible. Each agreement
provides for payment of severance benefits to the executive if, among other
things, the executive terminates his employment for good reason. "Good reason"
is defined to include termination by the executive for any reason within six
months after commencement of the employment term and, subsequent to such
six-month period, termination for specified reasons, including a material
reduction in the executive's duties, certain relocations of the executive's
office and failure of JP Foodservice to comply with requirements of the
agreement relating to the executive's compensation. Upon such a termination, the
executive will be entitled to receive (i) a lump-sum payment in an amount equal
to three times the executive's annual base salary and highest annual bonus (as
defined) and (ii) welfare and fringe benefits for three years substantially
equivalent to those provided prior to termination. If the foregoing payment is
deemed to result from a change in control of JP Foodservice and the amount
payable to the executive under the agreement exceeds certain threshold amounts,
federal excise tax could be imposed on the executive and JP Foodservice could
lose a tax deduction for a portion of the payment. The agreement provides
(subject to certain limitations) that, in the event a federal excise tax is
imposed,
158
<PAGE>
JP Foodservice will pay the executive a "gross-up" payment in an amount such
that, after payment by the executive of such excise tax and any other taxes
imposed upon the foregoing payments, the executive retains an amount of the
gross-up payment equal to such excise tax.
JP Foodservice has entered into an employment agreement with David M.
Abramson, dated as of June 1, 1996, pursuant to which Mr. Abramson is employed,
effective as of July 1, 1996, as Senior Vice President and General Counsel of JP
Foodservice. Mr. Abramson's employment agreement provides for an initial
three-year term, which will be automatically extended for one year on each
anniversary date of the agreement unless JP Foodservice provides Mr. Abramson
with notice of non-renewal. The employment agreement provides that JP
Foodservice will pay Mr. Abramson an annual base salary at a monthly rate of
$16,667, subject to such increases as the JP Foodservice Board of Directors may
determine at least annually. The agreement also provides that Mr. Abramson will
be afforded an annual bonus opportunity in cash and stock-based incentives at
least equal to 75% of his annual base salary. Mr. Abramson's employment
agreement has substantially the same severance provisions as the employment
agreements described in the immediately preceding paragraph.
Report of the Compensation Committee of the
Board of Directors of JP Foodservice, Inc.
on Executive Compensation
In accordance with the rules of the SEC, the Compensation Committee of the
JP Foodservice Board of Directors (the "Committee") offers this report regarding
its executive compensation policy and compensation program for the Chief
Executive Officer and certain other executive officers of JP Foodservice in
effect for fiscal year 1997. This report, as well as the performance graph on
page 163, are not soliciting materials, are not deemed filed with the SEC and
are not incorporated by reference in any filing of JP Foodservice under the
Securities Act or the Exchange Act, whether made before or after the date of
this Joint Proxy Statement/Prospectus and irrespective of any general
incorporation language in any such filing.
Compensation Policy. JP Foodservice's primary objective is to promote
growth in stockholder value over time. To accomplish this objective, JP
Foodservice has adopted a comprehensive business strategy. The overall goal of
the Committee is to develop compensation policies and practices which support
the attainment of JP Foodservice's strategic business objectives. The Committee
uses the services of independent
159
<PAGE>
executive compensation consultants in developing and evaluating compensation
plans in order to achieve these objectives.
The Committee annually examines executive compensation levels for the Chief
Executive Officer and the other executive officers whose compensation is
approved by the Committee (the "executive officers") against the compensation of
executives employed by companies in the peer group index shown on the
performance graph in this Joint Proxy Statement/Prospectus and certain other
foodservice distribution companies. This review also compares JP Foodservice's
short-term and long-term results with the performance of comparable companies.
JP Foodservice's executive compensation program includes a base salary,
annual cash bonuses and long-term incentive compensation in the form of stock
options. Overall, these programs are intended to link executive compensation to
JP Foodservice's performance. The Committee believes that a substantial portion
of cash compensation should be tied to performance-based objectives. To
encourage equity ownership by JP Foodservice's executives and to link executive
compensation with increases in stockholder value, the Committee's policy is to
provide that a significant portion of total executive compensation will be in
the form of periodic stock option awards.
Base Salary. In conjunction with its annual review of base salaries, the
Committee approved a salary increase for fiscal year 1997 of 25% for the Chief
Executive Officer and salary increases ranging from 5% to 40% for the other
executive officers. The salary increases were determined based on the
Committee's analysis of JP Foodservice's performance, individual performance,
compensation levels of executives with similar responsibilities at comparable
companies, and cost-of-living increases.
Annual Cash Bonuses. JP Foodservice pays annual cash bonuses to its
executive officers based upon the achievement of corporate financial and other
objectives established by the Committee for the fiscal year. The objectives are
established at levels intended to assure that, if achieved, they represent
significant improvements in stockholder value. Executive officers have the
opportunity to earn cash bonuses equal to a varying percentage of their base
salary, depending upon the attainment of those objectives.
For fiscal year 1997, the bonus objectives of the Chief Executive Officer
and the other executive officers were based on earnings per share (weighted 60%)
and specified financial, sales and operational objectives (weighted 40%). The
operational objectives included acquisitions of foodservice businesses in
furtherance of strategic and financial goals. For fiscal year 1997, JP
Foodservice exceeded the earnings per share objective and met all but one of the
financial, sales and operational objectives.
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Applying the bonus formulas specified for fiscal year 1997, the Committee
approved an annual bonus equal to 113.25% of base salary for the Chief Executive
Officer and 113.25% of base salary for each of the other executive officers.
In addition to the annual bonus, the Committee approved a discretionary
bonus for fiscal year 1997 equal to 15% of base salary for the Chief Executive
Officer and the other executive officers. During fiscal year 1997, the value of
the JP Foodservice Common Shares increased by over 20% and JP Foodservice
achieved a substantial increase in return on stockholders' equity. In awarding
the discretionary bonus, the Committee gave particular weight to the role of the
Chief Executive Officer and the other executive officers in enhancing
stockholder value by successfully integrating acquired foodservice businesses
and in negotiating the terms of the Merger.
Long-Term Incentives. Based upon fiscal year 1997 performance, in fiscal
year 1998 the Committee approved the grant of stock options under the JP
Foodservice 1994 Stock Incentive Plan (the "Stock Incentive Plan") for 48,376 JP
Foodservice Common Shares to the Chief Executive Officer and for a total of
111,093 JP Foodservice Common Shares to the executive officers in the aggregate
(including the Chief Executive Officer). Based upon fiscal year 1997
performance, in fiscal year 1998 the Committee awarded stock options for 62,717
JP Foodservice Common Shares to other members of management.
In determining the amount and terms of stock option awards under the Stock
Incentive Plan, the Committee considers each executive's current performance and
anticipated future contributions to JP Foodservice's performance, as well as the
amount and terms of the options previously granted to the executive by JP
Foodservice. The grant of stock options to the Chief Executive Officer was based
on the Committee's assessment of both his past contributions and his anticipated
role in increasing stockholder value.
Option grants under the Stock Incentive Plan generally are considered only
for years in which JP Foodservice achieves certain targets for earnings per
share and return on stockholders' equity. JP Foodservice exceeded its earnings
per share and return on equity targets for fiscal year 1997, justifying a grant
of stock options in fiscal year 1998.
In fiscal year 1997, the Committee also made a special one-time award of
stock options under the Stock Incentive Plan for 99,650 JP Foodservice Common
Shares to the Chief Executive Officer and for a total of 198,463 JP Foodservice
Common Shares to the executive officers in the aggregate (including the Chief
Executive Officer). The Committee made
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the special award primarily in recognition of the executives' contribution to JP
Foodservice's achievement of significant increases in revenues, earnings per
share and other financial measures of performance in fiscal year 1996 and prior
periods while devoting substantial time to negotiation of a proposed merger with
PYA/Monarch, Inc. in fiscal year 1996 and related matters. In the case of the
option grant to Mr. Abramson, who became Senior Vice President and General
Counsel effective July 1, 1996, the award was in accordance with JP
Foodservice's historical practice of granting stock options to attract high-
quality management employees. Of such options, 20% vested on the option grant
date and 20% will vest on each of the first, second, third and fourth
anniversary dates of the option grant date.
All stock options granted to executive officers for or in fiscal year 1997
were nonqualified stock options with an exercise price that was equal to the
fair market value of the JP Foodservice Common Shares on the date of grant. The
options increase in value only to the extent of appreciation in the JP
Foodservice Common Shares, thereby providing a clear link to enhancement of
stockholder value. To emphasize the long-term incentive provided by options
under the Stock Incentive Plan, the stock options generally vest in increments
over a three-year period, although a modified vesting schedule was approved for
the stock options subject to the special award discussed above. The Committee is
authorized to grant incentive stock options, stock appreciation rights and
restricted stock under the Stock Incentive Plan, but to date has determined to
grant only nonqualified stock options.
Potential Effect of Section 162(m) of the Internal Revenue Code. Section
162(m) of the Code generally sets a limit of $1 million on the amount of
compensation paid to executive employees (other than enumerated categories of
compensation, including performance-based compensation) that may be deducted by
a publicly-held company. The Committee's policy is to seek to qualify executive
compensation for deductibility to the extent that such policy is consistent with
JP Foodservice's overall objectives and executive compensation policy.
Compensation attributable to stock options granted under the Stock Incentive
Plan currently is excluded from the $1 million limit as "qualified
performance-based compensation" under the transition rules contained in
applicable Treasury regulations. None of JP Foodservice's executive officers
received compensation for fiscal year 1997 in excess of the limits imposed under
Section 162(m). Under applicable regulations, it is not necessary that the Stock
Incentive Plan be approved at this time to maintain deductibility of
compensation payable thereunder. However, JP Foodservice has elected to submit
the Stock Incentive Plan, as proposed to be amended, to stockholders at the JP
Foodservice Annual Meeting for approval under Section 162(m) and the regulations
thereunder.
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THE COMPENSATION COMMITTEE
Michael J. Drabb (Chairman)
Eric E. Glass
Paul I. Latta, Jr.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the JP Foodservice Board of Directors during
fiscal 1997 was composed of Michael J. Drabb (Chairman), Eric E. Glass and Paul
I. Latta, Jr. None of the members of the Committee was an officer or employee of
JP Foodservice during fiscal 1997. There are no interlock relationships.
Stockholder Return Performance Graph
The following graph and table show the cumulative total stockholder return
on the JP Foodservice Common Shares compared to the Standard & Poor's 500 Stock
Index and a self-constructed peer group index for the periods between November
16, 1994 (the date the JP Foodservice Common Shares began trading on the Nasdaq
National Market) and June 27, 1997 (the last trading day in fiscal 1997). The
peer group index is composed of SYSCO Corp., Rykoff-Sexton and Performance Food
Group Company, all of which are public companies in the broadline foodservice
distribution industry. The total stockholder return on each company included in
the peer group index has been weighted according to such company's
capitalization as of the beginning of each period. The graph assumes $100 was
invested on November 16, 1994 in (i) JP Foodservice Common Shares, (ii) the
Standard & Poor's 500 Stock Index and (iii) the foodservice distribution
industry peer group index, and assumes reinvestment of dividends.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) JP Foodservice, Inc. Peer Group S&P 500 Index
<S> <C> <C> <C>
November 1994 100 100 100
June 1995 127 111 117
June 1996 227 130 144
June 1997 274 143 211
</TABLE>
[Graph inserted here]
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Rykoff-Sexton Executive Compensation
The following sets forth information concerning certain agreements and
plans relating to the compensation of specified executive officers of
Rykoff-Sexton prior to the Merger and after the Effective Time.
Employment Agreements and Related Matters
Mark Van Stekelenburg. Rykoff-Sexton is a party to an amended and restated
employment agreement with Mr. Van Stekelenburg, Chairman and Chief Executive
Officer of Rykoff-Sexton (the "Original Van Stekelenburg Employment Agreement").
The Original Van Stekelenburg Employment Agreement provides for a minimum annual
base salary, which is currently $500,000, for a five-year term which began on
February 2, 1996 (with automatic one-year renewals commencing at the end of the
fifth year unless either party gives advance notice to the contrary), with a
guaranteed minimum bonus of 50% of annual base salary for Rykoff-Sexton's 1997
fiscal year and 25% of annual base salary for Rykoff-Sexton's 1998 fiscal year.
Mr. Van Stekelenburg's annual bonus opportunity under Rykoff-Sexton's existing
senior management incentive plan is 150% of his base salary. The Original Van
Stekelenburg Employment Agreement provides term life insurance of not less than
$1,000,000 and a corresponding tax reimbursement. If his employment is
involuntarily terminated without "cause" (as defined) during the term of the
Original Van Stekelenburg Employment Agreement, Mr. Van Stekelenburg will
receive termination payments for the greater of two years or the remaining term
of such Employment Agreement. Termination benefits include salary and welfare
benefit continuation, bonus (equal to the average amount of his incentive bonus
during the three years preceding termination), immediate exercisability of any
outstanding stock options, the lapse of any restrictions on other equity awards,
and if termination occurs before July 20, 1999, two additional years of service
credit for the CEO SERP (as defined in "--Supplemental Executive Retirement
Plans (SERPs)--CEO SERP"). See "--Supplemental Executive Retirement Plans
(SERPs)." Termination payments will be offset by any severance payments (other
than tax reimbursements) made under Mr. Van Stekelenburg's Change in Control
Agreement (as defined in "--Change in Control Agreements and Golden Parachute
Tax Exemption"). Upon stockholder approval of the Rykoff-Sexton Proposal, Mr.
Van
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Stekelenburg's unvested stock options covering 62,500 Rykoff-Sexton Common
Shares will vest according to their terms and restrictions on his 137,821
Rykoff-Sexton Common Shares that are subject of other equity awards will lapse
according to their terms. No payment will be made to Mr. Van Stekelenburg under
the Original Van Stekelenburg Agreement with respect to salary and bonus because
amounts being paid under his change in control agreement completely offset these
payments. See "--Change in Control Agreements and Golden Parachute Tax
Exemption."
Pursuant to the terms of the Merger Agreement and the JP/Van Stekelenburg
Employment Agreement, at or prior to the Effective Time, Mr. Van Stekelenburg's
employment with Rykoff-Sexton will be terminated, and Mr. Van Stekelenburg will
be paid (subject to any provisions providing for offset) all amounts owing to
him under (i) the Original Van Stekelenburg Employment Agreement (as if he were
involuntarily terminated by Rykoff-Sexton without "cause"), (ii) his Change in
Control Agreement (as if he were terminated by Rykoff-Sexton after the
occurrence of a change in control other than by reason of death) and (iii) any
other plans and agreements to which he is a party with Rykoff-Sexton, and he
will be entitled to the benefits under the CEO SERP (as if he were terminated
other than by reason of death or an approved leave of absence) (collectively,
the foregoing agreements with Mr. Van Stekelenburg are referred to as the
"Existing Agreements"), subject, however, to the applicable provisions of the
JP/Van Stekelenburg Employment Agreement. All obligations of Rykoff-Sexton set
forth in the Existing Agreements will survive any such payments. See "--Change
in Control Agreements and Golden Parachute Tax Exemption" and "--Supplemental
Executive Retirement Plans (SERPs)--CEO SERP."
At the Effective Time, JP Foodservice will enter into a new employment
agreement with Mr. Van Stekelenburg (the "JP/Van Stekelenburg Employment
Agreement"), pursuant to which Mr. Van Stekelenburg will serve as the Vice
Chairman and President of JP Foodservice. The term of the JP/Van Stekelenburg
Employment Agreement will be three years, subject to earlier termination either
"involuntarily" (as described below) or voluntarily by Mr. Van Stekelenburg. JP
Foodservice will have the right to terminate Mr. Van Stekelenburg's employment
effective on or after the first anniversary of the Closing Date of the Merger,
provided that JP Foodservice gives 30 days' notice prior to the effective date
of the termination, and such termination by JP Foodservice will not be
considered an involuntary termination under the JP/Van Stekelenburg Employment
Agreement that would entitle Mr. Van Stekelenburg to payment of the amounts
described below as payable upon an involuntary termination. The JP/Van
Stekelenburg Employment Agreement provides a minimal annual base salary of
$500,000, with an annual bonus opportunity of 100% of annual base salary for
each fiscal year of JP Foodservice that ends during the term of the JP/Van
Stekelenburg Employment Agreement. The JP/Van Stekelenburg Employment also
provides for various benefits, including the right to participate in various JP
Foodservice savings and retirement plans and welfare benefit plans (including
health and life insurance for
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Mr. Van Stekelenburg and his family) to the extent applicable to other JP
Foodservice peer executives (but not to the extent that Mr. Van Stekelenburg is
entitled to such benefits under the Original Van Stekelenburg Employment
Agreement or his Change in Control Agreement), and reimbursement for relocation
expenses to the Columbia, Maryland area.
If Mr. Van Stekelenburg's employment is involuntarily terminated without
"cause" during the first year of the term of the JP/Van Stekelenburg Employment
Agreement, Mr. Van Stekelenburg will be entitled to receive (1) a lump sum
termination payment equal to (a) the sum of (i) his highest base salary during
the prior three-year period, plus (ii) his average annual cash incentive
compensation awarded during the prior three-year period, times (b) a fraction
equal to the portion of the year remaining, if any, from the date of termination
to the first anniversary date of Mr. Van Stekelenburg's employment with JP
Foodservice, and (2) for the portion of the year remaining, if any, from the
date of termination to the first anniversary date of Mr. Van Stekelenburg's
employment with JP Foodservice, the benefit of all employee welfare benefit
plans and perquisite programs in which Mr. Van Stekelenburg was entitled to
participate immediately prior to his termination (but not to the extent that Mr.
Van Stekelenburg becomes entitled to similar benefits under the Original Van
Stekelenburg Employment Agreement or his Change in Control Agreement). See "--
Change in Control Agreements and Golden Parachute Tax Exemption." For purposes
of calculating the lump sum termination payment, the applicable three-year
period includes Mr. Van Stekelenburg's employment with Rykoff-Sexton. In
general, "cause" is defined as a willful and continued failure to perform
assigned duties after notice of such failure or the willful engaging in illegal
conduct or gross misconduct which is materially and demonstrably injurious to JP
Foodservice. Mr. Van Stekelenburg will be deemed to have been involuntarily
terminated if he terminates employment after any of the following events: Mr.
Van Stekelenburg's disability; certain changes to Mr. Van Stekelenburg's duties,
titles, offices or positions; failure of JP Foodservice to compensate Mr. Van
Stekelenburg in accordance with the terms of the JP/Van Stekelenburg Employment
Agreement; the relocation of Mr. Van Stekelenburg from JP Foodservice's
Columbia, Maryland location; or Mr. Van Stekelenburg's termination during the
thirty-day period immediately following a "change in control." For this purpose,
a "change in control" will be deemed to occur if any of the following events
occurs: the individuals who, as of the date of the signing of the JP/Van
Stekelenburg Employment Agreement, constitute the Board of Directors of JP
Foodservice (the "Incumbent Board") (or any individual whose subsequent election
to the Board of Directors of JP Foodservice was approved by the Incumbent Board)
cease to constitute a majority of the Board of Directors of JP Foodservice; with
certain exceptions, any individual, entity or group is or becomes the beneficial
owner of 50% or more of JP Foodservice's capital stock generally entitled to
vote for the election of directors; a reorganization, merger or consolidation or
sale or other disposition of substantially all of the assets of JP Foodservice
is consummated; or the stockholders of JP Foodservice approve a complete
liquidation of JP Foodservice
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(except that in no event will the Merger constitute a change in control). In
addition, if Mr. Van Stekelenburg's employment is involuntarily terminated
without "cause" at any time during the term of the JP/Van Stekelenburg
Employment Agreement, then, notwithstanding any provision to the contrary in any
agreement or plan, all of his outstanding stock options will immediately become
exercisable and all restrictions on any other equity awards will lapse and such
awards will vest and Mr. Van Stekelenburg will be entitled to reimbursement for
relocation expenses. The JP/Van Stekelenburg Employment Agreement also provides
for payment of an amount necessary to restore any benefit diminution if the 20%
excise tax imposed under Section 4999 of the Code is applicable to payments or
distributions made to Mr. Van Stekelenburg by JP Foodservice.
Other Executive Officers of Rykoff-Sexton. Rykoff-Sexton also has
obligations under employment agreements with David F. McAnally, former Senior
Vice President and Chief Financial Officer, and Harold E. Feather, Executive
Vice President, Strategic Planning.
The employment agreement with Mr. McAnally generally parallels the Original
Van Stekelenburg Employment Agreement. Mr. McAnally's employment agreement
provides an annual base salary (which is currently $205,000 for a two-year term
commencing on May 17, 1996 (with automatic one-year renewals commencing at the
end of the initial term unless either party gives advance notice to the
contrary), with a guaranteed, minimum bonus of 50% of annual base salary for
Rykoff-Sexton's 1997 fiscal year and 25% of annual base salary for Rykoff-
Sexton's 1998 fiscal year. In the event that Mr. McAnally is involuntarily
terminated by Rykoff-Sexton without "cause" during the term of his employment
agreement, he will receive termination payments for the greater of one year or
the period remaining in the term. Termination benefits for Mr. McAnally include
salary and welfare benefit continuation, bonus (equal to the average amount of
his incentive bonus during the three years preceding termination), immediate
exercisability of any outstanding stock options, and the lapse of certain
specified restrictions on other equity awards. Mr. McAnally's employment was
terminated pursuant to his employment agreement effective September 2, 1997.
Pursuant to the terms of Mr. McAnally's employment agreement, Mr. McAnally is
currently receiving $30,521 per month, which will cease to be payable upon the
earlier to occur of September 2, 1998 or the date, if any, when amounts are paid
under his change in control agreement . In addition, upon termination of Mr.
McAnally's employment, unvested stock options covering 48,360 Rykoff-Sexton
Common Shares vested and restrictions 56,000 on Rykoff-Sexton Common Shares that
are the subject of other equity awards will lapse upon stockholder approval of
the Rykoff-Sexton proposal. See "--Change in Control Agreements and Golden
Parachute Tax Exemption."
Rykoff-Sexton has entered into an employment agreement with Mr. Feather,
which provides that Mr. Feather will be paid a minimum annual base salary, which
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is currently $290,000, and an annual car allowance (currently $9,000) through
December 31, 1998 (after which time, either Mr. Feather or Rykoff-Sexton may
terminate his employment at any time with or without cause and with or without
notice). Mr. Feather's employment agreement permits him to participate in
Rykoff-Sexton's employee benefit, stock option, and incentive plans, subject to
the terms of such plans. If Mr. Feather is terminated by Rykoff-Sexton for any
reason other than Mr. Feather's death, disability, or for cause (as defined),
Mr. Feather will receive termination payments equal to his continued base salary
through December 31, 1998, provided that Mr. Feather does not directly or
indirectly compete with Rykoff-Sexton. Any payments made pursuant to Mr.
Feather's Change in Control Agreement will reduce, dollar for dollar, the amount
of the termination payments made pursuant to Mr. Feather's employment agreement.
If termination payments were to become due to Mr. Feather under both his
employment agreement and his change in control agreement, it is anticipated that
any amounts paid under his change in control agreement under those circumstances
would offset completely any amounts payable under the employment agreement. See
"--Change in Control Agreements and Golden Parachute Tax Exemption."
Change in Control Agreements and Golden Parachute Tax Exemption
Rykoff-Sexton is a party to a change in control agreement with Mr. Van
Stekelenburg and change in control agreements with certain other current and
former executive officers of Rykoff-Sexton (Harold E. Feather, Richard J.
Martin, Robert J. Harter, Jr. and David F. McAnally) (collectively referred to
as the "Change in Control Agreements"). Prior to a "change in control," each of
the Change in Control Agreements provides for a base term ending on December 31,
1999, with automatic one-year renewals unless Rykoff-Sexton gives advance notice
to the contrary. Each of the Change in Control Agreements provides for the
payment of specified benefits under the circumstances described below after the
occurrence of a "change in control" (as defined). For purposes of the Change in
Control Agreements, the consummation of the Merger will constitute a "change in
control." Upon a "change in control," each Change in Control Agreement (other
than Mr. Van Stekelenburg's) will provide an executive with an amount equal to
2.99 times the sum of his base salary plus the amount that would otherwise be
earned under any executive compensation plan if, within two years subsequent to
the "change in control," the executive's employment is involuntarily terminated
by Rykoff-Sexton other than for death, disability or "cause" (defined generally
as the executive's willful and continued failure to substantially perform his
duties, after specific demand for substantial performance has been made by
Rykoff-Sexton, or the executive's willful engaging in misconduct that is
materially injurious to Rykoff-Sexton) or if the executive terminates his
employment for "good reason" (defined as (i) certain changes to the executive's
duties, title, offices or positions, (ii) a salary reduction or a failure to
increase salary by certain amounts, (iii) failure to maintain,
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or certain adverse effects on the executive's participation in, certain benefit,
incentive or stock option plans, (iv) a relocation subsequent to a "change in
control" of Rykoff-Sexton's principal executive offices to a location more than
40 miles from the location of such principal executive offices immediately prior
to the "change in control," provided that such relocation will have no effect
under the executive's Change in Control Agreement unless prior to the "change in
control" the executive performed the executive's duties at such principal
offices; or the executive's relocation to any place other than the location at
which the executive performed the executive's duties prior to a "change in
control," except for required travel by the executive on Rykoff-Sexton's
business to an extent substantially consistent with the executive's business
travel obligations at the time of a "change in control," (v) a reduction in the
executive's vacation days, (vi) a material breach of, or failure by a successor
or assign of Rykoff-Sexton to assume, the executive's Change in Control
Agreement or (vii) a purported termination of the executive's employment that is
not implemented in accordance with the terms of the executive's Change in
Control Agreement). Additionally, if a "change in control" occurs and the
executive's employment with Rykoff-Sexton is terminated by Rykoff-Sexton or the
executive terminates his employment for "good reason" prior to the date on which
the "change in control" occurs, such termination will be deemed to be a
termination of employment after a "change in control" for purposes of the Change
in Control Agreement if the executive can reasonably demonstrate that such
termination was at the request of a third party who took steps reasonably
calculated to effect a "change in control," or otherwise arose in connection
with or in anticipation of a "change in control." Termination benefits for each
of the executive officers who is a party to a Change in Control Agreement
include outplacement expense reimbursement and welfare benefit continuation for
two years after the executive's termination of employment.
Pursuant to Mr. Van Stekelenburg's Change in Control Agreement, Mr. Van
Stekelenburg will receive an amount equal to 2.99 times the sum of his base
salary plus the amount that would otherwise be earned under any executive
compensation plan if within two years subsequent to the "change in control" his
employment is terminated by Rykoff-Sexton for any reason or no reason (other
than death) or if Mr. Van Stekelenburg elects to terminate his employment for
any or no reason. Mr. Van Stekelenburg's termination benefits include
outplacement expense reimbursement and welfare benefit continuation for two
years after his termination of employment. Pursuant to the terms of the Merger
Agreement and upon the execution of the JP/Van Stekelenburg Employment
Agreement, at or prior to the Effective Time, Mr. Van Stekelenburg's employment
with Rykoff-Sexton will be terminated, and he will be treated for purposes of
his Change in Control Agreement as if he were terminated by Rykoff-Sexton after
the occurrence of a "change in control" other than by reason of death. See
"--Employment Agreements and Related Matters."
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The Change in Control Agreements with Messrs. Van Stekelenburg and Feather
also provide for payment of an amount necessary to restore any benefit
diminution if the 20% excise tax imposed under Section 4999 of the Code is
applicable to payments made or benefits provided under this agreements.
Mr. Van Stekelenburg will receive $2,616,250 and 62,168 Rykoff-Sexton
Common Shares and Mr. Harter will receive $964,992 and 22,079 Rykoff-Sexton
Common Shares at or prior to the Effective Time in payment of amounts owing
under their change in control agreements. If the Merger is consummated by
September 2, 1998, Mr. McAnally will receive $919,425 and 21,041 Rykoff-Sexton
Common Shares at or prior to the Effective Time in payment of amounts owing
under his change in control agreement. If the employment of Messrs. Feather or
Martin were terminated under circumstances giving rise to benefits under their
change in control agreements, it is anticipated, based on current compensation
levels, that Mr. Feather would receive $1,300,650 and 29,012 Rykoff-Sexton
Common Shares and Mr. Martin would receive $968,760 and 22,166 Rykoff-Sexton
Common Shares. Messrs. Martin and Feather are expected to become executive
officers of JP Foodservice as of the Effective Time (see "Management of JP
Foodservice After the Merger -- Executive Officers") and such individuals will
not receive benefits under their change in control agreements unless their
employment is terminated under the circumstances described above. Any Rykoff-
Sexton Common Shares to be received by such executive officers in payment of
amounts owing under such agreements and arrangements will be converted into the
right to receive, or will be paid directly as, JP Foodservice Common Shares at
the Exchange Ratio.
Severance Agreements
As of February 2, 1996, Rykoff-Sexton entered into individual severance
agreements with Messrs. Feather, Harter and Martin (the "Severance Agreements").
The individual Severance Agreements provide for termination benefits if an
executive is involuntarily terminated by Rykoff-Sexton other than for death,
disability or "cause," or terminates employment voluntarily after a reduction in
pay (other than a general reduction), or notice of the non-renewal of the
agreement, during the Severance Agreement's three-year term. The Severance
Agreements also provide for automatic one-year renewals unless either party
gives advance notice to the contrary. "Cause" under the Severance Agreements is
defined as a failure by the executive consistently to meet applicable
performance appraisal standards; an intentional act of fraud, embezzlement or
theft; intentional wrongful damage to Rykoff-Sexton's property; intentional
misconduct that is materially injurious to Rykoff-Sexton; or a breach of the
confidentiality/nonsolicitation provisions of the Severance Agreement.
Termination benefits include salary and
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welfare benefit continuation for two years, bonus (based on actual performance
results during the applicable performance period and calculated as though the
executive had remained employed throughout the period, but prorated to reflect
the period of actual service), full vesting in any stock options and in each
individual's SERP and crediting of benefits under Rykoff-Sexton's Deferred
Compensation Plan at a "preferred" rate. Termination payments will be offset by
any payments made under an individual executive's employment agreement or Change
in Control Agreement. If payments were to become due to Messrs. Harter, Feather
or Martin under both their severance and change in control agreements, it is
anticipated that any amounts paid under their respective change in control
agreements under those circumstances would offset completely any termination
benefits in respect of salary, bonus or welfare continuation under their
severance agreements.
Supplemental Executive Retirement Plans (SERPs)
Non-CEO SERPs. Effective October 1, 1995, Rykoff-Sexton established a
nonqualified supplemental executive retirement plan ("SERP") for each of Messrs.
Feather, Harter and Martin (individually referred to as an "executive").
An executive who has at least 15 years of service and retires at or after
age sixty-two (the "Normal Retirement Age") is entitled, provided he has
participated in his SERP for at least five plan years or has otherwise become
fully vested in his SERP, to an annual SERP retirement benefit for life equal to
50% of his final average earnings, reduced by the actuarial equivalent of any
benefits he is entitled to receive under Rykoff-Sexton's qualified pension plan
(the "Rykoff-Sexton Pension Plan"), Rykoff-Sexton's supplemental excess
retirement plan, certain other nonqualified retirement plans of Rykoff-Sexton
and its subsidiaries, Social Security, and all qualified and non-qualified plans
for all prior employers (the "Executive's Other Benefits"). Final average
earnings are defined as the executive's highest average annual base compensation
plus bonus during any consecutive three-year period within the five-year period
preceding termination of employment.
An executive who has at least ten years of service and retires prior to
Normal Retirement Age but at or after age fifty-five is entitled, provided he
has participated in his SERP for at least five plan years or has otherwise
become fully vested in his SERP, to an annual early retirement benefit for life
equal to the 50% benefit payable at Normal Retirement Age (as reduced by the
Executive's Other Benefits), reduced on account of the early payment of
benefits. The early payment reduction is 6% for each year that the date of the
commencement of benefits precedes his normal retirement at age sixty-two (the
"Six Percent Annual Early Payment Reduction").
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An executive will become fully vested in his SERP at age fifty-five and
upon completion of five plan years of participation in the SERP, or earlier if
his employment is terminated without cause under his Severance Agreement or
following a "change in control" (as defined). For purposes of the SERPs, the
consummation of the Merger will constitute a "change in control." An executive
who becomes fully vested in his SERP will be entitled, upon termination prior to
the date the executive would have both attained age fifty-five and completed ten
years of service, to a lifetime annual retirement benefit payable commencing at
the date he would have had ten years of service if his employment continued with
Rykoff-Sexton and he had attained age fifty-five. The benefit will be determined
in the same manner as an early retirement benefit.
If an executive dies prior to his termination of employment, his surviving
spouse, if he has been married to such spouse for at least one year prior to
death, is entitled to an annual survivor benefit for life equal to 50% of the
benefit to which the executive would have been entitled had he then retired (but
without reduction by the benefits the executive would have been entitled to
receive under the Rykoff-Sexton Pension Plan), reduced by the survivor benefits
paid under the Rykoff-Sexton Pension Plan. If an executive dies after the
commencement of benefits under the SERP, his surviving spouse, if he has been
married to such spouse for at least one year prior to death, is entitled to an
annual survivor benefit equal to 50% of the benefit actually then being paid to
the executive, adjusted, in a manner similar to that described above, to take
into account the survivor benefits paid under the Rykoff-Sexton Pension Plan.
An executive who becomes disabled with less than ten years of service is
entitled to an annual disability benefit for life equal to 25% of his final
average earnings, reduced by the Executive's Other Benefits. An executive who
becomes disabled with ten or more years of service is entitled to a disability
benefit calculated by (a) multiplying his final average earnings by a percentage
that equals his years of service times 2-1/2% (but in no event more than 50%),
and (b) subtracting therefrom an amount equal to the Executive's Other Benefits.
Disability benefits will commence after the end of the salary continuation
period under Rykoff-Sexton's non-insured salary continuation plan. Disability
benefits are not subject to the Six Percent Annual Early Payment Reduction.
CEO SERP. Effective July 20, 1994, Rykoff-Sexton established a nonqualified
supplemental executive retirement plan for Mr. Van Stekelenburg (the "CEO
SERP").
If Mr. Van Stekelenburg has at least twenty years of service and retires at
or after age sixty (the "CEO's Normal Retirement Age"), Mr. Van Stekelenburg is
entitled under the CEO SERP to an annual retirement benefit for life equal to
60% of his final average earnings, reduced by the actuarial equivalent of any
benefits he is entitled to receive under the Rykoff-Sexton Pension Plan (the
"CEO's Other
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Benefits"). Mr. Van Stekelenburg is not a participant in Rykoff-Sexton's
supplemental excess retirement plan. Final average earnings are defined as Mr.
Van Stekelenburg's average annual base compensation plus bonus during the three-
year period preceding termination of employment. If Mr. Van Stekelenburg retires
prior to the CEO's Normal Retirement Age but at or after age fifty-five, he is
entitled to an early retirement benefit equal to the 60% benefit payable at
Normal Retirement Age (reduced by the CEO's Other Benefits), reduced by 6% for
each year that the date of commencement of benefits precedes the CEO's Normal
Retirement Age. In all cases, the retirement benefits payable to Mr. Van
Stekelenburg will be reduced by the amount of retirement benefits paid to him
under Social Security.
Mr. Van Stekelenburg became fully vested in the CEO SERP upon completing
five years of service. As a result, if Mr. Van Stekelenburg terminates prior to
age fifty-five, he will be entitled to an annual retirement benefit for life
payable commencing at age fifty-five which is equal to the actuarial equivalent
of the 60% benefit payable at Normal Retirement Age (as reduced by the CEO's
Other Benefits). The retirement benefit will be reduced by the amount of
retirement benefits paid to him under Social Security.
If Mr. Van Stekelenburg dies prior to his termination of employment, his
surviving spouse is entitled, if he has been married to such spouse for at least
one year prior to death, to an annual survivor benefit for life equal to 60% of
the benefit to which he would have been entitled had he then retired (but
without reduction by the benefits Mr. Van Stekelenburg would have been entitled
to receive under the Rykoff-Sexton Pension Plan), reduced by the survivor
benefits paid under the Rykoff-Sexton Pension Plan. If Mr. Van Stekelenburg dies
after the commencement of benefits under the CEO SERP, his surviving spouse, if
he has been married to such spouse for at least one year prior to death, is
entitled to an annual survivor benefit equal to 60% of the benefit actually then
being paid to him, adjusted, in a manner similar to that described above, to
take into account the survivor benefits paid under the Rykoff-Sexton Pension
Plan.
If Mr. Van Stekelenburg becomes disabled with less than ten years of
service, he is entitled to an annual disability benefit for life equal to 30% of
his final average earnings, reduced by the CEO's Other Benefits. If Mr. Van
Stekelenburg becomes disabled with ten or more years of service, he is entitled
to a disability benefit calculated by (a) multiplying his final average earnings
by a percentage that equals his years of service times 3% (but in no event more
than 60%), and (b) subtracting therefrom an amount equal to the CEO's Other
Benefits. Disability benefits will commence after the end of the salary
continuation period under Rykoff-Sexton's non-insured salary continuation plan,
are reduced by the amount of retirement benefits paid under Social Security, and
are not subject to the 6% annual early payment reduction.
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Deferred Compensation Plan and Master Trust Agreement. The Rykoff-Sexton
Deferred Compensation Plan permits specified Rykoff-Sexton executives and
members of Rykoff-Sexton's Board of Directors to elect to defer portions of
annual base salary, annual bonus and/or director's fees. The minimum deferral
for any year is $2,000 of base salary, bonus or fees, and the maximum annual
deferral is 50% of annual base salary and 100% of each of annual bonus and
director's fees. Interest is credited to an individual's account on the amount
deferred at specific rates. A higher interest rate is generally applied for
payments due to death, disability or retirement after age 62 (or for employees
only, after age 55 with five years service), or for payments made to a
participant with at least five years of participation in the Plan. The higher
interest rate is also applied after a "change in control" occurs. The Master
Trust Agreement for Executive Deferral Plans provides a means of securing
payment for various of Rykoff-Sexton's deferred compensation plans for
executives, including the Deferred Compensation Plan and the SERPs. Certain
provisions of the Master Trust Agreement take effect only after a "change in
control" (as defined) occurs.
For purposes of the Deferred Compensation Plan and the Master Trust
Agreement, the consummation of the Merger will constitute a "change in control."
At or prior to the Effective Time, Rykoff-Sexton may transfer funds to the trust
established pursuant to the Master Trust Agreement in an amount sufficient to
provide for all obligations secured by the trust and accrued through the
Effective Time and for the fees and expenses of the trust.
Additional information regarding the compensation and certain relationships
and related transactions of directors and officers of Rykoff-Sexton who will
serve as directors or officers of JP Foodservice as of the Effective Time is
contained in the Rykoff-Sexton Annual Report on Form 10-K under the captions
"Directors and Executive Officers of the Company," "Executive Compensation" and
"Certain Relationships and Related Transactions." The Rykoff-Sexton Annual
Report on Form 10-K is incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Available Information" and "Incorporation of Certain
Documents by Reference."
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JP FOODSERVICE ANNUAL MEETING PROPOSALS
In addition to the JP Foodservice Merger Proposal described elsewhere in
this Joint Proxy Statement/Prospectus, JP Foodservice stockholders will be asked
to consider and vote upon the following proposals at the JP Foodservice Annual
Meeting:
(i) a proposal to elect three directors of JP Foodservice for terms
expiring at the JP Foodservice Annual Meeting of Stockholders in the year 2000
(the "JP Foodservice Director Election Proposal");
(ii) a proposal to amend JP Foodservice's Restated Certificate of
Incorporation (the "JP Foodservice Charter Amendment") to increase the number of
authorized JP Foodservice Common Shares from 75,000,000 shares to 150,000,000
shares (the "JP Foodservice Charter Amendment Proposal");
(iii) a proposal to (a) amend the Stock Incentive Plan to increase the
number of JP Foodservice Common Shares authorized for issuance under the Stock
Incentive Plan from 1,532,404 shares to 2,600,000 shares and (b) amend the Stock
Incentive Plan for purposes of Section 162(m) of the Code and regulations
thereunder (collectively, the "JP Foodservice Stock Incentive Plan Amendment")
(the "JP Foodservice Stock Incentive Plan Amendment Proposal"); and
(iv) a proposal to amend the Director Plan to (a) increase the number of
JP Foodservice Common Shares authorized for issuance under the Director Plan
from 100,000 shares to 200,000 shares, (b) increase the number of JP Foodservice
Common Shares subject to annual option grants under the Director Plan from 1,000
shares to 2,000 shares and (c) modify eligibility requirements for awards under
the Director Plan (the "JP Foodservice Director Plan Amendment Proposal").
Approval of the JP Foodservice Merger Proposal is not conditioned upon
approval of any of the foregoing proposals. If approved by the JP Foodservice
stockholders at the JP Foodservice Annual Meeting, the JP Foodservice Charter
Amendment and the JP Foodservice Stock Incentive Plan Amendment will become
effective only upon consummation of the Merger.
JP Foodservice Director Election Proposal
The Restated Certificate of Incorporation and the Amended and Restated
By-Laws of JP Foodservice provide that the JP Foodservice Board of Directors is
to be divided into three classes of directors, with the
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classes to be as nearly equal in number as possible. In accordance with the JP
Foodservice By-Laws, before giving effect to expansion of the JP Foodservice
Board to 17 members pursuant to the Merger Agreement (as described under the
caption "Management of JP Foodservice after the Merger--Directors"), the
membership of the JP Foodservice Board of Directors is fixed at nine directors,
with three directors to serve until the JP Foodservice Annual Meeting, three
directors to serve until the JP Foodservice Annual Meeting of Stockholders in
1998 and three directors to serve until the JP Foodservice Annual Meeting of
Stockholders in 1999. Upon the expiration of the term of office of each class as
set forth above, the nominees for such class will be elected for a term of three
years to succeed the directors whose terms of office expire.
