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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
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U.S. FOODSERVICE
(Name of Subject Company)
U.S. FOODSERVICE
(Name of Person(s) Filing Statement)
Common Stock, Par Value $0.01 Per Share
(Including the Associated Preferred Share Purchase Rights)
(Title of Class of Securities)
90331R 10 1
(CUSIP Number of Class of Securities)
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David M. Abramson, Esq.
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, Maryland 21046
(410) 312-7100
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person(s) filing statement)
Copy to:
John G. Finley, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
(212) 455-2000
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Statement") of U.S. Foodservice, a Delaware corporation, relates to the tender
offer by Snow Acquisition, Inc. ("Purchaser"), a Delaware corporation and an
indirect wholly owned subsidiary of Koninklijke Ahold N.V., a public company
organized under the laws of The Netherlands with its corporate seat in Zaandam
(Municipality Zaanstad), The Netherlands ("Parent"), to purchase all of the
outstanding shares of the common stock of U.S. Foodservice, par value $0.01 per
share, and the associated Rights (as defined below) for a purchase price of
$26.00 per share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 13, 2000 (the "Offer to Purchase"), and the related Letter of Transmittal
(which Offer to Purchase, Letter of Transmittal and other documents, together
with any supplements or amendments thereto, are referred to herein collectively
as the "Offer Documents"). This Schedule 14D-9 is being filed on behalf of U.S.
Foodservice.
Item 1. Subject Company Information.
(a) The name of the subject company is U.S. Foodservice, a Delaware
corporation (the "Company"). The address of its principal executive offices is
9755 Patuxent Woods Drive, Columbia, MD 21046 and the telephone number is (410)
312-7100.
(b) The title of the equity securities to which this Statement relates is
the common stock, par value $0.01 per share (the "Common Stock"), of the
Company, including the associated preferred share purchase rights (the
"Rights") issued pursuant to the Amended and Restated Rights Agreement, dated
as of October 4, 1999 (as amended as of March 6, 2000 and as may be amended
from time to time, the "Rights Agreement"), between the Company and ChaseMellon
Shareholder Services, L.L.C. References herein to the "Shares" mean the
outstanding shares of the Common Stock and the associated Rights. As of March
3, 2000, there were 102,587,339 Shares outstanding.
Item 2. Identity and Background of Filing Person.
(a) The filing person is the subject company.
(b) This Statement relates to the tender offer (the "Offer") disclosed in a
Tender Offer Statement on Schedule TO, dated March 13, 2000 (as amended from
time to time, the "Schedule TO"), by Purchaser, to purchase all outstanding
shares of Common Stock, including the associated Rights, at a price of $26.00
per Share (the "Offer Price"), net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer
Documents.
According to the Schedule TO, the principal executive office of Parent is
located at Albert Heijnweg 1, 1507 EH Zaandam, The Netherlands, and the
principal address of Purchaser is 1013 Centre Road, Wilmington, Delaware 19805.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of March 7, 2000 (as amended from time to time, the "Merger Agreement"),
among the Company, Parent and Purchaser. A copy of the Merger Agreement is
filed as Exhibit 3 to this Statement and is incorporated herein by reference.
Item 3. Past Contact, Transactions, Negotiations and Agreements.
Except as set forth in this Item 3, to the knowledge of the Company, as of
the date hereof, there are no material contracts, agreements, arrangements or
understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (i) the Company's executive officers, directors
or affiliates or (ii) Parent or Purchaser or their respective executive
officers, directors or affiliates.
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Merger Agreement
The following is a summary of the material terms of the Merger Agreement.
The summary is qualified in its entirety by reference to the Merger Agreement,
a copy of which has been filed with the Securities and Exchange Commission (the
"SEC") as an exhibit to this Schedule 14D-9. The Merger Agreement may be
inspected at, and copies may be obtained from, the same places and in the
manner set forth in Section 7--"Certain Information Concerning the Company--
Available Information" of the Offer to Purchase.
The Offer. The Merger Agreement provides that Purchaser will commence the
Offer and that the obligation of Purchaser to consummate the Offer and to
accept for payment and to pay for any Shares tendered pursuant to the Offer
shall be subject to only those conditions set forth therein. Subject to the
terms of the Merger Agreement, Parent and Purchaser may modify the terms of the
Offer, including, without limitation, to extend the Offer beyond any scheduled
expiration date or waive any of the conditions set forth in Section 14--
"Conditions of the Offer" of the Offer to Purchase; provided, however, that
Parent and Purchaser shall not, without the prior written consent of the
Company, (i) reduce the number of Shares to be purchased pursuant to the Offer,
(ii) reduce the Offer Price, (iii) impose any additional conditions to the
Offer, (iv) change the form of consideration payable in the Offer, (v) make any
change to the terms of the Offer which is adverse in any manner to the holder
of Common Stock, (vi) extend the expiration date of the Offer beyond twenty
(20) business days after commencement of the Offer except (A) as required by
applicable law, (B) as specified in the immediately succeeding sentence or (C)
that if any of the conditions set forth in Section 14--"Conditions of the
Offer" of the Offer to Purchase have not been satisfied or waived, Purchaser
may, in its sole discretion, extend the expiration date of the Offer from time
to time for one or more periods not exceeding, in each case, ten (10) business
days, unless Parent reasonably believes that such condition is not capable of
being satisfied within such time, in which case Purchaser may extend the
expiration date for a period up to twenty (20) business days, but in no event
later than 180 days after commencement of the Offer (the "Termination Date"),
(vii) waive the condition that there shall have been validly tendered and not
properly withdrawn prior to the expiration of the Offer a number of Shares
which represent at least a majority of all issued and outstanding Shares, on a
fully diluted basis (as defined in the Merger Agreement), on the date of
purchase (the "Minimum Condition"), (viii) waive the condition that any
applicable waiting period (and any extension thereof) under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Condition") or
the conditions set forth in clause (iii)(a) or (iii)(b) of Section 14--
"Conditions of the Offer" of the Offer to Purchase unless Purchaser shall pay
for all Shares validly tendered and not withdrawn promptly following
Purchaser's acceptance for payment of such Shares, or (ix) waive the condition
set forth in clause (iii)(f) of Section 14--"Conditions of the Offer" of the
Offer to Purchase; provided, however, that the Offer may be extended so as to
comply with applicable rules and regulations of the SEC or the staff thereof,
unless the reason for such extension is the result of a material breach of the
Merger Agreement by Parent or Purchaser. Notwithstanding the foregoing
sentence, Purchaser may, without the consent of the Company, extend the Offer
for up to ten (10) business days in the aggregate notwithstanding that all of
the conditions set forth in Section 14--"Conditions of the Offer" of the Offer
to Purchase have been satisfied, if, on any expiration date of the Offer, more
than 80% but less than 90% of the shares of Common Stock have been validly
tendered and not withdrawn, so long as Purchaser irrevocably waives the
continued satisfaction of any of the conditions set forth in Section 14--
"Conditions of the Offer" of the Offer to Purchase, other than (x) the Minimum
Condition, (y) the condition set forth in clause (iii)(f) of Section 14--
"Conditions of the Offer" of the Offer to Purchase, to the extent the Merger
Agreement is terminated pursuant to paragraphs (a), (b)(i), (c), (d)(iii) or
(d)(iv) under the heading --"Termination" hereof or (z) any of the conditions
set forth in clause (iii)(a) or (iii)(b) of Section 14 --"Conditions of the
Offer" of the Offer to Purchase, but only to the extent that the failure of
such condition is due to an event making it illegal to purchase Shares pursuant
to the Offer. The Merger Agreement further provides that if, on any expiration
date of the Offer, the Offer would have expired due to the failure to satisfy
(w) any of the conditions set forth in clause (iii)(a), (iii)(b) or (iii)(c) of
Section 14--"Conditions of the Offer" of the Offer to Purchase, (x) the HSR
Condition or (y) the Minimum Condition, Parent shall, at the request of the
Company, cause Purchaser to extend the expiration date (A) in the case of
clause (w) or (x), from time to time for one or more periods not exceeding, in
each case, ten (10) business days, but in no event later than the
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Termination Date and (B) in the case of clause (y), for one or more periods not
exceeding, in the aggregate, twenty (20) business days, but in no event later
than the Termination Date, unless, in each case, Parent reasonably believes at
such time that such tender offer condition is not capable of being satisfied.
Notwithstanding anything to the contrary contained herein, Parent and Purchaser
have further agreed that, if the Company shall have affirmatively announced to
the holders of Common Stock a neutral position with respect to an Acquisition
Proposal (as hereinafter defined), Parent shall, at the request of the Company,
cause Purchaser to extend the expiration date to the date ten (10) business
days after the date of initial announcement of such neutral position by the
Company. Assuming prior satisfaction or waiver of the conditions set forth in
Section 14--"Conditions of the Offer" of the Offer to Purchase, Parent shall
provide funds to Purchaser and Purchaser shall, as soon as permissible after
commencement of the Offer, accept for payment and pay for, in accordance with
the terms of the Offer, the Shares that have been validly tendered and not
withdrawn at or prior to the expiration of the Offer.
Pursuant to the terms of the Merger Agreement, the Company has consented to
the Offer and the Merger and has represented (a) that the Board of Directors of
the Company has, by unanimous vote, (i) determined that each of the Offer and
the Merger is fair to, and in the best interest of, the holders of Common
Stock, (ii) declared that the Offer and the Merger are advisable, (iii)
approved the Offer, the Merger and the Merger Agreement in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL"), (iv)
recommended that the holders of Common Stock accept the Offer and adopt the
Merger Agreement, and (v) taken all other action necessary to render Section
203 of the DGCL inapplicable to the Offer and the Merger and (b) that Goldman,
Sachs & Co. has delivered to the Board of Directors of the Company its opinion
that the consideration to be received by the holders of Common Stock pursuant
to the Offer and the Merger is fair, from a financial point of view, to such
holders of Common Stock, subject to the assumptions and qualifications
contained in such opinion.
