<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1997
REGISTRATION NO. 333-32711
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
JP FOODSERVICE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5141 52-1634568
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
----------------
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)
----------------
<TABLE>
COPIES TO:
<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. [_]
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
LOGO JP Foodservice, Inc.
Dear Stockholder: 9830 Patuxent Woods Drive
Columbia, Maryland 21046
Telephone: (410) 312-7100
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 December 23, 1997 at 10:00 a.m.,
local time, at JP Foodservice's corporate headquarters at 9830 Patuxent Woods
Drive, Columbia, Maryland.
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 0.775 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, President 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 completion 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 (WITH ONE DIRECTOR ABSENT) HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND 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 if you previously have
returned your proxy card.
<PAGE>
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,
LOGO
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 DECEMBER 23, 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
December 23, 1997 at 10:00 a.m., local time, at 9830 Patuxent Woods Drive,
Columbia, Maryland (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 0.775 (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
22,500,000 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 preceding
the fifth trading day prior to consummation of the Merger. The aggregate
amount of such cash to be paid, which will not be material to the combined
company, cannot be precisely determined until the effective time of the
Merger, but will not exceed the product of 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. A COPY OF THE
MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THE JOINT PROXY
STATEMENT/PROSPECTUS.
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, Inc. 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, Inc.
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
<PAGE>
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 business as may properly come before 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 November 10, 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 at 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.
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
LOGO
David M. Abramson
Secretary
Columbia, Maryland
November 24, 1997
<PAGE>
[LOGO OF RYKOFF Rykoff-Sexton, Inc.
SEXTON(R) APPEARS HERE] 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 December 23, 1997 at 10:00 a.m., local time, at The East
Mountain Inn, 2400 East End Boulevard, Wilkes-Barre, Pennsylvania 18702.
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 0.775 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 over 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 sales of more than $5.1
billion, constituting the nation's second largest broadline foodservice
distribution company.
The combination 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.
<PAGE>
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
November 10, 1997, the record date for the Rykoff-Sexton Special Meeting.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF RYKOFF-SEXTON HAS
UNANIMOUSLY 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
enclosed postage prepaid envelope. If you attend the Rykoff-Sexton Special
Meeting, you may vote in person if you wish, even if 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,
LOGO
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 DECEMBER 23, 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 The
East Mountain Inn, 2400 East End Boulevard, Wilkes-Barre, Pennsylvania 18702,
on December 23, 1997 at 10:00 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 (i) Rykoff-Sexton will be merged with and into
Merger Sub (the "Merger"), and (ii) 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 0.775 (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 22,500,000 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
preceding the fifth trading day prior to consummation of the Merger. The
aggregate amount of such cash to be paid, which will not be material to the
combined company, cannot be precisely determined until the effective time
of the Merger, but will not exceed the product of 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. A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THE
JOINT PROXY STATEMENT/PROSPECTUS.
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 November 10, 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 at 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.
<PAGE>
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
LOGO
Robert J. Harter, Jr.
Secretary
Wilkes-Barre, Pennsylvania
November 24, 1997
<PAGE>
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 December 23, 1997 at 10:00 a.m., local time, at
9830 Patuxent Woods Drive, Columbia, Maryland, for the purposes set forth in
the Notice that is being sent 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 December 23, 1997 at 10:00 a.m., local time,
at The East Mountain Inn, 2400 East End Boulevard, Wilkes-Barre, Pennsylvania,
18702 for the purposes set forth in the Notice that is being sent 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 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 and November 5, 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 0.775 of a JP Foodservice Common Share.
SEE "RISK FACTORS" BEGINNING ON PAGE 24 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 November 24, 1997.
This Joint Proxy Statement/Prospectus does not cover any resales of JP
Foodservice Common Shares or warrants (or JP Foodservice Common Shares
issuable upon the exercise of any warrants) 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 November 24, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 1
FORWARD-LOOKING STATEMENTS................................................ 3
SUMMARY................................................................... 4
The Companies........................................................... 4
Meetings of Stockholders................................................ 4
The Merger.............................................................. 7
Dividends and Market Prices of JP Foodservice and Rykoff-Sexton Common
Shares................................................................. 17
Summary Unaudited Pro Forma Combined Consolidated Financial Data of JP
Foodservice and Rykoff-Sexton.......................................... 20
Summary Historical Consolidated Financial Data of JP Foodservice........ 21
Summary Historical Consolidated Financial Data of Rykoff-Sexton......... 22
Comparative Unaudited Per Share Data.................................... 23
RISK FACTORS.............................................................. 24
Uncertainties in Integrating Business Operations and Achieving Cost Sav-
ings; Possible Dilution................................................ 24
Effect of Significant Indebtedness on Results of Operations and Finan-
cial Condition of Combined Company..................................... 24
Offer to Purchase Rykoff-Sexton Senior Subordinated Notes............... 25
Shares Eligible for Future Sale......................................... 25
Potential Influence by and Relationship with ML Investors............... 26
Factors Relating to Future Acquisitions................................. 27
JP Foodservice Dividend Policy.......................................... 27
Fixed Exchange Ratio.................................................... 27
THE JP FOODSERVICE ANNUAL MEETING......................................... 28
Date, Time and Place of Meeting......................................... 28
Record Date and Outstanding Shares...................................... 28
Voting of Proxies....................................................... 28
Vote Required........................................................... 28
Quorum; Broker Non-Votes................................................ 29
Solicitation of Proxies and Expenses.................................... 29
THE RYKOFF-SEXTON SPECIAL MEETING......................................... 30
Date, Time and Place of Meeting......................................... 30
Record Date and Outstanding Shares...................................... 30
Voting of Proxies....................................................... 30
Vote Required........................................................... 30
Quorum; Broker Non-Votes................................................ 30
Solicitation of Proxies and Expenses.................................... 31
THE MERGER................................................................ 32
General................................................................. 32
Background of the Merger................................................ 32
Recommendation of the JP Foodservice Board of Directors; Reasons for the
Merger................................................................. 43
Recommendation of the Rykoff-Sexton Board of Directors; Reasons for the
Merger................................................................. 46
Potential Cost Savings and Operating Synergies.......................... 48
Opinions of Financial Advisors to JP Foodservice........................ 49
Opinions of Financial Advisors to Rykoff-Sexton......................... 55
Interests of Certain Persons in the Merger.............................. 62
Certain Federal Income Tax Consequences................................. 65
Restrictions on Resale of JP Foodservice Common Shares by Affiliates.... 67
Amendments to Rights Plans.............................................. 68
Clearance Under Federal Antitrust Laws.................................. 68
</TABLE>
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Accounting Treatment................................................... 68
Listing of JP Foodservice Common Shares on the NYSE.................... 69
Absence of Dissenters' Rights.......................................... 69
Exchange of Certificates............................................... 70
THE MERGER AGREEMENT..................................................... 70
General................................................................ 70
Effective Time......................................................... 71
Representations and Warranties......................................... 71
Business of Rykoff-Sexton Pending the Merger........................... 72
Business of JP Foodservice Pending the Merger.......................... 74
No Solicitation........................................................ 75
Certain Other Covenants................................................ 75
Conditions; Waivers.................................................... 77
Amendment; Termination................................................. 79
Termination Fees....................................................... 80
Expenses............................................................... 81
OTHER AGREEMENTS......................................................... 82
Support Agreement...................................................... 82
Stock Option Agreements................................................ 83
Standstill Agreement................................................... 86
Registration Rights Agreement.......................................... 91
UNAUDITED PRO FORMA COMBINING CONSOLIDATED FINANCIAL STATEMENTS FOR THE
MERGER.................................................................. 93
DESCRIPTION OF PROPOSED NEW FINANCING ARRANGEMENTS....................... 101
New Credit Facility.................................................... 101
Receivables Securitization............................................. 103
OWNERSHIP OF JP FOODSERVICE COMMON SHARES................................ 104
MANAGEMENT OF JP FOODSERVICE AFTER THE MERGER............................ 107
Directors.............................................................. 107
Executive Officers..................................................... 110
JP Foodservice Executive Compensation.................................. 112
Rykoff-Sexton Executive Compensation................................... 119
JP FOODSERVICE ANNUAL MEETING PROPOSALS.................................. 126
JP Foodservice Director Election Proposal.............................. 127
JP Foodservice Charter Amendment Proposal.............................. 129
JP Foodservice Stock Incentive Plan Amendment Proposal................. 130
JP Foodservice Director Plan Amendment Proposal........................ 138
Independent Accountants................................................ 143
Section 16(a) Beneficial Ownership Reporting Compliance................ 144
Stockholder Proposals for 1998 JP Foodservice Annual Meeting........... 144
DESCRIPTION OF JP FOODSERVICE............................................ 145
DESCRIPTION OF RYKOFF-SEXTON............................................. 146
DESCRIPTION OF JP FOODSERVICE CAPITAL STOCK.............................. 147
General................................................................ 147
Common Shares, Rights and Series A Preferred Stock..................... 147
Preferred Stock........................................................ 150
WARRANTS................................................................. 151
DESCRIPTION OF RYKOFF-SEXTON CAPITAL STOCK............................... 152
</TABLE>
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General................................................................ 152
Common Shares, Rights and Series A Preferred Stock..................... 152
Preferred Stock........................................................ 155
COMPARATIVE RIGHTS OF JP FOODSERVICE STOCKHOLDERS AND RYKOFF-SEXTON
STOCKHOLDERS............................................................ 156
Authorized Shares of Capital Stock; Dividend Rights.................... 156
Voting Rights.......................................................... 157
Supermajority Voting Requirements; Business Combinations............... 157
Appraisal Rights....................................................... 158
Special Meetings of Stockholders....................................... 159
Stockholder Action Without a Meeting................................... 159
Stockholder Proposal Procedures........................................ 159
Stockholder Rights Plan................................................ 159
Classified Board of Directors.......................................... 160
Nominations of Directors............................................... 160
Removal of Directors................................................... 160
Vacancies in the Board of Directors.................................... 161
Indemnification........................................................ 161
Limitation of Personal Liability of Directors.......................... 161
Amendment of Charter Documents......................................... 161
Amendment of By-Laws................................................... 162
LEGAL MATTERS............................................................ 162
EXPERTS.................................................................. 162
STOCKHOLDER PROPOSALS.................................................... 162
OTHER MATTERS............................................................ 163
</TABLE>
APPENDICES
Appendix AAgreement and Plan of Merger
Appendix BOpinion of Goldman, Sachs & Co.
Appendix COpinion of Smith Barney Inc.
Appendix DOpinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Appendix EOpinion of Wasserstein Perella & Co.
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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 also may 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 and
the warrants 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 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 December 8, 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, as amended by Form 10-K/A-1 filed October 24, 1997 (the "JP
Foodservice Annual Report on Form 10-K");
2. JP Foodservice's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 27, 1997;
3. JP Foodservice's Current Reports on Form 8-K dated June 30, 1997,
September 3, 1997 and November 5, 1997;
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4. 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
5. 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 Annual 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:
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");
2. Rykoff-Sexton's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 27, 1997; and
3. Rykoff-Sexton's Current Reports on Form 8-K dated June 30, 1997,
September 3, 1997 and November 5, 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, 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.
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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."
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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 and
Performance Share Awards (as defined herein) outstanding as of September 27,
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, 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 December 23, 1997 at 10:00 a.m., local time, at 9830 Patuxent Woods Drive,
Columbia, Maryland.
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Rykoff-Sexton Special Meeting. The Rykoff-Sexton Special Meeting will be held
on December 23, 1997 at 10:00 a.m., local time, at The East Mountain Inn, 2400
East End Boulevard, Wilkes-Barre, Pennsylvania 18702.
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 take the following
actions:
(i) consider and vote upon a proposal to approve the issuance of JP
Foodservice Common Shares in connection with the Merger (the "JP
Foodservice Merger Proposal");
(ii) 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 (the "JP Foodservice Director Election
Proposal");
(iii) consider and vote upon 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) consider and vote upon a proposal to (a) amend the 1994 JP
Foodservice, Inc. 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 (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");
(v) consider and vote upon a proposal to amend the JP Foodservice, Inc.
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"); and
(vi) transact such other business as may properly come before the JP
Foodservice Annual Meeting or any one or more adjournments or postponements
thereof.
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 such company's 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 November 10, 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 22,608,346 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.
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Rykoff-Sexton Special Meeting. Holders of record of Rykoff-Sexton Common
Shares at the close of business on November 10, 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
28,659,933 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 on the JP Foodservice Record Date. 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 on the Rykoff-Sexton
Record Date. 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 2.6% 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."
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 (other than
the ML Entities (as defined herein) and their designees on the Rykoff-Sexton
Board Directors), as a group beneficially owned approximately 3.9% 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
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"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 0.775 (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
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 preceding the fifth
trading day prior to 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 22,502,275 JP
Foodservice Common Shares, which is expected to represent approximately 50% of
the outstanding JP Foodservice Common Shares immediately after the Merger. The
ML Investors will receive an aggregate of 7,808,903 JP Foodservice Common
Shares, which is expected to represent approximately 17% of the outstanding JP
Foodservice Common Shares immediately after the Merger. See "The Merger
Agreement--General--Conversion of Rykoff-Sexton Common Shares."
Assumption of Stock Options and Warrants
As of September 27, 1997, Rykoff-Sexton had outstanding options (the
"Options") to purchase 2,004,918 Rykoff-Sexton Common Shares under certain
director and employee stock plans (the "Rykoff-Sexton Stock Plans") and
outstanding warrants (the "Warrants") to purchase 336,637 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. Subject to the foregoing, there is no limitation on the number
of JP Foodservice Common Shares that may be issued in connection with the
Assumed Options and the Assumed Warrants. Based on the outstanding Options and
the Warrants described above, 1,814,705
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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."
Recommendations of the Boards of Directors
JP Foodservice Board of Directors. The JP Foodservice Board of Directors
(with one director absent) has 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. The Rykoff-Sexton Board of Directors 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 unanimously 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 November 5, 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 from a financial point of view
to JP Foodservice. The full texts of the written opinions of Goldman Sachs and
Smith Barney dated November 5, 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 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. 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 as
Appendix D and Appendix E, respectively, to this Joint Proxy
Statement/Prospectus. 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."
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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 in the Merger (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")
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 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 on 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
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agreement (the "Registration Rights Agreement"), pursuant to which the ML
Investors were granted certain "demand" and "piggyback" rights and other
stockholders 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 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 8,943,517 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 2,004,918 Options outstanding under
the Rykoff-Sexton Stock Plans as of September 27, 1997, 1,209,173 were fully
vested and exercisable as of that date. Of the remaining Options, 395,388 will
automatically become fully vested upon stockholder approval of the Rykoff-
Sexton Proposal. As of September 27, 1997, directors and executive officers of
Rykoff-Sexton held 840,930 Options that are expected to be Assumed Options and
that may be converted into the right to receive 651,720 JP Foodservice Common
Shares at the Exchange Ratio.
As of September 27, 1997, 150,977 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 349,000
Rykoff-Sexton Common Shares were subject to outstanding performance share
awards (the "Performance Share Awards") granted under the Rykoff-Sexton Stock
Plans. As of September 27, 1997, directors and executive officers of Rykoff-
Sexton held 47,374 Restricted Shares and 346,000 Performance Share Awards. 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--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 will thereafter
be converted, at the Effective Time, into the right to receive 304,864
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
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
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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
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 Original Exchange Ratio (as defined herein). 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 June 27, 1997, 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."
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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,
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 $499 million as of September 27, 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 Antitrust Division and the FTC on September 8,
1997. The required waiting period under the HSR Act with respect to such
filings expired on October 8, 1997. 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 expired on October 10, 1997. 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
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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, ChaseMellon
Shareholder Services, L.L.C. (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 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
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JP Foodservice or Rykoff-Sexton; approval of NYSE listing of the JP Foodservice
Common Shares to be issued in connection with the Merger; 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 interests
accounting relative to Rykoff-Sexton and the Merger. Other conditions include
the accuracy of representations and warranties by JP Foodservice and Rykoff-
Sexton contained in, and as of the dates specified 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 (except as specified in the Merger Agreement) of their obligations
under the Merger Agreement; 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 (except as
specified in the Merger Agreement) any of its representations, warranties,
covenants or other agreements contained in the Merger Agreement, which breach
or failure (x) in the case of a breach of any representation or warranty, 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 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
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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-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 to 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
15
<PAGE>
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 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 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."
16
<PAGE>
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 .............................................. $32.44 $28.25
Second Quarter (through November 20, 1997).................. 34.13 27.50
</TABLE>
JP Foodservice has never declared or paid a cash dividend on the JP
Foodservice Common Shares 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."
17
<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 ..................................... $26.88 $22.63 --
Second Quarter (through November 20, 1997)......... 28.31 19.81 --
</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 other factors as the Rykoff-Sexton Board of Directors
considers relevant. In light of the pending Merger, the Rykoff-Sexton Board of
Directors determined not to declare a dividend in the first quarter of fiscal
1998.
18
<PAGE>
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 November 20, 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 $23.35
November 20, 1997............... $28.94 $22.13 $22.43
</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.
19
<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 and the three months ended September 28, 1996
and September 27, 1997 of JP Foodservice and Rykoff-Sexton reflecting the
consummation of the Merger and (ii) unaudited pro forma combined balance sheet
data as of September 27, 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 pro forma combined
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
$14 million during the first twelve-month period following the Effective Time,
$20 million during the second twelve-month period following the Effective Time
and $30 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 to $10 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. Results for
the three months ended September 27, 1997 are not necessarily indicative of the
results which may be expected for any other interim periods or for the year as
a whole.
<TABLE>
<CAPTION>
PRO FORMA COMBINED PRO FORMA COMBINED
FISCAL YEAR ENDED (1) THREE MONTHS ENDED
--------------------------------- ---------------------------
JULY 1, JUNE 29, JUNE 28, SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1996 1997
---------- ---------- ---------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............. $2,857,334 $3,238,781 $5,169,406 $1,319,189 $1,338,828
Gross profit.......... 594,515 652,685 1,003,074 248,118 256,245
Amortization of intan-
gible assets......... 2,792 4,244 15,349 3,530 3,682
Impairment of long-
lived assets......... -- 29,700 -- -- --
Executive severance
compensation......... -- -- 4,000 -- 1,100
Reversal of restruc-
turing charges....... -- (6,441) (4,000) -- --
Income from opera-
tions................ 64,852 34,736 145,824 30,993 35,719
Interest expense and
other financing
costs, net........... 32,941 32,527 76,063 18,063 18,927
Income from continuing
operations before
income taxes......... 31,911 692 64,361 7,630 16,792
Income from continuing
operations........... 18,303 133 38,286 4,100 9,789
Net income............ 37,209 133 38,286 4,100 9,789
Per share data:
Income from
continuing
operations per
common share........ $ 0.75 $ 0.00 $ 0.87 $ 0.10 $ 0.22
Net income per common
share............... 1.52 0.00 0.87 0.10 0.22
Weighted average
number of shares of
common stock and
common stock
equivalents
outstanding......... 24,520 30,388 44,061 42,380 45,246
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED AS OF
SEPTEMBER 27, 1997
------------------
<S> <C>
BALANCE SHEET DATA:
Total assets............................................... $1,832,116
Long-term debt, excluding current maturities............... 672,376
Stockholders' equity....................................... 544,995
</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.
20
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF JP FOODSERVICE
The following summary 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 and the three months ended September 28, 1996 and September
27, 1997 incorporated herein by reference. The consolidated statement of
operations data for the four fiscal years ended June 28, 1997 and the balance
sheet data as of 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.
Interim data for the three months ended September 28, 1996 and September 27,
1997 and as of September 27, 1997 are unaudited, but include, in the opinion of
management of JP Foodservice, all adjustments (consisting only of normal
recurring adjustments, except as otherwise noted) necessary for a fair
presentation of such data. Results for the three months ended September 27,
1997 are not necessarily indicative of the results which may be expected for
any other interim periods or for the year as a whole.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------------------------------------- ---------------------------
JULY 3, JULY 2, JULY 1, JUNE 29, JUNE 28, SEPTEMBER 28, SEPTEMBER 27,
1993(1) 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <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 $414,362 $467,890
Gross profit........... 199,008 199,718 218,821 250,506 295,690 70,731 82,146
Amortization of intan-
gible
assets................ 2,266 2,265 2,263 2,338 2,918 597 776
Stock compensation
charge................ -- -- 709 -- -- -- --
Income from opera-
tions................. 29,766 33,536 38,359 45,215 60,337 12,467 15,898
Nonrecurring charges... -- -- -- 1,517 5,400 5,300 --
Interest expense and
other
financing costs,
net................... 38,577 32,255 22,074 15,187 16,522 3,654 4,399
Income (loss) before
income taxes and ex-
traordinary item...... (8,811) 1,281 16,285 28,511 38,415 3,513 11,499
Income (loss) before
extraordinary item.... (6,620) (298) 8,927 16,913 22,248 2,054 6,941
Net income (loss)...... (6,620) (298) 4,337 16,913 22,248 2,054 6,941
Per share data:
Income (loss) per
common share before
extraordinary item.. $ (1.95) $ (0.17) $ 0.68 $ 0.90 $ 1.02 $ 0.10 $ 0.31
Net income (loss) per
common share........ (1.95) (0.17) 0.33 0.90 1.02 0.10 0.31
Weighted average
number of shares of
common stock and
common stock
equivalents
outstanding......... 4,633 4,633 13,104 18,809 21,862 20,640 22,603
</TABLE>
<TABLE>
<CAPTION>
AS OF
----------------------
JUNE 28, SEPTEMBER 27,
1997 1997
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $524,148 $567,452
Long-term debt, excluding current maturities........... 168,515 173,714
Stockholders' equity................................... 228,946 236,074
</TABLE>
- --------
(1) 53-week fiscal year.
21
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF RYKOFF-SEXTON
The following summary 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, for the nine-week transition period ended June 29, 1996 and as of and
for the three months ended September 28, 1996 and September 27, 1997
incorporated herein by reference. The consolidated statement of operations data
for the four fiscal years ended April 27, 1996 and for the fiscal year ended
June 28, 1997 and the balance sheet data as of June 28, 1997 have been derived
from Rykoff-Sexton's audited consolidated financial statements and notes
thereto. Interim data for the three months ended September 28, 1996 and
September 27, 1997 and as of September 27, 1997 are unaudited, but include, in
the opinion of management of Rykoff-Sexton, all adjustments (consisting only of
normal recurring adjustments, except as otherwise noted) necessary for a fair
presentation of such data. Results for the three months ended September 27,
1997 are not necessarily indicative of the results which may be expected for
any other interim periods or for the year as a whole.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------------------------------------- ---------------------------
MAY 1, APRIL 30, APRIL 29, APRIL 27, JUNE 28, SEPTEMBER 28, SEPTEMBER 27,
1993 1994 1995 1996(1) 1997(2) 1996 1997
---------- ---------- ---------- ---------- ---------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $1,412,943 $1,444,226 $1,569,019 $1,789,478 $3,477,493 $904,827 $870,938
Gross profit(3)............ 348,016 352,247 375,694 402,179 707,384 177,387 174,099
Amortization of intangible
assets.................... 460 156 529 1,906 12,431 2,933 2,906
Executive severance
compensation.............. -- -- -- 4,000 -- 1,100
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 18,526 19,821
Interest expense and other
financing costs, net...... 12,401 11,946 10,867 17,340 59,541 14,409 14,528
Income (loss) from
continuing operations
before income taxes....... (38,352) 6,926 15,626 (27,819) 25,946 4,117 5,293
Income (loss) from
continuing operations..... (24,150) 4,121 9,376 (16,780) 16,038 2,046 2,848
Net income (loss).......... (18,960) 5,918 32,872 (16,780) 16,038 2,046 2,848
Per share data:
Income (loss) from
continuing operations
per common share........ $ (1.66) $ 0.28 $ 0.64 $ (1.12) $ 0.56 $ 0.07 $ 0.10
Net income (loss) per
common share............ (1.30) 0.40 2.24 (1.12) 0.56 0.07 0.10
Weighted average number
of shares of common
stock and common stock
equivalents outstanding.. 14,508 14,601 14,730 14,941 28,644 28,051 29,217
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------
JUNE 28, SEPTEMBER 27,
1997 1997
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $1,219,022 $1,277,406
Long-term debt, excluding current maturities......... 486,731 498,662
Stockholders' equity................................. 354,173 368,191
</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.
22
<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 each 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 0.775.
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
$14 million during the first twelve-month period following the Effective Time,
$20 million during the second twelve-month period following the Effective Time
and $30 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 to $10 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 per share data presented below 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. Interim data for the three months ended
September 28, 1996 and September 27, 1997 and as of September 27, 1997 are
unaudited, but include, in the opinion of management of JP Foodservice (with
respect to the JP Foodservice data) and Rykoff-Sexton (with respect to the
Rykoff-Sexton data), all adjustments (consisting only of normal recurring
adjustments, except as otherwise noted) necessary for a fair presentation of
such data. Results for the three months ended September 27, 1997 are not
necessarily indicative of the results which may be expected for any other
interim periods or for the year as a whole.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------- ---------------------------
JULY 1, JUNE 29, JUNE 28, SEPTEMBER 28, SEPTEMBER 27,
JP FOODSERVICE 1995 1996 1997 1996 1997
- -------------- --------- --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income from continuing
operations per common
share:
Historical............ $0.68 $ 0.90 $ 1.02 $0.10 $ 0.31
Pro forma............. 0.75 0.00 0.87 0.10 0.22
Cash dividends per
common share(1)........ 0.00 0.00 0.00 0.00 0.00
Book value per common
share:
Historical............ 10.13 10.44
Pro forma............. 12.08
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------- ---------------------------
APRIL 29, APRIL 27, JUNE 28, SEPTEMBER 28, SEPTEMBER 27,
RYKOFF-SEXTON 1995 1996 1997 1996 1997
- ------------- --------- --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
per common share:
Historical............ $0.64 $(1.12) $ 0.56 $0.07 $ 0.10
Equivalent pro forma.. 0.58 0.00 0.67 0.08 0.17
Cash dividends per
common share........... 0.03 0.06 0.06 0.03(2) 0.00
Book value per common
share:
Historical............ 12.64 12.88
Equivalent pro forma.. 9.36
</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. See "Risk Factors--JP Foodservice
Dividend Policy."
(2) From April 29, 1996 through September 28, 1996.
23
<PAGE>
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." The
managements 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 $14 million during the first twelve-
month period following the Effective Time, $20 million during the second
twelve-month period following the Effective Time and $30 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 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, such cost savings and efficiencies are not
otherwise achieved or achieved on a timely basis, or unforeseen costs and
expenses or other factors arise that offset cost savings, JP Foodservice's
operating results would be negatively affected and the Merger could be
dilutive to holders of JP Foodservice Common Shares. Earnings per share is
calculated by dividing net income by an average number of common shares
assumed to be outstanding. Dilution to earnings per JP Foodservice Common
Share could be experienced by a JP Foodservice stockholder if, as a result of
an inability of the combined company to realize expected cost savings and
other 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 connection with the
Merger based on the Exchange Ratio (including the JP Foodservice Common Shares
issuable upon exercise of the Assumed Options and the Assumed Warrants). See
"The Merger--Opinions of Financial Advisors to JP Foodservice." The Merger is
currently expected to be dilutive to holders of JP Foodservice Common Shares
in fiscal 1998.
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 assuming such transactions had occurred on September 27,
24
<PAGE>
1997, JP Foodservice's total indebtedness (excluding current maturities) would
have been approximately $672.4 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 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. There can be no assurance as to the principal amount of
Rykoff-Sexton Public Notes that may be tendered in acceptance of 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. Repurchase
of Rykoff-Sexton Public Notes is not expected to have a material adverse
effect on the combined company's results of operations or financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the Merger, the ML Investors will beneficially own
approximately 17% 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
25
<PAGE>
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 17% 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.
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.
26
<PAGE>
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 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 (or, if JP Foodservice does
not obtain the New Credit Facility, to restrictions contained in the Existing
Bank Credit Facilities) 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 such agreements and the Indenture 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 0.775 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, 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."
27
<PAGE>
THE JP FOODSERVICE ANNUAL MEETING
DATE, TIME AND PLACE OF MEETING
The JP Foodservice Annual Meeting will be held on December 23, 1997, at
10:00 a.m., local time, at 9830 Patuxent Woods Drive, Columbia, Maryland.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of JP Foodservice Common Shares at the close of business
on November 10, 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 22,608,346 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 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.
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 2.6% 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."
28
<PAGE>
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,
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 DETERMINED THE MERGER TO BE IN
THE BEST INTERESTS OF JP FOODSERVICE AND ITS STOCKHOLDERS. ACCORDINGLY, THE
BOARD OF DIRECTORS (WITH ONE DIRECTOR ABSENT) HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER AND 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.
29
<PAGE>
THE RYKOFF-SEXTON SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Rykoff-Sexton Special Meeting will be held on December 23, 1997, at
10:00 a.m., local time, at The East Mountain Inn, 2400 East End Boulevard,
Wilkes-Barre, Pennsylvania 18702.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of Rykoff-Sexton Common Shares at the close of business on
November 10, 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 28,659,933 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 (other than the ML Entities and their designees
on the Rykoff-Sexton Board of Directors), as a group beneficially owned
approximately 3.9% 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 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 adoption of
the Merger Agreement. 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,
30
<PAGE>
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 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 ChaseMellon
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
UNANIMOUSLY 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 0.775 of a JP Foodservice Common Share. Holders of Rykoff-Sexton
Common Shares immediately before the Merger will receive an aggregate of
22,502,275 JP Foodservice Common Shares, which is expected to represent
approximately 50% of the JP Foodservice Common Shares outstanding immediately
after the Merger. The ML Investors will receive an aggregate of 7,808,903 JP
Foodservice Common Shares, which is expected to represent approximately 17% 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 September 27, 1997, 1,814,705 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 whom will be individuals designated by MLCP,
one of whom will be Mark 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, President 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
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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 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. As consideration for the acquisition, Rykoff-
Sexton assumed or discharged certain liabilities of the acquired business and
paid consideration of $27.2 million, consisting of $24.8 million of cash
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and the issuance of unsecured promissory notes for $2.4 million. 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. As consideration
for the acquisition, Rykoff-Sexton assumed or discharged certain liabilities
of the acquired business and paid consideration of $29.5 million, consisting
of $4.7 million of cash and the issuance of unsecured promissory notes for
$24.8 million. 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 $204.0 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 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
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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 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 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
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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 also 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 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, management succession issues and potential
synergistic opportunities provided by a combination transaction.
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On May 8 , 1997, Messrs. Miller and 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 or was 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 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 an exchange ratio of 0.84 of a JP Foodservice Common Share for each
Rykoff-Sexton Common Share (the "Original 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-
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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 which was executed on
June 30, 1997 (as amended as of September 3, 1997, the "Original 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.
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 Original 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 Original 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 its 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 Original 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 Original Merger Agreement were fair to and in
the best interests of the stockholders of Rykoff-Sexton, unanimously approved
the Original Merger Agreement and recommended that the Original 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 Original 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, with
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respect to the Original Exchange Ratio. Such opinions have been superseded by
the opinions dated November 5, 1997 discussed below under "--Opinions of
Financial Advisors to JP Foodservice." After discussion and consideration, the
JP Foodservice Board unanimously determined that the Original Merger Agreement
and the transactions contemplated thereby were in the best interests of JP
Foodservice and its stockholders, unanimously approved the Original 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 Original Merger Agreement, and JP Foodservice, as the sole
stockholder of Merger Sub, approved and adopted the Original Merger Agreement.
On June 30, 1997, the Original 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.
Following execution of the Original Merger Agreement, Rykoff-Sexton and JP
Foodservice continued to meet to prepare for the meetings of stockholders of
the two companies called for in the Original Merger Agreement and to prepare
for the anticipated consummation of the Merger. Effective September 3, 1997,
JP Foodservice and Rykoff-Sexton executed an amendment to the Original Merger
Agreement to provide for certain matters relating to the Assumed Options and
to the business of Rykoff-Sexton pending the Merger.
In August 1997, Rykoff-Sexton announced its fiscal 1997 operating results.
Those results reflected the impact of certain expenses associated with the
consolidation and integration of the operations of Rykoff-Sexton and US
Foodservice, which was acquired by Rykoff-Sexton in May 1996. Such expenses,
which were principally of a non-recurring nature, related primarily to the
closure or consolidation of, or other significant changes (including customer
rationalization and territorial realignment) affecting, numerous divisions and
sales offices. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Rykoff-Sexton Annual
Report on Form 10-K.
In September 1997, JP Foodservice management conducted a review of Rykoff-
Sexton's fiscal year 1997 financial performance to evaluate certain
assumptions concerning the estimated financial results of Rykoff-Sexton which
were provided by Rykoff-Sexton and used in determining the Original Exchange
Ratio in June 1997. As part of this evaluation, members of the senior
management of the two companies held a number of meetings beginning in the
latter half of September.
On September 24, 1997, the JP Foodservice Board of Directors met in a
regularly scheduled meeting at which Mr. Miller advised the Board that the
pending Merger was on track, but that management was reviewing certain
outstanding due diligence items which JP Foodservice management viewed as
potentially indicating some shortfalls in Rykoff-Sexton's recent financial
performance. Mr. Miller also expressed concerns regarding declining sales at
certain Rykoff-Sexton divisions.
In late September 1997, JP Foodservice continued to analyze Rykoff-Sexton's
operating results for the fourth quarter of fiscal 1997 and Rykoff-Sexton's
budgeted operating results for fiscal 1998. The fourth quarter fiscal 1997
operating results were below expectations of JP Foodservice management
relative to actual results for the first three quarters of fiscal 1997. The
first quarter fiscal 1998 operating results were also below expectations of JP
Foodservice management. Rykoff-Sexton advised JP Foodservice that it believed
the differences between the fourth quarter fiscal 1997 operating results
expected by JP Foodservice and the actual results were largely attributable to
non-recurring items, and that Rykoff-Sexton's first quarter fiscal 1998
operating results were in line with its budget for such fiscal quarter.
