<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 March 27, 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 May 6, 1999 was 49,588,321 shares.
1
<PAGE>
U.S. FOODSERVICE
INDEX
-----
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 27, 1998 and March 27, 1999 3
Condensed Consolidated Statements of Operations
and Comprehensive Income (Loss)
Three and Nine months ended March 28, 1998
and March 27, 1999 4
Condensed Consolidated Statements of Cash Flows
Nine months ended March 28, 1998
and March 27, 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 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
</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 June 27, March 27,
1998* 1999
--------------- ----------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 57,817 $ 61,504
Receivables, net 215,459 298,237
Residual interest on accounts
receivable sold 106,581 99,617
Inventories 349,583 378,776
Other current assets 28,548 32,165
Deferred income taxes 39,294 37,009
---------- ----------
Total current assets 797,282 907,308
Property and equipment, net 437,265 443,157
Goodwill and other noncurrent assets 583,244 625,745
---------- ----------
Total assets $1,817,791 $1,976,210
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 604 $ 643
Current obligations under capital leases 6,933 5,407
Accounts payable 381,151 334,103
Accrued expenses 120,778 123,287
---------- ----------
Total current liabilities 509,466 463,440
Noncurrent liabilities
Long-term debt 650,679 688,255
Obligations under capital leases 29,946 27,165
Deferred income taxes 6,064 6,015
Other noncurrent liabilities 36,916 99,997
---------- ----------
Total liabilities 1,233,071 1,284,872
Commitments and contingent liabilities
Stockholders' equity 584,720 691,338
---------- ----------
Total liabilities and stockholders' equity $1,817,791 $1,976,210
========== ==========
</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 OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ---------------------------------
March 28, March 27, March 28, March 27,
1998 1999 1998 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 1,338,138 $ 1,471,076 $ 4,050,224 $ 4,482,535
Cost of sales 1,090,012 1,197,795 3,289,355 3,657,195
----------- ----------- ------------- -----------
Gross profit 248,126 273,281 760,869 825,340
Operating expenses 212,402 225,545 661,568 673,239
Restructuring costs 15,678 53,715
Asset impairment 3,395 35,530
Amortization of intangible assets 3,941 4,150 11,361 12,227
----------- ----------- ------------- -----------
Income (loss) from operations 12,710 43,586 (1,305) 139,874
Interest and other financing expenses 15,669 15,468 54,914 48,140
Nonrecurring acquisition charges 17,822
----------- ----------- ------------- ------------
Income (loss) before income taxes
(benefit) and extraordinary charge (2,959) 28,118 (74,041) 91,734
Provision (benefit) for income taxes 301 11,637 (9,950) 37,733
----------- ----------- ------------- ------------
Income (loss) before extraordinary charge (3,260) 16,481 (64,091) 54,001
Extraordinary charge, net of income
tax benefit 9,712 2,748
-------- ----------- ------------- ------------
Net income (loss) and comprehensive
income (loss) $ (3,260) $ 16,481 $ (73,803) $ 51,253
=========== =========== ============= ============
Basic earnings (loss) per common share:
Before extraordinary charge $ (0.07) $ .34 $ (1.42) $ 1.14
Extraordinary charge (0.22) (0.06)
----------- ----------- ------------- ------------
Basic earnings (loss) per common share $ (0.07) $ .34 $ (1.64) $ 1.08
=========== =========== ============= ============
Basic weighted average common
shares outstanding 45,338,000 48,275,000 44,986,000 47,451,000
Diluted earnings (loss) per common share:
Before extraordinary charge $ (0.07) $ .34 $ (1.42) $ 1.13
Extraordinary charge (0.22) (0.06)
----------- ----------- ------------- ------------
Diluted earnings (loss) per common share: $ (0.07) $ .34 $ (1.64) $ 1.07
=========== =========== ============= ============
Diluted weighted average common
shares outstanding 45,338,000 48,968,000 44,986,000 48,122,000
</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>
Nine Months Ended
-------------------------------------
March 28, March 27,
1998 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (73,803) $ 51,253
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 47,226 44,495
Write-off deferred financing costs 9,152 1,247
Asset impairment 35,530
Restructuring costs 53,715
Other adjustments (2,083) 2,147
Changes in working capital, net of effects
from acquisitions (96,865) (79,871)
------------ -------------
Net cash provided by (used in) operating activities (27,128) 19,271
------------ -------------
Cash flows from investing
Additions to property and equipment (76,230) (52,422)
Cost of businesses acquired, net of cash acquired (48,903) (15,323)
Proceeds from disposals of property 12,028 12,699
Proceeds from sale of manufacturing division assets 20,755
Other (535)
------------ -------------
Net cash used in investing activities (113,105) (34,826)
------------ -------------
Cash flows from financing activities
Increase under revolving credit line 104,588
Treasury stock purchases (12,417)
Increase in long-term debt, net 108,031 (93,689)
Principal payments under capital lease obligations (4,547) (4,464)
Financing costs (3,384)
Proceeds from employee stock purchases 27,096 10,137
Other 4,946 2,670
------------ -------------
Net cash provided by financing activities 119,725 19,242
------------ -------------
Net increase (decrease) in cash and cash equivalents (20,508) 3,687
Cash and cash equivalents:
Beginning of period 74,432 57,817
------------ -------------
End of period $ 53,924 $ 61,504
============ =============
</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 March 27, 1999 and for the three-
month and nine-month periods ended March 28, 1998 and March 27, 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.
NOTE 2 - ACQUISITION OF RYKOFF-SEXTON, INC.
On December 23, 1997, Rykoff-Sexton, Inc. ("Rykoff-Sexton") was merged into a
wholly owned subsidiary of U.S. Foodservice (the "Acquisition"). The transaction
was accounted for under the pooling of interests method of accounting. In
connection with the Acquisition, the Company incurred restructuring costs, asset
impairment charges, non-recurring charges and certain other operating charges
resulting from the integration of the two businesses during the fiscal year
ended June 27, 1998. These charges are further described as follows:
RESTRUCTURING COSTS - In connection with the Acquisition, the Company recorded a
$56.7 million restructuring charge during the fiscal year ended June 27, 1998.
Of this amount, the Company recognized $41.0 million in the quarter ended
December 27, 1997 and $15.7 million in the quarter ended March 28, 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 certain operating units and consolidate various overhead functions.
During the nine months ended March 27, 1999, the Company continued the
implementation of its restructuring plan initiated in December 1997. The plan
included the closure of 13 distribution centers in 11 states and consolidation
of the operations of these centers with facilities in the same geographic
region. As of March 27, 1999, consolidation of 11 of the distribution centers
was complete. The Company expects that consolidation of the remaining two
centers will be completed by the end of 1999.
During the nine months ended March 27, 1999, the Company expended $5.1 million
of costs for severance and benefits, $1.8 million of lease commitment costs and
$2.2 million of idle facility and facility closure costs. At March 27, 1999,
$2.2 million of costs for severance and benefits, $8.6 million of lease
commitment costs and $3.0 million of idle facility and facility closure costs
have yet to be expended. Of these amounts, the Company expects to expend $3.0
million during the remainder of fiscal 1999 and $5.4 million in fiscal 2000.
The remaining charges of $5.4 million relate primarily to losses on lease
commitments, the last of which expires in fiscal 2008.
ASSET IMPAIRMENT- During the fiscal year ended June 27, 1998, the Company
recognized non-cash asset impairment charges of $35.5 million. Of this amount,
the Company recognized $32.1 million in the quarter ended December 27, 1997 and
$3.4 million in the quarter ended March 28, 1998. Of these asset impairment
charges, $7.6 million related to the write-down to net realizable value of
buildings and improvements of nine owned facilities being closed; $3.1 million
related to the write-down to net realizable value of buildings which were held
for sale at the date of the Acquisition; $12 million related to costs deferred
for a new management information system was not placed in service as a result of
the Acquisition; and $12.8 million related to other long-term assets at
facilities being closed.
The Company does not expect to incur any additional restructuring costs, asset
impairment charges or transaction costs related to the Acquisition. Any
additional operating costs related to the integration of the two businesses are
not expected to be material.
OTHER OPERATING CHARGES - During the fiscal quarter ended March 28, 1998, the
Company charged $2.5 million to cost of goods sold and $3.8 million to operating
expense for write-downs of inventory, receivables and other current assets
resulting from the operating unit consolidation and realignment during fiscal
1998. The charges related principally to receivable write-offs resulting from
the rationalization of customer and vendor relationships and inventory write-
downs resulting from the reductions in the number of products distributed by the
combined company following the Acquisition, particularly at divisions being
closed and consolidated.
6
<PAGE>
NOTE 3 - PRIOR RESTRUCTURING COSTS
In connection with its acquisition of US Foodservice Inc. on May 17, 1996,
Rykoff-Sexton recorded a restructuring charge of $57.6 million ($35.7 million
after tax) in the transition period ended June 29, 1996. Approximately $10.7
million of the charge related to severance and termination benefit costs, $20.2
million related to lease-related costs and $26.7 million related to other exit
costs, including the closure of duplicate facilities and other integration
activities. During the nine months ended March 27, 1999, the Company expended
$0.1 million of costs for severance and benefits, $1.2 million for lease
commitment costs and $0.6 million for other exit costs. At March 27, 1999,
$0.9 million of costs for severance and benefits, $11.3 million of lease
commitment costs and $2.4 million of other exit costs have yet to be expended.
The Company expects these expenditures to occur at the rate of approximately $2
million per year for fiscal 1999 and the next three fiscal years and $1 million
per year for the following seven fiscal years.
NOTE 4 - EXTRAORDINARY CHARGES
During the fiscal quarter ended December 26, 1998, the Company recorded an
extraordinary charge of $2.7 million (net of a $1.8 million income tax benefit)
related to the redemption and retirement of $75.1 million of 8 7/8% Senior
Subordinated Notes due 2003. The extraordinary charge consisted of a $3.3
million redemption premium paid to note holders and the write-off of $1.2
million of unamortized deferred financing costs.
On December 23, 1997, in connection with the consummation of the Acquisition,
the Company entered into a new bank credit facility which provided for a $550
million five-year revolving credit facility and a $200 million revolver/term
loan facility (collectively the "New Credit Facility"). During the fiscal
quarter ended December 27, 1997, the Company applied the proceeds of the New
Credit Facility to refinance substantially all of its indebtedness in order to
lower significantly its overall borrowing costs. As a result of this re-
financing, the Company recorded an extraordinary charge of $9.7 million (net of
$6.3 million income tax benefit) related to the write-off of deferred financing
costs with respect to the extinguished debt and additional payments to holders
of the Company's senior notes due 2004 in accordance with the senior note terms.
NOTE 5 - OUTSOURCING OF THE MANUFACTURING DIVISION
On August 28, 1998, the Company sold the inventory and fixed assets of its
manufacturing division to a third party. In connection with the sale, the
Company entered into a six-year supply agreement. Under the terms of the sale
and supply agreements, the Company received $85 million in cash and a $16
million subordinated note from the buyer bearing interest at 13% per year and
payable in August 2006. Interest on the note payable is payable in additional
notes through August 2005 and thereafter in cash. The assets transferred had a
net book value of approximately $20 million, including $10.8 million in
inventories. Costs to complete the transaction were approximately $3 million.
Net gain on the sale of assets and proceeds from entering into the supply
agreement aggregated approximately $78 million.
The supply agreement establishes minimum purchase obligations by the Company for
each of the next six years. First year minimum purchase obligations are based
on purchase levels prior to the sale, with the succeeding years' purchase
obligations increasing at a rate of 6% per year. Based on current product
prices, the supply agreement obligates the Company to purchase in excess of $750
million of products over the next six years. The Company may incur substantial
penalties if it does not purchase the minimum product quantities specified in
the agreement.
As a result of the Company's significant continuing involvement in the
manufacturing business, $62 million of the gain is being deferred and recognized
over the life of the supply agreement as goods are purchased from the
manufacturing business and sold to the Company's foodservice customers. The
balance of the gain, including interest attributable to the subordinated note
receivable, will not be recognized until such time as the buyer has sufficient
cash flows to demonstrate payment of the principal and interest.
NOTE 6 - ACQUISITIONS
HAAR - Effective October 23, 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. Annual sales for Haar for its fiscal year
ended September 30, 1998 totaled $57 million. Under the terms of the
acquisition agreement, the Company acquired all of the membership interests of
Haar in exchange for 550,543 shares of the Company's common stock. The
transaction was accounted for as a pooling of interests. Due to the fact that
total assets, net assets and the results of operations were not material to the
Company for any of the prior years, the transaction was recorded as of September
27, 1998.
7
<PAGE>
WEBB - Effective November 16, 1998, the Company completed the acquisition of
Joseph Webb Foods, Inc ("Webb"), a broadline foodservice distributor serving
the San Diego and other Southern California markets. Under the terms of the
acquisition agreement, the Company acquired 100% of the stock of Webb for
896,057 shares of the Company's common stock and $8.0 million in cash, including
transaction costs. In addition, the agreement includes a provision for future
stock payments to the selling shareholders contingent upon achievement of future
sales performance targets. The transaction was accounted for as a purchase.
OTHER - During fiscal 1998, the Company acquired Outwest Meat Company
("Outwest"), Sorrento Food Service, Inc. ("Sorrento") and Westlund Provisions,
Inc. ("Westlunds").
The tables below set forth pro forma information for the three-month period
ended March 28, 1998 and the nine-month periods ended March 28,
1998 and March 27, 1999 giving effect to the acquisitions of Haar, Webb,
Outwest, Sorrento and Westlunds as if such acquisitions had been consummated as
of June 28, 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------------
<S> <C> <C> <C>
(In thousands)
March 28, March 28, March 27,
1998 1998 1999
---------- ---------- ----------
Net sales $1,415,856 $4,344,941 $4,565,010
Income (loss) before
extraordinary charges $ (2,668) $ (63,176) $ 52,639
Net income (loss) $ (2,688) $ (72,888) $ 49,891
Income (loss) per common share
before extraordinary charge
Basic $ (0.06) $ (1.35) $ 1.11
Diluted $ (0.06) $ (1.35) $ 1.09
Net income (loss) per common share
Basic $ (0.06) $ (1.56) $ 1.05
Diluted $ (0.06) $ (1.56) $ 1.04
</TABLE>
NOTE 7 - RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
During the fiscal quarter ended September 26, 1998, the Company adopted
Statement of Financial Accounting Standard (SFAS) No. 130, Reporting
Comprehensive Income. Adoption had no impact on the Company's condensed
consolidated financial statements, as comprehensive income (loss) and net income
(loss) were the same.
NOTE 8 - 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.
8
<PAGE>
NOTE 9 EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the Company's
basic and diluted earnings per share (EPS) computations for income before
extraordinary charge (in 000's):
<TABLE>
<CAPTION>
Quarter Ended March 28, 1998 Quarter Ended March 27, 1999
---------------------------------------- ---------------------------------------
Income (loss) Shares Income (loss) Shares
Numerator Denominator Per Share Numerator Denominator Per Share
------------- ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss) before
extraordinary charge $ (3,260) 45,338 $(0.07) $16,481 48,275 $0.34
Effect of Dilutive Securities
Warrants 52
Common stock options 565
Other stock-based compensation
arrangements 76
Diluted EPS
Income (loss) before -------- ---------- ------------- ------------
extraordinary charge $ (3,260) 45,338 $(0.07) $ 16,481 48,968 $0.34
======== =========== ============ ===========
Nine Months Ended March 28, 1998 Nine Months Ended March 27, 1999
-------------------------------------- ----------------------------------------
Income (loss) Shares Income (loss) Shares
Numerator Denominator Per Share Numerator Denominator Per Share
------------ ----------- --------- ------------ ----------- ---------
Basic EPS
Income (loss) before
extraordinary charge $(64,091) 44,986 $(1.42) $ 54,001 47,451 $1.14
Effect of Dilutive Securities
Warrants 61
Common stock options 572
Other stock-based compensation
arrangements 39
Diluted EPS
Income (loss) before -------- ---------- ----------- -----------
extraordinary charge $(64,091) 44,986 $(1.42) $ 54,001 48,122 $1.13
======== =========== ============ ===========
</TABLE>
The effect of stock options outstanding during fiscal 1998 were not included in
the computation of diluted EPS because the effect would have been anti-dilutive.
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 consummate additional acquisitions and to integrate acquired
businesses. The Company's Annual Report on Form 10-K for the fiscal year ended
June 27, 1998, filed with the Securities and Exchange Commission on September
24, 1998, and amended on January 14, 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.
Overview
- --------
Effective December 23, 1997, Rykoff-Sexton was merged into a wholly owned
subsidiary of U.S. Foodservice (the "Acquisition"). The transaction was
accounted for under the pooling of interests method. In connection with the
Acquisition, management of the combined companies developed a restructuring plan
that included the consolidation of duplicate distribution centers and the
centralization of certain general and administrative functions. The Company
planned to close 13 distributions centers located in California, Florida, Iowa,
Maryland, Massachusetts, Minnesota, Missouri, Nevada, Ohio, Pennsylvania and
Virginia. The Company incurred restructuring costs, asset impairment charges,
transaction costs and certain other operating charges resulting from the
integration of the two businesses (the "Acquisition Related Costs") which
significantly affected the Company's results for fiscal 1998. The Acquisition
Related Costs totalled $138.0 million. Of the total Acquisition Related Costs
recognized during fiscal 1998, $76.6 million consisted of non-cash charges. Of
the cash charges, $38.5 million was expended in fiscal 1998 and $9.1 million in
the nine months ended March 27, 1999. As of March 27, 1999, consolidation of 11
of the distribution centers was complete. The Company expects that consolidation
of the remaining two centers will be completed by the end of 1999.
Virtually all of the corporate overhead functions have been consolidated as of
March 27, 1999. As of this date, the following costs have yet to be expended:
$2.2 million of costs for severance and benefits; $8.6 million of lease
commitment costs; and $3.0 million of idle facility and facility closure costs.
Management anticipates that $3.0 million will be expended in the balance of
fiscal 1999 and $5.4 million in fiscal 2000. The remaining cash outlays of $5.4
million relate primarily to losses on lease commitments, the last of which
expires in fiscal 2008.
The Company is funding these expenditures through, among other things,
realization of cost savings resulting from the integration of the two
businesses, proceeds from the disposition of closed facilities and income tax
benefits. To date, the Company has experienced no significant changes in the
restructuring plan. The Company does not expect to incur any additional
restructuring costs, asset impairment charges or transaction charges with
respect to the Acquisition. Any additional operating costs related to the
integration of the two businesses are not expected to be material.
