<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-24954
U.S. Foodservice
(Exact name of registrant as specified in its charter)
Delaware 52-1634568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9755 Patuxent Woods Drive 21046
Columbia, Maryland (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 312-7100
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the registrant's common stock, par value $.01 per share,
outstanding at November 10, 1999 was 101,518,334 shares.
<PAGE>
U.S. FOODSERVICE
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 3, 1999 and October 2, 1999 3
Condensed Consolidated Statements of Income
and Comprehensive Income
Three months ended September 26, 1998
And October 2, 1999 4
Condensed Consolidated Statements of Cash Flows
Three months ended September 26, 1998
and October 2, 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
Part II. Other Information
Item 2. Change in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
U.S. FOODSERVICE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS July 3, October 2,
1999* 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ........................ $ 79,660 $ 59,490
Receivables, net ................................. 234,107 341,086
Residual interest on accounts
receivable sold ................................. 102,369 116,405
Inventories ...................................... 428,193 463,533
Other current assets ............................. 31,949 37,064
Deferred income taxes ............................ 18,853 18,978
---------- ----------
Total current assets ....... 895,131 1,036,556
Property and equipment, net .......................... 454,033 457,234
Goodwill and other noncurrent assets ................. 663,710 663,343
---------- ----------
Total assets ............... $2,012,874 $2,157,133
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt ............. $ 698 $ 626
Current obligations under capital leases ......... 6,206 6,169
Accounts payable ................................. 393,597 412,094
Accrued expenses ................................. 114,690 127,228
---------- ----------
Total current liabilities .. 515,191 546,117
Noncurrent liabilities
Long-term debt ................................... 533,869 635,015
Obligations under capital leases ................. 24,671 23,525
Deferred income taxes ............................ 13,051 13,335
Other noncurrent liabilities ..................... 96,713 84,388
---------- ----------
Total liabilities .......... 1,183,495 1,302,380
Commitments and contingent liabilities
Stockholders' equity ................................. 829,379 854,753
---------- ----------
Total liabilities and stockholders' equity ........... $2,012,874 $2,157,133
========== ==========
</TABLE>
* Amounts were derived from the Company's audited consolidated balance sheet.
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
September 26, October 2,
1998 1999
------------- ----------
<S> <C> <C>
Net sales ............................... $1,478,370 $1,682,883
Cost of sales ........................... 1,208,393 1,371,134
---------- ----------
Gross profit ............................ 269,977 311,749
Operating expenses ...................... 221,008 254,064
Amortization of intangible assets ....... 3,930 4,504
---------- ----------
Income from operations .................. 45,039 53,181
Interest expense and other financing
costs, net ......................... 16,196 14,641
---------- ----------
Income before income taxes .............. 28,843 38,540
Provision for income taxes .............. 11,931 15,427
---------- ----------
Net income and comprehensive income ..... $ 16,912 $ 23,113
========== ==========
Basic earnings per common share ......... $ 0.18 $ 0.23
========== ==========
Basic weighted average number of shares
of common stock outstanding ......... 93,084 101,441
Diluted earnings per common share ....... $ 0.18 $ 0.23
========== ==========
Diluted weighted average number of shares
of common stock outstanding ......... 94,342 102,249
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
September 26, October 2,
1998 1999
------------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income .............................................. $ 16,912 $ 23,113
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization ...................... 15,053 14,836
Other adjustments ....................................... (721) (647)
Changes in working capital, net of effects
from acquisitions ........................... (22,813) (141,238)
--------- ---------
Net cash provided by (used in) operating activities ........... 8,431 (103,936)
--------- ---------
Cash flows from investing activities
Additions to property and equipment ..................... (17,612) (13,595)
Cost of businesses acquired, net of cash acquired ....... 483 (152)
Issuance of note receivable ............................. (3,000)
Proceeds from disposal of property ...................... 4,873 58
Proceeds from sale of manufacturing division assets ..... 20,755
Other ................................................... (43)
--------- ---------
Net cash provided by (used in) investing activities ........... 8,499 (16,732)
--------- ---------
Cash flows from financing activities
Increase (decrease) under revolving credit line, net .... (2,200) 101,200
Decrease in long-term debt, net ......................... (17,587) (126)
Principal payments under capital lease obligations ...... (1,630) (1,183)
Proceeds from employee stock purchases .................. 4,738 1,228
Other ................................................... (420) (621)
--------- ---------
Net cash provided by (used in) financing activities .......... (17,099) 100,498
--------- ---------
Net decrease in cash and cash equivalents ..................... (169) (20,170)
Cash and cash equivalents:
Beginning of period ..................................... 57,817 79,660
--------- ---------
End of period ........................................... $ 57,648 $ 59,490
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of U.S. Foodservice and its
consolidated subsidiaries (the "Company") at October 2, 1999 and for the
three-month periods ended September 26, 1998 and October 2, 1999, included
herein are unaudited, but include all adjustments (consisting only of normal
recurring entries) which the Company's management believes to be necessary for
the fair presentation of the financial position, results of operations and cash
flows of the Company as of and for the periods presented. Interim results are
not necessarily indicative of results that may be expected for the full year.
In June 1999, the Company's Board of Directors approved a two-for-one stock
split in the form of a stock dividend paid on August 4, 1999 to stockholders of
record on July 20, 1999. Earnings per share, weighted average shares outstanding
and stock option information included in the accompanying condensed consolidated
financial statements and related notes have been adjusted to reflect this stock
split.
NOTE 2 - ACQUISITIONS
SOFCO ACQUISITION- On July 1, 1999, the Company completed the acquisition of
Sofco, Inc. ("Sofco"), a paper product distributor located in Scotia, New York.
Under the terms of the acquisition, the Company acquired all of the outstanding
stock and assumed or discharged certain liabilities of Sofco in exchange for
2,106,924 shares of the Company's common stock. The transaction was accounted
for as a purchase.
WEBB ACQUISITION- Effective November 1, 1998, the Company completed the
acquisition of Joseph Webb Foods, Inc. ("Webb"), a broadline foodservice
distributor located in Vista, California. The transaction was accounted for as a
purchase.
HAAR ACQUISITION- Effective September 27, 1998, the Company completed the
acquisition of J.H. Haar & Sons, L.L.C. ("Haar"), a broadline foodservice
distributor serving the New York City metropolitan market. The transaction was
accounted for as a pooling of interests. Because Haar's total assets, net assets
and the results of operations were not material to the Company for any of the
fiscal years presented, the transaction was recorded as of September 27, 1998.
The tables below set forth pro forma information, in thousands, for the
three-month period ended September 26, 1998 giving effect to the acquisitions of
Sofco, Webb and Haar as if such acquisitions had been consummated as of June 27,
1998:
Net sales $ 1,584,173
Net income $ 16,950
Net income per common share:
Basic $ 0.17
Diluted $ 0.17
6
<PAGE>
NOTE 3 - EARNINGS PER SHARE
The following table reconciles the Company's basic and diluted weighted average
share amounts used in computations of earnings per share ("EPS") (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 26, 1998 October 2, 1999
------------------ -----------------
<S> <C> <C>
Basic EPS-
Weighted average
shares outstanding ....... 93,084 101,441
Effect of Dilutive Securities:
Warrants ..................... 159 98
Common stock options ......... 1,099 601
Other stock-based compensation
arrangements ............. 109
Diluted EPS-
Weighted average
shares outstanding ....... 94,342 102,249
</TABLE>
NOTE 4 - RESTRUCTURING AND RELATED COSTS
On December 23, 1997, Rykoff-Sexton, Inc., the nation's third-largest broadline
foodservice distributor based on net sales, was merged into a wholly owned
subsidiary of U.S. Foodservice (the "acquisition"). In connection with the
acquisition, the Company recorded a $56.7 million restructuring charge during
the year ended June 27, 1998. The restructuring costs consisted primarily of
$26.8 million for change in control payments to former executives of
Rykoff-Sexton, $12.2 million for severance and benefits, $10.8 million for
future lease commitments and $6.9 million for idle facility and facility closure
costs related to the Company's plan to consolidate and realign 13 operating
units and consolidate various overhead functions. As of October 2, 1999,
execution of the plan is virtually complete. To date, the Company has
experienced no sigificant changes to the restructuring plan.
In connection with Rykoff-Sexton's acquisition of US Foodservice Inc. in May
1996, Rykoff-Sexton recorded a restructuring charge of $57.6 million ($35.7
million after tax) in the nine-week fiscal transition period ended June 29,
1996. The restructuring charge consisted of severance and employee benefits of
$10.7 million, lease related costs of $20.2 million and other closure and
integration costs of $26.7 million.
The following table summarizes the status of the Company's restructuring
reserves:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Severence Lease Idle Facility
and benefits Commitments Costs Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance July 3, 1999 $ 2,200 $ 19,000 $ 3,500 $ 24,700
Fiscal 2000 quarter utilization (700) (300) (200) (1,200)
--- --- --- -----
Balance October 2, 1999 $ 1,500 $ 18,700 $ 3,300 $ 23,500
- --------------------------------- ------- -------- ------- --------
- ---------------------------------------------------------------------------------------------
</TABLE>
The Company expects to expend $5.1 million during the remainder of fiscal 2000.
The balance relates primarily to remaining lease commitments that are being paid
in various amounts through fiscal 2008.
7
<PAGE>
NOTE 5 - RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activity. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. In
accordance with the pronouncement, U.S. Foodservice will adopt SFAS No. 133, as
amended, in fiscal 2001. The Company is currently evaluating the impact, if any,
that SFAS No. 133 will have on its consolidated financial statements.
NOTE 6- CONTINGENCIES
From time to time, the Company is involved in litigation and proceedings arising
out of the ordinary course of business. There are no pending material legal
proceedings or environmental investigations to which the Company is a party or
to which the property of the Company is subject as of the date of this report.
NOTE 7 - INDUSTRY SEGMENT INFORMATION
The Company has two reportable segments: broadline foodservice distribution
("Broadline"), and other services ("Other Services"). Broadline, consisting of
approximately 40 operating locations, distributes over 43,000 food and non-food
related products to over 130,000 foodservice customers, including restaurants,
hotels, casinos, healthcare institutions and schools. Other Services represent
manufacturing operations, including the manufacturing operation purchased as
part of the acquisition of Sofco in the fourth quarter of 1999, and contract and
design services. In August 1998, the Company outsourced its Rykoff-Sexton
manufacturing division by selling the assets to a third party. Contract and
design services primarily involve the design of restaurants and eating
establishments.