On October 3, 1997, Mr. Hay expressed JP Foodservice's concerns to Mr.
Martin regarding Rykoff-Sexton's recent financial performance. On October 8,
1997, Messrs. Miller, Hay, Megas and a representative from KPMG Peat Marwick
LLP, JP Foodservice's independent accountants, met with Messrs. Van
Stekelenburg, Martin and
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Harter and Mr. Chris Mellon, Rykoff-Sexton's Controller, to discuss these
concerns. JP Foodservice management indicated that JP Foodservice was
evaluating the potential implications of Rykoff-Sexton's fiscal 1997 financial
results and related matters under the Original Merger Agreement. Following the
October 8 meeting, JP Foodservice continued its financial review and its
discussions with Rykoff-Sexton.
Beginning on October 10, 1997, advisors to JP Foodservice and Rykoff-Sexton
discussed their differing views regarding Rykoff-Sexton's financial
performance and performance under the Original Merger Agreement.
On October 13, 1997, Messrs. Hay and Megas, together with representatives of
Goldman Sachs and Smith Barney, JP Foodservice's financial advisors, and KPMG
Peat Marwick LLP met with Messrs. Martin and Mellon and representatives of
Merrill Lynch and Wasserstein Perella, Rykoff-Sexton's financial advisors, and
Arthur Andersen LLP, Rykoff-Sexton's independent accountants. The meeting
participants discussed issues associated with, and the effect of, Rykoff-
Sexton's fiscal 1997 and fourth quarter results of operations and the outlook
for Rykoff-Sexton's results for fiscal 1998. JP Foodservice management
indicated that its review of Rykoff-Sexton's 1997 financial performance had
led it to consider whether differences in valuation of the two companies were
such that the Merger should no longer proceed on the basis of the Original
Exchange Ratio. Rykoff-Sexton's management indicated that Rykoff-Sexton's
financial performance did not result in such valuation differences and that
the Merger should proceed as originally structured.
During the week following the October 13 meeting, members of JP
Foodservice's senior management, including Messrs. Miller and Hay, and Rykoff-
Sexton's senior management, including Messrs. Van Stekelenburg and Martin, had
a number of discussions concerning Rykoff-Sexton's financial performance and
its performance under the Original Merger Agreement. During this period, both
companies exchanged preliminary operating results for the first quarter of
fiscal 1998.
On October 19, 1997, the Rykoff-Sexton Board of Directors met in a special
meeting to review and evaluate the matters under discussion with JP
Foodservice, and held discussions with senior management of Rykoff-Sexton,
Rykoff-Sexton's financial and legal advisors and Arthur Andersen LLP. At the
meeting, Mr. Van Stekelenburg reviewed with the Board the background of the
discussions that had taken place to date with, and the issues raised by, JP
Foodservice. Mr. Martin then reviewed with the Board Rykoff-Sexton's fiscal
1997 financial results, fiscal 1998 projected financial results and fiscal
1998 first quarter preliminary results. Members of senior operating management
also reviewed with the Board fiscal 1997 and fiscal 1998 first quarter results
for each of their respective regions and expressed their views that their
respective fiscal 1998 operating budgets were attainable. Legal counsel to
Rykoff-Sexton discussed with the Board the legal issues raised by the matters
under discussion and the respective rights and obligations of JP Foodservice
and Rykoff-Sexton under the Original Merger Agreement. At the conclusion of
the meeting, the Board authorized Rykoff-Sexton's senior management and two
outside representatives of the Rykoff-Sexton Board of Directors to meet with
members of JP Foodservice senior management and an outside representative of
the JP Foodservice Board of Directors for the purpose of reviewing the results
of the first quarter of fiscal 1998 and the prospects for the balance of
fiscal 1998 for both Rykoff-Sexton and JP Foodservice.
On October 20, 1997, Messrs. Miller and Hay and members of JP Foodservice's
senior operating management met with Messrs. Van Stekelenburg and Martin and
members of Rykoff-Sexton's senior operating management to discuss the fourth
quarter fiscal 1997 and the first quarter fiscal 1998 results and the
prospects for the remainder of fiscal 1998 for both JP Foodservice and Rykoff-
Sexton. At the meeting, members of Rykoff-Sexton's senior operating management
expressed their views that their respective 1998 fiscal year operating budgets
were attainable. Albert J. Fitzgibbons, III and James P. Miscoll, outside
directors of Rykoff-Sexton, and Jeffrey D. Serkes, an outside director of JP
Foodservice, also attended the meeting.
On October 21 and 22, 1997, JP Foodservice management briefed the members of
the JP Foodservice Board of Directors on the results of its review. Management
reported that, in its opinion, Rykoff-Sexton had failed to demonstrate the
improved earnings performance anticipated by JP Foodservice management for the
fourth quarter of fiscal 1997 and the first quarter of fiscal 1998 and that JP
Foodservice management believed it did not appear likely that Rykoff-Sexton
would achieve the earnings per share for fiscal 1998 projected by Rykoff-
Sexton at the time the two companies negotiated the Original Exchange Ratio.
Management informed the Board members that JP Foodservice management believed
that Rykoff-Sexton's results and prospects were adversely
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affected by higher debt levels, which were primarily attributable to changes
in timing of sales by Rykoff-Sexton of certain idle facilities, delays in
utilization of tax benefits anticipated by Rykoff-Sexton and higher investment
levels in Rykoff-Sexton's computer-related assets. Management indicated that
it believed the effect of the foregoing was to reduce the value of Rykoff-
Sexton and hence the potential benefits of the Merger at the Original Exchange
Ratio to JP Foodservice. The JP Foodservice Board members indicated their
continued support for a business combination with Rykoff-Sexton, but expressed
concern about continuing with the Merger on the terms of the Original Merger
Agreement.
On October 23, 1997, following a briefing for members of the JP Foodservice
Board of Directors on the status of discussions with Rykoff-Sexton, Mr. Miller
advised Rykoff-Sexton of the developments that JP Foodservice believed had
reduced the value of Rykoff-Sexton. Mr. Miller expressed concern regarding a
number of financial and operating representations and warranties in the Merger
Agreement (including with respect to expenses attributed to the integration of
Rykoff-Sexton and US Foodservice, expenses associated with management
information systems development costs and the timing of certain tax benefits
previously anticipated by Rykoff-Sexton) and was concerned whether Rykoff-
Sexton could achieve its 1998 earnings estimates in light of Rykoff-Sexton's
reported 1998 first quarter earnings. Mr. Miller stated that he did not
believe the JP Foodservice stockholders would approve the Merger based on the
Original Exchange Ratio. Mr. Miller stated that JP Foodservice continued to
believe in the benefits of a business combination with Rykoff-Sexton and
wished to continue discussions with Rykoff-Sexton regarding revisions to the
Original Merger Agreement.
Senior management of, and the financial and legal advisors to, the two
companies continued discussions regarding the foregoing matters between
October 23 and October 27, 1997.
On October 28, 1997, the JP Foodservice Board of Directors met in a special
meeting at which JP Foodservice's senior management, financial advisors and
legal counsel reviewed with the Board the business, financial and legal issues
related to the ongoing discussions with Rykoff-Sexton. Following consideration
of possible alternative courses of actions, the Board determined that JP
Foodservice should continue to pursue negotiations with Rykoff-Sexton
regarding an adjustment to the Original Exchange Ratio.
On October 28, 1997, the Rykoff-Sexton Board of Directors met in a special
meeting at which Rykoff-Sexton's management and Rykoff-Sexton's legal and
financial advisors reported on the status of discussions with JP Foodservice.
At the meeting, the Board considered the risks and benefits of proceeding with
a revised transaction with JP Foodservice relative to other alternatives,
including continuing as an independent company. At the conclusion of the
meeting, the Board authorized senior management to continue discussions with
JP Foodservice.
On October 28, 1997, Rykoff-Sexton advised JP Foodservice that it believed
there had been no material adverse change in Rykoff-Sexton's financial
performance (either on a historical basis or prospectively), Rykoff-Sexton had
complied with its representations and warranties in the Merger Agreement, the
specific expense items under discussion represented non-recurring items that
were not of a type or of a size that would have a material adverse effect on
Rykoff-Sexton's business, financial condition or results of operations, the
matters at issue had been disclosed to JP Foodservice prior to execution of
the Original Merger Agreement and none of the items in question should affect
the basis on which the Original Exchange Ratio had been set.
On October 29, 1997, JP Foodservice informed Rykoff-Sexton that it disputed
Rykoff-Sexton's assertions. JP Foodservice reiterated its position that
Rykoff-Sexton had breached certain representations and warranties in the
Merger Agreement, advised Rykoff-Sexton that the matters at issue had not been
disclosed to JP Foodservice prior to execution of the Original Merger
Agreement and advised Rykoff-Sexton that JP Foodservice believed such breaches
constituted a material adverse effect with respect to Rykoff-Sexton. JP
Foodservice, however, indicated that it continued to seek a prompt resolution
of the foregoing issues and was prepared to continue to discuss with Rykoff-
Sexton the achievability of its expected 1998 results.
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Between October 30 and November 3, 1997, JP Foodservice and Rykoff-Sexton
engaged in further discussions and commenced negotiations with respect to
adjusting the Original Exchange Ratio and modifying certain other terms of the
Original Merger Agreement, as described below. Mr. Miller and Mr. Van
Stekelenburg met on October 30 and 31, 1997 to discuss valuation issues and
their respective views regarding an appropriate exchange ratio in the event JP
Foodservice and Rykoff-Sexton were to agree to a revision of the Original
Merger Agreement. On October 31, 1997, Mr. Miller and Mr. Van Stekelenburg
agreed to discuss with their respective Boards of Directors the possible
change in the Original Exchange Ratio to 0.775. The proposal for an Exchange
Ratio of 0.775 was developed based on negotiations between the senior
managements of JP Foodservice and Rykoff-Sexton taking into account the
factors that had been under discussion prior to such date by the two
companies, as summarized above.
On the afternoon of October 31, 1997, the Rykoff-Sexton Board of Directors
met in a special meeting at which Mr. Van Stekelenburg reviewed with the Board
the status of the discussions with JP Foodservice on the question of valuation
and the companies' respective views regarding an appropriate exchange ratio if
JP Foodservice and Rykoff-Sexton were to agree to a revision of the Original
Merger Agreement. Rykoff-Sexton's financial advisors and legal counsel made
presentations regarding the financial and legal issues associated with
amending the Original Merger Agreement. At the conclusion of the meeting, the
Board authorized management to communicate to JP Foodservice a willingness to
amend the Original Merger Agreement to reduce the Original Exchange Ratio from
0.84 to 0.775 but only if the Original Merger Agreement were amended in a
manner that would substantially reduce the risk of non-consummation of the
Merger. It was considered that such a risk would be reduced by eliminating or
modifying certain conditions to each company's obligation to consummate the
Merger, as described herein. The Board also directed that the amendment to the
Original Merger Agreement should obligate JP Foodservice to complete and file
with the SEC this Joint Proxy Statement/Prospectus and to cause the
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part to be declared effective under the Securities Act within a short period
of time following the execution of the amendment.
Later on October 31, 1997, JP Foodservice and Rykoff-Sexton and their
respective legal advisors began negotiations regarding the provisions of a
second amendment to the Original Merger Agreement ("Amendment No. 2 to the
Merger Agreement") that would provide for the new exchange ratio of 0.775.
Consistent with the directive of the Rykoff-Sexton Board of Directors, in the
course of such negotiations, Rykoff-Sexton sought amendments to such terms of
the Original Merger Agreement as would substantially reduce the risk of non-
consummation of the Merger. JP Foodservice and Rykoff-Sexton agreed to amend
the Original Merger Agreement to eliminate as a condition to each company's
obligation to effect the Merger the absence prior to the Effective Time of any
material adverse change relating to the other company. The parties also
conducted negotiations relating to modification of closing conditions relating
to representations and warranties and to compliance with covenants in the
Merger Agreement, including the covenants relating to the operation of the
respective businesses of the companies prior to consummation of the Merger. As
executed, Amendment No. 2 to the Merger Agreement eliminated from the Original
Merger Agreement certain representations and warranties relating to the
parties' operations and financial condition and narrowed the scope of certain
other representations and warranties, the continued effectiveness of which at
the Effective Time (subject to certain qualifications as to materiality) is a
condition of the parties' obligations to consummate the Merger. See "The
Merger Agreement--Representations and Warranties" and "--Conditions; Waivers."
The parties also negotiated revisions to covenants in the Original Merger
Agreement relating to the operation of their respective businesses prior to
the Effective Time. The principal effect of such revisions was to limit
further, except as consented to by the other party in writing, the ability of
JP Foodservice and Rykoff-Sexton to take certain actions with respect to
employment, compensatory and severance arrangements involving any of their
current or former directors, officers, regional vice presidents or division
presidents and amendments to, or the adoption of, certain other employee
benefit plans and programs. See "The Merger Agreement--Business of Rykoff-
Sexton Pending the Merger" and "--Business of JP Foodservice Pending the
Merger."
On November 2, 1997, the JP Foodservice Board of Directors met in a special
meeting to consider and vote upon approval of the proposed Exchange Ratio of
0.775 and adoption of the proposed Amendment No. 2 to the Merger Agreement. 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 proposed amendment to the
Original Merger Agreement and the other matters described below
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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 November 5, 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
proposed Exchange Ratio of 0.775 was fair 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, by a unanimous vote of
the directors present, determined that the Original Merger Agreement, as
proposed to be amended by Amendment No. 2 to the Merger Agreement, and the
transactions contemplated thereby were in the best interests of JP Foodservice
and its stockholders and approved the proposed Amendment No. 2 to the Merger
Agreement.
On November 3, 1997, the Rykoff-Sexton Board of Directors met in a special
meeting. At this meeting, members of Rykoff-Sexton senior management,
Wasserstein Perella and Merrill Lynch, together with legal counsel to Rykoff-
Sexton, reviewed with the Rykoff-Sexton Board the financial and legal aspects
of a proposed amendment to the Original Merger Agreement and certain of the
other matters described below under "--Recommendation of the Rykoff-Sexton
Board of Directors; Reasons for the Merger." Members of the Rykoff-Sexton
Board discussed the potential risks and benefits of a revised transaction with
JP Foodservice relative to other alternatives, including continuing as an
independent company, current market conditions, and the terms of the proposed
amendment, including the removal of certain conditions to closing, the scope
of representations and warranties to be given by JP Foodservice and Rykoff-
Sexton, and proposed modifications to the covenants of JP Foodservice and
Rykoff-Sexton contained in the Original Merger Agreement relating to the
operation of their respective businesses prior to the Effective Time.
Following discussion, Wasserstein Perella and Merrill Lynch each delivered its
oral opinion to the Rykoff-Sexton Board, which oral opinions were subsequently
confirmed in written opinions dated November 5, 1997, to the effect that, as
of such date, the Exchange Ratio provided for in Amendment No. 2 to the Merger
Agreement 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, subject to finalizing the definitive terms of the proposed amendment,
the terms of the Original Merger Agreement, as amended, and other transactions
contemplated thereby were fair to and in the best interests of the
stockholders of Rykoff-Sexton, unanimously approved proposed Amendment No. 2
to the Merger Agreement, and recommended that the Original Merger Agreement,
as amended, be submitted for adoption by the stockholders of Rykoff-Sexton.
From November 3, 1997 to November 5, 1997, JP Foodservice and Rykoff-Sexton
and their respective legal advisors worked to finalize Amendment No. 2 to the
Merger Agreement.
On November 5, 1997, the Rykoff-Sexton Board of Directors at a special
meeting unanimously approved the definitive Amendment No. 2 to the Merger
Agreement and reaffirmed its determinations and recommendations made at the
Board of Directors meeting on November 3, 1997. In addition, on November 5,
1997, by unanimous written consent, the Board of Directors of Merger Sub
approved and adopted Amendment No. 2 to the Merger Agreement and JP
Foodservice, as the sole stockholder of Merger Sub, approved and adopted
Amendment No. 2 to the Merger Agreement.
On November 5, 1997, JP Foodservice, Rykoff-Sexton and Merger Sub executed
Amendment No. 2 to the Merger Agreement, and JP Foodservice and Rykoff-Sexton
issued a joint press release announcing the amendment to the Original Merger
Agreement effected by Amendment No. 2 to the Merger Agreement and the revised
terms of the Merger.
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 (with one director absent) has unanimously approved the Merger
Agreement and the Merger and the issuance of the JP Foodservice Common Shares
in connection with the Merger and recommends that the JP Foodservice
stockholders vote "for" the approval of the issuance of JP Foodservice Common
Shares in connection with the Merger.
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At a meeting on June 29, 1997, the JP Foodservice Board of Directors
unanimously approved the Original Merger Agreement and the transactions
contemplated thereby. At a meeting on November 2, 1997, the JP Foodservice
Board (with one director absent) unanimously approved Amendment No. 2 to the
Merger Agreement, which amended the Original Merger Agreement as described
above under "--Background of the Merger--Chronology of Events Leading up to
the Merger." Mr. Dean R. Silverman did not attend the meeting on November 2,
1997.
In evaluating a business combination with Rykoff-Sexton and the transactions
contemplated thereby, the JP Foodservice Board of Directors reviewed
presentations from, and discussed the terms and conditions of the proposed
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.
The following summary 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.
The factors considered by the JP Foodservice Board of Directors at the
meeting on June 29, 1997 included the following:
(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 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,
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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.
(iv) Opinions of Goldman Sachs and Smith Barney. The JP Foodservice Board
of Directors considered the financial analyses of Goldman Sachs and Smith
Barney and the opinions of Goldman Sachs and Smith Barney with respect to
the Original Exchange Ratio.
(v) Terms and Conditions of the Merger Agreement. The JP Foodservice
Board of Directors considered the terms and conditions of the Original
Merger Agreement. In its review, the JP Foodservice Board noted that the
Original 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 Original Merger Agreement, a 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 were terminated and the Merger were 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.
In approving Amendment No. 2 to the Merger Agreement on November 2, 1997,
the JP Foodservice Board of Directors considered the following factors, among
others: (i) management's view that a business combination with Rykoff-Sexton
would provide JP Foodservice with the strategic and other benefits considered
by the JP Foodservice Board at the meeting on June 29, 1997; (ii) the proposed
adjustment to the Original Exchange Ratio
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in light of various factors, including the financial condition, results of
operations, businesses and prospects of JP Foodservice and Rykoff-Sexton,
current industry, economic and market conditions, and other factors that led
to revision of the Original Exchange Ratio as described above under "--
Background of the Merger--Chronology of Events Leading up to the Merger";
(iii) the financial analyses of Goldman Sachs and Smith Barney
and the opinions of Goldman Sachs and Smith Barney with respect to the
Exchange Ratio described below under "--Opinions of Financial Advisors to JP
Foodservice"; and (iv) the effect on JP Foodservice of the elimination or
modification of certain customary closing conditions and covenants relating to
the Merger provided for in Amendment No. 2 to the Merger Agreement.
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 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.
At a meeting on June 29, 1997, the Rykoff-Sexton Board of Directors
unanimously approved the Original Merger Agreement and the transactions
contemplated thereby. At meetings on November 3 and 5, 1997, the Rykoff-Sexton
Board unanimously approved Amendment No. 2 to the Merger Agreement, which
amended the Original Merger Agreement as described above under "--Background
of the Merger--Chronology of Events Leading up to the Merger."
In evaluating a business combination with JP Foodservice 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.
The factors considered by the Rykoff-Sexton Board of Directors at the
meeting on June 29, 1997 included the following:
(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
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condition, results of operations and businesses of JP Foodservice, on both
a 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 Original
Merger Agreement, including the Original Exchange Ratio. The Rykoff-Sexton
Board of Directors also considered 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.
(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 Original 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 Original 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 "--
Opinions of Financial Advisors to Rykoff-Sexton."
(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
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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.
In approving Amendment No. 2 to the Merger Agreement on November 3 and
November 5, 1997, the Rykoff-Sexton Board of Directors considered the
following factors, among others: (i) management's view that a business
combination with JP Foodservice would provide Rykoff-Sexton with the strategic
and other benefits considered by the Rykoff-Sexton Board at the meeting on
June 29, 1997; (ii) the proposed adjustment to the Original Exchange Ratio in
light of various factors, including the financial condition, results of
operations and businesses of JP Foodservice and Rykoff-Sexton, current market
conditions, the elimination of certain closing conditions described under
clause (v) below and other factors that led to the revision of the Original
Exchange Ratio as described above under "--Background of the Merger--
Chronology of Events Leading up to the Merger"; (iii) the financial analyses
of Merrill Lynch and Wasserstein Perella and the opinions of Merrill Lynch and
Wasserstein Perella with respect to the Exchange Ratio described below under
"--Opinions of Financial Advisors to Rykoff-Sexton"; (iv) the risks and
benefits to Rykoff-Sexton stockholders of proceeding with a revised
transaction with JP Foodservice relative to other alternatives, including
continuing as an independent company; and (v) the effect on Rykoff-Sexton of
the elimination or modification of certain closing conditions and covenants
relating to the Merger provided for in Amendment No. 2 to the Merger
Agreement, including the substantial reduction of the risk of non-consummation
of the Merger. Copies of Merrill Lynch's and Wasserstein Perella's written
opinions to the Rykoff-Sexton Board of Directors dated November 5, 1997, the
date of Amendment No. 2 to the Merger Agreement, are attached as Appendix D
and Appendix E, respectively, to this Joint Proxy Statement/Prospectus and are
incorporated herein by reference.
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
operating cost savings of approximately $14 million during the first twelve-
month period following the Effective Time, $20 million during the second
twelve-month period following the Effective Time and $30 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 to $10 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;
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(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, 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 November
2, 1997, at a meeting of the Board of Directors of JP Foodservice held to
evaluate the Exchange Ratio and the other proposed revisions to the Original
Merger Agreement, Goldman Sachs and Smith Barney each delivered an oral
opinion (which oral opinions were subsequently confirmed by delivery of
written opinions dated November 5, 1997, the date of Amendment No. 2 to 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 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 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
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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. See the summary of the
material analyses of Goldman Sachs and Smith Barney described below for
further information with respect to the foregoing. 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 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 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 NOVEMBER 5, 1997, WHICH SET FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
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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 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,
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
November 5, 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 latest twelve months ending September 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) EBITDA and (iii) earnings before interest and taxes ("EBIT"). The
range of multiples for the Selected Companies for the latest 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 October 31,
1997 in the case of Performance Food Group Company and SYSCO Corp. and June
27, 1997 (the last trading day prior to public announcement of the Merger) in
the case of JP Foodservice and Rykoff-Sexton. Applying a range of multiples
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for the Selected Companies of estimated calendar 1998 net income and estimated
calendar 1997 revenues, EBITDA and EBITA of 13.5x to 19.6x, 0.20x to 0.50x,
7.3x to 10.9x and 9.1x to 13.1x, respectively, to corresponding financial data
for Rykoff-Sexton resulted in an equity reference range for Rykoff-Sexton of
approximately $9.06 to $26.99 per share, as compared to the equity value
implied by the Exchange Ratio of approximately $24.75 per share based on a
closing stock price of JP Foodservice Common Shares on October 31, 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 announced or effected,
in the case of Goldman Sachs, from 1984 through 1997 and, in the case of Smith
Barney, from 1995 through 1997. The selected transactions analyzed by Goldman
Sachs consisted of (acquiror/target): JP Foodservice/Mazo-Lerch Company, Inc.;
Performance Food Group Company/McLane Food Service; Nash Finch/Super Food
Services; JP Foodservice/Squeri Food Service, Inc.; JP Foodservice/Arrow Paper
and Supply Co., Inc.; JP Foodservice/Valley Industries, Inc.; 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 1997: Performance Food Group Company/AFI
Food Service Distributors; Performance Food Group Company/W.J. Powell Company,
Inc.; and JP Foodservice/Mazo-Lerch Company, Inc. (collectively, the "1997
Transactions"); (ii) 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, together with the
1997 Transactions, the "1996/1997 Transactions"); and (iii) 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 National Accounts; and
Clayton Dubilier & Rice/Kraft Foodservice (collectively, the "1995
Transactions" and, together with the 1996/1997 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 the Merger 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 1996/1997 Transactions. Applying a range of
multiples (excluding outliers) for the 1996/1997 Transactions of latest 12
months revenue, EBITDA and EBIT of 0.25x to 0.52x, 8.5x to 10.4x and 9.9x to
16.7x, respectively, to corresponding financial data for Rykoff-Sexton for
fiscal year 1997 resulted in an equity reference range for Rykoff-Sexton of
approximately $9.89 to $29.74 per share, as compared to the equity value
implied by the Exchange Ratio of approximately $24.75 per share based on a
closing stock price of JP Foodservice Common Shares on October 31, 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
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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, 37.7% of EBITDA, 41.4% of EBIT, 62.3% of net income, and 53.8% of
net income plus goodwill, of the combined company; in fiscal year 1998, JP
Foodservice would contribute approximately 36.1% of revenues, 39.2% of EBITDA,
42.5% of EBIT, 62.3% 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 36.8% of revenues, 37.7% of EBITDA, 39.9% of EBIT, 53.5% of net
income, and 48.2% 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,
(i) in fiscal year 1997, JP Foodservice would contribute approximately 32.7%
of revenues, 29.5% of gross profit, 37.7% of EBITDA, 39.4% of EBITA and 62.3%
of net income, of the combined company; (ii) in fiscal year 1998, JP
Foodservice would contribute approximately 36.1% of revenues, 32.8% of gross
profit, 39.2% of EBITDA, 40.7% of EBITA and 62.3% of net income, of the
combined company; (iii) in fiscal year 1999, JP Foodservice would contribute
approximately 36.8% of revenues, 33.6% of gross profit, 37.7% of EBITDA, 38.7%
of EBITA and 53.5% of net income, of the combined company; and (iv) in fiscal
year 2000, JP Foodservice would contribute approximately 37.5% of revenues,
34.6% of gross profit, 38.1% of EBITDA, 39.0% of EBITA and 51.5% of net
income, of the combined company. Based on the Exchange Ratio, current
stockholders of JP Foodservice and Rykoff-Sexton would own approximately 50.5%
and 49.5%, respectively, of the combined company upon consummation of the
Merger, and JP Foodservice and Rykoff-Sexton would constitute approximately
39.2% and 60.8%, 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 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 $21.47 to $33.53
per share and, in the case of Smith Barney, approximately $22.94 to $31.76 per
share, as compared to the equity value implied by the Exchange Ratio
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of approximately $24.75 per share based on a closing stock price of JP
Foodservice Common Shares on October 31, 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 (assuming a closing date for the
Merger of December 31, 1997) 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 dilutive to JP
Foodservice's EPS in fiscal year 1998 and accretive to JP Foodservice's EPS in
fiscal years 1999 and 2000, 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 0.775. 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 (the last
trading day prior to public announcement of the Merger) and the period from JP
Foodservice's initial public offering (November 15, 1994) 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 0.775.
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; 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.
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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 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. In
connection with the Original Merger Agreement, 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 Original 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,
collectively, the "Original Rykoff-Sexton Fairness Opinions") 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.
In connection with the Merger Agreement, representatives of Merrill Lynch
and Wasserstein Perella attended the meeting of the Rykoff-Sexton Board of
Directors on November 3, 1997 at which the Rykoff-Sexton Board of Directors
considered and approved the Merger Agreement as amended by Amendment No. 2 to
the Merger Agreement. At that meeting, each of Merrill Lynch and Wasserstein
Perella orally rendered its respective opinion (subsequently confirmed in
writing as of November 5, 1997, the date of Amendment No. 2 to the Merger
Agreement) 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 Rykoff-
Sexton Fairness Opinions supersede the Original Rykoff-Sexton Fairness
Opinions.
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
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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 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
presentations 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 assumes any responsibility for
their accuracy. In addition, as described above, the Rykoff-Sexton Fairness
Opinions and the joint presentations 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.
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 (see
"Original
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Premium Analysis" and "Updated Premium Analysis" below); (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, and
which, to the extent material to their respective opinions, are discussed in
the following summary.
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 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 as to 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 Original Rykoff-Sexton
Fairness Opinions (the "Original Summary"). 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 follows immediately after the Original
Summary.
Original 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 original implied transaction value per share was determined
by multiplying the 0.84 Original Exchange Ratio by the closing
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price of JP Foodservice Common Shares on June 26, 1997. Based on such
comparisons, Merrill Lynch and Wasserstein Perella calculated that the
original 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 Original
Exchange Ratio 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 Original Exchange Ratio represented a
premium of 20.7%, 24.1%, 27.0% and 32.6%, respectively, over such average
exchange ratio.
Original Leveraged Contribution Analysis. Merrill Lynch and Wasserstein
Perella compared the relative contributions by each of Rykoff-Sexton and JP
Foodservice to the original 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 original 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 an
original 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 original 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 original
implied exchange ratios of 1.240, .942 and .728, respectively. Based on
estimated 1998 financial data, Rykoff-Sexton's rates of contribution to such
original 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 original 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 an
original 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
original hypothetical implied combined market value. Such contribution rates
correspond to original 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 original implied exchange ratios based on the
contribution analysis described above of 0.60 to 0.90.
Original Comparable Company Analysis. In order to analyze the Original
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.
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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) original Market Values
as a multiple of LTM net income were 36.0x, 29.8x, 22.1x and 21.8x,
respectively; (ii) original Market Values as a multiple of LTM book value were
1.6x, 3.0x, 4.5x and 2.5x, respectively; (iii) original Adjusted Market Values
as a multiple of LTM sales were 0.4x, 0.5x, 0.5x and 0.3x, respectively; (iv)
original Adjusted Market Values as a multiple of LTM EBITDA were 9.6x, 11.7x,
10.3x and 11.4x, respectively; and (v) original 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)
original Market Values as a multiple of NFY net income were 22.3x, 19.7x,
19.5x and 18.8x, respectively; (ii) original 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)
original Adjusted Market Values as a multiple of NFY sales were 0.3x, 0.4x,
0.4x and 0.2x, respectively; (iv) original Adjusted Market Values as a
multiple of NFY EBITDA were 8.3x, 9.7x, 9.3x and 9.5x, respectively; and (v)
original 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 original hypothetical implied adjusted market values
and original 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 28, 1997) 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 original 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 original 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 original
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 original
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 original
hypothetical implied ranges, Merrill Lynch and Wasserstein Perella calculated
a range of original implied exchange ratios of 0.60 to 0.92.
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.
Original 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 value 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 original hypothetical implied adjusted market values and original
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
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JP Foodservice, such analyses yielded a range of original hypothetical implied
adjusted market values for Rykoff-Sexton of $1,368 million to $1,508 million
and $854 million to $943 million for JP Foodservice and a range of original
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
original 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 original 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 original implied exchange ratios of 0.76 to 1.03.
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.
Original Pro Forma Merger Analysis. Based on projections (including the
Expected Savings and Synergies) prepared by the managements of JP Foodservice
and Rykoff-Sexton, and provided to Merrill Lynch and Wasserstein Perella in
connection with the rendering of the Original Rykoff-Sexton Fairness Opinions,
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.
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.
Updated Premium Analysis. Merrill Lynch and Wasserstein Perella updated the
universe of all announced merger of equals transactions with total transaction
values greater than $500 million from April 20, 1995 to October 31, 1997.
Merrill Lynch and Wasserstein Perella then recalculated the median premium
paid by the acquiror for such mergers for the one day, one week and four week
periods as 10.5%, 13.5% and 16.3%, respectively.
Merrill Lynch and Wasserstein Perella then performed the same analysis
described in the second paragraph of the "Original Premium Analysis" section
of the Original Summary using an implied transaction value per share of $24.75
and the 0.775 revised Exchange Ratio. Based on such values, Merrill Lynch and
Wasserstein Perella calculated that the implied transaction value per share
exceeded the closing price of Rykoff-Sexton Common Shares on June 27, 1997,
March 27, 1997, December 27, 1996 and June 27, 1996 by 26.1%, 39.4%, 57.1% and
75.2%, respectively. Merrill Lynch and Wasserstein Perella also calculated the
percentage premium represented by the 0.775 Exchange Ratio over the average
exchange ratio for 30 days, 60 days, 90 days and 12 months prior to October
31, 1997 and determined that the Exchange Ratio represented a premium of
13.5%, 12.0%, 15.4% and 22.2%, respectively, over such average ratio.
Updated Leveraged Contribution Analysis. Merrill Lynch and Wasserstein
Perella performed the same analysis described in the "Original Leveraged
Contribution Analysis" section of the Original Summary and 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 Updated
Comparable Company Analysis described below) to estimated 1998 Revenues,
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EBITDA and EBIT for each of Rykoff-Sexton and JP Foodservice (as provided by
the respective managements of Rykoff-Sexton and JP Foodservice) and
subtracting, in each case, net debt (as of September 27, 1997). Based on LTM
(as of September 27, 1997) financial data (as provided by the respective
managements of Rykoff-Sexton and JP Foodservice since the date of the Original
Rykoff-Sexton Fairness Opinions), Rykoff-Sexton's rates of contribution to
such hypothetical implied combined market value based on Revenues, EBITDA and
EBIT were 59.4%, 52.1% and 44.0%, respectively, corresponding to implied
exchange ratios of 1.174, .874 and .631, respectively. Based on estimated 1998
financial data (as provided by the respective managements of Rykoff-Sexton and
JP Foodservice since the date of the Original Rykoff-Sexton Fairness
Opinions), Rykoff-Sexton's rates of contribution based on Revenues, EBITDA and
EBIT were 56.3%, 53.9% and 47.6%, respectively, corresponding to implied
exchange ratios of 1.036, .940 and .731, respectively. Based on LTM (as of
September 27, 1997) and revised estimated 1998 financial data as provided by
the respective managements of Rykoff-Sexton and JP Foodservice since the date
of the Original Rykoff-Sexton Fairness Opinions, Rykoff-Sexton's rates of
contribution based on net income were 39.2% and 43.3%, respectively,
corresponding to implied exchange ratios of .519 and .614, respectively.
