<PAGE>
As filed with the Securities and Exchange Commission on March 19, 1999
Registration No. 333-73447
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
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 Number)
----------------
9755 Patuxent Woods Drive
Columbia, Maryland 21046
(410) 312-7100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------
David M. Abramson, Esq.
Executive Vice President and General Counsel
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, Maryland 21046
(410) 312-7100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copies to:
Richard J. Parrino, Esq. Eric S. Haueter, Esq.
Hogan & Hartson L.L.P. Brown & Wood llp
555 Thirteenth Street, N.W. 555 California Street
Washington, D.C. 20004 San Francisco, CA 94104
(202) 637-5600 (415) 772-1200
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) Per Share(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 10,010,698 shares $43.94 $439,870,070 $122,284
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</TABLE>
(1) Includes up to 1,305,743 shares that may be purchased to cover over-
allotments.
(2) Estimated pursuant to Rule 457(c) under the Securities Act solely for the
purpose of calculating the registration fee.
(3) Previously paid.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States and Canadian offering (the "U.S.
Prospectus") and one to be used in a concurrent international offering (the
"International Prospectus"). The two prospectuses will be identical in all
respects except for the front and back cover pages and the section entitled
"Underwriting." Pages to be included in the International Prospectus and not
the U.S. Prospectus are marked "Alternate Page."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated March 19, 1999
PROSPECTUS
8,695,946 Shares
U.S. FOODSERVICE
Common Stock
-----------
Stockholders of U.S. Foodservice named in this prospectus are selling
8,695,946 shares of common stock. The U.S. underwriters are offering 6,956,757
shares in the United States and Canada and the international managers are
offering 1,739,189 shares outside the United States and Canada.
Our common stock trades on the New York Stock Exchange under the symbol
"UFS." On March 18, 1999, the last reported sale price of our common stock on
the New York Stock Exchange was $42 13/16 per share.
Investing in our common stock involves risks which are described in the
"Risk Factors" section beginning on page 10 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds to Selling Stockholders........................... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 1,043,513
shares from U.S. Foodservice at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional 260,878 shares from U.S. Foodservice.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
-----------
Merrill Lynch & Co.
Goldman, Sachs & Co.
Salomon Smith Barney
J.C. Bradford & Co. First Union Capital Markets Corp.
-----------
The date of this prospectus is , 1999.
<PAGE>
[The graphics on the inside front cover page consist of the
following: (1) the U.S. Foodservice logo in color, (2) a color map of
the United States showing the location of U.S. Foodservice's
distribution centers, each of which is identified by symbol and place
name, and (3) three color photographs of U.S. Foodservice
operations.]
[The following text appears below the U.S. Foodservice logo and
immediately above the map of the United States:]
With geographic access to over 85% of the
U.S. population, U.S. Foodservice(TM)
distribution centers are located
throughout the United States.
[The following text appears below the map of the United States and
adjacent to and above the three color photographs:]
We market and distribute more than 40,000 national,
private and signature brand items to over 130,000
foodservice customers. Our diverse customer base
encompasses both independent "street" and multi-unit
"chain" businesses, including Ruby Tuesday, Subway,
Buffet's, Inc., Perkins Family Restaurants and
Pizzeria Uno.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................... 5
Risk Factors............................................................... 10
Cautionary Note Regarding Forward-Looking Statements....................... 14
Use of Proceeds............................................................ 15
Price Range of Common Stock and Dividend Policy............................ 16
Capitalization............................................................. 17
Selected Consolidated Financial Data....................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 20
Business................................................................... 34
Management................................................................. 45
Principal and Selling Stockholders......................................... 48
Description of Capital Stock............................................... 51
Shares Eligible for Future Sale............................................ 57
U.S. Tax Consequences to Non-U.S. Holders.................................. 58
Underwriting............................................................... 61
Where You Can Find More Information........................................ 67
Legal Matters.............................................................. 68
Experts.................................................................... 68
Index to Consolidated Financial Statements................................. F-1
</TABLE>
----------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not, and the underwriters are not, making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is accurate
only as of the date on the front cover of this prospectus. Our business,
financial condition, results of operations and prospects may have changed since
that date.
Neither U.S. Foodservice nor any of the U.S. underwriters or
international managers has taken or will take action in any jurisdiction to
permit a public offering of the common stock or the possession or distribution
of this prospectus other than in the United States.
3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
SUMMARY
You should read the following summary in conjunction with the more
detailed information and consolidated financial statements and related notes
contained or incorporated by reference in this prospectus, all of which qualify
this summary. Unless we indicate otherwise or the context otherwise requires,
(1) references in this prospectus to "U.S. Foodservice," "we" and "us" are to
U.S. Foodservice and its consolidated subsidiaries from and after February 27,
1998 and to JP Foodservice, Inc. and its consolidated subsidiaries before
February 27, 1998 and (2) all information in this prospectus assumes that the
Underwriters have not exercised their options to purchase additional shares to
cover over-allotments. All references to "$" or "dollars" are to United States
dollars. U.S. Foodservice's fiscal year is a 52-week or 53-week period ending
on the Saturday closest to June 30. The information in this prospectus
concerning the foodservice distribution industry and other foodservice
distribution companies is derived principally from publicly available
information and from industry sources. Although we believe that this publicly
available information and the information provided by these industry sources is
reliable, we have not independently verified the accuracy of any of this
information. The information in this prospectus concerning the foodservice
distribution industry is for the United States.
U.S. Foodservice
U.S. Foodservice, formerly JP Foodservice, Inc., is the nation's second
largest publicly-traded broadline foodservice distributor based on fiscal year
1998 net sales of $5.5 billion. We sell food and related products to
restaurants and other institutional foodservice establishments through our
national distribution network, which provides geographic access to more than
85% of the U.S. population. We market and distribute more than 40,000 national
and proprietary brand items to over 130,000 foodservice customers, including
restaurants, hotels, healthcare facilities, cafeterias and schools. This broad
product line allows us to meet substantially all of the food and related supply
needs of our diverse customer base of independent "street" and multi-unit
"chain" businesses, which include Ruby Tuesday, Subway, Buffet's, Inc., Perkins
Family Restaurants and Pizzeria Uno.
We have experienced rapid growth of net sales and operating earnings
through internal expansion and acquisitions. From our 1994 fiscal year through
our 1998 fiscal year, we more than doubled our net sales from $2.6 billion to
$5.5 billion, for a compound annual growth rate of approximately 20%. During
this period, we increased our income from continuing operations before
extraordinary charge, without giving effect to acquisition related costs, from
$0.24 to $1.37 per share, for a compound annual growth rate of approximately
55%. We were able to increase our income from continuing operations over this
period at a more rapid rate than our net sales through:
. cost savings and improved economies of scale from our acquisitions;
. operating efficiencies and improved profit margins from our large-
scale operations and our increasing share of many local markets; and
. a reduction of our interest expense as a percentage of our net sales.
We believe that we have significant opportunities to continue our net
sales growth, both internally and through acquisitions. We expect that the
principal factors contributing to our net sales growth will be:
. continued industry growth resulting from favorable demographic trends,
which have contributed to growth in total net sales for the
foodservice distribution industry from approximately $81 billion in
1985 to approximately $147 billion in 1998;
. gains in market share by foodservice distributors with large-scale
operations;
. use of our operating efficiencies and other competitive advantages to
increase our local and national market share; and
. continued growth through acquisitions.
5
<PAGE>
We believe that we have competitive advantages over most of the companies
in the foodservice distribution industry. There were over 3,000 foodservice
distribution companies in 1998, most of which were small, privately-owned
enterprises supplying a limited number of products within local or regional
markets. Unlike these companies, U.S. Foodservice is a broadline distributor
which offers a comprehensive range of food and related products from a single
source of supply and provides foodservice establishments with the cost savings
associated with large, full-service deliveries. Further, we are one of the few
broadline distributors with a nationwide presence able to meet the needs of
most national chain restaurants, which have captured a larger share of consumer
restaurant spending in recent years. The experience of our management team, our
market position and our capital resources are substantial advantages for
capitalizing on these opportunities. These competitive advantages have
contributed to our strong record of internal growth. From our 1994 fiscal year
through our 1997 fiscal year, we achieved compound annual internal net sales
growth of approximately 9%, calculated without giving effect to the impact of
acquisitions and the restatement of our financial statements for acquisitions
accounted for as poolings of interests.
We supplement our internal growth with an active program of strategic
acquisitions to take advantage of the ongoing consolidation in our industry.
Since we became a public company in 1994, we have acquired 11 foodservice
businesses with combined net sales of over $900 million, as well as Rykoff-
Sexton, Inc., which was the nation's third largest broadline foodservice
distributor based on fiscal 1997 net sales of $3.5 billion. Despite our
substantial growth, our 1998 fiscal year net sales of $5.5 billion represented
less than 4% of the approximately $147 billion of 1998 net sales generated by
the foodservice distribution industry as a whole. Because the foodservice
distribution industry remains highly fragmented and there are factors promoting
consolidation in the industry, we believe we have a significant opportunity to
continue to add to our net sales through acquisitions. We seek to increase
penetration of our current markets through acquisitions of small, privately-
owned distributors that we fold into our existing operations and to expand into
new markets through acquisitions of larger-sized distributors. We typically
have been able to improve the profitability of acquired businesses by:
. eliminating redundant overhead expenses;
. reducing distribution and warehouse expenses by eliminating
overlapping delivery routes and duplicate warehouse facilities;
. lowering the cost of financing working capital; and
. improving gross margins by using our purchasing power to reduce the
cost of goods sold.
Our managers are primarily executives who served as officers of JP
Foodservice before its acquisition of Rykoff-Sexton in December 1997. From our
1994 fiscal year through our 1997 fiscal year, we achieved compound annual net
sales growth of approximately 18% and compound annual earnings per share growth
of approximately 29%, excluding extraordinary and nonrecurring items and before
restatement of our historical results for acquisitions accounted for as
poolings of interests and before giving effect to the Rykoff-Sexton
acquisition. Over the same period, we augmented our internal net sales growth
by the successful integration of six acquired businesses and increased our
operating income margin from 2.9% in our 1994 fiscal year to 3.6% in our 1997
fiscal year. Jim Miller, our President and Chief Executive Officer, Mark
Kaiser, our Executive Vice President of Sales, Marketing and Procurement, and
Lew Hay, our Chief Financial Officer, average over 20 years of experience in
the foodservice industry.
6
<PAGE>
Growth Strategies
One of our principal strategic objectives is to outpace the growth of the
foodservice industry overall. We employ the following growth strategies to
achieve this objective:
. Targeting profitable customer segments such as family dining,
healthcare, business and industry with value-added services
. Improving operating efficiencies by further penetration of existing
accounts
. Increasing sales of our proprietary brand items to promote customer
loyalty and generally enhance our profitability and the profitability
of our customers
. Supporting the growth of existing chain accounts and selectively
targeting new chain accounts
. Increasing sales to street accounts by hiring and training new sales
people and developing skills of existing employees
. Pursuing selected acquisition opportunities
. Continuing our integration of Rykoff-Sexton to achieve targeted sales
and margin improvements
Our growth strategies are subject to risks that include national and
regional economic downturns, food price deflation, unexpected increases in our
operating costs, difficulties in identifying suitable acquisitions and in
integrating acquired businesses, and competitive conditions in our industry.
These risks may adversely affect our ability to continue to grow at rates
comparable to those we have achieved in recent years.
Recent Acquisitions
In our last full fiscal quarter, we completed the following transactions
as part of our acquisition growth strategy:
On November 16, 1998, U.S. Foodservice acquired Joseph Webb Foods, Inc.,
a broadline foodservice distributor serving the San Diego and other southern
California markets. Joseph Webb Foods had net sales of $180 million in the
twelve months ended December 26, 1998.
On October 23, 1998, U.S. Foodservice acquired J.H. Haar & Sons, L.L.C.,
a New Jersey-based broadline foodservice distributor serving the metropolitan
New York City market. This distributor had net sales of $57 million in its 1998
fiscal year.
----------------
Our principal executive offices are located at 9755 Patuxent Woods Drive,
Columbia, Maryland 21046, and our telephone number at that address is (410)
312-7100.
7
<PAGE>
The Offerings
<TABLE>
<C> <S>
Common stock offered by the selling stockholders:
U.S. offering...................................................... 6,956,757 shares
International offering............................................. 1,739,189 shares
Total.......................................................... 8,695,946 shares
Shares outstanding before and after the U.S. and international offerings.. 48,261,739 shares(1)
Use of Proceeds........................................................... U.S. Foodservice will
not receive any proceeds
from the sale of shares
of common stock by the
selling stockholders.
NYSE Symbol............................................................... "UFS"
</TABLE>
- --------
(1) Excludes, as of January 31, 1999, 2,442,485 shares subject to outstanding
options at a weighted average exercise price of $29.23 per share and 71,460
shares reserved for issuance upon exercise of an outstanding warrant at an
exercise price of $13.05 per share. This number assumes that the over-
allotment options are not exercised. If the over-allotment options are
exercised in full, we will issue and sell 1,304,391 shares in addition to
the shares to be sold by the selling stockholders. See "Use of Proceeds"
for our anticipated uses of the proceeds we will receive if the over-
allotment options are exercised in full and we sell these additional
shares.
Risk Factors
Prospective purchasers of the shares should consider carefully all of the
information contained and incorporated by reference in this prospectus,
including the information set forth under "Risk Factors," before making an
investment in the shares.
8
<PAGE>
Summary Consolidated Financial Information
U.S. Foodservice completed acquisitions of Valley Industries, Inc. in
August 1996, Squeri Food Service, Inc. in September 1996 and Rykoff-Sexton in
December 1997, all of which were accounted for as poolings of interests.
Results for all periods presented prior to these acquisitions have been
restated to include the results of the acquired companies. You should read the
following summary consolidated financial information in conjunction with the
information presented in "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Introduction," notes 3 and 4 to the audited consolidated financial statements
appearing elsewhere in this prospectus and note 2 to the unaudited consolidated
financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Fiscal Years Ended Six Months Ended
-------------------------------------------------------- ----------------------------
July 2, July 1, June 29, June 28, June 27, December 27, December 26,
1994 1995 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net sales............... $2,623,052 $2,857,334 $3,238,781 $5,169,406 $5,506,949 $2,712,086 $3,011,459
Gross profit............ 551,965 594,515 652,685 1,003,074 1,041,668 512,743 552,059
Operating expenses...... 497,136 526,871 590,446 845,901 876,170 449,166 447,694
Amortization of
intangible assets...... 2,421 2,792 4,244 15,349 15,354 7,419 8,077
Restructuring costs
(reversal)............. -- -- (6,441) (4,000) 53,715 38,037 --
Charge for impairment of
long-lived assets...... -- -- 29,700 -- 35,530 32,135 --
Income from operations.. 52,408 64,852 34,736 145,824 60,899 (14,014) 96,288
Interest expense and
other financing costs,
net.................... 44,201 32,941 32,527 76,063 73,894 39,246 32,672
Nonrecurring charges.... -- -- 1,517 5,400 17,822 17,822 --
Income (loss) from
continuing operations
before extraordinary
charge................. 3,823 18,303 133 38,286 (37,292)(1) (60,831)(1) 37,520
Diluted Per Share Data:
Income (loss) from
continuing operations
before extraordinary
charge(2).............. $ 0.24 $ 0.74 $ 0.00 $ 0.87 $ (0.83) $ (1.35) $ 0.79
Weighted average common
shares................. 15,949 24,567 30,515 44,063 45,320 44,811 47,699
Balance Sheet Data (at
end of period):
Working capital......... $ 248,679 $ 270,942 $ 208,130 $ 234,803 $ 287,816 $ 477,701
Total assets............ 856,744 939,280 1,052,211 1,732,183 1,817,791 2,021,191
Long-term debt,
excluding current
maturities............. 430,379 306,702 303,728 655,246 680,625 765,429
Stockholders' equity.... 145,079 315,060 316,676 579,146 584,720 674,102
</TABLE>
- --------
(1) In connection with the acquisition of Rykoff-Sexton, U.S. Foodservice
incurred acquisition related costs, including restructuring costs, charges
for impairment of long-lived assets, transaction costs and other operating
charges resulting from the integration of the two businesses, totaling
approximately $138.0 million for the fiscal year ended June 27, 1998 and
$112.6 million for the six months ended December 27, 1997, which
significantly affected U.S. Foodservice's results for these periods.
Excluding the impact of these acquisition related costs, U.S. Foodservice's
net income before extraordinary charge would have been $62.6 million for
the fiscal year ended June 27, 1998 and $22.6 million for the six months
ended December 27, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Introduction" for more
information about these costs.
(2) Acquisition related costs, restructuring costs and reversals, charges for
impairment of long-lived assets, and nonrecurring charges have affected
diluted earnings per share from continuing operations before extraordinary
charge as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended Six Months Ended
------------------------------------------ -------------------------
July 2, July 1, June 29, June 28, June 27, December 27, December 26,
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Diluted earnings per
share from continuing
operations before
extraordinary charge.. $0.24 $0.74 $0.00 $0.87 $(0.83) $(1.35) $0.79
Acquisition related
costs, restructuring
costs and reversals,
charge for impairment
of long-lived assets,
and nonrecurring
charges............... -- -- 0.48 0.05 2.20 1.85 --
----- ----- ----- ----- ------ ------ -----
$0.24 $0.74 $0.48 $0.92 $1.37 $0.50 $0.79
===== ===== ===== ===== ====== ====== =====
</TABLE>
9
<PAGE>
RISK FACTORS
In addition to the other information contained and incorporated by
reference in this prospectus, you should carefully consider the following risk
factors relating to U.S. Foodservice and our common stock before purchasing the
shares offered by this prospectus.
Our business has low profit margins and is sensitive to national and
regional economic conditions
Foodservice distribution companies like U.S. Foodservice purchase, store,
market and transport food and related products to establishments that prepare
and serve meals to be eaten away from home. Our industry is characterized by
relatively high inventory turnover with relatively low profit margins. We sell
a significant portion of our products at prices that are based on the cost of
the products plus a percentage markup. As a result, our profit levels may be
reduced during periods of food price deflation, even though our gross profit
percentage may remain relatively constant. Such a reduction could have a
material adverse effect on our business, operating results and financial
condition.
The foodservice distribution industry is sensitive to national and
regional economic conditions. Economic downturns could have an adverse impact
on the demand for our products. These downturns may reduce consumer spending at
restaurants and other foodservice institutions we supply.
Our distribution and administrative expenses are relatively fixed in the
short term. As a result, unexpected decreases in our net sales, such as those
due to severe weather conditions, can have a significant short-term adverse
impact on our operating income. Our operating results also may be adversely
affected by difficulties we may encounter in collecting our accounts receivable
and in maintaining our profit margins in times of unexpected increases in fuel
costs. For a discussion of these factors and our operating results in our last
three fiscal years, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
We are subject to risks associated with our acquisitions of other
foodservice businesses
Since we became a public company in November 1994, we have acquired 12
foodservice businesses as part of our growth strategy of supplementing internal
expansion with acquisitions. Our acquisitions may not improve our financial
performance in the short or long term as we expect. Acquisitions will enhance
our earnings only if we can successfully integrate those businesses into our
marketing programs, centralized purchasing operations, distribution network and
information systems. Our ability to integrate acquired businesses may be
adversely affected by factors that include customer resistance to our product
brands and distribution system, our failure to retain management and sales
personnel, difficulties in converting different information systems to our
proprietary systems, the size of the acquired business and the allocation of
limited management resources among various integration efforts. In addition, we
may not eliminate as many redundant costs as we anticipated in selecting our
acquisition candidates. One or more of our acquisition candidates also may have
liabilities or adverse operating issues that we failed to discover prior to the
acquisition. Difficulties in integrating acquired businesses, as well as
liabilities or adverse operating issues relating to acquired businesses, could
have a material adverse effect on our business, operating results and financial
condition.
Even if acquired companies eventually contribute to an increase in our
profitability, the acquisitions may adversely affect our earnings in the short
term. Our earnings may decrease as a result of transaction-related expenses we
record for the quarter in which we complete an acquisition. Our earnings may be
further reduced by the higher operating and administrative expenses we
typically incur in the quarters immediately following an acquisition as we seek
to integrate the acquired business into our own operations. The amortization of
goodwill and depreciation resulting from acquisitions also may contribute to
reduced earnings.
A significant portion of the growth in our revenues in recent years has
resulted from acquisitions. We may not be able to increase our revenues or
earnings through new acquisitions at the same rates we have
10
<PAGE>
achieved through our past acquisitions. For example, we were able to triple our
revenues directly as a result of our acquisition of Rykoff-Sexton in our 1998
fiscal year. As the foodservice distribution industry continues to consolidate,
we may find it more difficult to identify suitable acquisition candidates than
we did in the past. We may also find that the acquisition terms are not as
favorable as those in our prior acquisitions.
The way in which we pay for acquired businesses also involves risks. Many
of our past acquisitions have been structured as stock-for-stock transactions.
Continuing volatility in the U.S. securities markets and fluctuations in our
stock price may increase the risk that our stock-for-stock acquisitions could
dilute our earnings per share. We also pay cash for some businesses. In the
past, we have obtained funds for some of our cash acquisitions through
additional bank borrowings or by issuing common stock. If we increase our bank
borrowings or issue debt securities to finance future acquisitions, we will
increase our level of indebtedness and interest expense, while if we issue
additional common stock, we may dilute the ownership of our stockholders. In
addition, we may not be able to obtain the funds we need on acceptable terms.
These risks in the way we finance acquisitions could have a material adverse
effect on our business, operating results and financial condition.
Our stock price has fluctuated over a wide range, and could fluctuate
significantly in the future, as a result of our operating performance
and conditions in our industry
From time to time, there may be significant volatility in the market
price for our common stock. Since our common stock began to trade publicly in
November 1994, its market price has fluctuated over a wide range. During our
last four complete fiscal quarters, the high last reported sale price of our
common stock on the New York Stock Exchange was $49.13 and the low last
reported sale price of our common stock was $31.50. A number of factors
involving U.S. Foodservice and the foodservice distribution industry could
contribute to future fluctuations in our stock price. These factors include the
following:
. quarterly operating results of U.S. Foodservice or other distributors of
food and related goods, which could affect the attractiveness of our
stock compared to the securities of foodservice companies with better
results or companies in other businesses;
. changes in general conditions in the economy or the foodservice
distribution industry, which could affect the demand for our products
and our operating results;
. our failure to complete and successfully integrate acquisitions of other
foodservice companies, which could adversely affect our operating
results and our ability to grow; and
. severe weather conditions, which could result in unexpected decreases in
our net sales.
For a table showing the price range of our common stock during recent periods,
see "Price Range of Common Stock and Dividend Policy."
The failure to attain Year 2000 compliance may have an adverse impact on
our business
We and other companies we do business with rely on numerous computer
programs in managing day-to-day operations. We have undertaken a program to
address the Year 2000 issue, which is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
is approached and reached. Our failure to correct a Year 2000 problem could
result in a material interruption in, or a material failure of, our normal
business activities or operations. Our Year 2000 program is focused on both our
internal computer systems and third-party computer systems, including the
systems of some of our important suppliers and customers. We currently expect
to continue to incur internal staff costs and other expenses of up to $5
million to complete our Year 2000 compliance work with respect to our major
information systems. It is possible that we will have to increase this estimate
as we complete our assessment of the impact of the Year 2000 issue on our
business. In addition, we may have to replace or upgrade systems or equipment
at a substantial cost. We cannot be sure that
11
<PAGE>
we will be able to resolve the Year 2000 issue in 1999. If we fail to resolve
the Year 2000 issue, or if our important suppliers and customers fail to
resolve their Year 2000 issues as they relate to U.S. Foodservice, the Year
2000 problem could have a material adverse effect on our business, operating
results and financial condition. For a discussion of our Year 2000 program and
the possible impact of the Year 2000 issue on U.S. Foodservice, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Information Systems and the Impact of the Year 2000 Issue."
A labor dispute or work stoppage involving our employees, many of whom
are union members, could adversely affect our business
As of December 26, 1998, the end of the second quarter in our 1999 fiscal
year, approximately 3,000 of our employees were members of approximately 40
different local unions associated with the International Brotherhood of
Teamsters and other labor organizations. These employees represented
approximately 26% of our full-time employees and approximately 27% of the
employees employed in our warehouse and distribution operations. In the balance
of our 1999 fiscal year, collective bargaining contracts covering approximately
750 of our employees will expire by May 1, 1999. A labor dispute or work
stoppage resulting from our failure to conclude new collective bargaining
agreements or from other factors could have a material adverse effect on our
business, operating results and financial condition.
The foodservice distribution industry is highly competitive
Our industry is extremely fragmented, with over 3,000 companies in
operation in 1998. The number and diverse nature of these companies result in
highly competitive conditions. Our competition includes not only other
broadline distributors, which provide a comprehensive range of food and related
products from a single source of supply, but also specialty distributors and
system distributors. Specialty distributors generally supply one or two product
categories, while system distributors typically supply a narrow range of
products to a limited number of multi-unit businesses operating in a broad
geographical area. We compete in each of our markets with at least one other
large national distribution company, generally SYSCO Corp. or Alliant
Foodservice, Inc., as well as with numerous regional and local distributors. In
seeking acquisitions of other foodservice businesses, we compete against both
other foodservice distribution companies and financial investors. Our failure
to compete successfully could have a material adverse effect on our business,
operating results and financial condition. See "Business--Foodservice
Distribution Industry" for a discussion of the foodservice distribution
industry and recent industry trends and "Business--Competition" for a
discussion of competitive factors affecting our business.
We currently have significant indebtedness and may incur additional
indebtedness in the future
At December 26, 1998, our ratio of total debt to total capitalization was
approximately 53.4%. Our total capitalization is the sum of our total debt and
capital lease obligations plus our stockholders' equity. Our ratio of total
debt to total capitalization as of December 26, 1998 would have been
approximately 60.3% if we included as debt $250 million of accounts receivable
securitization arrangements. In accordance with generally accepted accounting
principles, we do not account for these arrangements as debt on our balance
sheet, but many lenders consider these arrangements in their credit decisions.
We may incur additional indebtedness in the future, subject to limitations
contained in the instruments governing our indebtedness, to finance capital
expenditures or for other general corporate purposes, including acquisitions.
We cannot assure you that our business will continue to generate cash flow at
or above the levels required to service our indebtedness and meet our other
cash needs. If our business fails to generate sufficient operating cash flow in
the future, or if we fail to obtain cash from other sources such as asset sales
or additional financings, we will be restricted in our ability to continue to
make acquisitions for cash and to invest in expansion or replacement of our
distribution facilities, information systems and equipment. Such a failure
could have a material adverse effect on our business, operating results and
financial condition. In addition, because a majority of our indebtedness bears
interest at floating rates, a material increase in interest rates could
adversely affect our ability to meet our liquidity requirements. For a
discussion of our financial condition, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
12
<PAGE>
Our success largely depends on our ability to retain our senior
management
We largely depend for our success on the efforts of members of our senior
management. Our key senior managers have many years of experience in broadline
foodservice distribution with U.S. Foodservice and other companies, as well as
in the acquisition and integration of foodservice businesses. They have
developed and coordinated implementation of U.S. Foodservice's business
strategy since our formation in 1989. If we were to lose the services of one or
more of our key senior managers, our business, operating results and financial
condition could be materially adversely affected. For information about our
executive officers, see "Management."
Product liability claims could have an adverse effect on our business
Like any other seller of food and processor of meats, we face an inherent
risk of exposure to product liability claims if the products we sell cause
injury or illness. We have obtained primary and excess umbrella liability
insurance with respect to product liability claims. We cannot assure you,
however, that this insurance will continue to be available at a reasonable
cost, or, if available, will be adequate to cover liabilities. We generally
seek contractual indemnification from parties supplying our products, but any
such indemnification is limited, as a practical matter, to the creditworthiness
of the indemnifying party. If we do not have adequate insurance or contractual
indemnification available, product liabilities relating to defective products
could have a material adverse effect on our business, operating results and
financial condition.
Future sales of our common stock in the public market could adversely
affect our stock price and our ability to raise funds in new stock
offerings
Future sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices of our common stock and could impair our ability to
raise capital through future offerings of equity securities. Of the 48.3
million shares of our common stock outstanding at January 31, 1999, other than
the shares offered by this prospectus, approximately 1.4 million shares were
eligible for sale in the public market in accordance with Rule 144 under the
Securities Act of 1933 and approximately 600,000 shares were covered by the
registration statement referred to below. For more information about our common
stock eligible for future sale, see "Shares Eligible for Future Sale."
U.S. Foodservice has granted registration rights with respect to the
common stock primarily to holders of common stock U.S. Foodservice issued in
connection with its acquisition of other foodservice businesses. The offering
of the shares by this prospectus is being made following the exercise of these
registration rights. As of January 31, 1999, in addition to the shares offered
hereby, approximately 600,000 shares of common stock were entitled to the
benefits of these registration rights, all of which were shares covered by a
registration statement which was in effect under the Securities Act. The
exercise of registration rights granted by U.S. Foodservice is subject to
notice requirements, timing restrictions and volume limitations which may be
imposed by the underwriters of an offering. U.S. Foodservice is required to
bear the expenses of all these registrations, except for underwriting discounts
and commissions. We expect to grant registration rights to the stockholders of
other foodservice businesses we may acquire in the future.
U.S. Foodservice and the selling stockholders have agreed, subject to
exceptions, not to directly or indirectly offer or sell any shares of common
stock without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated on behalf of the underwriters for 90 days after the date of
this prospectus. With this consent, U.S. Foodservice and the selling
stockholders may sell shares before the expiration of such 90-day period
without prior notice to the other stockholders of U.S. Foodservice or to any
public market in which the common stock trades. For more information about
these "lock-up" agreements, see "Underwriting."
We do not anticipate that we will pay dividends on our common stock
We have never paid cash dividends on our common stock and we do not
anticipate that we will pay cash dividends in the foreseeable future. We may
pay cash dividends only if we comply with financial tests and
13
<PAGE>
other restrictions contained in our credit facility agreements and in the
indenture for public notes issued by one of our subsidiaries. For a discussion
of our dividend policy, see "Price Range of Common Stock and Dividend Policy."
Provisions in our charter and bylaws and in Delaware law could
discourage takeover attempts we oppose even if our stockholders might
benefit from a change in control of U.S. Foodservice
Provisions in our charter and bylaws and in the Delaware general
corporation law may make it difficult and expensive for a third party to pursue
a takeover attempt we oppose even if a change in control of U.S. Foodservice
would be beneficial to the interests of our stockholders. The charter and bylaw
provisions include a requirement that our board of directors be divided into
three classes, with approximately one-third of the directors to be elected each
year. This classification of directors makes it more difficult for an acquiror
or for other stockholders to change the composition of the board of directors.
In addition, the board of directors has the authority to issue up to 5,000,000
shares of preferred stock in one or more series and to fix the powers,
preferences and rights of each series without stockholder approval. The ability
to issue preferred stock could discourage unsolicited acquisition proposals or
make it more difficult for a third party to gain control of U.S. Foodservice,
or otherwise could adversely affect the market price of our common stock.
Further, as a Delaware corporation, we are subject to section 203 of the
Delaware general corporation law. This section generally prohibits us from
engaging in mergers and other business combinations with stockholders that
beneficially own 15% or more of our voting stock, or with their affiliates,
unless our directors or stockholders approve the business combination in the
prescribed manner. For a more detailed description of these provisions in our
charter, our bylaws and Delaware law, see "Description of Capital Stock."
We have adopted a shareholder rights plan which could discourage hostile
acquisitions of control in which our stockholders may wish to
participate
In 1996, our board of directors adopted a "poison pill" shareholder
rights plan, which may discourage a third party from making a proposal to
acquire U.S. Foodservice which we have not solicited or do not approve, even if
the acquisition would be beneficial to our stockholders. As a result, our
stockholders who wish to participate in such a transaction may not have an
opportunity to do so. Under our shareholder rights plan, preferred share
purchase rights, which are attached to our common stock, generally will be
triggered upon the acquisition, or actions that would result in the
acquisition, of 10% or more of the common stock by any person or group.
Investors eligible to report their ownership of our common stock on Schedule
13G under the Securities Exchange Act of 1934 generally may acquire up to 15%
of the common stock without triggering these rights. If triggered, these rights
would entitle our stockholders other than the acquiror to purchase, for the
exercise price, shares of our common stock having a market value of two times
the exercise price. In addition, if a company acquires us in a merger or other
business combination, or if we sell more than 50% of our consolidated assets or
earning power, these rights will entitle our stockholders other than the
acquiror to purchase, for the exercise price, shares of the common stock of the
acquiring company or its parent having a market value of two times the exercise
price. For a description of our shareholder rights plan, see "Description of
Capital Stock--Preferred Share Purchase Rights."
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it
include "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. We intend the
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy, our
financing plans, forecasted demographic and economic trends relating to our
industry, our ability to complete acquisitions, to realize anticipated cost
savings and other benefits from acquisitions and to recover acquisition-related
costs, and similar matters are forward-looking statements. These statements can
sometimes be identified by our use of forward-looking words such as "may,"
"will," "anticipate," "estimate," "expect" or "intend." We cannot promise you
that our expectations in such forward-looking statements will turn out to be
correct. Important factors that could cause our actual results to be materially
different from our expectations include those discussed in this prospectus
under the caption "Risk Factors." We undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
14
<PAGE>
USE OF PROCEEDS
The selling stockholders will sell all of the shares offered by this
prospectus. We will not receive any of the proceeds from the sale of these
shares. We will pay some of the expenses relating to the U.S. and international
offerings, which we estimate will total approximately $0.9 million.
If the over-allotment options are exercised in full, we will issue and
sell 1,304,391 shares in addition to the shares to be sold by the selling
stockholders. We estimate that the net proceeds to us from the sale of these
additional shares will be approximately $52.8 million, assuming a public
offering price of $42 13/16 per share and after deducting the underwriting
discount and the estimated expenses of the offerings payable by us. We expect
to use these proceeds to repay borrowings under our five-year revolving credit
facility, which matures on December 23, 2002. We have used these borrowings
primarily for working capital. Amounts borrowed under the credit facility bear
interest at our option at a rate equal to the sum of LIBOR, a specified prime
rate, or the federal funds rate plus .5%, and an applicable margin. The
applicable margin varies from .175% to .55%, based on a formula tied to our
level of indebtedness from time to time. As of December 26, 1998, borrowing
rates under our credit facility averaged 5.55%.
15
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been listed on the New York Stock Exchange since
December 31, 1996. Our current symbol is "UFS." From November 16, 1994 until
December 31, 1996, our common stock was quoted on the Nasdaq National Market.
The table below shows, for the last two fiscal years and for fiscal 1999
through the date indicated, the high and low last reported sale prices of our
common stock on the Nasdaq National Market prior to December 31, 1996 and,
beginning on December 31, 1996, the high and low last reported sale prices on
the New York Stock Exchange composite tape:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended June 28, 1997
First Quarter.................................................. $24.75 $20.75
Second Quarter................................................. 28.00 21.00
Third Quarter.................................................. 29.13 25.75
Fourth Quarter................................................. 30.13 26.00
Fiscal Year Ended June 27, 1998
First Quarter.................................................. $32.44 $28.69
Second Quarter................................................. 34.81 27.56
Third Quarter.................................................. 37.19 32.31
Fourth Quarter................................................. 37.25 31.50
Fiscal Year Ending July 3, 1999
First Quarter.................................................. $42.50 $32.88
Second Quarter ................................................ 49.13 40.88
Third Quarter (through March 18, 1999)......................... 52.50 42.50
</TABLE>
As of January 31, 1999, there were approximately 830 holders of record of
our common stock. On March 18, 1999, the last reported sale price of our common
stock on the New York Stock Exchange was $42 13/16 per share.
We have never paid cash dividends on our common stock and we do not
anticipate that we will pay cash dividends in the foreseeable future. The
current policy of our board of directors is to retain all earnings to support
our operations and to finance the expansion of our business. We may pay cash
dividends only if we comply with financial tests and other restrictions
contained in our credit facility agreements and in the indenture for public
notes issued by one of our subsidiaries.
16
<PAGE>
CAPITALIZATION
The following table shows the capitalization of U.S. Foodservice on a
consolidated basis as of December 26, 1998. You should read this table in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 26, 1998
-------------------------
(in thousands, except
share and per share data)
<S> <C>
Current maturities of long-term debt and capital
lease obligations................................... $ 6,275
==========
Long-term debt(1):
Revolving credit facility, excluding current
portion........................................... $ 645,500
8 7/8% Senior Subordinated Notes due 2003, net of
discount of $546.................................. 54,239
Other.............................................. 37,362
Capital lease obligations, excluding current
portion............................................. 28,328
----------
Total long-term debt and capital lease
obligations..................................... 765,429
----------
Stockholders' equity:
Preferred Stock, $.01 par value per share;
5,000,000 shares authorized, none issued and
outstanding....................................... --
Common Stock, $.01 par value per share; 150,000,000
shares authorized, 48,195,880 shares issued and
outstanding(2).................................... 482
Additional paid-in capital......................... 634,128
Retained earnings.................................. 39,492
----------
Total stockholders' equity....................... 674,102
----------
Total capitalization........................... $1,439,531
==========
</TABLE>
- --------
(1) Excludes revolving securitization arrangements for accounts receivable. For
a description of our securitization arrangements, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and note 8 to the audited consolidated
financial statements appearing elsewhere in this prospectus.
(2) Excludes 2,479,473 shares subject to outstanding options at a weighted
average exercise price of $27.67 per share and 71,372 shares of common
stock reserved for issuance upon exercise of an outstanding warrant at an
exercise price of $13.06 per share.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data in the following table as of
July 2, 1994 and July 1, 1995 and for the fiscal year ended July 2, 1994 were
derived from unaudited consolidated financial statements of U.S. Foodservice.
The selected consolidated financial data as of June 29, 1996 and for the fiscal
year ended July 1, 1995 were derived from audited consolidated financial
statements of U.S. Foodservice. The selected consolidated financial data as of
June 28, 1997 and June 27, 1998 and for each of the fiscal years in the three-
year period ended June 27, 1998 were derived from audited consolidated
financial statements included elsewhere in this prospectus. The selected
consolidated financial data as of and for the six-month periods ended
December 27, 1997 and December 26, 1998 were derived from unaudited
consolidated financial statements included elsewhere in this prospectus.
Information for interim periods includes all adjustments, consisting of normal
recurring adjustments, considered necessary in the opinion of management for a
fair presentation of financial position and results of operations of U.S.
Foodservice. Results of operations and financial condition as of and for the
six months ended December 26, 1998 are not indicative of results of operations
or financial condition to be expected as of and for the fiscal year ending July
3, 1999.
U.S. Foodservice completed acquisitions of Valley Industries, Inc. in
August 1996, Squeri Food Service, Inc. in September 1996 and Rykoff-Sexton in
December 1997, all of which were accounted for as poolings of interests.
Results for all periods presented prior to these acquisitions have been
restated to include the results of the acquired companies. For information
about the accounting for these acquisitions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Introduction," notes
3 and 4 to the audited consolidated financial statements appearing elsewhere in
this prospectus and note 2 to the unaudited consolidated financial statements
appearing elsewhere in this prospectus.
U.S. Foodservice's fiscal year ends on the Saturday closest to June 30.
Before April 28, 1996, Rykoff-Sexton had a fiscal year that ended on the
Saturday closest to April 30. The consolidated financial statements for the
fiscal years ended June 28, 1997 and June 29, 1996 appearing elsewhere in this
prospectus combine the results of JP Foodservice for these periods with the
results of Rykoff-Sexton for the years ended June 28, 1997 and April 27, 1996,
respectively. Fiscal 1996, 1997 and 1998 each consist of 52-week periods.
<TABLE>
<CAPTION>
Fiscal Years Ended Six Months Ended
-------------------------------------------------------- ----------------------------
July 2, July 1, June 29, June 28, June 27, December 27, December 26,
1994 1995 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net sales............... $2,623,052 $2,857,334 $3,238,781 $5,169,406 $5,506,949 $2,712,086 $3,011,459
Gross profit............ 551,965 594,515 652,685 1,003,074 1,041,668 512,743 552,059
Operating expenses...... 497,136 526,871 590,446 845,901 876,170 449,166 447,694
Amortization of
intangible assets...... 2,421 2,792 4,244 15,349 15,354 7,419 8,077
Restructuring costs
(reversal)............. -- -- (6,441) (4,000) 53,715 38,037 --
Charge for impairment of
long-lived assets...... -- -- 29,700 -- 35,530 32,135 --
Income (loss) from
operations............. 52,408 64,852 34,736 145,824 60,899 (14,014) 96,288
Interest expense and
other financing costs,
net.................... 44,201 32,941 32,527 76,063 73,894 39,246 32,672
Nonrecurring charges.... -- -- 1,517 5,400 17,822 17,822 --
Income (loss) from
continuing operations
before extraordinary
charge................. 3,823 18,303 133 38,286 (37,292)(1) (60,831)(1) 37,520
Net income (loss)....... 5,620 37,209 133 38,286 (47,004) (70,534) 34,772
Per Share Data:
Income (loss) from
continuing operations
before extraordinary
charge:
Basic.................. $ 0.24 $ 0.75 $ 0.00 $ 0.88 $ (0.83)(1) $ (1.35)(1) $ 0.80
Diluted................ $ 0.24 $ 0.74 $ 0.00 $ 0.87 $ (0.83)(1) $ (1.35)(1) $ 0.79
Weighted average common
shares:
Basic.................. 15,885 24,520 30,388 43,451 45,320 44,811 47,039
Diluted................ 15,949 24,567 30,515 44,063 45,320 44,811 47,699
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
As of
---------------------------------------------------------------
July 2, July 1, June 29, June 28, June 27, December 26,
1994 1995 1996 1997 1998 1998
-------- -------- ---------- ---------- ---------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at
end of period):
Working capital......... $248,679 $270,942 $ 208,130 $ 234,803 $ 287,816 $ 477,701
Total assets............ 856,744 939,280 1,052,211 1,732,183 1,817,791 2,021,191
Long-term debt,
excluding current
maturities............. 430,379 306,702 303,728 655,246 680,625 765,429
Stockholders' equity.... 145,079 315,060 316,676 579,146 584,720 674,102
</TABLE>
- --------
(1) In connection with the acquisition of Rykoff-Sexton, U.S. Foodservice
incurred acquisition related costs, including restructuring costs, charges
for impairment of long-lived assets, transaction costs and other operating
charges resulting from the integration of the two businesses, totaling
approximately $138.0 million for the fiscal year ended June 27, 1998 and
$112.6 million for the six months ended December 27, 1997, which
significantly affected U.S. Foodservice's results for these periods.
Excluding the impact of these acquisition related costs, U.S. Foodservice's
net income before extraordinary charge would have been $62.6 million, or
$1.37 per share on a diluted basis, for the fiscal year ended June 27, 1998
and $22.6 million, or $.50 per share on a diluted basis, for the six months
ended December 27, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Introduction" for more
information about these costs.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
U.S. Foodservice's business strategy is to increase net sales through
internal growth of chain and street sales, while acquiring other foodservice
distributors to expand its distribution capabilities and increase penetration
of its existing markets. With the acquisition of Rykoff-Sexton on December 23,
1997, U.S. Foodservice, formerly JP Foodservice, Inc., became the second
largest publicly-traded broadline foodservice distributor in the United States
based on net sales. The acquisition of Rykoff-Sexton expanded U.S.
Foodservice's distribution capabilities nationwide and strengthened its
competitive position in several major markets. A renewed focus on the growth of
chain and street sales at the former Rykoff-Sexton branches, combined with
additional sales by companies acquired in fiscal 1997, which ended June 28,
1997, and fiscal 1998, which ended June 27, 1998, resulted in net sales growth
of 10.5% in the four fiscal quarters following the Rykoff-Sexton acquisition
over the corresponding prior period.
In connection with the Rykoff-Sexton acquisition, U.S. Foodservice
incurred restructuring costs, charges for impairment of long-lived assets,
transaction costs and other operating charges resulting from the integration of
the two businesses, which significantly affected U.S. Foodservice's results for
fiscal 1998 and for the six months ended December 26, 1998. These Rykoff-Sexton
acquisition related costs totaled approximately $138.0 million, of which $76.6
million consisted of non-cash charges. Of the cash charges, U.S. Foodservice
expended $38.6 million in fiscal 1998 and $3.7 million during the six months
ended December 26, 1998. U.S. Foodservice anticipates that it will expend $8.4
million of the cash charges in the balance of fiscal 1999 and $5.4 million in
fiscal 2000. The remaining cash charges of $5.4 million relate primarily to
losses on lease commitments, the last of which expires in fiscal 2008. U.S.
Foodservice 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. For more information about the Rykoff-Sexton acquisition related
costs, see note 3 to the audited consolidated financial statements appearing
elsewhere in this prospectus. Excluding the impact of the Rykoff-Sexton
acquisition related costs, U.S. Foodservice's net income before extraordinary
items would have been $62.6 million, or $1.37 per share on a diluted basis, for
fiscal 1998, which represented a 49% improvement over combined results of U.S.
Foodservice for fiscal 1997 computed on the same basis. U.S. Foodservice does
not expect to incur any additional restructuring costs, asset impairment
charges or transaction costs related to the Rykoff-Sexton acquisition and does
not expect any additional operating costs related to the integration of the two
businesses to be material.
In connection with the integration plan for the combination of the two
businesses, U.S. Foodservice 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. U.S. Foodservice believes operating
costs and interest savings exceeded $20 million in fiscal 1998 and $17 million
in the six months ended December 26, 1998. U.S. Foodservice 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 and realized interest
savings through the refinancing of its senior debt. Based on the results for
fiscal 1998 and the six months ended December 26, 1998 and the status of the
integration plan, U.S. Foodservice believes it will achieve the costs savings
estimated for the subsequent years.
Fiscal 1999 Acquisitions. U.S. Foodservice has pursued an active program
of strategic acquisitions to take advantage of growth opportunities from
ongoing consolidation in the fragmented foodservice distribution industry. In
the second quarter of fiscal 1999, U.S. Foodservice acquired J.H. Haar & Sons,
L.L.C., a New Jersey-based broadline foodservice distributor serving the
metropolitan New York City market, and Joseph Webb Foods, Inc., a broadline
foodservice distributor serving the San Diego and other southern California
markets. These two acquisitions significantly expanded U.S. Foodservice's
existing operations in those markets. U.S. Foodservice accounted for the
acquisition of J.H. Haar & Sons under the pooling-of-interests method of
accounting. The operating results of J.H. Haar & Sons were not material to U.S.
Foodservice's reported results for periods prior to the acquisition and,
accordingly, prior operating results of U.S. Foodservice have not been
20
<PAGE>
restated to incorporate the results of J.H. Haar & Sons. U.S. Foodservice
accounted for the acquisition of Joseph Webb Foods under the purchase method of
accounting and, accordingly, the operating results of Joseph Webb Foods are
included only from the date of the acquisition. The acquisition agreement for
Joseph Webb Foods requires us to make future stock payments to the former
stockholders of that business if the operations of Joseph Webb Foods achieve
specified sales targets.
Fiscal 1998 Acquisitions Other Than Rykoff-Sexton. In the second quarter
of fiscal 1998, U.S. Foodservice acquired Outwest Meat Company, located in Las
Vegas, Nevada. In the third quarter of fiscal 1998, U.S. Foodservice acquired
Westlund Provisions, Inc., a foodservice distributor specializing in custom-cut
meats located in Minneapolis, Minnesota. These two acquisitions complemented
U.S. Foodservice's existing operations in those markets, while enabling U.S.
Foodservice to enhance significantly its custom-cut meat offerings. Also in the
third quarter of fiscal 1998, U.S. Foodservice expanded the scope of its
distribution network into the northeastern United States by acquiring Sorrento
Food Service, Inc., a broadline distributor located in Buffalo, New York. U.S.
Foodservice accounted for these acquisitions under the purchase method of
accounting and, accordingly, the operating results of the acquired businesses
are included in U.S. Foodservice's financial statements from the dates of the
acquisitions.
Fiscal 1997 Acquisitions. Before its acquisition of Rykoff-Sexton, JP
Foodservice extended the scope of its distribution network into the Western
region of the United States through its acquisition in the first quarter of
fiscal 1997 of Valley Industries, Inc., a broadline distributor located in Las
Vegas, Nevada. Also in the first quarter of fiscal 1997, as part of its
strategy to increase penetration of its existing service areas, JP Foodservice
acquired Arrow Paper and Supply Co., Inc., a broadline distributor located in
Connecticut serving the New England, New York, New Jersey and Pennsylvania
markets. In the second quarter of fiscal 1997, JP Foodservice filled a gap in
its Midwestern distribution network by acquiring Squeri Food Service, Inc., a
broadline distributor located in Ohio serving the greater Cincinnati, Dayton,
Columbus, Indianapolis, Louisville and Lexington markets. In the fourth quarter
of fiscal 1997, JP Foodservice strengthened its presence in the Mid-Atlantic
region through its acquisition of Mazo-Lerch Company, a broadline distributor
located in Virginia serving the District of Columbia, Virginia, Maryland,
southern New Jersey and northern North Carolina markets. JP Foodservice
accounted for the Valley Industries and Squeri Food Service acquisitions under
the pooling-of-interests method of accounting and, accordingly, the operating
results for all years presented have been restated to incorporate the results
of those companies. JP Foodservice accounted for the Arrow Paper and Supply and
Mazo-Lerch acquisitions under the purchase method of accounting and,
accordingly, the operating results of Arrow and Mazo-Lerch are included in U.S.
Foodservice's financial statements only from the dates of those acquisitions.
Fiscal 1996 Acquisitions. In May 1996, Rykoff-Sexton significantly
expanded the geographic coverage of its distribution network in the
Southeastern, Southwestern and Mid-Atlantic regions of the United States
through its acquisition of US Foodservice Inc. ("USF"). USF, formed in 1992,
was the surviving entity of the 1993 combination of two regional broadline
distributors, Unifax, Inc. and WS Holdings Corporation, the parent company of
White Swan, Inc. At the time of its acquisition by Rykoff-Sexton, USF was
unrelated to JP Foodservice, which adopted the U.S. Foodservice name following
its acquisition of Rykoff-Sexton in fiscal 1998. In November 1995, Rykoff-
Sexton enhanced its distribution network throughout the State of Nevada when it
acquired substantially all of the assets of H&O Foods, Inc., a regional,
broadline institutional foodservice distributor. Both of these acquisitions
were accounted for under the purchase method of accounting and, accordingly,
the operating results of USF and H&O Foods are included in U.S. Foodservice's
financial statements only from the dates of the acquisitions.
Results of Operations
U.S. Foodservice sells a significant portion of its products at prices
based on product cost plus a percentage markup. Periods of inflation in food
prices result in higher product costs, which are reflected in higher sales
prices and higher gross profits. Inflation did not have a material impact on
U.S. Foodservice's operating results in any of its three most recent fiscal
years or in the six months ended December 26, 1998.
21
<PAGE>
Gross margins generally are lower for chain accounts than for street
accounts. However, because there are typically no commission sales costs
related to chain account sales and because chain accounts usually have larger
deliveries to individual locations, sales and delivery costs generally are
lower for chain accounts than for street accounts. Gross margins generally are
higher for proprietary brand products than for national brand products of
comparable quality. U.S. Foodservice, however, incurs additional advertising
and other marketing costs in promoting its proprietary brand products.
The principal components of expenses include cost of sales, which
represents the amount paid to manufacturers and food processors for products
sold, and operating expenses, which include labor-related and other selling
expenses, warehousing, transportation and other distribution costs, and
administrative expenses. Because distribution and administrative expenses are
relatively fixed in the short term, unexpected changes in net sales, such as
those resulting from adverse weather, can have a significant short-term impact
on operating income.
U.S. Foodservice's operating results historically have reflected modest
seasonal variations. For summary financial data showing the effect of these
seasonal variations in the last ten fiscal quarters, see "--Quarterly Results
and Seasonality."
Six Months Ended December 26, 1998 Compared to Six Months Ended December 27,
1997
Net Sales. Net sales for the six months ended December 26, 1998
increased 11.1% to $3.0 billion from $2.7 billion for the six months ended
December 27, 1997. The acquisitions of Outwest Meat Company in the second
quarter of fiscal 1998, Sorrento Food Service and Westlund Provisions in the
third quarter of fiscal 1998, and J. H. Haar & Sons and Joseph Webb Foods in
the second quarter of fiscal 1999 accounted for approximately 48% of the sales
growth for the 1999 fiscal six-month period.
Growth in both chain account sales and street sales contributed to the
remaining increase in sales. Chain account sales increased 15.9% for the 1999
fiscal six-month period. A significant portion of this increase was
attributable to the expansion of sales to existing chain customers resulting
from the national distribution capability created through the acquisition of
Rykoff-Sexton. Street sales increased 7.9% for the 1999 fiscal six-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 57.7% in the 1999 fiscal six-month period from 61.3% in the
1998 fiscal six-month period.
Gross Profit. Gross profit margin decreased to 18.3% in the 1999 fiscal
six-month period from a gross profit margin, prior to the Rykoff-Sexton
acquisition related costs, of 19.1% in the 1998 fiscal six-month period. The
decrease was primarily attributable to a continuing shift in product mix from
various high-margin items to higher turnover, lower-margin items, consisting
primarily of "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 six-month period.
Operating Expenses. Operating expenses decreased by 0.3%, or $1.5
million, in the 1999 fiscal six-month period over the 1998 fiscal six-month
period. This decrease was principally attributable to $15.6 million of non-cash
charges recorded in the second quarter of fiscal 1998, which consisted
primarily of write-downs of receivables and other assets at operating units
undergoing consolidation or realignment as part of the acquisition of Rykoff-
Sexton.
Excluding the effects of these Rykoff-Sexton acquisition related costs,
operating expenses increased by 3.2%, or $14.1 million, in the 1999 fiscal six-
month period over the 1998 fiscal six-month period and, as a percentage of net
sales, decreased to 14.9% in the 1999 fiscal six-month period from 16.0% in the
1998 fiscal six-month period. This decrease was primarily attributable to
operating efficiencies resulting from the restructuring plan for the businesses
we acquired in the Rykoff-Sexton acquisition, cost reductions achieved through
the consolidation of U.S. Foodservice'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 towards
"center-of-the-plate" entree products.
22
<PAGE>
Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets was $8.1 million in the 1999 fiscal six-
month period compared to $7.4 million in the 1998 fiscal six-month period. This
increase resulted from the goodwill recorded in connection with the
acquisitions of Sorrento Food Service, Westlund Provisions and Joseph Webb
Foods.
Restructuring Costs and Asset Impairment. The Rykoff-Sexton acquisition
related costs in the 1998 fiscal six-month period included a net restructuring
charge of $41.0 million, of which $16 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 U.S. Foodservice's plan to consolidate and realign some
operating units and consolidate various overhead functions. These costs were
offset in part by a reversal of $3.0 million of unutilized reserves from a
prior restructuring. The reversal related to activities for which the actual
costs were overestimated or for which the contemplated restructuring plans were
ultimately changed.
The Rykoff-Sexton acquisition related costs in the 1998 fiscal six-month
period also included non-cash asset impairment charges of $32.1 million. These
charges were related to write-downs to net realizable value of assets and
facilities at operating units which are being consolidated or realigned and
assets related to management information systems which are being replaced and
not currently utilized.
Income (loss) from Operations. Income from operations was $96.3 million
in the 1999 fiscal six-month period compared to a loss of $14.0 million in the
1998 fiscal six-month period. Excluding the Rykoff-Sexton acquisition related
costs, income from operations increased 23.8%, or $18.5 million, in the 1999
fiscal six-month period from the 1998 fiscal six-month period. The increase was
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 $6.6 million, or 16.8%, for the 1999 fiscal
six-month period from the 1998 fiscal six-month period. The reduced interest
expense was attributable to lower overall interest rates under the credit
facility U.S. Foodservice established in connection with the Rykoff-Sexton
acquisition.
Non-Recurring Charges. U.S. Foodservice incurred non-recurring charges of
$17.8 million in the 1998 fiscal six-month period. These charges principally
related to fees for financial advisory, legal and accounting and other
professional services incurred by JP Foodservice and Rykoff-Sexton to
consummate the Rykoff-Sexton acquisition.
Provision for Income Taxes (Benefit). During the 1999 fiscal six-month
period, U.S. Foodservice recognized income tax expense at an effective rate of
41.0% compared to (14.4)% for the 1998 fiscal six-month period. The rate for
the 1998 fiscal six-month period reflects the effect on the income tax
provision of the tax deductibility of the Rykoff-Sexton acquisition related
costs and the amortization of goodwill. U.S. Foodservice's effective tax rate
before the effect of the Rykoff-Sexton acquisition related costs was 45.3% for
the 1998 fiscal six month period.
Extraordinary Charge. During the 1999 fiscal six-month period, U.S.
Foodservice incurred 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 Rykoff-Sexton's 8 7/8% senior subordinated notes due 2003. In the
1998 fiscal six-month period, U.S. Foodservice recorded an extraordinary charge
of $9.7 million, net of a $6.3 million income tax benefit, related to the
write-off of deferred financing costs with respect to its refinancing of
substantially all of its indebtedness and to additional payments to holders of
U.S. Foodservice's senior notes due 2004 in accordance with the senior note
terms.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales increased 6.5% to $5.5 billion in fiscal 1998 from
$5.2 billion in fiscal 1997. Higher chain account and street sales contributed
significantly to net sales growth. Acquisitions of foodservice
23
<PAGE>
distributors other than Rykoff-Sexton in late fiscal 1997 and during fiscal
1998 accounted for net sales growth of 3.3%. An increase of 5.8% in chain
account sales reflected the continued growth in sales to U.S. Foodservice's
larger customers. Street account sales increased 6.8% in fiscal 1998 primarily
as a result of the growth of the sales force and continued improvements in
sales force productivity.
Gross Profit. Gross profit margin decreased to 18.9% in fiscal 1998 from
19.4% in fiscal 1997. The decline in gross profit margin was primarily
attributable to a continuing shift in product mix from some high-margin items
to higher turnover, lower-margin items, including "center-of-the-plate" entree
products, in the former Rykoff-Sexton operations, as well as decreased margins
at some of the operating units that were closed as part of the restructuring
plan for the businesses we acquired in the Rykoff-Sexton acquisition. The
decline in U.S. Foodservice's margins for fiscal 1998 also resulted from $8.6
million of Rykoff-Sexton acquisition related costs for writedowns of inventory
at operating units undergoing consolidation or realignment. The effect on gross
profit of the shift in product mix was offset in part by an increase in street
sales as a percentage of net sales and the growth of U.S. Foodservice's
proprietary brand product sales in fiscal 1998. Sales of proprietary brand
products increased by 5.7% in fiscal 1998 over fiscal 1997. In addition, U.S.
Foodservice estimates that it achieved approximately $9.0 million in savings
from the consolidation and renegotiation of its purchasing programs.
Operating Expenses. Operating expenses increased 3.6% to $876.2 million
in fiscal 1998 from $845.9 million in fiscal 1997. The increase was primarily
attributable to $19.4 million of Rykoff-Sexton acquisition related costs
recognized in fiscal 1998, which consisted principally of writedowns of
receivables and other assets at operating units undergoing consolidation or
realignment.
Excluding charges for the Rykoff-Sexton acquisition related costs in
fiscal 1998, operating expenses increased by 1.8%, or $14.9 million, in fiscal
1998 over fiscal 1997 and, as a percentage of net sales, declined to 15.6% in
fiscal 1998 from 16.3% in fiscal 1997. The decrease was primarily attributable
to operating efficiencies resulting from the restructuring plan for the
businesses we acquired in the Rykoff-Sexton acquisition, an increase in the
average size of customer deliveries, and cost reductions achieved through the
consolidation of U.S. Foodservice's general and administrative functions. U.S.
Foodservice also recognized a $7.4 million curtailment gain upon the suspension
of all participation and benefit accruals under one of Rykoff-Sexton's defined
benefit plans.
Amortization of Goodwill and Other Intangible Assets. Goodwill and other
intangible amortization totaled $15.3 million in fiscal 1997 and $15.4 million
in fiscal 1998.
Restructuring, Impairment of Long-Lived Assets and Other Charges. The
Rykoff-Sexton acquisition related costs in fiscal 1998 included a net
restructuring charge of $53.7 million. These costs consist primarily of change
in control payments made to former executives of Rykoff-Sexton and severance,
idle facility and facility closure costs related to U.S. Foodservice's plan to
consolidate and realign some operating units and consolidate various overhead
functions, which were offset in part by a reversal of $3.0 million of
unutilized reserves from a prior restructuring. The reversal related to
activities for which the actual costs were overestimated or for which the
contemplated restructuring plans were ultimately changed.
The Rykoff-Sexton acquisition related costs also included asset
impairment charges of $35.5 million. These charges were related to writedowns
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.
U.S. Foodservice expects that it will recover the cash portion of the
Rykoff-Sexton acquisition related costs over the next two years through income
tax benefits and proceeds from the sale of closed facilities.
Income from Operations. Income from operations decreased 58.2% to $60.9
million in fiscal 1998 from $145.8 million in fiscal 1997 primarily as a result
of the Rykoff-Sexton acquisition related costs. Operating margin decreased to
1.1% in fiscal 1998 from 2.8% in fiscal 1997.
24
<PAGE>
Excluding the impact of the Rykoff-Sexton acquisition related costs,
income from operations increased 22.1% to $178.1 million in fiscal 1998 from
$145.8 million in fiscal 1997. This increase resulted in an operating margin
of 3.2% in fiscal 1998 compared to an operating margin of 2.8% in fiscal 1997
and was primarily attributable to reduced operating expenses and the cost
reductions achieved in integrating the Rykoff-Sexton operations.
Interest Expense and Other Financing Costs, Net. Interest expense and
other financing costs decreased 2.9% to $73.9 million in fiscal 1998 from
$76.1 million in fiscal 1997. The decrease was primarily attributable to the
refinancing of indebtedness of JP Foodservice and Rykoff-Sexton, as described
below, in connection with the Rykoff-Sexton acquisition. U.S. Foodservice's
new credit facility reduced average borrowing costs by approximately 240 basis
points during the second half of fiscal 1998 from the level in fiscal 1997.
The interest rate reduction was offset in part by higher average borrowings,
which were primarily attributable to the nonrecurring charges associated with
the Rykoff-Sexton acquisition.
Nonrecurring Charges. The Rykoff-Sexton acquisition related costs
included nonrecurring charges of $17.8 million principally related to fees for
financial advisory, legal, accounting and other professional services incurred
by both companies to consummate the Rykoff-Sexton acquisition.
During fiscal 1997, U.S. Foodservice recorded nonrecurring charges of
$5.4 million with respect to legal and other professional fees required to
complete the acquisitions of Valley Industries and Squeri Food Service.
Income Taxes. The provision for income taxes for fiscal 1998 decreased
$19.6 million from the $26.1 million provision for fiscal 1997. U.S.
Foodservice's effective tax rate in fiscal 1997 was 40.5%, which approximates
U.S. Foodservice's normal rate. Non-deductible Rykoff-Sexton acquisition
related costs had a significant adverse effect on U.S. Foodservice's income
tax rate in fiscal 1998.
Extraordinary Charge. After the Rykoff-Sexton acquisition, U.S.
Foodservice applied the proceeds of its new credit facility to refinance
substantially all of its indebtedness, excluding capital leases, $130 million
of public notes and approximately $30 million of other indebtedness, in order
to lower significantly its overall borrowing rates. As a result of this
refinancing during fiscal 1998, U.S. Foodservice recorded an extraordinary
charge of $9.7 million, net of a $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 U.S. Foodservice's senior notes due
2004, which were paid in full in accordance with their terms.
Fiscal 1997 Compared to Fiscal 1996
The following comparison of fiscal 1997 operating results to fiscal 1996
operating results includes a discussion of the results of JP Foodservice and
Rykoff-Sexton before JP Foodservice's acquisition of Rykoff-Sexton. Since each
company was separately managed before this acquisition, some of these
operating results are discussed on a combined basis, but in the context of the
individual companies. References to JP Foodservice below generally relate to
activities of U.S. Foodservice prior to the Rykoff-Sexton acquisition.
The following comparison related to Rykoff-Sexton is materially affected
by the acquisitions of USF and H&O Foods consummated by Rykoff-Sexton in
fiscal 1996. Because of the significance of the USF acquisition and the
related change in Rykoff Sexton's fiscal year end from April, for fiscal years
1996 and before, to June, for subsequent fiscal years, there are no directly
comparable financial statements. The operating results of Rykoff-Sexton for
fiscal 1997 therefore have been compared to the operating results for the 52-
week period ended April 27, 1996. Results for fiscal 1996 do not include
financial data for USF for any periods and include financial data for H&O
Foods only for the six-month period from November 2, 1995 to April 27, 1996.
Net Sales. Net sales increased 59.6% to $5.2 billion in fiscal 1997 from
$3.2 billion in fiscal 1996.
25
<PAGE>
Rykoff-Sexton's net sales increased 94.3% to $3.5 billion in fiscal 1997
from $1.8 billion in fiscal 1996 primarily as a result of the acquisitions of
USF and H&O Foods.