<TABLE>
<CAPTION>
Corporate
Other and
Broadline Services Eliminations Consolidated
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Three Months Ended October 2, 1999
Net sales ............................................ $1,663,542 $ 19,341 $ 0 $1,682,883
Depreciation and amortization ........................ 14,698 138 0 14,836
Income (loss) from operations ........................ 67,093 666 (14,578) 53,181
Interest expense and other
financing costs, net ............................ 14,648 (7) 0 14,641
Income (loss) before income
taxes and extraordinary charge .................. 52,445 673 (14,578) 38,540
Total assets ......................................... 2,126,425 30,708 0 2,157,133
Capital expenditures ................................. 13,437 158 0 13,595
Three Months Ended September 26, 1998
Net sales ............................................ $1,458,915 $ 35,914 $ (16,459) $1,478,370
Depreciation and amortization ........................ 14,570 483 0 15,053
Income (loss) from operations ........................ 54,405 2,624 (11,990) 45,039
Interest expense and other
financing costs, net ............................ 16,196 0 0 16,196
Income (loss) before income
taxes and extraordinary charge .................. 38,209 2,624 (11,990) 28,843
Total assets ......................................... 1,766,044 51,747 0 1,817,791
Capital expenditures ................................. 17,593 19 0 17,612
</TABLE>
Corporate and eliminations consist of inter-segment sales and inter-company
accounts.
8
<PAGE>
NOTE 8 - SUBSEQUENT EVENTS
Effective October 29, 1999, the Company completed the acquisition of Superior
Products Mfg. Co. Limited Partnership and Christianson Sales Co. Limited
Partnership of New Brighton, Minnesota, a distributor of equipment and supplies
to the foodservice industry that generated sales of $127 million in its latest
twelve months of operations. The transaction will be accounted for as a
purchase.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements regarding the Company's expected financial position and
operating results, its business strategy, its financing plans, its ability to
realize anticipated cost savings and other benefits from acquisitions and its
ability to recover acquisition-related costs are forward-looking statements.
These statements are subject to risks and uncertainties that could cause the
Company's actual results to differ materially. Such risks and uncertainties
include the sensitivity of the Company's business to national and regional
economic conditions, the effects of inflation and deflation in food prices, the
highly competitive markets in which the Company operates and the Company's
ability to complete acquisitions and to integrate acquired businesses. The
Company's Annual Report on Form 10-K for the fiscal year ended July 3, 1999,
filed with the Securities and Exchange Commission on October 1, 1999, discusses
some of the important factors that could cause the Company's actual results to
differ materially from those in such forward-looking statements.
Net Sales
- ---------
The Company's net sales of $1.7 billion for the three months ended October 2,
1999 (the "2000 fiscal quarter") represented a 13.8% increase from the $1.5
billion net sales level achieved for the three months ended September 26, 1998
(the "1999 fiscal quarter"). The acquisitions of J.H. Haar & Sons, L.L. C.
("Haar") and Joseph Webb Foods, Inc. ("Webb") in the second quarter of fiscal
1999 and Sofco, Inc. ("Sofco") in the fourth quarter of fiscal 1999, accounted
for approximately 7% of the net sales growth in the 2000 fiscal quarter.
Growth in both independent "street" sales and multi-unit "chain" account sales
contributed to the remaining increase in net sales. Street sales increased 19%
and chain account sales increased 6.2% in the 2000 fiscal quarter. Primarily as
a result of the Company's sales training initiatives, street sales as a
percentage of net sales increased to 62.3% in the 2000 fiscal quarter from
59.6% in the 1999 fiscal quarter.
Gross Profit
- ------------
The Company's gross profit margin increased to 18.5% in the 2000 fiscal quarter
from 18.3% in the 1999 fiscal quarter. The increase was primarily attributable
to an increase in street sales as a percentage of net sales and to an increase
in proprietary brand sales. Gross margins are generally higher for street
accounts than for chain accounts and for proprietary brand products than for
national brand products of comparable quality. Proprietary brand product sales
increased by 11% in the 2000 fiscal quarter over the prior corresponding quarter
primarily due to the shift in sales mix towards more street sales and to the
launch of the Company's consolidated line of proprietary products in the fourth
quarter of fiscal 1999.
Operating Expenses
- ------------------
Operating expenses increased by 15.0%, or $33.1 million, in the 2000 fiscal
quarter over the 1999 fiscal quarter and, as a percentage of net sales,
increased to 15.1% in the 2000 fiscal quarter from 14.9% in the 1999 fiscal
quarter. These increases were primarily attributable to the higher selling costs
associated with the increase in street sales as a percentage of net sales.
Sales and delivery costs generally are higher for street accounts than for
chain accounts because of the commission sales costs associated with street
account sales and because street accounts typically have smaller deliveries to
individual locations.
Amortization of Goodwill and Other Intangible Assets
- ----------------------------------------------------
Amortization of goodwill and other intangible assets totaled $4.5 million in the
2000 fiscal quarter compared to $3.9 million in the 1999 fiscal quarter. This
increase was attributable to the goodwill recorded in connection with the Webb
and Sofco acquisitions.
Income from Operations
- ----------------------
Income from operations increased to $53.2 million in the 2000 fiscal quarter
from $45.0 million in the 1999 fiscal quarter. The increase was primarily
attributable to the increases in net sales and gross margin.
Interest Expense and Other Financing Costs, Net
- -----------------------------------------------
Interest expense and other financing costs decreased $1.6 million or 9.6% in the
2000 fiscal quarter from the 1999 fiscal quarter. The reduced interest expense
was attributable to lower overall interest rates, lower debt levels and the
redemption and retirement in fiscal 1999 of $120.2 million principal amount of
Rykoff-Sexton's 8 7/8% senior subordinated notes due 2003.
Provision for Income Taxes
- --------------------------
During the 2000 fiscal quarter, the Company recognized income tax expense at an
effective rate of 40.0% compared to 41.4% for the 1999 fiscal quarter.
10
<PAGE>
Liquidity and Capital Resources
- -------------------------------
As of October 2, 1999, the Company's total long-term indebtedness, including
current portion, was $665.3 million, with an overall weighted average interest
rate of 6.4%, excluding deferred financing costs. Long-term borrowing increased
by $99.9 million during the 2000 fiscal quarter primarily as a result of
increases in working capital.
The Company's working capital balance (excluding current portion of long-term
debt) of $497.2 million at October 2, 1999 increased by $110.4 million from the
balance at July 3, 1999. The higher working capital balance was primarily
attributable to increased net sales and seasonal increases in inventory and
receivables.
The Company made $13.6 million of capital expenditures in the 2000 fiscal
quarter, primarily for facility expansion projects and the upgrading of
management information systems. The Company estimates that assets held for sale
at October 2, 1999 will generate proceeds in excess of $14.5 million.
From time to time, the Company acquires other foodservice businesses. Any such
business may be acquired for cash, common stock of the Company, or a combination
of cash and common stock.
As of October 2, 1999, $597.2 million of borrowings and $37.5 million of letters
of credit were outstanding under the Company's credit facility and an additional
$115.3 million remained available to finance the Company's working capital needs
and to meet the Company's other liquidity requirements. The Company also has an
uncommitted line of credit with a financial institution available for short-term
borrowing not to exceed $35 million. The Company had $10 million outstanding
under this line of credit at October 2, 1999. In addition, the Company sells
$353.0 million of accounts receivable on a revolving basis under accounts
receivable securitization arrangements. The Company believes that the
combination of the cash flow generated from operations, additional leasing
activity, sales of duplicate assets and borrowings under the credit facility
will be sufficient to enable it to finance its growth and meet its currently
projected capital expenditures and other liquidity requirements for at least the
next twelve months.
Information Systems and the Impact of the Year 2000
- ---------------------------------------------------
The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. Software
and hardware may recognize a date using "00" as the year 1900, rather than the
year 2000. Such an inability of computer programs to recognize a year that
begins with "20" could result in system failures, miscalculations or errors
causing disruptions of operations or other business problems, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company's Program. The Company has undertaken a program to address the Year
2000 issue with respect to the following:
o the Company's information technology and operating systems,
including its billing, accounting and financial reporting systems;
o the Company's non-information technology systems, such as
buildings, plant, equipment, telephone systems and other
infrastructure systems that may contain embedded microcontroller
technology;
o selected systems of the Company's major vendors and significant
service providers, insofar as these systems relate to the
Company's business activities with such parties; and
o the Company's significant customers, insofar as the Year 2000
issue relates to the Company's ability to provide services to
these customers.
As described below, the Company's Year 2000 program involves:
o an assessment of the Year 2000 problems that may affect the
Company;
o the development and testing of remedies to address the problems
discovered in the assessment phase; and
o the preparation of contingency plans to deal with worst case
scenarios.
Assessment Phase. The Company has completed the evaluation of its own internal
systems, which include the various information systems used at the Company's 37
full-service distribution centers, two specialty products, equipment and supply
warehouses, distribution centers and warehouse facilities of Sofco acquired in
July 1999, and corporate headquarters to process transactions and
11
<PAGE>
meet financial reporting needs. In addition, the Company has completed the
process of sending letters to its major vendors and significant service
providers requesting them to provide the Company with detailed, written
information concerning existing or anticipated Year 2000 compliance by their
systems insofar as the systems relate to these parties' business activities with
The Company. The Company has received responses from approximately 60% of the
vendors from which it has requested this information. The Company is continuing
to evaluate responses on Year 2000 compliance from the third parties that have
responded to the Company's inquiries.
Remediation and Testing Phase. The activities conducted during the remediation
and testing phase are intended to address potential Year 2000 problems in
internally-developed computer software and in the Company's other information
technology systems. During fiscal 1999, among other activities, the Company
replaced information processing systems, consisting of hardware and software, at
six distribution centers, completed software remediation efforts at the
remaining distribution centers, and installed a new payroll and human resources
information system at 35 distribution centers and its corporate headquarters. As
of the date of this report, the Company has completed the remediation, testing
and implementation of the Year 2000 ready programs for the mission-critical
systems at all of the Company's 37 full-service distribution centers, two
specialty products, equipment and supply warehouses, distribution centers and
warehouse facilities of Sofco, and corporate headquarters. The Company is
continuing to conduct enterprise-wide testing for the purpose of demonstrating
functional integrated systems operation. The Company is also addressing
potential Year 2000 compliance issues with non-information technology equipment,
including telephone systems, heating and air conditioning.