Composition of the Board Following Consummation of the Offer. The Merger
Agreement provides that, promptly upon the consummation of the Offer, Purchaser
shall be entitled to designate such number of directors (the "Designees"),
rounded up to the next whole number, on the Board of Directors of the Company
as is equal to the product of the total number of directors on the Board of
Directors of the Company (determined after giving effect to any increase in the
size of such Board pursuant to this sentence) multiplied by the percentage that
the number of Shares beneficially owned by Purchaser or its affiliates at such
time bears to the total number of Shares then outstanding. At such time, the
Company shall use commercially reasonable efforts to take any and all such
action needed to cause the Designees to be appointed to the Board of Directors
of the Company, including using its commercially reasonable efforts to cause
certain directors to resign and/or increasing the size of the Board of
Directors of the Company; provided, however, that the Company and Purchaser
shall use their respective commercially reasonable efforts so that the Board of
Directors of the Company shall continue to have at least three (3) members who
were directors of the Company on the signing date of the Merger Agreement (the
"Continuing Directors").
Following the election or appointment of the Designees pursuant to the terms
of the Merger Agreement and prior to the effective time of the Merger (the
"Effective Time"), any amendment or modification of the Merger Agreement, the
Company's Restated Certificate of Incorporation, as amended, or the Company's
Amended and Restated By-laws, any termination of the Merger Agreement by the
Company, any extension by the Company of the time for the performance of any of
the obligations or other acts of Parent or Purchaser or waiver of any of the
Company's rights under the Merger Agreement, and any other consent or action by
the Company pursuant to the Merger Agreement, shall be effected only if there
are in office one or more Continuing Directors and such action is approved by a
majority of such Continuing Directors.
The Merger. The Merger Agreement provides that subject to the terms and
conditions thereof, and in accordance with the DGCL, Purchaser shall be merged
with and into the Company as soon as practicable following the satisfaction or
waiver of the conditions set forth in the Merger Agreement (such date, the
"Closing Date"), which conditions are described below. Following the Merger,
the separate corporate existence of Purchaser will cease and the Company will
continue as the surviving corporation (the "Surviving Corporation").
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At the Effective Time, each issued and outstanding share of Common Stock
(other than shares held by any wholly owned subsidiary of the Company or in the
treasury of the Company, or, directly or indirectly, by Parent or any
subsidiary of Parent (including Purchaser), which shares of Common Stock shall
cease to be outstanding and be canceled and none of which shall receive any
payment with respect thereto, and other shares of Common Stock, if any, held by
holders of Common Stock who perfect their appraisal rights under the DGCL)
will, by virtue of the Merger and without any action by the holders of Common
Stock thereof, be converted into the right to receive an amount in cash equal
to the Offer Price (the "Merger Consideration") payable to the holder of Common
Stock, without interest thereon.
At the Effective Time, each share of common stock, par value $0.01 per
share, of Purchaser then issued and outstanding will, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into one
fully paid and nonassessable share of common stock, par value $0.01 per share,
of the Surviving Corporation.
The Merger Agreement provides that the respective obligations of Parent and
Purchaser, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the satisfaction or waiver (subject to applicable law),
at or prior to the Effective Time, of each of the following conditions: (i) to
the extent required by applicable law, the Merger Agreement shall have been
adopted by holders of a majority of the Shares entitled to vote thereon (voting
as one class, with each Share having one (1) vote); (ii) no temporary
restraining order, preliminary or permanent injunction or other order shall
have been issued by any federal, state or foreign court or by any court of
competent jurisdiction and no other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; (iii) no federal, state or
foreign statute, rule, regulation, executive order, decree or order of any kind
shall have been enacted, entered, promulgated or enforced by any domestic or
foreign court, arbitral tribunal, administrative agency or commission or other
governmental or regulatory agency or authority (each a "Governmental Entity")
which prohibits, restrains, restricts or enjoins the consummation of the Merger
or has the effect of making the Merger illegal; and (iv) Purchaser shall have
accepted for payment and paid for all Shares validly tendered in the Offer and
not withdrawn.
Directors and Officers of the Surviving Corporation. The Merger Agreement
provides that, at the Effective Time, the directors of Purchaser immediately
prior to the Effective Time shall be the directors of the Surviving
Corporation, each of such directors to hold office, subject to the applicable
provisions of the certificate of incorporation and by-laws of the Surviving
Corporation, until their respective successors shall be duly elected or
appointed and qualified. At the Effective Time, the officers of the Company
immediately prior to the Effective Time shall, subject to the applicable
provisions of the certificate of incorporation and by-laws of the Surviving
Corporation, be the officers of the Surviving Corporation until their
respective successors shall be duly elected or appointed and qualified.
Company Stockholders' Meeting. Pursuant to the Merger Agreement, promptly
following the purchase of Shares pursuant to the Offer, if required by law in
order to consummate the Merger, the Company, acting through the Board of
Directors of the Company, shall, in accordance with applicable law, (i) duly
call, convene and hold a meeting of the stockholders of the Company (the
"Stockholders' Meeting") for the purpose of voting upon the Merger Agreement
and (ii) take all action necessary and advisable to secure the vote of
stockholders required by applicable law, the Company's Restated Certificate of
Incorporation, as amended, and Amended and Restated By-laws to obtain their
adoption of the Merger Agreement. The Company has agreed that, if required by
law, it shall include in the proxy statement or information statement (the
"Proxy Statement") required in connection with the Stockholders' Meeting the
recommendation of the Board of Directors of the Company that the stockholders
of the Company adopt the Merger Agreement. Parent shall cause all shares of
Common Stock of the Company owned by Parent and its direct and indirect
subsidiaries (including the Purchaser) to be voted in favor of the Merger
Agreement.
Interim Operations. The Merger Agreement provides that the Company agrees
that, except as expressly permitted or required by the Merger Agreement or
otherwise consented to in writing by Parent, during the period commencing on
March 7, 2000, until such time as nominees of Parent shall comprise a majority
of the
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members of the Board of Directors of the Company or the Merger Agreement shall
have been terminated pursuant to its termination provisions, each of the
Company and its subsidiaries will conduct its respective operations only
according to its ordinary and usual course of business consistent with past
practice and, except and to the extent it relates to the performance by the
Company of its obligations under the Merger Agreement, use their commercially
reasonable efforts to preserve intact its respective business organizations,
keep available the services of their respective officers and key employees and
maintain satisfactory relationships with licensors, suppliers, distributors,
clients, customers and others having significant business relationships with
them and, except as otherwise disclosed by the Company, neither the Company nor
any of its subsidiaries shall (i) change or amend its certificate of
incorporation or its by-laws (or comparable governing documents), (ii) except
for the possible issuance by the Company of (u) approximately $9,000,000 worth
of Shares as employer contributions to the 401(k) Retirement Savings Plan of
the Company, (v) Rights or other securities pursuant to the terms of the Rights
Agreement, (w) 560,000 Shares pursuant to the Company Stock Unit Plans and the
Company Deferred Compensation Plan (as such terms are hereinafter defined)
(assuming a price of $13.00 per Share as of the relevant valuation date), (x)
143,113.7 Shares pursuant to the terms of that certain common stock purchase
warrant (the "BT Warrant"), dated December 23, 1997, issued by the Company to
Bankers Trust New York Corporation subject to adjustment, or (y) 4,983,574
Shares and/or reload options covering a number of Shares (which reload options
would have exercise prices equal to the fair market value (as defined in the
relevant Company Stock Option Plan (as defined below)) of a Share on the date
such reload option is granted), in each case, required to be issued pursuant to
the terms of any vested stock option (collectively, whether vested or unvested,
the "Company Stock Options") issued by the Company under the Company Stock
Option Plan for Outside Directors, dated as of November 22, 1994, as amended
from time to time, the Company 1994 Stock Incentive Plan, dated as of November
22, 1994, as amended from time to time, the Company 1998 Stock Option and
Incentive Plan, dated as of September 24, 1998, as amended from time to time,
the Rykoff-Sexton, Inc. 1980 Stock Option Plan, as amended from time to time,
the Rykoff-Sexton, Inc. 1988 Stock Option and Compensation Plan, as amended
from time to time, the Amended and Restated US Foodservice Inc. 1992 Stock
Option Plan, as amended from time to time, the Rykoff-Sexton, Inc. 1993
Director Stock Option Plan, as amended from time to time, the Amended and
Restated US Foodservice Inc. 1993 Stock Option Plan, as amended from time to
time, the Rykoff-Sexton, Inc. 1995 Key Employees Stock Option and Compensation
Plan, and the stock option and compensation plan disclosed by the Company as
required by the Merger Agreement (collectively, the "Company Stock Option
Plans") as the case may be, issue or sell, or authorize to issue or sell, any
shares of its capital stock or any other securities, or issue or sell, or
authorize to issue or sell, any securities convertible into or exchangeable
for, or options, warrants or rights to purchase or subscribe for, or enter into
any arrangement or contract with respect to the issuance or sale of, any shares
of its capital stock or any other securities, (iii) sell or pledge or agree to
sell or pledge any stock or other equity interest owned by it in any other
person, (iv) declare, pay or set aside any dividend or other distribution or
payment with respect to, or split, combine, redeem or reclassify, or purchase
or otherwise acquire, any shares of its capital stock or its other securities
(other than any dividends or other distributions, by any direct or indirect
wholly-owned subsidiary of the Company to another direct or indirect wholly-
owned subsidiary of the Company or to the Company), (v) enter into any contract
or commitment with respect to capital expenditures not contemplated by the
annual budget of the Company, other than any such contract or commitment which
has a value of less than, and requires expenditures by the Company or such
subsidiary of less than, $3,000,000, (vi) acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any person (other than investments in, or
acquisitions of, businesses not exceeding, in each case, $7,500,000), or
otherwise acquire any assets of any person (other than (A) the purchase of
assets (other than inventory) in the ordinary course of business and consistent
with past practice, (B) acquisitions, mergers, consolidations or purchases
involving only the Company and/or its wholly owned subsidiaries and no other
person, (C) the purchase of assets pursuant to contracts with any customer not
exceeding $50,000,000 in any year or $150,000,000 in the aggregate or any
contract with any customer that is terminable by the Company within ninety (90)
days without penalty (collectively, the "Excluded Contracts") and (D) the
purchase of inventory not purchased pursuant to any contract or any purchase
order which represents aggregate purchases of over $100,000,000 (collectively,
the "Material Inventory Contracts") entered into after March 7, 2000), (vii)
except to the extent required under existing employee and director benefit
plans,
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agreements or arrangements as in effect on March 7, 2000 or applicable law,