JP Foodservice's net sales increased 16.7% to $1.7 billion in fiscal 1997
from $1.4 billion in fiscal 1996. The acquisition of Arrow Paper & Supply
accounted for net sales growth of 5.8%. Higher chain account and street sales
both contributed to JP Foodservice's net sales growth in fiscal 1997. An
increase of 17.2% in chain account sales reflected the continued growth in
sales to JP Foodservice's larger customers. As a percentage of net sales, chain
account sales increased to 42.6% in fiscal 1997 from 42.4% in fiscal 1996.
Street sales increased 16.4% over fiscal 1996 primarily as a result of the
growth of the sales force and continued improvements in sales force
productivity.
Gross Profit. Gross profit margin decreased to 19.4% in fiscal 1997 from
20.2% gross profit margin in fiscal 1996. The decline in gross profit margin at
Rykoff-Sexton was offset in part by improved gross profit margin at JP
Foodservice.
Rykoff-Sexton's gross profit margin in fiscal 1997 was 20.3% compared to
22.5% in fiscal 1996. The acquisition of USF, as well as the inclusion of a
full year of operating results for H&O Foods, were primarily responsible for
the reduction. Both USF and H&O Foods operate as broadline distributors which
typically have lower gross margins than the historical Rykoff-Sexton divisions.
The gross profit margin also was affected by the transition of the historical
Rykoff-Sexton divisions from niche distributors to broadline distributors that
provide customers with an expanded selection of product categories, including
fresh meats, produce and seafood, typically carrying lower margins. The cost
reductions achieved through the effective integration of the acquisitions and
improved pricing of food and non-food related products from enhanced purchasing
programs resulted in an improvement in gross profit of approximately $6.0
million. This improvement was offset in part by $2.0 million in nonrecurring
inventory and promotion-related charges incurred in the integration of USF.
JP Foodservice's gross profit margin increased to 17.5% in fiscal 1997
from 17.3% in fiscal 1996. The increase was primarily attributable to increased
sales of JP Foodservice's proprietary brand products, which increased to 20.0%
of street sales at the end of fiscal 1997 from 16.3% at the end of fiscal 1996.
JP Foodservice also realized cost reductions in its purchasing operations
through the consolidation of its purchasing programs with those of the acquired
entities.
Operating Expenses. Operating expenses increased 43.3% to $845.9 million
in fiscal 1997 from $590.4 million in fiscal 1996 primarily as a result of the
increase in net sales and Rykoff-Sexton's acquisition of USF and H&O Foods. As
a percentage of net sales, operating expenses declined to 16.4% in fiscal 1997
from 18.2% in fiscal 1996.
Rykoff-Sexton's operating expenses increased 57.3% to $609.5 million in
fiscal 1997 from $387.5 million in fiscal 1996 primarily as a result of its
acquisition of USF and H&O Foods. As a percentage of net sales, operating
expenses decreased to 17.5% in fiscal 1997 from 21.7% in fiscal 1996. The
improvement in operating expenses as a percentage of net sales from fiscal 1996
to fiscal 1997 was attributable to the closure, consolidation or other
significant changes at some of the divisions, realignment of the management
structure, consolidation of several corporate functions, insurance reductions
and other integration efforts. The improvement also was attributable to the
transition to broadline distribution discussed above, which generally produces
lower operating expense levels. The decrease in operating expenses as a
percentage of net sales was partially offset by approximately $2.0 million in
nonrecurring charges incurred in connection with the integration plan for
Rykoff-Sexton and USF. Operating expenses for fiscal 1997 included net gains of
$1.5 million related to sales of assets and the reversal of $3.4 million of
insurance reserves. Operating expenses for fiscal 1996 were negatively affected
by the relocation of Rykoff-Sexton's Los Angeles division to a new distribution
center and higher than expected bad debt and insurance expense.
26
<PAGE>
JP Foodservice's operating expenses increased 14.5% to $232.4 million in
fiscal 1997 from $203.0 million in fiscal 1996 primarily as a result of the
increase in net sales. As a percentage of net sales, operating expenses
decreased to 13.7% in fiscal 1997 from 14.0% in fiscal 1996. The decrease in
operating expenses as a percentage of net sales resulted from distribution cost
savings related to a higher percentage of sales to chain accounts, increased
penetration of street accounts, savings resulting from revised management
compensation agreements relating to some of the acquired businesses, and the
absence of costs corresponding to those associated with the severe winter
weather conditions experienced in a majority of JP Foodservice's markets in
fiscal 1996.
Amortization of Goodwill and Other Intangible Assets. Goodwill and other
intangible amortization was $15.3 million in fiscal 1997 compared with $4.2
million in fiscal 1996. The increase was attributable to the goodwill arising
from the acquisition of USF.
Restructuring, Impairment of Long-Lived Assets and Other Charges. During
fiscal 1997, $4.0 million of the restructuring liability recorded in the nine-
week period ended June 28, 1997 was reversed into income upon the determination
that such liability was no longer required. The reversal related to severance
costs reversed for employees who voluntarily terminated their employment during
fiscal 1997 and, therefore, forfeited their termination rights. In addition,
the employment of two senior executives was terminated, and the present value
of severance compensation and related benefits, aggregating $4.0 million, was
charged to expense.
Income from Operations. Income from operations increased 319.8% to $145.8
million in fiscal 1997 from $34.7 million in fiscal 1996 primarily as a result
of the fiscal 1997 increase in net sales, the increase in gross profit margin,
the decrease in operating expenses as a percentage of sales and the acquisition
of USF. Operating margin increased to 2.8% in fiscal 1997 from 1.1% in fiscal
1996.
Interest Expense and Other Financing Costs, Net. Interest expense and
other financing costs increased 133.8% to $76.1 million in fiscal 1997 from
$32.5 million in fiscal 1996 principally as a result of the increase in average
outstanding debt resulting from the acquisition of USF.
Rykoff-Sexton's interest expense and other financing costs increased
243.4% to $59.5 million in fiscal 1997 from $17.3 million in fiscal 1996. The
increase was primarily attributable to the assumption of outstanding USF debt
in connection with the acquisition of USF.
JP Foodservice's interest expense and other financing costs increased
8.8% to $16.5 million in fiscal 1997 from $15.2 million in fiscal 1996. The
increase was primarily attributable to increased borrowings incurred in
connection with the acquisitions consummated in fiscal 1997.
Income Taxes. The provision for income taxes for fiscal 1997 increased
$25.5 million over the provision for fiscal 1996. The effective income tax rate
for fiscal 1997 was 40.5%.
Rykoff-Sexton's effective income tax rate for fiscal 1997 was 38.2%
compared to an effective income tax benefit of (40.0)% for fiscal 1996. During
the fourth quarter of fiscal 1997, Rykoff-Sexton recorded a reduction in the
valuation allowance of $2.8 million based on an analysis of expected combined
operating results that included USF.
JP Foodservice's provision for income taxes for fiscal 1997 increased
$4.6 million over the provision for fiscal 1996. The increase in the provision
was attributable to JP Foodservice's greater pretax profit level in fiscal
1997. JP Foodservice's effective tax rate of 42.1% for fiscal 1997 increased
from the effective rate of 40.7% for fiscal 1996 primarily because of the
nondeductible portion of the nonrecurring charges related to the acquisitions
consummated in fiscal 1997.
27
<PAGE>
Quarterly Results and Seasonality
U.S. Foodservice's operating results historically have reflected modest
seasonal variations. U.S. Foodservice generally experiences lower net sales
and income from operations during its third quarter, which includes the winter
months. Winter weather conditions in some regions of the country typically
result in reduced patronage at restaurants and other foodservice
establishments and contribute to higher distribution costs. In the second and
third quarters of fiscal 1998, U.S. Foodservice incurred Rykoff-Sexton
acquisition related costs totaling approximately $138.0 million, which
significantly affected U.S. Foodservice's reported results for those quarters.
See note 3 to the audited consolidated financial statements appearing
elsewhere in this prospectus for more information about these costs.
The following tables present selected statement of operations data for
each of the last ten fiscal quarters:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share
amounts)
Fiscal Year Ended June 28, 1997
-----------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................... $1,319,189 $1,304,983 $1,238,937 $1,306,297
Gross profit................. 248,118 254,424 243,269 257,263
Income from operations....... 30,993 36,883 35,553 42,395
Operating margin............. 2.3% 2.8% 2.9% 3.2%
Income before extraordinary
charge...................... $ 4,100 $ 8,631 $ 9,090 $ 16,465
Net income per common share:
Basic:
Before extraordinary
charge.................... $ 0.09 $ 0.20 $ 0.21 $ 0.37
Net income................. $ 0.09 $ 0.20 $ 0.21 $ 0.37
Diluted:
Before extraordinary
charge.................... $ 0.09 $ 0.20 $ 0.20 $ 0.37
Net income................. $ 0.09 $ 0.20 $ 0.20 $ 0.37
<CAPTION>
Fiscal Year Ended June 27, 1998
-----------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter(1) Quarter(2) Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................... $1,338,828 $1,373,258 $1,338,138 $1,456,725
Gross profit................. 256,246 256,497 248,126 280,799
Income (loss) from
operations.................. 35,720 (49,735) 12,710 62,204
Operating margin............. 2.7% (3.6)% 0.9% 4.3%
Income (loss) before
extraordinary charge ....... $ 9,791 $ (70,622) $ (3,260) $ 26,799
Net income (loss) per common
share:
Basic:
Before extraordinary
charge.................... $ 0.22 $ (1.56) $ (0.07) $ 0.58
Net income (loss).......... $ 0.22 $ (1.78) $ (0.07) $ 0.58
Diluted:
Before extraordinary
charge.................... $ 0.22 $ (1.56) $ (0.07) $ 0.57
Net income (loss).......... $ 0.22 $ (1.78) $ (0.07) $ 0.57
</TABLE>
- -------
(1) In the second quarter of fiscal 1998, U.S. Foodservice incurred $112.6
million of the total $138.0 million of Rykoff-Sexton acquisition related
costs. Excluding these charges, gross profit would have been $262.5
million, income from operations would have been $42.0 million, the
operating margin would have been 3.1%, net income before extraordinary
charge would have been $12.8 million and diluted earnings per common
share, before extraordinary charge, would have been $.28 per share.
(2) In the third quarter of fiscal 1998, U.S. Foodservice incurred $25.4
million of the total $138.0 million of Rykoff-Sexton acquisition related
costs. Excluding these charges, gross profit would have been $250.6
million, income from operations would have been $38.1 million, the
operating margin would have been 2.8%, net income before extraordinary
charge would have been $13.3 million and diluted earnings per common
share, before extraordinary charge, would have been $.29 per share.
28
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands, except
per share amounts)
Fiscal Year Ending
July 3, 1999
-----------------------
1st 2nd
Quarter Quarter
---------- ----------
<S> <C> <C>
Net sales......................................... $1,478,370 $1,533,089
Gross profit...................................... 269,977 282,082
Income from operations............................ 45,039 51,249
Operating margin.................................. 3.1% 3.3%
Income before extraordinary charge................ $ 16,912 $ 20,608
Net income per common share:
Basic:
Before extraordinary charge..................... $ 0.36 $ 0.43
Net income...................................... $ 0.36 $ 0.37
Diluted:
Before extraordinary charge..................... $ 0.36 $ 0.43
Net income...................................... $ 0.36 $ 0.37
</TABLE>
Liquidity and Capital Resources
U.S. Foodservice historically has financed its operations and growth
primarily with cash flow from operations, equity offerings, borrowings under
its credit facilities, and operating and capital leases.
Cash Flows from Operating Activities. Net cash flows provided by (used
in) operating activities were $(45.6) million in the 1999 fiscal six-month
period, $70.7 million in fiscal 1998, $116.1 million in fiscal 1997 and ($3.1)
million in fiscal 1996. The $45.6 million net cash flows used in operating
activities in the 1999 fiscal six-month period resulted from seasonal increases
in working capital requirements. The $45.4 million decrease in net cash flows
from operations in fiscal 1998 compared to fiscal 1997 primarily reflected U.S.
Foodservice's adoption in January 1997, as required, of Statement of Financial
Accounting Standards No. 125, pursuant to which U.S. Foodservice accounted for
the $50.0 million received from the securitization of JP Foodservice accounts
receivable as a sale of those receivables. Prior to the adoption of SFAS No.
125, U.S. Foodservice had accounted for this transaction as a financing. In
addition, in fiscal 1998, U.S. Foodservice experienced a $61.9 million increase
in accounts receivable and inventories as a result of net sales growth in the
fourth quarter of fiscal 1998. This increase was offset in part by higher
levels of accounts payable and accrued expenses, including restructuring
charges which have not been paid.
U.S. Foodservice's net working capital requirements generally average
between 5.5% and 6.5% of annual sales, net of receivables sold under accounts
receivable securitization arrangements. U.S. Foodservice's working capital
balance, excluding the current portion of long-term debt, of $484.0 million at
December 26, 1998 increased by $188.6 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.
In the 1999 fiscal six-month period, U.S. Foodservice realized $7.3
million from the sale of redundant facilities. U.S. Foodservice estimates that
assets held for sale at December 26, 1998 will generate proceeds of $15.0
million.
Cash Flows from Investing Activities. Net cash provided by (used in)
investing activities was $(16.1) million in the 1999 fiscal six-month period,
($102.3) million in fiscal 1998, ($106.8) million in fiscal 1997 and ($74.3)
million in fiscal 1996.
U.S. Foodservice used $102.3 million in net cash flows in fiscal 1998 for
investing activities, which included $95.5 million of capital expenditures.
U.S. Foodservice applied the capital expenditures primarily to construction of
new distribution centers in Fort Mill, South Carolina and Las Vegas, Nevada,
expansion of
29
<PAGE>
distribution centers at various locations, and upgrading of management
information systems. U.S. Foodservice currently expects to make capital
expenditures of approximately $68 million in fiscal 1999, including
approximately $41 million to upgrade and expand its existing facilities. The
$16.1 million used in investing activities in the 1999 fiscal six-month period
primarily consisted of capital expenditures of $35.2 million, which were offset
in part by proceeds of $20.8 million received from the sale of manufacturing
division assets acquired in the Rykoff-Sexton acquisition. U.S. Foodservice
applied its capital expenditures in the 1999 fiscal six-month period primarily
for facility expansion projects and continued upgrading of its management
information systems.
Net cash flows used for investing activities in fiscal 1998 also included
$38.7 million of costs related to the acquisitions of Outwest Meat Company,
Sorrento Food Service and Westlund Provisions and $32.1 million in proceeds
from sales of idle facilities and other properties.
Cash Flows from Financing Activities. Net cash flows provided by (used
in) financing activities were $68.4 million in the 1999 fiscal six-month
period, $15.0 million in fiscal 1998, $30.8 million in fiscal 1997 and $79.8
million in fiscal 1996. Net cash flows provided by financing activities in the
1999 fiscal six-month period included $159.4 million of borrowings under U.S.
Foodservice's five-year revolving credit facility. U.S. Foodservice applied
$66.2 million of these borrowings to redeem or retire a portion of Rykoff-
Sexton's 8 7/8% senior subordinated notes due 2003 and $27.0 million to retire
other indebtedness of acquired companies. Net cash flows provided by financing
activities in fiscal 1998 included $33.2 million from the issuance of common
stock and $12.4 million used to purchase common stock in connection with a
stock repurchase program announced by U.S. Foodservice in the second quarter of
fiscal 1998.
U.S. Foodservice has entered into accounts receivable securitization
arrangements into which it can sell accounts receivables on a revolving basis.
In the third quarter of fiscal 1999, U.S. Foodservice increased the maximum
amount of receivables eligible for sale under these arrangements from $250
million to $353 million, thereby increasing its borrowing capacity by
$103 million.
As of December 26, 1998, U.S. Foodservice's long-term indebtedness,
including current portion, totaled $771.7 million, with an overall weighted
average interest rate of 6.3%, excluding deferred financing costs. Long-term
borrowing increased by $56.7 million in the 1999 fiscal six-month period
primarily as a result of net cash used in operating activities of $45.6
million, capital expenditures of $35.2 million, and net cash of $8.4 million
used in acquisitions. These uses of cash were offset in part by the receipt of
$34.9 million of net cash proceeds from the sale of assets and employee stock
purchases.
On December 23, 1997, in connection with the Rykoff-Sexton acquisition,
U.S. Foodservice entered into a new credit facility which provides for a $550
million five-year revolving credit facility and a $200 million revolver/term
loan facility which is renewable annually. The borrowers under the credit
facility are U.S. Foodservice's two principal operating subsidiaries. The
credit facility is guaranteed by U.S. Foodservice's other subsidiaries and by
U.S. Foodservice. Initial borrowings under the credit facility were used to
repay the former JP Foodservice revolving line of credit loans and senior notes
due 2004 and the former Rykoff-Sexton revolving and term loan facilities. The
total debt repaid was approximately $551.0 million. Amounts borrowed under the
credit facility bear interest at the option of U.S. Foodservice at a rate equal
to the sum of LIBOR, a specified prime rate, or the federal funds rate plus
.5%, and an applicable margin. The applicable margin will vary from .175% to
.55%, based on a formula tied to U.S. Foodservice's level of indebtedness from
time to time. Annual facility fees are based on the same formula and vary
between .055% and .2%. At December 26, 1998, borrowing rates were based on
LIBOR plus an applicable margin of .35% and averaged 5.55%, excluding
amortization of deferred financing costs. The credit facility includes a $75
million facility for standby and commercial letters of credit and a $50 million
swing-line facility for same-day borrowings. At December 26, 1998, $645.5
million of borrowings and $37.5 million of letters of credit were outstanding
under the credit facility and an additional $67.0 million remained available to
finance U.S. Foodservice's working capital needs and to meet its other
liquidity requirements. The credit facility includes a number of covenants
which require U.S. Foodservice to maintain financial ratios and restrict U.S.
Foodservice's ability to incur additional indebtedness and pay cash dividends.
30
<PAGE>
From time to time, U.S. Foodservice acquires other foodservice
businesses. U.S. Foodservice may acquire any such business for cash, common
stock or a combination of cash and common stock. Accordingly, management may
determine that it is necessary or desirable to obtain financing for
acquisitions through additional bank borrowings or the issuance of new debt or
equity securities.
U.S. Foodservice believes that the combination of cash flow generated by
its operations, additional capital leasing activity, sales of duplicate assets,
sales of accounts receivable under its securitization arrangements 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 Issue
The Year 2000 issue results from a programming convention in which
computer programs use two digits rather than four to define the applicable
year. Software and hardware may recognize a date using "00" as the year 1900,
rather than the year 2000. Such an inability of computer programs to recognize
a year that begins with "20" could result in system failures, miscalculations
or errors causing disruptions of operations or other business problems,
including, among others, a temporary inability to process transactions, send
invoices or engage in similar normal business activities.
U.S. Foodservice's Program. U.S. Foodservice has undertaken a program to
address the Year 2000 issue with respect to the following:
. U.S. Foodservice's information technology and operating systems,
including its billing, accounting and financial reporting systems;
. U.S. Foodservice's non-information technology systems, such as
buildings, plant, equipment, telephone systems and other
infrastructure systems that may contain embedded microcontroller
technology;
. selected systems of U.S. Foodservice's major vendors and significant
service providers, insofar as these systems relate to U.S.
Foodservice's business activities with such parties; and
. U.S. Foodservice's significant customers, insofar as the Year 2000
issue relates to U.S. Foodservice's ability to provide services to
these customers.
As described below, U.S. Foodservice's Year 2000 program involves:
. an assessment of the Year 2000 problems that may affect U.S.
Foodservice;
. the development and testing of remedies to address the problems
discovered in the assessment phase; and
. 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, U.S. Foodservice is currently evaluating
the systems that are date sensitive, including its internal systems and the
systems of its major vendors, and significant service providers and customers.
U.S. Foodservice has completed its evaluation of its internal systems. U.S.
Foodservice'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. Most of these systems are not fully Year 2000 compliant. As of
December 26, 1998, information systems used by 11 of the distribution centers
were Year 2000 compliant. In the third quarter of fiscal 1999, U.S. Foodservice
expects to complete the process of sending letters to its major vendors and
significant service providers and customers, requesting them to provide U.S.
Foodservice with detailed, written information concerning existing or
anticipated Year 2000 compliance by their systems insofar as the systems relate
to these parties' business activities with U.S. Foodservice. U.S. Foodservice
is currently evaluating responses on Year 2000 compliance from the third
parties who have responded to U.S. Foodservice's inquiries. U.S. Foodservice
expects that it will complete its assessment of third-party issues by April 30,
1999.
31
<PAGE>
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 U.S. Foodservice'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, U.S. Foodservice has evaluated the
program applications and identified Year 2000 problems and is currently
attempting to remediate these problems and individually test the applications
to confirm that the remediating changes are effective and have not adversely
affected the functionality of the applications. U.S. Foodservice 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, U.S. Foodservice will conduct integrated testing for the purpose of
demonstrating functional integrated systems operation. Following completion of
its internal, integrated systems testing, U.S. Foodservice intends to conduct
laboratory-simulated integrated systems testing in an attempt to demonstrate
substantial Year 2000 compliance of U.S. Foodservice's systems as they
interface with external systems and equipment of U.S. Foodservice's major
vendors and significant service providers and customers.
During fiscal 1998, among other activities, U.S. Foodservice 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
14 distribution centers and its corporate headquarters. As of the date of this
prospectus, U.S. Foodservice has initiated software and hardware remediation
efforts at the remaining distribution centers and its corporate headquarters.
U.S. Foodservice currently seeks to have most of its software remediated by
March 1999 and to have all of its information systems at its distribution
centers and its corporate headquarters remediated, tested and Year 2000
compliant by July 1999.
Contingency Plans. U.S. Foodservice is developing contingency plans to
handle its most reasonably likely worst case Year 2000 scenarios, which it has
not yet identified fully. U.S. Foodservice 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.
U.S. Foodservice intends to complete the development of its contingency plans
by June 30, 1999.
Costs Related to the Year 2000 Issue. As of December 26, 1998, U.S.
Foodservice had incurred approximately $1.5 million in costs for its Year 2000
program. These costs do not include internal staff costs, consisting
principally of payroll costs, incurred on Year 2000 matters, because U.S.
Foodservice does not separately track these internal staff costs. As of
December 26, 1998, U.S. Foodservice also had made approximately $12.0 million
of capital expenditures on new information processing systems that are already
Year 2000 compliant. U.S. Foodservice currently estimates that it will incur
additional costs, which are not expected to exceed $5.0 million, excluding
internal staff costs, to complete its Year 2000 compliance work with respect to
U.S. Foodservice's major information systems. Of these additional costs,
approximately $3.0 million of costs are expected to be incurred during fiscal
1999 and approximately $2.0 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 U.S. Foodservice's evaluation of
responses to its third-party inquiries and on the results of its remediation
and testing activities. U.S. Foodservice expects to fund its Year 2000
remediation costs out of the cash flows generated by its operations. U.S.
Foodservice has not deferred any of its material information technology
projects to date as a result of the Year 2000 issue. U.S. Foodservice 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 U.S. Foodservice's Year
2000 efforts are intended to minimize the adverse effects of the Year 2000
issue on its business and operations, the actual effects of the issue and the
success or failure of U.S. Foodservice's efforts described above cannot be
known until the year 2000. Failure by U.S. Foodservice and its major vendors
and significant service providers and customers to address adequately their
respective Year 2000 issues in a timely manner, insofar as these issues relate
to U.S.
32
<PAGE>
Foodservice's business, could have a material adverse effect on U.S.
Foodservice's business, results of operations and financial condition.
Changes in Accounting Standards
During 1997 and 1998, the Financial Accounting Standards Board issued
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 Nos. 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.
In accordance with these pronouncements, U.S. Foodservice adopted SFAS
No. 130 in the first quarter of fiscal 1999 and will adopt SFAS No. 131 in the
second half of fiscal 1999 and SFAS No. 133 in fiscal 2000. U.S. Foodservice is
currently evaluating the impact, if any, that SFAS No. 133 will have on its
consolidated financial statements.
During 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, Reporting on the Costs of Start-Up
Activities. Statement of Position No. 98-5 requires that costs incurred during
a start-up activity be expensed as incurred and that the initial application of
this Statement of Position, as of the beginning of the fiscal year in which it
is adopted, be reported as a cumulative effect of a change in accounting
principle. U.S. Foodservice expects to adopt Statement of Position 98-5 in
fiscal 2000. U.S. Foodservice does not expect the cumulative effect of adoption
to be material.
Quantitative and Qualitative Disclosures About Market Risk
U.S. Foodservice's major market risk exposure is to changing interest
rates. U.S. Foodservice's policy is to manage interest rates through the use of
a combination of fixed and floating rate debt. U.S. Foodservice uses interest
rate swap, cap and collar contracts to manage its exposure to fluctuations in
interest rates on floating long-term debt. U.S. Foodservice has implemented
management monitoring processes designed to minimize the impact of sudden and
sustained changes in interest rates.
As of December 26, 1998, U.S. Foodservice's long-term indebtedness
consisted of fixed rate and variable rate debt of $55.7 million and $681.4
million, respectively, with an aggregate estimated fair value of approximately
$738 million. Outstanding borrowings under U.S. Foodservice's long-term debt
agreements generally only require periodic interest payments with principal due
at maturity. At December 26, 1998, $655.5 million of U.S. Foodservice's long-
term indebtedness was due in fiscal 2002, with the balance due after 2003.
Substantially all of U.S. Foodservice's floating rate debt is based on LIBOR.
U.S. Foodservice 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.
In addition, U.S. Foodservice sells accounts receivable on a revolving
basis under accounts receivable securitization arrangements. In the third
quarter of fiscal 1999, 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. For information about U.S. Foodservice's receivable
securitization arrangements, see note 8 to the audited consolidated financial
statements appearing elsewhere in this prospectus. U.S. Foodservice also uses
fixed-rate capital leases to finance some of its trucks and trailers.
Currently, U.S. Foodservice does not use foreign currency forward
contracts or commodity contracts and does not have any material foreign
currency exposure.
33
<PAGE>
BUSINESS
We are the nation's second largest publicly-traded broadline foodservice
distributor based on our 1998 fiscal year net sales of $5.5 billion. We sell
food and related products to restaurants and other institutional foodservice
establishments through our national distribution network, which provides
geographic access to more than 85% of the U.S. population. We market and
distribute more than 40,000 national and proprietary brand items to over
130,000 foodservice customers, including restaurants, hotels, healthcare
facilities, cafeterias and schools. This broad product line allows us to meet
substantially all of the food and related supply needs of our diverse customer
base of independent "street" and multi-unit "chain" businesses, which include
Ruby Tuesday, Subway, Buffet's, Inc., Perkins Family Restaurants and Pizzeria
Uno.
From our 1994 fiscal year through our 1997 fiscal year, we achieved
compound annual net sales growth of approximately 18% and compound annual
earnings per share growth of approximately 29%, excluding extraordinary and
non-recurring items and before restatement of our historical results for
acquisitions accounted for as poolings of interests and before giving effect to
the Rykoff-Sexton acquisition. We supplement our internal growth with an active
program of strategic acquisitions to take advantage of the ongoing
consolidation in our industry. Since we became a public company in 1994, we
have acquired 11 foodservice businesses with combined net sales of over $900
million, as well as Rykoff-Sexton, Inc., which was the nation's third largest
broadline foodservice distributor based on fiscal 1997 net sales of
$3.5 billion. Despite our substantial growth, our 1998 fiscal year net sales of
$5.5 billion represented less than 4% of the approximately $147 billion of 1998
net sales generated by the foodservice distribution industry as a whole.
Because the foodservice distribution industry remains highly fragmented and
there are factors promoting consolidation in the industry, we believe we have a
significant opportunity to continue to add to our net sales through
acquisitions. We seek to increase penetration of our current markets through
acquisitions of small, privately owned distributors that we fold into our
existing operations and to expand into new markets through acquisitions of
larger-sized distributors. We typically have been able to improve the
profitability of acquired businesses by:
. eliminating redundant overhead expenses;
. reducing distribution and warehouse expenses by eliminating
overlapping delivery routes and duplicate warehouse facilities;
. lowering the cost of financing working capital; and
. improving gross margins by using our purchasing power to reduce the
cost of goods sold.
We acquired Rykoff-Sexton because of the substantial benefits which we
expected to realize from the acquisition, including substantial cost savings
and revenue opportunities, nationwide distribution capabilities which would
allow us to extend regional relationships, and increased customer and market
diversity. We have accounted for the acquisition, which we completed on
December 23, 1997, as a pooling of interests. We believe our operating cost
reductions and interest savings from the integration of Rykoff-Sexton, on a
pre-tax basis, exceeded $20 million in our 1998 fiscal year and $17 million in
the first two quarters of our fiscal 1999 year. Based on these results and the
status of our integration plan, we anticipate that our annualized operating
cost reductions and interest savings in our 1999 fiscal year will total
approximately $35 million on a pre-tax basis. On February 27, 1998, we changed
our corporate name from JP Foodservice, Inc. to U.S. Foodservice to reflect our
newly acquired nationwide distribution capabilities.
U.S. Foodservice is a holding company that conducts its operations
through wholly owned subsidiaries. U.S. Foodservice was organized in 1989 under
the laws of the State of Delaware.
Foodservice Distribution Industry
Companies in the foodservice distribution industry purchase, store,
market and transport food products, paper products and other supplies and food-
related items to establishments that prepare and serve meals to be eaten away
from home. Net sales for the foodservice industry were approximately $147
billion in 1998. For the
34
<PAGE>
period from 1985 to 1998, total net sales for the foodservice distribution
industry increased at a compound annual rate of approximately 5%. Although the
foodservice distribution industry is large and growing, it remains extremely
fragmented, with over 3,000 companies in operation in 1998. Most of these
companies are small, privately owned enterprises supplying a limited number of
products within local or regional markets.
In recent years, the industry has experienced substantial consolidation
as larger distributors have acquired small and regional distributors and have
used their superior competitive position to grow at the expense of smaller
distributors. The growth rate for the largest broadline foodservice
distributors substantially exceeded the growth rate for the industry as a whole
during the period from 1985 to 1998. In 1985, the top ten broadline foodservice
distributors, ranked on the basis of their 1985 net sales, had aggregate net
sales of approximately $8 billion, while by 1998 the top ten broadline
foodservice distributors, ranked on the basis of their 1998 net sales, had
aggregate net sales of approximately $37 billion. The increase in aggregate net
sales of the ten largest broadline distributors from 1985 to 1998 represents a
compound annual growth rate of approximately 13%, or more than twice the
compound annual growth rate for the entire foodservice distribution industry
for that period. We believe that this growth resulted from factors that include
the advantages of large-scale purchasing and distribution, warehousing
efficiencies, industry consolidation, the desire of foodservice customers to
use fewer vendors and heightened food safety concerns. The following table
illustrates the impact of these trends on the percentage of total net sales in
the foodservice industry generated by the largest broadline distributors during
the periods indicated.
<TABLE>
<CAPTION>
Percentage of
Industry Net Sales
Year Ended
December 31,
---------------------
1985 1998
--------- ---------
<S> <C> <C>
Ten largest broadline distributors...................... 10% 25%
Fifty largest broadline distributors.................... 22 30
</TABLE>
U.S. Foodservice anticipates further consolidation in the industry as
smaller specialty distributors confront increasingly difficult competitive
challenges from broadline companies that have access to the significant capital
needed to construct and equip large, efficient distribution centers, maintain a
modern fleet of delivery vehicles and develop the sophisticated information
systems required for cost-efficient operations. We believe that large, well-
capitalized broadline distributors generally have benefited from continuing
industry growth as well as from favorable demographic trends. In recent years,
consumers have spent an increasing percentage of their food dollars on meals
eaten away from home. This trend reflects such demographic factors as the aging
of the "baby-boomer" segment of the population, the growth of single parent and
dual-income households and consumers' increased desire for speed and
convenience. In addition, forecasted expansion of many chain restaurants is
anticipated to generate additional sales volume for broadline distributors that
can satisfy the product and delivery requirements of this customer segment. We
expect that these demographic trends and industry growth will continue into the
foreseeable future.
Growth Strategies
One of our principal strategic objectives is to outpace the growth of the
foodservice industry overall. We employ the following growth strategies to
achieve this objective:
Targeting profitable customer segments with value-added services. We
focus our growth initiatives on segments of our business, such as family
dining, healthcare, business and industry, where we can provide an array of
value-added services. These services include management support and assistance,
service programs for specialized foodservice markets and targeted publications.
In addition, we direct our proprietary brand product development to satisfy an
increasing demand for ethnic foodservice specialties, such as Italian-style and
Mexican-style products.
35
<PAGE>
Improving operating efficiencies by further penetration of existing
accounts. We believe that our profitability depends largely on our local market
share and local economies. Our market share and large-scale operations allow us
to exercise price leadership in a market, spread distribution costs over a
larger customer base and operate warehouses more efficiently. We seek to
increase local market share by gaining a larger share of existing customers'
purchases and by establishing new accounts within our service areas. The
increased net sales we achieve in a local market promote operational
efficiencies in the distribution center serving that market.
Increasing sales of our proprietary brand items. Our proprietary brand
items enable us to offer customers alternatives to comparable national brands
across a wide range of prices. Our strategy is to increase sales of our
proprietary brand items through advertising, promotional activities and
training of our sales force. Proprietary brands help to promote customer
loyalty and generally enhance our profitability and the profitability of our
customers.
Targeting existing and new chain accounts. We support the growth of our
existing chain accounts, many of which are experiencing more rapid sales growth
than other types of foodservice businesses. Because of the proven concepts of
these chains and the operating economies accruing to their large-scale
operations, we believe that the future growth prospects for these chains are
significant. We also target new chain customers that can benefit from our
existing product line and service capabilities, both of which we significantly
augmented by our acquisition of Rykoff-Sexton.
Increasing sales to street accounts. We pursue a long-term strategy of
increasing street account sales as a percentage of net sales by attempting to
expand sales to street customers at a faster rate than sales to chain
customers. We continue to invest in our street account sales force by hiring
and training new salespeople and developing the skills of existing employees.
Pursuing selected acquisition opportunities. A significant portion of our
sales growth in recent years has resulted from acquisitions. We believe we can
enhance the results of operations of acquired businesses by eliminating
redundant overhead expenses, lowering costs of goods sold by increasing
purchasing power, adding our proprietary brands to the product lines of the
acquired businesses, and integrating those businesses into our marketing
programs, centralized purchasing operations and management information systems.
We enhance our ability to compete for acquisition opportunities with other
foodservice businesses through our market leadership, national operations and
financial resources, which include access to the public capital markets.
Continuing our integration of Rykoff-Sexton. Our December 1997
acquisition of Rykoff-Sexton has provided us with enhanced profit
opportunities. We believe our operating cost reductions and interest savings
from the integration of Rykoff-Sexton, on a pre-tax basis, exceeded $20 million
in fiscal 1998 and $17 million in the first two quarters of fiscal 1999. Based
on these results and the status of our integration plan, we anticipate that our
annualized operating cost reductions and interest savings in fiscal 1999 will
total approximately $35 million on a pre-tax basis. Our acquisition of Rykoff-
Sexton also has provided us with substantial revenue opportunities. These
opportunities include using nationwide distribution capabilities to expand
regional relationships with chain accounts, increasing sales to Rykoff-Sexton's
specialty item customers by marketing broadline foodservice products, and
bringing Rykoff-Sexton's specialty, imported, and equipment and supply products
to JP Foodservice customers.
Market Leadership
We believe we have a leading position in substantially all of the service
areas that we supply from our 38 full-service distribution centers nationwide.
We attribute our leadership position to the following competitive strengths:
Experienced Management Team Focused on Revenue and Profitability
Growth. Our managers are primarily executives who served as officers of JP
Foodservice before its acquisition of Rykoff-Sexton. From
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<PAGE>
our 1994 fiscal year through our 1997 fiscal year, we achieved compound annual
net sales growth of approximately 18% and compound annual earnings per share
growth of approximately 29%, excluding extraordinary and nonrecurring items and
before restatement of our historical results for acquisitions accounted for as
poolings of interests and before giving effect to the Rykoff-Sexton
acquisition. Over the same period, we augmented our internal net sales growth
by the successful integration of six acquired businesses and increased our
operating income margin from 2.9% in our 1994 fiscal year to 3.6% in our 1997
fiscal year. Jim Miller, our President and Chief Executive Officer, Mark
Kaiser, our Executive Vice President of Sales, Marketing and Procurement, and
Lew Hay, our Chief Financial Officer, average over 20 years of experience in
the foodservice industry.
Nationwide Distribution Capabilities. The scope of our distribution
network allows us to expand chain account relationships on a national basis and
to offer our growing chain customers a consistent array of products and
services across the United States. In addition, our large-scale operations
provide us with a significant market presence and operating efficiencies. We
use these advantages to provide our street customers with a complete range of
products and services at competitive prices.
Low Cost Structure. Our operating structure enables us to realize
economies of scale by centralizing functions such as purchasing, management
information systems, finance, accounting, advertising and promotion, while
decentralizing sales and distribution operations and profit and loss
responsibility. This structure enhances our operating efficiencies and cost
savings while still allowing branch-level management to respond to customer
needs in each market. We also benefit from the scale and efficiency of our
modern distribution centers, which enable us to realize cost savings in branch
overhead, warehouse operations and transportation services.
Large and Diverse Customer Base. We market and distribute to over 130,000
foodservice customers nationwide. The size of our customer base reduces our
dependence on any individual customer or chain account to sustain growth or
profitability. In our 1998 fiscal year, sales to independent street customers
represented approximately 61% of our net sales. During the same period, sales
to our ten largest customers represented approximately 17% of our net sales,
while no single customer accounted for more than 3% of our net sales.
Extensive High Quality Product Line. Our product line of more than 40,000
national and proprietary brand items is one of the largest in the industry.
Compared to our principal competitors, we devote a larger portion of our
product line to national brand products, which accounted for approximately 73%
of our net sales in our 1998 fiscal year. We also offer customers a full line
of quality-assured, value-priced private brand products and high quality
signature brand products. Unlike some of our competitors, we use centralized
purchasing, which promotes a consistently high level of quality for our
proprietary brand products throughout our distribution network.
Superior Customer Service. Our focus on customer service ensures accurate
fulfillment of customer orders and on-time product delivery. We maintain a high
level of responsiveness to customer needs by employing a decentralized
operating strategy at the branch level and by providing an array of value-added
services designed to assist our customers in managing their foodservice
operations more efficiently and profitably. Our value-added services include
advice and assistance on product selection, menu planning and recipes,
nutritional information, inventory analysis, product costing and marketing
strategies, as well as on-site training of customer personnel.
Products
In fiscal 1998, we offered to the foodservice industry a single source of
supply for more than 40,000 national and proprietary brand items.
Food Products. Our food products include canned fruits and vegetables,
tomatoes and tomato products, juices, syrups, dressings and salad oils, baking
supplies, spices, condiments, sauces, jellies and
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<PAGE>
preserves, coffee, tea and fountain goods, prepared convenience entrees, dairy
and other refrigerated products, fresh produce, fresh meats, seafood, poultry,
desserts, dietary foods, imported and domestic cheeses and specialty and
gourmet imported items.
Frozen foods include soups, prepared convenience entrees, bakery
products, fruits and vegetables, desserts, meat, poultry, seafood and other
frozen products customarily distributed to the foodservice industry.
Many of our product offerings feature "center-of-the-plate" entree
selections.
Janitorial and Paper Products. U.S. Foodservice's non-food products
include janitorial supplies such as detergents and cleaning compounds; plastic
products such as refuse container liners, cutlery, straws and sandwich bags;
and paper products such as disposable napkins, cups, hats, placemats and
coasters.
Equipment and Supplies. We distribute light restaurant equipment and
supply items, including cookware, glassware, dinnerware and other commercial
kitchen equipment.
The following table shows the product categories of the items sold by
U.S. Foodservice and the percentage of our net sales generated by product
category and by contract and design services during fiscal 1998:
<TABLE>
<CAPTION>
Percentage
of Net Sales
------------
<S> <C>
Canned and dry products...................................... 30%
Meats........................................................ 16
Other frozen foods........................................... 14
Dairy products............................................... 9
Paper products............................................... 8
Poultry...................................................... 8
Seafood...................................................... 6
Perishable food products..................................... 3
Equipment and supplies....................................... 3
Janitorial supplies.......................................... 2
Contract and design services................................. 1
---
100%
===
</TABLE>
National Brands. We supply more than 32,000 national brand items, which
represented approximately 73% of our net sales in fiscal 1998. We believe that
national brands are attractive to chain accounts and other customers seeking
consistent product quality throughout their operations. Our national brand
strategy has promoted closer relationships with many national suppliers, which
provide important sales and marketing support to U.S. Foodservice.
Proprietary Brands. Our proprietary brands enable us to offer our
customers an exclusive and expanding line of product alternatives to comparable
national brands across a wide range of prices. Proprietary brands typically
carry higher margins than comparable national brand products and at the same
time help to promote customer loyalty. Our two-tier proprietary brand strategy
emphasizes our private brands as a direct alternative to national brand items
and our signature brands as foodservice "concepts" and specialties, such as
ethnic and gourmet product offerings.
. Private Brands. We offer our customers an expanding line of
products under our various private brands. We currently offer over
8,000 private brand products, including frozen and canned goods,
fruits, vegetables and meats, under the following private labels:
Rykoff-Sexton Connoisseur(TM) (highest quality), U.S. Foodservice
Blue(TM), U.S. Foodservice Red(TM), Chef's Variety(R), Harvest
Value(R), U.S. Foodservice Cattleman's Choice(TM), U.S.
Foodservice Cattleman's Selection(TM), Magnifry(R) and
Magnifries(TM). U.S. Foodservice also markets diet-
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<PAGE>
modified products under the brand name Health.Diet.Life(R) and a
sugar substitute and artificial sweetener under the brand names
Allowance(R) and Allowance II(TM). We market restaurant equipment
and supplies under the Serco Restaurant brand and cleaning products
under the Clean Pride(R) brand. We have developed the multi-tier
quality system to meet the specific requirements of different
market segments.
. Signature Brands. We offer our customers an exclusive and
expanding line of signature products which are comparable in
quality to national brand items and priced competitively with
such items. We market these products under the names Roseli(R)
(Italian-style products), Hilltop Hearth(R) (bread and bakery
products), Cross Valley Farms(TM) (processed fruits and
vegetables), Patuxent Farms(R) (processed meats), el Pasado
Authentic Mexican Cuisine with a Touch of the Past(R) (Mexican-
style products), Rituals(R) (gourmet coffee), Pacific-Jade(R)
(Oriental-style products), and Harbor Banks(R) (seafood
products). We currently offer over 3,000 signature brand items.
We have increased the percentage of our proprietary brand sales from
less than 25% at the beginning of fiscal 1996 to approximately 27% at the end
of fiscal 1998. We historically have sold a significantly lower proportion of
proprietary brand products than our primary competitors, whose proprietary
brand sales have accounted for approximately 30% to over 60% of their sales
volume. We believe there is a significant opportunity for growth of our
proprietary brand sales.
U.S. Foodservice is currently consolidating the proprietary brands
marketed by JP Foodservice and Rykoff-Sexton prior to its acquisition by JP
Foodservice, a process which we expect will be substantially completed in
fiscal 1999. Although we intend to continue to emphasize sales of national
brand products, we plan to expand sales of our proprietary brand product lines
through national and local advertising, promotional activities, and training
of our sales force regarding the attributes of these products.
Services
To strengthen our customer relationships and increase account
penetration, we offer the following types of value-added services:
Management Support and Assistance. Our sales force assists customers in
managing their foodservice operations more efficiently and profitably by
providing advice and assistance on product selection, menu planning and
recipes, nutritional information, inventory analysis and product costing and
marketing strategies. We also provide on-site training of customer personnel.
Specialized Market Services. We offer services and programs tailored to
specialized markets. For example, through an integrated service program, we
provide healthcare service providers with special nutritional plans,
customized software packages such as directAdvantage(TM), a variety of
marketing services and on-site training of institutional personnel. To be
eligible to participate in this program, healthcare institutions must maintain
a specified minimum volume of purchases from U.S. Foodservice.
Publications. We promote active customer use of our other products and
services through the distribution of professionally printed publications,
including our quarterly magazines, Quintessential(TM) and Healthnext(TM). Our
publications highlight selected products, including proprietary brand items,
present menu suggestions, provide nutritional information and include recipes
using our products. Customers also may participate, at no cost, in our recipe
program in which we furnish participants every two weeks with recipe cards
that describe new menu concepts.
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<PAGE>
Customers
U.S. Foodservice's customer base of over 130,000 accounts encompasses a
wide variety of foodservice establishments. The following table shows the
segments of our customer base by type of customer for fiscal 1998:
<TABLE>
<CAPTION>
Percentage
of Net Sales
------------
<S> <C>
Restaurants (limited and full menu).......................... 63%
Hotels and casinos........................................... 9
Healthcare institutions...................................... 9
Schools and colleges......................................... 8
Other........................................................ 11
---
100%
===
</TABLE>
Street Customers. U.S. Foodservice's street customers are independent
restaurants, hotels, schools and other foodservice businesses. Street customers
are serviced directly by our commission sales personnel who personally call on
customers, place orders, coordinate product delivery and provide the services
offered to these customers.
Street accounts represented approximately 61% of our net sales in fiscal
1998. We pursue a long-term strategy of increasing street account sales as a
percentage of net sales by attempting to expand sales to street customers at a
faster rate than sales to chain customers.
Chain Customers. The majority of U.S. Foodservice's chain customers
consist of franchises or corporate-owned units of national or regional family
dining and other restaurant "concepts" and, to a lesser extent, hotels and
other regional institutional operators. We have developed strong working
relationships with many of our chain accounts, which have enabled these
accounts, in conjunction with U.S. Foodservice, to develop distribution
programs tailored to precise delivery and product specifications. These
distribution programs have created operating and cost efficiencies for both the
chain customers and U.S. Foodservice. Chain customers generally are serviced by
salaried sales and service representatives who coordinate the procurement and
delivery of all products throughout the system from a central location. Gross
profit margins generally are lower for chain customers than for street
customers. However, because there are typically no commission sales costs
related to chain account sales and because chain customers usually have larger
deliveries to individual locations, sales and delivery costs generally are
lower for chain accounts than for street accounts.
Chain accounts represented approximately 39% of our net sales in fiscal
1998. Our business strategy emphasizes supporting the growth of our existing
chain accounts. Many of our current chain customers, primarily restaurants, are
experiencing more rapid sales growth than other types of foodservice
businesses. We also target new chain customers which we believe represent
attractive growth opportunities.
No single customer accounted for more than 3% of our net sales in fiscal
1998. Consistent with industry practice, we generally do not enter into
contracts with our customers that may not be canceled by either party at its
option.
Sales and Marketing
U.S. Foodservice's principal marketing activities at June 27, 1998 were
conducted by approximately 2,000 street sales, 250 chain sales and 430 customer
service representatives. Our sales and service representatives are responsible
for soliciting and processing orders, servicing customers by telephone,
reviewing account balances and assisting with new product information. In
addition, our sales representatives advise customers on menu selection, methods
of preparing and serving food and other operating issues. We provide an in-
house training program for our entry-level sales and service representatives,
which includes seminars, on-the-job training and direct one-on-one supervision
by experienced sales personnel.
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<PAGE>
Our commission program is designed to reward account profitability and
promote sales growth in our street accounts. Our strategy is to measure the
profitability of each street account and product segment and to modify our
incentive program accordingly.
We maintain sales offices at each of our 38 full-service distribution
centers and at 26 additional locations in 13 states. We employ sales and
marketing staff at both the corporate and branch levels to solicit and manage
relationships with multi-unit chain accounts.
We supplement our market presence with advertising campaigns in national
and regional trade publications, which typically focus on our services and our
ability to service targeted industry segments. We support this effort with a
variety of promotional services and programs, including our quarterly magazines
and recipe program.
Distribution
We distribute our products out of our 38 full-service distribution
centers and extend this geographic coverage through remote distribution
facilities. Our Targeted Specialty Services division warehouses and
redistributes, out of three warehouses, to the distribution centers a full line
of restaurant equipment and supplies, imported specialty food products and
proprietary products. This division allows U.S. Foodservice's distribution
centers to offer a more varied product mix while maintaining local inventories
at efficient levels. Our customers generally are located within our principal
geographic service areas, which we define as the areas within a 150-mile radius
of each of our full-service distribution centers. Our distribution network
enables us to serve customers outside of our principal service areas. Services
to both street and chain customers are supported by the same distribution
facilities and equipment.
Our 38 full-service distribution centers have a total of approximately
seven million square feet of warehouse space. Each distribution center operates
from a warehouse complex that contains dry, refrigerated and frozen storage
areas as well as office space for sales, marketing, distribution and
administrative personnel.
Products are delivered to U.S. Foodservice's distribution centers by
manufacturers, common carriers and U.S. Foodservice's own fleet of trucks. We
employ management information systems which enable us to lower our inbound
transportation costs by making more efficient use of our own fleet of trucks or
by consolidating deliveries into full truckloads. Orders from multiple
suppliers or multiple distribution centers are consolidated into single
truckloads for efficient use of available vehicle capacity and return-trip
hauls.
Orders typically are entered electronically by the commission sales force
with the appropriate distribution center through a hand-held computer device or
laptop computer. These devices facilitate order entry through the use of pre-
coded price lists which automatically price orders, apply pricing controls and
allow the sales representative to review the gross profit of each order at the
time of sale. Customers also have the option to place orders by telephone with
service representatives at each of our branches. Some of our large customers
place orders through a direct connection to our mainframe computer by means of
a computer terminal, personal computer or touch tone telephone, or through
Tranzmit(TM), our proprietary direct order entry system.
Under all forms of order placement, the salesperson or customer is
notified immediately about product availability, which facilitates instant
product substitution, if necessary. Products are reserved automatically at the
time of order, thereby ensuring complete fulfillment of orders upon delivery.
Customers' orders are assembled in the warehouse, sorted and shrink-wrapped to
ensure order completeness. The products are staged automatically according to
the required delivery sequence.
Products are delivered door-to-door, typically on the day following
placement of the order. We deliver our products through our fleet of over 2,400
tractor-trailer and straight trucks, each of which is equipped with separate
temperature-controlled compartments. In dispatching trucks, U.S. Foodservice
employs a computerized
41
<PAGE>
routing system designed to optimize delivery efficiency and minimize drive
time, wait time and excess mileage. The majority of our fleet utilizes on-board
computer systems that monitor vehicle speeds, fuel efficiency, idle time and
other vital statistical information. We collect and analyze such data in an
effort to monitor and improve transportation efficiency and reduce costs.
In some of our geographic markets, we utilize our remote redistribution
facilities to achieve a higher level of customer service. We transport our
products in large tractor-trailers or double trailers to the redistribution
facility, where the loads are then transferred to smaller equipment for
delivery in the normal fashion.
Suppliers
At June 27, 1998, U.S. Foodservice employed approximately 250 purchasing
agents with expertise in specific product lines to purchase products for U.S.
Foodservice from approximately 7,000 suppliers located throughout the United
States and in other countries. Substantially all types of products distributed
by U.S. Foodservice are available from a variety of suppliers, and we are not
dependent on any single source of supply. We do not purchase any material
portion of our product requirements under long-term supply contracts.
We manage our purchasing operations and negotiate all major vendor
programs from our corporate headquarters in Columbia, Maryland. We seek to
concentrate purchases with selected suppliers to ensure access to high-quality
products on advantageous terms. We cooperate closely with these suppliers to
promote new and existing products. The suppliers assist in training our sales
force and customers regarding new products, new trends in the industry and new
menu ideas, and collaborate with us in advertising and promoting these products
both through printed advertisements and through annual branch-sponsored food
shows and national trade shows.
Before our acquisition of Rykoff-Sexton, we transacted a majority of our
purchasing activities centrally at our corporate headquarters. At the former
Rykoff-Sexton divisions, purchases were primarily transacted locally. We
believe that centralized purchasing results in lower costs through greater
ordering efficiency. As part of our restructuring plan for the businesses we
acquired in the Rykoff-Sexton acquisition, we are progressively centralizing at
our corporate headquarters the day-to-day purchasing activities currently being
performed at the former Rykoff-Sexton divisions. This transition, which is
dependent upon completion of the centralization of our management information
systems, is currently expected to take two to three years to complete.
Through our purchasing department, we are able to monitor the quality of
the products offered by various suppliers and ensure consistency of product
quality across our distribution network. U.S. Foodservice maintains a
comprehensive quality control and assurance program that, at June 27, 1998,
actively involved approximately 225 employees in daily quality control
activities. The program is managed by employees engaged in purchasing
operations, including product group managers who each manage specific segments
of the product line and product line managers who purchase products for the
branches, and is supported at each branch by the merchandising manager, the
branch buyer and an inventory control specialist. The quality control process
includes the selection of suppliers and the policing of quality standards
through product sampling at both U.S. Foodservice's corporate offices and
branch locations and through visits to growing fields, manufacturing facilities
and storage operations.
We generally require our suppliers and manufacturers to maintain
specified levels of product liability insurance and to name U.S. Foodservice as
an additional insured on the applicable insurance policies.
42
<PAGE>
Properties
U.S. Foodservice occupies corporate headquarters in Columbia, Maryland,
which consists of a total of approximately 95,000 square feet of office space,
under a lease which expires in June 2003.
U.S. Foodservice's 38 full-service distribution centers contain a total
of approximately seven million square feet of warehouse space. The distribution
centers range in area from approximately 75,000 square feet to approximately
525,000 square feet. The centers contain dry, refrigerated and frozen storage
areas and office space for the sales and administrative operations of the
branch. As part of our restructuring plan for the businesses we acquired in the
Rykoff-Sexton acquisition, we consolidated some overlapping distribution
centers in fiscal 1998 and plan to close additional facilities in fiscal 1999.
See note 6 to the audited consolidated financial statements appearing elsewhere
in this prospectus for a description of our plans to close additional
distribution facilities. The following table lists the location of each of our
full-service distribution centers:
Arizona Maryland Oklahoma
Phoenix* Baltimore Oklahoma City
Severn
California
Oregon
Daly City* Massachusetts Portland
La Mirada Everett
Vista*
Pennsylvania
Michigan Allentown
Connecticut Taylor Altoona
South Windsor Pittston
Yantic Minnesota
Plymouth South Carolina
Florida Fort Mill
Ormond Beach Nevada
Las Vegas Tennessee
Georgia Reno* Alcoa
Austell*
College Park New Jersey Texas
Bridgeport Austin*
Illinois Englewood Dallas*
Glendale Heights Kearny* Lubbock
Streator
Mesquite
New York
Indiana Buffalo Virginia
Fort Wayne Salem
Ohio
Fairfield West Virginia
Cincinnati Hurricane
- --------
*Indicates facility leased by U.S. Foodservice, except for the Austin, Texas
facility, which is partially leased and partially owned by U.S. Foodservice;
all other facilities are wholly owned by U.S. Foodservice.
U.S. Foodservice also leases in-transit warehouses in Indiana and
Maryland and manages an in-transit warehouse out of a third-party facility in
California.
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<PAGE>
Equipment and Machinery
Equipment and machinery owned by U.S. Foodservice and used in our
operations consist principally of electronic data processing equipment and
product handling equipment. We also operate a fleet of over 2,400 vehicles,
consisting of tractors, trailers and straight trucks, which are used for long
hauls and local deliveries. At June 27, 1998, U.S. Foodservice owned
approximately 29% of these vehicles and leased the remainder.
We outsource our data center operations for approximately one third of
our divisions. As our business needs warrant, we can either increase or
decrease the amount of computer capacity we purchase upon short notice to the
vendor. We believe that this arrangement provides us with more reliable and
flexible service at a lower cost than we could achieve by operating our own
data center for this segment of our business.
We regularly evaluate the capacity of our various facilities and
equipment and make capital investments to expand capacity where necessary. In
fiscal 1998, we spent $95.5 million on capital expenditures, primarily for
construction of new distribution centers in Fort Mill, South Carolina and Las
Vegas, Nevada, expansion of existing distribution centers at various locations
and upgrading of our management information systems. In the six months ended
December 26, 1998, we spent $35.2 million on capital expenditures, primarily
for facility expansion projects and continued upgrading of our management
information systems. We will continue to undertake expansion or replacement of
our facilities as and when needed to accommodate our growth.
Employees
At the end of fiscal 1998, U.S. Foodservice had approximately 11,000
full-time employees, of whom approximately 240 were employed in corporate
management and administration and approximately 4,200 of whom were hourly
employees. Approximately 3,000 of our employees were covered by collective
bargaining contracts with approximately 40 different local unions associated
with the International Brotherhood of Teamsters and other labor organizations.
Collective bargaining contracts covering approximately 750 of our employees
will expire by May 1, 1999.
We believe that our relations with our employees are satisfactory.
Competition
The foodservice distribution industry is extremely fragmented, with over
3,000 companies in operation in 1998. In recent years, the foodservice
distribution industry has been characterized by significant consolidation and
the emergence of larger competitors. We compete in each of our markets with at
least one other large national distribution company, generally SYSCO Corp. or
Alliant Foodservice, Inc., as well as with numerous regional and local
distributors.
U.S. Foodservice believes that, although price is an important
consideration, distributors in the foodservice industry compete principally on
the basis of service, product quality and customer relations. We attribute our
ability to compete effectively against smaller regional and local distributors
in part to our wider product selection, the cost advantages resulting from our
size and centralized purchasing operations and our ability to offer broad and
consistent market coverage. We compete against other broadline distributors
primarily by providing our customers with accurate and timely fulfillment of
orders and an array of value-added services. U.S. Foodservice typically
competes against other foodservice distribution companies and, to a lesser
extent, financial investors for potential acquisitions. We believe that our
financial resources and our ability to offer owners of acquisition targets an
interest in the combined business through ownership of our common stock
provides us with an advantage over many of our competitors.
Legal Proceedings
From time to time, U.S. Foodservice is involved in litigation and
proceedings arising out of the ordinary course of our business. There are no
pending material legal proceedings or environmental investigations to which
U.S. Foodservice is a party or to which any property of U.S. Foodservice is
subject.
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<PAGE>
MANAGEMENT
The following table presents information regarding our executive officers
and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James L. Miller............. 50 Chairman of the Board of Directors, President
and Chief Executive Officer
Lewis Hay, III.............. 43 Director, Executive Vice President and Chief
Financial Officer
Mark P. Kaiser.............. 41 Director, Executive Vice President-Sales,
Marketing and Procurement
David M. Abramson........... 46 Director, Executive Vice President and General
Counsel
George T. Megas............. 46 Vice President and Chief Accounting Officer
Matthias B. Bowman.......... 50 Director
Michael J. Drabb............ 65 Director
Albert J. Fitzgibbons III... 53 Director
Eric E. Glass............... 58 Director
Paul I. Latta, Jr........... 55 Director
James P. Miscoll............ 64 Director
Jeffrey D. Serkes........... 39 Director
Dean R. Silverman........... 47 Director
Bernard Sweet............... 74 Director
</TABLE>
James L. Miller has served as Chairman of the Board of Directors and
Chief Executive Officer of U.S. Foodservice since July 1989 and as President of
U.S. Foodservice from July 1989 to December 1997 and January 1998 to the
present. From 1986 to 1989, Mr. Miller served as Executive Vice President and
Chief Operating Officer of the Northern Division of PYA/Monarch, Inc., a
broadline foodservice distributor. From 1983 to 1985, Mr. Miller served as Vice
President and General Manager of PYA/Monarch's Northeast Division. Before
joining PYA/Monarch, Mr. Miller was employed by SYSCO Corp., a broadline
foodservice distributor, from 1972 to 1983, where he held the positions of Vice
President of Operations, Vice President of Sales, and Vice President and
General Manager.
Lewis Hay, III has served as a director of U.S. Foodservice since 1991.
He joined U.S. Foodservice in 1991 as Senior Vice President and Chief Financial
Officer and was appointed Executive Vice President in September 1997. Before
joining U.S. Foodservice, Mr. Hay was a Vice President and partner of Mercer
Management Consulting, formerly Strategic Planning Associates, Inc., a
management consulting firm, where he led the strategy consulting practice in
the firm's Washington, D.C. office. Mr. Hay joined Mercer Management Consulting
in 1982 and, beginning in 1986, participated in a number of consulting projects
for PYA/Monarch, including the management-led leveraged acquisition of certain
operations of PYA/Monarch in connection with the formation of JP Foodservice.
Mr. Hay serves as a member of the Council on Finance for the Graduate School of
Industrial Administration of Carnegie Mellon University and as a director of
Utilities, Inc., a holding company that owns and operates water and waste water
utilities.
Mark P. Kaiser has served as a director of U.S. Foodservice since 1996
and was appointed Executive Vice President-Sales, Marketing and Procurement of
U.S. Foodservice in January 1998. Previously, since 1993, he served as U.S.
Foodservice's Senior Vice President-Sales, Marketing and Procurement. Mr.
Kaiser served as
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<PAGE>
U.S. Foodservice's Vice President-Sales and Marketing from 1989 to 1991 and as
operating executive vice president for sales, marketing and procurement from
1991 to 1993. Mr. Kaiser previously held a number of positions at PYA/Monarch,
including Vice President-Sales, from 1979 to 1989.
David M. Abramson has served as a director of U.S. Foodservice since
1994. He joined U.S. Foodservice as Senior Vice President and General Counsel
in July 1996 and was appointed Executive Vice President in January 1998. He has
served as Secretary of U.S. Foodservice since September 1996. Mr. Abramson was
the President and Managing Principal of the law firm of Levan, Schimel, Belman
& Abramson, P.A. from 1992 to 1996. Previously, Mr. Abramson was a Vice
President and Principal of that firm.
George T. Megas joined U.S. Foodservice in 1991 as Vice President-
Finance, with responsibility for the accounting, treasury and finance
functions, and was appointed Vice President and Chief Accounting Officer in
December 1997. Mr. Megas, a Certified Public Accountant, previously served as
the Corporate Controller for Strategic Planning Associates, Inc., a management
consulting firm, from 1979 to 1990, when it was acquired by Mercer Management
Consulting, and served as a Controller for certain regions of Mercer Management
Consulting until 1991.
Matthias B. Bowman has served as a director of U.S. Foodservice since
December 1997. He has served as Vice Chairman of Investment Banking at Merrill
Lynch & Co., Inc. since 1993 and as a director of Merrill Lynch Capital
Partners, Inc., a private investment firm associated with Merrill Lynch & Co.,
Inc., since 1994. Mr. Bowman has been employed by Merrill Lynch & Co., Inc. in
various capacities since 1972 and currently serves as an officer or director of
several affiliates of Merrill Lynch & Co., Inc. Mr. Bowman serves as a director
of Supermarkets General Holdings Corporation, SMG-II Holdings Corporation and
Pathmark Stores, Inc.
Michael J. Drabb has served as a director of U.S. Foodservice since 1994.
He has served as Executive Vice President of O'Brien Asset Management, Inc., an
institutional asset management firm, since August 1993. From April 1992 to July
1993, Mr. Drabb was retired. Mr. Drabb served as an Executive Vice President
and a member of the cabinet of The Mutual Life Insurance Company of New York
from 1989 to 1992 and was employed by The Mutual Life Insurance Company of New
York from 1961 until his retirement in 1992. Mr. Drabb serves as a director of
the New York Life Mainstay VP Fund, Inc. and the MONY Series Fund, Inc.
Albert J. Fitzgibbons III has served as a director of U.S. Foodservice
since December 1997. He is a partner and director of Stonington Partners, Inc.,
a private investment firm, a position he has held since 1993, and a partner and
director of Stonington Partners, Inc. II. He also has been a director of
Merrill Lynch Capital Partners since 1988 and a consultant to Merrill Lynch
Capital Partners since 1994. Mr. Fitzgibbons was a partner of Merrill Lynch
Capital Partners from 1993 to 1994 and Executive Vice President of Merrill
Lynch Capital Partners from 1988 to 1993. Mr. Fitzgibbons also was a Managing
Director of the Investment Banking Division of Merrill Lynch & Co., Inc. from
1978 to July 1994. Mr. Fitzgibbons serves as a director of Borg-Warner Security
Corporation, Dictaphone Corporation, Merisel, Inc. and United Artists Theatre
Circuit, Inc.
Eric E. Glass has served as a director of U.S. Foodservice since 1996. He
has served as Chairman of the Board of The Taney Corporation, a manufacturer of
wooden stairway components and stairways, since 1995. Previously, from 1962 to
1995, Mr. Glass served as President of The Taney Corporation. Mr. Glass serves
as a director of the Gettysburg Hospital in Gettysburg, Pennsylvania, and as a
director of F&M Bancorp, which is the parent corporation of Farmers & Mechanics
Bank.
Paul I. Latta, Jr. has served as a director of U.S. Foodservice since
1996. He has served since 1993 as Senior Vice President of The Rouse Company, a
real estate development and management company, where he is responsible for all
retail properties. Mr. Latta previously held a number of other positions with
The Rouse Company, where he has been employed since 1968.
James P. Miscoll has served as a director of U.S. Foodservice since
December 1997. He has been retired since 1992. Mr. Miscoll was previously Vice
Chairman of BankAmerica Corporation. He serves as a
46
<PAGE>
director of American International Group, Inc., MK Gold Company, U.S. Rentals,
Inc. and 20th Century Industries.