Contingency Plans. The Company is continuing to develop contingency plans to
address its most reasonably likely worst case scenarios. The Company expects to
continue to develop contingency plans through the end of calendar 1999.
Costs Related to the Year 2000 Issue. As of October 2, 1999, the Company had
incurred approximately $2.7 million in costs for its Year 2000 program. These
costs do not include internal staff costs, consisting principally of payroll
costs, incurred on Year 2000 matters, because the Company does not separately
track these internal staff costs. As of October 2, 1999, the Company also had
made approximately $18.4 million of capital expenditures on new information
processing systems that are already Year 2000 compliant. The Company currently
estimates that it will incur additional costs, which are not expected to exceed
$0.3 million, excluding internal staff costs, to complete its Year 2000
compliance work with respect to the Company's major information systems. All of
these additional costs are expected to be incurred during fiscal 2000. These
costs will be expensed as incurred. Actual costs may vary from the foregoing
estimates based on the Company's evaluation of responses to its third-party
inquiries and on the results of its remaining testing activities. The Company
has not deferred any of its material information technology projects to date as
a result of the Year 2000 issue. The Company currently believes that the costs
to resolve compliance issues with respect to other information systems and its
non-information technology systems will not be material.
Risks Related to the Year 2000 Issue. Although the Company's Year 2000 efforts
are intended to minimize the adverse effects of the Year 2000 issue on its
business and operations, the actual effects of the issue and the success or
failure of The Company's efforts described above cannot be known until the year
2000. Failure by the Company and its major vendors and significant service
providers and customers to address adequately their respective Year 2000 issues
in a timely manner, insofar as these issues relate to the Company's business,
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Changes in Accounting Standards
- -------------------------------
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activity. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. In
accordance with the pronouncement, U.S. Foodservice will adopt SFAS No. 133, as
amended, in fiscal 2001. The Company is currently evaluating the impact, if any,
that SFAS No. 133 will have on its consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's major market risk exposure is to changing interest rates. The
Company's policy is to manage interest rates through the use of a combination of
fixed and floating rate debt. The Company uses interest rate swap, cap and
collar contracts to manage its exposure to fluctuations in interest rates on
floating long-term debt. The Company has implemented management monitoring
processes designed to minimize the impact of sudden and sustained changes in
interest rates. As of October 2, 1999, the Company's long-term debt consisted of
fixed rate and variable rate debt of $32.2 million and $633.1 million,
respectively. Substantially all of the Company's floating rate debt is based on
LIBOR. As of October 2, 1999, the Company had effectively capped its interest
rate exposure at 6.85% on $100 million of floating-rate debt through
September 24, 2001, at 5.97% on approximately $70.0 million of its
floating-rate debt through March 2000, and at 7.0% on $129.0 million of
floating-rate debt through November 1, 2003.
12
<PAGE>
The Company sells accounts receivable on a revolving basis under accounts
receivable securitization arrangements. The proceeds received from sales of
receivables under these arrangements, which are accounted for under SFAS No.
125, are based to a large extent on LIBOR. The Company also uses fixed-rate
capital leases to finance certain of its trucks and trailers.
The Company currently does not use foreign currency forward contracts or
commodity contracts and currently does not have any material foreign currency
exposure.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Effective July 8, 1999, the Company issued 67,464 shares of its common
stock valued at approximately $1.4 million to CEX Holdings, Inc., the sole
stockholder of Sofco, Inc., as part of the consideration U.S. Foodservice paid
for its acquisition of Sofco. See Note 2 to the consolidated financial
statements appearing elsewhere in this report.
Effective July 30, 1999, U.S. Foodservice issued 60,828 shares of
its common stock valued at approximately $1.3 million to three stockholders of
Joseph Webb Foods, Inc. as part of the consideration U.S. Foodservice paid for
its acquisition of Joseph Webb Foods on November 1, 1998. See Note 2 to the
consolidated financial statements appearing elsewhere in this report.
In connection with such issuances, the Company relied on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933. U.S.
Foodservice did not engage in any advertising or general solicitation in
connection with the offer and sale of the securities. In addition, the Company
provided or made available information concerning the Company and the common
stock, obtained investment representations from the selling stockholders and
placed restrictive legends on the certificates evidencing such securities.
Item 6. Exhibits and Reports on Form 8-K.
(a) The Company files herewith the following exhibits:
4.1 Specimen certificate representing common stock, par value
$.01 per share, of the Company.
4.2 Amended and Restated Rights Agreement, dated as of October
4, 1999, between U.S. Foodservice and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent. Filed as
Exhibit 4 to the Company's Current Report on Form 8-K
filed on October 4, 1999 and incorporated herein by
reference.
10.1 U.S. Foodservice Supplemental Executive Retirement Plan,
as amended.
10.2 U.S. Foodservice Restricted Unit Plan, as amended.
27.1 Financial Data Schedule.
(b) The following Current Report on Form 8-K was filed by U.S.
Foodservice during the period covered by this report:
Date of Report Item Reported
- -------------- ------------------------------------------------------
August 4, 1999 Item 5 (effect of stock split on prior registrations).
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. FOODSERVICE
(Registrant)
Date: November 15, 1999 /s/ George T. Megas
-----------------------------------------
George T. Megas, Executive Vice President
and Chief Financial Officer
(Duly Authorized and Principal
Financial Officer)
14
<PAGE>
Exhibit 4.1
<TABLE>
<S> <C> <C> <C> <C> <C>
COMMON STOCK PAR VALUE $0.01
PER SHARE
NUMBER SHARES
US
US FOODSERVICE TM [U.S. FOODSERVICE LOGO] THIS CERTIFICATION IS TRANSFERABLE IN
THE CITY OF RIDGEFIELD PARK, NJ OR
NEW YORK, NY
INCORPORATED UNDER THE LAWS CUSIP 90331R 10 1
OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT
IS THE OWNER OF
<CAPTION>
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
<S> <C>
U.S. FOODSERVICE U.S. Foodservice, transferable only on the books of the Corporation by the holder hereof in person or by
CORPORATE SEAL duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid
1989 unless countersigned and registered by the Transfer Agent and Registrar.
DELAWARE
In Witness Whereof, the Corporation has caused this Certificate to be duly executed and attested to by the
manual or facsimile signatures of its duly authorized officers, under a facsimile of its corporate seal to
be affixed hereto.
Dated US Foodservice
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
BY
/s/ David M. Abramson /s/ James L. Miller
SECRETARY CHAIRMAN OF THE BOARD OF DIRECTORS
AND PRESIDENT
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
Upon request, the Corporation will furnish any holder of shares of
Common Stock of the Corporation, without charge, with a full statement of the
powers, designations, preferences and relative, participating, optional or other
special rights of any class or series of capital stock of the Corporation, and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
--------------- -----------------
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act
tenants in common ----------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign and transfer unto
-------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including postal
zip code of assignee)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares of Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -------------------------------------------------------------------------------
Attorney to transfer the said Stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated , 19
-------------------- ----
In presence of
- ----------------------------------- ----------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this Certificate in
every particular, without alteration or
enlargement or any change whatsoever.
Signature(s) Guaranteed:
- -------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
This certificate also evidences and entitles the holder hereof to certain rights
as set forth in an Amended and Restated Rights Agreement between U.S.
Foodservice and ChaseMellon Shareholder Services, L.L.C., dated as of October 4,
1999 (as the same may be amended from time to time, the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a copy of which
is on file at the principal executive offices of U.S. Foodservice. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. U.S. Foodservice will mail to the holder of this certificate a copy
of the Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights Agreement,
Rights issued to any Person who becomes an Acquiring Person (as defined in the
Rights Agreement) and certain transferees thereof may become null and void.
<PAGE>
EXHIBIT 10.1
U.S. FOODSERVICE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective: July 1, 1998
AS AMENDED AS OF
JULY 20,1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. DEFINITIONS................................................................ 1
2. SHARES SUBJECT TO THE PLAN................................................. 3
3. EMPLOYER CONTRIBUTION...................................................... 3
4. DEFERRED COMPENSATION ACCOUNTS............................................. 3
4.1. Accounts.............................................................. 3
4.2. Company Stock Account................................................. 3
4.3. Employee Self Directed Account........................................ 4
4.4. Account Credits and Debits............................................ 4
4.5. Trust Accounts........................................................ 4
4.6. Subaccounts........................................................... 4
5. VESTING.................................................................... 4
5.1. General............................................................... 4
5.2. Retirement; Disability; Death; Termination of Plan;
Change in Control................................................... 5
5.3. Change of Control..................................................... 5
5.4. Good Reason........................................................... 6
5.5. Termination for Cause................................................. 7
6. INVESTMENT EXPERIENCE...................................................... 8
6.1. Employee Self Directed Account........................................ 8
6.2. Company Stock Account................................................. 8
6.3. Taxes; Statements..................................................... 9
7. DISTRIBUTIONS.............................................................. 9
7.1. Separation From Service............................................... 9
7.2. Death; Disability; Retirement......................................... 10
7.3. Resignation........................................................... 10
7.4. Hardship.............................................................. 11
7.5. Change of Control..................................................... 11
7.6. Form of Payment....................................................... 12
8. ADMINISTRATION............................................................. 12
8.1. Committee............................................................. 12
8.2. Rules for Administration.............................................. 12
8.3. Committee Action...................................................... 12
8.4. Delegation............................................................ 13
8.5. Services.............................................................. 13
8.6. Indemnification....................................................... 13
9. AMENDMENT AND TERMINATION.................................................. 13
10. GENERAL PROVISIONS........................................................ 13
10.1. Limitation of Rights................................................. 13
10.2. Employment Rights.................................................... 13
10.3. Assignment, Pledge or Encumbrance.................................... 14
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.4. Minor or Incompetent................................................. 14
10.5. Beneficiary.......................................................... 14
10.6. Binding Provisions................................................... 14
10.7. Notices.............................................................. 15
10.8. Governing Law........................................................ 15
10.9. Pronouns............................................................. 15
10.10. Withholding......................................................... 15
10.11. Effective Dates..................................................... 15
</TABLE>
- ii -
<PAGE>
1. DEFINITIONS
1.1 "Affiliate" means any legal entity controlled, directly or indirectly, by
---------
U.S. Foodservice.