Based on such updated numbers, Merrill Lynch and Wasserstein Perella
calculated a range of implied exchange ratios based on the Leveraged
Contribution Analysis of 0.52 to 0.94.
Updated Comparable Company Analysis. Merrill Lynch and Wasserstein Perella
performed the same analysis described in the "Original Comparable Company
Analysis" section of the Original Summary using revised estimates for SYSCO
and PFGC (in each case, using Market Values and Adjusted Market Values as of
October 31, 1997). Based on such revised estimates, Merrill Lynch and
Wasserstein Perella determined that, for SYSCO and PFGC, (i) Market Values as
a multiple of LTM net income were 22.7x and 18.4x, respectively; (ii) Market
Values as a multiple of LTM book value were 4.9x and 2.1x, respectively; (iii)
Adjusted Market Values as a multiple of LTM sales were 0.5x and 0.3x,
respectively; (iv) Adjusted Market Values as a multiple of LTM EBITDA were
10.6x and 9.7x, respectively; and (v) Adjusted Market Values as a multiple of
LTM EBIT were 13.8x and 12.6x, respectively. Additionally, Merrill Lynch and
Wasserstein Perella determined that (i) Market Values as a multiple of NFY net
income were 20.7x and 16.6x, respectively; (ii) Market Values as a multiple of
NFY book value were 3.6x and 1.9x, respectively; (iii) Adjusted Market Values
as a multiple of NFY sales were 0.5x and 0.2x, respectively; (iv) Adjusted
Market Values as a multiple of NFY EBITDA were 9.8x and 8.5x, respectively;
and (v) Adjusted Market Values as a multiple of NFY EBIT were 12.6x and 10.9x,
respectively.
Assuming net debt of $673.2 million for Rykoff-Sexton and $220.6 million for
JP Foodservice, Merrill Lynch and Wasserstein Perella calculated a
hypothetical implied adjusted market value range of $1,178 million to $1,326
million for Rykoff-Sexton and $703 million to $841 million for JP Foodservice;
and a hypothetical implied market value range of $504 million to $653 million
for Rykoff-Sexton and $482 million to $620 million for JP Foodservice. The
range of hypothetical implied market values of each of Rykoff-Sexton and JP
Foodservice was then divided by 29.7 million shares for Rykoff-Sexton and 23.0
million shares for JP Foodservice, respectively, to yield a range of
hypothetical implied market values per share of $17.00 to $22.00 for Rykoff-
Sexton and $21.00 to $27.00 for JP Foodservice. From such hypothetical implied
ranges, Merrill Lynch and Wasserstein Perella calculated a range of implied
exchange ratios of 0.63 to 1.05.
Updated Discounted Cash Flow Analysis. Merrill Lynch and Wasserstein Perella
performed the same analysis described in the "Original Discounted Cash Flow
Analysis" section of the Original Summary using discount rates of 9.0% to
12.0%. Assuming net debt of $673.2 million for Rykoff-Sexton and $220.6
million for JP Foodservice, such analyses yielded a range of hypothetical
implied adjusted market values for Rykoff-Sexton of $1,385 million to $1,622
million and $818 million to $1,002 million for JP Foodservice and a range of
hypothetical implied market values of $712 million to $949 million for Rykoff-
Sexton and $597 million to $781 million for JP Foodservice. The range of
hypothetical implied market values was then divided by 29.7 million shares for
Rykoff-Sexton and 23.0 million shares for JP Foodservice to yield a range of
hypothetical implied market values per share of $24.00 to $32.00 for Rykoff-
Sexton and $26.00 to $34.00 for JP Foodservice. From such hypothetical ranges,
Merrill Lynch and Wasserstein Perella derived a range of implied exchange
ratios of 0.71 to 1.23.
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Updated Pro Forma Merger Analysis. Merrill Lynch and Wasserstein Perella
performed the same analysis described in the "Original Pro Forma Merger
Analysis" section of the Original Summary and found that, for the Rykoff-
Sexton stockholders, the Merger would be 28.9%, 13.7% and 10.5% 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 Wasserstein Perella for their reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
their 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
is an internationally recognized investment banking and advisory firm 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 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
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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 in 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 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
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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 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 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 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 other stockholders named therein and Frank H. Bevevino, former
President of Rykoff-Sexton, 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 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
8,943,517 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 September 27, 1997, 2,004,918 Options
were outstanding under the Rykoff-Sexton Stock Plans, of which 1,209,173
Options were fully vested and exercisable as of that date. Of the remaining
Options, 395,388 will automatically become fully vested upon stockholder
approval of the Rykoff-Sexton Proposal. 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 356,500 Options, which will not vest
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automatically in connection with the Merger, but will become fully vested and
exercisable in accordance with their terms. As of September 27, 1997,
directors and executive officers of Rykoff-Sexton held 840,930 Options that
are expected to be Assumed Options and that may be converted into the right to
receive 651,720 JP Foodservice Common Shares at the Exchange Ratio.
As of September 27, 1997, 150,977 Restricted Shares were issued and
outstanding under the Rykoff-Sexton Stock Plans and subject to a risk of
forfeiture and restrictions on transfer and 349,000 Rykoff-Sexton Common
Shares were subject to outstanding Performance Share Awards granted under the
Rykoff-Sexton Stock Plans. As of September 27, 1997, directors and executive
officers of Rykoff-Sexton held 47,374 Restricted Shares and 346,000
Performance Share Awards. 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 "--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 304,864 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
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. The
certificate of incorporation and by-laws of the Surviving Corporation are
required to contain the provisions with respect to indemnification that are
set forth in the Certificate of Incorporation and By-Laws of Rykoff-Sexton as
of June 30, 1997, and such provisions may not be amended, repealed or
otherwise modified, except as required by law, for a period of six years from
the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at (or at any time prior to) the Effective Time
were directors or officers of Rykoff-Sexton or its subsidiaries (or any of its
predecessors). 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 and directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
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 following 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.
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,
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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 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;
(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.
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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. In the case of an individual Rykoff-Sexton stockholder, any such
capital gain will be taxed at a maximum rate of 28% if such holder's holding
period is more than one year but not more than 18 months and at a maximum rate
of 20% if such holder's holding period is more than 18 months.
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-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.
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.
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,
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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 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."
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
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 expired on October 8, 1997. 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 expired on October 10, 1997. 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
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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.
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 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 immediately
following 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 Chairman
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 0.775 of a JP
Foodservice Common Share. 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.
Cash in Lieu of 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.
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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, otherwise on
the same terms and conditions that were applicable under such Warrant, a
number of JP Foodservice Common Shares determined pursuant to the terms of the
Assumed Warrants. 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 contained in the Assumed Options
and Assumed Warrants (subject to any adjustments described in 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 charter or by-law provision, or any agreement,
law or order which would prevent consummation of the Merger, and the absence
of the need (except as specified) for governmental or third-party consents to
the Merger, (e) the financial statements included in the Rykoff-Sexton Annual
Report on Form 10-K and in periodic reports subsequently filed by Rykoff-
Sexton with the SEC under the Exchange Act, (f) the liabilities and compliance
with applicable laws of employee plans of Rykoff-Sexton and its subsidiaries
and certain other matters relating to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), (g) tax deficiencies and certain other tax
matters, (h) the stockholder vote required for the adoption of the Merger
Agreement, (i) the inapplicability of state takeover statutes and certain
provisions of Rykoff- Sexton's Certificate of Incorporation, (j) 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, (k) brokers and finders
employed by Rykoff-Sexton, (l) the fairness opinions received by Rykoff-
Sexton, (m) ownership of JP Foodservice Common Shares and (n) the
nonapplicability of the Rykoff-Sexton Rights Agreement.
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
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or the Option Agreements of any charter or by-law provision, or any agreement,
law or order which would prevent consummation of the Merger, and the absence
of the need (except as specified) for governmental or third-party consents to
the Merger, (e) the financial statements included in the JP Foodservice Annual
Report on 10-K and in periodic reports subsequently filed by JP Foodservice
with the SEC under the Exchange Act, (f) the liabilities and compliance with
applicable laws of employee plans of JP Foodservice and its subsidiaries and
certain other matters relating to ERISA, (g) tax deficiencies and certain
other tax matters, (h) 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, (i) the inapplicability of state takeover
statutes, (j) 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, (k) brokers and finders employed by JP Foodservice, (l) the
fairness opinions received by JP Foodservice, (m) ownership of Rykoff-Sexton
Common Shares and (n) the nonapplicability of the JP Foodservice Rights
Agreement.
The representations and warranties of each of the parties contain various
exceptions for materiality, knowledge and previously disclosed information.
Although certain of 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, they will not survive the Merger.
In connection with the execution of Amendment No. 2 to the Merger Agreement
on November 5, 1997, JP Foodservice and Rykoff-Sexton eliminated from the
Merger Agreement a number of representations and warranties relating to each
company's operations and financial condition that had been contained in the
Original Merger Agreement. Such representations and warranties related to,
among other matters, with respect to each company, certain documents filed
with the SEC, the absence of undisclosed liabilities, the conduct of business
in the ordinary course, the absence of certain changes or events, including
any material adverse change in the company's business, financial condition or
results of operations (a "Material Adverse Change"), compliance with
applicable laws, pending or threatened litigation, intellectual property,
material contracts and certain environmental matters. See "The Merger--
Background of the Merger--Chronology of Events Leading up to the Merger."
BUSINESS OF RYKOFF-SEXTON PENDING THE MERGER
Rykoff-Sexton has agreed that, among other things, prior to the Effective
Time, it will take certain actions or refrain from taking certain actions
except (i) as contemplated by the Merger Agreement, (ii) as disclosed in
writing to an executive officer of JP Foodservice prior to November 5, 1997,
(iii) as disclosed in Rykoff-Sexton's Disclosure Schedule, in documents filed
by Rykoff-Sexton with the SEC since June 28, 1997, in the Registration
Statement of which this Joint Proxy Statement/Prospectus forms a part (as
filed with the SEC prior to November 5, 1997) or in any press release issued
by Rykoff-Sexton prior to November 5, 1997 or (iv) as otherwise permitted by
the prior written consent of JP Foodservice. Subject to the foregoing
exceptions, (i) Rykoff-Sexton will, and will cause its subsidiaries to, carry
on their respective businesses in the ordinary course consistent with past
practice and in compliance in all material respects with all applicable laws
and regulations, and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations; (ii) except
as may be required by law or any plan, program, contract or arrangement in
effect on November 5, 1997, Rykoff-Sexton will not, and will not permit any of
its subsidiaries to, (a) grant to any current or former director, officer, any
regional vice president or president of any division of Rykoff-Sexton or its
subsidiaries any increase in compensation, bonus or other benefits, except as
required by employment agreements in effect as of April 27, 1996, (b) grant to
any such current or former director, officer, regional vice president or
president of any division any increase in severance or termination pay or (c)
enter into, or amend, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, officer, regional vice president or president of any
division; or (iii) except as may be required by law or any plan, program,
contract or arrangement in effect on November 5, 1997, Rykoff-Sexton will not,
and will not permit any of its subsidiaries to, adopt or amend any collective
bargaining agreement (other than renegotiations required by any such
collective bargaining agreement), employment agreement, consulting agreement,
severance agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit,
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hospitalization, medical or other plan, arrangement or understanding providing
benefits to any current or former employee, officer or director of Rykoff-
Sexton or any of its wholly-owned subsidiaries in any manner which would,
individually, or in the aggregate, involve amounts in excess of $1,000,000.
Rykoff-Sexton and any Rykoff-Sexton subsidiary will not be deemed in violation
of this covenant if such violation is cured prior to the Effective Time.
Without limiting the generality of the foregoing, but subject to the
exceptions described above, 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 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) make any tax election that individually or in the aggregate would
have a material adverse effect on Rykoff-Sexton or any of its tax
attributes or settle or compromise any material income tax liability;
(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;
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(h) settle any material 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
(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, it will take certain actions or refrain from taking certain actions
except (i) as contemplated by the Merger Agreement, (ii) as disclosed in
writing to an executive officer of Rykoff-Sexton prior to November 5, 1997,
(iii) as disclosed in JP Foodservice's Disclosure Schedule, in documents filed
by JP Foodservice with the SEC since June 28, 1997, in the Registration
Statement of which this Joint Proxy Statement/Prospectus forms a part (as
filed with the SEC prior to November 5, 1997) or in any press release issued
by JP Foodservice prior to November 5, 1997 or (iv) as otherwise permitted by
the prior written consent of Rykoff-Sexton. Subject to the foregoing
exceptions, (i) JP Foodservice will, and will cause its subsidiaries to, carry
on their respective businesses in the ordinary course consistent with past
practice and in compliance in all material respects with all applicable laws
and regulations, and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations; (ii) except
as may be required by law or any plan, program, contract or arrangement in
effect on November 5, 1997, JP Foodservice will not, and will not permit any
of its subsidiaries to, (a) grant to any current or former director, officer,
any regional vice president or president of any division of JP Foodservice or
its subsidiaries any increase in compensation, bonus or other benefits, except
as required by employment agreements in effect as of June 29, 1996, (b) grant
to any such current or former director, officer, regional vice president or
president of any division any increase in severance or termination pay or (c)
enter into, or amend, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, officer, regional vice president or president of any
division; or (iii) except as may be required by law or any plan, program,
contract or arrangement in effect on November 5, 1997, JP Foodservice will
not, and will not permit any of its subsidiaries to, adopt or amend any
collective bargaining agreement (other than renegotiations required by any
such collective bargaining agreement), employment agreement, consulting
agreement, severance agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former employee, officer or director of
JP Foodservice or any of its wholly-owned subsidiaries in any manner which
would, individually, or in the aggregate, involve amounts in excess of
$1,000,000. JP Foodservice and any JP Foodservice subsidiary will not be
deemed in violation of this covenant if such violation is cured prior to the
Effective Time. Rykoff-Sexton has consented to the taking of the actions
specified in clauses (ii) and (iii) of the preceding sentence so long as such
actions do not have a material adverse effect on JP Foodservice. Without
limiting the generality of the foregoing, but subject to the exceptions
described above, 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
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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 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) make any tax election that individually or in the aggregate would
have a material adverse effect on JP Foodservice or any of its tax
attributes or settle or compromise any material income tax liability;
(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
(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,
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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 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. With respect to the covenant in clause (h) of the
preceding sentence, JP Foodservice also has agreed that it will not, and will
not permit any of its subsidiaries to, take any action not required by any
binding contract or plan in effect as of November 5, 1997 that would cause the
Merger to be treated as described in clause (h), including, without
limitation, any action with respect to the issuance of 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. 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 Annual 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 approval
of the Merger Agreement, the Merger and the transactions contemplated thereby.
Under the Merger Agreement, Rykoff-Sexton and JP Foodservice have also agreed
to cooperate and prepare the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part, which JP Foodservice 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
termination will be deemed to be involuntary and
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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. See "--Interests
of Certain Persons in the Merger" and "Management of JP Foodservice After the
Merger--Rykoff-Sexton 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 a subsidiary of Rykoff-Sexton 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 merger agreement related to the US
Foodservice Acquisition. The certificate of incorporation and by-laws of the
Surviving Corporation are required to contain the provisions with respect to
indemnification that are set forth in the Certificate of Incorporation and By-
Laws of Rykoff-Sexton as of June 30, 1997, and such provisions may not be
amended, repealed or otherwise modified, except as required by law, for a
period of six years from the Effective Time in any manner that would affect
adversely the rights thereunder of individuals who at (or at any time prior
to) the Effective Time were directors or officers of Rykoff-Sexton or its
subsidiaries (or any of its predecessors). 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 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.
In Amendment No. 2 to the Merger Agreement, JP Foodservice and Merger Sub
waived, released and discharged Rykoff-Sexton and Rykoff-Sexton's
stockholders, affiliates, successors, assigns, officers, directors, agents,
representatives and employees (collectively, "Representatives") from any claim
for damages, other claims, liabilities, damages and causes of action to the
extent related to or based on (i) any breach or alleged breach of the Merger
Agreement prior to the date of Amendment No. 2 to the Merger Agreement or
(ii) Amendment No. 2 to the Merger Agreement, the subject matter thereof and
any matter set forth in Rykoff-Sexton's disclosure schedules thereto. Rykoff-
Sexton and its affiliates provided a substantially similar release in favor of
JP Foodservice, Merger Sub and their respective Representatives. The foregoing
releases do not limit the right of any party to terminate the Merger
Agreement, as amended, in accordance with its terms based on any breach or
alleged breach referred to in clause (i) above.
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
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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 Merger
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 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 (i) to the extent expressly made as of an earlier date,
in which case such representations and warranties shall be true and correct as
of such date, and (ii) for representations relating to liabilities and
compliance with applicable laws of employee plans of Rykoff-Sexton and its
subsidiaries, certain other matters relating to ERISA and certain tax matters,
in which case such representations and warranties shall be true and correct as
of November 5, 1997), 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 (except that Rykoff-Sexton
shall have performed without qualification as to materiality its obligations
described in clauses (ii) and (iii) of the second sentence
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under "--Business of Rykoff-Sexton Pending the Merger"); and (c) 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 (i) to
the extent expressly made as of an earlier date, in which case such
representations and warranties shall be true and correct as of such date, and
(ii) for representations relating to liabilities and compliance with
applicable laws of employee plans of JP Foodservice and its subsidiaries,
certain other matters relating to ERISA and certain tax matters, in which case
such representations and warranties shall be true and correct as of November
5, 1997), 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 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 (except that JP Foodservice shall have performed
without qualification as to materiality its obligations described in clauses
(ii) and (iii) of the second sentence under "--Business of JP Foodservice
Pending the Merger"); and (c) 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.
In connection with the execution of Amendment No. 2 to the Merger Agreement
on November 5, 1997, JP Foodservice and Rykoff-Sexton eliminated from the
Merger Agreement, as a condition to each company's obligation to effect the
Merger, the absence of any Material Adverse Change affecting the other
company. See "The Merger--Background of the Merger--Chronology of Events
Leading up to the Merger."
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 and as of November 5, 1997. 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 of JP Foodservice's
stockholders required under the Merger Agreement shall not have
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been obtained at the JP Foodservice Annual 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, or shall have breached or failed to perform in any respect
the covenants and agreements described in clauses (ii) and (iii) of the second
sentence under "--Business of Rykoff-Sexton Pending the Merger," which breach
or failure (x) in the case of a breach of any representation or warranty, 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 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, or shall have breached or failed to perform in any respect
the covenants and agreements described in clauses (ii) and (iii) of the second
sentence under "--Business of JP Foodservice Pending the Merger," which breach
or failure (x) in the case of a breach of any representation or warranty, 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 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 Annual 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 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.
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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 or a willful
breach or failure by Rykoff-Sexton to perform in any respect the covenants and
agreements described in clauses (ii) and (iii) of the second sentence under
"--Business of Rykoff-Sexton Pending the Merger," which breach or failure (x)
in the case of a breach of any representation or warranty, 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.
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 or a willful breach or
failure by JP Foodservice to perform in any respect the covenants and
agreements described in clauses (ii) and (iii) of the second sentence under
"--Business of JP Foodservice Pending the Merger," which breach or failure (x)
in the case of a breach of any representation or warranty, 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 Annual Meeting
because the JP Foodservice Board of Directors shall have (A) failed to make
its recommendation in favor of approval of the JP Foodservice Merger 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 Merger 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 will 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.
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
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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 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
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have the effect of discouraging persons who might now or at any 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 Merger
Consideration. 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 Original 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."
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;
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(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 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
Merger Proposal at the JP Foodservice Annual 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 Merger 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.
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.
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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 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.
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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 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 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 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,
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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 the 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--Directors."
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 By-laws 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.
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
relating to the qualification of employee stock benefit plans, the rules and
regulations under Section 16(b) of the Exchange Act and Rykoff-Sexton's By-
laws, 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,
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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--Directors."
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.
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 (as defined herein) and By-laws 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. 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 of 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 any 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.
Rykoff-Sexton's obligations described above regarding board and committee
representation are subject to compliance with the provisions of the Rykoff-
Sexton Charter and By-laws 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,
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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 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,
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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 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 other
stockholders 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.
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
91
<PAGE>
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 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.
92
<PAGE>
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 September 27, 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 and the three months ended September 28, 1996 and
September 27, 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. Data as of and
for the three months ended September 28, 1996 and September 27, 1997 include,
in the opinion of management of JP Foodservice (with respect to the JP
Foodservice data) and Rykoff-Sexton (with respect to the Rykoff-Sexton data),
all adjustments (consisting only of normal recurring adjustments, except as
otherwise noted) necessary for a fair presentation of such data. Results for
the three months ended September 27, 1997 are not necessarily indicative of
the results which may be expected for any other interim periods or for the
year as a whole.
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 one-
time charges expected to be incurred in connection with the Merger. The
charges include professional fees incurred in the Merger, severance and change
in control costs, and facility consolidation and other costs associated with
the integration of the JP Foodservice and Rykoff-Sexton businesses. JP
Foodservice estimates the charges will be approximately $92.0 million before
related income tax benefits. Such charges have not been included in the pro
forma combining consolidated statement of operations for the three months
ended September 27, 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 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 $14
million during the first twelve-month period following the Effective Time, $20
million during the second twelve-month period following the Effective Time and
$30 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 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 to $10 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.
93
<PAGE>
JP FOODSERVICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 27, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
JP RYKOFF- PRO FORMA COMBINED
FOODSERVICE SEXTON ADJUSTMENTS COMPANIES
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.. $ 11,430 $ 47,133 $ -- $ 58,563
Accounts receivable, net... 168,176 161,371 -- 329,547
Inventories................ 123,636 228,668 -- 352,304
Prepaid expenses and other
assets.................... 13,292 23,171 -- 36,463
Deferred income taxes...... 2,282 18,998 13,490 (a) 34,770
---------- ---------- ---------- ----------
Total current assets...... 318,816 479,341 13,490 811,647
---------- ---------- ---------- ----------
Property, plant and equip-
ment, net.................. 139,413 314,699 (25,000)(a) 429,112
Goodwill, net............... 103,333 434,563 -- 537,896
Deferred income taxes....... -- 27,805 (1,232)(a) 26,573
Other assets, net........... 5,890 20,998 -- 26,888
---------- ---------- ---------- ----------
Total assets.............. $ 567,452 $1,277,406 $(12,742) $1,832,116
========== ========== ========== ==========
LIABILITIES AND STOCKHOLD-
ERS'
EQUITY
Current liabilities
Current maturities of long-
term debt and capital
lease obligations......... $ 9,201 $ 21,672 $ -- $ 30,873
Accounts payable........... 117,203 271,728 -- 388,931
Accrued expenses........... 23,018 96,498 50,770 (a) 170,286
---------- ---------- ---------- ----------
Total current liabili-
ties..................... 149,422 389,898 50,770 590,090
---------- ---------- ---------- ----------
Noncurrent liabilities
Senior debt................ 155,104 354,249 -- 509,353
Subordinated debt.......... 104 129,315 -- 129,419
Obligations under capital
leases.................... 18,506 15,098 -- 33,604
Deferred income taxes...... 8,242 -- (8,242)(a) --
Other noncurrent liabili-
ties...................... -- 20,655 4,000 (a) 24,655
---------- ---------- ---------- ----------
Total liabilities......... 331,378 909,215 46,528 1,287,121
---------- ---------- ---------- ----------
Stockholders' equity
Preferred stock, $.01 par
value, 5,000,000 shares
authorized, none issued... -- -- -- --
Common stock, $.01 par
value, 75,000,000 shares
authorized, 22,606,308
issued and 45,125,762
pro forma................. 225 2,891 (2,665)(b) 451
Additional paid-in-capi-
tal....................... 226,895 311,782 11,850 (b) 550,527
Retained earnings (defi-
cit)...................... 8,954 56,533 (71,470)(a) (5,983)
Treasury stock............. -- (3,015) 3,015 (b) --
---------- ---------- ---------- ----------
Total stockholders' equi-
ty....................... 236,074 368,191 (59,270) 544,995
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity..... $ 567,452 $1,277,406 $ (12,742) $1,832,116
========== ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
94
<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 of
$15,782....................... -- 23,496 -- 23,496
---------- ---------- ------ ----------
Income before extraordinary
charge...................... 8,927 32,872 -- 41,799
Extraordinary charge, net of
income tax benefit of $3,059.. (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 $ 0.75
Gain on disposal of, and
income from, discontinued
operations.................. -- 1.60 0.96
Extraordinary charge......... (0.35) -- (0.19)
---------- ---------- ----------
Net income per common share.... $ 0.33 $ 2.24 $ 1.52
========== ========== ==========
Weighted average common shares
and common stock equivalents
outstanding................... 13,104 14,730 (3,314)(e) 24,520
========== ========== ====== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
95
<PAGE>
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 as-
sets....................... -- 29,700 -- 29,700
Reversal of restructuring
charge..................... -- (6,441) -- (6,441)
---------- ---------- ------ ----------
Income (loss) from opera-
tions.................... 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 in-
come 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 and common stock
equivalents outstanding.... 18,809 14,941 (3,362)(e) 30,388
========== ========== ====== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
96
<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 $ 0.87
========== ========== ==========
Weighted average common
shares and common stock
equivalents outstanding.... 21,862 28,644 (6,445)(e) 44,061
========== ========== ====== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
97
<PAGE>
JP FOODSERVICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------
JP RYKOFF- COMBINING COMBINED
FOODSERVICE SEXTON ADJUSTMENTS COMPANIES
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales....................... $414,362 $904,827 $ -- $1,319,189
Cost of sales................... 343,631 727,440 -- 1,071,071
-------- -------- ------- ----------
Gross profit.................. 70,731 177,387 -- 248,118
Operating expenses.............. 57,667 155,928 -- 213,595
Amortization of intangible
assets......................... 597 2,933 -- 3,530
-------- -------- ------- ----------
Income from operations........ 12,467 18,526 -- 30,993
Interest expense and other
financing costs, net........... 3,654 14,409 -- 18,063
Nonrecurring charges............ 5,300 -- -- 5,300
-------- -------- ------- ----------
Income before income taxes.... 3,513 4,117 -- 7,630
Provision for income taxes...... 1,459 2,071 -- 3,530
-------- -------- ------- ----------
Net income.................... $ 2,054 $ 2,046 $ -- $ 4,100
======== ======== ======= ==========
Net income per common share..... $ 0.10 $ 0.07 $ 0.10
======== ======== ==========
Weighted average common shares
and common stock equivalents
outstanding.................... 20,640 28,051 (6,311)(e) 42,380
======== ======== ======= ==========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
98
<PAGE>
JP FOODSERVICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------
JP RYKOFF- COMBINING COMBINED
FOODSERVICE SEXTON ADJUSTMENTS COMPANIES
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales....................... $467,890 $870,938 $ -- $1,338,828
Cost of sales................... 385,744 696,839 -- 1,082,583
-------- -------- ------- ----------
Gross profit.................. 82,146 174,099 -- 256,245
Operating expenses.............. 65,472 150,272 -- 215,744
Amortization of intangible
assets......................... 776 2,906 -- 3,682
Executive severance
compensation................... -- 1,100 -- 1,100
-------- -------- ------- ----------
Income from operations........ 15,898 19,821 -- 35,719
Interest expense and other
financing costs, net........... 4,399 14,528 -- 18,927
-------- -------- ------- ----------
Income before income taxes.... 11,499 5,293 -- 16,792
Provision for income taxes...... 4,558 2,445 -- 7,003
-------- -------- ------- ----------
Net income.................... $ 6,941 $ 2,848 $ -- $ 9,789
======== ======== ======= ==========
Net income per common share..... $ 0.31 $ 0.10 $ 0.22
======== ======== ==========
Weighted average common shares
and common stock equivalents
outstanding.................... 22,603 29,217 (6,574)(e) 45,246
======== ======== ======= ==========
</TABLE>
See Notes to Unaudited Pro Forma Combining Consolidated Financial Statements.
99
<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........................................... 42,000
Other transaction related costs................................... 12,325
-------
One-time charges, pre-tax......................................... 91,970
Tax benefit of deductible charges (effective tax rate 38.0%)...... 20,500
-------
One-time charges, after tax....................................... $71,470
=======
</TABLE>
The one-time charges of $71.5 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 Share 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.
100
<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 $499 million as of September 27,
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 to $10 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 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. Amounts outstanding under the Revolving Credit Facility and the
Revolver/Term Loan Facility (absent an extension as described below) 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 for
LIBOR loans. 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 Alternate Base Rate. The Applicable Margin for LIBOR Loans will
fluctuate based on the Borrowers' ratio of Indebtedness to Operating Cash
Flow, from time to time, between LIBOR plus 17.5 basis points and LIBOR plus
55.0 basis points for
101
<PAGE>
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
Alternate 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 committed 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, 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 and 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 (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, tested quarterly, 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, tested quarterly, of 5.0:1.0 initially, with subsequent reductions to
3.75:1.0 at and after September 30, 2000, 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 Revolving
Credit Facility Closing to the date of determination, taken as one accounting
period, and (c) 80% of Acquired Net Worth, whether positive or negative.
As defined in the Commitment Letter, "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
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. "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 non-cash, non-recurring charges
and expenses funded by equity. "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. "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
102
<PAGE>
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 amounts outstanding 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 Restricted
Subsidiary during the relevant period, less the amount of Operating Cash Flow
of any assets or entities sold by any Borrower or any Restricted Subsidiary
during such period. "Consolidated Net Worth" means, at the date of
determination, the consolidated stockholders' equity of the Borrowers and
their Restricted Subsidiaries.
Failure to satisfy any of the foregoing covenants would constitute an event
of default under the New Credit Facility, notwithstanding the ability of the
Borrowers to meet their 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 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 subsidiaries, in turn, convey the receivables they purchase, or
undivided interests in such receivables, to unaffiliated financing vehicles
for cash or cash equivalents.
103
<PAGE>
OWNERSHIP OF JP FOODSERVICE COMMON SHARES
The following table sets forth certain information regarding the beneficial
ownership of JP Foodservice Common Shares as of September 27, 1997, and as
adjusted to reflect the issuance by JP Foodservice of 22,502,275 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) each executive officer 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 SHARES
NAME AND ADDRESS BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
OF BENEFICIAL OWNER OWNED(1) OF CLASS OWNED(1) OF CLASS
------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
T. Rowe Price Associates... 2,651,550(2) 11.7% 2,651,550 5.9%
100 E. Pratt Street
Baltimore, Maryland 21202
Palisade Capital
Management, L.L.C. ....... 1,173,500(3) 5.2 1,173,500 2.6
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 3.3
222 West Adams Street
Chicago, Illinois 60606
ML Investors(5)............ 0 0 7,808,903 17.4
c/o Merrill Lynch Capital
Partners, Inc.
225 Liberty Street
New York, New York 10080
David M. Abramson.......... 17,842(6) * 17,842 *
Michael J. Drabb........... 6,750(7) * 6,750 *
Harold E. Feather.......... 0 0 161,594(16) *
Eric E. Glass.............. 3,400(8) * 3,400 *
Lewis Hay, III............. 133,878(9) * 133,878 *
Mark P. Kaiser............. 80,786(10) * 80,786 *
Paul I. Latta, Jr.......... 4,000(11) * 4,000 *
Richard J. Martin.......... 0 0 131,090(17) *
James I. Maslon............ 0 0 269,816(18) *
George T. Megas............ 31,019(12) * 31,019 *
James L. Miller............ 321,703(13) 1.4 321,703 *
James P. Miscoll........... 0 0 10,268(19) *
Neil I. Sell............... 0 0 13,808(20) *
Jeffrey D. Serkes.......... 2,500(14) * 2,500 *
Dean R. Silverman.......... 3,000(15) * 3,000 *
Mark Van Stekelenburg...... 0 0 481,024(21) 1.1
Bernard Sweet.............. 0 0 16,332(22) *
All directors and executive
officers as a group
(10 persons before the
Merger and 17 persons
after the Merger)......... 604,878 2.6 1,683,435(23) 3.7
</TABLE>
- --------
* Less than 1%.
104
<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. (7.49%),
ML Offshore LBO Partnership No. B-XVIII (3.77%), ML IBK Positions, Inc.
(2.47%), MLCP Associates L.P. No. II (0.09%), MLCP Associates L.P. No. IV
(0.02%), Merrill Lynch KECALP L.P. 1994 (0.12%), Merrill Lynch KECALP
L.P. 1991 (0.33%), Merrill Lynch Capital Appreciation Partnership No.
XIII, L.P. (2.78%), ML Offshore LBO Partnership No. XIII (0.07%), ML
Employees LBO Partnership No. I, L.P. (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., which disclaims beneficial
ownership of all such shares for all purposes. See footnote 23.
(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 15,387 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 6,750
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 63,191 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) 683 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 48,723 shares.
(11) Includes outstanding options exercisable within 60 days to purchase 3,000
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 exercisable within 60 days
to purchase 20,833 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 138,085 shares.
(14) Includes outstanding options exercisable within 60 days to purchase 2,500
shares.
(15) Includes outstanding options exercisable within 60 days to purchase 3,000
shares.
(16) Includes (i) Assumed Options to purchase 92,328 shares that are or will
be immediately exercisable upon stockholder approval of the Rykoff-Sexton
Proposal and (ii) 43,400 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 66,177 shares that are or will
be immediately exercisable upon stockholder approval of the Rykoff-Sexton
Proposal, (ii) 44,950 shares subject to Performance Share Awards that
will be issuable upon stockholder approval of the Rykoff-Sexton Proposal
and (iii) 17,178 shares issuable in payment of amounts that in the future
may be owing under certain agreements and
105
<PAGE>
arrangements with Rykoff-Sexton discussed under the caption "Management of
JP Foodservice After the Merger--Rykoff-Sexton Executive Compensation."