increase the compensation or fringe benefits of any of its directors, officers
or employees (other than any such directors, officers or employees who are not
executive officers of the Company or regional vice presidents and who, in each
case, receive less than $250,000 in total annual cash compensation from the
Company or any of its subsidiaries) (provided, however, that the Company's
executive officers, directors and regional vice presidents may receive any
increases in fringe benefits as are generally applicable to all employees of
the Company) or grant any severance or termination pay in an amount exceeding,
in each case, $250,000 not currently required to be paid under existing
severance plan or enter into any employment, consulting or severance agreement
or arrangement with any present or former director, officer or other employee
of the Company or any of its subsidiaries, or establish, adopt, enter into or
amend or terminate (other than in the ordinary course of business and
consistent with past practice) any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees, (vii) sell, pledge or otherwise dispose of,
encumber or subject to any lien, any material assets, except in the ordinary
course of business consistent with past practice, (ix) make or rescind any
material tax election (other than consents to extend the statute of limitation
with respect to prior tax years) or settle or compromise any tax liability in
an amount in excess of $1,000,000, (x) except as required by applicable law or
generally accepted accounting principles, make any material change in its
method of accounting, (xi) adopt or enter into a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
subsidiaries (other than the Merger) other than liquidations, dissolutions,
mergers, consolidations, restructurings, recapitalizations, or other
reorganizations involving only wholly-owned subsidiaries of the Company and no
other person, (xii) other than in connection with any action permitted by
clauses (v) or (vi) of this paragraph, (A) modify in any material respect or
incur any indebtedness for borrowed money or guarantee any such indebtedness of
another person, other than (1) indebtedness owing to or guarantees of
indebtedness owing to the Company or any direct or indirect wholly-owned
subsidiary of the Company or (2) for borrowings under existing credit
facilities, disclosed in any forms, reports, schedules, statements,
registration statements and other documents filed by the Company and its
subsidiaries with the Commission or disclosed by the Company as required by the
Merger Agreement, in the ordinary course of business consistent with past
practice or (B) make any loans or advances to any other person, other than to
the Company or to any direct or indirect wholly-owned subsidiary of the Company
and other than advances to employees consistent with past practices, (xiii)
except as required by applicable law and under employee benefit plans in effect
as of March 7, 2000, accelerate the payment, right to payment or vesting of any
bonus, severance, profit sharing, retirement, deferred compensation, stock
option, insurance or other compensation or benefits, (xiv) pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction (A) of any claims, liabilities or obligations (other than claims,
liabilities or obligations in connection with litigation) in the ordinary
course of business and consistent with past practice, (B) of claims,
liabilities or obligations reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the notes thereto) contained in
any forms, reports, schedules, statements, registration statements and other
documents filed by the Company and its subsidiaries with the Commission, or (C)
of any claims, liabilities or obligations relating to litigation that would not
result in an uninsured or underinsured payment by or liability of the Company
or any of its subsidiaries in excess of $1,500,000 in the aggregate, (xv) other
than as disclosed by the Company, plan, announce, implement or effect any
reduction in force, lay-off, early retirement program, severance program or
other program or effort concerning the termination of employment of employees
of the Company or its subsidiaries, provided, however, that routine employee
terminations shall not be considered subject to this clause (xv), (xvi) take
any action including, without limitation, the adoption of any shareholder
rights plan or amendments to its certificate of incorporation or by-laws (or
comparable governing documents), which would, directly or indirectly, restrict
or impair the ability of Parent to vote, or otherwise to exercise the rights
and receive the benefits of a stockholder with respect to, securities of the
Company that may be acquired or controlled by Parent or Purchaser, (xvii)
modify, amend or waive any material right or obligation or claim under (in each
case, other than in the ordinary course of business consistent with past
practice), or enter into or terminate, any material contract (other than
Excluded Contracts), (xviii) take any action (other than the issuance
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of any option or other rights to acquire Common Stock or shares of Common Stock
permitted by clause (ii) of this paragraph), or omit to take any action, engage
in any transaction or enter into any agreement which would (A) cause any
adjustment to the exercise price of the BT Warrant or (B) entitle any holder
thereof to exchange any part or all of the BT Warrant into a number of shares
of Common Stock in excess of the number of shares of Common Stock such holder
would have been entitled to receive had such holder exercised such part or all
of the BT Warrant on March 7, 2000 or (xix) agree, in writing or otherwise, to
take any of the foregoing actions.
No Solicitation. Pursuant to the Merger Agreement, the Company and its
affiliates and each of their respective officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants and
other agents shall immediately cease any discussions or negotiations with any
other parties that may be ongoing with respect to any Acquisition Proposal (as
hereinafter defined). From and after March 7, 2000, neither the Company nor any
of its affiliates shall, directly or indirectly, take (and the Company shall
not authorize or permit its or its affiliates, officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants or
other agents or affiliates, to so take) any action to (i) directly or
indirectly, solicit, initiate, facilitate or knowingly encourage the making or
submission of any Acquisition Proposal or of an inquiry with respect to any
Acquisition Proposal (including, without limitation, by taking any action that
would make Section 203 of the DGCL inapplicable to an Acquisition Proposal),
(ii) enter into any agreement to (w) facilitate or further the consummation of,
or consummate any Acquisition Proposal, (x) facilitate the making of an inquiry
with respect to any Acquisition Proposal, (y) approve or endorse any
Acquisition Proposal or (z) in connection with any Acquisition Proposal,
require it to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by the Merger Agreement, (iii) initiate or participate
in any way in any discussions or negotiations with, or furnish or disclose any
information to, any person (other than Parent or Purchaser) in connection with
any Acquisition Proposal or inquiry with respect to any Acquisition Proposal,
or (iv) grant any waiver or release under or materially amend any standstill,
confidentiality or similar agreement entered into by the Company or any of its
affiliates or representatives.
Notwithstanding the foregoing, the Merger Agreement provides that, prior to
the consummation of the Offer, the Company, in response to an unsolicited
Acquisition Proposal that did not result from a breach in any material respect
of clauses (i) through (iv) of the second sentence of the immediately preceding
paragraph and following delivery to Parent of the information required by the
requirements set forth in the immediately following paragraph and otherwise in
compliance in all material respects with its obligations under the requirements
set forth in the immediately following paragraph, may (1) participate in
discussions with or request clarifications from, or furnish information to, any
third party which makes an unsolicited Acquisition Proposal, in each case
solely for the purpose of obtaining information reasonably necessary to
ascertain whether such Acquisition Proposal is, or could reasonably likely lead
to, a Superior Proposal (as hereinafter defined) and (2) if the Board of
Directors of the Company (after consultation with an independent, nationally
recognized investment bank) reasonably determines in good faith that such
Acquisition Proposal is a Superior Proposal, participate in discussions or
negotiations with or furnish information to any third party which makes an
unsolicited Acquisition Proposal, if, in the case of each of (1) and (2), (x)
such action is taken subject to a confidentiality agreement with terms not more
favorable in any material respect to such third party than the terms of the
confidentiality agreement dated as of December 15, 1999, between the Company
and Parent (the "Confidentiality Agreement") as in effect on March 7, 2000 (it
being understood that the Company may waive or amend any standstill provision
contained in any existing confidentiality agreement or enter into a
confidentiality agreement with such third party which does not contain a
standstill provision or which contains a standstill provision which is less
favorable in any material respect to the Company than the standstill provision
contained in the Confidentiality Agreement (as in effect on March 7, 2000) if
the Company waives or amends the standstill provision in the Confidentiality
Agreement (as in effect on March 7, 2000) to delete such provision or, as the
case may be, render it equally less favorable to the Company) and (y) the Board
of Directors of the Company (after receiving advice from outside nationally
recognized legal counsel to the Company) reasonably determines in good faith
that it is necessary to take such actions in order to comply with its fiduciary
duties under applicable law. Nothing in the provisions described under the
heading "--No Solicitation" hereof shall prohibit the Company or the Board of
Directors of the Company from taking and
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disclosing to the holders of Common Stock a position with respect to an
Acquisition Proposal by a third party under Rules 14e-2 and 14d-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the extent
the Company is required to take a position under such rules or from making any
other public disclosure required by applicable law or, prior to the
consummation of the Offer, from taking any action contemplated by clause (c)(i)
under the heading --"Termination" below, including having the Board of
Directors of the Company take such actions as are necessary to approve or
resolve to approve the intention to enter into an agreement with respect to a
Superior Proposal (or any announcement in connection therewith) or enter into
an agreement with respect to a Superior Proposal concurrently with termination
pursuant to such clause (c)(i). "Acquisition Proposal" means (i) any proposal
or offer from any person or group relating to any direct or indirect
acquisition or purchase of 20% or more of the consolidated assets of the
Company and its subsidiaries or 20% or more of any class of equity securities
of the Company or any of its subsidiaries, (ii) any tender offer or exchange
offer that, if consummated, would result in any person beneficially owning 20%
or more of any class of equity securities of the Company or any of its
subsidiaries, (iii) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries, or (iv) any other business combination
transaction the consummation of which could reasonably be expected to impede,
interfere with, prevent or materially delay the Offer or the Merger or which
could reasonably be expected to dilute materially the benefits to Parent of the
transactions contemplated by the Merger Agreement. "Superior Proposal" means
any bona fide written Acquisition Proposal made by a third party relating to an
acquisition or purchase of two-thirds or more of the outstanding equity
securities of the Company or all or substantially all of the assets of the
Company and its subsidiaries taken as a whole (x) on terms which a majority of
the members of the Board of Directors of the Company (after consultation with
an independent nationally recognized investment bank) reasonably determines in
good faith to be more favorable to the Company and its stockholders (in their
capacity as such) from a financial point of view than the transactions
contemplated by the Merger Agreement to the extent proposed to be modified by
Parent in accordance with clause (c)(i) under the heading --"Termination" below
and (y) which is reasonably capable of being consummated (taking into account,
among other things, all legal, financial, regulatory and other aspects of such
Acquisition Proposal and the identity of the person making such Acquisition
Proposal).
