<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as Permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or (S)240.14a-12
U.S. Foodservice
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
U.S. FOODSERVICE
9755 Patuxent Woods Drive
Columbia, Maryland 21046
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
November 18, 1999
----------------
To our stockholders:
Notice is hereby given that the 1999 annual meeting of stockholders of U.S.
Foodservice will be held at the Company's corporate headquarters, located at
9755 Patuxent Woods Drive, Columbia, Maryland 21046, on Thursday, November 18,
1999, at 10:00 a.m., local time, for the following purposes:
1. to consider and vote upon a proposal to elect two directors of U.S.
Foodservice;
2. to consider and vote upon a proposal to amend U.S. Foodservice's
restated certificate of incorporation to increase the number of
authorized shares of capital stock from 155,000,000 shares to
405,000,000 shares and to increase the number of authorized shares of
common stock from 150,000,000 shares to 400,000,000 shares; and
3. to transact such other business as may properly come before the annual
meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on October 8, 1999 will
be entitled to notice of, and to vote at, the annual meeting or any
adjournment or postponement thereof.
By Order of the Board of
Directors,
David M. Abramson
Secretary
Dated: October 15, 1999
YOUR VOTE IS VERY IMPORTANT, WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING. PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
<PAGE>
U.S. FOODSERVICE
9755 Patuxent Woods Drive
Columbia, Maryland 21046
Annual Meeting of Stockholders
November 18, 1999
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
Proxy Solicitation
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of U.S. Foodservice for use at the Company's
1999 annual meeting of stockholders to be held at the Company's corporate
headquarters, located at 9755 Patuxent Woods Drive, Columbia, Maryland 21046,
on Thursday, November 18, 1999, at 10:00 a.m., local time. The purpose of the
annual meeting and the matters to be acted upon are set forth in the
accompanying notice of annual meeting.
The Company will pay the cost of all proxy solicitation. In addition to the
solicitation of proxies by use of the mails, officers and other employees of
the Company and its subsidiaries may solicit proxies by personal interview,
telephone and telegram. None of these individuals will receive compensation
for such services, which will be performed in addition to their regular
duties. The Company also has made arrangements with brokerage firms, banks,
nominees and other fiduciaries to forward proxy solicitation material for
shares held of record by them to the beneficial owners of such shares. The
Company will reimburse such persons for their reasonable out-of-pocket
expenses in forwarding such material.
This proxy statement and the enclosed proxy are first being mailed to the
Company's stockholders on or about October 15, 1999.
Voting and Revocability of Proxies
A proxy for use at the annual meeting and a return envelope are enclosed.
Shares of the Company's common stock represented by a properly executed proxy,
if such proxy is received in time and not revoked, will be voted at the annual
meeting in accordance with the instructions indicated in such proxy. If no
instructions are indicated, such shares will be voted "FOR" approval of each
proposal considered at the annual meeting. Discretionary authority is provided
in the proxy as to any matters not specifically referred to in the proxy.
Management is not aware of any other matters which are likely to be brought
before the annual meeting. If any other matter is properly presented at the
annual meeting for action, the persons named in the accompanying proxy will
vote the proxy in their own discretion.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise at the annual meeting by (1) giving written notice of revocation to
the Secretary of the Company, (2) properly submitting to the Company a duly
executed proxy bearing a later date or (3) voting in person at the annual
meeting. Unless revoked, the shares represented by each such proxy will be
voted at the meeting and any adjournment or postponement of the meeting.
Presence at the meeting of a stockholder who has signed a proxy but does not
provide a notice of revocation or request to vote in person does not revoke
that proxy. All written notices of revocation or other communications with
respect to revocation of proxies should be addressed as follows: U.S.
Foodservice, 9755 Patuxent Woods Drive, Columbia, Maryland 21046, Attention:
Secretary.
1
<PAGE>
Voting Procedure
All holders of record of the common stock at the close of business on
October 8, 1999 will be eligible to vote at the annual meeting. Each holder of
common stock is entitled to one vote at the annual meeting for each share held
by such stockholder. As of October 8, 1999, there were shares of common
stock outstanding.
The holders of a majority of the shares of common stock issued and
outstanding and entitled to vote at the annual meeting, present in person or
by proxy, will constitute a quorum at the annual meeting. Abstentions and
broker non-votes, which are described below, will be counted for purposes of
determining the presence of a quorum at the annual meeting.
Votes cast in person or by proxy at the annual meeting will be tabulated by
the inspector of election appointed for the annual meeting, who will determine
whether or not a quorum is present. Votes may be cast for, against or as
abstentions. Abstentions will be counted for purposes of determining the
shares present or represented at the annual meeting and entitled to vote.
Broker-dealers who hold their customers' shares in street name may, under the
applicable rules of the exchange and other self-regulatory organizations of
which the broker-dealers are members, sign and submit proxies for such shares
and may vote such shares on routine matters, which, under such rules,
typically include the election of directors. Broker-dealers may not vote such
shares on other matters without specific instructions from the customer who
owns such shares. Proxies signed and submitted by broker-dealers which have
not been voted on matters described in the previous sentence are referred to
as broker non-votes. Broker non-votes on a particular matter are not deemed to
be shares present and entitled to vote on such matter and, assuming presence
of a quorum, will not affect whether the proposal for election of directors is
approved at the annual meeting. Abstentions and broker non-votes will have the
same effect as a vote against the proposal to approve an amendment to the
Company's restated certificate of incorporation, which will require approval
by the affirmative vote of holders of a majority of the common stock
outstanding on the record date for the annual meeting.
SECURITY OWNERSHIP
The information presented below regarding beneficial ownership of the common
stock has been presented in accordance with rules of the SEC and is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership of 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.
All information in this proxy statement concerning shares of the common
stock gives effect to the Company's two-for-one stock split of the common
stock in the form of a dividend which was completed on August 4, 1999.
As of August 31, 1999, there were 101,485,395 shares of common stock
outstanding.
2
<PAGE>
Principal Stockholders
The following table presents, as of August 31, 1999, information based upon
the Company's records and filings with the SEC regarding each person known to
the Company to be the beneficial owner of more than 5% of the common stock:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership(1) Class
------------------- -------------- ----------
<S> <C> <C>
T. Rowe Price Associates, Inc.(2)................. 10,406,816 10.3%
100 E. Pratt Street
Baltimore, Maryland 21202
</TABLE>
- --------
(1) Based upon a Schedule 13G filed with the SEC on August 9, 1999. The number
of shares shown reflects the Company's two-for-one split of the common
stock which was completed on August 4, 1999.
(2) 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
1,383,958 of the shares shown and shared voting power with respect to none
of the shares shown.
Security Ownership of Directors, Director Nominees and Executive Officers
The following table presents, as of August 31, 1999, information regarding
the beneficial ownership of the common stock by each director and each nominee
to the board of directors, each executive officer of the Company named in the
summary compensation table under the "Executive Compensation" section of this
proxy statement and all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Amount and
Nature of
Name of Beneficial Percent of
Beneficial Owner Ownership(1) Class
---------------- -------------- ----------
<S> <C> <C>
David M. Abramson(2).............................. 103,753 *
Michael J. Drabb(3)............................... 20,000 *
Eric E. Glass(4).................................. 16,800 *
Lewis Hay, III(5)................................. 261,252 *
Mark P. Kaiser(6)................................. 208,447 *
Paul I. Latta, Jr.(7)............................. 19,000 *
George T. Megas(8)................................ 97,700 *
James L. Miller(9)................................ 822,292 *
James P. Miscoll(10).............................. 22,314 *
Jeffrey D. Serkes(11)............................. 10,500 *
Dean R. Silverman(12)............................. 16,200 *
Bernard Sweet(13)................................. 34,436 *
All directors and executive officers
as a group (12 persons)(14)...................... 1,632,694 1.6%
</TABLE>
- --------
* Less than 1%.