(18) Includes (i) 10,515 shares held of record by Mr. Maslon as trustee for
his children, (ii) 157,681 shares held of record by Mr. Maslon as co-
trustee for his mother and (iii) 96 shares owned by his spouse. Also
includes Assumed Options to purchase 8,331 shares that will be
immediately exercisable as of the Effective Time.
(19) Includes Assumed Options to purchase 8,331 shares that will be
immediately exercisable as of the Effective Time.
(20) Includes Assumed Options to purchase 8,331 shares that will be
immediately exercisable as of the Effective Time.
(21) Includes (i) Assumed Options to purchase 306,609 shares that are or will
be immediately exercisable upon stockholder approval of the Rykoff-Sexton
Proposal, (ii) 93,000 shares subject to Performance Share Awards that
will be issuable upon stockholder approval of the Rykoff-Sexton Proposal
and (iii) 48,180 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." Also includes 48 shares owned by one of Mr. Van
Stekelenburg's children.
(22) Includes 1,089 shares owned by Mr. Sweet's spouse. Also includes Assumed
Options to purchase 8,331 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.
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."
106
<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 Mark 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 members 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 (i) 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 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.
107
<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 Execu-
tive 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 em-
ployed 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 Foodservice since 1991. Before joining JP
Foodservice, Mr. Hay was a Vice President and partner
of Mercer Management Consulting (formerly Strategic
Planning Associates, Inc.), 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, participated in a
number of consulting projects for PYA/Monarch, in-
cluding 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 Gradu-
ate School of Industrial Administration of Carnegie
Mellon University.
David M. Abramson..................................... 1994 2000 44
Senior Vice President and General Counsel of JP
Foodservice since July 1996 and Secretary since Sep-
tember 1996. Mr. Abramson was the President and Man-
aging Principal of the law firm of Levan, Schimel,
Belman & Abramson, P.A. from 1992 to 1996. Previous-
ly, 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 corpo-
ration of Taneytown Bank & Trust Company in
Taneytown, Maryland.
Mark P. Kaiser........................................ 1996 1999 40
Senior Vice President-Sales, Marketing and
Procurement of JP Food-service since 1993. Mr. Kaiser
served as JP Foodservice'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 management firm, since
August 1993. From April 1992 to July 1993, Mr. Drabb
was retired. Mr. Drabb served as an Executive Vice
President and a member of the cabinet of The Mutual
Life Insurance Company of New York ("MONY") from 1989
to 1992 and was employed by MONY from 1961 until his
retirement in 1992. Mr. Drabb also serves as a direc-
tor 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.
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
TERM AS
YEAR BECAME DIRECTOR
NAME A DIRECTOR EXPIRES AGE
---- ----------- -------- ---
<S> <C> <C> <C>
Eric E. Glass......................................... 1996 1998 57
Chairman of the Board for The Taney Corporation, a
manufacturer of wooden stairway components and stair-
ways, 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 Commit-
tee of Monocacy Bancshares, Inc., which is the parent
corporation 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.
Jeffrey D. Serkes..................................... 1996 1999 38
Vice President and Treasurer of International Busi-
ness 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 Fi-
nance. Mr. Serkes serves as a director of IBM Credit
Corporation.
Dean R. Silverman..................................... 1996 2000 46
President of Dean & Company Strategy Consultants,
Inc., a strategic management consulting company lo-
cated in Vienna, Virginia since 1993. Prior to 1993,
Mr. Silverman was Executive Vice President and a
partner of Mercer Management Consulting.
Mark Van Stekelenburg................................. As of 1998 46
Vice Chairman and President of JP Foodservice as of Effective
the Effective Time. Mr. Van Stekelenburg was Presi- Time
dent of Rykoff-Sexton since August 1997, Chairman of
the Board of Directors of Rykoff-Sexton since Decem-
ber 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 Execu-
tive 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....................................... As of 1998 70
A director of Rykoff-Sexton since 1962. Mr. Maslon Effective
has been retired since 1992. Mr. Maslon was previ- Time
ously Vice President-Manufacturing of Rykoff-Sexton's
S.E. Rykoff & Co. division.
Bernard Sweet......................................... As of 1999 73
A director of Rykoff-Sexton since 1978. Mr. Sweet has Effective
been retired since 1985. Mr. Sweet was previously Time
President and Chief Executive Officer of Republic
Airlines, Inc. He is a director of G&K Services, Inc.
Neil I. Sell.......................................... As of 1999 56
A director of Rykoff-Sexton since 1982. Mr. Sell is a Effective
partner in the firm of Maslon Edelman Borman & Brand, Time
L.L.P., a position that he has held since 1968. He is
a director of Grand Casinos, Inc.
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
TERM AS
YEAR BECAME DIRECTOR
NAME A DIRECTOR EXPIRES AGE
---- ----------- -------- ---
<S> <C> <C> <C>
James P. Miscoll...................................... 1997 2000 62
A director of Rykoff-Sexton since 1992. Mr. Miscoll
has been retired since 1992. Mr. Miscoll was previ-
ously 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 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 59
Executive Vice President-Operations of JP Foodservice
as of the Effective Time. Mr. Feather served as Exec-
utive Vice President, Strategic Planning of Rykoff-
Sexton (from January 1997 to the Effective Time) and
Executive Vice President, Operations of Rykoff-Sex-
ton's US Foodservice Division (since July 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 52
Executive Vice President-Finance and Administration
of JP Foodservice as of the Effective Time. Mr. Mar-
tin has served as Executive Vice President and Chief
Financial Officer of Rykoff-Sexton from September
1997 to the Effective Time 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.
</TABLE>
110
<PAGE>
<TABLE>
<CAPTION>
YEAR BECAME
NAME AN EXECUTIVE OFFICER AGE
---- -------------------- ---
<S> <C> <C>
George T. Megas....................................... 1991 44
Vice President-Finance, Assistant Secretary and As-
sistant Treasurer of JP Foodservice. Mr. Megas is re-
sponsible for accounting, treasury and finance func-
tions. Mr. Megas previously served as Corporate Con-
troller 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.
</TABLE>
111
<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 four most highly compensated executive officers for fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION 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 $5,361
Chairman of the Board, 1996 266,245 352,914 $45,433 30,895 3,473
President and 1995 233,337 220,383 47,210 68,489 5,086
Chief Executive Officer
Lewis Hay, III.......... 1997 248,346 320,625 -- 65,864 5,117
Senior Vice President
and 1996 202,498 221,768 -- 13,118 3,655
Chief Financial Officer 1995 192,559 154,589 -- 29,054 4,974
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 1996 and 1995,
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 $556 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 (v) for Mr. Megas, $4,321, $2,296 and $3,042 in
matching contributions by JP Foodservice to the 401(k) Plan in fiscal
1997, 1996 and 1995, respectively, and $272, $303 and $294 in premiums
paid by JP Foodservice for group term life insurance for Mr. Megas in
fiscal 1997, 1996 and 1995, respectively.
112
<PAGE>
Stock Option Grants in Fiscal 1997
The following table sets forth information concerning all stock options
granted during fiscal 1997 to the executive officers of JP Foodservice named
in the Summary Compensation Table. As of the date of this Joint Proxy
Statement/Prospectus, JP Foodservice has not granted any stock appreciation
rights ("SARs").
OPTION/SAR GRANTS IN FISCAL YEAR 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE OF ASSUMED
SHARES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(3)
/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR 1997 ($/SHARE)(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. The Merger does not constitute a change of
control of JP Foodservice under such options.
(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. The Merger does not constitute a change of
control of JP Foodservice under such options.
113
<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.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-
UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT
6/28/97 6/28/97 (1)
SHARES ------------------------------------ -------------------------
ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE(#) REALIZED (# OF SHARES) (# OF 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.
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
114
<PAGE>
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 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 by which 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, 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 10, 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.
The Merger does not constitute a change of control of JP Foodservice under
any of the foregoing agreements.
Certain Transactions
The law firm of Miles & Stockbridge, of which David M. Abramson is Of
Counsel, provided legal services to the Company during fiscal 1997.
115
<PAGE>
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"), which is composed of non-
management directors, 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 119, 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 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.
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.
116
<PAGE>
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, Inc. 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 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 non-qualified 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 non-qualified 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
117
<PAGE>
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 1997 Annual
Meeting of Stockholders for approval under Section 162(m) and the regulations
thereunder.
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.
118
<PAGE>
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.
[GRAPH APPEARS HERE]
<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>
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, President 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
119
<PAGE>
$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"). Upon stockholder approval of the Rykoff-Sexton Proposal,
Mr. Van Stekelenburg's unvested stock options covering 62,490 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 Employment 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."
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 "--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 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
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(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." 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 (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.
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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 on 56,000 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."
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 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."
Change in Control Agreements
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, 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
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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."
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 such 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
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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
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 the Normal Retirement Age (the "Six Percent
Annual Early Payment Reduction").
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.
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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 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 the CEO's 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 the CEO's 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.
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
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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 sixty-two (or for employees only, after age fifty-five 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."
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 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 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.
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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 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 a
director since 1994 and Mr. Silverman has served as a director since September
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
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE
---- --------------
<S> <C>
James L. Miller.................................................. 1989
David M. Abramson................................................ 1994
Dean R. Silverman................................................ 1996
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE IN 1998
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE
---- --------------
<S> <C>
Michael J. Drabb................................................. 1994
Eric E. Glass.................................................... 1996
Paul I. Latta, Jr. .............................................. 1996
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE IN 1999
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE
---- --------------
<S> <C>
Lewis Hay, III................................................... 1991
Mark P. Kaiser................................................... 1996
Jeffrey D. Serkes................................................ 1996
</TABLE>
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<PAGE>
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 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.
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
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<PAGE>
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. The JP Foodservice Board of Directors approved the JP
Foodservice Charter Amendment on September 24, 1997.
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 September 27, 1997 and an
additional 4,264,329 shares were reserved for issuance under JP Foodservice's
benefit plans. If the Merger is consummated, 45,108,583 JP Foodservice Common
Shares would be outstanding immediately after the Merger and an additional
6,079,034 JP Foodservice Common Shares 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, 23,812,383 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, 98,812,383 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
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<PAGE>
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.
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. On September 24, 1997, the JP Foodservice
Board of Directors approved the JP Foodservice Stock Incentive Plan Amendment.
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.
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 September 27, 1997, 1,316,747 JP
Foodservice Common Shares had been reserved for issuance pursuant to
outstanding awards and 215,657 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
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<PAGE>
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 JP
Foodservice may adopt from time to time.
If JP Foodservice stockholders approve the JP Foodservice Stock Incentive
Plan Amendment, the total number of JP Foodservice Common Shares authorized
for issuance under the Stock Incentive Plan will equal approximately 5.8% of
the 45,108,583 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 1,553,811
JP Foodservice Common Shares that will be issuable upon exercise of all
Assumed Options, will equal approximately 9.2% 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 composed 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 corporation in a
separate vote before payment is made; 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 acquisitions. 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 JP Foodservice Stock Incentive Plan
Amendment. A copy of the Stock Incentive Plan, as proposed to be so amended,
has been filed as an exhibit to the Registration Statement of which this Joint
Proxy Statement/Prospectus forms a part.
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<PAGE>
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 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 JP Foodservice 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 term 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 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 September 27, 1997. All such
awards have been made in the form of non-qualified stock options.
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<PAGE>
OPTION GRANTS TO EXECUTIVE OFFICERS AND OTHER EMPLOYEES
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE OF
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES STOCK PRICE APPRECIATION
UNDERLYING EXERCISE OR OPTION TERM(4)
OPTION OPTIONS PRICE EXPIRATION ------------------------------
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 8/8/07 465,429 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 11/14/06 261,707 663,218
General Counsel 8/8/97 19,540 31.31 8/8/07 384,756 975,047
------- -------------- ---------------
44,540 $ 718,004 $ 1,819,564
======= ============== ===============
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 19,540 31.31 8/8/07 384,756 975,047
------- -------------- ---------------
94,386 $ 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 $ 574,374 $ 1,455,578
======= ============== ===============
All executive officers
as a group............. 590,330 $11.00-$31.31 11/22/04-8/8/07 $ 7,508,042 $ 19,026,853
All non-executive
officer employees as a
group(5)............... 726,417 $11.00-$31.31 11/22/04-8/8/07 $ 9,509,848 $ 24,130,505
</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.
The Merger does not constitute a change of control of JP Foodservice under
such options.
(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 164,323 options which were cancelled.
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<PAGE>
As of September 27, 1997, the market value of the JP Foodservice Common
Shares underlying the options granted under the Stock Incentive Plan was
$40,160,784.
Terms and Conditions of Options. 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
an incentive stock option granted to 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 opening price of the JP
Foodservice Common Shares as reported on the NYSE on the option grant date. If
there is no opening price reported on the option grant date, the fair market
value will be deemed equal to the closing price as reported on the 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 for which the
option is being exercised be delivered to a licensed broker as agent for the
optionee, and irrevocable instructions to the broker to sell such JP
Foodservice Common Shares and deliver to JP Foodservice the portion of the
sale proceeds equal to the option exercise price, or (iv) in a combination of
cash, JP Foodservice Common Shares 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.
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.
Generally, one-third of each option will vest on each of the first, second
and third anniversary dates of the option grant date. The Compensation
Committee may accelerate the vesting of any option in its discretion.
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.
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
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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 within six months after such SARs are
granted, except that this limitation will not be applicable in the event of
the death or disability of such participant occurring prior to the expiration
of such 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. 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 acquisitions. 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 JP Foodservice Common Share 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, JP Foodservice Common Shares 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 transferable only when the related option is transferable
and under the same conditions and (iii) the SAR may be exercised only when the
fair market value of the JP Foodservice Common Shares subject to the related
option exceeds the exercise 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 award: whether the
participant will receive the dividends and other distributions 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
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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 JP Foodservice Common Shares) 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 of Directors 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.
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 of the total outstanding voting stock of JP
Foodservice; (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 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 (iii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors (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.
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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 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 is 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.
Any such capital gain will be taxed at a maximum rate of 28% if the option
stock is held for more than one year but not more than 18 months and at a
maximum rate of 20% if the option stock is held for more than 18 months. If
the disposition is not qualifying (a "disqualifying disposition"), the excess
of the fair market value of the option stock on the date the 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
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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 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 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.
THE JP FOODSERVICE 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 the 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 of Stockholders 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.
On September 24, 1997, the JP Foodservice Board of Directors approved an
increase in the number of JP Foodservice Common Shares authorized for issuance
under the Director Plan from 100,000 shares to 200,000 shares and approved the
modification to the eligibility requirements for awards under the Director
Plan described below. 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
September 27, 1997, there were 40,000 JP Foodservice Common Shares reserved
for issuance pursuant to outstanding options under the Director Plan and
55,750 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")
and their successors 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 775 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
775 shares to the Rykoff-Sexton Director Designees was computed by multiplying
(a) the annual option grant of 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. A
copy of the Director Plan, as proposed to be so amended, has been filed as an
exhibit to the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part.
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 September 27, 1997, JP Foodservice had five
Outside Directors, each of whom has received option grants in accordance with
the Director
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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 September 27, 1997.
OPTION GRANTS TO OUTSIDE DIRECTORS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE OF
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES STOCK PRICE APPRECIATION
UNDERLYING EXERCISE FOR OPTION TERM(4)
OPTION OPTIONS PRICE EXPIRATION ------------------------------
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
9/3/97 2,000 $30.56 9/3/07 38,438 97,410
----- -------------- --------------
7,000 $ 113,119 $ 286,667
===== ============== ==============
Jeffrey D. Serkes....... 11/15/96 5,000 $22.25 11/15/06 $ 69,965 $ 177,304
Dean R. Silverman....... 9/3/96 5,000 $23.75 9/3/06 $ 74,681 $ 189,257
9/3/97 2,000 $30.56 9/3/07 38,438 97,410
----- -------------- --------------
7,000 $ 113,119 $ 286,667
===== ============== ==============
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>
- --------
(1) One fourth of each option granted vested on the option grant date and one
fourth of each such option vests on each of 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. The Merger does not constitute a change of
control of JP Foodservice under such options.
(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
the service of any Outside Director on the JP Foodservice Board at any time.
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Option Grants. Each Outside Director receives an option grant to purchase
5,000 JP Foodservice Common Shares upon his appointment or election to the
Board 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 each of 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 775 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 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 opening price of the JP Foodservice Common
Shares as reported on the NYSE on the Option Grant Date. If there is no
opening price reported on the Option Grant Date, the Fair Market Value will be
deemed equal to the closing price as reported on the NYSE for the last
preceding date on which 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 opening 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 dates 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.
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No option may be exercised during the first six months after the Option
Grant Date, unless the Outside Director dies or becomes disabled before the
expiration of such six-month period.
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.
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
voting stock of JP Foodservice) the beneficial owner of 50% or more of the
total outstanding voting stock of JP Foodservice; (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 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
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Board of Directors (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, make any amendments to the Director Plan
that are required by applicable law or regulation to be approved by
stockholders.
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 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 13,100 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.
THE JP FOODSERVICE 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 Peat Marwick") has acted as JP Foodservice's
independent accountants for JP Foodservice's 1997 fiscal year. Representatives
of KPMG Peat Marwick 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 Peat Marwick 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 Peat Marwick 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 July 26,
1998. 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 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 Indiana, 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.
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
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."
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DESCRIPTION OF JP FOODSERVICE CAPITAL STOCK
GENERAL
JP Foodservice's authorized capital stock consists of 75,000,000 Common
Shares, of which 22,606,308 shares were outstanding as of September 27, 1997,
and 5,000,000 shares of preferred stock ("JP Foodservice Preferred Stock"), no
shares of which were 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 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 JP Foodservice 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 (each, a "JP Foodservice
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 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
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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 (iv) 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.
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
Share 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
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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
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 JP
Foodservice 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 JP Foodservice 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 JP Foodservice 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 JP Foodservice 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 JP Foodservice 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 (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.
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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 JP Foodservice 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 JP Foodservice 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 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 JP
Foodservice 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
interests 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--Amendments to Rights Plans."
PREFERRED STOCK
Under the JP Foodservice Charter, the JP Foodservice Board of Directors has
the authority, without further action by the JP Foodservice 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 the JP Foodservice 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 336,637 Rykoff-Sexton Common Shares as of September 27,
1997 for an aggregate purchase price of $3,496,000. 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 the current market
price (as determined under the terms of the Warrants). The number of shares
issuable upon exercise 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 September 27, 1997, the New Warrants will
evidence the right to acquire 260,893 JP Foodservice Common Shares
(representing less than 1% of the outstanding JP Foodservice Common Shares).
The number of JP Foodservice Common Shares for which the New Warrants will be
exercisable will be subject to adjustment upon the occurrence of certain
events, as described above.
Each New Warrant will be exercisable until September 30, 2005. 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 28,580,906 shares were outstanding as of September 27, 1997,
and 10,000,000 shares of preferred stock, par value $.10 per share ("Rykoff-
Sexton Preferred Stock"), no shares of which were 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
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 ChaseMellon
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-
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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 Merger Agreement, the JP Foodservice Stock Option Agreement, the Rykoff-
Sexton Stock Option Agreement and the Support Agreement (collectively, the
"Transaction Agreements"), or (g) JP Foodservice or any of its affiliates or
associates as a result of 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
Rykoff-Sexton Common Shares are not changed or exchanged, (ii) any
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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 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 of 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.
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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 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 September 27, 1997, 22,606,308 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 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, 125,000 of which have been designated as Series A Preferred
Stock. As of September 27, 1997, 28,846,349 Rykoff-Sexton Common Shares were
issued, of which 28,580,906 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.
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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.
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. An "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 authorize the issuance or
transfer by Rykoff-Sexton or any such subsidiary of any Rykoff-Sexton voting
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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.
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 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.
APPRAISAL RIGHTS
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
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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 (ii) by 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. 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, except, in the case of JP
Foodservice, with respect to action by holders of any class or series of JP
Foodservice Preferred Stock to the extent authorized by the JP Foodservice
Board of Directors in the resolution creating such class or series.
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--JP Foodservice Rights."
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Rykoff-Sexton. Rykoff-Sexton is party to the Rykoff-Sexton Rights Agreement.
See "The Merger--Amendments to Rights Plans" and "Description of Rykoff-Sexton
Capital Stock--Common Shares, Rights and Series A Preferred Stock--Rykoff-
Sexton 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
By-laws 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
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.
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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 provide for indemnification by JP Foodservice, to
the fullest extent permitted by the DGCL, of its officers and directors. The
Rykoff-Sexton Charter provides for indemnification by Rykoff-Sexton, to the
fullest extent permitted by the DGCL, of its officers, directors, employees
and agents.
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
stock of Rykoff-Sexton entitled to vote generally in the election of
directors, unless a class vote is required under the DGCL.
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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 repeal 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, by the affirmative vote
of a majority of the directors then in office.
LEGAL MATTERS
A legal opinion to the effect that the securities 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. The 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
Annual Meeting 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 Annual 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 Annual 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
AND AS OF NOVEMBER 5, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
The Merger
<TABLE>
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<C> <S> <C>
SECTION 1.1. The Merger................................................ A-1
SECTION 1.2. Closing................................................... A-1
SECTION 1.3. Effective Time............................................ A-2
SECTION 1.4. Effects of the Merger..................................... A-2
Certificate of Incorporation and By-laws of the Surviving
SECTION 1.5. Corporation and JPFI...................................... A-2
SECTION 1.6. Directors and Officers.................................... A-2
SECTION 1.7. Reservation of Right to Revise Transaction................ A-3
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates
SECTION 2.1. Effect on Capital Stock................................... A-3
SECTION 2.2. Exchange of Certificates.................................. A-5
SECTION 2.3. Certain Adjustments....................................... A-7
ARTICLE III
Representations and Warranties
SECTION 3.1. Representations and Warranties of RSI..................... A-7
(a) Organization, Standing and Corporate Power............ A-7
(b) Subsidiaries.......................................... A-7
(c) Capital Structure..................................... A-7
(d) Authority; Noncontravention........................... A-8
(e) Financial Statements.................................. A-9
(f) ERISA Compliance...................................... A-10
(g) Taxes................................................. A-10
(h) Voting Requirements................................... A-10
(i) State Takeover Statutes; Certain Provisions of RSI
Certificate........................................... A-10
(j) Accounting Matters.................................... A-11
(k) Brokers............................................... A-11
(l) Opinion of Financial Advisors......................... A-11
(m) Ownership of JPFI Common Stock........................ A-11
(n) RSI Rights Agreement.................................. A-11
SECTION 3.2. Representations and Warranties of JPFI and Merger Sub..... A-11
(a) Organization, Standing and Corporate Power............ A-12
</TABLE>
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<TABLE>
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<C> <S> <C>
(b) Subsidiaries......................................... A-12
(c) Capital Structure.................................... A-12
(d) Authority; Noncontravention.......................... A-13
(e) Financial Statements................................. A-14
(f) ERISA Compliance..................................... A-14
(g) Taxes................................................ A-14
(h) Voting Requirements.................................. A-14
(i) State Takeover Statutes; Certificate of
Incorporation........................................ A-15
(j) Accounting Matters................................... A-15
(k) Brokers.............................................. A-15
(l) Opinion of Financial Advisors........................ A-15
(m) Ownership of RSI Common Stock........................ A-15
(n ) JPFI Rights Agreement............................... A-15
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.1. Conduct of Business...................................... A-16
SECTION 4.2. No Solicitation or Negotiations.......................... A-19
ARTICLE V
Additional Agreements
SECTION 5.1. Preparation of the Form S-4 and the Joint Proxy
Statement; Stockholders Meetings......................... A-20
SECTION 5.2. Letters of RSI's Accountants............................. A-20
SECTION 5.3. Letters of JPFI's Accountants............................ A-21
SECTION 5.4. Access to Information; Confidentiality................... A-21
SECTION 5.5. Best Efforts............................................. A-21
SECTION 5.6. Employment Agreements.................................... A-22
SECTION 5.7. Indemnification, Exculpation and Insurance............... A-22
SECTION 5.8. Fees and Expenses........................................ A-23
SECTION 5.9. Public Announcements..................................... A-23
SECTION 5.10. Affiliates............................................... A-23
SECTION 5.11. NYSE Listing............................................. A-23
SECTION 5.12. Tax Treatment............................................ A-23
SECTION 5.13. Pooling of Interests..................................... A-24
SECTION 5.14. Standstill Agreements; Confidentiality Agreements........ A-24
SECTION 5.15. Post-Merger Operations................................... A-24
SECTION 5.16. Conveyance Taxes......................................... A-24
SECTION 5.17. 8 7/8% Indenture......................................... A-24
SECTION 5.18. Certain Tax Matters...................................... A-24
</TABLE>
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ARTICLE VI
Conditions Precedent
<TABLE>
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<C> <S> <C>
Conditions to Each Party's Obligation to Effect the
SECTION 6.1. Merger................................................... A-24
SECTION 6.2. Conditions to Obligations of JPFI........................ A-25
SECTION 6.3. Conditions to Obligations of RSI......................... A-26
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.1. Termination.............................................. A-26
SECTION 7.2. Effect of Termination.................................... A-27
SECTION 7.3. Amendment................................................ A-27
SECTION 7.4. Extension; Waiver........................................ A-28
SECTION 7.5. Termination Expenses .................................... A-28
ARTICLE VIII
General Provisions
SECTION 8.1. Nonsurvival of Representations and Warranties............ A-28
SECTION 8.2. Notices.................................................. A-28
SECTION 8.3. Definitions.............................................. A-29
SECTION 8.4. Interpretation........................................... A-30
SECTION 8.5. Counterparts............................................. A-30
SECTION 8.6. Entire Agreement; No Third-Party Beneficiaries........... A-30
SECTION 8.7. Governing Law............................................ A-30
SECTION 8.8. Assignment............................................... A-30
SECTION 8.9. Consent to Jurisdiction.................................. A-30
SECTION 8.10. Headings, Etc............................................ A-31
SECTION 8.11. Severability............................................. A-31
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
</TABLE>
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AGREEMENT AND PLAN OF MERGER dated as of June 30, 1997, as amended as of
September 3, 1997 and as of November 5, 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 Section 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
stockholders; and
WHEREAS, as a condition to, and on the date immediately 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 intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); 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 following, the execution of this
Agreement, JPFI and certain stockholders of RSI will enter into, and RSI will
execute an acknowledgment to, a support agreement (the "Support Agreement")
attached hereto as Exhibit C; and
WHEREAS, JPFI and RSI desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
Section 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), RSI shall be merged with and into Merger Sub at
the Effective Time (as defined in Section 1.3). Following the Effective 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.
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Section 1.3. Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date, the parties shall cause the Merger to
be consummated by filing a certificate of merger or other appropriate
documents (in any such case, the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become
effective at such time as the Certificate 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.
Section 1.5. Certificate of Incorporation and By-laws of the Surviving
Corporation and JPFI. (a) At the Effective 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 directors of
the JPFI Board of Directors whose terms shall expire in 1998.
(b) Prior to the Effective Time, JPFI shall (i) increase 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 directors, as selected by JPFI
prior to the Effective Time, plus (B) seven individuals, no fewer than four of
whom shall be outside 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 Partners 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 Section 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 directors each, three of
whom shall be incumbent directors of the JPFI Board of Directors pursuant to
clause (ii)(A) of this Section 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 comprised of five
directors, three of whom shall be incumbent directors 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 pursuant to
clause (ii)(B) of the first sentence of this Section 1.6(b), James I. Maslon
shall be appointed to the class of directors 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 Directors shall initially
have three committees, as follows: an audit committee, a compensation
committee and a nominating committee. Each committee will be comprised
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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 replacement 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 Incorporation 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 directors and officers of
Merger Sub immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation.
(e) It is currently contemplated that the first three vacancies on the JPFI
Board of Directors to occur following the Effective Time shall not be filled,
but that in each case the number of directors shall be reduced, so that the
total number of directors constituting the JPFI Board of Directors shall
thereafter be 14.
Section 1.7. Reservation of Right to Revise Transaction. 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) materially 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 delivered in exchange therefor.
(b) Conversion of RSI Common Stock. Subject to Section 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 0.775 (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
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Effective Time shall remain outstanding as a validly 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) JPFI 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 determined as provided
below (and otherwise, in the case of options, subject to the terms of the
RSI Stock Plans (as defined in Section 3.1(c)) and the agreements
evidencing grants thereunder) (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 Ratio,
provided that any fractional shares of JPFI Common 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 exercise price per share of RSI Common
Stock under the original option divided by the Exchange Ratio, provided
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 effected 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 references 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 Annuity 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 determined
pursuant to the terms of Sections 2 and 3 of the Assumed Warrants, copies
of which have been delivered to JPFI.
(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 representing 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 necessary 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, effective as of, or
reasonably promptly following, the Effective Time, with respect to JPFI
Common Stock subject to the Assumed Options and shall use commercially
reasonable efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of
the prospectus or prospectuses contained therein) for so long as the
Assumed Options remain outstanding and exercisable. With respect 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.
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Section 2.2. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, JPFI shall enter into an agreement with such bank or trust
company as may be designated 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 accordance with this Article II,
through the Exchange Agent, certificates 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
"Exchange 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 outstanding shares of RSI Common Stock (the "Certificates") whose
shares were converted into the right to receive the Merger Consideration
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 surrendering the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that
number of whole shares of JPFI Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II, certain dividends or
other distributions in accordance with Section 2.2(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 forthwith 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 delivered
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 issuance 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 establish 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 dividends 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 Common 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
fractional 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 with this Article II. Subject to
the effect of applicable escheat or similar laws, following surrender of any
such Certificate there shall be paid to the holder of the certificate
representing whole shares of JPFI Common Stock issued in exchange therefor,
without interest,
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(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
Certificates 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 payable
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
satisfaction 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 Article II, except as
otherwise provided by law.
(e) No Fractional Shares. (i) Notwithstanding anything 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
fractional 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 fractional shares, JPFI shall pay each former
holder of RSI Common Stock an amount in cash equal to the product obtained by
multiplying (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 otherwise be entitled by (B) the average
of the closing prices of the JPFI Common Stock as reported on the NYSE
Composite Reporting Tape (as reported in The Wall Street Journal, or, if not
reported therein, any other authoritative source) during the ten 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 Certificates 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 accordance 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 Certificates 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 fractional 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 official pursuant to any
applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by JPFI, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
JPFI.
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(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent shall issue 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 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 contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or
dividend.
ARTICLE III
Representations and Warranties
Section 3.1. Representations and Warranties of RSI. Except as (i) disclosed
to an executive officer of JPFI in writing prior to the date of Amendment No.
2 to this Agreement or (ii) disclosed in (w) the Disclosure Schedule delivered
by RSI to JPFI prior to the execution of this Agreement as supplemented by the
Supplemental Disclosure Schedule attached to Amendment No. 2 to this Agreement
(collectively, the "RSI Disclosure Schedule"), (x) any RSI SEC Document (as
defined in Section 8.3) filed and publicly available prior to the date of
Amendment No. 2 to this Agreement (as amended to the date hereof, "RSI Filed
SEC Documents"), (y) the Form S-4 (as defined in Section 8.3) filed prior to
the date of this Amendment No. 2 or (z) any RSI Press Release (as defined in
Section 4.1(a)), 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
jurisdiction 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 subsidiaries, for those jurisdictions
where the failure to be so organized, existing or in good standing
individually or in the aggregate would not have a material adverse effect
(as defined in Section 8.3) on RSI.
(ii) RSI has delivered to JPFI prior to the execution of this Agreement
complete and correct copies of any amendments to its certificate of
incorporation (the "RSI Certificate") and by-laws not filed as of the date
hereof with the RSI Filed SEC Documents.
(b) Subsidiaries. Exhibit 21 to RSI's Annual Report on Form 10-K for the
fiscal year ended June 28, 1997 includes all the subsidiaries of RSI which
as of the date of this Agreement 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 Significant
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, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens") and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other ownership interests), other than Liens and
restrictions imposed by RSI's debt agreements 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
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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 subsidiaries 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 Management 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 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 (336,637 as of September 27, 1997) 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 (collectively,
"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 Common Stock pursuant to
the RSI Employee Stock Options or as expressly 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 acquire from RSI or any RSI
subsidiary, and any obligation of RSI or any RSI subsidiary to issue, any
capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of RSI,
and (y) there are no outstanding obligations of RSI or any RSI subsidiary
to repurchase, redeem or otherwise acquire any such securities or to issue,
deliver or sell, or cause to be issued, delivered or sold, any such
securities. There are no outstanding (A) securities of 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. 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
registration 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 subsidiaries, 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 ordinary 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 requisite corporate power
and authority to enter into this Agreement, each of the Option Agreements
and, subject, in the case of the Merger, to the RSI Stockholder Approval
(as defined in Section 3.1(h)), to consummate the transactions contemplated
hereby
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and thereby. The execution and delivery of this Agreement and each of the
Option Agreements by RSI and the consummation 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 delivery 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 default (with or without notice or
lapse of time, or both) under, (i) the RSI Certificate or the by-laws of
RSI or the comparable organizational documents 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 governmental filings and other matters
referred to in the following 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), conflicts, violations, or defaults that
would not prevent RSI from consummating the Merger under this Agreement. No
consent, approval, order or authorization of, action by or in respect of,
or registration, declaration or filing with, any federal, state, local or
foreign government, any court, administrative, regulatory or other
governmental agency, commission or authority or any nongovernmental self-
regulatory agency, commission or authority (a "Governmental Entity") is
required by or with respect to RSI or any of its subsidiaries in connection
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 "Exchange
Act"), as may be required in connection with this Agreement, 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 documents with the relevant authorities of other states in
which RSI is qualified to do business and such filings with Governmental
Entities to satisfy the applicable requirements of state securities or
"blue sky" laws; and (4) such consents, approvals, orders or authorizations
the failure of which to be made or obtained individually or in the
aggregate would not (x) have a material adverse effect on 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 consummation
of the transactions contemplated thereby has been approved by the RSI Board
of Directors in the manner contemplated by Section 3.1(a) of that certain
Standstill Agreement (the "Standstill Agreement"), dated as of May 17,
1996, by and between RSI and the ML Entities (as defined therein). The
entry into this Agreement and the consummation of the transactions
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) Financial Statements. To RSI's knowledge, the financial statements
included in RSI's Annual Report on Form 10-K for the fiscal year ended June
28, 1997 and such other periodic reports filed with the SEC under the
Exchange Act since such date have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated
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<PAGE>
financial position of RSI and its subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to year-end audit
adjustments).