Jeffrey D. Serkes has served as a director of U.S. Foodservice since
1996. He has been Vice President and Treasurer of International Business
Machines Corporation since January 1995 and served as Assistant Treasurer of
IBM from August 1994 to December 1994. From 1987 to August 1994, Mr. Serkes
held a number of positions with RJR Nabisco, Inc., a manufacturer and marketer
of consumer packaged goods, including Vice President and Deputy Treasurer and
Vice President and Assistant Treasurer, Corporate Finance. Mr. Serkes serves as
a director of IBM Credit Corporation.
Dean R. Silverman has served as a director of U.S. Foodservice since
1996. He has served since 1993 as President of Dean & Company Strategy
Consultants, Inc., a strategic management consulting company located in Vienna,
Virginia. Prior to 1993, Mr. Silverman was a director of Mercer Management
Consulting and headed that organization's strategy consulting practice.
Bernard Sweet has served as a director of U.S. Foodservice since December
1997. He has been retired since 1985. Mr. Sweet previously was President and
Chief Executive Officer of Republic Airlines, Inc. He serves as a director of
G&K Services, Inc.
Following consummation of the Rykoff-Sexton acquisition, as required by
the merger agreement, the U.S. Foodservice board of directors appointed two
directors designated by Merrill Lynch Capital Partners. These designees are
Matthias B. Bowman and Albert J. Fitzgibbons III. See "Principal and Selling
Stockholders." Upon consummation of the offerings, the Merrill Lynch selling
stockholders intend to request that Messrs. Bowman and Fitzgibbons resign from
their positions on the board of directors.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table presents information, as of January 31, 1999,
regarding the beneficial ownership of our common stock by:
.each person known to us to be the beneficial owner of more than 5% of our
common stock;
.each director of U.S. Foodservice;
.each executive officer of U.S. Foodservice;
.all directors and executive officers of U.S. Foodservice as a group; and
.the selling stockholders both before and after giving effect to their sale
of the shares offered by this prospectus.
Under SEC rules, beneficial ownership of our common stock includes any
shares as to which a person, directly or indirectly, has or shares voting power
or investment power and also any shares as to which a person has the right to
acquire such voting or investment power within 60 days through the exercise of
any stock option or other right.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Before Being Owned After
Offerings(1) Offered Offerings(1)
-------------------- --------- -------------
Name and Address of Beneficial Number Number Number
Owner of Shares % of Shares of Shares %
------------------------------ --------- ---- --------- --------- ---
<S> <C> <C> <C> <C> <C>
Merrill Lynch Entities(2)......... 7,808,898 16.2 7,808,898 0 0
c/o Merrill Lynch Capital
Partners, Inc.
225 Liberty Street
New York, New York 10080
T. Rowe Price Associates, 3,833,157 7.9 0 3,833,157 7.9
Inc.(3)..........................
100 E. Pratt Street
Baltimore, Maryland 21202
J. Christopher Reyes.............. 358,423 * 354,819 3,604 *
M. Jude Reyes..................... 358,423 * 354,819 3,604 *
David K. Reyes.................... 179,211 * 177,410 1,801 *
David M. Abramson(4).............. 29,481 * 0 29,481 *
Matthias B. Bowman................ 7,824,062(5) 16.2 0 38,750 *
Michael J. Drabb(6)............... 10,000 * 0 10,000 *
Albert J. Fitzgibbons III......... 6,422,430(7) 13.3 0 7,750 *
Eric E. Glass(8).................. 7,900 * 0 7,900 *
Lewis Hay, III(9)................. 86,962 * 0 86,962 *
Mark P. Kaiser(10)................ 74,689 * 0 74,689 *
Paul I. Latta, Jr.(11)............ 6,250 * 0 6,250 *
George T. Megas(12)............... 32,962 * 0 32,962 *
James L. Miller(13)............... 335,041 * 0 335,041 *
James P. Miscoll(14).............. 11,157 * 0 11,157 *
Jeffrey D. Serkes(15)............. 5,250 * 0 5,250 *
Dean R. Silverman(16)............. 5,250 * 0 5,250 *
Bernard Sweet(17)................. 17,219 * 0 17,219 *
All directors and executive
officers as a group
(14 persons)(18)................. 8,477,559(5)(7) 17.4 0 668,661 1.4
</TABLE>
- --------
(footnotes on next page)
48
<PAGE>
- --------
(*) Represents holdings of less than 1%.
(1) Percentage of beneficial ownership as to any person as of a particular
date is calculated by dividing the number of shares beneficially owned by
that person by the sum of the number of shares outstanding as of such date
and the number of shares as to which that person has the right to acquire
voting or investment power within 60 days. Except as noted, all persons
listed above have sole voting and investment power with respect to their
shares. Information with respect to beneficial owners of more than 5% of
the common stock is based upon the most recent Schedule 13D or Schedule
13G on file with the SEC.
(2) The reporting persons (the "Merrill Lynch Entities") include the Merrill
Lynch selling stockholders and the following additional persons: Merrill
Lynch & Co., Inc., Merrill Lynch Group, Inc., Merrill Lynch MBP Inc.,
Merrill Lynch Capital Partners, Inc., ML Employees LBO Managers, Inc.,
Merrill Lynch LBO Partners No. IV, L.P., Merrill Lynch LBO Partners No. B-
IV, L.P. and KECALP Inc. Merrill Lynch & Co., Inc. and Merrill Lynch
Group, Inc. report that they each have shared voting and dispositive power
with respect to all of the shares shown and sole voting and dispositive
power with respect to none of the shares shown. The other Merrill Lynch
Entities report that they have shared voting and dispositive power with
respect to 7,808,898 of the shares shown and sole voting and dispositive
power with respect to none of the shares shown. Each Merrill Lynch Entity
disclaims beneficial ownership of all shares not held of record by such
Merrill Lynch Entity. The selling stockholders include the following
entities (the "Merrill Lynch selling stockholders"), each of which owned
of record the number of outstanding shares of common stock indicated after
its name: Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P.
(3,377,066), ML Offshore LBO Partnership No. B-XVIII (1,699,096), ML IBK
Positions, Inc. (1,116,140), MLCP Associates L.P. No. II (40,499), MLCP
Associates L.P. No. IV (10,520), Merrill Lynch KECALP L.P. 1994 (52,606),
Merrill Lynch KECALP L.P. 1991 (147,089), Merrill Lynch Capital
Appreciation Partnership No. XIII, L.P. (1,255,579), ML Offshore LBO
Partnership No. XIII (31,920), ML Employees LBO Partnership No. I, L.P.
(31,211), Merrill Lynch KECALP L.P. 1987 (23,586) and Merchant Banking
L.P. No. II (23,586).
(3) T. Rowe Price Associates, Inc. reports that it has sole dispositive power
with respect to all of the shares shown, sole voting power with respect to
475,278 of the shares shown and shared voting power with respect to none
of the shares shown.
(4) Includes (a) 209 shares credited to participant account in U.S.
Foodservice's 401(k) retirement savings plan (the "401(k) plan"), which
are voted by the plan's trustees, (b) outstanding options exercisable
within 60 days to purchase 26,128 shares and (c) 2,000 shares held by a
family trust for the benefit of Mr. Abramson's minor children, of which
Mr. Abramson acts as the trustee and with respect to which he exercises
voting and investment power.
(5) Mr. Bowman is a director and/or officer of each Merrill Lynch selling
stockholder or the ultimate general partner thereof, other than Merchant
Banking L.P. No. II, and under the rules and regulations of the SEC may be
deemed to be the beneficial owner of the shares of common stock
beneficially owned by the Merrill Lynch selling stockholders, other than
Merchant Banking L.P. No. II. Accordingly, those shares are included in
the table as beneficially owned by Mr. Bowman and for all directors and
executive officers as a group. Except with respect to 38,750 shares which
he owns directly, Mr. Bowman disclaims beneficial ownership of those
shares. The address of Mr. Bowman is c/o Merrill Lynch Capital Partners,
Inc., 225 Liberty Street, New York, New York 10080.
(6) Includes outstanding options exercisable within 60 days to purchase 9,000
shares.
(7) Mr. Fitzgibbons is a director of the ultimate general partner of some of
the Merrill Lynch selling stockholders and, thus, under the rules and
regulations of the SEC may be deemed to be the beneficial owner of the
shares of common stock beneficially owned by those Merrill Lynch selling
stockholders. Accordingly, those shares are included in the table as
beneficially owned by Mr. Fitzgibbons and for all directors and executive
officers as a group. Except with respect to 7,750 shares which he owns
directly, Mr. Fitzgibbons disclaims beneficial ownership of those shares.
The address of Mr. Fitzgibbons is c/o Merrill Lynch Capital Partners,
Inc., 225 Liberty Street, New York, New York 10080.
(8) Includes outstanding options exercisable within 60 days to purchase 7,500
shares.
(9) Includes (a) 772 shares credited to participant account in the 401(k) plan,
which are voted by the plan's trustees, and (b) outstanding options
exercisable within 60 days to purchase 67,307 shares. Also includes 381
shares held by Mr. Hay's wife as a custodian for their minor children. Mr.
Hay disclaims beneficial ownership of those shares.
(10) Includes (a) 590 shares credited to participant account in the 401(k)
plan, which are voted by the plan's trustees, and (b) outstanding options
exercisable within 60 days to purchase 28,260 shares.
(11) Includes outstanding options exercisable within 60 days to purchase 5,250
shares.
(12) Includes (a) 709 shares credited to a participant account in the 401(k)
plan, which are voted by the plan's trustees, and (b) outstanding options
exercisable within 60 days to purchase 17,202 shares.
(13) Includes (a) 11,745 shares credited to a participant account in the 401(k)
plan, which are voted by the plan's trustees, and (b) outstanding options
exercisable within 60 days to purchase 138,910 shares.
(14) Includes outstanding options exercisable within 60 days to purchase 9,220
shares.
(15) Includes outstanding options exercisable within 60 days to purchase 5,250
shares.
(16) Includes outstanding options exercisable within 60 days to purchase 5,250
shares.
(17) Includes (a) outstanding options exercisable within 60 days to purchase
9,220 shares and (b) 1,089 shares held of record by Mr. Sweet's wife.
(18) Includes outstanding options exercisable within 60 days to purchase
328,497 shares.
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Merrill Lynch Selling Stockholders
The Merrill Lynch selling stockholders are entities of which Merrill
Lynch Capital Partners or one of its affiliates is the direct or indirect
managing partner or controlling entity. Merrill Lynch Capital Partners
initiates and structures transactions commonly referred to as leveraged or
management buyouts involving publicly owned companies, privately owned
companies and subsidiaries and divisions of both publicly owned and privately
owned companies. Merrill Lynch Capital Partners manages a fund of equity
capital committed by institutional investors for investment in the equity
portion of leveraged buyout transactions.
The Merrill Lynch selling stockholders were issued the shares of common
stock offered by this prospectus upon conversion of their Rykoff-Sexton common
stock in JP Foodservice's acquisition of Rykoff-Sexton, which was consummated
on December 23, 1997. These selling stockholders obtained shares of USF through
prior investments in two independent broadline distributors dating back to 1988
and 1992 and received Rykoff-Sexton common stock in May 1996 when Rykoff-Sexton
acquired USF in a stock-for-stock transaction.
U.S. Foodservice has registered the shares of the Merrill Lynch selling
stockholders under a registration rights agreement among Rykoff-Sexton, the
Merrill Lynch selling stockholders and other former Rykoff-Sexton stockholders.
Upon consummation of the Rykoff-Sexton acquisition, U.S. Foodservice assumed
Rykoff-Sexton's rights and obligations under the registration rights agreement.
Under this agreement, U.S. Foodservice is obligated to pay all expenses of
registering the shares of the Merrill Lynch selling stockholders, except for
the underwriting discount.
As required by the merger agreement relating to the Rykoff-Sexton
acquisition, the U.S. Foodservice board of directors appointed two persons
designated by Merrill Lynch Capital Partners to the board of directors
following consummation of the Rykoff-Sexton acquisition. These designees are
Matthias B. Bowman and Albert J. Fitzgibbons III. As required by the merger
agreement, Merrill Lynch Capital Partners also has designated Mr. Bowman to
serve on the nominating committee of the board of directors.
U.S. Foodservice is entitled to the benefits of a standstill agreement
among Rykoff-Sexton and Merrill Lynch Capital Partners and the Merrill Lynch
selling stockholders (collectively, the "ML Entities"). The standstill
agreement imposes restrictions on the acquisition and transfer of U.S.
Foodservice voting securities by the ML Entities, requires all U.S. Foodservice
voting securities owned by the ML Entities and their affiliates, as a group, to
be voted for U.S. Foodservice's nominees to the board of directors, subject to
specified exceptions, and provides for representation of the ML Entities on the
U.S. Foodservice board of directors and specified board committees. No
designees of the ML Entities have been appointed or elected to the U.S.
Foodservice board of directors under the standstill agreement. The standstill
agreement will terminate upon consummation of the offerings.
Webb Foods Selling Stockholders
We issued a total of 896,057 shares of our common stock to J. Christopher
Reyes, M. Jude Reyes and David K. Reyes, who are former stockholders of Joseph
Webb Foods, Inc., in consideration for our acquisition of Joseph Webb Foods in
the second quarter of fiscal 1999. Before we acquired Joseph Webb Foods, J.
Christopher Reyes served as a director, President and Secretary of Joseph Webb
Foods, M. Jude Reyes served as a director and Vice President of Joseph Webb
Foods, and David K. Reyes served as a director, Vice President and Assistant
Treasurer of Joseph Webb Foods. We do not currently employ any of these
persons. We are obligated to issue additional shares to these selling
stockholders if the business we acquired from them achieves specified sales
targets.
U.S. Foodservice has registered the shares offered by the Webb Foods
selling stockholders under a registration rights agreement which we entered
into when we acquired Joseph Webb Foods. U.S. Foodservice will pay all expenses
of registering the shares of these selling stockholders, except for the
underwriting discount.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
U.S. Foodservice's authorized capital consists of 150,000,000 shares of
common stock, par value $.01 per share, of which 48,261,739 shares were
outstanding as of January 31, 1999, and 5,000,000 shares of preferred stock,
par value $.01 per share, no shares of which are outstanding. No series of
preferred stock has been designated other than 350,000 shares of Series A
Junior Participating Preferred Stock, par value $.01 per share, described
below.
The following summary description of our capital stock and our
shareholder rights plan is not complete and is subject to the provisions of the
U.S. Foodservice certificate of incorporation and bylaws, the rights agreement
described below and the provisions of applicable law. Copies of these documents
have been filed or incorporated by reference as exhibits to the registration
statement of which this prospectus is a part and may be obtained as described
under "Where You Can Find More Information."
Common Stock
Subject to any prior rights of any holders of preferred stock then
outstanding, holders of common stock are entitled to such dividends as may be
declared from time to time by the U.S. Foodservice board of directors out of
funds legally available for dividend payments. Each holder of common stock is
entitled to one vote for each share owned by the holder on all matters
submitted to a vote of common stockholders. Shares of common stock are not
entitled to any cumulative voting rights. If there is a liquidation,
dissolution or winding up of U.S. Foodservice, holders of common stock are
entitled to share equally and ratably in any assets remaining after the payment
of all debt and other liabilities, subject to the prior rights, if any, of
holders of preferred stock. Holders of common stock have no preemptive or other
subscription or conversion rights. The common stock is not subject to
redemption.
Preferred Share Purchase Rights
Each share of common stock has or will have attached to it one preferred
share purchase right, which we refer to as a right. Each right entitles the
registered holder of common stock to purchase from U.S. Foodservice, upon the
occurrence of specified events, one one-hundredth of a share of Series A Junior
Participating Preferred Stock of U.S. Foodservice, which we refer to as the
preferred shares, at a price of $95 per one one-hundredth of a preferred share,
subject to adjustment. The terms of the rights are set forth in a rights
agreement between U.S. Foodservice and The Bank of New York, as Rights Agent.
Until the distribution date described below, U.S. Foodservice will not
issue separate certificates evidencing the rights. Until that date, the rights
will be evidenced, with respect to any common stock certificate, by that common
stock certificate. The rights will detach from the common stock and a
distribution date will occur upon the earlier of:
. subject to the exceptions described below, the 10th day following a
public announcement that an "acquiring person," which, subject to the
exceptions listed in the following sentence, includes a person or
"group" of affiliated or associated persons, has acquired beneficial
ownership of 10% or more of the outstanding common stock, or
. the 10th business day, or a later date determined by the U.S.
Foodservice board of directors before the time any person or group
becomes an acquiring person, following the commencement by any person or
group of, or the first public announcement by any person or group of an
intention to make, a tender offer or exchange offer that would result
in:
. beneficial ownership by a group or person of 10% or more of the
outstanding common stock, or
. any person otherwise being deemed an acquiring person.
The term "acquiring person" does not include:
. U.S. Foodservice, any subsidiary of U.S. Foodservice, any employee
benefit plan of U.S. Foodservice or any subsidiary of U.S. Foodservice,
or any entity holding common stock for or under an employee benefit plan
of U.S. Foodservice or any of its subsidiaries; or
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<PAGE>
. Rykoff-Sexton or any ML Entity, but only to the extent that Rykoff-
Sexton or the relevant ML Entity would, absent this provision, be deemed
to be an acquiring person solely as the result of the execution and
delivery, in connection with the Rykoff-Sexton acquisition, of:
. the Agreement and Plan of Merger, dated as of June 30, 1997, as
amended,
. the Stock Option Agreement, dated as of June 30, 1997, by and
between U.S. Foodservice, as issuer, and Rykoff-Sexton, as grantee,
. the Support Agreement, as amended and restated as of June 30, 1997,
by and between U.S. Foodservice and the ML Entities, and
acknowledged by Rykoff-Sexton, or
. the consummation of the transactions contemplated by those
agreements.
References in this paragraph to beneficial ownership of 10% of the outstanding
common stock are references to 15% of the outstanding common stock with respect
to any person who is eligible to report its beneficial ownership of, or who
will or would be eligible upon acquisition of, equity securities of U.S.
Foodservice, including common stock, on Schedule 13G under the Securities
Exchange Act, and, without limiting the foregoing, with respect to whom clause
(i) of paragraph (b)(l) of Rule 13d-1 under the Securities Exchange Act is true
and correct.
The rights agreement provides that, until the distribution date, or
earlier redemption or expiration of the rights, the rights will be transferred
with and only with the common stock. Until the distribution date, or earlier
redemption or expiration of the rights, new common stock certificates issued
after March 1, 1996 upon transfer or new issuances of common stock will contain
a notation incorporating the rights agreement by reference, and the surrender
for transfer of any certificates for common stock outstanding as of March 1,
1996 also will constitute the transfer of the rights associated with the common
stock represented by that certificate. As soon as practicable following the
distribution date, separate certificates evidencing the rights will be mailed
to holders of record of the common stock as of the close of business on the
distribution date, and the separate right certificates alone will evidence the
rights. Only common stock issued before the distribution date will be issued
with rights.
The rights are not exercisable until the distribution date. The rights
will expire on February 19, 2006, unless the expiration date is extended or
unless the rights are earlier redeemed or exchanged by U.S. Foodservice, in
each case as described below.
The purchase price payable for the preferred shares, and the number of
preferred shares or other securities or property issuable, upon exercise of the
rights, as well as the number of rights outstanding, are subject to adjustment
from time to time pursuant to customary antidilution provisions. The number of
outstanding rights and the number of one one-hundredths of a preferred share
issuable upon exercise of each right are also subject to adjustment in the
event of a dividend or other distribution on the common stock payable in common
stock or in securities convertible into common stock or subdivisions,
consolidations or reclassifications of the common stock occurring, in any of
those cases, before the distribution date.
Preferred shares purchasable upon exercise of the rights will not be
redeemable. Each preferred share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share, but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of common
stock. If there is a liquidation, the holders of the preferred shares will be
entitled to a minimum preferential liquidation payment of $100 per share, but
will be entitled to an aggregate payment of 100 times the payment made per
share of common stock. Each preferred share will have 100 votes, voting
together with the common stock. If there is a merger, consolidation or other
transaction in which common stock is exchanged, each preferred share will be
entitled to receive 100 times the amount received per share of common stock.
These rights are protected by customary antidilution provisions. Because of the
nature of the dividend, liquidation and voting rights of the preferred shares,
the value of the one one-hundredth interest in a preferred share purchasable
upon exercise of each right should approximate the value of one share of common
stock.
If any person or group becomes an acquiring person, proper provision will
be made so that each holder of a right, other than rights beneficially owned by
the acquiring person, which will become null and void, will have the right to
receive upon exercise of the right at the then-current exercise price, instead
of preferred shares, that number of shares of common stock having a market
value of two times the exercise price
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<PAGE>
of the right. If U.S. Foodservice does not have sufficient common stock issued
but not outstanding, or authorized but unissued, to permit the exercise in full
of the rights, U.S. Foodservice will be required to take all action necessary
to authorize additional common stock for issuance upon exercise of the rights.
If, after a good-faith effort, U.S. Foodservice is unable to take all necessary
action, U.S. Foodservice will substitute, for each share of common stock that
would otherwise be issuable upon exercise of a right, a number of preferred
shares, or fractional preferred shares, with the same market value as that
share of common stock.
If, after a person or group has become an acquiring person, U.S.
Foodservice is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a right, other than rights
beneficially owned by the acquiring person, which will become null and void,
will have the right to receive, upon the exercise of the right at its then-
current exercise price and instead of preferred shares, that number of shares
of common stock of the acquiring company, or its parent, which at the time of
the transaction will have a market value of two times the exercise price of the
right.
The exercise price of a right at any date will be equal to the purchase
price at that date multiplied by the number of one one-hundredths of a
preferred share for which a right is exercisable at such date.
At any time after any person or group becomes an acquiring person and
before the acquisition by that person or group of 50% or more of the
outstanding common stock, the U.S. Foodservice board of directors may exchange
the rights, in whole or in part, for common stock at an exchange ratio of one
share of common stock for each right, subject to adjustment. The U.S.
Foodservice board of directors will not exchange the rights owned by the
acquiring person or group, which will have become null and void.
With specified exceptions, no adjustment in the purchase price for the
preferred shares will be required until cumulative adjustments require an
adjustment of at least 1% of that purchase price. No fractional preferred
shares will be issued, other than fractions which are integral multiples of one
one-hundredth of a preferred share, which may, at the election of U.S.
Foodservice, be evidenced by depositary receipts. Instead of issuing fractional
preferred shares, U.S. Foodservice will make an adjustment in cash based on the
market price of the preferred shares on the last trading day prior to the date
of exercise.
Upon approval by its board of directors, U.S. Foodservice may redeem the
rights in whole, but not in part, at any time before any person or group
becomes an acquiring person, at a price of $.01 per right. The redemption of
the rights may be made effective at such time, on such basis and with such
conditions as the board of directors may establish in its sole discretion.
Immediately upon the action of the board of directors ordering redemption of
the rights, the right to exercise the rights will terminate and the only right
of the holders of the rights will be to receive the redemption price specified
above.
Until a right is exercised, the holder of the right, in the capacity of a
holder, will have no rights as a stockholder of U.S. Foodservice, including,
without limitation, the right to vote or to receive dividends. Although the
distribution of the rights will not be taxable to stockholders or to U.S.
Foodservice, stockholders may, depending upon the circumstances, recognize
taxable income in the event that the rights become exercisable for common stock
of U.S. Foodservice or other consideration, or for common stock of the
acquiring company or its parent as set forth above.
The rights agreement may be amended or supplemented by U.S. Foodservice
from time to time without the approval of any holders of rights to cure any
ambiguity, to correct or supplement any defective or inconsistent provisions,
or to make any other provisions with respect to the rights which U.S.
Foodservice may deem necessary or desirable, provided that, from and after the
time that any person or group becomes an acquiring person, the rights agreement
may not be amended in any manner which would adversely affect the interest of
the holders of rights.
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Preferred Stock
Under the U.S. Foodservice certificate of incorporation, the board of
directors has the authority, without further action by U.S. Foodservice
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the voting powers, designations, preferences and the relative
participating, optional or other special rights and qualifications, limitations
and restrictions of each series, including dividend rights, conversion rights,
voting rights, terms of redemption, liquidation preferences and the number of
shares constituting any series. To date, the board of directors has fixed only
the terms of the preferred shares issuable upon exercise of the rights. Because
the board of directors has the power to establish the preferences and rights of
the shares of any additional series of preferred stock, it may afford holders
of any preferred stock preferences, powers and rights, including voting rights,
senior to the rights of holders of the common stock, which could adversely
affect the holders of the common stock.
Anti-Takeover Effect of Our Charter and Bylaw Provisions
The U.S. Foodservice certificate of incorporation and bylaws contain
certain provisions that could make it more difficult to consummate an
acquisition of U.S. Foodservice by means of a tender offer, a proxy contest or
otherwise.
Classified Board of Directors. The certificate of incorporation and
bylaws provide that the board of directors will be divided into three classes
of directors, with the classes as nearly equal in number as possible. As a
result, approximately one-third of the board of directors will be elected each
year. The classification of the board of directors will make it more difficult
for an acquiror or for other stockholders to change the composition of the
board of directors. The certificate of incorporation provides that, subject to
any rights of holders of preferred stock to elect additional directors under
specified circumstances, the number of directors will be fixed in the manner
provided in the bylaws. The bylaws provide that, subject to any rights of
holders of preferred stock to elect directors under specified circumstances,
the number of directors will be fixed from time to time exclusively by a
resolution adopted by directors constituting a majority of the total number of
directors that U.S. Foodservice would have if there were no vacancies on the
board of directors. In addition, the certificate of incorporation provides
that, subject to any rights of holders of preferred stock, and unless the board
of directors otherwise determines, any vacancies will be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum.
No Stockholder Action by Written Consent. The certificate of
incorporation provides that, subject to the rights of any holders of preferred
stock to act by written consent instead of a meeting, stockholder action
may be taken only at an annual meeting or special meeting of stockholders and
may not be taken by written consent instead of a meeting. Failure to satisfy
any of the requirements for a stockholder meeting could delay, prevent or
invalidate stockholder action.
Stockholder Advance Notice Procedure. The certificate of incorporation
establishes an advance notice procedure for stockholders to make nominations of
candidates for election as directors or to bring other business before an
annual meeting of U.S. Foodservice stockholders. The stockholder notice
procedure provides that only persons that are nominated by a majority of the
board of directors, or a duly authorized board committee, or by a stockholder
who has given timely written notice to the secretary of U.S. Foodservice before
the meeting at which directors are to be elected, will be eligible for election
as directors. This notice is required to include specified information about
the stockholder and each proposed director nominee, a description of all
arrangements or understandings between the stockholder and each proposed
nominee and any other persons, other information regarding each proposed
nominee that would be required to be included in a proxy statement filed under
SEC rules and regulations, and the written consent of each proposed nominee to
serve as a director if elected. The stockholder notice procedure also provides
that the only business that may be conducted at an annual meeting is business
which has been brought before the meeting by, or at the direction of, the board
of directors or by a stockholder who has given timely written notice to the
secretary of U.S. Foodservice. This
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<PAGE>
notice is required to include a brief description of the business desired to be
brought before the meeting, any material interest of the stockholder in that
business, and specified information about the stockholder and the stockholder's
ownership of U.S. Foodservice capital stock.
Section 203 of the Delaware General Corporation Law
U.S. Foodservice is subject to section 203 of the Delaware general
corporation law, which, with specified exceptions, prohibits a Delaware
corporation from engaging in any "business combination" with any "interested
stockholder" for a period of three years following the time that the
stockholder became an interested stockholder unless:
. before that time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. at or after that time, the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Section 203 defines "business combination" to include the following:
. any merger or consolidation of the corporation with the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to specified exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or
. any receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by that entity or person.
Director Liability and Indemnification of Directors and Officers
The Delaware general corporation law provides that a corporation may
eliminate or limit the personal liability of each director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director except for liability for any breach of the director's duty of loyalty
to the corporation or its stockholders, for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, in
respect of unlawful dividend payments or stock redemptions or repurchases and
for any transaction from which the director derives an improper personal
benefit. The U.S. Foodservice certificate of incorporation provides for the
elimination and limitation of the personal liability of directors for monetary
damages to the fullest extent permitted by the Delaware general corporation
law. In addition, the certificate of incorporation provides that if the
Delaware general corporation law is amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
the directors will be eliminated or limited to the fullest extent permitted by
the Delaware general corporation law, as so amended. The effect of this
provision is to eliminate the rights of U.S. Foodservice and its stockholders,
through stockholder derivative suits on behalf of U.S. Foodservice, to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director, including breaches resulting from negligent or grossly negligent
behavior, except in the situations described above. The provision does not
limit or eliminate the rights of U.S. Foodservice or any stockholder to seek
non-monetary relief such as an injunction or rescission upon breach of a
director's duty of
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<PAGE>
care. This provision is consistent with section 102(b)(7) of the Delaware
general corporation law, which is designed, among other things, to encourage
qualified individuals to serve as directors of Delaware corporations.
The U.S. Foodservice bylaws provide that U.S. Foodservice will, to the
full extent permitted by the Delaware general corporation law, as amended from
time to time, indemnify, and advance expenses to, each of its currently acting
and former directors and officers.
Listing of Common Stock
The common stock is listed on the New York Stock Exchange under the
symbol "UFS."
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C. serves as transfer agent and
registrar for the common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
As of January 31, 1999, there were approximately 48.3 million outstanding
shares of common stock. All of the shares offered by this prospectus will be
freely transferable without restriction or further registration under the
Securities Act, except that any shares held by a U.S. Foodservice "affiliate,"
as that term is defined under Rule 144 under the Securities Act, will be
subject to the resale limitations of Rule 144. Of U.S. Foodservice's
outstanding shares, other than the shares offered by this prospectus,
approximately 2 million shares were "restricted securities" within the meaning
of Rule 144 or otherwise subject to restrictions on sale under the Securities
Act at January 31, 1999. These shares may not be sold except in compliance with
the registration requirements of the Securities Act or in accordance with an
exemption from registration, such as the exemption provided by Rule 144. As of
January 31, 1999, other than the shares offered by this prospectus,
approximately 1.4 million of these shares were eligible for sale in the public
market under Rule 144 and approximately 600,000 shares were covered by the
registration statement referred to below.
In general, under Rule 144 as currently in effect, a stockholder, or
stockholders whose shares are aggregated, including an affiliate of U.S.
Foodservice, who has beneficially owned "restricted securities" for at least
one year is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of:
. 1% of the then-outstanding shares of common stock, or approximately
483,000 shares as of January 31, 1999, or
. the average weekly trading volume of the common stock on the New York
Stock Exchange during the four calendar weeks preceding the filing of a
notice on Form 144 with the SEC regarding the sale.
Sales under Rule 144 also are subject to other requirements regarding the
manner of sale, notice and availability of current public information about
U.S. Foodservice. Shares held by affiliates that are not "restricted
securities" are subject to the foregoing requirements of Rule 144 other than
the one-year holding period. Under Rule 144(k), if a period of at least two
years has elapsed since the later of the date restricted securities were
acquired from U.S. Foodservice and the date they were acquired from an
affiliate of U.S. Foodservice, a stockholder who is not an affiliate of U.S.
Foodservice at the time of sale and has not been an affiliate at any time
during the three months before the sale would be entitled to sell shares of
common stock immediately without compliance with the volume limitations and
other conditions of Rule 144. This summary is not a complete description of
Rule 144.
U.S. Foodservice has granted registration rights with respect to the
common stock primarily to holders of common stock U.S. Foodservice issued in
connection with its acquisition of other foodservice businesses. The offerings
are being made following the exercise of these registration rights. As of
January 31, 1999, in addition to the shares offered by this prospectus,
approximately 600,000 shares of common stock were entitled to the benefits of
these registration rights, all of which were shares covered by a registration
statement which was in effect under the Securities Act. The exercise of
registration rights granted by U.S. Foodservice is subject to notice
requirements, timing restrictions and volume limitations which may be imposed
by the underwriters of an offering. U.S. Foodservice is required to bear the
expenses of all these registrations, except for underwriting discounts and
commissions. We expect to grant registration rights to the stockholders of
other foodservice businesses we may acquire in the future.
U.S. Foodservice and the selling stockholders have entered into "lock-up"
agreements with the underwriters. These persons have agreed, among other
things, not to directly or indirectly offer, sell or otherwise dispose of or
transfer any shares of common stock without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the
underwriters, for a period of 90 days after the date of this prospectus,
subject to exceptions. For more information about the lock-up agreements, see
"Underwriting." With this consent, U.S. Foodservice and the selling
stockholders may sell shares before the expiration of the lock-up period
without prior notice to the other stockholders of U.S. Foodservice or to any
public market in which the common stock trades.
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We can make no prediction as to the effect, if any, that future sales of
shares of common stock or the availability of shares for future sale will have
on the market price of the common stock prevailing from time to time. Sales of
substantial amounts of common stock, or the perception that these sales could
occur, could adversely affect the prevailing market prices of the common stock
and impair the ability of U.S. Foodservice to raise capital through future
offerings of equity securities.
U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of selected United States federal
income and estate tax consequences of the ownership and disposition of U.S.
Foodservice common stock. For purposes of the following discussion, a "non-U.S.
holder" is any beneficial owner of common stock other than a person that is for
United States federal income tax purposes:
. a citizen or resident of the United States;
. a corporation, partnership or other entity treated as a corporation or
partnership for federal tax purposes, created or organized in or under
the laws of the United States, any state thereof or the District of
Columbia, other than a partnership that is not treated as a United
States person under any applicable Treasury regulations;
. an estate whose income is subject to United States federal income tax
regardless of its source; or
. a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust. In addition, some trusts treated as United States persons
for federal income tax purposes on August 20, 1996 may elect to continue
to be so treated to the extent permitted in applicable Treasury
regulations and will not be non-U.S. holders if they make such an
election.
This discussion does not address all aspects of United States federal income
and estate taxes and does not deal with foreign, state and local consequences
that may be relevant to such holders of common stock in light of their personal
circumstances. Furthermore, this discussion is based on provisions of the
Internal Revenue Code of 1986, as amended, existing and proposed regulations
issued under the Internal Revenue Code and administrative and judicial
interpretations of the Internal Revenue Code and those regulations, as of the
date hereof, all of which are subject to change. We advise each prospective
purchaser of U.S. Foodservice common stock in the offerings to consult a tax
advisor with respect to current and possible future tax consequences of
acquiring, holding and disposing of common stock as well as any tax
consequences that may arise under the laws of any U.S. state, municipality or
other taxing jurisdiction.
Dividends
U.S. Foodservice does not currently pay cash dividends on its common
stock. For a description of U.S. Foodservice's dividend policy, see "Price
Range of Common Stock and Dividend Policy." Dividends paid to a non-U.S. holder
of common stock generally will be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. However, dividends that are effectively connected
with the conduct of a trade or business by the non-U.S. holder within the
United States are not subject to the withholding tax, but instead are subject
to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates. Any such effectively connected
dividends received by a foreign corporation may, under some circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty.
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<PAGE>
Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of such country, unless the payer has
knowledge to the contrary, for purposes of the withholding tax discussed above
and, under the current interpretation of United States Treasury regulations,
for purposes of determining the applicability of a tax treaty rate. Under final
United States Treasury regulations issued on October 7, 1997, effective for
payments made after December 31, 1999, a non-U.S. holder of common stock who
wishes to claim the benefit of an applicable treaty rate, and avoid back-up
withholding as discussed below, would be required to satisfy applicable
certification and other requirements. Currently, a non-U.S. holder must comply
with certification and disclosure requirements to be exempt from withholding
under the effectively connected income exemption discussed above.
A non-U.S. holder of common stock eligible for a reduced rate of United
States withholding tax under an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.
Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
U.S. Foodservice common stock unless:
1. the gain is effectively connected with a trade or business of the non-
U.S. holder in the United States;
2. in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions are met; or
3. U.S. Foodservice is or has been a "U.S. real property holding
corporation" for United States federal income tax purposes at any time
within the shorter of the five-year period preceding such disposition or
the period the non-U.S. holder held the common stock.
U.S. Foodservice has not determined whether it is or has been within the
prescribed period a "U.S. real property holding corporation" for federal income
tax purposes. If U.S. Foodservice is, has been or becomes a U.S. real property
holding corporation, so long as the common stock continues to be regularly
traded on an established securities market within the meaning of section
897(c)(3) of the Internal Revenue Code, only a non-U.S. holder who holds or
held, at any time during the shorter of the five-year period preceding the date
of disposition or the holder's holding period, more than 5% of the common stock
will be subject to U.S. federal income tax on the disposition of the common
stock.
An individual non-U.S. holder described in clause 1 above will be taxed
on the net gain derived from the sale under regular graduated United States
federal income tax rates. An individual non-U.S. holder described in clause 2
above will be subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States capital losses, notwithstanding the fact
that the individual is not considered a resident of the United States. If a
non-U.S. holder that is a foreign corporation falls under clause 1 above, it
will be taxed on its gain under regular graduated United States federal income
tax rates and, in addition, may be subject to the branch profits tax equal to
30% of its effectively connected earnings and profits within the meaning of the
Internal Revenue Code for the taxable year, as adjusted for specified items,
unless it qualifies for a lower rate under an applicable income tax treaty.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is not a
citizen or resident, as defined for either United States federal income or
estate tax purposes, of the United States at the time of death will be
includable in the individual's gross estate for United States federal estate
tax purposes unless an applicable estate tax treaty provides otherwise, and
therefore may be subject to United States federal estate tax.
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Information Reporting and Backup Withholding Tax
U.S. Foodservice must report annually to the IRS and to each non-U.S.
holder the amount of dividends paid to such holder and the tax withheld with
respect to such dividends, regardless of whether withholding was required.
Copies of the information returns reporting such dividends and withholding also
may be made available to the tax authorities in the country in which the non-
U.S. holder resides under the provisions of an applicable income tax treaty.
Under current law, backup withholding, which generally is a withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements, generally will not apply to:
. dividends paid to non-U.S. holders that are subject to withholding at
the 30% rate, or lower treaty rate, discussed above; or
. dividends paid to a non-U.S. holder at an address outside the United
States, unless the payer has knowledge that the payee is a U.S. person.
Under the final United States Treasury regulations, however, a non-U.S. holder
generally will be subject to back-up withholding at a 31% rate unless it meets
applicable certification requirements.
Payment of the proceeds of a sale of common stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a non-U.S. holder, or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of common stock by or through a foreign office of a broker.
If, however, the broker is, for United States federal income tax purposes a
U.S. person, a controlled foreign corporation, or a foreign person that derives
50% or more of its gross income for specified periods from the conduct of a
trade or business in the United States, such payments will be subject to
information reporting, but not backup withholding, unless:
. the broker has documentary evidence in its records that the beneficial
owner is a non-U.S. holder and other conditions are met; or
. the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as
a refund or a credit against the holder's United States federal income tax
liability if the required information is furnished to the IRS.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co.,
Salomon Smith Barney Inc., J.C. Bradford & Co. and First Union Capital Markets
Corp. are acting as U.S. representatives of each of the U.S. underwriters named
below. In a U.S. purchase agreement among U.S. Foodservice, the selling
stockholders and the U.S. underwriters, the selling stockholders have agreed to
sell to the U.S. underwriters, and each of the U.S. underwriters, severally and
not jointly, has agreed to purchase from the selling stockholders, the number
of shares of common stock shown opposite its name below. The obligations of the
several U.S. underwriters to purchase these shares are subject to terms and
conditions contained in the U.S. purchase agreement.
<TABLE>
<CAPTION>
Number
U.S. Underwriter of Shares
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
Goldman, Sachs & Co..............................................
Salomon Smith Barney Inc.........................................
J.C. Bradford & Co...............................................
First Union Capital Markets Corp.................................
---------
Total....................................................... 6,956,757
=========
</TABLE>
U.S. Foodservice and the selling stockholders have also entered into an
international purchase agreement with a group of international managers outside
the United States and Canada for whom Merrill Lynch International, Goldman
Sachs International, Salomon Brothers International Limited and J.C. Bradford &
Co. are acting as lead managers. Concurrently with the sale of 6,956,757 shares
of common stock to the U.S. underwriters as described above, the selling
stockholders have agreed to sell to the international managers, and
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the international managers, severally and not jointly, have agreed to purchase
from the selling stockholders, a total of 1,739,189 shares of common stock. The
obligations of the several international managers to purchase these shares are
subject to terms and conditions contained in the international purchase
agreement. The initial public offering price per share and the total
underwriting discount per share of common stock are identical under the U.S.
purchase agreement and the international purchase agreement.
In the U.S. purchase agreement, the several U.S. underwriters have agreed
to purchase all of the shares of common stock being sold under that agreement
if any of those shares are purchased. In the international purchase agreement,
the several international managers have agreed to purchase all of the shares of
common stock being sold under that agreement if any of those shares are
purchased. The agreements of the several U.S. underwriters and international
managers to purchase shares are subject to terms and conditions contained in
the purchase agreements. If there is a default by a U.S. underwriter or an
international manager, the U.S. purchase agreement and the international
purchase agreement provide that the purchase commitments of the non-defaulting
U.S. underwriters or the non-defaulting international managers may be increased
or the purchase agreements may be terminated. The closings for the sale of
shares of common stock to be purchased by the U.S. underwriters and the
international managers are conditioned upon one another.
The U.S. representatives have advised U.S. Foodservice and the selling
stockholders that the U.S. underwriters propose initially to offer the shares
of common stock to the public at the initial public offering price appearing on
the cover page of this prospectus, and to selected dealers at that price less a
concession that will not exceed $ per share of common stock. The U.S.
underwriters may allow, and those dealers may reallow, a discount that will not
exceed $ per share of common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may change.
U.S. Foodservice has granted options to the U.S. underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to a
total of 1,043,513 additional shares of common stock at the public offering
price appearing on the cover page of this prospectus, less the underwriting
discount. The U.S. underwriters may exercise these options solely to cover
over-allotments, if any, made on the sale of the common stock offered by this
prospectus. If the U.S. underwriters exercise these options, each U.S.
underwriter will be obligated to purchase a pro rata portion, based upon the
number of shares shown opposite its name in the foregoing table, of the
additional shares. U.S. Foodservice has granted options to the international
managers, exercisable for 30 days after the date of this prospectus, to
purchase up to a total of 260,878 additional shares of common stock to cover
over-allotments, if any, on terms similar to those granted to the U.S.
underwriters.
The following table shows the per share and total public offering price,
the underwriting discount to be paid to the U.S. underwriters and the
international managers, and the proceeds before expenses to the selling
stockholders and, if the over-allotment options are exercised in full, to U.S.
Foodservice. This information is presented assuming either no exercise or full
exercise by the U.S. underwriters and the international managers of their over-
allotment options.
<TABLE>
<CAPTION>
Total
-----
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price................................ $ $ $
Underwriting discount................................ $ $ $
Proceeds to selling stockholders..................... $ $ $
Proceeds, before expenses, to U.S. Foodservice....... $ $ $
</TABLE>
The expenses of the offerings, exclusive of the underwriting discount,
are estimated at $0.9 million and are payable by U.S. Foodservice.
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The shares of common stock are being offered by the several U.S.
underwriters and the several international managers, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of legal
matters by their counsel and other conditions. The U.S. underwriters and the
international managers reserve the right to withdraw, cancel or modify this
offer and to reject orders in whole or in part.
U.S. Foodservice and the selling stockholders have agreed not to directly
or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of common stock or securities convertible into or exchangeable or
exercisable for or repayable with common stock, whether now owned or
later acquired by the person executing the agreement or as to which the
person executing the agreement acquires the power of disposition, or
file or cause the filing of a registration statement under the
Securities Act with respect to any of the foregoing; or
. enter into any swap or other agreement or transaction that transfers, in
whole or in part, the economic consequence of ownership of the common
stock or any securities convertible into or exchangeable or exercisable
for or repayable with common stock;
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated for a period of 90 days after the date of this prospectus. With
this consent, U.S. Foodservice and the selling stockholders may sell shares
before the expiration of the 90-day period without prior notice to the other
stockholders of U.S. Foodservice or to any public market in which the common
stock trades. The foregoing lock-up agreements provide, however, that U.S.
Foodservice may do the following:
1. . issue common stock under its employee or director stock, bonus or
compensation plans, or grant options to purchase common stock or
other awards under those plans, in each case as those plans are in
effect on the date of this prospectus, and
. file one or more registration statements on Form S-8 covering the
offering and sale of securities issuable under those plans;
2. . issue common stock or securities convertible into or exchangeable
or exercisable for or repayable with common stock to owners of
businesses which U.S. Foodservice may acquire in the future,
whether by merger, acquisition of assets or capital stock or
otherwise, as consideration for the acquisition of those businesses
or to management employees of those businesses in connection with
those acquisitions,
. enter into and implement price protection arrangements in
connection with those acquisitions, and
. file one or more registration statements on Form S-4 covering the
offering and sale of common stock or other securities by U.S.
Foodservice to those owners in connection with those acquisitions;
3. in connection with the future acquisition of any business, whether by
merger, acquisition of assets or capital stock or otherwise, that has
outstanding warrants, options or other securities convertible into or
exchangeable or exercisable for or repayable with common stock or other
equity securities, or that maintains employee or director bonus or
compensation plans providing for the issuance of common stock or options
to purchase common stock or other awards,
. issue substantially similar new warrants, options or other
securities to replace the outstanding options, warrants or other
securities of the acquired business,
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. assume the obligations of the acquired business under its
outstanding warrants, options or other securities or plans,
. issue common stock under any of those warrants, options or other
securities, as in effect on the date of issuance or assumption,
. grant options to purchase common stock or other awards and issue
common stock under any of those plans, as in effect on the date of
acquisition, and
. file one or more registration statements on Form S-8 covering the
offering and sale of securities issuable under those plans;
4. . issue common stock under acquisition agreements existing on the
date of this prospectus which were entered into by U.S. Foodservice
to acquire Lone Star Institutional Grocers, J.H. Haar & Sons and
Joseph Webb Foods, as described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--
Introduction," as those agreements are in effect on the date of
this prospectus, and
. implement price protection provisions contained in those
agreements;
5. issue common stock upon exercise of an outstanding warrant to purchase
71,460 shares of common stock as of January 31, 1999, subject to
antidilution adjustments, as that warrant is in effect on the date of
this prospectus; and
6. file one or more shelf registration statements covering the resale of:
. common stock issued to owners of businesses acquired by U.S.
Foodservice before the date of this prospectus or to the owner of
the warrant referred to in subparagraph 5 above under registration
rights agreements existing on the date of this prospectus, as those
agreements are in effect on the date of this prospectus, and
. common stock issued in accordance with subparagraph 2 above to
owners of businesses acquired by U.S. Foodservice after the date of
this prospectus, whether by merger, acquisition of assets or capital
stock or otherwise, as consideration for the acquisition of those
businesses under registration rights agreements entered into in
connection with those acquisitions.
The foregoing lock-up agreement also provides that each selling stockholder,
other than the Merrill Lynch selling stockholders, may:
. transfer common stock to the Company or any of its subsidiaries or
to a trust for the benefit of the selling stockholder or the spouse
or lineal descendants of the selling stockholder, and
. transfer common stock by gift, will or interstate succession to the
spouse or lineal descendants of the selling stockholder,
provided, in each case, that as a condition to the transfer and before it
occurs, the transferee, or the trustee or legal guardian on behalf of the
transferee, executes and delivers to Merrill Lynch, Pierce, Fenner & Smith
Incorporated a lock-up agreement containing the same terms.
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the terms of the intersyndicate agreement, the U.S.
underwriters and the international managers are permitted to sell shares of
common stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession.
64
<PAGE>
Under the terms of the intersyndicate agreement, the U.S. underwriters and any
dealers to whom they sell shares of common stock will not offer or sell shares
of common stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to non-U.S. or non-Canadian persons. The
intersyndicate agreement also provides that the international managers and any
dealers to whom they sell shares of common stock will not offer or sell shares
of common stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. or Canadian persons. However, these
limitations on offers and sales do not apply to transactions under the
intersyndicate agreement.
The U.S. underwriters and the international managers will not confirm
sales of the common stock to any account over which they exercise discretionary
authority without the prior specific written approval of the customer.
Because U.S. Foodservice may be deemed to be an affiliate of or to have a
conflict of interest with Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Merrill Lynch International, the offerings will be conducted in accordance
with Conduct Rule 2720 of the National Association of Securities Dealers, Inc.
U.S. Foodservice and the selling stockholders have agreed to indemnify
the U.S. underwriters and the international managers against specified
liabilities, including liabilities under the Securities Act. U.S. Foodservice
and the selling stockholders have also agreed to contribute to payments the
U.S. underwriters and international managers may be required to make in respect
of those liabilities.
Until the distribution of the common stock is completed, SEC rules may
limit the ability of the U.S. underwriters, the international managers and
selling group members to bid for and purchase the common stock. As an exception
to these rules, the U.S. representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.
If the U.S. underwriters or the international managers create a short
position in the common stock in connection with the offerings, which would
occur if they sell more shares of common stock than are set forth on the cover
page of this prospectus, the U.S. representatives may reduce that short
position by purchasing common stock in the open market. The U.S.
representatives may also elect to reduce any short position by exercising all
or part of the over-allotment options described above.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of those purchases.
Neither U.S. Foodservice nor any of the U.S. underwriters or
international managers makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the common stock. In addition, neither U.S. Foodservice
nor any of the U.S. underwriters or international managers makes any
representation that the U.S. representatives will engage in those transactions
or that those transactions, once commenced, will not be discontinued without
notice.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch
International may use this prospectus for offers and sales related to market-
making transactions in common stock. Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch International may act as principal or agent in
these transactions, and the sales will be made at market prices or at
negotiated prices related to prevailing market prices at the time of sale.
Some of the U.S. underwriters or the international managers and their
affiliates engage in transactions with, and perform services for, U.S.
Foodservice, and have engaged, and may in the future engage, in commercial
banking and investment banking transactions with U.S. Foodservice. Some of the
selling
65
<PAGE>
stockholders are affiliates of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch International. For a discussion of these
relationships, see "Principal and Selling Stockholders."
66
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act. Our Securities
Exchange Act file number for our SEC filings is 0-24954. You may read and copy
any document we file at the following SEC public reference rooms in Washington,
D.C. and at the following SEC regional offices:
<TABLE>
<CAPTION>
<S> <C> <C>
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. New York, New York Chicago, Illinois
20549 10048 60661
</TABLE>
You may obtain information on the operation of the public reference rooms
by calling the SEC at 1-800-SEC-0330.
We file information electronically with the SEC. Our SEC filings also are
available from the SEC's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements, and other information regarding
issuers that file electronically.
You also may inspect our SEC filings and other information concerning
U.S. Foodservice at the offices of the New York Stock Exchange located at 20
Broad Street, New York, New York 10005.
This prospectus is part of a registration statement we filed with the
SEC. The SEC allows us to "incorporate by reference" some of the documents we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act until the offerings are terminated:
1. our Annual Report on Form 10-K for our fiscal year ended June 27, 1998,
which we filed on September 25, 1998, including the information we
incorporated by reference in our Form 10-K from our definitive proxy
statement for our 1998 annual meeting of stockholders, which we filed on
October 9, 1998;
2. our first amendment to our Annual Report on Form 10-K/A-1, which we
filed on January 14, 1999, and our second amendment to our Annual Report
on Form 10-K/A-2, which we filed on March 4, 1999;
3. our Quarterly Report on Form 10-Q for our fiscal quarter ended September
26, 1998, which we filed on November 10, 1998, and our Quarterly Report
on Form 10-Q for our fiscal quarter ended December 26, 1998, which we
filed on February 9, 1999;
4. our amendment to our Quarterly Report on Form 10-Q/A-1 for our fiscal
quarter ended September 26, 1998, which we filed on January 14, 1999;
and
5. our Current Reports on Form 8-K which we filed on September 11, 1998 and
December 18, 1998.
We will provide a copy of the information we incorporate by reference, at
no cost, to each person to whom this prospectus is delivered. To request a copy
of any or all of this information, you should write or telephone us at the
following address and telephone number:
Investor Relations
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, Maryland 21046
Telephone: (410) 312-7100
67
<PAGE>
LEGAL MATTERS
Hogan & Hartson L.L.P., Washington, D.C., will give its opinion as to the
validity of the shares offered by this prospectus. Brown & Wood LLP, San
Francisco, California, will act as counsel to the Underwriters.
EXPERTS
U.S. Foodservice. The consolidated financial statements of U.S.
Foodservice and subsidiaries as of June 28, 1997 and June 27, 1998 and for the
years then ended have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of U.S. Foodservice, formerly JP
Foodservice, Inc., for the year ended June 29, 1996 prior to restatement for
the Acquisition and included in the consolidated financial statements of U.S.
Foodservice for the year ended June 29, 1996 appearing elsewhere herein, have
been included in this prospectus in reliance on the report of
PricewaterhouseCoopers LLP, independent public accountants, appearing elsewhere
herein and given on the authority of said firm as experts in auditing and
accounting.
Valley Industries, Inc. The combined financial statements of Valley
Industries, Inc. and subsidiaries and Z Leasing Company, a general partnership,
for the year ended January 31, 1996, included in the consolidated financial
statements of U.S. Foodservice for the year ended June 29, 1996 appearing
elsewhere herein, have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.
Rykoff-Sexton. The audited consolidated financial statements of Rykoff-
Sexton and subsidiaries as of June 28, 1997 and for the fiscal years ended June
28, 1997 and April 27, 1996 and the nine-week transition period ended June 29,
1996 included in the consolidated financial statements of U.S. Foodservice as
of June 29, 1997 and for the two-year period then ended appearing elsewhere
herein, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
68
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Reports........................................... F-2
Consolidated Balance Sheets as of June 28, 1997 and June 27, 1998....... F-6
Consolidated Statements of Operations for the fiscal years ended June
29, 1996, June 28, 1997 and June 27, 1998.............................. F-7
Consolidated Statements of Stockholders' Equity for the fiscal years
ended June 29, 1996, June 28, 1997 and June 27, 1998................... F-8
Consolidated Statements of Cash Flows for the fiscal years ended June
29, 1996, June 28, 1997 and June 27, 1998.............................. F-9
Notes to Consolidated Financial Statements.............................. F-10
Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheet as of December 26, 1998............ F-29
Condensed Consolidated Statements of Operations and Comprehensive Income
(Loss) for the six months ended December 27, 1997 and December 26,
1998................................................................... F-30
Condensed Consolidated Statements of Cash Flows for the six months ended
December 27, 1997 and December 26, 1998................................ F-31
Notes to Condensed Consolidated Financial Statements.................... F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
U.S. Foodservice:
We have audited the accompanying consolidated balance sheets of U.S.
Foodservice (formerly JP Foodservice, Inc.) and subsidiaries as of June 28,
1997 and June 27, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the consolidated
financial statements of Rykoff-Sexton, Inc. as of and for the year ended June
28, 1997, which consolidated financial statements reflect total assets
constituting 70 percent, net sales constituting 67 percent and net income
constituting 42 percent of the related 1997 consolidated financial statement
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion on the 1997 consolidated financial statements,
insofar as it relates to the amounts included for Rykoff-Sexton, Inc., is based
solely on the report of other auditors.
The consolidated financial statements of U.S. Foodservice and
subsidiaries for the year ended June 29, 1996, prior to their restatement for
the pooling of interests transaction described in note 3 to the consolidated
financial statements, were audited by other auditors whose report, presented
herein dated August 2, 1996, expressed an unqualified opinion on those
statements. Separate financial statements of Rykoff-Sexton, Inc. also included
in the restated consolidated financial statements of U.S. Foodservice for the
year ended June 29, 1996, were audited by other auditors whose report,
presented herein dated August 14, 1997, expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the 1997 and 1998 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Foodservice
and subsidiaries as of June 28, 1997 and June 27, 1998, and the results of
their operations and their cash flows for each of the years then ended in
conformity with generally accepted accounting principles.
We also audited the combination of the accompanying consolidated
financial statements for the year ended June 29, 1996, after restatement for
the Rykoff-Sexton, pooling of interests transaction and in our opinion, such
financial statements have been properly combined on the basis described in note
3 to the consolidated financial statements.
/s/ KPMG LLP
Baltimore, Maryland
August 14, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of JP Foodservice, Inc.:
In our opinion, based upon our audits and the report of other auditors,
the accompanying consolidated statements of operations, stockholders' equity
and cash flows as of and for the fiscal year ended June 29, 1996 present
fairly, in all material respects, the results of operations and cash flows of
JP Foodservice, Inc. and its subsidiaries for the fiscal year ended June 29,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management, our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Valley Industries,
Inc., which statements reflect total revenues of $121,504,000 for the year
ended January 31, 1996. This statement was audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Valley Industries, Inc. is
based solely on the report of the other auditors. We conducted our audit of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for the opinion expressed above. We
have not audited the consolidated financial statements of JP Foodservice, Inc.
for any period subsequent to June 29, 1996.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
August 2, 1996, except as
to Note 16, which is as of
September 10, 1996 and
except as to the pooling
of interests with Valley
Industries, Inc. and with
Squeri Food Service, Inc.
which is as of November
14, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS OF
VALLEY INDUSTRIES AND SUBSIDIARIES AND
Z LEASING (A GENERAL PARTNERSHIP)
The Board of Directors, Stockholders and Partners
Valley Industries, Inc. and Subsidiaries and
Z Leasing Company (A General Partnership):
We have audited the combined statements of earnings, stockholders' and
partners' equity, and cash flows of Valley Industries, Inc. and Subsidiaries
and Z Leasing Company (A General Partnership), collectively, the Company, for
the year ended January 31, 1996. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined results of the Company's
operations and their cash flows for the year ended January 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Las Vegas, Nevada
June 17, 1996
F-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rykoff-Sexton, Inc.:
We have audited the consolidated balance sheet of Rykoff-Sexton, Inc. (a
Delaware Corporation) and subsidiaries as of June 28, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal years ended June 28, 1997, and April 27, 1996, and the nine-week
transition period ended June 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rykoff-Sexton, Inc.
and subsidiaries as of June 28, 1997 and the results of their operations and
their cash flows for the fiscal years ended June 28, 1997, and April 27, 1996,
and the nine-week transition period ended June 29, 1996, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, PA
August 14, 1997
F-5
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
---------- ----------
(Note 3)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 74,432 $ 57,817
Receivables, net....................................... 162,648 215,459
Residual interest in accounts receivable sold.......... 99,069 106,581
Inventories............................................ 314,897 349,583
Other current assets................................... 29,919 28,548
Deferred income taxes.................................. 28,944 39,294
---------- ----------
Total current assets................................. 709,909 797,282
Property and equipment, net.............................. 437,736 437,265
Goodwill, net of accumulated amortization of $31,304 and
$45,960................................................. 541,519 561,695
Other noncurrent assets.................................. 29,354 21,549
Deferred income taxes.................................... 13,665 --
---------- ----------
Total assets......................................... $1,732,183 $1,817,791
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................... $ 22,492 $ 604
Current obligations under capital leases............... 5,690 6,933
Accounts payable....................................... 321,442 381,151
Accrued expenses....................................... 125,482 120,778
---------- ----------
Total current liabilities............................ 475,106 509,466
Long-term debt........................................... 621,788 650,679
Obligations under capital leases......................... 33,458 29,946
Deferred income taxes.................................... -- 6,064
Other noncurrent liabilities............................. 22,685 36,916
---------- ----------
Total liabilities.................................... 1,153,037 1,233,071
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued............................... -- --
Common stock, $.01 par value, 150,000,000 shares
authorized, 44,300,999 and 46,334,816 shares
outstanding........................................... 443 463
Additional paid-in-capital............................. 526,979 579,537
Retained earnings...................................... 51,724 4,720
---------- ----------
Total stockholders' equity........................... 579,146 584,720
---------- ----------
Commitments and contingent liabilities (notes 9 and 15)
---------- ----------
Total liabilities and stockholders' equity........... $1,732,183 $1,817,791
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended (Notes 3 and 4)
----------------------------------
June 29, June 28, June 27,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. $3,238,781 $5,169,406 $5,506,949
Cost of sales............................. 2,586,096 4,166,332 4,465,281
---------- ---------- ----------
Gross profit.............................. 652,685 1,003,074 1,041,668
Operating expenses........................ 590,446 845,901 876,170
Amortization of intangible assets......... 4,244 15,349 15,354
Restructuring costs (reversal)............ (6,441) (4,000) 53,715
Charge for impairment of long-lived
assets................................... 29,700 -- 35,530
---------- ---------- ----------
Income from operations.................... 34,736 145,824 60,899
Interest expense and other financing
costs, net............................... 32,527 76,063 73,894
Nonrecurring charges...................... 1,517 5,400 17,822
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary charge..................... 692 64,361 (30,817)
Provision for income taxes................ 559 26,075 6,475
---------- ---------- ----------
Income (loss) before extraordinary
charge................................... 133 38,286 (37,292)
Extraordinary charge on early
extinguishment of debt, (net of income
taxes of $6,325)......................... -- -- (9,712)
---------- ---------- ----------
Net income (loss)......................... $ 133 $ 38,286 $ (47,004)
========== ========== ==========
Net income (loss) per common share:
Basic:
Before extraordinary charge........... $ 0.00 $ 0.88 $ (0.83)
Extraordinary charge.................. -- -- (0.21)
---------- ---------- ----------
Net income (loss) per common share.. $ -- $ 0.88 $ (1.04)
========== ========== ==========
Diluted:
Before extraordinary charge........... $ 0.00 $ 0.87 $ (0.83)
Extraordinary charge.................. -- -- (0.21)
---------- ---------- ----------
Net income (loss) per common share.. $ 0.00 $ 0.87 $ (1.04)
========== ========== ==========
Weighted average common shares:
Basic................................... 30,388,000 43,451,000 45,320,000
Diluted................................. 30,515,000 44,063,000 45,320,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Distribution in
Common paid-in Retained excess of net
stock capital earnings book value Total
------ ---------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance July 1, 1995.... $ 301 $ 278,057 $ 79,257 $ (44,943) $ 312,672
Net income............ -- -- 133 -- 133
Dividends and
distributions to
stockholders of
acquired companies... -- -- (1,599) -- (1,599)
Stock options
exercised, including
related tax benefit.. 2 3,558 -- -- 3,560
Treasury stock
purchased and
canceled............. -- (40) -- -- (40)
Employee stock
purchases............ -- 338 -- -- 338
Contributions to
401(k) plan.......... 1 1,611 -- -- 1,612
Net activity for the
period April 28, 1996
to June 29, 1996
(note 3):
Net loss of Rykoff-
Sexton, Inc........ -- -- (60,180) -- (60,180)
Shares issued for US
Foodservice, Inc.