(1) The percentage of beneficial ownership as to any person as of a
particular date is calculated by dividing the number of shares
beneficially owned by such person by the sum of the number of shares
outstanding as of such date and the number of shares as to which such
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.
(2) Includes 646 shares credited to the participant's account in U.S.
Foodservice's 401(k) retirement savings plan, referred to as the 401(k)
Plan, which are voted by the plan's trustees, outstanding options
exercisable within 60 days to purchase 97,776 shares, and 4,000 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.
3
<PAGE>
(3) Includes outstanding options exercisable within 60 days to purchase
18,000 shares.
(4) Includes outstanding options exercisable within 60 days to purchase
16,000 shares.
(5) Includes 1,771 shares credited to the participant's account in the 401(k)
Plan, which are voted by the plan's trustees, and outstanding options
exercisable within 60 days to purchase 221,524 shares. Also includes 762
shares held by Mr. Hay's wife as a custodian for their minor children.
Mr. Hay disclaims beneficial ownership of such shares.
(6) Includes 1,407 shares credited to the participant's account in the 401(k)
Plan, which are voted by the plan's trustees, and outstanding options
exercisable within 60 days to purchase 139,587 shares.
(7) Includes outstanding options exercisable within 60 days to purchase
15,000 shares.
(8) Includes 1,645 shares credited to the participant's account in the 401(k)
Plan, which are voted by the plan's trustees, and outstanding options
exercisable within 60 days to purchase 55,602 shares.
(9) Includes 19,048 shares credited to the participant's account in the
401(k) Plan, which are voted by the plan's trustees, and outstanding
options exercisable within 60 days to purchase 388,719 shares.
(10) Includes outstanding options exercisable within 60 days to purchase
18,440 shares.
(11) Includes outstanding options exercisable within 60 days to purchase
10,500 shares.
(12) Includes outstanding options exercisable within 60 days to purchase
15,000 shares.
(13) Includes outstanding options exercisable within 60 days to purchase
18,438 shares and 2,178 shares held of record by Mr. Sweet's wife.
(14) Includes outstanding options exercisable within 60 days to purchase
1,014,586 shares.
4
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1)
Nominees for Election as Directors
The Company's restated certificate of incorporation provides that the board
of directors is to be divided into three classes of directors, with the
classes to be as nearly equal in number as possible. The terms of office of
the three current classes of directors expire at this annual meeting, at the
annual meeting of stockholders in the year 2000 and at the annual meeting of
stockholders in the year 2001, respectively. Upon the expiration of the term
of office of each class, the nominees for such class will be elected for a
term of three years to succeed the directors whose terms of office expire.
Mark P. Kaiser and Jeffrey D. Serkes have been nominated for election to the
class with a three-year term which will expire at the annual meeting of
stockholders in the year 2002. Both nominees are incumbent directors.
Approval of the nominees requires the affirmative vote of a plurality of the
votes cast at the annual meeting. Unless authority to do so is withheld, it is
the intention of the persons named in the proxy to vote such proxy for the
election of each of the nominees. In the event that any nominee should become
unable or unwilling to serve as a director, the persons named in the proxy
intend to vote for the election of such substitute nominee for director as the
board of directors may recommend. It is not anticipated that any nominee will
be unable or unwilling to serve as a director.
The board of directors recommends that the stockholders of U.S. Foodservice
vote "FOR" the election of the nominees to serve as directors.
Biographical information concerning each of the nominees and each of the
directors continuing in office is presented below.
Nominees for Election for Three-Year Terms
<TABLE>
<CAPTION>
Name Age Director Since
- ---- --- --------------
<S> <C> <C>
Mark P. Kaiser............................................... 42 1996
Jeffrey D. Serkes............................................ 40 1996
</TABLE>
Mark P. Kaiser was elected 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 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, Inc., a broadline foodservice
distributor, including Vice President-Sales, from 1979 to 1989.
Jeffrey D. Serkes has served as Vice President-Finance, Sales and
Distribution of International Business Machines Corporation since June 1999,
as Vice President and Treasurer of IBM from January 1995 to May 1999 and 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.
5
<PAGE>
Directors Whose Terms Expire in 2000
<TABLE>
<CAPTION>
Name Age Director Since
- ---- --- --------------
<S> <C> <C>
David M. Abramson............................................ 46 1994
James L. Miller.............................................. 50 1989
Dean R. Silverman............................................ 48 1996
</TABLE>
David M. Abramson joined U.S. Foodservice as Senior Vice President and
General Counsel in July 1996 and was elected 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.
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. 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 Corporation, 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.
Dean R. Silverman has served since July 1999 as Managing Director of Finance
and Strategy for the Washington Capitols NHL franchise. From July 1993 to July
1999, Mr. Silverman served as President of Dean & Company Strategy
Consultants, Inc., a strategic management consulting company located in
Vienna, Virginia. Before 1993, Mr. Silverman was a director of Mercer
Management Consulting, formerly Strategic Planning Associates, Inc., a
management consulting firm, and headed that organization's strategy consulting
practice.
Directors Whose Terms Expire in 2001
<TABLE>
<CAPTION>
Name Age Director Since
- ---- --- --------------
<S> <C> <C>
Michael J. Drabb............................................. 66 1994
Eric E. Glass................................................ 59 1996
Lewis Hay, III............................................... 44 1991
Paul I. Latta, Jr............................................ 56 1996
</TABLE>
Michael J. Drabb 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 MONY 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.
Eric E. Glass 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.
Lewis Hay, III has served since August 1999 as Vice President and Chief
Financial Officer of FPL Group, Inc., a public holding company, and Senior
Vice President and Chief Financial Officer of Florida Power and Light Company,
a wholly owned subsidiary of FPL Group and a regulated electric utility. Mr.
Hay served as Senior Vice President and Chief Financial Officer of U.S.
Foodservice from 1991 to 1997 and as Executive Vice President from September
1997 to May 1999. In June and July 1999, Mr. Hay served as President of LSME
Acquisition Company, LLC, a company formed to acquire telecommunications
operations. Before joining U.S. Foodservice, Mr. Hay was a Vice President and
partner of Mercer Management Consulting, where he led the strategy consulting
practice in the firm's Washington, D.C. office.
Paul I. Latta, Jr. is currently retired. Mr. Latta served from 1993 until
his retirement in June 1999 as Senior Vice President of The Rouse Company, a
real estate development and management company, where he was responsible for
all retail properties. Mr. Latta previously held a number of other positions
with The Rouse Company, where he was employed since 1968.
6
<PAGE>
Of the incumbent directors immediately before the annual meeting, James P.
Miscoll and Bernard Sweet were appointed to the board of directors and Mr.
Miscoll was appointed to the compensation committee of the board of directors
in accordance with the merger agreement, dated as of June 30, 1997, as
amended, among Rykoff-Sexton, Inc., the Company and Hudson Acquisition Corp.,
a wholly owned subsidiary of the Company. Pursuant to the merger agreement,
effective on December 23, 1997, the Company acquired Rykoff-Sexton by the
merger of Rykoff-Sexton with and into Hudson Acquisition Corp., which was the
surviving corporation in the merger. Immediately before the effective time of
the merger, as required by the merger agreement, the Company increased the
authorized number of directors. Following the effective time of the merger,
Messrs. Miscoll and Sweet were elected by the board of directors to fill newly
created directorships and Mr. Miscoll was appointed to the compensation
committee.
Immediately before commencement of the annual meeting, the authorized number
of directors will be ten directors. Proxies may not be voted at the annual
meeting for a greater number of persons than the number of nominees named.
After the annual meeting, the board of directors intends to reduce the
authorized number of directors to nine directors and to take action to make
the three classes of the board equal in number.