The Merger Agreement provides that, in addition to the obligations of the
Company set forth in the two immediately preceding paragraphs, promptly (but in
any event within twenty-four (24) hours) of receipt or occurrence thereof, the
Company shall advise Parent of any request for information with respect to any
Acquisition Proposal or of any Acquisition Proposal, or any inquiry, proposal,
discussions or negotiation with respect to any Acquisition Proposal, the terms
and conditions of such request, Acquisition Proposal, inquiry, proposal,
discussion or negotiation and the Company shall promptly (but in any event
within twenty-four (24) hours) of the receipt thereof provide to Parent copies
of any written documentation material to understanding or evaluating such
request, Acquisition Proposal, inquiry, proposal, discussion or negotiation
which is received by the Company from the person (or from any representatives
or agents of such person) making such Acquisition Proposal, inquiry or proposal
or with whom such discussions or negotiations are taking place and the identity
of the person making any such request, Acquisition Proposal or such inquiry or
proposal or with whom any discussion or negotiation is taking place. The
Company shall promptly provide to Parent any non-public information concerning
the Company provided to any other person in connection with any Acquisition
Proposal which was not previously provided to Parent.
The Merger Agreement provides that, promptly, but in any event within one
(1) day of execution of the Merger Agreement, the Company shall request each
person which has heretofore executed a confidentiality agreement in connection
with its consideration of acquiring the Company or any portion thereof to
return all confidential information heretofore furnished to such person by or
on behalf of the Company and the Company shall use its commercially reasonable
efforts to have such information returned.
Directors' and Officers' Insurance and Indemnification. The Merger Agreement
provides that the certificate of incorporation and the by-laws of the Surviving
Corporation shall contain the provisions with respect to indemnification,
exculpation from liability and advancement of expenses set forth in the
Company's
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Restated Certificate of Incorporation, as amended, and Amended and Restated By-
laws as in effect on March 7, 2000, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective
Time in any manner that would adversely affect the rights (including, without
limitation, rights with respect to the transactions contemplated by the Merger
Agreement) thereunder of individuals who on or prior to the Effective Time were
directors or officers of the Company, unless such modification is required by
law. In addition, pursuant to the Merger Agreement, for a period of six (6)
years from the Effective Time, Parent shall cause the Surviving Corporation to
either (a) maintain in effect the Company's directors' and officers' liability
insurance as in effect on April 1, 2000 covering those persons who were covered
on March 7, 2000 by the Company's directors' and officers' liability insurance
policy (the "Insured Parties"); provided, however, that in no event shall the
Surviving Corporation be required to expend in any one year an amount in excess
of 200% of the annual premiums paid by the Company for such insurance which the
Company represents will be not more than $400,000 for the twelve month period
ending on March 31, 2001; provided, further, that if the annual premiums of
such insurance coverage exceed such amount, the Surviving Corporation shall be
obligated to obtain a policy with the greatest coverage available for a cost
not exceeding such amount; and provided, further, that the Surviving
Corporation may substitute for such Company policies other policies with at
least the same coverage and containing terms and conditions which are no less
advantageous, provided, that said substitution does not result in any gaps or
lapses in coverage with respect to matters occurring on or prior to the
Effective Time (including, without limitation, rights with respect to the
transactions contemplated by the Merger Agreement) or (b) cause Parent's
directors' and officers' liability insurance then in effect to cover the
Insured Parties with respect to those matters covered by the Company's
directors' and officers' liability insurance policy with at least the same
coverage as such Company policies as in effect as of April 1, 2000, containing
terms and conditions which are no less advantageous and provided that said
substitution does not result in any gaps or lapses in coverage with respect to
matters occurring on or prior to the Effective Time (including, without
limitation, matters with respect to the transactions contemplated by the Merger
Agreement).
Parent shall cause the Surviving Corporation to indemnify, defend and hold
harmless each person who was, or has been at any time prior to March 7, 2000,
or who becomes prior to the Effective Time, an officer, director or employee of
the Company or any of its subsidiaries to the fullest extent permitted by
applicable law with respect to all acts and omissions arising out of such
individuals' services as officers, directors or employees of the Company or any
of its subsidiaries or as trustees or fiduciaries of any plan for the benefit
of employees of the Company or any of its subsidiaries, occurring prior to the
Effective Time including, without limitation, the transactions contemplated by
the Merger Agreement.
Compensation and Benefits. Pursuant to the Merger Agreement, until the first
anniversary of the Closing Date, Parent shall cause the current and former
employees of the Company and its subsidiaries who are on the Closing Date
entitled to receive compensation or any benefits from the Company or any of its
subsidiaries to be provided with compensation and employee benefit plans
(excluding stock option or other plans involving the potential issuance of
securities of the Company, Parent or any of their respective subsidiaries, and
incentive compensation or similar programs but including the severance pay
practices, programs or arrangements disclosed by the Company) which in the
aggregate are not materially less favorable than those currently provided to
such employees by the Company and its subsidiaries, to the extent permitted
under laws and regulations in force from time to time, provided, that employees
covered by collective bargaining agreements need not be provided with such
benefits. The provisions described in the immediately preceding sentence shall
not create in any current or former employee of the Company or its subsidiaries
any rights to employment or continued employment with Parent, the Surviving
Corporation or the Company or any of their respective subsidiaries or
affiliates or any right to specific terms or conditions of employment. Except
as set forth in this paragraph, from and after the Effective Time, the
Surviving Corporation shall have sole discretion over the hiring, promotion,
retention, termination and other terms and conditions of the employment of the
employees of the Surviving Corporation. Parent shall, or shall cause the
Surviving Corporation to, provide any employee of the Company or any of its
subsidiaries who continues to be an employee of the Surviving Corporation or
any of its subsidiaries as of the Effective Time (each, an "Affected Employee")
full credit for such Affected Employee's service with the Company or any of its
subsidiaries or predecessors for
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<PAGE>
purposes of eligibility, vesting and benefit accrual (except for benefit
accruals under any defined benefit pension plan) under the employee benefit
plans or arrangements maintained by Parent or the Surviving Corporation in
which such Affected Employees participate for such Affected Employee's service
with the Company or any of its subsidiaries, to the same extent recognized
under similar plans or arrangements of the Company or such subsidiary
immediately prior to the Effective Time. Parent shall, or shall cause the
Surviving Corporation to, (i) waive all limitations as to pre-existing
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to any Affected Employee under any welfare
benefit plans in which such Affected Employees may be eligible to participate
after the Effective Time, other than limitations or waiting periods that are
already in effect with respect to such Affected Employee and that have not been
satisfied as of the Effective Time under any welfare plan maintained for such
Affected Employee immediately prior to the Effective Time and (ii) provide each
Affected Employee with credit for any co-payments and deductibles paid prior to
the Effective Time under welfare plans of the Company or any of its
subsidiaries for the plan year in which the Effective Time occurs in satisfying
any applicable deductible or out-of-pocket requirements under any welfare plans
that such Affected Employee is eligible to participate in after the Effective
Time. Each Affected Employee shall be eligible for participation in the equity-
related plans of Parent under the same criteria applied to similarly situated
employees of Parent and its affiliates. Following the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, honor and maintain (i) all
employment-related agreements in existence as of March 7, 2000, between the
Company or any of its subsidiaries and an Affected Employee (or an employee who
terminates employment prior to the Effective Time), (ii) all vacation and other
leave earned or accrued by, but not taken by or paid to, Affected Employees
through the Effective Time (as calculated or determined under policies or plans
in effect immediately prior to the Effective Time), (iii) all provisions in the
employee benefit plans for vested benefits and other vested amounts earned or
accrued through the Effective Time and (iv) all collective bargaining
agreements entered into by the Company or any of its subsidiaries including all
employee benefit-related terms and obligations. Parent shall, or shall cause
the Surviving Corporation to, ensure that the Affected Employees who were
employed at the headquarters of the Company and who were notified of their
target bonuses for the current fiscal year of the Company, receive annual
bonuses for the current fiscal year of the Company, in the aggregate, equal to
no less than the aggregate target bonuses such employees were notified of. Such
bonuses shall be payable in accordance with the Company's historical practice
and shall be allocated to such employees in the discretion of James Miller, or
his designee; provided, however, that no such designation shall be permitted if
Mr. Miller dies, terminates his employment due to disability, voluntarily
terminates his employment without good reason, or the Company terminates his
employment with cause, in which case the allocation shall be based upon such
employees' target bonuses. In addition, with respect to the next fiscal year of
the Company, Parent shall ensure that such employees are provided bonus
opportunities that are comparable to those in effect at such time for similarly
situated employees of Ahold U.S.A., Inc.
Equity Compensation Matters; Options. Pursuant to the Merger Agreement, at
the Effective Time, (i) all account balances under the Company Stock Unit Plans
(as hereinafter defined) shall become immediately vested and (ii) each
restricted stock unit (collectively, the "Company Stock Units") under the
Company Stock Unit Plans and participant account balances (collectively, the
"Company Account Balances") under the Company Deferred Compensation Plan (as
hereinafter defined) that represents the right to receive shares of Common
Stock shall be converted into the right to receive an amount, in cash, equal to
the Merger Consideration, multiplied by the number of shares of Common Stock
subject to such Company Stock Unit or Company Account Balance. Within fifteen
(15) days following the date on which the Effective Time occurred, the
outstanding balance in the account of each participant in (w) the Company
Restricted Unit Plan (as amended, the "Company Restricted Unit Plan"), (x) the
Company Supplemental Executive Retirement Plan, dated as of July 1, 1998 (as
amended, the "Company SERP"), (y) the Company Supplemental Executive Retirement
Plan for Regional Vice Presidents, dated as of January 1, 1999 (as amended, the
"Company RVP SERP" and, together with the Company Restricted Unit Plan and the
Company SERP, the "Company Stock Unit Plans") and (z) the Company Non-Employee
Director Voluntary Deferred Compensation Plan, dated as of January 1, 1999, as
amended from time to time (the "Company Deferred Compensation Plan") shall be
distributed to such participant in a single lump sum in cash. The Company SERP
and the Company RVP SERP
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<PAGE>
shall be amended (with participant consent, as necessary) prior to the
Effective Time to permit the treatment of account balances thereunder as set
forth above. As of the Effective Time, each outstanding Company Stock Option,
both vested and unvested, shall be canceled and the holder thereof shall
receive, as soon as practicable following the Effective Time (but not later
than ten (10) days after the date on which the Effective Time occurred), an
amount, in cash, equal to (i) the number of shares of Common Stock subject to
the Company Stock Option multiplied by (ii) the amount, if any, by which the
Merger Consideration exceeds the per share exercise price specified in such
Company Stock Option (the "Cash Payment"). As of March 7, 2000, all payroll
deductions under the Company Employee Stock Purchase Plan (as amended, the
"Company Stock Purchase Plan") shall cease. Otherwise, the Company Stock
Purchase Plan shall continue to be administered in accordance with its terms;
provided, however, that each right outstanding under such plan as of the next
"Investment Date" (as such term is defined in the Company Stock Purchase Plan)
after March 7, 2000 shall be treated as follows: as of the Effective Time, each
such right shall be canceled and the holder thereof shall receive, as soon as
practicable following the Effective Time (but not later than ten (10) days
after the date on which the Effective Time occurred), an amount, in cash, equal
to (i) the number of shares of Common Stock subject to it, multiplied by (ii)
the Merger Consideration.