Three nominees are named in this Joint Proxy Statement/Prospectus. If
elected, the directors will serve three-year terms expiring at the JP
Foodservice Annual Meeting of Stockholders in the year 2000 and until their
successors are elected and qualified or until their earlier resignation or
removal. The JP Foodservice Board of Directors has nominated three incumbent
directors, James L. Miller, David M. Abramson and Dean R. Silverman, for
election to the JP Foodservice Board. Mr. Miller has served as a director since
JP Foodservice's inception in 1989, Mr. Abramson has served as director since
1994 and Mr. Silverman has served as a director since September 3, 1996.
Approval of the nominees requires the affirmative vote of a plurality of
the votes cast at the JP Foodservice Annual Meeting. In the event that any
nominee should become unable or unwilling to serve as a director, it is the
intention of the persons named in the proxy to vote for the election of such
substitute nominee for the office of director as the JP Foodservice Board of
Directors may recommend. It is not anticipated that any nominee will be unable
or unwilling to serve as a director.
The following sets forth information concerning the terms of service of
each of the nominees and directors continuing in office:
Nominees for Election for Three-Year Terms
Name Director Since
James L. Miller....................................... 1989
David M. Abramson..................................... 1994
Dean R. Silverman .................................... 1996
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Directors Whose Terms Expire in 1998
Name Director Since
Michael J. Drabb ..................................... 1996
Eric E. Glass......................................... 1996
Paul I. Latta ........................................ 1996
Directors Whose Terms Expire in 1999
Name Director Since
Lewis Hay, III........................................ 1991
Mark P. Kaiser........................................ 1996
Jeffrey D. Serkes..................................... 1996
Information concerning the ownership of JP Foodservice Common Shares by
each of the nominees and directors continuing in office is set forth under the
caption "Ownership of JP Foodservice Common Shares," biographical information
concerning each of the nominees and directors continuing in office is set forth
under the caption "Management of JP Foodservice After the Merger--Directors" and
information regarding the compensation of certain members of JP Foodservice
management in fiscal 1997 and related arrangements is set forth under the
caption "Management of JP Foodservice After the Merger--JP Foodservice Executive
Compensation."
Board of Directors and Committees of the Board
The JP Foodservice Board of Directors held 12 meetings during JP
Foodservice's 1997 fiscal year. During fiscal 1997, each director attended at
least 75% of the aggregate of the total number of meetings of the JP Foodservice
Board held during the period he served as a director and the total number of
meetings held by each committee of the JP Foodservice Board on which he served
(during the period for which he served).
The JP Foodservice Board of Directors currently has three standing
committees, the Audit Committee, the Compensation Committee and the Nominating
Committee.
The Audit Committee, which met four times during fiscal 1997, currently
consists of Mr. Silverman (Chairman), Mr. Drabb and Mr. Serkes. The Committee is
responsible for recommending to the full JP Foodservice Board the selection of
JP Foodservice's independent auditors, reviewing
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the scope of the audit plan and the results of each audit with management and
the independent auditors, reviewing the adequacy of JP Foodservice's system of
internal accounting controls in consultation with the independent auditors,
reviewing generally the activities and recommendations of the independent
auditors, and exercising oversight with respect to JP Foodservice's code of
conduct and other policies and procedures regarding adherence with legal
requirements.
The Compensation Committee, which held six meetings during fiscal 1997,
currently consists of Mr. Drabb (Chairman), Mr. Glass and Mr. Latta. The
Committee is responsible for establishing the compensation and benefits of the
executive officers of JP Foodservice and its subsidiaries, monitoring
compensation arrangements for management employees for consistency with
corporate objectives and stockholders' interests, and administering certain of
JP Foodservice's benefit plans.
The Nominating Committee of the JP Foodservice Board of Directors, which
met one time during fiscal 1997, currently consists of Mr. Hay (Chairman), Mr.
Glass and Mr. Silverman. The Committee is responsible for recommending to the
full JP Foodservice Board potential candidates for membership on the JP
Foodservice Board. JP Foodservice's Restated Certificate of Incorporation
provides that any stockholder wishing to nominate persons for election as
directors at a JP Foodservice annual meeting must deliver to the Secretary of JP
Foodservice at JP Foodservice's principal office in Columbia, Maryland a written
notice of the stockholder's intention to make such a nomination. The stockholder
is required to furnish the notice not later than 90 days prior to the date that
is one year from the date of the most recent preceding meeting of stockholders.
The notice must include the following information: (i) the name and address of
record of the stockholder who intends to make the nomination, (ii) a
representation that the stockholder is a holder of record of JP Foodservice
Common Shares and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, (iii) the name, age,
business and residential addresses and principal occupation or employment of
each nominee, (iv) a description of all arrangements or understandings between
the stockholder and each proposed nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder, (v) such other information regarding each
proposed nominee as would be required to be included in a proxy statement filed
pursuant to the rules and regulations of the SEC and (vi) the written consent of
each proposed nominee to serve as a director of JP Foodservice if so elected.
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Director Compensation
Directors who are not also employees of JP Foodservice receive an annual
fee of $12,000, plus $1,000 for each Board meeting attended in person, $750 for
each Board meeting attended by conference telephone, $750 for each committee
meeting attended in person ($300 if attended in person on the date of a Board
meeting), and $300 for each committee meeting attended by conference telephone.
The Chairman of the Compensation Committee and the Chairman of the Audit
Committee each receive an additional annual fee of $2,000. In addition, subject
to approval of the JP Foodservice Director Plan Amendment Proposal by the JP
Foodservice stockholders at the JP Foodservice Annual Meeting, such directors
receive an annual grant of options for 2,000 JP Foodservice Common Shares under
the Director Plan. The Director Plan also provides that each such director will
receive options to purchase 5,000 JP Foodservice Common Shares upon the
director's initial election or appointment to the JP Foodservice Board.
The JP Foodservice Board of Directors unanimously recommends that the
stockholders of JP Foodservice vote "for" the election of the nominees to serve
as directors.
JP Foodservice Charter Amendment Proposal
JP Foodservice's Restated Certificate of Incorporation currently authorizes
the issuance of a total of 75,000,000 JP Foodservice Common Shares and 5,000,000
shares of Preferred Stock, par value $.01 per share, for a total authorized
capital stock of 80,000,000 shares. See "Description of JP Foodservice Capital
Stock." The stockholders are asked to consider and vote upon a proposal to amend
the Restated Certificate of Incorporation to increase the number of authorized
JP Foodservice Common Shares from 75,000,000 shares to 150,000,000 shares.
Approval of the JP Foodservice Merger Proposal is not conditioned upon
approval of the JP Foodservice Charter Amendment Proposal. If approved by JP
Foodservice stockholders, the JP Foodservice Charter Amendment will become
effective only upon consummation of the Merger.
Of the presently authorized 75,000,000 JP Foodservice Common Shares,
22,606,308 shares were issued and outstanding as of August 31, 1997 and an
additional 4,264,329 shares were reserved for issuance under JP Foodservice's
benefit plans. If the Merger is consummated, 46,735,752 JP Foodservice Common
Shares would be outstanding immediately after the Merger and an additional
6,486,317 JP Foodservice Common Shares
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would be reserved for issuance under JP Foodservice's benefit plans, the Assumed
Options and Assumed Warrants. If the JP Foodservice Charter Amendment Proposal
is not approved, JP Foodservice would have available for future issuance, not
including shares reserved for issuance under the benefit plans, the Assumed
Options and the Assumed Warrants, 21,777,931 JP Foodservice Common Shares if the
Merger is consummated. If the JP Foodservice Charter Amendment Proposal is
approved, JP Foodservice would have available for future issuance, not including
shares reserved for issuance under the benefit plans, the Assumed Options and
the Assumed Warrants, 96,777,931 JP Foodservice Common Shares if the Merger is
consummated.
Although JP Foodservice has no present plans or commitments to issue the
proposed additional authorized JP Foodservice Common Shares, such shares would
be available for issuance without further action by stockholders except as
required by law or regulation, including requirements of the NYSE. The JP
Foodservice Board of Directors believes that, particularly if the Merger is
consummated, the authorization of such shares is desirable so that there will be
sufficient shares available for issuance for purposes that the JP Foodservice
Board of Directors may hereafter determine to be in the best interests of JP
Foodservice and its stockholders. Such purposes could include additional offers
of shares for cash and acquisitions of foodservice businesses, as well as the
declaration of stock splits and stock dividends and other general corporate
purposes. In fiscal 1997, JP Foodservice completed acquisitions of four
foodservice businesses, the consideration for which consisted entirely or
partially of JP Foodservice Common Shares, and completed a public offering of
additional JP Foodservice Common Shares for cash. See "The Merger--Background of
the Merger." In many situations, prompt action may be required which would not
permit JP Foodservice to seek stockholder approval to authorize additional
shares for the specific transaction on a timely basis. The Board of Directors
believes it should have the flexibility to act promptly in the best interests of
JP Foodservice and its stockholders. The terms of any future issuance of JP
Foodservice Common Shares will be dependent largely on market and financial
conditions and other factors existing at the time of issuance.
The proposed increase in authorized JP Foodservice Common Shares is
designed to provide flexibility to the JP Foodservice Board of Directors.
However, these additional shares, if issued, could be used to create impediments
to, or otherwise discourage, persons attempting to gain control of JP
Foodservice, and would have a dilutive effect on stockholders.
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If the JP Foodservice Charter Amendment Proposal is approved, Article IV of
the Restated Certificate of Incorporation of JP Foodservice would read in its
entirety as follows:
ARTICLE IV
CAPITAL STOCK
The Corporation shall have the authority to issue a total of one hundred
fifty-five million (155,000,000) shares of capital stock, each with a par value
of $0.01, consisting of one hundred fifty million (150,000,000) shares of Common
Stock and five million (5,000,000) shares of Preferred Stock.
Approval of the JP Foodservice Charter Amendment Proposal will require the
affirmative vote of holders of a majority of the JP Foodservice Common Shares
outstanding on the JP Foodservice Record Date.
The JP Foodservice Board of Directors unanimously recommends that the
stockholders of JP Foodservice vote "for" the JP Foodservice Charter Amendment
Proposal.
JP Foodservice Stock Incentive Plan Amendment Proposal
The stockholders of JP Foodservice are asked to consider and vote upon a
proposal to (i) amend the Stock Incentive Plan to increase the number of JP
Foodservice Common Shares from 1,532,404 shares to 2,600,000 shares and (ii)
amend the Stock Incentive Plan for purposes of Section 162(m) of the Code and
regulations thereunder. The Stock Incentive Plan was adopted by JP Foodservice
stockholders on November 15, 1994. If approved by the stockholders at the JP
Foodservice Annual Meeting, the JP Foodservice Stock Incentive Plan Amendment
will become effective only upon consummation of the Merger.
Increase in Shares Authorized for Issuance
The JP Foodservice Board of Directors has approved an amendment to the
Stock Incentive Plan increasing from 1,532,404 to 2,600,000 the number of JP
Foodservice Common Shares authorized for issuance pursuant to awards granted
under the Stock Incentive Plan. The JP Foodservice Board believes that stock
options and other stock-based awards of the type authorized by the Stock
Incentive Plan play an important role in enabling JP Foodservice to attract,
retain and motivate executives and key management employees who can make a
material contribution to JP Foodservice's future growth and success.
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The JP Foodservice Board believes that the number of JP Foodservice Common
Shares authorized for issuance under the Stock Incentive Plan will be
insufficient to meet JP Foodservice's needs for stock-based management
compensation following the Merger. In 1994, the JP Foodservice stockholders
authorized a total of 1,532,404 JP Foodservice Common Shares to be used for
awards under the Stock Incentive Plan. At August 31, 1997, 1,321,749 JP
Foodservice Common Shares had been reserved for issuance pursuant to outstanding
awards and 210,655 JP Foodservice Common Shares were available for future
awards. Consummation of the Merger is expected to increase significantly the
number of officers and key management employees who will be eligible for awards
under the Stock Incentive Plan. Although, pursuant to the Merger Agreement, JP
Foodservice will assume all of the Options under the Rykoff-Sexton Stock Plans
which are outstanding immediately prior to the Effective Time, it does not
intend to make awards under the Rykoff-Sexton Stock Plans after the Merger. All
stock-based awards will be made under the Stock Incentive Plan or such other
stock plans as the JP Foodservice stockholders may approve from time to time.
If stockholders approve the Stock Incentive Plan Amendment, the total
number of JP Foodservice Common Shares authorized for issuance under the Stock
Incentive Plan will constitute approximately 5.6% of the 46,735,752 JP
Foodservice Common Shares that will be outstanding immediately after the Merger.
The increased number of JP Foodservice Common Shares authorized under the Stock
Incentive Plan, together with the 1,943,309 JP Foodservice Common Shares that
will be issuable upon exercise of all Assumed Options, will constitute
approximately 9.7% of the JP Foodservice Common Shares that will be outstanding
immediately after the Merger.
Section 162(m)
Section 162(m) of the Code generally provides that no federal income tax
business expense deduction is allowed for annual compensation in excess of $1
million paid by a publicly traded corporation to its chief executive officer and
the four other most highly compensated officers. However, under the Code there
is no limitation on the deductibility of "qualified performance-based
compensation." To satisfy this definition, (i) the compensation must be paid
solely on account of the attainment of one or more preestablished, objective
performance goals; (ii) the performance goal under which compensation is paid
must be established by a compensation committee comprised solely of two or more
directors who qualify as "outside directors" for purposes of the exception;
(iii) the material terms under which the compensation is to be paid must be
disclosed to and subsequently approved by stockholders of the
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corporation before payment is made in a separate vote; and (iv) the compensation
committee must certify in writing before payment of the compensation that the
performance goals and any other material terms were in fact satisfied.
In the case of compensation attributable to stock options, the performance
goal requirement (summarized in (i) above) is deemed satisfied, and the
certification requirement (summarized in (iv) above) is inapplicable, if (1) the
grant or award is made by the Compensation Committee; (2) the plan under which
the option is granted states the maximum number of shares with respect to which
options may be granted during a specified period to an employee; and (3) under
the terms of the option, the amount of compensation is based solely on an
increase in the value of the stock after the date of grant. Under the Code, a
director is an "outside director" if the director is not a current employee of
the corporation; is not a former employee who receives compensation for prior
services (other than under a qualified retirement plan); has not been an officer
of the corporation; and does not receive, directly or indirectly (including
amounts paid to an entity that employs the director or in which the director has
at least a 5% ownership interest), remuneration from the corporation in any
capacity other than as a director. The regulations provide that the material
terms of a performance goal will be approved by stockholders for purposes of the
foregoing rules if, in a separate vote, affirmative votes are cast by a majority
of the voting shares.
The Stock Incentive Plan authorizes grants of restricted stock and stock
appreciation rights which will vest only if performance goals are satisfied. The
performance goals are based on objective business criteria which will include
one or more of the following: earnings per share, total shareholder return,
operating earnings, growth in assets, return on equity, return on capital,
market share, stock price, net income, cash flow, sales growth (in general, by
type of product and by type of customer), retained earnings and completion of
aquisitions. The Compensation Committee is authorized to determine the specific
performance goals that will apply and the manner in which such goals are
calculated.
Summary of Material Provisions of the Stock Incentive Plan
The following is a summary of the material provisions of the Stock
Incentive Plan, as proposed to be amended by the Stock Incentive Plan Amendment.
Purpose. The purpose of the Stock Incentive Plan is to promote the
long-term growth of JP Foodservice and its subsidiaries by rewarding key
management employees of such entities with a proprietary interest in JP
Foodservice for outstanding long-term performance and to attract, motivate and
retain highly qualified and capable management employees.
Awards. Awards under the Stock Incentive Plan may be made in the form of
(i) stock options (each, an "option"), which may be either incentive stock
options or non-qualified stock options, (ii) restricted stock, (iii) stock
appreciation rights or (iv) any combination of the foregoing. An "incentive
stock option" is an option which meets the requirements of
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Section 422 of the Code and a "non-qualified stock option" is an option which
does not meet the requirements of Section 422 of the Code. "Restricted stock" is
an award of JP Foodservice Common Shares on which are imposed restricted periods
and restrictions which subject the shares to a substantial risk of forfeiture,
as defined in Section 83 of the Code. A "stock appreciation right" is a right to
receive, in the form of JP Foodservice Common Shares, cash or a combination
thereof, the spread or difference between the fair market value of JP
Foodservice Common Shares subject to an option and the option exercise price. As
of the date of this Joint Proxy Statement/Prospectus, only non-qualified stock
options have been granted under the Stock Incentive Plan.
Shares Subject to the Stock Incentive Plan. Subject to adjustment as
described below, and as of the date of this Joint Proxy Statement/Prospectus,
the aggregate number of JP Foodservice Common Shares which may be issued and
released from any restrictions upon the exercise of options or SARs and the
vesting of restricted stock, respectively, may not exceed 1,532,404 shares. If
the Stock Incentive Plan Amendment becomes effective, the aggregate number of
such JP Foodservice Common Shares will not exceed 2,600,000 shares. Any portion
of the shares reserved for issuance under the Stock Incentive Plan may be issued
pursuant to incentive stock options. Subject to adjustment as described below,
the aggregate number of shares which may be granted pursuant to options or SARs
under the Stock Incentive Plan to any one participant during the terms of the
Stock Incentive Plan is 20% of the total number of shares subject to the Plan.
If all or any portion of any outstanding award expires or is terminated, the JP
Foodservice Common Shares allocable to the unexercised portion of such award may
again be subject to an award under the Stock Incentive Plan.
Effective Date and Termination. The Stock Incentive Plan became effective
on November 22, 1994 and will terminate on November 22, 2004.
Administration and Operation. The Stock Incentive Plan is administered by
the Compensation Committee of the JP Foodservice Board of Directors. It is
intended that the members of the Compensation Committee will be "outside
directors" for purposes of Section 162(m) of the Code. The Compensation
Committee has the exclusive power to make awards under the Plan and to determine
when and to whom awards will be granted, and the form, amount and other terms
and conditions of each award, subject to the provisions of the Plan. The
Committee has the authority to interpret the Stock Incentive Plan and any award
or agreement made under the Plan, to establish, amend, waive and rescind any
rules and regulations relating to the administration of the Plan, to determine
the terms and provisions of any agreements entered into under
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the Plan (not inconsistent with the Plan), and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee may
delegate its responsibilities under the Stock Incentive Plan to persons who are
not "non-employee directors" within the meaning of Exchange Act Rule 16b-3 for
purposes of determining and administering awards solely to employees who are not
then subject to the reporting requirements of Section 16 of the Exchange
Act.
Eligibility. Officers and key management employees of JP Foodservice and JP
Foodservice's subsidiaries who are designated by the Compensation Committee may
be granted awards under the Stock Incentive Plan. As of the date of this Joint
Proxy Statement/Prospectus, approximately 190 persons were eligible for awards.
Plan Benefits. The following table sets forth information regarding awards
under the Stock Incentive Plan granted through August 31, 1997. All such awards
have been made in the form of non-qualified stock options.
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<TABLE>
<CAPTION>
Option Grants to Executive Officers and Other Employees
Number of Potential Realizable Value of
Securities Assumed Annual Rates of
Underlying Exercise Stock Price Appreciation for
Option Options Price Expiration Option Term(4)
Name Date Granted(#)(1) ($/share)(2) Date(3) 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James L. Miller.................. 11/22/94 68,489 $ 11.00 11/22/04 $ 473,796 $ 1,200,692
Chairman of the Board, President 8/31/95 30,895 14.25 8/31/05 276,873 701,651
and Chief Executive Officer 7/16/96 27,537 21.00 7/16/06 363,675 921,625
11/14/96 99,560 21.25 11/14/06 1,330,521 3,371,801
8/8/97 48,376 31.31 8/8/07 952,557 2,413,966
274,857 $ 3,397,422 $ 8,609,735
Lewis Hay, III................... 11/22/94 29,054 11.00 11/22/04 $ 200,991 $ 509,351
Senior Vice President and Chief 8/31/95 13,118 14.25 8/31/05 117,560 297,921
Financial Officer 7/16/96 14,270 21.00 7/16/06 188,461 477,597
11/14/96 51,594 21.25 11/14/06 689,503 1,747,335
8/8/97 23,637 31.31 8/8/07 485,429 1,179,488
131,673 $ 1,661,944 $ 4,211,692
David M. Abramson................ 7/16/96 5,417 21.00 7/16/06 $ 71,541 $ 181,299
Senior Vice President and 11/14/96 19,583 21.25 11/14/06 81,707 663,218
General Counsel 8/8/97 19,840 31.31 8/8/07 384,756 975,047
44,540 $ 538,004 $ 1,819,584
Mark P. Kaiser................... 11/22/94 26,333 11.00 11/22/04 $ 182,168 $ 461,648
Senior Vice President-Sales, 8/31/95 13,118 14.25 8/31/05 117,560 297,921
Marketing and Procurement 7/16/96 7,669 21.00 7/16/06 101,283 256,671
11/14/96 27,726 21.25 11/14/06 370,531 938,997
8/8/97 19,840 31.31 8/8/07 384,756 975,047
94,366 $ 1,156,298 $ 2,930,284
George T. Megas ................. 11/22/94 8,957 11.00 11/22/04 $ 61,963 $ 157,027
Vice President-Finance 8/31/95 4,184 14.25 8/31/05 37,496 95,022
7/16/96 5,107 21.00 7/16/06 67,447 170,924
11/14/96 18,464 21.25 11/14/06 246,753 625,321
8/8/97 8,162 31.31 8/8/07 160,715 407,284
44,874 $ 594,374 $ 1,455,578
All executive officers as a group.............. 590,330 $11.00-$31.31 11/22/04-8/8/07 $ 7,328,042 $19,026,853
All non-executive officer employees as a group 731,419 $11.00-$31.31 11/22/04-8/8/07 $ 9,526,686 $24,173,177
(5)............................................
</TABLE>
----------------------
(1) Except for options granted on November 14, 1996, one third of each option
granted vests on each of the first, second and third anniversary dates of
the option grant date. One fifth of each option granted on November 14,
1996 vested on the option grant date and one fifth of each such option
vests on each of the first, second, third and fourth anniversary dates of
the option grant date. Upon a change in control of JP Foodservice, all
previously unvested options will vest and become immediately exercisable.
(2) The exercise price may be paid in cash, in JP Foodservice Common Shares
valued at fair market value on the exercise date, or in a combination of
cash and shares.
(3) The term of each option may not exceed ten years.
(4) The hypothetical potential appreciation shown in these columns reflects
the required calculation at annual assumed appreciation rates of 5% and
10%, as set by the SEC, and therefore is not intended to represent either
historical appreciation or anticipated future appreciation of the JP
Foodservice Common Shares.
(5) Excludes 159,321 options which were cancelled.
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As of August 31, 1997, the market value of the JP Foodservice Common Shares
underlying the options granted under the Stock Incentive Plan was $40,234,040.
Terms and Conditions of Options. General. An option granted under the Stock
Incentive Plan is exercisable only to the extent that it is vested on the date
of exercise, and no option may be exercisable more than ten years from the
option grant date, or five years in the case of an incentive stock option
granted to a person who owns more than 10% of the total combined voting power of
all classes of stock of JP Foodservice or any subsidiary (a "ten percent
stockholder").
The exercise price per share (the "option price") under each option granted
under the Stock Incentive Plan may not be less than 100% (110% in the case of a
ten percent stockholder) of the fair market value of the JP Foodservice Common
Shares on the option grant date. For options granted effective on the closing
date of JP Foodservice's initial public offering, the fair market value was the
public offering price of $11 per JP Foodservice Common Share. The JP Foodservice
Common Shares currently are listed on the NYSE. For as long as the JP
Foodservice Common Shares are so listed, the fair market value of the JP
Foodservice Common Shares for all purposes of the Stock Incentive Plan will be
the closing price of the JP Foodservice Common Shares as reported on NYSE on the
option grant date. If there are no sales of shares reported on the option grant
date, the fair market value will be deemed equal to the closing price as
reported on NYSE for the last preceding date on which sales of the JP
Foodservice Common Shares were reported.
An option may be exercised, in full or in part, provided that the option is
vested. Payment of the exercise price will be made in full upon exercise and may
be made (i) in cash, (ii) with JP Foodservice Common Shares owned by the
participant, (iii) by delivery to JP Foodservice of irrevocable instructions
that the certificates for the JP Foodservice Common Shares purchased be
delivered to a licensed broker as agent for the optionee, and irrevocable
instructions to the broker to deliver to JP Foodservice the portion of the
proceeds equal to the option exercise price, or (iv) in a combination of cash
and broker-assisted exercise. The value of any JP Foodservice Common Shares used
to pay the option price or any portion thereof will be the fair market value of
the JP Foodservice Common Shares on the date of exercise, and such JP
Foodservice Common Shares must have been held by the participant for at least
six months.
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In the case of incentive stock options, the aggregate fair market value of
the JP Foodservice Common Shares (determined on the option grant date) with
respect to which such options are exercisable for the first time during any
calendar year may not exceed $100,000.
Vesting. Generally, one-third of each option will vest on each of the
first, second and third anniversary of the option grant date. The Compensation
Committee may accelerate the vesting of any option in its discretion.
Reload Options. A non-qualified stock option will include the right to
acquire a reload option, which will entitle the participant, upon exercise of
the original option (in whole or in part) prior to termination of the
participant's employment and satisfaction of the option price in shares, to
receive a new non-qualified stock option. The grant of reload options will be
subject to certain terms and conditions set forth in the Stock Incentive Plan.
Termination of Employment. Unless otherwise determined by the Compensation
Committee, in the case of any incentive stock option granted under the Stock
Incentive Plan, the Compensation Committee will provide that the option will
terminate on the date three months (one year, in the event the participant
terminates employment by reason of death or disability) after the date on which
the participant terminates employment, or, if earlier, ten years after the
option grant date (five years in the case of a ten percent stockholder). Unless
the participant terminates employment by reason of death, disability or
retirement, non-qualified stock options will terminate six months after the
termination of employment. In the event a participant terminates employment by
reason of the participant's death, disability or retirement, the non-qualified
stock options will continue to vest for one year following the date on which the
participant dies, incurs a disability or retires, and the option will terminate
three years after the date on which the participant terminates employment. In
any event, non-qualified stock options will terminate ten years after the option
grant date.
Terms and Conditions of Stock Appreciation Rights. SARs may be granted in
conjunction with all or a part of any option granted under the Stock Incentive
Plan, either at the time of the grant of such option or at any subsequent time
prior to the expiration of such option; provided, however, that SARs may not be
offered or granted in connection with a prior option without the consent of the
holder of such option. SARs granted to a participant who is a director or
officer (within the meaning of Rule 16A-1(f) under the Exchange Act) of JP
Foodservice may not be exercised with six months after such SARs are granted,
except that this
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limitation will not be applicable in the event of the death or disability of
such participant occurring prior to the expiration of each six-month period.
SARs will be exercisable only at such time and to the extent that the
option to which they related (the "related option") is exercisable.
Exercisability of stock appreciation rights also may be subject to satisfaction
of performance goals. SARs and the related option may be exercised concurrently
only when the related option is a non-qualified stock option. Upon exercise of a
SAR, the participant will be entitled to the difference between the fair market
value of one share of common Stock and the option price of one share specified
in the related option, multiplied by the number of JP Foodservice Common Shares
in respect of which the SARs have been exercised (the "economic value"). A
participant, upon the exercise of SARs will receive the economic value thereof
and the Compensation Committee in its sole discretion will determine the form in
which payment of such economic value will be made, which may be in cash, common
stock or a combination thereof. For this purpose, the fair market value of the
JP Foodservice Common Shares will be determined as the date of exercise of the
SAR.
A SAR may be exercised without exercising the related option, but the
related option will be canceled for all purposes under the Stock Incentive Plan
to the extent of the SAR exercise. A related option may be exercised without
exercising the SAR but the SAR will be canceled for all purposes under the Plan
to the extent of the related option exercise.
In addition to the conditions set forth above, SARs issued in connection
with incentive stock options are required to meet the following conditions: (i)
each SAR must expire not later than the expiration of the related option, (ii)
the SAR will be exercised only when the fair market value of the JP Foodservice
Common Shares subject to the related option exceeds the option price of the
related option.
Terms and Conditions of Restricted Stock. Restricted stock will be subject
to such restrictions as the Compensation Committee may impose, including,
without limitation, continuous employment with JP Foodservice or any of its
subsidiaries or the attainment of specific corporate, divisional or individual
performance standards or goals, including one or more of the following: earnings
per share, total shareholder return, operating earnings, growth in assets,
return on equity, return on capital, market share, stock price, net income, cash
flow, sales growth (in general, by type of product and by type of customer),
retained earnings and completion of acquisitions. The restrictions and the
restricted period may differ with respect to each participant. A restricted
stock award will be subject to forfeiture if certain events specified by the
Compensation Committee occur prior to the lapse of the restrictions. Subject to
and consistent with the provisions of the Stock Incentive Plan, the Compensation
Committee will determine the terms and conditions of the restricted stock
agreement evidencing each award of restricted stock, including the following:
the restricted period for all or a portion of the award, the restrictions
applicable to the
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<PAGE>
award: whether the participant will receive the dividends and other distributees
paid with respect to an award of restricted stock as declared and paid to the
holders of the JP Foodservice Common Shares during the restricted period or
whether such dividends and distributions will be withheld by JP Foodservice for
the account of the participant until the restricted periods have expired or the
restrictions have been satisfied: the percentage of the award that will vest in
the participant in the event of such participant's death, disability or
retirement prior to the expiration of the restricted period or the satisfaction
of the restrictions applicable to an award of restricted stock; and
notwithstanding the restricted period and the restrictions set forth in the
restricted stock agreement, whether to shorten the restricted period or waive
the restrictions if the Compensation Committee concludes that it is in the best
interests of JP Foodservice to do so.
Corporate Changes; Change of Control. Subject to any required stockholder
action, the number of JP Foodservice Common Shares subject to each outstanding
option and the option price will be proportionately adjusted for any increase or
decrease in the number of issued JP Foodservice Common Shares resulting from a
subdivision or consolidation of JP Foodservice Common Shares or the payment of a
stock dividend (but only on the Common Stock) or any other increase or decrease
in the number of shares effected without receipt of consideration by JP
Foodservice.
If JP Foodservice merges or is consolidated with another corporation,
whether or not JP Foodservice is a surviving corporation, or if JP Foodservice
is liquidated or sells or otherwise disposes of substantially all of its assets
while unexercised options remain outstanding under the Stock Incentive Plan, (i)
after the effective date of the merger, consolidation, liquidation, sale or
other disposition, as the case may be, each holder of an outstanding option will
be entitled, upon exercise of that option, to receive, in lieu of JP Foodservice
Common Shares, the number and class or classes of stock or other securities or
property to which the holder would have been entitled if, immediately prior to
the merger, consolidation, liquidation, sale or other disposition, the holder
had been the holder of record of a number of JP Foodservice Common Shares equal
to the number of shares as to which that option may be exercised or (ii) if
options have not already become exercisable, the Board may waive any limitations
set forth in, or imposed pursuant to, the Stock Incentive Plan so that all
options, from and after a date prior to the effective date of any such merger,
consolidation, liquidation, sale or other disposition specified by the Board,
will be exercisable in full.
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Upon the occurrence of an event constituting a "Change of Control" (as
defined in the following paragraph) the following will occur: (i) any and all
outstanding options and SARs will become immediately exercisable, (ii) the
restricted period and restrictions imposed on the restricted stock will lapse,
and the restricted stock will vest in the participant to the extent determined
by the Compensation Committee, and (iii) any dividends and distributions paid
with respect to the restricted stock which were escrowed during the restricted
period and the earnings thereon will be paid to the participant.
Under the Stock Incentive Plan, a "Change of Control" means (i) a person or
group (other than JP Foodservice, any trustee or other fiduciary holding
securities under an employee benefit plan of JP Foodservice or any corporation
owned by the stockholders of JP Foodservice in substantially the same
proportions as their ownership of voting stock of JP Foodservice) is or becomes
(other than solely by reason of a repurchase of voting stock by JP Foodservice)
the beneficial owner of voting stock of JP Foodservice representing 50% or more
with or merges with or into another corporation or partnership or conveys,
transfers or leases, in any transaction or series of transactions, all or
substantially all of its assets to any corporation or partnership, or any
corporation or partnership merges with or into JP Foodservice, in any event
pursuant to a transaction in which the outstanding voting stock of JP
Foodservice is reclassified or changed into or exchanged for cash, securities or
other property (other than any transaction where the voting stock of JP
Foodservice is changed into or exchanged for voting stock of the surviving
corporation, and no person or group who did not beneficially own 50% or more of
the total outstanding voting stock of JP Foodservice immediately prior to such
transaction beneficially owns, immediately after such transaction, 50% or more
of the total outstanding voting stock of the surviving corporation) or JP
Foodservice is liquidated or dissolved or adopts a plan of liquidation or
dissolution: or (ii) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
stockholders of JP Foodservice was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office.
Non-Transferability of Awards. Awards are not transferable by a participant
during the participant's lifetime and may not be assigned, exchanged, pledged,
transferred or otherwise encumbered or disposed of except pursuant to a
qualified domestic relations order, by will or by the applicable laws of descent
and distribution. Options and SARs are
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exercisable during the participant's lifetime only by the participant or the
participant's guardian or legal representative.
Amendment of the Stock Incentive Plan and Options. The JP Foodservice Board
of Directors generally may amend the Stock Incentive Plan from time to time,
except that, without the approval of the stockholders of JP Foodservice, no
revision or amendment may (i) change the number of shares subject to the Stock
Incentive Plan, (ii) change the designation of the class of employees eligible
to receive options, (iii) decrease the price at which options may be granted or
(iv) remove the administration of the Stock Incentive Plan from the Compensation
Committee. The terms and conditions applicable to any award may thereafter be
amended or modified by mutual agreement between JP Foodservice and the
participant or such other persons as may then have an interest therein. Further,
by mutual agreement between JP Foodservice and a participant, or under any other
present or future plan of JP Foodservice, options or other awards may be granted
to a participant in substitution and exchange for, and in cancellation of, any
awards previously granted to the participant under the Stock Incentive Plan, or
under any future plan of JP Foodservice.
Federal Income Tax Consequences. Incentive Stock Options. A participant
will not realize taxable income upon the grant of an incentive stock option. In
addition, such a participant generally will not realize taxable income upon the
exercise of an incentive stock option. However, the participant's alternative
minimum taxable income will be increased by the amount that the fair market
value of the option stock (generally determined as of the date of exercise)
exceeds the option price of the option. Further, except in the case of the
participant's death, if an option is exercised more than three months after the
participant's termination of employment, the option ceases to be treated as an
incentive stock option and is subject to taxation under the rules applicable to
non-qualified stock options.
If a participant sells the JP Foodservice Common Shares acquired upon
exercise of an incentive stock option, the tax consequences of the sale (a
"disposition") depend upon whether the disposition as qualifying or
disqualifying. The disposition of the option stock is qualifying if it is made
at least two years after the date the incentive stock option was granted and at
least one year after the date the incentive stock option was exercised. If the
disposition of the option stock is qualifying, any excess of the sale price of
the option stock over the option price of the option will be treated as
long-term capital gain taxable to the participant at the time of the sale. If
the disposition in not qualifying (a "disqualifying disposition"), the excess of
the fair market value of the option stock on the date the
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option was exercised over the option price will be compensation income taxable
to the participant at the time of the disposition, and any excess of the sale
price of the option stock over the fair market value of the option stock on the
date the option was exercised will be taxed as capital gains.
Unless a participant engages in a disqualifying disposition, JP Foodservice
will not be entitled to a deduction with respect to an incentive stock option.
If a participant engages in a disqualifying disposition, JP Foodservice will be
entitled to a deduction equal to the amount of compensation income taxable to
the participant.
Non-Qualified Stock Options. A participant will not realize taxable income
upon the grant of a non-qualified stock option. However, when the participant
exercises the option, the difference between the option price of the option and
the fair market value of the option stock on the date of exercise will
constitute compensation income taxable to the participant. JP Foodservice will
be entitled to a deduction equal to the amount of compensation income taxable to
the participant, as long as JP Foodservice complies with applicable reporting
requirements.
Stock Appreciation Rights. The grant of SARs will not result in taxable
income to the participant or a deduction to JP Foodservice. Upon exercise of a
SAR, the participant will recognize ordinary income and JP Foodservice will have
a corresponding deduction in an amount equal to the cash or the fair market
value of the JP Foodservice Common Shares received by the participant. If a
participant allows a SAR to expire, otherwise than as a result of exercise of
the related option, the Internal Revenue Service may contend that the
participant will have taxable income in the year of expiration equal to the
amount of cash or the fair market value of the JP Foodservice Common Shares
which the participant would have received if such participant had exercised the
SAR immediately before it expired.
Restricted Stock. A grantee of restricted stock will not recognize any
taxable income for federal income tax purposes in the year of the award,
provided that the JP Foodservice Common Shares are subject to restrictions (that
is, such restricted stock is nontransferable and subject to a substantial risk
of forfeiture). If a grantee is subject to Section 16(b) of the Exchange Act (by
reason of such grantee's status as a director, executive officer or greater than
10% stockholder of JP Foodservice) on the date of the award, the shares
generally will be deemed to be subject to restrictions (in addition to the
restrictions imposed by the award) for at least six months following the date of
the award. However, the grantee may elect under Section 83(b) of the Code to
recognize compensation income in the year of the award in an amount equal to the
fair market
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value of the shares on the date of the award, determined without regard to the
restrictions. If the grantee does not make such a Section 83(b) election, the
fair market value of the shares on the date the restrictions lapse will be
treated as compensation income to the grantee and will be taxable in the year
the restrictions lapse. JP Foodservice or one of its subsidiaries generally will
be entitled to a deduction for compensation paid in the same amount treated as
compensation income to the grantee in the year the grantee is taxed on the
income.
The Stock Incentive Plan, as amended, contains the required provisions so
that awards of options, restricted stock and SARs pursuant to the Stock
Incentive Plan may qualify for the exception to Section 162(m) of the Code as
performance-based compensation if the requirements of the exception are
otherwise satisfied.
Approval of the JP Foodservice Stock Incentive Plan Amendment will require
the affirmative vote of holders of a majority of the JP Foodservice Common
Shares present and entitled to vote at the JP Foodservice Annual Meeting.
JP Foodservice's Board of Directors unanimously recommends that the
stockholders of JP Foodservice vote "for" the JP Foodservice Stock Incentive
Plan Amendment Proposal.
JP Foodservice Director Plan Amendment Proposal
The stockholders of JP Foodservice are asked to consider and vote upon an
amendment (the "JP Foodservice Director Plan Amendment") to the Director Plan to
(i) increase the number of JP Foodservice Common Shares authorized for issuance
under the Director Plan from 100,000 shares to 200,000 shares, (ii) increase the
number of JP Foodservice Common Shares subject to annual option grants under the
Director Plan from 1,000 shares to 2,000 shares and (iii) modify eligibility
requirements for awards under the Director Plan. The Director Plan was
originally adopted by JP Foodservice stockholders on November 15, 1994. At the
JP Foodservice Annual Meeting in 1996, JP Foodservice stockholders approved an
amendment to the Director Plan increasing the number of JP Foodservice Common
Shares authorized for issuance under the Director Plan from 40,000 shares to
100,000 shares. On November 15, 1996, the JP Foodservice Board of Directors
authorized, subject to stockholder approval at the JP Foodservice Annual
Meeting, an increase from 1,000 to 2,000 in the number of JP Foodservice Common
Shares subject to annual option grants. If approved by the stockholders at the
JP Foodservice Annual Meeting, the JP Foodservice Director Plan Amendment will
become effective as of the date of such approval.
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Increase in Authorized Shares and Option Grants
The JP Foodservice Board of Directors has concluded that the total number
of shares remaining available for issuance under the Director Plan is not
sufficient for the continued long-term operation of the Director Plan. At August
31, 1997, there were approximately 42,000 JP Foodservice Common Shares reserved
for issuance pursuant to outstanding options under the Director Plan and 58,000
JP Foodservice Common Shares available for issuance under the Director Plan. The
JP Foodservice Board of Directors believes that an important element of director
compensation is equity-based incentive compensation. Such compensation advances
the interest of JP Foodservice by encouraging, and providing for, the
acquisition of equity interests in JP Foodservice by outside directors, thereby
providing outside directors with a substantial motivation to enhance stockholder
value by aligning their interests with those of the stockholders. In order to
provide JP Foodservice with the ability to continue utilizing equity-based
incentive compensation under the Director Plan, the JP Foodservice Board of
Directors has proposed amendments to the Director Plan increasing both the
number of authorized shares and the amount of annual option grants, subject to
stockholder approval.
Modification of Eligibility Requirements
The JP Foodservice Board of Directors requests stockholder approval of an
amendment to the eligibility requirements of the Director Plan which will
provide that (i) the four current incumbent directors of Rykoff-Sexton, other
than Mr. Van Stekelenburg, who will serve as directors of JP Foodservice
pursuant to the Merger Agreement (the "Rykoff-Sexton Director Designees") will
be eligible for a reduced initial option grant under the Director Plan and
(ii) the two individuals designated by MLCP who will serve as directors of JP
Foodservice pursuant to the Merger Agreement (the "MLCP Director Designees")
will not be eligible to participate in the Director Plan. See "Management of JP
Foodservice After the Merger--Directors." Under the Director Plan as currently
in effect, each director of JP Foodservice who is not an employee of JP
Foodservice is an "Outside Director" eligible to participate in the Director
Plan. Each Outside Director receives an initial option grant to purchase 5,000
JP Foodservice Common Shares and an annual grant, subject to approval of the JP
Foodservice Director Plan Amendment, to purchase 2,000 JP Foodservice Common
Shares. If JP stockholders approve the JP Foodservice Director Plan Amendment,
the Rykoff-Sexton Director Designees would be eligible to receive an initial
option grant for 840 JP Foodservice Common Shares and annual option grants on
the same basis as the other Outside Directors and the MLCP Director
Designees would not be eligible to receive any option grants under the Director
Plan. The proposed initial option grant for 840 shares to the Rykoff-Sexton
Director Designees was computed by multiplying (a) the annual option grant of
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1,000 Rykoff-Sexton Common Shares to which such individuals currently are
entitled under the Rykoff-Sexton, Inc. 1993 Director Stock Option Plan by (b)
the Exchange Ratio.