Board of Directors and Committees of the Board
The board of directors held five meetings during the Company's 1999 fiscal
year, which ended on July 3, 1999. During fiscal 1999, each director attended
at least 75% of the aggregate of the total number of meetings of the board of
directors held during the period he served as a director and the total number
of meetings held by each committee of the board of directors on which he
served during the period for which he served.
The board of directors currently has standing audit, nominating and
compensation committees.
The audit committee, which held five meetings during fiscal 1999, currently
consists of Mr. Silverman, who is the Chairman, Mr. Drabb and Mr. Serkes. This
committee is responsible for recommending to the full board of directors the
selection of the Company's independent auditors, reviewing the scope of the
audit plan and the results of each audit with management and the independent
auditors, reviewing the adequacy of the Company's system of internal
accounting controls in consultation with the independent auditors, reviewing
generally the activities and recommendations of the independent auditors, and
exercising oversight with respect to the Company's code of conduct and other
policies and procedures regarding adherence with legal requirements.
The compensation committee, which held three meetings during fiscal 1999,
currently consists of Mr. Drabb, who is the Chairman, Mr. Glass, Mr. Latta and
Mr. Miscoll. This committee is responsible for establishing the compensation
and benefits of the executive officers of U.S. Foodservice and its
subsidiaries, monitoring compensation arrangements for management employees
for consistency with corporate objectives and stockholders' interests, and
administering some of the Company's benefit plans.
The nominating committee, which held one meeting during fiscal 1999,
currently consists of Mr. Abramson, who is the Chairman, Mr. Glass and Mr.
Silverman. Mr. Hay served as Chairman of the nominating committee during
fiscal 1999 until his resignation from the committee effective April 22, 1999.
Matthias B. Bowman served as a member of the nominating committee during
fiscal 1999 until his resignation from the board of directors and the
committee effective March 31, 1999. The nominating committee is responsible
for recommending to the full board of directors potential candidates for
membership on the board of directors. The Company's restated certificate of
incorporation provides that any stockholder wishing to nominate persons for
election as directors at a U.S. Foodservice annual meeting must deliver to the
Secretary of the Company at the Company's principal office in Columbia,
Maryland, a written notice of the stockholder's intention to make such a
nomination. The stockholder is required to furnish the notice no later than 90
days prior to the date that is one year from the date of the most recent
preceding meeting of stockholders. The notice must include the following
information: (1) the name and address of record of the stockholder who intends
to make the nomination; (2) a representation that the stockholder is a holder
of record of common stock and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (3) the
name, age, business and residential addresses and
7
<PAGE>
principal occupation or employment of each nominee; (4) a description of all
arrangements or understandings between the stockholder and each proposed
nominee and any other person or persons, naming such person or persons,
pursuant to which the nomination or nominations are to be made by the
stockholder; (5) such other information regarding each proposed nominee as
would be required to be included in a proxy statement filed under the rules
and regulations of the SEC; and (6) the written consent of each proposed
nominee to serve as a director of U.S. Foodservice if so elected.
Director Compensation
Fees. Directors who are not employees of U.S. Foodservice receive an annual
fee of $24,000, plus $1,000 for each board meeting attended in person, $750
for each board meeting attended by conference telephone, $1,000 for each
committee meeting attended in person ($500 if attended in person on the date
of a board meeting) and $500 for each committee meeting attended by conference
telephone. The Chairman of the compensation committee and the Chairman of the
audit committee each receive an additional annual fee of $2,000.
Stock Option Grants. Non-employee directors receive an annual grant of
options for 4,000 shares of common stock under the Company's Stock Option Plan
for Outside Directors. This plan also generally provides that each such
director will receive options to purchase 5,000 shares of common stock upon
the director's initial election or appointment to the board of directors.
Deferred Compensation Plan. Each non-employee director may choose to defer
all or a portion of his annual retainer and his meeting fees for each fiscal
year under the Company's Non-Employee Director Voluntary Deferred Compensation
Plan, which was adopted effective January 1, 1999. The Company will make a 25%
matching credit for each amount a director elects to defer under this plan.
Directors are fully vested in both the amounts of their deferrals and the
amounts credited by the Company.
Each director who participates in the plan has an individual account which
is credited with the periodic deferrals made by the director and credits made
by the Company. These amounts are deemed to be invested in U.S. Foodservice
common stock. Each participating director's account is credited and adjusted
in the amounts by which the deferrals and credits would have increased or been
adjusted if they had been invested in the common stock.
Proceeds from a director's account may be distributed upon the director's
separation from service at a stated age, the termination of the director's
eligibility to participate in the plan, or the occurrence of a change of
control of the Company as defined in the plan. Other than in the foregoing
circumstances, a director may receive a distribution of amounts in his account
only upon a showing of hardship and the approval of a hardship distribution by
the compensation committee. Proceeds may be distributed in either a lump sum
or in up to five annual installments, at the director's election. All
distributions from directors' accounts will be in the form of common stock
issuable under the Company's 1998 Stock Option and Incentive Plan.
For the portion of fiscal 1999 in which the plan was in effect, each of the
Company's non-employee directors participated in the plan and elected to defer
at least a portion of his annual retainer or meeting fees for the year. The
total amount that each of the non-employee directors deferred under the plan
during fiscal 1999 was as follows: for Mr. Drabb, $13,000; for Mr. Glass,
$15,250; for Mr. Latta, $12,000; for Mr. Miscoll, $15,250; for Mr. Serkes,
$15,750; for Mr. Silverman, $10,400; and for Mr. Sweet, $14,750. The Company
made the following matching contributions under the plan during fiscal 1999:
for Mr. Drabb, $3,250; for Mr. Glass, $3,813; for Mr. Latta, $3,000; for Mr.
Miscoll, $3,813; for Mr. Serkes, $3,938; for Mr. Silverman, $2,600; and for
Mr. Sweet, $3,688. As of July 3, 1999, the value of each non-employee
director's individual account credited with these contributions was as
follows: for Mr. Drabb, $16,054; for Mr. Glass, $18,829; for Mr. Latta,
$14,819; for Mr. Miscoll, $18,829; for Mr. Serkes, $19,388; for Mr. Silverman,
$12,843; and for Mr. Sweet, $18,179.
8
<PAGE>
Executive Compensation
The following table sets forth the compensation paid to the Chief Executive
Officer of U.S. Foodservice and to each of the Company's other four most
highly compensated executive officers for fiscal 1999, referred to
collectively as the named executive officers:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- -----------------------
Restricted Securities
Name and Principal Fiscal Other Annual Stock Underlying All Other
Position Year Salary($) Bonus($) Compensation($)(1) Awards($)(2) Options(#) Compensation($)(3)
- ------------------ ------ --------- -------- ------------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Miller......... 1999 600,000 639,780 -- 3,034,219 382,054 147,254
Chairman of the Board, 1998 550,000 605,000 50,904 -- 93,069 9,821
President and 1997 350,000 448,875 -- -- 127,097 5,361
Chief Executive Officer
Mark P. Kaiser.......... 1999 354,615 383,868 -- 1,529,850 181,446 90,299
Executive Vice
President-Sales, 1998 325,000 357,500 -- -- 19,540 6,796
Marketing and
Procurement 1997 225,000 288,562 -- -- 35,395 5,058
David M. Abramson....... 1999 325,000 346,547 -- 651,849 82,214 80,300
Executive Vice
President and 1998 300,000 330,000 -- -- 19,540 6,719
General Counsel 1997 225,000 288,562 -- -- 25,000 5,506
George T. Megas(4)...... 1999 170,079 120,000 -- 908,743 60,088 45,826
Senior Vice President
and 1998 160,000 91,385 -- -- 8,162 5,623
Chief Financial Officer 1997 110,000 81,200 -- -- 23,571 4,593
Lewis Hay, III(5)....... 1999 380,000 405,194 -- 2,405,602 151,636 95,700
1998 350,000 385,000 -- -- 42,597 6,957
1997 250,000 320,625 -- -- 65,864 5,117
</TABLE>
- --------
(1) The amount shown in the "Other Annual Compensation" column for fiscal 1998
for Mr. Miller includes $21,915 relating to Mr. Miller's personal use of a
Company-owned automobile and $20,189 representing reimbursement of federal
and state taxes in connection with such use. Except as set forth above, in
accordance with SEC rules, information about other compensation in the
form of perquisites and other personal benefits has been omitted because
such perquisites and other personal benefits constituted less than the
lesser of $50,000 or 10% of the total annual salary and bonus for the
named executive officers.