1.2 "Beneficiary" means any person(s) or legal entity(ies) designated by the
-----------
Participant or otherwise determined in accordance with SECTION 10.5.
1.3 "Board of Directors" means the Board of Directors of the Company.
------------------
1.4 "Cause" shall have the meaning set forth in SECTION 5.5.
-----
1.5 "Change of Control" shall have the meaning set forth in SECTION 5.3.
-----------------
1.6 "Committee" means the Administrative Committee which administers the Plan
---------
in accordance with SECTION 8.
1.7 "Common Stock" means the common stock, par value $0.01 per share, of the
------------
Company.
1.8 "Company" means U.S. Foodservice, a Delaware corporation, or any successor
-------
thereto.
1.9 "Continuous Service" means the total uninterrupted service of a Participant
------------------
with the Company or an Affiliate from a measurement date to the date of the
Participant's Separation from Service.
1.10 "Disability" means the absence of the Participant from the Participant's
----------
duties with the Participant's Employer on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Participant or the Participant's legal representative.
1.11 "Earnings" for any Plan Year means the base salary of an Eligible Employee
--------
for such Plan Year, including any authorized deferrals and payroll
deductions and Target Bonus, but excluding the value of any perquisites,
stock options, restricted stock or Restricted Stock Units unless granted in
connection with authorized deferrals.
1.12 "Eligible Employee" for each Plan Year means an officer or other key
-----------------
management employee of the Employer designated by the Compensation
Committee as eligible to participate in the Plan for such Plan Year or
portion thereof.
1
<PAGE>
1.13 "Employer" means the Company and any Affiliate thereof which shall be
--------
designated by the Board of Directors as a participating employer under the
Plan.
1.14 "Employer Contribution Account" means any account maintained for a
-----------------------------
Participant pursuant to SECTION 4.1.
1.15 "Fair Market Value" means the opening price of a share of Common Stock
-----------------
reported on the New York Stock Exchange (the "NYSE") on the date Fair
Market Value is being determined, provided that if there is no opening
price reported on such date, the Fair Market Value of a share of Common
Stock 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 of Common
Stock were reported. Notwithstanding the foregoing, in the event that the
shares of Common Stock are listed upon more than one established stock
exchange, "Fair Market Value" means the opening price of the shares of
Common Stock reported on the exchange that trades the largest volume of
shares of Common Stock on the date Fair Market Value is being determined.
1.16 "Good Reason" shall have the meaning set forth in SECTION 5.4.
-----------
1.17 "Participant" for any Plan Year means an Eligible Employee who participates
-----------
in the Plan for that Plan Year in accordance with SECTION 3.
1.18 "Plan" means the U.S. Foodservice Supplemental Executive Retirement Plan
----
as set forth herein and as amended from time to time.
1.19 "Plan Year" means each fiscal year of the Company.
---------
1.20 "Prime Rate" means the base rate on corporate loans at large U.S. money
----------
center commercial banks, as such rate is reported under "Prime Rate" in the
"Money Rates" section of The Wall Street Journal.
-----------------------
1.21 "Restricted Stock Unit" means a unit which represents a conditional right
---------------------
to receive a share of Common Stock in the future.
1.22 "Retirement" means a Participant's Separation from Service on or after
----------
reaching age 55 other than due to Disability, death or termination for
Cause.
1.23 "Separation from Service" means termination of a Participant's employment
-----------------------
with the Participant's Employer by reason of Retirement, Disability, death,
resignation, termination for Cause or otherwise. Transfer to employment
with an Affiliate shall not be deemed to be Separation from Service.
2
<PAGE>
1.24 "Target Bonus" for any Plan Year means 100% of base salary provided that
------------
the Target Bonus for any Plan Year is subject to change by the Compensation
Committee prior to the end of the first quarter of such Plan Year.
1.25 "Trust" means the trust established by the Company that identifies the Plan
-----
as a plan with respect to which assets are to be held by the Trustee.
1.26 "Trustees" means the trustee or trustees or their successors under the
--------
Trust.
2. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in SECTION 6.2, the aggregate number of
shares of Common Stock that may be made available for distribution to
Participants under the Plan is the sum of (i) 90,000 and (ii) any shares
of Common Stock that are reserved for issuance under the Company's Restricted
Unit Plan, including shares which are forfeited, expire or are canceled without
the delivery of shares or which result in the forfeiture of shares to the
Company. The shares issuable under the Plan shall be issued pursuant to the U.S.
Foodservice 1994 Stock Incentive Plan or the U.S. Foodservice 1998 Stock Option
and Incentive Plan, and may be authorized but unissued shares, treasury shares
or issued and outstanding shares that are purchased in the open market.
3. EMPLOYER CONTRIBUTION
As an initial Employer Contribution, the Employer shall credit to each
Participant's Employer Contribution Account, as of July 1, an amount equal to
the amounts shown on SCHEDULE 1 attached hereto. The Employer shall credit to
each Participant's Employer Contribution Account an amount equal to 15% of
Earnings for the Plan Year. Amounts shall be credited to each Participant's
Employer Contribution Account at such times as may be determined by the
Committee, but not less frequently than every three (3) months.
4. DEFERRED COMPENSATION ACCOUNTS
4.1. ACCOUNTS
Within the Employer Contribution Account, the Committee shall establish a
Company Stock Account and an Employee Self Directed Account for each
Participant for all periods during which such Participant participates in
the Plan.
4.2. COMPANY STOCK ACCOUNT
Each Participant's Company Stock Account shall be credited with 50% of the
Employer Contribution for the relevant period and shall be credited with
3
<PAGE>
dividends deemed attributable to the Restricted Stock Units credited to
that Account, subject to adjustment as provided in SECTION 6.2.
4.3. EMPLOYEE SELF DIRECTED ACCOUNT
Each Participant's Employee Self Directed Account shall be credited with
50% of the Employer Contribution and shall be credited or debited with any
amounts deemed attributable to the investment experience of that Account.
4.4. ACCOUNT CREDITS AND DEBITS
All amounts credited to each Company Stock Account and Employee Self
Directed Account shall at all times be the sole and absolute property of
the Company, subject to the terms of any Trust with respect thereto. The
Company Stock Accounts and the Employee Self Directed Accounts shall be
debited to the extent of any distributions made pursuant to SECTION 7.
4.5. TRUST ACCOUNTS
The Committee may cause the Trustee, if any, to maintain and invest
separate asset accounts or subaccounts corresponding to each Participant's
Company Stock Account and Employee Self Directed Account.
4.6. SUBACCOUNTS
The Committee may establish such subaccounts or separate accounts for each
Participant as may be appropriate for the proper administration of the
Plan.
5. VESTING
5.1. GENERAL
A Participant shall be separately vested in the amount credited to the
Participant's Employer Contribution Account for each Plan Year, and the
earnings thereon, in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service
From the First Day of the Plan Year Vested Percentage
------------------------------------- -----------------
<S> <C>
Less than 1 0
At least 1 20
At least 2 40
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
At least 3 60
At least 4 80
5 or more 100
</TABLE>
provided however, that Participants shall be separately vested in the
initial contribution amount credited to the Participant's Employer
Contribution Account as of July 1, 1998, and the earnings thereon, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service
From July 1, 1998 Vested Percentage
----------------------------- -----------------
<S> <C>
Less than .5 0
At least .5 20
At least 1.5 40
At least 2.5 60
At least 3.5 80
4.5 or more 100
</TABLE>
5.2. RETIREMENT; DISABILITY; DEATH; TERMINATION OF PLAN; CHANGE IN CONTROL
Notwithstanding the provisions of SECTION 5.1, the amount credited to a
Participant's Employer Contribution Account shall be 100% vested in the
event of (i) Separation from Service by reason of Retirement, Good Reason
(as defined below), Disability, or death of a Participant, (ii) termination
of the Plan or (iii) a "Change of Control" (as defined below).
5.3. CHANGE OF CONTROL
"Change of Control" shall mean the happening of any of the following:
(a) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
5
<PAGE>
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person (as defined in Paragraph (b) below) other than the Board of
Directors;
(b) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), is or becomes the
beneficial owner (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the Company's stock generally
entitled to vote for the election of directors ("Voting Stock") or the
consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company or other transaction (a "Business Transaction"), in each case,
unless, following such Business Transaction, (i) no Person (excluding
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Transaction) beneficially
owns, directly or indirectly, 50% or more of, respectively, the then
outstanding shares of Voting Stock of the Company or the corporation
resulting from such Business Transaction and (ii) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Transaction were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action
of the Board of Directors, providing for such Business Transaction; or
(c) consummation of a complete liquidation or dissolution of the Company.
5.4. GOOD REASON
"Good Reason" shall mean the happening of any of the following:
(a) the assignment to the Participant of any duties inconsistent,
negatively, in any material respect with the Participant's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by such
Participant's position and any employment agreement between the
Participant and the Participant's Employer, or any other action by the
Employer which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which
is remedied by
6
<PAGE>
the Employer promptly after receipt of notice thereof given by the
Participant;
(b) any failure by the Employer to comply with any of the provisions
governing compensation of any employment agreement between the
Participant and the Employer other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied
by the Employer promptly after receipt of notice thereof given by the
Participant; or
(c) any action by the Employer requiring the Participant to be based at
any office or location outside the metropolitan area of the office at
which the Participant was based at the time the Participant commenced
participating in the Plan or requiring the Participant to travel on
Employer business to a substantially greater extent than required at
the time the Participant commenced participating in the Plan.
For purposes of this SECTION 5.4, any good faith determination of "Good
Reason" made by the Participant shall be conclusive.