(f) ERISA Compliance. (i) To RSI's knowledge, each RSI Benefit Plan (as
defined in Section 4.1(a)) has been administered in accordance with its
terms, except for any failures so to administer any RSI Benefit Plan that
individually or in the aggregate would not have a material adverse effect
on RSI. To RSI's knowledge, RSI, its subsidiaries and all the RSI Benefit
Plans have been operated, and are in compliance with the applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Code and all other applicable laws and the terms of
all applicable collective bargaining agreements, except for any failures to
be in such compliance that individually or in the aggregate would not have
a material adverse effect on RSI. To RSI's knowledge, no fact or event has
occurred since the date of any determination letter from the Internal
Revenue Service ("IRS") that, to RSI's knowledge, is reasonably likely to
affect adversely the qualified status of any such RSI Benefit Plan or the
exempt status of any such trust.
(ii) To RSI's knowledge, 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 RSI's knowledge, there are not
any facts or circumstances that, to RSI's knowledge, would materially
adversely change the funded status of any RSI Benefit Plan that is a
"defined benefit" plan (as defined in Section 3(35) of ERISA) since the
date of the most recent actuarial report for such plan.
(iii) With respect to any RSI Benefit Plan that is a multiemployer plan,
to RSI's knowledge (A) neither RSI nor any of its subsidiaries has any
contingent liability under Section 4204 of ERISA, and no circumstances
exist that present a material risk that any such plan will go into
reorganization, and (B) the aggregate withdrawal liability of RSI and its
subsidiaries, 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.
(iv) To RSI's knowledge, no employee of RSI will be entitled to any
material payment, additional benefits or any acceleration of the time of
payment or vesting of any benefits under any RSI Benefit Plan as a result
of the transactions contemplated by this Agreement (either alone or in
conjunction with any other event such as a termination of employment),
except that substantially all RSI Employee Stock Options will vest as of
the date on which RSI Stockholder Approval is obtained.
(g) Taxes. (i) To RSI's knowledge, no deficiencies for any taxes have
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 aggregate would not have a material adverse effect
on RSI.
(ii) 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 Section 368(a) of the Code.
(h) 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
contemplated hereby, including the Merger.
(i) 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 Option Agreements and the transactions contemplated
hereby and thereby and, assuming the accuracy of JPFI's representation and
warranty contained in Section 3.2(m), (a) such approval constitutes
approval of the Merger and the other transactions contemplated hereby and
by the Option Agreements by the RSI Board of Directors under (i) the
provisions of Section 203 of the DGCL such that Section 203 of the DGCL
does not apply to this Agreement, 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
required by Article
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<PAGE>
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 approval 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 "memorandum of understanding"
contemplated by Article Twelfth) for purposes 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
contemplated 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.
(j) 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, without limitation, in connection with any RSI
Stock Plan or any agreement thereunder) that would prevent the business
combination 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" accounting.
(k) Brokers. No broker, investment banker, financial 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 commission
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.
(l) Opinions of Financial Advisors. RSI has received the opinions of
Merrill Lynch and Wasserstein, each dated the date of Amendment No. 2 to
this Agreement, to the effect that, as of such date, the Exchange Ratio for
the conversion of RSI Common Stock into JPFI Common Stock, as amended by
such Amendment No. 2, is fair from a financial point of 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 on or before the date
of Amendment No. 2 to this Agreement, 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.
(m) Ownership of JPFI Common Stock. To the knowledge of RSI, as of the
date hereof (and before giving effect to the JPFI Option Agreement, which
will be entered into immediately 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.
(n) RSI Rights Agreement. RSI has taken all action (including, if
required, redeeming all of the outstanding preferred 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.
Section 3.2. Representations and Warranties of JPFI and Merger Sub. Except
(i) as disclosed to an executive officer of RSI in writing prior to the date
of Amendment No. 2 to this Agreement or (ii) disclosed in (w) the Disclosure
Schedule delivered by JPFI and Merger Sub to RSI prior to the execution of
this Agreement as supplemented by the Supplemental Disclosure Schedule
attached to Amendment No. 2 to this Agreement (collectively, the "JPFI
Disclosure Schedule"), (x) any JPFI SEC Document (as defined in Section 8.3)
filed and publicly available prior to the date of Amendment No. 2 to this
Agreement (as amended to the date hereof,
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<PAGE>
"JPFI Filed SEC Documents"), (y) the Form S-4 filed prior to the date of this
Amendment No. 2 or (z) any JPFI Press Release (as defined in Section 4.1(b)),
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 legal entity duly organized, validly
existing and in good standing (with respect to jurisdictions which
recognize such concept) under the laws of the jurisdiction 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 subsidiaries, for those jurisdictions where the failure to be so
organized, existing or in good standing individually or in the aggregate
would not have a material adverse effect on 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.
(b) Subsidiaries. Exhibit 21 to JPFI's Annual Report on Form 10-K for the
fiscal year ended June 28, 1997, as amended, includes all the subsidiaries
of JPFI which as of the date of this Agreement are Significant
Subsidiaries. All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and nonassessable and are owned directly or
indirectly by JPFI, free and clear of all Liens and free of any other
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests).
(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 issued and outstanding (including shares of restricted JPFI Common
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 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 JPFI or its
subsidiaries 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 (collectively, "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
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in this Section 3.2(c), and except
for changes since June 24, 1997 resulting from the issuance of shares of
JPFI Common Stock pursuant to the JPFI Employee Stock Options or as
expressly 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 JPFI, (B) any securities of JPFI or any JPFI subsidiary
convertible into or exchangeable or exercisable for shares of capital stock
or voting securities of JPFI, (C) any 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 securities convertible into or exchangeable or 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.
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<PAGE>
There are no outstanding (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 agreement restricting the purchase or transfer of, relating to
the voting of, requiring registration of, or granting any preemptive or,
except as provided by the terms of the JPFI Employee Stock Options,
antidilutive rights with respect to, any securities 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 material 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(h)), to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement by each of JPFI and Merger Sub, and the execution 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, execution and delivery thereof by RSI, constitute (or will
constitute, as the case may be) the legal, valid and binding obligation of
JPFI (and, in the case of this Agreement, Merger Sub), enforceable against
JPFI (and, in the case of this Agreement, Merger Sub) in accordance with
their terms. The execution 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, (i) the
JPFI Certificate or the by-laws of JPFI or the comparable organizational
documents of any of its subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, trust document, lease or other agreement,
instrument, permit, concession, franchise, license or similar authorization
applicable to 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 judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to JPFI or any of
its subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), conflicts, violations or defaults that
would not prevent JPFI from consummating the Merger under this Agreement.
No consent, approval, order or authorization of, action by, or in respect
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to 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
connection with this Agreement and 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 documents
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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 consents, approvals, orders or
authorizations the failure of which to be made or obtained individually or
in the aggregate would not (x) have a material adverse effect on JPFI or
(y) reasonably be expected to impair the ability of JPFI or Merger Sub to
perform its obligations under this Agreement.
(e) Financial Statements. To JPFI's knowledge, the financial statements
included in JPFI's Annual Report on Form 10-K for the fiscal year ended
June 28, 1997 and such other periodic reports filed with the SEC under the
Exchange Act since such date have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of JPFI and its subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to year-end audit adjustments).
(f) ERISA Compliance. (i) To JPFI's knowledge, each JPFI Benefit Plan
(defined in Section 4.1(b)) has been administered in accordance with its
terms, except for any failures so to administer any JPFI Benefit Plan that
individually or in the aggregate would not have a material adverse effect
on JPFI. To JPFI's knowledge, 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
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. To JPFI's knowledge, no fact or
event has occurred since the date of any determination letter from the IRS
that, to JPFI's knowledge, is reasonably likely to affect adversely the
qualified status of any such JPFI Benefit Plan or the exempt status of any
such trust.
(ii) To JPFI's knowledge, 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 JPFI's
knowledge, there are not any facts or circumstances that, to JPFI's
knowledge, would materially adversely change the funded status of any JPFI
Benefit Plan that is a "defined benefit" plan (as defined in Section 3(35)
of ERISA) since the date of the most recent actuarial report for such plan.
(iii) With respect to any JPFI Benefit Plan that is a multiemployer plan,
to JPFI's knowledge, (A) neither JPFI nor any of its subsidiaries has any
contingent liability under Section 4204 of ERISA, and no circumstances
exist that present a material risk that any such plan will go into
reorganization, and (B) the aggregate withdrawal liability of JPFI and its
subsidiaries, 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.
(iv) To JPFI's knowledge, no employee of JPFI will be entitled to any
material payment, additional benefits or any acceleration of the time of
payment or vesting of any benefits under any JPFI Benefit Plan as a result
of the transactions contemplated by this Agreement (either alone or in
conjunction with any other event such as a termination of employment),
except that certain JPFI Employee Stock Options may vest in connection with
such transactions.
(g) Taxes. (i) To JPFI's knowledge, no deficiencies for any taxes have
been proposed, asserted or assessed against JPFI or any of its subsidiaries
that are not adequately reserved for, except for deficiencies that
individually or in the aggregate would not have a material adverse effect
on JPFI.
(ii) 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 Section 368(a) of the Code.
(h) 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
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by proxy at a duly convened and held meeting 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
Common Stock pursuant to the Merger.
(i) State Takeover Statutes; Certificate of Incorporation. 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 Section 3.1(m), 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 Agreement, 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.
(j) 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, without limitation, in connection with any JPFI
Stock Plan or any agreement thereunder) that would prevent the business
combination 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" accounting.
(k) Brokers. No broker, investment banker, financial 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 transactions
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.
(l) Opinions of Financial Advisors. JPFI has received the opinions of
Goldman and Smith Barney, each dated the date of Amendment No. 2 to this
Agreement, to the effect that, as of such date, the Exchange Ratio for the
conversion of RSI Common Stock into JPFI Common Stock, as amended by such
Amendment No. 2, is fair from a financial point of view to JPFI, signed
copies of which opinions have been delivered to RSI on or before the date
of Amendment No. 2 to this Agreement, 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
respective stockholders.
(m) 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 indirectly, 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.
(n) JPFI Rights Agreement. JPFI has taken all action (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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ARTICLE IV
Covenants Relating to Conduct of Business
Section 4.1. (a) Conduct of Business by RSI. Except (i) as disclosed to an
executive officer of JPFI in writing prior to the date of Amendment No. 2 to
this Agreement ("Amendment No. 2"), or (ii) as disclosed in (A) the RSI
Disclosure Schedule, (B) any RSI Filed SEC Document, or (C) any press release
issued by RSI prior to the date of this Amendment (each, an "RSI Press
Release"), (iii) as otherwise expressly contemplated by this Agreement or the
transactions contemplated thereby, or (iv) as consented to by JPFI in writing,
such consent not to be unreasonably withheld or delayed, during the period
from the date of this Agreement to the Effective Time, (I) 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
consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, (II) except as may be required by law or any
plan, program, contract or arrangement in effect on the date of Amendment No.
2, 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, (A) grant to
any current or former director, officer, any regional vice president or
president of any division of RSI or its subsidiaries any increase in
compensation, bonus or other benefits, except as required by employment
agreements in effect as of April 27, 1996; (B) grant to any such current or
former director, officer, any regional vice president or president of any
division any increase in severance or termination pay; or (C) enter into, or
amend, any employment, deferred compensation, consulting, severance,
termination or indemnification agreement with any such current or former
director, officer, regional vice president or president of any division, or
(III) except as may be required by law or any plan, program, contract or
arrangement in effect on the date of Amendment No. 2, during the period from
the date of Amendment No. 2 to the Effective Time, RSI shall not, and shall
not permit any of its subsidiaries to adopt or amend, and to RSI's knowledge
since October 8, 1997, RSI has not and has not permitted any of its
subsidiaries to, adopt or amend, any collective bargaining agreement (other
than renegotiations required by any such collective bargaining agreement),
employment agreement, consulting agreement, severance agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, 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"), in any manner which would,
individually, or in the aggregate, involve amounts in excess of $1,000,000.
Anything in this Section 4.1(a) to the contrary notwithstanding, RSI and any
RSI subsidiary shall not be deemed in violation of this Section 4.1(a) if such
violation is cured prior to 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, 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 dividends on, make any other distributions in respect
of, or enter into any agreement with respect to the voting of, any of its
capital stock, (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, except for
issuances of 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 issued pursuant to Section 4.1(a)(ii) or (z) purchase, redeem 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 cashless exercise
of RSI Employee Stock Options outstanding on the date hereof, or in
connection with withholding obligations relating thereto);
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(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 convertible into, or any rights, warrants or options to acquire,
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 Options 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 operating budgets (in each case, as previously provided
to JPFI), 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 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
securitizations), other than in the ordinary course of business consistent
with past practice;
(vi) make any tax election that individually or in the aggregate would
have a material adverse effect on RSI or any of its tax attributes or
settle or compromise any material income tax liability;
(vii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money, other than pursuant to a revolving credit facility or
receivables facility in effect as of the date hereof, in the ordinary
course of business consistent with past practice;
(viii) settle any material claim, action or proceeding involving money
damages, except in the ordinary course of business consistent with past
practice;
(ix) 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
(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 (i) as disclosed to an executive
officer of RSI in writing prior to the date of Amendment No. 2, or (ii) as
disclosed in (A) the JPFI Disclosure Schedule as amended by Schedule V to
Amendment No. 2, (B) any JPFI Filed SEC Document, or (C) any press release
issued by JPFI prior to the date of Amendment No. 2 (each, a "JPFI Press
Release"), (iii) as otherwise expressly contemplated by this Agreement or the
transactions contemplated thereby, or (iv) as consented to by RSI in writing,
such consent not to be unreasonably withheld or delayed, during the period
from the date of this Agreement to the Effective Time, (I) JPFI 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,
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and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, (II) except as may be
required by law or any plan, program, contract or arrangement in effect on the
date of Amendment No. 2, 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, (A) grant to any current or former director, officer, any
regional vice president or president of any division of JPFI or its
subsidiaries any increase in compensation, bonus or other benefits, except as
required by employment agreements in effect as of June 29, 1996; (B) grant to
any such current or former director, officer, any regional vice president or
president of any division any increase in severance or termination pay, or (C)
enter into, or amend, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, officer or any regional vice president or president of any
division, or (III) except as may be required by law or any plan, program,
contract or arrangement in effect on the date of Amendment No. 2, during the
period from the date of Amendment No. 2 to the Effective Time, JPFI shall not,
and shall not permit any of its subsidiaries to adopt or amend, and to JPFI's
knowledge since October 8, 1997, JPFI has not and has not permitted any of its
subsidiaries to, adopt or amend, any collective bargaining agreement (other
than renegotiations required by any such collective bargaining agreement),
employment agreement, consulting agreement, severance agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, 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"), in any manner which would,
individually, or in the aggregate, involve amounts in excess of $1,000,000.
Anything in this Section 4.1(b) to the contrary notwithstanding, JPFI and any
JPFI subsidiary shall not be deemed in violation of this Section 4.1(b) if
such violation is cured prior to 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 substitution for shares of its
capital stock, except for issuances 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 capital 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
Options, or in connection with withholding obligations 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 convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities (other than
the issuance of JPFI Common Stock upon the exercise of JPFI Employee Stock
Options outstanding 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 business consistent with past practice for employees
(so long as such additional amount of JPFI Common Stock subject 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
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the date of this Agreement or pursuant to JPFI's current capital and
operating 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
securitizations), other than in the ordinary course of business consistent
with past practice;
(vi) make any tax election that individually or in the aggregate would
have a material adverse effect on JPFI or any of its tax attributes or
settle or compromise any material income tax liability;
(vii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money, other than pursuant to a revolving credit facility or
receivables facility in effect as of the date hereof, in the ordinary
course of business consistent with past practice;
(viii) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(ix) 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
(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 respective subsidiaries to, voluntarily take
any action that would, or that could reasonably be expected to, result in
(i) any of the representations and warranties of such party set forth in
this Agreement that are qualified as to materiality becoming untrue at the
Effective Time, (ii) any of such representations and warranties that are
not so qualified becoming untrue in any material respect at the Effective
Time, or (iii) any of the conditions to the Merger set forth in Article VI
not being satisfied.
(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 representation or warranty that is not so qualified becoming
untrue or inaccurate in any material respect, (ii) the failure by it to
comply in any material respect with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it
under this Agreement and (iii) any change or event having, or which,
insofar as can reasonably be foreseen, could reasonably be expected to have
a material adverse effect on such party or on the truth of such party's
representations and warranties or the ability of the conditions set forth
in Article VI to be satisfied; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of
the parties (or remedies with respect thereto) or the conditions to the
obligations of the parties under this Agreement.
Section 4.2. No Solicitation or Negotiations. (a) Neither JPFI nor RSI
shall, directly or indirectly, solicit or encourage (including by way of
furnishing information), or authorize any individual, corporation or other
entity to solicit or encourage (including by way of furnishing information),
from any third party any inquiries or proposals relating to, or conduct
negotiations or discussions with any third party with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or that may reasonably be expected to lead to, any proposal or
offer relating to the disposition of its business or assets, or the
acquisition of its voting securities, or the merger or consolidation of it or
any of its subsidiaries with or into any corporation or other entity other
than as provided in this Agreement, 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).
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(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 prospectus. 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 and comment thereon. JPFI will advise RSI, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the 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 misleading, the party which discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the stockholders of 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 stockholders (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 stockholders (the "JPFI Stockholders Meeting") in
accordance with the DGCL for the purpose of obtaining the JPFI 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.
(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 shall become effective and one dated a date within two business days before
the Closing
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Date, each addressed to JPFI, in form and substance reasonably satisfactory to
JPFI and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
(b) RSI shall use best efforts to cause to be delivered 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 pooling 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 independent public accountants in connection
with registration statements similar to the Form S-4.
(b) JPFI shall use best efforts to cause to be delivered 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 Principles Board
and applicable SEC rules and regulations is appropriate if the Merger is
closed and consummated as contemplated 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
respective subsidiaries to, afford to the other party and to the officers,
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,
contracts, commitments, personnel and records (provided that such access shall
not interfere with the business or operations of 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, financial 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 assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of
all necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers, and any necessary or appropriate 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
Agreement, including seeking to have any stay or temporary restraining 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.
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(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 Option Agreements, the Support Agreement or any of the transactions
contemplated hereby and thereby and (ii) if any state takeover statute or
similar statute or regulation becomes applicable to such agreements or
transactions, take all action necessary to ensure that such transactions may
be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation
on the Merger and the other transactions contemplated by this Agreement.
Section 5.6. 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
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 and its subsidiaries from and after the Effective Time. Nothing in
this Section 5.6 shall be interpreted as preventing the Surviving Corporation
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
individual, 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 indicated on Section 5.6(b)
of the RSI Disclosure Schedule to be taken by it at or prior to the time
specified therein, including 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 Insurance. (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 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. The certificate of
incorporation and bylaws of the Surviving Corporation shall contain the
provisions (and the Surviving Corporation's Certification of Incorporation and
by-laws may be amended to incorporate such provisions) with respect to
indemnification that are set forth in the certificate of incorporation and
bylaws of RSI (in each case in effect as of June 30, 1997 and as provided to
JPFI prior to such date), which provisions shall not be amended, repealed or
otherwise modified, except as required by law, for a period of six years from
the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at (or at any time prior to) the Effective Time
were directors or officers of RSI or its subsidiaries (or any of its
predecessors). 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 indemnity 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, the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any
other person and is not the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision will be made so that the successors and assigns of JPFI or
the Surviving Corporation (as the case may be) assume the obligations set
forth in this Section 5.7.
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(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 officers'
liability insurance policy on terms with respect to such coverage and amount
no less favorable than those of such policy in effect on the date hereof,
provided that in no event shall 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 intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (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.
(e) Without limiting the generality of the foregoing, the provisions of this
Section 5.7 shall apply to any litigation, action, suit, claim, investigation
or proceeding described in Item 11 to Schedule II to Amendment No. 2.
Section 5.8. Fees and Expenses. All fees and expenses incurred in connection
with the Merger, this Agreement, and the transactions contemplated by this
Agreement shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated, except (x) to the extent set forth in
Section 7.5 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).
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 contemplated by this
Agreement, the Option Agreements and the Support Agreement, including the
Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except as either party may determine is
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or stock market. The
parties agree that the initial press release 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 practicable 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
efforts 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 publish 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 efforts 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.
Section 5.12. Tax Treatment. Each of JPFI and RSI shall use best efforts to
cause the Merger to qualify as a reorganization under the provisions of
Section 368 of the Code and to obtain the opinions of counsel referred to in
Section 6.1(g). The parties will characterize the Merger as such a
reorganization for purposes of all tax returns and other filings.
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Section 5.13. Pooling of Interests. Each of RSI and JPFI shall use best
efforts to cause the transactions contemplated by this Agreement, including
the Merger, to be accounted for as a pooling of interests under Opinion 16 of
the Accounting 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 instrument, 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 obtaining
injunctions to prevent any breaches of such agreements and to enforce
specifically the terms and provisions thereof in any court of the United
States of America or of any state having jurisdiction.
Section 5.15. 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 returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees or any similar taxes which become
payable in connection with the transactions contemplated by this Agreement
that are required or permitted to be filed on or before the Effective Time.
Section 5.17. 8 7/8% Indenture. Merger Sub, as the Surviving Corporation,
agrees that it will comply with the provisions of Section 11.1 of the
Indenture, dated as of November 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 Subordinated 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 otherwise required by a determination (as defined in Section 1313 of
the Code). Notwithstanding the foregoing, each of RSI and JPFI agrees that
taking into account the modification of the Exchange Ratio, substantial
authority exists as of the date of Amendment No. 2 that, as of the Effective
Time, the position set forth in this Section 5.18 shall continue to be
applicable. Without the prior written consent of RSI, JPFI agrees that it
shall not, and shall not permit any of its subsidiaries to, take any action
not required by any binding contract or plan in effect as of the date of
Amendment No. 2 or by applicable law that would prevent the statement set
forth in the preceding sentence from being true and correct as of the
Effective Time, including without limitation, any action with respect to the
issuance of 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, whether or not
permitted by any other provision of this Agreement.
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:
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(a) Stockholder Approvals. Each of the RSI Stockholder 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 matters
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 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, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
Merger, or (ii) which otherwise is reasonably likely to have a material
adverse effect on RSI or JPFI, as applicable; provided, however, that each
of the parties shall have used its best efforts to prevent the entry of any
such Restraints and to appeal as promptly as possible any such Restraints
that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the
Securities Act prior to the mailing of the 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 initiated 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 received) 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 exchange for shares of RSI Common
Stock pursuant to the Merger will include the holding period of the shares
of RSI Common 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 representations 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 received 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
Opinion 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:
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(a) Representations and Warranties. The representations 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 (i) to
the extent expressly made as of an earlier date, in which case such
representations and warranties shall be true and correct as of such date,
and (ii) for the representations and warranties set forth in Sections
3.1(f) and 3.1(g)(i), in which case such representations and warranties
shall be true and correct as of the date of Amendment No. 2) except where
the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation to "materiality" or
"material adverse effect" set forth therein) does not have, and is not
likely to have, individually or in the aggregate, a material adverse effect
on RSI.
(b) Performance of Obligations of RSI. RSI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date; provided, however, that the
obligations of RSI set forth in Clauses (II) and (III) of Section 4.1(a)
shall have been performed in all respects, without reference to any
limitation on such RSI obligations in respect of "materiality" or "material
adverse effect."
(c) RSI Rights Agreement. The RSI Rights issued pursuant to the RSI
Rights Agreement shall not have become nonredeemable, 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:
(a) Representations and Warranties. The representations 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 (i) to
the extent expressly made as of an earlier date, in which case such
representations and warranties shall be true and correct as of such date,
and (ii) for the representations and warranties set forth in Sections
3.2(f) and 3.2(g)(i), in which case such representations and warranties
shall be true and correct as of the date of Amendment No. 2) except where
the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation to "materiality" or
"material adverse effect" set forth therein) does not have, and is not
likely to have, individually or in the aggregate, a material adverse effect
on JPFI.
(b) Performance of Obligations of JPFI. JPFI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date; provided, however, that the
obligations of JPFI set forth in Clauses (II) and (III) of Section 4.1(b)
shall have been performed in all respects, without reference to any
limitation on such JPFI obligations in respect of "materiality" or
"material adverse effect."
(c) 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 consummated 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
failure 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 convened 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 Governmental Entity that must grant a
Requisite Regulatory Approval has denied approval of the Merger and
such denial has become final and nonappealable; provided, that the
party seeking to terminate this Agreement pursuant to this Section
7.1(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, warranty, covenant or other
agreement contained herein), if RSI shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, or if RSI shall
have breached or failed to perform in any respect its covenants and
agreements set forth in Clause (II) or Clause (III) of the first paragraph
of Section 4.1(a), which breach or failure to perform (A) would give rise
to the failure of a condition 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, warranty, covenant or other
agreement contained herein), if JPFI shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, or if JPFI shall
have breached or failed to perform in any respect its convenants and
agreements set forth in Clause (II) or Clause (III) of the first paragraph
of Section 4.1(b), which breach or failure to perform (A) would give rise
to the failure of a condition 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
written notice thereof;
(e) by the Board of Directors of JPFI, at any time prior to the RSI
Stockholders Meeting, if the RSI 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 RSI Stockholders, its recommendation referred to in
Section 5.1(b), (B) withdrawn such recommendation or (C) modified or
changed 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 contained in this Agreement,
neither JPFI nor RSI shall be relieved 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 Stockholders 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.
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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 contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. Any
extension or waiver given in compliance with this Section 7.4 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,
warranty, covenant or agreement of RSI contained herein) or Section 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 negotiation of this
Agreement and the other matters contemplated hereby, RSI shall, within one
business day following such termination, pay JPFI a fee of $30,000,000 in
immediately available funds.
(b) In the event of a termination of this Agreement and the abandonment of
the Merger at any time (i) by RSI pursuant to Section 7.1(d) (other than for a
nonwillful breach of a representation, warranty, covenant or agreement of JPFI
contained herein) or Section 7.1(f) or (ii) by JPFI or RSI pursuant 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 contemplated
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 Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this 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 personally, 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.
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(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:
(a) except for purposes of Section 5.10, an "affiliate" of any person
means another person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, such first person, where "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities,
by contract, as trustee or executor, or otherwise;
(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; provided, however, that
no change, effect, event, occurrence or state of facts relating to, or
arising or resulting from, any of the following matters, regardless of the
amounts involved shall constitute a "material adverse change" or "material
adverse effect": (i) any actions taken or omitted to be taken with the
prior written approval of JPFI in anticipation or reliance upon the
consummation of the Merger or the transactions contemplated thereby, (ii)
any failure by RSI or its subsidiaries to keep available the services of
their current officers or other employees, or to preserve any relationships
with those persons having business dealings with them; or (iii) any of the
matters disclosed in the RSI Disclosure Schedule, in any RSI Filed SEC
Document, in any RSI Press Release, or otherwise disclosed to an executive
officer of JPFI in writing by RSI prior to the date of Amendment No. 2;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person;
(e) "knowledge" of any person which is not an individual 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;
(f) "Securities Act" means the Securities Act of 1933, as amended;
(g) "RSI SEC Documents" means all required reports, schedules, forms,
statements and other documents (including exhibits and all other
information incorporated therein) filed with the SEC by RSI since June 28,
1997, and the Form S-4 as filed prior to the date of Amendment No. 2;
(h) "JPFI SEC Documents" means all required reports, schedules, forms,
statements and other documents (including exhibits and all other
information incorporated therein) filed with the SEC by JPFI since June 28,
1997, and the Form S-4 as filed prior to the date of Amendment No. 2;
A-29
<PAGE>
(i) "To RSI's knowledge" shall mean the actual knowledge, without any
inquiry or investigation whatsoever, of Mark Van Stekelenburg, RSI's
Chairman, CEO and President, Robert J. Harter Jr., RSI's Senior Vice
President and General Counsel, Richard J. Martin, RSI's Executive Vice
President and Chief Financial Officer, and Christopher Mellon, RSI's Vice
President and Controller. "To JPFI's knowledge" shall mean the actual
knowledge, without any inquiry or investigation whatsoever, of Jim Miller,
JPFI's Chairman of the Board, President and CEO, David Abramson, JPFI's
Senior Vice President and General Counsel, Lewis Hay, III, JPFI's Senior
Vice President and Chief Financial Officer and George T. Megas, JPFI's Vice
President-Finance; and
(j) "Form S-4" means 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.
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 "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement. All terms defined in
this Agreement shall have the defined meanings when used in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case
of statutes) by succession of comparable successor statutes and references to
all attachments thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
Section 8.5. 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 effective 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 Beneficiaries. This Agreement
(including the documents and instruments referred to herein), the Option
Agreements, the Support Agreement and the Confidentiality Agreements (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Section
5.7, 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 Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by either of the parties hereto
without the prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. Subject to the preceding
two sentences, this Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and
assigns.
Section 8.9. 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 Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such
court, and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any
court other than a federal court sitting in the State of Delaware or a
Delaware state court.
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<PAGE>
Section 8.10 Headings, Etc. The headings and table of contents contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 8.11. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect, insofar as the foregoing can be
accomplished without materially affecting the economic benefits anticipated by
the parties to this Agreement. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
A-31
<PAGE>
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
A-32
<PAGE>
APPENDIX B
LOGO
November 5, 1997
Board of Directors
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, MD 21046
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to JP Foodservice, Inc. (the "Company") of the exchange ratio of .775
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 as amended as of November 5, 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 three fiscal years ended June 28, 1997, as well as financial and other
information concerning the Company for the two prior fiscal years, and for
Rykoff-Sexton for the five fiscal years ended June 28, 1997; 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
B-1
<PAGE>
Board of Directors
JP Foodservice, Inc.
November 5, 1997
Page Two
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 from a financial point of
view.
Very truly yours,
LOGO
Goldman, Sachs & Co.
B-2
<PAGE>
[LETTERHEAD OF SMITH BARNEY APPEARS HERE]
APPENDIX C
November 5, 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, as
amended as of November 5, 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 0.775 (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 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
C-1
<PAGE>
The Board of Directors
JP Foodservice, Inc.
November 5, 1997
Page 2
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,
/s/ Smith Barney Inc.
Smith Barney Inc.
C-2
<PAGE>
APPENDIX D
LOGO
November 5, 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"), have entered into an Agreement and Plan of Merger, dated as of
June 30, 1997 (as amended by Amendment No. 1 dated as of September 3, 1997 and
Amendment No. 2 dated as of November 5, 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
0.775 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;
(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;
D-1
<PAGE>
(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, 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.
D-2
<PAGE>
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
D-3
<PAGE>
APPENDIX E
LOGO
November 5, 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"), have entered into an Agreement and Plan of Merger, dated as of
June 30, 1997 (as amended by Amendment No. 1 dated as of September 3, 1997 and
Amendment No. 2 dated as of November 5, 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
0.775 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;
(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
E-1
<PAGE>
(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, 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 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.
E-2
<PAGE>
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,
Wasserstein Perella & Co
E-3
<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
DECEMBER 23, 1997 AT 10:00 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 December 23, 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 (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 November 10, 1997, at the Special
Meeting of Stockholders of Rykoff-Sexton, Inc. to be held at The East Mountain
Inn, 2400 East End Boulevard, Wilkes-Barre, Pennsylvania 18702 on December 23,
1997, at 10:00 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 filed as Exhibit 3.1 hereto and the
provisions of Article XII of the registrant's Amended and Restated By-Laws
filed as Exhibit 3.2 hereto.
The registrant is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL provides for the
indemnification, under certain circumstances, of any person in connection with
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than derivative actions), brought or threatened involving
such 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 or
officer of the registrant shall be indemnified and held harmless by the
registrant to the fullest extent authorized by the DGCL against all expense,
liability and loss (including, without limitation, attorneys' fees) incurred
by such person in connection therewith, if such 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
----------- -----------
<C> <S>
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 Exhibit
2.2 to the Company's Current Report on Form 8-K for reportable
event dated September 3, 1997).
2.3 Amendment No. 2 to Agreement and Plan of Merger, dated as of
November 5, 1997, among the Company, Hudson Acquisition Corp.
and Rykoff-Sexton, Inc. (incorporated by reference to Exhibit
2.3 to the Company's Current Report on Form 8-K for reportable
event dated November 5, 1997).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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.
4.7 Registration Rights Agreement dated May 17, 1996 by Rykoff-
Sexton, Inc. and the other signatories listed on the signature
pages thereto (incorporated by reference to Rykoff-Sexton,
Inc.'s Annual Report on Form 10-K for the fiscal year ended
April 27, 1996).
4.8 Standstill Agreement dated May 17, 1996 by Rykoff-Sexton, Inc.
and the other signatories listed on the signature pages thereto
(incorporated by reference to Rykoff-Sexton, Inc.'s Annual
Report on Form 10-K for the fiscal year ended April 27, 1996).
*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).
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).
*10.5 JP Foodservice, Inc. 1994 Stock Incentive Plan (as proposed to
be amended by the JP Foodservice Stock Incentive Plan Amendment
described in this Registration Statement).
*10.6 JP Foodservice Stock Option Plan for Outside Directors (as
proposed to be amended by the JP Foodservice Director Plan
Amendment described in this Registration Statement).
*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.
+ Previously filed.