(2) The amounts shown in the "Restricted Stock Awards" column represent the
value of the restricted stock units awarded to the named executive
officers during fiscal 1999 under the Company's Restricted Stock Unit Plan
and Supplemental Executive Retirement Plan as of the date of the awards.
The number and value of the total restricted stock units awarded to each
of the named executive officers as of July 3, 1999 are as follows: (a) for
Mr. Miller, 171,748 units valued at $3,692,582; (b) for Mr. Kaiser, 86,497
units valued at $1,859,686; (c) for Mr. Abramson, 36,564 units valued at
$786,126; (d) for Mr. Megas, 51,450 units valued at $1,106,175; and (e)
for Mr. Hay, 815 units valued at $17,523. Except for the 815 units
attributable to Mr. Hay that vested before Mr. Hay's resignation as an
officer of the Company effective May 31, 1999, all of the units
attributable to Mr. Hay were forfeited upon his resignation.
(3) The amounts shown in the "All Other Compensation" column consist of the
following: (a) for Mr. Miller, $4,800, $4,800 and $4,500 in matching
contributions by the Company to the 401(k) Plan in fiscal 1999, 1998 and
1997, respectively, $4,592, $5,021 and $861 in premiums paid by the
Company for group term life insurance for Mr. Miller in fiscal 1999, 1998
and 1997, respectively, and $137,862 representing the portion of the
Company's fiscal 1999 contributions, plus accrued interest, under the
Supplemental Executive Retirement Plan, or SERP, credited to Mr. Miller's
self-directed account; (b) for Mr. Kaiser, $4,800, $4,800 and $4,500 in
matching contributions by the Company to the 401(k) Plan in fiscal 1999,
1998 and 1997, respectively, $3,191, $1,996 and $556 in premiums paid by
the Company for group term life insurance for Mr. Kaiser in fiscal 1999,
1998 and 1997, respectively, and $82,308 representing the portion of the
Company's fiscal 1999 contributions, plus accrued interest, under the SERP
credited to Mr. Kaiser's self-directed account; (c) for Mr. Abramson,
$4,800, $4,800 and $4,500 in matching contributions by the Company to the
401(k) Plan in fiscal 1999, 1998 and 1997, respectively, $4,232, $1,919
and $556 in premiums paid by the Company for group term life insurance for
Mr. Abramson in fiscal 1999, 1998 and 1997, respectively, and $74,847
representing the portion of the Company's fiscal 1999 contributions, plus
accrued interest, under the SERP credited to Mr. Abramson's self-directed
account; (d) for Mr. Megas, $4,800, $4,800 and $4,321 in matching
contributions by the Company to the 401(k) Plan in fiscal 1999, 1998 and
1997, respectively, $1,237,
9
<PAGE>
$823 and $272 in premiums paid by the Company for group term life insurance
for Mr. Megas in fiscal 1999, 1998 and 1997, respectively, and $39,789
representing the portion of the Company's fiscal 1999 contributions, plus
accrued interest, under the SERP credited to Mr. Megas's self-directed
account; and (e) for Mr. Hay, $4,800, $4,800 and $4,500 in matching
contributions by the Company to the 401(k) Plan in fiscal 1999, 1998 and
1997, respectively, $3,451, $2,157 and $617 in premiums paid by the Company
for group term life insurance for Mr. Hay in fiscal 1999, 1998 and 1997,
respectively, and $87,449 representing the portion of the Company's fiscal
1999 contributions, plus accrued interest, under the SERP credited to Mr.
Hay's self-directed account. The amount under the SERP credited to Mr.
Hay's self-directed account was forfeited upon Mr. Hay's resignation as an
officer of the Company effective May 31, 1999.
(4) Mr. Megas served as Vice President-Finance until April 22, 1999, when he
was elected Senior Vice President and Chief Financial Officer.
(5) On April 22, 1999, Mr. Hay resigned his position as Executive Vice
President and Chief Financial Officer effective May 31, 1999. Mr. Hay
received salary payments through the end of fiscal 1999 and a bonus
payment with respect to the entire fiscal year.
10
<PAGE>
Stock Option Grants in Fiscal 1999
The following table sets forth information concerning all stock options
granted during fiscal 1999 to the named executive officers:
Option Grants in Fiscal 1999
Individual Grants
<TABLE>
<CAPTION>
Potential
Realizable
Value of Assumed
Annual Rates of
% of Total Stock
Number of Options Price Appreciation
Shares Granted to for
Underlying Employees in Exercise Option Term(3)
Options Fiscal Year Price Expiration -------------------
Name Granted 1999 ($/Share)(1) Date(2) 5%($) 10%($)
---- ---------- ------------ -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James L. Miller......... 200,000 9.19(/4/) 18.60 8/19/08 2,336,230 5,923,534
39,178 1.80(/5/) 24.00 8/31/05 357,041 823,051
88,156 4.05(/5/) 21.41 11/14/06 854,952 2,028,506
26,978 1.24(/5/) 21.41 7/16/06 248,172 583,503
27,742 1.27(/5/) 21.41 8/8/07 300,404 727,338
Mark P. Kaiser.......... 90,000 4.13(/4/) 18.60 8/19/08 1,051,304 2,665,591
16,640 .76(/5/) 24.00 8/31/05 151,645 349,573
31,536 1.45(/5/) 24.00 11/22/04 248,901 562,089
11,206 .51(/5/) 21.41 8/8/07 121,344 293,798
7,514 .35(/5/) 21.41 7/16/06 69,122 162,519
24,550 1.13(/5/) 21.41 11/14/06 238,090 564,906
David M. Abramson....... 80,000 3.68(/4/) 18.60 8/19/08 934,492 2,369,414
2,214 .10(/5/) 24.00 11/22/04 17,474 39,462
George T. Megas......... 20,000 .92(/4/) 18.60 8/19/08 233,623 592,353
10,674 .49(/5/) 24.00 11/22/04 84,245 190,251
5,204 .24(/5/) 24.00 8/31/05 47,426 109,326
15,228 .70(/5/) 25.38 11/14/06 178,381 424,643
4,320 .20(/5/) 25.38 8/8/07 56,427 137,082
4,662 .21(/5/) 25.38 7/16/06 51,836 122,280
Lewis Hay, III.......... 135,000 6.20(/4/) 18.60 8/19/08(/6/) 1,576,955 3,998,386
16,636 .76(/5/) 24.00 8/31/05(/6/) 151,609 349,489
</TABLE>
- --------
(1) The exercise price may be paid in cash, in common stock valued at fair
market value on the exercise date or in a combination of cash and common
stock.
(2) The term of each option may not exceed ten years.
(3) The potential realizable value is calculated based on the fair market
value on the date of grant, which is equal to the exercise price of the
option, assuming that the shares appreciate in value from the option
grant date compounded annually until the end of the option term at the
rate specified, 5% or 10%, and that the option is exercised and sold on
the last day of the option term for the appreciated share price.