In connection with the integration plan for the combination of the two
businesses, the Company expected to realize operating cost and interest savings
of $19 million in fiscal 1998, $30 million in fiscal 1999 and $40 million in
fiscal 2000 and thereafter. The Company believes that operating cost and
interest savings exceeded $20 million in fiscal 1998 and $28 million in the
first three quarters of fiscal 1999. The Company achieved operating cost savings
through the consolidation and re-negotiation of purchasing programs,
consolidation and realignment of distribution facilities and consolidation of
general and administrative functions. Interest savings were realized through the
refinancing of the Company's senior debt. Based on the results for fiscal 1998
and the first three quarters of fiscal 1999 and the status of the integration
plan, the Company believes it can achieve the costs savings estimated for fiscal
1999 and subsequent periods.
10
<PAGE>
Results of Operations
- ---------------------
Net Sales
- ---------
The Company's net sales of $1.5 billion for the three months ended March 27,
1999 (the "1999 fiscal quarter") represented a 9.9% increase from the $1.3
billion net sales level achieved for the three months ended March 28, 1999 (the
"1998 fiscal quarter"). For the nine months ended March 27, 1999 (the "1999
fiscal nine-month period"), net sales increased 10.7% to $4.5 billion from $4.0
billion for the nine months ended March 28, 1998 (the "1998 fiscal nine-month
period"). The acquisitions of Outwest Meat Company ("Outwest") in the second
quarter of fiscal 1998, Sorrento Food Service, Inc. ("Sorrento") and Westlund
Provisions, Inc. ("Westlund") in the third quarter of fiscal 1998, and J.H. Haar
& Sons, L.L.C. ("Haar") and Joseph Webb Foods, Inc. ("Webb") in the second
quarter of fiscal 1999 accounted for approximately 50.0% of the sales growth for
the 1999 fiscal quarter and 1999 fiscal nine-month period.
Growth in both multi-unit "chain" account sales and independent "street" sales
contributed to the remaining increase in sales. Chain account sales increased
17.2% in the 1999 fiscal quarter and 16.3% in the 1999 fiscal nine-month
period. This increase was attributable to the addition of new chain businesses
and to the expansion of sales to existing chain customers resulting from the
national distribution capability created through the Acquisition. Street sales
increased 5.5% in the 1999 fiscal quarter and 7.1% in the 1999 fiscal nine-
month period principally as a result of the growth of the street sales force and
improved sales force productivity. Because chain sales grew at a faster rate
than street sales, the street sales mix, or street sales as a percentage of
total net sales, decreased to 59.7% in the 1999 fiscal quarter from 62.2% in the
1998 fiscal quarter.
Gross Profit
- ------------
The Company's gross profit margin decreased to 18.6% in the 1999 fiscal quarter
and to 18.4% in the 1999 fiscal nine-month period from a gross profit margin,
prior to the Acquisition Related Costs, of 18.7% in the 1998 fiscal quarter and
19.0% in the 1998 fiscal nine-month period. The decrease was primarily
attributable to a continuing shift in product mix from certain high-margin items
to higher turnover, lower-margin items, primarily "center-of-the-plate" entree
products in the former Rykoff-Sexton operations, and to an increase in chain
sales as a percentage of net sales in the 1999 fiscal quarter and 1999 fiscal
nine-month period.
Operating Expenses
- ------------------
Operating expenses increased by 6.2% ($13.1 million) in the 1999 fiscal quarter
and by 1.8% ($11.7 million) in the 1999 fiscal nine-month period over the
corresponding periods in 1998.
Excluding the effects of the Acquisition Related Costs, operating expenses
increased by 8.1% ($16.9 million) in the 1999 fiscal quarter and by 4.8% ($31.1
million) in the 1999 fiscal nine-month period over the corresponding periods in
1998, and as a percentage of net sales, decreased to 15.3% in the 1999 fiscal
quarter from 15.6% in the 1998 fiscal quarter and to 15.0% in the 1999 fiscal
nine-month period from 15.9% in the 1998 fiscal nine-month period. These
decreases were primarily attributable to operating efficiencies resulting from
the Acquisition restructuring plan, cost reductions achieved through the
consolidation of the Company's general and administrative functions, and an
increase in the average size of customer deliveries resulting from the shift in
sales mix to increased chain account sales and in product mix to "center-of-the-
plate" entree products.
Amortization of Goodwill and Other Intangible Assets
- ----------------------------------------------------
Amortization of goodwill and other intangible assets was $4.1 million in the
1999 fiscal quarter compared to $3.9 million in the 1998 fiscal quarter and
$12.2 million in the 1999 fiscal nine-month period compared to $11.3 million in
the 1998 fiscal nine-month period. These increases were attributable to the
goodwill arising from the Sorrento, Westlunds and Webb acquisitions.
Restructuring Costs and Asset Impairment
- ----------------------------------------
The Acquisition Related Costs in the 1998 fiscal quarter included a
restructuring charge of $15.7 million, of which $1.4 million constituted non-
cash charges. These costs consisted primarily of change in control payments
made to former executives of Rykoff-Sexton and severance, idle facility and
facility closure costs related to the Company's plan to consolidate and realign
certain operating units and consolidate various overhead functions.
The Acquisition Related Costs in the fiscal 1998 quarter also included non-cash
asset impairment charges of $3.4 million. These charges were related to write-
downs to net realizable value of assets and facilities at operating units that
are being consolidated or realigned and assets related to management information
systems which are being replaced and not currently utilized.
11
<PAGE>
Income (loss) from Operations
- -----------------------------
Income from operations was $43.6 million in the 1999 fiscal quarter compared to
income from operations of $12.7 million in the 1998 fiscal quarter. Income from
operations was $139.9 million in the 1999 fiscal nine-month period compared to a
loss of $1.3 million in the 1998 fiscal nine-month period. Excluding the
Acquisition Related Costs, income from operations increased 14.4% ($5.5 million)
in the 1999 fiscal quarter from the 1998 fiscal quarter and 20.7% ($24.0
million) in the 1999 fiscal nine-month period from the 1998 fiscal nine-month
period. The increases in both periods were attributable to the increase in net
sales and the reduction of operating expenses as a percentage of net sales.
Interest Expense and Other Financing Costs, Net
- -----------------------------------------------
Interest expense and other financing costs decreased $0.2 million or 1.3% in
the 1999 fiscal quarter and $6.8 million or 12.3% in the 1999 fiscal nine-month
period from the corresponding periods in fiscal 1998. The reduced interest
expense was primarily attributable to lower overall interest rates under the
credit facility established in connection with the Acquisition.
Non-Recurring Charges
- ---------------------
The Company incurred non-recurring charges of $17.8 million in the second
quarter of 1998. These charges principally related to fees for financial
advisory, legal and accounting and other professional services incurred by both
companies to consummate the Acquisition.
Provision (Benefit) for Income Taxes
- -------------------------------------
During the 1999 fiscal quarter and the 1999 fiscal nine-month period, the
Company recognized income tax expense at effective rates of 41.3% and 41.1%,
respectively, as compared to (10.2)% and (13.4)%, respectively, for the
corresponding periods in the prior year. The prior year rates reflect the effect
on the income tax provision of the tax deductibility of certain of the
Acquisition Related Costs and the amortization of goodwill. The Company's
effective tax rate before the effect of the Acquisition Related Costs was 40.9%
for the 1998 fiscal quarter and 41.2% for the 1998 fiscal nine-month period.
Extrarodinary Charges
- ---------------------
For the 1999 fiscal nine-month period, the Company recorded extraordinary
charges of $2.7 million (net of a $1.8 million income tax benefit) related to
the redemption and retirement of $75.1 million 8 7/8% Senior Subordinated Notes
due 2003. The extraordinary charge consisted of a $3.3 million redemption
premium paid to note holders and the write-off of $1.2 million of unamortized
deferred financing costs. For the 1998 fiscal nine-month period, the Company
recorded extraordinary charges of $9.7 million (net of a $6.3 million income tax
benefit) related to the write-off of deferred financing costs associated with
extinguished debt and to the additional payments to holders of the Company's
senior notes due 2004 in accordance with the senior note terms.
Liquidity and Capital Resources
- -------------------------------
As of March 27, 1999, the Company's total long-term indebtedness, including
current portion, was $721.5 million, with an overall weighted average interest
rate of 6.24% (excluding deferred financing costs). Long-term borrowings
increased by $6.4 million during the 1999 fiscal nine-month period primarily as
a result of capital expenditures of $52.4 million and net cash of $15.3 million
used in acquisitions. These uses of cash were offset in part by net cash
provided by operating activities of $19.3 million and the receipt of $43.6
million of net cash proceeds from the sale of assets and employee stock
purchases.
The Company's working capital balance (excluding current portion of long-term
debt) of $449.9 million at March 27, 1999 increased by $154.6 million from the
balance at June 27, 1998. The higher working capital balances were primarily
attributable to increased net sales and seasonal increases in inventory and
receivables and a reduction of accounts payable.
The Company made $52.4 million of capital expenditures in the 1999 fiscal nine-
month period, primarily for facility expansion projects and the upgrading of
management information systems. During the 1999 fiscal nine-month period, the
Company realized $12.7 million from the sale of redundant facilities. The
Company estimates that assets held for sale at March 27, 1999 will generate
proceeds of in excess of $17 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 March 27, 1999, $576.7 million of borrowings and $35.3 million of letters
of credit were outstanding under the Company's credit facility and an additional
$137.9 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 borrowings not to exceed $30 million. The Company had $30 million
outstanding under this line of credit
12
<PAGE>
at March 27, 1999. At December 31, 1998, the Company increased the capacity of
its existing $250 million revolving securitization arrangements for accounts
receivable to $353 million. As of March 27, 1999, the Company was utilizing
$325 million of this capacity.
On April 7, 1999 the Company received $48.5 million of net proceeds from the
sale of 1.17 million shares of common stock in a public offering. The Company
applied these proceeds to repay borrowings under its credit facility. On May 7,
1999, the Company will redeem the remaining $54 million of 8 7/8% Senior
Subordinated Notes due 2003 at a redemption price equal to par plus 4.44%.
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 ends with "00" 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: (i) the Company's information
technology and operating systems, including its billing, accounting and
financial reporting systems; (ii) the Company's non-information technology
systems, such as buildings, plant, equipment, telephone systems and other
infrastructure systems that may contain embedded microcontroller technology;
(iii) selected systems of the Company's major vendors and material service
providers insofar as such systems relate to the Company's business activities
with such parties; and (iv) the Company's signficant customers insofar as the
Year 2000 issue relates to the Company's ability to provide services to such
customers. As described below, the Company's Year 2000 program involves (i) an
assessment of the Year 2000 problems that may affect the Company, (ii) the
development and testing of remedies to address the problems discovered in the
assessment phase, and (iii) the preparation of contingency plans to deal with
worst case scenarios.
Assessment Phase. To determine the extent to which its internal systems are
vulnerable to the Year 2000 issue, the Company is currently evaluating the
systems that are date sensitive, including its internal systems and the systems
of its major vendors and significant sevice providers and customers. The
Company has completed its evaluation of its internal systems. The Company's 38
full-service distribution centers, three specialty products and equipment and
supply warehouses, and corporate headquarters currently use various information
systems to process transactions and meet financial reporting needs. Many of
these systems are not Year 2000 compliant. As of April 30, 1999,
information systems used by 21 of the distribution centers and by one specialty
products and equipment and supply warehouse were Year 2000 compliant. In
addition, during the third fiscal quarter, the Company completed the process of
sending letters to its major vendors and signficant service providers and
customers, 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 such parties' business activities with
the Company. The Company is currently evaluating responses on Year 2000
compliance from the third parties who have responded to the Company's inquiries.
The Company expects that it will complete its assessment of all third-party
issues by June 30, 1999.
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 and non-information technology systems in an attempt to demonstrate
that this software will be made substantially Year 2000 compliant on a timely
basis. In this phase, the Company has evaluated the program applications and
identified the Year 2000 problems and has substantially completed the
remediation of these problems. The Company is currently individually testing the
applications to confirm that the remediating changes are effective and have not
adversely affected the functionality of the applications. The Company is
undertaking similar remediation and testing with respect to the hardware and
other equipment that runs or is run by the software. After the individual
applications and system components have undergone remediation and testing
phases, the Company will conduct integrated testing for the purpose of
demonstrating functional integrated systems operation. Following completion of
its internal, integrated systems testing, the Company intends to conduct
laboratory-simulated integrated systems testing in an attempt to demonstrate
substantial Year 2000 compliance of the Company's systems as they interface with
external systems and equipment of the Company's major vendors and significant
service providers and customers.
During fiscal 1998, among other activities, the Company replaced information
processing systems, consisting of hardware and software, at five distribution
centers, initiated software remediation efforts at 15 distribution centers, and
installed new payroll and human resources information systems at 33 distribution
centers and its corporate headquarters. As of the date of this report, the
Company has substantially completed software and hardware remediation efforts
at the remaining distribution centers and its corporate headquarters. The
Company currently seeks to have all of its information systems at its
distribution centers and its corporate headquarters Year 2000 compliant by July
1999.
13
<PAGE>
Contingency Plans. The Company is developing contingency plans to handle its
most reasonably likely worst case Year 2000 scenarios, which it has not yet
identified fully. The Company intends to complete its determination of worst
case scenarios after it has received and analyzed responses to substantially all
of the inquiries it has made of third parties. The Company intends to complete
development of its contingency plans by June 30, 1999.
Costs Related to the Year 2000 Issue. As of March 27, 1999, the Company has
incurred approximately $2.0 million in costs for its Year 2000 program. Such
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 March 27, 1999, the Company has also
made approximately $12.5 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
approximately $4.0 million, excluding internal staff costs, to complete its Year
2000 compliance work with respect to the Company's major information systems.
Of such additional costs, approximately $1.0 million of costs are expected to be
incurred during fiscal 1999 and approximately $3.0 million of 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
remediation and testing activities. The Company expects to fund its Year 2000
remediation costs out of the cash flows generated by its operations. 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 the
Company's 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 such 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 1997 and 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income,
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, and SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activity. SFAS No. 130 and 131 generally require additional financial statement
disclosure. 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. The Company adopted SFAS No. 130
during the first quarter of fiscal 1999 and will adopt SFAS No. 131 during
fiscal 1999 and SFAS No. 133 during fiscal 2000, in accordance with the
pronouncements. 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. Certain management monitoring processes are designed
to minimize the impact of sudden and sustained changes in interest rates. As of
March 27, 1999, the Company's long-term indebtedness consists of fixed rate and
variable rate debt of $55.6 million and $632.7 million, respectively.
Substantially all of the Company's floating rate debt is based on LIBOR. The
Company has effectively capped its interest rate exposure at 7.85% on
approximately $400.0 million of its floating rate debt through June 30, 1999.
In addition, U.S. Foodservice has capped its interest exposure on an additional
$129 million of floating rate debt at 8.875% through November 1, 2003.
U.S. Foodservice sells accounts receivable on a revolving basis under accounts
receivable securitization agrrangements. In the 1999 fiscal quarter, U.S.
Foodservice increased the maximum amount of receivables eligible for sale under
these arrangements from $250 million to $353 million. 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.
Currently, the Company does not use foreign currency forward contracts or
commodity contracts and does not have any material foreign currency exposure.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The Company files herewith the following exhibits:
*3 Amended and Restated By-Laws of the Company.
10.1.1 Amendment No. 5 to Rights Agreement, dated as of March 25,
1999, between the Company and The Bank of New York, as
Rights Agent. Filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on March 26, 1999 and
incorporated herein by reference.
10.1.2 Amendment No. 6 to Rights Agreement, dated as of April 22,
1999, between the Company and The Bank of New York, as
Rights Agent. Filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on April 22, 1999 and incorporated
herein by reference.
*10.2 U.S. Foodservice 1998 Stock Option and Incentive Plan.
*10.3 Description of Material Terms for Payment of Annual
Executive Incentive Compensation.
*10.4 First Amendment to Certain Operative Agreements dated as of
January 21, 1999 by and among JP Foodservice Distributors,
Inc., the Guarantors referenced therein, First Security
Bank, National Association, as Owner Trustee, the various
banks and other lending institutions parties thereto, as
Holders and Lenders, and First Union National Bank, as
Agent.
*27 Financial Data Schedule.
_______________________
* Filed herewith.
(b) The following Current Report on Form 8-K was filed by the
Company during the period covered by this report:
Date of Report Item Reported
-------------- -------------
1. March 26, 1999 Item 5 (Amendment No. 5 to Rights Agreement)
15
<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: May 10, 1999 /s/ George T. Megas
--------------------------------------
George T. Megas, Senior Vice President
and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
16
<PAGE>
Exhibit 3
AMENDED AND RESTATED
BY-LAWS
OF
U.S. FOODSERVICE
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
-----------------
Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, Delaware 19805, in the County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
Section 2. Other Offices. The Corporation may also have offices at
-------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS MEETINGS
Section 1. Places of Meetings. All meetings of stockholders shall be
------------------
held at such place or places in or outside of the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of meeting or waiver of notice thereof, subject to any provisions of the laws of
the State of Delaware.
Section 2. Annual Meetings. Unless otherwise determined from time to
---------------
time by the Board of Directors, the annual meeting of stockholders shall be held
each year for the election of directors and the transaction of such other
business as may properly come before the meeting at such date and time as may be
designated by the Board of Directors. Written notice of the time and place of
the annual meeting shall be given by mail to each stockholder entitled to vote
at such meeting, at the stockholder's address as it appears on the records of
the Corporation, not less than ten (10) nor more than sixty (60) days prior to
the scheduled date thereof.
Section 3. Special Meetings. A special meeting of the stockholders
----------------
of the Corporation may be called at any time by the Chairman of the Board or by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies, and such special meeting may not be called by any other person or
persons. Written notice of the date, time, place and specific purpose or
purposes for which such meeting is called shall be given by mail to each
stockholder entitled to vote thereat at such stockholder's address as it appears
on the records of the Corporation not less
<PAGE>
than (10) nor more than sixty (60) days prior to the scheduled date thereof.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 4. Voting. At all meetings of stockholders, each stockholder
------
entitled to vote on the record date as determined under these By-Laws or, if not
so determined, as prescribed under the laws of the State of Delaware, shall be
entitled to one vote for each share of stock standing on record in such
stockholder's name, subject to any voting powers, restrictions or qualifications
set forth in the Restated Certificate of Incorporation of the Corporation or any
amendment thereto (the "Restated Certificate of Incorporation").