Summary of Material Provisions of the Director Plan
The following is a summary of the material provisions of the Director Plan,
as proposed to be amended by the JP Foodservice Director Plan Amendment.
Authorized Shares. If JP Foodservice stockholders approve the JP
Foodservice Director Plan Amendment, the Director Plan will be amended to
authorize 100,000 additional JP Foodservice Common Shares for issuance under the
Director Plan. These shares are in addition to the 100,000 JP Foodservice Common
Shares currently authorized for issuance or subject to issuance upon exercise of
outstanding options under the Director Plan.
Eligibility. No director of JP Foodservice who is an employee of JP
Foodservice is eligible to participate in the Director Plan. Except as set forth
in the following sentence, each other director of JP Foodservice is an "Outside
Director" eligible to participate in the Director Plan. If JP Foodservice
stockholders approve the JP Foodservice Director Plan Amendment, the
Rykoff-Sexton Director Designees will be eligible for a reduced initial option
grant and annual option grants on the same basis as the other Outside Directors
and the MLCP Director Designees will not be eligible to participate in the
Director Plan. As of August 31, 1997, JP Foodservice had five Outside Directors,
each of whom has received option grants in accordance with the Director Plan. JP
Foodservice also has made option grants to two former Outside Directors. The
following table sets forth information regarding awards under the Director Plan
granted through August 31, 1997.
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<TABLE>
<CAPTION>
Option Grants to Outside Directors
Number of Potential Realizable Value of
Securities Assumed Annual Rates of
Underlying Exercise Stock Price Appreciation for
Option Options Price Expiration Option Term(4)
Name Date Granted(#)(1) ($/share)(2) Date(3) 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Michael J. Drabb....... 11/22/94 5,000 $ 11.00 11/22/04 $ 34,589 $ 87,656
11/22/95 1,000 $ 15.75 11/22/05 9,905 25,101
11/22/96 2,000 $ 21.75 11/22/06 27,357 69,328
8,000 $ 71,851 $ 182,085
Eric E. Glass.......... 2/22/96 5,000 $ 19.25 2/22/06 $ 60,531 $ 153,398
2/22/97 2,000 $ 27.75 2/22/07 34,904 88,453
7,000 $ 95,435 $ 241,851
Paul I. Latta, Jr...... 9/3/96 5,000 $ 23.75 9/3/06 $ 74,681 $ 189,257
5,000 $ 74,681 $ 189,257
Jeffrey D. Serkes...... 11/15/96 5,000 $ 22.25 11/15/06 $ 69,965 $ 177,304
5,000 $ 69,965 $ 177,304
Dean R. Silverman...... 9/3/96 5,000 $ 23.75 9/3/06 $ 74,681 $ 189,257
5,000 $ 74,681 $ 189,257
George A. Midwood...... 11/22/94 5,000 $ 11.00 11/22/04 $ 34,589 $ 87,656
11/22/95 1,000 $ 15.75 11/22/05 9,905 25,101
6,000 $ 44,494 $ 112,757
David M. Abramson(5)... 11/22/94 5,000 $ 11.00 11/22/04 $ 34,589 $ 87,656
11/22/95 1,000 $ 15.75 11/22/05 9,905 25,101
6,000 $ 44,494 $ 112,757
</TABLE>
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(1) Except for options granted on November 14, 1996, one third of each option
granted vests on each of the first, second and third anniversary dates of
the option grant date. One fifth of each option granted on November 14,
1996 vested on the option grant date and one fifth of each such option
vests on each of the first, second, third and fourth anniversary dates of
the option grant date. Upon a change in control of JP Foodservice, all
previously unvested options will vest and become immediately exercisable.
(2) The exercise price may be paid in cash, in JP Foodservice Common Shares
valued at fair market value on the exercise date, or in a combination of
cash and shares.
(3) The term of each option may not exceed ten years.
(4) The hypothetical potential appreciation shown in these columns reflects the
required calculation at annual assumed appreciation rates of 5% and 10%, as
set by the SEC, and therefore is not intended to represent either
historical appreciation or anticipated future appreciation of the JP
Foodservice Common Shares.
(5) Reflects grants to Mr. Abramson under the Director Plan during his tenure
as an outside director, and prior to his employment by the Company.
Neither the options nor anything contained in the Director Plan confers
upon any Outside Director any right to continue as a director of JP Foodservice.
Further, the Director Plan does not limit in any way the ability of the JP
Foodservice Board of Directors or the JP Foodservice stockholders to terminate
service of any Outside Director on the JP Foodservice Board at any time.
Option Grants. Each Outside Director receives an option grant to
purchase 5,000 JP Foodservice Common Shares upon election to the Board
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of Directors. In addition, each eligible Outside Director who receives an
initial grant under the Director Plan receives an option grant to purchase
additional JP Foodservice Common Shares on each anniversary of the initial
grant. Through November 15, 1996, each annual option grant was for 1,000 JP
Foodservice Common Shares. On November 15, 1996, the JP Foodservice Board
authorized, subject to stockholder approval of the JP Foodservice Director Plan
Amendment, an increase from 1,000 to 2,000 in the number of JP Foodservice
Common Shares subject to annual option grants. As of the date of this Joint
Proxy Statement/Prospectus, annual option grants for 2,000 JP Foodservice Common
Shares have been awarded to four Outside Directors, subject to stockholder
approval. If JP Foodservice stockholders approve the JP Foodservice Director
Plan Amendment, the Rykoff-Sexton Director Designees will be eligible to receive
an initial option grant for 840 JP Foodservice Common Shares and annual option
grants on the same basis as the other Outside Directors.
If shares subject to an option under the Director Plan cease to be
subject to such option, or if shares under the Director Plan are forfeited, or
otherwise terminate without a payment being made to the Outside Director in the
form of JP Foodservice Common Shares, such shares will again be available for
option grants pursuant to the terms of the Director Plan.
Administration. The Director Plan is administered by the JP Foodservice
Board of Directors. However, the JP Foodservice Board of Directors has no
discretion to determine which Outside Directors will receive options, to set the
number of shares subject to option awards or to set the exercise price for an
option.
Option Price. The option price for each option granted under the
Director Plan is determined as of the date of grant. The purchase price of each
JP Foodservice Common Share covered by an option (the "Option Price") is equal
to the Fair Market Value (as defined herein) of one JP Foodservice Common Share
on the date the option is granted (the "Option Grant Date"). In no event will
the Option Price be less than the par value of the JP Foodservice Common Shares.
For options granted in conjunction with JP Foodservice's initial public
offering of Common Shares, the Fair Market Value was $11.00 per JP Foodservice
Common Share. The JP Foodservice Common Shares currently are listed on the NYSE.
For as long as the JP Foodservice Common Shares are listed on the NYSE, the Fair
Market Value will be the closing price of the JP Foodservice Common Shares as
reported by the NYSE on the Option Grant Date. If there is no closing price
reported on the Option Grant Date, the Fair Market Value will be deemed equal to
the closing price as reported by the NYSE for the last preceding date on which
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sales of JP Foodservice Common Shares were reported. In the event the JP
Foodservice Common Shares are listed in the future on another established stock
exchange or exchanges, the Fair Market Value will be the closing price of the JP
Foodservice Common Shares on the exchange that trades the largest volume of JP
Foodservice Common Shares on the Option Grant Date.
An Outside Director may pay the Option Price (i) in cash, (ii) by the
surrender of JP Foodservice Common Shares owned by the Outside Director
exercising the option and having a fair market value on the date of exercise
equal to the aggregate Option Price or (iii) any combination thereof. JP
Foodservice Common Shares that are surrendered in payment of the Option Price
will be valued at their Fair Market Value on the date of exercise.
Vesting. Options are exercisable only to the extent they are vested.
Except as discussed below, one-fourth of each option granted vests on the Option
Grant Date and an additional one-fourth of such option vests on each of the
first, second and third anniversary of the Option Grant Date, provided that the
optionee is an Outside Director on such date.
Term and Limitations on Exercise. Options may be exercised during their
term by an Outside Director, in whole or in part, by giving timely written
notice to JP Foodservice, but only with respect to whole JP Foodservice Common
Shares. The term of any option granted under the Director Plan will be ten years
from the Option Grant Date. No option may be exercised after the expiration of
its term.
If an Outside Director ceases to be an Outside Director after attaining
age 65 or as a result of such Outside Director's death or disability, all
outstanding options granted to such Outside Director will vest and the Outside
Director (or such Outside Director's estate, in the event of death) may exercise
the Outside Director's outstanding options at any time (i) during the two-year
period beginning on the date on which the Outside Director ceases to be an
Outside Director or, if earlier, (ii) until the date on which such outstanding
options expire according to their terms.
If an Outside Director ceases to act as such for any reason other than
the reasons described in the preceding paragraph, the Outside Director may
exercise such Outside Director's outstanding options to the extent vested at any
time (i) during the three-month period beginning on the date on which the
Outside Director ceases to act as such or, if earlier, (ii) until the date on
which such outstanding options expire according to their terms.
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If an Outside Director dies after ceasing to act as such, but within
the time period during which the Outside Director's outstanding options are
still exercisable, the Outside Director's outstanding options may be exercised
by such Outside Director's legatees or distributees or the personal
representative of such Outside Director's estate. Such outstanding vested
options may be exercised at any time (i) during the two-year period beginning on
the date on which the Outside Director ceases to act as such or, if earlier,
(ii) until the date on which such outstanding options expire according to their
terms.
An option granted under the Director Plan is not exercisable more than
ten years from the Option Grant Date, and no option may be granted under the
Director Plan on or after November 4, 2004.
Non-Transferability of Options. Options, by their terms, are not
transferable by an Outside Director during such Outside Director's lifetime, and
may not be assigned, exchanged, pledged, transferred or otherwise encumbered or
disposed of except pursuant to a qualified domestic relations order, by will or
by the applicable laws of descent and distribution. Under the Director Plan,
options are exercisable during the Outside Director's lifetime only by the
Outside Director or such Outside Director's guardian or legal representative.
Corporate Changes; Change of Control. Appropriate adjustments will be
made to the Option Price and the number of shares subject to options under the
Director Plan if there are any changes in the JP Foodservice Common Shares by
reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, mergers or consolidations.
In the event of a Change of Control, all options that have been
outstanding under the Director Plan for at least six months will automatically
become 100% vested and exercisable. Under the Director Plan, a "Change of
Control" will occur if (i) a person or group (other than JP Foodservice, any
trustee or other fiduciary holding securities under an employee benefit plan of
JP Foodservice or any corporation owned by the stockholders of JP Foodservice in
substantially the same proportions as their ownership of voting stock of JP
Foodservice) is or becomes (other than solely by reason of a repurchase of JP
Foodservice Common Shares by JP Foodservice) the beneficial owner of voting
stock of JP Foodservice representing 50% or more of the combined voting power of
JP Foodservice's then-outstanding voting stock; (ii) JP Foodservice consolidates
with or merges with or into another corporation or partnership or conveys,
transfers or leases, in any transaction or series of transactions, all or
substantially all of its assets to any corporation or partnership, or any
corporation or partnership merges with or into
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JP Foodservice, in any event pursuant to a transaction in which the outstanding
voting stock of JP Foodservice is reclassified or changed into or exchanged for
cash, securities or other property (other than any transaction where the voting
stock of JP Foodservice is changed into or exchanged for voting stock of the
surviving corporation, and no person or group who did not beneficially own more
than 50% of the total outstanding voting stock of JP Foodservice immediately
prior to such transaction beneficially owns, immediately after such transaction,
more than 50% of the total outstanding voting stock of the surviving
corporation) or JP Foodservice is liquidated or dissolved or adopts a plan of
liquidation or dissolution; or (iii) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board (together
with any new directors whose election by the Board or whose nomination for
election by the stockholders of JP Foodservice was approved by a vote of 66 2/3%
of the directors then in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office.
Amendments. The Director Plan may be amended by the JP Foodservice
Board of Directors, except that the JP Foodservice Board may not, without the
approval of the JP Foodservice stockholders, (i) extend the term of the Director
Plan, (ii) materially modify the eligibility requirements to receive options
under the Director Plan, (iii) increase the number of JP Foodservice Common
Shares which may be issued pursuant to the exercise of options granted under the
Director Plan, (iv) change the minimum purchase price or (v) materially increase
the benefits accruing to optionees under the Director Plan.
Federal Income Tax Aspects. With respect to the options granted
pursuant to the Director Plan: (i) no income is realized by the Outside Director
at the time the option is granted; (ii) generally upon exercise of the option,
the Outside Director realizes ordinary income in an amount equal to the
difference between the option price paid for the JP Foodservice Common Shares
and the fair market value of the shares on the date of exercise, and JP
Foodservice will be entitled to a tax deduction of the same amount; and (iii) at
disposition, any appreciation (or depreciation) after date of exercise is
treated as either short-term or long-term capital gain or loss, depending upon
the length of time that the Outside Director has held the shares.
It is not possible to determine the dollar value of benefits to which
any individuals would be entitled during fiscal 1998 pursuant to the Director
Plan. Because only Outside Directors will be entitled to receive options under
the Director Plan, no executive officers named in the
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Summary Compensation Table, or other executive officers, officers or employees,
will be entitled to receive options under the Director Plan. The group of
Outside Directors, which during fiscal 1998 will consist of nine persons
(assuming the election of all nominees at the JP Foodservice Annual Meeting and
consummation of the Merger), would receive options covering an aggregate of
13,360 JP Foodservice Common Shares in fiscal 1998.
Approval of the JP Foodservice Director Plan Amendment will require the
affirmative vote of holders of a majority of the JP Foodservice Common Shares
present and entitled to vote at the JP Foodservice Annual Meeting.
JP Foodservice's Board of Directors unanimously recommends that the
stockholders of JP Foodservice vote "for" the JP Foodservice Director Plan
Amendment Proposal.
Independent Accountants
KPMG Peat Marwick LLP ("KPMG") has acted as JP Foodservice's
independent accountants for JP Foodservice's 1997 fiscal year. Representatives
of KPMG are expected to be present at the JP Foodservice Annual Meeting and will
be afforded the opportunity to make a statement if they so desire and to respond
to appropriate questions.
On January 2, 1997, JP Foodservice terminated its engagement of Price
Waterhouse LLP ("Price Waterhouse") as its independent accountants and engaged
KPMG as its new independent accountants. The Audit Committee of the JP
Foodservice Board of Directors participated in and approved the decision to
change JP Foodservice's independent accountants. The reports of Price Waterhouse
on JP Foodservice's financial statements for the past two fiscal years contained
no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principle. In connection with its
audits of JP Foodservice for the two most recent fiscal years and through
January 2, 1997, there have been no disagreements between JP Foodservice and
Price Waterhouse on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Price Waterhouse would have caused them to make
reference thereto in their report on the financial statements for such years.
During the two most recent fiscal years and through January 2, 1997, there were
no reportable events as defined in Regulation S-K Item 304(a)(1)(v) under the
Securities Act.
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During the two most recent fiscal years and through January 2, 1997, JP
Foodservice did not consult with KPMG on items which (i) were or should have
been subject to Statement of Auditing Standards No. 50 or (ii) concerned the
subject matter of a disagreement or reportable event with JP Foodservice's
former independent accountants, as described in Regulation S-K Item 304(a)(2)
under the Securities Act.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires JP Foodservice's directors
and executive officers and persons who own more than 10% of a registered class
of JP Foodservice's equity securities to file with the SEC and the NYSE initial
reports of ownership and reports of changes in ownership of JP Foodservice
Common Shares and other equity securities of JP Foodservice. In addition, under
Section 16(a), trusts for which a reporting person is a trustee and a
beneficiary (or for which a member of his immediate family is a beneficiary) may
have a separate reporting obligation with regard to ownership of JP Foodservice
Common Shares and other equity securities of JP Foodservice. Such reporting
persons are required by rules of the SEC to furnish JP Foodservice with copies
of all Section 16(a) reports they file. Based solely upon a review of Section
16(a) reports furnished to JP Foodservice for fiscal 1997 or written
representations that no other reports were required, JP Foodservice believes
that the foregoing reporting persons complied with all filing requirements for
fiscal 1997.
Stockholder Proposals for 1998 JP Foodservice Annual Meeting
Pursuant to rules of the SEC, in order for stockholder proposals to be
presented at the JP Foodservice Annual Meeting of Stockholders in 1998, such
proposals must be received by the Secretary of JP Foodservice at JP
Foodservice's principal office in Columbia, Maryland no later than ______, 1997.
In addition, JP Foodservice's Restated Certificate of Incorporation requires
that notice of proposals by stockholders to be brought before any JP Foodservice
annual meeting must be delivered to JP Foodservice not less than 90 days prior
to the date of the meeting if such meeting is to be held on or after the
anniversary of the previous year's JP Foodservice annual meeting (or not less
than 60 days, if the meeting is to be held on a day which is within 30 days
preceding the anniversary of the previous year's JP Foodservice annual meeting,
or, with respect to any other JP Foodservice annual meeting, on or before the
15th day following the date of public disclosure of the meeting date). The
notice must set forth, as to each matter the stockholder proposes to bring
before the JP Foodservice annual meeting, (i) a brief description of the
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business desired to be brought before the JP Foodservice annual meeting and the
reasons for conducting such business at the JP Foodservice annual meeting, (ii)
the name, age and business and residential addresses, as they appear on JP
Foodservice's records, of the stockholder proposing such business, (iii) the
class and number of shares of JP Foodservice which are beneficially owned by the
stockholder and (iv) any material interest of the stockholder in such business.
The submission by a stockholder of a proposal for inclusion in the proxy
statement is subject to regulation by the SEC.
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DESCRIPTION OF JP FOODSERVICE
JP Foodservice is a leading broadline distributor of food and related
products to restaurants and other institutional foodservice establishments in
the Mid-Atlantic, Midwestern and Northeastern regions of the United States and
in Las Vegas, Nevada. JP Foodservice ranks as the nation's fifth largest
broadline distributor based on pro forma 1996 calendar year net sales, including
the results of its acquisitions of foodservice distribution businesses
consummated in fiscal 1997.
JP Foodservice markets and distributes over 30,000 national, private
and signature brand items to over 34,000 foodservice customers, including
restaurants, hotels, healthcare facilities, cafeterias and schools. This diverse
customer base encompasses both independent (or "street") and multi-unit (or
"chain") businesses, including Old Country Buffet, Perkins Family Restaurants,
Subway, Eurest Dining Services, Ruby Tuesday and Pizzeria Uno. JP Foodservice
also is a foodservice supplier to the United States Congress, Fenway Park and
other prominent institutions. JP Foodservice's comprehensive product line
includes canned and dry food products, fresh meats, poultry, seafood, frozen
foods, fresh produce, dairy and other refrigerated products, paper products,
cleaning supplies, light restaurant equipment and other supplies. This broad
product line provides JP Foodservice customers with a single source to satisfy
substantially all of their foodservice needs.
JP Foodservice distributes its products out of its 15 full-service
distribution centers located in Massachusetts, Connecticut, Pennsylvania,
Maryland, Minnesota, Indiana, Illinois, Iowa, Nevada, Ohio , Virginia and
Delaware. JP Foodservice extends this geographic coverage through remote
distribution locations including, among others, facilities in Ohio, Maryland,
Michigan, Vermont, Nevada and New Jersey.
JP Foodservice has supplemented its internal expansion with an active
program of strategic acquisitions to take advantage of growth opportunities from
ongoing consolidation in the fragmented foodservice distribution industry. See
"The Merger -- Background of the Merger -- Foodservice Industry Trends."
At the end of fiscal 1997, JP Foodservice had approximately 3,700
full-time employees, of whom approximately 150 were employed in corporate and
administration at JP Foodservice's corporate headquarters in Columbia, Maryland.
Portions of JP Foodservice's business date back to the formation of
Monarch Foods in 1853. In 1946, Monarch Foods was acquired by Consolidated Foods
Corporation (now named Sara Lee Corporation) and in 1967 was merged with Pearce,
Young, Angel ("PYA"), a Southeast institutional foodservice distributor. JP
Foodservice began operations in July 1989 following a management-led leveraged
acquisition of certain operations of PYA/Monarch, Inc., a wholly owned
subsidiary of Sara Lee Corporation. In November 1994, JP Foodservice completed
its initial public offering of JP Foodservice Common Shares as part of a
recapitalization.
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JP Foodservice was organized under the laws of the State of Delaware.
JP Foodservice's principal executive offices are located at 9830 Patuxent Woods
Drive, Columbia, Maryland 21046, and JP Foodservice's telephone number is (410)
312-7100.
Additional information concerning JP Foodservice's business is
contained in the JP Foodservice Annual Report on Form 10-K under the captions
"Business," "Properties" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The JP Foodservice Annual Report on Form
10-K is incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Available Information" and "Incorporation of Certain Documents by Reference."
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DESCRIPTION OF RYKOFF-SEXTON
Established in 1911, Rykoff-Sexton is a leading distributor and
manufacturer of high-quality foods and related non-food products and services
for the foodservice industry throughout the United States. Rykoff-Sexton's
products and services are sold wherever food is prepared and consumed away from
home. Rykoff-Sexton distributes its product line of more than 40,000 items to
restaurants, industrial cafeterias, health care facilities, schools and
colleges, supermarket service delicatessen departments, lodging establishments
and other segments of the travel and leisure markets. It also offers equipment
and supplies and design and engineering services for all types of foodservice
operations. Rykoff-Sexton's products consist of a broad line of private label
and national branded food and foodservice equipment and supplies.
Rykoff-Sexton's proprietary private label products accounted for approximately
33% of its net sales in the fiscal year ended June 28, 1997. Rykoff-Sexton
develops and manufactures many of its private label products, and also
manufactures other products for certain customers under the customers' own brand
labels.
Rykoff-Sexton's principal operations are conducted through the US
Foodservice Distribution Division (the "Distribution Division"), Targeted
Specialty Services, Inc. ("TSSI") and the Rykoff-Sexton Manufacturing Division
(the "Manufacturing Division"). The Distribution Division is composed of 32
distribution centers that are largely located in major metropolitan areas
throughout the United States. In fiscal 1997, sales of the Distribution Division
(including products sold through this division by TSSI and the Manufacturing
Division) generated approximately 97% of Rykoff-Sexton's net sales.
TSSI provides restaurant design and engineering services for all types
of foodservice operations through its contract/design offices. In addition, this
division offers foodservice equipment and supplies as well as specialty and
gourmet imported products and manages Rykoff-Sexton's consolidation and
in-transit warehouses.
The Manufacturing Division manufactures products primarily under
Rykoff-Sexton's proprietary private labels and also manufactures products for
other manufacturers, distributors, restaurant chains and other large users under
their own brand labels at its three manufacturing plants. Approximately 90% of
the Manufacturing Division's products are sold through the Distribution Division
and the remainder are sold directly to customers.
Effective May 17, 1996, Rykoff-Sexton consummated the acquisition of US
Foodservice, a privately held broadline foodservice distribution company.
Holders of US Foodservice common stock received approximately 12.9 million
Rykoff-Sexton Common Shares in exchange for the outstanding shares of US
Foodservice common stock. Options and warrants to acquire US Foodservice common
stock were converted into options and warrants to acquire Rykoff-Sexton
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Common Shares on the same basis. In addition, Rykoff-Sexton repaid and
refinanced all of the outstanding bank and subordinated debt of US Foodservice
and purchased all of the outstanding shares of US Foodservice preferred stock.
In connection with the US Foodservice Acquisition, Rykoff-Sexton changed its
fiscal year to the Saturday closest to June 30 from the Saturday closest to
April 30.
Prior to its acquisition by Rykoff-Sexton, US Foodservice was a
distributor of food and non-food products to the foodservice industry, serving
more than 40,000 customers in over 30 states, primarily in the Southeastern,
Southwestern and Mid-Atlantic regions. US Foodservice currently operates as a
wholly-owned subsidiary of Rykoff-Sexton and its primary operations have been
integrated with the Distribution Division and TSSI.
Rykoff-Sexton, which was organized under the laws of the state of
Delaware in 1961, is the successor to a business founded in 1911. Rykoff-
Sexton's principal executive offices are located at 613 Baltimore Drive, East
Mountain Corporate Center, Wilkes-Barre, Pennsylvania 18702, and Rykoff-Sexton's
telephone number is (717) 831-7500.
Additional information concerning Rykoff- Sexton's business is
contained in the Rykoff-Sexton Annual Report on Form 10-K under the captions
"Business," "Properties" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Rykoff-Sexton Annual Report on Form
10-K is incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Available Information" and "Incorporation of Certain Documents by Reference."
DESCRIPTION OF JP FOODSERVICE CAPITAL STOCK
General
JP Foodservice's authorized capital stock consists of 75,000,000 Common
Shares, of which 22,606,307 shares were outstanding as of August 31, 1997, and
5,000,000 shares of preferred stock ("JP Foodservice Preferred Stock"), no
shares of which are outstanding. If the JP Foodservice Charter Amendment is
approved by JP Foodservice stockholders at the JP Foodservice Annual Meeting, JP
Foodservice will be authorized to issue 150,000,000 JP Foodservice Common
Shares. See "JP Foodservice Annual Meeting Proposals--JP Foodservice Charter
Amendment Proposal." No series of JP Foodservice Preferred Stock has been
designated other than 350,000 shares of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "JP Foodservice Series A Preferred Stock").
The following description is a summary of the material provisions of JP
Foodservice's capital stock and is qualified in its
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entirety by reference to the provisions of the Restated Certificate of
Incorporation of JP Foodservice (the "JP Foodservice Charter"), its By-laws (the
"JP Foodservice By-laws"), and the JP Foodservice Rights Agreement, copies of
which have been filed as exhibits to the Registration Statement of which this
Joint Proxy Statement/Prospectus forms a part.
Common Shares, Rights and Series A Preferred Stock
The following description of JP Foodservice Common Shares and certain
associated rights should be read carefully by the holders of Rykoff-Sexton
Common Shares, because, at the Effective Time, each issued and outstanding
Rykoff-Sexton Common Share will be converted into the right to receive JP
Foodservice Common Shares based on the Exchange Ratio as set forth in the Merger
Agreement and described herein. See "Comparative Rights of JP Foodservice
Stockholders and Rykoff-Sexton Stockholders."
JP Foodservice Common Shares
Subject to any prior rights of any holders of Rykoff-Sexton Preferred
Stock then outstanding, holders of JP Foodservice Common Shares are entitled to
such dividends as may be declared from time to time by the JP Foodservice Board
of Directors out of funds legally available therefor. Each holder of JP
Foodservice Common Shares is entitled to one vote for each share owned by such
holder on all matters submitted to a vote of the stockholders of JP Foodservice.
Such shares are not entitled to any cumulative voting rights. In the event of
any liquidation, dissolution or winding up of JP Foodservice, holders of JP
Foodservice Common Shares are entitled to share equally and ratably in any
assets remaining after the payment of all debt and liabilities, subject to the
prior rights, if any, of holders of JP Foodservice Preferred Stock. Holders of
JP Foodservice Common Shares have no preemptive or other subscription or
conversion rights. JP Foodservice Common Shares are not subject to redemption
and the outstanding JP Foodservice Common Shares are, and the JP Foodservice
Common Shares to be issued in connection with the Merger will be, fully paid and
nonassessable.
JP Foodservice Rights
Under the Rights Agreement dated as of February 19, 1996, as amended,
between JP Foodservice and The Bank of New York, as Rights Agent (the "JP
Foodservice Rights Agreement"), each outstanding JP Foodservice Common Share has
attached to it one preferred share purchase right (a "Right") initially
represented by such JP Foodservice Common Share. Each JP Foodservice Common
Share to be issued in connection with the Merger or pursuant to Assumed Options
or Assumed Warrants will have one JP Foodservice Right attached to it. Each JP
Foodservice Right entitles the registered holder of JP Foodservice Common Shares
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to purchase from JP Foodservice, upon the occurrence of certain events (which
are more specifically described below under this caption), one one-hundredth of
a share of JP Foodservice Series A Preferred Stock at a price of $95 per one
one-hundredth of a share (the "Purchase Price"), subject to adjustment, as
described below under this caption. The description and terms of the JP
Foodservice Rights are set forth in the JP Foodservice Rights Agreement.
Until the Distribution Date (as defined below), JP Foodservice will not
issue separate certificates evidencing the JP Foodservice Rights. Until such
date, the JP Foodservice Rights will be evidenced, with respect to any JP
Foodservice Common Share certificate outstanding as of the Record Date, by such
JP Foodservice Common Share certificate with a copy of a summary of the terms of
the JP Foodservice Rights (the "Summary of JP Foodservice Rights") attached
thereto. The JP Foodservice Rights will detach from the JP Foodservice Common
Shares and a Distribution Date will occur upon the earlier of (i) subject to the
exceptions described below, the 10th day following a public announcement that a
person or group of affiliated or associated persons (a "group") has acquired
beneficial ownership of 10% or more of the outstanding JP Foodservice Common
Shares (any such person or group, subject to the exceptions described below, an
"Acquiring Person"), or (ii) the 10th business day (or such later date as may be
determined by action of the JP Foodservice Board of Directors prior to such time
as any person or group becomes an Acquiring Person) following the commencement
by any person or group of, or the first public announcement by any person or
group of an intention to make, a tender offer or exchange offer that would
result in (A) beneficial ownership by a group or person of 10% or more of the
outstanding JP Foodservice Common Shares or (B) any person otherwise being
deemed an Acquiring Person. Notwithstanding anything in the foregoing to the
contrary, the term "Acquiring Person" does not include (x) JP Foodservice, any
subsidiary of JP Foodservice, any employee benefit plan of JP Foodservice or any
subsidiary of JP Foodservice, or any entity holding JP Foodservice Common Shares
for or pursuant to the terms of such plan or (y) Rykoff-Sexton or any ML Entity,
but only to the extent that Rykoff-Sexton or such ML Entity would, absent this
provision, be deemed to be an Acquiring Person solely as the result of (i) the
execution and delivery of the Merger Agreement, (ii) the execution and delivery
of the Rykoff-Sexton Stock Option Agreement, (iii) the execution and delivery of
the Support Agreement or (vi) the consummation of the transactions contemplated
by the Merger Agreement and the agreements contemplated thereby, including,
without limitation, the Merger. Further, references in this paragraph to
beneficial ownership of 10% of the outstanding JP Foodservice Common Shares are
to 15% of the outstanding JP Foodservice Common Shares with respect to any
person who is eligible to report its beneficial ownership of (or who will or
would be eligible upon acquisition of) equity securities of JP Foodservice
(including JP Foodservice Common Shares) on Schedule 13G under the Exchange Act
and, without limiting the foregoing, with respect to whom clause (i) of
paragraph (b)(1) of Rule 13d-1 under the Exchange Act is true and correct.
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The JP Foodservice Rights Agreement provides that, until the
Distribution Date (or earlier redemption or expiration of the JP Foodservice
Rights), the JP Foodservice Rights will be transferred with and only with the JP
Foodservice Common Shares. Until the Distribution Date (or earlier redemption or
expiration of the JP Foodservice Rights), (i) new JP Foodservice Common Shares
certificates issued after the Record Date upon transfer or new issuances of JP
Foodservice Common Shares will contain a notation incorporating the JP
Foodservice Rights Agreement by reference, and (ii) the surrender for transfer
of any certificates for JP Foodservice Common Shares outstanding as of the
Record Date, even without such notation or a copy of the Summary of JP
Foodservice Rights, also will constitute the transfer of the JP Foodservice
Rights associated with the JP Foodservice Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the JP Foodservice Rights (the "JP Foodservice Right
Certificates") will be mailed to holders of record of the JP Foodservice Common
Shares as of the close of business on the Distribution Date, and such separate
JP Foodservice Right Certificates alone will evidence the JP Foodservice Rights.
Only JP Foodservice Common Shares issued prior to the Distribution Date will be
issued with JP Foodservice Rights.
The JP Foodservice Rights are not exercisable until the Distribution
Date. The JP Foodservice Rights will expire on February 19, 2006, unless such
expiration date is extended or unless the JP Foodservice Rights are earlier
redeemed or exchanged by JP Foodservice, in each case as described below.
The Purchase Price payable, and the number of shares of JP Foodservice
Series A Preferred Stock or other securities or property issuable, upon exercise
of the JP Foodservice Rights, as well as the number of JP Foodservice Rights
outstanding, are subject to adjustment from time to time to prevent dilution (i)
in the event of a dividend on, or a subdivision, recombination or
reclassification of, shares of JP Foodservice Series A Preferred Stock, (ii)
upon the grant to holders of the shares of JP Foodservice Series A Preferred
Stock of certain rights, options or warrants to subscribe for shares of JP
Foodservice Series A Preferred Stock or convertible securities at less than the
then-current per share market price of the shares of JP Foodservice Series A
Preferred Stock or (iii) upon the distribution to holders of the shares of JP
Foodservice Series A Preferred Stock of evidences of indebtedness or assets
(other than a regular quarterly cash dividend or a dividend payable in shares of
JP Foodservice Series A Preferred Stock) or subscription rights or warrants
(other than those referred to above).
The number of outstanding JP Foodservice Rights and the number of one
one-hundredths of a share of JP Foodservice Series A Preferred Stock issuable
upon exercise of each JP Foodservice Right are also subject to adjustment in the
event of a stock split of the JP Foodservice Common Shares or a stock dividend
on the JP Foodservice Common Shares payable in JP Foodservice Common Shares
or
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subdivisions, consolidations or combinations of the JP Foodservice Common Shares
occurring, in any such case, prior to the Distribution Date.
Shares of JP Foodservice Series A Preferred Stock purchasable upon
exercise of the JP Foodservice Rights will not be redeemable. Each share of JP
Foodservice Series A Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share, but will be entitled to an
aggregate dividend of 100 times the dividend declared per JP Foodservice Common
Share. In the event of liquidation, the holders of the shares of JP Foodservice
Series A Preferred Stock will be entitled to a minimum preferential liquidation
payment of $100 per share, but will be entitled to an aggregate payment of 100
times the payment made per JP Foodservice Common Share. Each share of JP
Foodservice Series A Preferred Stock will have 100 votes, voting together with
the JP Foodservice Common Shares. In the event of any merger, consolidation or
other transaction in which JP Foodservice Common Shares are exchanged, each
share of JP Foodservice Series A Preferred Stock will be entitled to receive 100
times the amount received per JP Foodservice Common Share. These rights are
protected by customary antidilution provisions. Because of the nature of the
dividend, liquidation and voting rights of the shares of JP Foodservice Series A
Preferred Stock, the value of the one one-hundredth interest in a share of JP
Foodservice Series A Preferred Stock purchasable upon exercise of each Right
should approximate the value of one JP Foodservice Common Share.
In the event that any person or group becomes an Acquiring Person,
proper provision will be made so that each holder of a Right, other than JP
Foodservice Rights beneficially owned by the Acquiring Person (which will
thereupon become null and void), will thereafter have the right to receive upon
exercise of the Right at the then-current exercise price thereof, in lieu of
shares of JP Foodservice Series A Preferred Stock, that number of JP Foodservice
Common Shares having a market value of two times the exercise price of the
Right. In the event JP Foodservice does not have sufficient JP Foodservice
Common Shares issued but not outstanding or authorized but unissued to permit
the exercise in full of the JP Foodservice Rights, JP Foodservice will be
required to take all such action as may be necessary to authorize additional JP
Foodservice Common Shares for issuance upon exercise of the JP Foodservice
Rights. If, after a good-faith effort, JP Foodservice is unable to take all such
action, JP Foodservice will substitute, for each JP Foodservice Common Share
that would otherwise be issuable upon exercise of a Right, a number of shares of
JP Foodservice Series A Preferred Stock (or fraction thereof) with the same
market value as such JP Foodservice Common Share.
In the event that, after a person or group has become an Acquiring
Person, JP Foodservice is acquired in a merger or other business combination
transaction (excluding the Merger) or 50% or more of its consolidated assets or
earning power are sold, proper provision will be made so that each holder of a
JP Foodservice Right, other than JP Foodservice Rights beneficially owned by the
Acquiring Person
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(which will thereupon become null and void), will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise price of the JP
Foodservice Right and in lieu of shares of JP Foodservice Series A Preferred
Stock, that number of shares of common stock of the acquiring company (or its
parent) which at the time of such transaction will have a market value of two
times the exercise price of the JP Foodservice Right.
The exercise price of a JP Foodservice Right at any date will be equal
to the Purchase Price at such date multiplied by the number of one
one-hundredths of a share of JP Foodservice Series A Preferred Stock for which a
JP Foodservice Right is exercisable at such date.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding JP Foodservice Common Shares, the Board of Directors of JP
Foodservice may exchange the JP Foodservice Rights (other than JP Foodservice
Rights owned by such person or group, which will have become void), in whole or
in part, at an exchange ratio of one JP Foodservice Common Share per JP
Foodservice Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of JP Foodservice Series A Preferred
Stock will be issued (other than fractions which are integral multiples of one
one-hundredth of a share of JP Foodservice Series A Preferred Stock, which may,
at the election of JP Foodservice, be evidenced by depositary receipts) and, in
lieu thereof, an adjustment in cash will be made based on the market price of
the shares of JP Foodservice Series A Preferred Stock on the last trading day
prior to the date of exercise.
JP Foodservice, pursuant to approval by its Board of Directors, may
redeem the JP Foodservice Rights in whole, but not in part, at any time prior to
such time as any person or group becomes an Acquiring Person, at a price of $.01
per Right. The redemption of the JP Foodservice Rights may be made effective at
such time, on such basis and with such conditions as the JP Foodservice Board of
Directors may establish in its sole discretion. Immediately upon the action of
the JP Foodservice Board of Directors ordering redemption of the JP Foodservice
Rights, the right to exercise the JP Foodservice Rights will terminate and the
only right of the holders of the JP Foodservice Rights will be to receive the
redemption price specified above.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of JP Foodservice, including, without limitation, the
right to vote or to receive dividends. Although the distribution of the JP
Foodservice Rights will not be taxable to stockholders or to JP Foodservice,
stockholders may, depending upon
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the circumstances, recognize taxable income in the event that the JP Foodservice
Rights become exercisable for JP Foodservice Common Shares (or other
consideration) of JP Foodservice or for common stock of the acquiring company
(or its parent) as set forth above.
The JP Foodservice Rights Agreement may be amended or supplemented by
JP Foodservice from time to time without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
defective or inconsistent provisions, or to make any other provisions with
respect to the JP Foodservice Rights which JP Foodservice may deem necessary or
desirable, provided that, from and after such time as any person or group
becomes an Acquiring Person, the JP Foodservice Rights Agreement may not be
amended in any manner which would adversely affect the interest of the holders
of JP Foodservice Rights. The JP Foodservice Rights Agreement was amended in
connection with execution of the Merger Agreement. See "The Merger--Amendment of
Rights Plans."
Preferred Stock
Under the JP Foodservice Charter, the JP Foodservice Board of Directors
has the authority, without further action by the stockholders, to issue up to
5,000,000 shares of JP Foodservice Preferred Stock in one or more series and to
fix the voting powers, designations, preferences and the relative participating
optional or other special rights and qualifications, limitations and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series. To date, the JP Foodservice Board of Directors has so
fixed only the JP Foodservice Series A Preferred Stock. Because JP Foodservice's
Board of Directors has the power to establish the preferences and rights of the
shares of any additional series of JP Foodservice Preferred Stock, it may afford
holders of any such JP Foodservice Preferred Stock preferences, powers and
rights (including voting rights) senior to the rights of holders of JP
Foodservice Common Shares, which could adversely affect the holders of JP
Foodservice Common Shares.
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WARRANTS
Pursuant to the Merger Agreement, JP Foodservice will assume the
obligations of Rykoff-Sexton under the Warrants. The Warrants evidence the right
to acquire a total of 331,761 Rykoff-Sexton Common Shares as of August 31, 1997
at an aggregate purchase price of $3,496,002. The number of shares issuable upon
exercise of the Warrants is subject to adjustment upon issuances of additional
Rykoff-Sexton Common Shares for consideration, or grants of stock options with
exercise prices that are, less than current market value (as determined under
the terms of the Warrants). The number of shares issuable upon exercise of the
Warrants of the Warrants is also subject to adjustment in the event of certain
dividends and other distributions, issuances of convertible securities and stock
splits, stock dividends and similar events.
Under the terms of the Warrants, Rykoff-Sexton may not effect the
Merger unless, prior to the consummation of the Merger, JP Foodservice has
assumed the obligations of Rykoff-Sexton under the Warrants by a written
instrument delivered to, and reasonably satisfactory to, the holders of at least
a majority of the Rykoff-Sexton Common Shares issuable upon exercise of the
outstanding Warrants, and has provided such holders with an opinion of counsel
reasonably satisfactory to such holders to the effect that the Warrants will
continue in full force and effect after the Merger. To satisfy this condition,
it is anticipated that JP Foodservice will issue Common Stock Purchase Warrants
of JP Foodservice (the "New Warrants") to the holders of the Warrants at the
Effective Time in replacement of the Assumed Warrants. The terms of the New
Warrants will be identical to the terms of the Warrants required to be assumed
by JP Foodservice under the terms of the Merger Agreement, except for
adjustments to the number of shares issuable to reflect the Exchange Ratio.
Giving effect to the Merger and based on the number of shares issuable
upon exercise of the Warrants as of August 31, 1997, the New Warrants will
evidence the right to acquire approximately 278,679 JP Foodservice Common
Shares (representing less than 1% of the JP Foodservice Common Shares on a
fully diluted basis). The number of JP Foodservice Common Shares for which the
New Warrants will be exercisable is subject to adjustment in the event of
certain issuances of JP Foodservice Common Shares without consideration or for
consideration below market prices, stock dividends, stock splits, share
combinations, recapitalizations and similarly dilutive events.
Each New Warrant will be exercisable until the earlier of (i) September
30, 2005 or (ii) the registration (upon the demand of the holders of the New
Warrants pursuant to the terms of the New Warrants) of all JP Foodservice Common
Shares issuable upon the exercise of the New Warrant or the 30th day after
notice to the holders of the New Warrants that, in the opinion of counsel for
such holders, the transfer of the New Warrants or the underlying JP Foodservice
Common Shares
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issuable upon the exercise thereof are no longer restricted under the Securities
Act. The holders of New Warrants will not have any voting rights until, and to
the extent that, the New Warrants are exercised for JP Foodservice Common
Shares. The holders of the New Warrants will be entitled to certain "demand" and
"piggyback" registration rights with respect to the JP Foodservice Common Shares
issued or issuable upon exercise of the New Warrants.