Potential realizable value is net of the option exercise price. The
assumed rates of appreciation are specified in the rules and regulations
of the SEC and do not represent the Company's estimate or projection of
future prices of the shares. There is no assurance provided to any named
executive officer or any other holder of common stock that the actual
stock price appreciation over the term of the applicable options will be
at the assumed 5% and 10% levels or at any other defined level.
(4) One-third of each such option granted vests on the first, second and
third anniversary dates of the option grant date. Upon a change of
control of U.S. Foodservice, as defined in the Company's 1994 Stock
Incentive Plan, all previously unvested options will vest and become
immediately exercisable.
11
<PAGE>
(5) Reflects reload options granted under reload option provisions of the
Company's 1994 Stock Incentive Plan.
(6) Reflects the expiration dates of the options when granted. Mr. Hay
resigned as Executive Vice President and Chief Financial Officer effective
May 31, 1999. Under the terms of the Company's 1994 Stock Incentive Plan,
the options shown in the table for Mr. Hay will expire on April 15, 2000.
Stock Option Exercises in Fiscal 1999
The following table sets forth information concerning all stock options
exercised during fiscal 1999 and unexercised stock options held at the end of
that fiscal year by the named executive officers:
Aggregated Option Exercises in Fiscal Year 1999
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised In-
Unexercised Options at the-Money Options at
Shares 7/3/99(#) 7/3/99($)(1)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Miller......... 250,224 2,916,271 89,386 544,566 407,600 2,037,306
Mark P. Kaiser.......... 135,422 1,962,016 -- 234,795 -- 714,411
David M. Abramson....... 3,490 64,565 52,257 127,547 542,348 594,188
George T. Megas......... 60,686 953,558 -- 89,148 -- 319,583
Lewis Hay, III.......... 26,236 442,601 134,614 233,944 1,147,189 1,128,900
</TABLE>
- --------
(1) Value based on the closing price of a share of common stock of $21.50 on
July 2, 1999, as reported on the New York Stock Exchange, minus the
exercise price.
Executive Employment Contracts and Severance Agreements
The Company has entered into an employment agreement with James L. Miller,
dated July 3, 1989 and amended as of June 27, 1995, pursuant to which Mr.
Miller is employed by U.S. Foodservice as the Chairman of the Board, President
and Chief Executive Officer. The employment agreement provides for successive
renewals unless U.S. Foodservice gives written notice at least one year in
advance of its intention not to renew. The agreement provides that, in
addition to his annual base salary, Mr. Miller may earn an annual bonus equal
to varying percentages of his base salary based on the Company's achievement
of financial and operating targets set by the compensation committee.
Before his resignation as an officer of the Company effective May 31, 1999,
Lewis Hay, III was party to an employment agreement with the Company, dated
August 9, 1991, and amended as of June 27, 1995, pursuant to which Mr. Hay was
employed by U.S. Foodservice as Executive Vice President and Chief Financial
Officer. The agreement provided for successive one-year renewals absent
written notice by U.S. Foodservice of non-renewal at least 360 days in
advance. Mr. Hay's employment agreement provided that, in addition to his
annual base salary, Mr. Hay was eligible to earn an annual bonus equal to
varying percentages of his base salary based on the Company's achievement of
financial and operating targets set by the compensation committee.
The Company's current employment agreement with Mr. Miller and former
employment agreement with Mr. Hay, as well as the Company's severance
agreement, dated as of September 27, 1995, with Mark P. Kaiser, who serves as
Executive Vice President-Sales, Marketing and Procurement, provide for the
payment of certain severance benefits to each such officer if the officer's
employment is terminated by U.S. Foodservice without cause or if the officer
terminates his employment for cause. In the latter case, "cause," as defined,
includes a material reduction in the executive's duties, specified relocations
of the executive's office, a reduction in the executive's base salary, and
notification to the executive that his employment agreement will not be
renewed. Upon such a termination, the executive will be entitled to receive
(1) a lump-sum payment in an amount equal to
12
<PAGE>
three times, for Messrs. Miller and Hay, or two times, for Mr. Kaiser, the
executive's base salary and bonus for the preceding fiscal year, reduced, in
specified circumstances, by any amount attributable to the acceleration of the
vesting of outstanding stock options, and (2) welfare and similar benefits for
three years substantially equivalent to those provided prior to termination.
The Company has entered into employment agreements with Messrs. Miller and
Kaiser, dated as of January 4, 1996, which will supersede the foregoing
employment and severance agreements at such time, if any, as there is a change
of control of U.S. Foodservice, as defined in the new employment agreements.
Each agreement provides for a three-year employment term. Each executive will
be entitled to receive a base salary at least equal to twelve times the
highest monthly base salary paid or payable to the executive during the twelve
months immediately preceding commencement of the employment term. In addition,
each executive will be eligible to receive annual cash and non-cash bonuses in
an amount at least equal to the bonuses for which such executive previously
was eligible. Each agreement provides for payment of severance benefits to the
executive if, among other things, the executive terminates his employment for
good reason. "Good reason" is defined to include termination by the executive
for any reason within six months after commencement of the employment term
and, subsequent to such six-month period, termination for specified reasons,
including a material reduction in the executive's duties, certain relocations
of the executive's office and failure of U.S. Foodservice to comply with
requirements of the agreement relating to the executive's compensation. Upon
such a termination, the executive will be entitled to receive (1) a lump-sum
payment in an amount equal to three times the executive's annual base salary
and highest annual bonus, as defined, and (2) welfare fringe benefits for
three years substantially equivalent to those provided prior to termination.
If the amount payable to the executive under the agreement upon a change in
control of U.S. Foodservice exceeds defined threshold amounts, federal excise
tax could be imposed on the executive and U.S. Foodservice could lose a tax
deduction for a portion of the payment. The agreement provides, subject to
limitations, that, in the event a federal excise tax is imposed, U.S.
Foodservice will pay the executive a "gross-up" payment in an amount such
that, after payment by the executive of such excise tax and any other taxes
imposed upon the foregoing payments, the executive retains an amount of the
gross-up payment equal to such excise tax. Before his resignation as an
officer of the Company effective May 31, 1999, Mr. Hay was party to an
employment agreement with the Company having substantially the same terms as
the employment agreements described in this paragraph.
The Company has entered into an employment agreement with David M. Abramson,
dated as of June 10, 1996 and effective as of July 1, 1996, pursuant to which
Mr. Abramson is employed as Executive Vice President and General Counsel of
U.S. Foodservice. Mr. Abramson's employment agreement provides for an initial
three-year term, which will be automatically extended for one year on each
anniversary date of the agreement unless U.S. Foodservice provides Mr.
Abramson with notice of non-renewal. The agreement provides that, in addition
to his annual base salary, Mr. Abramson will be eligible to receive annual
cash and stock-based incentives equal to varying percentages of his annual
base salary. Mr. Abramson's employment agreement has substantially the same
severance provisions as the Company's employment agreements with Messrs.
Miller and Kaiser dated as of January 4, 1996.
The Company has entered into an employment agreement with George T. Megas,
dated as of June 24, 1999 and effective as of April 22, 1999, pursuant to
which Mr. Megas is employed as Senior Vice President and Chief Financial
Officer of U.S. Foodservice. This agreement provides for an initial three-year
term, which will be automatically extended for one year on each anniversary
date of the agreement unless U.S. Foodservice provides Mr. Megas with notice
of non-renewal. The agreement provides that, in addition to his annual base
salary, Mr. Megas will be eligible to receive annual cash and stock-based
incentives equal to varying percentages of his annual base salary. Mr. Megas's
agreement has substantially the same severance provisions as the Company's
employment agreements with Messrs. Miller and Kaiser dated as of January 4,
1996. Mr. Megas's agreement supersedes a severance agreement, dated as of
September 27, 1995, between the Company and Mr. Megas, which had substantially
the same terms as Mr. Kaiser's severance agreement described above, and an
employment agreement, dated as of January 4, 1996, between the Company and Mr.