Section 5. Quorum; Voting. At any stockholders meeting, a majority
--------------
of the voting power of the shares of stock outstanding and entitled to vote
thereat, present in person or by proxy, shall constitute a quorum, but a smaller
interest may adjourn any meeting from time to time, and the meeting may be held
as adjourned without further notice, subject to such limitations as may be
imposed under the laws of the State of Delaware. When a quorum is present at
any meeting, the affirmative vote of the holders of a majority of the voting
power of the shares of stock entitled to vote thereon, present in person or by
proxy, shall decide any question brought before such meeting unless such
question is one upon which a different vote is required by express provision of
the Restated Certificate of Incorporation, these By-Laws, the rules or
regulations of the New York Stock Exchange, Inc. or any law or other rule or
regulation applicable to the Corporation, in which case such express provision
shall govern.
Section 6. Inspectors of Election; Opening and Closing the Polls.
-----------------------------------------------------
The Board of Directors may, by resolution, appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at a meeting of stockholders and
make a written report thereof. One or more persons may be designated as
alternative inspectors to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware.
Section 7. Conduct of Meetings. The date and time of the opening and
--------------------
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may, to the extent not prohibited by law, adopt
by
-2-
<PAGE>
resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Directors, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board of
Directors or prescribed by the chairman of the meeting, may to the extent not
prohibited by law include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
Section 8. List of Stockholders. At least ten (10) days before every
--------------------
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address and the
number of shares registered in the name of each stockholder, shall be prepared
by the secretary or the transfer agent in charge of the stock ledger of the
Corporation. Such list shall be open for examination by any stockholder as
required by the laws of the State of Delaware. The stock ledger shall be the
only evidence as to who are the stockholders entitled to examine such list or
the books of the Corporation or to vote in person or by proxy at such meeting.
Section 9. Written Consent in Lieu of Meeting. Except as otherwise
----------------------------------
provided for or fixed pursuant to the provisions of the Restated Certificate of
Incorporation relating to the rights of the holders of any series of preferred
stock, no action that is required or permitted to be taken by the stockholders
of the Corporation at any annual or special meeting of stockholders may be
effected by written consent of stockholders in lieu of a meeting of
stockholders.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number and Qualification. The authorized number of
------------------------
directors that shall constitute the full Board of Directors of the Corporation
shall be fixed from time to time by resolution of the Board of Directors. The
Board of Directors, other than those directors elected by the holders of any
series of preferred stock, shall be divided into three classes, as nearly equal
in number as the then-authorized number of directors constituting the Board of
Directors permits,
-3-
<PAGE>
with the term of office of one class expiring each year and with each director
serving for a term ending at the third annual meeting of stockholders of the
Corporation following the annual meeting at which such director was elected.
Members of each class shall hold office until their successors are elected and
qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term expires at that
meeting shall be elected by a plurality vote of all votes cast at such meeting
to hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. Directors need not be
stockholders of the Corporation. Notwithstanding any other provision of these
By-Laws, (i) no person who has attained 70 years of age may be elected to the
Board of Directors and (ii) any director who attains 70 years of age after such
director's election to the Board of Directors may serve for the entire term of
the class of the Board of Directors to which such director was elected. The
requirements of the preceding sentence shall not apply to any director of the
Corporation elected to the Board of Directors prior to June 29, 1997.
Section 2. Powers. The business and affairs of the Corporation shall
------
be carried on by or under the direction of the Board of Directors, which shall
have all the powers authorized by the laws of the State of Delaware, subject to
such limitations as may be provided by the Restated Certificate of Incorporation
or these By-Laws. Except as otherwise expressly provided herein or in the
Restated Certificate of Incorporation, the vote of the majority of directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 3. Compensation. The Board of Directors may from time to
------------
time by resolution authorize the payment of fees or other compensation to the
directors for services as such to the Corporation, including, but not limited
to, fees for attendance at all meetings of the Board of Directors or of the
executive committee or other committees of the Board of Directors, and determine
the amount of such fees and compensation. Nothing herein contained shall be
construed to preclude any director from serving the Corporation or any of its
subsidiaries in any other capacity and receiving compensation therefor in
amounts authorized or otherwise approved from time to time by the Board of
Directors.
Section 4. Meetings and Quorum. Meetings of the Board of Directors
-------------------
may be held either in or outside of the State of Delaware. At all meetings of
the Board of Directors, a majority of the total number of directors which the
Corporation would have if there were no vacancies shall constitute a quorum. If
a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors. Notice of special meetings shall be given to each director
on
-4-
<PAGE>
24 hours notice to each director, either orally, by mail, overnight courier,
telegram, facsimile, personal delivery or similar means. Special meetings may be
called by the president or the Chairman of the Board of Directors and shall be
called by the president or secretary in the manner and on the notice set forth
above upon the written request of a majority of the total number of directors
which the Corporation would have if there were no vacancies.
Notice of any meeting shall state the time and place of such meeting,
but need not state the purposes thereof unless otherwise required by the laws of
the State of Delaware, the Restated Certificate of Incorporation, these By-Laws
or the Board of Directors.
Section 5. Executive Committee. The Board of Directors may designate
-------------------
an Executive Committee to exercise, subject to applicable provisions of law, all
the powers of the Board of Directors in the management of the business and
affairs of the Corporation when the Board of Directors is not in session,
including, without limitation, the power to declare dividends and to authorize
the issuance of the Corporation's capital stock, and may, by resolution
similarly adopted, designate one or more other committees, including the
committees specified in Section 6 of this Article III. The Executive Committee
shall consist of two or more directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of the
Executive Committee, who may replace any absent member at any meeting of the
Executive Committee. The members of the Executive Committee present at any
meeting, whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent member. The Executive Committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board of Directors when
required.
A majority of the Executive Committee may determine its action and fix
the time and place of its meetings, unless the Board of Directors shall
otherwise provide. Notice of such meetings shall be given to each member of the
Executive Committee in the manner provided for in Section 4 of this Article III.
The Board of Directors shall have power at any time to fill vacancies in, to
change the membership of, or to dissolve the Executive Committee.
Section 6. Other Committees.
----------------
(a) The Board of Directors shall appoint the following standing
committees, the members of which shall serve at the pleasure of the Board of
Directors: a Nominating Committee, a Compensation Committee and an Audit
Committee. The Board of Directors may appoint such other committees among the
directors of the Corporation as it deems necessary and appropriate for the
proper conduct of the Corporation's business and may appoint such officers,
agents or employees of the Corporation to assist the committees of the Board of
Directors as it
-5-
<PAGE>
deems necessary and appropriate. Meetings of committees may be called by the
chairman of the committee on 24 hours notice to each committee member, either
orally, by mail, overnight courier, telegram, facsimile or similar means and
shall be called by the chairman of the committee in like manner and on like
notice on the written request of a committee member. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
(b) One or more directors of the Corporation shall be appointed to act
as a Nominating Committee. The Nominating Committee shall be responsible for
proposing to the Board of Directors nominees for election as directors and shall
possess and may exercise such additional powers and authority as may be
delegated to it by the Board of Directors from time to time. Vacancies in the
membership of the Nominating Committee shall be filled by the Board of
Directors.
(c) One or more directors of the Corporation shall be appointed to act
as a Compensation Committee, each of whom shall be a director who is not also an
officer or employee of the Corporation or any of its subsidiaries or any other
individual having a relationship which, in the opinion of the Board of
Directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director (each such director, an "Unaffiliated
Director"). The Compensation Committee shall be responsible for establishing
salaries, bonuses and other compensation for such officers of the Corporation as
shall be designated from time to time by the Board of Directors or Compensation
Committee and shall possess and may exercise such additional powers and
authority as may be delegated to it by the Board of Directors from time to time.
Vacancies in the membership of the Compensation Committee shall be filled by the
Board of Directors.
(d) One or more Unaffiliated Directors of the Corporation shall be
appointed to act as an Audit Committee. The Audit Committee shall have general
oversight responsibility with respect to the Corporation's financial reporting.
In performing its oversight responsibility, the Committee shall make
recommendations to the Board of Directors as to the selection, retention or
change in the independent accountants of the Corporation, review with the
independent accountants the scope of their examination and other matters
(relating to both audit and non-audit activities), review generally the internal
auditing procedures of the Corporation and exercise such additional powers and
authority as may be delegated to it by the Board of Directors from time to time.
In undertaking the foregoing responsibilities, the Audit Committee shall have
unrestricted access, if necessary, to personnel of the Corporation and documents
and shall be provided with the resources and assistance necessary to discharge
its responsibilities, Vacancies in the membership of the Audit Committee shall
be filled by the Board of Directors.
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<PAGE>
Section 7. Conference Telephone Meetings. Any one or more members of
-----------------------------
the Board of Directors or any committee thereof may participate in meetings by
means of a conference telephone or similar communications equipment, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 8. Action Without Meetings. Any action required or permitted
-----------------------
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken by unanimous written consent without a meeting to the extent and in
the manner authorized by the laws of the State of Delaware.
ARTICLE IV
OFFICERS
Section 1. Titles and Election. The officers of the Corporation
-------------------
shall be the president, a secretary and a treasurer, who shall initially be
elected as soon as convenient by the Board of Directors and thereafter, in the
absence of earlier resignations or removals, shall be elected annually by the
Board of Directors. Each officer shall hold office at the pleasure of the Board
of Directors except as may otherwise be approved by the Board of Directors, or
until such officer's earlier resignation, removal under these By-Laws or other
termination of employment. Any person may hold more than one office if the
duties can be consistently performed by the same person, to the extent permitted
by the laws of the State of Delaware.
The Board of Directors, in its discretion, may also at any time elect
or appoint a Chairman of the Board and Chief Executive Officer, who shall be a
director, and one or more vice presidents, assistant secretaries and assistant
treasurers and such other officers as it may deem advisable, each of whom shall
hold office at the pleasure of the Board of Directors, except as may otherwise
be approved by the Board of Directors, or until such officer's earlier
resignation, removal or other termination of employment, and shall have such
authority and shall perform such duties as shall be prescribed or determined
from time to time by the Board of Directors or, in case of officers other than
the Chairman of the Board, if not so prescribed or determined by the Board of
Directors, as the chief executive officer or the then senior executive officer
may prescribe or determine. The Board of Directors may require any officer or
other employee or agent to give bond for the faithful performance of duties in
such form and with such sureties as the Board of Directors may require.
Section 2. Duties. Subject to such extension, limitations and other
------
provisions as the Board of Directors or these By-Laws may from time to time
prescribe or determine, the following officers shall have the following powers
and duties:
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<PAGE>
(a) Chairman of the Board and Chief Executive Officer. The Chairman
-------------------------------------------------
of the Board and Chief Executive Officer (sometimes referred to herein as the
"Chairman of the Board"), when present, shall preside at all meetings of the
stockholders (unless another officer is authorized to do so by the Board of
Directors) and of the Board of Directors and shall be charged with general
supervision of the management and policy of the Corporation, and shall have such
other powers and perform such other duties as the Board of Directors may
prescribe from time to time. The Chairman of the Board shall be the chief
executive officer of the Corporation, shall exercise the powers and authority
and perform all of the duties commonly incident to such office and shall perform
such other duties as chief executive officer as the Board of Directors shall
specify from time to time.
(b) President. The president shall act in a general executive
---------
capacity, shall report to the Chairman of the Board and chief executive officer
and shall assist the Chairman of the Board in the administration and operation
of the Corporation's business and general supervision of its policies and
affairs. The president shall, in the absence at a meeting of stockholders of
the Corporation or of the Board of Directors, or because of the inability to
act, of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of the stockholders (except as provided in
paragraph (a) of this Section 2) and of the Board of Directors, if he is a
director.
(c) Vice President. The vice president or vice presidents shall
--------------
perform such duties as may be assigned to them from time to time by the Board of
Directors or by the chief executive officer or the then senior executive officer
if the Board of Directors does not do so. In the absence or disability of the
president, the vice presidents in order of seniority may, unless otherwise
determined by the Board of Directors, exercise the powers and perform the duties
pertaining to the office of president, except that if one or more executive vice
presidents or senior vice presidents has been elected or appointed, the person
holding such office in order of seniority shall exercise the powers and perform
the duties of the office of president.
(d) Secretary. The secretary, or in the secretary's absence, an
---------
assistant secretary shall keep the minutes of all meetings of stockholders and
of the Board of Directors, give and serve all notices, attend to such
correspondence as may be assigned to such officer, keep in safe custody the seal
of the Corporation, and affix such seal to all such instruments properly
executed as may require it, and shall have such other duties and powers as may
be prescribed or determined from time to time by the Board of Directors or by
the chief executive officer or the then senior executive officer if the Board of
Directors does not do so.
(e) Treasurer. The treasurer, subject to the order of the Board of
---------
Directors, shall have the care and custody of the moneys, funds, valuable papers
and documents of the Corporation (other than such officer's own bond, if any,
which shall be in the custody of the president), and shall have, under the
supervision of
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<PAGE>
the Board of Directors, all the powers and duties commonly incident to such
office. The treasurer shall be subject in every way to the order of the Board of
Directors, and shall render to the Board of Directors and the chief executive
officer or the then senior executive officer of the Corporation, whenever they
may require it, an account of all transactions and of the financial condition of
the Corporation. In addition to the foregoing, the treasurer shall have such
duties as may be prescribed or determined from time to time by the Board of
Directors or by the chief executive officer or the then senior executive officer
if the Board of Directors does not do so.
(f) Delegation of Authority. The Board of Directors may at any time
-----------------------
delegate the powers and duties of any officer for the time being to any other
officer, director or employee.
ARTICLE V
RESIGNATIONS AND VACANCIES
Section 1. Resignations. Any director or officer may resign at any
------------
time by giving written notice thereof to the Board of Directors, the president
or the secretary. Any such resignation shall take effect at the time specified
therein or, if the time be not specified, upon receipt thereof; and unless
otherwise specified therein, the acceptance of any resignation shall not be
necessary to make it effective.
Section 2. Vacancies.
---------
(a) Directors. Except for the rights of the holders of any series of
---------
preferred stock to elect additional directors, newly created directorships
resulting from any increase in the authorized number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled only by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or in which
the vacancy occurred and until such director's successor is duly elected and has
been qualified. The directors also may reduce the authorized number of
directors by the number of vacancies on the Board of Directors. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
(b) Officers. The Board of Directors may at any time or from time to
--------
time fill any vacancy among the officers of the Corporation.
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<PAGE>
ARTICLE VI
CAPITAL STOCK
Section 1. Certificate of Stock. Every stockholder shall be entitled
--------------------
to a certificate or certificates for shares of the capital stock of the
Corporation in such form as may be prescribed or authorized by the Board of
Directors, duly numbered and setting forth the number and kind of shares
represented thereby. Such certificates shall be signed by the Chairman of the
Board, the president or a vice president and by the treasurer or an assistant
treasurer or by the secretary or an assistant secretary. Any or all of such
signatures may be in facsimile if and to the extent authorized under the laws of
the State of Delaware.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before the certificate has been issued,
such certificate may nevertheless be issued and delivered by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
Section 2. Transfer of Stock. Shares of the capital stock of the
-----------------
Corporation shall be transferable only upon the books of the Corporation upon
the surrender of the certificate or certificates properly assigned and endorsed
for transfer. If the Corporation has a transfer agent or agents or transfer
clerk and registrar of transfers acting on its behalf, the signature of any
officer or representative thereof may be in facsimile.
The Board of Directors may appoint a transfer agent and one or more
co-transfer agents and a registrar and one or more co-registrars of transfer and
may make or authorize the transfer agents to make all such rules and regulations
deemed expedient concerning the issue, transfer and registration of shares of
capital stock.
Section 3. Record Dates. In order that the Corporation may determine
------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix in advance a
record date which, in the case of a meeting, shall not be less than ten (10) nor
more than sixty (60) days prior to the scheduled date of such meeting and which,
in the case of any other action, shall be not more than the maximum or less than
the minimum number of days prior to any such action permitted by the laws of the
State of Delaware. If no such record date is fixed by the Board of Directors,
the record date shall be that prescribed by the laws of the State of Delaware.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders
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<PAGE>
shall apply to any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
Section 4. Lost Certificates. In case of loss or mutilation or
-----------------
destruction of a stock certificate, a duplicate certificate may be issued upon
such terms as may be determined or authorized by the Board of Directors or by
the chief executive officer or the then senior executive officer if the Board of
Directors does not do so.
ARTICLE VII
FISCAL YEAR, BANK DEPOSITS, CHECK, ETC.
Section 1. Fiscal Year. The fiscal year of the Corporation shall
-----------
commence or end at such time as the Board of Directors may designate.
Section 2. Bank Deposits, Checks, etc. The funds of the Corporation
--------------------------
shall be deposited in the name of the Corporation or of any division thereof in
such banks or trust companies in the United States or elsewhere as may be
designated from time to time by the Board of Directors, or by such officer or
officers as the Board of Directors may authorize to make such designations.
All checks, drafts or other orders for the withdrawal of funds from
any bank account shall be signed by such person or persons as may be designated
from time to time by the Board of Directors. The signatures on checks, drafts
or other orders for the withdrawal of funds may be in facsimile if authorized in
the designation.
ARTICLE VIII
BOOKS AND RECORDS
Section 1. Place of Keeping Books. Unless otherwise expressly
----------------------
required by the laws of the State of Delaware, the books and records of the
Corporation may be kept outside of the State of Delaware.
Section 2. Examination of Books. Except as may otherwise be provided
--------------------
by the laws of the State of Delaware, the Restated Certificate of Incorporation
or these By-Laws, the Board of Directors shall have power to determine from time
to time whether and to what extent and at what times and places and under what
conditions any of the accounts, records and books of the Corporation are to be
open to the inspection of any stockholder. No stockholder shall have any right
to inspect any account or book or document of the Corporation except as
prescribed by the laws of the State of Delaware or authorized by express
resolution of the Board of Directors.
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<PAGE>
ARTICLE IX
NOTICES
Section 1. Requirements of Notice. Whenever notice is required to be
----------------------
given by the laws of the State of Delaware, the Restated Certificate of
Incorporation or these By-Laws, it shall not mean personal notice unless so
specified.