Prior to the Effective Time, the Board of Directors of the Company (or, if
appropriate, any committee thereof) shall take all reasonable actions to (i)
(A) provide for the cancellation, effective at the Effective Time, subject to
the Cash Payment being made, of all Company Stock Options or (B) provide that
upon exercise of any Company Stock Options the holder thereof shall only be
entitled to receive the Cash Payment, (ii) provide for the cancellation,
effective at the Effective Time, subject to the payments provided for in the
immediately preceding paragraph being made, of all Company Stock Purchase Plan
rights, Company Stock Units and Company Account Balances, (iii) terminate, as
of the Effective Time, all Company Stock Option Plans, the Company Stock Unit
Plans, the Company Stock Purchase Plan and any other plan, program or
arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any affiliate thereof and (iv)
amend, as of the Effective Time, the provisions of the Company Deferred
Compensation Plan and any other employee benefit plan providing for the
issuance, transfer or grant of any capital stock of the Company or any such
affiliate, or any interest in respect of any capital stock of the Company or
any such affiliate, to provide no continuing rights to acquire, hold, transfer
or grant any capital stock of the Company or any such affiliate or any interest
in the capital stock of the Company or any such affiliate. Except as otherwise
contemplated in the Merger Agreement, any outstanding stock appreciation rights
or limited stock appreciation rights issued by the Company or any affiliate of
the Company shall be canceled immediately prior to the Effective Time without
any payment therefor. The Company shall take all steps to ensure that, except
as contemplated in the Merger Agreement, neither it nor any of its affiliates
is or will be bound by any Company Stock Options, other options, warrants,
rights or agreements which would entitle any person, other than Parent or its
affiliates, to own any capital stock of the Company or any of its subsidiaries
or to receive any payment in respect thereof.
Agreement to Use Commercially Reasonable Efforts. Pursuant to the Merger
Agreement and subject to the terms and conditions provided therein, each of the
Company, Parent and Purchaser shall, and the Company shall cause each of its
subsidiaries to, cooperate and use their commercially reasonable efforts to
take, or cause to be taken, all appropriate action, and do, or cause to be
done, and assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Offer, the Merger and the other
transactions contemplated by the Merger Agreement, including the satisfaction
of the respective conditions set forth above under the heading --"The Merger"
above, and to make, or cause to be made, all filings necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Merger Agreement including,
without limitation, their commercially reasonable efforts to obtain, prior to
the Closing Date, all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities and parties to contracts
with the Company and its subsidiaries as are reasonably necessary for
consummation of the transactions contemplated by the Merger Agreement and to
fulfill the conditions to the Offer and the Merger.
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In addition, the Merger Agreement provides that each party thereto shall (i)
take promptly all actions necessary to make the filings required of it or any
of its affiliates under any applicable antitrust laws in connection with the
Merger Agreement and the transactions contemplated thereby, (ii) comply at the
earliest practicable date with any formal or informal request for additional
information or documentary material received by it or any of its affiliates
from any antitrust authority and (iii) cooperate with one another in connection
with any filing under applicable antitrust laws and in connection with
resolving any investigation or other inquiry concerning the transactions
contemplated by the Merger Agreement initiated by any antitrust authority. Each
party to the Merger Agreement shall use its commercially reasonable efforts to
resolve such objections, if any, as may be asserted with respect to the
transactions contemplated by the Merger Agreement under any antitrust law. Each
party to the Merger Agreement shall promptly inform the other parties of any
material communication made to, or received by such party from, any antitrust
authority or any other Governmental Entity regarding any of the transactions
contemplated thereby.
Representations and Warranties. In the Merger Agreement, (i) the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, its organization, corporate authority,
capitalization, financial statements, public filings, litigation, compliance
with laws, consents and approvals, employee benefit plans, brokers' or finders'
fees, state takeover statutes, voting requirements, undisclosed liabilities,
taxes, intellectual property and the absence of any material adverse changes in
the Company since July 3, 1999 and (ii) Parent and Purchaser have made
customary representations and warranties to the Company with respect to, among
other things, their respective organization, corporate authority, consents and
approvals, broker's or finder's fees, funds and, in the case of Parent,
voting/approval requirements.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the Company's
stockholders (a) by mutual consent of the Company, on the one hand, and of
Parent and Purchaser, on the other hand; (b) by either Parent, on the one hand,
or the Company, on the other hand, if: (i) any court of competent jurisdiction
or any Governmental Entity shall have issued an order, decree or ruling or
taken any other action permanently restricting, enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for, shares of
Common Stock pursuant to the Offer or shares of Common Stock pursuant to the
Merger and such order, decree or ruling or other action shall have become final
and nonappealable; or (ii) the consummation of the Offer shall not have
occurred on or prior to the Termination Date, unless the consummation of the
Offer shall not have occurred because of a material breach of any
representation, warranty, obligation, covenant, agreement or condition set
forth in the Merger Agreement on the part of the party seeking to terminate the
Merger Agreement; (c) by the Company at any time prior to the consummation of
the Offer, if: (i) a Superior Proposal is received and the Board of Directors
of the Company (after receiving advice of outside nationally recognized legal
counsel to the Company) reasonably determines in good faith that it is
necessary to terminate the Merger Agreement and enter into an agreement to
effect the Superior Proposal in order to comply with its fiduciary duties under
applicable law; provided, however, that the Company may not terminate the
Merger Agreement pursuant to this clause (c)(i) unless and until (i) three (3)
business days have elapsed following delivery to Parent of a written notice of
such determination by the Board of Directors of the Company and during such
three (3) business day period (x) the Company has fully informed Parent of the
material terms and conditions of such Superior Proposal, including the identity
of the person making such Superior Proposal and (y) the Company has negotiated
in good faith with Parent with the intent of enabling both parties to agree to
a modification of the terms and conditions of the Merger Agreement so that the
transactions contemplated by the Merger Agreement may be effected, (ii) at the
end of such three (3) business day period the Acquisition Proposal continues to
constitute a Superior Proposal and the Board of Directors of the Company (after
receiving the advice of outside nationally recognized legal counsel to the
Company) continues to reasonably determine in good faith that it is necessary
to terminate the Merger Agreement and enter into an agreement to effect the
Superior Proposal in order to comply with its fiduciary duties under applicable
law and (iii) (x) prior to such termination, Parent has received all fees and
expense reimbursements set forth in the Merger Agreement by wire transfer in
same day funds and (y) simultaneously or substantially simultaneously with such
termination the Company enters into a definitive acquisition, merger or similar
agreement to effect the Superior Proposal; (ii) (x) there shall be a breach of
any
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<PAGE>
representation or warranty of Parent or Purchaser in the Merger Agreement that
is qualified as to Material Adverse Effect (as such term is defined in Section
14--"Conditions of the Offer" of the Offer to Purchase), (y) there shall be a
breach of any representation or warranty of Parent or Purchaser in the Merger
Agreement that is not so qualified, other than any such breaches which, in the
aggregate, have not had, or would not reasonably likely have, a Material
Adverse Effect on Parent, or (z) there shall be a material breach by Parent or
Purchaser of any of their respective covenants or agreements contained in the
Merger Agreement, which breach, in the case of clause (x), (y) or (z), either
is not reasonably capable of being cured or, if it is reasonably capable of
being cured, has not been cured within the earlier of (A) ten (10) days after
giving of notice to Parent of such breach and (B) the expiration of the Offer,
provided, that the Company may not terminate the Merger Agreement pursuant to
this clause (c)(ii) if the Company is in material breach of the Merger
Agreement, (iii) (x) Parent or Purchaser shall have (A) failed to commence the
Offer on the fifth business day following the execution of the Merger Agreement
by each of Parent, Purchaser and the Company or (B) terminated the Offer or (y)
the Offer has expired without Purchaser purchasing any shares of Common Stock
pursuant thereto, unless such failure, termination or expiration shall have
been caused by the failure of the Company to satisfy the conditions set forth
in clause (iii)(d) or (e) of Section 14--"Conditions of the Offer" of the Offer
to Purchase; (d) by Parent at any time prior to the consummation of the Offer,
if: (i) the Offer is terminated or expires in accordance with its terms without
Purchaser having purchased any shares of Common Stock thereunder due to an
occurrence which would result in a failure to satisfy any one or more of the
conditions set forth in Section 14--"Conditions of the Offer" of the Offer to
Purchase, unless any such failure shall have been caused by or resulted from
the failure of Parent or Purchaser to perform in any material respect any
covenant or agreement of either of them contained in the Merger Agreement or
the material breach by Parent or Purchaser of any representation or warranty of
either of them contained in the Merger Agreement; (ii) (x) there shall be a
breach of any representation or warranty of the Company in the Merger Agreement
that is qualified as to Material Adverse Effect, (y) there shall be a breach of
any representation or warranty of the Company in the Merger Agreement that is
not so qualified other than any such breaches which, in the aggregate, have not
had or would not reasonably likely have a Material Adverse Effect on the
Company, or (z) there shall be a material breach by the Company of any of its
covenants or agreement contained in the Merger Agreement, which breach, in the
case of clause (x), (y) or (z), either is not reasonably capable of being cured
or, if it is reasonably capable of being cured, has not been cured within the
earlier of (A) ten (10) days after giving of written notice to the Company of
such breach and (B) the expiration of the Offer; provided, that Parent may not
terminate the Merger Agreement pursuant to this clause (d)(ii) if Parent or
Purchaser is in material breach of the Merger Agreement; (iii) (x) the Company
shall have (A) entered into any agreement with respect to any Acquisition
Proposal, (B) withdrawn, modified or amended, or proposed to withdraw, modify
or amend, in a manner adverse to Parent or Purchaser, the approval or
recommendation, as the case may be, of the Offer, the Merger or the Merger
Agreement, (C) approved or recommended, or proposed to approve or recommend,
any Acquisition Proposal or (D) affirmatively announced to the stockholders of
the Company a neutral position with respect to any Acquisition Proposal and
does not reject or recommend such Acquisition Proposal prior to the date that
is the later of (1) the date that is ten (10) business days after the date of
the initial announcement of such neutral position and (2) two business days
prior to the first scheduled expiration date of the Offer after the date of the
initial announcement of such neutral position, or (y) the Company or the Board
of Directors of the Company or any committee thereof shall have resolved to do
any of the foregoing; it being understood and agreed that neither the delivery
of notice pursuant to clause (c)(i) of this paragraph and any subsequent public
announcement of such notice nor any communications by the Board of Directors of
the Company to the stockholders of the Company pursuant to Rule 14d-9(e)(3)
under the Exchange Act shall entitle Parent to terminate the Merger Agreement
pursuant to this clause (d)(iii), unless the Company enters into a definitive
agreement with respect to an Acquisition Proposal; or (iv) if there shall have
been a material breach by the Company of any provision set forth under the
heading --"No Solicitation" above.