Megas, which had substantially the same terms as the employment agreements
with Messrs. Miller and Kaiser dated as of January 4, 1996.
13
<PAGE>
Management Compensation Plans
Restricted Stock Unit Plan. Effective July 1, 1998, the compensation
committee of the board of directors adopted a restricted unit plan for the
named executive officers. The plan provides for awards of "restricted stock
units" to the executives. Each restricted stock unit represents a conditional
right to receive a share of common stock in the future and is subject to
restrictions and to a risk of forfeiture.
Executives vest in the restricted stock units, and the earnings attributable
to the units, at the rate of 25% per year after completion of six and one half
years of continuous service with the Company measured from July 1, 1998. An
executive will become fully vested in his restricted stock units upon
retirement at age 55, upon termination of his employment due to death,
disability or good reason, as defined in the plan, or upon the occurrence of a
change of control of the Company, as defined in the plan. If an executive is
terminated without cause, the executive will become vested in the restricted
stock units, and the earnings attributable to the units, at the rate of 10%
for the initial six-month period commencing July 1, 1998 and at the rate of
10% per year thereafter.
Amounts credited to an executive's account will be distributed to the
executive upon termination of his employment. The amounts will be distributed
as a lump sum or in up to 15 annual installments, at the executive's option.
In addition, an executive may elect to have vested amounts distributed prior
to termination of his employment in a lump sum, in up to 15 annual
installments or in installments of other amounts. An executive also may
request a hardship distribution before termination of his employment, subject
to approval by the compensation committee. All amounts are distributed in the
form of common stock issuable under one or more of the Company's stock
incentive plans.
Supplemental Executive Retirement Plan. Effective July 1, 1998, the
compensation committee of the board of directors adopted a nonqualified
supplemental executive retirement plan, or SERP, for the named executive
officers.
The Company makes quarterly contributions to the SERP in each fiscal year in
an aggregate amount equal to 15% of each executive's base salary and target
bonus for such fiscal year. Of each contribution, 50% is deemed to be invested
in restricted stock units. The SERP allows the executives to select a number
of different investment options in which the remaining 50% of the contribution
will be deemed to be invested.
Executives generally vest in the amounts contributed for each year, and the
earnings attributable to such amounts, at the rate of 20% per year over five
years from the first day of the year in which the contribution is made. For
the initial period commencing July 1, 1998, the executives will vest in the
amounts contributed at the rate of 20% after the initial six-month period and
at the rate of 20% per year over four years thereafter. An executive will
become fully vested in the SERP upon retirement at age 55, upon termination of
employment due to death, disability or good reason, as defined in the SERP, or
upon the occurrence of a change of control of the Company, as defined in the
SERP.
Amounts credited to an executive's accounts will be distributed to the
executive upon termination of his employment in a lump sum or in up to 15
annual installments, at the executive's option. Amounts deemed to be invested
in restricted stock units will be distributed in the form of common stock
issuable under one or more of the Company's stock incentive plans. The
remaining amounts credited to an executive's accounts will be distributed in
cash. An executive may request a hardship distribution before termination of
his employment, subject to approval by the compensation committee.
14
<PAGE>
Transactions with Related Parties
Severance Benefits. On April 22, 1999, Lewis Hay, III, the Company's
Executive Vice President and Chief Financial Officer, resigned from his
positions effective May 31, 1999. Mr. Hay will receive salary payments through
October 15, 1999, reflecting payment of Mr. Hay's accrued vacation benefits
for the period after his resignation, and was awarded an annual bonus with
respect to fiscal 1999 on the same basis as if Mr. Hay's employment had
continued through the end of the fiscal year. Mr. Hay's termination benefits
also included continuation of health and other insurance benefits through June
1, 1999 and accrued benefits under the SERP. Vesting of Mr. Hay's outstanding
stock options continued through October 15, 1999.
Exercise of Registration Rights. In connection with its acquisition by
merger of Rykoff-Sexton, the Company assumed Rykoff-Sexton's rights and
obligations under a registration rights agreement pursuant to which entities,
referred to as the ML investors, were entitled to registration rights with
respect to the common stock they received in the merger. The ML investors are
entities of which Merrill Lynch Capital Partners, Inc. or one of its
affiliates is a direct or indirect managing partner or controlling entity.
These entities collectively held approximately 16% of the outstanding U.S.
Foodservice common stock after the merger. In fiscal 1999, under the
registration rights agreement, the Company registered under the Securities Act
of 1933 the public offering and sale by the ML investors of all of their U.S.
Foodservice common stock. The Company paid all of the expenses of this
registration, which totaled approximately $0.9 million, except for the
underwriting discount attributable to the shares sold by the ML investors.
Matthias B. Bowman and Albert J. Fitzgibbons III, the designees of Merrill
Lynch Capital Partners to the U.S. Foodservice board of directors until their
resignations effective March 31, 1999, may be deemed to have beneficially
owned some or all of the shares of common stock held by the ML investors.
Termination of Standstill Agreement. Until March 31, 1999, the Company was
entitled to the benefits of a standstill agreement, dated as of May 17, 1996,
among Merrill Lynch Capital Partners, Inc. and the ML investors, referred to
as the ML entities, and Rykoff-Sexton. The standstill agreement imposed
restrictions on the acquisition, transfer and voting of U.S. Foodservice
voting securities by the ML entities and provided for representation on the
board of directors and committees of the board by individuals selected by the
ML entities. The standstill agreement, which was originally for the benefit of
Rykoff-Sexton, became effective with respect to U.S. Foodservice upon
consummation of its acquisition of Rykoff-Sexton and terminated effective upon
the sale by the ML investors of their holdings of U.S. Foodservice common
stock on March 31, 1999.
Other Transactions. The law firm of Miles & Stockbridge P.C., of which David
M. Abramson, an executive officer and director of the Company, is Of Counsel,
provided legal services to the Company during fiscal 1999. Mr. Abramson is not
paid by such law firm for his services as Of Counsel.
15
<PAGE>
Report of the Compensation Committee of the
Board of Directors of U.S. Foodservice
on Executive Compensation
The Compensation Committee (the "Committee") of the U.S. Foodservice Board
of Directors, which is composed exclusively of non-management directors,
offers this report regarding its executive compensation policy and
compensation program for the Chief Executive Officer and the other executive
officers of U.S. Foodservice in effect for fiscal 1999. This report, as well
as the performance graph on page 18, are not soliciting materials, are not
deemed filed with the SEC and are not incorporated by reference in any filing
of the Company under the Securities Act of 1933 or the Securities Exchange Act
of 1934, whether made before or after the date of this proxy statement and
irrespective of any general incorporation language in any such filing.
Compensation Policy. The overall goal of the Committee is to develop
compensation policies and practices which support the attainment of the
Company's strategic business objectives. The Committee uses the services of
independent executive compensation consultants in developing and evaluating
compensation plans in order to achieve these objectives.
The Committee annually compares executive compensation levels for the Chief
Executive Officer and the Company's other executive officers to the
compensation of executives employed by companies in the peer group index shown
on the performance graph in this proxy statement and other foodservice
distribution companies. The Committee also compares the Company's short-term
and long-term results to the performance of comparable companies.
The Company's executive compensation program includes a base salary, annual
cash bonuses, a supplemental executive retirement plan and long-term incentive
compensation in the form of stock incentive awards. Overall, these programs
are intended to link executive compensation to the Company's performance. The
Committee believes that a substantial portion of cash compensation should be
tied to performance-based objectives. To encourage equity ownership by the
Company's executives and to link executive compensation with increases in
stockholder value, the Committee's policy is to provide that a significant
portion of total executive compensation will be in the form of periodic stock
incentive awards.