Section 2. Waivers. Any stockholder, director or officer may, in
-------
writing or by telegram or cable, at any time waive any notice or other formality
required by the laws of the State of Delaware, the Restated Certificate of
Incorporation or these By-Laws. Such waiver of notice, whether given before or
after any meeting or action, shall be deemed equivalent to notice. Presence of
a stockholder either in person or by proxy at any meeting of stockholders and
presence of any director at any meeting of the Board of Directors or any
committee thereof shall constitute a waiver of notice of such meeting to the
extent authorized by the laws of the State of Delaware.
ARTICLE X
SEAL
The corporate seal of the Corporation shall consist of two concentric
circles between which shall be the name of the Corporation and the date of its
incorporation, and in the center of which shall be inscribed "Corporate Seal,
Delaware."
ARTICLE XI
POWERS OF ATTORNEY
The Board of Directors may authorize one or more of the officers of
the Corporation, and any officer of the Corporation may authorize one or more
persons, to execute powers of attorney delegating to named representatives or
agents power to represent or act on behalf of the Corporation, with or without
power of substitution.
In the absence of any action by the Board of Directors, the president,
any vice president, the secretary or the treasurer of the Corporation may
execute for and on behalf of the Corporation waivers of notice of meetings of
stockholders and proxies for such meetings in any company in which the
Corporation may hold voting securities.
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<PAGE>
ARTICLE XII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Definitions. As used in this article, the term "person"
-----------
means any past, present or future director or officer of the Corporation or any
subsidiary or operating division thereof.
Section 2. Indemnification Granted. The Corporation shall indemnify,
-----------------------
to the full extent and under the circumstances permitted by the General
Corporation Law of the State of Delaware in effect from time to time, any person
as defined above, made or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of the Corporation or a subsidiary or operating
division thereof, or is or was such a director or officer serving at the written
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person or on
such person's behalf in connection with such action, suit or proceeding and any
appeal therefrom, if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such conduct was unlawful.
Section 3. Requirements for Indemnification Relating to an Action or
---------------------------------------------------------
Suit by or in the Right of the Corporation. The Corporation shall indemnify any
- ------------------------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director or officer of the Corporation or a subsidiary
thereof or a designated officer of an operating division of the Corporation, or
is or was serving at the specific request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action alleged to have been taken
or omitted in such capacity, against costs, charges and expenses (including
attorneys' fees) actually and reasonably incurred by such person or on such
person's behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if such person acted in good faith and in a
manner that such person reasonably believed to be in or not opposed to the best
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<PAGE>
interest of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
Section 4. Success on Merits of Any Action. Notwithstanding any
-------------------------------
other provision of this Article, to the extent that a director or officer of the
Corporation or any subsidiary or operating division thereof has been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in defense of any action, suit or proceeding referred
to in this Article, or in defense of any claim, issue or matter therein, such
person shall be indemnified against all costs, charges and expenses (including
attorneys' fees) actually and reasonably incurred by such person or on such
person's behalf in connection therewith.
Section 5. Determination of Standard of Conduct. Any indemnification
------------------------------------
under Sections 2 and 3 of this Article (unless ordered by a court) shall be paid
by the Corporation only after a determination has been made (1) by the directors
who were not parties to such action, suit or proceeding or (2) if such quorum is
not obtainable, or even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders, that indemnification of the director or officer is proper in the
circumstances of the specific case because such person has met the applicable
standard of conduct set forth in Sections 2 and 3 of this Article.
Section 6. Advance Payment; Representation by Corporation. Costs,
----------------------------------------------
charges and expenses (including attorneys' fees) incurred by a person referred
to in Sections 2 and 3 of this Article in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a director or officer in
such capacity as officer or director (and not in any other capacity and which
service was or is rendered by such person while a director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article. Such costs, charges and expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate. The
Corporation may, in the manner set forth above, and upon approval of such
director or officer, authorize the Corporation's counsel to represent such
person, in any
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action, suit or proceeding, whether or not the Corporation is a party to such
action, suit or proceeding.
Section 7. Procedure for Obtaining Indemnity. Any indemnification
---------------------------------
under Sections 2, 3 and 4, or advance of costs, charges and expenses under
Section 6, of this Article shall be made promptly, and in any event within
sixty (60) days, of the written notice of the director or officer. The right to
indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction if the
Corporation denies such request, in whole or in part, or if no disposition
thereof is made within sixty (60) days. Such person's costs and expenses
incurred in connection with successfully establishing a right to indemnification
or advancement of expenses, in whole or in part, in any action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 6 of this Article where the required undertaking, if any,
has been received by the Corporation) that the claimant has not met the standard
of conduct set forth in Section 2 or 3 of this Article, but the burden of
proving such defense shall be on the Corporation. Neither failure of the
Corporation (including its directors, its independent legal counsel, and its
stockholders) to have made a determination that indemnification of the claimant
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 2 or 3 of this Article, nor the fact
that there has been an actual determination by the Corporation (including its
directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 8. Indemnification Not Exclusive. This right of
-----------------------------
indemnification shall not be deemed exclusive of any other rights to which a
person indemnified herein may be entitled by law, agreement, vote of
stockholders or disinterested directors or otherwise, and shall continue as to a
person who has ceased to be a director, officer, designated officer, employee or
agent and shall inure to the benefit of the heirs, executors, administrators and
other legal representatives of such person. It is not intended that the
provisions of this Article be applicable to, and they are not to be construed as
granting indemnity with respect to, matters as to which indemnification would be
in contravention of the laws of Delaware or of the United States of America,
whether as a matter of public policy or pursuant to statutory provision.
Section 9. Invalidity of Certain Provisions. If this Article or any
--------------------------------
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director or
officer of the Corporation or any subsidiary or operating division thereof as to
costs, charges and expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil,
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<PAGE>
criminal, administrative or investigative, including any action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and to the full extent
permitted by applicable law.
Section 10. Miscellaneous. The Board of Directors may also on behalf
-------------
of the Corporation grant indemnification to any individual other than a person
defined herein to such extent and in such manner as the Board in its sole
discretion may from time to time and at any time determine.
ARTICLE XIII
AMENDMENTS
These By-Laws may be altered, amended or repealed, and new By-Laws may
be made, by the affirmative vote of a majority of the directors then in office.
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EXHIBIT 10.2
U.S. FOODSERVICE
1998 STOCK OPTION AND INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PURPOSE........................................................................................... 1
2. DEFINITIONS....................................................................................... 1
3. ADMINISTRATION OF THE PLAN........................................................................ 4
3.1. Board........................................................................................ 4
3.2. Committee.................................................................................... 4
3.3. Grants....................................................................................... 5
3.4. No Liability................................................................................. 6
3.5. Applicability of Rule 16b-3.................................................................. 6
4. STOCK SUBJECT TO THE PLAN......................................................................... 6
4.1. Aggregate Limitation......................................................................... 6
4.2. Other Plan Limits............................................................................ 7
4.3. Payment Shares............................................................................... 7
4.4. Application of Aggregate Limitation.......................................................... 7
4.5. Per-Grantee Limitation....................................................................... 7
5. EFFECTIVE DATE AND TERM OF THE PLAN............................................................... 8
5.1. Effective Date............................................................................... 8
5.2. Term......................................................................................... 8
6. PERMISSIBLE GRANTEES.............................................................................. 9
6.1. Employees and Service Providers.............................................................. 9
6.2. Successive Grants............................................................................ 9
7. LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS.................................................. 9
8. AWARD AGREEMENT................................................................................... 9
9. OPTION PRICE...................................................................................... 10
10. VESTING, TERM AND EXERCISE OF OPTIONS............................................................ 10
10.1. Vesting and Option Period.................................................................. 10
10.2. Term....................................................................................... 10
10.3. Acceleration............................................................................... 11
10.4. Termination of Employment or Other Relationship for a
Reason Other than Death or Disability...................................................... 11
10.5. Rights in the Event of Death............................................................... 11
10.6. Rights in the Event of Disability.......................................................... 12
10.7. Rights in the Event of Retirement.......................................................... 12
10.8. Limitations on Exercise of Option.......................................................... 12
10.9. Method of Exercise......................................................................... 13
10.10. Rights as a Stockholder; Dividend Equivalents............................................. 13
10.11. Delivery of Stock Certificates............................................................ 14
11. TRANSFERABILITY OF OPTIONS....................................................................... 14
11.1. General Rule............................................................................... 14
11.2. Family Transfers........................................................................... 14
12. RELOAD OPTIONS................................................................................... 15
</TABLE>
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<TABLE>
<S> <C>
13. RESTRICTED STOCK................................................................................. 15
13.1. Grant of Restricted Stock or Restricted Stock Units........................................ 15
13.2. Restrictions............................................................................... 15
13.3. Restricted Stock Certificates.............................................................. 16
13.4. Rights of Holders of Restricted Stock...................................................... 16
13.5. Rights of Holders of Restricted Stock Units................................................ 17
13.6. Termination of Employment or Other Relationship for a
Reason Other than Death or Disability...................................................... 17
13.7. Rights in the Event of Death............................................................... 18
13.8. Rights in the Event of Disability.......................................................... 18
13.9. Delivery of Shares and Payment Therefor.................................................... 18
14. STOCK APPRECIATION RIGHTS........................................................................ 18
14.1. Grant of Stock Appreciation Rights......................................................... 19
14.2. Nature of a Stock Appreciation Right....................................................... 19
14.3. Terms and Conditions Governing SARs........................................................ 19
15. PARACHUTE LIMITATIONS............................................................................ 19
16. 16. REQUIREMENTS OF LAW.......................................................................... 20
16.1. General.................................................................................... 20
16.2. Rule 16b-3................................................................................. 21
17. AMENDMENT AND TERMINATION OF THE PLAN............................................................ 21
18. EFFECT OF CHANGES IN CAPITALIZATION.............................................................. 22
18.1. Changes in Stock........................................................................... 22
18.2. Reorganization, Sale of Assets or Sale of Stock............................................ 22
18.3. Adjustments................................................................................ 23
18.4. No Limitations on Company.................................................................. 24
19. DISCLAIMER OF RIGHTS............................................................................. 24
20. NONEXCLUSIVITY OF THE PLAN....................................................................... 24
21. WITHHOLDING TAXES................................................................................ 25
22. CAPTIONS......................................................................................... 25
23. OTHER PROVISIONS................................................................................. 25
24. NUMBER AND GENDER................................................................................ 26
25. SEVERABILITY..................................................................................... 26
26. POOLING.......................................................................................... 26
27. GOVERNING LAW.................................................................................... 26
</TABLE>
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U.S. FOODSERVICE
1998 STOCK OPTION AND INCENTIVE PLAN
U.S. Foodservice, a Delaware corporation (the "Company"), sets forth herein
the terms of its 1998 Stock Option and Incentive Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to enhance the Company's ability to attract and retain
highly qualified officers, key employees, outside directors and other persons,
and to motivate such officers, key employees, outside directors and other
persons to serve the Company and its affiliates (as defined herein) and to
expend maximum effort to improve the business results and earnings of the
Company, by providing to such officers, key employees, outside directors and
other persons an opportunity to acquire or increase a direct proprietary
interest in the operations and future success of the Company. To this end, the
Plan provides for the grant of stock options, restricted stock, restricted stock
units and stock appreciation rights in accordance with the terms hereof. Stock
options granted under the Plan may be non-qualified stock options or incentive
stock options, as provided herein, except that stock options granted to outside
directors shall in all cases be non-qualified stock options.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including Award
Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any company
or other trade or business that controls, is controlled by or is under common
control with such person within the meaning of Rule 405 of Regulation C under
the Securities Act.
2.2 "Award Agreement" means the stock option agreement, restricted stock
agreement, restricted stock unit agreement, stock appreciation right agreement
or other written agreement between the Company and a Grantee that evidences and
sets out the terms and conditions of a Grant.
2.3 "Board"means the Board of Directors of the Company.
2.4 "Code"means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
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2.5 "Committee" means a committee of, and designated from time to time by
resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate of the Company.
2.6 "Company" means U.S. Foodservice.
2.7 "Effective Date" means the date designated by the Board in its resolution
adopting the Plan.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as now in effect
or as hereafter amended.
2.9 "Fair Market Value" means the opening price of a share of Stock reported
on the New York Stock Exchange ("NYSE") on the date Fair Market Value is being
determined, provided that if there should be no opening price reported on such
date, the Fair Market Value of a share of 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 were reported. Notwithstanding the foregoing, in the
event that the shares of Stock are listed upon more than one established stock
exchange, Fair Market Value means the opening price of a share of Stock reported
on the exchange that trades the largest volume of shares on the Grant Date. If
the Stock is not at the time listed or admitted to trading on a stock exchange,
Fair Market Value means the mean between the lowest reported bid price and
highest reported asked price of the Stock on the date in question in the over-
the-counter market, as such prices are reported in a publication of general
circulation selected by the Board and regularly reporting the market price of
Stock in such market. If the Stock is not listed or admitted to trading on any
stock exchange or traded in the over-the-counter market, Fair Market Value shall
be as determined in good faith by the Board.
2.10 "Grant" means an award of an Option, Restricted Stock, Restricted Stock
Unit or Stock Appreciation Right under the Plan.
2.11 "Grant Date" means, as determined by the Board or authorized Committee,
(i) the date as of which the Board or such Committee approves a Grant, (ii) the
date on which the recipient of a Grant first becomes eligible to receive a Grant
under Section 6 hereof or (iii) such other date as may be specified by the Board
or such Committee.
2.12 "Grantee" means a person who receives or holds an Option, Restricted
Stock, Restricted Stock Unit or Stock Appreciation Right under the Plan.
2.13 "Immediate Family Members" means the spouse, children, grandchildren,
parents and siblings of the Grantee.
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2.14 "Incentive Stock Option "means an "incentive stock option"within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.15 "Option" means an option to purchase one or more shares of Stock pursuant
to the Plan.
2.16 "Option Period" means the period during which Options may be exercised as
set forth in Section 10 hereof.
2.17 "Option Price" means the purchase price for each share of Stock subject
to an Option.
2.18 "Outside Director" means a member of the Board who is not an officer or
employee of the Company or any Subsidiary.
2.19 "Plan" means this U.S. Foodservice 1998 Stock Option and Incentive Plan,
as amended from time to time.
2.20 "Reload Option" means the right, upon exercise of and satisfaction of an
Option through the delivery of shares, automatically to be granted a new Non-
Qualified Stock Option subject to the terms and provisions of Section 12 hereof.
2.21 "Reporting Person" means a person who is required to file reports under
Section 16(a) of the Exchange Act.
2.22 "Restricted Period" means the period during which Restricted Stock or
Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 13.2 hereof.
2.23 "Restricted Stock" means shares of Stock, awarded to a Grantee pursuant
to Section 13 hereof, that are subject to restrictions and to a risk of
forfeiture.
2.24 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to
Section 13 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.25 "Securities Act" means the Securities Act of 1933, as now in effect or as
hereafter amended.
2.26 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
Section 6 hereof.
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2.27 "Stock" means the common stock, par value $0.01 per share, of the
Company.
2.28 "Stock Appreciation Right" or "SAR" means a right granted to a Grantee
pursuant to Section 14 hereof.
2.29 "Subsidiary" means any "subsidiary corporation"of the Company within
the meaning of Section 424(f) of the Code.
2.30 "Termination Date" means the date upon which an Option shall terminate or
expire, as set forth in Section 10.2 hereof.
3. ADMINISTRATION OF THE PLAN
3.1. Board
The Board shall have such powers and authorities related to the administration
of the Plan as are consistent with the Company's certificate of incorporation,
bylaws and applicable law. The Board shall have full power and authority to take
all actions and to make all determinations required or provided for under the
Plan, any Grant or any Award Agreement, and shall have full power and authority
to take all such other actions and make all such other determinations not
inconsistent with the specific terms and provisions of the Plan that the Board
deems to be necessary or appropriate to the administration of the Plan, any
Grant or any Award Agreement. All such actions and determinations shall be by
the affirmative vote of a majority of the members of the Board present at a
meeting or by unanimous consent of the Board executed in writing in accordance
with the Company's certificate of incorporation, bylaws and applicable law. The
interpretation and construction by the Board of any provision of the Plan, any
Grant or any Award Agreement shall be final and conclusive. As permitted by
law, the Board may delegate its authority under the Plan to a member of the
Board or an executive officer of the Company; provided, however, that, unless
otherwise provided by resolution of the Board, only the Board or the Committee
may make a Grant to an executive officer of the Company and establish the number
of shares of Stock that may be subject to Grants with respect to any fiscal
period.
3.2. Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in Section 3.1 hereof and in other applicable provisions of the Plan, as
the Board shall determine, consistent with the Company's certificate of
incorporation,
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bylaws and applicable law. In the event that the Plan, any Grant or any Award
Agreement provides for any action to be taken or determination to be made by the
Board, such action may be taken by or such determination may be made by the
Committee if the power and authority to do so has been delegated to the
Committee by the Board as provided for in this Section 3.2. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final, binding and conclusive. As permitted by law, the
Committee may delegate the authority delegated to it under the Plan to a member
of the Board of Directors or an executive officer of the Company; provided,
however, that, unless otherwise provided by the Board, only the Board or the
Committee may make a Grant to an executive officer of the Company and establish
the number of shares of Stock that may be subject to Grants during any fiscal
period.
3.3. Grants.
Subject to the other terms and conditions of the Plan, the Board shall have full
and final authority (i) to designate Grantees, (ii) to determine the types of
Grants to be made to a Grantee, (iii) to determine the number of shares of Stock
to be subject to a Grant, (iv) to establish the terms and conditions of each
Grant, including, but not limited to, the exercise price of any Option, the
nature and duration of any restriction or condition (or provision for lapse
thereof, including lapse relating to a change in control of the Company)
relating to the vesting, exercise, transfer or forfeiture of a Grant or the
shares of Stock subject thereto, and any terms or conditions that may be
necessary to qualify Options as Incentive Stock Options, (v) to prescribe the
form of each Award Agreement evidencing a Grant, (vi) to make Grants alone, in
addition to, in tandem with, or in substitution or exchange for any other Grant
or any other award granted under another plan of the Company or a Subsidiary,
and (vii) to amend, modify or supplement the terms of any outstanding Grant.