II-2
<PAGE>
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;
(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
II-3
<PAGE>
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 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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF COLUMBIA, MARYLAND, ON NOVEMBER 24, 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. 3 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 November 24, 1997
- ------------------------------------- and Chief Executive
JAMES L. MILLER Officer and
Director (Principal
Executive Officer)
/s/ Lewis Hay, III Senior Vice November 24, 1997
- ------------------------------------- President and Chief
LEWIS HAY, III Financial Officer
(Principal
Financial Officer)
/s/ George T. Megas Vice President- November 24, 1997
- ------------------------------------- Finance (Principal
GEORGE T. MEGAS Accounting Officer)
/s/ Michael J. Drabb Director November 24, 1997
- -------------------------------------
MICHAEL J. DRABB
/s/ David M. Abramson Director November 24, 1997
- -------------------------------------
DAVID M. ABRAMSON
/s/ Eric E. Glass Director November 24, 1997
- -------------------------------------
ERIC E. GLASS
/s/ Mark P. Kaiser Director November 24, 1997
- -------------------------------------
MARK P. KAISER
/s/ Paul I. Latta, Jr. Director November 24, 1997
- -------------------------------------
PAUL I. LATTA, JR.
/s/ Dean R. Silverman Director November 24, 1997
- -------------------------------------
DEAN R. SILVERMAN
/s/ Jeffrey D. Serkes Director November 24, 1997
- -------------------------------------
JEFFREY D. SERKES
- -------------------------------------
* BY LEWIS HAY, III AS ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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.)
2.3 Amendment No. 2 to Agreement and Plan of Merger, dated as of
November 5, 1997, among the Company, Hudson Acquisition Corp. and
Rykoff-Sexton, Inc. (incorporated by reference to Exhibit 2.3 to
the Company's Current Report on Form 8-K for reportable event
dated November 5, 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.
4.7 Registration Rights Agreement dated May 17, 1996 by Rykoff-Sexton,
Inc. and the other signatories listed on the signature pages
thereto (incorporated by reference to Rykoff-Sexton, Inc.'s Annual
Report on Form 10-K for the fiscal year ended April 27, 1996).
4.8 Standstill Agreement dated May 17, 1996 by Rykoff-Sexton, Inc. and
the other signatories listed on the signature pages thereto
(incorporated by reference to Rykoff-Sexton, Inc.'s Annual Report
on Form 10-K for the fiscal year ended April 27, 1996).
*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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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).
*10.5 JP Foodservice, Inc. 1994 Stock Incentive Plan (as proposed to be
amended by the JP Foodservice Stock Incentive Plan Amendment
described in this Registration Statement).
*10.6 JP Foodservice Stock Option Plan for Outside Directors (as
proposed to be amended by the JP Foodservice Director Plan
Amendment described in this Registration Statement).
*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.
+ Previously filed.
<PAGE>
EXHIBIT 4.6
The issuance and sale of shares upon the exercise of this Warrant have not
been registered under the Securities Act of 1933, as amended, and
accordingly neither this Warrant nor any such shares may be transferred in
the absence of such registration or an exemption therefrom under such Act.
This Warrant and such shares may be transferred only in compliance with the
conditions specified in this Warrant.
JP FOODSERVICE, INC.
Common Stock Purchase Warrant
Expiring September 30, 2005
No. W- __________, 1997
CUSIP No.
JP FOODSERVICE, INC., a Delaware corporation (herein, together with its
successors and assigns, the "Company"), for value received, hereby certifies
that _________________________________________, or registered assigns, is
entitled to purchase from the Company _______ duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock, par value $.01 per share
(the "Common Stock"), of the Company at the purchase price per share of
$________, at any time or from time to time prior to 5:00 p.m., New York City
time, on September 30, 2005 (or such other date as may be determined pursuant to
section 16), all subject to the terms, conditions and adjustments set forth
below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the "Warrants,"
such term to include all such warrants issued in exchange or substitution
therefor) originally issued by the Company in connection with the transactions
contemplated by the Agreement and Plan of Merger dated as of June 30, 1997, as
amended, among the Company, Hudson Acquisition Corp. and Rykoff-Sexton, Inc. In
connection with such transactions, the Warrants were issued in replacement of
Common Stock Purchase Warrants dated May 17, 1996 of Rykoff-Sexton, Inc.
evidencing the right to purchase an aggregate of 336,637 shares of common stock
of Rykoff-Sexton, Inc. The Warrants originally so issued evidence rights to
purchase an aggregate of 260,893 shares of Common Stock subject to adjustment as
provided herein. Certain capitalized terms used in this Warrant are defined in
section 12; references to a "section" are, unless otherwise specified, to one of
the sections of this Warrant.
<PAGE>
1. Exercise of Warrant. 1.1. Manner of Exercise. This Warrant may be
------------------- ------------------
exercised by the holder hereof, in whole or in part, during normal business
hours on any Business Day, by surrender of this Warrant to the Company at its
principal office maintained pursuant to section 11.2(a), accompanied by (i) a
subscription in substantially the form attached to this Warrant (or a reasonable
facsimile thereof) duly executed by such holder, (ii) payment, in cash or by
certified or official bank check payable to the order of the Company in the
amount obtained by multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment thereof) designated in such subscription by (b)
$________, whereupon such holder shall be entitled to receive the number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities determined as provided in sections 2 through 4) and (iii)
the written representation by such holder that: (a) such holder is acquiring the
Common Stock being acquired by it pursuant to the exercise of this Warrant for
its own account for investment and not with a view to the distribution of such
Common Stock in violation of the Securities Act; and (b) (A) if such holder is
an insurance company, such holder is not acquiring the Common Stock or any
interest therein with assets allocated to any separate account maintained by
such holder in which any employee benefit plan (or its related trust) has any
interest or (B) if such holder is a bank, no part of the funds used to acquire
the Common Stock will be drawn from any trust fund or other account held by such
holder in which any employee benefit plan has any interest. As used in this
section, the terms "employee benefit plan" and "separate account" shall have the
respective meanings assigned thereto in Section 3 of the Employee Retirement
Income Security Act of 1974, as amended.
1.2. When Exercise Effective. Each exercise of this Warrant shall be deemed
-----------------------
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in section 1.1, and at such time the Person or Persons in whose name or names
any certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in section 1.3 shall be deemed
to have become the holder or holders or record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable after the
------------------------------------
exercise of this Warrant, in whole or in part, and in any event within ten
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof or, subject to section 8, as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, (a) a
certificate or certificates for the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Market Price per share on the Business
Day next preceding the date of such exercise and (b) in case such exercise is in
part only, a new Warrant or Warrants of like tenor, calling in the aggregate on
the face or faces thereof for issuance of the number of
2
<PAGE>
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares so designated by such holder upon such exercise as
provided in section 1.1.
2. Adjustment of Common Stock Issuable Upon Exercise. 2.1. General; Warrant
------------------------------------------------- ----------------
Price. The number of shares of Common Stock which the holder of this Warrant
- -----
shall be entitled to receive upon each exercise hereof shall be determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this section 2) be issuable upon such exercise, as designated
by the holder hereof pursuant to section 1.1, by a fraction of which (a) the
numerator is $________ and (b) the denominator is the Warrant Price in effect on
the date of such exercise. The "Warrant Price" shall initially be $________ per
share, shall be adjusted and readjusted from time to time as provided in this
section 2 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this section 2.
2.2. Adjustment of Warrant Price; Issuance of Additional Shares of Common
--------------------------------------------------------------------
Stock and Dividends. (a) In case the Company at any time or from time to time
- -------------------
after the date hereof shall issue or sell Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
section 2.3 or 2.4) without consideration or for a consideration per share less
than the Current Market Price, then, and in each such case, subject to section
2.7, such Warrant Price shall be reduced, concurrently with such issue or sale,
to a price (calculated to the nearest .001 of a cent) determined by multiplying
such Warrant Price by a fraction
(i) the numerator of which shall be (A) the number of shares of Common
Stock outstanding immediately prior to such issue or sale plus (B) the number
of shares of Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common Stock so
issued or sold would purchase at the Current Market Price per share, and
(ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such issue or sale,
provided that, for the purposes of this section 2.2, (x) immediately after any
- --------
Additional Shares of Common Stock are deemed to have been issued pursuant to
section 2.3 or 2.4, such Additional Shares of Common Stock shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding and
the disposition of any thereof by the Company shall be considered an issuance or
sale of Additional Shares of Common Stock for purposes of this section 2.
(b) Extraordinary Dividends and Other Distributions. In case the Company at
-----------------------------------------------
any time or from time to time after the date hereof shall declare, order,
3
<PAGE>
pay or set apart any sum or property for or make a dividend or other
distribution (including, without limitation, any distribution of other or
additional stock or other securities or property or Options by way of dividend
or spinoff, reclassification, recapitalization or similar corporate
rearrangement) on the Common Stock, other than any regular periodic dividend,
payable in cash out of earned surplus or net profits for the year in which the
dividend is incurred or the previous year, and other than a dividend payable in
Additional Shares of Common Stock (in which case the provisions of section 2.4
shall apply), then, and in each such case, subject to section 2.7, at the
irrevocable option of the Company made at the time of the notice referred to in
section 6(a), either
(A) the Warrant Price in effect immediately prior to the close
of business on the record date fixed for the determination
of holders of any class of securities entitled to receive
such dividend or distribution shall be reduced, effective as
of the close of business on such record date, to a price
(calculated to the nearest .001 of a cent) determined by
multiplying such Warrant Price by a fraction:
(x) the numerator of which shall be the Current Market
Price in effect on such record date or, if the Common
Stock trades on an ex-dividend basis, on the date prior
to the commencement of ex-dividend trading, less the
amount of such dividend or distribution (as determined
in good faith in accordance with section 2.5 by a
resolution of the Board of Directors of the Company)
applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market
Price in effect on such record date or, if the Common
Stock trades on an ex-dividend basis, on the date prior
to the commencement of ex-dividend trading; or
(B) the Company shall pay over to each holder of Warrants,
immediately upon exercise thereof by such holder on or after
the payment date for such dividend or distribution, the
securities and other property (including cash) which such
holder would have received (together with all distributions
thereon) if such holder had exercised, immediately prior to
the record date fixed in connection with such dividend, the
Warrants held by it, and the Company shall take whatever
steps are necessary or appropriate to keep in reserve at all
times such securities and other property (including cash) as
shall be required to
4
<PAGE>
fulfill its obligations hereunder in respect of the shares
issuable upon the exercise of all the Warrants.
2.3. Treatment of Options and Convertible Securities. In case the Company at
-----------------------------------------------
any time or from time to time after the date hereof shall issue, sell, grant or
assume, or shall fix a record date for the determination of holders of any class
of securities entitled to receive, any Options or Convertible Securities, then,
and in each such case, the maximum number of Additional Shares of Common Stock
(as set forth in the instrument relating thereto, without regard to any
provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities shall be deemed to be Additional Shares of Common Stock issued
as of the time of such issue, sale, grant or assumption or, in case such a
record date shall have been fixed, as of the close of business on such record
date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), provided that such
--------
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to section 2.5) of such shares
would be less than the Current Market Price on the date of and immediately prior
to such issue, sale, grant, or assumption or immediately prior to the close of
business on such record date (or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading), as the
case may be, and provided, further, that in any such case in which Additional
-------- -------
Shares of Common Stock are deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of shares of Common Stock upon the exercise of
such Options or the conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Warrant Price
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration (or purchase by the Company and cancellation or
retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such
Convertible Securities which (or purchase by the Company and any
5
<PAGE>
cancellation or retirement of any such Convertible Security the rights of
conversion or exchange under which) shall not have been exercised, the
Warrant Price computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration (or such cancellation or retirement, as the case may be), be
recomputed as if (i) in the case of such Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or sold
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, or for
the issuance or sale of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange; and (ii) in the
case of such Options for Convertible Securities, only the Convertible
Securities, if any, actually issued or sold upon the exercise thereof were
issued at the time of the issuance, sale, grant or assumption of such
Options, and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was the
consideration actually received by the Company for the issuance, sale,
grant or assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant to
section 2.5) upon the issuance or sale of the Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall have
the effect of increasing the Warrant Price by an amount in excess of the
amount of the adjustment thereof originally made in respect of the issue,
sale, grant or assumption of such Options or Convertible Securities;
provided, however, that this provision shall take into account
-----------------
intervening adjustments made to the Warrant Price pursuant to other
provisions of section 2; and
(e) in the case of any such Options which expire by their terms not
more than 45 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the Company at
------------------------------------------------
any time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
6
<PAGE>
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this section 2,
----------------------------
(a) the consideration for the issuance or sale of any Additional Shares of
Common Stock shall, irrespective of the accounting treatment of such
consideration:
(i) insofar as it consists of cash, be computed at the net amount of cash
received by the Company,
(ii) insofar as it consists of property (including securities) other than
cash, be computed at the fair market value thereof at the time of such
issuance or sale, as determined in good faith by a resolution of the Board of
Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or sold together
with other stock or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to
such Additional Shares of Common Stock, all as determined in good faith by a
resolution of the Board of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been issued pursuant to
section 2.3, relating to Options and Convertible Securities, shall be deemed to
have been issued for a consideration per share determined by dividing
(i) the total amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration to protect against dilution) payable to the Company upon
the exercise in full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion
7
<PAGE>
or exchange of such Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been issued pursuant to
section 2.4, relating to stock dividends, stock splits, etc., shall be deemed
to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding shares of
----------------------------------
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. Minimum Adjustment of Warrant Price. If the amount of any adjustment of
-----------------------------------
the Warrant Price required pursuant to this section 2 would be less than one
percent (1%) of the Warrant Price in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one percent (1%) of such
Warrant Price; provided, however, that upon the exercise of any Warrant, all
-----------------
necessary adjustments (calculated to the nearest .001 of a cent) not theretofore
made to the Warrant Price relating thereto by reason of the initial clause of
this sentence, up to and including the date of such exercise, shall be made.
3. Consideration, Merger, etc. 3.1. Adjustments for Consolidation, Merger,
--------------------------- --------------------------------------
Sale of Assets, Reorganization, etc. In case the Company after the date hereof
- ------------------------------------
(a) shall consolidate with or merge into any other Person and shall not be the
continuing or surviving corporation of such consolidation or merger, or (b)
shall permit any other Person to consolidate with or merge into the Company and
the Company shall be the continuing or surviving Person but, in connection with
such consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (c) shall sell, lease or transfer or otherwise dispose of all or
substantially all of its properties or assets to any other Person and thereafter
shall be dissolved, or (d) shall effect a capital reorganization or
reclassification (other than a
8
<PAGE>
reclassification described in Section 2.4 or 2.6) of the Common Stock then, and
in the case of each such transaction, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
holder of this Warrant, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive (at the aggregate
Warrant Price in effect at the time of such consummation for all Common Stock
issuable upon such exercise immediately prior to such consummation), in lieu of
the Common Stock issuable upon such exercise prior to such consummation, the
stock and other securities, cash and property to which such holder would have
been entitled upon such consummation if such holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such corporate action) as nearly equivalent as possible to the
adjustments provided for in section 2 and this section 3.
3.2. Assumption of Obligations. Notwithstanding anything contained in the
-------------------------
Warrants to the contrary, the Company will not effect any of the transactions
described in clauses (a) through (d) of section 3.1 unless, prior to the
consummation thereof, each Person (other than the Company) which may be required
to deliver any stock, securities, cash or property upon the exercise of this
Warrant as provided herein shall assume, by written instrument delivered to, and
reasonably satisfactory to, the holders of at least a majority of the shares of
Common Stock issuable upon exercise of all the then outstanding Warrants, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), and (b) the obligation to deliver to such
holder such shares of stock, securities, cash or property as, in accordance with
the foregoing provisions of this section 3, such holder may be entitled to
receive, and such Person shall have similarly delivered to such holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to the holders of at least a majority of the shares of Common Stock
issuable upon exercise of all the then outstanding Warrants, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this section 3) shall
be applicable to the stock, securities, cash or property which such Person may
be required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
3.3. Other Dilutive Events. In case any event shall occur as to which the
---------------------
provisions of section 2 or section 3 are not strictly applicable but the failure
to make any adjustment would not, in the reasonable opinion of the holders of a
majority of the shares of Common Stock issuable upon exercise of the Warrants or
the Company, fairly protect the purchase rights represented by any Warrant in
accordance with the essential intent and principles of such sections, then, in
each such case, upon the written request of the holders of a majority of the
shares of Common Stock issuable upon exercise of the Warrants, the Company
shall, at its cost and expense, appoint a firm of independent certified public
accountants of
9
<PAGE>
national standing (which may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, on a basis consistent with
the essential intent and principles established in sections 2 and 3, necessary
to preserve, without dilution, the purchase rights represented by such Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
each holder of Warrants and upon the request of the holders of a majority of the
shares of Common Stock issuable upon exercise of the Warrants, shall make the
adjustments described therein.
4. Prohibited Actions. The Company will not, by amendment of its certificate
------------------
or articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issuance or sale of securities
or any other voluntary action, avoid the observance or performance of any of the
terms of this Warrant. Without limiting the generality of the foregoing, the
Company (a) will not permit the par value of any shares of Common Stock
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock on the exercise of the Warrants
from time to time outstanding and (c) will not take any action which results in
any adjustment of the Warrant Price if the total number of shares of Common
Stock (or Other Securities) issuable after the action upon the exercise of all
of the Warrants would exceed the total number of shares of Common Stock (or
Other Securities) then authorized by the Company's certificate or articles of
incorporation and available for the purpose of issue upon such exercise.
5. Report as to Adjustments. In each case of any adjustment or readjustment
------------------------
in the shares of Common Stock (or Other Securities) issuable upon the exercise
of this Warrant, the Company will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a report
setting forth such adjustment or readjustment and showing in reasonable detail
the method of calculation thereof and the facts upon which such adjustment or
readjustment is based, including a statement of (a) the number of shares of
Common Stock outstanding or deemed to be outstanding, (b) the Warrant Price in
effect immediately prior to such adjustment and as adjusted and readjusted (if
required by section 2) on account thereof, and (c) the consideration received or
to be received by the Company for any Additional Shares of Common Stock issued
or sold or deemed to have been issued. The Company will mail, within 30 days of
such event requiring such adjustment, a copy of each such report to each holder
of a Warrant and will, upon the written request at any time of any holder of a
Warrant, furnish to such holder a like report setting forth the Warrant Price at
the time in effect and showing in reasonable detail how it was calculated. The
Company will also keep copies of all such reports and the reports referred to in
the last sentence of this section 5 at its principal office and will cause the
same to be available for inspection at such office during normal business hours
by any holder of a Warrant or its representatives or any prospective purchaser
of a Warrant designated by the
10
<PAGE>
holder thereof. In addition to the report referred to above, the holders of not
less than a majority of the Common Stock issuable upon exercise of the
outstanding Warrants may request the Company, at the Company's cost and expense,
to cause independent certified public accountants of national standing (which
may be the regular auditors of the Company) to verify such computation and will
deliver to each holder a report showing in reasonable detail how such
verification was effected.
6. Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than an initial or any subsequent regular
periodic dividend, payable in cash out of earned surplus or net profits for
the year in which the dividend is incurred or the previous year) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to
receive any other right, which notice in the case of a dividend or
distribution of the type described in section 2.2 shall inform each holder of
a Warrant of the Company's option under such section, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding up
of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding up. Such notice shall be
mailed at least 20 days prior to the date therein specified.
7. Registration of Common Stock. If any shares of Common Stock required to
----------------------------
be reserved for purposes of exercise of this Warrant require registration with
or approval of any governmental authority under any federal or state law
11
<PAGE>
(other than the Securities Act) before such shares may be issued upon exercise,
the Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be. At any such time, but only for so long, as Common Stock is registered under
the Exchange Act and listed on any national securities exchange, the Company
will, at its expense, obtain promptly and maintain the approval for listing in
each such exchange, upon official notice of issuance, the shares of Common Stock
issuable upon exercise of the then outstanding Warrants and maintain the listing
of such shares after their issuance; and the Company will also list on such
national securities exchange, will register under the Exchange Act and will
maintain, for so long as any shares of Common Stock are listed, such listing of,
any Other Securities that at any time are issuable upon exercise of the
Warrants, if and at the time that any securities of the same class shall be
listed on such national securities exchange by the Company.
8. Restrictions on Transfer. 8.1. Restrictive Legends. Except as otherwise
------------------------ -------------------
permitted by this section 8, each Warrant (including each Warrant issued upon
the transfer of any Warrant) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"The issuance and sale of shares upon the exercise of this Warrant have
not been registered under the Securities Act of 1933, as amended, and
accordingly neither this Warrant nor any such shares may be transferred in the
absence of such registration or any exemption therefrom under such Act. This
Warrant and such shares may be transferred only in compliance with the
conditions specified in this Warrant."
Except as otherwise permitted by this section 8, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The issuance and sale of the securities represented by this certificate
have not been registered under the Securities Act of 1933, as amended, and
such securities may not be transferred except pursuant to an effective
registration statement, or an exemption from registration, under said Act."
8.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to any transfer
------------------------------------------------
of any Restricted Securities which are not registered under an effective
registration statement under the Securities Act, the holder thereof will give
written notice to the Company of such holder's intention to effect such transfer
and to comply in all other respects with this section 8.2. Each such notice (1)
shall describe the manner and circumstances of the proposed transfer and (2) be
12
<PAGE>
accompanied by (a) an opinion of counsel for the holder or, if agreed to by
the Board of Directors of the Company, an opinion of counsel to the Company,
which opinion shall be reasonably satisfactory to the Company or (b) a no-action
letter from the Commission addressed to the Company, such holder or either of
their counsel to the effect that no registration statement is required because
of the availability of an exemption from registration under the Securities Act.
8.3. Termination of Restrictions. The restrictions imposed by this section 8
---------------------------
upon the transferability of Restricted Securities shall cease and terminate as
to any particular Restricted Securities (a) when such securities shall have been
effectively registered under the Securities Act or (b) when, in the opinion of
counsel for the holder thereof, which opinion shall be reasonably satisfactory
to the Company, such restrictions are no longer required in order to insure
compliance with the Securities Act. Whenever such restrictions shall cease and
terminate as to any Restricted Securities, the holder thereof shall be entitled
to receive from the Company, without expense (other than applicable transfer
taxes, if any), new securities of like tenor not bearing the applicable legends
required by section 8.1.
8.4. Expenses; Benefits to Certain Transferees. The Company will pay the
-----------------------------------------
reasonable fees, expenses and disbursements of counsel for the holder of
Restricted Securities (other than in-house counsel) and counsel for the Company
in connection with all opinions rendered pursuant to this section 8.
9. Availability of Information. The Company will comply with the reporting
---------------------------
requirements of Section 13 and 15(d) of the Exchange Act and will comply with
all other public information reporting requirements of the Commission (including
Rule 144 promulgated by the Commission under the Securities Act) from time to
time in effect and relating to the availability of an exemption from the
Securities Act for the sale of any Restricted Securities. The Company will also
cooperate with each holder of any Restricted Securities in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Restricted Securities. The Company will furnish to each holder of
any Warrants, within 15 days upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or made
available generally by the Company to its stockholders, and copies of all
regular and periodic reports filed by the Company with any securities exchange
or with the Commission. If the Company is not required to file such reports
with the Commission, it shall furnish to each holder of any Warrants, (i) as
soon as practicable after the end of each fiscal year (but not later than 120
days), audited consolidated financial statements of the Company together with
the report of the independent certified public accountant, (ii) as soon as
practicable after the end of each of the first three quarters of each fiscal
year (but not later than 60 days), consolidated financial information and
statements of the Company for such quarter, and (iii) material disclosure items
the Company would be required to disclose pursuant to Form 8-K (or a successor
form)
13
<PAGE>
under the Exchange Act, but only when and to the extent the Company provides
such information to any of its lenders or other securityholders or to any
lenders or securityholders of its Affiliates.
10. Reservation of Stock, etc. The Company will at all times reserve and
-------------------------
keep available, solely for issuance and delivery upon exercise of the Warrants,
the number of shares of Common Stock (or Other Securities) from time to time
issuable upon exercise of all Warrants at the time outstanding. All such
securities issuable upon exercise of any Warrants shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and nonassessable with no liability on the part of the
holders thereof.
11. Ownership, Transfer and Substitution of Warrants. 11.1. Ownership of
------------------------------------------------ ------------
Warrants. The Company may treat the person in whose name any Warrant is
- --------
registered on the register kept at the principal office of the Company as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes, notwithstanding any notice to the
contrary. Subject to section 8, a Warrant, if properly assigned, may be
exercised by a new holder without a new Warrant first having been issued.
11.2. Office; Transfer and Exchange of Warrants.
-----------------------------------------
(a) The Company will maintain its principal office within the continental
boundaries of the United States and all notices, presentations and demands
in respect of this Warrant may be made upon it at such location.
(b) Upon the surrender of any Warrant, properly endorsed, for registration of
transfer or for exchange at the principal office of the Company, the Company at
its expense will (subject to compliance with section 8, if applicable) execute
and deliver to or upon the order of the holder thereof a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
11.3. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant (which, in the case of a holder of a Warrant which is an insurance
company (as defined in the Securities Act), an investment company registered
under the Investment Company Act of 1940, any employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, any
domestic or foreign bank, savings and loan association (as defined in Section
14
<PAGE>
(a)(1)(vi) of Rule 144A under the Securities Act) or an original holder of this
Warrant and its nominee (an "institutional holder"), may be a written statement
as to such loss, theft, destruction or mutilation, which statement shall be
reasonably satisfactory in form and substance to the Company) and, in the case
of any such loss, theft or destruction of any Warrant, upon delivery of
indemnity (which, in the case of an institutional holder of a Warrant, may be
such holder's unsecured written agreement of indemnity) reasonably satisfactory
to the Company in form and amount or, in the case of any such mutilation, upon
surrender of such Warrant for cancellation at the principal office of the
Company, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
12. Definitions. As used herein, unless the context otherwise requires, the
-----------
following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury shares) of
---------------------------------
Common Stock issued or sold (or deemed issued or sold pursuant to section 2.3 or
2.4) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than shares issued upon the exercise
of the Warrants.
Affiliate: With respect to a Person, any other Person that directly, or
---------
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person.
Business Day: Any day other than a Saturday or a Sunday or a day on which
------------
commercial banking institutions in the City of New York are authorized by law to
be closed. Any reference to "days" (unless Business Days are specified) shall
mean calendar days.
Commission: The Securities and Exchange Commission or any other federal
----------
agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such term to
------------
include any stock into which such Common Stock shall have been changed or any
stock resulting from any reclassification of such Common Stock, and all other
stock of any class or classes (however designated) of the Company the holders of
which have the right, without limitation as to amount, either to all or to a
share of the dividends and liquidating dividends after the payment of dividends
and distributions on any shares entitled to preference.
Company: As defined in the introduction to this Warrant, such term to include
-------
any corporation which shall succeed to or assume the obligations of the Company
hereunder in compliance with section 3.
15
<PAGE>
Convertible Securities: Any evidences of indebtedness, shares of stock (other
----------------------
than Common Stock) or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
Current Market Price: On any date specified herein, the average daily Market
--------------------
Price during the period of the most recent 20 days, ending on such date, on
which the national securities exchanges were open for trading, except that if no
Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar federal
------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Independent Financial Expert: A nationally recognized investment banking firm
----------------------------
that does not have a direct or indirect financial interest in the Company or any
of its affiliates and has not been and, at the time it is called upon to give
independent financial advice to the Company, is not (and none of whose
directors, officers, employees or affiliates is) a promoter, director or officer
of the Company or any of its affiliates, and has not been retained to provide,
within the past two years, any advice or opinions to the Company or any of its
affiliates except as an Independent Financial Expert.
Initiating Holders: Any holder or holders of Registrable Securities holding
------------------
at least a majority of the Registrable Securities by number of shares at the
time and initiating a request pursuant to section 20.1 for the registration of
all or part of such holder's or holders' Registrable Securities.
Market Price: On any date specified herein, the amount per share of the
------------
Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the over-
the-counter market, the fair value thereof determined in good faith by the Board
of Directors of the Company as of the last day of the most recently completed
fiscal quarter of the Company; provided that, at the request of the holders of a
--------
majority of the outstanding Warrants, such fair value determined by the Board of
Directors must be confirmed
16
<PAGE>
in writing to the holders by an Independent Financial Expert, which shall be
selected by the Board of Directors of the Company, and retained on customary
terms and conditions and at the expense of the Company, the Independent
Financial Expert shall use one or more valuation methods that the Independent
Financial Expert, in its best professional judgment, determines to be most
appropriate. The Independent Financial Expert shall consult with management of
the Company in order to allow management to comment on the Independent Financial
Expert's valuation.
NASD: The National Association of Securities Dealers, Inc.
----
Options: Rights, options and warrants, except for any rights, options or
-------
warrants distributed to members of the management of the Company or any direct
or indirect subsidiary of the Company, to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities.
Other Securities: Any stock (other than Common Stock) and other securities of
----------------
the Company or any other Person (corporate or otherwise) which the holders of
the Warrants at any time shall be entitled to receive, or shall have received,
upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock or Other Securities pursuant to section 3 or
otherwise.
Person: A corporation, an association, a partnership, an organization, a
------
business, an individual, a government or political subdivision thereof or a
governmental agency.
Registrable Securities: All shares of Common Stock issued or issuable upon
----------------------
exercise of the Warrants and any other securities of the Company or any of its
subsidiaries issued in exchange for, upon a reclassification, combination or
subdivision of, or in a distribution with respect to, such Common Stock or in
connection with a merger, consolidation or other reorganization of the Company.
As to any particular Registrable Securities that have been issued, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of under such registration statement, (ii) such securities have been distributed
to the public pursuant to Rule 144 promulgated under the Securities Act, (iii)
such securities shall have been otherwise transferred or disposed of, new
certificates therefor not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent transfer or disposition of
such securities shall not require registration or qualification of such
securities under the Securities Act or any similar state law then in force, or
(iv) such securities shall have ceased to be outstanding.
17
<PAGE>
Registration Expenses: Any and all out-of-pocket expenses incident to the
---------------------
Company's performance of or compliance with section 20 hereof, including,
without limitation, all Commission, stock exchange or NASD registration, filing
and listing fees, all fees and expenses of complying with securities and blue
sky laws (including the reasonable fees and disbursements of counsel in
connection with blue sky qualifications and NASD filings), all fees and expenses
of the transfer agent and registrar for the Common Stock, all printing expenses,
the fees and disbursements of counsel for the Company and the Company's
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, and the reasonable fees and disbursements of one counsel retained by
the holders of Registrable Securities being registered to represent such group
of holders (which counsel shall be satisfactory to the holders of a majority of
the shares of Registrable Securities being registered), but excluding
underwriting discounts and commissions and applicable transfer and documentary
stamp taxes, if any, which shall be borne by the seller of the securities in all
cases.
Registration Rights Agreement: The Registration Rights Agreement dated as of
-----------------------------
May 17, 1996 among Rykoff-Sexton, Inc., 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,
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, Merchant Banking L.P.
No. II, MLCP Associates L.P. No. IV, The Equitable Life Assurance Society of the
United States, Equitable Deal Flow Fund, L.P., Equitable Variable Life Insurance
Company and Frank H. Bevevino.
Restricted Securities: All of the following: (a) any Warrants bearing the
---------------------
applicable legend or legends referred to in section 8.1, (b) any shares of
Common Stock which have been issued upon the exercise of Warrants and which are
evidenced by a certificate or certificates bearing the applicable legend or
legends referred to in such section and (c) any shares of Common Stock which are
at the time issuable upon the exercise of Warrants and which, when so issued,
will be evidenced by a certificate or certificates bearing the applicable legend
or legends referred to in such section.
Securities Act: The Securities Act of 1933, or any similar federal statute,
--------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
Stockholders Securities: Securities proposed to be sold by those stockholders
-----------------------
who exercise their registration rights pursuant to section 4 of the Registration
Rights Agreement.
Warrant Price: As defined in section 2.1.
-------------
18
<PAGE>
Warrants: As defined in the introduction to this Warrant.
--------
13. No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. Notices. All notices and other communications under this Warrant shall
-------
be in writing and shall be mailed by registered or certified mail, return
receipt requested, addressed (a) if to any holder of any Warrant, at the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if to the Company, to the attention of
its Senior Vice President and General Counsel at its principal office, provided
--------
that the exercise of any Warrant shall be effective in the manner provided in
section 1.
15. Miscellaneous. This Warrant shall be construed and enforced in
-------------
accordance with and governed by the laws of the State of New York. The section
headings in this Warrant are for purposes of convenience only and shall not
constitute a part hereof. In case any provision in this Warrant shall be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
16. Expiration. The right to exercise this Warrant shall expire at 5:00
----------
p.m., New York City time, on the earlier of (i) September 30, 2005 and (ii) the
registration pursuant to section 20 of all of the shares of Common Stock
issuable upon exercise of this Warrant or the termination of the restrictions on
such shares described in section 8.3(b), provided the holders of the Warrants
receive 30 days' notice of the termination of such restrictions. The Company
shall give notice to the holder of this Warrant on September 30, 2004 and
September 1, 2005 if the right to exercise this Warrant will expire pursuant to
paragraph (i); provided that, if the Company shall fail to give notice on
--------
September 1, 2005, this Warrant shall not expire until 5:00 p.m., New York City
time, on a date 30 days after the date the Company shall give such notice of the
expiration of the right to exercise this Warrant.
17. Persons Benefitting. This Warrant shall be binding upon and inure to the
-------------------
benefit of the Company and its respective successors, assigns, beneficiaries,
executors and administrators, and the holder from time to time of this Warrant.
Nothing in this Agreement is intended or shall be construed to confer upon any
Person, other than the Company and the holder of this Warrant, any right, remedy
or claim under or by reason of this Warrant or any part hereof.
19
<PAGE>
18. Amendments. The Company may, with the consent of the holders of at least
----------
75% of the outstanding Warrants, by supplemental agreement or otherwise, make
any amendments to this Warrant, including section 3.3; provided, however,
-------- -------
without the consent of every holder affected thereby, the Company may not amend
the definition of Warrant Price or amend Sections 2 or 3 (except section 3.3) of
this Warrant.