Base Salary. In conjunction with its annual review of base salaries, the
Committee approved a base salary increase for fiscal 1999 over fiscal 1998 of
9% for the Chief Executive Officer and salary increases ranging from 8% to 11%
for the other executive officers. The salary increases were determined based
on the Committee's analysis of the Company's performance, individual
performance, compensation levels of executives with similar responsibilities
at comparable companies, and cost-of-living increases. The Committee also took
into account the expansion of responsibilities of the Chief Executive Officer
and the other executive officers that resulted from the Company's acquisition
of Rykoff-Sexton, Inc. in fiscal 1998.
Annual Cash Bonuses. The Company pays annual cash bonuses to its executive
officers based upon the achievement of corporate financial and other
objectives established by the Committee for the fiscal year. The objectives
are established at levels intended to assure that, if achieved, the levels
represent significant improvements in stockholder value. Executive officers
have the opportunity to earn cash bonuses equal to a varying percentage of
their base salary, depending upon the attainment of those objectives.
For fiscal 1999, the bonus objectives of the Chief Executive Officer and the
other executive officers were based on earnings per share (weighted 60%) and
specified financial, sales and operational objectives (weighted 40%). The
operational objectives included acquisitions of foodservice businesses in
furtherance of strategic and financial goals. For fiscal 1999, the Company
exceeded the earnings per share objective and met substantially all of the
financial, sales and operational objectives.
Applying the bonus formulas specified for fiscal 1999, the Committee
approved an annual bonus for the Chief Executive Officer equal to 107% of his
target annual bonus and annual bonuses for the other executive officers,
except for Mr. Megas, equal to 107% of their respective target annual bonuses.
As a result of the assumption by Mr. Megas of the duties of Senior Vice
President and Chief Financial Officer during fiscal 1999, the Committee
awarded Mr. Megas a bonus equal to 66% of his cumulative base salary for
fiscal 1999. All annual target bonuses for a fiscal year are measured as a
percentage of the executive's base salary for that fiscal year.
16
<PAGE>
Supplemental Executive Retirement Plan. The Committee approved awards to all
executive officers in fiscal 1999 under a supplemental executive retirement
plan, pursuant to which the executive officers are awarded an amount equal to
15% of their base salary and target annual bonus for each fiscal year. The
awards under this plan vest 20% per year for each of the five years after each
annual award for fiscal 1999 and subsequent fiscal years. One-half of the
amounts held under the plan are deemed to be invested in restricted stock
units under the Company's 1998 Stock Option and Incentive Plan (the "Stock
Incentive Plan") and will be distributed in the form of Common Stock, while
the remaining amounts will be deemed to be invested as directed by the
executive officer and will be distributed in cash.
Long-Term Incentives. Based in part upon fiscal 1999 performance, the
Committee in fiscal 2000 approved the grant of stock options under the Stock
Incentive Plan for 150,000 shares of Common Stock to the Chief Executive
Officer and for a total of 345,000 shares of Common Stock to the executive
officers in the aggregate, including the Chief Executive Officer. Based in
part upon fiscal 1999 performance, the Committee in fiscal 2000 awarded stock
options for 1,127,341 shares of Common Stock to other members of the Company's
corporate, regional and division management.
In determining the amount of stock option awards under the Stock Incentive
Plan, the Committee considers each executive's current performance and
anticipated future contributions to the Company's performance, as well as the
amount and terms of the options previously granted to the executive by the
Company. The grant of stock options to the Chief Executive Officer and the
other executive officers for fiscal 1999 was based on the Committee's
assessment of both the past contributions of the executive officers and their
anticipated role in increasing stockholder value.
All stock options granted to executive officers for fiscal 1999 were non-
qualified stock options with an exercise price that was equal to the fair
market value of the U.S. Foodservice Common Stock on the date of grant. The
options increase in value only to the extent of appreciation in the Common
Stock, thereby providing a clear link to enhancement of stockholder value. To
emphasize the long-term incentive provided by options under the Stock
Incentive Plan, the stock options awarded for fiscal 1999 vest in increments
over a three-year period.
Based in part upon fiscal 1999 performance, in fiscal 2000 the Committee
made a special award to the Chief Executive Officer of restricted stock units
under the Stock Incentive Plan for 132,232 shares of Common Stock. The awards
vest 25% per year beginning December 31, 2004 and on each December 31
thereafter through December 31, 2007. All amounts become fully vested upon
retirement at age 55, upon termination of employment due to death, disability
or good reason (as defined in the plan) or upon a change of control of the
Company.
Potential Effect of Section 162(m) of the Internal Revenue Code. Section
162(m) of the Internal Revenue Code of 1986 generally sets a limit of $1
million on the amount of compensation paid to executive employees (other than
enumerated categories of compensation, including performance-based
compensation) that may be deducted by a publicly-held company. The Committee's
policy is to seek to qualify executive compensation for deductibility to the
extent that such a policy is consistent with the Company's overall objectives
and executive compensation policy. Compensation attributable to stock options
granted under the Stock Incentive Plan currently is excluded from the $1
million limit as "qualified performance-based compensation" contained in
applicable Treasury regulations. The Committee believes that no compensation
for fiscal 1999 is at risk of not being fully deductible.
THE COMPENSATION COMMITTEE
Michael J. Drabb (Chairman)
Eric E. Glass
Paul I. Latta, Jr.
James P. Miscoll
17
<PAGE>
Compensation Committee Interlocks and Insider Participation
The compensation committee of the board of directors during fiscal 1999 was
composed of Michael J. Drabb, who is the Chairman, Eric E. Glass, Paul I.
Latta, Jr. and James P. Miscoll. None of the members of the Committee was an
officer or employee of U.S. Foodservice or any subsidiary thereof during fiscal
1999. There are no interlock relationships as defined in the applicable SEC
rules.
Stockholder Return Performance Graph
The following graph and table show the cumulative total stockholder return on
the common stock compared to the Standard & Poor's 500 Stock Index and a self-
constructed peer group index for the periods between November 16, 1994, the
companies in the broadline foodservice distribution industry. The total
date the common stock began trading on the Nasdaq National Market, and July 2,
1999, the last trading day in fiscal 1999. The peer group index is composed of
SYSCO Corporation and Performance Food Group Company, both of which are public
companies in the broadline foodservice distribution industry. The total
stockholder return on each company included in the peer group index has been
weighted according to such company's capitalization as of the beginning of each
period. The graph assumes $100 was invested on November 16, 1994 in (1) common
stock, (2) the foodservice distribution industry peer group index and (3) the
Standard & Poor's 500 Stock Index, and assumes reinvestment of dividends.
[Graph appears here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
November 1994 June 1995 June 1996 June 1997 June 1998 July 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Foodservice $100 $127 $227 $274 $310 $
- ----------------------------------------------------------------------------------------------------
Peer Group $100 $112 $131 $143 $197 $
- ----------------------------------------------------------------------------------------------------
S&P 500 Index $100 $117 $144 $190 $244 $
- ----------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
CHARTER AMENDMENT PROPOSAL
(Proposal 2)
U.S. Foodservice's restated certificate of incorporation currently
authorizes the issuance of a total of 150,000,000 shares of U.S. Foodservice
common stock, par value $.01 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share, for a total authorized capital stock of
155,000,000 shares. The stockholders are asked to consider and vote upon a
proposal to amend the restated certificate of incorporation to increase the
number of authorized shares of U.S. Foodservice common stock from 150,000,000
to 400,000,000 shares and to increase the number of authorized shares of
capital stock from 155,000,000 to 405,000,000 shares. The number of authorized
shares of preferred stock will remain fixed at 5,000,000 shares. The board of
directors approved the proposed amendment to the restated certificate of
incorporation at a meeting held on September 23, 1999.