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DESCRIPTION OF RYKOFF-SEXTON CAPITAL STOCK
General
Rykoff-Sexton's authorized capital stock consists of 40,000,000 Common
Shares, of which 28,249,077 shares were outstanding as of August 31, 1997, and
10,000,000 shares of preferred stock, par value $.10 per share ("Rykoff-Sexton
Preferred Stock"), no shares of which are outstanding. No series of
Rykoff-Sexton Preferred Stock has been designated other than 125,000 shares of
Series A Junior Participating Preferred Stock, par value $.10 per share (the
"Series A Preferred Stock"). The following description is a summary of the
material provisions of Rykoff-Sexton's capital stock and is qualified in its
entirety by reference to the provisions of the Certificate of Incorporation of
Rykoff-Sexton (the "Rykoff-Sexton Charter"), its By-laws (the "Rykoff-Sexton
By-laws") and the Rykoff-Sexton Rights Agreement. See "Comparative Rights of JP
Foodservice Stockholders and Rykoff-Sexton Stockholders."
Common Shares, Rights and Series A Preferred Stock
Rykoff-Sexton Common Shares
Subject to any prior rights of any Rykoff-Sexton Preferred Stock then
outstanding, holders of Rykoff-Sexton Common Shares are entitled to such
dividends as may be declared from time to time by the Rykoff-Sexton Board of
Directors out of funds legally available therefor. Each holder of Rykoff-Sexton
Common Shares is entitled to one vote for each share owned by such holder on all
matters submitted to a vote of the stockholders of Rykoff-Sexton. Such shares
are not entitled to any cumulative voting rights. In the event of any
liquidation, dissolution or winding up of Rykoff-Sexton, holders of
Rykoff-Sexton Common Shares are entitled to share equally and ratably in any
assets remaining after the payment of all debt and liabilities, subject to the
prior rights, if any, of holders of Rykoff-Sexton Preferred Stock. Holders of
Rykoff-Sexton Common Shares have no preemptive or other subscription or
conversion rights. Rykoff-Sexton Common Shares are not subject to redemption and
the outstanding Rykoff-Sexton Common Shares are fully paid and nonassessable.
Rykoff-Sexton Rights
Rykoff-Sexton entered into a Rights Agreement (the "Initial
Rykoff-Sexton Rights Agreement"), with Bank of America National Trust & Savings
Association, as original rights agent (the "Original Rykoff-Sexton Rights
Agent"), dated as of December 8, 1996, as amended by the Amendment to Rights
Agreement, dated as of October 5, 1989, the Second Amendment to Rights
Agreement, dated as of December 4, 1995, the Third Amendment to the Rights
Agreement, dated as of
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January 31, 1996, and the Amended and Restated Rights Agreement (the "Current
Rykoff-Sexton Rights Agreement"), dated as of May 15, 1996. On June 30, 1997,
Rykoff-Sexton executed and delivered the Amendment (the "Rykoff-Sexton Rights
Plan Amendment") to the Current Rykoff-Sexton Rights Agreement (as amended by
the Amendment, the "Rykoff-Sexton Rights Agreement"), with Chase Mellon
Shareholder Services, L.L.C., as rights agent (the "Rykoff-Sexton Rights
Agent"), as successor to Chemical Bank, which was the successor to Chemical
Trust Company of California, which was the successor to the Original Rykoff-
Sexton Rights Agent.
Under the Rykoff-Sexton Rights Agreement, each outstanding
Rykoff-Sexton Common Share is accompanied by 0.64 preferred share purchase
rights (each, a "Rykoff-Sexton Right"). Except as described below, each
Rykoff-Sexton Right entitles the registered holder to purchase from
Rykoff-Sexton a unit (a "Unit") consisting of one two-hundredths of a share of
Series A Preferred Stock at a purchase price of $100 per Unit (the "Purchase
Price"), subject to adjustment. The description and terms of the Rykoff-Sexton
Rights are set forth in the Rykoff-Sexton Rights Agreement.
The Rykoff-Sexton Rights attach implicitly to all Rykoff-Sexton Common
Share certificates outstanding. No separate Rykoff-Sexton Right certificates
have been distributed. A "Distribution Date" for the Rykoff-Sexton Rights occurs
upon the earlier of (i) 10 days after a public announcement that a person or
group of affiliated or associated persons has acquired beneficial ownership of
15% or more of the then outstanding Rykoff-Sexton Common Shares (an "Acquiring
Person"), excluding (a) Rykoff-Sexton, (b) any subsidiary of Rykoff-Sexton, (c)
any employee benefit plan of Rykoff-Sexton or of any subsidiary of
Rykoff-Sexton, (d) any entity organized, appointed or established by
Rykoff-Sexton for or pursuant to the terms of any such plan, (e) the ML Entities
if the ML Entities shall have executed a written agreement with Rykoff-Sexton
(approved by the Rykoff-Sexton Board of Directors) on or prior to the date on
which the ML Entities (together with its affiliates) became the beneficial owner
of 15% or more of the Rykoff-Sexton Common Shares then outstanding, which
agreement imposes one or more limitations on the ML Entities' beneficial
ownership of Rykoff-Sexton Common Shares and if, and so long as, such written
agreement (a "Written Agreement") (or any amendment thereto approved by at least
a majority of the members of the Rykoff-Sexton Board of Directors who are not
affiliates or associates of an ML Entity or representatives or nominees of an ML
Entity or any such affiliate or associate (the "ML Entity Directors")) continues
to be in effect and bind the ML Entities and the ML Entities are in compliance
(as determined by the Rykoff-Sexton Board of Directors in its discretion by at
least a majority of the members who are not ML Entity Directors) with the terms
of such Written Agreement (including any such amendment), provided that no
amendment of any such Written Agreement shall cure any prior breach of such
Written Agreement or any amendment thereto, (f) JP Foodservice or any of its
affiliates or associates solely as a result of the execution and delivery of the
Transaction Agreements, or (g) JP Foodservice or any of its affiliates or
associates as a result of
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their being or becoming not more than a 2% beneficial owner of the then
outstanding Rykoff-Sexton Common Shares (in addition to the Rykoff-Sexton Common
Shares that JP Foodservice has become the beneficial owner of as a result of its
execution and delivery of the Transaction Agreements) (excluding, however, for
purposes of determining whether such 2% limitation has been exceeded, Rykoff-
Sexton Common Shares that JP Foodservice would be deemed the beneficial owner of
because any JPFI Benefit Plan (as that term is defined in the Merger Agreement)
is the beneficial owner of such Rykoff-Sexton Common Shares as of the date of
the Rykoff-Sexton Rights Plan Amendment), or (ii) 10 days following the
commencement of (or first public announcement of the intent to commence) a
tender offer or exchange offer if, upon consummation thereof, the person or
persons proposing such offer would be the beneficial owner of 30% or more of the
outstanding Rykoff-Sexton Common Shares. The Standstill Agreement qualifies as a
Written Agreement that excludes the ML Entities from being an Acquiring Person,
so long as the conditions described above are satisfied.
Until the Distribution Date, the Rykoff-Sexton Rights are transferred
with and only with Rykoff-Sexton Common Share certificates. Until the
Distribution Date (or earlier redemption or expiration of the Rykoff-Sexton
Rights), certificates for Rykoff-Sexton Common Shares issued since December 18,
1986 (the record date for the initial distribution of Rykoff-Sexton Rights under
the Initial Rykoff-Sexton Rights Agreement) upon transfer or new issuance of
Rykoff-Sexton Common Shares contain a notation incorporating the Initial
Rykoff-Sexton Rights Agreement by reference except that after the adoption of
the Rykoff-Sexton Rights Agreement, such notation incorporates the Rykoff-Sexton
Rights Agreement. Until the Distribution Date, the surrender for transfer of any
certificates for Rykoff-Sexton Common Shares also constitutes the transfer of
the Rykoff-Sexton Rights associated with the Rykoff-Sexton Common Shares
represented by such certificate.
The Rykoff-Sexton Rights are not exercisable until the Distribution
Date. Under the Rykoff-Sexton Rights Agreement, the Rykoff-Sexton Rights expire
on the earlier of (i) May 15, 2006, or (ii) immediately prior to the effective
time of the Merger, unless earlier redeemed by Rykoff-Sexton at any time prior
to 5:00 P.M., Chicago time, on the close of business on the thirtieth day
following the date of the public announcement that an Acquiring Person has
become such.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rykoff-Sexton Rights ("Rykoff-Sexton Right
Certificates") will be mailed to holders of record of Rykoff-Sexton Common
Shares as of the close of business on the Distribution Date. From and after the
Distribution Date, such separate Rykoff-Sexton Right Certificates alone will
evidence the Rykoff-Sexton Rights.
In the event that, at any time following the Distribution Date, (i)
Rykoff-Sexton is the surviving corporation in a merger with an Acquiring Person
and
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Rykoff-Sexton Common Shares are not changed or exchanged, (ii) any person
becomes the beneficial owner of 15% or more of the then outstanding Rykoff-
Sexton Common Shares (excluding any event occurring as a result of the
execution, delivery and performance of the Transaction Agreements), unless the
event causing the 15% threshold to be crossed is (a) an acquisition of Rykoff-
Sexton Common Shares by the ML Entities, if the ML Entities shall have executed
a Written Agreement and if, and so long as, such Written Agreement (or any
amendments thereto approved by at least a majority of the members of the Rykoff-
Sexton Board of Directors who are not ML Entity Directors) continues to be in
effect and bind the ML Entities and the ML Entities are in compliance (as
determined by the Rykoff-Sexton Board of Directors in its discretion by at least
a majority of the members who are not ML Entity Directors) with the terms of
such Written Agreement (including any such amendment), provided that no
amendment of any such Written Agreement shall cure any prior breach of such
Written Agreement or any amendment thereto, (b) a transaction in which the
holders of Rykoff-Sexton Rights have the right to receive common stock of the
acquiring entity, as described below, or (c) an acquisition of Rykoff-Sexton
Common Shares pursuant to a tender offer or exchange offer of all outstanding
Rykoff-Sexton Common Shares at a price and on terms determined by a majority of
"disinterested" members of the Rykoff-Sexton Board of Directors to be fair and
otherwise in the best interests of Rykoff-Sexton and its stockholders, or (iii)
an Acquiring Person engages in one or more "self-dealing" transactions as set
forth in the Rykoff-Sexton Rights Agreement (each a "Flip-In Event"), then each
holder of a Rykoff-Sexton Right would thereafter have the right to receive upon
exercise thereof at the then current Purchase Price of the Rykoff-Sexton Right,
Rykoff-Sexton Common Shares (or, in certain circumstances, a combination of
cash, other property, Rykoff-Sexton Common Shares or other securities) that have
a value of two times the Purchase Price of the Rykoff-Sexton Right. As noted
above, the Standstill Agreement qualifies as a Written Agreement that excludes
the acquisition of Rykoff-Sexton Common Shares by the ML Entities from being a
triggering event under the foregoing provisions, so long as the conditions
described above are satisfied. In the event that, at any time following the
Distribution Date, Rykoff-Sexton is acquired in a merger (excluding the Merger)
or other business combination transaction or 50% or more of its assets or
earning power are sold, provision would be made so that each holder of a Rykoff-
Sexton Right would thereafter have the right to receive, upon the exercise of a
Rykoff-Sexton Right at the then current Purchase Price of the Rykoff-Sexton
Right, common stock of the acquiring entity that has a value of two times the
Purchase Price of the Rykoff-Sexton Right. Notwithstanding any of the foregoing,
following the occurrence of any of the events described above in this paragraph,
any Rykoff-Sexton Rights that are or were beneficially owned by an Acquiring
Person or affiliates or associates of an Acquiring Person would be null and
void.
The Purchase Price payable and the number of Units of Series A
Preferred Stock or other securities or property issuable upon exercise of the
Rykoff-Sexton Rights are subject to adjustment from time to time to prevent
dilution (i) in the
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event of a stock dividend on, or a subdivision, combination or reclassification
of the Series A Preferred Stock, (ii) upon the grant to holders of the Series A
Preferred Stock of certain rights or warrants to subscribe for Series A
Preferred Stock or convertible securities at less than the current market price
of the Series A Preferred Stock or (iii) upon the distribution to holders of the
Series A Preferred Stock of evidences of indebtedness or assets (excluding
regular quarterly cash dividends) or of subscription rights or warrants (other
than those referred to above).
With certain exceptions, no adjustment in the Purchase Price is
required until cumulative adjustments require an adjustment of at least 1% in
the Purchase Price. No fractional Units will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Series A
Preferred Stock on the last trading date prior to the date of exercise.
At any time until 30 days following the public announcement that a
person or group or affiliated or associated persons (excluding any transaction
occurring pursuant to the Transaction Agreements) has acquired beneficial
ownership of 15% or more of the outstanding Rykoff-Sexton Common Shares,
Rykoff-Sexton can redeem the Rykoff-Sexton Rights in whole, but not in part, at
a price of $.01 per Rykoff-Sexton Right (the "Redemption Price"). The
Rykoff-Sexton Board of Directors can from time to time, in its discretion,
extend the period of redemption. Immediately upon action of the Rykoff-Sexton
Board of Directors ordering redemption of the Rykoff-Sexton Rights, the
Rykoff-Sexton Rights terminate and the only right of the holders of
Rykoff-Sexton Rights is to receive the Redemption Price.
Until a Rykoff-Sexton Right is exercised, the holder thereof has no
rights as a stockholder of Rykoff-Sexton (other than those as an existing
stockholder), including, without limitation, the right to vote or to receive
dividends.
The Series A Preferred Stock purchasable upon exercise of the
Rykoff-Sexton Rights is nonredeemable and is subordinate to any other series of
Rykoff-Sexton Preferred Stock that may be issued in the future unless such
series is specifically stated to be junior. Each whole share of Series A
Preferred Stock has a minimum preferential quarterly dividend of either $20 per
share or 200 times the dividend per share declared on Rykoff-Sexton Common
Shares, whichever is greater. In the event of liquidation, the holders of Series
A Preferred Stock receive a preferred liquidation payment of either $200 per
share or 200 times the payment made per Rykoff-Sexton Common Shares, whichever
is greater. Each whole share of Preferred Stock has 200 votes, voting together
with the Rykoff-Sexton Common Shares. In the event of any merger (excluding the
Merger), consolidation or other transaction in which Rykoff-Sexton Common Shares
are exchanged, each share of Series A Preferred Stock would be entitled to
receive 200 times the amount received per Rykoff-Sexton Common Share. The rights
of the Series A Preferred Stock are protected by customary antidilution
provisions. Because of the nature of the Series
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A Preferred Stock's dividend, liquidation and voting rights, Rykoff-Sexton
expects that the value of the one two-hundredth of a share of Series A Preferred
Stock purchasable (as described above) upon the exercise of each Rykoff-Sexton
Right to approximate the value of one Rykoff-Sexton Common Share.
The Rykoff-Sexton Rights Agreement and the Rykoff-Sexton Rights have
certain anti-takeover effects. The Rykoff-Sexton Rights cause substantial
dilution to a person or group that attempts to acquire Rykoff-Sexton on terms
not approved by the Rykoff-Sexton Board of Directors. The Rykoff-Sexton Rights
should not interfere with any merger or other business combination approved by
the Rykoff-Sexton Board of Directors because of the ability of the Rykoff-Sexton
Board of Directors and the Rykoff-Sexton Rights Agent to amend the Rykoff-Sexton
Rights Agreement (and with respect to the Merger, the Rykoff-Sexton Board of
Directors has exercised this ability by approving the Rykoff-Sexton Rights Plan
Amendment) and because the Rykoff-Sexton Rights can be redeemed by the
Rykoff-Sexton Board of Directors at the Redemption Price until 30 days following
the public announcement that a person or group of affiliated and associated
persons has acquired beneficial ownership of 15% or more of the outstanding
Rykoff-Sexton Common Shares.
The terms of the Rykoff-Sexton Rights Agreement can be amended by
Rykoff-Sexton and the Rykoff-Sexton Rights Agent, but following a Distribution
Date no amendment can adversely affect the interests of holders of the
Rykoff-Sexton Rights.
Preferred Stock
Under the Rykoff-Sexton Charter, the Rykoff-Sexton Board of Directors
has the authority, without further action by the stockholders, to issue up to
10,000,000 shares of Rykoff-Sexton Preferred Stock in one or more series and to
fix the voting powers, designations, preferences and the relative,
participating, optional or other special rights and qualifications, limitations
and restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series. To date, the Rykoff-Sexton Board of Directors has so
fixed only the Series A Preferred Stock. Because Rykoff-Sexton's Board of
Directors has the power to establish the preferences and rights of the shares of
any additional series of Rykoff-Sexton Preferred Stock, it may afford holders of
any such Rykoff-Sexton Preferred Stock preferences, powers and rights (including
voting rights), senior to the rights of holders of Rykoff-Sexton Common Shares,
that could adversely affect the holders of Rykoff-Sexton Common Shares.
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COMPARATIVE RIGHTS OF JP FOODSERVICE STOCKHOLDERS AND
RYKOFF-SEXTON STOCKHOLDERS
Rykoff-Sexton is a Delaware corporation and a public company, and the
rights of its stockholders are governed by Delaware law, the Rykoff-Sexton
Charter, the Rykoff-Sexton By-laws and the Rykoff-Sexton Rights Agreement.
Following the Merger, the Rykoff-Sexton stockholders will hold shares in JP
Foodservice, which is also a Delaware corporation and a public company, and
their rights as JP Foodservice stockholders will be governed by Delaware law,
the JP Foodservice Charter, the JP Foodservice By-laws and the JP Foodservice
Rights Agreement.
Certain significant differences, which are believed to be all the
material differences, between the rights of JP Foodservice stockholders and
Rykoff-Sexton stockholders are summarized below. This summary is not intended to
be relied upon as an exhaustive list or detailed description of the provisions
discussed and is qualified in its entirety by the JP Foodservice Charter, the JP
Foodservice By-laws and the JP Foodservice Rights Agreement and by the
Rykoff-Sexton Charter, the Rykoff-Sexton By-laws and the Rykoff-Sexton Rights
Agreement, to which Rykoff-Sexton stockholders are referred. See "Description of
JP Foodservice Capital Stock" and "Description of Rykoff-Sexton Capital Stock."
The Standstill Agreement also contains provisions relating to, among other
things, the right of the ML Entities to designate representatives to serve on
the Board of Directors, removal of such representatives and the filling of
vacancies. The Standstill Agreement will, from and after the Effective Time, be
for the benefit of, and will be enforceable by, JP Foodservice to the same
extent and in the same manner as the Standstill Agreement benefits and is
enforceable by Rykoff-Sexton prior to the Merger. See "Other
Agreements--Standstill Agreement."
Authorized Shares of Capital Stock; Dividend Rights
JP Foodservice. The JP Foodservice Charter authorizes the issuance of
75,000,000 JP Foodservice Common Shares and 5,000,000 shares of JP Foodservice
Preferred Stock, 350,000 of which have been designated as Series A Preferred
Stock. If the JP Foodservice Charter Amendment is approved by JP Foodservice
stockholders at the JP Foodservice Annual Meeting, JP Foodservice will be
authorized to issue 150,000,000 JP Foodservice Common Shares. See "JP
Foodservice Annual Meeting Proposals--JP Foodservice Charter Amendment
Proposal." As of August 31, 1997, 22,606,307 JP Foodservice Common Shares were
issued and outstanding and no shares of JP Foodservice Preferred Stock were
issued and outstanding. The shares of JP Foodservice Preferred Stock may be
issued from time to time by the JP Foodservice Board of Directors in one or more
series, and the variations, relative rights and preferences as between different
series of each class may be fixed and determined by resolution of the JP
Foodservice Board of Directors with respect to
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voting rights, the rate of dividend, redemption, liquidation payments, sinking
fund provisions, conversion and the number of shares constituting any series.
During the time that any series of JP Foodservice Preferred Stock is
outstanding, if the terms of such series provide, no dividends may be declared
or paid by the JP Foodservice Board of Directors on the JP Foodservice Common
Shares, unless dividends on all outstanding shares of JP Foodservice Preferred
Stock for the current and all past dividend periods have been declared and paid
or provision made for the payment thereof.
Rykoff-Sexton. The Rykoff-Sexton Charter authorizes the issuance of
40,000,000 Rykoff-Sexton Common Shares and 10,000,000 shares of Rykoff-Sexton
Preferred Stock, 50,000 of which have been designated as Series A Preferred
Stock. As of August 31, 1997, 28,515,130 Rykoff-Sexton Common Shares were
issued, of which 28,249,077 were outstanding, and no shares of Rykoff-Sexton
Preferred Stock were issued and outstanding. The shares of Rykoff-Sexton
Preferred Stock may be issued from time to time by the Rykoff-Sexton Board of
Directors in one or more series, and the variations, relative rights and
preferences as between different series of each class may be fixed and
determined by resolution of the Rykoff-Sexton Board of Directors with respect to
voting rights, the rate of dividend, redemption, liquidation payments, sinking
fund provisions, conversion and the number of shares constituting any
series.
During the time that any series of Rykoff-Sexton Preferred Stock is
outstanding, no dividends may be declared or paid by the Rykoff-Sexton Board of
Directors on the Rykoff-Sexton Common Shares, unless dividends on all
outstanding shares of Rykoff-Sexton Preferred Stock for the current and all past
dividend periods have been declared and paid or provision made for the payment
thereof.
Voting Rights
JP Foodservice. Subject to the voting rights of holders of any then
outstanding JP Foodservice Preferred Stock, each JP Foodservice Common Share is
entitled to one vote on each matter submitted to a vote of the stockholders of
JP Foodservice. JP Foodservice Common Shares are not entitled to any cumulative
voting rights.
Rykoff-Sexton. Subject to the voting rights of holders of any then
outstanding Rykoff-Sexton Preferred Stock, each Rykoff-Sexton Common Share is
entitled to one vote on each matter submitted to a vote of the stockholders of
Rykoff-Sexton. Rykoff-Sexton Common Shares are not entitled to any cumulative
voting rights.
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Supermajority Voting Requirements; Business Combinations
JP Foodservice and Rykoff-Sexton are subject to the provisions of
Section 203 of the DGCL. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to such date, the board approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder,
(ii) upon consummation of the transaction that resulted in such person 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, shares owned by certain directors or certain employee stock plans),
or (iii) on or after the date the stockholder became an interested stockholder,
the business combination is approved by the board of directors and authorized by
the affirmative vote (and not by written consent) of at least two-thirds of the
outstanding voting stock excluding that stock owned by the interested
stockholder. A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder. A
"interested stockholder" is a person who (other than the corporation and any
direct or indirect majority-owned subsidiary of the corporation), together with
affiliates and associates, owns (or, as an affiliate or associate, within three
years prior, did own) 15% or more of the corporation's outstanding voting stock.
JP Foodservice. The JP Foodservice Charter and By-laws do not have
supermajority voting requirements for business combinations or other matters.
Rykoff-Sexton. In addition to any greater vote than may be required
under Section 203, the DGCL generally requires the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter to approve a merger, consolidation or dissolution of the
corporation or a disposition of all or substantially all of the corporation's
assets. The Rykoff-Sexton Charter, however, contains provisions regarding the
vote required to approve certain business combinations or other significant
corporate transactions involving Rykoff-Sexton and an individual, corporation or
other entity with beneficial ownership of a number of Rykoff-Sexton Common
Shares which exceeds 5% of the outstanding Rykoff-Sexton Common Shares (a
"Related Person").
The Rykoff-Sexton Charter requires the affirmative vote or consent of
the holders of not less than 80% of the outstanding shares of stock of
Rykoff-Sexton entitled to vote on the matter: (i) to adopt any agreement for, or
to approve, the merger or consolidation of Rykoff-Sexton or any subsidiary
(within the meaning of the Rykoff-Sexton Charter) with or into any Related
Person; (ii) to authorize any sale, lease, transfer, exchange or other
disposition to any Related Person of all or substantially all of the assets of
Rykoff-Sexton or any such subsidiary; (iii) to
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authorize the issuance or transfer by Rykoff-Sexton or any such subsidiary of
any Rykoff-Sexton voting securities or voting securities of any such subsidiary
in exchange or payment for securities or assets of any Related Person, if such
authorization is otherwise required by law or by any agreement between Rykoff-
Sexton and any national securities exchange or by any other agreement to which
Rykoff-Sexton or any such subsidiary is a party; (iv) to adopt any plan for the
dissolution of Rykoff-Sexton; or (v) to adopt any amendment, change or repeal of
the foregoing provisions. Such 80% affirmative vote will not be required,
however, if the Rykoff-Sexton Board of Directors by resolution approves a
memorandum of understanding with such Related Person setting forth the principal
terms of the transaction and if such transaction is substantially consistent
therewith. Such resolution must be adopted by 80% of the directors who were
elected and acting members of the Rykoff-Sexton Board of Directors prior to the
time such Related Person became the beneficial owner of 5% or more of the
outstanding Rykoff-Sexton Common Shares entitled to vote in elections of
directors. The DGCL, including Section 203 thereof, applies to the approval of
the transactions listed above notwithstanding any such resolution.
Appraisal Rights
A separate provision of the Rykoff-Sexton Charter requires the
affirmative vote of the holders of at least 80% of the outstanding Rykoff-Sexton
Common Shares not beneficially owned by any Related Person that is a party or
beneficiary of or has proposed the transaction or matter to be voted upon to
approve the following transactions (each a "Business Combination"): (i) any
merger or consolidation of Rykoff-Sexton with or into a Related Person or
affiliate or associate of a Related Person; (ii) any sale, lease, exchange,
transfer or other disposition of at least 10% of the assets of Rykoff-Sexton or
a subsidiary to or with a Related Person or an affiliate or associate of a
Related Person; (iii) a merger into or consolidation with Rykoff-Sexton or a
subsidiary, of a Related Person or an affiliate or associate of a Related
Person; (iv) any sale, lease, exchange, transfer or other disposition to
Rykoff-Sexton or a subsidiary of all or any part of the assets of a Related
Person or affiliate or associate of a Related Person; (v) any reclassification
or recapitalization of Rykoff-Sexton Common Shares consummated within three
years after a Related Person becomes a Related Person that would have the effect
of increasing the voting power of such Related Person or an affiliate or
associate of such Related Person; and (vi) any agreement, contract or other
arrangement providing for any of the transactions described above. A Business
Combination does not include, however, a parent-subsidiary merger pursuant to
Section 253 of the DGCL or any transaction involving a Related Person who has
been a Related Person for at least three years or involving an affiliate or
associate of such Related Person. Such 80% affirmative vote will not be required
to approve a Business Combination, however, (i) if certain price criteria and
procedural requirements are satisfied or (ii) a majority of the "Continuing
Directors" of the Rykoff-Sexton Board of Directors adopt a resolution
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approving the Business Combination. "Continuing Directors" mean all members of
the Rykoff-Sexton Board of Directors except any director who (i) while serving
as a member of the Rykoff-Sexton Board of Directors is a Related Person who is a
party to or beneficiary of or has proposed the transaction or matter to be voted
upon, or is an affiliate or associate of such Related Person, or any
representative of such persons, or (ii) became a member of the Rykoff-Sexton
Board of Directors following the date upon which such a Related Person became a
Related Person, unless such director is recommended or elected to succeed a
Continuing Director by a majority of the Continuing Directors.
JP Foodservice. The JP Foodservice Charter does not provide for
appraisal rights other than those rights designated by the DGCL. The DGCL
provides for appraisal rights only in the case of certain mergers or
consolidations and not (unless the certificate of incorporation of a corporation
so provides) in the case of other mergers, a sale or transfer of all or
substantially all of its assets or an amendment to its certificate of
incorporation. In addition, the DGCL does not provide appraisal rights in
connection with a merger or consolidation (unless the certificate of
incorporation of a corporation so provides) to the holders of shares of a
constituent corporation listed on a national securities exchange (or designated
as a national market system security by the National Association of Securities
Dealers, Inc.) or held of record by more than 2,000 stockholders, unless the
applicable agreement of merger or consolidation requires the holders of such
shares to receive, in exchange for such shares, any property other than shares
of stock of the resulting or surviving corporation, shares of stock of any other
corporation listed on a national securities exchange (or designated as described
above) or held of record by more than 2,000 holders, cash in lieu of fractional
shares or any combination of the foregoing. The DGCL also denies appraisal
rights to the stockholders of the surviving corporation in a merger if such
merger did not require for its approval the vote of the stockholders of such
surviving corporation.
Rykoff-Sexton. In addition to the appraisal rights provided for by the
DGCL, the Rykoff-Sexton Charter provides for appraisal rights in the event of a
merger under Section 253 of the DGCL of Rykoff-Sexton into another corporation
that has been a Related Person or an affiliate or associate of a Related Person
for less than three years, provided that the DGCL does not give voting rights to
the Rykoff-Sexton stockholders with respect to such merger.
Special Meetings of Stockholders
JP Foodservice. The JP Foodservice By-laws provide that special
meetings may be called (i) by the Chairman of the Board or by (ii) the JP
Foodservice Board of Directors pursuant to a resolution adopted by a majority of
the total number of directors which JP Foodservice would have if there were no
vacancies on the Board.
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The stockholders of JP Foodservice do not have the right to request or call a
special meeting of stockholders.
Rykoff-Sexton. The Rykoff-Sexton Charter provides that special meetings
of stockholders may be called by the Chairman of the Board or the President, or
must be called at the written request of 75% of the directors then in office.
The stockholders of Rykoff-Sexton do not have the right to request or call a
special meeting of stockholders.
Stockholder Action Without a Meeting
The JP Foodservice Charter and the Rykoff-Sexton Charter each expressly
prohibit stockholder action by written consent.
Stockholder Proposal Procedures
JP Foodservice. The JP Foodservice Charter requires that notice of
proposals by stockholders to be brought before any annual meeting must be
delivered to JP Foodservice not less than 90 days prior to the date of the
meeting, if such meeting is to be held on or after the anniversary of the
previous year's annual meeting (or not less than 60 days, if the meeting is to
be held on a day which is within 30 days preceding the anniversary of the
previous year's annual meeting, or, with respect to any other annual meeting, on
or before the 15th day following the date of public disclosure of the meeting
date). The notice must set forth, as to each matter the stockholder proposes to
bring before the annual meeting, (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name, age and business and residential
addresses, as they appear on JP Foodservice's records, of the stockholder
proposing such business, (iii) the class and number of shares of JP Foodservice
capital stock which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business.
Rykoff-Sexton. None of the DGCL, the Rykoff-Sexton Charter or the
Rykoff-Sexton By-laws expressly governs the manner in which Rykoff-Sexton
stockholders may bring business (other than nominations for the election of
directors) before a meeting of stockholders. See "--Nominations of Directors."
Stockholder Rights Plan
JP Foodservice. JP Foodservice is a party to the JP Foodservice Rights
Plan. See "The Merger--Amendments to Rights Plans" and "Description of JP
Foodservice Capital Stock--Common Shares, Rights and Series A Preferred
Stock--Rights."
Rykoff-Sexton. Rykoff-Sexton is party to the Rykoff-Sexton Rights
Agreement. See "The Merger--Amendments to Rights Plans" and "Description of
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Rykoff-Sexton Capital Stock--Common Shares, Rights and Series A Preferred
Stock--Rights."
Classified Board of Directors
Under their respective Charters and By-laws, each of JP Foodservice and
Rykoff-Sexton has a classified board of directors divided into three classes,
with directors serving staggered three-year terms.
Nominations of Directors
JP Foodservice. The JP Foodservice By-laws provide that nominations for
the election of directors will be made by the Nominating Committee of the JP
Foodservice Board of Directors. The JP Foodservice Charter provides that any
stockholder wishing to nominate persons for election as directors at an annual
meeting must deliver to the Secretary of JP Foodservice at JP Foodservice's
principal office in Columbia, Maryland a written notice of the stockholder's
intention to make such a nomination. The stockholder is required to furnish the
notice not later than 90 days prior to the date that is one year from the date
of the most recent preceding meeting of stockholders. The notice must include
the following information: (i) the name and address of record of the stockholder
who intends to make the nomination, (ii) a representation that the stockholder
is a holder of record of JP Foodservice Common Shares and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice, (iii) the name, age, business and residential addresses and
principal occupation or employment of each nominee, (iv) a description of all
arrangements or understandings between the stockholder and each proposed nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder, (v) such
other information regarding each proposed nominee as would be required to be
included in a proxy statement filed pursuant to the rules and regulations of the
SEC and (vi) the written consent of each proposed nominee to serve as a director
of JP Foodservice if so elected.
Rykoff-Sexton. The Rykoff-Sexton By-laws provide that nominations for
the election of directors can be made by the Rykoff-Sexton Board of Directors, a
proxy committee appointed by the Rykoff-Sexton Board of Directors or any
stockholder entitled to vote in the election of directors. The Rykoff-Sexton
Bylaws require that stockholders entitled to vote in the election of directors
generally may nominate one or more persons for election as directors if written
notice of intent to make a nomination at a meeting of stockholders is delivered
to Rykoff-Sexton's Secretary (i) with respect to an election to be held at an
annual meeting of stockholders, not less than 90 days prior to such annual
meeting, and (ii) with respect to an election to be held at a special meeting of
stockholders, not later than the close of business on the
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seventh day following the date on which notice of such special meeting is first
given to stockholders. Such stockholder's notice must set forth: (i) the name
and address of the stockholder; (ii) a representation that the stockholder is a
holder of record of stock of Rykoff-Sexton entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting; (iii) a description of
all arrangements or understandings between the stockholder and each nominee or
other person or persons pursuant to which each nomination is to be made by the
stockholder; (iv) such other information regarding each nominee that would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the SEC; and (v) the consent of each nominee to serve as a director if
elected.
Removal of Directors
JP Foodservice. Under the DGCL, JP Foodservice directors may be removed
at any time, for cause, by the vote of a majority of the outstanding capital
stock of JP Foodservice entitled to vote at an election of directors.
Rykoff-Sexton. The Rykoff-Sexton Charter and By-laws provide that any
director may be removed at any time, for cause, by the vote of a majority of the
outstanding capital stock of Rykoff-Sexton entitled to vote at an election of
directors.
Vacancies in the Board of Directors
JP Foodservice. The JP Foodservice Charter and By-laws provide that
when any vacancy occurs in the JP Foodservice Board of Directors, whether by
reason of an increase in the number of members composing the JP Foodservice
Board of Directors, or otherwise, a majority of the remaining members of the JP
Foodservice Board of Directors, even though less than a quorum, may appoint a
director or directors to fill such vacancy or vacancies.
Rykoff-Sexton. The Rykoff-Sexton Charter and By-laws provide that any
vacancy in the Rykoff-Sexton Board of Directors, whether by reason of an
increase in the number of members composing the Rykoff-Sexton Board of
Directors, or otherwise, shall be filled by the affirmative vote of a majority
of the Continuing Directors.
Indemnification
The JP Foodservice By-laws and the Rykoff-Sexton Charter provide for
indemnification by JP Foodservice and Rykoff-Sexton, respectively, to the
fullest extent permitted by the DGCL, of their officers, directors, employees
and agents.
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Limitation of Personal Liability of Directors
JP Foodservice. The JP Foodservice Charter eliminates the personal
liability of JP Foodservice directors for monetary damages resulting from
breaches of their fiduciary duty. It does not, however, eliminate liability for
breaches of a director's duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, violations
under Section 174 of the DGCL concerning the unlawful payment of dividends or
stock redemptions or repurchases, or any transaction from which the director
derives an improper benefit.
Rykoff-Sexton. The Rykoff-Sexton Charter eliminates the personal
liability of Rykoff-Sexton directors to the same extent as the JP Foodservice
Charter eliminates the personal liability of JP Foodservice directors.
Amendment of Charter Documents
JP Foodservice. The JP Foodservice Charter may be amended pursuant to
the DGCL by a majority vote of the total number of shares outstanding and
entitled to vote thereon. If any such amendment would adversely affect the
rights of any holders of shares of a class or series of stock, the vote of the
holders of a majority of all outstanding shares of the class or series, voting
as a class, is also necessary to authorize such amendment.
Rykoff-Sexton. Under the Rykoff-Sexton Charter, the amendment, repeal
or adoption of provisions of such document relating to (i) the removal of
directors or the filling of director vacancies or the classification of the
Rykoff-Sexton Board of Directors, (ii) restrictions on stockholders taking
action by written consent and (iii) special meetings of stockholders requires
the affirmative vote of the holders of at least 80% of the outstanding
Rykoff-Sexton Common Shares. Such 80% affirmative vote is not required, however,
if a majority of the Continuing Directors adopt a resolution approving such
amendment or repeal proposal and such proposal receives the affirmative vote of
the holders of at least a majority of the Rykoff-Sexton Common Shares.
The amendment, repeal or adoption of provisions of the Rykoff-Sexton
Charter relating to Business Combinations requires the affirmative vote of the
holders of at least 80% of the outstanding Rykoff-Sexton Common Shares not
beneficially owned by any Related Person who is a beneficiary of or has proposed
the transaction. Such 80% affirmative vote, however, is not required if a
majority of the Continuing Directors adopt a resolution approving such amendment
or repeal proposal and the holders of at least a majority of the outstanding
Rykoff-Sexton Common Shares affirmatively approve such proposal.
Under the DGCL all other amendments to the Rykoff-Sexton Charter must
be approved by the affirmative vote of holders of a majority of shares of
capital
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stock of Rykoff-Sexton entitled to vote generally in the election of directors,
unless a class vote is required under the DGCL.
Amendment of By-Laws
JP Foodservice. The JP Foodservice Charter provides that the Board of
Directors is authorized to adopt, amend or repeal the JP Foodservice By-laws.
The JP Foodservice By-laws further provide that the JP Foodservice By-laws may
be adopted, amended or repealed by the affirmative vote of a majority of the
directors then in office. Under the DGCL, the grant of such a power to a
corporation's board of directors will not divest the stockholders of the power,
nor limit their power, to adopt, amend or amend the corporation's by-laws.
Rykoff-Sexton. The Rykoff-Sexton Charter provides that the Board of
Directors is authorized to make, alter or repeal the Rykoff-Sexton By-laws. The
Rykoff-Sexton By-laws further provide that they may be altered, amended or
repealed or new by-laws adopted by the stockholders or by the affirmative vote
of a majority of the directors then in office.
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LEGAL MATTERS
A legal opinion to the effect that the JP Foodservice Common Shares
offered hereby, when issued in accordance with the Merger Agreement, will be
validly issued and fully paid and nonassessable, has been rendered by Hogan &
Hartson L.L.P., counsel to JP Foodservice.
EXPERTS
JP Foodservice. This historical consolidated financial statements of JP
Foodservice as of June 28, 1997 and for the year then ended incorporated by
reference in this Joint Proxy Statement/Prospectus have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
herein by reference and upon the authority of such firm as experts in accounting
and auditing.
The historical consolidated financial statements of JP Foodservice as
of June 29, 1996 and for each of the two years in the period ended June 29, 1996
incorporated by reference in this Joint Proxy Statement/Prospectus have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
public accountants, given on the authority of said firm as experts in accounting
and auditing.
Valley Industries, Inc. The combined financial statements of Valley
Industries, Inc. and Subsidiaries and Z Leasing Company (A General Partnership)
as of January 31, 1996 and for each of the years in the two year period ended
January 31, 1996 incorporated by reference in this Joint Proxy
Statement/Prospectus have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated herein by reference and
upon the authority of such firm as experts in accounting and auditing.
Rykoff-Sexton. The audited consolidated financial statements of
Rykoff-Sexton and subsidiaries as of June 28, 1997 and April 27, 1996, and for
the fiscal years ended June 28, 1997, April 27, 1996 and April 29, 1995 and the
nine-week transition period ended June 29, 1996 incorporated by reference in
this Joint Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said reports.
STOCKHOLDER PROPOSALS
Proposals by stockholders intended to be presented at the JP
Foodservice 1997 annual meeting of stockholders must have been received by the
Secretary of JP Foodservice at JP Foodservice's principal office in Columbia,
Maryland no later than June 19, 1997, to be included in JP Foodservice's proxy,
notice of meeting and proxy statement relating to such meeting.
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If the Merger Agreement is adopted by Rykoff-Sexton stockholders and
the Merger is consummated, Rykoff-Sexton's 1997 annual meeting of stockholders
will not occur. If the Merger is not consummated, proposals by stockholders
intended to be presented at the Rykoff-Sexton 1997 annual meeting of
stockholders must have been received by the Secretary of Rykoff-Sexton at
Rykoff-Sexton's principal office in Wilkes-Barre, Pennsylvania no later than May
29, 1997, to be included in Rykoff'-Sexton's proxy, notice of meeting and proxy
statement relating to such meeting.
OTHER MATTERS
The Board of Directors of JP Foodservice is aware of no other matter
that will be presented for action at the JP Foodservice Special Meeting and the
Board of Directors of Rykoff-Sexton is aware of no other matter that will be
presented for action at the Rykoff-Sexton Special Meeting. If any other matter
requiring a vote of the stockholders arising from the conduct of the meeting
properly comes before the JP Foodservice Special Meeting or the Rykoff-Sexton
Special Meeting, as the case may be, the persons authorized under management
proxies will vote and act according to their best judgments in light of the
conditions then prevailing.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
JP FOODSERVICE, INC.,
HUDSON ACQUISITION CORP.
AND
RYKOFF-SEXTON, INC.