(note 4)........... 100 203,572 -- -- 203,672
Other net activity.. -- 53 -- -- 53
----- --------- -------- --------- ---------
Balance June 29, 1996... 404 487,149 17,611 (44,943) 460,221
Net income............ -- -- 38,286 -- 38,286
Reclassification in
connection with Sara
Lee Offering......... -- (44,943) -- 44,943 --
Public stock
offering............. 31 65,944 -- -- 65,975
Stock issued in
connection with
business
acquisitions......... 4 9,754 -- -- 9,758
Dividends to
stockholders of
acquired companies... -- -- (1,670) -- (1,670)
Stock options
exercised, including
related tax benefit.. 3 3,692 -- -- 3,695
Treasury stock
purchased and
canceled............. -- (12) -- -- (12)
Stock compensation.... -- 554 -- -- 554
Employee stock
purchases............ -- 837 -- -- 837
Contributions to
401(k) plan.......... 1 1,554 -- -- 1,555
Adjustments with
respect to
acquisitions......... -- 2,450 (2,503) -- (53)
----- --------- -------- --------- ---------
Balance June 28, 1997... 443 526,979 51,724 -- 579,146
Net loss.............. -- -- (47,004) -- (47,004)
Stock issued in
connection with
business
acquisitions......... 5 17,593 -- -- 17,598
Stock options
exercised, including
related tax benefit.. 13 32,009 -- -- 32,022
Treasury stock
purchased and
canceled............. (4) (12,413) -- -- (12,417)
Stock compensation.... 5 12,212 -- -- 12,217
Employee stock
purchases............ -- 1,197 -- -- 1,197
Contributions to
401(k) plan.......... 1 1,960 -- -- 1,961
----- --------- -------- --------- ---------
Balance June 27, 1998... $ 463 $ 579,537 $ 4,720 $ -- $ 584,720
===== ========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended (Notes 3 and 4)
----------------------------------
June 29, June 28, June 27,
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ 133 $ 38,286 $ (47,004)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation of property and equipment........ 28,193 41,834 44,475
Amortization of intangible assets............. 4,244 15,349 15,354
Gain on disposal of property and equipment.... (1,489) (1,649) (1,670)
Write-off of deferred financing costs......... -- -- 9,172
Non-cash restructuring charge................. -- -- 13,110
Charge for impairment of long-lived assets.... 29,700 -- 35,530
Deferred income taxes......................... (5,456) 8,848 9,379
Changes in operating assets and liabilities,
net of effects from purchase acquisitions:
(Increase) decrease in receivables........... (36,571) 22,990 (39,765)
(Increase) decrease in inventories........... (13,035) 12,952 (22,109)
(Increase) decrease in other current
assets...................................... (13,636) 10,623 1,905
Increase (decrease) in accounts payable and
accrued expenses............................ 2,284 (33,819) 45,985
Other......................................... 2,475 732 6,298
-------- --------- ---------
Net cash provided by (used in) operating
activities................................. (3,158) 116,146 70,660
-------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment........... (53,591) (88,436) (95,511)
Costs of businesses acquired, net of cash
acquired..................................... (11,451) (35,964) (38,742)
(Issuance) collection of note receivable...... (5,500) 5,500 --
Proceeds from sales of property and
equipment.................................... 2,649 10,321 32,086
Other......................................... (6,363) 1,816 (123)
-------- --------- ---------
Net cash used in investing activities....... (74,256) (106,763) (102,290)
-------- --------- ---------
Cash flows from financing activities:
Net increase in borrowings under revolving
lines of credit.............................. 36,000 47,700 438,500
Proceeds from issuance of long-term debt...... 51,024 25,953 --
Principal payments on long-term debt.......... (3,433) (105,614) (439,843)
Payments of obligations under capital lease... (4,536) (5,957) (6,184)
Net proceeds from public offerings of common
stock........................................ -- 65,975 --
Purchases of treasury stock................... (40) (12) (12,417)
Proceeds from other issuances of common
stock........................................ 3,863 5,086 33,219
Dividends paid by Rykoff-Sexton, Inc.......... (884) (1,670) --
Other......................................... (2,180) (681) 1,740
-------- --------- ---------
Net cash provided by financing activities... 79,814 30,780 15,015
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 2,400 40,163 (16,615)
Cash and cash equivalents:
Beginning of period........................... 20,649 34,269 74,432
-------- --------- ---------
End of period................................. $ 23,049 $ 74,432 $ 57,817
-------- --------- ---------
Supplemental disclosure of cash paid during the
year for:
Interest...................................... $ 32,166 $ 59,035 $ 54,454
Income taxes.................................. $ 11,781 $ 15,777 $ 851
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where noted)
NOTE 1--DESCRIPTION OF BUSINESS
U.S. Foodservice, formerly JP Foodservice, Inc. ("JP Foodservice"), and
its consolidated subsidiaries (the "Company") operate as a broadline
distributor of fresh, frozen and packaged foods, paper products, equipment and
ancillary products to foodservice businesses. Upon the acquisition of Rykoff-
Sexton, Inc. ("Rykoff-Sexton") on December 23, 1997, the Company became the
second largest broadline foodservice distributor in the United States. The
Company's market area includes most of the continental United States. The
Company's principal customers are restaurants, hotels, healthcare facilities,
cafeterias and schools encompassing both independent and multi-unit businesses.
No single customer accounts for more than 10% of the Company's trade
receivables or sales for any of the periods presented. Effective February 27,
1998, the Company changed its name to U.S. Foodservice. References to JP
Foodservice generally relate to activities of the Company prior to its
acquisition of Rykoff-Sexton on December 23, 1997.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of U.S.
Foodservice and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
B. Cash Equivalents
For purposes of financial statement disclosure, cash equivalents consist
of all highly liquid instruments with original maturities of three months or
less. The cost of these investments is equivalent to fair market value.
C. Fair Value of Financial Instruments
Information regarding fair value of long-term debt is set forth in Note 7
to the consolidated financial statements. Fair values of other financial
instruments, such as receivables and payables, approximate carrying values
because of the short-term nature of these items.
D. Revenue and Receivables
Revenue is recognized when product is shipped to the customer. Allowances
are provided for estimated uncollectible receivables based on historical
experience and review of specific accounts.
Allowances and credits received from suppliers in connection with the
Company's volume purchases are recognized upon the sale of the product, while
allowances and credits associated with the Company's merchandising activities
are recognized as the services are performed.
E. Inventories
Inventories consist principally of fresh, frozen and packaged foods and
related non-food products. Inventories are valued at the lower of cost or
market, and include the cost of purchased merchandise (net of applicable
purchase rebates), and for manufactured products, the cost of material, labor
and factory overhead.
F-10
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
Cost for substantially all inventories is determined using the first-in,
first-out method. Inventories consist primarily of finished goods.
F. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Major renewals and betterments are capitalized, and ordinary repairs and
maintenance are charged against operations in the period in which the costs
are incurred. Related costs and accumulated depreciation are eliminated from
the accounts upon disposition of an asset and the resulting gain or loss is
reflected in the consolidated statement of operations.
Depreciation is computed using the straight-line method over estimated
useful lives from date of acquisition as follows:
<TABLE>
<S> <C>
Buildings and improvements................................... 15-40 years
Machinery and equipment...................................... 3-15 years
Leasehold improvements....................................... Life of lease
Delivery vehicles............................................ 3-10 years
</TABLE>
The Company capitalizes the costs of computer software developed or
obtained for internal use.
G. Goodwill
Goodwill is amortized using the straight-line method over the periods
expected to be benefited not to exceed 40 years. The Company assesses the
recoverability of goodwill by determining whether amortization of the goodwill
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operations. Goodwill impairment, if any, is
measured by determining the amount by which the carrying value of the goodwill
exceeds its fair value based upon discounting future cash flows.
H. Other Noncurrent Assets
Other noncurrent assets consist principally of deferred financing costs,
noncompete agreements, and other deferred costs. Deferred financing costs
associated with the acquisition of loans are capitalized and amortized using
the effective interest method over the term of the related debt. Such costs
are written off upon refinancing of the related debt.
I. Impairment of Long-lived Assets
The recoverability of long-lived assets is assessed whenever events or
changes in circumstances indicate the carrying value of an asset may not be
recoverable through future undiscounted cash flows expected to be generated by
the asset. If such assets are deemed to be impaired, the impairment is
measured by determining the amount by which the carrying value of the asset
exceeds its estimated fair value.
F-11
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
J. Income Taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized based on the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in income in the
period that included the enactment date.
K. Net Income (Loss) Per Common Share
The Company adopted Statement of Financial Accounting Standard No. 128,
Earnings Per Share, as of December 27, 1997, and, accordingly, has restated all
prior periods in accordance with the pronouncement. The impact on adoption was
not material. Basic net income (loss) per common share is based on the weighted
average number of common shares outstanding. Diluted net income (loss) per
common share is based on the weighted average number of common shares and
dilutive securities outstanding. Dilutive securities consist of outstanding
stock options and warrants.
L. Derivative Instruments
The Company uses interest rate swap, cap and collar contracts to manage
its exposure to fluctuations in interest rates. The interest rate differential
on interest rate contracts used to hedge underlying debt obligations is
reflected as an adjustment to interest expense over the life of the contract.
Upon early termination of an interest rate contract, the gains or losses on
termination are deferred and amortized as an adjustment to the interest expense
on the related debt instrument over the remaining period originally covered by
the contract.
M. Accounting For Stock-Based Compensation
The Company applies the intrinsic value method to account for stock-based
compensation to employees and directors.
N. Accounting Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
O. Recently Enacted Accounting Pronouncements
Statement of Financial 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
F-12
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
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 expects
to adopt SFAS No. 130 and No. 131 during fiscal 1999 and SFAS No. 133 during
fiscal 2000, in accordance with the pronouncements, and is currently evaluating
the impact, if any, that SFAS No. 133 will have on its consolidated financial
statements.
Statement of Positions--During 1998, the American Institute of Certified
Public Accountants issued Statement of Position ("SOP") No. 98-5, Reporting on
the Costs of Start-Up Activities. SOP No. 98-5 requires that costs incurred
during a start-up activity be expensed as incurred and that the initial
application of the SOP, as of the beginning of the fiscal year in which the SOP
is adopted, be reported as a cumulative effect of a change in accounting
principle. The Company expects to adopt SOP 98-5 in fiscal 2000. The cumulative
effect of adoption is not expected to be material.
P. Reclassifications
Certain amounts in the prior years' consolidated financial statements
have been reclassified to conform to the current year's presentation.
NOTE 3--BASIS OF PRESENTATION AND ACQUISITION OF RYKOFF-SEXTON, INC.
On December 23, 1997, Rykoff-Sexton, the nation's third-largest broadline
foodservice distributor based on net sales, was merged into a wholly owned
subsidiary of JP Foodservice. In connection with the merger, JP Foodservice
issued 22,657,498 shares of common stock with an approximate value of $782
million. Each outstanding share of common stock of Rykoff-Sexton was exchanged
for .775 of a share of JP Foodservice common stock (the "Exchange Ratio"). The
transaction has been accounted for under the pooling-of-interests method of
accounting.
Accordingly, the consolidated financial statements for the years ended
June 29, 1996 and June 28, 1997 have been restated to include consolidated
financial information for Rykoff-Sexton.
Both the Company and Rykoff-Sexton have fiscal years which end on the
Saturday closest to June 30. Prior to April 28, 1996, Rykoff-Sexton had a
fiscal year that ended on the Saturday closest to April 30. The consolidated
balance sheet as of June 28, 1997 combines the consolidated balance sheets of
JP Foodservice and Rykoff-Sexton as of that date. The consolidated statements
of operations for the years ended June 28, 1997 ("fiscal 1997") and June 29,
1996 ("fiscal 1996") combine the results of JP Foodservice for such periods
with the results of Rykoff-Sexton for the fiscal years ended June 28, 1997 and
April 27, 1996, respectively. Retained earnings activity of Rykoff-Sexton for
the period April 28, 1996 to June 29, 1996 (the "transition period"), has been
reflected as adjustments to retained earnings as of June 29, 1996, in the
consolidated statement of stockholders' equity. Rykoff-Sexton's net sales, loss
from operations and net loss for the period from April 28, 1996 to June 29,
1996, were $519,903, ($79,532) and ($60,180), respectively. The results for the
transition period include a restructuring charge of $57.6 million ($35.7
million after tax) related to the Rykoff-Sexton acquisition of USF.
In connection with the acquisition, the Company incurred restructuring
costs, asset impairment charges, transaction costs and certain other operating
charges resulting from the integration of the two businesses during the year
ended June 27, 1998 ("fiscal 1998"). These charges, which approximate $138
million or $2.20 per share after income tax benefit, are further described as
follows:
F-13
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
Restructuring Costs--In connection with the Acquisition, management of
the combined companies developed and implemented a restructuring plan that
included the consolidation of duplicate distribution centers and the
centralization of certain general and administrative functions. The Company has
closed or is closing 13 distribution centers located in California, Florida,
Iowa, Maryland, Massachusetts, Minnesota, Missouri, Nevada, Ohio, Pennsylvania
and Virginia. Operations from such facilities are being consolidated with
facilities in the same geographic region. In addition, virtually all of Rykoff-
Sexton's corporate overhead functions, most of which are resident in Wilkes-
Barre, Pennsylvania, have or will be consolidated with such functions in
Columbia, Maryland. Nine of the facility consolidations were completed by June
27, 1998, with the four remaining locations to be completed in fiscal 1999. As
of June 27, 1998, the consolidation of the corporate overhead functions was
virtually complete.
As a result of management's restructuring plan, the Company recognized a
restructuring charge of $56.7 million, of which $13.1 million consisted of non-
cash charges. These restructuring costs consisted primarily of $26.8 million
for change in control payments to former executives of Rykoff-Sexton, which
were generally triggered upon the Acquisition, and the decision to close the
Wilkes-Barre, Pennsylvania headquarters; $12.2 million for severance and
benefits payable to approximately 800 sales, warehouse and clerical personnel
under a one-time termination plan instituted at the closed distribution centers
and 50 individuals in corporate positions; $10.8 million for lease payments
expected to be made after the date of closure for four leased distribution
facilities and the Wilkes-Barre office facility; and $6.9 million for idle
facility and facility closure costs, including costs associated with cleaning
closed facilities and maintaining the closed facilities until they are sold or
subleased, including costs such as property taxes, utilities, security and
groundskeeping charges. Severance and benefits were based on severance and
other agreements with employees and included an estimate of health and other
benefits. Lease commitments were based on amounts due under terminated lease
agreements or facilities to be vacated for which the Company is obligated to
pay. Idle facility and facility closure costs relate primarily to closing of
duplicate facilities, including estimated expenses associated with cleaning and
maintaining closed facilities until they are sold or subleased.
During the six-month period ended June 28, 1998, the Company expended
$19.3 million of severance and benefits; $.4 million of lease commitments and
$1.7 million of idle facility and facility closure costs. As of June 27, 1998,
the following had yet to be expended: $7.3 million of severance and benefits,
of which $2 million relates to deferred change in control payments; $10.4
million of lease commitments; and $5.2 million of idle facility and facility
closure costs. Management anticipates that $12.0 million will be expended in
fiscal 1999 and $5.4 million will be expended in fiscal 2000. The remaining
cash charges 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.
Asset Impairment Charge--The Company recognized a non-cash asset
impairment charge of $35.5 million, of which $7.6 million related to write-down
to net realizable value of buildings and improvements of nine owned facilities
being closed; $3.1 million related to write-down to net realizable value of
buildings which were held for sale at the date of the merger, $12 million
related to costs deferred for a new management information system which is not
being placed in service as the result of the merger and $12.8 million related
to other long-term assets at facilities being closed.
Other Operating Charges--The Company charged $8.6 million to cost of
goods sold and $19.4 million to operating expenses for writedowns of inventory,
receivables and other current assets resulting from
F-14
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
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 merger, particularly at divisions being closed and consolidated.
Nonrecurring Charges--The Company recorded nonrecurring charges of
approximately $17.8 million for merger costs and expenses (consisting primarily
of legal and other professional fees) required to complete the transaction.
Net sales and net income previously reported by JP Foodservice and
Rykoff-Sexton and the combined amounts presented in the accompanying
consolidated financial statements are summarized as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------
June 29, 1996 June 28, 1997
------------- -------------
<S> <C> <C>
Net sales:
JP Foodservice............................... $1,449,303 $1,691,913
Rykoff-Sexton................................ 1,789,478 3,477,493
---------- ----------
Combined................................... $3,238,781 $5,169,406
========== ==========
Net income (loss):
JP Foodservice............................... $ 16,913 $ 22,248
Rykoff-Sexton................................ (16,780) 16,038
---------- ----------
Combined................................... $ 133 $ 38,286
========== ==========
</TABLE>
NOTE 4--OTHER ACQUISITIONS
Acquisitions Accounted for as Poolings of Interests
Merger with Valley--On August 30, 1996, JP Foodservice completed a merger
with Valley Industries, Inc. (together with its affiliates, "Valley"), a
broadline distributor located in Las Vegas, Nevada. Under the terms of the
merger, JP Foodservice exchanged 1,936,494 shares of common stock for all of
Valley's common shares and ownership interests.
Merger With Squeri--On September 30, 1996, JP Foodservice completed a
merger with Squeri Food Service, Inc. (together with its affiliates, "Squeri"),
a broadline distributor located in Cincinnati, Ohio. Under the terms of the
merger, JP Foodservice exchanged 1,079,875 shares of common stock for all of
Squeri's common shares and ownership interests.
The fiscal years of Valley and Squeri have been conformed with the
Company's fiscal year as of June 29, 1996. Accordingly, retained earnings
activity for the period February 1, 1996 to June 29, 1996, for Valley and the
period January 1, 1996 to June 29, 1996, for Squeri has been reflected as
adjustments to retained earnings as of June 29, 1996. Combined net sales, loss
from operations and net loss for the periods February 1, 1996 to June 29, 1996,
for Valley and January 1, 1996 to June 29, 1996, for Squeri were $99,660,
$2,028 and $1,848, respectively. The loss from operations during this period
was primarily attributable to one-time bonus awards paid to management
employees at Valley, start-up costs related to new contracts, higher than
normal operating costs at Valley due to the construction of a new facility and
higher professional service costs incurred to support the effort to sell these
businesses. The net sales and net income of Valley and Squeri, on a combined
basis, included in the consolidated financial results of the Company for the
year ended June 29, 1996 were $206,627 and $2,856, respectively.
F-15
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
In connection with the mergers of Valley and Squeri, the Company recorded
nonrecurring charges of approximately $5.4 million for merger costs and
expenses (consisting primarily of legal and professional fees) required to
complete the transactions.
Acquisitions Accounted for as Purchases
Westlund Acquisition--On March 20, 1998, the Company completed the
acquisition of Westlund Provisions, Inc. ("Westlund"), a foodservice
distributor specializing in custom-cut meats located in Minneapolis, Minnesota.
Under the terms of the acquisition, the Company acquired all of the outstanding
common stock and assumed certain liabilities of Westlund in exchange for
229,070 shares of the Company's common stock. The excess of the purchase price
over the fair value of the net assets acquired of approximately $8.5 million
has been allocated to goodwill and is being amortized using the straight-line
method over 40 years. Results of Westlund for the period March 21, 1998 to June
27, 1998 have been included in the Company's fiscal 1998 consolidated statement
of operations.
Sorrento Acquisition--On January 23, 1998, the Company completed the
acquisition of Sorrento Food Service, Inc. ("Sorrento"), a broadline
foodservice distributor located in Buffalo, New York. Under the terms of the
acquisition, the Company acquired all of the outstanding common stock and
assumed or discharged certain liabilities of Sorrento and paid cash
consideration of approximately $39 million. The excess of the purchase price
over the fair value of the net assets acquired of approximately $18.2 million
has been allocated to goodwill and is being amortized using the straight-line
method over 40 years. Results of Sorrento for the period January 24, 1998 to
June 27, 1998 have been included in the Company's fiscal 1998 consolidated
statement of operations.
Outwest Acquisition--On October 30, 1997, the Company completed the
acquisition of Outwest Meat Company ("Outwest"), a foodservice distributor
specializing in meats, located in Las Vegas, Nevada. Under the terms of the
acquisition, the Company acquired all of the common stock of Outwest in
exchange for 372,917 shares of the Company's common stock. The excess of the
purchase price over the fair value of the net assets acquired of approximately
$7.1 million has been allocated to goodwill and is being amortized using the
straight-line method over 40 years. Results of Outwest for the period November
1, 1997 to June 27, 1998 have been included in the Company's fiscal 1998
consolidated statement of operations.
Pro Forma Information--Unaudited pro forma information for fiscal 1997
and fiscal 1998, as if the Westlund, Sorrento and Outwest acquisitions had
occurred on the first day of the fiscal year, is shown below, in thousands,
except for share data.
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------
June 28, June 27,
1997 1998
---------- ----------
<S> <C> <C>
Net sales......................................... $5,388,722 $5,631,176
Income from operations............................ $ 150,127 $ 65,163
Income (loss) before extraordinary item........... $ 39,454 $ (36,918)
Net income (loss)................................. $ 39,454 $ (46,630)
Income (loss) per common share before
extraordinary item:
Basic........................................... $ 0.90 $ (0.81)
Diluted......................................... $ 0.88 $ (0.81)
Net income (loss) per common share:
Basic........................................... $ 0.90 $ (1.02)
Diluted......................................... $ 0.88 $ (1.02)
</TABLE>
F-16
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
Mazo-Lerch Acquisition--On June 19, 1997, JP Foodservice completed the
acquisition of Mazo-Lerch Company, Inc. ("Mazo-Lerch"), a broadline foodservice
distributor located in Alexandria, Virginia. Under the terms of the
acquisition, JP Foodservice acquired all of the outstanding common stock of
Mazo-Lerch in exchange for 279,268 shares of JP Foodservice common stock. The
excess of the purchase price over the fair value of net tangible assets
acquired of approximately $1.3 million has been allocated to goodwill and is
being amortized using the straight-line method over 40 years. Results of Mazo-
Lerch for the period June 20, 1997 to June 28, 1997, are included in the fiscal
1997 consolidated statement of operations.
Arrow Acquisition--On August 31, 1996, JP Foodservice completed the
acquisition of Arrow Paper and Supply Co., Inc. (together with its affiliate,
"Arrow"), a broadline foodservice distributor located in Norwich, Connecticut.
Under the terms of the acquisition, JP Foodservice purchased certain assets,
assumed or discharged certain liabilities and paid consideration of $28.9
million. Approximately $1.7 million of the consideration was paid with 73,977
shares of JP Foodservice common stock and the remainder was paid in cash. The
excess of the purchase price over the fair value of net tangible assets
acquired of approximately $28.2 million has been allocated to goodwill and is
being amortized using the straight-line method over 40 years. Results of Arrow
for the period September 1, 1996 to June 28, 1997, are included in the fiscal
1997 consolidated statement of operations.
US Foodservice Acquisition--On May 17, 1996, Rykoff-Sexton merged with US
Foodservice Inc. ("USF"), a privately held broadline foodservice distribution
company. As part of the merger, USF stockholders received 1.457 shares of
Rykoff-Sexton common stock for each share of outstanding Class A and Class B
common stock of USF. Options and warrants to acquire approximately one million
shares of USF were converted into options and warrants to acquire Rykoff-Sexton
common stock on the same basis. The aggregate purchase price was approximately
$217 million, which included the costs of acquisition. Liabilities assumed in
the acquisition approximated $477.2 million. In addition, all outstanding
shares of the USF cumulative redeemable exchangeable preferred stock were
purchased for $26.6 million. The excess of the purchase price over fair value
of net tangible assets acquired of approximately $409 million was allocated to
goodwill and is being amortized using the straight-line method over 40 years.
Results of USF for the period May 17, 1996 to June 29, 1996, are included in
the adjustment to retained earnings for the period April 28, 1996 to June 29,
1996 related to Rykoff-Sexton. The Company's consolidated statements of
operations include results for USF for periods after June 29, 1996.
H&O Foods Acquisition--On November 1, 1995, Rykoff-Sexton acquired
substantially all of the assets of H&O Foods, Inc. ("H&O"), a regional,
institutional distributor located in Nevada. The aggregate purchase price was
approximately $29.6 million, which included the costs of acquisition. The
excess of the purchase price over the fair value of the net assets acquired of
approximately $18.4 million has been allocated to goodwill and is being
amortized using the straight-line method over 40 years. Results for H&O for the
period November 2, 1995 to April 29, 1996 are included in the fiscal 1996
consolidated statement of operations.
F-17
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
NOTE 5--RECEIVABLES
Receivables are composed of the following:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
-------- --------
<S> <C> <C>
Customer accounts and notes............................ $ 90,073 $121,491
Less allowance for doubtful accounts................... (15,710) (15,818)
-------- --------
Net customer........................................... 74,363 105,673
Other, net, principally from suppliers................. 88,285 109,786
-------- --------
$162,648 $215,459
======== ========
</TABLE>
The Company sells customer accounts receivable under two securitization
arrangements aggregating $250 million (see Note 8).
NOTE 6--PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
--------- ---------
<S> <C> <C>
Land, buildings and improvements..................... $ 338,750 $ 368,850
Machinery and equipment.............................. 285,675 273,769
Assets held under capital leases (Note 9)............ 50,113 52,740
--------- ---------
674,538 695,359
Accumulated depreciation............................. (236,802) (258,094)
--------- ---------
$ 437,736 $ 437,265
========= =========
</TABLE>
The Company capitalizes interest costs as part of major asset
construction projects. Capitalized interest was $1,077, $1,071 and $3,081 in
fiscal 1996, 1997 and 1998, respectively.
As of June 28, 1998, land and buildings for seven closed distribution
facilities with a carrying value of approximately $24.6 million are held for
sale. Each of the properties is currently listed for sale and the Company
expects to dispose of such properties over the next two years. The effect of
suspending depreciation on such properties was not material.
F-18
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
NOTE 7--LONG-TERM DEBT
Long-term debt is composed of the following:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
-------- --------
<S> <C> <C>
Revolving lines of credit................................ $ 63,700 $502,200
Term loans............................................... 330,125 --
Industrial development revenue bonds..................... 25,900 25,900
8.875% Senior subordinated notes......................... 129,287 120,163
8.55% Senior notes payable............................... 85,000 --
Other.................................................... 10,268 3,020
-------- --------
Total long-term debt................................... 644,280 651,283
Less current maturities of long-term debt................ 22,492 604
-------- --------
$621,788 $650,679
======== ========
</TABLE>
Revolving Line of Credit--In connection with the acquisition of Rykoff-
Sexton, the Company entered into a bank credit facility which provides for a
$550 million five-year revolving credit facility and a $200 million
revolving/term facility (the "Credit Facility") which is renewable annually.
Borrowings outstanding under the Credit Facility bear interest at the Company's
option at a rate equal to the sum of (a) the London Interbank Offered Rate
(LIBOR), a specified prime rate plus .5%, or the federal funds rate plus .5%
and (b) an applicable margin. The applicable margin will vary from .175% to
.55%, based on a formula tied to the Company's leverage from time to time. At
June 27, 1998, borrowing rates were based on LIBOR plus an applicable margin of
.45% and averaged 6.17%. Annual facility fees are based on the same formula and
will vary from .055% to .2%. The revolving credit facility includes a $75
million facility for standby and commercial letters of credit and a $50 million
swing-line facility for same day borrowings. At June 27, 1998, borrowings of
$502,200 were outstanding and the Company had available borrowings of $211,800
under the Credit Facility.
The Credit Facility includes a number of covenants which require the
maintenance of certain financial ratios and restrict the Company's ability to
pay dividends and to incur additional indebtedness.
At June 28, 1997, JP Foodservice had a $175 million unsecured revolving
line of credit agreement. The agreement required quarterly interest payments on
outstanding borrowings at the prime rate or, at the Company's option, LIBOR
plus .275% per annum. At June 28, 1997, Rykoff-Sexton had a credit facility
which consisted of a $150 million revolving line of credit and three term
loans. Borrowings under the Rykoff-Sexton line of credit required monthly or
quarterly interest payments based on LIBOR plus 2.5%. The Rykoff-Sexton term
loans required interest at LIBOR plus margins ranging from 2.5% to 3.25%. The
JP Foodservice line of credit and the Rykoff-Sexton line of credit and term
loans were replaced by the Credit Facility.
Senior Subordinated Notes--In 1993, Rykoff-Sexton issued $130 million
principal amount of 8 7/8% Senior Subordinated Notes due November 1, 2003 (the
"8 7/8% Notes"), with interest payable semi-annually commencing May 1, 1994.
The 8 7/8% Notes were sold at a discount for an aggregate price of $128.9
million. Provisions of the 8 7/8% Notes include, without limitation,
restrictions on liens, indebtedness, asset sales, and dividends and other
restricted payments. The 8 7/8% Notes are redeemable at the option of the
Company, in whole or in part, at 104.44% of their principal amount beginning
November 1998, and thereafter at prices
F-19
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
declining annually to 100% on and after November 2001. The Company retired
$9.2 million of the 8 7/8% Notes in fiscal 1998.
Industrial Development Revenue Bonds--These bonds are secured by a
letter of credit issued on behalf of Rykoff-Sexton which is secured by a real
estate lien against a distribution facility. The bonds will mature on December
1, 2026, and from time to time bear and pay interest under daily, weekly,
commercial paper or long-term interest rate indices at the election of the
Company. The interest rate on the bonds approximates LIBOR plus .625% (6.33%
at June 27, 1998).
Extraordinary Item--In connection with the refinancing of the JP
Foodservice and the Rykoff-Sexton indebtedness described above, the Company
recorded an extraordinary charge of $9.7 million (net of $6.3 million income
tax benefit). The charge 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 payable, which were retired in full.
Derivative Financial Instruments--The Company enters into interest rate
swaps, caps and collars to manage its exposure to interest rates on floating
rate long-term debt. As of June 27, 1998, the Company has effectively capped
its interest rate exposure at 7.85% on approximately $400 million of its
floating rate debt for the next twelve months.
The Company has entered into a swaption agreement for a notional amount
of $129 million which can be exercised by the holder commencing in November
1998. The Company received $5.6 million upon execution of the swaption
agreement and will receive an additional amount ranging from $1.9 million to
$5.7 million when, and if, the swaption is exercised by the holder. The
amounts received from the holder will be amortized over the life of the swap
arrangement.
If the Company had terminated each of the contracts on June 27, 1998, it
would have had a loss of approximately $1.8 million.
Interest expense and other financing costs were $32,527, $76,063 and
$73,894 in fiscal 1996, 1997 and 1998, respectively. Interest expense included
amortization of deferred financing cost of $735, $2,680 and $1,945,
respectively. Other financing costs of $235, $15,978 and $14,190 in fiscal
1996, 1997 and 1998, respectively, represent costs associated with the
Company's trade accounts receivable securitization arrangements (see Note 8).
The Company's aggregate annual principal payments applicable to long-
term debt are as follows:
<TABLE>
<S> <C>
Fiscal Years Ended
1999.............................................................. $ 604
2000.............................................................. 271
2001.............................................................. 284
2002.............................................................. 288
2003.............................................................. 502,442
Thereafter........................................................ 147,394
--------
$651,283
========
</TABLE>
F-20
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
Based on the borrowing rates currently available to the Company for
indebtedness with similar terms and average maturities, the fair value of the
Company's long- term debt is estimated to be $656,000.
NOTE 8--TRADE ACCOUNTS RECEIVABLE SECURITIZATION ARRANGEMENTS
The Company maintains revolving securitization arrangements for accounts
receivable of $200 million and $50 million. Under the arrangements, receivables
are sold by the Company to wholly owned, bankruptcy remote subsidiaries, which
in turn sell interests in the receivables to third-party investors. In order to
maintain the designated receivable balances, the Company is required to sell
interests in new receivables as existing receivables are collected. Under the
$200 million agreement, all customer receivables of participating subsidiaries
of the Company are sold to a master trust and the Company acquires a
participation interest in the master trust equal to the amount in excess of the
$200 million third-party interest. Under the $50 million agreement, the Company
sells an undivided percentage ownership interest in a designated pool of
accounts receivable to an independent issuer of receivable-backed paper. Under
both arrangements, the Company effectively retains credit risk and is
responsible for collection and administration activities. The Company's
interest in the master trust and its retained interest in the undivided pool of
receivables have been included in the accompanying consolidated balance sheets
as residual interest in accounts receivable sold. The Company accounts for the
retained interest in accounts receivable at fair value. The net realizable
value of the receivable portfolio approximates fair value due to the rapid
collection of accounts sold.
NOTE 9--LEASES
The Company leases its corporate office facilities and certain
distribution facilities and equipment under operating leases. The Company
leases certain of its delivery fleet under capital leases. Charges to
operations for all operating leases were $35,282, $50,656 and $50,504 in fiscal
1996, 1997 and 1998, respectively.
Set forth below are the future minimum lease payments under operating
leases and capital leases with noncancelable terms beyond one year.
<TABLE>
<CAPTION>
Operating Capital
Fiscal Years Ended leases leases
------------------ --------- --------
<S> <C> <C>
1999................................................... $ 42,486 $ 9,775
2000................................................... 37,431 8,388
2001................................................... 29,606 7,724
2002................................................... 25,389 4,794
2003................................................... 16,908 5,369
Thereafter............................................. 42,127 36,020
-------- --------
Total minimum lease payments........................... 193,947 72,070
Less interest portion.................................. 35,191
--------
Obligations under capital leases....................... 36,879
Less current obligations............................... 6,933
--------
$ 29,946
========
</TABLE>
During fiscal years 1996, 1997 and 1998, the Company's additions to
property and equipment of $4,536, $5,957 and $2,979, respectively, were
financed through capital lease obligations.
F-21
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
NOTE 10--INCOME TAXES
The components of income taxes with respect to income (loss) before
extraordinary charge are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------
June 29, June 28, June 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal.................................... $ 4,426 $14,224 $(1,857)
State and local............................ 1,589 3,003 (1,047)
------- ------- -------
Total current............................ 6,015 17,227 (2,904)
------- ------- -------
Deferred tax expense (benefit):
Federal.................................... (4,896) 10,354 7,216
State and local............................ (560) (1,506) 2,163
------- ------- -------
Total deferred........................... (5,456) 8,848 9,379
------- ------- -------
$ 559 $26,075 $ 6,475
======= ======= =======
</TABLE>
In addition, in fiscal 1998, the Company recognized current federal and
state income tax benefits of $5,230 and $1,095, respectively, with respect to
the loss on early extinguishment of debt of $16,037.
Temporary differences and the resulting deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Loss carryforwards................................... $ 25,474 $ 24,906
Restructuring reserves and asset impairment.......... 22,383 45,821
Allowance for doubtful accounts...................... 6,565 674
Capital leases....................................... 4,331 5,196
Accrued expenses..................................... 19,476 13,751
Other, net........................................... 10,513 1,528
Valuation allowance.................................. (1,398) (648)
-------- --------
Deferred tax assets................................ 87,344 91,228
-------- --------
Deferred tax liabilities:
Property and equipment............................... (30,687) (34,075)
Intangible assets.................................... (4,165) (5,823)
Other, net........................................... (9,883) (18,100)
-------- --------
Deferred tax liabilities........................... (44,735) (57,998)
-------- --------
Net deferred tax assets............................ $ 42,609 $ 33,230
======== ========
</TABLE>
Management believes it is more likely than not that the deferred tax
assets, net of valuation allowances, at June 27, 1998, including federal and
state net operating loss carryforwards, will be realizable
F-22
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
through the combination of future taxable income, alternative tax planning
strategies and the reversal of existing taxable temporary differences.
A reconciliation of the statutory Federal income tax rate to the income
tax rate on income (loss) before income taxes and extraordinary charge, is as
follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------
June 28,
June 29, 1996 1997 June 27, 1998
--------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Computed statutory expense
(benefit)................ $ 242 35.0 % $22,526 35.0 % $(10,786) (35.0)%
State and local income
tax, net of federal tax
benefit.................. (1,140) (164.7) 973 1.5 725 2.4
Permanent differences..... 3,084 445.7 4,853 7.5 17,448 56.6
Reversal of valuation
allowance................ 916 132.4 (2,800) (4.4) (750) (2.4)
Gas tax credit and other.. (2,543) (367.5) 523 0.8 (162) (0.6)
------- ------ ------- ---- -------- -----
$ 559 80.9 % $26,075 40.4 % $ 6,475 21.0 %
======= ====== ======= ==== ======== =====
</TABLE>
Federal net operating loss carryforwards as of June 27, 1998 approximate
$56,154 and expire in various amounts through 2011. Included in such amounts
are net operating losses incurred prior to the USF acquisition. The use of
these net operating losses is subject to certain limitations imposed by the
Internal Revenue Code. The Company does not anticipate these limitations will
affect utilization of the carryforwards prior to their expiration date. All tax
years of the Company, since fiscal 1994, are open for examination. The Internal
Revenue Service and certain state authorities have examinations in progress.
NOTE 11--STOCKHOLDERS' EQUITY
Issuance of Common Stock--In August and September 1996, the Company sold
3,075,000 shares of common stock in a public offering for $65.9 million, net.
The net proceeds of the offering were used to fund the cash portion of the
Arrow purchase price and to repay indebtedness assumed or discharged by the
Company in connection with its acquisitions of Valley and Arrow, as discussed
in Note 4.
Related Party Transactions--In December 1996, Sara Lee Corporation sold
its ownership interest of approximately 27% of the Company's outstanding common
stock in a public offering. As a result, the Company has reclassified $44,943
of distributions in excess of net book value of continuing stockholder's
interest as a reduction to additional paid-in-capital.
Employee Stock Purchase Plan--The Company sponsors an employee stock
purchase plan, pursuant to which all full-time employees of the Company and its
subsidiaries who have been employed by the Company for 90 days or more are
eligible to purchase shares of common stock from the Company. An aggregate of
1,500,000 shares of common stock may be issued and purchased under the plan.
Eligible employees may purchase shares of common stock at a price equal to 85%
of the market price per share on each quarterly investment date. Purchases
under this plan totaled 33,940 shares, 38,902 shares and 32,830 shares during
fiscal 1996, 1997 and 1998, respectively.
Warrants--At June 27, 1998, the Company had warrants outstanding to
purchase 231,066 shares of common stock at $13.11 per share. The warrants
expire on September 30, 2005. Subsequent to June 27, 1998, a warrant to
purchase 159,968 shares of common stock was exercised.
F-23
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
Shareholder Rights Plan--The Company has a shareholder rights plan under
which the issuance of rights, subject to specified exceptions, would be
triggered by the acquisition (or certain actions that would result in the
acquisition) of 10% or more of the Company's common stock by any person or
group (or 15% or more by any person eligible to report its ownership of the
Company's common stock on Schedule 13G under the Securities Exchange Act of
1934).
Pursuant to this plan, each share of common stock has attached one
preferred share purchase right (a "Right") which entitles the registered holder
of common stock to purchase from the Company, upon the occurrence of the
specified triggering events, one-hundredth of a share of a newly authorized
issue of junior participating preferred stock at a price of $95, subject to
adjustment. The Company may redeem the Rights at a price of $.01 per Right
prior to a triggering event. The Rights expire on February 19, 2006.
NOTE 12--STOCK OPTION PLANS
The Company sponsors an employee stock incentive plan and an outside
director stock option plan. The employee plan authorizes the grant, at the
discretion of the Company's Board of Directors, of incentive stock options,
non-qualified stock options, restricted stock awards, stock appreciation
rights, or any combination thereof, at the fair market value on the date of
grant. Options granted under the employee plan generally have a life of ten
years and vest over a three-year period. The outside director plan provides for
an initial award of 5,000 options and an annual award of 2,000 options, at fair
market value, for a ten-year period with one-fourth vesting upon grant and the
balance vesting equally over three years. Stockholders of the Company have
authorized for issuance pursuant to the employee plan and the outside director
plan 2,600,000 and 200,000 shares of common stock, respectively.
Rykoff-Sexton sponsored several stock option plans for employees and
directors. In connection with the acquisition, options to purchase shares of
Rykoff-Sexton were exchanged for options to purchase the Company's common stock
on the same terms and conditions after adjusting the option amounts and
exercise prices for the Exchange Ratio. Virtually all of the options were
immediately exercisable as the result of the change of control provisions
contained in each of the option agreements.
F-24
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
The aggregate number of shares reserved for the issuance of common stock
under all plans was 3,297,001 at June 27, 1998. Upon a change of control of
the Company, as defined in the plans, all outstanding and previously unvested
options will become immediately exercisable. A summary of changes in
outstanding stock options follows:
<TABLE>
<CAPTION>
Weighted average
Stock exercise price
options per share
---------- ----------------
<S> <C> <C>
Balance July 1, 1995.......................... 1,250,193 $ 17.73
Options granted............................... 1,428,198 15.24
Options cancelled............................. (148,774) 17.55
Options exercised............................. (123,678) 5.71
---------- -------
Balance June 29, 1996......................... 2,405,939 16.62
Options granted............................... 681,545 21.79
Options cancelled............................. (73,695) 16.10
Options exercised............................. (249,848) 12.86
---------- -------
Balance June 28, 1997......................... 2,763,941 18.19
Options granted............................... 693,714 32.46
Options cancelled............................. (231,251) 27.38
Options exercised............................. (1,331,329) 19.11
---------- -------
Balance June 27, 1998......................... 1,895,075 $ 22.49
========== =======
</TABLE>
The following table summarizes information about stock options
outstanding at June 27, 1998:
<TABLE>
<CAPTION>
Number Weighted average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise prices June 27, 1998 contractual life exercise price June 27, 1998 exercise price
- --------------- ------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.13-
$ 4.48 10,749 4.54 $ 0.73 10,749 $ 0.73
$11.00-
$15.75 457,726 6.00 $12.77 410,781 $12.59
$16.65-
$24.84 812,687 7.68 $20.87 434,981 $19.91
$27.56-
$35.19 613,913 8.68 $32.26 21,133 $29.96
--------- -------
1,895,075 7.58 $22.49 877,644 $16.49
========= =======
</TABLE>
F-25
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
The Company applies the intrinsic value method when accounting for stock-
based employee compensation grants. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost been determined
under the fair value method of SFAS No. 123, the Company's net income (loss)
and net income (loss) per common share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
June 29, 1996 June 28, 1997 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss):
As reported.................. $ 133 $38,286 $(47,004)
Pro forma.................... (145) 36,479 (51,609)
===== ======= ========
Basic earnings (loss) per
share:
As reported.................. $0.00 $ 0.88 $ (1.04)
Pro forma.................... 0.00 0.83 (1.14)
===== ======= ========
Diluted earnings (loss) per
share:
As reported.................. $0.00 $ 0.87 $ (1.04)
Pro forma.................... 0.00 0.83 (1.14)
===== ======= ========
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 1996, 1997 and 1998: dividend yield of
0%; expected volatility of 41.45%, 45.44% and 41.02% for fiscal 1996, 1997 and
1998, respectively; risk-free interest rate of 6.18%, 6.36% and 6.10% for
fiscal 1996, 1997 and 1998, respectively; and expected lives of five years. The
weighted average fair value of options granted during fiscal 1996, 1997 and
1998 was $6.48, $11.21 and $13.87, respectively.
Pro forma net income (loss) reflects only options granted in fiscal 1996,
1997 and 1998, as compensation cost for options granted prior to July 2, 1995
is not considered. Compensation cost is reflected over the options' vesting
periods of three to four years.
NOTE 13--EMPLOYEE RETIREMENT PLANS
Defined Contribution Plans--The Company and certain of its subsidiaries
sponsor several defined contribution profit sharing plans for which all full-
time non-union employees are generally eligible. Terms of the plans provide for
employee and Company contributions, which may be made in cash or common stock
of the Company. Charges to operations for employer contributions to the plans
were $1,775, $3,911 and $4,521 in fiscal 1996, 1997 and 1998, respectively. Of
such amounts, the Company made contributions in common stock of $1,612, $1,555
and $1,961, respectively.
Multi-Employer Plans--The majority of the Company's union employees are
covered by union-administered pension plans. Since these plans are part of
multi-employer pension arrangements, it is not practicable to determine the
amount of accumulated plan benefits or plan net assets applicable solely to the
Company's employees. With the passage of the Multi-Employer Pension Plan
Amendments Act of 1980 (the "Act"), the Company may, under certain
circumstances, become subject to liabilities in excess of contributions made
under collective bargaining agreements. Generally, these liabilities are
contingent upon the termination, withdrawal, or partial withdrawal from these
plans. Charges to operations for all employer defined benefit
F-26
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
pension contributions required by union agreements aggregated $8,459, $8,546
and $9,210 in fiscal 1996, 1997 and 1998, respectively.
Defined Benefit Plans--The Company maintains six non-contributory pension
plans for its salaried, commissioned and certain of its hourly employees. Under
the plans, the Company is required to make annual contributions that are
determined by the plans' consulting actuary, using participant data that is
supplied by the Company. It is the Company's policy to fund pension costs
currently. Pension benefits are based on length of service and either a
percentage of final average annual compensation or a dollar amount for each
year of service. Benefits under three of the plans are frozen at June 27, 1998.
Projected benefit obligations of plans for which benefits were not frozen at
June 27, 1998 were $4,956. During fiscal 1998, the Company recognized a
curtailment gain of $7.4 million reflecting the freezing of benefits from one
of those defined benefit plans.
Net pension expense for defined benefit pension plans for fiscal 1996,
1997 and 1998 are included in the following components:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------
June 29, June 28, June 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the
period.................................... $ 3,700 $ 5,045 $ 3,061
Interest cost on projected benefit
obligation................................ 4,473 6,055 5,911
Actual return on plan asset................ (5,452) (14,255) (8,556)
Effect of curtailment...................... -- -- (7,390)
Net amortization and deferral.............. (105) 7,555 (537)
------- -------- -------
Net pension expense (income)............... $ 2,616 $ 4,400 $(7,511)
======= ======== =======
</TABLE>
The following table reconciles the pension plans' funded status to
accrued expense as of June 28, 1997 and June 27, 1998:
<TABLE>
<CAPTION>
Fiscal Years
Ended
------------------
June 28, June 27,
1997 1998
-------- --------
<S> <C> <C>
Market value of plan assets in equities and bonds..... $ 88,784 $95,187
-------- -------
Actuarial present value of accumulated benefits:
Vested.............................................. 69,007 86,751
Non-vested.......................................... 4,279 583
Additional benefits based on estimated future salary
levels............................................... 7,248 40
-------- -------
Projected benefit obligations..................... 80,534 87,374
-------- -------
Plan assets more than projected benefit obligations... 8,250 7,813
Unrecognized net obligation to be amortized over 10
years................................................ 2,778 221
Unrecognized net gain................................. (22,365) (8,446)
-------- -------
Accrued pension expense........................... $(11,337) $ (412)
======== =======
</TABLE>
The weighted average discount rates were 7.75% and 6.75% and the expected
long-term rates of return on plan assets were 9.5% and 9% at June 28, 1997 and
June 27, 1998, respectively. As of June 27, 1998, plans are either frozen or
have benefits that accrue based on fixed amounts for each year of service.
F-27
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except where noted)
Other Postretirement Benefit Plans--The Company has several nonpension
postretirement benefit plans, certain of which are contributory. The present
value of future benefits to be paid to current employees and eligible retirees
amounted to approximately $2.3 million at June 27, 1998 and is included in
other noncurrent liabilities in the accompanying consolidated balance sheet.
NOTE 14--OTHER RESTRUCTURINGS
In connection with the USF acquisition described in Note 4, Rykoff-Sexton
recorded a restructuring charge of $57.6 million ($35.7 million after tax) in
the nine-week fiscal period ended June 29, 1996 (see Note 3). The restructuring
charge consisted of severance and employee benefits of $10.7 million, lease
related costs of $20.2 million and other closure and integration costs of $26.7
million. During the nine week fiscal year transition period and fiscal 1997,
Rykoff-Sexton charged costs of $28.1 million (consisting of severance and
employee benefits of $4.5 million, lease related costs of $2.7 million and
other closure and integration costs of $20.9 million) against the restructuring
reserve and reversed $4.0 million into income. This reversal related to
severance costs reserved for employees who voluntarily terminated their
employment during fiscal 1997, thereby forfeiting their termination rights.
During fiscal 1998, the Company paid $6.0 million for severance and lease
commitments and reversed $3.0 million of unutilized reserves against
restructuring costs. Based on current management's review of the reserves
remaining to cover the existing commitments which resulted from the prior
restructuring activity, these amounts were not considered necessary. The
reversal related to restructuring activities for which the actual costs were
overestimated or for which contemplated restructuring plans ultimately changed.
As of June 27, 1998, reserves for $1.0 million of severance and benefits, $12.5
million of lease commitments and $3.0 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 the next four fiscal years and $1 million
per year for the following eight fiscal years.
In fiscal 1996, Rykoff-Sexton recorded a pre-tax charge of $29.7 million
which was principally reflected as a reduction in the net carrying value of
land, buildings and improvements.
In October 1995, Rykoff-Sexton concluded a restructuring plan initiated
in 1993 and credited the remaining unutilized restructuring reserve of $6.4
million into income.
NOTE 15--OTHER COMMITMENTS AND CONTINGENCIES
Legal Proceedings--The Company is involved, from time to time, 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.
Letters of Credit--The Company utilizes standby letters of credit
principally for worker's compensation self-insurance security deposit
requirements. These letters of credit are irrevocable and have one-year
renewable terms. Outstanding standby and commercial letters of credit as of
June 27, 1998 were approximately $36 million.
NOTE 16--SUBSEQUENT EVENT (UNAUDITED)
On August 28, 1998, the Company completed the outsourcing of the Rykoff-
Sexton Manufacturing Division through the sale of its assets to a third party
and entered into a six-year supply agreement to purchase products from the new
company. Gross proceeds from the supply agreement and asset sale totaled $101
million.
F-28
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 26,
1998
ASSETS ------------
<S> <C>
Current assets
Cash and cash equivalents......................................... $ 64,486
Receivables, net.................................................. 303,909
Residual interest on accounts receivable sold..................... 135,583
Inventories....................................................... 377,125
Other current assets.............................................. 32,853
Deferred income taxes............................................. 37,398
----------
Total current assets............................................. 951,354
Property and equipment, net........................................ 440,997
Goodwill and other noncurrent assets............................... 628,840
----------
Total assets..................................................... $2,021,191
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt.............................. $ 683
Current obligations under capital leases.......................... 5,592
Accounts payable.................................................. 363,253
Accrued expenses.................................................. 104,125
----------
Total current liabilities........................................ 473,653
Noncurrent liabilities
Long-term debt.................................................... 737,101
Obligations under capital leases.................................. 28,328
Deferred income taxes............................................. 6,015
Other noncurrent liabilities...................................... 101,992
----------
Total liabilities................................................ 1,347,089
----------
Commitments and contingent liabilities
Stockholders' equity............................................... 674,102
----------
Total liabilities and stockholders' equity....................... $2,021,191
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<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>
Six Months Ended
-------------------------
December 27, December 26,
1997 1998
------------ ------------
<S> <C> <C>
Net sales........................................... $2,712,086 $3,011,459
Cost of sales....................................... 2,199,343 2,459,400
---------- ----------
Gross profit........................................ 512,743 552,059
Operating expenses.................................. 449,166 447,694
Amortization of intangible assets................... 7,419 8,077
Restructuring costs................................. 38,037 --
Asset impairment.................................... 32,135 --
---------- ----------
Income (loss) from operations....................... (14,014) 96,288
Interest and other financing costs, net............. 39,246 32,672
Nonrecurring acquisition charges.................... 17,822 --
---------- ----------
Income (loss) before income taxes (benefit) and
extraordinary charge............................... (71,082) 63,616
Provision for income taxes (benefit)................ (10,251) 26,096
---------- ----------
Income (loss) before extraordinary charge........... (60,831) 37,520
Extraordinary charge, net of income tax benefit..... 9,712 2,748
---------- ----------
Net income (loss) and comprehensive income (loss)... $ (70,543) $ 34,772
========== ==========
Net income (loss) per common share:
Basic:
Before extraordinary charge....................... $ (1.35) $ 0.80
Extraordinary charge.............................. (0.22) (0.06)
---------- ----------
Net income (loss) per common share............... $ (1.57) $ 0.74
========== ==========
Diluted:
Before extraordinary charge....................... $ (1.35) $ 0.79
Extraordinary charge.............................. (0.22) (0.06)
---------- ----------
Net income (loss) per common share............... $ (1.57) $ 0.73
========== ==========
Weighted average common shares outstanding:
Basic ........................................... 44,811,000 47,039,000
Diluted.......................................... 44,811,000 47,669,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
December 27, December 26,
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)................................... $(70,543) $ 34,772
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization..................... 31,679 29,984
Write-off deferred financing costs................ 9,152 1,247
Asset impairment.................................. 32,135 --
Restructuring reserve............................. 38,037 --
Other adjustments................................. 3,594 (1,107)
Changes in working capital, net of effects from
acquisitions..................................... (84,355) (110,530)
-------- --------
Net cash used in operating activities................ (40,301) (45,634)
-------- --------
Cash flows from investing activities
Additions to property and equipment................ (60,060) (35,216)
Cost of businesses acquired, net of cash acquired.. (118) (8,438)
Proceeds from disposals of property................ 6,677 7,322
Proceeds from sale of manufacturing division
assets............................................ -- 20,755
Other.............................................. -- (535)
-------- --------
Net cash used in investing activities................ (53,501) (16,112)
-------- --------
Cash flows from financing activities
Net increase in borrowings under revolving lines of
credit............................................ -- 153,300
Increase (decrease) in long-term debt, net......... 80,786 (93,515)
Principal payments under capital lease
obligations....................................... (2,978) (3,116)
Proceeds from employee stock purchases............. 10,474 6,796
Treasury stock purchases........................... (12,417) --
Other.............................................. 1,933 4,950
-------- --------
Net cash provided by financing activities............ 77,798 68,415
-------- --------
Net increase (decrease) in cash and cash
equivalents......................................... (16,004) 6,669
Cash and cash equivalents:
Beginning of period................................ 74,432 57,817
-------- --------
End of period...................................... $ 58,428 $ 64,486
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Dollars in thousands, except where noted)
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements of U.S. Foodservice and
its consolidated subsidiaries (the "Company") at December 26, 1998 and for the
six-month periods ended December 27, 1997 and December 26, 1998, 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 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 year ended June 27,
1998. Of this amount, the Company recognized $41.0 million in the quarter ended
December 27, 1997 and the remainder 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 six months ended December 26, 1998, 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 December 26, 1998, 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 fiscal 1999.
During the six months ended December 26, 1998, the Company expended $2.1
million of costs for severance and benefits, $0.7 million of lease commitment
costs and $0.9 million of idle facility and facility closure costs. At December
26, 1998, $5.2 million of costs for severance and benefits, $9.7 million of
lease commitment costs and $4.3 million of idle facility and facility closure
costs have yet to be expended. Of these amounts, the Company expects to expend
$8.4 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
the remainder 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; $12.0 million related to costs
deferred for a new management information system which is not being placed in
service as a result of the Acquisition; and $12.8 million related to other
long-term assets at facilities being closed.
F-32
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in
thousands, except where noted)
(Unaudited)
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 six months ended December 27, 1997,
the Company charged $6.1 million to cost of goods sold and $15.6 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.
Nonrecurring Acquisition Charges. During the six months ended December
27, 1997, the Company recorded nonrecurring charges of approximately $17.8
million for merger related costs and expenses (consisting primarily of legal
and other professional fees) required to complete the transaction.
NOTE 3--PRIOR RESTRUCTURING COSTS
In connection with its acquisition of U.S. 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 six months ended December 27, 1997, the Company charged
$2.6 million against the restructuring liability and reversed $3.0 million of
unutilized reserves against restructuring costs. The reversal related to
restructuring activities for which the actual costs were overestimated or for
which contemplated restructuring plans ultimately changed. During the six
months ended December 26, 1998, the Company expended $0.1 million of costs for
severance and benefits, $0.7 million for lease commitment costs and $0.5
million for other exit costs. At December 26, 1998, $0.9 million of costs for
severance and benefits, $11.8 million of lease commitment costs and $2.5
million of other exit costs had 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 six months 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 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 six months 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
refinancing, 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.
F-33
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in
thousands, except where noted)
(Unaudited)
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% 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.
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. ("Westlund").
F-34
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in
thousands, except where noted)
(Unaudited)
The tables below set forth pro forma information for the six-month
periods ended December 27, 1997 and December 26, 1998 giving effect to the
acquisitions of Haar, Webb, Westlund, Sorrento and Outwest as if such
acquisitions had been consummated as of June 28, 1997 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
December 27, December 26,
1997 1998
------------ ------------
<S> <C> <C>
Net sales........................................... $2,929,085 $3,093,934
Income (loss) before extraordinary charges.......... $ (59,442) $ 36,157
Net income (loss)................................... $ (67,154) $ 33,409
Income (loss) per common share before extraordinary
charge:
Basic.............................................. $ (1.28) $ 0.77
Diluted............................................ $ (1.28) $ 0.76
Net income (loss) per common share:
Basic.............................................. $ (1.48) $ 0.71
Diluted............................................ $ (1.48) $ 0.70
</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.
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 thousands):
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 27, 1997 December 26, 1998
------------------------------ ---------------------------
Income Income
(loss) Share Per (loss) Share Per
Numerator Denominator share Numerator Denominator share
--------- ----------- ------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS-Income (loss)
before
extraordinary charge... $(60,831) 44,811 $ (1.35) $ 37,520 47,039 $0.80
======== ======= ======== =====
Effect of dilutive
securities:
Warrants............... -- 65
Common stock options... -- 575
Other stock-based com-
pensation
arrangements......... -- 20
------- -------
Diluted EPS-Income
(loss) before extraor-
dinary charge.......... $(60,831) 44,811 $ (1.35) $ 37,520 47,699 $0.79
======== ======= ======= ======== ======= =====
</TABLE>
The effect of stock options outstanding during fiscal 1998 were not
included in the computation of diluted EPS because othe effect would have been
antidilutive.
F-35
<PAGE>
[The graphics on the inside back cover consist of the following: (1) the U.S.
Foodservice logo in color immediately above the color caption "Proprietary
Brands" and (2) eight color product logos for U.S. Foodservice proprietary
brand products accompanied by descriptions of those products.]
[Text appearing below the caption "Proprietary Brands":]
Our proprietary brands enable us to offer our customers an exclusive and
expanding line of product alternatives to comparable national brands across a
wide range of prices. Our two-tier proprietary brand strategy emphasizes our
private brands as a direct alternative to national brand items and our
signature brands as foodservice "concepts" and specialties, such as ethnic and
gourmet product offerings.
Private Brands
We offer our customers an expanding line of products under our various private
brands. We currently offer over 8,000 private brand products, including frozen
and canned goods, fruits, vegetables and meats. We have developed a multi-tier
quality system to meet the specific requirements of different market segments.
Signature Brands
Cross Valley Farms(R)
Premium fresh produce, salads, and California frozen fruit and vegetables.
el Pasado Authentic Mexican Cuisine with a Touch of the Past(R)
A full line of Mexican products offers the ingredients to produce great Mexican
dishes and also includes prepared entrees to allow our customers an easy way to
serve authentic Mexican cuisine.
Harbor Banks(R)
High quality fresh and frozen seafood.
Hilltop Hearth(R)
A full line of baked goods consisting of breads, rolls, cakes, pies, cobblers,
cookies, muffins and more.
Patuxent Farms(R)
Fresh deli meats, cheeses and dairy products.
Rituals(R)
A complete line of gourmet and foodservice coffees, as well as marketing
services to help our customers profit from the upscale coffee bar trend.
Roseli(R)
A complete line of superior pastas, cheeses, meats, sauces and oils that are
"The Renaissance of Italian Taste(TM)".
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8,695,946 Shares
U.S. FOODSERVICE
Common Stock
---------------
PROSPECTUS
---------------
Merrill Lynch & Co.
Goldman, Sachs & Co.
Salomon Smith Barney
J.C. Bradford & Co.
First Union Capital Markets Corp.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE]
Subject to Completion
Preliminary Prospectus dated March 19, 1999
PROSPECTUS
8,695,946 Shares
U.S. FOODSERVICE
Common Stock
-----------
Stockholders of U.S. Foodservice named in this prospectus are selling
8,695,946 shares of common stock. The international managers are offering
1,739,189 shares outside the United States and Canada and the U.S. underwriters
are offering 6,956,757 shares in the United States and Canada.
Our common stock trades on the New York Stock Exchange under the symbol
"UFS." On March 18, 1999, the last reported sale price of our common stock on
the New York Stock Exchange was $42 13/16 per share.
Investing in our common stock involves risks which are described in the
"Risk Factors" section beginning on page 10 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discount..................................... $ $
Proceeds to Selling Stockholders.......................... $ $
</TABLE>
The international managers may also purchase up to an additional 260,878
shares from U.S. Foodservice at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
additional 1,043,513 shares from U.S. Foodservice.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
-----------
Merrill Lynch International
Goldman Sachs International
Salomon Smith Barney International
J.C. Bradford & Co.
-----------
The date of this prospectus is , 1999.
<PAGE>
[ALTERNATE PAGE]
UNDERWRITING
Merrill Lynch International, Goldman Sachs International, Salomon
Brothers International Limited and J.C. Bradford & Co. are acting as lead
managers of each of the international managers named below. In an international
purchase agreement among U.S. Foodservice, the selling stockholders and the
international managers, the selling stockholders have agreed to sell to the
international managers, and each of the international managers, severally and
not jointly, has agreed to purchase from the selling stockholders, the number
of shares of common stock shown opposite its name below. The obligations of the
several international managers to purchase these shares are subject to terms
and conditions contained in the international purchase agreement.
<TABLE>
<CAPTION>
Number of
International Manager Shares
--------------------- ---------
<S> <C>
Merrill Lynch International......................................
Goldman Sachs International......................................
Salomon Brothers International Limited...........................
J.C. Bradford & Co...............................................
---------
Total....................................................... 1,739,189
=========
</TABLE>
U.S. Foodservice and the selling stockholders have also entered into a
U.S. purchase agreement with a group of U.S. underwriters in the United States
and Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Goldman, Sachs & Co., Salomon Smith Barney Inc., J.C. Bradford & Co. and First
Union Capital Markets Corp. are acting as U.S. representatives. Concurrently
with the sale of 1,739,189 shares of common stock to the international managers
as described above, the selling stockholders have agreed to sell to the U.S.
underwriters, and the U.S. underwriters, severally and not jointly, have agreed
to purchase from the selling stockholders, a total of 6,956,757 shares of
common stock. The obligations of the several U.S. underwriters to purchase
these shares are subject to terms and conditions contained in the U.S. purchase
agreement. The initial public offering price per share and the total
underwriting discount per share of common stock are identical under the
international purchase agreement and the U.S. purchase agreement.
61
<PAGE>
[ALTERNATE PAGE]
In the international purchase agreement, the several international
managers have agreed to purchase all of the shares of common stock being sold
under that agreement if any of those shares are purchased. In the U.S. purchase
agreement, the several U.S. underwriters have agreed to purchase all of the
shares of common stock being sold under that agreement if any of those shares
are purchased. The agreements of the several international managers and U.S.
underwriters to purchase shares are subject to terms and conditions contained
in the purchase agreements. If there is a default by an international manager
or a U.S. underwriter, the international purchase agreement and the U.S.
purchase agreement provide that the purchase commitments of the non-defaulting
international managers or the non-defaulting U.S. underwriters may be increased
or the purchase agreements may be terminated. The closings for the sale of
shares of common stock to be purchased by the international managers and the
U.S. underwriters are conditioned upon one another.
The lead managers have advised U.S. Foodservice and the selling
stockholders that the international managers propose initially to offer the
shares of common stock to the public at the initial public offering price
appearing on the cover page of this prospectus, and to selected dealers at that
price less a concession that will not exceed $ per share of common stock.
The international managers may allow, and those dealers may reallow, a discount
that will not exceed $ per share of common stock to other dealers. After
the initial public offering, the public offering price, concession and discount
may change.
U.S. Foodservice has granted options to the international managers,
exercisable for 30 days after the date of this prospectus, to purchase up to a
total of 260,878 additional shares of common stock at the public offering price
appearing on the cover page of this prospectus, less the underwriting discount.
The international managers may exercise these options solely to cover over-
allotments, if any, made on the sale of the common stock offered by this
prospectus. If the international managers exercise these options, each
international manager will be obligated to purchase a pro rata portion, based
upon the number of shares shown opposite its name in the foregoing table, of
the additional shares. U.S. Foodservice has granted options to the U.S.
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to a total of 1,043,513 additional shares of common stock to cover
over-allotments, if any, on terms similar to those granted to the international
managers.
The following table shows the per share and total public offering price,
the underwriting discount to be paid to the international managers and the U.S.
underwriters, and the proceeds before expenses to the selling stockholders and,
if the over-allotment options are exercised in full, to U.S. Foodservice. This
information is presented assuming either no exercise or full exercise by the
international managers and the U.S. underwriters of their over-allotment
options.
<TABLE>
<CAPTION>
Total
-----
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price................................ $ $ $
Underwriting discount................................ $ $ $
Proceeds to selling stockholders..................... $ $ $
Proceeds, before expenses, to U.S. Foodservice....... $ $ $
</TABLE>
The expenses of the offerings, exclusive of the underwriting discount,
are estimated at $0.9 million and are payable by U.S. Foodservice.
The shares of common stock are being offered by the several international
managers and the several U.S. underwriters, subject to prior sale, when, as and
if issued to and accepted by them, subject to approval of legal matters by
their counsel and other conditions. The international managers and the U.S.
underwriters reserve the right to withdraw, cancel or modify this offer and to
reject orders in whole or in part.
62
<PAGE>
[ALTERNATE PAGE]
U.S. Foodservice and the selling stockholders have agreed not to directly
or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of common stock or securities convertible into or exchangeable or
exercisable for or
repayable with common stock, whether now owned or later acquired by the
person executing the agreement or as to which the person executing the
agreement acquires the power of disposition, or file or cause the filing
of a registration statement under the Securities Act with respect to any
of the foregoing; or
. enter into any swap or other agreement or transaction that transfers, in
whole or in part, the economic consequence of ownership of the common
stock or any securities convertible into or exchangeable or exercisable
for or repayable with common stock;
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated for a period of 90 days after the date of this prospectus. With
this consent, U.S. Foodservice and the selling stockholders may sell shares
before the expiration of the 90-day period without prior notice to the other
stockholders of U.S. Foodservice or to any public market in which the common
stock trades. The foregoing lock-up agreements provide, however, that U.S.
Foodservice may do the following:
1. . issue common stock under its employee or director stock, bonus or
compensation plans, or grant options to purchase common stock or
other awards under those plans, in each case as those plans are in
effect on the date of this prospectus, and
. file one or more registration statements on Form S-8 covering the
offering and sale of securities issuable under those plans;
2. . issue common stock or securities convertible into or exchangeable
or exercisable for or repayable with common stock to owners of
businesses which U.S. Foodservice may acquire in the future,
whether by merger, acquisition of assets or capital stock or
otherwise, as consideration for the acquisition of those businesses
or to management employees of those businesses in connection with
those acquisitions,
. enter into and implement price protection arrangements in
connection with those acquisitions, and
. file one or more registration statements on Form S-4 covering the
offering and sale of common stock or other securities by U.S.