19. Payments to Warrantholders. Any payment by the Company with respect to
--------------------------
the Warrants shall be made at the principal office of the Company, located on
the date hereof, at 9830 Patuxent Woods Drive, Columbia, Maryland 21046.
20. Registration Rights. 20.1. Registration on Request.
------------------- -----------------------
(a) Request. Upon the written request of one or more Initiating Holders,
-------
requesting that the Company effect the registration under the Securities Act of
all or part of such Initiating Holders' Registrable Securities and specifying
the intended method of disposition thereof, the Company will promptly give
written notice of such requested registration to all registered holders of
Registrable Securities, and thereupon the Company will use its best efforts to
effect the registration under the Securities Act of
(i) the Registrable Securities which the Company has been so requested to
register by such Initiating Holders for disposition in accordance with the
intended method of disposition stated in such request,
(ii) all other Registrable Securities the holders of which shall have
made a written request to the Company for registration thereof within 30 days
after the giving of such written notice by the Company (which request shall
specify the intended method of disposition of such Registrable Securities),
and
(iii) all shares of Common Stock which the Company or any other holder of
Common Stock may elect to register in connection with the offering of
Registrable Securities pursuant to this section 20.1,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional shares of Common Stock, if any, so to be registered.
No written request may be made pursuant to this section 20.1 prior to the
eighth anniversary of September 4, 1992. Subject to section 20.1(e), the
Company shall not be obligated to effect more than one registration pursuant to
this paragraph whether or not all outstanding Registrable Securities are
included in such registration.
20
<PAGE>
(b) Expenses. The Company will pay all Registration Expenses incurred in
--------
connection with any registration requested pursuant to this section 20.1, and
underwriting discounts and commissions and transfer taxes and documentary stamp
taxes, if any, relating to the sale or disposition by a holder of Registrable
Securities shall be paid by such holder.
(c) Effective Registration Statement. A registration requested pursuant to
--------------------------------
this section 20.1 shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective and
remained effective for the period set forth in section 20.3(ii), provided
--------
that a registration which does not become effective after the Company has filed
a registration statement with respect thereto solely by reason of the refusal
to proceed of the Initiating Holders (other than any refusal to proceed based
upon advice of their counsel that the registration statement contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein not misleading) shall be deemed to have been
effected by the Company at the request of such Initiating Holders, (ii) if
after it has become effective, such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason, or (iii) if the conditions to
closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied, other than by
reason of some act or omission by such Initiating Holders.
(d) Selection of Underwriters. If a requested registration pursuant to this
-------------------------
section 20.1 involves an underwritten offering, the underwriter or underwriters
thereof shall be selected by the Company, provided, that each managing
--------
underwriter shall be a nationally recognized investment banking firm.
(e) Priority in Requested Registrations. If a requested registration pursuant
-----------------------------------
to section 20.1 involves an underwritten offering, and the managing underwriter
shall advise the Company in writing (with a copy to each holder of Registrable
Securities requesting registration) that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number which
can be sold in such offering (i) within a price range acceptable to the holders
of majority of the Registrable Securities so requested to be included or (ii)
without otherwise materially and adversely affecting the offering of the shares
being sold, then the Company will include in such registration, to the extent
of the number which the Company is so advised can be sold in such offering, (A)
first, all Registrable Securities requested to be registered, and second,
----- ------
securities the Company proposes to sell and other securities of the Company
included in such registration by the holders thereof and (B) in case the number
of Registrable Securities the registration of which
21
<PAGE>
shall have been requested by all holders thereof shall in the aggregate exceed
the maximum number of shares specified by such managing underwriter, the
Registrable Securities the registration of which shall have been requested by
each holder thereof shall be included in such registration on a pro rata basis
--- ----
in the proportion that such Registrable Securities the registration of which
shall have been requested by such holder bears to the aggregate Registrable
Securities the registration of which shall have been requested by all holders
thereof. To the extent Registrable Securities are not included in the
registration as a result of this section 20.1(e), the right of the holders
thereof to register such Registrable Securities pursuant to this section 20.1
shall not be deemed to have been effected.
20.2. Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If the Company at any time
---------------------------------------
proposes to register any of its Common Stock under the Securities Act (other
than a registration (i) on Form S-4, S-8 or any similar forms, (ii) in
connection with the acquisition by the Company of another company or (iii)
relating to shares of Common Stock issuable upon exercise of employee stock
options or in connection with any employee benefit or similar plan of the
Company), for sale, whether or not for its own account, on a form and in a
manner that would permit registration of Registrable Securities for sale to the
public under the Securities Act, it will give notice (the "Registration
Notice") to the holders of Registrable Securities at least 40 calendar days
prior to the anticipated filing date of the registration statement relating to
such registration of its intention to do so, describing such securities and
specifying the form and manner of the proposed registration (including, without
limitation, (x) whether such registration will be in connection with an
underwritten offering of the Common Stock and, if so, the identity of the
investment banker (or investment bankers) managing the offering (collectively,
the "managing underwriter") and whether such offering will be pursuant to a
"best efforts" or "firm commitment" underwriting and (y) the price (net of any
underwriting commissions, discounts and the like) at which the Registrable
Securities, if any, are reasonably expected to be sold if disclosure of such
price is acceptable to the managing underwriter). Upon the written request of
any such holder of Registrable Securities (a "Requesting Holder") to include in
such proposed registration Registrable Securities for sale for his account,
which notice is delivered to the Company within 30 calendar days after the
Registration Notice is deemed to be given and which request shall specify the
number of Registrable Securities intended to be disposed of by such Requesting
Holder, the Company will effect the registration under the Securities Act of
all of the Registrable Securities that the Company has been so requested to
register; provided, however, that:
-------- -------
22
<PAGE>
(i) if, at any time after giving such written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such securities, the Company shall
give written notice of such determination to each Requesting Holder, and
thereupon shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation
to pay the Registration Expenses in connection therewith);
(ii) if such registration involves a firm commitment or best efforts
underwritten offering (an "Underwritten Offering"), all Requesting Holders
must sell their Registrable Securities to the underwriters selected by the
Company on the same terms and conditions as apply to the Company or the other
selling stockholders and must enter into the underwriting agreement which the
Company or the other selling stockholders enter into and any other related
agreements; and
(iii) in case of a determination by the Company or the other selling
stockholders to delay the registration of its equity securities, the Company
shall be permitted to delay the registration of such Registrable Securities
for the same period as the delay in registering such other equity securities.
(b) Expenses. The Registration Expenses incurred in connection with each
--------
registration of Registrable Securities requested pursuant to this section 20.2
shall be paid by the Company, and each Requesting Holder shall pay all
underwriting discounts and commissions and transfer taxes and documentary stamp
taxes, if any, relating to the sale or disposition by such holder of
Registrable Securities pursuant to a registration statement effected pursuant
to this section 20.2.
(c) Priority in Incidental Registration. If a registration pursuant to this
-----------------------------------
section 20.2 involves an Underwritten Offering and the managing underwriter
advises the Company that, in its judgment, the number of shares proposed to be
included in such offering (including all Registrable Securities) exceeds the
number which can be sold without having an adverse effect on such offering,
including the price at which such securities can be sold, then the Company will
promptly so advise each Requesting Holder and will include in such registration
(i) first, the securities the Company or the person initiating such
-----
registration proposes to sell and (ii) second, the number of such Registrable
------
Securities and the number of Stockholders Securities, if any, requested to be
included in such registration that, in the opinion of such managing
underwriter, can be sold without having the adverse effect referred
23
<PAGE>
to above, such amount to be allocated pro rata among all such Requesting
Holders and the holders of such Stockholders Securities.
(d) Selection of Underwriters. In connection with any Underwritten Offering
-------------------------
pursuant to this section 20.2, the Company shall have the right to select
the managing underwriter with respect to the offering.
(e) No registration effected under this section 20.2 shall relieve the Company
of its obligations to effect any registration pursuant to section 20.1.
20.3. Registration Procedures. If and whenever the Company is required to
-----------------------
use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in section 20.1 or 20.2, the
Company will, as expeditiously as possible:
(i) prepare and file with the Commission, in the case of a registration
pursuant to section 20.1, within 150 days after the request by the Initiating
Holders to register their Registrable Securities, a registration statement
with respect to such Registrable Securities on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate, as the
case may be, and which form shall be available for the sale of the Registrable
Securities in accordance with the intended methods of distribution thereof,
and use its best efforts to cause such registration statement to become and
remain effective; provided that before filing with the Commission a
--------
registration statement or prospectus or any amendments or supplements thereto,
the Company will (A) furnish to one counsel, selected by the holders of a
majority of the Registrable Securities covered by such registration statement,
copies of all such documents proposed to be filed, which documents will be
subject to the timely review of such counsel, and (B) notify each holder of
Registrable Securities covered by such registration statement of (x) any
request by the Commission to amend such registration statement or amend or
supplement any prospectus, or (y) any stop order issued or threatened by the
Commission, and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered;
(ii) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than 180 days or such shorter period which will terminate when all
Registrable Securities covered by such registration statement have been sold
(but not before the expiration of the 90-day period referred to in Section
4(3) of the Securities Act and Rule 174, or any successor thereto, thereunder,
if applicable) and comply with the provisions of the
24
<PAGE>
Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement;
(iii) furnish to each seller of Registrable Securities covered by the
registration statement and to each underwriter, if any, of such Registrable
Securities, without charge, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), and the prospectus included in such registration statement
(including each preliminary prospectus), and such other documents, as such
holder may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such holder;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions as any seller thereof, and underwriter,
if any, of Registrable Securities covered by such registration statement
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller and each underwriter,
if any, to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such holder; provided, however, that the Company shall not
-------- -------
for any such purpose be required to (A) qualify to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
section 20.3(iv), it is not then so qualified, (B) subject itself to taxation
in any such jurisdiction, or (C) take any action which would subject it to
consent to general or unlimited service of process in any such jurisdiction
where it is not then so subject;
(v) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities;
(vi) immediately notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event which comes to the Company's attention if, as a result of such event,
the prospectus included in such registration statement, as then in effect,
includes any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made therein, in the light of
the circumstances
25
<PAGE>
under which they were made, not misleading and, at the request of any such
seller, deliver a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading;
(vii) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission and make available to its security holders,
in each case as soon as practicable, an earnings statement covering a period
of at least twelve months, beginning with the first day of the Company's first
full fiscal quarter after the effective date of the registration statement (as
the term "effective date" is defined in Rule 158(c) under the Securities Act),
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act including, at the option of the Company, Rule 158 thereunder;
(viii) use its reasonable best efforts to cause all such Registrable
Securities to be listed on a national securities exchange or the National
Association of Securities Dealers National Market System, as the case may be,
and to enter into such customary agreements including a listing application
and indemnification agreement in customary form, provided that the applicable
--------
listing requirements are satisfied, and to provide a transfer agent and
registrar for such Registrable Securities covered by such registration
statement no later than the effective date of such registration statement;
(ix) use its best efforts to obtain a "cold comfort" letter from the
independent public accountants for the Company in customary form and covering
matters of the type customarily covered by such letters as the holders of a
majority of the Registrable Securities being sold reasonably request and
provided that such request is reasonable in the managing underwriter's point
of view;
(x) execute and deliver all instruments and documents (including, in an
Underwritten Offering, an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the holders of
a majority of the Registrable Securities being sold reasonably request in
order to effect an underwritten public offering of such Registrable
Securities; the Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may from time to time
26
<PAGE>
reasonably request in writing in connection with effecting such offering;
(xi) permit any seller which the Board of Directors determines in good
faith after consultation with such seller and its advisors to be a controlling
person of the Company (within the meaning of the Securities Act or the
Exchange Act) to participate in the preparation of such registration statement
and to include therein material, furnished to the Company in writing, which in
the reasonable judgment of such seller should be included and which is
acceptable to the Company.
Each seller of Registrable Securities will, upon receipt of any notice from
the Company of the happening of any event of the kind described in section
20.3(vi), forthwith discontinue disposition of the Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until such seller's receipt of the copies of the supplemented or amended
prospectus contemplated by section 20.3(vi), and, if so directed by the Company,
such seller will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such seller's possession, of the
prospectus covering such Registrable Securities at the time of receipt of such
notice.
20.4. Underwritten Offerings.
----------------------
(a) If a registration pursuant to section 20.1 or 20.2 involves an
Underwritten Offering, each holder of Registrable Securities agrees, whether or
not such holder's Registrable Securities are included in such registration, not
to effect any public sale or distribution, including any sale pursuant to Rule
144 under the Securities Act, of any Registrable Securities, or of any security
convertible into or exchangeable or exercisable for any Registrable Securities
(other than as part of such Underwritten Offering), without the consent of the
managing underwriter, during a period commencing seven calendar days before and
ending 90 calendar days (or such number of days as the managing underwriter
shall designate, but not more than 180 days) after the effective date of such
registration.
(b) The Company agrees, if so required by the managing underwriter, not to
effect any public sale or distribution of Common Stock or securities convertible
into Common Stock during the seven days prior to and the 60 days after any
Underwritten Offering pursuant to section 20.1 has become effective, except as
part of such Underwritten Offering and except pursuant to registrations on Form
S-4 or S-8 or any similar forms.
(c) If requested by the underwriters for any underwritten offering by holders
of Registrable Securities pursuant to a registration requested under section
20.1, the Company will enter into an underwriting agreement
27
<PAGE>
with such underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to the Company, each such holder and the
underwriters, and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of this type,
including, without limitation, indemnities to the effect and to the extent
provided in section 20.5. The holders of the Registrable Securities will
cooperate with the Company in the negotiation of the underwriting agreement and
will give consideration to the reasonable suggestions of the Company regarding
the form thereof. The holders of Registrable Securities to be distributed by
such underwriters shall be parties to such underwriting agreement.
20.5. Indemnification.
---------------
(a) Indemnification by the Company. In the event of any registration of any
------------------------------
securities of the Company under the Securities Act pursuant to section 20.1 or
20.2, the Company will, and it hereby does, indemnify and hold harmless, to the
extent permitted by law, the holders of any Registrable Securities covered by
such registration statement, its directors, trustees and officers or general and
limited partners (and directors, trustees and officers thereof and, if such
holder is a portfolio or investment fund, its investment advisors or agents),
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls such holder or any
such underwriter within the meaning of the Securities Act, as follows:
(i) against any and all loss, liability, claim, damage or expense, joint
or several, arising out of or based upon an untrue statement or alleged untrue
statement of a material fact contained, on the effective date thereof, in any
registration statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or in any preliminary prospectus
or prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense, joint
or several, to the extent of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, if
such settlement is effected with the written consent of the Company; and
28
<PAGE>
(iii) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any litigation,
or investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
- -------- -------
claim, damage or expense to the extent arising out of an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any underwriter or such holder expressly for use in the preparation of
any registration statement (or any amendment thereto) or any preliminary
prospectus or prospectus (or any amendment or supplement thereto); and provided,
--------
further, that the Company will not be liable to (i) any Person who participates
- -------
as an underwriter in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act or (ii) any such holder, in each case, under the indemnity
agreement in this section 20.5(a), with respect to any preliminary prospectus or
the final prospectus or the final prospectus as amended or supplemented, as the
case may be, to the extent that any such loss, liability, claim, damage or
expense of such underwriter or controlling Person or such holder results from
the fact that such underwriter or holder sold Registrable Securities to a Person
to whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the final prospectus or of the final prospectus as then
amended or supplemented, whichever is most recent, if the Company has previously
furnished copies thereof to such underwriter or holder. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such holder or any such director, trustee, officer, general or limited
partner, investment advisor or agent, underwriter or controlling Person and
shall survive the transfer of such securities by such holder.
(b) Indemnification by the Sellers. The Company may require, as a
------------------------------
condition to including any Registrable Securities in any registration statement
filed in accordance with section 20.1 or 20.2, that it shall have received an
undertaking, reasonably satisfactory to it, from the prospective seller of such
Registrable Securities or any underwriter, to indemnify and hold harmless (in
the same manner and to the same extent as set forth in section 20.5(a)) the
Company and its directors, officers and controlling Persons, and their
respective directors, officers, general and limited partners, managing
directors, and, in the case of an undertaking from a prospective seller of
Registrable Securities, any underwriter, and their respective controlling
Persons with respect to any statement or alleged statement in or omission or
alleged omission from such registration statement, any
29
<PAGE>
preliminary, final or summary prospectus contained therein, or any amendment or
supplement, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such seller or underwriter,
specifically stating that it is for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or supplement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company, any seller, or any
underwriter, as the case may be, or any of their respective directors, trustees,
officers, controlling Persons, general or limited partners or managing directors
and shall survive the transfer of such securities by such underwriter. The
obligations of the Company and such sellers pursuant to this section 20.5 are to
be several; provided, however, that, with respect to each claim pursuant to this
-------- -------
section 20.5, the Company shall be liable for the full amount of such claim and
each such seller's maximum liability under this section shall be limited to an
amount equal to the net proceeds actually received by such seller (after
deducting any underwriting discount and expenses) from the sale of Registrable
Securities being sold pursuant to such registration statement or prospectus by
such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
----------------------
hereunder of written notice of the commencement of any action or proceeding
involving a claim referred to in this section 20.5, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
--------
however, that the failure of any indemnified party to give notice as provided
- -------
herein shall not relieve the indemnifying party of its obligations under this
section 20.5, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, in which case the
indemnifying party shall not be liable for the fees and expenses of (i) more
than one counsel for all holders of Registrable Securities selected by a
majority of the holders of Registrable Securities being registered, (ii) more
than one counsel for the underwriters or (iii) more than one counsel for the
Company in connection with any one action or separate but similar or related
actions. An indemnifying party who is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and
30
<PAGE>
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels.
The indemnifying party will not, without the prior written consent of each
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such indemnified
party or any Person who controls such indemnified party is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability arising out of such claim, action, suit or proceeding.
Notwithstanding anything to the contrary set forth herein, and without
limiting any of the rights set forth above, in any event any party will have the
right to retain, at its own expense, counsel with respect to the defense of a
claim; provided, however, that such counsel shall be required to
-------- -------
cooperate with any counsel retained by the Company, unless they are adverse
parties.
(d) Other Indemnification. The Company and each seller of Registrable
---------------------
Securities shall provide for the foregoing indemnity (with appropriate
modifications) in any underwriting agreement with respect to any required
registration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Securities Act.
31
<PAGE>
20.6. Contribution. If the indemnification provided for in section 20.5 is
------------
unavailable or insufficient to hold harmless an indemnified party under section
20.5(a) or (b), then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages
or liabilities referred to in section 20.5(a) or (b) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other in connection with statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations, including,
without limitation, the relative benefits received by each party from the
offering of the Registrable Securities, the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted and the opportunity to correct and prevent any statement or omission.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statements or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this section 20.6
were to be determined by pro rata or per capita allocation (even if the
underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the first sentence of this section 20.6. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this section 20.6 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim (which
shall be limited as provided in section 20.5(c) if the indemnifying party has
assumed the defense of any such action in accordance with the provisions
thereof) which is the subject of this section 20.6. Promptly after receipt by
an indemnified party under this section 20.6 of notice of the commencement of
any action against such party in respect of which a claim for contribution may
be made against an indemnifying party under this section 20.6, such indemnified
party shall notify the indemnifying party in writing of the commencement thereof
if the notice specified in section 20.5(c) has not been given with respect to
such action; provided that the omission so to notify the indemnifying party
--------
shall not relieve the indemnifying party from any liability which it may have to
any indemnified party otherwise under this section 20.6, except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice. The Company and each holder of Registrable Securities agrees with each
other and the underwriters of the Registrable Securities, if requested by such
underwriters, that (i) the underwriters' portion of such contribution shall not
exceed the underwriting discount and (ii) the amount of such contribution of a
seller of Registrable Securities shall not exceed an amount equal to the net
proceeds actually received by such seller from the sale of Registrable
Securities in the offering to which the losses, liabilities, claims, damages or
expenses of the indemnified parties relate. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)
32
<PAGE>
of the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
JP FOODSERVICE, INC.
By:
-------------------------------
Chairman and Chief
Executive Officer
[Seal]
- ------------------------------
Secretary
33
<PAGE>
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To JP FOODSERVICE, INC.
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, shares of Common
Stock of JP FOODSERVICE, INC. and herewith makes payment of $ therefor,
and requests that the certificates for such shares be issued in the name of, and
delivered to , whose address is .
Dated:
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of
Warrant)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
34
<PAGE>
FORM OF ASSIGNMENT
------------------
[To be executed only upon transfer of Warrant]
For valued received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the rights represented by
such Warrant to purchase shares of Common Stock of JP FOODSERVICE, INC.
to which such Warrant relates, and appoints Attorney to make such
transfer on the books of JP FOODSERVICE, INC. maintained for such purpose, with
full power of substitution in the premises.
Dated:
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of
Warrant)
------------------------------
(Street Address)
-----------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- --------------------------
35
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF HOGAN & HARTSON L.L.P. APPEARS HERE]
November 24, 1997
Board of Directors
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Ladies and Gentlemen:
This firm has acted as counsel to JP Foodservice, Inc., a Delaware
corporation (the "Company"), in connection with its registration, pursuant to a
registration statement on Form S-4 filed on or about the date hereof (the
"Registration Statement"), of (i) 25,680,118 shares of Common Stock, par value
$0.01 per share (the "Common Stock"), of the Company (the "Shares"), (ii) common
stock purchase warrants with an aggregate exercise price of $3,496,002
evidencing the right to purchase shares of Common Stock (the "Warrants") and
(iii) an indeterminate number of shares of Common Stock issuable upon exercise
of the Warrants (the "Warrant Shares"). The Shares, the Warrants and the
Warrant Shares are being offered in connection with the merger (the "Merger") of
Rykoff-Sexton, Inc., a Delaware corporation ("Rykoff-Sexton"), with and into
Hudson Acquisition Corp. ("Merger Sub"), a Delaware corporation that is a wholly
owned subsidiary of the Company, as contemplated by the terms of the Agreement
and Plan of Merger among the Company, Rykoff-Sexton and Merger Sub, dated as of
June 30, 1997, as amended as of September 3, 1997 and as of November 5, 1997
(the "Merger Agreement").
This opinion letter is furnished to you pursuant to the requirements
of Item 601(b)(5) of Regulation S-K, 17 C.F.R. (S) 229.601(b)(5), in
connection with such registration. For purposes of this opinion letter, we have
examined copies of the following documents:
1. An executed copy of the Registration Statement, which includes the
Joint Proxy Statement/Prospectus of the Company and Rykoff-Sexton.
<PAGE>
Board of Directors
JP Foodservice, Inc.
November 24, 1997
Page 2
2. The Restated Certificate of Incorporation of the Company, as
certified by the Secretary of the Company on the date hereof as
then being complete, accurate and in effect.
3. The Amended and Restated By-laws of the Company, as certified by
the Secretary of the Company on the date hereof as then being
complete, accurate and in effect .
4. An executed copy of the Merger Agreement.
5. The form of Common Stock Purchase Warrant expiring September 30,
2005 filed as an exhibit to the Registration Statement.
6. Resolutions of the Board of Directors of the Company adopted on
June 29, 1997, November 2, 1997 and November 17, 1997, as
certified by the Secretary of the Company on the date hereof as
then being complete, accurate and in effect.
We have not, except as specifically identified above, made any
independent review or investigation of factual or other matters, including the
organization, existence, good standing, assets, business or affairs of the
Company or its subsidiaries. In our examination of the aforesaid certificates,
records, and documents, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity, accuracy and completeness
of all documents submitted to us as originals, and the authenticity, accuracy
and completeness and conformity with the original documents of all documents
submitted to us as certified, telecopied, photostatic, or reproduced copies. We
have assumed the authenticity and accuracy of the foregoing certifications of
corporate officers, on which we are relying, and have made no independent
investigations thereof. This opinion letter is given in the context of the
foregoing.
This opinion letter is based as to matters of law solely on (i) the
General Corporation Law of the State of Delaware and (ii) the contract law of
the State of New York (but not including any statutes, ordinances,
administrative decisions, rules or regulations of any political subdivision of
the State of New York).
<PAGE>
Board of Directors
JP Foodservice, Inc.
November 24, 1997
Page 3
We express no opinion herein as to any other laws, statutes, regulations, or
ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that:
(a) Upon consummation of the Merger and the issuance and delivery of
the Shares pursuant to the terms of the Merger Agreement, the Shares will be
validly issued, fully paid and non-assessable.
(b) Upon consummation of the Merger and due execution and delivery of
the Warrants by the Company, the Warrants will constitute binding obligations of
the Company, enforceable against the Company in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights (including,
without limitation, the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers) and as may be
limited by the exercise of judicial discretion and the application of principles
of equity, including, without limitation, requirements of good faith, fair
dealing, conscionability and materiality (regardless of whether the Warrants are
considered in a proceeding in equity or at law); provided, however, that we
express no opinion with respect to Sections 20.5 and 20.6 of the Warrants.
(c) When issued and delivered upon exercise of the Warrants in
accordance with the terms of the Warrants, the Warrant Shares will be validly
issued, fully paid and non-assessable.
The opinion expressed in paragraph (b) above shall be understood to
mean only that if (i) there is a default in performance of an obligation, (ii) a
failure to pay or other damage can be shown and (iii) the defaulting party can
be brought into a court which will hear the case and apply the governing law,
then, subject to the availability of defenses, and to the exceptions set forth
above, the court will provide a money damage (or perhaps injunctive or specific
performance) remedy.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this letter, and should not be quoted in whole or in
part or
<PAGE>
Board of Directors
JP Foodservice, Inc.
November 24, 1997
Page 4
otherwise be referred to, nor be filed with or furnished to any governmental
agency or other person or entity, without the prior written consent of this
firm.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the references to our firm in the Joint
Proxy Statement/Prospectus. In giving this consent, we do not thereby admit that
we are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ APPEARS HERE]
November 24, 1997
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Ladies/Gentlemen:
We have acted as special counsel to JP Foodservice, Inc., a Delaware
corporation ("JP Foodservice"), in connection with the proposed merger (the
"Merger") of Rykoff-Sexton, Inc., a Delaware corporation ("Rykoff-Sexton"), with
and into Hudson Acquisition Corp., a Delaware corporation and a direct wholly-
owned subsidiary of JP Foodservice ("Merger Sub"), upon the terms and conditions
set forth in the Agreement and Plan of Merger dated as of June 30, 1997, as
amended to the date hereof, by and among Rykoff-Sexton, JP Foodservice and
Merger Sub (the "Agreement"). At your request, in connection with the filing of
the Registration Statement on Form S-4 filed with the Securities and Exchange
Commission in connection with the Merger (the "Registration Statement"), we are
rendering our opinion concerning certain federal income tax consequences of the
Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of JP Foodservice and the consent of Rykoff-Sexton, upon the accuracy
and completeness of the statements and representations (which statements and
representations we have neither investigated nor verified) contained,
respectively, in the certificates of the officers of JP Foodservice and Rykoff-
Sexton (copies of which are attached hereto and which are incorporated herein by
reference), and have assumed that such certificates will be complete and
accurate as of the Effective Time. We have also relied upon the accuracy of the
Registration Statement and the Joint Proxy Statement/Prospectus included therein
(together, the "Proxy Statement"). Any capitalized term used and not defined
herein has the meaning given to it in the Proxy Statement or the appendices
thereto (including the Agreement).
<PAGE>
JP Foodservice, Inc.
November 24, 1997
Page 2
We have also assumed that the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Proxy Statement and that the Merger will qualify as a statutory merger under the
applicable laws of the State of Delaware.
Based upon and subject to the foregoing, the discussion contained in
the Proxy Statement under the caption "THE MERGER -- Certain Federal Income Tax
Consequences," except as otherwise indicated, represents our opinion as to the
material federal income tax consequences of the Merger under currently
applicable law.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement, and to the
references to us under the caption "THE MERGER -- Certain Federal Income Tax
Consequences" and elsewhere in the Proxy Statement. In giving such consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF JONES, DAY, REAVIS & POGUE
APPEARS HERE]
November 24, 1997
Rykoff-Sexton, Inc.
613 Baltimore Drive
East Mountain Corporate Center
Wilkes-Barre, PA 18702-7944
Dear Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4 (the
"Registration Statement") of JP Foodservice, Inc., a Delaware corporation ("JP
Foodservice"), relating to the merger (the "Merger") of Rykoff-Sexton, Inc., a
Delaware corporation ("Rykoff-Sexton"), with and into Hudson Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary of JP Foodservice, pursuant
to the Agreement and Plan of Merger dated as of June 30, 1997, as amended to the
date hereof, by and between such three corporations (the "Merger Agreement"). We
have acted as counsel to Rykoff-Sexton in connection with the Merger.
We have participated in the preparation of the discussion set forth
under the heading "The Merger -- Certain Federal Income Tax Consequences" in the
Joint Proxy Statement/Prospectus that is part of the Registration Statement.
Such discussion represents our opinion as to the material federal income tax
consequences of the Merger under currently applicable law.
For purposes of the opinion set forth above, we have relied, with the
consent of Rykoff-Sexton and JP Foodservice, upon the accuracy and completeness
of the statements and representations contained in the certificates of the
officers of Rykoff-Sexton and JP Foodservice (copies of which are attached
hereto and which are incorporated herein by reference), and have assumed that
the statements and representations in such certificates will continue to be
complete and accurate as of the Effective Time. We have also assumed that the
transactions contemplated by the Merger Agreement will be consummated in
accordance therewith and as
<PAGE>
Rykoff-Sexton, Inc.
November 24, 1997
Page 2
described in the Registration Statement and that the Merger will qualify as a
statutory merger under the applicable laws of the State of Delaware.
We hereby consent to the use of this opinion as Exhibit 8.2 to the
Registration Statement and to the reference to our firm under the heading "The
Merger -- Certain Federal Income Tax Consequences" and elsewhere in the Joint
Proxy Statement/Prospectus that is part of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE>
EXHIBIT 10.5
JP FOODSERVICE, INC.
1994 STOCK INCENTIVE PLAN
1. PURPOSE.
The purpose of the JP Foodservice, Inc. 1994 Stock Incentive Plan is to
promote the long-term growth of JP Foodservice, Inc. and its subsidiaries by
rewarding key management employees of JP Foodservice, Inc. and its subsidiaries
with a proprietary interest in JP Foodservice, Inc. for outstanding long-term
performance and to attract, motivate and retain highly qualified and capable
management employees.
2. DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms shall
have the following meanings:
2.1 "Award" means an award granted to a Participant under the Plan in the
form of an Option, Restricted Stock, a Stock Appreciation Right, or any
combination of the foregoing.
2.2 "Board" means the Board of Directors of the Corporation.
2.3 "Change of Control" has the meaning set forth in Section 10.2.
2.4 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.5 "Committee" means the committee administering the Plan as set forth in
Section 3, or, if such a committee has not been appointed, the Board.
2.6 "Corporation" means JP Foodservice, Inc., a Delaware corporation, or
any successor thereto.
2.7 "Disability" means total disability as defined from time to time under
the JP Foodservice, Inc. Long-Term Disability Plan.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 "Fair Market Value" means the opening price of the Shares reported on
the New York Stock Exchange ("NYSE") on the date Fair Market Value is being
determined, provided that if there should be no opening price reported on such
date, the Fair Market Value of a Share on such date shall be deemed equal to the
closing price as reported by the NYSE for the last preceding date on which sales
of Shares
<PAGE>
were reported. Notwithstanding the foregoing, in the event that the
Shares are listed upon more than one established stock exchange, "Fair Market
Value" means the opening price of the Shares reported on the exchange that
trades the largest volume of Shares on the Option Grant Date.
2.10 "Incentive Stock Option" means an Option which meets the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended, or any
successor law.
2.11 "Non-Qualified Stock Option" means an Option which does not meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended, or
any successor law.
2.12 "Option" means an option awarded under Section 7 to purchase Shares.
An Option may be either an Incentive Stock Option or a Non-Qualified Stock
Option.
2.13 "Option Exercise Period" means the period from the Option Grant Date
to the date on which an Option expires.
2.14 "Option Grant Date" means the date upon which the Committee grants an
Option to an Optionee.
2.15 "Optionee" means an employee of the Corporation or any Subsidiary to
whom an Option has been granted.
2.16 "Participant" means an employee of the Corporation or any Subsidiary
to whom an Award has been granted which has not terminated, expired or been
fully exercised.
2.17 "Plan" means this JP Foodservice, Inc. 1994 Stock Incentive Plan, as
it may be amended and restated from time to time.
2.18 "Reload Option" means the right, upon exercise of and satisfaction of
an Option through the delivery of shares, automatically to be granted a new Non-
Qualified Stock Option subject to the terms and provisions of Sections 7 and 8.
2.19 "Restricted Period" means the period of time, which may be a single
period or multiple periods, during which Restricted Stock awarded to a
Participant remains subject to the Restrictions imposed on such Shares, as
determined by the Committee.
2.20 "Restricted Stock" means an Award of 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 Internal Revenue Code of
1986, as amended, or any successor law.
-2-
<PAGE>
2.21 "Restricted Stock Agreement" means a written agreement between a
Participant and the Corporation evidencing an award of Restricted Stock.
2.22 "Restricted Stock Award Date" means the date on which the Committee
awards Restricted Shares to the Participant.
2.23 "Restrictions" means the restrictions and conditions imposed on any
Restricted Stock Award or Stock Appreciation Right Award to a Participant, as
determined by the Committee, which must be satisfied in order for the Restricted
Stock Award or Stock Appreciation Right Award to vest, in whole or in part, in
the Participant. Restrictions in addition to or other than continuous employment
may include the satisfaction of corporate, divisional or individual performance
objectives, which may be applicable to all or any portion of the Restricted
Stock Award or Stock Appreciation Right Award. Such performance objectives shall
be established in writing by the Committee prior to the ninetieth day of the
year in which the Award is made and while the outcome is substantially
uncertain. Performance objectives shall be based on earnings per share, total
shareholder return, operating earnings, growth in assets, return on equity,
return on capital, Share price, net income, cash flow, sales growth (in general,
by type of product and by type of customer), retained earnings and completion of
acquisitions. Performance objectives may include positive results, maintaining
the status quo or limiting economic losses.