The Merger Agreement provides that, in the event of termination of the
Merger Agreement by either Parent or the Company pursuant to the provisions
described above, the Merger Agreement will become void and there shall be no
liability thereunder on the part of the Company, Parent or Purchaser, except
that (i) certain provisions including, without limitation, broker's and
finder's fees, fees and expenses, confidentiality,
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<PAGE>
applicable law, specific enforcement and waiver of jury trial shall survive
termination and (ii) no party shall be relieved of liability for willful breach
of the Merger Agreement.
Payment of Certain Fees and Expenses upon Termination. Except as provided in
the immediately succeeding sentence, all costs and expenses incurred in
connection with the Merger Agreement and the consummation of the transactions
contemplated thereby shall be paid by the party incurring such costs and
expenses. If the Merger Agreement is terminated by (i) Parent in accordance
with (w) paragraph (d)(iii)(x)(D) under the heading --"Termination" hereof (or
paragraph (d)(iii)(y) under the heading --"Termination" hereof, to the extent
related to paragraph (d)(iii)(x)(D) under the heading --"Termination" hereof)
and, within six (6) months of such termination, the Company enters into an
agreement with respect to, or consummates, any Acquisition Proposal, (x)
paragraph (d)(i) under the heading --"Termination" hereof, solely due to the
Minimum Condition not being met at the time of such termination and, within six
(6) months of such termination, the Company enters into an agreement with
respect to, or consummates, any Acquisition Proposal, (y) (A) paragraph (d)(ii)
under the heading --"Termination" hereof, (B) prior to the date of such
termination, there shall have been publicly announced an Acquisition Proposal
and such Acquisition Proposal shall not have been withdrawn in good faith prior
to the date of the breach pursuant to which the Merger Agreement was terminated
and (C) within twelve (12) months of such termination, the Company enters into
an agreement with respect to, or consummates, any Acquisition Proposal or (z)
paragraphs (d)(iii)(x)(A), (d)(iii)(x)(B) or (d)(iii)(x)(C) under the heading
- --"Termination" hereof (or paragraph (a)(iii)(y) under the heading --
"Termination" hereof, to the extent related to paragraphs (d)(iii)(x)(A),
(d)(iii)(x)(B) or (d)(iii)(x)(C) under the heading --"Termination" hereof) or
paragraph (d)(iv) under the heading --"Termination" hereof, or (ii) the Company
in accordance with paragraph (c)(i) under the heading --"Termination" hereof,
then the Company shall (A) in the case of clause (i)(z), on the day next
succeeding the date of such termination, (B) in the case of clause (ii),
immediately prior to the Company entering into an agreement with respect to an
Acquisition Proposal, or (C) in the case of clauses (i)(w), (i)(x) or (i)(y),
on the date of consummation of such Acquisition Proposal, (I) reimburse Parent
in immediately available funds for all expenses of Parent and Purchaser
(including, without limitation, printing fees, filing fees and fees and
expenses of its legal and financial advisors and all fees and expenses payable
to any financing sources) related to the Offer, the Merger Agreement, the
transactions contemplated thereby and any related financing in an amount not to
exceed $12,000,000 in the aggregate (it being understood that the amount of
such expenses requested by Parent shall be such amount as Parent determines in
its sole discretion and shall not be required to be documented) and (II) pay to
Parent in immediately available funds an amount equal to $86,000,000; provided,
however, that, in the case of clause (i)(y) above, unless such termination is
due to the willful breach by the Company of any representation, warranty,
covenant or agreement of the Company contained in the Merger Agreement, the
Company shall pay to Parent in immediately available funds an amount equal to
$15,000,000 plus the amount referred to in clause (I) above.
Other Executive and Employee Matters
As summarized above, pursuant to the Merger Agreement, (a) certain actions
will be taken with respect to outstanding stock options, restricted stock units
and supplemental executive retirement plan account balances held by employees
of the Company and with respect to outstanding stock options and deferred
compensation plan account balances held by non-employee directors of the
Company, and, (b) as of the Effective Time, the Company Stock Option Plans, the
Company Stock Unit Plans, the Company Stock Purchase Plans and any other plan,
program or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any of its
affiliates shall be terminated.
In addition, certain rights will be triggered under the Company's employment
agreements (collectively, the "Employment Agreements") with Messrs. James L.
Miller, Mark P. Kaiser, David M. Abramson and George T. Megas (collectively,
the "Executives") on the date that Purchaser becomes the owner of 50% or more
of the outstanding shares of Common Stock. Under each Employment Agreement, the
Company agrees to continue to employ the applicable Executive, pursuant to the
terms of the applicable Employment Agreement, for the three-year period
commencing on such date. If, during such period, the Company terminates the
Executive's employment other than for "Cause" (defined in each Employment
Agreement to include termination by the
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Company for specified reasons, including the Executive's willful engagement in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Company, or the Executive's willful and continued failure to
perform substantially his duties following notice), death or "Disability" (as
defined in each Employment Agreement), or the Executive terminates his
employment for "Good Reason" (defined in each Employment Agreement to include
termination by the Executive for specified reasons including a material
reduction in the Executive's duties, position or authority, certain relocations
of the Executive's office and the failure of the Company to comply with the
Employment Agreement's requirements relating to the Executive's compensation
and benefits, including, but not limited to, continuing to provide the same
level of retirement benefits) (or for any reason during the seventh month of
such period), then the Company must pay the Executive the following amounts:
accrued but unpaid salary, deferred compensation, vacation pay and similar
amounts; a pro-rata portion of the Executive's "Highest Bonus" (as defined in
each Employment Agreement), based upon the number of days worked by the
Executive during the year his employment terminates; and an amount equal to the
product of three and the sum of the Executive's annual base salary and Highest
Bonus. For three years after the date of termination, the Company must also
continue to provide the Executive (and his eligible dependents) with the same
welfare and fringe benefits. The Company is also required to provide the
Executives with gross-up payments to cover the impact of any excess parachute
payment excise taxes imposed upon the Executives (unless such payments do not
exceed 110% of the amount which could be paid without triggering any excise
tax, in which case the payments will be reduced to such amount). In addition,
upon their termination for any reason after the commencement of such period,
Messrs. Miller, Kaiser and Abramson will also be entitled to certain post-
retirement insurance benefits.
Item 4. The Solicitation or Recommendation.
(a) Solicitation or Recommendation
The Board of Directors, at a meeting duly called and held on March 6, 2000,
unanimously (i) determined that the terms of each of the Offer and the Merger
are fair to, and in the best interests of, the stockholders of the Company and
declared that the Offer and the Merger are advisable, (ii) approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and
the Merger and (iii) recommended that the stockholders of the Company accept
the Offer and adopt the Merger Agreement.
The Board of Directors recommends the acceptance of the Offer and the
adoption of the Merger Agreement by the stockholders of the Company. See
"Reasons for the Recommendation" for a discussion of the factors considered by
the Board in making its recommendation.
As set forth in the Offer, upon the terms and subject to the conditions of
the Offer (including satisfaction of the Minimum Condition as defined in the
Merger Agreement), Purchaser will accept for payment and pay for all Shares
validly tendered on or prior to the initial expiration date and not properly
withdrawn. Stockholders considering not tendering their Shares in order to wait
for the Merger should note that Purchaser is not obligated to purchase any
Shares, and can terminate the Offer and the Merger Agreement and not proceed
with the Merger, if, among other things, the Minimum Condition is not
satisfied.
A copy of the Company's letter to stockholders and the press release issued
by the Company announcing signing of the Merger Agreement are included as
Exhibits 4 and 5, respectively, and are incorporated herein by reference.
(b) Background of the Offer; Reasons for the Recommendation
(1) Background of the Offer
Over the past few years, there has been significant consolidation in the
broadline food distribution industry. To achieve economies of scale, national
distributors have actively acquired local and regional players. This trend is
expected to continue among food distributors.
Accordingly, a key component of the Company's strategic plan has been the
pursuit of growth through acquisitions of other food distribution companies.
The Company has used its stock as consideration for many of
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these acquisitions, as its flexibility to finance larger acquisitions with debt
is somewhat limited, especially as compared to its largest competitor. As a
result of a relatively recent contraction in the Company's price/earnings
multiple and attendant decline in its stock price, however, the Company's
ability to use its stock as acquisition currency has been somewhat compromised.
This has potentially negative implications for the Company's ability to execute
its strategic plan. These developments are a significant part of management's
willingness to consider a sale of the Company at this time as described in this
section.