Foodservice to those owners in connection with those acquisitions;
3. in connection with the future acquisition of any business, whether by
merger, acquisition of assets or capital stock or otherwise, that has
outstanding warrants, options or other securities convertible into or
exchangeable or exercisable for or repayable with common stock or other
equity securities, or that maintains employee or director bonus or
compensation plans providing for the issuance of common stock or options
to purchase common stock or other awards,
. issue substantially similar new warrants, options or other
securities to replace the outstanding options, warrants or other
securities of the acquired business,
. assume the obligations of the acquired business under its
outstanding warrants, options or other securities or plans,
. issue common stock under any of those warrants, options or other
securities, as in effect on the date of issuance or assumption,
. grant options to purchase common stock or other awards and issue
common stock under any of those plans, as in effect on the date of
acquisition, and
. file one or more registration statements on Form S-8 covering the
offering and sale of securities issuable under those plans;
63
<PAGE>
[ALTERNATE PAGE]
4. . issue common stock under acquisition agreements existing on the
date of this prospectus which were entered into by U.S. Foodservice
to acquire Lone Star Institutional Grocers, J.H. Haar & Sons and
Joseph Webb Foods, as described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--
Introduction," as those agreements are in effect on the date of
this prospectus, and
. implement price protection provisions contained in those
agreements;
5. issue common stock upon exercise of an outstanding warrant to purchase
71,460 shares of common stock as of January 31, 1999, subject to
antidilution adjustments, as that warrant is in effect on the date of
this prospectus; and
6. file one or more shelf registration statements covering the resale of:
. common stock issued to owners of businesses acquired by U.S.
Foodservice before the date of this prospectus or to the owner of
the warrant referred to in subparagraph 5 above under registration
rights agreements existing on the date of this prospectus, as those
agreements are in effect on the date of this prospectus, and
. common stock issued in accordance with subparagraph 2 above to
owners of businesses acquired by U.S. Foodservice after the date of
this prospectus, whether by merger, acquisition of assets or capital
stock or otherwise, as consideration for the acquisition of those
businesses under registration rights agreements entered into in
connection with those acquisitions.
The foregoing lock-up agreement also provides that each selling stockholder,
other than the Merrill Lynch selling stockholders, may:
. transfer common stock to the Company or any of its subsidiaries or
to a trust for the benefit of the selling stockholder or the spouse
or lineal descendants of the selling stockholder, and
. transfer common stock by gift, will or interstate succession to the
spouse or lineal descendants of the selling stockholder,
provided, in each case, that as a condition to the transfer and before it
occurs, the transferee, or the trustee or legal guardian on behalf of the
transferee, executes and delivers to Merrill Lynch, Pierce, Fenner & Smith
Incorporated a lock-up agreement containing the same terms.
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the terms of the intersyndicate agreement, the international
managers and the U.S. underwriters are permitted to sell shares of common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealers to whom they
sell shares of common stock will not offer or sell shares of common stock to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to non-U.S. or non-Canadian persons. The intersyndicate
agreement also provides that the international managers and any dealers to whom
they sell shares of common stock will not offer or sell shares of common stock
to U.S. persons or to Canadian persons or to persons they believe intend to
resell to U.S. or Canadian persons. However, these limitations on offers and
sales do not apply to transactions under the intersyndicate agreement.
The international managers and U.S. underwriters will not confirm sales
of the common stock to any account over which they exercise discretionary
authority without the prior specific written approval of the customer.
Because U.S. Foodservice may be deemed to be an affiliate of or to have a
conflict of interest with Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Merrill Lynch International, the offerings will be conducted in accordance
with Conduct Rule 2720 of the National Association of Securities Dealers, Inc.
U.S. Foodservice and the selling stockholders have agreed to indemnify
the international managers and the U.S. underwriters against specified
liabilities, including liabilities under the Securities Act. U.S. Foodservice
and the selling stockholders have also agreed to contribute to payments the
international managers and U.S. underwriters may be required to make in respect
of those liabilities.
64
<PAGE>
[ALTERNATE PAGE]
Until the distribution of the common stock is completed, SEC rules may
limit the ability of the international managers, the U.S. underwriters and
selling group members to bid for and purchase the common stock. As an exception
to these rules, the U.S. representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.
If the international managers or the U.S. underwriters create a short
position in the common stock in connection with the offerings, which would
occur if they sell more shares of common stock than are set forth on the cover
page of this prospectus, the U.S. representatives may reduce that short
position by purchasing common stock in the open market. The U.S.
representatives may also elect to reduce any short position by exercising all
or part of the over-allotment options described above.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of those purchases.
Neither U.S. Foodservice nor any of the international managers or U.S.
underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the common stock. In addition, neither U.S. Foodservice nor any of the
international managers or U.S. underwriters makes any representation that the
U.S. representatives will engage in those transactions or that those
transactions, once commenced, will not be discontinued without notice.
Purchasers of the shares offered by this prospectus may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page of this prospectus.
Merrill Lynch International and Merrill Lynch, Pierce, Fenner & Smith
Incorporated may use this prospectus for offers and sales related to market-
making transactions in common stock. Merrill Lynch International and Merrill
Lynch, Pierce, Fenner & Smith Incorporated may act as principal or agent in
these transactions, and the sales will be made at market prices or at
negotiated prices related to prevailing market prices at the time of sale.
Some of the international managers or the U.S. underwriters and their
affiliates engage in transactions with, and perform services for, U.S.
Foodservice, and have engaged, and may in the future engage, in commercial
banking and investment banking transactions with U.S. Foodservice. Some of the
selling stockholders are affiliates of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch International. For a discussion of these
relationships, see "Principal and Selling Stockholders."
Each international manager has agreed that:
. it has not offered or sold and, prior to the expiration of the period of
six months from the closing date of the offerings, will not offer or
sell any shares of common stock to persons in the United Kingdom, except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments, as principal or agent, for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;
. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
65
<PAGE>
[ALTERNATE PAGE]
. it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996, as amended, or is a person to
whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction, except in the
United States, that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to U.S. Foodservice, the selling stockholders or the
shares of common stock, where action for that purpose is required. Accordingly,
the shares of common stock may not be offered or sold, directly or indirectly,
and neither this prospectus nor any other offering material or advertisements
in connection with the shares of common stock may be distributed or published,
in or from any country or jurisdiction except in compliance with any applicable
rules and regulations of that country or jurisdiction.
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ALTERNATE PAGE]
8,695,946 Shares
U.S. FOODSERVICE
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch International
Goldman Sachs International
Salomon Smith Barney International
J.C. Bradford & Co.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale and distribution of the securities being registered. All amounts
except the SEC registration and NASD filing fees are estimated.
<TABLE>
<CAPTION>
Item Amount
---- --------
<S> <C>
SEC registration fee............................................... $122,284
NYSE listing fee................................................... 5,000
NASD filing fee.................................................... 32,500
Blue Sky fees and expenses......................................... 5,000
Printing expenses.................................................. 200,000
Legal fees and expenses............................................ 300,000
Accounting fees and expenses....................................... 100,000
Transfer Agent and Registrar fees.................................. 35,000
Miscellaneous...................................................... 100,216
--------
Total............................................................ $900,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Reference is made to the provisions of Article XII of the registrant's
Restated Certificate of Incorporation filed as Exhibit 4.1 hereto and the
provisions of Article XII of the registrant's Amended and Restated By-laws
filed as Exhibit 4.2 hereto.
The registrant is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL provides for the
indemnification, under certain circumstances, of any person in connection with
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than derivative actions), brought or threatened involving
such persons because of such person's service in any such capacity with respect
to another corporation or other entity at the request of such corporation.
The registrant's Amended and Restated By-Laws provide for the
indemnification of the officers and directors of the registrant to the fullest
extent permitted by the DGCL. Article XII of the By-Laws provides that each
person who was or is made a party to (or is threatened to be made a party to)
any civil or criminal action, suit or proceeding by reason of the fact that
such person is or was a director or officer of the registrant shall be
indemnified and held harmless by the registrant to the fullest extent
authorized by the DGCL against all expense, liability and loss (including,
without limitation, attorneys' fees) incurred by such person in connection
therewith, if such person acted in good faith and in a manner such person
reasonably believed to be or not opposed to the best interests of the
registrant and had no reason to believe that such person's conduct was illegal.
Article XII of the registrant's Restated Certificate of Incorporation
provides that, to the fullest extent permitted by the DGCL, the registrant's
directors will not be personally liable to the registrant or its stockholders
for monetary damages resulting from a breach of their fiduciary duties as
directors. However, nothing contained in such Article XII shall eliminate or
limit the liability of directors (i) for any breach of the director's duty of
loyalty to the registrant or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law, (iii) under Section 174 of the DGCL or (iv) for any transaction from
which the director derived an improper personal benefit.
II-1
<PAGE>
The registrant maintains directors and officers liability insurance,
which covers directors and officers of the registrant against certain claims or
liabilities arising out of the performance of their duties.
In the registration rights agreements with the Company pursuant to which
the securities offered hereby are being registered, the selling stockholders
have agreed to indemnify the registrant, its directors, officers and agents and
each person, if any, who controls the registrant against certain liabilities,
including certain liabilities under the Securities Act.
Item 16: Exhibits
(a) Exhibits
The following Exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<C> <S>
*1.1 Form of U.S. Purchase Agreement.
*1.2 Form of International Purchase Agreement.
4.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-3 (Commission File No. 333-59785)).
4.2 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-3
(Commission File No. 333-41795)).
4.3 Specimen certificate representing common stock, par value $.01 per
share, of the Company (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (Commission File No. 333-
27275)).
4.4 Rights Agreement, dated as of February 19, 1996, between U.S.
Foodservice and The Bank of New York, as Rights Agent (the "Rights
Agreement") (incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A dated February 22, 1996).
4.5 Amendment No. 1 to Rights Agreement, dated as of May 17, 1996
(incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the
Company's Registration Statement on Form S-3 (Commission File No. 333-
07321)).
4.6 Amendment No. 2 to Rights Agreement, dated as of September 26, 1996
(incorporated by reference to Exhibit 10.1 to Amendment No. 2 to the
Company's Registration Statement on Form S-3 (Commission File No. 333-
14039)).
4.7 Amendment No. 3 to Rights Agreement, dated as of June 30, 1997
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on July 2, 1997).
4.8 Amendment No. 4 to Rights Agreement, dated as of December 23, 1997
(incorporated by reference to the Company's Current Report on Form 8-K
filed on January 7, 1998).
* 5.1 Opinion of Hogan & Hartson L.L.P., counsel to the Company, regarding the
validity of the securities being offered.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
(previously filed).
23.2 Consents of KPMG LLP, independent accountants (previously filed).
23.3 Consent of Arthur Andersen LLP, independent accountants (previously
filed).
*23.4 Consent of Hogan & Hartson L.L.P. (contained in Exhibit 5.1).
24.1 Power of Attorney (previously filed).
</TABLE>
- --------
* Filed herewith.
Item 17. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
II-2
<PAGE>
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the General Corporation Law of the State of
Delaware, the Restated Certificate of Incorporation or the Amended and
Restated By-Laws of registrant, indemnification agreements entered into
between registrant and its officers and directors, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbia, State of
Maryland, on March 19, 1999.
U.S. FOODSERVICE
/s/ James L. Miller
By: _________________________________
James L. Miller
President and Chief Executive
Officer (Duly Authorized Officer)
Pursuant to the requirements of the Securities Act of 1933, this
amendment to registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James L. Miller Chairman of the Board, March 19, 1999
______________________________________ President and Chief
James L. Miller Executive Officer
(Principal Executive
Officer)
/s/ Lewis Hay, III Director, Executive Vice March 19, 1999
______________________________________ President and Chief
Lewis Hay, III Financial Officer
(Principal Financial
Officer)
/s/ George T. Megas Vice President and Chief March 19, 1999
______________________________________ Accounting Officer
George T. Megas (Principal Accounting
Officer)
/s/ Michael J. Drabb * Director March 19, 1999
______________________________________
Michael J. Drabb
/s/ David M. Abramson Director March 19, 1999
______________________________________
David M. Abramson
/s/ Eric E. Glass * Director March 19, 1999
______________________________________
Eric E. Glass
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Mark P. Kaiser Director March 19, 1999
______________________________________
Mark P. Kaiser
/s/ Paul I. Latta, Jr. * Director March 19, 1999
______________________________________
Paul I. Latta, Jr.
/s/ Dean R. Silverman * Director March 19, 1999
______________________________________
Dean R. Silverman
/s/ Jeffrey D. Serkes * Director March 19, 1999
______________________________________
Jeffrey D. Serkes
/s/ James P. Miscoll * Director March 19, 1999
______________________________________
James P. Miscoll
/s/ Bernard Sweet * Director March 19, 1999
______________________________________
Bernard Sweet
/s/ Albert J. Fitzgibbons III * Director March 19, 1999
______________________________________
Albert J. Fitzgibbons III
/s/ Matthias B. Bowman * Director March 19, 1999
______________________________________
Matthias B. Bowman
</TABLE>
/s/ David M. Abramson
*By:_____________________________
David M. Abramson
(Attorney-in-Fact)
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------- --------
<S> <C>
* 1.1 Form of U.S. Purchase Agreement.
* 1.2 Form of International Purchase Agreement.
4.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-3 (Commission File No. 333-59785)).
4.2 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-3
(Commission File No. 333-41795)).
4.3 Specimen certificate representing common stock, par value $.01 per
share, of the Company (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (Commission File No. 333-
27275)).
4.4 Rights Agreement, dated as of February 19, 1996, between U.S.
Foodservice and The Bank of New York, as Rights Agent (the "Rights
Agreement") (incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A dated February 22, 1996).
4.5 Amendment No. 1 to Rights Agreement, dated as of May 17, 1996
(incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the
Company's Registration Statement on Form S-3 (Commission File No. 333-
07321)).
4.6 Amendment No. 2 to Rights Agreement, dated as of September 26, 1996
(incorporated by reference to Exhibit 10.1 to Amendment No. 2 to the
Company's Registration Statement on Form S-3 (Commission File No. 333-
14039)).
4.7 Amendment No. 3 to Rights Agreement, dated as of June 30, 1997
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on July 2, 1997).
4.8 Amendment No. 4 to Rights Agreement, dated as of December 23, 1997
(incorporated by reference to the Company's Current Report on Form 8-K
filed on January 7, 1998).
* 5.1 Opinion of Hogan & Hartson L.L.P., counsel to the Company, regarding
the validity of the securities being offered.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
(previously filed).
23.2 Consents of KPMG LLP, independent accountants (previously filed).
23.3 Consent of Arthur Andersen LLP, independent accountants (previously
filed).
*23.4 Consent of Hogan & Hartson L.L.P. (contained in Exhibit 5.1).
24 Power of Attorney (previously filed).
</TABLE>
- --------
*Filed herewith.
<PAGE>
Exhibit 1.1
- --------------------------------------------------------------------------------
U.S. FOODSERVICE
(a Delaware corporation)
[ ] Shares of Common Stock
U.S. PURCHASE AGREEMENT
-----------------------
Dated: March [ ], 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties.................................. 4
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing................. 17
SECTION 3. Covenants of the Company........................................ 19
SECTION 4. Payment of Expenses............................................. 23
SECTION 5. Conditions of U.S. Underwriters' Obligations.................... 24
SECTION 6. Indemnification................................................. 29
SECTION 7. Contribution.................................................... 33
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.. 34
SECTION 9. Termination of Agreement........................................ 34
SECTION 10. Default by One or More of the U.S. Underwriters................ 35
SECTION 11. Default by One or More of the Selling Shareholders or the
Company........................................................ 36
SECTION 12. Agent for Service; Submission to Jurisdiction; Waiver of
Immunities..................................................... 37
SECTION 13. Notices........................................................ 38
SECTION 14. Parties........................................................ 38
SECTION 15. Governing Law and Time......................................... 38
SECTION 16. Effect of Headings............................................. 38
SCHEDULES
Schedule A - List of Underwriters.......................... Sch A-1
Schedule B - List of Selling Shareholders.................. Sch B-1
Schedule C - Pricing Information........................... Sch C-1
Schedule D - List of Subject Subsidiaries.................. Sch D-1
Schedule E - List of Registration Rights Agreements........ Sch E-1
Schedule F - List of Counsel to Merrill Lynch Sellers...... Sch F-1
EXHIBITS
Exhibit A-1 - Form of Opinion of Hogan & Hartson L.L.P...... A-1-1
Exhibit A-2 - Form of Opinion of Chapman & Cutler........... A-2-1
Exhibit A-3 - Form of Opinion of Lionel Sawyer & Collins.... A-3-1
Exhibit B - Form of Opinion of Katten, Muchin & Zavis..... B-1
Exhibit C - Form of Supplemental Agreement................ C-1
Exhibit D - Form of Letter of Resignation................. D-1
</TABLE>
<PAGE>
U.S. FOODSERVICE
(a Delaware corporation)
Shares of Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
March , 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Goldman, Sachs & Co.
Salomon Smith Barney Inc.
J.C. Bradford & Co.
First Union Capital Markets Corp.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
U.S. Foodservice, a Delaware corporation (the "Company"), and the other
persons listed in Schedule B hereto (collectively, the "Selling Shareholders"),
confirm their respective agreements with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other U.S.
underwriters named in Schedule A hereto (collectively, the "U.S. Underwriters",
which term shall also include any underwriter substituted as hereinafter
provided in Section 10 hereof), for whom Merrill Lynch, Goldman, Sachs & Co.,
Salomon Smith Barney Inc., J.C. Bradford & Co. and First Union Capital Markets
Corp. are acting as representatives (in such capacity, the "U.S.
Representatives"), with respect to (i) the sale by the Selling Shareholders,
acting severally and not jointly, and the purchase by the U.S. Underwriters,
acting severally and not jointly, of the respective numbers of shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock") set forth
in Schedules A and B hereto and (ii) the grant by the Company to the U.S.
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of additional shares of Common
Stock to cover over-allotments, if any. The aforesaid shares of Common Stock
(the "Initial U.S. Securities") to be purchased by the U.S. Underwriters and all
or any part of the shares of Common Stock subject to the option described in
Section 2(b) hereof (the "U.S. Option Securities") are hereinafter called,
collectively, the "U.S. Securities".
It is understood that the Company and the Selling Shareholders are
concurrently entering into an agreement dated the date hereof (the
"International Purchase Agreement") providing for
<PAGE>
the offering by the Selling Shareholders of an aggregate of shares of Common
Stock (the "Initial International Securities") through arrangements with certain
underwriters outside the United States and Canada (the "International Managers")
for which Merrill Lynch International, Goldman Sachs International, Salomon
Brothers International Limited and J.C. Bradford & Co. are acting as lead
managers (the "Lead Managers", which term shall also include any underwriter
substituted as provided in Section 10 of the International Purchase Agreement)
and the grant by the Company to the International Managers, acting severally and
not jointly, of an option to purchase all or any part of the International
Managers' pro rata portion of up to additional shares of Common Stock solely to
cover over-allotments, if any (the "International Option Securities"). The
Initial International Securities and the International Option Securities are
hereinafter called the "International Securities". It is understood that the
Selling Shareholders are not obligated to sell and the U.S. Underwriters are not
obligated to purchase any Initial U.S. Securities unless all of the Initial
International Securities are contemporaneously purchased by the International
Managers.
The U.S. Underwriters and the International Managers are hereinafter
called, collectively, the "Underwriters" and, individually, an "Underwriter";
the Initial U.S. Securities and the Initial International Securities are
hereinafter collectively called the "Initial Securities"; the U.S. Option
Securities and the International Option Securities are hereinafter collectively
called the "Option Securities"; the U.S. Securities and the International
Securities are hereinafter collectively called the "Securities"; and this
Agreement and the International Purchase Agreement are hereinafter called,
collectively, the "Purchase Agreements" and, individually, a "Purchase
Agreement".
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company and the Selling Shareholders understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities as soon as
the U.S. Representatives deem advisable after this Agreement has been executed
and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-73447) and certain
amendments thereto covering the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Company will either (i) prepare and file a U.S. prospectus
and an international prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
Two forms of prospectus are to be used in connection with the offering and sale
of the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical
to the Form of U.S. Prospectus, except for the front cover and back cover pages
and the information under the caption "Underwriting". The information included
in any such prospectus or in any such Term Sheet, as the case may be, that was
omitted
2
<PAGE>
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became effective
(a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information". Each Form of U.S. Prospectus and Form of International
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called, together with the
documents incorporated or deemed to be incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, a "preliminary prospectus".
Such registration statement, including the exhibits thereto, schedules thereto,
if any, and the documents incorporated or deemed to be incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement". Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement", and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final Form of U.S. Prospectus and the final Form of
International Prospectus, in each case including the documents incorporated or
deemed to be incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the respective forms first furnished to the Underwriters
for use in connection with the offering of the Securities, are herein called the
"U.S. Prospectus" and the "International Prospectus", respectively, and,
collectively, the "Prospectuses" and, individually, a "Prospectus". If Rule 434
is relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated March 15, 1999 and preliminary
International Prospectus dated March 15, 1999, respectively, each together with
the applicable Term Sheet, and all references in this Agreement to the date of
such Prospectuses shall mean the date of the applicable Term Sheet. For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "given", "set forth", "described", "contained"
"included" or "stated" in the Registration Statement, any preliminary prospectus
or any Prospectus (and all other references of like import) shall be deemed to
mean and include all such financial statements and schedules and other
information which is incorporated or deemed to be incorporated by reference in
the Registration Statement, such preliminary prospectus or such Prospectus, as
the case may be; and all references in this Agreement to amendments to the
Registration Statement or amendments or supplements to any preliminary
prospectus or any Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934, as amended (the "1934
Act"), which is incorporated or deemed to be incorporated by reference in the
Registration Statement, such preliminary prospectus or such Prospectus, as the
case may be.
As used in this Agreement, "Standstill Agreement" means the Standstill
Agreement dated as of May 17, 1996 by and between Rykoff-Sexton, Inc., a
Delaware corporation, and the ML Entities (as defined therein), "Support
Agreement" means the Amended and Restated Support Agreement, dated as of June
30, 1997, by and among JP Foodservice, Inc., a Delaware corporation, Merrill
Lynch Capital Partners, Inc. and the other persons whose names are set forth
3
<PAGE>
on the signature pages thereof and acknowledged by Rykoff-Sexton, Inc., and
"Supplemental Agreement" means a Supplemental Agreement substantially in the
form of Exhibit D hereto among the Company, U.S. Foodservice, Inc., a Delaware
corporation ("USF"), and the other parties thereto.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b) hereof, and agrees with each U.S. Underwriter,
as follows:
(i) Compliance with Registration Requirements. The Company meets the
-----------------------------------------
requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any U.S. Option Securities are
purchased, at each Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments thereto complied and will
comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. Neither of the Prospectuses nor any amendments or supplements
thereto, at the time the Prospectuses or any amendments or supplements
thereto were issued and at the Closing Time (and, if any U.S. Option
Securities are purchased, at each Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of Rule
434. The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or the U.S.
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any U.S. Underwriter through the
U.S. Representatives expressly for use in the Registration Statement or the
U.S. Prospectus.
Each preliminary prospectus and each prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424, complied when so filed in all
material respects with the 1933 Act Regulations and each preliminary
prospectus and each of the Prospectuses delivered to the Underwriters for
use in connection with this offering was identical to the electronically
4
<PAGE>
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or deemed to
----------------------
be incorporated by reference in the Registration Statement and the
Prospectuses, at the respective times they were or hereafter are filed with
the Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when read together
with the other information in the Prospectuses, (A) at the time the
Registration Statement became effective did not contain and, at the time
any Rule 462(b) Registration Statement becomes effective, will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (B) at the time the Prospectuses were issued and at the
Closing Time (and, if any U.S. Option Securities are purchased, at each
Date of Delivery), did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included in the
--------------------
Registration Statement and the Prospectuses, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified, after giving effect to
the restatement of such financial statements to reflect acquisitions made
by the Company which, in accordance with GAAP (as defined below), were
accounted for as poolings of interests; such financial statements have been
prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved; and
the combination of the Company's consolidated financial statements with the
financial statements of businesses acquired in pooling-of-interests
transactions has been prepared in accordance with GAAP. The supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
summary financial data and the selected financial data included in the
Prospectuses present fairly the information shown therein and have been
compiled on a basis consistent with that of the financial statements from
which such data were derived. No pro forma financial statements, and no
financial statements of any entity or business other than the consolidated
financial statements of the Company and its consolidated subsidiaries as of
June 28, 1997 and June 27, 1998, for the fiscal years ended June 29, 1996,
June 28, 1997 and June 27, 1998, as of September 26, 1998, for the three
months ended September 27, 1997 and September 26, 1998, as of December 26,
1998 and for the three and six-month periods ended December 27, 1997 and
December 26, 1998, are included in the Registration Statement or the
Prospectuses.
5
<PAGE>
(v) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has the corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under the Purchase Agreements and the Supplemental Agreement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the Company
-----------------------------
has been duly organized and is validly existing and in good standing under
the laws of the jurisdiction of its organization, has the corporate power
and authority or the power and authority as a limited liability company,
limited partnership or general partnership, as the case may be, to own,
lease and operate its properties and to conduct its business as described
in the Prospectuses and is duly qualified to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; and, except as otherwise
disclosed in the Registration Statement, (A) all of the issued and
outstanding capital stock of each such subsidiary that is a corporation has
been duly authorized and validly issued, is fully paid and non-assessable
and is owned by the Company, directly or through wholly-owned subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity, and none of the outstanding shares of capital
stock of any such subsidiary were issued in violation of the preemptive or
similar rights of any security holder of such subsidiary, (B) all of the
issued and outstanding limited liability company interests of each such
subsidiary that is a limited liability company, if any, have been duly
authorized and validly issued, are fully paid and non-assessable and are
owned by the Company, directly or through wholly-owned subsidiaries, free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity, and none of the outstanding limited liability company
interests of any such subsidiary were issued in violation of the preemptive
or similar rights of any security holder of such subsidiary, and (C) all of
the issued and outstanding limited and general partnership interests of
each such subsidiary that is a partnership have been duly authorized and
validly issued and are owned by the Company, directly or
6
<PAGE>
through wholly-owned subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity, and none of the
outstanding limited or general partnership interests of any such subsidiary
were issued in violation of the preemptive or similar rights of any
security holder of such subsidiary.
(viii) Revenues and Assets of Subject Subsidiaries. As of December
-------------------------------------------
26, 1998 and for the six months then ended, the Company and the
subsidiaries of the Company listed on Schedule D hereto (the "Subject
Subsidiaries") had total net sales and total assets (determined on a
consolidated basis in accordance with GAAP but excluding therefrom all
amounts attributable to (A) any other subsidiary and (B) any investment
(other than an investment classified as a cash equivalent in accordance
with GAAP) or other equity interest in any entity that is not a Subject
Subsidiary) of not less than 70% of net sales and 70% of total assets,
respectively, of the Company and its subsidiaries determined on a
consolidated basis in accordance with GAAP. Each Subject Subsidiary is a
corporation and Schedule D accurately sets forth the jurisdiction of
incorporation of each Subject Subsidiary.
(ix) Capitalization. All of the issued and outstanding shares of
--------------
capital stock of the Company (including the Securities to be purchased by
the Underwriters from the Selling Shareholders pursuant to the Purchase
Agreements) have been duly authorized and validly issued and are fully paid
and non-assessable; none of the outstanding shares of capital stock of the
Company (including the Securities to be purchased by the Underwriters from
the Selling Shareholders pursuant to the Purchase Agreements) were issued
in violation of preemptive or other similar rights of any security holder
of the Company.
(x) Authorization of Agreement. This Agreement and the
--------------------------
International Purchase Agreement have been duly authorized, executed and
delivered by the Company.
(xi) Authorization and Description of Securities. The Securities
-------------------------------------------
which the U.S. Underwriters and the International Managers have the option
to purchase from the Company have been duly authorized for issuance and
sale to the U.S. Underwriters pursuant to this Agreement and to the
International Managers pursuant to the International Purchase Agreement,
respectively, and, if and when issued and delivered by the Company pursuant
to this Agreement and the International Purchase Agreement, respectively,
against payment of the consideration set forth herein and therein,
respectively, will be validly issued, fully paid and non-assessable; the
Common Stock, the Company's authorized but unissued preferred stock, par
value $.01 per share (the "Preferred Stock"), the Company's authorized but
unissued Preferred Stock designated as Series A Junior Participating
Preferred Stock, the Rights Agreement dated as of February 19, 1996, as
amended (the "Rights Agreement"), between the Company and The Bank of New
York, as rights agent, and the preferred share purchase rights (the
"Rights") issued under the Rights Agreement conform to all of the
respective statements relating thereto contained in the Prospectuses and
such statements conform to the rights set forth in the instruments defining
such rights; no holder of Securities will be subject to personal liability
by reason of being such a holder; and the issuance of the Securities is not
subject to the preemptive or other similar rights of any security holder of
the Company.
7
<PAGE>
(xii) Absence of Defaults and Conflicts. Neither the Company nor
---------------------------------
any of its subsidiaries is in violation of its charter or by-laws,
partnership agreement, limited liability company agreement or other similar
organizational document or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease
or any other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any subsidiary is
subject (collectively, the "Agreements and Instruments") except for such
violations or defaults that would not have a Material Adverse Effect; and
the execution, delivery and performance of the Purchase Agreements and the
consummation of the transactions contemplated in the Purchase Agreements
and in the Registration Statement (including the sale to the Underwriters
and public offering of the Securities, and the issuance and sale (if any)
of the Securities which the Underwriters have the option to purchase from
the Company pursuant to the Purchase Agreements and the use of the proceeds
therefrom by the Company as described in the Prospectuses under the caption
"Use of Proceeds") and compliance by the Company with its obligations under
the Purchase Agreements have been duly authorized by the Company by all
necessary corporate action and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any subsidiary
pursuant to, any of the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not, in the case of any Agreement or Instrument other than the Escrow
Agreement (as defined below) and the Stock Purchase Agreement dated as of
October 30, 1998 (the "Stock Purchase Agreement") among the Company, Joseph
Webb Foods, Inc. and the Webb Sellers, result in a Material Adverse
Effect), nor will such action result in any violation of the provisions of
the charter or by-laws, partnership agreement, limited liability company
agreement or other similar organizational document of the Company or any
subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their respective assets, properties or operations. As
used herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any subsidiary.
(xiii) Rights Plan. Each share of issued and outstanding Common
-----------
Stock (including the Securities to be purchased by the Underwriters from
the Selling Shareholders pursuant to the Purchase Agreements) has one Right
attached to it, and each of the Securities which the Underwriters have the
option to purchase from the Company pursuant to the Purchase Agreements
will, if and when issued, have one Right attached to it; and the purchase
by the Underwriters of the Securities to be purchased by them pursuant to
the Purchase Agreements will not result in the occurrence of a
"Distribution Date" (as defined in the Rights Agreement) or otherwise
result in the separation of Rights from the related Common Stock
certificates or the distribution of separate certificates evidencing the
Rights.
8
<PAGE>
(xiv) Absence of Labor Dispute. No labor dispute with the employees
------------------------
of the Company or any subsidiary exists or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in any such case, might reasonably be expected to result in a
Material Adverse Effect.
(xv) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any
subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be expected
to materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in the Purchase Agreements or
the performance by the Company or the Selling Shareholders of their
respective obligations under the Purchase Agreements; the aggregate of all
pending legal or governmental proceedings to which the Company or any
subsidiary is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
businesses of the Company and its subsidiaries, could not reasonably be
expected to result in a Material Adverse Effect.
(xvi) Accuracy of Exhibits. There are no contracts or documents
--------------------
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xvii) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the
businesses now operated by them, and neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
might reasonably be expected to result in a Material Adverse Effect.
(xviii) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency,
domestic or foreign, is necessary or required for the performance by the
Company of its obligations under the Purchase Agreements, in connection
with the sale to the Underwriters and public offering of the Securities or
the issuance and sale, if any, of the Securities which the Underwriters
have the option to purchase from the Company under the Purchase Agreements,
or for the consummation of
9
<PAGE>
the other transactions contemplated by the Purchase Agreements, except such
as have already been obtained under the 1933 Act or the 1933 Act
Regulations and such as may be required under state securities or blue sky
laws.
(xix) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the businesses now operated by them; the Company and
its subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xx) Title to Property. The Company and its subsidiaries have good
-----------------
and marketable title to all real property owned by them and good title to
all other properties owned by them, in each case, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Prospectuses or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its
subsidiaries; and all of the leases and subleases material to the business
of the Company and its subsidiaries, considered as one enterprise, and
under which the Company or any of its subsidiaries holds properties
described in the Prospectuses, are in full force and effect, and neither
the Company nor any of its subsidiaries has any notice of any claim that
has been asserted by anyone adverse to the rights of the Company or any of
its subsidiaries under any of the leases or subleases referred to above, or
affecting or questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises under any such
lease or sublease, which, singly or in the aggregate, might reasonably be
expected to result in a Material Adverse Effect.
(xxi) Compliance with Cuba Act. To the extent applicable, the
------------------------
Company has complied with, and is and will be in compliance with, the
provisions of that certain Florida act relating to disclosure of doing
business with Cuba, codified as Section 517.075 of the Florida statutes,
and the rules and regulations thereunder (collectively, the "Cuba Act") or
is exempt therefrom.
(xxii) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale (if any) of the Securities which the Underwriters have
the option to purchase from the Company pursuant to the Purchase Agreements
and the application of the net proceeds therefrom as described in the
Prospectuses, will not be, an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
10
<PAGE>
(xxiii) Environmental Laws. Except as described in the
------------------
Registration Statement and except as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with the requirements of such
Environmental Laws, permits, authorizations and approvals, (C) there are no
pending or threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its subsidiaries and (D) there are no events
or circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xxiv) NYSE. The outstanding shares of Common Stock (including the
----
Securities to be sold by the Selling Shareholders to the Underwriters under
the Purchase Agreements) are listed on the New York Stock Exchange and the
Securities which the Underwriters have the option to purchase from the
Company pursuant to the Purchase Agreements have been approved for listing,
subject to official notice of issuance, on the New York Stock Exchange.
(xxv) Stock Certificates. The certificates evidencing the
------------------
Securities sold by the Selling Shareholders to the Underwriters pursuant to
the Purchase Agreements will not, upon delivery to the Underwriters, bear
any restrictive legends or be subject to any stop transfer instructions or
similar restrictions on transfer.
(xxvi) Registration Rights. Except for the instruments and
-------------------
agreements listed on Schedule E hereto (collectively, the "Registration
Rights Agreements"), there are no contracts, agreements or understandings
between the Company or any of its subsidiaries, on the one hand, and any
person, on the other hand, granting such person the right to require the
Company or any of its subsidiaries to file a registration statement under
the 1933 Act with respect to any securities (other than contractual
obligations by the Company to file registration statements on Form S-8
covering issuances of its Common Stock pursuant to its employee or director
stock, bonus or compensation plans) or to require the Company or any of its
subsidiaries to include such securities in any registration statement filed
by the Company under the 1933 Act or in any public offering of securities.
True, complete and correct copies of the Registration Rights Agreements
have been delivered to the U.S. Representatives, and, except in the case of
the RSI
11
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Agreement (as defined in Schedule E hereto), Schedule E accurately
sets forth, for each such Registration Rights Agreement, (i) the total
number and type of securities which are entitled to the registration rights
thereunder and (ii) the name of each holder of any such securities and the
number of securities held by each such holder. The Company and its
subsidiaries have complied with all of their obligations under the
Registration Rights Agreements in connection with the transactions
contemplated by the Purchase Agreements, and each person who has or would
have had a right to register any securities pursuant to the Registration
Statement or to include any securities in the offerings contemplated by the
Purchase Agreements has been offered the opportunity to register such
securities pursuant to the Registration Statement and to include such
securities in the offerings contemplated by the Purchase Agreements, all in
compliance with the Registration Rights Agreements, and each such person
has either waived or elected not to exercise such rights or there has been
included in the Registration Statement and the offerings contemplated by
the Purchase Agreements the number and type of securities such person is
entitled to include therein pursuant to the relevant Registration Rights
Agreement.
(xxvii) Supplemental Agreement. The Supplemental Agreement has been
----------------------
duly authorized, executed and delivered by, and is a valid, binding and
enforceable agreement of, the Company and USF, enforceable against the
Company and USF in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or
by general equitable principles; and the representations and warranties of
the Company and USF set forth in the Supplemental Agreement are true,
complete and correct; and, at the Closing Time, the Standstill Agreement
will have been terminated and the Support Agreement will have been
terminated to the extent provided in the Supplemental Agreement.
(xxviii) No Right of First Refusal. Assuming that the Merrill Lynch
-------------------------
Sellers (as defined in Schedule B hereto) comply, in connection with the
Offering Transactions (as defined in the Supplemental Agreement), with
their respective obligations under Section 4.1(c) of the Standstill
Agreement as amended by the Supplemental Agreement, neither the Company nor
any of its subsidiaries has any right of first refusal or other similar
right to purchase any of the Securities to be sold by the Selling
Shareholders to the Underwriters pursuant to the Purchase Agreements. None
of the Securities to be sold by the Webb Sellers (as defined in Schedule B
hereto) is subject to any security interest, mortgage, pledge, lien,
charge, claim, equity or encumbrance of any kind (collectively,
"Encumbrances") in favor of the Company or any of its subsidiaries or
securing any obligation to or agreement with the Company or any of its
subsidiaries, except that certain such Securities are subject to the terms
of the Escrow Agreement dated as of November 16, 1998 between the Company
PNC Bank, National Association, as escrow agent (the "Escrow Agent"), and
the Webb Sellers (the "Escrow Agreement'). The Escrow Agreement does not
constitute or create a security interest, mortgage or lien on, or other
pledge of, any such Securities, and neither the Company nor any of its
subsidiaries has filed or recorded any financing statement, mortgage or
other similar document in any governmental office in respect of any such
Securities; the Company has full right, power and authority under the
Escrow Agreement and otherwise to duly and validly waive any provisions of
the Escrow Agreement and any Encumbrances created
12
<PAGE>
thereby; and the Company hereby waives any and all Encumbrances arising
under or pursuant to the Escrow Agreement in respect of the Securities to
be sold to the Underwriters by the Webb Sellers pursuant to the Purchase
Agreements and also waives any provisions of the Escrow Agreement which
would limit or prevent, or be breached or violated by, the sale or transfer
of such Securities to the Underwriters, provided that the foregoing waiver
shall not alter or affect any agreement between the Company and the Webb
Sellers requiring that proceeds from the sale of certain such Securities be
deposited in escrow by the Custodian (as defined below) or the Webb Sellers
or requiring that certain such Securities be returned to escrow by the
Custodian or the Webb Sellers in the event that the Purchase Agreements are
terminated or the sale of such Securities to the Underwriters is not
consummated, it being understood that neither the U.S. Representatives nor
the International Managers nor any of the Underwriters shall have any
responsibility or obligation whatsoever for depositing any such monies in
escrow or for returning any such Securities to escrow.
(b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents and warrants to each
U.S. Underwriter as of the date hereof, as of the Closing Time, and, if such
Selling Shareholder is selling Option Securities on a Date of Delivery, as of
each such Date of Delivery, and agrees with each U.S. Underwriter, as follows,
except that the Merrill Lynch Sellers (as defined in Schedule B hereto) do not
make the representations and warranties set forth in subparagraphs (iv), (v),
(x)(A) or (xii) of this Section 1(b), the Webb Sellers do not make the
representations and warranties set forth in subparagraph (x)(B) of this Section
1(b), and only ML Offshore LBO Partnership No. B-XVIII and ML Offshore LBO
Partnership No. XIII make the representations and warranties set forth in
subparagraph (xiii) of this Section 1(b):
(i) Accurate Disclosure. At the respective times the Registration
-------------------
Statement, and the Rule 462(b) Registration Statement and any post-
effective amendments thereto became effective and the Closing Time (and, if
any Option Securities are purchased, at each Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and neither of the Prospectuses nor any amendments or
supplements thereto, at the time the Prospectuses or any amendments or
supplements thereto were issued and at the Closing Time (and, if any U.S.
Option Securities are purchased, at each Date of Delivery), included or
will include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided that the representations and warranties in this
subparagraph (i) shall only apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, the
Prospectuses and any amendments or supplements thereto made in reliance
upon and in conformity with information furnished or confirmed in writing
to the Company by or on behalf of such Selling Shareholder expressly for
use in the Registration Statement or any Prospectus or any amendment or
supplement thereto; and such Selling Shareholder is not prompted to sell
the Securities to be sold by such Selling Shareholder under the Purchase
Agreements by any information concerning the Company or any subsidiary of
the Company which is not set forth in the Prospectuses.
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<PAGE>
(ii) Authorization of Agreements. Such Selling Shareholder (if not
---------------------------
a natural person) has been duly organized and is validly existing and in
good standing under the laws of the jurisdiction of its organization. Such
Selling Shareholder has full right, power and authority to execute, deliver
and perform its obligations under the Purchase Agreements and, except in
the case of the representations and warranties made by the Merrill Lynch
Sellers (none of whom is entering into a Power of Attorney or Custody
Agreement), its Power of Attorney and its Custody Agreement (as such terms
are defined below), and to sell, transfer and deliver the Securities to be
sold by such Selling Shareholder under the Purchase Agreements. The
execution and delivery of the Purchase Agreements and, except in the case
of the representations and warranties made by the Merrill Lynch Sellers,
its Power of Attorney and its Custody Agreement by such Selling
Shareholder, the sale and delivery of the Securities to be sold by such
Selling Shareholder pursuant to the Purchase Agreements and the
consummation of the other transactions contemplated by the Purchase
Agreements, and compliance by such Selling Shareholder with its obligations
under the Purchase Agreement and, except in the case of the representations
and warranties made by the Merrill Lynch Sellers, its Power of Attorney and
its Custody Agreement, have been duly authorized by such Selling
Shareholder and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon any of the Securities to be sold by such Selling
Shareholder or any other property or assets of such Selling Shareholder
pursuant to, any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, license, lease or other agreement or instrument to
which such Selling Shareholder is a party or by which such Selling
Shareholder may be bound, or to which any of the property or assets of such
Selling Shareholder is subject, nor will such action result in any
violation of the provisions of, except in the case of the Webb Sellers, the
charter or by-laws, partnership agreement, limited liability company
agreement or other similar organizational documents of such Selling
Shareholder or the provisions of any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
such Selling Shareholder or any of its properties.
(iii) Good and Marketable Title. Such Selling Shareholder has, and
-------------------------
will at the Closing Time and, if any Option Securities are purchased from
such Selling Shareholder, on the relevant Date of Delivery have, good and
marketable title to the Securities to be sold by such Selling Shareholder
under the Purchase Agreements on such date, free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of
any kind, other than pursuant to the Purchase Agreements; upon delivery of
such Securities and payment of the purchase price therefor as contemplated
in the Purchase Agreements, assuming none of the Underwriters has notice of
an "adverse claim" (within the meaning of Section 8-102(a)(1) of the
Uniform Commercial Code of the State of New York (the "UCC")) with respect
to such Securities, each of the Underwriters will receive good and
marketable title to the Securities purchased by it from such Selling
Shareholder, free and clear of any security interest, mortgage, pledge,
lien, charge, claim, equity or encumbrance of any kind, and will be a
"protected purchaser" within the meaning of UCC Section 8-303; and the
Securities to be sold by such Selling Shareholder are not subject to any
option, warrant, put, call, right of first refusal or other right to
acquire or purchase any such Securities.
14
<PAGE>
(iv) Power of Attorney. Such Selling Shareholder has duly authorized,
-----------------
executed and delivered a Power of Attorney (a "Power of Attorney")
appointing Dean H. Janke and (A) in the case of the Power of Attorney
executed by J. Christopher Reyes, M. Jude Reyes and David K. Reyes, (B) in
the case of the Power of Attorney executed by M. Jude Reyes, J. Christopher
Reyes and David K. Reyes and (C) in the case of the Power of Attorney
executed by David K. Reyes, J. Christopher Reyes and M. Jude Reyes), as
attorneys-in-fact (the "Attorneys-in-Fact") of such Selling Shareholder,
and such Power of Attorney is a valid and binding obligation of such
Selling Shareholder, enforceable against such Selling Shareholder in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles; and each Attorney-in-Fact is authorized to execute
and deliver, on behalf of such Selling Shareholder, the Purchase Agreements
and the certificates required to be delivered by such Selling Shareholder
pursuant to Section 5 of each of the Purchase Agreements, to sell, assign,
transfer and deliver to the Underwriters the Securities to be sold by such
Selling Shareholder under the Purchase Agreements, to determine the
purchase price of the Securities to be paid by the Underwriters to such
Selling Shareholder under the Purchase Agreements, to authorize the
delivery of the Securities to be sold by such Selling Shareholder to the
Underwriters under the Purchase Agreements and to accept payment therefor,
and otherwise to act on behalf of such Selling Shareholders in connection
with the Purchase Agreements and all transactions related thereto.
(v) Custody Agreement. Such Selling Shareholder has duly authorized,
-----------------
executed and delivered a Custody Agreement (a "Custody Agreement") with
ChaseMellon Shareholder Services, L.L.C., as custodian (the "Custodian"),
and such Custody Agreement is a valid, binding and enforceable agreement of
such Selling Shareholder, enforceable against such Selling Shareholder in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles; and the Custodian is authorized to deliver the
Securities to be sold by such Selling Shareholder under the Purchase
Agreements, to accept payment therefor from the Underwriters and to execute
and deliver a receipt for such payment. For purposes of this Agreement,
references to "its Power of Attorney" and "its Custody Agreement", when
used with respect to any Webb Seller, mean the Power of Attorney and
Custody Agreement which have been executed by such Webb Seller.
(vi) Purchase Agreements. Each of the U.S. Purchase Agreement and the
-------------------
International Purchase Agreement has been duly authorized, executed and
delivered by such Selling Shareholder.
(vii) Absence of Manipulation. Such Selling Shareholder has not
-----------------------
taken, and, during the period from and including the date of this Agreement
and ending at such time as the distribution of the Securities contemplated
by the Purchase Agreements has been completed, will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
15
<PAGE>
(viii) Absence of Further Requirements. No filing with, or consent,
-------------------------------
approval, authorization, order, registration, qualification or decree of,
any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by such Selling Shareholder of
its obligations under the Purchase Agreements or, except in the case of the
representations and warranties made by the Merrill Lynch Sellers, its Power
of Attorney or its Custody Agreement, or in connection with the sale and
delivery by such Selling Shareholder of the Securities to be sold by it
under the Purchase Agreements or the consummation by such Selling
Shareholder of the other transactions contemplated by the Purchase
Agreements, except such as may have previously been made or obtained or as
may be required under the 1933 Act or the 1933 Act Regulations or state
securities or blue sky laws.
(ix) Restriction on Sale of Securities. During a period of 90 days
---------------------------------
from the date of this Agreement, such Selling Shareholder will not, without
the prior written consent of the Global Coordinator, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of or otherwise dispose of or
transfer (including, without limitation, by distribution to the limited
partners, stockholders or other holders of equity interests, if any, in
such Selling Shareholder) any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or repayable with
Common Stock, whether now owned or hereafter acquired by such Selling
Shareholder or with respect to which such Selling Shareholder has or
hereafter acquires the power of disposition, or file or cause to be filed
any registration statement under the 1933 Act with respect to any of the
foregoing or cause any of the foregoing to be included in a registration
statement under the 1933 Act by means of any piggy-back or similar
registration rights or (ii) enter into any swap or any other agreement or
transaction that transfers, in whole or in part, the economic consequence
of ownership of the Common Stock or any securities convertible into or
exchangeable or exercisable for or repayable with Common Stock, whether any
such swap or other agreement or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or other securities, in
cash or otherwise. The foregoing sentence shall not apply to the Securities
to be sold by such Selling Shareholder under the Purchase Agreements.
The foregoing paragraph will not restrict any transfer of Common Stock
by any Webb Seller to the Company or any of its subsidiaries or to a trust
for the benefit of such Webb Seller or such Webb Seller's spouse or lineal
descendants, or any transfer of Common Stock by gift, will or intestate
succession to such Webb Seller's spouse or lineal descendants, provided, in
each case, that as a condition and prior to such transfer, the transferee,
or the trustee or legal guardian on behalf of the transferee, executes and
delivers to the Global Coordinator a lock-up agreement containing terms
equivalent to those contained in the foregoing paragraph.
(x) Certificates Suitable for Transfer. (A) In the case of any Webb
----------------------------------
Seller, certificates for all of the Securities to be sold by such Selling
Shareholder pursuant to the Purchase Agreements, in suitable form for
transfer by delivery and accompanied by duly executed stock powers endorsed
in blank with signatures guaranteed, have been placed in custody with the
Custodian. (B) In the case of any Merrill Lynch Seller, certificates for
all of the Securities to be sold by such Selling Shareholder pursuant to
the Purchase
16
<PAGE>
Agreements, in form suitable for transfer by delivery and accompanied by
duly executed stock powers endorsed in blank or otherwise endorsed for
transfer with signatures guaranteed, will be delivered to the registrar and
transfer agent for the Common Stock no later than 48 hours prior to the
Closing Time.
(xi) No Association with NASD. Other than the Merrill Lynch Sellers
------------------------
(as defined in Schedule B hereto), neither such Selling Shareholder nor
any of its affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under direct or
indirect common control with, or has any other association with (within the
meaning of Article I, Section 1(m) of the By-laws of the National
Association of Securities Dealers, Inc.), any member firm of the National
Association of Securities Dealers, Inc.
(xii) Spousal Consent. Such Selling Shareholder either (i) is
---------------
married and has caused his or her spouse to join in and consent to the
terms of its Custody Agreement, the Purchase Agreements and its Power of
Attorney by executing the spousal consent attached to the Custody Agreement
or (ii) if such spousal consent is unsigned, such Selling Shareholder has
no spouse. No former spouse, if any, of such Selling Shareholder has any
claim with respect to any of the shares of Common Stock deposited by such
Selling Shareholder under its Custody Agreement.
(xiii) Submission to Jurisdiction. Each of ML Offshore LBO Partnership
--------------------------
No. B-XVIII and ML Offshore LBO Partnership No. XIII has the power to
submit, and pursuant to this Agreement has legally, validly, effectively
and irrevocably submitted, to the jurisdiction of any federal or state
court in the Borough of Manhattan, The City of New York, and has the power
to designate, appoint and empower and pursuant to this Agreement has
legally, validly, effectively and irrevocably designated, appointed and
empowered an agent for service of process in any suit or proceeding based
on or arising under this Agreement in any federal or state court in the
Borough of Manhattan, The City of New York, as provided in Section 12
hereof.
(c) Certificates. Any certificate signed by any officer of the Company or
any of its subsidiaries and delivered to the Global Coordinator, the U.S.
Representatives or counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; and any certificate signed by or on behalf of any Selling
Shareholder and delivered to the Global Coordinator, the U.S. Representatives or
counsel for the U.S. Underwriters pursuant to the terms of this Agreement shall
be deemed a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
------------------------------------------------
(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, each
of the Selling Shareholders, severally and not jointly, agrees to sell to each
U.S. Underwriter, severally and not jointly, and each U.S. Underwriter,
severally and not jointly, agrees to purchase from each Selling Shareholder, at
the price per share set forth in Schedule C, that proportion of the number of
Initial U.S. Securities set forth in Schedule B opposite the name of such
Selling Shareholder
17
<PAGE>
which the number of Initial U.S. Securities set forth in Schedule A opposite the
name of such U.S. Underwriter, plus any additional number of Initial U.S.
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 10 hereof, bears to the total number of Initial U.S.
Securities, subject, in each case, to such adjustments among the U.S.
Underwriters as the U.S. Representatives in their sole discretion shall make to
eliminate any sales or purchases of fractional securities.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the U.S.
Underwriters, severally and not jointly, to purchase up to an additional shares
of Common Stock, as set forth in Schedule B, at the price per share set forth in
Schedule C, less an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial U.S. Securities but not
payable on the U.S. Option Securities. The option hereby granted will expire 30
days after the date hereof and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial U.S. Securities
upon notice by the Global Coordinator to the Company setting forth the number of
U.S. Option Securities as to which the several U.S. Underwriters are then
exercising the option and the time and date of payment and delivery for such
U.S. Option Securities. Any such time and date of delivery for the U.S. Option
Securities (a "Date of Delivery") shall be determined by the Global Coordinator,
but shall not be later than seven full business days after the exercise of such
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the U.S. Option Securities,
each of the U.S. Underwriters, acting severally and not jointly, will purchase
that proportion of the total number of U.S. Option Securities then being
purchased which the number of Initial U.S. Securities set forth in Schedule A
opposite the name of such U.S. Underwriter, plus any additional number of
Initial U.S. Securities which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof, bears to the total number of
Initial U.S. Securities, subject in each case to such adjustments as the Global
Coordinator in its discretion shall make to eliminate any sales or purchases of
fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Brown &
Wood llp, One World Trade Center, New York, New York 10048, or at such other
place as shall be agreed upon by the Global Coordinator and the Company, at 9:00
A.M. (New York City time) on the third (fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10 hereof), or such other
time not later than ten business days after such date as shall be agreed upon by
the Global Coordinator and the Company (such time and date of payment and
delivery being herein called the "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.
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<PAGE>
Payment shall be made to the Webb Sellers by wire transfer of immediately
available funds to a single bank account designated by the Custodian or, at the
option of the U.S. Representatives, to a single bank account designated by Dean
H. Janke, as Attorney-in-Fact, payment shall be made to the Merrill Lynch
Sellers by wire transfer of immediately available funds to a single bank account
designated by Merrill Lynch Capital Partners, Inc. and payment to the Company
shall be made by wire transfer of immediately available funds to a bank account
designated by the Company, in each case against delivery to the U.S.
Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. It is understood
that each U.S. Underwriter has authorized the U.S. Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each U.S.
------------------------
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of
Rule 430A or Rule 434, as applicable, and will notify the Global
Coordinator immediately, and confirm the notice in writing, (i) when the
Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment to the Registration Statement shall become
effective or any supplement to any Prospectus or any amended Prospectus
shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to any Prospectus or
for additional information and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of any preliminary
prospectus or Prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation
or threatening of any proceedings for any of such purposes. The Company
will promptly effect the filings necessary pursuant to Rule 424(b) and will
take such steps as it deems necessary to ascertain promptly whether the
forms of prospectus transmitted for filing under Rule 424(b) were received
for filing by the Commission and, in the event that they were not, it will
promptly file such prospectuses. The Company will make every reasonable
effort to prevent the issuance of
19
<PAGE>
any stop order and, if any stop order is issued, to obtain the lifting
thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Global Coordinator
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either of the
prospectuses included in the Registration Statement at the time it became
effective or to either of the Prospectuses, whether pursuant to the 1933
Act, the 1934 Act or otherwise, will furnish the Global Coordinator with
copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use any
such document to which the Global Coordinator or counsel for the U.S.
Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the U.S. Representatives and counsel for the U.S.
Underwriters, without charge, four signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and documents
incorporated or deemed to be incorporated by reference therein) and signed
copies of all consents and certificates of experts, and will also deliver
to the U.S. Representatives, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the U.S. Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each U.S.
Underwriter, without charge, as many copies of each preliminary prospectus
as such U.S. Underwriter reasonably requested, and the Company hereby
consents to the use of such copies for purposes permitted by the 1933 Act.
The Company will furnish to each U.S. Underwriter, without charge, during
the period when the U.S. Prospectus is required to be delivered under the
1933 Act or the 1934 Act, including in connection with market-making
transactions in the Common Stock, such number of copies of the U.S.
Prospectus (as amended or supplemented) as such U.S. Underwriter may
reasonably request. The U.S. Prospectus and any amendments or supplements
thereto furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the
1934 Act Regulations so as to permit the completion of the distribution of
the Securities as contemplated in the Purchase Agreements and in the
Prospectuses. If at any time when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the Securities, any event shall
occur or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the U.S. Underwriters or for the Company, to amend
the Registration Statement or amend or supplement any Prospectus in order
that such Prospectus will not include any untrue statements of a material
fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light
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of the circumstances existing at the time it is delivered to a purchaser,
or if it shall be necessary, in the opinion of such counsel, at any such
time to amend the Registration Statement or amend or supplement any
Prospectus in order to comply with the requirements of the 1933 Act or the
1933 Act Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or such Prospectus comply with such requirements, and the Company
will furnish to the U.S. Underwriters such number of copies of such
amendment or supplement as the U.S. Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions as the Global Coordinator may designate and to maintain
such qualifications in effect for a period of not less than one year from
the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall
not be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not otherwise so subject. In each jusrisdiction
in which the Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such jurisdiction
to continue such qualification in effect for a period of not less than one
year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
security holders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds, if any,
received by it from the sale of the Securities in the manner specified in
the Prospectuses under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect the
listing of the Option Securities on the New York Stock Exchange, subject to
official notice of issuance.
(j) Restriction on Sale of Securities. During a period of 90 days from
the date of this Agreement, the Company will not, without the prior written
consent of the Global Coordinator, directly or indirectly, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
for the sale of or otherwise dispose of or transfer any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for
or repayable with Common Stock (including, without limitation, any Common
Stock or other such securities issued by the Company or which are now owned
or hereafter acquired by the Company or with respect to which the Company
has or hereafter acquires the power of disposition), or file or cause the
filing of a registration statement under the 1933 Act with
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respect to any of the foregoing, or (ii) enter into any swap or any other
agreement or transaction that transfers, in whole or in part, the economic
consequence of ownership of the Common Stock or any securities convertible
into or exchangeable or exercisable for or repayable with Common Stock,
whether any such swap or other agreement or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise. Notwithstanding the provisions of the
foregoing sentence, the Company may do any of the following: (1) issue
Common Stock under its employee or director stock, bonus or compensation
plans, or grant options to purchase Common Stock or other awards under such
plans, in each case as such plans are in effect on the date of this
Agreement, and file one or more registration statements on Form S-8
covering the offering and sale of securities issuable under such plans; (2)
issue Common Stock or securities convertible into or exchangeable or
exercisable for or repayable with Common Stock to owners of businesses
which the Company may acquire in the future, whether by merger, acquisition
of assets or capital stock or otherwise, as consideration for the
acquisition of such businesses or to management employees of such
businesses in connection with any such acquisition, enter into and
implement collar and other price protection arrangements in connection with
any such acquisition, and file one or more registration statements on Form
S-4 covering the offering and sale of Common Stock or such other securities
by the Company to such owners in connection with such acquisitions; (3) in
connection with the future acquisition of any business, whether by merger,
acquisition of assets or capital stock or otherwise, that has outstanding
warrants, options or other securities convertible into or exchangeable or
exercisable for or repayable with common stock or other equity securities,
or that maintains employee or director bonus or compensation plans
providing for the issuance of common stock or options to purchase common
stock or other awards, (A) issue substantially similar new warrants,
options or other securities to replace the outstanding options, warrants or
other securities of such acquired business or assume the obligations of
such acquired business under such outstanding warrants, options or other
securities or such plans, and issue Common Stock pursuant to any such
warrants, options or other securities, as in effect on the date of such
issuance or assumption, or grant options to purchase Common Stock or other
awards and issue Common Stock under any such plans, as in effect on the
date of acquisition, and (B) file one or more registration statements on
Form S-8 covering the offering and sale of securities issuable under such
plans; (4) issue Common Stock pursuant to acquisition agreements existing
on the date of this Agreement which were entered into by the Company to
effect the acquisitions of Lone Star Institutional Grocers, Inc., J.H. Haar
& Sons, L.L.C. and Joseph Webb Foods, Inc., as described under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction" in the Prospectuses, as such agreements are in
effect on the date hereof and implement collar and other price protection
provisions contained in such agreements; (5) issue Common Stock upon
exercise of an outstanding warrant to purchase 71,460 shares of Common
Stock as of January 31, 1999, subject to anti-dilution adjustments, as such
warrant is in effect on the date hereof; and (6) file one or more shelf
registration statements covering the resale of (A) Common Stock issued to
owners of businesses acquired by the Company prior to the date hereof or to
the owner of the warrant referred to in clause (5) of this sentence under
registration rights agreements existing on the date hereof, as such
agreements are in effect on the date hereof, and (B) Common Stock issued in
accordance with clause (2) of this sentence to owners of businesses
acquired by U.S. Foodservice subsequent to the date hereof, whether by
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merger, acquisition of assets or capital stock or otherwise, as
consideration for the acquisition of such businesses under registration
rights agreements entered into in connection with such acquisitions.
(k) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the 1934 Act Regulations.
(l) Supplemental Agreement. The Company and USF will perform and
comply with all of their respective covenants and obligations under the
Supplemental Agreement. Upon the purchase by the Underwriters of the
Initial Securities to be sold by the Merrill Lynch Sellers pursuant to the
Purchase Agreements and delivery of the resignation letters contemplated by
Section 5(k) hereof, the Company will at the Closing Time deliver a
certificate to the effect that the conditions set forth in clauses (a) and
(b) of the first paragraph of Section 4 of the Supplemental Agreement have
been satisfied and that the Standstill Agreement and, to the extent
provided in the Supplemental Agreement, the Support Agreement have been
terminated.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses of the Company. The Company will pay all expenses incident to
the performance of its obligations and the obligations of the Selling
Shareholders under this Agreement (except for the expenses payable by the
Merrill Lynch Sellers pursuant to Section 4(b) hereof and the expenses payable
by the Webb Sellers pursuant to Section 4(c) hereof), including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the word processing or printing, copying and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters, the Agreement
among Managers, the Intersyndicate Agreement and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors and the
reasonable fees and disbursements of a single law firm representing the Merrill
Lynch Sellers, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, word processing or printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (viii) the copying of
closing documents, (ix) the fees and expenses of the Custodian and any transfer
agent or registrar for the Securities, (x) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities and (xi) the fees and
expenses incurred in connection with the listing of the Option Securities on the
New York Stock Exchange.
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<PAGE>
(b) Expenses of the Merrill Lynch Sellers. The Merrill Lynch Sellers,
severally and not jointly, will pay the following expenses incident to the
performance of their respective obligations under, and the consummation of the
transactions contemplated by, the Purchase Agreements: (i) any stamp duties,
capital duties and stock transfer taxes, if any, payable upon the sale of their
Securities to the Underwriters, (ii) the fees and disbursements of their
respective counsel and accountants, except that the Company shall, as provided
in Section 4(a) above, pay the reasonable fees and disbursements of a single law
firm representing the Merrill Lynch Sellers, and (iii) underwriting discounts
and commissions with respect to the Securities sold by them to the Underwriters.
(c) Expenses of the Webb Sellers. The Webb Sellers, severally and not
jointly, will pay the following expenses incident to the performance of their
respective obligations under, and the consummation of the transactions
contemplated by, the Purchase Agreements: (i) any stamp duties, capital duties
and stock transfer taxes, if any, payable upon the sale of their Securities to
the Underwriters, (ii) the fees and disbursements of their respective counsel
and accountants and (iii) underwriting discounts and commissions with respect to
the Securities sold by them to the Underwriters.
(d) Allocation of Expenses. The provisions of this Section 4 shall not
enlarge or otherwise alter the respective rights or obligations of the Merrill
Lynch Sellers or the Company under the RSI Agreement with respect to the sharing
or allocation of such costs and expenses or affect any other agreement that the
Company and any of the Selling Shareholders have made or may make for sharing or
allocation of such costs and expenses, including, without limitation, the
Registration Rights Agreement dated as of November 16, 1998 among the Company
and the Webb Sellers.
(e) Termination of Agreement. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11 hereof, the Company shall reimburse the U.S. Underwriters for all
of their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters Obligations. The obligations of
-------------------------------------------
the several U.S. Underwriters under this Agreement are subject to the accuracy
of the representations and warranties of the Company and the Selling
Shareholders contained in Section 1 hereof or in certificates of any officer of
the Company or any subsidiary of the Company or of or on behalf of any Selling
Shareholder delivered pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholders of their respective covenants and other
obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at the Closing Time and at each Date of Delivery no stop
order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the reasonable
satisfaction of counsel to the U.S. Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and
24
<PAGE>
declared effective in accordance with the requirements of Rule 430A) or, if
the Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for Company. At the Closing Time, the U.S.
Representatives shall have received the favorable opinions, each dated as
of the Closing Time and addressed to the U.S. Representatives and the Lead
Managers, of (i) Hogan & Hartson L.L.P., counsel for the Company, in form
and substance satisfactory to counsel for the U.S. Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters, to the effect set forth in Exhibit A-1 hereto and to such
further effect as counsel to the U.S. Underwriters may reasonably request,
and (ii) Chapman & Cutler, special Illinois counsel to the Company, and
Lionel Sawyer & Collins, special Nevada counsel to the Company, each in
form and substance satisfactory to counsel for the U.S. Underwriters,
together with signed or reproduced copies of such letters for each of the
other Underwriters, to the effect set forth in Exhibit A-2 and A-3 hereto,
respectively, and to such further effect as counsel to the U.S.
Underwriters may reasonably request.