5.5. TERMINATION FOR CAUSE
If a Participant in the Plan incurs a termination of employment for Cause
or, in the reasonable judgment of the Board of Directors, has failed to
comply with the terms of any restrictive covenant of any employment
agreement between the Participant and the Participant's Employer, the
Participant shall forfeit all rights to receive any distributions or
payments under the Plan. "Cause" means (i) the willful and continued
failure of the Participant to perform substantially the Participant's
duties with the Participant's Employer (other than any failure resulting
from incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Participant by the Board or
the Chief Executive Officer of the Company which specifically identifies
the manner in which the Board of Directors or Chief Executive Officer
believes that the Participant has not substantially performed the
Participant's duties, or (ii) the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Employer. For purposes of this definition, no act or
failure to act, on the part of the Participant, shall be considered
"willful" unless it is done, or omitted to be done, by the Participant in
bad faith or without reasonable belief that the Participant's action or
omission was in the best interests of the Employer. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by
the Board of Directors or upon instructions of the Chief Executive Officer
or a senior officer of the Company or based upon the advice of counsel for
the Company
7
<PAGE>
shall be conclusively presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of the Employer. The
cessation of employment of the Participant shall not be deemed to be for
Cause unless and until there shall have been delivered to the Participant a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board of Directors at a
meeting of the Board of Directors called and held for such purpose (after
reasonable notice is provided to the Participant and the Participant is
given an opportunity, together with counsel, to be heard before the Board
of Directors), finding that, in the good faith opinion of the Board of
Directors, the Participant has engaged in the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
6. INVESTMENT EXPERIENCE
6.1. EMPLOYEE SELF DIRECTED ACCOUNT
In its sole discretion, the Committee shall designate investments in which
each Participant's Employee Self Directed Account may be deemed to be
invested. From such designated investments each Participant may select
from time to time the investments in which the Participant's Employee Self
Directed Account will be deemed to be invested. Based on such selection,
the Committee will credit or debit to each Participant's Employee Self
Directed Account, as provided in SECTIONS 4.3 and 4.4, the amounts by which
the Participant's Employee Self Directed Account would have increased or
decreased as if they had been invested in the investments designated by the
Participant. The selection of investments is to be used only for the
purpose of valuing each Participant's Employee Self Directed Account. The
Company and the Committee are under no obligation to acquire or provide any
of the investments designated by a Participant, and any investments
actually made by the Committee will be made solely in the name of the
Company and will remain the property of the Company subject to the terms of
any Trust. During any period when the Company does not designate
investments in which each Participant's Employee Self Directed Account may
be deemed invested, the Company shall credit interest on each Participant's
Employee Self Directed Account at a rate equivalent to the Prime Rate in
effect during such period.
6.2. COMPANY STOCK ACCOUNT
Each Participant's Company Stock Account shall be deemed to be invested in
the number of Restricted Stock Units determined by dividing the Fair Market
Value of the Common Stock on the date the Company Stock Account is credited
with such Restricted Stock Units into the portion of the Employer
8
<PAGE>
Contribution allocated to the Participant's Company Stock Account. The
Committee will credit and adjust each Participant's Company Stock Account,
as provided in SECTIONS 4.2 and 4.4, in the amounts by which the
Participant's Company Stock Account would have increased or been adjusted
if it had been invested in Common Stock. The deemed investment is to be
used only for the purpose of valuing each Participant's Company Stock
Account. The Company and the Committee are under no obligation to acquire
or provide any Common Stock, and any investments actually made by the
Committee will be made solely in the name of the Company and will remain
the property of the Company subject to the terms of any Trust. If the
number of outstanding shares of Common Stock is increased or decreased or
the shares of Common Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Company, in each case
on account of any recapitalization, reclassification, stock split, reverse
split, combination of shares, exchange of shares, stock dividend or other
distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company, the
number and kinds of shares in which the Company Stock Account is deemed
invested shall be adjusted proportionately and accordingly by the Company.
6.3. TAXES; STATEMENTS
All taxes required to be paid in connection with the deemed investment
experience of Company Stock Accounts and Employee Self Directed Accounts,
but not in connection with the distributions to Participants, shall be paid
by the Employer. At least as often as 30 days after the last business day
of each calendar quarter, the Committee shall provide the Participant with
a statement of the Participant's account, in such reasonable detail as the
Committee shall deem appropriate, showing the income, gains and losses
(realized and unrealized), amounts of Employer Contributions, and
distributions from the Participant's Company Stock Account and Employee
Self Directed Account since the prior statement.
7. DISTRIBUTIONS
7.1. SEPARATION FROM SERVICE.
At the time an Eligible Employee commences participation in the Plan,
such Eligible Employee shall also elect in such manner as approved by the
Committee one of the following methods for the payment of the vested
portion of the Participant's Company Stock Account and Employee Self
Directed Account commencing within five years of the Participant's
Separation from Service:
9
<PAGE>
(a) a lump sum payment; or
(b) pro-rata annual installment payments for a period not to exceed 15
years after Separation from Service, with each installment equal to
the unpaid balance of such accounts divided by the number of remaining
payments; and, if the Participant dies before all payments are made,
the remaining payments to be made to the Participant's Beneficiary.
A Participant may elect one method of payment to such Participant and a
different method of payment to the Participant's Beneficiary.
A Participant may request a change of the Participant's election as to the
method of payment, by written notice to the Committee, subject to approval
by the Committee in its sole discretion, at any time in a tax year prior to
the tax year of the Participant's Separation from Service, provided,
however, if a Participant's Separation from Service for any reason other
than death occurs less than ninety (90) days following any election or
request for a change in election of a method of payment to himself, such
election may be disregarded by the Committee.
7.2. DEATH; DISABILITY; RETIREMENT
Upon a Participant's Separation from Service by reason of the Participant's
death, Disability or Retirement, the Company shall pay to such Participant,
or to such Participant's Beneficiary in the case of the Participant's
death, such Participant's Company Stock Account and Employee Self Directed
Account as of the date of Separation from Service. Payment shall be made by
the method and on the date(s) previously elected by the Participant, or in
the sole discretion of the Committee, in a lump sum.
Lump sum payments shall be made on the last day of the calendar quarter in
which the Participant's Separation from Service occurs or on the date
previously elected by the Participant, if applicable.
7.3. RESIGNATION
Notwithstanding the provisions of SECTION 7.1, upon a Participant's
Separation from Service by reason of the Participant's resignation, the
Company shall pay to such Participant the vested portion of the
Participant's Company Stock Account and Employee Self Directed Account as
of the Date of Separation from Service resulting from the Participant's
resignation.
Payment shall be made to the Participant in a single lump sum on the last
day of the calendar quarter in which the Participant's resignation occurs.
10
<PAGE>
Notwithstanding the foregoing, at the Participant's request, the Committee,
at its option, may defer payment of the Participant's then vested Company
Stock Account and Employee Self Directed Account to the time(s) previously
selected by such Participant pursuant to SECTION 7.1. In the event of the
Participant's death, the balance of such accounts shall be distributed in
accordance with SECTION 7.2.
7.4. HARDSHIP
(a) Upon application by a Participant and approval thereof by the
Committee, the Participant may withdraw, upon a showing of hardship,
part or all of the amount vested in the Participant's Company Stock
Account and Employee Self Directed Account.
(b) For purposes of SECTION 7.4(A), "hardship" shall mean severe financial
hardship to a Participant resulting from a sudden and unexpected
illness or accident of the Participant or of a dependent (as defined
in Section 152(a) of the Internal Revenue Code of 1986, as amended) of
the Participant, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant, which
hardship may not be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Participant's assets
(to the extent such liquidation would not itself cause severe
financial hardship).
7.5. CHANGE OF CONTROL.
Notwithstanding anything to the contrary contained in this Plan, upon the
consummation, of a Change of Control as defined in SECTION 5.3, each
Participant's Company Stock Account shall be immediately vested and
distributed to such Participant in a lump sum distribution within 15 days
following the consummation of such Change in Control. Notwithstanding
anything to the contrary contained in this Plan, upon the consummation, of
a Change of Control as defined in SECTION 5.3, each Participant's Employee
Self-Directed Account shall be immediately vested and distributed to such
Participant in a lump sum distribution within 15 days following
Participant's Separation from Service subsequent to consummation of such
Change in Control, or, in the event there is a Trust in effect with respect
to the Plan, in accordance with the terms of the Trust. For purposes of
this SECTION 7.5, a Participant will be deemed to have Separated from
Service if the Participant is providing services for less than 20 hours per
week.
11
<PAGE>
7.6. FORM OF PAYMENT.
(a) The value of the Employee Self-Directed Account shall be distributed
to the Participant in cash.
(b) The value of the Company Stock Account shall be distributed to the
Participant in shares of Common Stock, provided, however that cash
will be distributed in lieu of fractional shares. The Company shall
take use its best efforts to maintain the effectiveness of a
registration statement on Form S-8 (or any successor form) or another
appropriate form with respect to shares of Common Stock distributable
pursuant to the Plan.
8. ADMINISTRATION
8.1. COMMITTEE
The general administration of the Plan and the responsibility for carrying
out its provisions shall be placed in an Administrative Committee. The
Committee shall consist of at least two members appointed from time to time
by the Board of Directors to serve at the pleasure thereof. The initial
Administrative Committee shall consist of the Chief Financial Officer and
the General Counsel of the Company. Any member of the Committee may resign
by delivering the Participant's written resignation to the Company, and may
be removed at any time by action of the Board of Directors.
8.2. RULES FOR ADMINISTRATION
Subject to the limitations of the Plan, the Committee may from time to time
establish rules and procedures for the administration and interpretation of
the Plan and the transaction of its business as the Committee may deem
necessary or appropriate. The determination of the Committee as to any
disputed question shall be conclusive.
8.3. COMMITTEE ACTION
Any act which the Plan authorizes or requires the Committee to do may be
done by a majority of its members. The action of such majority, expressed
from time to time by a vote at a meeting (a) in person, (b) by telephone or
other means by which all members may hear one another or (c) in writing
without a meeting, shall constitute the action of the Committee and shall
have the same effect for all purposes as if assented to by all members of
the Committee at the time in office.
12
<PAGE>
8.4. DELEGATION
The members of the Committee may authorize one or more of their number to
execute or deliver any instrument, make any payment or perform any other
act which the Plan authorizes or requires the Committee to do.
8.5. SERVICES
The Committee may employ or retain agents to perform such clerical,
accounting, trust, trustee and other services as they may require in
carrying out the provisions of the Plan.
8.6. INDEMNIFICATION
The Company shall indemnify and save harmless each member of the Committee
against all expenses and liabilities arising out of membership on the
Committee, excepting only expenses and liabilities arising from the such
member's own gross negligence or willful misconduct, as determined by the
Board of Directors.