DATED AS OF JUNE 30, 1997,
AS AMENDED
AS OF SEPTEMBER 3, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
SECTION 1.1. The Merger................................. 2
SECTION 1.2. Closing.................................... 2
SECTION 1.3. Effective Time............................. 2
SECTION 1.4. Effects of the Merger...................... 2
SECTION 1.5. Certificate of Incorporation and By-laws
of the Surviving Corporation and JPFI...... 3
SECTION 1.6. Directors and Officers..................... 3
SECTION 1.7. Reservation of Right to Revise
Transaction................................ 5
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock.................... 5
SECTION 2.2. Exchange of Certificates................... 8
SECTION 2.3. Certain Adjustments........................ 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of RSI...... 12
(a) Organization, Standing and
Corporate Power....................... 12
(b) Subsidiaries.......................... 13
(c) Capital Structure..................... 13
(d) Authority; Noncontravention........... 15
(e) SEC Documents; Undisclosed
Liabilities........................... 17
(f) Information Supplied.................. 17
(g) Absence of Certain Changes or Events.. 18
(h) Compliance with Applicable Laws;
Litigation............................ 19
(i) Absence of Changes in Benefit Plans... 20
(j) ERISA Compliance...................... 20
(k) Taxes................................. 22
(l) Voting Requirements................... 23
(m) State Takeover Statutes;
Certain Provisions of RSI
Certificate........................... 23
(n) Accounting Matters.................... 24
(o) Brokers............................... 24
(p) Opinion of Financial Advisor.......... 24
(q) Ownership of JPFI Common Stock........ 25
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(r) Intellectual Property................. 25
(s) Certain Contracts..................... 25
(t) RSI Rights Agreement.................. 26
(u) Environmental Liability............... 26
SECTION 3.2. Representations and Warranties of JPFI..... 27
(a) Organization, Standing and Corporate
Power................................. 27
(b) Subsidiaries.......................... 27
(c) Capital Structure..................... 28
(d) Authority; Noncontravention........... 29
(e) SEC Documents; Undisclosed
Liabilities........................... 31
(f) Information Supplied.................. 32
(g) Absence of Certain Changes or Events.. 32
(h) Compliance with Applicable Laws;
Litigation............................ 33
(i) Absence of Changes in Benefit Plans... 34
(j) ERISA Compliance...................... 34
(k) Taxes................................. 36
(l) Voting Requirements................... 37
(m) State Takeover Statutes;
Certificate of Incorporation.......... 37
(n) Accounting Matters.................... 37
(o) Brokers............................... 38
(p) Opinion of Financial Advisors......... 38
(q) Ownership of RSI Common Stock......... 38
(r) Intellectual Property................. 38
(s) Certain Contracts..................... 39
(t) JPFI Rights Agreement................. 39
(u) Environmental Liability............... 40
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business....................... 40
SECTION 4.2. No Solicitation or Negotiations........... 45
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the Joint
Proxy Statement; Stockholders Meetings.... 46
SECTION 5.2. Letters of RSI's Accountants.............. 47
SECTION 5.3. Letters of JPFI's Accountants............. 48
SECTION 5.4. Access to Information; Confidentiality.... 48
SECTION 5.5. Best Efforts.............................. 49
SECTION 5.6. Employment Agreements..................... 50
SECTION 5.7. Indemnification, Exculpation and
Insurance................................. 50
SECTION 5.8. Fees and Expenses......................... 51
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SECTION 5.9. Public Announcements...................... 52
SECTION 5.10. Affiliates................................ 52
SECTION 5.11. NYSE Listing.............................. 52
SECTION 5.12. Tax Treatment............................. 53
SECTION 5.13. Pooling of Interests...................... 53
SECTION 5.14. Standstill Agreements; Confidentiality
Agreements................................. 53
SECTION 5.15. Post-Merger Operations.................... 53
SECTION 5.16. Conveyance Taxes.......................... 53
SECTION 5.17 8 7/8% Indenture........................... 53
SECTION 5.18 Certain Tax Matters........................ 54
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to
Effect the Merger......................... 54
SECTION 6.2. Conditions to Obligations of JPFI......... 56
SECTION 6.3. Conditions to Obligations of RSI.......... 56
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination............................... 57
SECTION 7.2. Effect of Termination..................... 59
SECTION 7.3. Amendment................................. 59
SECTION 7.4. Extension; Waiver......................... 59
SECTION 7.5. Termination Expenses ..................... 60
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and
Warranties................................ 60
SECTION 8.2. Notices................................... 61
SECTION 8.3. Definitions............................... 61
SECTION 8.4. Interpretation............................ 62
SECTION 8.5. Counterparts.............................. 63
SECTION 8.6. Entire Agreement; No Third-Party
Beneficiaries............................. 63
SECTION 8.7. Governing Law............................. 63
SECTION 8.8. Assignment................................ 63
SECTION 8.9. Consent to Jurisdiction................... 63
SECTION 8.10. Headings, Etc............................. 64
SECTION 8.11. Severability.............................. 64
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Exhibit A Form of RSI Stock Option Agreement
Exhibit B Form of JPFI Stock Option Agreement
Exhibit C Form of Support Agreement
Exhibit D Form of JPFI Affiliate Letter
Exhibit E Form of RSI Affiliate Letter
Exhibit F Form of Amendment to Amended and Restated By-
Laws of JPFI
Exhibit G Form of Employment Agreement with Mark Van
Stekelenburg
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AGREEMENT AND PLAN OF MERGER dated as of June 30, 1997,
among JP FOODSERVICE, INC., a Delaware corporation ("JPFI"),
HUDSON ACQUISITION CORP. ("Merger Sub"), a Delaware corporation
and a wholly-owned subsidiary of JPFI, and RYKOFF-SEXTON, INC.,
a Delaware corporation ("RSI").
WHEREAS, the respective Boards of Directors of JPFI,
Merger Sub and RSI have each approved the merger of RSI with
and into Merger Sub (the "Merger"), upon the terms and subject
to the conditions set forth in this Agreement, whereby each
issued and outstanding share of common stock, par value $.10
per share, of RSI ("RSI Common Stock", which reference shall be
deemed to include the associated RSI Rights (as defined in Sec-
tion 3.1(c) attached thereto), other than shares owned by JPFI
or RSI, will be converted into the right to receive the Merger
Consideration (as defined in Section 1.7); and
WHEREAS, the respective Boards of Directors of JPFI,
Merger Sub and RSI have each determined that the Merger and the
other transactions contemplated hereby are consistent with, and
in furtherance of, their respective business strategies and
goals and are in the best interests of their respective stock-
holders; and
WHEREAS, as a condition to, and on the date im-
mediately following, the execution of this Agreement, JPFI and
RSI will enter into a stock option agreement (the "RSI Option
Agreement") attached hereto as Exhibit A and a stock option
agreement (the "JPFI Option Agreement" and, together with the
RSI Option Agreement, the "Option Agreements") attached hereto
as Exhibit B; and
WHEREAS, for federal income tax purposes, it is in-
tended that the Merger will qualify as a reorganization under
the provisions of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is
intended that the Merger will be accounted for as a pooling of
interests transaction under United States generally accepted
accounting principles ("GAAP"); and
WHEREAS, as a condition to, and immediately follow-
ing, the execution of this Agreement, JPFI and certain stock-
holders of RSI will enter into, and RSI will execute an ac-
knowledgment to, a support agreement (the "Support Agreement")
attached hereto as Exhibit C; and
WHEREAS, JPFI and RSI desire to make certain repre-
sentations, warranties, covenants and agreements in connection
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with the Merger and also to prescribe various conditions to the
Merger;
NOW, THEREFORE, in consideration of the representa-
tions, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject
to the conditions set forth in this Agreement, and in ac-
cordance with the Delaware General Corporation Law (the
"DGCL"), RSI shall be merged with and into Merger Sub at the
Effective Time (as defined in Section 1.3). Following the Ef-
fective Time, the separate corporate existence of RSI shall
cease and Merger Sub shall be the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all
the rights and obligations of RSI in accordance with the DGCL.
SECTION 1.2. Closing. The closing of the Merger
(the "Closing") will take place at 10:00 a.m., New York City
time, on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in
Article VI, unless another time or date is agreed to by the
parties hereto. The Closing will be held at such location in
the City of New York as is agreed to by the parties hereto.
SECTION 1.3. Effective Time. Subject to the provi-
sions of this Agreement, as soon as practicable on the Closing
Date, the parties shall cause the Merger to be consummated by
filing a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL and shall
make all other filings or recordings required under the DGCL.
The Merger shall become effective at such time as the Certifi-
cate of Merger is duly filed with the Secretary of State of
Delaware, or at such subsequent date or time as JPFI and RSI
shall agree and specify in the Certificate of Merger (the time
the Merger becomes effective being hereinafter referred to as
the "Effective Time").
SECTION 1.4. Effects of the Merger. The Merger
shall have the effects set forth in Section 259 of the DGCL.
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SECTION 1.5. Certificate of Incorporation and By-
laws of the Surviving Corporation and JPFI. (a) At the Effec-
tive Time, the Certificate of Incorporation and the by-laws of
Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation and by-laws of
the Surviving Corporation, in each case until thereafter
amended in accordance with applicable law; provided, however,
that Article First of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows:
The name of the Corporation (which is hereinafter
referred to as the "Corporation") is Rykoff-Sexton,
Inc.
(b) At the Effective Time, the by-laws of JPFI shall
be amended as set forth in Exhibit F and, as so amended, such
by-laws shall be the by-laws of JPFI until thereafter changed
or amended as provided therein or by applicable law.
SECTION 1.6. Directors and Officers. (a) As of the
Effective Time, James L. Miller shall be Chairman and Chief
Executive Officer of JPFI and Mark Van Stekelenburg shall be
Vice Chairman and President of JPFI and, subject to Section
1.6(b), shall be nominated for election to the class of direc-
tors of the JPFI Board of Directors whose terms shall expire in
1998.
(b) Prior to the Effective Time, JPFI shall (i) in-
crease the number of members of the Board of Directors of JPFI
to 17; (ii) take such action as may be necessary such that the
Board of Directors of JPFI, immediately following the Effective
Time, is comprised of (A) nine individuals, including each of
the incumbent members of the JPFI Board of Directors (or their
replacements), no fewer than five of whom shall be outside di-
rectors, as selected by JPFI prior to the Effective Time, plus
(B) seven individuals, no fewer than four of whom shall be out-
side directors, two of whom shall be individuals designated by
Merrill Lynch Capital Partners, Inc., one of whom shall be Mark
Van Stekelenburg, and four of whom shall be current incumbents
of the RSI Board of Directors who are not employees of RSI or
its subsidiaries or affiliated with Merrill Lynch Capital Part-
ners Inc. to be selected by RSI prior to the Effective Time,
and (C) one additional person to be designated by the Chairman
of JPFI following the Merger; provided that no person shall be
deemed not to be an outside director for purposes of this Sec-
tion 1.6(b) solely because such person is or has been an ML
Director (as defined in Section 3.1(d)); and (iii) take such
action as may be necessary such that two of the three classes
of the JPFI Board of Directors shall be comprised of six direc-
tors each, three of whom shall be incumbent directors of the
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JPFI Board of Directors pursuant to clause (ii)(A) of this Sec-
tion 1.6(b) and three of whom shall be designated as directors
by RSI pursuant to clause (ii)(B) of this Section 1.6(b), and
the third class of the JPFI Board of Directors shall be com-
prised of five directors, three of whom shall be incumbent di-
rectors of the JPFI Board of Directors pursuant to clause
(ii)(A) of this Section 1.6(b), one of whom shall be designated
as a director by RSI pursuant to clause (ii)(B) of this Section
1.6(b) and one of whom shall be designated as a director by the
Chairman of JPFI pursuant to clause (ii)(C) of this Section
1.6(b). The two directors who shall be designated by Merrill
Lynch Capital Partners, Inc. shall be appointed, one each, to
the class of directors whose terms expire in 1999 and 2000,
respectively. Of the four directors to be selected by RSI pur-
suant to clause (ii)(B) of the first sentence of this Section
1.6(b), James I. Maslon shall be appointed to the class of di-
rectors whose terms expire in 1998, and Bernard Sweet shall be
appointed to the class of directors whose terms expire in 1999.
(c) As of the Effective Time, the JPFI Board of Di-
rectors shall initially have three committees, as follows: an
audit committee, a compensation committee and a nominating com-
mittee. Each committee will be comprised of four directors,
two of whom shall be designated by JPFI, one of whom shall be
designated by RSI and one of whom shall be designated by mutual
agreement of JPFI and RSI. The initial chairman of each of the
of the audit committee, the compensation committee and the
nominating committee shall be, until such chairman's replace-
ment is duly designated by the JPFI Board of Directors, the
JPFI director who is currently the incumbent chairman of such
committee; provided, however, that in the event any of such
chairs becomes vacant for any reason prior to the Effective
Time, the chairman shall be the person thereafter designated by
the JPFI Board of Directors pursuant to the Certificate of In-
corporation and By-Laws of JPFI. One member of the nominating
committee of the JPFI Board of Directors (and of an executive
committee thereof, if such a committee is established) shall be
designated by Merrill Lynch Capital Partners, Inc. as RSI's
designee thereon.
(d) Except as set forth in Section 1.6(a), the di-
rectors and officers of Merger Sub immediately prior to the
Effective Time shall be the initial directors and officers of
the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and By-Laws of the Sur-
viving Corporation.
(e) It is currently contemplated that the first
three vacancies on the JPFI Board of Directors to occur follow-
ing the Effective Time shall not be filled, but that in each
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case the number of directors shall be reduced, so that the to-
tal number of directors constituting the JPFI Board of Direc-
tors shall thereafter be 14.
SECTION 1.7. Reservation of Right to Revise Transac-
tion. If each of RSI, Merger Sub and JPFI agree, the parties
hereto, prior to the receipt of the RSI Stockholder Approval
and the JPFI Stockholder Approval (each as defined herein), may
change the method of effecting the business combination between
JPFI and RSI, and each party shall cooperate in such efforts,
including to provide for (a) a merger of RSI with and into
JPFI, or (b) mergers (to occur substantially simultaneously) of
separate subsidiaries of a Delaware corporation jointly formed
by JPFI and RSI for such purpose into each of JPFI and RSI;
provided, however, that no such change shall (i) alter or
change the amount or kind of consideration to be issued to
holders of RSI Common Stock as provided for in this Agreement
(the "Merger Consideration"), other than, in the case of clause
(b) above, the identity of the issuer thereof, (ii) adversely
affect the proposed accounting treatment for the Merger or the
tax treatment to JPFI, RSI or their respective stockholders as
a result of receiving the Merger Consideration, or (iii) mate-
rially delay receipt of any approval referred to in Section
6.1(c) or the consummation of the transactions contemplated by
this Agreement.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock. As of the
Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, RSI or the holder of any shares of
the following securities:
(a) Cancellation of Treasury Stock and JPFI-Owned
Stock. Each share of RSI Common Stock that is owned by RSI,
Merger Sub or JPFI shall automatically be cancelled and retired
and shall cease to exist, and no consideration shall be deliv-
ered in exchange therefor.
(b) Conversion of RSI Common Stock. Subject to Sec-
tion 2.2(e), each issued and outstanding share of RSI Common
Stock (other than shares to be cancelled in accordance with
Section 2.1(a)) shall be converted into the right to receive
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0.84 (the "Exchange Ratio") validly issued, fully paid and non-
assessable shares of common stock, par value $.01 per share
("JPFI Common Stock"), of JPFI. As of the Effective Time, all
such shares of RSI Common Stock shall no longer be outstanding
and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing
any such shares of RSI Common Stock shall cease to have any
rights with respect thereto, except the right to receive the
Merger Consideration and any cash in lieu of fractional shares
of JPFI Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate in accordance with
Section 2.2, without interest.
(c) Conversion of Merger Sub Common Stock. Each
share of common stock, par value $0.10 per share, of Merger Sub
("Merger Sub Common Stock") issued and outstanding immediately
prior to the Effective Time shall remain outstanding as a val-
idly issued, fully paid and nonassessable share of common stock
of the Surviving Corporation.
(d) JPFI Common Stock. At and after the Effective
Time, each share of JPFI Common Stock issued and outstanding
immediately prior to the Closing Date shall remain an issued
and outstanding share of common stock of JPFI and shall not be
affected by the Merger.
(e) Options and Warrants. (i) RSI will take all
action necessary such that, at the Effective Time, each option
granted by RSI to purchase shares of RSI Common Stock which is
outstanding and unexercised immediately prior thereto shall
cease to represent a right to acquire shares of RSI Common
Stock and shall be converted into an option to purchase shares
of JPFI Common Stock in an amount and at an exercise price de-
termined as provided below (and otherwise, in the case of op-
tions, subject to the terms of the RSI Stock Plans (as defined
in Section 3.1(c)) and the agreements evidencing grants there-
under) (the "Assumed Options"):
(1) The number of shares of JPFI Common Stock
to be subject to the new option shall be equal to the
product of the number of shares of RSI Common Stock
subject to the original option and the Exchange Ra-
tio, provided that any fractional shares of JPFI Com-
mon Stock resulting from such multiplication shall be
rounded to the nearest whole share; and
(2) The exercise price per share of JPFI Common
Stock under the new option shall be equal to the ex-
ercise price per share of RSI Common Stock under the
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original option divided by the Exchange Ratio, pro-
vided that such exercise price shall be rounded to
the nearest whole cent.
(ii) The adjustment provided herein with respect to
any options that are "incentive stock options" (as defined in
Section 422 of the Code) shall be and is intended to be ef-
fected in a manner that is consistent with Section 424(a) of
the Code. The duration and other terms of the new options
shall be the same as the original options except that all ref-
erences to RSI shall be deemed to be references to JPFI.
(iii) At the Effective Time, the warrants, dated May
17, 1996, between RSI and each of Teachers Insurance and Annu-
ity Association of America, the Nippon Credit Bank, Ltd. and
Dresdner Bank AG (each, an "Assumed Warrant") shall be assumed
by JPFI and shall constitute a warrant to acquire, otherwise on
the same terms and conditions as were applicable under such
Assumed Warrant, a number of shares of JPFI Common Stock equal
to the number of JPFI Common Shares that a holder of such As-
sumed Warrant would have received in the Merger if such holder
had exercised such Assumed Warrant for shares of RSI Common
Stock immediately prior to the Effective Time, at a price per
share equal to the aggregate exercise price for the shares of
RSI Common Stock subject thereto divided by the number of JPFI
Common Shares that a holder of such Assumed Warrant would have
received in the Merger if such holder had exercised such As-
sumed Warrant for shares of RSI Common Stock immediately prior
to the Effective Time.
(iv) As soon as practicable following the Effective
Time, JPFI shall deliver, upon due surrender of the Assumed
Options and Assumed Warrants, to holders of Assumed Options and
Assumed Warrants appropriate option and warrant agreements rep-
resenting the right to acquire JPFI Common Stock on the same
terms and conditions as contained in the Assumed Options and
Assumed Warrants (except as otherwise set forth in this Section
2.1(e)). Except as expressly contemplated herein, JPFI shall
comply with the terms of the RSI Stock Plans as they apply to
the Assumed Options. JPFI shall take all corporate action nec-
essary to reserve for issuance a sufficient number of shares of
JPFI Common Stock for delivery upon exercise of the Assumed
Options and Assumed Warrants in accordance with this Section
2.1(e). JPFI shall file a registration statement on Form S-8
(or any successor form) or on another appropriate form, ef-
fective as of, or reasonably promptly following, the Effective
Time, with respect to JPFI Common Stock subject to the Assumed
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Options and shall use commercially reasonable efforts to main-
tain the effectiveness of such registration statement or regis-
tration statements (and maintain the current status of the pro-
spectus or prospectuses contained therein) for so long as the
Assumed Options remain outstanding and exercisable. With re-
spect to those individuals who, subsequent to the Effective
Time, will be subject to the reporting requirements of Section
16 of the Exchange Act, JPFI shall administer the Hudston Stock
Plans, where applicable, in a manner that complies with Rule
16b-3 promulgated under the Exchange Act.
SECTION 2.2. Exchange of Certificates. (a) Ex-
change Agent. As of the Effective Time, JPFI shall enter into
an agreement with such bank or trust company as may be desig-
nated by JPFI and reasonably satisfactory to RSI (the "Exchange
Agent") which shall provide that JPFI shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the
holders of shares of RSI Common Stock, for exchange in ac-
cordance with this Article II, through the Exchange Agent, cer-
tificates representing the shares of JPFI Common Stock (such
shares of JPFI Common Stock, together with any dividends or
distributions with respect thereto with a record date after the
Effective Time, any Excess Shares (as defined in Section
2.2(e)) and any cash (including cash proceeds from the sale of
the Excess Shares) payable in lieu of any fractional shares of
JPFI Common Stock being hereinafter referred to as the "Ex-
change Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of RSI Common Stock.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall
mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented out-
standing shares of RSI Common Stock (the "Certificates") whose
shares were converted into the right to receive the Merger Con-
sideration pursuant to Section 2.1, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent, and shall
be in such form and have such other provisions as JPFI and RSI
may reasonably specify) and (ii) instructions for use in sur-
rendering the Certificates in exchange for the Merger Consider-
ation. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be re-
quired by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of JPFI Common Stock
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which such holder has the right to receive pursuant to the pro-
visions of this Article II, certain dividends or other distri-
butions in accordance with Section 2.2(c) and cash in lieu of
any fractional share of JPFI Common Stock in accordance with
Section 2.2(e), and the Certificate so surrendered shall forth-
with be cancelled. Notwithstanding anything to the contrary
contained herein, no certificate representing JPFI Common Stock
or cash in lieu of a fractional share interest shall be deliv-
ered to a person who is an affiliate of RSI for purposes of
qualifying the Merger for pooling of interests accounting
treatment under Opinion 16 of the Accounting Principles Board
and applicable Securities and Exchange Commission ("SEC") rules
and regulations, unless such person has executed and delivered
an agreement in the form of Exhibit E hereto. In the event of
a surrender of a Certificate representing shares of RSI Common
Stock which are not registered in the transfer records of RSI
under the name of the person surrendering such Certificate, a
certificate representing the proper number of shares of JPFI
Common Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such issu-
ance shall pay any transfer or other taxes required by reason
of the issuance of shares of JPFI Common Stock to a person
other than the registered holder of such Certificate or estab-
lish to the satisfaction of JPFI that such tax has been paid or
is not applicable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration which the holder
thereof has the right to receive in respect of such Certificate
pursuant to the provisions of this Article II, certain divi-
dends or other distributions in accordance with Section 2.2(c)
and cash in lieu of any fractional share of JPFI Common Stock
in accordance with Section 2.2(e). No interest shall be paid
or will accrue on any cash payable to holders of Certificates
pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions with respect to
JPFI Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of JPFI Common Stock represented
thereby, and, in the case of Certificates representing RSI Com-
mon Stock, no cash payment in lieu of fractional shares shall
be paid to any such holder pursuant to Section 2.2(e), and all
such dividends, other distributions and cash in lieu of frac-
tional shares of JPFI Common Stock shall be paid by JPFI to the
Exchange Agent and shall be included in the Exchange Fund, in
each case until the surrender of such Certificate in accordance
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with this Article II. Subject to the effect of applicable es-
cheat or similar laws, following surrender of any such Certifi-
cate there shall be paid to the holder of the certificate rep-
resenting whole shares of JPFI Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to
such whole shares of JPFI Common Stock and, in the case of Cer-
tificates representing RSI Common Stock, the amount of any cash
payable in lieu of a fractional share of JPFI Common Stock to
which such holder is entitled pursuant to Section 2.2(e) and
(ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective
Time and with a payment date subsequent to such surrender pay-
able with respect to such whole shares of JPFI Common Stock.
(d) No Further Ownership Rights in RSI Common Stock.
All shares of JPFI Common Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this
Article II (including any cash paid pursuant to this Article
II) shall be deemed to have been issued (and paid) in full sat-
isfaction of all rights pertaining to the shares of RSI Common
Stock theretofore represented by such Certificates, subject,
however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date
prior to the Effective Time which may have been declared or
made by RSI on such shares of RSI Common Stock which remain
unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of RSI Common Stock which
were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to JPFI,
the Surviving Corporation or the Exchange Agent for any reason,
they shall be cancelled and exchanged as provided in this Ar-
ticle II, except as otherwise provided by law.
(e) No Fractional Shares. (i) Nothstanding any-
thing to the contrary contained herein, no certificates or
scrip representing fractional shares of JPFI Common Stock shall
be issued upon the surrender for exchange of Certificates, no
dividend or distribution of JPFI shall relate to such frac-
tional share interests and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a
stockholder of JPFI. In lieu of the issuance of such frac-
tional shares, JPFI shall pay each former holder of RSI Common
Stock an amount in cash equal to the product obtained by multi-
plying (A) the fractional share interest to which such former
holder (after taking into account all shares of RSI Common
Stock held at the Effective Time by such holder) would other-
wise be entitled by (B) the average of the closing prices of
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the JPFI Common Stock as reported on the NYSE Composite Report-
ing Tape (as reported in The Wall Street Journal, or, if not
reported therein, any other authoritative source) during the
ten trading days preceding the fifth trading day prior to the
Closing Date (such average, the "Average JPFI Price").
(ii) As soon as practicable after the determination
of the amount of cash, if any, to be paid to holders of Cer-
tificates formerly representing RSI Common Stock with respect
to any fractional share interests, the Exchange Agent shall
make available such amounts to such holders of Certificates
formerly representing RSI Common Stock subject to and in ac-
cordance with the terms of Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders of
the Certificates for six months after the Effective Time shall
be delivered to JPFI, upon demand, and any holders of the Cer-
tificates who have not theretofore complied with this Article
II shall thereafter look only to JPFI for payment of their
claim for Merger Consideration, any dividends or distributions
with respect to JPFI Common Stock and any cash in lieu of frac-
tional shares of JPFI Common Stock.
(g) No Liability. None of JPFI, RSI, Merger Sub,
the Surviving Corporation or the Exchange Agent shall be liable
to any person in respect of any shares of JPFI Common Stock,
any dividends or distributions with respect thereto, any cash
in lieu of fractional shares of JPFI Common Stock or any cash
from the Exchange Fund, in each case delivered to a public of-
ficial pursuant to any applicable abandoned property, escheat
or similar law.
(h) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as di-
rected by JPFI, on a daily basis. Any interest and other in-
come resulting from such investments shall be paid to JPFI.
(i) Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an af-
fidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond in such rea-
sonable amount as the Surviving Corporation may direct as in-
demnity against any claim that may be made against it with re-
spect to such Certificate, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any unpaid dividends
and distributions on shares of JPFI Common Stock deliverable in
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respect thereof and any cash in lieu of fractional shares, in
each case pursuant to this Agreement.
SECTION 2.3. Certain Adjustments. If between the
date hereof and the Effective Time, the outstanding shares of
RSI Common Stock or of JPFI Common Stock shall be changed into
a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities shall be
declared thereon with a record date within such period, the
Exchange Ratio shall be adjusted accordingly to provide to the
holders of RSI Common Stock the same economic effect as contem-
plated by this Agreement prior to such reclassification, re-
capitalization, split-up, combination, exchange or dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of RSI.
Except as disclosed in the Disclosure Schedule delivered by RSI
to JPFI prior to the execution of this Agreement (the "RSI Dis-
closure Schedule") and making reference to the particular sub-
section of this Agreement to which exception is being taken,
RSI represents and warrants to JPFI as follows:
(a) Organization, Standing and Corporate Power. (i)
Each of RSI and its subsidiaries (as defined in Section 8.3) is
a corporation or other legal entity duly organized, validly
existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the jurisdic-
tion in which it is organized and has the requisite corporate
or other power, as the case may be, and authority to carry on
its business as now being conducted, except, as to subsidiar-
ies, for those jurisdictions where the failure to be so orga-
nized, existing or in good standing individually or in the ag-
gregate would not have a material adverse effect (as defined in
Section 8.3) on RSI. Each of RSI and its subsidiaries is duly
qualified or licensed to do business and is in good standing
(with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those juris-
dictions where the failure to be so qualified or licensed or to
be in good standing individually or in the aggregate would not
have a material adverse effect on RSI.
(ii) RSI has delivered to JPFI prior to the execution
of this Agreement complete and correct copies of any amendments
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to its certificate of incorporation (the "RSI Certificate") and
by-laws not filed as of the date hereof with the RSI Filed SEC
Documents (as defined in Section 3.1(g)).
(iii) In all material respects, the minute books of
RSI and its subsidiaries contain accurate records of all meet-
ings and accurately reflect all other actions taken by the
stockholders, the Board of Directors and all committees of the
Board of Directors of RSI (or, as the case may be, each of its
subsidiaries) since January 1, 1995.
(b) Subsidiaries. Exhibit 21 to RSI's Annual Report
on Form 10-K for the fiscal year ended April 27, 1996 includes
all the subsidiaries of RSI which as of the date of this Agree-
ment are Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of the SEC). All the outstanding shares of
capital stock of, or other equity interests in, each such Sig-
nificant Subsidiary have been validly issued and are fully paid
and nonassessable and are owned directly or indirectly by RSI,
free and clear of all pledges, claims, liens, charges, encum-
brances and security interests of any kind or nature whatsoever
(collectively, "Liens") and free of any other restriction (in-
cluding any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests),
other than Liens and restrictions imposed by RSI's debt agree-
ments included as exhibits to the RSI Filed SEC Documents.
(c) Capital Structure. The authorized capital stock
of RSI consists of 40,000,000 shares of RSI Common Stock and
10,000,000 shares of preferred stock, par value $.10 per share
("RSI Preferred Stock"). At the close of business on June 25,
1997: (i) 27,969,503 shares of RSI Common Stock were issued
and outstanding; (ii) 271,020 shares of RSI Common Stock were
held by RSI in its treasury; (iii) no shares of RSI Preferred
Stock were issued and outstanding; (iv) 1,479,113 shares of RSI
Common Stock were reserved for issuance pursuant to all stock
option, restricted stock or other stock-based compensation,
benefits or savings plans, agreements or arrangements in which
current or former employees or directors of RSI or its subsid-
iaries participate as of the date hereof (including, without
limitation, the 1980 Stock Option Plan, the 1988 Stock Option
and Compensation Plan, the RSI 1989 Director Stock Option Plan,
the RSI 1993 Director Stock Option Plan, the 1995 Key Employees
Stock Option and Compensation Plan, the RSI Convertible Award
Plan (Officer and Key Employee Edition), the RSI Convertible
Award Plan (Director Edition), the Amended and Restated Manage-
ment Stock Option Plan of WS Holdings Corporation, the Amended
and Restated US Foodservice Inc. 1992 Stock Option Plan and the
Amended and Restated US Foodservice Inc. 1993 Stock Option
Plan), complete and correct copies of which, in each case as
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<PAGE>
amended as of the date hereof, have been filed as exhibits to
the RSI Filed SEC Documents or delivered to JPFI (such plans,
collectively, the "RSI Stock Plans"); (v) 331,761 shares of RSI
Common Stock were reserved for issuance upon conversion of the
Assumed Warrants and (vi) 125,000 shares of RSI Preferred Stock
were reserved for issuance upon exercise of preferred stock
purchase rights (the "RSI Rights") issued pursuant to the
Amended and Restated Rights Agreement, dated as of May 15,
1996, by and between RSI and ChaseMellon Shareholder Services
L.L.C., as rights agent (as successor to Chemical Bank) (the
"RSI Rights Agreement"). Section 3.1(c) of the RSI Disclosure
Schedule sets forth a complete and correct list, as of June 27,
1997, of the number of shares of RSI Common Stock subject to
employee stock options or other rights to purchase or receive
RSI Common Stock granted under the RSI Stock Plans (col-
lectively, "RSI Employee Stock Options"), the dates of grant
and exercise prices thereof. All outstanding shares of capital
stock of RSI are, and all shares which may be issued will be,
when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as
set forth in this Section 3.1(c) and except for changes since
June 27, 1997 resulting from the issuance of shares of RSI Com-
mon Stock pursuant to the RSI Employee Stock Options or as ex-
pressly permitted by this Agreement, (x) there are not issued,
reserved for issuance or outstanding (A) any shares of capital
stock or other voting securities of RSI, (B) any securities of
RSI or any RSI subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or voting securities of
RSI, (C) any warrants, calls, options or other rights to ac-
quire from RSI or any RSI subsidiary, and any obligation of RSI
or any RSI subsidiary to issue, any capital stock, voting secu-
rities or securities convertible into or exchangeable or exer-
cisable for capital stock or voting securities of RSI, and (y)
there are no outstanding obligations of RSI or any RSI subsid-
iary to repurchase, redeem or otherwise acquire any such secu-
rities or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. There are no outstand-
ing (A) securities of RSI or any RSI subsidiary convertible
into or exchangeable or exercisable for shares of capital stock
or other voting securities or ownership interests in any RSI
subsidiary, (B) warrants, calls, options or other rights to
acquire from RSI or any RSI subsidiary, and any obligation of
RSI or any RSI subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any RSI
subsidiary or (C) obligations of RSI or any RSI subsidiary to
repurchase, redeem or otherwise acquire any such outstanding
securities of RSI subsidiaries or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities.
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<PAGE>
Except as described in Section 3.1(b), neither RSI nor any RSI
subsidiary is a party to any agreement restricting the purchase
or transfer of, relating to the voting of, requiring registra-
tion of, or granting any preemptive or, except as provided by
the terms of the RSI Employee Stock Options, antidilutive
rights with respect to, any securities of the type referred to
in the two preceding sentences. Other than the RSI subsidiar-
ies, RSI does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in any other
entity except for non-controlling investments made in the ordi-
nary course of business in entities which are not individually
or in the aggregate material to RSI and its subsidiaries as a
whole.
(d) Authority; Noncontravention. RSI has all requi-
site corporate power and authority to enter into this Agree-
ment, each of the Option Agreements and, subject, in the case
of the Merger, to the RSI Stockholder Approval (as defined in
Section 3.1(l)), to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agree-
ment and each of the Option Agreements by RSI and the consumma-
tion by RSI of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on
the part of RSI, subject, in the case of the Merger, to the RSI
Stockholder Approval. This Agreement has been, and the Option
Agreements will be, duly executed and delivered by RSI and,
assuming the due authorization, execution and delivery thereof
by JPFI, constitutes (or will constitute, as the case may be)
the legal, valid and binding obligation of RSI, enforceable
against RSI in accordance with their terms. The execution and
delivery of this Agreement does not, and the execution and de-
livery of the Option Agreements and the consummation of the
transactions contemplated hereby and thereby and compliance
with the provisions of this Agreement and the Option Agreements
will not, conflict with, or result in any violation of, or de-
fault (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or ac-
celeration of any obligation or loss of a benefit under, or
result in the creation of any Lien upon any of the properties
or assets of RSI or any of its subsidiaries or (assuming the
consummation of the transactions contemplated hereby without
giving effect to Section 1.7) in any restriction on the conduct
of JPFI's business or operations under, (i) the RSI Certificate
or the by-laws of RSI or the comparable organizational docu-
ments of any of its subsidiaries, (ii) except as contemplated
by Section 5.17, any loan or credit agreement, note, bond,
mortgage, indenture, trust document, lease or other agreement,
instrument, permit, concession, franchise, license or similar
authorization applicable to RSI or any of its subsidiaries or
their respective properties or assets or (iii) subject to the
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<PAGE>
governmental filings and other matters referred to in the fol-
lowing sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to RSI or any of its
subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such con-
flicts, violations, defaults, rights, losses, restrictions or
Liens that individually or in the aggregate would not (x) have
a material adverse effect on RSI or JPFI or (y) reasonably be
expected to impair the ability of RSI to perform its obliga-
tions under this Agreement and the Option Agreements. No con-
sent, approval, order or authorization of, action by or in re-
spect of, or registration, declaration or filing with, any fed-
eral, state, local or foreign government, any court, admin-
istrative, regulatory or other governmental agency, commission
or authority or any nongovernmental self-regulatory agency,
commission or authority (a "Governmental Entity") is required
by or with respect to RSI or any of its subsidiaries in con-
nection with the execution and delivery of this Agreement or
the Option Agreements by RSI or the consummation by RSI of the
transactions contemplated hereby and thereby, except for (1)
the filing of a pre-merger notification and report form by RSI
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"); (2) the filing with the SEC of (A)
a proxy statement relating to the RSI Stockholders Meeting (as
defined in Section 5.1(b)) (such proxy statement, together with
the proxy statement relating to the JPFI Stockholders Meeting
(as defined in Section 5.1(c)), in each case as amended or
supplemented from time to time, the "Joint Proxy Statement"),
and (B) such reports under Section 13(a), 13(d), 15(d) or 16(a)
of the Securities Exchange Act of 1934, as amended (the "Ex-
change Act"), as may be required in connection with this Agree-
ment, the Option Agreements and the transactions contemplated
hereby and thereby; (3) the filing of the Certificate of Merger
with the Secretary of State of Delaware and appropriate docu-
ments with the relevant authorities of other states in which
RSI is qualified to do business and such filings with Govern-
mental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; and (4) such consents, approv-
als, orders or authorizations the failure of which to be made
or obtained individually or in the aggregate would not (x) have
a material adverse effect on RSI or (y) reasonably be expected
to impair the ability of RSI to perform its obligations under
this Agreement. The entry into the Support Agreement by the
Stockholders (as defined in the Support Agreement) and the con-
summation of the transactions contemplated thereby has been
approved by the RSI Board of Directors in the manner contem-
plated by Section 3.1(a) of that certain Standstill Agreement
(the "Standstill Agreement"), dated as of May 17, 1996, by and
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<PAGE>
between RSI and the ML Entities (as defined therein). The en-
try into this Agreement and the consummation of the transac-
tions contemplated hereby has been agreed to by a majority of
the ML Directors (as defined in the Standstill Agreement) for
all purposes of the Standstill Agreement as may be relevant to
effecting the transactions contemplated by this Agreement and
the Support Agreement (including, without limitation, Section
2.2(a) thereof).
(e) SEC Documents; Undisclosed Liabilities. RSI has
filed all required registration statements, prospectuses, re-
ports, schedules, forms, statements and other documents (in-
cluding exhibits and all other information incorporated
therein) with the SEC since December 31, 1994 (the "RSI SEC
Documents"). As of their respective dates, the RSI SEC Docu-
ments complied in all material respects with the requirements
of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to
such RSI SEC Documents, and none of the RSI SEC Documents when
filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not mislead-
ing. The financial statements of RSI included in the RSI SEC
Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in ac-
cordance with GAAP (except, in the case of unaudited state-
ments, as permitted by Form 10-Q of the SEC) applied on a con-
sistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consoli-
dated financial position of RSI and its consolidated subsid-
iaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-
end audit adjustments). RSI has not treated as restructuring
charges any significant expenses that RSI would otherwise have
expensed against operating income in the ordinary course of
business. Except (i) as reflected in such financial statements
or in the notes thereto or (ii) for liabilities incurred in
connection with this Agreement, the Option Agreements or the
transactions contemplated hereby or thereby, neither RSI nor
any of its subsidiaries has any liabilities or obligations of
any nature which, individually or in the aggregate, would have
a material adverse effect on RSI.
(f) Information Supplied. None of the information
supplied or to be supplied by RSI specifically for inclusion or
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incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by JPFI in connection with
the issuance of JPFI Common Stock in the Merger (the "Form
S-4") will, at the time the Form S-4 becomes effective under
the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not mis-
leading or (ii) the Joint Proxy Statement will, at the date it
is first mailed to RSI's stockholders or at the time of the RSI
Stockholders Meeting, contain any untrue statement of a mate-
rial fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are
made, not misleading. The Joint Proxy Statement will comply as
to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except
that no representation or warranty is made by RSI with respect
to statements made or incorporated by reference therein based
on information supplied by JPFI specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except
for liabilities incurred in connection with this Agreement, the
Option Agreements or the transactions contemplated hereby and
thereby, and except as permitted by Section 4.1(a), since April
27, 1996, RSI and its subsidiaries have conducted their busi-
ness only in the ordinary course consistent with past practice
or as disclosed in any RSI SEC Document filed since such date
and prior to the date hereof, and there has not been (i) any
material adverse change (as defined in Section 8.3) in RSI,
(ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with
respect to any of RSI's capital stock, (iii) any split, combi-
nation or reclassification of any of RSI's capital stock or any
issuance or the authorization of any issuance of any other se-
curities in respect of, in lieu of or in substitution for
shares of RSI's capital stock, except for issuances of RSI Com-
mon Stock upon exercise or conversion of RSI Employee Stock
Options, in each case awarded prior to the date hereof in ac-
cordance with their present terms or issued pursuant to Section
4.1(a), (iv)(A) any granting by RSI or any of its subsidiaries
to any current or former director, executive officer or other
key employee of RSI or its subsidiaries of any increase in com-
pensation, bonus or other benefits, except for normal increases
as a result of promotions, normal increases of base pay in the
ordinary course of business or as was required under any em-
ployment agreements in effect as of April 27, 1996 or disclosed
in Section 3.1(i) of the RSI Disclosure Schedule, (B) any
granting by RSI or any of its subsidiaries to any such current
or former director, executive officer or key employee of any
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increase in severance or termination pay, or (C) any entry by
RSI or any of its subsidiaries into, or any amendment of, any
employment, deferred compensation, consulting, severance, ter-
mination or indemnification agreement with any such current or
former director, executive officer or key employee, (v) except
insofar as may have been disclosed in RSI SEC Documents filed
and publicly available prior to the date of this Agreement (as
amended to the date hereof, the "RSI Filed SEC Documents") or
required by a change in GAAP, any change in accounting methods,
principles or practices by RSI materially affecting its assets,
liabilities or business, (vi) except insofar as may have been
disclosed in the RSI Filed SEC Documents, any tax election that
individually or in the aggregate would have a material adverse
effect on RSI or any of its tax attributes or any settlement or
compromise of any material income tax liability, or (vii) any
action taken by RSI or any of the RSI subsidiaries during the
period from April 28, 1996 through the date of this Agreement
that, if taken during the period from the date of this Agree-
ment through the Effective Time, would constitute a breach of
Section 4.1(a).
(h) Compliance with Applicable Laws; Litigation.