(c) Opinion of Counsel for the Selling Shareholders. At the Closing
Time, the U.S. Representatives shall have received the favorable opinions,
each dated as of the Closing Time and addressed to the U.S. Representatives
and the Lead Managers, of (i) each of the attorneys listed on Schedule F
attached hereto for the Merrill Lynch Sellers listed opposite such
attorney's name, each in form and substance satisfactory to counsel for the
U.S. Underwriters, together with signed or reproduced copies of such
letters for each of the other Underwriters, each such opinion to be in the
form and to the effect heretofore approved by the U.S. Representatives and
to such further effect as counsel to the U.S. Underwriters may reasonably
request, and (ii) Katten, Muchin & Zavis, counsel for the Webb Sellers, in
form and substance satisfactory to counsel for the U.S. Underwriters,
together with signed or reproduced copies of such letter for each of the
other Underwriters, to the effect set forth in Exhibit B hereto and to such
further effect as counsel to the U.S. Underwriters may reasonably request.
(d) Opinion of Counsel for U.S. Underwriters. At the Closing Time, the
U.S. Representatives shall have received the favorable opinion, dated as of
the Closing Time, of Brown & Wood llp, counsel for the U.S. Underwriters,
with respect to the organization of the Company, the validity of the
Securities (if any) to be sold by the Company, this Agreement, the
Registration Statement, the Prospectuses and such other related matters as
the U.S. Representatives may require, together with signed or reproduced
copies of such letter for each of the other U.S. Underwriters, and the
Company and the Selling Shareholders shall have furnished to such counsel
such documents as they may request for the purpose of enabling them to pass
upon such matters.
(e) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business,
25
<PAGE>
and the U.S. Representatives shall have received a certificate of the
President or a Vice President of the Company and of the chief financial or
chief accounting officer of the Company, dated as of the Closing Time, to
the effect that (i) there has been no such material adverse change, (ii)
the representations and warranties in Section 1(a) hereof are true and
correct with the same force and effect as though expressly made at and as
of the Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to the Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to the
best knowledge of such officers, are contemplated by the Commission.
(f) Certificate of Selling Shareholders; Letters of Escrow Agent. At
Closing Time, the U.S. Representatives shall have received a certificate
signed by all of the Merrill Lynch Sellers and a certificate signed by all
of the Webb Sellers or on behalf of all of the Webb Sellers by an Attorney-
in-Fact, each dated as of the Closing Time, to the effect that (i) the
representations and warranties of each such Selling Shareholder in Section
1(b) hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, (ii) each such Selling
Shareholder has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to the Closing Time
and (iii) in the case of the certificate signed by the Merrill Lynch
Sellers, the Merrill Lynch Sellers have delivered and sold to the
Underwriters pursuant to the Purchase Agreements a number of shares of
Common Stock which is equal to or greater than the Subject Number (as
defined in the Supplemental Agreement). Prior to the time of execution of
this Agreement, the U.S. Representatives shall have received from the
Escrow Agent a letter addressed to the U.S. Representatives and the Lead
Managers, in form and substance satisfactory to the U.S. Representatives,
to the effect that (i) all amounts payable to the Escrow Agent pursuant to
the Escrow Agreement (including, without limitation, Sections 6.7 and 6.8
thereof) have been paid in full and (ii) the Escrow Agent releases any and
all liens it may have with respect to the Securities to be sold by the Webb
Sellers pursuant to the Purchase Agreements.
(g) Comfort Letter from KPMG LLP. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from KPMG LLP a
letter dated such date, in form and substance satisfactory to the U.S.
Representatives, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses and which shall cover, among other things, the financial
statements of Valley Industries, Inc. and subsidiaries and Z Leasing
Company, a general partnership.
(h) Comfort Letter from PricewaterhouseCoopers LLP. At the time of the
execution of this Agreement, the U.S. Representatives shall have received
from PricewaterhouseCoopers LLP a letter dated such date, in form and
substance satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
26
<PAGE>
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
(i) Comfort Letter from Arthur Andersen LLP. At the time of the
execution of this Agreement, the U.S. Representatives shall have received
from Arthur Andersen LLP a letter dated such date, in form and substance
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
(j) Bring-down Comfort Letters. At the Closing Time, the
Representatives shall have received from each of KPMG LLP,
PricewaterhouseCoopers LLP and Arthur Andersen LLP a letter, in form and
substance satisfactory to the U.S. Representatives and dated as of Closing
Time, to the effect that they reaffirm the statements made in the letters
furnished pursuant to subsections (g), (h) and (i), respectively, of this
Section, except that the "specified date" referred to shall be a date not
more than three business days prior to Closing Time.
(k) Executed Supplemental Agreement. Prior to the execution of this
Agreement, the U.S. Representatives shall have received a copy of the
Supplemental Agreement, in form and substance satisfactory to the U.S.
Representatives, duly executed by the parties thereto, and the Supplement
Agreement shall be in full force and effect at the Closing Time; and, at
the Closing Time, the Representatives shall have received (i) a certificate
of the Company, signed by the President or a Vice President of the Company
and the chief financial or chief accounting officer of the Company, to the
effect that the Standstill Agreement and, to the extent provided in the
Supplemental Agreement, the Support Agreement have been terminated and (ii)
a letter of resignation in substantially the form of Exhibit D hereto from
each of Matthias B. Bowman and Albert J. Fitzgibbons III.
(l) Approval of Listing. At the Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject only
to official notice of issuance.
(m) No Objection. Prior to the date of this Agreement, the NASD shall
have confirmed that it has not raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
(n) Purchase of Initial International Securities. Contemporaneously
with the purchase by the U.S. Underwriters of the Initial U.S. Securities
under this Agreement, the International Managers shall have purchased the
Initial International Securities to be purchased by them under the
International Purchase Agreement.
(o) Deposit of Securities. On or prior to the date of this Agreement,
the Securities to be sold by the Webb Sellers to the Underwriters pursuant
to the Purchase Agreements shall have been deposited with the Custodian,
together with stock powers duly endorsed in blank by each of the Webb
Sellers. Not later than the second business day before the
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Closing Time, the Securities to be sold by the Merrill Lynch Sellers to the
Underwriters pursuant to the Purchase Agreements shall have been delivered
to the registrar and transfer agent for the Common Stock, duly endorsed in
blank or together with stock powers duly endorsed in blank, by each of the
Merrill Lynch Sellers, together with instructions to transfer such
Securities to the Underwriters at the Closing Time.
(p) Tax Forms. At the Closing Time, the U.S. Representatives shall
have received a properly completed and executed United States Treasury
Department Form W-9 or W-8 (or other applicable form) from each of the
Selling Shareholders.
(q) Conditions to Purchase of U.S. Option Securities. In the event
that the U.S. Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the U.S. Option Securities, the
representations and warranties of the Company and the Selling Shareholders
contained herein and the statements in any certificates furnished by the
Company or any subsidiary of the Company or by or on behalf of any Selling
Shareholder hereunder shall be true and correct on and as of the Date of
Delivery for such U.S. Option Securities and, at such Date of Delivery, the
U.S. Representatives shall have received:
(i) Opinions of Counsel for Company. The favorable opinions of
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(i) Hogan & Hartson L.L.P., counsel for the Company, in form and
substance satisfactory to counsel for the U.S. Underwriters, dated
such Date of Delivery and addressed to the U.S. Representatives and
the Lead Managers, relating to the Option Securities to be purchased
on such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(b) hereof, together with signed or
reproduced copies of such letter for each of the Underwriters, and
(ii) Chapman & Cutler, special Illinois counsel to the Company, and
Lionel Sawyer & Collins, special Nevada counsel to the Company, each
in form and substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of Delivery and addressed to the U.S.
Representatives and the Lead Managers, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the respective opinions required by Section 5(b)
hereof, together with signed or reproduced copies of such letters for
each of the Underwriters.
(ii) Opinion of Counsel for U.S. Underwriters. The favorable
----------------------------------------
opinion of Brown & Wood llp, counsel for the U.S. Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased from the Company on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(d) hereof.
(iii) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company to the
same effect as the certificate delivered at the Closing Time pursuant
to Section 5(e) hereof.
(iv) Bring-down Comfort Letter. A letter from each of KPMG LLP,
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PricewaterhouseCoopers LLP and Arthur Andersen LLP, each in form and
substance satisfactory to the U.S. Representatives and dated such Date
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of Delivery, to the effect that they reaffirm the statements made in
the letters furnished to the U.S. Representatives pursuant to Sections
5(g), (h) and (i) hereof, respectively, hereof, except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than three days prior to such Date of
Delivery.
(r) Additional Documents. At the Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Selling
Shareholders in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the U.S.
Representatives and counsel for the U.S. Underwriters.
(s) Termination of Agreement. If any condition specified in this
Section 5 shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase
of U.S. Option Securities on a Date of Delivery which is after the Closing
Time, the obligations of the several U.S. Underwriters to purchase the
relevant U.S. Option Securities, may be terminated by the U.S.
Representatives by notice to the Company at any time at or prior to the
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 hereof and except that Sections 1, 6, 7 and
8 hereof shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification by Company. The Company agrees to indemnify and hold
harmless each U.S. Underwriter, each person, if any, who controls any U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, each Selling Shareholder and each person, if any, who controls any
Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or any Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or
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<PAGE>
any investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(e) below) any such settlement
is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch
for the U.S. Underwriters and all persons, if any, who control any U.S.
Underwriters as aforesaid, and the fees and disbursements of counsel chosen
by the Majority Selling Shareholders (as defined below) for the Selling
Shareholders and all persons, if any, who control any Selling Shareholders
as aforesaid), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or in any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto);
provided, further, that the Company shall not be liable under this indemnity
- -------- --------
agreement to any Selling Shareholder or person controlling such Selling
Shareholder to the extent that any such loss, liability, claim, damage or
expense arises out of any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or in any preliminary prospectus or the U.S.
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Selling Shareholder expressly for use therein; and, provided, further, that
-------- --------
this indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any U.S. Underwriter from whom the person asserting any
such losses, liabilities, claims, damages or expenses purchased Securities, or
any person controlling such U.S. Underwriter, if a copy of the U.S. Prospectus
(as then amended or supplemented if the Company shall have furnished any such
amendments or supplements thereto, but excluding documents incorporated or
deemed to be incorporated by reference therein) was not sent or given by or on
behalf of such U.S. Underwriter to such person, if such sending or giving of the
U.S. Prospectus is required by law, at or prior to the written confirmation of
the sale of such Securities to such person and if the U.S. Prospectus (as so
amended or supplemented, if applicable) would have corrected the defect giving
rise to such loss, liability, claim, damage or expense, except that this proviso
shall not be applicable if such defect shall have been corrected in a document
which is incorporated or deemed to be incorporated by reference in the U.S.
Prospectus. As used in this Agreement, the term "Majority Selling Shareholders"
means the Selling Shareholders who, at the date of this Agreement, held a
majority of the Initial U.S. Securities to be sold to the U.S. Underwriters by
the Selling Shareholders pursuant to this Agreement.
30
<PAGE>
(b) Indemnification by Selling Shareholders. Each Selling Shareholder
agrees, severally and not jointly, to indemnify and hold harmless each U.S.
Underwriter, each person, if any, who controls any U.S. Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, the
Company, its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with information furnished or confirmed in
writing to the Company by or on behalf of such Selling Shareholder expressly for
use in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or Prospectus (or any amendment or supplement thereto); provided,
--------
that the aggregate liability of any Selling Shareholder pursuant to this
paragraph (b) shall be limited to an amount equal to the net proceeds (before
deducting expenses) received by such Selling Shareholder from the sale of
Securities.
(c) Indemnification by U.S. Underwriters. Each U.S. Underwriter agrees,
severally and not jointly, to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, each Selling Shareholder and each
person, if any, who controls any Selling Shareholder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary U.S.
prospectus or the U.S. Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such U.S. Underwriter through the U.S. Representatives expressly for
use in the Registration Statement (or any amendment thereto) or such preliminary
U.S. prospectus or the U.S. Prospectus (or any amendment or supplement thereto).
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. Counsel to the respective indemnified parties shall be selected as
follows: counsel to the U.S. Underwriters and all persons, if any, who control
any U.S. Underwriters within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall be selected by Merrill Lynch; counsel to the
Company, its directors, each of its officers who signed the Registration
Statement and all persons, if any, who control the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall be selected by
the Company; and counsel to the Selling Shareholders and all persons, if any,
who control any Selling Shareholders within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall be selected by the Majority
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<PAGE>
Selling Shareholders. An indemnifying party may participate at its own expense
in the defense of any such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. In no event shall the indemnifying
parties be liable for (i) the fees and expenses of more than one counsel (in
addition to any local counsel) separate from the indemnifying parties' own
counsel for all U.S. Underwriters and all persons, if any, who control any U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, (ii) the fees and expenses of more than one counsel (in addition
to any local counsel) separate from the indemnifying parties' own counsel for
the Company, its directors, its officers who signed the Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act, and (iii) the fees and
expenses of more than one separate counsel (in addition to any local counsel)
separate from the indemnifying parties' own counsel for all Selling Shareholders
and all persons, if any, who control any Selling Shareholder within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act, in each case in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(e) Settlement Without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) hereof effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
(f) Other Agreements with Respect to Indemnification. The provisions of
this Section 6 or Section 7 hereof shall not affect any agreements among the
Company and the Selling Shareholders with respect to indemnification of each
other or contribution.
(g) Currencies. Any payment made by the Company, any Selling Shareholder or
any U.S. Underwriter pursuant to this Section 6 or Section 7 hereof with respect
to any loss, liability, claim, damage or expense incurred in a currency other
than U.S. dollars shall be made by the Company, such Selling Shareholder or such
U.S. Underwriter, as the case may be, in such amount of U.S. dollars as shall be
necessary to enable the indemnified party to purchase the amount of such other
currency needed to satisfy such loss, liability, claim, damage or expense,
including any premiums and costs of exchange payable in connection with the
conversion of U.S. dollars into the relevant currency.
32
<PAGE>
(h) Insofar as the indemnity agreements in Section 6(a) hereof may permit
indemnification for liabilities under the 1933 Act of any person who is a
partner of a U.S. Underwriter or a Selling Shareholder or who controls a U.S.
Underwriter or a Selling Shareholder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act and who, at the date of this Agreement,
is a director or officer of the Company or controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, such
indemnity agreement is subject to the undertaking of the Company in the
Registration Statement under Item 17 thereof with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the U.S. Underwriters on the other hand
from the offering of the U.S. Securities pursuant to this Agreement or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders on the one hand and of the U.S. Underwriters on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the Selling Shareholders
on the one hand and the U.S. Underwriters on the other hand in connection with
the offering of the U.S. Securities pursuant to this Agreement shall be deemed
to be in the same respective proportions as the total net proceeds from the
offering of the U.S. Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders and the total
underwriting discount received by the U.S. Underwriters, in each case as set
forth on the cover of the U.S. Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the U.S. Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the one
hand and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether the applicable untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Shareholders or by the U.S. Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Shareholders and the U.S. Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7. The aggregate amount of losses, liabilities, claims, damages
and expenses incurred by an indemnified party and referred to above in this
Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by
33
<PAGE>
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue or alleged untrue statement or omission or
alleged omission.
Notwithstanding the provisions of this Section 7, (i) no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission and (ii) no
Selling Shareholder shall be required to contribute any amount in excess of the
amount of net proceeds (before deducting expenses) received by such Selling
Shareholder from the sale of Securities.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company, and each
person, if any, who controls any Selling Shareholder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as such Selling Shareholder. The U.S. Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial U.S. Securities set forth opposite their
respective names in Schedule A hereto and not joint.
The provisions of this Section 7 shall not affect any agreements among the
Company and the Selling Shareholders with respect to contribution between
themselves.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries or in
certificates signed by or on behalf of the Selling Shareholders submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any U.S. Underwriter or controlling
person of any U.S. Underwriter, or by or on behalf of the Company or any Selling
Shareholder or any controlling person of the Company or any Selling Shareholder,
and shall survive delivery of the U.S. Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time at
or prior to the Closing Time, and the obligations of the U.S. Underwriters to
purchase U.S. Option Securities on any Date of Delivery which is after the
Closing Time may be terminated by the U.S. Representatives, by notice to the
Company, at or prior to such Date of Delivery, (i) if there has been, since the
time of execution of this Agreement and prior to the Closing Time or such Date
of Delivery, as the
34
<PAGE>
case may be, or since the respective dates as of which information is given in
any Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the U.S. Representatives, impracticable to market the Securities or
to enforce contracts for the sale of the U.S. Securities, or (iii) if trading in
any securities of the Company has been suspended or materially limited by the
Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of such exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either federal,
Maryland or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section
9, or if the obligation of the U.S. Underwriters to purchase U.S. Option
Securities on any Date of Delivery which is after the Closing Time is terminated
pursuant to this Section 9, such termination shall be without liability of any
party to any other party except (in the case of any termination of this
Agreement) as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 hereof shall survive any such termination of this Agreement and
remain in full force and effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or more
-----------------------------------------------
of the U.S. Underwriters shall fail at the Closing Time or a Date of Delivery to
purchase the U.S. Securities which it or they are obligated to purchase under
this Agreement on such date (the "Defaulted Securities"), the U.S.
Representatives shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting U.S. Underwriters, or any
other underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the U.S. Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities to be purchased on such date, each of the non-
defaulting U.S. Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
U.S. Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the U.S. Underwriters to purchase and of the Company to sell
the U.S. Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any non-
defaulting U.S. Underwriter.
35
<PAGE>
No action taken pursuant to this Section 10 shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone the Closing Time or the relevant Date of
Delivery, as the case may be, for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectuses or in
any other documents or arrangements. As used herein, the term "U.S.
Underwriter" includes any person substituted for a U.S. Underwriter under this
Section 10.
SECTION 11. Default by one or more of the Selling Shareholders or the
---------------------------------------------------------
Company.
- -------
(a) If one or more of the Selling Shareholders shall fail at the Closing
Time to sell and deliver the number of Securities which it or they, as the case
may be, are obligated to sell under this Agreement on such date, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder on such date to the total number of shares to be sold by all Selling
Shareholders (including such defaulting Selling Shareholder or Selling
Shareholders, as the case may be) on such date, then the U.S. Underwriters may,
at the option of the U.S. Representatives, by notice from the U.S.
Representatives to the Company and the non-defaulting Selling Shareholders,
either (a) terminate this Agreement without any liability on the part of any
non-defaulting party except that the provisions of Sections 1, 4, 6, 7 and 8
hereof shall survive such termination and remain in full force and effect, or
(b) elect to purchase the Securities which the non-defaulting Selling
Shareholders have agreed to sell hereunder on such date. No action taken
pursuant to this Section 11 shall relieve any Selling Shareholder so defaulting
from liability, if any, in respect of such default.
(b) If the Company shall fail at a Date of Delivery to sell and deliver the
number of Securities that it is obligated to sell under this Agreement on such
date, then the U.S. Underwriters may, at the option of the U.S. Representatives,
by notice from the U.S. Representatives to the Company and the Selling
Shareholders, terminate this Agreement or, in the case of any Date of Delivery
which occurs after the Closing Time, terminate the obligations of the U.S.
Underwriters to purchase the U.S. Option Securities to be purchased on such Date
of Delivery, in each case without any liability on the fault of any non-
defaulting party except that the provisions of Sections 1, 4, 6, 7 and 8 hereof
shall survive any such termination of this Agreement and remain in full force
and effect. No action taken pursuant to this Section 11 shall relieve the
Company from liability, if any, in respect of such default.
In the event of a default by any Selling Shareholder or the Company
referred to in this Section 11 which does not result in the termination of this
Agreement or, in the case of a Date of Delivery which is after the Closing Time,
which does not result in a termination of the obligations of the U.S.
Underwriters to purchase the relevant U.S. Option Securities, as the case may
be, either the U.S. Representatives or the Company shall have the right to
postpone Closing Time or the relevant Date of Delivery, as the case may be, for
a period not exceeding seven days
36
<PAGE>
in order to effect any required change in the Registration Statement or
Prospectuses or in any other documents or arrangements.
SECTION 12. Agent for Service; Submission to Jurisdiction; Waiver of
--------------------------------------------------------
Immunities. Each of ML Offshore LBO Partnership No. B-XVIII and ML Offshore LBO
- ----------
Partnership No. XIII (each for purposes of this Section 12, a "Subject Entity")
irrevocably (i) agrees, severally and not jointly, that any legal suit, action
or proceeding against such Subject Entity brought by any U.S. Underwriter or by
any person who controls any U.S. Underwriter arising out of or based upon this
Agreement or the transactions contemplated hereby may be instituted in any
federal or state court in the Borough of Manhattan, The City of New York, (ii)
waives, to the fullest extent it may effectively do so under applicable law, any
objection which it may now or hereafter have to the laying of venue of any such
proceeding or to the convenience of the forum and (iii) submits to the non-
exclusive jurisdiction of any federal or state court in the State of New York in
any such suit, action or proceeding. Each Subject Entity has appointed as its
authorized agent (the "Authorized Agent"), which term, as used herein, includes
any successor in such capacity, upon whom process may be served in any such
action arising out of or based on this Agreement or any of the transactions
contemplated hereby which may be instituted in any federal or state court in the
Borough of Manhattan, The City of New York by any U.S. Underwriter or by any
person who controls any U.S. Underwriter, expressly consents to the jurisdiction
of any such court in respect of any such action and waives any other
requirements of or objections to personal jurisdiction with respect thereto.
Such appointment shall be irrevocable. Each Subject Entity represents and
warrants that the Authorized Agent has agreed to act as such agent for service
of process. Service of process upon the Authorized Agent and written notice of
such service to such Subject Entity (delivered as provided in Section 13 hereof)
shall be deemed, in every respect, effective service of process upon such
Subject Entity.
In respect of any judgment or order given or made against a Subject Entity
(the "Indemnifying Subject Entity") in favor of any U.S. Underwriter or any
person, if any, who controls any U.S. Underwriter for any amount due hereunder
that is expressed and paid in a currency (the "judgment currency") other than
United States dollars, such Indemnifying Subject Entity shall indemnify such
U.S. Underwriter against any loss incurred by such U.S. Underwriter or
controlling person as a result of any variation between (i) the rate of exchange
at which the United States dollar amount is converted into the judgment currency
for the purpose of such judgment or order and (ii) the rate of exchange at which
such U.S. Underwriter or controlling person is able to purchase United States
dollars with the amount of judgment currency actually received by such U.S.
Underwriter or controlling person. The foregoing indemnity shall constitute
separate and independent obligations of each Subject Entity and shall continue
in full force and effect notwithstanding any such judgment or order as
aforesaid. The term "rate of exchange" shall include any premiums and costs of
exchange payable in connection with the purchase of or conversion into United
States dollars.
To the extent that any Subject Entity or any of such Subject Entity's
properties, assets or revenues may have or may hereafter become entitled to, or
have attributed to it, any right of immunity, on the grounds of sovereignty,
from (i) any legal action, suit or proceeding, (ii) setoff or counterclaim,
(iii) the jurisdiction of any court, (iv) service of process, (v) attachment
upon or prior to judgment, (vi) attachment in aid of execution of judgment,
(vii) execution of judgment, or (viii) other legal process or proceeding for the
giving of any relief or for the enforcement of any judgment, in any jurisdiction
in which proceedings may at any time be commenced, with
37
<PAGE>
respect to its obligations, liabilities or any other matter under or arising out
of or in connection with this Agreement, such Subject Entity (to the maximum
extent permitted by law) hereby irrevocably and unconditionally waives, and
agrees not to plead or claim, any such immunity and consents to such relief and
enforcement.
SECTION 13. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World
Financial Center, New York, New York 10281-1209, attention of Equity Capital
Markets; notices to the Company shall be directed to it at 9755 Patuxent Woods
Drive, Columbia, Maryland 21046, attention of David M. Abramson; notices to the
Merrill Lynch Sellers shall be directed to them at Merrill Lynch Capital
Partners, Inc., 225 Liberty Street, New York, New York 10080-6123, Attention of
William Orlando, with a copy to Merrill Lynch & Co., Inc., World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281-1323, Attention
of Frank J. Marinaro, Esq.; and notices to the Webb Sellers shall be directed to
them at Reyes Holdings, 225 East Deerpath Road, Suite 270, Lake Forest, Illinois
60045, Attention: Dean H. Janke, with a copy to Steven V. Napolitano, Esq.,
Katten, Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693.
SECTION 14. Parties. This Agreement shall each inure to the benefit of and
-------
be binding upon the U.S. Underwriters, the Company and the Selling Shareholders
and their respective successors. Nothing expressed in this Agreement is intended
or shall be construed to give any person, firm or corporation, other than the
U.S. Underwriters, the Company and the Selling Shareholders and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 hereof and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the U.S.
Underwriters, the Company and the Selling Shareholders and their respective
successors, and such controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any U.S. Underwriter shall be
deemed to be a successor by reason merely of such purchase.
SECTION 15. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY AND
----------------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME, UNLESS OTHERWISE INDICATED.
SECTION 16. Effect of Headings. The Article and Section headings herein and
------------------
the Table of Contents are for convenience only and shall not affect the
construction hereof.
[SIGNATURE PAGES FOLLOW]
38
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Attorney-in-Fact for the Selling
Shareholders a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the U.S. Underwriters, the
Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
U.S. FOODSERVICE
By:
---------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL APPRECIATION
PARTNERSHIP NO. B-XVIII, L.P.
By: Merrill Lynch LBO Partners No. B-IV,
L.P., as General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
---------------------------------
Name:
Title:
MERRILL LYNCH KECALP L.P. 1994
By: KECALP Inc., as General Partner
By:
---------------------------------
Name:
Title:
39
<PAGE>
ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII
By: Merrill Lynch LBO Partners No. B-IV,
L.P., as Investment General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
---------------------------------
Name:
Title:
ML IBK POSITIONS, INC.
By:
---------------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. II
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
---------------------------------
Name:
Title:
MERRILL LYNCH KECALP L.P. 1991
By: KECALP Inc., as General Partner
By:
---------------------------------
Name:
Title:
40
<PAGE>
MERRILL LYNCH CAPITAL APPRECIATION
PARTNERSHIP NO. XIII, L.P.
By: Merrill Lynch LBO Partners No. IV,
L.P., as General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
---------------------------------
Name:
Title:
ML OFFSHORE LBO PARTNERSHIP NO. XIII
By: Merrill Lynch LBO Partners No. IV,
L.P., as Investment General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
---------------------------------
Name:
Title:
ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P.
By: ML Employees LBO Managers, Inc., as
General Partner
By:
---------------------------------
Name:
Title:
41
<PAGE>
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., as General Partner
By:
---------------------------------
Name:
Title:
MERCHANT BANKING L.P. NO. II
By: Merrill Lynch MBP Inc., as General
Partner
By:
---------------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. IV
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
---------------------------------
Name:
Title:
---------------------------------
J. Christopher Reyes
---------------------------------
M. Jude Reyes
---------------------------------
David K. Reyes
42
<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY INC.
J.C. BRADFORD & CO.
FIRST UNION CAPITAL MARKETS CORP.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BY:
---------------------------------------------
Authorized Signatory
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A hereto.
43
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial U.S.
Name of U.S. Underwriter Securities
- ------------------------ -------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
Goldman, Sachs & Co.......................................................
Salomon Smith Barney Inc..................................................
J.C. Bradford & Co........................................................
First Union Capital Markets Corp..........................................
_________
Total.............................................................
=========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Initial U.S. Maximum Number of U.S. Option
Securities to be Sold Securities to Be Sold
--------------------- -------------------------------
<S> <C> <C>
U.S. Foodservice...................... 0 1,043,513
Merrill Lynch Capital Appreciation 2,701,653 0
Partnership No. B-XVIII, L.P.(1).....
Merrill Lynch KECALP L.P. 1994(1)..... 42,085 0
ML Offshore LBO Partnership No.
B-XVIII(1)........................... 1,359,277 0
ML IBK Positions, Inc. (1)............ 892,912 0
MLCP Associates L.P. No. II (1)....... 32,399 0
Merrill Lynch KECALP L.P. 1991(1)..... 117,671 0
Merrill Lynch Capital Appreciation 1,004,463 0
Partnership No. XIII, L.P. (1).......
ML Offshore LBO Partnership No. 25,536 0
XIII(1)..............................
ML Employees LBO Partnership No. I, 24,969 0
L.P. (1).............................
Merrill Lynch KECALP L.P. 1987(1)..... 18,869 0
Merchant Banking L.P. No. II(1)....... 18,869 0
MCLP Associates L.P. No. IV(1)........ 8,416 0
J. Christopher Reyes(2)............... 283,855 0
M. Jude Reyes (2)..................... 283,855 0
David K. Reyes (2).................... 141,928 0
---------------------- -----------------------
Total................................. 6,956,757 1,043,513
====================== =======================
</TABLE>
- ---------------------------------------------------------------------
(1) The entities whose names are marked with (1) are herein sometimes referred
to, collectively, as the "Merrill Lynch Sellers" and, individually, as a
"Merrill Lynch Seller".
(2) The persons whose names are marked with (2) are herein sometimes referred
to, collectively, as the "Webb Sellers", and, individually, as a "Webb
Seller".
Sch B-1
<PAGE>
SCHEDULE C
1. The initial public offering price per share for the U.S.
Securities shall be $.
2. The purchase price per share for the U.S. Securities to be paid by
the several U.S. Underwriters shall be $, being an amount equal to the
initial public offering price set forth above less $ per share; provided
that the purchase price per share for any U.S. Option Securities purchased
upon the exercise of the over-allotment option described in Section 2(b)
shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial U.S.
Securities but not payable on the U.S. Option Securities.
Sch C-1
<PAGE>
SCHEDULE D
LIST OF SUBJECT SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- -------------------------------------------------------- -------------------------------
<S> <C>
White Swan, Inc. Delaware
JP Foodservice Distributors, Inc. Delaware
John Sexton & Co. Delaware
Illinois Fruit & Produce Corp. Illinois
U.S. Foodservice, Inc. Delaware
Biggers Brothers, Inc. Delaware
E & H Distributing Co. Nevada
Joseph Webb Foods, Inc. Delaware
</TABLE>
Sch D-1
<PAGE>
SCHEDULE E
Registration Rights Agreements
1. Registration Rights Agreement dated as of May 17, 1996 (the "RSI Agreement")
among Rykoff-Sexton, Inc., a Delaware corporation, and Merrill Lynch Capital
Appreciation Partnership, No. B-XVIII, L.P. and the other parties thereto
and assumed by USF.
2. Common Stock Purchase Warrant expiring September 30, 2005, dated December
24, 1997, issued by JP Foodservice, Inc., a Delaware corporation, and
registered in the name of Bankers Trust New York Corporation.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
71,460 shares as of January 31, 1999, subject to adjustment pursuant to
anti-dilution provisions therein.
(c) Holder of securities entitled to registration rights thereunder: Bankers
Trust New York Corporation.
3. Registration Rights Agreement dated as of October 23, 1998 between U.S.
Foodservice and Geoffrey Haar.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
550,543 shares, subject to post-closing adjustments as provided in the
related acquisition agreement.
(c) Holder of securities entitled to registration rights thereunder:
Geoffrey Haar.
4. Registration Rights Agreement dated as of November 16, 1998 among U.S.
Foodservice and the stockholders of Joseph Webb Foods, Inc. identified as
such on the signature pages thereof.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
896,057 shares, subject to post-closing adjustments and earn-out
issuances as provided in the related acquisition agreement.
(c) Holders of securities entitled to registration rights thereunder and
number of such securities held by each such holder: J. Christopher
Reyes, 358,423 shares; M. Jude Reyes, 358,423 shares; and David K.
Reyes, 179,211 shares, subject to adjustments as indicated in (b)
above.
5. Registration Rights Agreement dated as of March 20, 1998 among U.S.
Foodservice and each of the stockholders of Westland Provisions, Inc.
identified on the signature pages thereof.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
46,795 shares.
Sch E-1
<PAGE>
(c) Holders of securities entitled to registration rights thereunder and
number of such securities held by each such holder as of March 1, 1999:
Richard Hafdal, 30,049 shares; Gary Hafdal, 498 shares; Frank Roedl,
2,322 shares; Rod Buck, 6,337 shares; Sharon Robbins, 166 shares; and
B. Scott Ball, 7,423 shares.
6. Registration Rights Agreement dated as of July 6, 1998 among U.S.
Foodservice and C. Donald Stahl.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
12,925 shares.
(c) Holders of securities entitled to registration rights thereunder and
number of such securities held by such holder as of March 1, 1999: C.
Donald Stahl.
Sch E-2
<PAGE>
SCHEDULE F
List of Counsel to the Merrill Lynch Sellers
<TABLE>
<CAPTION>
Attorney Merrill Lynch Seller
- -------- --------------------
<S> <C>
Frank J. Marinaro, Esq............... Merrill Lynch Capital Appreciation Partnership No. B
XVIII, L.P.
ML IBK Positions, Inc.
MLCP Associates L.P. No. II
MLCP Associates L.P. No. IV
Merrill Lynch Capital Appreciation Partnership No.
XIII, L.P.
Merrill Lynch Capital Appreciation Partnership No.
XIII, L.P.
ML Employees LBO Partnership No. I, L.P.
Robin Mass, Esq...................... Merrill Lynch KECALP L.P. 1994
Merrill Lynch KECALP L.P. 1991
Merrill Lynch KECALP L.P. 1987
Margaret E. Nelson, Esq.............. Merchant Banking L.P. No. II
Curtis, Mallet-Prevost, Colt & Mosle
and W.S. Walker & Company............ ML Offshore LBO Partnership No. B-XVIII
ML Offshore LBO Partnership No. XIII
</TABLE>
Sch F-1
<PAGE>
Exhibit A
FORM OF OPINION OF HOGAN & HARTSON L.L.P.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the
Purchase Agreements.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the States of Maryland, [ ]
and [ ].
(iv) The authorized capital stock of the Company is as set forth in
the Prospectuses in the column entitled "Actual" under the caption
"Capitalization". The shares of issued and outstanding capital stock
(including the Securities to be purchased by the Underwriters from the
Selling Shareholders pursuant to the Purchase Agreements) have been duly
authorized and validly issued and are fully paid and non-assessable; and
none of the outstanding shares of capital stock of the Company (including
the Securities to be purchased by the Underwriters from the Selling
Shareholders pursuant to the Purchase Agreements) was issued in violation
of the preemptive or other similar rights of any security holder of the
Company arising under the charter or by-laws of the Company, the General
Corporation law of the State of Delaware (the "DGCL"), the Standstill
Agreement, the Support Agreement or, to the best of our knowledge,
otherwise.
(v) The Securities which the U.S. Underwriters and the International
Managers have the option to purchase from the Company have been duly
authorized for issuance and sale to the U.S. Underwriters and the
International Managers pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and
delivered by the Company pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, against payment of the
consideration set forth in the U.S. Purchase Agreement and the
International Purchase Agreement, will be validly issued and fully paid and
non-assessable; and no holder of any of the Securities is subject to
personal liability by reason of being such a holder.
(vi) The issuance by the Company of the Securities which the U.S.
Underwriters and the International Managers have the option to purchase
from the Company pursuant to the Purchase Agreements is not subject to
preemptive or other similar rights of any security holder of the Company
arising under the charter or by-laws of the Company, the DGCL, the
Standstill Agreement, the Support Agreement or, to the best of our
knowledge, otherwise.
A-1
<PAGE>
(vii) Each of White Swan, Inc., JP Foodservice Distributors, Inc.,
John Sexton & Co., U.S. Foodservice, Inc., Biggers Brothers, Inc. and
Joseph Webb Foods, Inc., each a Delaware corporation (collectively, the
"Delaware Subsidiaries" and, individually, a "Delaware Subsidiary"), is
validly existing and in good standing under the laws of the jurisdiction of
its organization, has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and is duly qualified to transact business and is in good
standing in [ ] and except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
each Delaware Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and, to the best of our knowledge, all of the
issued and outstanding capital stock of each Delaware Subsidiary is owned
by the Company, directly or through wholly-owned subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim
or equity.
(viii) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(ix) The Supplemental Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company and USF,
enforceable against the Company and USF in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required
filing of the Prospectuses pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best
of our knowledge, no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement has been
issued under the 1933 Act and no proceedings for that purpose have been
instituted or are pending or threatened by the Commission.
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, and the Prospectuses, excluding the documents
incorporated by reference therein, and each amendment or supplement to the
Registration Statement and any of the Prospectuses, excluding the documents
incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
and other financial data included therein or omitted therefrom, as to which
we need express no opinion), complied as to form in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations.
(xii) The documents incorporated by reference in the Prospectuses
(other than the financial statements and supporting schedules and other
financial data included therein or omitted therefrom, as to which we need
express no opinion), when they were filed with the Commission, complied as
to form in all material respects with the requirements of the 1934 Act and
the rules and regulations of the Commission thereunder.
A-2
<PAGE>
(xiii) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable requirements of the
DGCL, with any applicable requirements of the charter and by-laws of the
Company and with all applicable requirements of the New York Stock
Exchange.
(xiv) The information in the Prospectuses under "Risk Factors--Future
sales of our common stock in the public market could adversely affect our
stock price and our ability to raise funds in new stock offerings", "Risk
Factors--Provisions in our charter and bylaws and in Delaware law could
discourage takeover attempts we oppose even if our stockholders might
benefit from a change in control of U.S. Foodservice", "Risk Factors--We
have adopted a shareholder rights plan which could discourage hostile
acquisitions of control in which our stockholders may wish to participate",
"Business--Legal Proceedings", "Description of Capital Stock", "Shares
Eligible for Future Sale" and "Certain U.S. Tax Consequences to Non-U.S.
Holders", the information in the Registration Statement under Item 15
thereof, and the information in the Company's Annual Report on Form 10-K/A-
1 for its fiscal year ended June 27, 1998 under "Legal Proceedings", in
each case to the extent that it constitutes, summaries of legal matters,
summaries of the Company's charter or by-laws, the Rights Agreement or
other instruments or agreements, summaries of legal proceedings or legal
conclusions, has been reviewed by us and is correct in all material
respects.
(xv) All descriptions in the Prospectuses of contracts and other
documents to which the Company or its subsidiaries are a party are accurate
and correct in all material respects.
(xvi) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency (other than under the 1933 Act and the 1933 Act
Regulations, which have been obtained, or as may be required under state
securities or blue sky laws, as to which we need express no opinion) is
necessary or required for the execution, delivery or performance by the
Company of its obligations under the Purchase Agreements, in connection
with the sale to the Underwriters and public offering of the Securities, in
connection with the issuance and sale, if any, of the Securities which the
Underwriters have the option to purchase from the Company pursuant to the
Purchase Agreements and the use of the proceeds therefrom by the Company as
described in the Prospectuses under "Use of Proceeds" or for the
consummation of the transactions contemplated by the Purchase Agreements.
(xvii) The execution, delivery and performance of the Purchase
Agreements and the consummation of the transactions contemplated in the
Purchase Agreements and in the Registration Statement (including the sale
to the Underwriters and public offering of the Securities and the issuance
and sale, if any, by the Company of the Securities which the Underwriters
have the option to purchase from the Company and the use of the proceeds
therefrom by the Company as described in the Prospectuses under the caption
"Use of Proceeds") and compliance by the Company with its obligations under
the
A-3
<PAGE>
Purchase Agreements have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default or Repayment Event (as defined in the Purchase Agreements)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any subsidiary
pursuant to, (A) any instrument or agreement listed on Schedule E to the
Purchase Agreements, the Standstill Agreement, the Support Agreement, the
Agreement and Plan of Merger dated as of June 30, 1997 among JP
Foodservice, Inc., Hudson Acquisition Corp and Rykoff-Sexton, Inc., the
Stock Purchase Agreement or the Escrow Agreement or (B) any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease
or any other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound or to
which any of the property or assets of the Company or any subsidiary is
subject filed as an exhibit to the Registration Statement or as an exhibit
to any document incorporated or deemed to be incorporated by reference in
the Registration Statement (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that would not have a Material Adverse
Effect), nor will such action result in any violation of the provisions of
the charter or by-laws of the Company or any Delaware Subsidiary or any
applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court having
jurisdiction over the Company or any subsidiary or any of their respective
assets, properties or operations.
(xviii) The Company is not an "investment company" as such term is
defined in the 1940 Act.
(xix) To our knowledge, each share of issued and outstanding Common
Stock (including the Securities to be purchased by the Underwriters from
the Selling Shareholders pursuant to the Purchase Agreements) has one Right
attached to it; and each of the Securities which the Underwriters have the
option to purchase from the Company pursuant to the Purchase Agreements
will, if and when issued, have one Right attached to it. The purchase by
the Underwriters of the Securities to be purchased by them pursuant to the
Purchase Agreements will not result in the occurrence of a "Distribution
Date" (as defined in the Rights Agreement) or otherwise result in the
separation of Rights from the related Common Stock certificates or the
distribution of separate certificates evidencing the Rights.
(xx) To the best of our knowledge, neither the Company nor any of its
subsidiaries has any right of first refusal or other similar right to
purchase any of the Securities to be sold by the Selling Shareholders to
the Underwriters pursuant to the Purchase Agreements.
During the course of the preparation of the Registration
Statement and the Prospectuses, we participated in conferences with
officers and other representatives of the Company, with representatives of
the independent public accountants of the Company, and with you and your
representatives at which the contents of the Registration Statement and the
Prospectuses (including the documents incorporated or deemed to be
incorporated by reference therein) were discussed. While we have not
undertaken to
A-4
<PAGE>
determine independently, and we do not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the Registration
Statement or Prospectuses, except as set forth in paragraph (xiv) above, we
may state on the basis of these conferences and our activities as counsel
to the Company in connection with the Registration Statement and the
Prospectuses that no facts have come to our attention which cause us to
believe that (i) the Registration Statement, at the time it became
effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) the Prospectuses, as of [date
of Prospectuses] or as of the date of this opinion, contained or contain an
untrue statement of a material fact or omitted or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (iii) there are
any legal or governmental proceedings pending or threatened against the
Company or any of its subsidiaries that are required to be disclosed in the
Registration Statement or the Prospectuses or the documents incorporated or
deemed to be incorporated by reference therein, other than those disclosed
therein, or which might reasonably be expected to result in a Material
Adverse Effect or which might reasonably be expected to materially and
adversely affect the consummation of any of the transactions contemplated
by the Purchase Agreement or the performance by the Company or the Selling
Shareholders of their respective obligations thereunder or (iv) there are
any statutes, regulations, franchises, contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement, the Prospectuses or
the documents incorporated or deemed to be incorporated by reference
therein or to be filed as exhibits to the Registration Statement or the
documents incorporated or deemed to be incorporated by reference therein
that are not described or referred to therein or so filed; provided that in
making the foregoing statements (which shall not constitute an opinion), we
are not expressing any views as to the financial statements and supporting
schedules and other financial data included in or omitted from the
Registration Statement or the Prospectuses.
Such opinion shall state that it covers matters governed by and arising
under the DGCL and the laws of the State of Maryland, the State of New York and
the federal laws of the United States of America and shall further state that,
insofar as such opinion covers the Supplemental Agreement, the Support
Agreement, the Standstill Agreement or any other instrument or agreement which
is governed by the laws of a jurisdiction other than the State of Maryland or
the State of New York, such counsel has assumed that the laws governing such
instrument or agreement are identical to the laws of the State of New York. In
rendering such opinion, such counsel may rely, as to matters of fact (but not as
to legal conclusions), to the extent they deem proper, on certificates of the
Company and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
A-5
<PAGE>
Exhibit A-2
FORM OF OPINION OF CHAPMAN & CUTLER
(Illinois Local Counsel)
(1) Illinois Fruit & Produce Corp. (the "Subject Subsidiary") has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Illinois, has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses (including the documents incorporated by reference therein) and is
duly qualified to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Subject Subsidiary and its subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of business (a
"Material Adverse Effect"); and except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of the
Subject Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and, to the best of our knowledge, is owned by the Company,
directly or through wholly-owned subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity and none of the
outstanding shares of capital stock of the Subject Subsidiary was issued in
violation of the preemptive or similar rights of any security holder of the
Subject Subsidiary arising under the charter or bylaws of the Subject Subsidiary
or the corporate law of the State of Illinois or, to the best or our knowledge,
otherwise.
(2) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreements
will not result in any violation of the provisions of the charter or by-laws of
the Subject Subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any government, governmental
instrumentality or court having jurisdiction over the Subject Subsidiary or any
of its subsidiaries or any of their respective assets, properties or operations.
Such opinion shall state that it covers matters governed by and arising
under the laws of the State of Illinois and the federal laws of the United
States of America and shall further state that, insofar as such opinion covers
any instrument or agreement which is governed by the laws of a jurisdiction
other than the State of Illinois, such counsel has assumed that the laws
governing such instrument or agreement are identical to the laws of the State of
Illinois. In rendering such opinion, such counsel may rely, as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of the Subject Subsidiary and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
A-2-1
<PAGE>
Exhibit A-3
FORM OF OPINION OF LIONEL SAWYER & COLLINS
(Nevada Local Counsel)
(1) E&H Distributing Co. (the "Subject Subsidiary") has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Nevada, has the corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses
(including the documents incorporated by reference therein) and is duly
qualified to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Subject Subsidiary and its subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of business (a
"Material Adverse Effect"); and except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of the
Subject Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and, to the best of our knowledge, is owned by the Company,
directly or through wholly-owned subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity and none of the
outstanding shares of capital stock of the Subject Subsidiary was issued in
violation of the preemptive or similar rights of any security holder of the
Subject Subsidiary arising under the charter or bylaws of the Subject Subsidiary
or the corporate law of the State of Nevada or, to the best or our knowledge,
otherwise.
(2) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreements
will not result in any violation of the provisions of the charter or by-laws of
the Subject Subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any government, governmental
instrumentality or court having jurisdiction over the Subject Subsidiary or any
of its subsidiaries or any of their respective assets, properties or operations.
Such opinion shall state that it covers matters governed by and arising
under the laws of the State of Nevada and the federal laws of the United States
of America and shall further state that, insofar as such opinion covers any
instrument or agreement which is governed by the laws of a jurisdiction other
than the State of Nevada, such counsel has assumed that the laws governing such
instrument or agreement are identical to the laws of the State of Nevada. In
rendering such opinion, such counsel may rely, as to matters of fact (but not as
to legal conclusions), to the extent they deem proper, on certificates of the
Subject Subsidiary and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
A-3-1
<PAGE>
Exhibit B
FORM OF OPINION OF COUNSEL FOR THE WEBB SELLERS
(i) No filing with, or consent, approval, authorization, order,
registration, qualification or decree of, any court or governmental authority or
agency (other than the issuance of the order of the Commission declaring the
Registration Statement effective and as may be required under state securities
or blue sky laws, as to which we need express no opinion) is necessary or
required to be obtained by any of the Webb Sellers (the "Subject Shareholders")
for the performance by each Subject Shareholder of its obligations under the
Purchase Agreements or its Power of Attorney or its Custody Agreement, in
connection with the offer, sale or delivery of the Securities to be sold by the
Subject Shareholders under the Purchase Agreements or the consummation by the
Subject Shareholders of the other transactions contemplated by the Purchase
Agreements.
(ii) A Power of Attorney and a Custody Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement of,
each Subject Shareholder, enforceable against such Subject Shareholder in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditor's rights generally or by general equitable
principles.
(iii) Each of the U.S. Purchase Agreement and the International Purchase
Agreement has been duly authorized, executed and delivered by each of the
Subject Shareholders.
(iv) The execution, delivery and performance by each of the Subject
Shareholders of the Purchase Agreements, its Power of Attorney and its Custody
Agreement, the sale and delivery of the Securities to be sold by each of the
Subject Shareholders pursuant to the Purchase Agreements, the consummation by
each of the Subject Shareholders of the other transactions contemplated by the
Purchase Agreements, and compliance by each of the Subject Shareholders with its
obligations under the Purchase Agreements, its Powers of Attorney and its
Custody Agreement do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any tax, lien, charge
or encumbrance upon any of the Securities to be sold by the Subject Shareholders
pursuant to, the Escrow Agreement, the Stock Purchase Agreement, the
Registration Rights Agreement dated as of November 16, 1998 by and among the
Company and the Webb Sellers or any indenture, mortgage, deed of trust, loan
agreement, credit agreement, note or other instrument or agreement, known to us,
to which any Subject Shareholder is a party or by which any Subject Shareholder
may be bound or to which any of the Securities to be sold by any Subject
Shareholder is subject, nor will such action result in any violation of any
applicable law, statute, rule, regulation, judgment, order or decree, known to
us, of any government, government instrumentality or court having jurisdiction
over any of the Subject Shareholders or any of their respective assets,
properties or operations.
(v) To the best of our knowledge, each Subject Shareholder has valid and
marketable title to the Securities to be sold by such Subject Shareholder under
the Purchase Agreements,
B-1
<PAGE>
free and clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind other than pursuant to the Purchase
Agreements. Upon the delivery of and payment for the U.S. Securities and the
International Securities as contemplated in the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, each of the U.S. Underwriters
and the International Managers will receive good and marketable title to the
U.S. Securities and the International Securities, respectively, purchased by it
from the Subject Shareholders, free and clear, to our knowledge, of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind, and will be a "protected purchaser" within the meaning of UCC Section 8-
303. In rendering the opinion set forth in this paragraph, we have assumed that
the U.S. Underwriters and the International Managers have no notice of an
adverse claim (within the meaning of UCC Section 8-102(a)(1) with respect to the
Securities being sold by the Subject Shareholders pursuant to the Purchase
Agreements.
Although we are not passing upon and do not assume any responsibility for
the accuracy, completeness or fairness of any of the statements contained in the
Prospectuses, the information in the Prospectuses under "Principal and Selling
Stockholders," insofar as such information relates to the Subject Shareholders,
has been reviewed by us and is, to the best of our knowledge, correct and
accurate in all material respects.
Such opinion shall state that it covers matters governed by and arising
under the laws of the State of Illinois and the State of New York and the
federal laws of the United States of America and shall further state that,
insofar as such opinion covers any instrument or agreement which is governed by
the laws of a jurisdiction other than the State of Illinois or the State of New
York, such counsel has assumed that the laws governing such instrument or
agreement are identical to the laws of the State of Illinois. In rendering such
opinion, such counsel may rely, as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of the Subject
Shareholders and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
B-2
<PAGE>
Exhibit C
Supplemental Agreement
----------------------
Supplemental Agreement dated as of March [ ], 1999 among U.S. Foodservice,
a Delaware corporation (the "Company"), formerly known as JP Foodservice, Inc.,
U.S. Foodservice, Inc., a Delaware corporation ("USF"), and the other persons
whose names appear on the signature pages hereof (such other persons are
hereinafter called, collectively, the "ML Entities" and, individually, an "ML
Entity").
WHEREAS, USF is the successor in interest to Rykoff-Sexton, Inc., a
Delaware corporation ("RSI"), and has succeeded to all of RSI's rights and has
assumed all of RSI's obligations under the Standstill Agreement dated as of May
17, 1996 (the "Standstill Agreement") between RSI and the ML Entities;
WHEREAS, the Company and the ML Entities are parties to an Amended and
Restated Support Agreement dated as of June 30, 1997 (the "Support Agreement");
WHEREAS, the Company has agreed to register under the Securities Act of
1933, as amended (the "Securities Act"), approximately 7.8 million shares of its
common stock, par value $.01 per share (the "Common Stock"), currently owned by
the ML Entities in order to permit the ML Entities to sell such shares in a
public offering and, in connection therewith, the Company, the ML Entities and
certain other stockholders of the Company intend to enter into a U.S. Purchase
Agreement (the "U.S. Purchase Agreement") with Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Goldman, Sachs & Co., Salomon Smith Barney
Inc., J.C. Bradford & Co. and First Union Capital Markets Corp., as U.S.
representatives (the "U.S. Representatives") of the several U.S. underwriters
(the "U.S. Underwriters") to be named therein, and an International Purchase
Agreement (the "International Purchase Agreement") with Merrill Lynch
International, Goldman Sachs International, Salomon Brothers International
Limited and J.C. Bradford & Co., as lead managers (the "Lead Managers") of the
several international managers (the "International Managers" and, together with
the U.S. Underwriters, the "Underwriters") to be named therein;
WHEREAS, a number of transactions will be undertaken in connection with the
U.S. Purchase Agreement and the International Purchase Agreement (collectively,
the "Purchase Agreements" and individually, a "Purchase Agreement"), including,
without limitation, the sale and delivery of Common Stock by the ML Entities,
and, if applicable, certain other stockholders and the Company to the
Underwriters, the public offering and sale by the Underwriters of such Common
Stock in U.S. and international offerings pursuant to Registration Statement No.
333-73447 (collectively, the "Offerings"), the purchase, offer, sale and
delivery of Common Stock by the Underwriters in connection with stabilization
transactions relating to the Offerings, market-making transactions by Merrill
Lynch and Merrill Lynch International in the Common Stock and, in the event that
any of the Underwriters is unable to sell any shares of Common Stock in the
Offerings, subsequent offers, sales and deliveries of such shares of Common
Stock (the Offerings, together with all of the foregoing transactions and all
other transactions contemplated by or relating to any of the transactions
contemplated by the Purchase Agreements are hereinafter called, collectively,
the "Offering Transactions");
<PAGE>
WHEREAS, the parties hereto wish to provide for the amendment and waiver of
certain provisions of the Standstill Agreement and for the waiver of certain
provisions of the Support Agreement in order to effectuate the Offering
Transactions and to provide for the termination of the Standstill Agreement, and
to the extent provided herein, the Support Agreement upon consummation of the
Offerings;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Certain Definitions. Capitalized terms used in this Agreement
-------------------
which are defined in the recitals to this Agreement or the paragraph preceding
such recitals shall have the meanings set forth therein, and other capitalized
terms used in this Agreement and not defined shall have the meanings set forth
in the U.S. Purchase Agreement.
Section 2. Support Agreement. The parties hereto agree that (i) the
-----------------
provisions of Sections 2, 3(c) and 5 of the Support Agreement shall not be
applicable with respect to the Offering Transactions and (ii) upon the sale and
delivery by the ML Entities of the Initial Securities to be sold by them to the
Underwriters under the Purchase Agreements, and subject to the satisfaction of
the conditions set forth in clauses (a) and (b) if the first paragraph of
Section 4 hereof, Sections 2, 3(c) and 5 of the Support Agreement will
automatically terminate, effective as of the Closing Time; provided, however,
that the termination of such provisions of the Support Agreement shall be
without prejudice to the rights of any party thereto arising out of the breach
by any other party of any such provisions which occurred prior to such
termination, it being understood that such provisions are not applicable with
respect to the Offering Transactions.
Section 3. Standstill Agreement.
--------------------
(a) The parties hereto agree that, insofar as pertains to the Offering
Transactions, the definition of Voting Securities appearing in Article I,
Paragraph (n) of the Standstill Agreement is amended by deleting the words "RSI
Common Shares", "issued by RSI" and "directors of RSI" and replacing such words
with the words "common stock, par value $.01 per share of U.S. Foodservice, a
Delaware corporation", "issued by U.S. Foodservice, a Delaware corporation," and
"directors of U.S. Foodservice, a Delaware corporation", respectively. For all
purposes other than as pertains to the Offering Transactions, the definition of
Voting Securities appearing in Article I, Paragraph (n) of the Standstill
Agreement shall remain in effect in accordance with its original terms.
(b) The Company and USF agree that, provided that the ML Entities comply
(in connection with the Offering Transactions) with their respective obligations
under Section 4.1(c) of the Standstill Agreement as amended hereby, the Offering
Transactions shall not constitute a breach or violation of the Standstill
Agreement, and, without limitation to the foregoing, that the limitation on the
purchase of Common Stock set forth in clause (i) of the first proviso in Section
3.1(c) of the Standstill Agreement shall not be applicable to the Offering
Transactions and that the provisions of Section 4.1(c)(ii) of the Standstill
Agreement, as amended hereby, shall not be applicable to the acquisition of
Common Stock or other securities by the
2
<PAGE>
Underwriters (whether in their capacity as underwriters of the Offerings or
otherwise and including, without limitation, acquisitions in market-making
transactions) in connection with the Offering Transactions. The Company and USF
agree that the Offerings contemplated by the Purchase Agreements satisfy the
requirements of Section 4.1(c)(i) of the Standstill Agreement.
(c) The parties hereto agree that, insofar as pertains to the Offering
Transactions, Section 4.1(c)(ii) of the Standstill Agreement shall be amended
and restated to read in full as follows:
"(ii) prevent any Person or Group from acquiring from the
underwriters for such offering beneficial ownership of Voting
Securities or securities convertible into Voting Securities
representing in the aggregate 5% or more of the Total Voting Power (it
being understood that only Voting Securities and such convertible
securities sold by such underwriters to any such Person or Group in
such offering shall be counted in making the calculation under this
clause (ii) and that any such Voting Securities or such convertible
securities sold by such underwriters shall not be aggregated with any
Voting Securities or convertible securities previously owned or
thereafter acquired by any such Person or Group)".
For all purposes other than as pertains to the Offering Transactions,
Section 4.1(c)(ii) shall remain in effect in accordance with its original terms.
(d) The Company and USF (i) confirm and agree that, provided that the ML
Entities comply (in connection with the Offering Transactions) with their
respective obligations under Section 4.1(c) of the Standstill Agreement as
amended hereby, neither the Company nor USF nor any of their respective
subsidiaries or affiliates has or will have any right of first refusal with
respect to the shares of Common Stock to be sold by the ML Entities pursuant to
the Purchase Agreements, (ii) waive the application of Section 4.2 of the
Standstill Agreement to the Offering Transactions to the extent such Section 4.2
otherwise may be applicable to the Offering Transactions, and (iii) consent to
the sale of the Securities by the ML Entities to the Underwriters pursuant to
the Offering Transactions.
(e) The Company and USF agree that, provided that the ML Entities comply
(in connection with the Offering Transactions) with their respective obligations
under Section 4.1(c) of the Standstill Agreement as amended hereby, upon
delivery of certificates representing the shares of Common Stock to be purchased
by the Underwriters from the ML Entities pursuant to the Purchase Agreements,
such certificates will not bear any legend, and such shares will not be subject
to any stop transfer orders, contemplated by the Standstill Agreement or the
Support Agreement.
(f) The parties hereto confirm and agree that, upon sale and delivery by
the ML Entities of the Initial Securities to be sold by them to the Underwriters
pursuant to the Purchase Agreements and subject to the satisfaction of the
conditions set forth in clauses (a) and (b) of the first paragraph of Section 4
hereof, the Standstill Agreement will automatically terminate,
3
<PAGE>
effective as of the Closing Time, and the Standstill Agreement shall thereafter
not be subject to reinstatement pursuant to Article VIII thereof; provided,
however, that such termination shall be without prejudice to the rights of any
party thereto arising out of the breach by any other party of any provisions of
the Standstill Agreement as amended hereby which occurred prior to such
termination.
Section 4. Conditions to Termination of Agreements. The termination of the
---------------------------------------
Support Agreement to the extent provided in Section 2 hereof and the termination
of the Standstill Agreement as provided in Section 3 hereof shall be subject to
the satisfaction of the following conditions on or before the Closing Time:
(a) Matthias B. Bowman and Albert J. Fitzgibbons III shall have resigned
from the Board of Directors of the Company and Matthias B. Bowman shall have
resigned from the Nominating Committee of the Board of Directors of the Company;
(b) the ML Entities shall have delivered and sold to the Underwriters
pursuant to the Purchase Agreements a number of shares of Common Stock which is
equal to or greater than the Subject Number. As used in this Agreement, the term
"Subject Number" means a number of shares of Common Stock equal to (i) 7,808,898
shares of Common Stock minus (ii) the greater of (x) 482,617 shares of Common
Stock and (y) 1% of the number of outstanding shares of Common Stock at the
Closing Time.
In the event that the conditions set forth in clauses (a) and (b) of the
immediately preceding paragraph are satisfied, the parties hereto agree that the
Registration Rights Agreement (the "Registration Agreement") dated as of May 17,
1996 among RSI and Merrill Lynch Capital Appreciation Partnership No. B-XVIII,
L.P. and the other parties thereto, and assumed by the Company effective as of
December 23, 1997, shall automatically terminate, effective as of the Closing
Time; provided, however, that such termination shall be without prejudice to the
rights of any party thereto arising out of any breach by any other party thereto
of any provisions of such Registration Rights Agreement or any other events or
circumstances which occurred prior to such termination; and provided, further,
that such termination shall not affect any obligation of the Company pursuant to
the Registration Agreement to pay costs and expenses relating to the Offering
Transactions or otherwise relating to the Offering Transactions.
Section 5. Representations and Warranties of the Company and USF. The
-----------------------------------------------------
Company and USF jointly and severally represent and warrant to the ML Entities
as follows:
(a) This Agreement has been authorized, executed and delivered by, and is a
valid, binding and enforceable agreement of, each of the Company and USF,
enforceable against each of the Company and USF in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(b) USF is a wholly-owned subsidiary of the Company and the successor in
interest to RSI. USF has succeeded to all of RSI's
4
<PAGE>
rights and powers and has assumed all of RSI's obligations under the Standstill
Agreement and the Company has succeeded to all of RSI's rights and powers and
has assumed all of RSI's obligations under the Registration Agreement, in each
case including, without limitation, the right to consent to any amendments,
waivers or termination thereof. USF has also succeeded to RSI's right to consent
to waivers of any provisions of the Support Agreement and to the termination of
the Support Agreement and any provisions thereof. As of the date of the Support
Agreement, the Company was known as JP Foodservice, Inc. and the Company
subsequently changed its name to U.S. Foodservice by means of a statutory short
form merger, effected in accordance with the Delaware General Corporation Law,
whereby a wholly-owned subsidiary of the Company was merged into the Company,
with the Company as the surviving corporation.
(c) This Agreement has been approved by a majority of the Continuing
Directors (as defined in the Standstill Agreement) and in accordance with
Section 9.2 of the Standstill Agreement.
(d) No consent, approval or authorization of the Company, USF or any of
their respective subsidiaries or of any of the directors of the Company, USF or
any of their respective subsidiaries is required in connection with the
amendments and waivers to, and terminations of, the Standstill Agreement, the
Support Agreement and the Registration Agreement effected by this Agreement,
other than such authorizations as have been obtained and are in full force and
effect.
Section 6. Representations and Warranties by the ML Entities. Each of the
-------------------------------------------------
ML Entities, severally and not jointly, represents and warrants to the Company
as follows:
This Agreement has been duly authorized, executed and delivered by, and is
a valid, binding and enforceable agreement of, such ML Entity, enforceable
against such ML Entity in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
Section 7. Miscellaneous.
-------------
(a) Notices, Etc. All notices, requests, demands or other communications
------------
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party when delivered personally
(by courier service or otherwise), when delivered by telecopy and confirmed by
return telecopy, or seven days after being mailed by first-class mail, postage
prepaid, in each case to the applicable addresses set forth below:
If to the Company or USF:
9755 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: David M. Abramson, Esq.
Telecopy: (410) 312-7149
5
<PAGE>
If to any ML Entity:
Merrill Lynch Capital Partners, Inc.
225 Liberty Street
New York, New York 10080-6123
Attention: William Orlando
Telecopy: (212) 236-7364
with a copy to:
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281-1323
Attention: Frank J. Marinaro, Esq.
Telecopy: (212) 449-3207
or to such other address as such party shall have designated by notice so given
to each other party.
(b) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
------------------------
supplemented, waived or otherwise modified or terminated except by an instrument
in writing signed by the Company, USF and each of the ML Entities.
(c) Successors and Assigns. This Agreement shall be binding upon and shall
----------------------
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns, including any successor by merger or otherwise.
(d) Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement. This Agreement shall not be used to interpret any provision of
the Standstill Agreement other than for the purpose of effectuating the Offering
Transactions.
(e) Severability. If any term of this Agreement or the application thereof
------------
to any party or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such term to the
other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law, provided that in
--------
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
(f) Specific Performance. The parties acknowledge that money damages are
--------------------
not an adequate remedy for violations of this Agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other
6
<PAGE>
relief as such court may deem just and proper in order to enforce this Agreement
or prevent any violation hereof and, to the extent permitted by applicable law,
each party waives any objection to the imposition of such relief.
(g) Remedies Cumulative. All rights, powers and remedies provided under
-------------------
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
(h) No Waiver. The failure of any party hereto to exercise any right, power
---------
or remedy provided under this Agreement or otherwise available in respect hereof
at law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(i) Third-Party Beneficiaries. This Agreement is not intended to be for the
-------------------------
benefit of and shall not be enforceable by any person or entity who or which is
not a party hereto, except that the U.S. Representatives, the Lead Managers and
the Underwriters are hereby expressly acknowledged to be third party
beneficiaries of this Agreement and this Agreement may be enforced, on behalf of
the Underwriters, by Merrill Lynch, Pierce, Fenner & Smith Incorporated, as a
U.S. Representative.
(j) Jurisdiction. Each party hereby irrevocably submits to the non-
------------
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in The City of New York in any action, suit or
proceeding arising in connection with this Agreement and waives any objection
based on forum non conveniens or any other objection to venue therein; provided,
-------------------- --------
however, that such consent to jurisdiction is solely for the purpose referred to
- -------
in this paragraph (j) and shall not be deemed to be a general submission to the
jurisdiction of said Courts or in the States of Delaware or New York other than
for such purposes. Each party hereto hereby waives any right to a trial by jury
in connection with any such action, suit or proceeding.