On September 23, 1999, Mr. James L. Miller, President and Chief Executive
Officer of the Company, received an inquiry from a third party regarding a
potential business combination transaction involving all stock. The Company and
the third party held sporadic discussions over the remaining months of 1999,
and executed a confidentiality and standstill agreement in November 1999. The
final indications of interest with respect to price, while never firm, were at
levels that compared unfavorably with the price to be paid pursuant to the
Offer. Moreover, the third party indicated that it would be unwilling to
proceed with discussions on other than an exclusive basis. Although the third
party indicated that it would submit a firm proposal in early January 2000,
such a proposal never materialized. Communications regarding a potential
transaction with the third party ceased in January 2000.
On September 27, 1999, during a social outing, Mr. Miller and Mr. Robert G.
Tobin, a member of the Corporate Executive Board of Parent and the President
and Chief Executive Officer of Ahold U.S.A., Inc., discussed potential business
opportunities involving the Company and Parent.
On October 11, 1999, Mr. Miller and Mr. Tobin met and further discussed
potential business opportunities involving the Company and Parent.
On December 2, 1999, Mr. Miller and Mr. Mark P. Kaiser, Executive Vice
President-Sales, Marketing and Procurement of the Company, Mr. Tobin, Mr. Ernie
Smith, Executive Vice President Finance and Chief Financial Officer of Ahold
U.S.A., Inc., Mr. Maarten Dorhout Mees, Senior Vice President Business
Development of Parent, and Mr. Gerard van Breen, Senior Vice President Global
Sourcing of Parent, met at the Chantilly, Virginia office of Ahold U.S.A., Inc.
to discuss generally a potential transaction. On December 3, 1999, the meeting
continued at the head office of the Company in Columbia, Maryland among Messrs.
Miller, Kaiser, Tobin, Dorhout Mees, and Van Breen. In addition, Messrs.
Dorhout Mees and Van Breen met with Mr. Miller and Mr. George T. Megas, Senior
Vice President and Chief Financial Officer of the Company. At this time, Mr.
Miller indicated that the Company, if it were to pursue a business combination
transaction, would seek a proposal of at least $30 per share of Common Stock.
On December 10, 1999, David M. Abramson, Esq., Executive Vice President and
General Counsel of the Company, forwarded a draft confidentiality and
standstill agreement to Mr. Michael Meurs, Executive Vice President and Chief
Financial Officer of Parent.
On December 14, 1999, a telephonic meeting of the Board of Directors was
held to provide an introduction to a possible business combination transaction.
Management of the Company discussed the recent indications of interest received
from the third party and Parent. The Board authorized management to engage
Goldman, Sachs & Co. ("Goldman Sachs") as financial advisor and Simpson Thacher
& Bartlett ("Simpson Thacher") as legal advisor.
On December 15, 1999, the Company entered into a confidentiality and
standstill agreement with Parent. Also on December 15, Mr. Meurs forwarded to
Goldman Sachs a request to provide certain non-public information regarding the
Company to facilitate Parent's analysis of the Company. During the week of
December 20, Parent commenced a preliminary due diligence review of the
Company.
On December 22, 1999, the Company held a special meeting of the Board of
Directors. At the meeting, Mr. Miller provided a further update regarding the
status of discussions with Parent and the other third party. At the meeting,
representatives of Simpson Thacher provided a review of the Board's legal
duties with respect to a potential business combination transaction, including
a possible sale of the Company. There was also a presentation by
representatives of Goldman Sachs that included, among other matters, an
overview of the
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foodservice industry, a review of the historical performance of the Shares,
valuation ranges for the Company based on various methodologies, historical
financial data for the Company, Company management's projected financial data,
potential strategic partners and the strategic issues regarding a potential
business combination transaction. Management of the Company and Goldman Sachs
responded to various questions from the directors regarding the presentation
and other matters. The Board discussed, among other things, whether this was an
opportune time to consider pursuing a sale of the Company. It also discussed,
with input from legal counsel, anticipated regulatory, timing and other
difficulties with respect to the pursuit of a transaction with certain
potential strategic partners. In addition, the Board considered the benefits
and risks of soliciting indications of interest from additional parties. As no
specific proposal was before the Board, no formal action was taken, but it was
the consensus of the Board that management should continue the process underway
and keep the Board informed of further developments.
On December 27, 1999, Messrs. Miller and Tobin met in Florida and discussed
issues relating to a potential strategic transaction between the Company and
Parent.
On January 14, 2000, representatives of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), financial advisor to Parent,
communicated, on behalf of Parent, to representatives of Goldman Sachs a
preliminary indication of interest with respect to a potential business
combination transaction at a price range of $28-30 per share, without
committing to the form of consideration. The Company's stock price closed at
$17-7/8 per share on such date.
On January 20, 2000, the Corporate Executive Board of Parent met with
Messrs. Miller and Kaiser in London, during which time Mr. Miller gave a
presentation regarding the Company. The presentation included an overview of
the industry, the Company and the Company's growth strategy as well as a
discussion regarding synergies and the Company's stockholder base.
On January 21, 2000, representatives of Goldman Sachs met with
representatives of Merrill Lynch to discuss valuation issues and possible
synergies from a potential business combination transaction between the Company
and Parent. On January 25, 2000, Messrs. Smith, Miller, Megas and Kaiser met
(with Mr. Jan-Wytze van Boven, Vice President Mergers and Acquisitions of
Parent, attending by telephone) to discuss in detail the merits of a business
combination. Potential administrative, procurement, distribution, equipment and
supplies savings and complementation issues were discussed. The parties agreed
to continue discussions and to coordinate further due diligence of the Company
by Parent during the first week of February.
On the evening of January 31, 2000, the Company announced its results of
operations for its second fiscal quarter. These results were viewed as
disappointing by the market and, shortly after the announcement, the Company's
stock price traded between $11-13 per share as compared to a range of $18-19
per share immediately prior to the announcement. For a period of a few days
following the announcement, there were no communications between the Company
and Parent.
On February 4, 2000, Mr. Cees van der Hoeven, President and Chief Executive
Officer of Parent, and Messrs. Tobin and Meurs discussed with Mr. Miller the
stock market reaction to the Company's second quarter results. Messrs. Van der
Hoeven, Tobin and Meurs informed Mr. Miller that the decrease in the Company's
share price would likely lead to a decrease in the price per share of Common
Stock that Parent would be prepared to pay.
On February 7, 2000, Messrs. Tobin and Meurs telephoned Mr. Miller to
present a preliminary proposal whereby Parent would acquire the Company at a
price of $26 per share (the Company's stock price closed at $12 3/8 on this
date). This preliminary proposal was subject to, among other things, further
due diligence, negotiation of a merger agreement with adequate deal protections
and approval of each of the Parent's Supervisory Board and the Company's Board
of Directors. No decision was made regarding whether such purchase price would
be payable in cash or common shares of Parent. During the call, the parties
discussed Parent's request for a breakup fee and lock-up stock option.
Also on February 7, 2000, a telephonic meeting of the Board of Directors of
the Company was convened to discuss the impact of the release of second quarter
results on the Company's stock price. The Board voiced a
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concern as to the impact of the decline in such stock price on the component of
the Company's strategic plan relating to acquisition-based growth. During this
meeting, management also provided an update regarding the Company's discussions
with Parent. The Board expressed its reservations regarding a transaction with
stock consideration (all other things being equal) because, among other
reasons, it had less certainty in value and would require a longer period to
close than an all-cash transaction. The Board instructed management to
communicate to Parent the Board's preference that, at these price levels, the
form of consideration consist solely of cash.
Between February 7 and February 12, 2000, the Company and Parent held
further discussions, and the Company communicated its preference for an all-
cash transaction. In these discussions, Parent requested the Company to deliver
a "lock-up" stock option in connection with the transaction. Conference calls
were held on February 8 and 10, 2000 between the respective legal and financial
advisors of the Company and the Parent, during which calls the parties
discussed Parent's request for a break-up fee and the Company's advisors
strongly resisted the lock-up stock option proposal.
On February 8, 2000, Messrs. Meurs and Miller agreed by telephone conference
that Parent would continue its due diligence investigation. Mr. Meurs indicated
that Parent expected the due diligence to be principally confirmatory in
nature.
On February 9, 2000, Mr. Meurs sent a fax letter to Mr. Miller to inform him
that Parent would be willing to consider that the form of consideration in a
$26 per share transaction consist solely of cash.
On February 10, 2000, Ton van Tielraden, Esq., Senior Vice President and
General Counsel of Parent and Mr. Abramson met in Washington, D.C., where they
discussed various issues regarding the Merger Agreement.
On February 14, 2000, White & Case LLP, Parent's legal advisor, delivered to
the Company and its legal advisors a Merger Agreement that included a proposal
for an all-cash tender offer without a financing condition. The Merger
Agreement reflected Parent's desire for strong deal protections, including a
stock lock-up option, a relatively restrictive no-shop provision and a break-up
fee. The Company's legal advisors responded by rejecting the lock-up stock
option and certain aspects of the no-shop provision in the Merger Agreement.
The Company's legal advisors also indicated that the circumstances under which
the break-up fee was payable needed to be narrowed. In addition, the Company's
legal advisors insisted that Parent had to respond to the Company's concerns
relating to limiting conditions to the completion of the transaction.
On February 15, 2000, Mr. Miller, Mr. Kaiser, Mr. William Grize, President
and Chief Executive Officer of Stop & Shop (a subsidiary of Parent), and Mr.
Bert Verhelst, Senior Vice President Administration of Parent, joined a meeting
of the Executive Board of Parent. During dinner following the meeting, the
attendees generally discussed potential synergy opportunities arising from the
proposed transaction.
On February 16, a telephonic meeting of the Board was held. During the
meeting, management provided another update regarding Parent's proposal and the
status of negotiations. The Board reconfirmed that, at the price levels being
discussed, its preference was for an all-cash transaction.
Between February 16 and March 3, 2000, management and outside legal counsel
of the Company and Parent, in consultation with their respective financial
advisors, conducted extensive negotiations regarding the terms of the Merger
Agreement. As a result of these discussions, the Merger Agreement was revised
to provide for greater certainty of closing and to address certain objections
that the Company had with respect to the no-shop provision. Towards the very
end of this period, the parties ultimately agreed, after lengthy negotiations,
upon a break-up fee of $86 million, which was less than Parent originally
sought. If the fee were payable, up to $12 million of expenses of Parent would
be required to be reimbursed by the Company. At this time, the parties also
agreed to remove the lock-up stock option from the Merger Agreement.