9. AMENDMENT AND TERMINATION
The Company, by action of the Board of Directors or the Compensation Committee
thereof, may at any time or from time to time modify or amend any or all of the
provisions of the Plan, or may at any time terminate the Plan provided that the
Company may not amend SECTION 5 or 7.5 to adversely affect any Participant
rights under such SECTIONS 5 and 7.5. No such action shall adversely affect the
accrued or vested rights of any Participant hereunder without the Participant's
consent thereto.
10. GENERAL PROVISIONS
10.1. LIMITATION OF RIGHTS
No Participant or other Eligible Employee shall have any right to any
payment or benefit hereunder except to the extent provided in the Plan.
10.2. EMPLOYMENT RIGHTS
The employment rights of any Participant or other Eligible Employee shall
not be enlarged, guaranteed or affected by reason of any of the provisions
of the Plan.
13
<PAGE>
10.3. ASSIGNMENT, PLEDGE OR ENCUMBRANCE
Assignment, pledge or other encumbrance of any payments or benefits under
the Plan shall not be permitted or recognized and, to the extent permitted
by law, no such payments or benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitled to receive
the same, except to the extent such assignment, pledge or other encumbrance
is in favor of the Company to secure a loan or other extension of credit
from the Company to the Participant.
10.4. MINOR OR INCOMPETENT
If the Committee determines that any person to whom a payment is due
hereunder is a minor or is incompetent by reason of physical or mental
disability, the Committee shall have the power to cause the payments
becoming due to such person to be made to another for the benefit of such
minor or incompetent without responsibility of the Company or the Committee
to see to the application of such payment, unless claim prior to such
payment is made therefor by a duly appointed legal representative.
Payments made pursuant to such power shall operate as a complete discharge
of the Company and the Committee.
10.5. BENEFICIARY
Each Participant may designate, by written notice to the Committee, any
person or persons or legal entity or legal entities, including such
Participant's estate, as such Participant's Beneficiary under the Plan. A
Participant may revoke the Participant's designation of a Beneficiary or
change such Participant's Beneficiary at any time prior to such
Participant's death by written notice to the Committee. If no person or
legal entity shall be designated by a Participant as such Participant's
Beneficiary or if no designated Beneficiary survives such Participant, such
Participant's Beneficiary shall be such Participant's estate.
10.6. BINDING PROVISIONS
The provisions of this Plan shall be binding upon each Participant as a
consequence of the Participant's election to participate in the Plan, and
upon the Company, and their respective heirs, executors, administrators,
successors and assigns.
14
<PAGE>
10.7. NOTICES
Any election made or notice given by a Participant pursuant to the Plan
shall be in writing to the Committee or to such representative thereof as
may be designated by the Committee for such purpose and shall be deemed to
have been made or given on the date received by the Committee or its
representative.
10.8. GOVERNING LAW
The validity and interpretation of the Plan and of any of its provisions
shall be construed under the laws of the State of Maryland without giving
effect to the choice of law provisions thereof.
10.9. PRONOUNS
The masculine pronoun shall be deemed to include the feminine wherever it
appears in the Plan unless a different meaning is required by the context.
10.10. WITHHOLDING
Upon the request of the Participant, the Company shall withhold from the
shares of Common Stock distributable to such Participant such number of
shares as shall be sufficient to satisfy all or a portion of any federal,
state and local tax withholding requirements applicable to the designated
distribution. If the Participant has not requested to have sufficient
shares withheld to satisfy all such withholding requirements, the Company
shall have the right to deduct first from cash distributions hereunder any
federal, state, or local taxes required by law to be withheld with respect
to such distributions, and such additional amounts of withholding as are
reasonably requested by the Participant. Accordingly, the amount of
federal, state, or local taxes required, or agreed, to be withheld by the
Company with respect to the dollar amount determined pursuant to SECTION
7.6(A) above shall, for purposes of satisfying such withholding
obligations, be deducted from the dollar amount of the cash payment and
paid by the Company to the appropriate taxing authorities. If the entire
cash distribution is insufficient to satisfy the withholding obligations,
the Company shall have the right to deduct amounts from the Common Stock
distributable to satisfy such withholding obligations.
10.11. EFFECTIVE DATES
This Plan shall be effective as of July 1, 1998.
* * * * *
15
<PAGE>
EXHIBIT 10.2
U.S. FOODSERVICE
RESTRICTED UNIT PLAN
Effective: July 1, 1998
AS AMENDED AS OF
JULY 20, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS................................................................ 1
2. SHARES SUBJECT TO THE PLAN................................................. 2
3. RESTRICTED UNIT GRANT...................................................... 2
4. RESTRICTED UNIT ACCOUNTS................................................... 3
4.1. Restricted Unit Account............................................... 3
4.2. Account Credits and Debits............................................ 3
4.3. Subaccounts........................................................... 3
5. VESTING.................................................................... 3
5.1. General............................................................... 3
5.2. Retirement; Disability; Death; Termination of Plan;
Change in Control................................................... 4
5.3. Change of Control..................................................... 4
5.4. Good Reason........................................................... 5
5.5. Termination for Cause................................................. 5
5.6. Termination Without Cause............................................. 6
6. INVESTMENT EXPERIENCE...................................................... 7
6.1. Restricted Unit Account............................................... 7
6.2. Taxes................................................................. 8
7. DISTRIBUTIONS.............................................................. 8
7.1. Distribution After Vesting............................................ 8
7.2. Separation From Service............................................... 8
7.3. Death; Disability; Retirement......................................... 9
7.4. Resignation........................................................... 9
7.5. Hardship.............................................................. 10
7.6. Change of Control..................................................... 10
7.7. Form of Payment....................................................... 10
8. ADMINISTRATION............................................................. 11
8.1. Committee............................................................. 11
8.2. Rules for Administration.............................................. 11
8.3. Committee Action...................................................... 11
8.4. Delegation............................................................ 11
8.5. Services.............................................................. 11
8.6. Indemnification....................................................... 12
9. AMENDMENT AND TERMINATION.................................................. 12
10. GENERAL PROVISIONS........................................................ 12
10.1. Limitation of Rights................................................. 12
10.2. Employment Rights.................................................... 12
10.3. Assignment, Pledge or Encumbrance.................................... 12
10.4. Minor or Incompetent................................................. 13
10.5. Beneficiary.......................................................... 13
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
10.6. Binding Provisions................................................... 13
10.7. Notices.............................................................. 13
10.8. Governing Law........................................................ 13
10.9. Pronouns............................................................. 14
10.10. Withholding......................................................... 14
10.11. Effective Dates..................................................... 14
</TABLE>
- ii -
<PAGE>
1. DEFINITIONS
1.1 "Affiliate" means any legal entity controlled, directly or indirectly, by
---------
U.S. Foodservice.
1.2 "Beneficiary" means any person(s) or legal entity(ies) designated by the
-----------
Participant or otherwise determined in accordance with SECTION 10.5.
1.3 "Board of Directors" means the Board of Directors of the Company.
------------------
1.4 "Cause" shall have the meaning set forth in SECTION 5.5.
-----
1.5 "Change of Control" shall have the meaning set forth in SECTION 5.3.
-----------------
1.6 "Committee" means the Administrative Committee which administers the Plan
---------
in accordance with SECTION 8.
1.7 "Common Stock" means the common stock, par value $0.01 per share, of the
------------
Company.
1.8 "Company" means U.S. Foodservice, a Delaware corporation, or any successor
-------
thereto.
1.9 "Continuous Service" means the total uninterrupted service of a Participant
------------------
with the Company or an Affiliate from July 1, 1998 to the date of his
Separation from Service.
1.10 "Disability" means the absence of the Participant from the Participant's
----------
duties with the Participant's Employer on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Participant or the Participant's legal representative.
1.11 "Eligible Employee" for each Plan Year means an officer or other key
-----------------
management employee of the Employer designated by the Compensation
Committee as eligible to participate in the Plan.
1.12 "Employer" means the Company and any Affiliate thereof which shall be
--------
designated by the Board of Directors as a participating employer under the
Plan.
1.13 "Good Reason" shall have the meaning set forth in SECTION 5.4.
-----------
1.14 "Grant" means an award of Restricted Stock Units under the Plan.
-----
1
<PAGE>
1.15 "Participant" means an Eligible Employee who participates in the Plan in
-----------
accordance with SECTION 3.
1.16 "Plan" means the U.S. Foodservice Restricted Unit Plan as set forth herein
----
and as amended from time to time.
1.17 "Restricted Stock Unit" means a unit awarded to a Participant pursuant to
---------------------
SECTION 3, which represents a conditional right to receive a share of
Common Stock in the future, and which is subject to restrictions and to a
risk of forfeiture.
1.18 "Retirement" means a Participant's Separation from Service on or after
----------
attaining age 55 other than due to Disability, death or termination for
Cause.
1.19 "Separation from Service" means termination of a Participant's employment
-----------------------
with the Participant's Employer by reason of Retirement, Disability, death,
resignation, termination for Cause or otherwise. Transfer to employment
with an Affiliate shall not be deemed to be Separation from Service.
2. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in SECTION 6.1, the aggregate number of shares
of Common Stock that may be made available for distribution to Participants
under the Plan is the sum of (i) 500,000 and (ii) any shares of Common Stock
that are reserved for issuance under the Company's Supplemental Executive
Retirement Plan, including shares which are forfeited, expire or are canceled
without the delivery of shares or which result in the forfeiture of shares to
the Company. The shares issuable under the Plan shall be issued pursuant to the
U.S. Foodservice 1994 Stock Incentive Plan or the U.S. Foodservice 1998 Stock
Option and Incentive Plan and may, in the discretion of the Board of Directors,
be authorized but unissued shares, treasury shares or issued and outstanding
shares that are purchased in the open market.
3. RESTRICTED UNIT GRANT
The Employer shall credit each Participant's Restricted Unit Account with the
number of units awarded to the Participant set forth in APPENDIX A to the Plan,
which represent a conditional right to receive a share of Common Stock in the
future, and which are subject to restrictions and to a risk of forfeiture.
2
<PAGE>
4. RESTRICTED UNIT ACCOUNTS
4.1. RESTRICTED UNIT ACCOUNT
Each Participant's Restricted Unit Account shall be credited with the
Restricted Stock Units awarded to the Participant and shall be credited
with dividends deemed attributable to the Restricted Stock Units credited
to that Account subject to adjustment as provided in SECTION 6.1.