Such authority specifically includes the authority, in order to effectuate the
purposes of the Plan but without amending the Plan, to modify Grants to eligible
individuals who are foreign nationals or are individuals who are employed
outside the United States to recognize differences in local law, tax policy or
custom. As a condition to any subsequent Grant, the Board shall have the right,
at its discretion, to require Grantees to return to the Company any Grants
previously awarded under the Plan. Subject to the terms and conditions of the
Plan, any such subsequent Grant shall be upon such terms and conditions as are
specified by the Board at the time the subsequent Grant is made. The Company may
retain the right in an Award Agreement to cause a forfeiture of the gain
realized by a Grantee on account of actions taken by the Grantee in violation or
breach of or in conflict with any non-competition agreement, any agreement
prohibiting solicitation of employees or clients of the Company or any affiliate
thereof or any confidentiality obligation with respect to the Company or any
affiliate thereof or otherwise in competition with the Company, to the extent
specified in such Award Agreement applicable to the Grantee. Furthermore, the
Company may annul a Grant if the Grantee is an
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employee of the Company or an affiliate thereof and is terminated "for cause"as
defined in the applicable Award Agreement. The Board may permit or require the
deferral of any award payment, subject to such rules and procedures as it may
establish, which may include provisions for the payment or crediting of interest
or dividend equivalents, including converting such credits into deferred Stock
equivalents.
3.4. No Liability.
No member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Grant or Award
Agreement.
3.5. Applicability of Rule 16b-3.
Those provisions of the Plan that make express reference to Rule 16b-3 under the
Exchange Act shall apply only to Reporting Persons.
4. STOCK SUBJECT TO THE PLAN
4.1. Aggregate Limitation.
Subject to adjustment as provided in Section 18 hereof, the aggregate number of
shares of Stock available for issuance under the Plan pursuant to Incentive
Stock Options or other Grants shall be equal to the sum of (i) four million
(4,000,000) shares, (ii) any shares of Stock available for future awards under
the Company's 1994 Stock Incentive Plan as of the Effective Date and (iii) any
shares of Stock that are represented by awards granted under the Company's 1994
Stock Incentive Plan or which have been assumed by the Company, which are
forfeited, expire or are canceled without the delivery of shares of Stock or
which result in the forfeiture of shares of Stock to the Company. Any shares of
Stock granted under the Plan which are forfeited to the Company because of the
failure to meet an award contingency or condition shall again be available for
delivery pursuant to new awards granted under the Plan. Any shares of Stock
covered by an award (or portion of an award) granted under the Plan which is
forfeited or canceled, expires or is settled in cash shall be deemed not to have
been delivered for purposes of determining the maximum number of shares of Stock
available for delivery under the Plan. If any stock option is exercised by
tendering shares of Stock, either actually or by attestation, to the Company as
full or partial payment in connection with the
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exercise of a stock option under the Plan or any prior plan of the Company as
hereinabove described, only the number of shares of Stock issued net of the
shares of Stock tendered shall be deemed delivered for purposes of determining
the maximum number of shares of Stock available for delivery under the Plan.
Shares of Stock issued under the Plan through the settlement, assumption or
substitution of outstanding awards or obligations to grant future awards
resulting from the acquisition of another entity shall not reduce the maximum
number of shares available for delivery under the Plan.
4.2. Other Plan Limits.
Subject to adjustment as provided in Section 18 hereof, the following additional
limitations are imposed under the Plan. The maximum number of shares of Stock
that may be delivered through stock options intended to be Incentive Stock
Options shall be four million (4,000,000). The maximum number of shares of Stock
that may be issued in conjunction with awards granted pursuant to Section 13
hereof shall be twenty percent (20%) of the aggregate number of shares of Stock
available for issuance under the Plan pursuant to Section 4.1 hereof.
4.3. Payment Shares.
Subject to the overall limitation on the number of shares of Stock that may be
delivered under the Plan, the Board may use available shares of Stock as the
form of payment for compensation, grants or rights earned or due under any other
compensation plans or arrangements of the Company, including the plan of any
entity acquired by the Company.
4.4. Application of Aggregate Limitation.
The limitation contained in Section 4.1 hereof shall apply not only to Grants
that are settleable by the delivery of shares of Stock but also to Grants
relating to shares of Stock but settleable only in cash (such as cash-only
SARs). The Board may adopt reasonable counting procedures to ensure appropriate
counting, avoid double counting (as, for example, in the case of tandem or
substitute awards) and make adjustments if the number of shares of Stock
actually delivered differs from the number of shares of Stock previously counted
in connection with a Grant.
4.5. Per-Grantee Limitation.
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During any time when the Company has a class of equity security registered under
Section 12 of the Exchange Act:
(i) no person eligible for a Grant under Section 6 hereof may be awarded
Options for purposes of the Plan exercisable for greater than one million
(1,000,000) shares of Stock (subject to adjustment as provided in Section
18 hereof);
(ii) the maximum number of shares of Restricted Stock that may be awarded
under the Plan (including for this purpose any shares of Stock represented
by Restricted Stock Units) to any person eligible for a Grant under Section
13 hereof is four hundred thousand (400,000) for purposes of the Plan
(subject to adjustment as provided in Section 18 hereof); and
(iii) the maximum number of shares of Stock that may be the subject of
SARs awarded to any Grantee under Section 14 hereof is one million
(1,000,000) for purposes of the Plan (subject to adjustment as provided in
Section 18 hereof).
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date.
The Plan shall be effective as of the Effective Date, subject to approval of the
Plan by the stockholders of the Company, within one year before or after the
date upon which the Plan was adopted by the Board. Such approval shall be by a
majority of the votes cast on the proposal at a meeting of stockholders,
provided that a quorum is present. Upon approval of the Plan by the stockholders
of the Company as set forth above, all Grants made under the Plan on or after
the Effective Date shall be fully effective as if the stockholders of the
Company had approved the Plan on the Effective Date. If the stockholders fail to
approve the Plan within the time period set forth above, any Grants made
hereunder shall be null and void and of no effect.
5.2. Term.
The Plan has no termination date; however, no Incentive Stock Option may be
granted under the Plan on or after September 24, 2008.
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6. PERMISSIBLE GRANTEES
6.1. Employees and Service Providers.
Subject to the provisions of Section 7 hereof, Grants may be made under the Plan
to any employee of the Company or any Subsidiary, including any such employee
who is an officer or director of the Company, to an Outside Director, to a
Service Provider or employee of a Service Provider providing, or who has
provided, services to the Company or any Subsidiary, and to any other individual
whose participation in the Plan is determined by the Board to be in the best
interests of the Company, as the Board shall determine and designate from time
to time.
6.2. Successive Grants.
An eligible person may receive more than one Grant, subject to such restrictions
as are provided herein.
7. LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS
An Option shall constitute an Incentive Stock Option only (i) if the Grantee of
such Option is an employee of the Company or any Subsidiary of the Company; (ii)
to the extent specifically provided in the related Award Agreement; and (iii) to
the extent that the aggregate Fair Market Value (determined at the time the
Option is granted) of the shares of Stock with respect to which all Incentive
Stock Options held by such Grantee become exercisable for the first time during
any calendar year (under the Plan and all other plans of the Grantee's employer
and its affiliates) does not exceed $100,000. This limitation shall be applied
by taking Options into account in the order in which they were granted.
8. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award Agreement, in
such form or forms as the Board shall from time to time determine. Award
Agreements granted from time to time or at the same time need not contain
similar provisions but shall be consistent with the terms of the Plan. Each
Award Agreement evidencing a Grant of Options shall specify whether such Options
are intended to be non-qualified stock options or Incentive Stock Options, and
in the
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absence of such specification such options shall be deemed non-qualified
stock options.
9. OPTION PRICE
The Option Price of each Option shall be no less than the Fair Market Value on
the date of grant of a share of Stock and stated in the Award Agreement
evidencing such Option; provided, however, that in the event that a Grantee
would otherwise be ineligible to receive an Incentive Stock Option by reason of
the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to
ownership of more than ten percent (10%) of the Company's outstanding shares of
Stock), the Option Price of an Option granted to such Grantee that is intended
to be an Incentive Stock Option shall be not less than one hundred ten percent
(110%) of the Fair Market Value of a share of Stock on the Grant Date. In no
case shall the Option Price of any Option be less than the par value of a share
of Stock.
10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. Vesting and Option Period.
Subject to Sections 10.2 and 18 hereof, each Option granted under the Plan shall
become exercisable at such times and under such conditions as shall be
determined by the Board and stated in the Award Agreement. For purposes of this
Section 10.1, fractional numbers of shares of Stock subject to an Option shall
be rounded down to the next nearest whole number. The period during which any
Option shall be exercisable shall constitute the "Option Period"with respect
to such Option.
10.2. Term.
Each Option granted under the Plan shall terminate, and all rights to purchase
shares of Stock thereunder shall cease, upon the expiration of ten years from
the date such Option is granted, or under such circumstances and on such date
prior thereto as is set forth in the Plan or as may be fixed by the Board and
thereafter stated in the Award Agreement relating to such Option; provided,
however, that in the event that the Grantee would otherwise be ineligible to
receive an Incentive Stock Option by reason of the provisions of Sections
422(b)(6) and 424(d) of the Code (relating to ownership of more than ten percent
(10%) of the outstanding shares of Stock), an Option granted to such Grantee
that is intended to be an Incentive Stock
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Option shall not be exercisable after the expiration of five years from its date
of grant.
10.3. Acceleration.
Any limitation on the exercise of an Option contained in any Award Agreement may
be rescinded, modified or waived by the Board, in its sole discretion, at any
time and from time to time after the Grant Date of such Option, so as to
accelerate the time at which the Option may be exercised. Notwithstanding any
other provision of the Plan, no Option shall be exercisable in whole or in part
prior to the date the Plan is approved by the stockholders of the Company as
provided in Section 5.1 hereof.
10.4. Termination of Employment or Other Relationship for a Reason Other
than Death or Disability.
Unless otherwise provided by the Board, upon the termination of a Grantee's
employment or other relationship with the Company and its Subsidiaries other
than by reason of death, "permanent and total disability"(within the meaning
of Section 22(e)(3) of the Code) or retirement, any Option or portion thereof
held by such Grantee that has not vested in accordance with the provisions of
Section 10.1 hereof shall terminate immediately, and any Option or portion
thereof that has vested in accordance with the provisions of Section 10.1 hereof
but has not been exercised shall terminate at the close of business on the 90th
day following the Grantee's termination of employment or other relationship (or,
if such 90th day is a Saturday, Sunday or holiday, at the close of business on
the next preceding day that is not a Saturday, Sunday or holiday). Upon
termination of an Option or portion thereof, the Grantee shall have no further
right to purchase shares of Stock pursuant to such Option or portion thereof.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Board, whose determination shall be final and
conclusive. For purposes of the Plan, a termination of employment, service or
other relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company, a Subsidiary or a Service Provider, or is
engaged as a Service Provider or an Outside Director. Whether a termination of a
Grantee's employment or other relationship with the Company and its Subsidiaries
shall have occurred shall be determined by the Board, whose determination shall
be final and conclusive.
10.5. Rights in the Event of Death.
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Unless otherwise provided by the Board, if a Grantee dies while employed by or
providing services to the Company, all Options granted to such Grantee that have
not previously terminated shall fully vest on the date of death, and the
executors or administrators or legatees or distributees of such Grantee's estate
shall have the right, at any time within one year after the date of such
Grantee's death and prior to termination of the Option pursuant to Section 10.2
hereof, to exercise any Option held by such Grantee at the date of such
Grantee's death.
10.6. Rights in the Event of Disability.
Unless otherwise provided by the Board, if a Grantee's employment or other
relationship with the Company is terminated by reason of the "permanent and
total disability"(within the meaning of Section 22(e)(3) of the Code) of such
Grantee, such Grantee's Options that have not previously terminated shall fully
vest, and shall be exercisable for a period of one year after such termination
of employment or other relationship, subject to earlier termination of the
Option as provided in Section 10.2 hereof. Whether a termination of employment
or other relationship is considered to be by reason of "permanent and total
disability"for purposes of the Plan shall be determined by the Board, whose
determination shall be final and conclusive.
10.7. Rights in the Event of Retirement.
Unless otherwise provided by the Board, if a Grantee retires under the terms of
any Company retirement plan applicable to the Grantee or as determined by the
Board, the Grantee shall be considered retired and all Options granted to such
Grantee that have not previously terminated shall fully vest on the date of
retirement, and the Grantee shall have the right, at any time within three years
after the date of such Grantee's retirement and prior to termination of the
Option pursuant to Section 10.2 hereof, to exercise any Option held by such
Grantee at the date of such Grantee's retirement.
10.8. Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option be
exercised, in whole or in part, prior to the date the Plan is approved by the
stockholders of the Company as provided herein, or after ten years following the
date upon which the Option is granted, or after the occurrence of an event
referred to in Section 18 hereof which results in termination of the Option.
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10.9. Method of Exercise.
An Option that is exercisable may be exercised by the Grantee's delivery to the
Company of written notice of exercise on any business day, at the Company's
principal office, addressed to the attention of the Board. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares of Stock for which the Option is being exercised. The minimum number of
shares of Stock with respect to which an Option may be exercised, in whole or in
part, at any time shall be the lesser of (i) 100 shares or such lesser number
set forth in the applicable Award Agreement and (ii) the maximum number of
shares of Stock available for purchase under the Option at the time of exercise.
Payment of the Option Price for the shares of Stock purchased pursuant to the
exercise of an Option shall be made (i) in cash or in cash equivalents
acceptable to the Company; (ii) to the extent permitted by law and at the
Board's discretion, through the actual or constructive tender to the Company of
shares of Stock, which shares of Stock, if acquired from the Company, shall have
been held for at least six months prior to such tender and which shall be
valued, for purposes of determining the extent to which the Option Price has
been paid thereby, at their Fair Market Value on the date of exercise; or (iii)
to the extent permitted by law and at the Board's discretion, by a combination
of the methods described in clauses (i) and (ii). The Board may provide, by
inclusion of appropriate language in an Award Agreement, that payment in full of
the Option Price need not accompany the written notice of exercise, provided
that the notice is accompanied by delivery of an unconditional and irrevocable
undertaking by a licensed broker acceptable to the Company as the agent for the
individual exercising the Option to deliver promptly to the Company sufficient
funds to pay the Option Price and directs that the certificate or certificates
for the shares of Stock for which the Option is exercised be delivered to a
licensed broker acceptable to the Company as the agent for the individual
exercising the Option and, at the time such certificate or certificates are
delivered, the broker tenders to the Company cash (or cash equivalents
acceptable to the Company) equal to the Option Price for the shares of Stock
purchased pursuant to the exercise of the Option plus the amount (if any) of
federal or other taxes which the Company may in its judgment be required to
withhold with respect to the exercise of the Option. An attempt to exercise any
Option granted hereunder other than as set forth above shall be invalid and of
no force and effect.
10.10. Rights as a Stockholder; Dividend Equivalents.
Unless otherwise stated in the applicable Award Agreement, an individual holding
or exercising an Option shall have none of the rights of a stockholder (for
example, the right to receive cash or dividend payments or distributions
attributable to the
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subject shares of Stock or to direct the voting of the subject shares of Stock)
until the shares of Stock covered thereby are fully paid and issued to such
individual. Except as provided in Section 18 hereof, no adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date of such issuance. However, the Board may, on such conditions as it
deems appropriate, provide that a Grantee will receive a benefit in lieu of cash
dividends that would have been payable on any or all shares of Stock subject to
the Grant if such shares of Stock had been outstanding. Without limitation, the
Board may provide for payment to the Grantee of amounts representing such
dividends, either currently or in the future, or for the investment of such
amounts on behalf of the Grantee.
10.11. Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in full of
the Option Price, such Grantee shall be entitled to the issuance of a Stock
certificate or certificates evidencing such Grantee's ownership of the shares of
Stock subject to the Option.
11. TRANSFERABILITY OF OPTIONS
11.1. General Rule
Except as provided in Section 11.2 hereof, during the lifetime of a Grantee,
only the Grantee (or, in the event of legal incapacity or incompetency, the
Grantee's guardian or legal representative) may exercise an Option. Except as
provided in Section 11.2 hereof, no Option shall be assignable or transferable
by the Grantee to whom it is granted, other than by will or the laws of descent
and distribution.
11.2. Family Transfers.
To the extent permitted by the Board and under such rules and conditions as
imposed by the Board, a Grantee may transfer all or part of an Option that is
not an Incentive Stock Option to (i) any Immediate Family Member, (ii) a trust
or trusts for the exclusive benefit of any Immediate Family Member or (iii) a
partnership or limited liability company in which Immediate Family Members are
the only partners or members, provided that (x) there may be no consideration
for any such transfer, and (y) subsequent transfers of transferred Options are
prohibited except those in accordance with this Section 11.2 or by will or the
laws of descent and
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distribution. Following such transfer, any such Option shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
the transfer, provided that, for purposes of this Section 11.2, the term
"Grantee"shall be deemed to refer to the transferee. The events of termination
of employment or other relationship referred to in Section 10.4 hereof shall
continue to be applied with respect to the original Grantee, following which the
Option shall be exercisable by the transferee only to the extent and for the
periods specified in Section 10.4, 10.5, 10.6 or 10.7 hereof.
12. RELOAD OPTIONS.
A non-qualified stock option may include the right to acquire a Reload Option
which shall entitle the Grantee, upon exercise of the original Option (in whole
or in part) prior to termination of the Grantee's employment and satisfaction of
the Option Price in shares of Stock, to receive a new non-qualified stock
option. In addition to any other terms and conditions the Board deems
appropriate, the Reload Option shall be subject to the following terms: (i) the
number of shares of Stock shall not exceed the number of whole shares used to
satisfy the Option Price of the original Option and the number of whole shares
of Stock, if any, withheld by the Company as payment for withholding taxes in
accordance with Section 21 hereof; (ii) the Grant Date shall be the date of the
exercise of the original Option; (iii) the Option Price per share shall be the
Fair Market Value on the Grant Date; (iv) the Reload Option shall be exercisable
no earlier than six months after the Grant Date; (v) the Reload Option term
shall not extend beyond the term of the original Option; and (vi) the Reload
Option shall otherwise meet all conditions of the Plan.
13. RESTRICTED STOCK
13.1. Grant of Restricted Stock or Restricted Stock Units.
The Board from time to time may grant Restricted Stock or Restricted Stock Units
to persons eligible to receive Grants under Section 6 hereof, subject to such
restrictions, conditions and other terms as the Board may determine.