(i) RSI, its subsidiaries and employees hold all permits, li-
censes, variances, exemptions, orders, registrations and ap-
provals of all Governmental Entities which are required for the
operation of the businesses of RSI and its subsidiaries (the
"RSI Permits"), except where the failure to have any such RSI
Permits individually or in the aggregate would not have a mate-
rial adverse effect on RSI. RSI and its subsidiaries are in
compliance with the terms of the RSI Permits and all applicable
statutes, laws, ordinances, rules and regulations, except where
the failure so to comply individually or in the aggregate would
not have a material adverse effect on RSI. As of the date of
this Agreement, except as disclosed in the RSI Filed SEC Docu-
ments, no action, demand, requirement or investigation by any
Governmental Entity and no suit, action or proceeding by any
person, in each case with respect to RSI or any of its subsid-
iaries or any of their respective properties, is pending or, to
the knowledge (as defined in Section 8.3) of RSI, threatened,
other than, in each case, those the outcome of which individu-
ally or in the aggregate would not (A) have a material adverse
effect on RSI or (B) reasonably be expected to impair the abil-
ity of RSI to perform its obligations under this Agreement or
the Option Agreements or prevent or materially delay the con-
summation of any of the transactions contemplated hereby or
thereby.
(ii) Neither RSI nor any RSI subsidiary is subject to
any outstanding order, injunction or decree which has had or,
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insofar as can be reasonably foreseen, individually or in the
aggregate will have, a material adverse effect on RSI.
(i) Absence of Changes in Benefit Plans. RSI has
delivered to JPFI true and complete copies of (i) all severance
and employment agreements of RSI with directors, executive of-
ficers or key employees, (ii) all severance programs and poli-
cies of each of RSI and each RSI subsidiary, and (iii) all
plans or arrangements of RSI and each RSI subsidiary relating
to its employees which contain change in control provisions, in
each case which has not been filed as an exhibit to a RSI Filed
SEC Document. Since April 27, 1996, there has not been any
adoption or amendment in any material respect by RSI or any of
its subsidiaries of any collective bargaining agreement, em-
ployment agreement, consulting agreement, severance agreement
or any material bonus, pension, profit sharing, deferred com-
pensation, incentive compensation, stock ownership, stock pur-
chase, stock option, phantom stock, retirement, vacation, sev-
erance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to
any current or former employee, officer or director of RSI or
any of its wholly owned subsidiaries (collectively, the "RSI
Benefit Plans"), or any material change in any actuarial or
other assumption used to calculate funding obligations with
respect to any RSI pension plans, or any material change in the
manner in which contributions to any RSI pension plans are made
or the basis on which such contributions are determined. Since
April 27, 1996, neither RSI nor any RSI subsidiary has amended
any RSI Employee Stock Options or any RSI Stock Plans to ac-
celerate the vesting of, or release restrictions on, awards
thereunder, or to provide for such acceleration in the event of
a change in control.
(j) ERISA Compliance. (i) With respect to the RSI
Benefit Plans, no event has occurred and, to the knowledge of
RSI, there exists no condition or set of circumstances, in con-
nection with which RSI or any of its subsidiaries could be sub-
ject to any liability that individually or in the aggregate
would have a material adverse effect on RSI under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
the Code or any other applicable law.
(ii) Each RSI Benefit Plan has been administered in
accordance with its terms, except for any failures so to admin-
ister any RSI Benefit Plan that individually or in the ag-
gregate would not have a material adverse effect on RSI. RSI,
its subsidiaries and all the RSI Benefit Plans have been oper-
ated, and are, in compliance with the applicable provisions of
ERISA, the Code and all other applicable laws and the terms of
all applicable collective bargaining agreements, except for any
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failures to be in such compliance that individually or in the
aggregate would not have a material adverse effect on RSI.
Each RSI Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the Internal Revenue Service ("IRS")
that it is so qualified and each trust established in connec-
tion with any RSI Benefit Plan that is intended to be exempt
from federal income taxation under Section 501(a) of the Code
has received a determination letter from the IRS that such
trust is so exempt. To the knowledge of RSI, no fact or event
has occurred since the date of any determination letter from
the IRS which is reasonably likely to affect adversely the
qualified status of any such RSI Benefit Plan or the exempt
status of any such trust.
(iii) Neither RSI nor any of its subsidiaries has in-
curred any unsatisfied liability under Title IV of ERISA (other
than liability for premiums to the Pension Benefit Guaranty
Corporation arising in the ordinary course). No RSI Benefit
Plan has incurred an "accumulated funding deficiency" (within
the meaning of Section 302 of ERISA or Section 412 of the Code)
whether or not waived. To the knowledge of RSI, there are not
any facts or circumstances that would materially change the
funded status of any RSI Benefit Plan that is a "defined ben-
efit" plan (as defined in Section 3(35) of ERISA) since the
date of the most recent actuarial report for such plan. Each
RSI Benefit Plan that is a "multiemployer plan" within the
meaning of Section 3(37) of ERISA is set forth on Section
3.1(j)(iii) of the RSI Disclosure Schedule.
(iv) With respect to each of the RSI Benefit Plans
(other than any multiemployer plan) that is subject to Title IV
of ERISA, the present value of accrued benefits under each such
plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such
plan's actuary with respect to such plan, did not, as of its
latest valuation date, exceed the then current value of the
aggregate assets of such plans allocable to such accrued bene-
fits in any material respect. With respect to any RSI Benefit
Plan that is a multiemployer plan, (A) neither RSI nor any of
its subsidiaries has any contingent liability under Section
4204 of ERISA, and no circumstances exist that present a mate-
rial risk that any such plan will go into reorganization, and
(B) the aggregate withdrawal liability of RSI and its subsid-
iaries, computed as if a complete withdrawal by RSI and any of
its subsidiaries had occurred under each such RSI Benefit Plan
on the date hereof, would not be material.
(v) No RSI Benefit Plan provides medical benefits
(whether or not insured), with respect to current or former
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employees after retirement or other termination of service
(other than coverage mandated by applicable law or benefits,
the full cost of which is borne by the current or former em-
ployee) other than individual arrangements the amounts of which
are not material.
(vi) RSI has previously provided to JPFI a copy of
each collective bargaining or other labor union contract ap-
plicable to persons employed by RSI or any of its subsidiaries
to which RSI or any of its subsidiaries is a party. No collec-
tive bargaining agreement is being negotiated or renegotiated
by RSI or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage
against RSI or any of its subsidiaries pending or, to the
knowledge of RSI, threatened which may interfere with the re-
spective business activities of RSI or any of its subsidiaries,
except where such dispute, strike or work stoppage individually
or in the aggregate would not have a material adverse effect on
RSI. As of the date of this Agreement, to the knowledge of
RSI, none of RSI, any of its subsidiaries or any of their re-
spective representatives or employees has committed any mate-
rial unfair labor practice in connection with the operation of
the respective businesses of RSI or any of its subsidiaries,
and there is no material charge or complaint against RSI or any
of its subsidiaries by the National Labor Relations Board or
any comparable governmental agency pending or threatened in
writing.
(vii) No employee of RSI will be entitled to any mate-
rial payment, additional benefits or any acceleration of the
time of payment or vesting of any benefits under any RSI Ben-
efit Plan as a result of the transactions contemplated by this
Agreement (either alone or in conjunction with any other event
such as a termination of employment), except that substantially
all RSI Employee Stock Options will vest as of the date on
which RSI Stockholder Approval is obtained.
(k) Taxes. (i) Each of RSI and its subsidiaries
has filed all material tax returns and reports required to be
filed by it (taking into account all applicable extensions) and
all such returns and reports are complete and correct in all
material respects, or requests for extensions to file such re-
turns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file, to be
complete or correct or to have extensions granted that remain
in effect individually or in the aggregate would not have a
material adverse effect on RSI. RSI and each of its subsidiar-
ies has paid (or RSI has paid or caused to be paid on its be-
half) all taxes (as defined herein) shown as due on such re-
turns, and the most recent financial statements contained in
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the RSI Filed SEC Documents reflect an adequate reserve in ac-
cordance with GAAP for all taxes payable by RSI and its subsid-
iaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(ii) No deficiencies for any taxes have, to the
knowledge of RSI, been proposed, asserted or assessed against
RSI or any of its subsidiaries that are not adequately reserved
for, except for deficiencies that individually or in the ag-
gregate would not have a material adverse effect on RSI. The
federal income tax returns of RSI and each of its subsidiaries
consolidated in such returns for tax years through 1993 (1992
in the case of U.S. Foodservice and its subsidiaries) have
closed by virtue of the applicable statute of limitations.
(iii) Neither RSI nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger
from qualifying as a reorganization within the meaning of Sec-
tion 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include
all (x) federal, state, local or foreign income, property,
sales, excise and other taxes or similar governmental charges,
including any interest, penalties or additions with respect
thereto, (y) liability for the payment of any amounts of the
type described in (x) as a result of being a member of an af-
filiated, consolidated, combined or unitary group, and (z) li-
ability for the payment of any amounts described in (x) or (y)
as a result of being party to any tax sharing agreement or as a
result of any express or implied obligation to indemnify any
other person with respect to the payment of any amounts of the
type described in clause (x) or (y).
(l) Voting Requirements. The affirmative vote at
the RSI Stockholders Meeting (the "RSI Stockholder Approval")
of the holders of a majority of all outstanding shares of RSI
Common Stock to adopt this Agreement is the only vote of the
holders of any class or series of RSI's capital stock necessary
to approve and adopt this Agreement and the transactions con-
templated hereby, including the Merger.
(m) State Takeover Statutes; Certain Provisions of
RSI Certificate. The Board of Directors of RSI has adopted a
resolution or resolutions approving this Agreement and the Op-
tion Agreements and the transactions contemplated hereby and
thereby and, assuming the accuracy of JPFI's representation and
warranty contained in Section 3.2(q), (a) such approval consti-
tutes approval of the Merger and the other transactions contem-
plated hereby and by the Option Agreements by the RSI Board of
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Directors under (i) the provisions of Section 203 of the DGCL
such that Section 203 of the DGCL does not apply to this Agree-
ment, the Option Agreements and the transactions contemplated
hereby and thereby and (ii) Section A.2. of Article Fourteenth
of the RSI Certificate such that the 80% vote otherwise re-
quired by Article Fourteenth does not apply to this Agreement,
the Option Agreements or the transactions contemplated hereby
or thereby; and (b) for purposes of Article Twelfth of the RSI
Certificate ("Article Twelfth"), such approval constitutes ap-
proval of this Agreement and the Option Agreements and the
transactions contemplated hereby and thereby (and the RSI Board
of Directors has conclusively determined, pursuant to Article
Twelfth, that such agreements together constitute the "memoran-
dum of understanding" contemplated by Article Twelfth) for pur-
poses of Section B of Article Twelfth such that the 80% vote
otherwise required by Article Twelfth does not apply to this
Agreement, the Option Agreements or the transactions contem-
plated hereby or thereby. To the knowledge of RSI, except for
Section 203 of the DGCL (which has been rendered inapplicable),
no state takeover statute is applicable to the Merger or the
other transactions contemplated hereby.
(n) Accounting Matters. To its knowledge, neither
RSI nor any of its affiliates (as such term is used in Section
5.10) has taken or agreed to take any action (including, with-
out limitation, in connection with any RSI Stock Plan or any
agreement thereunder) that would prevent the business combi-
nation to be effected by the Merger from being accounted for as
a "pooling of interests" and RSI has no reason to believe that
the Merger will not qualify for "pooling of interests" account-
ing.
(o) Brokers. No broker, investment banker, finan-
cial advisor or other person other than Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Wasserstein
Perella & Co., Inc. ("Wasserstein") , the fees and expenses of
which will be paid by RSI, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commis-
sion in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of RSI.
RSI has furnished to JPFI true and complete copies of all
agreements under which any such fees or expenses are payable
and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(p) Opinions of Financial Advisors. RSI has re-
ceived the opinions of Merrill Lynch and Wasserstein, each
dated the date of this Agreement, to the effect that, as of
such date, the Exchange Ratio for the conversion of RSI Common
Stock into JPFI Common Stock is fair from a financial point of
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<PAGE>
view to holders of shares of RSI Common Stock (other than JPFI
and its affiliates), signed copies of which opinions have been
delivered to JPFI, it being understood and agreed by JPFI that
such opinions are for the benefit of the Board of Directors of
RSI and may not be relied upon by JPFI, its affiliates or any
of their respective stockholders.
(q) Ownership of JPFI Common Stock. To the knowl-
edge of RSI, as of the date hereof (and before giving effect to
the JPFI Option Agreement, which will be entered into im-
mediately after the execution of this Agreement), neither RSI
nor, to its knowledge without independent investigation, any of
its affiliates, (i) beneficially owns (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, or (ii) is
party to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of, in each
case, shares of capital stock of JPFI.
(r) Intellectual Property. RSI and its subsidiaries
own or have a valid license to use all trademarks, service
marks, trade names, patents and copyrights (including any reg-
istrations or applications for registration of any of the fore-
going) (collectively, the "RSI Intellectual Property") neces-
sary to carry on its business substantially as currently con-
ducted except for such RSI Intellectual Property the failure of
which to own or validly license individually or in the ag-
gregate would not have a material adverse effect on RSI. Nei-
ther RSI nor any such subsidiary has received any notice of in-
fringement of or conflict with, and, to RSI's knowledge, there
are no infringements of or conflicts (i) with the rights of
others with respect to the use of, or (ii) by others with re-
spect to, any RSI Intellectual Property that individually or in
the aggregate, in either such case, would have a material ad-
verse effect on RSI.
(s) Certain Contracts. Except as set forth in the
RSI Filed SEC Documents, neither RSI nor any of its subsidiar-
ies is a party to or bound by (i) any "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of
the SEC), (ii) any non-competition agreement or any other
agreement or obligation which purports to limit in any material
respect the manner in which, or the localities in which, all or
any material portion of the business of RSI and its subsidiar-
ies (including, for purposes of this Section 3.1(s), JPFI and
its subsidiaries, assuming the Merger has taken place), taken
as a whole, is or would be conducted, (iii) any exclusive sup-
ply or purchase contracts or any exclusive requirements con-
tracts or (iv) any contract or other agreement which would pro-
hibit or materially delay the consummation of the Merger or any
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<PAGE>
of the transactions contemplated by this Agreement (all con-
tracts of the type described in clauses (i) and (ii) being re-
ferred to herein as "RSI Material Contracts"). RSI has deliv-
ered to JPFI, prior to the execution of this Agreement, com-
plete and correct copies of all RSI Material Contracts not
filed as exhibits to the RSI Filed SEC Documents. Each RSI
Material Contract is valid and binding on RSI (or, to the ex-
tent a RSI subsidiary is a party, such subsidiary) and is in
full force and effect, and RSI and each RSI subsidiary have in
all material respects performed all obligations required to be
performed by them to date under each RSI Material Contract,
except where such noncompliance, individually or in the ag-
gregate, would not have a material adverse effect on RSI. Nei-
ther RSI nor any RSI subsidiary knows of, or has received no-
tice of, any violation or default under (nor, to the knowledge
of RSI, does there exist any condition which with the passage
of time or the giving of notice or both would result in such a
violation or default under) any RSI Material Contract.
(t) RSI Rights Agreement. RSI has taken all action
(including, if required, redeeming all of the outstanding pre-
ferred stock purchase rights issued pursuant to the RSI Rights
Agreement or amending the RSI Rights Agreement) so that the
entering into of this Agreement, the RSI Option Agreement and
the Support Agreement, the Merger, the acquisition of shares
pursuant to the RSI Option Agreement and the other transactions
contemplated hereby and thereby do not and will not result in
the grant of any rights to any person under the RSI Rights
Agreement or enable or require the RSI Rights to be exercised,
distributed or triggered.
(u) Environmental Liability. There are no legal,
administrative, arbitral or other proceedings, claims, actions,
causes of action, private environmental investigations or reme-
diation activities or governmental investigations of any nature
pending or threatened against RSI or any of its subsidiaries
seeking to impose, or that could reasonably be expected to re-
sult in the imposition of, on RSI or any of its subsidiaries,
any liability or obligation arising under common law or under
any local, state or federal environmental statute, regulation
or ordinance, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), which liability or obligation could rea-
sonably be expected to have a material adverse effect on RSI.
To the knowledge of RSI, there is no reasonable basis for any
such proceeding, claim, action or governmental investigation
that would impose any liability or obligation that could rea-
sonably be expected to have a material adverse effect on RSI.
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<PAGE>
SECTION 3.2. Representations and Warranties of JPFI
and Merger Sub. Except as disclosed in the Disclosure Schedule
delivered by JPFI and Merger Sub to RSI prior to the execution
of this Agreement (the "JPFI Disclosure Schedule") and making
reference to the particular subsection of this Agreement to
which exception is being taken, JPFI and Merger Sub jointly and
severally represent and warrant to RSI as follows:
(a) Organization, Standing and Corporate Power. (i)
Each of JPFI and its subsidiaries is a corporation or other le-
gal entity duly organized, validly existing and in good stand-
ing (with respect to jurisdictions which recognize such con-
cept) under the laws of the jurisdiction in which it is orga-
nized and has the requisite corporate or other power, as the
case may be, and authority to carry on its business as now be-
ing conducted, except, as to subsidiaries, for those jurisdic-
tions where the failure to be so organized, existing or in good
standing individually or in the aggregate would not have a ma-
terial adverse effect on JPFI. Each of JPFI and its subsidiar-
ies is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions which recognize such
concept) in each jurisdiction in which the nature of its busi-
ness or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or
licensed or to be in good standing individually or in the ag-
gregate would not have a material adverse effect on JPFI.
(ii) JPFI has delivered to RSI prior to the execution
of this Agreement complete and correct copies of any amendments
to its certificate of incorporation (the "JPFI Certificate")
and by-laws not filed as of the date hereof with the JPFI Filed
SEC Documents (as defined in Section 3.2(g)).
(iii) In all material respects, the minute books of
JPFI and its subsidiaries contain accurate records of all meet-
ings and accurately reflect all other actions taken by the
stockholders, the Board of Directors and all committees of the
Board of Directors of JPFI (or, as the case may be, each of its
subsidiaries) since January 1, 1995.
(b) Subsidiaries. Exhibit 21 to JPFI's Annual Re-
port on Form 10-K for the fiscal year ended June 29, 1996 in-
cludes all the subsidiaries of JPFI which as of the date of
this Agreement are Significant Subsidiaries. All the outstand-
ing shares of capital stock of, or other equity interests in,
each such Significant Subsidiary have been validly issued and
are fully paid and nonassessable and are owned directly or in-
directly by JPFI, free and clear of all Liens and free of any
other restriction (including any restriction on the right to
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<PAGE>
vote, sell or otherwise dispose of such capital stock or other
ownership interests).
(c) Capital Structure. The authorized capital stock
of JPFI consists of 75,000,000 shares of JPFI Common Stock and
5,000,000 shares of preferred stock, par value $.01 per share
("JPFI Preferred Stock"). At the close of business on June 24,
1997: (i) 22,588,688.61 shares of JPFI Common Stock were is-
sued and outstanding (including shares of restricted JPFI Com-
mon Stock); (ii) no shares of JPFI Common Stock were held by
JPFI in its treasury; (iii) no shares of JPFI Preferred Stock
were issued and outstanding; (iv) 4,264,329 shares of JPFI Com-
mon Stock were reserved for issuance pursuant to all stock op-
tion, restricted stock or other stock-based compensation, ben-
efits or savings plans, agreements or arrangements in which
current or former employees or directors of JPFI or its subsid-
iaries participate as of the date hereof, including, without
limitation, the JPFI 1994 Stock Incentive Plan, the JPFI Stock
Option Plan for Outside Directors and the JPFI 1994 Employee
Stock Purchase Plan, complete and correct copies of which, in
each case as amended as of the date hereof, have been filed
with the JPFI Filed SEC Documents or delivered to RSI (such
plans, collectively, the "JPFI Stock Plans"); and (v) 350,000
shares of JPFI Preferred Stock were reserved for issuance upon
exercise of preferred share purchase rights issued pursuant to
the Rights Agreement, dated as of February 19, 1996, between
JPFI and The Bank of New York, as rights agent (the "JPFI
Rights Agreement"). Section 3.2(c) of the JPFI Disclosure
Schedule sets forth a complete and correct list, as of June 24,
1997, of the number of shares of JPFI Common Stock subject to
employee stock options or other rights to purchase or receive
JPFI Common Stock granted under the JPFI Stock Plans (col-
lectively, "JPFI Employee Stock Options"), the dates of grant
and exercise prices thereof. All outstanding shares of capital
stock of JPFI are, and all shares which may be issued pursuant
to this Agreement or otherwise will be, when issued, duly au-
thorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. Except as set forth in this Sec-
tion 3.2(c), and except for changes since June 24, 1997 re-
sulting from the issuance of shares of JPFI Common Stock pur-
suant to the JPFI Employee Stock Options or as expressly per-
mitted by this Agreement, (x) there are not issued, reserved
for issuance or outstanding (A) any shares of capital stock or
other voting securities of JPFI, (B) any securities of JPFI or
any JPFI subsidiary convertible into or exchangeable or exer-
cisable for shares of capital stock or voting securities of
JPFI, (C) any warrants, calls, options or other rights to ac-
quire from JPFI or any JPFI subsidiary, and any obligation of
JPFI or any JPFI subsidiary to issue, any capital stock, voting
securities or securities convertible into or exchangeable or
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<PAGE>
exercisable for capital stock or voting securities of JPFI, and
(y) there are no outstanding obligations of JPFI or any JPFI
subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. There are no outstand-
ing (A) securities of JPFI or any JPFI subsidiary convertible
into or exchangeable or exercisable for shares of capital stock
or other voting securities or ownership interests in any JPFI
subsidiary, (B) warrants, calls, options or other rights to
acquire from JPFI or any JPFI subsidiary, and any obligation of
JPFI or any JPFI subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any JPFI
subsidiary or (C) obligations of JPFI or any JPFI subsidiary to
repurchase, redeem or otherwise acquire any such outstanding
securities of JPFI subsidiaries or to issue, deliver or sell,
or cause to be issued, delivered or sold, any such securities.
Neither JPFI nor any JPFI subsidiary is a party to any agree-
ment restricting the purchase or transfer of, relating to the
voting of, requiring registration of, or granting any preemp-
tive or, except as provided by the terms of the JPFI Employee
Stock Options, antidilutive rights with respect to, any securi-
ties of the type referred to in the two preceding sentences.
Other than the JPFI subsidiaries, JPFI does not directly or
indirectly beneficially own any securities or other beneficial
ownership interests in any other entity except for non-
controlling investments made in the ordinary course of business
in entities which are not individually or in the aggregate ma-
terial to JPFI and its subsidiaries as a whole.
(d) Authority; Noncontravention. Each of JPFI and
Merger Sub has all requisite corporate power and authority to
enter into this Agreement, and JPFI has all requisite corporate
power and authority to enter into the Option Agreements and the
Support Agreement and, subject to the JPFI Stockholder Approval
(as defined in Section 3.2(l)), to consummate the transactions
contemplated hereby and thereby. The execution and delivery of
this Agreement by each of JPFI and Merger Sub, and the execu-
tion and delivery of the Option Agreements and the Support
Agreement by JPFI and the consummation by JPFI and Merger Sub
of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part
of JPFI and Merger Sub, subject, in the case of the Merger and
the issuance of JPFI Common Stock in connection with the
Merger, to the JPFI Stockholder Approval. This Agreement has
been, and the Support Agreement and Option Agreements will be,
duly executed and delivered by JPFI (and, in the case of this
Agreement, by Merger Sub) and, assuming the due authorization,
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<PAGE>
execution and delivery thereof by RSI, constitute (or will con-
stitute, as the case may be) the legal, valid and binding obli-
gation of JPFI (and, in the case of this Agreement, Merger
Sub), enforceable against JPFI (and, in the case of this Agree-
ment, Merger Sub) in accordance with their terms. The execu-
tion and delivery of this Agreement does not, and the execution
and delivery of the Option Agreements and the consummation of
the transactions contemplated hereby and thereby and compliance
with the provisions of this Agreement, the Support Agreement
and the Option Agreements will not, conflict with, or result in
any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termina-
tion, cancellation or acceleration of any obligation or loss of
a benefit under, or result in the creation of any Lien upon any
of the properties or assets of JPFI or any of its subsidiaries
or (assuming the consummation of the transactions contemplated
hereby without giving effect to Section 1.7) in any restriction
on the conduct of JPFI's business or operations under, (i) the
JPFI Certificate or the by-laws of JPFI or the comparable orga-
nizational documents of any of its subsidiaries, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, trust
document, lease or other agreement, instrument, permit, conces-
sion, franchise, license or similar authorization applicable to
JPFI or any of its subsidiaries or their respective properties
or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any judg-
ment, order, decree, statute, law, ordinance, rule or regula-
tion applicable to JPFI or any of its subsidiaries or their
respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, de-
faults, rights, losses, restrictions or Liens that individually
or in the aggregate would not (x) have a material adverse ef-
fect on JPFI or (y) reasonably be expected to impair the abil-
ity of JPFI or Merger Sub to perform its obligations under this
Agreement (and, in the case of JPFI individually, under the
Option Agreements and the Support Agreement). No consent, ap-
proval, order or authorization of, action by, or in respect of,
or registration, declaration or filing with, any Governmental
Entity is required by or with respect to JPFI or any of its
subsidiaries in connection with the execution and delivery of
this Agreement by JPFI and Merger Sub, or the execution and
delivery by JPFI of the Option Agreements and the Support
Agreement, or the consummation by JPFI or Merger Sub of the
transactions contemplated hereby or thereby, except for (1) the
filing of a pre-merger notification and report form by JPFI
under the HSR Act; (2) the filing with the SEC of (A) the Joint
Proxy Statement relating to the JPFI Stockholders Meeting, (B)
the Form S-4 and (C) such reports under Section 13(a), 13(d),
15(d) or 16(a) of the Exchange Act as may be required in con-
nection with this Agreement and the Option Agreements and the
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<PAGE>
transactions contemplated hereby and thereby; (3) the filing of
the Certificate of Merger with the Secretary of State of Dela-
ware and appropriate documents with the relevant authorities of
other states in which JPFI is qualified to do business and such
filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; (4) such
filings with and approvals of the NYSE to permit the shares of
JPFI Common Stock that are to be issued in the Merger and under
the RSI Stock Plans to be listed on the NYSE; and (5) such con-
sents, approvals, orders or authorizations the failure of which
to be made or obtained individually or in the aggregate would
not (x) have a material adverse effect on JPFI or (y) reason-
ably be expected to impair the ability of JPFI or Merger Sub to
perform its obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. JPFI
has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents (in-
cluding exhibits and all other information incorporated
therein) with the SEC since December 31, 1994 (the "JPFI SEC
Documents"). As of their respective dates, the JPFI SEC Docu-
ments complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder
applicable to such JPFI SEC Documents, and none of the JPFI SEC
Documents when filed contained any untrue statement of a mate-
rial fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The financial statements of JPFI in-
cluded in the JPFI SEC Documents comply as to form, as of their
respective dates of filing with the SEC, in all material re-
spects with applicable accounting requirements and the pub-
lished rules and regulations of the SEC with respect thereto,
have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (ex-
cept as may be indicated in the notes thereto) and fairly
present the consolidated financial position of JPFI and its
consolidated subsidiaries as of the dates thereof and the con-
solidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited state-
ments, to normal year-end audit adjustments). JPFI has not
treated as restructing charges any significant expenses that
JPFI would otherwise have expensed against operating income in
the ordinary course of business. Except (i) as reflected in
such financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement, the
Option Agreements or the transactions contemplated hereby or
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thereby, neither JPFI nor any of its subsidiaries has any li-
abilities or obligations of any nature which, individually or
in the aggregate, would have a material adverse effect on JPFI.
(f) Information Supplied. None of the information
supplied or to be supplied by JPFI specifically for inclusion
or incorporation by reference in (i) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or neces-
sary to make the statements therein not misleading or (ii) the
Joint Proxy Statement will, at the date it is first mailed to
JPFI's stockholders or at the time of the JPFI Stockholders
Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
The Form S-4 and the Joint Proxy Statement will comply as to
form in all material respects with the requirements of the Se-
curities Act and the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made
by JPFI with respect to statements made or incorporated by ref-
erence therein based on information supplied by RSI specifi-
cally for inclusion or incorporation by reference in the Form
S-4 or the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except
for liabilities incurred in connection with this Agreement, the
Option Agreements or the transactions contemplated hereby or
thereby, and except as permitted by Section 4.1(b), since June
29, 1996, JPFI and its subsidiaries have conducted their busi-
ness only in the ordinary course consistent with past practice
or as disclosed in any JPFI SEC Document filed since such date
and prior to the date hereof, and there has not been (i) any
material adverse change in JPFI, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether
in cash, stock or property) with respect to any of JPFI's capi-
tal stock, (iii) any split, combination or reclassification of
any of JPFI's capital stock or any issuance or the authoriza-
tion of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of JPFI's capital stock,
except for issuances of JPFI Common Stock upon exercise or con-
version of JPFI Employee Stock Options, in each case awarded
prior to the date hereof in accordance with their present terms
or issued pursuant to Section 4.1(b), (iv)(A) any granting by
JPFI or any of its subsidiaries to any current or former direc-
tor, executive officer or other key employee of JPFI or its
subsidiaries of any increase in compensation, bonus or other
benefits, except for normal increases as a result of promo-
tions, normal increases of base pay in the ordinary course of
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business or as was required under any employment agreements in
effect as of June 29, 1996, (B) any granting by JPFI or any of
its subsidiaries to any such current or former director, execu-
tive officer or key employee of any increase in severance or
termination pay, or (C) any entry by JPFI or any of its subsid-
iaries into, or any amendment of, any employment, deferred com-
pensation, consulting, severance, termination or indemnifica-
tion agreement with any such current or former director, execu-
tive officer or key employee, (v) except insofar as may have
been disclosed in JPFI SEC Documents filed and publicly avail-
able prior to the date of this Agreement (as amended to the
date hereof, the "JPFI Filed SEC Documents") or required by a
change in GAAP, any change in accounting methods, principles or
practices by JPFI materially affecting its assets, liabilities
or business, (vi) except insofar as may have been disclosed in
the JPFI Filed SEC Documents, any tax election that individu-
ally or in the aggregate would have a material adverse effect
on JPFI or any of its tax attributes or any settlement or com-
promise of any material income tax liability or (vii) any ac-
tion taken by JPFI or any of the JPFI subsidiaries during the
period from June 30, 1996 through the date of this Agreement
that, if taken during the period from the date of this Agree-
ment through the Effective Time, would constitute a breach of
Section 4.1(b).
(h) Compliance with Applicable Laws; Litigation.
(i) JPFI, its subsidiaries and employees hold all permits, li-
censes, variances, exemptions, orders, registrations and ap-
provals of all Governmental Entities which are required for the
operation of the businesses of JPFI and its subsidiaries (the
"JPFI Permits") except where the failure to have any such JPFI
Permits individually or in the aggregate would not have a mate-
rial adverse effect on JPFI. JPFI and its subsidiaries are in
compliance with the terms of the JPFI Permits and all ap-
plicable statutes, laws, ordinances, rules and regulations,
except where the failure so to comply individually or in the
aggregate would not have a material adverse effect on JPFI. As
of the date of this Agreement, except as disclosed in the JPFI
Filed SEC Documents, no action, demand, requirement or investi-
gation by any Governmental Entity and no suit, action or pro-
ceeding by any person, in each case with respect to JPFI or any
of its subsidiaries or any of their respective properties, is
pending or, to the knowledge of JPFI, threatened, other than,
in each case, those the outcome of which individually or in the
aggregate would not (A) have a material adverse effect on JPFI
or (B) reasonably be expected to impair the ability of JPFI or
Merger Sub to perform its obligations under this Agreement or
the Option Agreements or prevent or materially delay the con-
summation of any of the transactions contemplated hereby or
thereby.
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(ii) Neither JPFI nor any JPFI subsidiary is subject
to any outstanding order, injunction or decree which has had
or, insofar as can be reasonably foreseen, individually or in
the aggregate will have, a material adverse effect on JPFI.
(i) Absence of Changes in Benefit Plans. JPFI has
delivered to RSI true and complete copies of (i) all severance
and employment agreements of JPFI with directors, executive of-
ficers or key employees, (ii) all severance programs and poli-
cies of each of JPFI and each JPFI subsidiary, and (iii) all
plans or arrangements of JPFI and each JPFI subsidiary relating
to its employees which contain change in control provisions, in
each case which has not been filed as an exhibit to the JPFI
Filed SEC Documents. Since June 29, 1996, there has not been
any adoption or amendment in any material respect by JPFI or
any of its subsidiaries of any collective bargaining agreement,
employment agreement, consulting agreement, severance agreement
or any material bonus, pension, profit sharing, deferred com-
pensation, incentive compensation, stock ownership, stock pur-
chase, stock option, phantom stock, retirement, vacation, sev-
erance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to
any current or former employee, officer or director of JPFI or
any of its wholly owned subsidiaries (collectively, the "JPFI
Benefit Plans"), or any material change in any actuarial or
other assumption used to calculate funding obligations with
respect to any JPFI pension plans, or any material change in
the manner in which contributions to any JPFI pension plans are
made or the basis on which such contributions are determined.
Since June 29, 1996, neither JPFI nor any JPFI subsidiary has
amended any JPFI Employee Stock Options or any JPFI Stock Plans
to accelerate the vesting of, or release restrictions on,
awards thereunder, or to provide for such acceleration in the
event of a change in control.
(j) ERISA Compliance. (i) With respect to the JPFI
Benefit Plans, no event has occurred and, to the knowledge of
JPFI, there exists no condition or set of circumstances, in
connection with which JPFI or any of its subsidiaries could be
subject to any liability that individually or in the aggregate
would have a material adverse effect on JPFI under ERISA, the
Code or any other applicable law.
(ii) Each JPFI Benefit Plan has been administered in
accordance with its terms, except for any failures so to admin-
ister any JPFI Benefit Plan that individually or in the ag-
gregate would not have a material adverse effect on JPFI.
JPFI, its subsidiaries and all the JPFI Benefit Plans have been
operated, and are, in compliance with the applicable provisions
of ERISA, the Code and all other applicable laws and the terms
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of all applicable collective bargaining agreements, except for
any failures to be in such compliance that individually or in
the aggregate would not have a material adverse effect on JPFI.
Each JPFI Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and
each trust established in connection with any JPFI Benefit Plan
that is intended to be exempt from federal income taxation un-
der Section 501(a) of the Code has received a determination
letter from the IRS that such trust is so exempt. To the
knowledge of JPFI, no fact or event has occurred since the date
of any determination letter from the IRS which is reasonably
likely to affect adversely the qualified status of any such
JPFI Benefit Plan or the exempt status of any such trust.
(iii) Neither JPFI nor any of its subsidiaries has in-
curred any unsatisfied liability under Title IV of ERISA (other
than liability for premiums to the Pension Benefit Guaranty
Corporation arising in the ordinary course). No JPFI Benefit
Plan has incurred an "accumulated funding deficiency" (within
the meaning of Section 302 of ERISA or Section 412 of the Code)
whether or not waived. To the knowledge of JPFI, there are not
any facts or circumstances that would materially change the
funded status of any JPFI Benefit Plan that is a "defined ben-
efit" plan (as defined in Section 3(35) of ERISA) since the
date of the most recent actuarial report for such plan.
(iv) With respect to each of the JPFI Benefit Plans
(other than any multiemployer plan) that is subject to Title IV
of ERISA, the present value of accrued benefits under each such
plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such
plan's actuary with respect to such plan, did not, as of its
latest valuation date, exceed the then current value of the
aggregate assets of such plans allocable to such accrued bene-
fits in any material respect. With respect to any JPFI Benefit
Plan that is a multiemployer plan, (A) neither JPFI nor any of
its subsidiaries has any contingent liability under Section
4204 of ERISA, and no circumstances exist that present a mate-
rial risk that any such plan will go into reorganization, and
(B) the aggregate withdrawal liability of JPFI and its subsid-
iaries, computed as if a complete withdrawal by JPFI and any of
its subsidiaries had occurred under each such JPFI Benefit Plan
on the date hereof, would not be material.
(v) No JPFI Benefit Plan provides medical benefits
(whether or not insured), with respect to current or former
employees after retirement or other termination of service
(other than coverage mandated by applicable law or benefits,
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the full cost of which is borne by the current or former em-
ployee) other than individual arrangements the amounts of which
are not material.
(vi) JPFI has previously provided to RSI a copy of
each collective bargaining or other labor union contract ap-
plicable to persons employed by JPFI or any of its subsidiaries
to which JPFI or any of its subsidiaries is a party. No col-
lective bargaining agreement is being negotiated or renegoti-
ated by JPFI or any of its subsidiaries. As of the date of
this Agreement, there is no labor dispute, strike or work stop-
page against JPFI or any of its subsidiaries pending or, to the
knowledge of JPFI, threatened which may interfere with the re-
spective business activities of JPFI or any of its subsidiar-
ies, except where such dispute, strike or work stoppage indi-
vidually or in the aggregate would not have a material adverse
effect on JPFI. As of the date of this Agreement, to the
knowledge of JPFI, none of JPFI, any of its subsidiaries or any
of their respective representatives or employees has committed
any material unfair labor practice in connection with the op-
eration of the respective businesses of JPFI or any of its sub-
sidiaries, and there is no material charge or complaint against
JPFI or any of its subsidiaries by the National Labor Relations
Board or any comparable governmental agency pending or threat-
ened in writing.
(vii) No employee of JPFI will be entitled to any ma-
terial payment, additional benefits or any acceleration of the
time of payment or vesting of any benefits under any JPFI Ben-
efit Plan as a result of the transactions contemplated by this
Agreement (either alone or in conjunction with any other event
such as a termination of employment).
(k) Taxes. (i) Each of JPFI and its subsidiaries
has filed all material tax returns and reports required to be
filed by it (taking into account applicable extensions) and all
such returns and reports are complete and correct in all mate-
rial respects, or requests for extensions to file such returns
or reports have been timely filed, granted and have not ex-
pired, except to the extent that such failures to file, to be
complete or correct or to have extensions granted that remain
in effect individually or in the aggregate would not have a
material adverse effect on JPFI. JPFI and each of its subsid-
iaries has paid (or JPFI has paid or caused to be paid on its
behalf) all taxes shown as due on such returns, and the most
recent financial statements contained in the JPFI Filed SEC
Documents reflect an adequate reserve in accordance with GAAP
for all taxes payable by JPFI and its subsidiaries for all tax-
able periods and portions thereof accrued through the date of
such financial statements.
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(ii) No deficiencies for any taxes have, to the
knowledge of JPFI, been proposed, asserted or assessed against
JPFI or any of its subsidiaries that are not adequately re-
served for, except for deficiencies that individually or in the
aggregate would not have a material adverse effect on JPFI.
None of the federal income tax returns of JPFI and each of its
subsidiaries consolidated in such returns have closed by virtue
of the applicable statute of limitations.
(iii) Neither JPFI nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger
from qualifying as a reorganization within the meaning of Sec-
tion 368(a) of the Code.
(l) Voting Requirements. The affirmative vote at
the JPFI Stockholders Meeting (the "JPFI Stockholder Approval")
of the holders of a majority of shares of JPFI Common Stock
present in person or by proxy at a duly convened and held meet-
ing of JPFI stockholders is the only vote of the holders of any
class or series of JPFI's capital stock necessary to approve
and adopt this Agreement and the transactions contemplated
hereby, including the Merger and the issuance of the JPFI Com-
mon Stock pursuant to the Merger.
(m) State Takeover Statutes; Certificate of Incorpo-
ration. The Board of Directors of JPFI has approved this
Agreement, the Option Agreements, the Support Agreement and the
transactions contemplated hereby and thereby, and, assuming the
accuracy of RSI's representation and warranty contained in Sec-
tion 3.1(q), such approval constitutes approval of the Merger
and the other transactions contemplated hereby and thereby by
the JPFI Board of Directors under the provisions of Section 203
of the DGCL such that Section 203 does not apply to this Agree-
ment, the Option Agreements, the Support Agreement or the
transactions contemplated hereby and thereby. To the knowledge
of JPFI, no state takeover statute other than Section 203 of
the DGCL (which has been rendered inapplicable) is applicable
to the Merger or the other transactions contemplated hereby.
(n) Accounting Matters. To its knowledge, neither
JPFI nor any of its affiliates (as such term is used in Section
5.10) has taken or agreed to take any action (including, with-
out limitation, in connection with any JPFI Stock Plan or any
agreement thereunder) that would prevent the business combina-
tion to be effected by the Merger from being accounted for as a
pooling of interests, and JPFI has no reason to believe that
the Merger will not qualify for "pooling of interest" account-
ing.
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(o) Brokers. No broker, investment banker, finan-
cial advisor or other person, other than Goldman Sachs & Co.
("Goldman"), Smith Barney Inc. ("Smith Barney") and PaineWebber
Inc., the fees and expenses of which will be paid by JPFI, is
entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transac-
tions contemplated by this Agreement based upon arrangements
made by or on behalf of JPFI. JPFI has furnished to RSI true
and complete copies of all agreements under which any such fees
or expenses are payable and all indemnification and other
agreements related to the engagement of the persons to whom
such fees are payable.
(p) Opinions of Financial Advisors. JPFI has re-
ceived the opinions of Goldman and Smith Barney, each dated the
date of this Agreement, each to the effect that, as of such
date, the Exchange Ratio for the conversion of RSI Common Stock
into JPFI Common Stock is fair from a financial point of view
to JPFI, signed copies of which opinions have been delivered to
RSI, it being understood and agreed by RSI that such opinions
are for the benefit of the Board of Directors of JPFI and may
not be relied upon by RSI, its affiliates or any of their re-
spective stockholders.
(q) Ownership of RSI Common Stock. To the knowledge
of JPFI, as of the date hereof or at any time within twelve
months prior to the date of this Agreement (and before giving
effect to the RSI Option Agreement, which will be entered into
immediately after the execution of this Agreement) neither JPFI
nor, to its knowledge without independent investigation, any of
its affiliates, (i) beneficially owns (as defined in either
Rule 13d-3 under the Exchange Act or in Article Fourteenth of
the RSI Certificate of Incorporation) or owned, directly or in-
directly, or (ii) is or was party to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of, in each case, shares of capital stock of RSI.