Of the presently authorized 150,000,000 shares of common stock,
approximately shares were issued and outstanding as of September 30, 1999
and an additional approximately shares, referred to as reserved shares,
were reserved for issuance under U.S. Foodservice's benefit plans, an
outstanding warrant and other existing agreements. The number of shares of
common stock outstanding and reserved for issuance doubled as a result of the
two-for-one split of the common stock which the Company completed on August 4,
1999. If the charter amendment proposal is approved, U.S. Foodservice would
have available for future issuance, excluding the reserved shares,
shares of common stock. If the charter amendment proposal is not approved,
U.S. Foodservice would have available for future issuance, excluding the
reserved shares, shares of common stock.
Although U.S. Foodservice has no present plans or commitments to issue the
proposed additional authorized shares of common stock, the additional shares
would be available for issuance without further action by the Company's
stockholders except as required by law or regulation, including requirements
of the New York Stock Exchange. The board of directors believes that the
authorization of the additional shares is desirable so that there will be
sufficient shares available for issuance for purposes that the board of
directors may hereafter determine to be in the best interests of U.S.
Foodservice and its stockholders. These purposes could include additional
offers of shares for cash and acquisitions of foodservice businesses, as well
as the declaration of stock splits and stock dividends and other general
corporate purposes. In its last three fiscal years, U.S. Foodservice has
completed acquisitions of a significant number of foodservice businesses, the
consideration for most of which consisted entirely or partially of common
stock, and completed public offerings of additional common stock for cash. In
many situations, prompt action may be required which would not permit U.S.
Foodservice to seek stockholder approval to authorize additional shares for a
specific transaction on a timely basis. The board of directors believes it
should have the flexibility to act promptly in the best interests of U.S.
Foodservice and its stockholders. The terms of any future issuance of common
stock will be dependent largely on market and financial conditions and other
factors existing at the time of issuance.
The proposed increase in the authorized shares of common stock is designed
to provide flexibility to the board of directors. However, these additional
shares, if issued, could be used to create impediments to, or otherwise
discourage, persons attempting to gain control of U.S. Foodservice, and would
have a dilutive effect on stockholders.
If the stockholders approve the proposal to increase the number of
authorized shares of common stock, the additional authorized shares will be
part of the existing class of common stock and will increase the number of
shares of common stock available for issuance by the Company, but will have no
effect upon the terms of the common stock or the rights of the holders of such
shares. If and when issued, the proposed additional authorized shares of
common stock will have the same rights and privileges as the shares of common
stock currently outstanding. Holders of the proposed additional shares of
common stock will not have preemptive rights to purchase additional shares of
common stock.
19
<PAGE>
If the charter amendment proposal is approved, Article IV of the restated
certificate of incorporation would read in its entirety as follows:
"ARTICLE IV
CAPITAL STOCK
The Corporation shall have the authority to issue a total of
four hundred five million (405,000,000) shares of capital
stock, each with a par value of $0.01, consisting of four
hundred million (400,000,000) shares of Common Stock and five
million (5,000,000) shares of Preferred Stock."
If the proposal is approved by the stockholders at the annual meeting, the
proposed amendment to the restated certificate of incorporation will become
effective upon the filing of a certificate of amendment with the Secretary of
State of the State of Delaware after the annual meeting.
Approval of Proposal
Approval of the charter amendment proposal will require the affirmative vote
of holders of a majority of the shares of common stock outstanding on the
record date.
The board of directors recommends that the stockholders of U.S. Foodservice
vote "FOR" the charter amendment proposal.
INDEPENDENT ACCOUNTANTS
KPMG LLP has acted as the Company's independent accountants for U.S.
Foodservice's 1999 fiscal year. Representatives of KPMG LLP are expected to be
present at the annual meeting and will be afforded the opportunity to make a
statement if they so desire and to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file with the SEC and the NYSE initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of U.S. Foodservice. Such reporting persons are
required by rules of the SEC to furnish the Company with copies of all Section
16(a) reports they file. Dean R. Silverman filed one late report with respect
to his ownership of shares of common stock held through his individual
retirement account. Based solely upon a review of Section 16(a) reports
furnished to the Company for fiscal 1999 or written representations that no
other reports were required, the Company believes that the foregoing reporting
persons otherwise complied with all filing requirements for fiscal 1999.
STOCKHOLDER PROPOSALS FOR THE ANNUAL MEETING IN 2000
Pursuant to rules of the SEC, in order for stockholder proposals to be
presented at the U.S. Foodservice annual meeting of stockholders in 2000, such
proposals must be received by the Secretary of U.S. Foodservice at the
Company's principal office in Columbia, Maryland, no later than June 10, 2000.
In addition, the Company's restated certificate of incorporation requires that
notice of proposals by stockholders to be brought before any annual meeting
must be delivered to the Company not less than 90 days prior to the date of
the meeting if such meeting is to be held on or after the anniversary of the
previous year's annual meeting (or not less than 60 days, if the meeting is to
be held on a day which is within 30 days preceding the anniversary of the
previous year's annual meeting, or, with respect to any other annual meeting,
on or before the 15th day following the date of public disclosure of the
meeting date). The notice must set forth, as to each matter the stockholder
proposes to bring before the annual meeting, (1) a brief description of the
business desired to be brought before
20
<PAGE>
the annual meeting and the reasons for conducting such business at the annual
meeting, (2) the name, age and business and residential addresses, as they
appear on the Company's records, of the stockholder proposing such business,
(3) the class and number of shares of the Company which are beneficially owned
by the stockholder and (4) any material interest of the stockholder in such
business. The submission by a stockholder of a proposal for inclusion in the
proxy statement is subject to regulation by the SEC.
OTHER MATTERS
The Board of Directors does not intend to present to the meeting any other
matters not referred to above and does not presently know of any matters that
may be presented to the meeting by others. If other matters are properly
brought before the meeting, the persons named in the enclosed proxy will vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors,
/s/ David M. Abramson
David M. Abramson
Secretary
Dated: October 15, 1999
21
<PAGE>
U.S. FOODSERVICE
9755 PATUXENT WOODS DRIVE
COLUMBIA, MARYLAND 21046
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF U.S. FOODSERVICE FOR THE ANNUAL MEETING ON
NOVEMBER 18, 1999 AT 10:00 AM
U.S. FOODSERVICE
The undersigned appoints David M. Abramson and George T. Megas, and each of
them, with full power of substitution in each, the proxies of the undersigned,
to represent the undersigned and vote all shares of U.S. Foodservice common
stock which the undersigned may be entitled to vote at the annual meeting of
stockholders to be held on November 18, 1999, and at any adjournment or
postponement thereof, as indicated on the reverse side. The undersigned further
authorizes such proxies to vote in their discretion upon such other matters as
may properly come before the annual meeting or any adjournment or postponement
thereof. Receipt of notice of annual meeting and proxy statement is hereby
acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
U.S. FOODSERVICE, P.O. BOX 1628, NEW YORK, NY 10277-1628
--------------------------------------------------------
(Continued, and to be signed and dated on reverse side.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
PLEASE MARK YOUR VOTE AS INDICATED IN THIS EXAMPLE [X]
1. Election of directors
<TABLE>
<S> <C>
FOR all WITHHOLD
nominees listed AUTHORITY
below for all nominees
[ ] [ ]
</TABLE>
Nominees: Mark P. Kaiser and Jeffrey D. Serkes
(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- -------------------------------------------------
2. Proposal to approve the amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
capital stock and common stock, as described in the accompanying proxy
statement.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the annual meeting or any adjournment or
postponement thereof.
CHANGE OF ADDRESS AND OR COMMENTS MARK HERE [ ]
The signature on this Proxy should correspond exactly with stockholder's name as
printed to the left. In the case of joint tenants, co-executors or co-trustees,
both should sign. Persons signing as Attorney, Executors, Administrator, Trustee
or Guardian should give their full title.
Dated:____________________________________________________, 1999
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