4.2. ACCOUNT CREDITS AND DEBITS
All amounts credited to the Participant's Restricted Unit Account shall at
all times be the sole and absolute property of the Company. The Restricted
Unit Accounts shall be debited to the extent of any distributions made
pursuant to SECTION 7.
4.3. SUBACCOUNTS
The Committee may establish such subaccounts or separate accounts for each
Participant as may be appropriate for the proper administration of the
Plan.
5. VESTING
5.1. GENERAL
A Participant shall be vested in the amount credited to the Restricted Unit
Account established for him in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service Vested Percentage
--------------------------- -----------------
<S> <C>
Less than 6.5 0
At least 6.5 25
At least 7.5 50
At least 8.5 75
9.5 or more 100
</TABLE>
3
<PAGE>
5.2. RETIREMENT; DISABILITY; DEATH; TERMINATION OF PLAN; CHANGE IN CONTROL
Notwithstanding the provisions of SECTION 5.1, the amount credited to a
Participant's Employer Contribution Account shall be 100% vested in the event of
(i) Separation from Service by reason of Retirement, Good Reason (as defined
below), Disability, or death of a Participant, (ii) termination of the Plan or
(iii) a "Change of Control" (as defined below).
5.3. CHANGE OF CONTROL
"Change of Control" shall mean the happening of any of the following:
(a) individuals who, as of the date hereof, constitute the Board of Directors
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person (as defined in Paragraph (b) below) other than the Board
of Directors;
(b) any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person"), is or becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the
Company's stock generally entitled to vote for the election of directors
("Voting Stock") or the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or other transaction (a "Business Transaction"),
in each case, unless, following such Business Transaction, (i) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Transaction) beneficially
owns, directly or indirectly, 50% or more of, respectively, the then
outstanding shares of Voting Stock of the Company or the corporation
resulting from such Business Transaction and (ii) at least a majority of
the members of the board of directors of the corporation resulting from
such Business Transaction were members of the Incumbent Board at the time
of the
4
<PAGE>
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Transaction; or
(c) consummation of a complete liquidation or dissolution of the Company.
5.4. GOOD REASON
"Good Reason" shall mean the happening of any of the following:
(a) the assignment to the Participant of any duties inconsistent, negatively,
in any material respect with the Participant's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by such Participant's position and any
employment agreement between the Participant and the Participant's
Employer, or any other action by the Employer which results in a diminution
in such position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Employer promptly after receipt of
notice thereof given by the Participant;
(b) any failure by the Employer to comply with any of the provisions governing
compensation of any employment agreement between the Participant and the
Employer other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Employer promptly after
receipt of notice thereof given by the Participant; or
(c) any action by the Employer requiring the Participant to be based at any
office or location outside the metropolitan area of the office at which the
Participant was based at the time the Participant commenced participating
in the Plan or requiring the Participant to travel on Employer business to
a substantially greater extent than required at the time the Participant
commenced participating in the Plan.
For purposes of this SECTION 5.4, any good faith determination of "Good Reason"
made by the Participant shall be conclusive.
5.5. TERMINATION FOR CAUSE
If a Participant in the Plan incurs a termination of employment for Cause or, in
the reasonable judgment of the Board of Directors, has failed to comply with the
terms of any restrictive covenant of any employment agreement between the
Participant and the Participant's Employer, the Participant
5
<PAGE>
shall forfeit all rights to receive any distributions or payments under the
Plan. "Cause" means (i) the willful and continued failure of the Participant to
perform substantially the Participant's duties with the Participant's Employer
(other than any failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Participant by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board of Directors or Chief
Executive Officer believes that the Participant has not substantially performed
the Participant's duties, or (ii) the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Employer. For purposes of this definition, no act or failure to
act, on the part of the Participant, shall be considered "willful" unless it is
done, or omitted to be done, by the Participant in bad faith or without
reasonable belief that the Participant's action or omission was in the best
interests of the Employer. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board of Directors or upon
instructions of the Chief Executive Officer or a senior officer of the Company
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Participant in good faith and
in the best interests of the Employer. The cessation of employment of the
Participant shall not be deemed to be for Cause unless and until there shall
have been delivered to the Participant a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire membership of
the Board of Directors at a meeting of the Board of Directors called and held
for such purpose (after reasonable notice is provided to the Participant and the
Participant is given an opportunity, together with counsel, to be heard before
the Board of Directors), finding that, in the good faith opinion of the Board of
Directors, the Participant has engaged in the conduct described in subparagraph
(i) or (ii) above, and specifying the particulars thereof in detail.
5.6. TERMINATION WITHOUT CAUSE
If the Company terminates the Participant's employment other than for Cause, the
Participant shall be vested in the amount credited to the Restricted Unit
Account established for him in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service Vested Percentage
----------------------------- -----------------
<S> <C>
Less than .5 0
At least .5 10
At least 1.5 20
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
At least 2.5 30
At least 3.5 40
At least 4.5 50
At least 5.5 60
At least 6.5 70
At least 7.5 80
At least 8.5 90
9.5 or more 100
</TABLE>
provided, however, if the Participant is over 45 years of age on July 1,
1998, and if the Company terminates the Participant's employment other than
for Cause, the Participant shall be vested in the amount credited to the
Restricted Unit Account established for him pro-rata based on the ratio of
(x) the Participant's Years of Continuous Service from July 1, 1998 to the
date of termination to (y) the number of years from July 1, 1998 to the
date the Participant would attain 55 years of age.
6. INVESTMENT EXPERIENCE
6.1. RESTRICTED UNIT ACCOUNT
Each Participant's Restricted Unit Account shall be deemed to be invested
in Restricted Stock Units. The Committee will credit and adjust each
Participant's Restricted Unit Account, as provided in SECTIONS 4.1 and 4.2,
the amounts by which the Participant's Restricted Unit Account would have
increased or been adjusted if it had been invested in Common Stock. The
deemed investment is to be used only for the purpose of valuing each
Participant's Restricted Unit Account. The Company and the Committee are
under no obligation to acquire or provide any Common Stock, and any
investments actually made by the Committee will be made solely in the name
of the Company and will remain the property of the Company. If the number
of outstanding shares of Common Stock is increased or decreased or the
shares of Common Stock are changed into or exchanged for a different number
or kind of shares or other securities of the Company, in each case on
account of any recapitalization, reclassification, stock split, reverse
split, combination of shares, exchange of shares, stock dividend or other
distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company, the
number and kinds of shares in
7
<PAGE>
which the Restricted Unit Account is deemed invested shall be adjusted
proportionately and accordingly by the Company.
6.2. TAXES
All taxes required to be paid in connection with the deemed investment
experience of Restricted Unit Accounts, but not in connection with the
distributions to Participants, shall be paid by the Employer.
7. DISTRIBUTIONS
7.1. DISTRIBUTION AFTER VESTING
In addition to the election with respect to the method of payment upon
Separation from Service specified in SECTION 7.2, each Participant may
elect, at the time and in such manner as approved by the Committee, one of
the following methods to receive payment of his Restricted Stock Account on
or after the date the Restricted Stock Account is 100% vested:
(a) a lump sum payment;
(b) pro-rata annual installment payments for a period not to exceed 15
years with each installment equal to the unpaid balance of such
accounts divided by the number of remaining payments; or
(c) one or more installments in an amount or amounts and at the date or
dates elected by the Eligible Employee.
A Participant may request a change in his election as to the method of
payment, by written notice to the Committee, subject to approval by the
Committee in its sole discretion, at any time in a tax year prior to the
tax year in which distributions would otherwise commence; however, if a
Participant's Separation from Service for any reason other than death
occurs less than ninety (90) days following any election or request for a
change in election of a method of payment to himself, such election may be
disregarded by the Committee.
7.2. SEPARATION FROM SERVICE.
At the time an Eligible Employee commences participation in the Plan, he
shall also elect, in such manner as approved by the Committee, one of the
following methods for the payment of the vested portion of his Restricted
Unit Account commencing within five years of his Separation from Service:
8
<PAGE>
(a) a lump sum payment; or
(b) pro-rata annual installment payments for a period not to exceed 15
years after Separation from Service, with each installment equal to
the unpaid balance of such accounts divided by the number of remaining
payments; and, if the Participant dies before all payments are made,
the remaining payments are to be made to his Beneficiary.
A Participant may elect one method of payment to himself and a different
method of payment to his Beneficiary.
A Participant may request a change of his election as to the method of
payment, by written notice to the Committee, subject to approval by the
Committee in its sole discretion, at any time in a tax year prior to the
tax year of his Separation from Service, provided, however, if a
Participant's Separation from Service for any reason other than death
occurs less than ninety (90) days following any election or request for a
change in election of a method of payment to himself, such election may be
disregarded by the Committee.
7.3. DEATH; DISABILITY; RETIREMENT
Upon a Participant's Separation from Service by reason of his death,
Disability or Retirement, the Company shall pay to him, or to his
Beneficiary in the case of his death, his Restricted Unit Account as of the
date of Separation from Service. Payment shall be made by the method and on
the date(s) previously elected by the Participant or, in the sole
discretion of the Committee, in a lump sum.
Lump sum payments shall be made on the last day of the calendar quarter in
which the Participant's Separation from Service occurs or on the date
previously elected by the Participant, if applicable.
7.4. RESIGNATION
Notwithstanding the provisions of SECTION 7.2, upon a Participant's
Separation from Service by reason of his resignation prior to age 55, the
Company shall pay to him the vested portion of his Restricted Unit Account
as of the Date of Separation from Service resulting from his resignation.
Payment shall be made to the Participant in a single lump sum on the last
day of the calendar quarter in which his resignation or discharge occurs.
Notwithstanding the foregoing, at the Participant's request, the Committee,
at its option, may defer payment of the Participant's then vested
Restricted
9
<PAGE>
Unit Account to the time(s) previously selected by such Participant
pursuant to SECTION 7.2. In the event of the Participant's death, the
balance of such accounts shall be distributed in accordance with SECTION
7.3.
7.5. HARDSHIP
(a) Upon application by a Participant and approval thereof by the
Committee, the Participant may withdraw, upon a showing of hardship,
part or all of the amount vested in his Restricted Unit Account.