13.2. Restrictions.
At the time a Grant of Restricted Stock or Restricted Stock Units is made, the
Board shall establish a period of time (the "Restricted Period") applicable to
such Restricted Stock or Restricted Stock Units. Unless otherwise determined by
the
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Board or unless the Grant is being made under another plan, the Restricted
Period will be a minimum of three years. Each Grant of Restricted Stock or
Restricted Stock Units may be subject to a different Restricted Period. At the
time a Grant of Restricted Stock or Restricted Stock Units is made, the Board
may, in its sole discretion, prescribe restrictions in addition to or other than
the expiration of the Restricted Period, including the satisfaction of corporate
or individual performance objectives, which may be applicable to all or any
portion of the Restricted Stock or Restricted Stock Units. Such performance
objectives shall be established in writing by the Board by not later than the
90th day of the period of service to which such performance objectives relate
and while the outcome is substantially uncertain. Performance objectives may be
stated either on an absolute or relative basis and may be based on any of the
following criteria: earnings per share, total stockholder return, operating
earnings, growth in assets, return on equity, return on capital, market share,
stock price, net income, cash flow, sales growth (in general, by type of product
and by type of customer), retained earnings, completion of acquisitions,
completion of divestitures and asset sales, cost or expense reductions,
introduction or conversion of product brands and achievement of specified
management information systems objectives. Performance objectives may include
positive results, maintaining the status quo or limiting economic losses.
Subject to the fifth sentence of this Section 13.2, the Board also may, in its
sole discretion, shorten or terminate the Restricted Period or waive any other
restrictions applicable to all or a portion of the Restricted Stock or
Restricted Stock Units. Neither Restricted Stock nor Restricted Stock Units may
be sold, transferred, assigned, pledged or otherwise encumbered or disposed of
during the Restricted Period or prior to the satisfaction of any other
restrictions prescribed by the Board with respect to such Restricted Stock or
Restricted Stock Units.
13.3. Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted Stock
has been granted, Stock certificates representing the total number of shares of
Restricted Stock granted to the Grantee, as soon as reasonably practicable after
the Grant Date. The Secretary of the Company shall hold such certificates for
the Grantee's benefit until such time as the shares of Restricted Stock are
forfeited to the Company, or the restrictions lapse.
13.4. Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of Restricted
Stock shall have the right to vote such shares of Stock and the right to receive
any dividends declared or paid with respect to such shares of Stock. The Board
may provide that any dividends paid on Restricted Stock must be reinvested in
shares of
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Stock, which may or may not be subject to the same vesting conditions and
restrictions applicable to such Restricted Stock. All distributions, if any,
received by a Grantee with respect to Restricted Stock as a result of any stock
split, stock dividend, combination of shares or other similar transaction shall
be subject to the restrictions applicable to the original Grant.
13.5. Rights of Holders of Restricted Stock Units.
Unless the Board otherwise provides in an Award Agreement, holders of Restricted
Stock Units shall have no rights as stockholders of the Company. The Board may
provide in an Award Agreement evidencing a Grant of Restricted Stock Units that
the holder of such Restricted Stock Units shall be entitled to receive, upon the
Company's payment of a cash dividend on its outstanding shares of Stock, a cash
payment for each Restricted Stock Unit held equal to the per-share dividend paid
on the shares of Stock. Such Award Agreement may also provide that such cash
payment will be deemed reinvested in additional Restricted Stock Units at a
price per unit equal to the Fair Market Value of a share on the date that such
dividend is paid.
13.6. Termination of Employment or Other Relationship for a Reason Other
than Death or Disability.
Unless otherwise provided by the Board, upon the termination of a Grantee's
employment or other relationship with the Company and its Subsidiaries, in
either case other than, in the case of individuals, by reason of death or
"permanent and total disability"(within the meaning of Section 22(e)(3) of
the Code), any Restricted Stock or Restricted Stock Units held by such Grantee
that have not vested, or with respect to which all applicable restrictions and
conditions have not lapsed, shall immediately be deemed forfeited. Upon
forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall have
no further rights with respect to such Grant, including, but not limited to, any
right to vote Restricted Stock or any right to receive dividends with respect to
Restricted Stock or Restricted Stock Units. Whether a leave of absence or leave
on military or government service shall constitute a termination of employment
or other relationship for purposes of the Plan shall be determined by the Board,
whose determination shall be final and conclusive. For purposes of the Plan, a
termination of employment, service or other relationship shall not be deemed to
occur if the Grantee is immediately thereafter employed with the Company or any
other Service Provider, or is engaged as a Service Provider or an Outside
Director. Whether a termination of a Grantee's employment or other relationship
with the Company and its Subsidiaries shall have occurred shall be determined by
the Board, whose determination shall be final and conclusive.
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3.7. Rights in the Event of Death.
Unless otherwise provided by the Board, if a Grantee dies while employed by the
Company or a Service Provider, or while serving as a Service Provider, all
Restricted Stock or Restricted Stock Units granted to such Grantee shall fully
vest on the date of death unless the Board provided otherwise in the Award
Agreement relating to such Restricted Stock or Restricted Stock Units. Upon such
vesting, the shares of Stock represented thereby shall be deliverable in
accordance with the terms of the Plan to the executors, administrators, legatees
or distributees of the Grantee's estate.
13.8. Rights in the Event of Disability.
Unless otherwise provided by the Board, if a Grantee's employment or other
relationship with the Company or a Service Provider, or service as a Service
Provider, is terminated by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Grantee, such
Grantee's then unvested Restricted Stock or Restricted Stock Units shall be
fully vested. Whether a termination of employment, service or other relationship
is to be considered by reason of "permanent and total disability"for purposes
of the Plan shall be determined by the Board, whose determination shall be final
and conclusive.
13.9. Delivery of Shares and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the satisfaction
of any other conditions prescribed by the Board, the restrictions applicable to
Restricted Stock or Restricted Stock Units shall lapse, and, upon payment by the
Grantee to the Company, in cash or by check, of the greater of (i) the aggregate
par value of the shares of Stock represented by such Restricted Stock or
Restricted Stock Units or (ii) the purchase price, if any, specified in the
Award Agreement relating to such Restricted Stock or Restricted Stock Units, a
certificate for such shares shall be delivered, free of all such restrictions,
to the Grantee or the Grantee's beneficiary or estate, as the case may be.
14. STOCK APPRECIATION RIGHTS
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14.1. Grant of Stock Appreciation Rights.
The Board may from time to time grant SARs to persons eligible to receive grants
under Section 6 hereof, subject to the provisions of this Section 14 and to such
restrictions, conditions and other terms as the Board may determine.
14.2. Nature of a Stock Appreciation Right.
An SAR shall confer on the Grantee a right to receive, upon exercise thereof,
the excess of (A) the Fair Market Value of one share of Stock on the date of
exercise over (B) the grant price of the SAR, as determined by the Board. Unless
the Board provides otherwise in the Award Agreement, the grant price of an SAR
shall not be less than the Fair Market Value of a share of Stock on the Grant
Date.
14.3. Terms and Conditions Governing SARs.
The Board shall determine at the Grant Date or thereafter the time or times at
which and the circumstances under which an SAR may be exercised in whole or in
part (including exercise based on achievement of performance objectives or
future service requirements), the time or times at which and the circumstances
under which an SAR shall cease to be exercisable, the method of exercise, the
method of settlement, form of consideration payable in settlement, whether or
not an SAR shall be in tandem or in combination with any other Grant, and any
other terms and conditions of any SAR. Such performance objectives shall be
established in writing by the Board by not later than the 90th day of the period
of service to which such performance objectives relate and while the outcome is
substantially uncertain. Performance objectives may be stated either on an
absolute or relative basis and may be based on any of the following criteria:
earnings per share, total stockholder return, operating earnings, growth in
assets, return on equity, return on capital, market share, stock price, net
income, cash flow, sales growth (in general, by type of product and by type of
customer), retained earnings, completion of acquisitions, completion of
divestitures and asset sales, cost or expense reductions, introduction or
conversion of product brands and achievement of specified management information
systems objectives. Performance objectives may include positive results,
maintaining the status quo or limiting economic losses.
15. PARACHUTE LIMITATIONS
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If the Grantee is a "disqualified individual"(as defined in Section 280G(c)
of the Code), any Option, Restricted Stock, Restricted Stock Unit or SAR and any
other right to receive any payment or benefit under the Plan shall not vest or
become exercisable (i) to the extent that the right to vest or any other right
to any payment or benefit, taking into account all other rights, payments or
benefits to or for the Grantee, would cause any payment or benefit to the
Grantee under the Plan to be considered a "parachute payment"within the
meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute
Payment") and (ii) if, as a result of receiving a Parachute Payment, the
aggregate after-tax amounts received by the Grantee from the Company under any
Award Agreements, the Plan, and all other rights, payments or benefits to or for
the Grantee would be less than the maximum after-tax amount that could be
received by the Grantee without causing the payment or benefit to be considered
a Parachute Payment. In the event that, but for the provisions of this Section
15, the Grantee would be considered to have received a Parachute Payment under
any Award Agreements that would have the effect of decreasing the after-tax
amount received by the Grantee as described in clause (ii) of the preceding
sentence, then the Grantee shall have the right, in the Grantee's sole
discretion, to designate any rights, payments or benefits under any Award
Agreements, the Plan, any other agreements and any benefit arrangements to be
reduced or eliminated so as to avoid having the payment or benefit to the
Grantee under any Award Agreements be deemed to be a Parachute Payment.
16. 16. REQUIREMENTS OF LAW
16.1. General.
The Company shall not be required to sell or issue any shares of Stock under any
Grant if the sale or issuance of such shares of Stock would constitute a
violation by the Grantee, any other person exercising a right emanating from
such Grant, or the Company of any provision of any law or regulation of any
governmental authority, including, without limitation, any federal or state
securities laws or regulations. If at any time the Company shall determine, in
its discretion, that the listing, registration or qualification of any shares of
Stock subject to a Grant upon any securities exchange or under any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the issuance or purchase of shares of Stock hereunder, no shares of Stock
may be issued or sold to the Grantee or any other person exercising a right
emanating from such Grant unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company, and any delay caused thereby shall in no way
affect the date of termination of the Grant. Without limiting the generality of
the foregoing, upon the exercise of any Option or any SAR that may be
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settled in shares of Stock or the delivery of any Restricted Stock or shares of
Stock underlying Restricted Stock Units, unless a registration statement under
the Securities Act is in effect with respect to the shares of Stock covered by
such Grant, the Company shall not be required to sell or issue such shares of
Stock unless the Board has received evidence satisfactory to it that the Grantee
or any other person exercising a right emanating from such Grant may acquire
such shares of Stock pursuant to an exemption from registration under the
Securities Act. Any such determination by the Board shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or an SAR or the issuance of shares of Stock pursuant to the Plan to
comply with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option (or SAR that
may be settled in shares of Stock) shall not be exercisable until the shares of
Stock covered by such Option (or SAR) are registered or are exempt from
registration, the exercise of such Option (or SAR) under circumstances in which
the laws of such jurisdiction apply shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
16.2. Rule 16b-3.
During any time when the Company has a class of equity security registered under
Section 12 of the Exchange Act, it is the intent of the Company that Grants
pursuant to the Plan and the exercise of Options and SARs granted hereunder will
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the
extent that any provision of the Plan or action by the Board does not comply
with the requirements of Rule 16b-3, such provision or action shall be deemed
inoperative to the extent permitted by law and deemed advisable by the Board,
and shall not affect the validity of the Plan. In the event that Rule 16b-3 is
revised or replaced, the Board may exercise its discretion to modify the Plan in
any respect necessary to satisfy the requirements of, or to take advantage of
any features of, the revised exemption or its replacement.
17. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or terminate
the Plan as to any shares of Stock as to which Grants have not been made;
provided, however, that the Board shall not, without approval of the Company's
stockholders, amend the Plan such that it does not comply with the Code. Except
as permitted under this Section 17 or Section 18 hereof, no amendment,
suspension or
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<PAGE>
termination of the Plan shall, without the consent of the Grantee, alter or
impair rights or obligations under any Grant theretofore awarded under the Plan.
18. EFFECT OF CHANGES IN CAPITALIZATION
18.1. Changes in Stock.
Subject to Section 18.2 hereof, in the event of any merger, reorganization,
consolidation, recapitalization, separation, liquidation, stock dividend, spin-
off, split-up, share combination or other change in the corporate structure of
the Company affecting the shares of Stock, (a) such adjustment may be made in
the number and class of shares which may be delivered under Section 4 hereof and
the Grant limits under Section 4 hereof, and in the number and class of or price
of shares subject to outstanding Grants as may be determined to be appropriate
and equitable by the Board, in its sole discretion, to prevent dilution or
enlargement of existing rights; and (b) the Board or, if another legal entity
assumes the obligations of the Company hereunder, the board of directors,
compensation committee or similar body of such other legal entity shall either
(i) make appropriate provision for the protection of outstanding Grants by the
substitution on an equitable basis of appropriate equity interests or awards
similar to the Grants, provided that the substitution neither enlarges nor
diminishes the value and rights under the Grants, or (ii) upon written notice to
the Grantees, provide that Grants shall be exercised distributed, canceled or
exchanged for value pursuant to such terms and conditions (including the waiver
of any existing terms or conditions) as shall be specified in the notice. Any
adjustment of an Incentive Stock Option under this Section 18.1 shall be made in
such a manner so as not to constitute a "modification"within the meaning of
Section 424(h)(3) of the Code. The conversion of any convertible securities of
the Company shall not be treated as a change in the corporate structure of the
Company affecting the shares of Stock. Subject to any contrary language in an
Award Agreement evidencing a Grant of Restricted Stock, any restrictions
applicable to such Restricted Stock shall apply as well to any replacement
shares received by the Grantee as a result of the merger, reorganization or
other transaction referred to in this Section 18.1.
18.2. Reorganization, Sale of Assets or Sale of Stock.
Upon the dissolution or liquidation of the Company or upon a merger,
consolidation or reorganization of the Company with one or more other entities
in which the Company is not the surviving entity, or upon a sale of
substantially all of the assets of the Company to another entity, or upon any
transaction (including, without
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limitation, a merger or reorganization in which the Company is the surviving
entity) approved by the Board that results in any person or entity (or person or
entities acting as a group or otherwise in concert) owning eighty percent (80%)
or more of the combined voting power of all classes of securities of the
Company, (i) all outstanding Restricted Stock and Restricted Stock Units shall
be deemed to have vested, and all restrictions and conditions applicable to such
Restricted Stock and Restricted Stock Units shall be deemed to have lapsed,
immediately prior to the occurrence of such transaction, and (ii) all Options
and SARs outstanding hereunder shall become immediately exercisable for a period
of fifteen days immediately prior to the scheduled consummation of such
transaction. Any exercise of an Option or SAR during such fifteen-day period
shall be conditioned upon the consummation of the transaction and shall be
effective only immediately before the consummation of the transaction. This
Section 18.2 shall not apply to any transaction to the extent that (A) provision
is made in writing in connection with such transaction for the continuation of
the Plan or the assumption of the Options, SARs, Restricted Stock and Restricted
Stock Units theretofore granted, or for the substitution for such Options, SARs,
Restricted Stock and Restricted Stock Units of new options, stock appreciation
rights, restricted stock and restricted stock units covering the stock of a
successor entity, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares or units and exercise prices,
in which event the Plan and Options, SARs, Restricted Stock and Restricted Stock
Units theretofore granted shall continue in the manner and under the terms so
provided or (B) a majority of the full Board determines that such transaction
shall not trigger application of the provisions of this Section 18.2, subject to
Section 26 hereof and limited by any "change in control"provision in any
employment agreement or Award Agreement applicable to the Grantee. Upon
consummation of any such transaction, the Plan and all outstanding but
unexercised Options and SARs shall terminate, except to the extent provision is
made in writing in connection with such transaction for the continuation of the
Plan or the assumption of such Options and SARs theretofore granted, or for the
substitution for such Options and SARs of new options and stock appreciation
rights covering the shares of a successor entity, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares or
units and exercise prices, in which event the Plan and Options and SARs
theretofore granted shall continue in the manner and under the terms so
provided. The Board shall send written notice of an event that will result in
such a termination to all individuals who hold Options and SARs not later than
the time at which the Company gives notice thereof to its stockholders.
18.3. Adjustments.
Adjustments under this Section 18 related to shares of Stock or securities of
the Company shall be made by the Board, whose determination in that respect
shall be final and conclusive. No fractional shares or other securities shall be
issued
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pursuant to any such adjustment, and any fractions resulting from any such
adjustment shall be eliminated in each case by rounding downward to the nearest
whole share.
18.4. No Limitations on Company.
The making of Grants pursuant to the Plan shall not affect or limit in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
19. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Grant or Award Agreement shall be construed
to confer upon any individual the right to remain in the employ or service of
the Company or any affiliate thereof, or to interfere in any way with any
contractual or other right or authority of the Company or Service Provider
either to increase or decrease the compensation or other payments to any
individual at any time, or to terminate any employment or other relationship
between any individual and the Company or any affiliate thereof. In addition,
notwithstanding anything contained in the Plan to the contrary, unless otherwise
stated in the applicable Award Agreement or employment agreement, no Grant
awarded under the Plan shall be affected by any change of duties or position of
the Grantee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company. The obligation of the Company to pay any
benefits pursuant to the Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein. The Plan shall in no way be interpreted to require
the Company to transfer any amounts to a third party trustee or otherwise hold
any amounts in trust or escrow for payment to any participant or beneficiary
under the terms of the Plan. No Grantee shall have any of the rights of a
stockholder with respect to the shares of Stock subject to an Option or SAR
except to the extent such shares of Stock shall have been issued upon the
exercise of the Option or SAR.
20. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the
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right and authority of the Board to adopt such other incentive compensation
arrangements (which arrangements may be applicable either generally to a class
or classes of individuals or specifically to a particular individual or
particular individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of Stock options otherwise than
under the Plan.
21. WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to deduct
from payments of any kind otherwise due to a Grantee any federal, state or local
taxes of any kind required by law to be withheld with respect to the vesting of
or other lapse of restrictions applicable to Restricted Stock or Restricted
Stock Units or upon the exercise of an Option or SAR. At the time of such
vesting, lapse or exercise, the Grantee shall pay to the Company or the
Subsidiary, as the case may be, any amount that the Company or the Subsidiary
may reasonably determine to be necessary to satisfy such withholding obligation.
Subject to the prior approval of the Company or the Subsidiary, which may be
withheld by the Company or the Subsidiary, as the case may be, in its sole
discretion, the Grantee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company or the Subsidiary to withhold shares of Stock
otherwise issuable to the Grantee or (ii) by delivering to the Company or the
Subsidiary shares of Stock already owned by the Grantee. The shares of Stock so
delivered or withheld shall have an aggregate Fair Market Value equal to such
withholding obligations. The Fair Market Value of the shares of Stock used to
satisfy such withholding obligation shall be determined by the Company or the
Subsidiary as of the date that the amount of tax to be withheld is to be
determined. A Grantee who has made an election pursuant to this Section 21 may
satisfy such Grantee's withholding obligation only with shares of Stock that are
not subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirement.