(r) Intellectual Property. JPFI and its subsidiar-
ies own or have a valid license to use all trademarks, service
marks, trade names, patents and copyrights (including any reg-
istrations or applications for registration of any of the fore-
going) (collectively, the "JPFI Intellectual Property") neces-
sary to carry on its business substantially as currently con-
ducted, except for such JPFI Intellectual Property the failure
of which to own or validly license individually or in the ag-
gregate would not have a material adverse effect on JPFI. Nei-
ther JPFI nor any such subsidiary has received any notice of
infringement of or conflict with, and, to JPFI's knowledge,
there are no infringements of or conflicts (i) with the rights
of others with respect to the use of, or (ii) by others with
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respect to, any JPFI Intellectual Property that individually or
in the aggregate, in either such case, would have a material
adverse effect on JPFI.
(s) Certain Contracts. Except as set forth in the
JPFI Filed SEC Documents, neither JPFI nor any of its subsid-
iaries is a party to or bound by (i) any "material contract"
(as such term is defined in item 601(b)(10) of Regulation S-K
of the SEC), (ii) any non-competition agreement or any other
agreement or obligation which purports to limit in any material
respect the manner in which, or the localities in which, all or
any material portion of the business of JPFI and its subsidiar-
ies (including RSI and its subsidiaries, assuming the Merger
had taken place), taken as a whole, is or would be conducted,
(iii) any exclusive supply or purchase contracts or any exclu-
sive requirements contracts or (iv) any contract or other
agreement which would prohibit or materially delay the consum-
mation of the Merger or any of the transactions contemplated by
this Agreement (all contracts of the type described in clauses
(i) and (ii) being referred to herein as "JPFI Material Con-
tracts"). JPFI has delivered to RSI, prior to the execution of
this Agreement, complete and correct copies of all JPFI Mate-
rial Contracts not filed as exhibits to the JPFI Filed SEC
Documents. Each JPFI Material Contract is valid and binding on
JPFI (or, to the extent a JPFI subsidiary is a party, such sub-
sidiary) and is in full force and effect, and JPFI and each
JPFI subsidiary have in all material respects performed all
obligations required to be performed by them to date under each
JPFI Material Contract, except where such noncompliance, indi-
vidually or in the aggregate, would not have a material adverse
effect on JPFI. Neither JPFI nor any JPFI subsidiary knows of,
or has received notice of, any violation or default under (nor,
to the knowledge of JPFI, does there exist any condition which
with the passage of time or the giving of notice or both would
result in such a violation or default under) any JPFI Material
Contract.
(t) JPFI Rights Agreement. JPFI has taken all ac-
tion (including, if required, redeeming all of the outstanding
preferred stock purchase rights issued pursuant to the JPFI
Rights Agreement or amending the JPFI Rights Agreement) so that
the entering into of this Agreement, the JPFI Option Agreement
and the Merger, the acquisition of shares pursuant to the JPFI
Option Agreement and the other transactions contemplated hereby
and thereby do not and will not result in the grant of any
rights to any person under the JPFI Rights Agreement or enable
or require the JPFI Rights to be exercised, distributed or
triggered.
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(u) Environmental Liability. There are no legal,
administrative, arbitral or other proceedings, claims, actions,
causes of action, private environmental investigations or reme-
diation activities or governmental investigations of any nature
pending or threatened against JPFI or any of its subsidiaries
seeking to impose, or that could reasonably be expected to re-
sult in the imposition, on JPFI or any of its subsidiaries, of
any liability or obligation arising under common law or under
any local, state or federal environmental statute, regulation
or ordinance, including, without limitation, CERCLA, which li-
ability or obligation could reasonably be expected to have a
material adverse effect on JPFI. To the knowledge of JPFI,
there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that would impose any li-
ability or obligation that could reasonably be expected to have
a material adverse effect on JPFI.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business. (a) Conduct of
Business by RSI. Except as set forth in Section 4.1(a) of the
RSI Disclosure Schedule, as otherwise expressly contemplated by
this Agreement or as consented to by JPFI in writing, such con-
sent not to be unreasonably withheld or delayed, during the
period from the date of this Agreement to the Effective Time,
RSI shall, and shall cause its subsidiaries to, carry on their
respective businesses in the ordinary course consistent with
past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consis-
tent therewith, use all reasonable efforts to preserve intact
their current business organizations, use reasonable efforts to
keep available the services of their current officers and other
key employees and preserve their relationships with those per-
sons having business dealings with them to the end that their
goodwill and ongoing businesses shall be unimpaired at the Ef-
fective Time. Without limiting the generality of the foregoing
(but subject to the above exceptions), during the period from
the date of this Agreement to the Effective Time, RSI shall
not, and shall not permit any of its subsidiaries to:
(i) other than dividends and distributions by a
direct or indirect wholly owned subsidiary of RSI to its
parent, or by a subsidiary that is partially owned by RSI
or any of its subsidiaries, provided that RSI or any such
subsidiary receives or is to receive its proportionate
share thereof, or regular semi-annual dividends not to
exceed $.03 per share, (x) declare, set aside or pay any
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dividends on, make any other distributions in respect of,
or enter into any agreement with respect to the voting of,
any of its capital stock, (y) split, combine or reclassify
any of its capital stock or issue or authorize the issu-
ance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, except
for issuances of RSI Common Stock upon the exercise of RSI
Employee Stock Options or the Assumed Warrants, in each
case, outstanding as of the date hereof in accordance with
their present terms (including cashless exercise) or is-
sued pursuant to Section 4.1(a)(ii) or (z) purchase, re-
deem or otherwise acquire any shares of capital stock of
RSI or any of its subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any
such shares or other securities (except, in the case of
clause (z), for the deemed acceptance of shares upon cash-
less exercise of RSI Employee Stock Options outstanding on
the date hereof, or in connection with withholding obliga-
tions relating thereto);
(ii) issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any shares of its capital
stock, any other voting securities or any securities con-
vertible into, or any rights, warrants or options to ac-
quire, any such shares, voting securities or convertible
securities (other than the issuance of RSI Common Stock
upon the exercise or conversion of RSI Employee Stock Op-
tions or the Assumed Warrants, in each case, outstanding
as of the date hereof in accordance with their present
terms or the issuance of RSI Employee Stock Options (and
shares of RSI Common Stock upon the exercise thereof)
granted after the date hereof in the ordinary course of
business consistent with past practice for employees (so
long as such additional amount of RSI Common Stock
subject to RSI Employee Stock Options issued to such
employees does not exceed the lesser of (x) 400,000
shares of RSI Common Stock in the aggregate and (y) the
number of shares of RSI Common Stock subject to RSI
Employee Stock Options issued during RSI's fiscal year
ended June 28, 1997 and so long as no RSI Employee Stock
Option issued pursuant to this Section 4.1(a)(ii) shall
contain any terms providing for, or otherwise permit or
give rise to any right to, accelerated vesting, the
releasing of restrictions or any payment (in cash or
otherwise) as a result of the consummation of the Merger
or any of the other transactions contemplated by this
Agreement.
(iii) amend its certificate of incorporation, by-
laws or other comparable organizational documents;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion
of the assets of, or by any other manner, any business or
any person, or, except for transactions in the ordinary
course of business consistent with past practice pursuant
to contracts or agreements in force at the date of this
Agreement or pursuant to RSI's current capital and op-
erating budgets (in each case, as previously provided to
JPFI), make any material investment either by purchase of
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stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any
other individual, corporation or other entity other than a
subsidiary of RSI;
(v) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of
any of its properties or assets (including securitiza-
tions), other than in the ordinary course of business con-
sistent with past practice;
(vi) take any action that would cause the repre-
sentations and warranties set forth in Section 3.1(g) and
qualified as to materiality to be no longer true and cor-
rect or, if not so qualified, to be no longer true and
correct in all material respects;
(vii) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or en-
dorse, or otherwise as an accommodation become responsible
for the obligations of any person for borrowed money,
other than pursuant to a revolving credit facility or re-
ceivables facility in effect as of the date hereof, in the
ordinary course of business consistent with past practice;
(viii) settle any material claim, action or pro-
ceeding involving money damages, except in the ordinary
course of business consistent with past practice;
(ix) enter into or terminate any material con-
tract or agreement, or make any change in any of its mate-
rial leases or contracts, other than amendments or renew-
als of contracts and leases without material adverse
changes of terms; or
(x) authorize, or commit or agree to take, any
of the foregoing actions;
provided that the limitations set forth in this Section 4.1(a)
(other than clause (iii)) shall not apply to any transaction
between RSI and any wholly owned subsidiary or between any
wholly owned subsidiaries of RSI.
(b) Conduct of Business by JPFI. Except as set
forth in Section 4.1(b) of the JPFI Disclosure Schedule, as
otherwise expressly contemplated by this Agreement or as con-
sented to by RSI in writing, such consent not to be unreason-
ably withheld or delayed, during the period from the date of
this Agreement to the Effective Time, JPFI shall, and shall
cause its subsidiaries to, carry on their respective businesses
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in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws
and regulations and, to the extent consistent therewith, use
all reasonable efforts to preserve intact their current busi-
ness organizations, use reasonable efforts to keep available
the services of their current officers and other key employees
and preserve their relationships with those persons having bus-
iness dealings with them to the end that their goodwill and
ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing (but subject
to the above exceptions), during the period from the date of
this Agreement to the Effective Time, JPFI shall not, and shall
not permit any of its subsidiaries to:
(i) other than dividends and distributions by a
direct or indirect wholly owned subsidiary of JPFI to its
parent, or by a subsidiary that is partially owned by JPFI
or any of its subsidiaries, provided that JPFI or any such
subsidiary receives or is to receive its proportionate
share thereof, (x) declare, set aside or pay any dividends
on, make any other distributions in respect of, or enter
into any agreement with respect to the voting of, any of
its capital stock, (y) split, combine or reclassify any of
its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in sub-
stitution for shares of its capital stock, except for is-
suances of JPFI Common Stock upon the exercise of JPFI
Employee Stock Options outstanding as of the date hereof
in accordance with their present terms (including cashless
exercise) or issued pursuant to Section 4.1(b)(ii) or (z)
purchase, redeem or otherwise acquire any shares of capi-
tal stock of JPFI or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to
acquire any such shares or other securities (except, in
the case of clause (z), for the deemed acceptance of
shares upon cashless exercise of JPFI Employee Stock Op-
tions, or in connection with withholding obligations re-
lating thereto);
(ii) issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any shares of its capital
stock, any other voting securities or any securities con-
vertible into, or any rights, warrants or options to ac-
quire, any such shares, voting securities or convertible
securities (other than the issuance of JPFI Common Stock
upon the exercise of JPFI Employee Stock Options outstand-
ing as of the date hereof in accordance with their present
terms or the issuance of JPFI Employee Stock Options (and
shares of JPFI Common Stock upon the exercise thereof)
granted after the date hereof in the ordinary course of
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business consistent with past practice for employees (so
long as such additional amount of JPFI Common Stock sub-
ject to JPFI Employee Stock Options issued to employees
does not exceed 300,000 shares of JPFI Common Stock in the
aggregate);
(iii) except as contemplated hereby, amend its
certificate of incorporation, by-laws or other comparable
organizational documents;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion
of the assets of, or by any other manner, any business or
any person, or, except for transactions in the ordinary
course of business consistent with past practice pursuant
to contracts or agreements in force at the date of this
Agreement or pursuant to JPFI's current capital and oper-
ating budgets (in each case, as previously provided to
RSI), make any material investment either by purchase of
stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any
other individual, corporation or other entity other than a
subsidiary of JPFI;
(v) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of
any of its properties or assets (including securitiza-
tions), other than in the ordinary course of business con-
sistent with past practice;
(vi) take any action that would cause the repre-
sentations and warranties set forth in Section 3.2(g) and
qualified as to materiality to be no longer be true and
correct or or, if not so qualified, to be no longer true
and correct in all material respects;
(vii) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or en-
dorse, or otherwise as an accommodation become responsible
for the obligations of any person for borrowed money,
other than pursuant to a revolving credit facility or re-
ceivables facility in effect as of the date hereof, in the
ordinary course of business consistent with past practice;
(viii) settle any claim, action or proceeding in-
volving money damages, except in the ordinary course of
business consistent with past practice;
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(ix) enter into or terminate any material con-
tract or agreement, or make any change in any of its mate-
rial leases or contracts, other than amendments or renew-
als of contracts and leases without material adverse
changes of terms; or
(x) authorize, or commit or agree to take, any
of the foregoing actions;
provided that the limitations set forth in this Section 4.1(b)
(other than clause (iii)) shall not apply to any transaction
between JPFI and any wholly owned subsidiary or between any
wholly owned subsidiaries of JPFI.
(c) Other Actions. Except as required by law, RSI
and JPFI shall not, and shall not permit any of their respec-
tive subsidiaries to, voluntarily take any action that would,
or that could reasonably be expected to, result in (i) any of
the representations and warranties of such party set forth in
this Agreement that are qualified as to materiality becoming
untrue at the Effective Time, (ii) any of such representations
and warranties that are not so qualified becoming untrue in any
material respect at the Effective Time, or (iii) any of the
conditions to the Merger set forth in Article VI not being sat-
isfied.
(d) Advice of Changes. RSI and JPFI shall promptly
advise the other party orally and in writing to the extent it
has knowledge of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality
becoming untrue or inaccurate in any respect or any such repre-
sentation or warranty that is not so qualified becoming untrue
or inaccurate in any material respect, (ii) the failure by it
to comply in any material respect with or satisfy in any mate-
rial respect any covenant, condition or agreement to be com-
plied with or satisfied by it under this Agreement and (iii)
any change or event having, or which, insofar as can reasonably
be foreseen, could reasonably be expected to have a material
adverse effect on such party or on the truth of such party's
representations and warranties or the ability of the conditions
set forth in Article VI to be satisfied; provided, however,
that no such notification shall affect the representations,
warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of
the parties under this Agreement.
SECTION 4.2. No Solicitation or Negotiations. (a)
Neither JPFI nor RSI shall, directly or indirectly, solicit or
encourage (including by way of furnishing information), or au-
thorize any individual, corporation or other entity to solicit
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or encourage (including by way of furnishing information), from
any third party any inquiries or proposals relating to, or con-
duct negotiations or discussions with any third party with re-
spect to, or take any other action to facilitate any inquiries
or the making of any proposal that constitutes, or that may
reasonably be expected to lead to, any proposal or offer relat-
ing to the disposition of its business or assets, or the acqui-
sition of its voting securities, or the merger or consolidation
of it or any of its subsidiaries with or into any corporation
or other entity other than as provided in this Agreement, the
Option Agreements or the Support Agreement (and each party
shall promptly notify the other of all of the relevant details
relating to all inquiries and proposals which it may receive
relating to any such matters).
(b) Nothing contained in Section 4.2(a) or Section
5.1 shall prohibit RSI or JPFI from taking and disclosing to
its respective stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the
Joint Proxy Statement; Stockholders Meetings. (a) As soon as
practicable following the date of this Agreement, RSI and JPFI
shall prepare and file with the SEC the Joint Proxy Statement,
and JPFI shall prepare and file with the SEC the Form S-4, in
which the Joint Proxy Statement will be included as a prospec-
tus. Each of RSI and JPFI shall use best efforts to have the
Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. RSI will use all
best efforts to cause the Joint Proxy Statement to be mailed to
RSI's stockholders, and JPFI will use all best efforts to cause
the Joint Proxy Statement to be mailed to JPFI's stockholders,
in each case as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. JPFI shall also
take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or to file a
general consent to service of process) required to be taken
under any applicable state securities laws in connection with
the issuance of JPFI Common Stock in the Merger and RSI shall
furnish all information concerning RSI and the holders of RSI
Common Stock as may be reasonably requested in connection with
any such action. No filing of, or amendment or supplement to,
the Form S-4 or the Joint Proxy Statement will be made by JPFI
without RSI's prior consent (which shall not be unreasonably
withheld) and without providing RSI the opportunity to review
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and comment thereon. JPFI will advise RSI, promptly after it
receives notice thereof, of the time when the Form S-4 has be-
come effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualifi-
cation of the JPFI Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or any request
by the SEC for amendment of the Joint Proxy Statement or the
Form S-4 or comments thereon and responses thereto or requests
by the SEC for additional information. If at any time prior to
the Effective Time any information relating to RSI or JPFI, or
any of their respective affiliates, officers or directors,
should be discovered by RSI or JPFI which should be set forth
in an amendment or supplement to any of the Form S-4 or the
Joint Proxy Statement, so that any of such documents would not
include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not mis-
leading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law,
disseminated to the stockholders of RSI and JPFI.
(b) RSI shall, as promptly as practicable after the
Form S-4 is declared effective under the Securities Act, duly
call, give notice of, convene and hold a meeting of its stock-
holders (the "RSI Stockholders Meeting") in accordance with the
DGCL for the purpose of obtaining the RSI Stockholder Approval
and shall, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the
Merger and the other transactions contemplated hereby.
(c) JPFI shall, as promptly as practicable after the
Form S-4 is declared effective under the Securities Act, duly
call, give notice of, convene and hold a meeting of its stock-
holders (the "JPFI Stockholders Meeting") in accordance with
the DGCL for the purpose of obtaining the JPFI Stockholder Ap-
proval and shall, through its Board of Directors, recommend to
its stockholders the approval and adoption of this Agreement,
the Merger and the other transactions contemplated hereby.
(d) JPFI and RSI will use best efforts to hold the
RSI Stockholders Meeting and the JPFI Stockholders Meeting on
the same date and as soon as reasonably practicable after the
date hereof.
SECTION 5.2. Letters of RSI's Accountants. (a) RSI
shall use best efforts to cause to be delivered to JPFI two
letters from RSI's independent accountants, one dated a date
within two business days before the date on which the Form S-4
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shall become effective and one dated a date within two business
days before the Closing Date, each addressed to JPFI, in form
and substance reasonably satisfactory to JPFI and customary in
scope and substance for comfort letters delivered by indepen-
dent public accountants in connection with registration state-
ments similar to the Form S-4.
(b) RSI shall use best efforts to cause to be deliv-
ered to JPFI and JPFI's independent accountants a letter from
RSI's independent accountants addressed to JPFI and RSI, dated
as of the date the Form S-4 is declared effective and as of the
Closing Date, stating that accounting for the Merger as a pool-
ing of interests under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations is appropriate
if the Merger is closed and consummated as contemplated by this
Agreement.
SECTION 5.3. Letters of JPFI's Accountants. (a)
JPFI shall use best efforts to cause to be delivered to RSI two
letters from JPFI's independent accountants, one dated a date
within two business days before the date on which the Form S-4
shall become effective and one dated a date within two business
days before the Closing Date, each addressed to RSI, in form
and substance reasonably satisfactory to RSI and customary in
scope and substance for comfort letters delivered by indepen-
dent public accountants in connection with registration state-
ments similar to the Form S-4.
(b) JPFI shall use best efforts to cause to be de-
livered to RSI and RSI's independent accountants a letter from
JPFI's independent accountants, addressed to RSI and JPFI,
dated as of the date the Form S-4 is declared effective and as
of the Closing Date, stating that accounting for the Merger as
a pooling of interests under Opinion 16 of the Accounting Prin-
ciples Board and applicable SEC rules and regulations is ap-
propriate if the Merger is closed and consummated as contem-
plated by this Agreement.
SECTION 5.4. Access to Information; Confidentiality.
Subject to the Confidentiality Agreements dated April 22, 1997,
each as amended as of June 13, 1997, between JPFI and RSI (the
"Confidentiality Agreements"), and subject to applicable law,
each of RSI and JPFI shall, and shall cause each of its respec-
tive subsidiaries to, afford to the other party and to the of-
ficers, employees, accountants, counsel, financial advisors and
other representatives of such other party, reasonable access
during normal business hours during the period prior to the
Effective Time to all their respective properties, books, con-
tracts, commitments, personnel and records (provided that such
access shall not interfere with the business or operations of
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such party) and, during such period, each of RSI and JPFI
shall, and shall cause each of its respective subsidiaries to,
furnish promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or
state securities laws and (b) all other information concerning
its business, properties and personnel as such other party may
reasonably request. No review pursuant to this Section 5.4
shall affect any representation or warranty given by the other
party hereto. Each of RSI and JPFI will hold, and will cause
its respective officers, employees, accountants, counsel, fi-
nancial advisors and other representatives and affiliates to
hold, any nonpublic information in accordance with the terms of
the Confidentiality Agreements.
SECTION 5.5. Best Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of
the parties agrees to use best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to as-
sist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effec-
tive, in the most expeditious manner practicable, the Merger
and the other transactions contemplated by this Agreement, in-
cluding (i) the obtaining of all necessary actions or nonac-
tions, waivers, consents and approvals from Governmental Enti-
ties and the making of all necessary registrations and filings
and the taking of all steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding
by, any Governmental Entity, (ii) the obtaining of all neces-
sary consents, approvals or waivers, and any necessary or ap-
propriate financing arrangements, from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated by this Agree-
ment, including seeking to have any stay or temporary restrain-
ing order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this
Agreement.
(b) In connection with and without limiting the
foregoing, RSI and JPFI shall (i) take all action necessary to
ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to this Agreement, the Op-
tion Agreements, the Support Agreement or any of the transac-
tions contemplated hereby and thereby and (ii) if any state
takeover statute or similar statute or regulation becomes ap-
plicable to such agreements or transactions, take all action
necessary to ensure that such transactions may be consummated
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as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute
or regulation on the Merger and the other transactions contem-
plated by this Agreement.
SECTION 5.6. Employment Agreements. (a) From and
after the Effective Time, JPFI will, and will cause Merger Sub
to, honor in accordance with their respective terms, and assume
and agree to perform, in the same manner and to the same extent
that RSI would be required to do if the Merger had not taken
place, the RSI Benefit Plans, the RSI Stock Plans (subject to
Section 2.1(e)) and all employment, severance and change in
control agreements in effect as of the date hereof. For the
purpose of any such Plan or agreement that contains a provision
relating to a change in control of RSI and that is disclosed as
such on Section 5.6(a) of the RSI Disclosure Schedule, JPFI
acknowledges that the consummation of the Merger constitutes
such a change in control. RSI and JPFI will cooperate on and
after the date of this Agreement to develop appropriate em-
ployee benefit plans, programs and arrangements, including, but
not limited to, executive and incentive compensation, stock
option and supplemental executive retirement plans, for employ-
ees and directors of the Surviving Corporation and its subsid-
iaries from and after the Effective Time. Nothing in this Sec-
tion 5.6 shall be interpreted as preventing the Surviving Cor-
poration from amending, modifying or terminating any RSI Stock
Plans or RSI Benefit Plans, or other contracts, arrangements,
commitments or understandings, in accordance with their terms
and applicable law, or be deemed to constitute an employment
contract between JPFI or the Surviving Corporation and any in-
dividual, or a waiver of JPFI's or the Surviving Corporation's
right to discharge any employee at any time, with or without
cause.
(b) Each of RSI and JPFI will take the actions indi-
cated on Section 5.6(b) of the RSI Disclosure Schedule to be
taken by it at or prior to the time specified therein, includ-
ing the execution, at the Effective Time, of an employment
agreement with Mark Van Stekelenburg in the form attached to
this Agreement as Exhibit G.
SECTION 5.7. Indemnification, Exculpation and Insur-
ance. (a) JPFI agrees to maintain in effect in accordance
with their terms all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to
the Effective Time existing as of the date of this Agreement in
favor of the current or former directors or officers of RSI and
its subsidiaries (and any of their respective predecessors,
including, without limitation, US Foodservice Inc., a Delaware
corporation ("US Foodservice"), that was merged within and into
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USF Acquisition Corporation on May 17, 1996) as provided in
their respective certificates of incorporation or by-laws (or
comparable organizational documents) and any indemnification
agreements of RSI or in Section 7.13 of the Agreement and Plan
of Merger dated February 2, 1996, among RSI, USF Acquisition
Corporation and US Foodservice. In addition, from and after
the Effective Time, directors and officers of RSI who become
directors or officers of JPFI will be entitled to the same in-
demnity rights and protections, and directors' and officers'
liability insurance, as are afforded from time to time to other
directors and officers of JPFI.
(b) In the event that JPFI or any of its successors
or assigns (i) consolidates with or merges into any other per-
son and is not the continuing or surviving corporation or en-
tity of such consolidation or merger or (ii) transfers or con-
veys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will
be made so that the successors and assigns of JPFI assume the
obligations set forth in this Section 5.7.
(c) JPFI shall use its best efforts to provide to
RSI's current directors and officers, for six years after the
Effective Time, liability insurance covering acts or omissions
occurring prior to the Effective Time with respect to those
persons who are currently covered by RSI's directors' and offi-
cers' liability insurance policy on terms with respect to such
coverage and amount no less favorable than those of such policy
in effect on the date hereof, provided that in no event shall
JPFI be required to expend more than 200% of the current amount
expended by RSI to maintain such coverage.
(d) The provisions of this Section 5.7 (i) are in-
tended to be for the benefit of, and will be enforceable by,
each indemnified party, his or her heirs and his or her repre-
sentatives and (ii) are in addition to, and not in substitution
for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
SECTION 5.8. Fees and Expenses. All fees and ex-
penses incurred in connection with the Merger, this Agreement,
and the transactions contemplated by this Agreement shall be
paid by the party incurring such fees or expenses, whether or
not the Merger is consummated, except (x) to the extent set
forth in Section 7.5 hereof and (y) that each of JPFI and RSI
shall bear and pay one-half of the costs and expenses incurred
in connection with (1) the filing, printing and mailing of the
Form S-4 and the Joint Proxy Statement (including SEC filing
fees) and (2) the filings of the pre-merger notification and
report forms under the HSR Act (including filing fees).
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SECTION 5.9. Public Announcements. JPFI and RSI
will consult with each other before issuing, and provide each
other the opportunity to review, comment upon and concur with,
and use reasonable efforts to agree on, any press release or
other public statements with respect to the transactions con-
templated by this Agreement, the Option Agreements and the Sup-
port Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to
such consultation, except as either party may determine is re-
quired by applicable law, court process or by obligations pur-
suant to any listing agreement with any national securities
exchange or stock market. The parties agree that the initial
press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
SECTION 5.10. Affiliates. (a) As soon as practi-
cable after the date hereof, RSI shall deliver to JPFI a letter
identifying all persons who may be deemed to be, at the time
this Agreement is submitted for adoption by the stockholders of
RSI, "affiliates" of RSI for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and
regulations, and such list shall be updated as necessary to
reflect changes from the date hereof. RSI shall use best ef-
forts to cause each person identified on such list to deliver
to JPFI not less than 30 days prior to the Effective Time, a
written agreement substantially in the form attached as Exhibit
E hereto. JPFI shall use best efforts to cause all persons who
are "affiliates" of JPFI for purposes of qualifying the Merger
for pooling of interests accounting treatment under Opinion 16
of the Accounting Principles Board and applicable SEC rules and
regulations to deliver to RSI not less than 30 days prior to
the Effective Time, a written agreement substantially in the
form of the fourth paragraph of Exhibit D hereto.
(b) JPFI shall use reasonable best efforts to pub-
lish no later than 45 days after the end of the first month
after the Effective Time in which there are at least 30 days of
post Merger combined operations (which month may be the month
in which the Effective Time occurs), combined sales and net
income figures as contemplated by and in accordance with the
terms of SEC Accounting Series Release No. 135.
SECTION 5.11. NYSE Listing. JPFI shall use best ef-
forts to cause the JPFI Common Stock issuable under Article II
to be approved for listing on the NYSE, subject to official
notice of issuance, as promptly as practicable after the date
hereof, and in any event prior to the Closing Date.
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SECTION 5.12. Tax Treatment. Each of JPFI and RSI
shall use best efforts to cause the Merger to qualify as a re-
organization under the provisions of Section 368 of the Code
and to obtain the opinions of counsel referred to in Section
6.1(g). The parties will characterize the Merger as such a
reorganization for purposes of all tax returns and other fil-
ings.
SECTION 5.13. Pooling of Interests. Each of RSI and
JPFI shall use best efforts to cause the transactions contem-
plated by this Agreement, including the Merger, to be accounted
for as a pooling of interests under Opinion 16 of the Account-
ing Principles Board and applicable SEC rules and regulations,
and such accounting treatment to be accepted by the SEC, and
each of RSI and JPFI agrees that it shall take no action that
would cause such accounting treatment not to be obtained.
SECTION 5.14. Standstill Agreements; Confidentiality
Agreements. During the period from the date of this Agreement
through the Effective Time, except as JPFI and RSI otherwise
mutually agree pursuant to a written instrument, neither RSI
nor JPFI shall terminate, amend, modify or waive any provision
of any confidentiality or standstill agreement to which it or
any of its respective subsidiaries is a party. Except as JPFI
and RSI otherwise mutually agree pursuant to a written instru-
ment, during such period, RSI or JPFI, as the case may be,
shall enforce, to the fullest extent permitted under applicable
law, the provisions of any such agreement, including by obtain-
ing injunctions to prevent any breaches of such agreements and
to enforce specifically the terms and provisions thereof in any
court of the United States of America or of any state having
jurisdiction.
SECTION 5.15. Post-Merger Operations. Following the
Effective Time, JPFI shall have its headquarters and principal
corporate offices in Columbia, Maryland.
SECTION 5.16. Conveyance Taxes. JPFI and RSI shall
cooperate in the preparation, execution and filing of all re-
turns, questionnaires, applications or other documents regard-
ing any real property transfer or gains, sales, use, transfer,
value added, stock transfer and stamp taxes, any transfer, re-
cording, registration and other fees or any similar taxes which
become payable in connection with the transactions contemplated
by this Agreement that are required or permitted to be filed on
or before the Effective Time.
SECTION 5.17. 8 7/8% Indenture. Merger Sub, as the
Surviving Corporation, agrees that it will comply with the pro-
visions of Section 11.1 of the Indenture, dated as of November
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1, 1993, between RSI, as issuer, and Norwest Bank Minnesota,
N.A., as trustee, as supplemented on May 1, 1996 (relating to a
mandatory tender to the holders of the 8-7/8% Senior Subordi-
nated Notes due 2003 thereunder upon a "change of control" (as
defined in such Indenture)).
SECTION 5.18. Certain Tax Matters. Provided that
the structure of the transaction as contemplated in Section 1.1
has not been revised pursuant to Section 1.7, each of RSI and
JPFI agrees that it will not treat the Merger as a change in
the ownership or effective control of RSI, or a change in the
ownership of a substantial portion of the assets of RSI, each
within the meaning of Section 280G of the Code, unless RSI or
JPFI, as the case may be, concludes, in its sole discretion,
that substantial authority (within the meaning of Section 6621
of the Code) does not exist for such position or unless other-
wise required by a determination (as defined in Section 1313 of
the Code).
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation
to Effect the Merger. The respective obligation of each party
to effect the Merger is subject to the satisfaction or waiver
on or prior to the Closing Date of the following conditions:
(a) Stockholder Approvals. Each of the RSI Stock-
holder Approval and the JPFI Stockholder Approval shall have
been obtained.
(b) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have
been terminated or shall have expired.
(c) Governmental, Regulatory and Other Approvals.
(i) Other than the filing provided for under Section 1.3 and
filings pursuant to the HSR Act (which are addressed in Section
6.1(b)), all consents, approvals and actions of, filings with
and notices to any Governmental Entity required of RSI, JPFI or
any of their subsidiaries to consummate the Merger and the
other transactions contemplated hereby (together with the mat-
ters contemplated by Section 6.1(b), the "Requisite Regulatory
Approvals") shall have been obtained and (ii) except as would
not have a material adverse effect on any of RSI, JPFI or the
Surviving Corporation, the consents and approvals set forth on
Section 3.1(d) of the RSI Disclosure Schedule and Section
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3.2(d) of the JPFI Disclosure Schedule shall have been obtained
or shall no longer be required.
(d) No Injunctions or Restraints. No judgment, or-
der, decree, statute, law, ordinance, rule or regulation, en-
tered, enacted, promulgated, enforced or issued by any court or
other Governmental Entity of competent jurisdiction or other
legal restraint or prohibition (collectively, "Restraints")
shall be in effect (i) preventing the consummation of the Merg-
er, or (ii) which otherwise is reasonably likely to have a ma-
terial adverse effect on RSI or JPFI, as applicable; provided,
however, that each of the parties shall have used its best ef-
forts to prevent the entry of any such Restraints and to appeal
as promptly as possible any such Restraints that may be en-
tered.
(e) Form S-4. The Form S-4 shall have become effec-
tive under the Securities Act prior to the mailing of the Joint
Proxy Statement by each of RSI and JPFI to their respective
stockholders and no stop order or proceedings seeking a stop
order shall be threatened by the SEC or shall have been initi-
ated by the SEC.
(f) NYSE Listing. The shares of JPFI Common Stock
issuable to RSI's stockholders as contemplated by Article II
shall have been approved for listing on the NYSE subject to
official notice of issuance.
(g) Tax Opinions. JPFI shall have received from
Wachtell, Lipton, Rosen & Katz, counsel to JPFI, and RSI shall
have received from Jones, Day, Reavis & Pogue, counsel to RSI,
an opinion, dated the Closing Date, substantially to the effect
that: (i) the Merger will constitute a "reorganization" within
the meaning of Section 368(a) of the Code, and JPFI and RSI
will each be a party to such reorganization within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by JPFI or RSI as a result of the Merger; (iii) no
gain or loss will be recognized by the stockholders of RSI upon
the exchange of their shares of RSI Common Stock solely for
shares of JPFI Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares
of JPFI Common Stock; (iv) the aggregate tax basis of the
shares of JPFI Common Stock received solely in exchange for
shares of RSI Common Stock pursuant to the Merger (including
fractional shares of JPFI Common Stock for which cash is re-
ceived) will be the same as the aggregate tax basis of the
shares of RSI Common Stock exchanged therefor; and (v) the
holding period for shares of JPFI Common Stock received in ex-
change for shares of RSI Common Stock pursuant to the Merger
will include the holding period of the shares of RSI Common
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Stock exchanged therefor, provided such shares of RSI Common
Stock were held as capital assets by the stockholder at the
Effective Time.
In rendering such opinions, each of counsel for JPFI
and RSI shall be entitled to receive and rely upon representa-
tions of fact contained in certificates of officers of JPFI,
RSI and stockholders of RSI, which representations shall be in
form and substance satisfactory to such counsel.
(h) Pooling Letters. JPFI and RSI shall have re-
ceived letters from each of RSI's independent accountants and
JPFI's independent accountants, dated as of the Closing Date,
in each case addressed to JPFI and RSI, stating that the Merger
qualifies for accounting as a pooling of interests under Opin-
ion 16 of the Accounting Principles Board and applicable SEC
rules and regulations.
SECTION 6.2. Conditions to Obligations of JPFI. The
obligation of JPFI to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representa-
tions and warranties of RSI set forth herein shall be true and
correct both when made and at and as of the Closing Date, as if
made at and as of such time (except to the extent expressly
made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties
to be so true and correct (without giving effect to any limita-
tion as to "materiality" or "material adverse effect" set forth
therein) does not have, and is not likely to have, individually
or in the aggregate, a material adverse effect on RSI.
(b) Performance of Obligations of RSI. RSI shall
have performed in all material respects all obligations re-
quired to be performed by it under this Agreement at or prior
to the Closing Date.
(c) No Material Adverse Change. At any time after
the date of this Agreement there shall not have occurred any
material adverse change relating to RSI.
(d) RSI Rights Agreement. The RSI Rights issued
pursuant to the RSI Rights Agreement shall not have become non-
redeemable, exercisable, distributed or triggered pursuant to
the terms of such agreement.
SECTION 6.3. Conditions to Obligations of RSI. The
obligation of RSI to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
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(a) Representations and Warranties. The representa-
tions and warranties of JPFI set forth herein shall be true and
correct both when made and at and as of the Closing Date, as if
made at and as of such time (except to the extent expressly
made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties
to be so true and correct (without giving effect to any limita-
tion as to "materiality," or "material adverse effect" set
forth therein) does not have, and is not likely to have, indi-
vidually or in the aggregate, a material adverse effect on
JPFI.
(b) Performance of Obligations of JPFI. JPFI shall
have performed in all material respects all obligations re-
quired to be performed by it under this Agreement at or prior
to the Closing Date.
(c) No Material Adverse Change. At any time after
the date of this Agreement there shall not have occurred any
material adverse change relating to JPFI.
(d) JPFI Rights Agreement. The JPFI Rights issued
pursuant to the JPFI Rights Agreement shall not have become
nonredeemable, exercisable, distributed or triggered pursuant
to the terms of such agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be
terminated at any time prior to the Effective Time, and (except
in the case of 7.1(e) or 7.1(f)) whether before or after the
RSI Stockholder Approval or the JPFI Stockholder Approval:
(a) by mutual written consent of JPFI and RSI, if
the Board of Directors of each so determines by a vote of a
majority of its entire Board;
(b) by either the Board of Directors of JPFI or the
Board of Directors of RSI:
(i) if the Merger shall not have been consum-
mated by April 1, 1998; provided, however, that the right
to terminate this Agreement pursuant to this Section
7.1(b)(i) shall not be available to any party whose fail-
ure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by
such time;
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(ii) if the RSI Stockholder Approval shall not
have been obtained at a RSI Stockholders Meeting duly con-
vened therefor or at any adjournment or postponement
thereof;
(iii) if the JPFI Stockholder Approval shall not
have been obtained at a JPFI Stockholders Meeting duly
convened therefor or at any adjournment or postponement
thereof; or
(iv) if any Restraint having any of the effects
set forth in Section 6.1(d) shall be in effect and shall
have become final and nonappealable, or if any Governmen-
tal Entity that must grant a Requisite Regulatory Approval
has denied approval of the Merger and such denial has be-
come final and nonappealable; provided, that the party
seeking to terminate this Agreement pursuant to this Sec-
tion 7.1(b)(iv) shall have used best efforts to prevent
the entry of and to remove such Restraint or to obtain
such Requisite Regulatory Approval, as the case may be;
(c) by the Board of Directors of JPFI (provided that
JPFI is not then in material breach of any representation, war-
ranty, covenant or other agreement contained herein), if RSI
shall have breached or failed to perform in any material re-
spect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a con-
dition set forth in Section 6.2(a) or (b), and (B) is incapable
of being cured by RSI or is not cured within 45 days of written
notice thereof;
(d) by the Board of Directors of RSI (provided that
RSI is not then in material breach of any representation, war-
ranty, covenant or other agreement contained herein), if JPFI
shall have breached or failed to perform in any material re-
spect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a con-
dition set forth in Section 6.3(a) or (b), and (B) is incapable
of being cured by JPFI or is not cured within 45 days of writ-
ten notice thereof;
(e) by the Board of Directors of JPFI, at any time
prior to the RSI Stockholders Meeting, if the RSI Board of Di-
rectors shall have (A) failed to make, no later than the date
of the first mailing of the Joint Proxy Statement to the RSI
Stockholders, its recommendation referred to in Section 5.1(b),
(B) withdrawn such recommendation or (C) modified or changed
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such recommendation in a manner adverse to the interests of
JPFI; or
(f) by the Board of Directors of RSI, at any time
prior to the JPFI Stockholders Meeting, if the JPFI Board of
Directors shall have (A) failed to make, no later than the date
of the first mailing of the Joint Proxy Statement to the JPFI
Stockholders, its recommendation referred to in Section 5.1(c),
(B) withdrawn such recommendation or (C) modified or changed
such recommendation in a manner adverse to the interests of
RSI.
SECTION 7.2. Effect of Termination. In the event of
termination of this Agreement by either RSI or JPFI as provided
in Section 7.1, this Agreement shall forthwith become void and
have no effect, without any liability or obligation on the part
of JPFI or RSI, other than the provisions of the last sentence
of Section 5.4, Section 5.8, this Section 7.2, Section 7.5 and
Article VIII, which provisions shall survive such termination,
and except that, notwithstanding anything to the contrary con-
tained in this Agreement, neither JPFI nor RSI shall be re-
lieved or released from any liabilities or damages arising out
of its willful breach of any provision of this Agreement.
SECTION 7.3. Amendment. Subject to compliance with
applicable law, this Agreement may be amended by the parties
at any time before or after the RSI Stockholder Approval or the
JPFI Stockholder Approval; provided, however, that after any
such approval, there may not be, without further approval of
such the stockholders of RSI (in the case of the RSI Stockhold-
ers Approval) and the stockholders of JPFI (in the case of the
JPFI Stockholders Approval), any amendment of this Agreement
that changes the amount or the form of the consideration to be
delivered to the holders of RSI Common Stock hereunder, or
which by law otherwise requires the further approval of such
stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties
hereto and duly approved by the parties' respective Boards of
Directors or a duly designated committee thereof.
SECTION 7.4. Extension; Waiver. At any time prior
to the Effective Time, a party may, subject to the proviso of
Section 7.3, (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive
any inaccuracies in the representations and warranties of the
other parties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) waive compliance by
the other party with any of the agreements or conditions con-
tained in this Agreement. Any agreement on the part of a party
to any such extension or waiver shall be valid only if set
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forth in an instrument in writing signed on behalf of such
party. Any extension or waiver given in compliance with this
Section 7.4 or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate
as a waiver of, or estoppel with respect to, any subsequent or
other failure.
SECTION 7.5. Termination Expenses. (a) In the
event of a termination of this Agreement and the abandonment of
the Merger at any time (i) by JPFI pursuant to Section 7.1(c)
(other than for a nonwillful breach of a representation, war-
ranty, covenant or agreement of RSI contained herein) or Sec-
tion 7.1(e) or (ii) by JPFI or RSI pursuant to Section
7.1(b)(ii) (if, at such time, in the case of clause (ii) of
this Section 7.5(a), any event has occurred that would give
JPFI the right to exercise the RSI Stock Option), and in order
to compensate JPFI for the expenses associated with the nego-
tiation of this Agreement and the other matters contemplated
hereby, RSI shall, within one business day following such ter-
mination, pay JPFI a fee of $30,000,000 in immediately avail-
able funds.