(b) For purposes of SECTION 7.5(a), "hardship" shall mean severe
financial hardship to a Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent
(as defined in Section 152(a) of the Internal Revenue Code of 1986, as
amended) of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, which hardship may not be relieved through reimbursement
or compensation by insurance or otherwise or by liquidation of the
Participant's assets (to the extent such liquidation would not itself
cause severe financial hardship).
7.6. CHANGE OF CONTROL.
Notwithstanding anything to the contrary contained in this Plan, upon the
consummation, of a Change of Control as defined in SECTION 5.3, each
Participant's Restricted Unit Account shall be immediately vested and
distributed to him in a lump sum distribution within 15 days following the
consummation of such Change in Control.
7.7. FORM OF PAYMENT.
The value of the Restricted Unit Account shall be distributed to the
Participant in shares of Common Stock. The Company shall take use its best
efforts to maintain the effectiveness of a registration statement on Form
S-8 (or any successor form) or another appropriate form with respect to
shares of Common Stock distributable pursuant to the Plan.
10
<PAGE>
8. ADMINISTRATION
8.1. COMMITTEE
The general administration of the Plan and the responsibility for carrying
out its provisions shall be placed in an Administrative Committee. The
Committee shall consist of at least two members appointed from time to time
by the Board of Directors to serve at the pleasure thereof. The initial
Administrative Committee shall consist of the Chief Financial Officer and
the General Counsel of the Company. Any member of the Committee may resign
by delivering his written resignation to the Company, and may be removed at
any time by action of the Board of Directors.
8.2. RULES FOR ADMINISTRATION
Subject to the limitations of the Plan, the Committee may from time to time
establish rules and procedures for the administration and interpretation of
the Plan and the transaction of its business as the Committee may deem
necessary or appropriate. The determination of the Committee as to any
disputed question shall be conclusive.
8.3. COMMITTEE ACTION
Any act which the Plan authorizes or requires the Committee to do may be
done by a majority of its members. The action of such majority, expressed
from time to time by a vote at a meeting (a) in person, (b) by telephone or
other means by which all members may hear one another or (c) in writing
without a meeting, shall constitute the action of the Committee and shall
have the same effect for all purposes as if assented to by all members of
the Committee at the time in office.
8.4. DELEGATION
The members of the Committee may authorize one or more of their number to
execute or deliver any instrument, make any payment or perform any other
act which the Plan authorizes or requires the Committee to do.
8.5. SERVICES
The Committee may employ or retain agents to perform such clerical,
accounting and other services as they may require in carrying out the
provisions of the Plan.
11
<PAGE>
8.6. INDEMNIFICATION
The Company shall indemnify and save harmless each member of the Committee
against all expenses and liabilities arising out of membership on the
Committee, excepting only expenses and liabilities arising from such
member's own gross negligence or willful misconduct, as determined by the
Board of Directors.
9. AMENDMENT AND TERMINATION
The Company, by action of the Board of Directors or the Compensation Committee
thereof, may at any time or from time to time modify or amend any or all of the
provisions of the Plan or may at any time terminate the Plan provided that the
Company may not amend SECTION 5 or 7.6 to adversely affect any Participant
rights under such SECTIONS 5 and 7.6. No such action shall adversely affect the
accrued or vested rights of any Participant hereunder without his consent
thereto.
10. GENERAL PROVISIONS
10.1. LIMITATION OF RIGHTS
No Participant or other Eligible Employee shall have any right to any
payment or benefit hereunder except to the extent provided in the Plan.
10.2. EMPLOYMENT RIGHTS
The employment rights of any Participant or other Eligible Employee shall
not be enlarged, guaranteed or affected by reason of any of the provisions
of the Plan.
10.3. ASSIGNMENT, PLEDGE OR ENCUMBRANCE
Assignment, pledge or other encumbrance of any payments or benefits under
the Plan shall not be permitted or recognized and, to the extent permitted
by law, no such payments or benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitled to receive
the same, except to the extent such assignment, pledge or other encumbrance
is in favor of the Company to secure a loan or other extension of credit
from the Company to the Participant.
12
<PAGE>
10.4. MINOR OR INCOMPETENT
If the Committee determines that any person to whom a payment is due
hereunder is a minor or is incompetent by reason of physical or mental
disability, the Committee shall have the power to cause the payments
becoming due to such person to be made to another for the benefit of such
minor or incompetent without responsibility of the Company or the Committee
to see to the application of such payment, unless claim prior to such
payment is made therefor by a duly appointed legal representative.
Payments made pursuant to such power shall operate as a complete discharge
of the Company and the Committee.
10.5. BENEFICIARY
Each Participant may designate, by written notice to the Committee, any
person or persons or legal entity or legal entities, including such
Participant's estate, as such Participant's Beneficiary under the Plan. A
Participant may revoke the Participant's designation of a Beneficiary or
change such Participant's Beneficiary at any time prior to such
Participant's death by written notice to the Committee. If no person or
legal entity shall be designated by a Participant as such Participant's
Beneficiary or if no designated Beneficiary survives such Participant, such
Participant's Beneficiary shall be such Participant's estate.
10.6. BINDING PROVISIONS
The provisions of this Plan shall be binding upon each Participant as a
consequence of his election to participate in the Plan, and upon the
Company, and their respective heirs, executors, administrators, and
assigns.
10.7. NOTICES
Any election made or notice given by a Participant pursuant to the Plan
shall be in writing to the Committee or to such representative as may be
designated by it for such purpose and shall be deemed to have been made or
given on the date received by the Committee or its representative.
10.8. GOVERNING LAW
The validity and interpretation of the Plan and of any of its provisions
shall be construed under the laws of the State of Maryland without giving
effect to the choice of law provisions thereof.
13
<PAGE>
10.9. PRONOUNS
The masculine pronoun shall be deemed to include the feminine wherever it
appears in the Plan unless a different meaning is required by the context.
10.10. WITHHOLDING
Subject to the right of the Participant to pay to the Company, in cash or
cash equivalents, any amounts as may be necessary to satisfy all or a
portion of any federal, state and local tax withholding requirements, the
Company shall withhold from the shares of Common Stock distributable to
such Participant such number of shares as shall be sufficient to satisfy
all or any federal, state and local tax withholding requirements applicable
to the designated distribution.
10.11. EFFECTIVE DATES
This Plan shall be effective as of July 1, 1998.
* * * * *
14
<PAGE>
ADDENDUM NO. 1
TO
U.S. FOODSERVICE
RESTRICTED UNIT PLAN
THIS ADDENDUM NO. 1 TO U.S. FOODSERVICE RESTRICTED UNIT PLAN ("Addendum")
is made effective as of July 6, 1999 (the "Effective Date"), by U.S.
Foodservice, a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company adopted the U.S. Foodservice Restricted Unit Plan as
of July 1, 1998 (the "Plan"); and
WHEREAS, pursuant to the authority to amend or modify the Plan reserved to
the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") pursuant to Section 9 of the Plan, the Compensation
Committee has determined that James L. Miller ("Miller") shall receive a Grant,
as of the Effective Date, of an additional 132,232 Restricted Stock Units, upon
the terms and conditions set forth in the Plan, as modified by this Addendum.
NOW, THEREFORE:
1. Defined Terms. Defined terms utilized herein but not defined herein shall
-------------
have the meanings ascribed to such terms in the Plan.
2. Additional Restricted Unit Grant. The Employer hereby grants to Miller and
--------------------------------
credits to Miller's Restricted Unit Account, as of the Effective Date,
132,232 Restricted Stock Units (the "Additional Units"), subject to all of
the terms and conditions of the Plan, as modified by this Addendum. The
Grant referenced in the foregoing sentence shall be in addition to the Grant
of 165,290 Restricted Stock Units (post-split calculation) awarded to Miller
pursuant to the Plan as originally adopted (the "Original Units") and
nothing set forth in this Addendum shall modify the terms and conditions
applicable to the Original Units.
3. Vesting. As to the Additional Units, in lieu of the provisions of Section
-------
5.6 of the Plan, the following provisions shall apply:
If the Company terminates the Participant's employment other than for Cause,
the Participant shall be vested in the amount credited to the Restricted
Unit Account established for him in accordance with the following schedule:
<PAGE>
<TABLE>
<CAPTION>
Years of Continuous Service Vested Percentage
- ----------------------------- -----------------
<S> <C>
Less than .5 0
At least .5 10
At least 1.5 20
At least 2.5 30
At least 3.5 40
At least 4.5 50
At least 5.5 60
At least 6.5 70
At least 7.5 80
At least 8.5 90
9.5 or more 100
</TABLE>
provided, however, if the Participant is over 45 years of age on July 1,
1998, and if the Company terminates the Participant's employment other than
for Cause, the Participant shall be vested in the amount credited to the
Restricted Unit Account established for him pro-rata based on the ratio of
(x) the Participant's Years of Continuous Service from July 1, 1999 to the
date of termination to (y) the number of years from July 1, 1999 to the date
the Participant would attain 55 years of age.
4. Effect on Elections. Except as specifically indicated otherwise, all
-------------------
elections made by Miller with respect to the Original Units, including
without limitation elections regarding method of payment and designation of
Beneficiary, shall apply to the Additional Units.
5. Effect on Plan. Except as explicitly modified hereby, the Plan shall remain
--------------
in full force and effect in accordance with its terms.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUL-1-2000 JUL-3-1999
<PERIOD-START> JUL-4-1999 JUN-29-1997
<PERIOD-END> OCT-2-1999 SEP-26-1998
<CASH> 59,490 0
<SECURITIES> 0 0
<RECEIVABLES> 457,491 0
<ALLOWANCES> 0 0
<INVENTORY> 463,533 0
<CURRENT-ASSETS> 1,036,556 0
<PP&E> 457,234 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 2,157,133 0
<CURRENT-LIABILITIES> 546,117 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 2,157,133 0
<SALES> 1,682,833 1,478,370
<TOTAL-REVENUES> 1,682,833 1,478,370
<CGS> 1,371,134 1,208,393
<TOTAL-COSTS> 258,568 224,938
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,641 16,196
<INCOME-PRETAX> 3,840 28,843
<INCOME-TAX> 15,427 11,931
<INCOME-CONTINUING> 23,113 16,912
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 23,113 16,912
<EPS-BASIC> 0.23 0.18
<EPS-DILUTED> 0.23 0.18
</TABLE>