22. CAPTIONS
The use of captions in the Plan or any Award Agreement is for convenience of
reference only and shall not affect the meaning of any provision of the Plan or
such Award Agreement.
23. OTHER PROVISIONS
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Each Grant awarded under the Plan may contain such other terms and conditions
not inconsistent with the Plan as may be determined by the Board, in its sole
discretion.
24. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include the
plural form and, the masculine gender shall include the feminine gender, as the
context requires.
25. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be finally determined
to be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
26. POOLING
Notwithstanding anything in the Plan to the contrary, if any right under or
feature of the Plan would cause a transaction to be ineligible for pooling of
interests accounting that would, but for the right or feature hereunder, be
eligible for such accounting treatment, the Board may modify or adjust the right
or feature so that the transaction will be eligible for pooling of interests
accounting. Such modification or adjustment may include payment of cash or
issuance to a Grantee of shares of Stock having a Fair Market Value equal to the
cash value of such right or feature.
27. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing the
Grants awarded hereunder shall be governed by the laws of the State of Maryland
(without giving effect to the choice of law provisions thereof).
* * *
The Plan was duly adopted and approved by the Board of Directors of the Company
as of the 24th day of September, 1998.
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The Plan was duly approved by the stockholders of the Company on the 20th day of
November, 1998.
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EXHIBIT 10.3
MATERIAL TERMS FOR PAYMENT OF ANNUAL EXECUTIVE INCENTIVE COMPENSATION
The Company has adopted criteria for the payment of annual incentive
compensation to the Company's most highly compensated executive officers under
the Company's annual incentive plan. The material terms for the payment of such
compensation are described below.
Any executive officer of the Company is eligible to be selected by the
Compensation Committee of the Company's Board of Directors (the "Compensation
Committee") for participation in the annual incentive plan. Payment of an
annual incentive to an executive officer under the plan will be contingent
upon the attainment of one or more performance goals (which may be stated as
alternative goals) established in writing by the Compensation Committee for a
covered executive officer for each performance period, which is generally the
Company's taxable year. Performance goals will be based on one or more of the
following business criteria, which may be stated either on an absolute or
relative basis: earnings per share, total stockholder return, operating
earnings, growth in assets, return on equity, return on capital, market share,
stock price, net income, cash flow, sales growth (in general, by type of product
and by type of customer), retained earnings, completion of acquisitions,
completion of divestitures and asset sales, cost or expense reductions,
1
<PAGE>
introduction or conversion of product brands and achievement of specified
management information systems objectives.
The maximum annual incentive award that may be granted to any covered
executive officer based on attainment of the performance goals established by
the Compensation Committee is $2 million.
The Compensation Committee from time to time may approve payment of
discretionary annual incentive compensation based on business criteria other
than the pre-established performance goals.
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EXHIBIT 10.4
FIRST AMENDMENT TO CERTAIN OPERATIVE AGREEMENTS
THIS FIRST AMENDMENT TO CERTAIN OPERATIVE AGREEMENTS (this
"Amendment") dated as of January 21, 1999 is by and among JP FOODSERVICE
---------
DISTRIBUTORS, INC., a Delaware corporation ("JPFDI", the "Lessee" or the
----- ------
"Construction Agent"); the various parties listed on the signature pages hereto
- -------------------
as guarantors (subject to the definition of Guarantors in Appendix A to the
----------
Participation Agreement referenced below, individually, a "Guarantor" and
---------
collectively, the "Guarantors"); FIRST SECURITY BANK, NATIONAL ASSOCIATION, a
----------
national banking association, not individually (except to the extent expressly
stated in the Participation Agreement (hereinafter defined) (in its individual
capacity, the "Trust Company")), but solely as the Owner Trustee under the USF
-------------
Real Estate Trust 1998-1 (the "Owner Trustee" or the "Lessor"); the various
------------- ------
banks and other lending institutions listed on the signature pages hereto as
holders of certificates issued with respect to the USF Real Estate Trust 1998-1
(subject to the definition of Holders in Appendix A to the Participation
----------
Agreement referenced below, individually, a "Holder" and collectively, the
------
"Holders"); the various banks and other lending institutions listed on the
- --------
signature pages hereto as lenders with respect to the USF Real Estate Trust
1998-1 (subject to the definition of Lenders in Appendix A to the Participation
----------
Agreement referenced below, individually, a "Lender" and collectively, the
------
"Lenders"); and FIRST UNION NATIONAL BANK, a national banking association, as
- --------
the agent for the Lenders and respecting the Security Documents, as the agent
for the Lenders and the Holders, to the extent of their interests (in such
capacity, the "Agent"). Capitalized terms used in this Amendment but not
-----
otherwise defined herein shall have the meanings set forth in Appendix A to the
----------
Participation Agreement (hereinafter defined).
W I T N E S S E T H
WHEREAS, the parties to this Amendment are parties to that certain
Participation Agreement dated as of June 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Participation
-------------
Agreement"), certain of the parties to this Amendment are parties to that
- ---------
certain Credit Agreement dated as of June 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Credit
------
Agreement"), certain of the parties to this Amendment are parties to that
- ---------
certain Trust Agreement dated as of June 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Trust
-----
Agreement"), certain of the parties to this Amendment are parties to that
- ---------
certain Security Agreement dated as of June 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Security
--------
1
<PAGE>
Agreement"), certain of the parties to this Amendment are parties to that
- ---------
certain Agency Agreement dated as of June 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Agency
------
Agreement"), certain of the parties to this Amendment are parties to that
- ---------
certain Lease Agreement dated as of June 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Lease Agreement")
---------------
and certain of the parties to this Amendment are parties to the other Operative
Agreements relating to a $60 million synthetic lease facility (the "Facility")
--------
that has been established in favor of JPFDI;
WHEREAS, JPFDI and the Guarantors have requested certain modifications
to the Operative Agreements in connection with the Facility;
WHEREAS, the Financing Parties which are signatories hereto have
agreed to the requested modifications on the terms and conditions set forth
herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
A. Participation Agreement.
-----------------------
1. The following definitions set forth in Appendix A to the
Participation Agreement are hereby amended to read as follows:
"Lessee" shall mean, with respect to any Property, the Credit
Party designated as lessee on the applicable Lease Supplement respecting such
Property.
"Company Obligations" shall mean the obligations of JPFDI, in any
and all capacities under and with respect to the Operative Agreements and each
Property of which it is a Lessee and with respect to any other Lessee, the
obligations of such Lessee with respect to each Property of which it is a
Lessee; provided, no Person shall be deemed to be a Guarantor with respect to
--------
any obligations with respect to any Property if such Person is the Lessee with
respect to such Property.
"Guarantors" shall mean the various parties to the Participation
Agreement from time to time, as guarantors of the Construction Agent and any
Lessee with respect to the Operative Agreements and the Properties; provided, no
--------
Person shall be deemed to be a Guarantor with respect to any obligations under
and with respect to the Operative Agreements in connection with any Property if
such Person is the Lessee with respect to such Property; provided, further, that
-------- -------
JPFDI shall not be deemed to be a Guarantor with respect to any obligations of
JPFDI under and with respect to the Operative Agreements in its capacity as
Construction Agent.
2
<PAGE>
2. Section 6B.3 of the Participation Agreement is hereby amended
to read as follows:
6B.3. Modifications.
-------------
Each Guarantor agrees that (a) all or any part of the security now or
hereafter held for the Company Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) no Financing Party shall have
any obligation to protect, perfect, secure or insure any such security
interests, liens or encumbrances now or hereafter held, if any, for the Company
Obligations or the properties subject thereto; (c) with the written consent of
JPFDI, the time or place of payment of the Company Obligations may be changed or
extended, in whole or in part, to a time certain or otherwise, and may be
renewed or accelerated, in whole or in part; (d) the Construction Agent, the
Lessee and any other party liable for payment under the Operative Agreements may
be granted indulgences generally; (e) with the written consent of JPFDI, any of
the provisions of the Notes, the Certificates or any of the other Operative
Agreements may be modified, amended or waived; (f) any party (including any co-
guarantor) liable for the payment thereof may be granted indulgences or be
released; and (g) any deposit balance for the credit of the Construction Agent,
the Lessee or any other party liable for the payment of the Company Obligations
or liable upon any security therefor may be released, in whole or in part, at,
before or after the stated, extended or accelerated maturity of the Company
Obligations, all without notice to or further assent by such Guarantor, which
shall remain bound thereon, notwithstanding any such exchange, compromise,
surrender, extension, renewal, acceleration, modification, indulgence or
release.
3. Section 6B.4 of the Participation Agreement is hereby amended
to read as follows:
6B.4. Waiver of Rights.
----------------
Except as otherwise expressly provided herein or in any other
Operative Agreement, each Guarantor expressly waives to the fullest extent
permitted by applicable law: (a) notice of acceptance of this Section 6B by any
Financing Party and of all extensions of credit or other Advances to the
Construction Agent and the Lessee by the Lenders pursuant to the terms of the
Operative Agreements; (b) presentment and demand for payment or performance of
any of the Company Obligations; (c) protest and notice of dishonor or of default
with respect to the Company Obligations or with respect to any security
therefor; (d) notice of any Financing Party obtaining, amending, substituting
for, releasing, waiving or modifying any security interest, lien or encumbrance,
if any, hereafter securing the Company Obligations, or any
3
<PAGE>
Financing Party's subordinating, compromising, discharging or releasing such
security interests, liens or encumbrances, if any; and (e) all other notices to
which such Guarantor might otherwise be entitled. Notwithstanding anything to
the contrary herein, (i) each Guarantor's payments hereunder shall be due five
(5) Business Days after written demand by the Agent for such payment (unless the
Company Obligations are automatically accelerated pursuant to the applicable
provisions of the Operative Agreements in which case the Guarantors' payments
shall be automatically due) and (ii) any modification of the Operative
Agreements which has the effect of increasing the Company Obligations shall not
be enforceable against a Guarantor unless such Guarantor executes the document
evidencing such modification or otherwise reaffirms its guaranty in writing in
connection with such modification.
4. The following is hereby added as Section 8.10 of the Participation
Agreement:
8.10 Appointment of JPFDI as Agent for each Lessee.
---------------------------------------------
Each Lessee hereby appoints JPFDI to act as its agent for all purposes
under this Agreement and the other Operative Agreements (including, without
limitation, with respect to all matters related to the borrowing and repayment
of Loans and Holder Advances), and as the Construction Agent under the Agency
Agreement with respect to all Properties, without regard to whether JPFDI is
identified as Lessee with respect to any particular Property under any
applicable Lease Supplement. Each Lessee acknowledges and agrees that (a) JPFDI
may execute such documents on behalf of any Lessee as JPFDI deems appropriate in
its sole discretion and each Lessee shall be bound by and obligated by all of
the terms of any such document executed by JPFDI on its behalf, (b) any notice
or other communication delivered by the Agent or any other Financing Party
hereunder to JPFDI shall be deemed to have been delivered to each Lessee and (c)
the Agent and each of the other Financing Parties shall accept (and shall be
permitted to rely on) any document or agreement executed by JPFDI on behalf of
any Lessee. Each Financing Party agrees that any notice required to be given to
any Lessee (other than JPFDI) shall also be given to JPFDI in its capacity as
agent under this Section 8.10.
B. Lease Agreement.
---------------
1. The introductory paragraph of the Lease is hereby amended to read
as follows:
THIS LEASE AGREEMENT dated as of June 29, 1998 (as amended, modified,
extended, supplemented, restated and/or replaced from time to time, this
4
<PAGE>
"Lease") is between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national
-----
banking association, having its principal office at 79 South Main Street, Salt
Lake City, Utah 84111, not individually, but solely as the Owner Trustee under
the USF Real Estate Trust 1998-1, as lessor (the "Lessor"), JP FOODSERVICE
------
DISTRIBUTORS, INC., a Delaware corporation, having its principal place of
business at 9830 Patuxent Woods Drive, Columbia, Maryland, and each of the
various Credit Parties deemed to be a party hereto from time to time, as lessee
with respect to one or more Properties.
2. Section 1.1 of the Lease is hereby amended to read as follows:
1.1 Definitions.
-----------
For purposes of this Lease, capitalized terms used in this Lease and
not otherwise defined herein shall have the meanings assigned to them in
Appendix A to that certain Participation Agreement dated as of June 29, 1998 (as
- ----------
amended, modified, extended, supplemented, restated and/or replaced from time to
time in accordance with the applicable provisions thereof, the "Participation
-------------
Agreement") among JP Foodservice Distributors, Inc., the various parties thereto
- ---------
from time to time, as the Guarantors, Lessor, the various banks and other
lending institutions which are parties thereto from time to time, as the
Holders, the various banks and other lending institutions which are parties
thereto from time to time, as the Lenders, and First Union National Bank, as
agent for the Lenders and respecting the Security Documents, as the agent for
the Lenders and the Holders, to the extent of their interests. Unless otherwise
indicated, references in this Lease to articles, sections, paragraphs, clauses,
appendices, schedules and exhibits are to the same contained in this Lease.
3. Section 7.1(b) of the Lease is hereby amended to read as follows:
(b) For all purposes other than as set forth in Section 7.1(a)(i),
Lessor and each Lessee intend this Lease to constitute a finance lease and
not a true lease. In order to secure the obligations of any Lessee now
existing or hereafter arising under any and all Operative Agreements, each
Lessee hereby conveys, grants, assigns, transfers, hypothecates, mortgages
and sets over to Lessor, for the benefit of all Financing Parties, a first
priority security interest (but subject to the security interest in the
assets granted by Lessee in favor of the Agent in accordance with the
Security Documents) in and lien on all right, title and interest of such
Lessee (now owned or hereafter acquired) in and to all Properties, to the
extent such is personal property and irrevocably grants and conveys a lien,
deed of trust and mortgage on all right, title and interest of such Lessee
(now owned or hereafter acquired) in and to all Properties to the extent
such is real property. Lessor and each Lessee further intend and agree
that, for the purpose of securing the obligations of any Lessee and/or the
Construction Agent now existing or hereafter arising
5
<PAGE>
under the Operative Agreements, (i) the Lease and each Lease Supplement
shall be a security agreement and financing statement within the meaning of
Article 9 of the Uniform Commercial Code respecting each of the Properties
and all proceeds (including without limitation insurance proceeds thereof)
to the extent such is personal property and an irrevocable grant and
conveyance of a lien, deed of trust and mortgage on each of the Properties
and all proceeds (including without limitation insurance proceeds thereof)
to the extent such is real property; (ii) the acquisition of title (or to
the extent applicable, a leasehold interest pursuant to a Ground Lease) in
each Property referenced in Article II constitutes a grant by each Lessee
to Lessor of a security interest, lien, deed of trust and mortgage in all
of such Lessee's right, title and interest in and to each Property and all
proceeds (including without limitation insurance proceeds thereof) of the
conversion, voluntary or involuntary, of the foregoing into cash,
investments, securities or other property, whether in the form of cash,
investments, securities or other property, and an assignment of all rents,
profits and income produced by each Property; and (iii) notifications to
Persons holding such property, and acknowledgments, receipts or
confirmations from financial intermediaries, bankers or agents (as
applicable) of any Lessee shall be deemed to have been given for the
purpose of perfecting such lien, security interest, mortgage lien and deed
of trust under applicable law. Each Lessee shall promptly take such actions
as Lessor may reasonably request (including without limitation the filing
of Uniform Commercial Code Financing Statements, Uniform Commercial Code
Fixture Filings and memoranda (or short forms) of this Lease and the
various Lease Supplements) to ensure that the lien, security interest,
mortgage lien and deed of trust in each Property and the other items
referenced above will be deemed to be a perfected lien, security interest,
mortgage lien and deed of trust of first priority under applicable law and
will be maintained as such throughout the Term.
4. The forms of Lease Supplement and Memorandum of Lease attached as
Exhibit A and Exhibit B to the Lease, respectively, are hereby deleted and
- --------- ---------
replaced by the forms of Lease Supplement and Memorandum of Lease attached
hereto as Exhibit 1 and Exhibit 2, respectively.
--------- ---------
C. Security Agreement.
------------------
Section 24 of the Security Agreement is hereby amended to read as
follows:
6
<PAGE>
24. EACH LESSEE AS A PARTY.
----------------------
EACH LESSEE HAS EXECUTED OR IS DEEMED TO HAVE EXECUTED THIS SECURITY
AGREEMENT FOR THE PURPOSE OF SUBJECTING TO THE SECURITY INTERESTS GRANTED
HEREUNDER ALL OF ITS RIGHT, TITLE, ESTATE AND INTEREST, IF ANY, IN AND TO THE
TRUST PROPERTY TO SECURE ALL OBLIGATIONS OF ALL CREDIT PARTIES UNDER THE
OPERATIVE AGREEMENTS. ACCORDINGLY, EACH LESSEE HEREBY GRANTS TO THE AGENT (FOR
THE BENEFIT OF THE LENDERS AND THE HOLDERS) A SECURITY INTEREST IN AND TO ALL OF
ITS RIGHT, TITLE, ESTATE AND INTEREST, IF ANY, IN AND TO THE TRUST PROPERTY (TO
THE EXTENT SUCH LESSEE HAS ANY RIGHT, TITLE OR INTEREST THEREIN AND WITHOUT
REGARD TO ANY LANGUAGE IN SECTION 2 OR THE DEFINITION OF "TRUST PROPERTY' OR ANY
DEFINITION OF ANY ITEM CONSTITUTING THE TRUST PROPERTY WHICH OTHERWISE WOULD
LIMIT THE TRUST PROPERTY TO THE RIGHT, TITLE AND INTEREST OF THE BORROWER
THEREIN) TO SECURE ALL OBLIGATIONS OF ALL CREDIT PARTIES UNDER THE OPERATIVE
AGREEMENTS. EACH LESSEE ACKNOWLEDGES AND AGREES THAT, UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT, THE AGENT SHALL HAVE THE RIGHT TO EXERCISE ANY OR ALL OF ITS
REMEDIES HEREUNDER AS AGAINST ANY SUCH RIGHT, TITLE, ESTATE OR INTEREST OF SUCH
LESSEE IN OR TO THE TRUST PROPERTY.