(k) Governing Law. This Agreement and all disputes hereunder shall be
-------------
governed by and construed and enforced in accordance with the General
Corporation Law of the State of Delaware to the fullest extent possible and
otherwise by the internal laws of the State of New York without regard to
principles of conflicts of law.
(l) Name, Captions, Gender. The name assigned this Agreement and the
----------------------
section captions used herein are convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
(m) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one
7
<PAGE>
instrument. Each counterpart may instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
(n) Limitation on Liability. No ML Entity shall have any liability
-----------------------
hereunder for any actions or omissions of any other ML Entity.
(o) Expenses. Each of the parties hereto shall bear its own expenses
--------
incurred in connection with this Agreement and the transactions contemplated
hereby, except that in the event of a dispute concerning the terms or
enforcement of this Agreement, the prevailing party in any such dispute shall be
entitled to reimbursement of reasonable legal fees and disbursements from the
other party or parties to such dispute.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
U.S. FOODSERVICE
By:
------------------------------
Name:
Title:
U.S. FOODSERVICE, INC.
By:
------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL PARTNERS, INC.
By:
------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO.
B-XVIII, L.P.
By: Merrill Lynch LBO Partners No. B-IV, L.P., as
General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
9
<PAGE>
MERRILL LYNCH KECALP L.P. 1994
By: KECALP Inc., as General Partner
By:
-----------------------------
Name:
Title:
ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII
By: Merrill Lynch LBO Partners No. B-IV, L.P., as
Investment General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
ML IBK POSITIONS, INC.
By:
-----------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. II
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
10
<PAGE>
MERRILL LYNCH KECALP L.P. 1991
By: KECALP Inc., as General Partner
By:
-----------------------------
Name:
Title:
MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO.
XIII, L.P.
By: Merrill Lynch LBO Partners No. IV, L.P., as
General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-------------------------------
Name:
Title:
ML OFFSHORE LBO PARTNERSHIP NO. XIII
By: Merrill Lynch LBO Partners No. IV, L.P., as
Investment General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-------------------------------
Name:
Title:
11
<PAGE>
ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P.
By: ML Employees LBO Managers, Inc., as General
Partner
By:
------------------------------
Name:
Title:
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., as General Partner
By:
------------------------------
Name:
Title:
MERCHANT BANKING L.P. NO. II
By: Merrill Lynch MBP Inc., as General Partner
By:
-----------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. IV
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
12
<PAGE>
Exhibit D
FORM OF LETTER OF RESIGNATION
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, MD 21046
Attention: James L. Miller
Chairman of the Board, President
and Chief Executive Officer
Dear Sir or Madam:
Reference is hereby made to the U.S. Purchase Agreement dated March [],
1999 among U.S. Foodservice, a Delaware corporation (the "Company"), certain
stockholders of the Company named therein and Merrill Lynch, Pierce, Fenner &
Smith Incorporated and the other parties thereto (the "U.S. Purchase Agreement")
and the International Purchase Agreement dated March [], 1999 among the Company,
certain stockholders of the Company named therein and Merrill Lynch
International and the other parties thereto (the "International Purchase
Agreement" and, together with the U.S. Purchase Agreement, the "Purchase
Agreements").
This is to advise you that I resign my position as a member of the Board of
Directors of the Company and, if applicable, of any of its subsidiaries and I
also resign my position, if applicable, as a member of any committees of the
Board of Directors of the Company and of any of its subsidiaries, each such
resignation to be effective as of the Closing Time (as defined in the Purchase
Agreements).
Very truly yours,
[Matthias B. Bowman]
[Albert J. Fitzgibbons III]
D-1
74
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 1.2
- --------------------------------------------------------------------------------
U.S. FOODSERVICE
(a Delaware corporation)
[ ] Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
Dated: March [ ], 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties...................................... 4
SECTION 2. Sale and Delivery to International Managers; Closing................ 17
SECTION 3. Covenants of the Company............................................ 19
SECTION 4. Payment of Expenses................................................. 23
SECTION 5. Conditions of International Managers' Obligations................... 24
SECTION 6. Indemnification..................................................... 29
SECTION 7. Contribution........................................................ 33
SECTION 8. Representations, Warranties and Agreements to Survive Delivery...... 34
SECTION 9. Termination of Agreement............................................ 34
SECTION 10. Default by One or More of the International Managers............... 35
SECTION 11. Default by One or More of the Selling Shareholders or the Company.. 36
SECTION 12. Agent for Service; Submission to Jurisdiction; Waiver of
Immunities......................................................... 37
SECTION 13. Notices............................................................ 38
SECTION 14. Parties............................................................ 38
SECTION 15. Governing Law and Time............................................. 38
SECTION 16. Effect of Headings................................................. 38
SCHEDULES
Schedule A - List of International Managers............ Sch A-1
Schedule B - List of Selling Shareholders.............. Sch B-1
Schedule C - Pricing Information....................... Sch C-1
Schedule D - List of Subject Subsidiaries.............. Sch D-1
Schedule E - List of Registration Rights Agreements.... Sch E-1
Schedule F - List of Counsel to Merrill Lynch Sellers.. Sch F-1
EXHIBITS
Exhibit A-1 - Form of Opinion of Hogan & Hartson L.L.P.. A-1-1
Exhibit A-2 - Form of Opinion of Chapman & Cutler....... A-2-1
Exhibit A-3 - Form of Opinion of Lionel Sawyer & Collins A-3-1
Exhibit B - Form of Opinion of Katten, Muchin & Zavis. B-1
Exhibit C - Form of Supplemental Agreement............ C-1
Exhibit D - Form of Letter of Resignation............. D-1
</TABLE>
<PAGE>
U.S. FOODSERVICE
(a Delaware corporation)
Shares of Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
March , 1999
Merrill Lynch International
Goldman Sachs International
Salomon Brothers International Limited
J.C. Bradford & Co.
as Lead Managers of the several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
U.S. Foodservice, a Delaware corporation (the "Company"), and the other
persons listed in Schedule B hereto (collectively, the "Selling Shareholders"),
confirm their respective agreements with Merrill Lynch International ("Merrill
Lynch") and each of the other international underwriters named in Schedule A
hereto (collectively, the "International Managers", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Goldman Sachs International and Salomon
Brothers International Limited are acting as lead managers (in such capacity,
the "Lead Managers"), with respect to (i) the sale by the Selling Shareholders,
acting severally and not jointly, and the purchase by the International
Managers, acting severally and not jointly, of the respective numbers of shares
of Common Stock, par value $.01 per share, of the Company (the "Common Stock")
set forth in Schedules A and B hereto and (ii) the grant by the Company to the
International Managers, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of additional
shares of Common Stock to cover over-allotments, if any. The aforesaid shares
of Common Stock (the "Initial International Securities") to be purchased by the
International Managers and all or any part of the shares of Common Stock
subject to the option described in Section 2(b) hereof (the "International
Option Securities") are hereinafter called, collectively, the "International
Securities".
It is understood that the Company and the Selling Shareholders are
concurrently entering into an agreement dated the date hereof (the "U.S.
Purchase Agreement") providing for the offering by the Selling Shareholders of
an aggregate of shares of Common Stock (the "Initial U.S. Securities") through
arrangements with certain underwriters in the United States and Canada (the
"U.S. Underwriters") for whom Merrill Lynch & Co, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., Salomon Smith Barney
Inc., J.C.
<PAGE>
Bradford & Co. and First Union Capital Markets Corp. are acting as
representatives (the "U.S. Representatives", which term shall also include any
underwriter substituted as provided in Section 10 of the U.S. Purchase
Agreement) and the grant by the Company to the U.S. Underwriters, acting
severally and not jointly, of an option to purchase all or any part of the U.S.
Underwriters' pro rata portion of up to additional shares of Common Stock
solely to cover over-allotments, if any (the "U.S. Option Securities"). The
Initial U.S. Securities and the U.S. Option Securities are hereinafter called
the "U.S. Securities". It is understood that the Selling Shareholders are not
obligated to sell and the International Managers are not obligated to purchase
any Initial International Securities unless all of the Initial U.S. Securities
are contemporaneously purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
called, collectively, the "Underwriters" and, individually, an "Underwriter";
the Initial International Securities and the Initial U.S. Securities are
hereinafter collectively called the "Initial Securities"; the International
Option Securities and the U.S. Option Securities are hereinafter collectively
called the "Option Securities"; the International Securities and the U.S.
Securities are hereinafter collectively called the "Securities"; and this
Agreement and the U.S. Purchase Agreement are hereinafter called, collectively,
the "Purchase Agreements" and, individually, a "Purchase Agreement".
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company and the Selling Shareholders understand that the International
Managers propose to make a public offering of the International Securities as
soon as the Lead Managers deem advisable after this Agreement has been executed
and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-73447) and certain
amendments thereto covering the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Company will either (i) prepare and file an international
prospectus and a U.S. prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
Two forms of prospectus are to be used in connection with the offering and sale
of the Securities: one relating to the International Securities (the "Form of
International Prospectus") and one relating to the U.S. Securities (the "Form of
U.S. Prospectus"). The Form of U.S. Prospectus is identical to the Form of
International Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting". The information included in
any such prospectus or in any such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
2
<PAGE>
referred to as "Rule 434 Information". Each Form of U.S. Prospectus and Form of
U.S. Prospectus used before such registration statement became effective, and
any prospectus that omitted, as applicable, the Rule 430A Information or the
Rule 434 Information that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called, together with the
documents incorporated or deemed to be incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, a "preliminary prospectus".
Such registration statement, including the exhibits thereto, schedules thereto,
if any, and the documents incorporated or deemed to be incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement". Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement", and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final Form of International Prospectus and the final
Form of U.S. Prospectus, in each case including the documents incorporated or
deemed to be incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the respective forms first furnished to the Underwriters
for use in connection with the offering of the Securities, are herein called the
"U.S. Prospectus" and the "U.S. Prospectus", respectively, and, collectively,
the "Prospectuses" and, individually, a "Prospectus". If Rule 434 is relied on,
the terms "International Prospectus" and "U.S. Prospectus" shall refer to the
preliminary International Prospectus dated March 15, 1999 and preliminary U.S.
Prospectus dated March 15, 1999, respectively, each together with the applicable
Term Sheet, and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "given", "set forth", "described", "contained"
"included" or "stated" in the Registration Statement, any preliminary prospectus
or any Prospectus (and all other references of like import) shall be deemed to
mean and include all such financial statements and schedules and other
information which is incorporated or deemed to be incorporated by reference in
the Registration Statement, such preliminary prospectus or such Prospectus, as
the case may be; and all references in this Agreement to amendments to the
Registration Statement or amendments or supplements to any preliminary
prospectus or any Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934, as amended (the "1934
Act"), which is incorporated or deemed to be incorporated by reference in the
Registration Statement, such preliminary prospectus or such Prospectus, as the
case may be.
As used in this Agreement, "Standstill Agreement" means the Standstill
Agreement dated as of May 17, 1996 by and between Rykoff-Sexton, Inc., a
Delaware corporation, and the ML Entities (as defined therein), "Support
Agreement" means the Amended and Restated Support Agreement, dated as of June
30, 1997, by and among JP Foodservice, Inc., a Delaware corporation, Merrill
Lynch Capital Partners, Inc. and the other persons whose names are set forth on
the signature pages thereof and acknowledged by Rykoff-Sexton, Inc., and
"Supplemental Agreement" means a Supplemental Agreement substantially in the
form of Exhibit D hereto
3
<PAGE>
among the Company, U.S. Foodservice, Inc., a Delaware corporation ("USF"), and
the other parties thereto.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each International Manager as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Manager, as follows:
(i) Compliance with Registration Requirements. The Company meets
-----------------------------------------
the requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International Option
Securities are purchased, at each Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Neither of the Prospectuses nor any
amendments or supplements thereto, at the time the Prospectuses or any
amendments or supplements thereto were issued and at the Closing Time (and,
if any International Option Securities are purchased, at each Date of
Delivery), included or will include an untrue statement of a material fact
or omitted or will omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. If Rule 434 is used, the Company will comply
with the requirements of Rule 434. The representations and warranties in
this subsection shall not apply to statements in or omissions from the
Registration Statement or the International Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing
by any International Manager through the Lead Managers expressly for use in
the Registration Statement or the U.S. Prospectus.
Each preliminary prospectus and each prospectus filed as part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424, complied when so filed in all
material respects with the 1933 Act Regulations and each preliminary
prospectus and each of the Prospectuses delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
4
<PAGE>
(ii) Incorporated Documents. The documents incorporated or
----------------------
deemed to be incorporated by reference in the Registration Statement and
the Prospectuses, at the respective times they were or hereafter are filed
with the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when read together
with the other information in the Prospectuses, (A) at the time the
Registration Statement became effective did not contain and, at the time
any Rule 462(b) Registration Statement becomes effective, will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (B) at the time the Prospectuses were issued and at the
Closing Time (and, if any International Option Securities are purchased, at
each Date of Delivery), did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included in
--------------------
the Registration Statement and the Prospectuses, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified, after giving effect to
the restatement of such financial statements to reflect acquisitions made
by the Company which, in accordance with GAAP (as defined below), were
accounted for as poolings of interests; such financial statements have been
prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved; and
the combination of the Company's consolidated financial statements with the
financial statements of businesses acquired in pooling-of-interests
transactions has been prepared in accordance with GAAP. The supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
summary financial data and the selected financial data included in the
Prospectuses present fairly the information shown therein and have been
compiled on a basis consistent with that of the financial statements from
which such data were derived. No pro forma financial statements, and no
financial statements of any entity or business other than the consolidated
financial statements of the Company and its consolidated subsidiaries as of
June 28, 1997 and June 27, 1998, for the fiscal years ended June 29, 1996,
June 28, 1997 and June 27, 1998, as of September 26, 1998, for the three
months ended September 27, 1997 and September 26, 1998, as of December 26,
1998 and for the three and six-month periods ended December 27, 1997 and
December 26, 1998, are included in the Registration Statement or the
Prospectuses.
(v) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition,
5
<PAGE>
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary course
of business, which are material with respect to the Company and its
subsidiaries considered as one enterprise and (C) there has been no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has the corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under the Purchase Agreements and the Supplemental Agreement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the
-----------------------------
Company has been duly organized and is validly existing and in good
standing under the laws of the jurisdiction of its organization, has the
corporate power and authority or the power and authority as a limited
liability company, limited partnership or general partnership, as the
case may be, to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and is duly qualified to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect; and, except as otherwise disclosed in the Registration
Statement, (A) all of the issued and outstanding capital stock of each
such subsidiary that is a corporation has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through wholly-owned subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity, and none of the outstanding shares of capital stock of any such
subsidiary were issued in violation of the preemptive or similar rights
of any security holder of such subsidiary, (B) all of the issued and
outstanding limited liability company interests of each such subsidiary
that is a limited liability company, if any, have been duly authorized
and validly issued, are fully paid and non-assessable and are owned by
the Company, directly or through wholly-owned subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity, and none of the outstanding limited liability company
interests of any such subsidiary were issued in violation of the
preemptive or similar rights of any security holder of such subsidiary,
and (C) all of the issued and outstanding limited and general partnership
interests of each such subsidiary that is a partnership have been duly
authorized and validly issued and are owned by the Company, directly or
through wholly-owned subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, and none
of the outstanding limited
6
<PAGE>
or general partnership interests of any such subsidiary were issued in
violation of the preemptive or similar rights of any security holder of
such subsidiary.
(viii) Revenues and Assets of Subject Subsidiaries. As of
-------------------------------------------
December 26, 1998 and for the six months then ended, the Company and the
subsidiaries of the Company listed on Schedule D hereto (the "Subject
Subsidiaries") had total net sales and total assets (determined on a
consolidated basis in accordance with GAAP but excluding therefrom all
amounts attributable to (A) any other subsidiary and (B) any investment
(other than an investment classified as a cash equivalent in accordance
with GAAP) or other equity interest in any entity that is not a Subject
Subsidiary) of not less than 70% of net sales and 70% of total assets,
respectively, of the Company and its subsidiaries determined on a
consolidated basis in accordance with GAAP. Each Subject Subsidiary is a
corporation and Schedule D accurately sets forth the jurisdiction of
incorporation of each Subject Subsidiary.
(ix) Capitalization. All of the issued and outstanding shares of
--------------
capital stock of the Company (including the Securities to be purchased by
the Underwriters from the Selling Shareholders pursuant to the Purchase
Agreements) have been duly authorized and validly issued and are fully paid
and non-assessable; none of the outstanding shares of capital stock of the
Company (including the Securities to be purchased by the Underwriters from
the Selling Shareholders pursuant to the Purchase Agreements) were issued
in violation of preemptive or other similar rights of any security holder
of the Company.
(x) Authorization of Agreement. This Agreement and the U.S.
--------------------------
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
(xi) Authorization and Description of Securities. The Securities
-------------------------------------------
which the International Managers and the U.S. Underwriters have the option
to purchase from the Company have been duly authorized for issuance and
sale to the International Managers pursuant to this Agreement and to the
U.S. Underwriters pursuant to the U.S. Purchase Agreement, respectively,
and, if and when issued and delivered by the Company pursuant to this
Agreement and the U.S. Purchase Agreement, respectively, against payment of
the consideration set forth herein and therein, respectively, will be
validly issued, fully paid and non-assessable; the Common Stock, the
Company's authorized but unissued preferred stock, par value $.01 per share
(the "Preferred Stock"), the Company's authorized but unissued Preferred
Stock designated as Series A Junior Participating Preferred Stock, the
Rights Agreement dated as of February 19, 1996, as amended (the "Rights
Agreement"), between the Company and The Bank of New York, as rights agent,
and the preferred share purchase rights (the "Rights") issued under the
Rights Agreement conform to all of the respective statements relating
thereto contained in the Prospectuses and such statements conform to the
rights set forth in the instruments defining such rights; no holder of
Securities will be subject to personal liability by reason of being such a
holder; and the issuance of the Securities is not subject to the preemptive
or other similar rights of any security holder of the Company.
(xii) Absence of Defaults and Conflicts. Neither the Company nor
---------------------------------
any of its subsidiaries is in violation of its charter or by-laws,
partnership agreement, limited
7
<PAGE>
liability company agreement or other similar organizational document or
in default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any subsidiary is subject
(collectively, the "Agreements and Instruments") except for such
violations or defaults that would not have a Material Adverse Effect; and
the execution, delivery and performance of the Purchase Agreements and
the consummation of the transactions contemplated in the Purchase
Agreements and in the Registration Statement (including the sale to the
Underwriters and public offering of the Securities, and the issuance and
sale (if any) of the Securities which the Underwriters have the option to
purchase from the Company pursuant to the Purchase Agreements and the use
of the proceeds therefrom by the Company as described in the Prospectuses
under the caption "Use of Proceeds") and compliance by the Company with
its obligations under the Purchase Agreements have been duly authorized
by the Company by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event
(as defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any subsidiary pursuant to, any of the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not, in the case of any Agreement or Instrument
other than the Escrow Agreement (as defined below) and the Stock Purchase
Agreement dated as of October 30, 1998 (the "Stock Purchase Agreement")
among the Company, Joseph Webb Foods, Inc. and the Webb Sellers, result
in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws, partnership
agreement, limited liability company agreement or other similar
organizational document of the Company or any subsidiary or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary or any
of their respective assets, properties or operations. As used herein, a
"Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any subsidiary.
(xiii) Rights Plan. Each share of issued and outstanding Common
-----------
Stock (including the Securities to be purchased by the Underwriters from
the Selling Shareholders pursuant to the Purchase Agreements) has one
Right attached to it, and each of the Securities which the Underwriters
have the option to purchase from the Company pursuant to the Purchase
Agreements will, if and when issued, have one Right attached to it; and
the purchase by the Underwriters of the Securities to be purchased by
them pursuant to the Purchase Agreements will not result in the
occurrence of a "Distribution Date" (as defined in the Rights Agreement)
or otherwise result in the separation of Rights from the related Common
Stock certificates or the distribution of separate certificates
evidencing the Rights.
8
<PAGE>
(xiv) Absence of Labor Dispute. No labor dispute with the
------------------------
employees of the Company or any subsidiary exists or, to the knowledge of
the Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in any such case, might reasonably be expected to
result in a Material Adverse Effect.
(xv) Absence of Proceedings. There is no action, suit,
----------------------
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or
any subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties
or assets thereof or the consummation of the transactions contemplated in
the Purchase Agreements or the performance by the Company or the Selling
Shareholders of their respective obligations under the Purchase
Agreements; the aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary is a party or of which
any of their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the businesses of the Company and its
subsidiaries, could not reasonably be expected to result in a Material
Adverse Effect.
(xvi) Accuracy of Exhibits. There are no contracts or documents
--------------------
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xvii) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the
businesses now operated by them, and neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, might reasonably be expected to result in a Material Adverse
Effect.
(xviii) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency, domestic or foreign, is necessary or required for the performance
by the Company of its obligations under the Purchase Agreements, in
connection with the sale to the Underwriters and public offering of the
Securities or the issuance and sale, if any, of the Securities which the
Underwriters have the option to purchase from the Company under the
Purchase Agreements, or for the consummation of
9
<PAGE>
the other transactions contemplated by the Purchase Agreements, except
such as have already been obtained under the 1933 Act or the 1933 Act
Regulations and such as may be required under state securities or blue
sky laws.
(xix) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the businesses now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure so
to comply would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and
effect, except when the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect
would not have a Material Adverse Effect; and neither the Company nor any
of its subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xx) Title to Property. The Company and its subsidiaries have
-----------------
good and marketable title to all real property owned by them and good
title to all other properties owned by them, in each case, free and clear
of all mortgages, pledges, liens, security interests, claims,
restrictions or encumbrances of any kind except such as (a) are described
in the Prospectuses or (b) do not, singly or in the aggregate, materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company or any of its
subsidiaries; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Prospectuses, are in full force and effect,
and neither the Company nor any of its subsidiaries has any notice of any
claim that has been asserted by anyone adverse to the rights of the
Company or any of its subsidiaries under any of the leases or subleases
referred to above, or affecting or questioning the rights of the Company
or such subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease, which, singly or in the
aggregate, might reasonably be expected to result in a Material Adverse
Effect.
(xxi) Compliance with Cuba Act. To the extent applicable, the
------------------------
Company has complied with, and is and will be in compliance with, the
provisions of that certain Florida act relating to disclosure of doing
business with Cuba, codified as Section 517.075 of the Florida statutes,
and the rules and regulations thereunder (collectively, the "Cuba Act")
or is exempt therefrom.
(xxii) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale (if any) of the Securities which the Underwriters have
the option to purchase from the Company pursuant to the Purchase
Agreements and the application of the net proceeds therefrom as described
in the Prospectuses, will not be, an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
10
<PAGE>
(xxiii) Environmental Laws. Except as described in the
------------------
Registration Statement and except as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with the requirements of such
Environmental Laws, permits, authorizations and approvals, (C) there are no
pending or threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its subsidiaries and (D) there are no events
or circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xxiv) NYSE. The outstanding shares of Common Stock (including
----
the Securities to be sold by the Selling Shareholders to the Underwriters
under the Purchase Agreements) are listed on the New York Stock Exchange
and the Securities which the Underwriters have the option to purchase from
the Company pursuant to the Purchase Agreements have been approved for
listing, subject to official notice of issuance, on the New York Stock
Exchange.
(xxv) Stock Certificates. The certificates evidencing the
------------------
Securities sold by the Selling Shareholders to the Underwriters pursuant to
the Purchase Agreements will not, upon delivery to the Underwriters, bear
any restrictive legends or be subject to any stop transfer instructions or
similar restrictions on transfer.
(xxvi) Registration Rights. Except for the instruments and
-------------------
agreements listed on Schedule E hereto (collectively, the "Registration
Rights Agreements"), there are no contracts, agreements or understandings
between the Company or any of its subsidiaries, on the one hand, and any
person, on the other hand, granting such person the right to require the
Company or any of its subsidiaries to file a registration statement under
the 1933 Act with respect to any securities (other than contractual
obligations by the Company to file registration statements on Form S-8
covering issuances of its Common Stock pursuant to its employee or director
stock, bonus or compensation plans) or to require the Company or any of its
subsidiaries to include such securities in any registration statement filed
by the Company under the 1933 Act or in any public offering of securities.
True, complete and correct copies of the Registration Rights Agreements
have been delivered to the Lead Managers, and, except in the case of the
RSI Agreement
11
<PAGE>
(as defined in Schedule E hereto), Schedule E accurately sets forth, for
each such Registration Rights Agreement, (i) the total number and type of
securities which are entitled to the registration rights thereunder and
(ii) the name of each holder of any such securities and the number of
securities held by each such holder. The Company and its subsidiaries have
complied with all of their obligations under the Registration Rights
Agreements in connection with the transactions contemplated by the Purchase
Agreements, and each person who has or would have had a right to register
any securities pursuant to the Registration Statement or to include any
securities in the offerings contemplated by the Purchase Agreements has
been offered the opportunity to register such securities pursuant to the
Registration Statement and to include such securities in the offerings
contemplated by the Purchase Agreements, all in compliance with the
Registration Rights Agreements, and each such person has either waived or
elected not to exercise such rights or there has been included in the
Registration Statement and the offerings contemplated by the Purchase
Agreements the number and type of securities such person is entitled to
include therein pursuant to the relevant Registration Rights Agreement.
(xxvii) Supplemental Agreement. The Supplemental Agreement has
----------------------
been duly authorized, executed and delivered by, and is a valid, binding
and enforceable agreement of, the Company and USF, enforceable against the
Company and USF in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or
by general equitable principles; and the representations and warranties of
the Company and USF set forth in the Supplemental Agreement are true,
complete and correct; and, at the Closing Time, the Standstill Agreement
will have been terminated and the Support Agreement will have been
terminated to the extent provided in the Supplemental Agreement .
(xxviii) No Right of First Refusal. Assuming that the Merrill
-------------------------
Lynch Sellers (as defined in Schedule B hereto) comply, in connection with
the Offering Transactions (as defined in the Supplemental Agreement), with
their respective obligations under Section 4.1(c) of the Standstill
Agreement as amended by the Supplemental Agreement, neither the Company nor
any of its subsidiaries has any right of first refusal or other similar
right to purchase any of the Securities to be sold by the Selling
Shareholders to the Underwriters pursuant to the Purchase Agreements. None
of the Securities to be sold by the Webb Sellers (as defined in Schedule B
hereto) is subject to any security interest, mortgage, pledge, lien,
charge, claim, equity or encumbrance of any kind (collectively,
"Encumbrances") in favor of the Company or any of its subsidiaries or
securing any obligation to or agreement with the Company or any of its
subsidiaries, except that certain such Securities are subject to the terms
of the Escrow Agreement dated as of November 16, 1998 between the Company
PNC Bank, National Association, as escrow agent (the "Escrow Agent"), and
the Webb Sellers (the "Escrow Agreement'). The Escrow Agreement does not
constitute or create a security interest, mortgage or lien on, or other
pledge of, any such Securities, and neither the Company nor any of its
subsidiaries has filed or recorded any financing statement, mortgage or
other similar document in any governmental office in respect of any such
Securities; the Company has full right, power and authority under the
Escrow Agreement and otherwise to duly and validly waive any provisions of
the Escrow Agreement and any Encumbrances created
12
<PAGE>
thereby; and the Company hereby waives any and all Encumbrances arising
under or pursuant to the Escrow Agreement in respect of the Securities to
be sold to the Underwriters by the Webb Sellers pursuant to the Purchase
Agreements and also waives any provisions of the Escrow Agreement which
would limit or prevent, or be breached or violated by, the sale or transfer
of such Securities to the Underwriters, provided that the foregoing waiver
shall not alter or affect any agreement between the Company and the Webb
Sellers requiring that proceeds from the sale of certain such Securities be
deposited in escrow by the Custodian (as defined below) or the Webb Sellers
or requiring that certain such Securities be returned to escrow by the
Custodian or the Webb Sellers in the event that the Purchase Agreements are
terminated or the sale of such Securities to the Underwriters is not
consummated, it being understood that neither the Lead Managers nor the
U.S. Underwriters nor any of the Underwriters shall have any responsibility
or obligation whatsoever for depositing any such monies in escrow or for
returning any such Securities to escrow.
(b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents and warrants to each
International Manager as of the date hereof, as of the Closing Time, and, if
such Selling Shareholder is selling Option Securities on a Date of Delivery, as
of each such Date of Delivery, and agrees with each International Manager, as
follows, except that the Merrill Lynch Sellers (as defined in Schedule B hereto)
do not make the representations and warranties set forth in subparagraphs (iv),
(v), (x)(A) or (xii) of this Section 1(b), the Webb Sellers do not make the
representations and warranties set forth in subparagraph (x)(B) of this Section
1(b), and only ML Offshore LBO Partnership No. B-XVIII and ML Offshore LBO
Partnership No. XIII make the representations and warranties set forth in
subparagraph (xiii) of this Section 1(b):
(i) Accurate Disclosure. At the respective times the
-------------------
Registration Statement, and the Rule 462(b) Registration Statement and any
post-effective amendments thereto became effective and the Closing Time
(and, if any Option Securities are purchased, at each Date of Delivery),
the Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and neither of the Prospectuses nor any amendments or
supplements thereto, at the time the Prospectuses or any amendments or
supplements thereto were issued and at the Closing Time (and, if any
International Option Securities are purchased, at each Date of Delivery),
included or will include an untrue statement of a material fact or omitted
or will omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that the representations and warranties in
this subparagraph (i) shall only apply to statements in or omissions from
the Registration Statement, any Rule 462(b) Registration Statement, the
Prospectuses and any amendments or supplements thereto made in reliance
upon and in conformity with information furnished or confirmed in writing
to the Company by or on behalf of such Selling Shareholder expressly for
use in the Registration Statement or any Prospectus or any amendment or
supplement thereto; and such Selling Shareholder is not prompted to sell
the Securities to be sold by such Selling Shareholder under the Purchase
Agreements by any information concerning the Company or any subsidiary of
the Company which is not set forth in the Prospectuses.
13
<PAGE>
(ii) Authorization of Agreements. Such Selling Shareholder (if
---------------------------
not a natural person) has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its organization.
Such Selling Shareholder has full right, power and authority to execute,
deliver and perform its obligations under the Purchase Agreements and,
except in the case of the representations and warranties made by the
Merrill Lynch Sellers (none of whom is entering into a Power of Attorney or
Custody Agreement), its Power of Attorney and its Custody Agreement (as
such terms are defined below), and to sell, transfer and deliver the
Securities to be sold by such Selling Shareholder under the Purchase
Agreements. The execution and delivery of the Purchase Agreements and,
except in the case of the representations and warranties made by the
Merrill Lynch Sellers, its Power of Attorney and its Custody Agreement by
such Selling Shareholder, the sale and delivery of the Securities to be
sold by such Selling Shareholder pursuant to the Purchase Agreements and
the consummation of the other transactions contemplated by the Purchase
Agreements, and compliance by such Selling Shareholder with its obligations
under the Purchase Agreement and, except in the case of the representations
and warranties made by the Merrill Lynch Sellers, its Power of Attorney and
its Custody Agreement, have been duly authorized by such Selling
Shareholder and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon any of the Securities to be sold by such Selling
Shareholder or any other property or assets of such Selling Shareholder
pursuant to, any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, license, lease or other agreement or instrument to
which such Selling Shareholder is a party or by which such Selling
Shareholder may be bound, or to which any of the property or assets of such
Selling Shareholder is subject, nor will such action result in any
violation of the provisions of, except in the case of the Webb Sellers, the
charter or by-laws, partnership agreement, limited liability company
agreement or other similar organizational documents of such Selling
Shareholder or the provisions of any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
such Selling Shareholder or any of its properties.
(iii) Good and Marketable Title. Such Selling Shareholder has,
-------------------------
and will at the Closing Time and, if any Option Securities are purchased
from such Selling Shareholder, on the relevant Date of Delivery have, good
and marketable title to the Securities to be sold by such Selling
Shareholder under the Purchase Agreements on such date, free and clear of
any security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind, other than pursuant to the Purchase Agreements;
upon delivery of such Securities and payment of the purchase price therefor
as contemplated in the Purchase Agreements, assuming none of the
Underwriters has notice of an "adverse claim" (within the meaning of
Section 8-102(a)(1) of the Uniform Commercial Code of the State of New York
(the "UCC")) with respect to such Securities, each of the Underwriters will
receive good and marketable title to the Securities purchased by it from
such Selling Shareholder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind,
and will be a "protected purchaser" within the meaning of UCC Section 8-
303; and the Securities to be sold by such Selling Shareholder are not
subject to any option, warrant, put, call, right of first refusal or other
right to acquire or purchase any such Securities.
14
<PAGE>
(iv) Power of Attorney. Such Selling Shareholder has duly
-----------------
authorized, executed and delivered a Power of Attorney (a "Power of
Attorney") appointing Dean H. Janke and (A) in the case of the Power of
Attorney executed by J. Christopher Reyes, M. Jude Reyes and David K.
Reyes, (B) in the case of the Power of Attorney executed by M. Jude Reyes,
J. Christopher Reyes and David K. Reyes and (C) in the case of the Power of
Attorney executed by David K. Reyes, J. Christopher Reyes and M. Jude
Reyes), as attorneys-in-fact (the "Attorneys-in-Fact") of such Selling
Shareholder, and such Power of Attorney is a valid and binding obligation
of such Selling Shareholder, enforceable against such Selling Shareholder
in accordance with its terms, except as enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles; and each Attorney-in-Fact is authorized to execute
and deliver, on behalf of such Selling Shareholder, the Purchase Agreements
and the certificates required to be delivered by such Selling Shareholder
pursuant to Section 5 of each of the Purchase Agreements, to sell, assign,
transfer and deliver to the Underwriters the Securities to be sold by such
Selling Shareholder under the Purchase Agreements, to determine the
purchase price of the Securities to be paid by the Underwriters to such
Selling Shareholder under the Purchase Agreements, to authorize the
delivery of the Securities to be sold by such Selling Shareholder to the
Underwriters under the Purchase Agreements and to accept payment therefor,
and otherwise to act on behalf of such Selling Shareholders in connection
with the Purchase Agreements and all transactions related thereto.
(v) Custody Agreement. Such Selling Shareholder has duly
-----------------
authorized, executed and delivered a Custody Agreement (a "Custody
Agreement") with ChaseMellon Shareholder Services, L.L.C., as custodian
(the "Custodian"), and such Custody Agreement is a valid, binding and
enforceable agreement of such Selling Shareholder, enforceable against such
Selling Shareholder in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and the Custodian is
authorized to deliver the Securities to be sold by such Selling Shareholder
under the Purchase Agreements, to accept payment therefor from the
Underwriters and to execute and deliver a receipt for such payment. For
purposes of this Agreement, references to "its Power of Attorney" and "its
Custody Agreement", when used with respect to any Webb Seller, mean the
Power of Attorney and Custody Agreement which have been executed by such
Webb Seller.
(vi) Purchase Agreements. Each of the International Purchase
-------------------
Agreement and the U.S. Purchase Agreement has been duly authorized,
executed and delivered by such Selling Shareholder.
(vii) Absence of Manipulation. Such Selling Shareholder has not
-----------------------
taken, and, during the period from and including the date of this Agreement
and ending at such time as the distribution of the Securities contemplated
by the Purchase Agreements has been completed, will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
15
<PAGE>
(viii) Absence of Further Requirements. No filing with, or
-------------------------------
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or
foreign, is necessary or required for the performance by such Selling
Shareholder of its obligations under the Purchase Agreements or, except in
the case of the representations and warranties made by the Merrill Lynch
Sellers, its Power of Attorney or its Custody Agreement, or in connection
with the sale and delivery by such Selling Shareholder of the Securities to
be sold by it under the Purchase Agreements or the consummation by such
Selling Shareholder of the other transactions contemplated by the Purchase
Agreements, except such as may have previously been made or obtained or as
may be required under the 1933 Act or the 1933 Act Regulations or state
securities or blue sky laws.
(ix) Restriction on Sale of Securities. During a period of 90
---------------------------------
days from the date of this Agreement, such Selling Shareholder will not,
without the prior written consent of the Global Coordinator, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of or otherwise dispose of or
transfer (including, without limitation, by distribution to the limited
partners, stockholders or other holders of equity interests, if any, in
such Selling Shareholder) any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or repayable with
Common Stock, whether now owned or hereafter acquired by such Selling
Shareholder or with respect to which such Selling Shareholder has or
hereafter acquires the power of disposition, or file or cause to be filed
any registration statement under the 1933 Act with respect to any of the
foregoing or cause any of the foregoing to be included in a registration
statement under the 1933 Act by means of any piggy-back or similar
registration rights or (ii) enter into any swap or any other agreement or
transaction that transfers, in whole or in part, the economic consequence
of ownership of the Common Stock or any securities convertible into or
exchangeable or exercisable for or repayable with Common Stock, whether any
such swap or other agreement or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or other securities, in
cash or otherwise. The foregoing sentence shall not apply to the Securities
to be sold by such Selling Shareholder under the Purchase Agreements.
The foregoing paragraph will not restrict any transfer of Common Stock
by any Webb Seller to the Company or any of its subsidiaries or to a trust
for the benefit of such Webb Seller or such Webb Seller's spouse or lineal
descendants, or any transfer of Common Stock by gift, will or intestate
succession to such Webb Seller's spouse or lineal descendants, provided, in
each case, that as a condition and prior to such transfer, the transferee,
or the trustee or legal guardian on behalf of the transferee, executes and
delivers to the Global Coordinator a lock-up agreement containing terms
equivalent to those contained in the foregoing paragraph.
(x) Certificates Suitable for Transfer. (A) In the case of any
----------------------------------
Webb Seller, certificates for all of the Securities to be sold by such
Selling Shareholder pursuant to the Purchase Agreements, in suitable form
for transfer by delivery and accompanied by duly executed stock powers
endorsed in blank with signatures guaranteed, have been placed in custody
with the Custodian. (B) In the case of any Merrill Lynch Seller,
certificates for all of the Securities to be sold by such Selling
Shareholder pursuant to the Purchase
16
<PAGE>
Agreements, in form suitable for transfer by delivery and accompanied by
duly executed stock powers endorsed in blank or otherwise endorsed for
transfer with signatures guaranteed, will be delivered to the registrar and
transfer agent for the Common Stock no later than 48 hours prior to the
Closing Time.
(xi) No Association with NASD. Other than the Merrill Lynch
------------------------
Sellers (as defined in Schedule B hereto), neither such Selling
Shareholder nor any of its affiliates directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under direct
or indirect common control with, or has any other association with (within
the meaning of Article I, Section 1(m) of the By-laws of the National
Association of Securities Dealers, Inc.), any member firm of the National
Association of Securities Dealers, Inc.
(xii) Spousal Consent. Such Selling Shareholder either (i) is
---------------
married and has caused his or her spouse to join in and consent to the
terms of its Custody Agreement, the Purchase Agreements and its Power of
Attorney by executing the spousal consent attached to the Custody Agreement
or (ii) if such spousal consent is unsigned, such Selling Shareholder has
no spouse. No former spouse, if any, of such Selling Shareholder has any
claim with respect to any of the shares of Common Stock deposited by such
Selling Shareholder under its Custody Agreement.
(xiii) Submission to Jurisdiction. Each of ML Offshore LBO
--------------------------
Partnership No. B-XVIII and ML Offshore LBO Partnership No. XIII has the
power to submit, and pursuant to this Agreement has legally, validly,
effectively and irrevocably submitted, to the jurisdiction of any federal or
state court in the Borough of Manhattan, The City of New York, and has the
power to designate, appoint and empower and pursuant to this Agreement has
legally, validly, effectively and irrevocably designated, appointed and
empowered an agent for service of process in any suit or proceeding based on
or arising under this Agreement in any federal or state court in the Borough
of Manhattan, The City of New York, as provided in Section 12 hereof.
(c) Certificates. Any certificate signed by any officer of the Company or
any of its subsidiaries and delivered to the Global Coordinator, the Lead
Managers or counsel for the International Managers shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; and any certificate signed by or on behalf of any Selling
Shareholder and delivered to the Global Coordinator, the Lead Managers or
counsel for the International Managers pursuant to the terms of this Agreement
shall be deemed a representation and warranty by such Selling Shareholder to
each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
----------------------------------------------------
(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, each
of the Selling Shareholders, severally and not jointly, agrees to sell to each
International Manager, severally and not jointly, and each International
Manager, severally and not jointly, agrees to purchase from each Selling
Shareholder, at the price per share set forth in Schedule C, that proportion of
the number of Initial International Securities set forth in Schedule B opposite
the name of such Selling
17
<PAGE>
Shareholder which the number of Initial International Securities set forth in
Schedule A opposite the name of such International Manager, plus any additional
number of Initial International Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof, bears to
the total number of Initial International Securities, subject, in each case, to
such adjustments among the International Managers as the Lead Managers in their
sole discretion shall make to eliminate any sales or purchases of fractional
securities.
(b) Option Securities. In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the International Managers,
severally and not jointly, to purchase up to an additional shares of Common
Stock, as set forth in Schedule B, at the price per share set forth in Schedule
C, less an amount per share equal to any dividends or distributions declared by
the Company and payable on the Initial International Securities but not payable
on the International Option Securities. The option hereby granted will expire 30
days after the date hereof and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial International
Securities upon notice by the Global Coordinator to the Company setting forth
the number of International Option Securities as to which the several
International Managers are then exercising the option and the time and date of
payment and delivery for such International Option Securities. Any such time and
date of delivery for the International Option Securities (a "Date of Delivery")
shall be determined by the Global Coordinator, but shall not be later than seven
full business days after the exercise of such option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the International Option Securities, each of the International
Managers, acting severally and not jointly, will purchase that proportion of the
total number of International Option Securities then being purchased which the
number of Initial International Securities set forth in Schedule A opposite the
name of such International Manager, plus any additional number of Initial
International Securities which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof, bears to the total number of
Initial International Securities, subject in each case to such adjustments as
the Global Coordinator in its discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of certificates
for, the Initial Securities shall be made at the offices of Brown & Wood llp,
One World Trade Center, New York, New York 10048, or at such other place as
shall be agreed upon by the Global Coordinator and the Company, at 9:00 A.M.
(New York City time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10 hereof), or such other
time not later than ten business days after such date as shall be agreed upon by
the Global Coordinator and the Company (such time and date of payment and
delivery being herein called the "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Company, on each Date
of Delivery as specified in the notice from the Global Coordinator to the
Company.
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Payment shall be made to the Webb Sellers by wire transfer of immediately
available funds to a single bank account designated by the Custodian or, at the
option of Lead Managers, to a single bank account designated by Dean H. Janke,
as Attorney-in-Fact, payment shall be made to the Merrill Lynch Sellers by wire
transfer of immediately available funds to a single bank account designated by
Merrill Lynch Capital Partners, Inc. and payment to the Company shall be made by
wire transfer of immediately available funds to a bank account designated by the
Company, in each case against delivery to the Lead Managers for the respective
accounts of the International Managers of certificates for the International
Securities to be purchased by them. It is understood that each International
Manager has authorized the Lead Managers, for its account, to accept delivery
of, receipt for, and make payment of the purchase price for, the Initial
International Securities and the International Option Securities, if any, which
it has agreed to purchase. Merrill Lynch, individually and not as
representative of the International Managers, may (but shall not be obligated
to) make payment of the purchase price for the Initial International Securities
or the International Option Securities, if any, to be purchased by any
International Manager whose funds have not been received by the Closing Time or
the relevant Date of Delivery, as the case may be, but such payment shall not
relieve such International Manager from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial International
Securities and the International Option Securities, if any, shall be in such
denominations and registered in such names as the Lead Managers may request in
writing at least one full business day before the Closing Time or the relevant
Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
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International Manager as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
Global Coordinator immediately, and confirm the notice in writing, (i) when
the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment to the Registration Statement shall become
effective or any supplement to any Prospectus or any amended Prospectus
shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to any Prospectus or
for additional information and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of any preliminary
prospectus or Prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation
or threatening of any proceedings for any of such purposes. The Company
will promptly effect the filings necessary pursuant to Rule 424(b) and will
take such steps as it deems necessary to ascertain promptly whether the
forms of prospectus transmitted for filing under Rule 424(b) were received
for filing by the Commission and, in the event that they were not, it will
promptly file such prospectuses. The Company will make every reasonable
effort to prevent the issuance of
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any stop order and, if any stop order is issued, to obtain the lifting
thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either of the
prospectuses included in the Registration Statement at the time it became
effective or to either of the Prospectuses, whether pursuant to the 1933
Act, the 1934 Act or otherwise, will furnish the Global Coordinator with
copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use any
such document to which the Global Coordinator or counsel for the
International Managers shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Lead Managers and counsel for the
International Managers, without charge, four signed copies of the
Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein
and documents incorporated or deemed to be incorporated by reference
therein) and signed copies of all consents and certificates of experts, and
will also deliver to the Lead Managers, without charge, a conformed copy of
the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the International Managers. The
copies of the Registration Statement and each amendment thereto furnished
to the International Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T .
(d) Delivery of Prospectuses. The Company has delivered to each
International Manager, without charge, as many copies of each preliminary
prospectus as such International Manager reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will furnish to each International Manager,
without charge, during the period when the International Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, including in
connection with market-making transactions in the Common Stock, such number
of copies of the International Prospectus (as amended or supplemented) as
such International Manager may reasonably request. The International
Prospectus and any amendments or supplements thereto furnished to the
International Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Securities as contemplated in the Purchase Agreements and in the
Prospectuses. If at any time when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the Securities, any event shall
occur or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the International Managers or for the Company, to
amend the Registration Statement or amend or supplement any Prospectus in
order that such Prospectus will not include any untrue statements of a
material fact or omit to state a
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material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of
such counsel, at any such time to amend the Registration Statement or amend
or supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare
and file with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or to
make the Registration Statement or such Prospectus comply with such
requirements, and the Company will furnish to the International Managers
such number of copies of such amendment or supplement as the International
Managers may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the International Managers, to qualify the
Securities for offering and sale under the applicable securities laws of
such states and other jurisdictions as the Global Coordinator may designate
and to maintain such qualifications in effect for a period of not less than
one year from the later of the effective date of the Registration Statement
and any Rule 462(b) Registration Statement; provided, however, that the
Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities
in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities have
been so qualified, the Company will file such statements and reports as may
be required by the laws of such jurisdiction to continue such qualification
in effect for a period of not less than one year from the effective date of
the Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
its security holders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds, if
any, received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect the
listing of the Option Securities on the New York Stock Exchange, subject to
official notice of issuance.
(j) Restriction on Sale of Securities. During a period of 90
days from the date of this Agreement, the Company will not, without the
prior written consent of the Global Coordinator, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant for the sale of or otherwise dispose of or transfer any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for or repayable with Common Stock (including, without
limitation, any Common Stock or other such securities issued by the Company
or which are now owned or hereafter acquired by the Company or with respect
to which the Company has or hereafter acquires the power of
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disposition), or file or cause the filing of a registration statement under
the 1933 Act with respect to any of the foregoing, or (ii) enter into any
swap or any other agreement or transaction that transfers, in whole or in
part, the economic consequence of ownership of the Common Stock or any
securities convertible into or exchangeable or exercisable for or repayable
with Common Stock, whether any such swap or other agreement or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise. Notwithstanding the
provisions of the foregoing sentence, the Company may do any of the
following: (1) issue Common Stock under its employee or director stock,
bonus or compensation plans, or grant options to purchase Common Stock or
other awards under such plans, in each case as such plans are in effect on
the date of this Agreement, and file one or more registration statements on
Form S-8 covering the offering and sale of securities issuable under such
plans; (2) issue Common Stock or securities convertible into or
exchangeable or exercisable for or repayable with Common Stock to owners of
businesses which the Company may acquire in the future, whether by merger,
acquisition of assets or capital stock or otherwise, as consideration for
the acquisition of such businesses or to management employees of such
businesses in connection with any such acquisition, enter into and
implement collar and other price protection arrangements in connection with
any such acquisition, and file one or more registration statements on Form
S-4 covering the offering and sale of Common Stock or such other securities
by the Company to such owners in connection with such acquisitions; (3) in
connection with the future acquisition of any business, whether by merger,
acquisition of assets or capital stock or otherwise, that has outstanding
warrants, options or other securities convertible into or exchangeable or
exercisable for or repayable with common stock or other equity securities,
or that maintains employee or director bonus or compensation plans
providing for the issuance of common stock or options to purchase common
stock or other awards, (A) issue substantially similar new warrants,
options or other securities to replace the outstanding options, warrants or
other securities of such acquired business or assume the obligations of
such acquired business under such outstanding warrants, options or other
securities or such plans, and issue Common Stock pursuant to any such
warrants, options or other securities, as in effect on the date of such
issuance or assumption, or grant options to purchase Common Stock or other
awards and issue Common Stock under any such plans, as in effect on the
date of acquisition, and (B) file one or more registration statements on
Form S-8 covering the offering and sale of securities issuable under such
plans; (4) issue Common Stock pursuant to acquisition agreements existing
on the date of this Agreement which were entered into by the Company to
effect the acquisitions of Lone Star Institutional Grocers, Inc., J.H. Haar
& Sons, L.L.C. and Joseph Webb Foods, Inc., as described under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction" in the Prospectuses, as such agreements are in
effect on the date hereof and implement collar and other price protection
provisions contained in such agreements; (5) issue Common Stock upon
exercise of an outstanding warrant to purchase 71,460 shares of Common
Stock as of January 31, 1999, subject to anti-dilution adjustments, as such
warrant is in effect on the date hereof; and (6) file one or more shelf
registration statements covering the resale of (A) Common Stock issued to
owners of businesses acquired by the Company prior to the date hereof or to
the owner of the warrant referred to in clause (5) of this sentence under
registration rights agreements existing on the date hereof, as such
agreements are in effect on the date hereof, and (B) Common Stock issued in
accordance with clause (2) of this sentence to owners of
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businesses acquired by U.S. Foodservice subsequent to the date hereof,
whether by merger, acquisition of assets or capital stock or otherwise, as
consideration for the acquisition of such businesses under registration
rights agreements entered into in connection with such acquisitions.
(k) Reporting Requirements. The Company, during the period when
the Prospectuses are required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the 1934 Act Regulations.
(l) Supplemental Agreement. The Company and USF will perform and
comply with all of their respective covenants and obligations under the
Supplemental Agreement. Upon the purchase by the Underwriters of the
Initial Securities to be sold by the Merrill Lynch Sellers pursuant to the
Purchase Agreements and delivery of the resignation letters contemplated by
Section 5(k) hereof, the Company will at the Closing Time deliver a
certificate to the effect that the conditions set forth in clauses (a) and
(b) of the first paragraph of Section 4 of the Supplemental Agreement have
been satisfied and that the Standstill Agreement and, to the extent
provided in the Supplemental Agreement, the Support Agreement have been
terminated.
SECTION 4. Payment of Expenses.
------------ --------------------
(a) Expenses of the Company. The Company will pay all expenses incident to
the performance of its obligations and the obligations of the Selling
Shareholders under this Agreement (except for the expenses payable by the
Merrill Lynch Sellers pursuant to Section 4(b) hereof and the expenses payable
by the Webb Sellers pursuant to Section 4(c) hereof), including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the word processing or printing, copying and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters, the Agreement
among Managers, the Intersyndicate Agreement and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors and the
reasonable fees and disbursements of a single law firm representing the Merrill
Lynch Sellers, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, word processing or printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (viii) the copying of
closing documents, (ix) the fees and expenses of the Custodian and any transfer
agent or registrar for the Securities, (x) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities and (xi) the fees and
expenses incurred in connection with the listing of the Option Securities on the
New York Stock Exchange.
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(b) Expenses of the Merrill Lynch Sellers. The Merrill Lynch Sellers,
severally and not jointly, will pay the following expenses incident to the
performance of their respective obligations under, and the consummation of the
transactions contemplated by, the Purchase Agreements: (i) any stamp duties,
capital duties and stock transfer taxes, if any, payable upon the sale of their
Securities to the Underwriters, (ii) the fees and disbursements of their
respective counsel and accountants, except that the Company shall, as provided
in Section 4(a) above, pay the reasonable fees and disbursements of a single law
firm representing the Merrill Lynch Sellers, and (iii) underwriting discounts
and commissions with respect to the Securities sold by them to the Underwriters.
(c) Expenses of the Webb Sellers. The Webb Sellers, severally and not
jointly, will pay the following expenses incident to the performance of their
respective obligations under, and the consummation of the transactions
contemplated by, the Purchase Agreements: (i) any stamp duties, capital duties
and stock transfer taxes, if any, payable upon the sale of their Securities to
the Underwriters, (ii) the fees and disbursements of their respective counsel
and accountants and (iii) underwriting discounts and commissions with respect to
the Securities sold by them to the Underwriters.
(d) Allocation of Expenses. The provisions of this Section 4 shall not
enlarge or otherwise alter the respective rights or obligations of the Merrill
Lynch Sellers or the Company under the RSI Agreement with respect to the sharing
or allocation of such costs and expenses or affect any other agreement that the
Company and any of the Selling Shareholders have made or may make for sharing or
allocation of such costs and expenses, including, without limitation, the
Registration Rights Agreement dated as of November 16, 1998 among the Company
and the Webb Sellers.
(e) Termination of Agreement. If this Agreement is terminated by the Lead
Managers in accordance with the provisions of Section 5, Section 9(a)(i) or
Section 11 hereof, the Company shall reimburse the International Managers for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the International Managers.
SECTION 5. Conditions of International Managers, Obligations. The
-------------------------------------------------
obligations of the several International Managers under this Agreement are
subject to the accuracy of the representations and warranties of the Company and
the Selling Shareholders contained in Section 1 hereof or in certificates of any
officer of the Company or any subsidiary of the Company or of or on behalf of
any Selling Shareholder delivered pursuant to the provisions hereof, to the
performance by the Company and the Selling Shareholders of their respective
covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and
at the Closing Time and at each Date of Delivery no stop order suspending
the effectiveness of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the International Managers. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information shall
have been filed
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and declared effective in accordance with the requirements of Rule 430A) or,
if the Company has elected to rely upon Rule 434, a Term Sheet shall have
been filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for Company. At the Closing Time, the Lead
Managers shall have received the favorable opinions, each dated as of the
Closing Time and addressed to the Lead Managers and the U.S.
Representatives, of (i) Hogan & Hartson L.L.P., counsel for the Company, in
form and substance satisfactory to counsel for the International Managers,
together with signed or reproduced copies of such letter for each of the
other Underwriters, to the effect set forth in Exhibit A-1 hereto and to
such further effect as counsel to the International Managers may reasonably
request, and (ii) Chapman & Cutler, special Illinois counsel to the Company,
and Lionel Sawyer & Collins, special Nevada counsel to the Company, each in
form and substance satisfactory to counsel for the International Managers,
together with signed or reproduced copies of such letters for each of the
other Underwriters, to the effect set forth in Exhibit A-2 and A-3 hereto,
respectively, and to such further effect as counsel to the International
Managers may reasonably request.
(c) Opinion of Counsel for the Selling Shareholders. At the Closing
Time, the Lead Managers shall have received the favorable opinions, each
dated as of the Closing Time and addressed to the Lead Managers and the U.S.
Representatives, of (i) each of the attorneys listed on Schedule F attached
hereto for the Merrill Lynch Sellers listed opposite such attorney's name,
each in form and substance satisfactory to counsel for the International
Managers, together with signed or reproduced copies of such letters for each
of the other Underwriters, each such opinion to be in the form and to the
effect heretofore approved by the Lead Managers and to such further effect
as counsel to the International Managers may reasonably request, and (ii)
Katten, Muchin & Zavis, counsel for the Webb Sellers, in form and substance
satisfactory to counsel for the International Managers, together with signed
or reproduced copies of such letter for each of the other Underwriters, to
the effect set forth in Exhibit B hereto and to such further effect as
counsel to the International Managers may reasonably request.
(d) Opinion of Counsel for International Managers. At the Closing Time,
the Lead Managers shall have received the favorable opinion, dated as of the
Closing Time, of Brown & Wood llp, counsel for the International Managers,
with respect to the organization of the Company, the validity of the
Securities (if any) to be sold by the Company, this Agreement, the
Registration Statement, the Prospectuses and such other related matters as
the Lead Managers may require, together with signed or reproduced copies of
such letter for each of the other Underwriters, and the Company and the
Selling Shareholders shall have furnished to such counsel such documents as
they may request for the purpose of enabling them to pass upon such matters.
(e) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Lead Managers shall have received a certificate of the President or a
Vice
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President of the Company and of the chief financial or chief accounting
officer of the Company, dated as of the Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same force
and effect as though expressly made at and as of the Closing Time, (iii) the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to the Closing Time, and (iv)
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or, to the best knowledge of such officers, are contemplated by the
Commission.
(f) Certificate of Selling Shareholders; Letter of Escrow Agent. At
Closing Time, the Lead Managers shall have received a certificate signed by
all of the Merrill Lynch Sellers and a certificate signed by all of the Webb
Sellers or on behalf of all of the Webb Sellers by an Attorney-in-Fact, each
dated as of the Closing Time, to the effect that (i) the representations and
warranties of each such Selling Shareholder in Section 1(b) hereof are true
and correct with the same force and effect as though expressly made at and
as of the Closing Time, (ii) each such Selling Shareholder has complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time and (iii) in the case of the
certificate signed by the Merrill Lynch Sellers, the Merrill Lynch Sellers
have delivered and sold to the Underwriters pursuant to the Purchase
Agreements a number of shares of Common Stock which is equal to or greater
than the Subject Number (as defined in the Supplemental Agreement). Prior to
the time of execution of this Agreement, the Lead Managers shall have
received from the Escrow Agent a letter addressed to the Lead Managers and
the U.S. Representatives, in form and substance satisfactory to the Lead
Managers, to the effect that (i) all amounts payable to the Escrow Agent
pursuant to the Escrow Agreement (including, without limitation, Sections
6.7 and 6.8 thereof) have been paid in full and (ii) the Escrow Agent
releases any and all liens it may have with respect to the Securities to be
sold by the Webb Sellers pursuant to the Purchase Agreements.
(g) Comfort Letter from KPMG LLP. At the time of the execution of this
Agreement, the Lead Managers shall have received from KPMG LLP a letter
dated such date, in form and substance satisfactory to the Lead Managers,
together with signed or reproduced copies of such letter for each of the
other International Managers containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectuses and which shall
cover, among other things, the financial statements of Valley Industries,
Inc. and subsidiaries and Z Leasing Company, a general partnership.
(h) Comfort Letter from PricewaterhouseCoopers LLP. At the time of the
execution of this Agreement, the Lead Managers shall have received from
PricewaterhouseCoopers LLP a letter dated such date, in form and substance
satisfactory to the Lead Managers, together with signed or reproduced copies
of such letter for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses.
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(i) Comfort Letter from Arthur Andersen LLP. At the time of the
execution of this Agreement, the Lead Managers shall have received from
Arthur Andersen LLP a letter dated such date, in form and substance
satisfactory to the Lead Managers, together with signed or reproduced copies
of such letter for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses.
(j) Bring-down Comfort Letters. At the Closing Time, the Representatives
shall have received from each of KPMG LLP, PricewaterhouseCoopers LLP and
Arthur Andersen LLP a letter, in form and substance satisfactory to the Lead
Managers and dated as of Closing Time, to the effect that they reaffirm the
statements made in the letters furnished pursuant to subsections (g), (h)
and (i), respectively, of this Section, except that the "specified date"
referred to shall be a date not more than three business days prior to
Closing Time.
(k) Executed Supplemental Agreement. Prior to the execution of this
Agreement, the Lead Managers shall have received a copy of the Supplemental
Agreement, in form and substance satisfactory to the Lead Managers, duly
executed by the parties thereto, and the Supplement Agreement shall be in
full force and effect at the Closing Time; and, at the Closing Time, the
Representatives shall have received (i) a certificate of the Company, signed
by the President or a Vice President of the Company and the chief financial
or chief accounting officer of the Company, to the effect that the
Standstill Agreement and, to the extent provided in the Supplemental
Agreement, the Support Agreement have been terminated and (ii) a letter of
resignation in substantially the form of Exhibit D hereto from each of
Matthias B. Bowman and Albert J. Fitzgibbons III.
(l) Approval of Listing. At the Closing Time, the Securities shall have
been approved for listing on the New York Stock Exchange, subject only to
official notice of issuance.
(m) No Objection. Prior to the date of this Agreement, the NASD shall
have confirmed that it has not raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
(n) Purchase of Initial U.S. Securities. Contemporaneously with the
purchase by the International Managers of the Initial International
Securities under this Agreement, the U.S. Underwriters shall have purchased
the Initial U.S. Securities to be purchased by them under the U.S. Purchase
Agreement.
(o) Deposit of Securities. On or prior to the date of this Agreement,
the Securities to be sold by the Webb Sellers to the Underwriters pursuant
to the Purchase Agreements shall have been deposited with the Custodian,
together with stock powers duly endorsed in blank by each of the Webb
Sellers. Not later than the second business day before the Closing Time, the
Securities to be sold by the Merrill Lynch Sellers to the Underwriters
pursuant to the Purchase Agreements shall have been delivered to the
registrar and transfer agent for the Common Stock, duly endorsed in blank or
together with stock
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powers duly endorsed in blank, by each of the Merrill Lynch Sellers,
together with instructions to transfer such Securities to the Underwriters
at Closing Time.
(p) Tax Forms. At the Closing Time, the Lead Managers shall have
received a properly completed and executed United States Treasury Department
Form W-9 or W-8 (or other applicable form) from each of the Selling
Shareholders.
(q) Conditions to Purchase of International Option Securities. In the
event that the International Managers exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the International
Option Securities, the representations and warranties of the Company and the
Selling Shareholders contained herein and the statements in any certificates
furnished by the Company or any subsidiary of the Company or by or on behalf
of any Selling Shareholder hereunder shall be true and correct on and as of
the Date of Delivery for such International Option Securities and, at such
Date of Delivery, the Lead Managers shall have received:
(i) Opinions of Counsel for Company. The favorable opinions of
--- -------------------------------
(i) Hogan & Hartson L.L.P., counsel for the Company, in form and
substance satisfactory to counsel for the International Managers, dated
such Date of Delivery and addressed to the Lead Managers and the U.S.
Representatives, relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof, together with signed or reproduced
copies of such letter for each of the Underwriters, and (ii) Chapman &
Cutler, special Illinois counsel to the Company, and Lionel Sawyer &
Collins, special Nevada counsel to the Company, each in form and
substance satisfactory to counsel for the International Managers, dated
such Date of Delivery and addressed to the Lead Managers and the U.S.
Representatives, relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the respective
opinions required by Section 5(b) hereof, together with signed or
reproduced copies of such letters for each of the Underwriters.
(ii) Opinion of Counsel for International Managers. The
---- ---------------------------------------------
favorable opinion of Brown & Wood llp, counsel for the International
Managers, dated such Date of Delivery, relating to the Option Securities
to be purchased from the Company on such Date of Delivery and otherwise
to the same effect as the opinion required by Section 5(d) hereof.
(iii) Officers' Certificate. A certificate, dated such Date of
----- ---------------------
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company to the same
effect as the certificate delivered at the Closing Time pursuant to
Section 5(e) hereof.
(iv) Bring-down Comfort Letter. A letter from each of KPMG LLP,
---- -------------------------
PricewaterhouseCoopers LLP and Arthur Andersen LLP, each in form and
substance satisfactory to the Lead Managers and dated such Date of
Delivery, to the effect that they reaffirm the statements made in the
letters furnished to the Lead Managers pursuant to Sections 5(g), (h) and
(i) hereof, respectively, hereof,
28
<PAGE>
except that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than three days prior to such Date of
Delivery.
(r) Additional Documents. At the Closing Time and at each Date of
Delivery, counsel for the International Managers shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Selling
Shareholders in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the Lead
Managers and counsel for the International Managers.
(s) Termination of Agreement. If any condition specified in this Section
5 shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of International
Option Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several International Managers to purchase the relevant
International Option Securities, may be terminated by the Lead Managers by
notice to the Company at any time at or prior to the Closing Time or such Date
of Delivery, as the case may be, and such termination shall be without
liability of any party to any other party except as provided in Section 4
hereof and except that Sections 1, 6, 7 and 8 hereof shall survive any such
termination and remain in full force and effect.
SECTION 6. Indemnification.