2.24 "Retirement" means retirement from active employment with the
Corporation or any Subsidiary pursuant to the terms and conditions of the
pension or retirement plans of the Corporation or such Subsidiary applicable to
the Participant.
2.25 "Shares, except as specifically provided in Section 6, means shares
of the common stock, par value $0.01 per share, of the Corporation.
2.26 "Stock Appreciation Right" means a right to receive the spread or
difference between the Fair Market Value of Shares subject to an Option and the
Option exercise price, either in stock or in cash, or in a combination thereof.
2.27 "Stock Appreciation Rights Agreement" means a written agreement
between a Participant and the Corporation evidencing an Award of Stock
Appreciation Rights.
2.28 "Stock Option Agreement" means a written agreement between a
Participant and the Corporation evidencing an Award of an Option.
2.29 "Subsidiary" means any domestic or foreign corporation or entity of
which the Corporation owns, directly or indirectly, at least 50% of the total
combined voting power of such corporation or other entity.
-3-
<PAGE>
2.30 "Ten Percent Shareholder" means an Optionee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than 10% of the
total voting power of all classes of stock of the Corporation or any Subsidiary.
3. ADMINISTRATION OF THE PLAN.
3.1 Administrator of Plan. The Plan shall be administered by the
---------------------
Compensation Committee of the Board, which shall be composed of at least two (2)
directors who are "non-employee directors" as defined in Rule 16b-3 under the
Exchange Act or any successor rule of the Commission.
3.2 Authority of Committee. The Committee shall have full power and
----------------------
authority to:
(i) designate the Participants to whom Options, Restricted Stock, or
Stock Appreciation Rights may be awarded from time to time;
(ii) determine the type of Award to be granted to each Participant under
the Plan and the number of Shares subject thereto;
(iii) determine the duration of the Restricted Period and the Restrictions
to be imposed with respect to each Award;
(iv) interpret and construe the Plan and adopt such rules and regulations
as it shall deem necessary and advisable to implement and administer
the Plan;
(v) approve the form and terms and conditions of the Restricted Stock
Agreement, Stock Option Agreement, or Stock Appreciation Rights
Agreement, as the case may be, between the Corporation and the
Participant; and
(vi) designate persons other than members of the Committee to carry out
its responsibilities, subject to such limitations, restrictions and
conditions as it may prescribe, provided that the Committee may not
delegate its authority (a) with respect to the granting of Awards to
persons subject to Sections 16(a) and 16(b) of the Exchange Act or
(b) if such delegation would cause the Plan not to comply with the
requirements of Rule 16b-3 under the Exchange Act or any successor
rule of the Commission.
The foregoing determinations shall be made in accordance with the Committee's
best business judgment as to the best interests of the Corporation and its
stockholders and in accordance with the purposes of the Plan.
-4-
<PAGE>
3.3 Determinations of Committee. A majority of the Committee shall
---------------------------
constitute a quorum at any meeting of the Committee, and all determinations of
the Committee shall be made by a majority of its members. Any action which the
Committee shall take through a written instrument signed by all of its members
shall be as effective as though it had been taken at a meeting duly called and
held. The Committee shall report all actions taken by it to the Board.
3.4 Delegation. The Committee may delegate such non-discretionary
----------
administrative duties under the Plan to one or more agents as it shall deem
necessary and advisable.
3.5 Effect of Committee Determinations. No member of the Committee or
----------------------------------
the Board shall be personally liable for any action or determination made in
good faith with respect to the Plan, any Award or any settlement of any dispute
between a Participant and the Corporation. Any decision made or action taken by
the Committee or the Board with respect to an Award or the administration or
interpretation of the Plan shall be conclusive and binding upon all persons.
4. AWARDS UNDER THE PLAN.
Awards to a Participant under the Plan may be in the form of a Non-
Qualified Stock Option, an Incentive Stock Option, Restricted Stock, a Stock
Appreciation Right, or a combination thereof, at the discretion of the
Committee. If an Option is designated as an Incentive Stock Option, the terms
of such Option shall be in conformance with Section 422 of the Internal Revenue
Code of 1986, as amended, or any successor law.
5. ELIGIBILITY.
The Participants in the Plan shall be the officers and key management
employees of the Corporation and its Subsidiaries designated by the Committee.
A Participant who has been granted an Award under the Plan may be granted
additional Awards under the Plan under such circumstances, and at such times, as
the Committee may determine.
6. SHARES SUBJECT TO PLAN.
Subject to adjustment as provided in Section 15, the aggregate number of
Shares which may be issued and released from Restrictions upon the exercise of
Options or Stock Appreciation Rights and the vesting of Restricted Stock,
respectively, is 2,600,000. Any portion of such Shares may be issued under
Incentive Stock Options pursuant to the Plan. Subject to adjustment as provided
in Section 15, the aggregate number of Shares which may be granted pursuant to
Options or Stock Appreciation Rights under this Plan to any one Participant
during the life of this Plan shall be twenty percent (20%) of the total number
of Shares
-5-
<PAGE>
subject to this Plan. If all or any portion of any outstanding Award under the
Plan for any reason expires or is terminated, the Shares allocable to the
unexercised portion of such Award may again be subject to an Award under the
Plan.
7. OPTIONS.
7.1 Terms of Options. Options granted under the Plan shall be subject to
----------------
the following terms and conditions:
(a) Option Price. The option price per Share under each Option granted by
------------
the Committee (the "Option Price") may not be less than 100% (110% in the case
of an Incentive Stock Option granted to a Ten Percent Shareholder) of the Fair
Market Value per Share on the Option Grant Date. In no event shall the Option
Price be less than the par value of such Share on the Option Grant Date.
(b) Vesting of Options. Except as provided in this Section 7.1 and Section
------------------
10.1, one-third of each Option granted by the Committee shall vest on each of
the first, second, and third anniversary dates of the Option Grant Date,
provided the Optionee is employed on such date. The Committee may accelerate
the vesting of any Option in its discretion.
(c) Exercise of Options. Each Option shall be exercisable on the dates and
-------------------
for the number of Shares as shall be provided in the related Stock Option
Agreement, provided that (i) no Option shall be exercisable earlier than six
months after the Option Grant Date, and (ii) in no event shall the Option
Exercise Period exceed ten years from the Option Grant Date (five years in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder).
Options may be exercised (in full or in part) only by written notice
delivered to the Corporation at its principal executive office, accompanied by
payment of the Option Price for the Shares as to which such Option is exercised.
The Option Price of each Share shall be paid in full at the time of exercise (i)
in cash, (ii) with Shares owned by the Participant, (iii) by delivery to the
Corporation of (x) irrevocable instructions to deliver directly to a broker the
stock certificates representing the Shares for which the Option is being
exercised, and (y) irrevocable instructions to such broker to sell such Shares
and promptly deliver to the Corporation the portion of the proceeds equal to the
Option Price, or (iv) any combination thereof. For purposes of making payment
in Shares, such Shares shall be valued at their Fair Market Value on the date of
exercise of the Option and shall have been held by the Participant for at least
six months.
(d) Reload Options. A Non-Qualified Option shall include the right to
--------------
acquire a Reload Option which shall 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
-6-
<PAGE>
Non-Qualified Stock Option. In addition to any other terms and conditions the
Committee deems appropriate, the Reload Option shall be subject to the following
terms: (i) the number of Shares shall not exceed the number of whole Shares used
to satisfy the Option Price of the original Option and the number of whole
Shares, if any, withheld by the Corporation as payment for withholding taxes in
accordance with Section 12; (ii) the Option Grant Date shall be the date of the
exercise of the original Option; (iii) the Option Price per share shall be the
Fair Market Value on the Option Grant Date; (iv) the Reload Option shall be
exercisable no earlier than six months after the Option Grant Date; (v) the
Reload Option term shall not extend beyond the term of the original Option; and
(vi) the Reload Option shall otherwise meet all conditions of this Section 7.
(e) Compliance with Rule 16b-3. To the extent that the provisions in
--------------------------
subparagraphs (c) and (d) above on the number of Shares that can be issued under
the Plan do not conform with Rule 16b-3 under the Exchange Act as adopted and
interpreted by the Commission, the Committee shall make such modification in the
determination of Share usage and issuance so as to conform the Plan and any
Options granted hereunder to the Rule's requirements, provided, however, that
any such modifications shall not increase the number of Shares subject to the
Plan beyond the number of Shares specified in Section 6.
(f) Termination of Employment of Optionee. The Committee shall have
-------------------------------------
authority to determine the circumstances under which Awards of Restricted Stock
and Stock Appreciation Rights will vest upon termination of employment of the
Optionee for any reason. Unless the optionee terminates employment by reason of
Retirement, death or Disability, in the case of any Non-Qualified Stock Option,
including those granted as a result of the exercise of a Reload Option, the
Committee shall provide that vesting of the Option shall cease on the date of
termination of employment and the Option shall terminate on the date which is
six months after the date on which the Optionee terminates employment. In the
event an Optionee terminates employment by reason of the Optionee's death,
Disability or Retirement, the Committee shall provide that Non-Qualified Stock
Options shall continue to vest for one year following the date on which the
Optionee dies, incurs a Disability or retires, and the Option shall terminate
three years after the date on which the Optionee terminates employment. In any
event, Non-Qualified Stock Options shall terminate ten years after the Option's
Grant Date. Unless otherwise determined by the Committee, in the case of any
Incentive Stock Option, the Committee shall provide that the Option shall
terminate on the date three months (one year, in the event the Optionee
terminates employment by reason of the Optionee's death or Disability) after the
date on which the Optionee terminates employment, or, if earlier, ten years
after the Option Grant Date (five years in the case of an Incentive Stock Option
granted to a Ten Percent Stockholder). Such provisions shall be contained in the
Option Agreement given to each Optionee.
-7-
<PAGE>
(g) Rights as a Stockholder. An Optionee or a transferee of an Option
-----------------------
shall have no rights as a stockholder with respect to any Shares covered by any
Option until the date of the issuance of a stock certificate to such person
evidencing such Shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 15.
(h) Investment Purpose. The Corporation shall not be obligated to sell or
------------------
issue any Shares pursuant to any Option unless the Shares with respect to which
the Option is being exercised are at that time registered or exempt from
registration under the Securities Act of 1933, as amended.
(i) Assumption of Options. The Corporation may issue or assume any stock
---------------------
option in any transaction or transactions upon such terms and conditions and, in
the case of any option so assumed, with such modifications or adjustments
therein, as shall be determined by the Committee. Any such option so issued or
assumed shall be deemed to be an Option granted under this Plan, notwithstanding
that any provision of this Plan would not, except for this Section 7, permit the
grant of an option having the terms and conditions, including the option price,
of such option as so issued or assumed.
(j) Incentive Stock Options. In the case of an Incentive Stock Option
-----------------------
granted under the Plan, the aggregate Fair Market Value (determined at the
Option Grant Date) of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by an Optionee during any calendar year may
not exceed $100,000.
8. RESTRICTED STOCK.
8.1 Terms of Restricted Stock Awards. Subject to and consistent with the
--------------------------------
provisions of the Plan, with respect to each Award of Restricted Stock to a
Participant, the Committee shall determine:
(a) the terms and conditions of the Restricted Stock Agreement between the
Corporation and the Participant evidencing the Award;
(b) the Restricted Period for all or a portion of the Award;
(c) the Restrictions applicable to the Award, including, but not limited
to, continuous employment with the Corporation or any of its Subsidiaries for a
specified term or the attainment of specific corporate, divisional or individual
performance standards or goals, which Restricted Period and Restrictions may
differ with respect to each Participant;
-8-
<PAGE>
(d) whether the Participant shall receive the dividends and other
distributions paid with respect to an Award of Restricted Stock as declared and
paid to the holders of the Shares during the Restricted Period or shall be
withheld by the Corporation for the account of the Participant until the
Restricted Periods have expired or the Restrictions have been satisfied, and
whether interest shall be paid on such dividends and other distributions
withheld, and if so, the rate of interest to be paid, or whether such dividends
may be reinvested in Shares;
(e) the percentage of the Award which shall 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; or
(f) notwithstanding the Restricted Period and the Restrictions imposed on
the Restricted Shares, as set forth in a Restricted Stock Agreement, whether to
shorten the Restricted Period or waive any Restrictions, if the Committee
concludes that it is in the best interests of the Corporation to do so.
8.2 Delivery of Shares. Upon an Award of Restricted Stock to a
------------------
Participant, the stock certificate representing the Restricted Stock shall be
issued and transferred to and in the name of the Participant, whereupon the
Participant shall become a stockholder of the Corporation with respect to such
Restricted Stock and shall be entitled to vote the Shares. Such stock
certificate shall be held in custody by the Corporation, together with stock
powers executed by the Participant in favor of the Corporation, until the
Restricted Period expires and the Restrictions imposed on the Restricted Stock
are satisfied.
9. STOCK APPRECIATION RIGHTS.
9.1 Grants of Stock Appreciation Rights. Stock Appreciation Rights
-----------------------------------
("SARs") may be granted in conjunction with all or a part of any Option granted
under the 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 shall not be offered or granted in connection with a prior Option without
the consent of the holder of such Option. SARs may not be exercised by an
Optionee who is a director or officer (within the meaning of Rule 16a-1(f) under
the Exchange Act) of the Corporation within six months after the SAR is granted,
except that this limitation shall not be applicable in the event of the death or
Disability of such Optionee occurring prior to the expiration of such six-month
period.
9.2 Terms of Stock Appreciation Rights. All SARs shall be subject to the
----------------------------------
following terms and conditions:
(a) SARs shall be exercisable only at such time and to the extent that the
Option to which they relate (the "Related Option") shall be exercisable, and the
-9-
<PAGE>
Committee may provide additional Restrictions on exercisability applicable to
the Award, including, but not limited to, continuous employment with the
Corporation or any of its Subsidiaries for a specified term or the attainment of
specific corporate, divisional or individual performance standards or goals,
which Restrictions may differ with respect to each Participant. SARs and the
Related Option may be exercised concurrently only when the Related Option is a
Non-Qualified Stock Option.
(b) Upon exercise of a SAR, the Optionee shall be entitled to the
difference between the Fair Market Value of one Share and the Option Price of
one Share specified in the Related Option times the number of Shares in respect
of which the SARs shall have been exercised (the "Economic Value"). An
Optionee, upon the exercise of SARs, shall receive the Economic Value thereof,
and the Committee in its sole discretion shall determine the form in which
payment of such Economic Value will be made, whether in cash, Shares or any
combination thereof. For purposes of this Section 9.2(b), the Fair Market Value
of the Shares shall be determined as of the date of exercise of the SAR.
(c) An SAR may be exercised without exercising the Related Option, but the
Related Option shall be canceled for all purposes under the Plan to the extent
of the SAR exercise. A Related Option may be exercised without exercising the
SAR, but the SAR shall be canceled for all purposes under the Plan to the extent
of the Related Option exercise.
(d) In addition to the conditions set forth above, SARs issued in
connection with Incentive Stock Options shall meet the following conditions:
(i) Each SAR must expire not later than the expiration of the Related
Option.
(ii) The SAR shall be transferable only when the Related Option is
transferable and under the same conditions.
(iii) The SAR may be exercised only when the Fair Market Value of the
Shares subject to the Related Option exceeds the exercise price of
the Related Option.
10. CHANGE OF CONTROL.
10.1 Effect of Change of Control. Upon the occurrence of an event
---------------------------
constituting a "Change of Control," as defined below:
(a) any and all outstanding Options and Stock Appreciation Rights shall
become immediately exercisable;
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(b) the Restricted Period and Restrictions imposed on the Restricted Stock
shall lapse, and the Restricted Stock shall vest in the Participant to the
extent determined by the Committee; and
(c) within ten business days after the occurrence of a Change of Control,
the certificates representing the Restricted Stock so vested, without any
restrictions or legend referring to the Plan thereon, shall be delivered to the
Participant, and any dividends and distributions paid with respect to the
Restricted Stock which were escrowed during the Restricted Period and the
earnings thereon shall be paid to the Participant.
10.2 Definition of Change of Control. A "Change of Control" shall occur
-------------------------------
when:
(a) a "person" or "group" (which terms, when used in this Section 10.2,
shall have the meaning they have when used in Section 13(d) of the Exchange Act)
(other than the Corporation, any trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation, or any corporation, owned,
directly or indirectly, by the shareholders of the Corporation in substantially
the same proportions as their ownership of Voting Stock (as defined below) of
the Corporation) is or becomes (other than solely by reason of a repurchase of
Voting Stock by the Corporation), the "beneficial owner" (as defined in Rule 1
3d-3 under the Exchange Act), directly or indirectly, of 50% or more of the
total outstanding Voting Stock of the Corporation; or
(b) the Corporation 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 consolidates with
or merges with or into the Corporation, in any event pursuant to a transaction
in which the outstanding Voting Stock of the Corporation is reclassified or
changed into or exchanged for cash, securities or other property, other than any
such transaction where (I) the outstanding Voting Stock of the Corporation is
changed into or exchanged for voting stock of the surviving corporation and (II)
no "person" or "group" who did not beneficially own 50% or more of the total
outstanding Voting Stock of the Corporation 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 the
Corporation is liquidated or dissolved or adopts a plan of liquidation or
dissolution; or
(c) 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 the Corporation 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
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nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board then in office.
The term "Voting Stock" means all capital stock of the Corporation which by
its terms is entitled under ordinary circumstances to vote in the election of
directors.
11. NON-TRANSFERABILITY OF AWARDS.
Awards granted under the Plan shall not be transferable by the 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 Stock Appreciation Rights shall be exercisable
during the Participant's lifetime only by the Participant or by the
Participant's guardian or legal representative.
12. WITHHOLDING OF TAXES.
Federal, state or local law may require the withholding of taxes applicable
to gains resulting from an Award. The Committee may, in its discretion and
subject to such rules as it may adopt, permit the Participant to pay all or a
portion of the federal, state or local withholding taxes arising in connection
with an Award by electing to (i) have the Corporation withhold Shares, (ii)
tender back Shares received in connection with such Award or (iii) deliver other
previously owned Shares, under each election such Shares having a Fair Market
Value on the date specified in the rules adopted by the Committee equal to the
amount to be withheld.
13. NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor the granting of an Award shall
confer upon any Participant any right to continue in the employ of the
Corporation or any of its Subsidiaries or interfere in any way with the right of
the Corporation or any of its Subsidiaries to terminate such employment at any
time. No Award shall be deemed to be salary or compensation for the purpose of
computing benefits under any employee benefit, pension or retirement plans of
the Corporation or any of its Subsidiaries, unless the Committee shall determine
otherwise.
14. AMENDMENT.
14.1 Amendment and Termination of Awards. The terms and conditions
-----------------------------------
applicable to any Award may thereafter be amended or modified by mutual
agreement between the Corporation and the Participant or such other persons as
may then have an interest therein. Also, by mutual agreement between the
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Corporation and a Participant in the Plan or under any other present or future
plan of the Corporation, 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 Plan, or under any other future plan of the
Corporation.
14.2 Amendment and Termination of Plan. The Board may amend the Plan
---------------------------------
from time to time, except that, without approval of the stockholders of the
Corporation, no such revision or amendment shall change the number of Shares
subject to the Plan, change the designation of the class of employees eligible
to receive Options, decrease the price at which Options may be granted or remove
the administration of the Plan from the Committee. The Plan shall terminate on
the tenth anniversary of its effective date.
15. CHANGES IN CAPITALIZATION.
Subject to any required action by the stockholders, the number of Shares
covered by each outstanding Option and the price per each such Share shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Corporation resulting from a subdivision or consolidation of
Shares or the payment of a stock dividend (but only on the Shares) or any other
increase or decrease in the number of such Shares effected without receipt of
consideration by the Corporation.
If the Corporation merges or is consolidated with another corporation,
whether or not the Corporation is a surviving corporation, or if the Corporation
is liquidated or sells or otherwise disposes of substantially all of its assets
while unexercised Options remain outstanding under the 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 shall be
entitled, upon exercise of that Option, to receive, in lieu of Shares, the
number and class or classes of shares 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 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 of Directors may waive any limitations set forth
in or imposed pursuant to the Plan so that all Options, from and after a date
prior to the effective date of that merger, consolidation, liquidation, sale or
other disposition, as the case may be, specified by the Board, shall be
exercisable in full.
In the event of a change of all of the Corporation's authorized Shares with
par value into the same number of Shares with a different par value or without
par value, the Shares resulting from any such change shall be deemed to be the
Shares within the meaning of the Plan.
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To the extent that the foregoing adjustments relate to stock or securities
of the Corporation, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive; provided,
that each Option which, upon grant of the Option, is specifically designated as
an Incentive Stock Option shall not be adjusted in a manner that causes the
Option to fail to continue to qualify as an Incentive Stock Option.
Except as hereinbefore expressly provided in this Section 15, the Optionee
shall have no rights (i) by reason of any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class, or (ii) by reason of
any dissolution, liquidation, merger, or consolidation, spin-off of assets or
stock of another corporation, or any issue by the Corporation of shares of stock
of any class, nor shall any of these actions affect, or cause an adjustment to
be made with respect to, the number or price of Shares subject to any Option.
The grant of any Option pursuant to the Plan shall not affect in any way
the right or power of the Corporation (i) to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, (ii) to merge or consolidate, (iii) to dissolve, liquidate, or sell
or transfer all or any part of its business or assets or (iv) to issue any
bonds, debentures, preferred or other preference stock ahead of or affecting the
Shares. If any action described in the preceding sentence results in a
fractional Share for any Optionee under any Option hereunder, such fraction
shall be completely disregarded and the Optionee shall only be entitled to the
whole number of Shares resulting from such adjustment.
16. GOVERNING LAW.
The Plan and each Stock Option Agreement, Restricted Stock Agreement and
Stock Appreciation Rights Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
17. NON-COMPETITION
The Corporation may retain in a Stock Option Agreement, Restricted Stock
Agreement or Stock Appreciation Rights Agreement the right and remedy, in
addition to, and not in lieu of, any other rights and remedies available to the
Corporation under law or in equity, to have the non-competition provisions in
such agreement specifically enforced by any court having equity jurisdiction,
including, without limitation, the right to an entry against the Participant of
restraining orders and injunctions (preliminary, mandatory, temporary and
permanent) against violations, threatened or actual, and whether or not then
continuing, of the non-competition provisions of such agreement or cause a
forfeiture of the Shares or gain realized by a Participant.
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<PAGE>
18. EFFECTIVE DATE.
The Plan shall become effective on the date and at the time of the initial
closing of the Corporation's initial public offering of Shares, subject to the
approval of the Plan on or before such date by a majority of the voting shares
represented and entitled to vote.
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EXHIBIT 10.6
JP FOODSERVICE, INC.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. PURPOSE. The purpose of the JP Foodservice, Inc. Stock Option Plan for
Outside Directors is to promote the long-term growth of JP Foodservice, Inc.
(the "Corporation") by rewarding directors of the Corporation for outstanding
long-term performance and to attract, motivate and retain highly qualified and
capable outside directors (the "Directors"). All stock options ("Options")
granted under the Plan are non-statutory options that do not qualify as
incentive stock options intended to meet the requirements of Section 422 of the
Internal Revenue Code of 1986 or any successor provisions. The Plan conforms to
the provisions of Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of
1934 (the "Exchange Act"), as presently in effect.
2. ELIGIBILITY AND GRANT OF OPTIONS. Subject to approval of the Plan by
the shareholders of the Corporation:
(a) No director of the Corporation who is an employee of the Corporation
or who is a nominee of Merrill Lynch Capital Partners, Inc. is eligible to
participate in this Plan. Each other director of the Corporation is
eligible to participate in the Plan.
(b) Each eligible Director shall receive an Option to purchase 5,000
shares of Common Stock, $0.01 par value, of the Corporation ("Common
Stock"), on the date of such person's initial appointment or election to
the position of Director; provided, however, that each Director who is a
nominee of Rykoff-Sexton, Inc. shall receive an Option to purchase 775
shares of Common Stock on the date of such person's initial appointment or
election to the position of Director.
(c) Each eligible Director who has received an initial grant shall receive
an annual grant of an Option to purchase 2,000 shares of Common Stock on
each anniversary of the initial grant of an Option to such Director.
The option price for each Option shall be determined as of the date of grant,
pursuant to Section 4. The Corporation shall effect the grant of Options under
the Plan by the execution and delivery of written option agreements between the
Corporation and the Directors receiving the Options ("Optionees"). No Option,
nor anything contained in this Plan, shall confer upon any Optionee any right to
continue as a Director of the Corporation nor limit in any way the ability of
the Board of Directors or the shareholders of the Corporation to terminate such
Optionee's service as a Director at any time.
3. STOCK. The Corporation has reserved an aggregate of 200,000 shares of
Common Stock for issuance pursuant to the exercise of Options granted under the
Plan. The aggregate number of shares of Common Stock reserved (i) is subject to
<PAGE>
future adjustments as provided in Section 8 and (ii) shall be reduced by the
issuance of shares upon the exercise of Options, but shall not be reduced if
Options, for any reason, expire or terminate unexercised. The Corporation shall
not be required to issue or deliver any certificate for shares of Common Stock
purchased upon the exercise of any part of an Option before (i) the admission of
such shares to listing on any stock exchange on which the Common Stock may then
be listed or the approval of such shares for quotation on any automated
quotation system on which the Common Stock may then be quoted, (ii) receipt of
any required representations by the Optionee or completion of any required
registration or other qualification of such shares under any state or federal
law or regulation that the Corporation's counsel shall determine is necessary or
advisable, and (iii) receipt of advice by the Corporation's counsel that all
applicable legal requirements have been satisfied.
4. PRICE. Except as provided below, the purchase price of each share of
Common Stock covered by an Option (the "Option Price") shall be equal to the
fair market value, as hereinafter defined, of one share of Common Stock on the
date the Option is granted (the "Option Grant Date"). If the Common Stock is
listed on the New York Stock Exchange ("NYSE"), its fair market value shall be
the opening price of the Common Stock reported by the NYSE on the Option Grant
Date, provided that if there should be no opening price reported on such date,
the fair market value shall be deemed equal to the closing price as reported by
the NYSE for the last preceding date on which sales of Common Stock were
reported. Notwithstanding the foregoing, in the event the Common Stock is
listed upon more than one established stock exchange, the fair market value
shall be the opening price of the Common Stock on the exchange that trades the
largest volume of Common Stock on the Option Grant Date. In no event shall the
Option Price be less than the par value of the Common Stock.
Payment of the Option Price may be made (i) in cash, (ii) by the surrender
of shares of Common Stock owned by the 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. Shares of Common Stock surrendered in payment
of the Option Price shall be valued at the fair market value thereof, as defined
above, on the date of exercise.
5. TERM AND LIMITATIONS ON EXERCISE. Options may be exercised, in whole
or in part, but only with respect to whole shares of Common Stock, as set forth
below, by giving timely written notice to the Corporation.
(a) The term of any Option shall be ten years from the Option Grant Date.
No Option may be exercised after the expiration of its term or after the
date set forth in subsection (c), (d), or (e) below, if earlier.
(b) Options are exercisable only to the extent they are vested. One-fourth
of each Option granted shall vest on the Option Grant Date and an
additional one-fourth of such Option shall vest on each of the first,
second, and third
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anniversary dates of the Option Grant Date provided that the Optionee is a
Director on such date. No Options shall be exercisable unless and until the
shareholders of the Corporation approve the Plan. No Option may be
exercised during the first six months after the Option Grant Date, unless
the Optionee dies or becomes disabled (as determined under Title 11 of the
Social Security Act, 42 U.S.C. Sections 301 et seq.) before the expiration
of the six-month period.
(c) If an Optionee ceases to be a Director after the Optionee attains age
sixty-five or on account of the Optionee's death or disability, all
outstanding Options granted to such Optionee shall vest and the Optionee
(or the Optionee's legatees or distributees or the personal representative
of the Optionee's estate, in the event of the Optionee's death) may
exercise the Optionee's outstanding Options at any time until the first to
occur of (x) the date that is two years after the date on which the
Optionee ceases to be a Director or (y) the date on which such outstanding
Options expire according to their terms.
(d) If an Optionee ceases to be a Director for any reason other than
described in subsection (c) above, the Optionee may exercise the Optionee's
outstanding Options to the extent vested at any time (subject to the
limitations of subsection (b) above) until the first to occur of (x) the
date that is three months after the date on which the Optionee ceases to be
a Director or (y) the date on which such outstanding Options expire
according to their terms.
(e) If an Optionee dies after the Optionee ceases to be a Director, but
within the time period during which the Optionee's outstanding Options are
still exercisable, the Director's outstanding Options may be exercised by
the Optionee's legatees or distributees or the personal representative of
the Optionee's estate. Such outstanding Options may be exercised at any
time (subject to the limitations of subsection (b) above) until the first
to occur of (x) the date that is two years after the date on which the
Optionee ceases to be a Director or (y) the date on which such outstanding
Options expire according to their terms.
(f) Notwithstanding the foregoing, in the event of a Change in Control (as
defined below) of the Corporation, each Option that has been outstanding
for at least six months after the Option Grant Date shall vest and the
Option shall be fully exercisable.
(g) Definition of Change of Control. A "Change of Control" shall occur
when:
(i) a "person" or "group" (which terms, when used in this Section 5,
shall have the meaning they have when used in Section 13(d) of the
Exchange Act) (other than the Corporation, any trustee or other
fiduciary holding securities under an employee benefit plan of the
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Corporation, or any corporation, owned, directly or indirectly, by the
shareholders of the Corporation in substantially the same proportions
as their ownership of Voting Stock (as defined below) of the
Corporation) is or becomes (other than solely by reason of a
repurchase of Voting Stock by the Corporation), the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the total outstanding Voting Stock of
the Corporation; or
.
(ii) the Corporation 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 consolidates with or merges with or into the Corporation,
in any event pursuant to a transaction in which the outstanding Voting
Stock of the Corporation is reclassified or changed into or exchanged
for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Corporation
is changed into or exchanged for voting stock of the surviving
corporation and (B) no "person" or "group" who did not beneficially
own 50% or more of the total outstanding Voting Stock of the
Corporation 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 the
Corporation 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 the Corporation 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.
The term "Voting Stock" means all capital stock of the Corporation
which by its terms is entitled under ordinary circumstances to vote in
the election of directors.
(h) Notwithstanding anything herein to the contrary, Options shall be
granted and exercised in such a manner as to conform to the provisions of
Rule 16b-3, or any replacement rule adopted pursuant to the provisions of
the Exchange Act, as the same now exists or may, from time to time, be
amended.
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(i) The exercise of any Option and delivery of the Option shares shall be
contingent upon the receipt by the Corporation of the Option Price in cash
or shares of Common Stock as provided in Section 4.
6. NON-TRANSFERABILITY OF OPTIONS. Options, by their terms, shall not be
transferable by the Optionee during the Optionee'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 shall be exercisable
during the Optionee's lifetime only by the Optionee or the Optionee's guardian
or legal representative.
7. TAX WITHHOLDING. To the extent required by applicable federal, state,
local or foreign law, an Optionee shall make arrangements acceptable to the
Corporation for the satisfaction of any withholding tax obligations that arise
by reason of the exercise of an Option or any sale of the shares of Common Stock
acquired upon exercise of an Option. The Corporation shall not be required to
issue shares until such obligations are satisfied. The Corporation may permit
such obligations to be satisfied by having the Corporation withhold a
portion of the shares of Common Stock that otherwise would be issued to the
Optionee upon exercise of the Option.
8. EFFECT OF STOCK DIVIDENDS AND OTHER CHANGES. Appropriate adjustments
shall be made to the Option Price and the number of shares subject to Options if
there are any changes in the Common Stock by reason of stock dividends, stock
splits, reverse stock splits, recapitalizations, mergers, or consolidations.
9. ADMINISTRATION OF THE PLAN. The Board of Directors shall be
responsible for the proper implementation of the Plan.
10. EXPIRATION AND TERMINATION OF THE PLAN. Options may be granted under
the Plan at any time until the Plan is terminated by the Board of Directors or
until such earlier date on which termination of the Plan shall be required by
applicable law. If not sooner terminated, the Plan shall terminate
automatically on November 4, 2004, which is ten years from the date on which the
Plan was originally approved by the Board of Directors. Options granted under
the Plan prior to its termination shall remain outstanding following the Plan's
termination and shall be exercisable in accordance with their terms.
11. AMENDMENTS. The Board of Directors may from time to time make such
changes in and additions to the Plan as it may deem proper, provided that, if
and to the extent required by applicable law or regulation, no change in an
addition to the Plan shall be made unless such change in or addition to the Plan
is authorized by the shareholders. The termination of the Plan or any change or
addition to the Plan shall not, without the consent of any Optionee who is
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adversely affected thereby, alter any Options previously granted to the Optionee
pursuant to the Plan.
12. GOVERNING LAW. The Plan and each Option granted under the Plan shall
be governed by, and construed in accordance with, the laws of the State of
Delaware.
13. EFFECTIVE DATE. The Plan shall be effective on the date and at the
time of the initial closing of the Corporation's initial public offering of
Common Stock, subject to the approval of the Plan on or before such date by a
majority of the voting shares represented and entitled to vote. Any amendment
to the Plan requiring shareholder approval shall be effective on the date and at
the time such amendment is approved by a majority of the voting shares
represented and entitled to vote.
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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
November 21, 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
November 21, 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 (Amendment No. 3,
Registration No. 333-32711) 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
November 21, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Amendment No. 3 to Form S-4 of our
report dated August 14, 1997 included in Rykoff-Sexton, Inc.'s Form 10-K for the
fiscal year ended June 28, 1997 and to all references to our firm included in
this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 21, 1997