D. Agency Agreement.
Paragraph A of the Preliminary Statement to the Agency Agreement is hereby
amended to read as follows:
A. The Lessor and the Construction Agent are parties to that certain
Lease Agreement dated as of even date herewith (as amended, modified, extended,
supplemented, restated and/or replaced from time to time, the "Lease"), pursuant
-----
to which the Construction Agent and each other Credit Party which is deemed to
be a party thereto from time to time, in each case as lessee with respect to one
or more Properties, has agreed to lease certain Land, Improvements and Equipment
and/or to sublease a ground leasehold in certain Properties subject to one (1)
or more Ground Leases from the Lessor.
E. Other Omnibus Amendments to Operative Agreements.
------------------------------------------------
1. Each Credit Party hereby agrees that, by its execution of this
Amendment, such Credit Party shall be deemed to have executed and shall be
deemed to be a party to each Operative Agreement in such capacity as is
necessary
7
<PAGE>
or desirable to effect the intent of the parties hereto with respect to this
Amendment.
2. Notwithstanding any term or provision in any Operative Agreement to the
contrary, all references to the "Lessee" set forth in all Operative Agreements
shall be deemed as of the Effective Date to refer, with respect to any Property,
to the Credit Party designated as Lessee on the applicable Lease Supplement
respecting such Property.
3. In the event JPFDI shall cease to be named as Lessee on one or more
Lease Supplements, JPFDI shall be deemed to be a Guarantor for all purposes
under the Operative Agreements (including, without limitation, for purposes of
the Guaranty under Section 6B of the Participation Agreement) as though JPFDI
were a party to the Participation Agreement in such capacity.
4. Notwithstanding any term or provision in any Operative Agreement to the
contrary, no Person shall be deemed to be a Guarantor under Section 6B of the
Participation Agreement or under any other Operative Agreement with respect to
any Company Obligations arising out of or in connection with any Property of
which such person is the Lessee; provided, however, nothing herein shall be
-----------------
deemed or interpreted to relieve any Lessee of any of its obligations as lessee
with respect to such Property under the Lease or under any other Operative
Agreement.
F. Conditions Precedent. This Amendment shall be effective as of the date on
--------------------
which the following conditions are satisfied (the "Effective Date"):
(1) execution of this Amendment by each Credit Party, each Financing Party
and the Trust Company; and
(2) receipt by the Agent of legal opinions of counsel to the Credit Parties
relating to this Amendment and resolutions from the board of directors of
each of the Credit Parties authorizing the provisions of this Amendment, in
each case in form and substance reasonably satisfactory to the Agent.
G. Costs and Expenses. JPFDI agrees to pay all reasonable costs and expenses
------------------
of the Agent in connection with the preparation, execution and delivery of this
Amendment, including without limitation the reasonable fees and expenses of
Moore & Van Allen, PLLC.
H. Counterparts. This Amendment may be executed in any number of counterparts,
------------
each of which when executed and delivered shall be deemed to be an original and
it shall not be necessary in making proof of this Amendment to produce or
account for more than one such counterpart.
8
<PAGE>
I. Continued Effectiveness of Operative Agreements. Except as modified hereby,
-----------------------------------------------
all of the terms and conditions of the Operative Agreements shall remain in full
force and effect. By its execution and delivery of this Amendment, except as
expressly modified hereby, each Guarantor hereby reaffirms its guaranty
obligations under the Operative Agreements.
J. Governing Law. This Amendment shall be governed by, and construed in
-------------
accordance with, the laws of the State of North Carolina.
[The remainder of this page has been intentionally left blank.]
9
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
duly executed and delivered as of the date first above written.
LESSEE AND CONSTRUCTION AGENT:
- -----------------------------
JP FOODSERVICE DISTRIBUTORS, INC., a Delaware corporation
By: /s/ Robert Gillison
---------------------------
Name: Robert Gillison
---------------------------
Title: Treasurer
------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
GUARANTORS:
- ----------
U.S. FOODSERVICE, a Delaware corporation
By: /s/ Robert Gillison
-------------------
Name: Robert Gillison
-----------------
Title: Treasurer
------------
U.S. FOODSERVICE, INC.,
a Delaware corporation
PACIFIC JADE, INC., f/k/a BEIJING CHEF, INC.,
a Delaware corporation
E & H DISTRIBUTING CO.,
(d/b/a Valley Food Distributors of Nevada),
a Nevada corporation
HARRISON'S PRIME MEATS & PROVISIONS, INC., a
Nevada corporation
ILLINOIS FRUIT & PRODUCE CORP.,
an Illinois corporation
TRANS-PORTE, INC.,
a Delaware corporation
EL PASADO, INC.,
a Delaware corporation
RITUALS COFFEE COMPANY,
a Delaware corporation
ROSELI PRODUCTS CORPORATION,
a Delaware corporation
SQUERI FOOD SERVICE, INC.,
an Ohio corporation
NEVADA BAKING COMPANY, INC.
a Nevada corporation
OUTWEST MEAT COMPANY,
a Nevada corporation
HILLTOP HEARTH BAKERIES, INC.,
a Delaware corporation
CROSS VALLEY FARMS, INC.,
a Delaware corporation
By: /s/ Robert Gillison
-------------------
Name: Robert Gillison
---------------
Title: Treasurer
---------
for each of the foregoing
<PAGE>
[SIGNATURES CONTINUED ON NEXT PAGE]
BIGGERS BROTHERS, INC.,
a Delaware corporation
BRB HOLDINGS, INC.,
a Delaware corporation
F.H. BEVEVINO & COMPANY, INC.,
a Pennsylvania corporation
FOOD DISTRIBUTION CONCEPTS, INC.,
a Delaware corporation
JOHN SEXTON & CO.,
a Delaware corporation
KING'S FOODSERVICE, INC.,
a Kentucky corporation
ROANOKE RESTAURANT SERVICE, INC.,
a Virginia corporation
TARGETED SPECIALTY SERVICES, INC.,
a Delaware corporation
U.S. FOODSERVICE OF ATLANTA, INC.,
a Delaware corporation
U.S. FOODSERVICE OF ILLINOIS, INC.,
a Delaware corporation
U.S. SYSTEMS DISTRIBUTION, INC.,
a Texas corporation
WHITE SWAN, INC.,
a Delaware corporation
By: /s/ Robert Gillison
--------------------
Name: Robert Gillison
------------------
Title: Treasurer
---------
for each of the foregoing
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
OWNER TRUSTEE AND
- -----------------
LESSOR:
- ------
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, but solely as the
Owner Trustee under the USF Real Estate Trust
1998-1
By: /s/ Val T. Orton
----------------
Name: Val T. Orton
--------------
Title: Vice President
----------------
TRUST COMPANY:
- -------------
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, in its individual capacity
By: /s/ Val T. Orton
----------------
Name: Val T. Orton
-------------
Title: Vice President
-----------------
THE AGENT,
- -----------
LENDERS AND HOLDERS:
- -------------------
FIRST UNION NATIONAL BANK, as a Holder, as a
Lender and as the Agent
By: /s/ Lucy C. Campbell
--------------------
Name: Lucy C. Campbell
------------------
Title: Vice President
-----------------
BANQUE NATIONALE DE PARIS, as a Lender and a
Holder
By: /s/ Richard L. Sted
-------------------
Name: Richard L. Sted
-----------------
Title: Senior Vice President
----------------------
By: /s/ Thomas George
-----------------
Name: Thomas George
---------------
Title: Vice President-Corporate Banking
---------------------------------
Division
--------
<PAGE>
[SIGNATURES CONTINUED ON NEXT PAGE]
CREDIT AGRICOLE INDOSUEZ, as a Lender and a Holder
By: /s/ Craig Welch
---------------
Name: Craig Welch
--------------
Title: First Vice President
--------------------
By: /s/ Sarah McClintock
--------------------
Name: Sarah McClintock
------------------
Title: Vice President
--------------
<PAGE>
EXHIBIT 1
---------
[Form of Lease Supplement]
LEASE SUPPLEMENT NO. ___
THIS LEASE SUPPLEMENT NO. ___ (this "Lease Supplement") dated as of
----------------
________, between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking
association, not individually, but solely as the Owner Trustee under the USF
Real Estate Trust 1998-1, as lessor (the "Lessor"), and _______________, a
------
__________ corporation, as lessee (the "Lessee").
------
WHEREAS, Lessor is the owner or will be the owner of the Property described
on Schedule 1 hereto (the "Leased Property") and wishes to lease the same to
---------- ---------------
Lessee;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. Definitions; Rules of Usage. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in Appendix A to the Participation Agreement,
----------
dated as of June 29, 1998, among Lessee, Lessor, not individually, except as
expressly stated therein, but solely as the Owner Trustee under the USF Real
Estate Trust 1998-1, JP Foodservice Distributors, Inc., a Delaware corporation,
the various entities which are identified as guarantors therein, as the
Guarantors, the various banks and other lending institutions which are parties
thereto from time to time, as the Holders, the various banks and other lending
institutions which are parties thereto from time to time, as the Lenders, and
First Union National Bank, as the Agent for the Lenders and respecting the
Security Documents, as the Agent for the Lenders and Holders, to the extent of
their interests, as such may be amended, modified, extended, supplemented,
restated and/or replaced from time to time.
SECTION 2. The Properties. Attached hereto as Schedule 1 is the
----------
description of the Leased Property, with an Equipment Schedule attached hereto
as Schedule 1-A, an Improvement Schedule attached hereto as Schedule 1-B and a
------------ ------------
legal description of the Land attached hereto as Schedule 1-C. Effective upon
------------
the execution and delivery of this Lease Supplement by Lessor and Lessee, the
Leased Property shall be subject to the terms and provisions of the Lease.
Without further action, any and all additional Equipment funded under the
Operative Agreements and any and all additional Improvements made to the Land
shall be deemed to be
<PAGE>
titled to the Lessor and subject to the terms and conditions of the Lease and
this Lease Supplement.
SECTION 3. Use of Property. At all times during the Term with respect to
each Property, Lessee will comply with all obligations under and (to the extent
no Event of Default exists and provided, that such exercise will not impair the
--------
value of such Property) shall be permitted to exercise all rights and remedies
under, all operation and easement agreements and related or similar agreements
applicable to such Property.
SECTION 4. Ratification; Incorporation by Reference. Except as
specifically modified hereby, the terms and provisions of the Lease and the
Operative Agreements are hereby ratified and confirmed and remain in full force
and effect. The Lease is hereby incorporated herein by reference as though
restated herein in its entirety.
SECTION 5. Original Lease Supplement. The single executed original of
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Agent therefor on or following the signature page thereof shall be the original
executed counterpart of this Lease Supplement (the "Original Executed
-----------------
Counterpart"). To the extent that this Lease Supplement constitutes chattel
- -----------
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
SECTION 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY AND
CONSTRUED, INTERPRETED TO AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE
OF NORTH CAROLINA, EXCEPT TO THE EXTENT THE LAWS OF THE STATE WHERE A PARTICULAR
PROPERTY IS LOCATED ARE REQUIRED TO APPLY.
SECTION 7. Mortgage; Power of Sale. Without limiting any other remedies
set forth in the Lease, in the event that a court of competent jurisdiction
rules that the Lease constitutes a mortgage, deed of trust or other secured
financing, then Lessor and Lessee agree that Lessee hereby grants a Lien against
the Leased Property WITH POWER OF SALE, and that, upon the occurrence of any
Lease Event of Default, Lessor shall have the power and authority, to the extent
provided by law, after prior notice and lapse of such time as may be required by
law, to foreclose its interest (or cause such interest to be foreclosed) in all
or any part of the Leased Property.
SECTION 8. Counterpart Execution. This Lease Supplement may be executed
in any number of counterparts and by each of the parties hereto in
<PAGE>
separate counterparts, all such counterparts together constituting but one (1)
and the same instrument.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, but solely as the
Owner Trustee under the USF Real Estate Trust
1998-1, as Lessor
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
---------------------------------, as Lessee
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Receipt of this original counterpart of the foregoing Lease Supplement is hereby
acknowledged as the date hereof.
FIRST UNION NATIONAL BANK, as
the Agent
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the County of _________________ this _____ day of _________,
by ________________, as __________________ of FIRST SECURITY BANK, NATIONAL
ASSOCIATION, a national banking association, not individually, but solely as the
Owner Trustee under the USF Real Estate Trust 1998-1, on behalf of the Owner
Trustee.
[Notarial Seal] --------------------------------------
Notary Public
My commission expires:____________
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the County of _________________ this _____ day of ___________,
by ________________, as __________________ of _____________________, a
__________ corporation, on behalf of the corporation.
[Notarial Seal] -----------------------------------------
Notary Public
My commission expires:____________
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the County of ________________ this ____ day of ___________,
by _____________, as __________________ of FIRST UNION NATIONAL BANK, a national
banking association, as the Agent.
[Notarial Seal] --------------------------------
Notary Public
My commission expires:____________
<PAGE>
SCHEDULE 1
TO LEASE SUPPLEMENT NO. ___
(Description of the Leased Property)
See Schedule 1-C attached hereto.
------------
<PAGE>
SCHEDULE 1-A
TO LEASE SUPPLEMENT NO. ___
(Equipment)
<PAGE>
SCHEDULE 1-B
TO LEASE SUPPLEMENT NO. ___
(Improvements)
<PAGE>
SCHEDULE 1-C
TO LEASE SUPPLEMENT NO. ___
(Land)
<PAGE>
EXHIBIT 2
---------
[Form of Memorandum of Lease]
Recordation requested by:
Moore & Van Allen, PLLC
After recordation return to:
Moore & Van Allen, PLLC (LSJ)
100 North Tryon Street, Floor 47
Charlotte, NC 28202-4003
Space above this line
for Recorder's use
-----------------------------------------------------------------------------
MEMORANDUM OF LEASE AGREEMENT
AND
LEASE SUPPLEMENT NO. ___
THIS MEMORANDUM OF LEASE AGREEMENT AND LEASE SUPPLEMENT NO. ___
("Memorandum"), dated as of ______________, is by and between FIRST SECURITY
- ------------
BANK, NATIONAL ASSOCIATION, a national banking association, not individually,
but solely as the Owner Trustee under the USF Real Estate Trust 1998-1, with an
office at 79 South Main Street, Salt Lake City, Utah 84111 (hereinafter referred
to as "Lessor") and __________________________, a _____________ corporation,
------
with an office at __________________________________________ (hereinafter
referred to as "Lessee").
------
WITNESSETH:
That for value received, Lessor and Lessee do hereby covenant, promise and
agree as follows:
1. Demised Premises and Date of Lease. Lessor has leased to Lessee,
----------------------------------
and Lessee has leased from Lessor, for the Term (as hereinafter defined),
certain real property and other property located in _______________________,
which is described in the attached Schedule 1 (the "Property"), pursuant to the
---------- --------
terms of a Lease Agreement between Lessor and JP Foodservice Distributors, Inc.
dated as of June 26, 1998 (as such may be amended, modified, extended,
supplemented,
<PAGE>
restated and/or replaced from time to time, "Lease") and a Lease Supplement No.
-----
___ between Lessor and Lessee dated as of ____________ (the "Lease Supplement").
-----------------
2. Term, Renewal, Extension and Purchase Option. The term of the
--------------------------------------------
Lease for the Property ("Term") commenced as of ______________ and shall end as
----
of _______________, unless the Term is extended or earlier terminated in
accordance with the provisions of the Lease. The Lease contains provisions for
renewal and extension. The tenant has a purchase option under the Lease.
3. Tax Payer Numbers.
-----------------
Lessor's tax payer number: __________________.
Lessee's tax payer number: __________________.
4. Mortgage; Power of Sale. Without limiting any other remedies set
-----------------------
forth in the Lease, in the event that a court of competent jurisdiction rules
that the Lease constitutes a mortgage, deed of trust or other secured financing,
then Lessor and Lessee agree that Lessee has granted, pursuant to the terms of
the Lease and the Lease Supplement, a Lien against the Property WITH POWER OF
SALE, and that, upon the occurrence and during the continuance of any Lease
Event of Default, Lessor shall have the power and authority, to the extent
provided by law, after prior notice and lapse of such time as may be required by
law, to foreclose its interest (or cause such interest to be foreclosed) in all
or any part of the Property.
5. Effect of Memorandum. The purpose of this instrument is to give
--------------------
notice of the Lease and the Lease Supplement and their respective terms,
covenants and conditions to the same extent as if the Lease and the Lease
Supplement were fully set forth herein. This Memorandum shall not modify in any
manner the terms, conditions or intent of the Lease or the Lease Supplement and
the parties agree that this Memorandum is not intended nor shall it be used to
interpret the Lease or the Lease Supplement or determine the intent of the
parties under the Lease or the Lease Supplement.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this instrument
as of the day and year first written.
LESSOR:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
LESSEE:
_____________________________________
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
<PAGE>
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Memorandum of Lease Agreement and Lease Supplement No. ___
was acknowledged before me on _________________, by Val T. Orton, Vice President
of FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association,
not individually, but solely as the Owner Trustee under the USF Real Estate
Trust 1998-1, on behalf of said national banking association.
[Notarial Seal] ----------------------------------
Notary Public
My commission expires:____________
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Memorandum of Lease Agreement and Lease Supplement No. ___
was acknowledged before me on ______________, by ________________,
__________________ of _______________________________, a ________________
corporation, on behalf of said corporation.
[Notarial Seal]
- ----------------------------------
Notary Public
My commission expires:____________
<PAGE>
SCHEDULE 1
----------
(Description of Property)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUL-3-1999 JUN-27-1998
<PERIOD-START> DEC-27-1998 DEC-28-1997
<PERIOD-END> MAR-27-1999 MAR-28-1998
<CASH> 61,504 0
<SECURITIES> 0 0
<RECEIVABLES> 298,237 0
<ALLOWANCES> 0 0
<INVENTORY> 378,776 0
<CURRENT-ASSETS> 907,308 0
<PP&E> 443,157 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,976,210 0
<CURRENT-LIABILITIES> 463,440 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 691,338 0
<TOTAL-LIABILITY-AND-EQUITY> 1,976,210 0
<SALES> 1,471,076 1,338,138
<TOTAL-REVENUES> 1,471,076 1,338,138
<CGS> 1,197,795 1,090,012
<TOTAL-COSTS> 229,695 235,416
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,468 15,669
<INCOME-PRETAX> 28,118 (2,959)
<INCOME-TAX> 11,637 301
<INCOME-CONTINUING> 16,481 (3,260)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,481 (3,260)
<EPS-PRIMARY> 0.34 (0.07)
<EPS-DILUTED> 0.34 (0.07)
</TABLE>