--------- ---------------
(a) Indemnification by Company. The Company agrees to indemnify and hold
harmless each International Manager, each person, if any, who controls any
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, each Selling Shareholder and each person, if any,
who controls any Selling Shareholder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or any Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to
29
<PAGE>
Section 6(e) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch
for the International Managers and all persons, if any, who control any
International Managers as aforesaid, and the fees and disbursements of
counsel chosen by the Majority Selling Shareholders (as defined below) for
the Selling Shareholders and all persons, if any, who control any Selling
Shareholders as aforesaid), reasonably incurred in investigating, preparing
or defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or in any preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto); provided, further, that the Company shall not be liable under this
-------- --------
indemnity agreement to any Selling Shareholder or person controlling such
Selling Shareholder to the extent that any such loss, liability, claim, damage
or expense arises out of any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or in any preliminary prospectus or the
International Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such Selling Shareholder expressly for use therein; and, provided,
--------
further, that this indemnity agreement with respect to any preliminary
- --------
prospectus shall not inure to the benefit of any International Manager from whom
the person asserting any such losses, liabilities, claims, damages or expenses
purchased Securities, or any person controlling such International Manager, if a
copy of the International Prospectus (as then amended or supplemented if the
Company shall have furnished any such amendments or supplements thereto, but
excluding documents incorporated or deemed to be incorporated by reference
therein) was not sent or given by or on behalf of such International Manager to
such person, if such sending or giving of the International Prospectus is
required by law, at or prior to the written confirmation of the sale of such
Securities to such person and if the International Prospectus (as so amended or
supplemented, if applicable) would have corrected the defect giving rise to such
loss, liability, claim, damage or expense, except that this proviso shall not be
applicable if such defect shall have been corrected in a document which is
incorporated or deemed to be incorporated by reference in the International
Prospectus. As used in this Agreement, the term "Majority Selling Shareholders"
means the Selling Shareholders who, at the date of this Agreement, held a
majority of the Initial International Securities to be sold to the International
Managers by the Selling Shareholders pursuant to this Agreement.
(b) Indemnification by Selling Shareholders. Each Selling Shareholder
agrees, severally and not jointly, to indemnify and hold harmless each
International Manager, each person, if any,
30
<PAGE>
who controls any International Manager within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, the Company, its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this Section,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or any Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
information furnished or confirmed in writing to the Company by or on behalf of
such Selling Shareholder expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or Prospectus (or any
amendment or supplement thereto); provided, that the aggregate liability of any
--------
Selling Shareholder pursuant to this paragraph (b) shall be limited to an amount
equal to the net proceeds (before deducting expenses) received by such Selling
Shareholder from the sale of Securities.
(c) Indemnification by International Managers. Each International
Manager agrees, severally and not jointly, to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, each Selling
Shareholder and each person, if any, who controls any Selling Shareholder within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including the Rule 430A Information and the Rule 434 Information, if applicable,
or any preliminary International prospectus or the International Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such International Manager
through the Lead Managers expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary International Prospectus or the
International Prospectus (or any amendment or supplement thereto).
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. Counsel to the respective indemnified parties shall be selected as
follows: counsel to the International Managers and all persons, if any, who
control any International Managers within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall be selected by Merrill Lynch; counsel to
the Company, its directors, each of its officers who signed the Registration
Statement and all persons, if any, who control the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall be selected by
the Company; and counsel to the Selling Shareholders and all persons, if any,
who control any Selling Shareholders within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall be selected by the Majority Selling
Shareholders. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except
31
<PAGE>
with the consent of the indemnified party) also be counsel to the indemnified
party. In no event shall the indemnifying parties be liable for (i) the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from the indemnifying parties' own counsel for all International Managers and
all persons, if any, who control any International Manager within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (ii) the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from the indemnifying parties' own counsel for the Company, its directors, its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, and (iii) the fees and expenses of more than one separate
counsel (in addition to any local counsel) separate from the indemnifying
parties' own counsel for all Selling Shareholders and all persons, if any, who
control any Selling Shareholder within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act, in each case in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(e) Settlement Without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) hereof effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
(f) Other Agreements with Respect to Indemnification. The provisions of
this Section 6 or Section 7 hereof shall not affect any agreements among the
Company and the Selling Shareholders with respect to indemnification of each
other or contribution.
(g) Currencies. Any payment made by the Company, any Selling Shareholder
or any International Manager pursuant to this Section 6 or Section 7 hereof with
respect to any loss, liability, claim, damage or expense incurred in a currency
other than U.S. dollars shall be made by the Company, such Selling Shareholder
or such International Manager, as the case may be, in such amount of U.S.
dollars as shall be necessary to enable the indemnified party to purchase the
amount of such other currency needed to satisfy such loss, liability, claim,
damage or expense, including any premiums and costs of exchange payable in
connection with the conversion of U.S. dollars into the relevant currency.
32
<PAGE>
(h) Insofar as the indemnity agreements in Section 6(a) hereof may
permit indemnification for liabilities under the 1933 Act of any person who is a
partner of an International Manager or a Selling Shareholder or who controls an
International Manager or a Selling Shareholder within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act and who, at the date of this
Agreement, is a director or officer of the Company or controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
such indemnity agreement is subject to the undertaking of the Company in the
Registration Statement under Item 17 thereof with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in Section
--------- ------------
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the International Managers on the other
hand from the offering of the International Securities pursuant to this
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Selling Shareholders on the one hand and of the
International Managers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Shareholders
on the one hand and the International Managers on the other hand in connection
with the offering of the International Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the International Securities pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders and the total underwriting discount received by the International
Managers, in each case as set forth on the cover of the International
Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the International
Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the one
hand and the International Managers on the other hand shall be determined by
reference to, among other things, whether the applicable untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Shareholders or by the International Managers and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Shareholders and the International Managers agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation (even if the International Managers
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 7. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 7 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
33
<PAGE>
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission.
Notwithstanding the provisions of this Section 7, (i) no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such International Manager has otherwise been required to pay
by reason of any such untrue or alleged untrue statement or omission or alleged
omission and (ii) no Selling Shareholder shall be required to contribute any
amount in excess of the amount of net proceeds (before deducting expenses)
received by such Selling Shareholder from the sale of Securities.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company, and each
person, if any, who controls any Selling Shareholder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as such Selling Shareholder. The International Managers'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial International Securities set forth opposite
their respective names in Schedule A hereto and not joint.
The provisions of this Section 7 shall not affect any agreements among the
Company and the Selling Shareholders with respect to contribution between
themselves.
SECTION 8. Representations, Warranties and Agreements to Survive
--------- -----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- ---------
Agreement or in certificates of officers of the Company or any of its
subsidiaries or in certificates signed by or on behalf of the Selling
Shareholders submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
International Manager or controlling person of any International Manager, or by
or on behalf of the Company or any Selling Shareholder or any controlling person
of the Company or any Selling Shareholder, and shall survive delivery of the
International Securities to the International Managers.
SECTION 9. Termination of Agreement.
--------- ------------------------
(a) Termination; General. The Lead Managers may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time at
or prior to the Closing Time, and the obligations of the International Managers
to purchase International Option Securities on any Date of Delivery which is
after the Closing Time may be terminated by the Lead Managers, by notice to the
Company, at or prior to such Date of Delivery, (i) if there has been, since the
time of execution of this Agreement and prior to the Closing Time or such Date
of Delivery, as the
34
<PAGE>
case may be, or since the respective dates as of which information is given in
any Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Lead Managers, impracticable to market the Securities or to
enforce contracts for the sale of the International Securities, or (iii) if
trading in any securities of the Company has been suspended or materially
limited by the Commission or the New York Stock Exchange, or if trading
generally on the American Stock Exchange or the New York Stock Exchange or in
the Nasdaq National Market has been suspended or materially limited, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of such exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either federal, Maryland or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section 9, or if the obligation of the International Managers to purchase
International Option Securities on any Date of Delivery which is after the
Closing Time is terminated pursuant to this Section 9, such termination shall be
without liability of any party to any other party except (in the case of any
termination of this Agreement) as provided in Section 4 hereof, and provided
further that Sections 1, 6, 7 and 8 hereof shall survive any such termination of
this Agreement and remain in full force and effect.
SECTION 10. Default by One or More of the International Managers. If one
---------- ----------------------------------------------------
or more of the International Managers shall fail at the Closing Time or a Date
of Delivery to purchase the International Securities which it or they are
obligated to purchase under this Agreement on such date (the "Defaulted
Securities"), the Lead Managers shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
International Managers, or any other underwriters, to purchase all, but not less
than all, of the Defaulted Securities in such amounts as may be agreed upon and
upon the terms herein set forth; if, however, the Lead Managers shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of International Securities to be purchased on such date, each
of the non-defaulting International Managers shall be obligated, severally
and not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of International Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which occurs after the
Closing Time, the obligation of the International Managers to purchase and
of the Company to sell the International Option Securities to be purchased
and sold on such Date of Delivery shall terminate without liability on the
part of any non-defaulting International Manager.
35
<PAGE>
No action taken pursuant to this Section 10 shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the Lead Managers or
the Company shall have the right to postpone the Closing Time or the relevant
Date of Delivery, as the case may be, for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectuses or in any other documents or arrangements. As used herein, the
term "International Manager" includes any person substituted for an
International Manager under this Section 10.
SECTION 11. Default by one or more of the Selling Shareholders or the
---------- --------------------------------------------------------
Company.
- --------
(a) If one or more of the Selling Shareholders shall fail at the Closing
Time to sell and deliver the number of Securities which it or they, as the case
may be, are obligated to sell under this Agreement on such date, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder on such date to the total number of shares to be sold by all Selling
Shareholders (including such defaulting Selling Shareholder or Selling
Shareholders, as the case may be) on such date, then the International Managers
may, at the option of the Lead Managers, by notice from the Lead Managers to the
Company and the non-defaulting Selling Shareholders, either (a) terminate this
Agreement without any liability on the part of any non-defaulting party except
that the provisions of Sections 1, 4, 6, 7 and 8 hereof shall survive such
termination and remain in full force and effect, or (b) elect to purchase the
Securities which the non-defaulting Selling Shareholders have agreed to sell
hereunder on such date. No action taken pursuant to this Section 11 shall
relieve any Selling Shareholder so defaulting from liability, if any, in respect
of such default.
(b) If the Company shall fail at a Date of Delivery to sell and deliver
the number of Securities that it is obligated to sell under this Agreement on
such date, then the International Managers may, at the option of the Lead
Managers, by notice from the Lead Managers to the Company and the Selling
Shareholders, terminate this Agreement or, in the case of any Date of Delivery
which occurs after the Closing Time, terminate the obligations of the
International Managers to purchase the International Option Securities to be
purchased on such Date of Delivery, in each case without any liability on the
fault of any non-defaulting party except that the provisions of Sections 1, 4,
6, 7 and 8 hereof shall survive any such termination of this Agreement and
remain in full force and effect. No action taken pursuant to this Section 11
shall relieve the Company from liability, if any, in respect of such default.
In the event of a default by any Selling Shareholder or the Company
referred to in this Section 11 which does not result in the termination of this
Agreement or, in the case of a Date of Delivery which is after the Closing Time,
which does not result in a termination of the obligations of the International
Managers to purchase the relevant International Option Securities, as the case
may be, either the Lead Managers or the Company shall have the right to postpone
Closing Time or the relevant Date of Delivery, as the case may be, for a period
not
36
<PAGE>
exceeding seven days in order to effect any required change in the Registration
Statement or Prospectuses or in any other documents or arrangements.
SECTION 12. Agent for Service; Submission to Jurisdiction; Waiver of
---------- --------------------------------------------------------
Immunities. Each of ML Offshore LBO Partnership No. B-XVIII and ML Offshore LBO
- ----------
Partnership No. XIII (each for purposes of this Section 12, a "Subject Entity")
irrevocably (i) agrees, severally and not jointly, that any legal suit, action
or proceeding against such Subject Entity brought by any International Manager
or by any person who controls any International Manager arising out of or based
upon this Agreement or the transactions contemplated hereby may be instituted in
any federal or state court in the Borough of Manhattan, The City of New York,
(ii) waives, to the fullest extent it may effectively do so under applicable
law, any objection which it may now or hereafter have to the laying of venue of
any such proceeding or to the convenience of the forum and (iii) submits to the
non-exclusive jurisdiction of any federal or state court in the State of New
York in any such suit, action or proceeding. Each Subject Entity has appointed
as its authorized agent (the "Authorized Agent"), which term, as used herein,
includes any successor in such capacity, upon whom process may be served in any
such action arising out of or based on this Agreement or any of the transactions
contemplated hereby which may be instituted in any federal or state court in the
Borough of Manhattan, The City of New York by any International Manager or by
any person who controls any International Manager, expressly consents to the
jurisdiction of any such court in respect of any such action and waives any
other requirements of or objections to personal jurisdiction with respect
thereto. Such appointment shall be irrevocable. Each Subject Entity represents
and warrants that the Authorized Agent has agreed to act as such agent for
service of process. Service of process upon the Authorized Agent and written
notice of such service to such Subject Entity (delivered as provided in Section
13 hereof) shall be deemed, in every respect, effective service of process upon
such Subject Entity.
In respect of any judgment or order given or made against a Subject
Entity (the "Indemnifying Subject Entity") in favor of any International Manager
or any person, if any, who controls any International Manager for any amount due
hereunder that is expressed and paid in a currency (the "judgment currency")
other than United States dollars, such Indemnifying Subject Entity shall
indemnify such International Manager against any loss incurred by such
International Manager or controlling person as a result of any variation between
(i) the rate of exchange at which the United States dollar amount is converted
into the judgment currency for the purpose of such judgment or order and (ii)
the rate of exchange at which such International Manager or controlling person
is able to purchase United States dollars with the amount of judgment currency
actually received by such International Manager or controlling person. The
foregoing indemnity shall constitute separate and independent obligations of
each Subject Entity and shall continue in full force and effect notwithstanding
any such judgment or order as aforesaid. The term "rate of exchange" shall
include any premiums and costs of exchange payable in connection with the
purchase of or conversion into United States dollars.
To the extent that any Subject Entity or any of such Subject Entity's
properties, assets or revenues may have or may hereafter become entitled to, or
have attributed to it, any right of immunity, on the grounds of sovereignty,
from (i) any legal action, suit or proceeding, (ii) setoff or counterclaim,
(iii) the jurisdiction of any court, (iv) service of process, (v) attachment
upon or prior to judgment, (vi) attachment in aid of execution of judgment,
(vii) execution of judgment, or (viii) other legal process or proceeding for the
giving of any relief or for the enforcement of any judgment, in any jurisdiction
in which proceedings may at any time be commenced, with
37
<PAGE>
respect to its obligations, liabilities or any other matter under or arising out
of or in connection with this Agreement, such Subject Entity (to the maximum
extent permitted by law) hereby irrevocably and unconditionally waives, and
agrees not to plead or claim, any such immunity and consents to such relief and
enforcement.
SECTION 13. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at Merrill Lynch
International, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, England,
attention of Syndicate Operations; notices to the Company shall be directed to
it at 9755 Patuxent Woods Drive, Columbia, Maryland 21046, attention of David M.
Abramson; notices to the Merrill Lynch Sellers shall be directed to them at
Merrill Lynch Capital Partners, Inc., 225 Liberty Street, New York, New York
10080-6123, Attention of William Orlando, with a copy to Merrill Lynch & Co.,
Inc., World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1323, Attention of Frank J. Marinaro, Esq.; and notices to the Webb
Sellers shall be directed to them at Reyes Holdings, 225 East Deerpath Road,
Suite 270, Lake Forest, Illinois 60045, Attention: Dean H. Janke, with a copy to
Steven V. Napolitano, Esq., Katten, Muchin & Zavis, 525 West Monroe Street,
Suite 1600, Chicago, Illinois 60661-3693.
SECTION 14. Parties. This Agreement shall each inure to the benefit of
-------
and Shareholders and their respective successors. Nothing expressed in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the International Managers, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 hereof and their heirs
and legal representatives, any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the International Managers, the Company and the
Selling Shareholders and their respective successors, and such controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any International Manager shall be deemed to be a successor by
reason merely of such purchase.
SECTION 15. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME, UNLESS OTHERWISE INDICATED.
SECTION 16. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
[SIGNATURE PAGES FOLLOW]
38
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Attorney-in-Fact for the Selling
Shareholders a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the International Managers,
the Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
U.S. FOODSERVICE
By:
------------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL APPRECIATION
PARTNERSHIP NO. B-XVIII, L.P.
By: Merrill Lynch LBO Partners No. B-IV,
L.P., as General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
------------------------------------
Name:
Title:
MERRILL LYNCH KECALP L.P. 1994
By: KECALP Inc., as General Partner
By:
------------------------------------
Name:
Title:
39
<PAGE>
ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII
By: Merrill Lynch LBO Partners No. B-IV,
L.P., as Investment General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
------------------------------------
Name:
Title:
ML IBK POSITIONS, INC.
By:
------------------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. II
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
------------------------------------
Name:
Title:
MERRILL LYNCH KECALP L.P. 1991
By: KECALP Inc., as General Partner
By:
------------------------------------
Name:
Title:
40
<PAGE>
MERRILL LYNCH CAPITAL APPRECIATION
PARTNERSHIP NO. XIII, L.P.
By: Merrill Lynch LBO Partners No. IV,
L.P., as General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
------------------------------------
Name:
Title:
ML OFFSHORE LBO PARTNERSHIP NO. XIII
By: Merrill Lynch LBO Partners No. IV,
L.P., as Investment General Partner
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
------------------------------------
Name:
Title:
ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P.
By: ML Employees LBO Managers, Inc., as
General Partner
41
<PAGE>
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., as General Partner
By:
------------------------------------
Name:
Title:
MERCHANT BANKING L.P. NO. II
By: Merrill Lynch MBP Inc., as General
Partner
By:
------------------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. IV
By: Merrill Lynch Capital Partners, Inc.,
as General Partner
By:
------------------------------------
Name:
Title:
---------------------------------------
J. Christopher Reyes
---------------------------------------
M. Jude Reyes
---------------------------------------
David K. Reyes
42
<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
GOLDMAN, SACHS INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
J.C. BRADFORD & CO.
BY: MERRILL LYNCH INTERNATIONAL
BY:
---------------------------
Attorney-in-Fact
For themselves and as Lead Managers of the
other International Managers named in Schedule A hereto.
43
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Name of International Manager Securities
- ----------------------------- -------------------
<S> <C>
Merrill Lynch International...............................................
Goldman Sachs International...............................................
Salomon Brothers International Limited....................................
J.C. Bradford & Co........................................................
_________
Total.............................................................
=========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Initial International Maximum Number of International
Securities to be Sold Option
Securities to Be Sold
-------------------------------- -------------------------------
<S> <C> <C>
U.S. Foodservice...................... 0 260,878
Merrill Lynch Capital Appreciation
Partnership No. B-XVIII, L.P.(1)..... 675,413 0
Merrill Lynch KECALP L.P. 1994(1)..... 10,521 0
ML Offshore LBO Partnership No.
B-XVIII(1)........................... 339,819 0
ML IBK Positions, Inc. (1)............ 223,228 0
MLCP Associates L.P. No. II (1)....... 8,100 0
Merrill Lynch KECALP L.P. 1991(1)..... 29,418 0
Merrill Lynch Capital Appreciation
Partnership No. XIII, L.P. (1)....... 251,116 0
ML Offshore LBO Partnership No.
XIII(1).............................. 6,384 0
ML Employees LBO Partnership No. I,
L.P. (1)............................. 6,242 0
Merrill Lynch KECALP L.P. 1987(1)..... 4,717 0
Merchant Banking L.P. No. II(1)....... 4,717 0
MCLP Associates L.P. No. IV(1)........ 2,104 0
J. Christopher Reyes(2)............... 70,964 0
M. Jude Reyes (2)..................... 70,964 0
David K. Reyes (2).................... 35,482 0
------------------ -------------------
Total................................. 1,739,189 260,878
================== ===================
</TABLE>
- ----------------------------------------------
(1) The entities whose names are marked with (1) are herein sometimes referred
to, collectively, as the "Merrill Lynch Sellers" and, individually, as a
"Merrill Lynch Seller".
(2) The persons whose names are marked with (2) are herein sometimes referred
to, collectively, as the "Webb Sellers", and, individually, as a "Webb
Seller".
Sch B-1
<PAGE>
SCHEDULE C
1. The initial public offering price per share for the International
Securities shall be $.
2. The purchase price per share for the International Securities to
be paid by the several International Managers shall be $, being an amount
equal to the initial public offering price set forth above less $ per
share; provided that the purchase price per share for any International
Option Securities purchased upon the exercise of the over-allotment option
described in Section 2(b) shall be reduced by an amount per share equal to
any dividends or distributions declared by the Company and payable on the
Initial International Securities but not payable on the International
Option Securities.
Sch C-1
<PAGE>
SCHEDULE D
LIST OF SUBJECT SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- -------------------------------------------------------- -------------------------------
<S> <C>
White Swan, Inc. Delaware
JP Foodservice Distributors, Inc. Delaware
John Sexton & Co. Delaware
Illinois Fruit & Produce Corp. Illinois
U.S. Foodservice, Inc. Delaware
Biggers Brothers, Inc. Delaware
E & H Distributing Co. Nevada
Joseph Webb Foods, Inc. Delaware
</TABLE>
Sch D-1
<PAGE>
SCHEDULE E
Registration Rights Agreements
1. Registration Rights Agreement dated as of May 17, 1996 (the "RSI Agreement")
among Rykoff-Sexton, Inc., a Delaware corporation, and Merrill Lynch Capital
Appreciation Partnership, No. B-XVIII, L.P. and the other parties thereto
and assumed by USF.
2. Common Stock Purchase Warrant expiring September 30, 2005, dated
December 24, 1997, issued by JP Foodservice, Inc., a Delaware corporation,
and registered in the name of Bankers Trust New York Corporation.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
71,460 shares as of January 31, 1999, subject to adjustment pursuant to
anti-dilution provisions therein.
(c) Holder of securities entitled to registration rights thereunder:
Bankers Trust New York Corporation.
3. Registration Rights Agreement dated as of October 23, 1998 between U.S.
Foodservice and Geoffrey Haar.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
550,543 shares, subject to post-closing adjustments as provided in the
related acquisition agreement.
(c) Holder of securities entitled to registration rights thereunder:
Geoffrey Haar.
4. Registration Rights Agreement dated as of November 16, 1998 among U.S.
Foodservice and the stockholders of Joseph Webb Foods, Inc. identified as
such on the signature pages thereof.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
896,057 shares, subject to post-closing adjustments and earn-out
issuances as provided in the related acquisition agreement.
(c) Holders of securities entitled to registration rights thereunder and
number of such securities held by each such holder: J. Christopher
Reyes, 358,423 shares; M. Jude Reyes, 358,423 shares; and David K.
Reyes, 179,211 shares, subject to adjustments as indicated in (b)
above.
5. Registration Rights Agreement dated as of March 20, 1998 among U.S.
Foodservice and each of the stockholders of Westland Provisions, Inc.
identified on the signature pages thereof.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
46,795 shares.
Sch E-1
<PAGE>
(c) Holders of securities entitled to registration rights thereunder and
number of such securities held by each such holder as of March 1, 1999:
Richard Hafdal, 30,049 shares; Gary Hafdal, 498 shares; Frank Roedl,
2,322 shares; Rod Buck, 6,337 shares; Sharon Robbins, 166 shares; and
B. Scott Ball, 7,423 shares.
6. Registration Rights Agreement dated as of July 6, 1998 among U.S.
Foodservice and C. Donald Stahl.
(a) Type of securities entitled to registration rights thereunder: Common
Stock.
(b) Total number of securities entitled to registration rights thereunder:
12,925 shares.
(c) Holders of securities entitled to registration rights thereunder and
number of such securities held by such holder as of March 1, 1999: C.
Donald Stahl.
Sch E-2
<PAGE>
SCHEDULE F
List of Counsel to the Merrill Lynch Sellers
<TABLE>
<CAPTION>
Attorney Merrill Lynch Seller
- -------- --------------------
<S> <C>
Frank J. Marinaro, Esq................ Merrill Lynch Capital Appreciation Partnership No. B
XVIII, L.P.
ML IBK Positions, Inc.
MLCP Associates L.P. No. II
MLCP Associates L.P. No. IV
Merrill Lynch Capital Appreciation Partnership No.
XIII, L.P.
Merrill Lynch Capital Appreciation Partnership No.
XIII, L.P.
ML Employees LBO Partnership No. I, L.P.
Robin Mass, Esq....................... Merrill Lynch KECALP L.P. 1994
Merrill Lynch KECALP L.P. 1991
Merrill Lynch KECALP L.P. 1987
Margaret E. Nelson, Esq............... Merchant Banking L.P. No. II
Curtis, Mallet-Prevost, Colt & Mosle
and W.S. Walker & Company............. ML Offshore LBO Partnership No. B-XVIII
ML Offshore LBO Partnership No. XIII
</TABLE>
Sch F-1
<PAGE>
Exhibit A
FORM OF OPINION OF HOGAN & HARTSON L.L.P.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the Purchase
Agreements.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in the States of Maryland, [ ] and [ ].
(iv) The authorized capital stock of the Company is as set forth in the
Prospectuses in the column entitled "Actual" under the caption "Capitalization".
The shares of issued and outstanding capital stock (including the Securities to
be purchased by the Underwriters from the Selling Shareholders pursuant to the
Purchase Agreements) have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock of
the Company (including the Securities to be purchased by the Underwriters from
the Selling Shareholders pursuant to the Purchase Agreements) was issued in
violation of the preemptive or other similar rights of any security holder of
the Company arising under the charter or by-laws of the Company, the General
Corporation law of the State of Delaware (the "DGCL"), the Standstill Agreement,
the Support Agreement or, to the best of our knowledge, otherwise.
(v) The Securities which the U.S. Underwriters and the International
Managers have the option to purchase from the Company have been duly authorized
for issuance and sale to the U.S. Underwriters and the International Managers
pursuant to the U.S. Purchase Agreement and the International Purchase
Agreement, respectively, and, when issued and delivered by the Company pursuant
to the U.S. Purchase Agreement and the International Purchase Agreement,
respectively, against payment of the consideration set forth in the U.S.
Purchase Agreement and the International Purchase Agreement, will be validly
issued and fully paid and non-assessable; and no holder of any of the Securities
is subject to personal liability by reason of being such a holder.
(vi) The issuance by the Company of the Securities which the U.S.
Underwriters and the International Managers have the option to purchase from the
Company pursuant to the Purchase Agreements is not subject to preemptive or
other similar rights of any security holder of the Company arising under the
charter or by-laws of the Company, the DGCL, the Standstill Agreement, the
Support Agreement or, to the best of our knowledge, otherwise.
A-1
<PAGE>
(vii) Each of White Swan, Inc., JP Foodservice Distributors, Inc., John
Sexton & Co., U.S. Foodservice, Inc., Biggers Brothers, Inc. and Joseph Webb
Foods, Inc., each a Delaware corporation (collectively, the "Delaware
Subsidiaries" and, individually, a "Delaware Subsidiary"), is validly existing
and in good standing under the laws of the jurisdiction of its organization, has
the corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectuses and is duly qualified
to transact business and is in good standing in [ ]; and except as other
wise disclosed in the Registration Statement, all of the issued and outstanding
capital stock of each Delaware Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and, to the best of our knowledge, all
of the issued and outstanding capital stock of each Delaware Subsidiary is owned
by the Company, directly or through wholly-owned subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(viii) The U.S. Purchase Agreement and the International Purchase Agreement
have been duly authorized, executed and delivered by the Company.
(ix) The Supplemental Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company and USF,
enforceable against the Company and USF in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and, to the best of our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
(xi) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, and the Prospectuses, excluding the documents incorporated by
reference therein, and each amendment or supplement to the Registration
Statement and any of the Prospectuses, excluding the documents incorporated by
reference therein, as of their respective effective or issue dates (other than
the financial statements and supporting schedules and other financial data
included therein or omitted therefrom, as to which we need express no opinion),
complied as to form in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations.
(xii) The documents incorporated by reference in the Prospectuses (other
than the financial statements and supporting schedules and other financial data
included therein or omitted therefrom, as to which we need express no opinion),
when they were filed with the Commission, complied as to form in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the Commission thereunder.
A-2
<PAGE>
(xiii) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable requirements of the DGCL, with any
applicable requirements of the charter and by-laws of the Company and with all
applicable requirements of the New York Stock Exchange.
(xiv) The information in the Prospectuses under "Risk Factors--Future sales
of our common stock in the public market could adversely affect our stock price
and our ability to raise funds in new stock offerings", "Risk Factors--
Provisions in our charter and bylaws and in Delaware law could discourage
takeover attempts we oppose even if our stockholders might benefit from a change
in control of U.S. Foodservice", "Risk Factors--We have adopted a shareholder
rights plan which could discourage hostile acquisitions of control in which our
stockholders may wish to participate", "Business--Legal Proceedings",
"Description of Capital Stock", "Shares Eligible for Future Sale" and "Certain
U.S. Tax Consequences to Non-U.S. Holders", the information in the Registration
Statement under Item 15 thereof, and the information in the Company's Annual
Report on Form 10-K/A-1 for its fiscal year ended June 27, 1998 under "Legal
Proceedings", in each case to the extent that it constitutes, summaries of legal
matters, summaries of the Company's charter or by-laws, the Rights Agreement or
other instruments or agreements, summaries of legal proceedings or legal
conclusions, has been reviewed by us and is correct in all material respects.
(xv) All descriptions in the Prospectuses of contracts and other documents
to which the Company or its subsidiaries are a party are accurate and correct in
all material respects.
(xvi) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency (other than under the 1933 Act and the 1933 Act Regulations, which have
been obtained, or as may be required under state securities or blue sky laws, as
to which we need express no opinion) is necessary or required for the execution,
delivery or performance by the Company of its obligations under the Purchase
Agreements, in connection with the sale to the Underwriters and public offering
of the Securities, in connection with the issuance and sale, if any, of the
Securities which the Underwriters have the option to purchase from the Company
pursuant to the Purchase Agreements and the use of the proceeds therefrom by the
Company as described in the Prospectuses under "Use of Proceeds" or for the
consummation of the transactions contemplated by the Purchase Agreements.
(xvii) The execution, delivery and performance of the Purchase Agreements
and the consummation of the transactions contemplated in the Purchase Agreements
and in the Registration Statement (including the sale to the Underwriters and
public offering of the Securities and the issuance and sale, if any, by the
Company of the Securities which the Underwriters have the option to purchase
from the Company and the use of the proceeds therefrom by the Company as
described in the Prospectuses under the caption "Use of Proceeds") and
compliance by the Company with its obligations under the
A-3
<PAGE>
Purchase Agreements have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice or passage
of time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined in the Purchase Agreements) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to, (A) any instrument or
agreement listed on Schedule E to the Purchase Agreements, the Standstill
Agreement, the Support Agreement, the Agreement and Plan of Merger dated as of
June 30, 1997 among JP Foodservice, Inc., Hudson Acquisition Corp and Rykoff-
Sexton, Inc., the Stock Purchase Agreement or the Escrow Agreement or (B) any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound or to which
any of the property or assets of the Company or any subsidiary is subject filed
as an exhibit to the Registration Statement or as an exhibit to any document
incorporated or deemed to be incorporated by reference in the Registration
Statement (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company or any Delaware Subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court having jurisdiction over the Company or any
subsidiary or any of their respective assets, properties or operations.
(xviii) The Company is not an "investment company" as such term is defined
in the 1940 Act.
(xix) To our knowledge, each share of issued and outstanding Common Stock
(including the Securities to be purchased by the Underwriters from the Selling
Shareholders pursuant to the Purchase Agreements) has one Right attached to it;
and each of the Securities which the Underwriters have the option to purchase
from the Company pursuant to the Purchase Agreements will, if and when issued,
have one Right attached to it. The purchase by the Underwriters of the
Securities to be purchased by them pursuant to the Purchase Agreements will not
result in the occurrence of a "Distribution Date" (as defined in the Rights
Agreement) or otherwise result in the separation of Rights from the related
Common Stock certificates or the distribution of separate certificates
evidencing the Rights.
(xx) To the best of our knowledge, neither the Company nor any of its
subsidiaries has any right of first refusal or other similar right to purchase
any of the Securities to be sold by the Selling Shareholders to the Underwriters
pursuant to the Purchase Agreements.
During the course of the preparation of the Registration Statement and
the Prospectuses, we participated in conferences with officers and other
representatives of the Company, with representatives of the independent public
accountants of the Company, and with you and your representatives at which the
contents of the Registration Statement and the Prospectuses (including the
documents incorporated or deemed to be incorporated by reference therein) were
discussed. While we have not undertaken to
A-4
<PAGE>
determine independently, and we do not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the Registration
Statement or Prospectuses, except as set forth in paragraph (xiv) above, we may
state on the basis of these conferences and our activities as counsel to the
Company in connection with the Registration Statement and the Prospectuses that
no facts have come to our attention which cause us to believe that (i) the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
the Prospectuses, as of [date of Prospectuses] or as of the date of this
opinion, contained or contain an untrue statement of a material fact or omitted
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, (iii) there are any legal or governmental proceedings pending or
threatened against the Company or any of its subsidiaries that are required to
be disclosed in the Registration Statement or the Prospectuses or the documents
incorporated or deemed to be incorporated by reference therein, other than those
disclosed therein, or which might reasonably be expected to result in a Material
Adverse Effect or which might reasonably be expected to materially and adversely
affect the consummation of any of the transactions contemplated by the Purchase
Agreement or the performance by the Company or the Selling Shareholders of their
respective obligations thereunder or (iv) there are any statutes, regulations,
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement, the Prospectuses or the documents incorporated or deemed to be
incorporated by reference therein or to be filed as exhibits to the Registration
Statement or the documents incorporated or deemed to be incorporated by
reference therein that are not described or referred to therein or so filed;
provided that in making the foregoing statements (which shall not
- --------
constitute an opinion), we are not expressing any views as to the financial
statements and supporting schedules and other financial data included in or
omitted from the Registration Statement or the Prospectuses.
Such opinion shall state that it covers matters governed by and arising
under the DGCL and the laws of the State of Maryland, the State of New York and
the federal laws of the United States of America and shall further state that,
insofar as such opinion covers the Supplemental Agreement, the Support
Agreement, the Standstill Agreement or any other instrument or agreement which
is governed by the laws of a jurisdiction other than the State of Maryland or
the State of New York, such counsel has assumed that the laws governing such
instrument or agreement are identical to the laws of the State of New York. In
rendering such opinion, such counsel may rely, as to matters of fact (but not as
to legal conclusions), to the extent they deem proper, on certificates of the
Company and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
A-5
<PAGE>
Exhibit A-2
FORM OF OPINION OF CHAPMAN & CUTLER
(Illinois Local Counsel)
(1) Illinois Fruit & Produce Corp. (the "Subject Subsidiary") has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Illinois, has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses (including the documents incorporated by reference therein) and is
duly qualified to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Subject Subsidiary and its subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of business (a
"Material Adverse Effect"); and except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of the
Subject Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and, to the best of our knowledge, is owned by the Company,
directly or through wholly-owned subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity and none of the
outstanding shares of capital stock of the Subject Subsidiary was issued in
violation of the preemptive or similar rights of any security holder of the
Subject Subsidiary arising under the charter or bylaws of the Subject Subsidiary
or the corporate law of the State of Illinois or, to the best or our knowledge,
otherwise.
(2) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreements
will not result in any violation of the provisions of the charter or by-laws of
the Subject Subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any government, governmental
instrumentality or court having jurisdiction over the Subject Subsidiary or any
of its subsidiaries or any of their respective assets, properties or operations.
Such opinion shall state that it covers matters governed by and arising
under the laws of the State of Illinois and the federal laws of the United
States of America and shall further state that, insofar as such opinion covers
any instrument or agreement which is governed by the laws of a jurisdiction
other than the State of Illinois, such counsel has assumed that the laws
governing such instrument or agreement are identical to the laws of the State of
Illinois. In rendering such opinion, such counsel may rely, as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of the Subject Subsidiary and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
A-2-1
<PAGE>
Exhibit A-3
FORM OF OPINION OF LIONEL SAWYER & COLLINS
(Nevada Local Counsel)
(1) E&H Distributing Co. (the "Subject Subsidiary") has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Nevada, has the corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses
(including the documents incorporated by reference therein) and is duly
qualified to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Subject Subsidiary and its subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of business (a
"Material Adverse Effect"); and except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of the
Subject Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and, to the best of our knowledge, is owned by the Company,
directly or through wholly-owned subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity and none of the
outstanding shares of capital stock of the Subject Subsidiary was issued in
violation of the preemptive or similar rights of any security holder of the
Subject Subsidiary arising under the charter or bylaws of the Subject Subsidiary
or the corporate law of the State of Nevada or, to the best or our knowledge,
otherwise.
(2) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreements
will not result in any violation of the provisions of the charter or by-laws of
the Subject Subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any government, governmental
instrumentality or court having jurisdiction over the Subject Subsidiary or any
of its subsidiaries or any of their respective assets, properties or operations.
Such opinion shall state that it covers matters governed by and arising
under the laws of the State of Nevada and the federal laws of the United States
of America and shall further state that, insofar as such opinion covers any
instrument or agreement which is governed by the laws of a jurisdiction other
than the State of Nevada, such counsel has assumed that the laws governing such
instrument or agreement are identical to the laws of the State of Nevada. In
rendering such opinion, such counsel may rely, as to matters of fact (but not as
to legal conclusions), to the extent they deem proper, on certificates of the
Subject Subsidiary and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
A-3-1
<PAGE>
Exhibit B
FORM OF OPINION OF COUNSEL FOR THE WEBB SELLERS
(i) No filing with, or consent, approval, authorization, order,
registration, qualification or decree of, any court or governmental authority or
agency (other than the issuance of the order of the Commission declaring the
Registration Statement effective and as may be required under state securities
or blue sky laws, as to which we need express no opinion) is necessary or
required to be obtained by any of the Webb Sellers (the "Subject Shareholders")
for the performance by each Subject Shareholder of its obligations under the
Purchase Agreements or its Power of Attorney or its Custody Agreement, in
connection with the offer, sale or delivery of the Securities to be sold by the
Subject Shareholders under the Purchase Agreements or the consummation by the
Subject Shareholders of the other transactions contemplated by the Purchase
Agreements.
(ii) A Power of Attorney and a Custody Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement of,
each Subject Shareholder, enforceable against such Subject Shareholder in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditor's rights generally or by general equitable
principles.
(iii) Each of the U.S. Purchase Agreement and the International Purchase
Agreement has been duly authorized, executed and delivered by each of the
Subject Shareholders.
(iv) The execution, delivery and performance by each of the Subject
Shareholders of the Purchase Agreements, its Power of Attorney and its Custody
Agreement, the sale and delivery of the Securities to be sold by each of the
Subject Shareholders pursuant to the Purchase Agreements, the consummation by
each of the Subject Shareholders of the other transactions contemplated by the
Purchase Agreements, and compliance by each of the Subject Shareholders with its
obligations under the Purchase Agreements, its Powers of Attorney and its
Custody Agreement do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any tax, lien, charge
or encumbrance upon any of the Securities to be sold by the Subject Shareholders
pursuant to, the Escrow Agreement, the Stock Purchase Agreement, the
Registration Rights Agreement dated as of November 16, 1998 by and among the
Company and the Webb Sellers or any indenture, mortgage, deed of trust, loan
agreement, credit agreement, note or other instrument or agreement, known to us,
to which any Subject Shareholder is a party or by which any Subject Shareholder
may be bound or to which any of the Securities to be sold by any Subject
Shareholder is subject, nor will such action result in any violation of any
applicable law, statute, rule, regulation, judgment, order or decree, known to
us, of any government, government instrumentality or court having jurisdiction
over any of the Subject Shareholders or any of their respective assets,
properties or operations.
(v) To the best of our knowledge, each Subject Shareholder has valid and
marketable title to the Securities to be sold by such Subject Shareholder under
the Purchase Agreements,
B-1
<PAGE>
free and clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind other than pursuant to the Purchase
Agreements. Upon the delivery of and payment for the U.S. Securities and the
International Securities as contemplated in the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, each of the U.S. Underwriters
and the International Managers will receive good and marketable title to the
U.S. Securities and the International Securities, respectively, purchased by it
from the Subject Shareholders, free and clear, to our knowledge, of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind, and will be a "protected purchaser" within the meaning of UCC Section 8-
303. In rendering the opinion set forth in this paragraph, we have assumed that
the U.S. Underwriters and the International Managers have no notice of an
adverse claim (within the meaning of UCC Section 8-102(a)(1) with respect to the
Securities being sold by the Subject Shareholders pursuant to the Purchase
Agreements.
Although we are not passing upon and do not assume any responsibility for
the accuracy, completeness or fairness of any of the statements contained in the
Prospectuses, the information in the Prospectuses under "Principal and Selling
Stockholders," insofar as such information relates to the Subject Shareholders,
has been reviewed by us and is, to the best of our knowledge, correct and
accurate in all material respects.
Such opinion shall state that it covers matters governed by and arising
under the laws of the State of Illinois and the State of New York and the
federal laws of the United States of America and shall further state that,
insofar as such opinion covers any instrument or agreement which is governed by
the laws of a jurisdiction other than the State of Illinois or the State of New
York, such counsel has assumed that the laws governing such instrument or
agreement are identical to the laws of the State of Illinois. In rendering such
opinion, such counsel may rely, as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of the Subject
Shareholders and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
B-2
<PAGE>
EXHIBIT C
Supplemental Agreement
----------------------
Supplemental Agreement dated as of March [ ], 1999 among U.S. Foodservice,
a Delaware corporation (the "Company"), formerly known as JP Foodservice, Inc.,
U.S. Foodservice, Inc., a Delaware corporation ("USF"), and the other persons
whose names appear on the signature pages hereof (such other persons are
hereinafter called, collectively, the "ML Entities" and, individually, an "ML
Entity").
WHEREAS, USF is the successor in interest to Rykoff-Sexton, Inc., a
Delaware corporation ("RSI"), and has succeeded to all of RSI's rights and has
assumed all of RSI's obligations under the Standstill Agreement dated as of May
17, 1996 (the "Standstill Agreement") between RSI and the ML Entities;
WHEREAS, the Company and the ML Entities are parties to an Amended and
Restated Support Agreement dated as of June 30, 1997 (the "Support Agreement");
WHEREAS, the Company has agreed to register under the Securities Act of
1933, as amended (the "Securities Act"), approximately 7.8 million shares of its
common stock, par value $.01 per share (the "Common Stock"), currently owned by
the ML Entities in order to permit the ML Entities to sell such shares in a
public offering and, in connection therewith, the Company, the ML Entities and
certain other stockholders of the Company intend to enter into a U.S. Purchase
Agreement (the "U.S. Purchase Agreement") with Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Goldman, Sachs & Co., Salomon Smith Barney
Inc., J.C. Bradford & Co. and First Union Capital Markets Corp., as U.S.
representatives (the "U.S. Representatives") of the several U.S. underwriters
(the "U.S. Underwriters") to be named therein, and an International Purchase
Agreement (the "International Purchase Agreement") with Merrill Lynch
International, Goldman Sachs International, Salomon Brothers International
Limited and J.C. Bradford & Co., as lead managers (the "Lead Managers") of the
several international managers (the "International Managers" and, together with
the U.S. Underwriters, the "Underwriters") to be named therein;
WHEREAS, a number of transactions will be undertaken in connection with the
U.S. Purchase Agreement and the International Purchase Agreement (collectively,
the "Purchase Agreements" and individually, a "Purchase Agreement"), including,
without limitation, the sale and delivery of Common Stock by the ML Entities,
and, if applicable, certain other stockholders and the Company to the
Underwriters, the public offering and sale by the Underwriters of such Common
Stock in U.S. and international offerings pursuant to Registration Statement No.
333-73447 (collectively, the "Offerings"), the purchase, offer, sale and
delivery of Common Stock by the Underwriters in connection with stabilization
transactions relating to the Offerings, market-making transactions by Merrill
Lynch and Merrill Lynch International in the Common Stock and, in the event that
any of the Underwriters is unable to sell any shares of Common Stock in the
Offerings, subsequent offers, sales and deliveries of such shares of Common
Stock (the Offerings, together with all of the foregoing transactions and all
other transactions contemplated by or relating to any of the transactions
contemplated by the Purchase Agreements are hereinafter called, collectively,
the "Offering Transactions");
<PAGE>
WHEREAS, the parties hereto wish to provide for the amendment and waiver of
certain provisions of the Standstill Agreement and for the waiver of certain
provisions of the Support Agreement in order to effectuate the Offering
Transactions and to provide for the termination of the Standstill Agreement, and
to the extent provided herein, the Support Agreement upon consummation of the
Offerings;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Certain Definitions. Capitalized terms used in this Agreement
-------------------
which are defined in the recitals to this Agreement or the paragraph preceding
such recitals shall have the meanings set forth therein, and other capitalized
terms used in this Agreement and not defined shall have the meanings set forth
in the U.S. Purchase Agreement.
Section 2. Support Agreement. The parties hereto agree that (i) the
-----------------
provisions of Sections 2, 3(c) and 5 of the Support Agreement shall not be
applicable with respect to the Offering Transactions and (ii) upon the sale and
delivery by the ML Entities of the Initial Securities to be sold by them to the
Underwriters under the Purchase Agreements, and subject to the satisfaction of
the conditions set forth in clauses (a) and (b) if the first paragraph of
Section 4 hereof, Sections 2, 3(c) and 5 of the Support Agreement will
automatically terminate, effective as of the Closing Time; provided, however,
that the termination of such provisions of the Support Agreement shall be
without prejudice to the rights of any party thereto arising out of the breach
by any other party of any such provisions which occurred prior to such
termination, it being understood that such provisions are not applicable with
respect to the Offering Transactions.
Section 3. Standstill Agreement.
--------------------
(a) The parties hereto agree that, insofar as pertains to the Offering
Transactions, the definition of Voting Securities appearing in Article I,
Paragraph (n) of the Standstill Agreement is amended by deleting the words "RSI
Common Shares", "issued by RSI" and "directors of RSI" and replacing such words
with the words "common stock, par value $.01 per share of U.S. Foodservice, a
Delaware corporation", "issued by U.S. Foodservice, a Delaware corporation," and
"directors of U.S. Foodservice, a Delaware corporation", respectively. For all
purposes other than as pertains to the Offering Transactions, the definition of
Voting Securities appearing in Article I, Paragraph (n) of the Standstill
Agreement shall remain in effect in accordance with its original terms.
(b) The Company and USF agree that, provided that the ML Entities comply
(in connection with the Offering Transactions) with their respective obligations
under Section 4.1(c) of the Standstill Agreement as amended hereby, the Offering
Transactions shall not constitute a breach or violation of the Standstill
Agreement, and, without limitation to the foregoing, that the limitation on the
purchase of Common Stock set forth in clause (i) of the first proviso in Section
3.1(c) of the Standstill Agreement shall not be applicable to the Offering
Transactions and that the provisions of Section 4.1(c)(ii) of the Standstill
Agreement, as amended hereby, shall not be applicable to the acquisition of
Common Stock or other securities by the
2
<PAGE>
Underwriters (whether in their capacity as underwriters of the Offerings or
otherwise and including, without limitation, acquisitions in market-making
transactions) in connection with the Offering Transactions. The Company and USF
agree that the Offerings contemplated by the Purchase Agreements satisfy the
requirements of Section 4.1(c)(i) of the Standstill Agreement.
(c) The parties hereto agree that, insofar as pertains to the Offering
Transactions, Section 4.1(c)(ii) of the Standstill Agreement shall be amended
and restated to read in full as follows:
"(ii) prevent any Person or Group from acquiring from the
underwriters for such offering beneficial ownership of Voting
Securities or securities convertible into Voting Securities
representing in the aggregate 5% or more of the Total Voting Power (it
being understood that only Voting Securities and such convertible
securities sold by such underwriters to any such Person or Group in
such offering shall be counted in making the calculation under this
clause (ii) and that any such Voting Securities or such convertible
securities sold by such underwriters shall not be aggregated with any
Voting Securities or convertible securities previously owned or
thereafter acquired by any such Person or Group)".
For all purposes other than as pertains to the Offering Transactions,
Section 4.1(c)(ii) shall remain in effect in accordance with its original terms.
(d) The Company and USF (i) confirm and agree that, provided that the ML
Entities comply (in connection with the Offering Transactions) with their
respective obligations under Section 4.1(c) of the Standstill Agreement as
amended hereby, neither the Company nor USF nor any of their respective
subsidiaries or affiliates has or will have any right of first refusal with
respect to the shares of Common Stock to be sold by the ML Entities pursuant to
the Purchase Agreements, (ii) waive the application of Section 4.2 of the
Standstill Agreement to the Offering Transactions to the extent such Section 4.2
otherwise may be applicable to the Offering Transactions, and (iii) consent to
the sale of the Securities by the ML Entities to the Underwriters pursuant to
the Offering Transactions.
(e) The Company and USF agree that, provided that the ML Entities comply
(in connection with the Offering Transactions) with their respective obligations
under Section 4.1(c) of the Standstill Agreement as amended hereby, upon
delivery of certificates representing the shares of Common Stock to be purchased
by the Underwriters from the ML Entities pursuant to the Purchase Agreements,
such certificates will not bear any legend, and such shares will not be subject
to any stop transfer orders, contemplated by the Standstill Agreement or the
Support Agreement.
(f) The parties hereto confirm and agree that, upon sale and delivery by
the ML Entities of the Initial Securities to be sold by them to the Underwriters
pursuant to the Purchase Agreements and subject to the satisfaction of the
conditions set forth in clauses (a) and (b) of the first paragraph of Section 4
hereof, the Standstill Agreement will automatically terminate,
3
<PAGE>
effective as of the Closing Time, and the Standstill Agreement shall thereafter
not be subject to reinstatement pursuant to Article VIII thereof; provided,
however, that such termination shall be without prejudice to the rights of any
party thereto arising out of the breach by any other party of any provisions of
the Standstill Agreement as amended hereby which occurred prior to such
termination.
Section 4. Conditions to Termination of Agreements. The termination of the
---------------------------------------
Support Agreement to the extent provided in Section 2 hereof and the termination
of the Standstill Agreement as provided in Section 3 hereof shall be subject to
the satisfaction of the following conditions on or before the Closing Time:
(a) Matthias B. Bowman and Albert J. Fitzgibbons III shall have resigned
from the Board of Directors of the Company and Matthias B. Bowman shall have
resigned from the Nominating Committee of the Board of Directors of the Company;
(b) the ML Entities shall have delivered and sold to the Underwriters
pursuant to the Purchase Agreements a number of shares of Common Stock which is
equal to or greater than the Subject Number. As used in this Agreement, the term
"Subject Number" means a number of shares of Common Stock equal to (i) 7,808,898
shares of Common Stock minus (ii) the greater of (x) 482,617 shares of Common
Stock and (y) 1% of the number of outstanding shares of Common Stock at the
Closing Time.
In the event that the conditions set forth in clauses (a) and (b) of the
immediately preceding paragraph are satisfied, the parties hereto agree that the
Registration Rights Agreement (the "Registration Agreement") dated as of May 17,
1996 among RSI and Merrill Lynch Capital Appreciation Partnership No. B-XVIII,
L.P. and the other parties thereto, and assumed by the Company effective as of
December 23, 1997, shall automatically terminate, effective as of the Closing
Time; provided, however, that such termination shall be without prejudice to the
rights of any party thereto arising out of any breach by any other party thereto
of any provisions of such Registration Rights Agreement or any other events or
circumstances which occurred prior to such termination; and provided, further,
that such termination shall not affect any obligation of the Company pursuant to
the Registration Agreement to pay costs and expenses relating to the Offering
Transactions or otherwise relating to the Offering Transactions.
Section 5. Representations and Warranties of the Company and USF. The
-----------------------------------------------------
Company and USF jointly and severally represent and warrant to the ML Entities
as follows:
(a) This Agreement has been authorized, executed and delivered by, and is a
valid, binding and enforceable agreement of, each of the Company and USF,
enforceable against each of the Company and USF in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(b) USF is a wholly-owned subsidiary of the Company and the successor in
interest to RSI. USF has succeeded to all of RSI's
4
<PAGE>
rights and powers and has assumed all of RSI's obligations under the Standstill
Agreement and the Company has succeeded to all of RSI's rights and powers and
has assumed all of RSI's obligations under the Registration Agreement, in each
case including, without limitation, the right to consent to any amendments,
waivers or termination thereof. USF has also succeeded to RSI's right to consent
to waivers of any provisions of the Support Agreement and to the termination of
the Support Agreement and any provisions thereof. As of the date of the Support
Agreement, the Company was known as JP Foodservice, Inc. and the Company
subsequently changed its name to U.S. Foodservice by means of a statutory short
form merger, effected in accordance with the Delaware General Corporation Law,
whereby a wholly-owned subsidiary of the Company was merged into the Company,
with the Company as the surviving corporation.
(c) This Agreement has been approved by a majority of the Continuing
Directors (as defined in the Standstill Agreement) and in accordance with
Section 9.2 of the Standstill Agreement.
(d) No consent, approval or authorization of the Company, USF or any of
their respective subsidiaries or of any of the directors of the Company, USF or
any of their respective subsidiaries is required in connection with the
amendments and waivers to, and terminations of, the Standstill Agreement, the
Support Agreement and the Registration Agreement effected by this Agreement,
other than such authorizations as have been obtained and are in full force and
effect.
Section 6. Representations and Warranties by the ML Entities. Each of the
-------------------------------------------------
ML Entities, severally and not jointly, represents and warrants to the Company
as follows:
This Agreement has been duly authorized, executed and delivered by, and is
a valid, binding and enforceable agreement of, such ML Entity, enforceable
against such ML Entity in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
Section 7. Miscellaneous.
-------------
(a) Notices, Etc. All notices, requests, demands or other communications
------------
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party when delivered personally
(by courier service or otherwise), when delivered by telecopy and confirmed by
return telecopy, or seven days after being mailed by first-class mail, postage
prepaid, in each case to the applicable addresses set forth below:
If to the Company or USF:
9755 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: David M. Abramson, Esq.
Telecopy: (410) 312-7149
5
<PAGE>
If to any ML Entity:
Merrill Lynch Capital Partners, Inc.
225 Liberty Street
New York, New York 10080-6123
Attention: William Orlando
Telecopy: (212) 236-7364
with a copy to:
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281-1323
Attention: Frank J. Marinaro, Esq.
Telecopy: (212) 449-3207
or to such other address as such party shall have designated by notice so given
to each other party.
(b) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
------------------------
supplemented, waived or otherwise modified or terminated except by an instrument
in writing signed by the Company, USF and each of the ML Entities.
(c) Successors and Assigns. This Agreement shall be binding upon and shall
----------------------
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns, including any successor by merger or otherwise.
(d) Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement. This Agreement shall not be used to interpret any provision of
the Standstill Agreement other than for the purpose of effectuating the Offering
Transactions.
(e) Severability. If any term of this Agreement or the application thereof
------------
to any party or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such term to the
other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law, provided that in
--------
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
(f) Specific Performance. The parties acknowledge that money damages are
--------------------
not an adequate remedy for violations of this Agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other
6
<PAGE>
relief as such court may deem just and proper in order to enforce this Agreement
or prevent any violation hereof and, to the extent permitted by applicable law,
each party waives any objection to the imposition of such relief.
(g) Remedies Cumulative. All rights, powers and remedies provided under
-------------------
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
(h) No Waiver. The failure of any party hereto to exercise any right, power
---------
or remedy provided under this Agreement or otherwise available in respect hereof
at law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(i) Third-Party Beneficiaries. This Agreement is not intended to be for the
-------------------------
benefit of and shall not be enforceable by any person or entity who or which is
not a party hereto, except that the U.S. Representatives, the Lead Managers and
the Underwriters are hereby expressly acknowledged to be third party
beneficiaries of this Agreement and this Agreement may be enforced, on behalf of
the Underwriters, by Merrill Lynch, Pierce, Fenner & Smith Incorporated, as a
U.S. Representative.
(j) Jurisdiction. Each party hereby irrevocably submits to the non-
------------
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in The City of New York in any action, suit or
proceeding arising in connection with this Agreement and waives any objection
based on forum non conveniens or any other objection to venue therein; provided,
-------------------- --------
however, that such consent to jurisdiction is solely for the purpose referred to
- -------
in this paragraph (j) and shall not be deemed to be a general submission to the
jurisdiction of said Courts or in the States of Delaware or New York other than
for such purposes. Each party hereto hereby waives any right to a trial by jury
in connection with any such action, suit or proceeding.
(k) Governing Law. This Agreement and all disputes hereunder shall be
-------------
governed by and construed and enforced in accordance with the General
Corporation Law of the State of Delaware to the fullest extent possible and
otherwise by the internal laws of the State of New York without regard to
principles of conflicts of law.
(l) Name, Captions, Gender. The name assigned this Agreement and the
----------------------
section captions used herein are convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
(m) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one
7
<PAGE>
instrument. Each counterpart may instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
(n) Limitation on Liability. No ML Entity shall have any liability
-----------------------
hereunder for any actions or omissions of any other ML Entity.
(o) Expenses. Each of the parties hereto shall bear its own expenses
--------
incurred in connection with this Agreement and the transactions contemplated
hereby, except that in the event of a dispute concerning the terms or
enforcement of this Agreement, the prevailing party in any such dispute shall be
entitled to reimbursement of reasonable legal fees and disbursements from the
other party or parties to such dispute.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
U.S. FOODSERVICE
By:
------------------------------
Name:
Title:
U.S. FOODSERVICE, INC.
By:
------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL PARTNERS, INC.
By:
------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO.
B-XVIII, L.P.
By: Merrill Lynch LBO Partners No. B-IV, L.P., as
General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
9
<PAGE>
MERRILL LYNCH KECALP L.P. 1994
By: KECALP Inc., as General Partner
By:
-----------------------------
Name:
Title:
ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII
By: Merrill Lynch LBO Partners No. B-IV, L.P., as
Investment General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
ML IBK POSITIONS, INC.
By:
-----------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. II
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
10
<PAGE>
MERRILL LYNCH KECALP L.P. 1991
By: KECALP Inc., as General Partner
By:
-----------------------------
Name:
Title:
MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO.
XIII, L.P.
By: Merrill Lynch LBO Partners No. IV, L.P., as
General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-------------------------------
Name:
Title:
ML OFFSHORE LBO PARTNERSHIP NO. XIII
By: Merrill Lynch LBO Partners No. IV, L.P., as
Investment General Partner
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-------------------------------
Name:
Title:
11
<PAGE>
ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P.
By: ML Employees LBO Managers, Inc., as General
Partner
By:
------------------------------
Name:
Title:
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., as General Partner
By:
------------------------------
Name:
Title:
MERCHANT BANKING L.P. NO. II
By: Merrill Lynch MBP Inc., as General Partner
By:
-----------------------------
Name:
Title:
MLCP ASSOCIATES L.P. NO. IV
By: Merrill Lynch Capital Partners, Inc., as
General Partner
By:
-----------------------------
Name:
Title:
12
<PAGE>
Exhibit D
FORM OF LETTER OF RESIGNATION
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, MD 21046
Attention: James L. Miller
Chairman of the Board, President
and Chief Executive Officer
Dear Sir or Madam:
Reference is hereby made to the U.S. Purchase Agreement dated March [],
1999 among U.S. Foodservice, a Delaware corporation (the "Company"), certain
stockholders of the Company named therein and Merrill Lynch, Pierce, Fenner &
Smith Incorporated and the other parties thereto (the "U.S. Purchase Agreement")
and the International Purchase Agreement dated March [], 1999 among the Company,
certain stockholders of the Company named therein and Merrill Lynch
International and the other parties thereto (the "International Purchase
Agreement" and, together with the U.S. Purchase Agreement, the "Purchase
Agreements").
This is to advise you that I resign my position as a member of the Board of
Directors of the Company and, if applicable, of any of its subsidiaries and I
also resign my position, if applicable, as a member of any committees of the
Board of Directors of the Company and of any of its subsidiaries, each such
resignation to be effective as of the Closing Time (as defined in the Purchase
Agreements).
Very truly yours,
[Matthias B. Bowman]
[Albert J. Fitzgibbons III]
D-1
<PAGE>
EXHIBIT 5.1
March 19, 1999
Board of Directors
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, Maryland 21046
Gentlemen:
This firm has acted as special counsel to U.S. Foodservice, a Delaware
corporation (the "Company"), in connection with its registration, pursuant to a
registration statement on Form S-3, of 10,010,698 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"). Of such shares, 8,704,955
shares of Common Stock (the "Secondary Shares") have been registered for
offering and sale by the stockholders of the Company identified in the
registration statement (the "Selling Stockholders") and 1,305,743 shares of
Common Stock (the "Primary Shares") have been registered for offering and sale
by the Company. The Secondary Shares and, if the Underwriters (as defined
below) exercise their over-allotment options, the Primary Shares will be sold to
the Underwriters pursuant to (i) a U.S. Purchase Agreement (the "U.S. Purchase
Agreement") among the Company, the Selling Stockholders and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co., Salomon Smith Barney
Inc., J.C. Bradford & Co. and First Union Capital Markets Corp., as U.S.
Representatives to the U.S. Underwriters (the "U.S. Underwriters") to be named
therein, and (ii) an International Purchase Agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") among the Company, the Selling Stockholders and Merrill
Lynch International, Goldman Sachs International, Salomon Brothers
International Limited and J.C. Bradford & Co., as Lead Managers of the several
international managers (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters") to be named therein. This opinion letter is
furnished to you at your request to enable you to fulfill the requirements of
Item 601(b)(5) of Regulation S-K, 17 C.F.R. (S) 229.601(b)(5), in connection
with such registration.
<PAGE>
Board of Directors
U.S. Foodservice
March 19, 1999
Page 2
For purposes of this opinion letter, we have examined copies of the
following documents:
1. The Registration Statement on Form S-3 (No. 333-73447), as filed with
the Securities and Exchange Commission (the "Commission") on March 5,
1999, Amendment No. 1 thereto, as filed with the Commission on March
15, 1999, and Amendment No. 2 thereto, as filed with the Commission on
March 19, 1999 (such Registration Statement, as it may be further
amended, the "Registration Statement").
2. The forms of the Purchase Agreements filed as exhibits to the
Registration Statement.
3. The Restated Certificate of Incorporation of the Company, as certified
by an Assistant Secretary of the Company on the date hereof as then
being complete, accurate and in effect.
4. The Amended and Restated By-Laws of the Company, as certified by an
Assistant Secretary of the Company on the date hereof as then being
complete, accurate and in effect.
5. Resolutions of the Board of Directors of the Company adopted at a
meeting held on January 21, 1999, as certified by an Assistant
Secretary of the Company on the date hereof as then being complete,
accurate and in effect.
6. The Agreement and Plan of Merger (the "Merger Agreement"), dated as of
June 30, 1997, as amended as of September 3, 1997 and as of November
5, 1997, by and among the Company, Rykoff-Sexton, Inc., a Delaware
corporation ("Rykoff-Sexton"), and Hudson Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of the Company.
7. The Certificate of Merger with respect to the Merger Agreement, as
filed with the Secretary of State of the State of Delaware on December
23, 1997.
<PAGE>
Board of Directors
U.S. Foodservice
March 19, 1999
Page 3
8. The Restated Certificate of Incorporation of the Company, as certified
by the Secretary of the Company on December 23, 1997 as then being
complete, accurate and in effect.
9. The Amended and Restated By-Laws of the Company, as certified by the
Secretary of the Company on December 23, 1997 as then being complete,
accurate and in effect.
10. Resolutions of the Board of Directors of the Company adopted at
meetings held on June 29, 1997, November 2, 1997, November 17, 1997
and December 23, 1997, as certified by the Secretary of the Company on
December 23, 1997 as then being complete, accurate and in effect.
11. Resolutions of the Board of Directors and stockholders of Rykoff-
Sexton with respect to the Merger Agreement and the transactions
contemplated thereby.
12. The Stock Purchase Agreement, dated as of October 30, 1998, by and
among the Company, Joseph Webb Foods, Inc., a Delaware corporation,
and the stockholders of Joseph Webb Foods, Inc.
13. Resolutions of the Board of Directors of the Company adopted at a
meeting held on September 24, 1998, as certified by the Secretary of
the Company on November 16, 1998 as then being complete, accurate and
in effect.
14. A certificate of an Assistant Secretary of the Company with respect to
certain matters relating to the subject matter of this opinion letter.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us as
originals, and the conformity with the original documents of all documents
submitted to us as certified, telecopied, photostatic, or reproduced copies.
This opinion letter is given, and all statements herein are made, in the context
of the foregoing.
<PAGE>
Board of Directors
U.S. Foodservice
March 19, 1999
Page 4
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion herein
as to any other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that (a) the Secondary Shares have been duly authorized and, assuming
receipt of the consideration therefor as provided in the resolutions of the
Company's Board of Directors authorizing issuance thereof, are validly issued,
fully paid and non-assessable under the General Corporation Law of the State of
Delaware and (b) following (i) final action of the Board of Directors of the
Company (or the duly appointed Offering Committee thereof) approving the price
of the Primary Shares, (ii) execution and delivery by the Company of the
Purchase Agreements, (iii) effectiveness of the Registration Statement, (iv)
issuance of the Primary Shares pursuant to the terms of the Purchase Agreements
and (v) receipt by the Company of the consideration for the Primary Shares to be
sold by the Company specified in the resolutions of the Board of Directors (or
the duly appointed Offering Committee thereof), the Primary Shares to be sold by
the Company will be validly issued, fully paid and non-assessable under the
General Corporation Law of the State of Delaware.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter, and should not be quoted in whole
or in part or otherwise be referred to, nor be filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the references to our firm under "Legal
Matters" in the prospectus which forms a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are an "expert" within the
meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
Hogan & Hartson L.L.P.