(b) In the event of a termination of this Agreement
and the abandonment of the Merger at any time (i) by RSI pursu-
ant to Section 7.1(d) (other than for a nonwillful breach of a
representation, warranty, covenant or agreement of JPFI con-
tained herein) or Section 7.1(f) or (ii) by JPFI or RSI pursu-
ant to 7.1(b)(iii) (if, at such time, in the case of clause
(ii) of this Section 7.5(b), any event has occurred that would
give RSI the right to exercise the JPFI Stock Option), and in
order to compensate RSI for the expenses associated with the
negotiation of this Agreement and the other matters contem-
plated hereby, JPFI shall, within one business day following
such termination, pay RSI a fee of $30,000,000 in immediately
available funds.
(c) A party's right to receive the fee contemplated
by this Section 7.5, and its ability to enforce the provisions
this Section 7.5, shall not be subject to approval by the
stockholders of either JPFI or RSI.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and War-
ranties. None of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this
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Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Effective Time.
SECTION 8.2. Notices. All notices, requests,
claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given if delivered per-
sonally, telecopied (which is confirmed) or sent by overnight
courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to JPFI, to
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Telecopy No: (410) 312-7149
Attention: David M. Abramson, Esq.
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52 Street
New York, New York 10019
Telecopy No.: (212) 403-2000
Attention: Edward D. Herlihy, Esq.
(b) if to Rykoff, to
Rykoff-Sexton, Inc.
1050 Warrenvill Road
Lisle, Illinois
Telecopy No. (717) 830-7112
Attention: Robert J. Harter, Jr., Esq.
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 10022
Telecopy No.: (312) 782-8585
Attention: Elizabeth Kitslaar, Esq.
SECTION 8.3. Definitions. For purposes of this
Agreement:
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(a) except for purposes of Section 5.10, an "affili-
ate" of any person means another person that directly or indi-
rectly, through one or more intermediaries, controls, is con-
trolled by, or is under common control with, such first person,
where "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting
securities, by contract, as trustee or executor, or otherwise;
(b) "material adverse change" or "material adverse
effect" means, when used in connection with RSI or JPFI, any
change, effect, event, occurrence or state of facts that is or
could reasonably be expected to be materially adverse to the
business, financial condition or results of operations of such
party and its subsidiaries taken as a whole;
(c) "person" means an individual, corporation, part-
nership, limited liability company, joint venture, association,
trust, unincorporated organization or other entity;
(d) a "subsidiary" of any person means another per-
son, an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect
at least a majority of its Board of Directors or other govern-
ing body (or, if there are no such voting interests, 50% or
more of the equity interests of which) is owned directly or
indirectly by such first person; and
(e) "knowledge" of any person which is not an indi-
vidual means the knowledge of such person's executive officers
or senior management of such person's operating divisions and
segments, in each case after reasonable inquiry.
SECTION 8.4. Interpretation. When a reference is
made in this Agreement to an Article, Section or Exhibit, such
reference shall be to an Article or Section of, or an Exhibit
to, this Agreement unless otherwise indicated. Whenever the
words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words
"without limitation". The words "hereof", "herein" and "here-
under" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any par-
ticular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any cer-
tificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in
this Agreement are applicable to the singular as well as the
plural forms of such terms and to the masculine as well as to
the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any
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agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended,
modified or supplemented, including (in the case of agreements
or instruments) by waiver or consent and (in the case of stat-
utes) by succession of comparable successor statutes and refer-
ences to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted suc-
cessors and assigns.
SECTION 8.5. Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effec-
tive when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6. Entire Agreement; No Third-Party Ben-
eficiaries. This Agreement (including the documents and in-
struments referred to herein), the Option Agreements, the Sup-
port Agreement and the Confidentiality Agreements (a) consti-
tute the entire agreement, and supersede all prior agreements
and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement and (b)
except for the provisions of Section 5.7, are not intended to
confer upon any person other than the parties any rights or
remedies.
SECTION 8.7. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
SECTION 8.8. Assignment. Neither this Agreement nor
any of the rights, interests or obligations under this Agree-
ment shall be assigned, in whole or in part, by operation of
law or otherwise by either of the parties hereto without the
prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. Subject to
the preceding two sentences, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the par-
ties and their respective successors and assigns.
SECTION 8.9. Consent to Jurisdiction. Each of the
parties hereto (a) consents to submit itself to the personal
jurisdiction of any federal court located in the State of Dela-
ware or any Delaware state court in the event any dispute
arises out of this Agreement or any of the transactions contem-
plated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (c) agrees that it
will not bring any action relating to this Agreement or any of
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the transactions contemplated by this Agreement in any court
other than a federal court sitting in the State of Delaware or
a Delaware state court.
SECTION 8.10 Headings, Etc. The headings and table
of contents contained in this Agreement are for reference pur-
poses only and shall not affect in any way the meaning or in-
terpretation of this Agreement.
SECTION 8.11. Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect, insofar as the foregoing can
be accomplished without materially affecting the economic ben-
efits anticipated by the parties to this Agreement. Upon such
determination that any term or other provision is invalid, il-
legal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to ef-
fect the original intent of the parties as closely as possible
to the fullest extent permitted by applicable law in an accept-
able manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, JPFI and RSI have caused this
Agreement to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
JP FOODSERVICE, INC.
By /s/ James L. Miller
Name: James L. Miller
Title: Chairman, President and
Chief Executive Officer
RYKOFF-SEXTON, INC.
By /s/ Mark Van Stekelenburg
Name: Mark Van Stekelenburg
Title: Chairman and
Chief Executive Officer
HUDSON ACQUISITION CORP.
By /s/ James L. Miller
Name: James L. Miller
Title: Chairman, President and
Chief Executive Officer
<PAGE>
[LETTERHEAD OF GOLDMAN SACHS APPEARS HERE]
APPENDIX B
June 30, 1997
Board of Directors
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, MD 21046
Gentlemen:
You have requested our opinion as to the fairness to JP Foodservice, Inc. (the
"Company") of the exchange ratio of .84 shares of Common Stock, par value $.01
per share (the "Company Common Stock"), of the Company to be exchanged for each
outstanding share of Common Stock, par value $.10 per share (the "Shares"), of
Rykoff-Sexton, Inc. ("Rykoff-Sexton") (the "Exchange Ratio") pursuant to the
Agreement and Plan of Merger dated as of June 30, 1997 among the Company, Hudson
Acquisition Corp, a wholly-owned subsidiary of the Company, and Rykoff-Sexton
(the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement and having
acted as a co-managing underwriter for the Company with respect to the sale
of shares of common stock of the Company in November 1996. We have also
provided certain investment banking services from time to time for
Rykoff-Sexton, including advising Rykoff-Sexton on its merger with US
Foodservice Inc. in January 1996.
In connection with this opinion, we have reviewed, among other things, the
Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company
for the two fiscal years ended June 29, 1996, as well as financial and other
information concerning the Company for the three prior fiscal years, and for
Rykoff-Sexton for the five fiscal years ended April 27, 1996; certain interim
reports to stockholders and Quarterly Reports of the Company and Rykoff-Sexton
on Form 10-Q; certain other communications from the Company and Rykoff-Sexton to
its stockholders; and certain internal financial analyses and forecasts for the
Company and Rykoff-Sexton as prepared by their respective managements and
certain internal forecasts for the Company and Rykoff-Sexton on a combined basis
after giving effect to the merger of the Company and Rykoff-Sexton (the
"Merger"), including analyses and forecasts of certain operating efficiencies
and financial synergies (the "Synergies") expected to be achieved as a result of
the Merger prepared by the Company's management. We also have held discussions
with members of the senior management of the Company and Rykoff-Sexton regarding
the strategic rationale for, and benefits of, the Merger and the past and
current business operations and financial condition of their respective
companies as well as the future prospects of their respective companies on a
combined basis after giving effect to the Merger. In addition, we have reviewed
the reported price and trading activity for the Company's shares and Rykoff-
Sexton's shares, compared certain financial and stock market information for the
Company and Rykoff-Sexton with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the food service industry specifically
and in other industries generally and performed such other studies and analyses
as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In that regard, we have relied on the
managements of the Company and Rykoff-Sexton as to the reasonableness and
achievability of the financial and operating forecasts (and the assumptions and
bases therefor) provided to us, and with your consent we have assumed that such
forecasts, including without limitation the Synergies, reflect the best
currently available estimates and judgments of such respective managements and
that such projections and forecasts, including the Synergies, will be realized
in the amounts and time periods currently estimated by the managements of the
Company and Rykoff-Sexton. Further, in our evaluation of the Exchange Ratio, we
have assumed, with your permission, that the consummation of the Merger will not
result in a change of control of the Company. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities of the Company
or Rykoff-Sexton or any of their respective subsidiaries and we have not been
furnished with any such evaluation or appraisal. We have also assumed that the
Merger will be accounted for as a pooling of interests under generally accepted
accounting principles. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement.
Based upon and subject to the foregoing and such other matters as we consider
relevant, it is our opinion that as of the date hereof the Exchange Ratio
pursuant to the Agreement is fair to the Company.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE>
[LETTERHEAD OF SMITH BARNEY APPEARS HERE]
APPENDIX C
June 30, 1997
The Board of Directors
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to JP Foodservice, Inc. ("JP Foodservice") of the consideration to be paid
by JP Foodservice pursuant to the terms and subject to the conditions set forth
in the Agreement and Plan of Merger, dated as of June 30, 1997 (the "Merger
Agreement"), by and among JP Foodservice, Hudson Acquisition Corp., a wholly
owned subsidiary of JP Foodservice ("Merger Sub"), and Rykoff-Sexton, Inc.
("Rykoff-Sexton"). As more fully described in the Merger Agreement, (i) Rykoff-
Sexton will be merged with and into Merger Sub (the "Merger") and (ii) each
outstanding share of the common stock, par value $0.10 per share, of Rykoff-
Sexton (the "Rykoff-Sexton Common Stock") will be converted into the right to
receive 0.84 (the "Exchange Ratio") of a share of the common stock, par value
$0.01 per share, of JP Foodservice (the "JP Foodservice Common Stock").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of JP Foodservice and certain senior officers and other
representatives and advisors of Rykoff-Sexton concerning the businesses,
operations and prospects of JP Foodservice and Rykoff-Sexton. We examined
certain publicly available business and financial information relating to JP
Foodservice and Rykoff-Sexton as well as certain financial forecasts and other
information and data for JP Foodservice and Rykoff-Sexton which were provided to
or otherwise discussed with us by the respective managements of JP Foodservice
and Rykoff-Sexton, including information relating to certain strategic
implications and operational benefits anticipated to result from the Merger. We
reviewed the financial terms of the Merger as set forth in the Merger Agreement
in relation to, among other things: current and historical market prices and
trading volumes of JP Foodservice Common Stock and Rykoff-Sexton Common Stock;
the historical and projected earnings and other operating data of JP Foodservice
and Rykoff-Sexton; and the capitalization and financial condition of JP
Foodservice and Rykoff-Sexton. We considered, to the extent publicly available,
the financial terms of certain other similar transactions recently effected
which we considered relevant in evaluating the Merger and analyzed certain
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations we considered relevant in
evaluating those of JP Foodservice and Rykoff-Sexton. We also evaluated the
potential pro forma financial impact of the Merger on JP Foodservice. In
addition to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the managements of JP Foodservice and Rykoff-Sexton that such
forecasts and other
<PAGE>
The Board of Directors
JP Foodservice, Inc.
June 30, 1997
Page 2
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of JP
Foodservice and Rykoff-Sexton as to the future financial performance of JP
Foodservice and Rykoff-Sexton and the strategic implications and operational
benefits anticipated to result from the Merger. We have assumed, with your
consent, that the Merger will be treated as a pooling of interests in accordance
with generally accepted accounting principles and as a tax-free reorganization
for federal income tax purposes. Our opinion, as set forth herein, relates to
the relative values of JP Foodservice and Rykoff-Sexton. We are not expressing
any opinion as to what the value of the JP Foodservice Common Stock actually
will be when issued to Rykoff-Sexton stockholders pursuant to the Merger or the
price at which the JP Foodservice Common Stock will trade subsequent to the
Merger. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of JP
Foodservice or Rykoff-Sexton nor have we made any physical inspection of the
properties or assets of JP Foodservice or Rykoff-Sexton. We were not requested
to consider, and our opinion does not address, the relative merits of the Merger
as compared to any alternative business strategies that might exist for JP
Foodservice or the effect of any other transaction in which JP Foodservice might
engage. Our opinion is necessarily based upon information available to us, and
financial, stock market and other conditions and circumstances existing and
disclosed to us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to JP
Foodservice in connection with the Merger and will receive a fee for such
services, which fee is contingent upon the consummation of the Merger. In the
ordinary course of our business, we and our affiliates may actively trade or
hold the securities of JP Foodservice and Rykoff-Sexton for our own account or
for the account of our customers and, accordingly, may at any time hold a long
or short position in such securities. We have in the past provided investment
banking services to JP Foodservice unrelated to the Merger, for which services
we have received compensation. In addition, we and our affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with JP
Foodservice and Rykoff-Sexton.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of JP Foodservice in its evaluation of the
proposed Merger, and our opinion is not intended to and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on any
matter relating to the proposed Merger. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Smith Barney be
made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to JP Foodservice.
Very truly yours,
SMITH BARNEY INC.
<PAGE>
[LETTERHEAD OF MERRILL LYNCH APPEARS HERE]
APPENDIX D
June 30, 1997
Board of Directors
Rykoff-Sexton, Inc.
613 Baltimore Drive
East Mountain Corporate Center
Wilkes-Barre, PA 18702-7944
Members of the Board of Directors:
Rykoff-Sexton, Inc. (the "Company"), JP Foodservice, Inc. ("JP
Foodservice") and Hudson Acquisition Corp., a wholly owned subsidiary of JP
Foodservice ("Merger Sub"), propose to enter into an Agreement and Plan of
Merger, dated as of June 30, 1997 (the "Agreement"), pursuant to which a
strategic combination between the Company and JP Foodservice will be effected by
means of a merger (the "Merger") between the Company and Merger Sub in which
each outstanding share of the Company's common stock, par value $.10 per share
(the "Company Shares"), will be converted into the right to receive 0.84 shares
(the "Exchange Ratio") of the common stock of JP Foodservice, par value $.01 per
share (the "JP Foodservice Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair
from a financial point of view to the holders of the Company Shares, other than
JP Foodservice and its affiliates.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and JP Foodservice which we
deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company and JP Foodservice, as
well as the amount and timing of the cost savings and related
expenses and synergies expected to result from the Merger (the
"Expected
<PAGE>
Synergies"), in each case furnished to us by the Company and JP
Foodservice;
(3) Conducted discussions with members of senior management and
representatives of the Company and JP Foodservice concerning the
matters described in clauses 1 and 2 above, as well as their
respective businesses and prospects before and after giving
effect to the Merger, and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the
Company Shares and the JP Foodservice Shares and compared them
with those of certain publicly traded companies which we deemed
to be relevant;
(5) Reviewed the results of operations of the Company and JP
Foodservice and compared them with those of certain publicly
traded companies which we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we deemed to
be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and JP Foodservice and their
financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of current general economic, market and monetary
conditions.
In preparing our opinion, we have assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information and we
have not undertaken an independent evaluation or appraisal of any of the assets
or liabilities of the Company or JP Foodservice or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or JP Foodservice. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or JP
Foodservice, we have assumed that they have been reasonably prepared in good
faith and reflect the
2
<PAGE>
best currently available estimates and judgments of the Company's and JP
Foodservice's managements as to the expected future financial performance of,
and expenses and benefits to, the Company or JP Foodservice, as the case may be,
and the Expected Synergies, and that such forecasted results and Expected
Synergies will be realized in the amounts and at the times indicated thereby. We
express no opinion as to such financial forecast information and Expected
Synergies or the assumptions upon which they were based. We have further assumed
that the Merger will be accounted for as a pooling of interests under generally
accepted accounting principles and that it will qualify as a tax-free
reorganization for United States Federal income tax purposes. You have informed
us that in connection with the Agreement certain significant stockholders of the
Company who are affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated
are parties to and will be entering into various contractual arrangements with
respect to their existing Company Shares and with respect to the JP Foodservice
Shares to be received by them in the Merger. This opinion does not take into
account or in any way address the implications to such stockholders of such
contractual arrangements.
For purposes of rendering this opinion we have assumed, in all
respects material to our analysis, that the representations and warranties of
each party to the Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and correct, that
each party to the Documents will perform all of the covenants and agreements
required to be performed by such party under such Documents and that all
conditions to the consummation of the Merger will be satisfied without waiver or
modification thereof. We have also assumed that all material governmental,
regulatory or other consents and approvals will be obtained in connection with
the Merger and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either the Company or JP Foodservice are
party, no restrictions will be imposed or amendments, modifications or waivers
made that would have any material adverse effect on the contemplated benefits to
the Company or its stockholders of the Merger.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date hereof.
In connection with performing our services for the Company, we have
not been authorized by the Company or the Board of Directors to solicit, nor
have we solicited, third-party indications of interest for the acquisition of
all or any part of the Company.
We are acting as financial advisor to the Company in connection with
the Merger and will receive a fee from the Company for our services, a major
portion of which is contingent upon the consummation of the Merger. In
addition,
3
<PAGE>
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement. We have, in the past, provided financial advisory and financing
services to the Company and/or its affiliates and may continue to do so and have
received fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the Company Shares and other
securities of the Company, as well as the JP Foodservice Shares and other
securities of JP Foodservice, for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Certain of our affiliates own approximately 36% of the Company
Shares and have representatives serving on the Company's Board of Directors.
This opinion is for the use and benefit of the Board of Directors of
the Company. Our opinion does not address the merits of the underlying business
decision by the Company to engage in the Merger, and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Merger.
We are not expressing any opinion herein as to the prices at or
trading ranges in which the Company Shares or the JP Foodservice Shares may
trade following the announcement or consummation of the Merger.
On the basis of and subject to the foregoing, including the various
assumptions and limitations set forth herein, we are of the opinion that, as of
the date hereof, the Exchange Ratio provided for pursuant to the Agreement is
fair from a financial point of view to the holders of the Company Shares, other
than JP Foodservice and its affiliates.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
[signed]
4
<PAGE>
[LETTERHEAD OF WASSERTEIN PERELLA & CO APPEARS HERE]
APPENDIX E
June 30, 1997
Board of Directors
Rykoff-Sexton, Inc.
613 Baltimore Drive
East Mountain Corporate Center
Wilkes-Barre, PA 18702-7944
Members of the Board of Directors:
Rykoff-Sexton, Inc. (the "Company"), JP Foodservice, Inc. ("JP
Foodservice") and Hudson Acquisition Corp., a wholly owned subsidiary of JP
Foodservice ("Merger Sub"), propose to enter into an Agreement and Plan of
Merger, dated as of June 30, 1997 (the "Agreement"), pursuant to which a
strategic combination between the Company and JP Foodservice will be effected by
means of a merger (the "Merger") between the Company and Merger Sub in which
each outstanding share of the Company's common stock, par value $.10 per share
(the "Company Shares"), will be converted into the right to receive 0.84 shares
(the "Exchange Ratio") of the common stock of JP Foodservice, par value $.01 per
share (the "JP Foodservice Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair
from a financial point of view to the holders of the Company Shares, other than
JP Foodservice and its affiliates.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and JP Foodservice which we
deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company and JP Foodservice, as
well as the amount and timing of the cost savings and related
expenses and synergies expected to result from the Merger (the
"Expected Synergies"), in each case furnished to us by the
Company and JP Foodservice;
<PAGE>
(3) Conducted discussions with members of senior management and
representatives of the Company and JP Foodservice concerning the
matters described in clauses 1 and 2 above, as well as their
respective businesses and prospects before and after giving
effect to the Merger, and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the
Company Shares and the JP Foodservice Shares and compared them
with those of certain publicly traded companies which we deemed
to be relevant;
(5) Reviewed the results of operations of the Company and JP
Foodservice and compared them with those of certain publicly
traded companies which we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we deemed to
be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and JP Foodservice and their
financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of current general economic, market and monetary
conditions.
In preparing our opinion, we have assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information and we
have not undertaken an independent evaluation or appraisal of any of the assets
or liabilities of the Company or JP Foodservice or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or JP Foodservice. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or JP
Foodservice, we have assumed that they have been reasonably prepared in good
faith and reflect the best currently available estimates and judgments of the
Company's and JP Foodservice's managements as to the expected future financial
performance of,
-2-
<PAGE>
and expenses and benefits to, the Company or JP Foodservice, as the case may be,
and the Expected Synergies, and that such forecasted results and Expected
Synergies will be realized in the amounts and at the times indicated thereby. We
express no opinion as to such financial forecast information and Expected
Synergies or the assumptions upon which they were based. We have further assumed
that the Merger will be accounted for as a pooling of interests under generally
accepted accounting principles and that it will qualify as a tax-free
reorganization for United States Federal income tax purposes. You have informed
us that in connection with the Agreement certain significant stockholders of the
Company who are affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated
are parties to and will be entering into various contractual arrangements with
respect to their existing Company Shares and with respect to the JP Foodservice
Shares to be received by them in the Merger. This opinion does not take into
account or in any way address the implications to such stockholders of such
contractual arrangements.
For purposes of rendering this opinion we have assumed, in all
respects material to our analysis, that the representations and warranties of
each party to the Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and correct, that
each party to the Documents will perform all of the covenants and agreements
required to be performed by such party under such Documents and that all
conditions to the consummation of the Merger will be satisfied without waiver or
modification thereof. We have also assumed that all material governmental,
regulatory or other consents and approvals will be obtained in connection with
the Merger and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either the Company or JP Foodservice are
party, no restrictions will be imposed or amendments, modifications or waivers
made that would have any material adverse effect on the contemplated benefits to
the Company or its stockholders of the Merger.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date hereof.
In connection with performing our services for the Company, we have
not been authorized by the Company or the Board of Directors to solicit, nor
have we solicited, third-party indications of interest for the acquisition of
all or any part of the Company.
We are acting as financial advisor to the Company in connection with
the Merger and will receive a fee from the Company for our services, a major
portion of which is contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. In the ordinary course of our business, we may actively
trade the
-3-
<PAGE>
Company Shares and other securities of the Company, as well as the JP
Foodservice Shares and other securities of JP Foodservice, for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of
the Company. Our opinion does not address the merits of the underlying business
decision by the Company to engage in the Merger, and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Merger.
We are not expressing any opinion herein as to the prices at or
trading ranges in which the Company Shares or the JP Foodservice Shares may
trade following the announcement or consummation of the Merger.
On the basis of and subject to the foregoing, including the various
assumptions and limitations set forth herein, we are of the opinion that, as of
the date hereof, the Exchange Ratio provided for pursuant to the Agreement is
fair from a financial point of view to the holders of the Company Shares, other
than JP Foodservice and its affiliates.
Very truly yours,
[signed]
-4-
<PAGE>
JP FOODSERVICE, INC.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
- ------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF JP FOODSERVICE, INC. FOR THE ANNUAL MEETING ON
____________, 1997 AT _______ AM
JP FOODSERVICE, INC.
The undersigned appoints David M. Abramson and George T. Megas, and each of
them, with full power of substitution in each, the proxies of the undersigned,
to represent the undersigned and vote all shares of JP Foodservice, Inc. Common
Stock which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on ____________, 1997, and at any adjournment or
postponement thereof, as indicated on the reverse side. The undersigned further
authorizes such proxies to vote in their discretion upon such other matters as
may properly come before the Annual Meeting or any adjournment or postponement
thereof. Receipt of Notice of Annual Meeting and Joint Proxy
Statement/Prospectus is hereby acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, 4 and 5.
JP FOODSERVICE, INC. P.O. BOX 11069 NEW YORK, NY 10203-0069
(Continued, and to be signed and dated on reverse side.)
<PAGE>
1. Proposal to approve the issuance of JP Foodservice Common Shares in
connection with the Merger Agreement (as such terms are defined in the enclosed
Joint Proxy Statement/Prospectus) as described in the enclosed Joint Proxy
Statement/Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Election of FOR all nominees WITHHOLD AUTHORITY to *EXCEPTIONS [_]
Directors listed below [_] vote for all nominees
listed below [_]
Nominees: James L. Miller, David M. Abramson and Dean R. Silverman
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided
below.)
*Exceptions ________________________________________________________________
3. Amendment to the Restated Certificate of Incorporation of JP
Foodservice, Inc. to increase the number of authorized shares of Common Stock
from 75,000,000 shares to 150,000,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Amendment to the 1994 Stock Incentive Plan of JP Foodservice, Inc. (i)
to increase the number of shares of Common Stock authorized for issuance from
1,532,404 shares to 2,600,000 shares and (ii) for purposes of Section 162(m)
of the Internal Revenue Code of 1986 and regulations thereunder, as described in
the enclosed Joint Proxy Statement/Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
5. Amendment to the Stock Option Plan for Outside Directors of JP
Foodservice, Inc. to (i) increase the number of shares of Common Stock
authorized for issuance from 100,000 shares to 200,000 shares, (ii) increase the
number of shares of Common Stock subject to annual option grants from 1,000
shares to 2,000 shares and (iii) modify the eligibility requirements for
awards, as described in the enclosed Joint Proxy Statement/Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
6. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting or any adjournment or
postponement thereof.
Change of Address and [_]
or Comments Mark Here
The signature on this Proxy should correspond exactly with
stockholder's name as printed to the left. In the case of
joint tenancies, co-executors or co-trustees, both should
sign. Persons signing as Attorney, Executor, Administrator,
Trustee or Guardian should give their full title.
Dated: , 1997
----- ------
Signature
Signature
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE
INK [X]
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.)
<PAGE>
RYKOFF-SEXTON, INC.
613 Baltimore Drive
Wilkes-Barre, Pennsylvania 18702
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark Van Stekelenburg, Robert J. Harter,
Jr. and Richard J. Martin as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and vote, as
designated on the other side, all the shares of Common Stock of Rykoff-Sexton,
Inc. held of record by the undersigned on _____________, 1997, at the Special
Meeting of Stockholders of Rykoff-Sexton, Inc. to be held at _________________
on _________, 1997, at __ a.m. local time, and any adjournments or postponements
thereof.
(Continued, and to be marked, dated and signed, on the other side)
<PAGE>
Please mark your votes as
indicated in this example [X]
in blue or black ink.
The Board of Directors recommends a vote FOR Proposal 1.
1. PROPOSAL TO ADOPT THE MERGER AGREEMENT
(as such term is defined in the enclosed
Joint Proxy Statement/Prospectus), the
provisions of which are described in the
enclosed Joint Proxy Statement/Prospectus.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. In their discretion, the Proxies are authorized to transact such
other matters as may arise relating to the conduct of the
Special Meeting of Stockholders of Rykoff-Sexton, Inc. or any
adjournments or postponements thereof.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1, AND IN THE DISCRETION OF THE PROXIES
ON THE MATTERS DESCRIBED IN PROPOSAL 2.
Do you plan to attend this meeting?
YES NO
[_] [_]
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature(s)_______________________________________________________________
Please sign exactly as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, administrator,
trustee or guardian, please give your full title as such. If a corporation,
please sign in full corporate name by the president or other authorized officer.
If a partnership, please sign the partnership's name by an authorized person.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Reference is made to the provisions of Article XII of the registrant's
Restated Certificate of Incorporation fled as Exhibit 3.1 hereto and the
provisions of Article XII of the registrant's Amended and Restated By-Laws filed
as Exhibit 3.2 hereto.
The registrant is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL provides for the
indemnification, under certain circumstances, of any person in connection with
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than derivative actions), brought or threatened involving
such person because of such person's service as a director, officer, employee or
agent of the corporation or such person's service in any such capacity with
respect to another corporation or other entity at the request of such
corporation.
The registrant's Amended and Restated By-laws provide for the
indemnification of the officers and directors of the registrant to the fullest
extent permitted by the DGCL. Article XII of the registrant's Amended and
Restated By-laws provides that each person who was or is made a party to (or is
threatened to be made a party to) any civil or criminal action, suit or
proceeding by reason of the fact that such person is or was a director of
officer of the registrant shall be indemnified and held harmless by the
registrant to the fullest extent authorized by the DGCL against all expense,
liability and loss (including, without limitation, attorneys' fees) incurred by
such person in connection therewith, if such persons acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the registrant and had no reason to believe that his conduct was
illegal.
Article XII of the registrant's Restated Certificate of Incorporation
provides that, to the fullest extent permitted by the DGCL, the registrant's
directors will not be personally liable to the registrant or its stockholders
for monetary damages resulting from a breach of their fiduciary duty as
directors. However, nothing contained in such Article XII shall eliminate or
limit the liability of directors (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived an improper personal benefit.
The registrant maintains directors and officers liability insurance,
which covers directors and officers of the registrant against certain claims or
liabilities arising out of the performance of their duties.
Item 21. Exhibits and Financial Statements Schedules.
(a) The following exhibits, as required by Item 601 of Regulation S-K,
are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 1997 among JP
Foodservice, Inc. (the "Company"), Hudson Acquisition Corp. and
Rykoff-Sexton, Inc. (included as Appendix A to the
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
Joint Proxy Statement/Prospectus that is part of this
Registration Statement).
2.2 Amendment No.1 to Agreement and Plan of Merger, dated as of
September 3, 1997, among the Company, Hudson Acquisition Corp.
and Rykoff-Sexton, Inc. (incorporated by reference to Exhibit
2.2 to the Company's Current Report on Form 8-K for reportable
event dated September 3, 1997).
3.1 Restated Certificate of Incorporation of JP Foodservice, Inc.
(incorporated by reference to the Company's Registration
Statement on Form S-3 (Commission File No. 333-14039)).
3.2 Amended and Restated By-Laws of JP Foodservice, Inc.
(incorporated by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 28, 1997).
4.1 Specimen of Certificate representing JP Foodservice, Inc. Common
Stock, $.01 par value (incorporated by reference to the Company's
Registration Statement on Form S-3 (Commission File No. 333-
27275)).
4.2 Rights Agreement, dated as of February 19, 1996, between JP
Foodservice, Inc. and The Bank of New York, as Rights Agent (the
"Rights Agreement") (incorporated by reference to Exhibit 1 of
the Company's Registration Statement on Form 8-A dated February
22, 1996).
4.3 Amendment No. 1 to Rights Agreement, dated as of May 17, 1996
(incorporated by reference to Exhibit 10.26 to Amendment No. 1 to
the Company's Registration Statement on Form S-3 (Commission File
No. 333-07321)).
4.4 Amendment No. 2 to Rights Agreement, dated as of September 26,
1996 (incorporated by reference to Exhibit 10.1 to Amendment No.
2 to the Company's Registration Statement on Form S-3 (Commission
File No. 333-14039)).
4.5 Amendment No. 3 to Rights Agreement, dated as of June 30, 1997
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K for reportable event dated June 30,
1997).
**4.6 Form of Common Stock Purchase Warrant expiring September 30,
2005.
**5.1 Legal opinion of Hogan & Hartson L.L.P. with respect to the
validity of the securities registered hereby.
**8.1 Legal opinion of Wachtell, Lipton, Rosen & Katz with respect to
certain tax matters.
**8.2 Legal opinion of Jones, Day, Reavis & Pogue with respect to
certain tax matters.
+10.1 Form of Employment Agreement by and between JP Foodservice, Inc.
and Mark Van Stekelenburg.
10.2 Stock Option Agreement dated as of June 30, 1997 between JP
Foodservice, Inc. and Rykoff-Sexton, Inc. (incorporated by
reference to Exhibit 99.1 of the Company's Current Report on Form
8-K for reportable event dated June 30, 1997).
10.3 Stock Option Agreement dated as of June 30, 1997 between Rykoff-
Sexton, Inc. and JP Foodservice, Inc. (incorporated by reference
to Exhibit 99.2 of the Company's Current Report on Form 8-K for
reportable event dated June 30, 1997).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.4 Amended and Restated Support Agreement dated as of June 30, 1997
by and among JP Foodservice, Inc. and certain stockholders of
Rykoff-Sexton, Inc. (incorporated by reference to Exhibit 99.1 of
the Company's Current Report on Form 8-K for reportable event
dated September 3, 1997) .
*23.1 Consents of KPMG Peat Marwick LLP.
*23.2 Consent of Price Waterhouse LLP.
**23.3 Consent of Arthur Andersen LLP.
**23.4 Consent of Hogan & Hartson LLP (contained in its opinion filed as
Exhibit 5.1).
**23.5 Consent of Wachtell, Lipton, Rosen & Katz (contained in its
opinion filed as Exhibit 8.1).
**23.6 Consent of Jones, Day, Reavis & Pogue (contained in its opinion
filed as Exhibit 8.2).
+24.1 Powers of Attorney.
+99.1 Consent of Goldman, Sachs & Co.
+99.2 Consent of Smith Barney Inc.
+99.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
+99.4 Consent of Wasserstein Perella & Co., Inc.
*99.5 Consent of Mark Van Stekelenburg.
+99.6 Consent of James I. Maslon.
*99.7 Consent of James P. Miscoll.
*99.8 Consent of Neil I. Sell.
*99.9 Consent of Bernard Sweet.
</TABLE>
- ---------------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
II-3
<PAGE>
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus that is a part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such offering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information caused for by the
other items of the applicable form.
(d) The undersigned registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (c) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a) (3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed
II-4
<PAGE>
subsequent to the effective date of the registration statements through the date
of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Columbia, Maryland, on September 22, 1997.
JP FOODSERVICE, INC.
By: /s/ James L. Miller
------------------------------
James L. Miller
President and Chief Executive Officer
(Duly Authorized Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James L. Miller President, Chairman and Chief September 22, 1997
- --------------------------- Executive Officer and Director
James L. Miller (Principal Executive Officer)
/s/ Lewis Hay, III Senior Vice President and Chief September 22, 1997
- --------------------------- Financial Officer (Principal
Lewis Hay, III Financial Officer)
/s/ George T. Megas Vice President - Finance September 22, 1997
- --------------------------- (Principal Accounting Officer)
George T. Megas
/s/ Michael J. Drabb* Director September 22, 1997
- ---------------------------
Michael J. Drabb
/s/ David M. Abramson Director September 22, 1997
- ---------------------------
David M. Abramson
/s/ Eric E. Glass* Director September 22, 1997
- ---------------------------
Eric E. Glass
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Mark P. Kaiser Director September 22, 1997
- ---------------------------
Mark P. Kaiser
Director September 22, 1997
- ---------------------------
Paul I. Latta, Jr.
/s/ Dean R. Silverman* Director September 22, 1997
- ---------------------------
Dean R. Silverman
/s/ Jeffery D. Serkes* Director September 22, 1997
- ---------------------------
Jeffrey D. Serkes
</TABLE>
* By Lewis Hay, III as Attorney-in-Fact
II-7
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 1997 among JP
Foodservice, Inc. (the "Company"), Hudson Acquisition Corp. and
Rykoff-Sexton, Inc. (included as Appendix A to the Joint Proxy
Statement/Prospectus that is part of this Registration
Statement).
2.2 Amendment No.1 to Agreement and Plan of Merger, dated as of
September 3, 1997 among the Company, Hudson Acquisition Corp. and
Rykoff-Sexton, Inc. (incorporated by reference to the Company's
Current Report on Form 8-K for reportable event dated
September 3, 1997).
3.1 Restated Certificate of Incorporation of JP Foodservice, Inc.
(incorporated by reference to the Company's Registration
Statement on Form S-3 (Commission File No. 333-14039)).
3.2 Amended and Restated By-Laws of JP Foodservice, Inc.
(incorporated by reference to the Company's Registration
Statement on Form S-3 (Commission File No. 333-14039)).
4.1 Specimen of Certificate representing JP Foodservice, Inc. Common
Stock, $.01 par value (incorporated by reference to the Company's
Registration Statement on Form S-3 (Commission File No. 333-
27275)).
4.2 Rights Agreement, dated as of February 19, 1996, between JP
Foodservice, Inc. and The Bank of New York, as Rights Agent (the
"Rights Agreement") (incorporated by reference to Exhibit 1 of
the Company's Registration Statement on Form 8-A dated February
22, 1996).
4.3 Amendment No. 1 to Rights Agreement, dated as of May 17, 1996
(incorporated by reference to Exhibit 10.26 to Amendment No. 1 to
the Company's Registration Statement on Form S-3 (Commission File
No. 333-07321)).
4.4 Amendment No. 2 to Rights Agreement, dated as of September 26,
1996 (incorporated by reference to Exhibit 10.1 to Amendment No.
2 to the Company's Registration Statement on Form S-3 (Commission
File No. 333-14039)).
4.5 Amendment No. 3 to Rights Agreement, dated as of June 30, 1997
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K for reportable event dated June 30,
1997).
**4.6 Form of Common Stock Purchase Warrant expiring September 30,
2005.
**5.1 Legal opinion of Hogan & Hartson L.L.P. with respect to the
validity of the securities registered hereby.
**8.1 Legal opinion of Wachtell, Lipton, Rosen & Katz with respect to
certain tax matters.
**8.2 Legal opinion of Jones, Day, Reavis & Pogue with respect to
certain tax matters.
+10.1 Form of Employment Agreement dated as of , 1997 by and
between JP Foodservice, Inc. and Mark Van Stekelenburg.
10.2 Stock Option Agreement dated as of June 30, 1997 between JP
Foodservice, Inc. and Rykoff-Sexton, Inc. (incorporated by
reference to Exhibit 99.1 of the Company's Current Report on Form
8-K for reportable event dated June 30, 1997).
10.3 Stock Option Agreement dated as of June 30, 1997 between Rykoff-
Sexton, Inc. and JP Foodservice, Inc. (incorporated by reference
to Exhibit 99.2 of the Company's Current Report on Form 8-K for
reportable event dated June 30, 1997).
10.4 Amended and Restated Support Agreement dated as of June 30, 1997
by and among JP Foodservice, Inc. and certain stockholders of
Rykoff Sexton, Inc. (incorporated by reference to Exhibit 99.1 of
the Company's Current Report on Form 8-K for reportable event
dated September 3, 1997) .
*23.1 Consents of KPMG Peat Marwick LLP.
*23.2 Consent of Price Waterhouse LLP.
**23.3 Consent of Arthur Andersen LLP.
**23.4 Consent of Hogan & Hartson LLP (contained in its opinion filed as
Exhibit 5.1).
**23.5 Consent of Wachtell, Lipton, Rosen & Katz (contained in its
opinion filed as Exhibit 8.1).
**23.6 Consent of Jones, Day, Reavis & Pogue (contained in its opinion
filed as Exhibit 8.2).
+24.1 Powers of Attorney (included in the signature page hereof).
+99.1 Consent of Goldman, Sachs & Co.
+99.2 Consent of Smith Barney Inc.
+99.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
+99.4 Consent of Wasserstein Perella & Co., Inc.
*99.5 Consent of Mark Van Stekelenburg.
+99.6 Consent of James I. Maslon.
*99.7 Consent of James P. Miscoll.
*99.8 Consent of Neil I. Sell.
*99.9 Consent of Bernard Sweet.
</TABLE>
- -------------------------
* Filed herewith
** To be filed amendment
+ Previously filed
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
JP Foodservice, Inc.:
We consent to the incorporation by reference in the registration statement of JP
Foodservice, Inc. on Form S-4 of our report dated August 11, 1997, with respect
to the consolidated balance sheet of JP Foodservice, Inc. and Subsidiaries as of
June 28, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended, which report
appears in JP Foodservice's Annual Report on Form 10-K for the fiscal year ended
June 28, 1997 and to the reference to our firm under the heading "Experts" in
such registration statement.
KPMG Peat Marwick LLP
Baltimore, Maryland
September 22, 1997
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Valley Industries, Inc. and
Z Leasing Company:
We consent to the incorporation by reference in the registration statement of JP
Foodservice, Inc. on Form S-4 of our report dated June 17, 1996, with respect to
the combined balance sheets of Valley Industries, Inc. and Subsidiaries and Z
Leasing Company (A General Partnership) as of January 31, 1996 and the related
combined statements of earnings, stockholders' and partners' equity, and cash
flows for each of the years in the two-year period ended January 31, 1996, which
report appears in JP Foodservice's Annual Report on Form 10-K for the fiscal
year ended June 28, 1997 and to the reference to our firm under the heading
"Experts" in such registration statement.
KPMG Peat Marwick LLP
Baltimore, Maryland
September 22, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of JP Foodservice,
Inc. of our report dated August 2, 1996, except as to Note 16, which is as of
September 10, 1996 and except as to the pooling of interests with Valley
Industries, Inc. and with Squeri Foods, Inc. which is as of November 14, 1996,
which appears on page F-2 of JP Foodservice, Inc.'s Annual Report on Form 10-K
for the year ended June 28, 1997. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Linthicum, Maryland
September 16, 1997
<PAGE>
Exhibit 99.5
CONSENT OF MARK VAN STEKELENBURG
I hereby consent to the references to, and information with respect to,
me in my capacity as a proposed member of the Board of Directors of the
Registrant wherever such references and information appear in the Registration
Statement, including the Joint Proxy Statement/Prospectus constituting a part
thereof, and all amendments thereof.
MARK VAN STEKELENBURG
Wilkes-Barre, Pennsylvania
August 1, 1997
<PAGE>
Exhibit 99.7
CONSENT OF JAMES P. MISCOLL
I hereby consent to the references to, and information with respect to,
me in my capacity as a proposed member of the Board of Directors of the
Registrant wherever such references and information appear in the Registration
Statement, including the Joint Proxy Statement/Prospectus constituting a part
thereof, and all amendments thereof.
JAMES P. MISCOLL
Wilkes-Barre, Pennsylvania
August 1, 1997
<PAGE>
Exhibit 99.8
CONSENT OF NEIL I. SELL
I hereby consent to the references to, and information with respect to, me
in my capacity as a proposed member of the Board of Directors of the Registrant
wherever such references and information appear in the Registration Statement,
including the Joint Proxy Statement/Prospectus constituting a part thereof, and
all amendments thereof.
NEIL I. SELL
Wilkes-Barre, Pennsylvania
August 1, 1997
<PAGE>
Exhibit 99.9
CONSENT OF BERNARD SWEET
I hereby consent to the references to, and information with respect to, me
in my capacity as a proposed member of the Board of Directors of the Registrant
whenever such references and information appear in the Registration Statement,
including the Joint Proxy Statement/Prospectus constituting a part thereof, and
all amendments thereof.
BERNARD SWEET
Wilkes-Barre, Pennsylvania
August 1, 1997