On February 24, 2000, while merger negotiations were continuing, the Dow
Jones News Service reported rumors regarding the purchase of the Company by a
European buyer. The story reported that the sale price would be in the low $20s
per share. The Company did not, however, receive any inquiries from any third
parties (other than from Parent) with respect to any strategic combination
transaction with the Company following these rumors.
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On March 3, 2000, a meeting of the Board of Directors of the Company was
convened to discuss the proposed transaction. At the meeting, Mr. Miller
described, among other things, the background of the transaction and the status
of negotiations. Representatives of Simpson Thacher again outlined the Board's
legal duties in light of a possible sale of the Company. Simpson Thacher also
reviewed with the Board the principal terms and conditions of the then current
draft of the Merger Agreement and, with input from the General Counsel of the
Company, the legal and regulatory issues relating to the proposed transaction
and possible alternatives. Representatives of Goldman Sachs presented various
analyses relating to the proposed transaction and responded to questions from
the directors regarding certain of these analyses. Goldman Sachs also indicated
that, subject to their review of final transaction documents, they would be
prepared to render an opinion to the Board that, as of the date of the Merger
Agreement, the consideration to be received by the stockholders of the Company
in the Offer and the Merger was fair, from a financial point of view, to the
stockholders of the Company. Management presented the rationale for the
transaction and its views regarding the financial condition and prospects for
the Company. The Board directed various questions to management and the
Company's financial and legal advisors regarding these matters.
During the March 3rd meeting, the Board also discussed, with input from the
Company's financial and legal advisors, the likelihood of other potential
buyers emerging, the regulatory, internal and other issues that such potential
buyers would face in pursuing a transaction and the risks that the Company
would face if such a transaction were delayed or not consummated. Management
and the Company's legal and financial advisors responded to questions from the
directors regarding the termination fee and no-shop provisions of the Merger
Agreement. The Board also compared the values that likely could be obtained for
stockholders pursuant to the Company's strategic plan, along with the execution
risks relating to such plan in light of the depressed unaffected stock price of
the Company's stock. After additional discussion among the non-management
directors, the Board authorized management to finalize the terms of the
transaction. The Board adjourned without any action to consider the matter
further and agreed to meet on March 6 to decide on the matter.
Between March 3 and March 6, 2000, the legal advisors of the two parties
completed the negotiation of the remaining issues of the Merger Agreement.
On March 6, 2000, in the late afternoon, a telephonic meeting of the Board
of Directors was convened. Mr. Miller reported on the status of the transaction
and reviewed the rationale for the proposed transaction with Parent.
Representatives of Simpson Thacher updated the Board on the final terms and
conditions of the Merger Agreement. Representatives of Goldman Sachs delivered
their firm's opinion that the $26 in cash per Share to be received by the
holders of Shares in the Offer and the Merger was fair from a financial point
of view to such holders. The Board then unanimously approved and declared the
advisability of the terms and conditions of the Merger Agreement and all of the
transactions contemplated thereunder and recommended that the stockholders of
the Company tender their Shares in the Offer.
On the morning of March 7, the Supervisory Board of Parent met to consider
and approve the transaction. The parties executed the Merger Agreement as of
March 7, 2000 and publicly announced the transaction on that date.
(2) Reasons for the Recommendation
In making the determination and recommendation described above, the Board of
Directors of the Company considered a number of factors, including, without
limitation, the following:
. the price being paid for the Shares in the transaction represents a very
significant premium over (a) the closing sale price of $12.56 on the New
York Stock Exchange on February 22, 2000 (the date immediately prior to
the date on which the market initially reacted to rumors of a potential
transaction) and (b) the average closing sale price of $13.39 for the 20
days ended February 29, 2000;
. the price being paid represents a modest premium over the 52-week high
of $24.62 for the historical market prices for the Shares;
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. the opinion of Goldman Sachs to the effect that the consideration to be
received by the Company's stockholders in the Offer and the Merger is
fair to the stockholders from a financial point of view (the full text
of the written opinion of Goldman Sachs, which sets forth assumptions
made, matters considered and limitations on the review undertaken in
connection with such opinion, is attached hereto as Annex A; holders of
Shares are encouraged to read such opinion in its entirety);
. the Company's business, its current financial condition and results of
operations, and its future prospects, and the Board's belief, on the
basis of their familiarity with these matters, that the consideration to
be received by the Company's stockholders in the transaction fairly
reflects the Company's intrinsic value, including its potential for
future growth;
. the recent evaluation by the Board of the Company's strategic plan,
which is meaningfully dependent on external growth through acquisitions,
and the execution risks related to achieving the plan, compared to the
risks and benefits of the transaction;
. the Company's opportunity to grow through acquisitions at this time,
which is a key element of its strategic plan, is presently constrained
by its ability to use its stock as acquisition currency (due to a low
unaffected stock price) and its limited capacity to finance large
acquisitions through debt (especially as compared to its most
significant competitor);
. the strong likelihood of obtaining the necessary regulatory approvals
required to consummate the Merger, including antitrust approvals;
. the Offer allows holders of Shares to receive cash for their Shares as
early as April 7, 2000 (or promptly thereafter);
. the views expressed by management and Goldman Sachs that, based upon
their understanding of applicable market conditions and the views
expressed by legal counsel as to regulatory constraints, there are only
a limited number of potential buyers that would reasonably be viewed as
having an interest in a business combination transaction with the
Company (at the price being paid for the Shares) and that the level of
any such interest could reasonably be expected to be diminished by
regulatory issues or internal issues that such potential buyers confront
at this time;
. the views expressed by legal counsel regarding significant antitrust
issues arising out of potential business combination transactions with
certain competitors and the difficulty of negotiating, executing and
consummating a transaction with such parties;
. the fact that no party other than Parent had made or expressed any
interest in making a proposal to acquire the Company after the
possibility of an acquisition of the Company by a European buyer was
reported by the Dow Jones News Service on February 24, 2000;
. that the price being paid in the transaction, based on the financial
presentation made by Goldman Sachs, represents a multiple of the
estimated Latest Twelve Months EBITDA (earnings before interest, taxes,
depreciation and amortization) which compares favorably to the multiple
of EBITDA paid in other transactions in the food distribution industry;
. that while the Company is prohibited from soliciting, facilitating or
encouraging Acquisition Proposals, the Company may, in response to a
third party who submits an unsolicited Acquisition Proposal, (i)
participate in discussions with or furnish information to such third
party to determine whether such Acquisition Proposal is or could
reasonably likely lead to a Superior Proposal and (ii) if the Board of
Directors of the Company (after consultation with an investment banking
firm) reasonably determines in good faith that such Acquisition Proposal
is a Superior Proposal, participate in discussions or negotiations with
or furnish information to such third party, if the Board of Directors of
the Company (after receiving advice from outside legal counsel)
reasonably determines in good faith that it is necessary to take such
action to comply with its fiduciary duties;
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. the $86 million termination fee (plus up to $12 million in expenses),
which in the aggregate is less than $1.00 per Share, was insisted on by
Parent as a condition of the transaction;
. the Board's conclusion that the size of the termination fee was
reasonable in light of the benefits of the Offer and the Merger;
. the limited number of instances in which a termination fee is payable by
the Company;
. the terms of the Merger Agreement, including the fiduciary-out language
and the break-up provisions (and the absence of any lock-up stock option
agreement), would not prevent the Company from accepting a Superior
Proposal;
. the agreement of Parent not to commence the Offer until the fifth
business day after the announcement of the Merger Agreement and not to
consummate the Offer prior to 20 business days after such announcement,
which would permit any party interested in acquiring the Company at
least 25 business days to prepare and communicate an acquisition
proposal following announcement of the transaction;
. the possibility that Parent's ability to write-off goodwill to equity
under Dutch generally accepted accounting principles, which enhances
Parent's valuation of the Company, will no longer be available as of
January 1, 2001;
. the fact that various provisions of the Merger Agreement impose
obligations on Parent that improve the certainty of closing the
transaction;
. the absence of a financing condition on Parent's obligation to
consummate the Offer;
. the limited number and nature of other conditions to Parent's obligation
to consummate the Offer and the limited risk of non-satisfaction
thereof; and
. the other terms and conditions of the Offer and the Merger.
The Board of Directors did not assign relative weights to the above factors
or determine that any factor was of particular importance. Rather, the Board
viewed its position and recommendations as being based on the totality of the
information presented to and considered by it.
(c) Intent to Tender
To the best knowledge of the Company, (i) its executive officers, directors,
affiliates and subsidiaries currently owning Shares presently intend to tender
such Shares to the Purchaser pursuant to the Offer, except to the extent such
tender would violate applicable securities laws or require disgorgement of any
profits arising from such tender to the Company under Section 16 of the
Securities Exchange Act of 1934, as amended, and (ii) none of its executive
officers, directors, affiliates or subsidiaries presently intend to otherwise
sell any Shares which are owned beneficially or held of record by such persons.
The foregoing does not include any Shares over which, or with respect to which,
any such executive officer, director or affiliate or subsidiary acts in a
fiduciary or representative capacity or is subject to instructions from a third
party with respect to such tender.
Item 5. Persons/Assets, Retained, Employed, Compensated or Used.
Pursuant to the terms of the engagement letter dated January 18, 2000 (the
"Engagement Letter"), the Company retained Goldman Sachs to render financial
advisory services to the Company, and in accordance with such engagement,
Goldman Sachs has advised the Company with respect to the Offer and related
matters.
In connection with any Transaction (as defined below) involving the transfer
of 50% or more of the outstanding common stock or assets of Company, such as
the Offer and the Merger, Goldman Sachs will be
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entitled to receive a fee equal to the greater of (a) .04222% of the Aggregate
Consideration up to an amount based on a Company common stock price of $32 per
share, plus .80% of the Aggregate Consideration (including assumed debt) in
excess of such amount and (b) $14 million. Such fee is payable upon
consummation of the Transaction; provided, however, that, in connection with a
sale of the Company involving a tender offer or other purchase or sale of stock
the transaction fee will be payable and calculated as though 100% of the
outstanding common stock on a fully diluted basis had been acquired for the
same price per share paid in a Transaction in which 50% or more of the
Company's outstanding common stock is acquired.
Under the Engagement Letter:
"Transaction" is defined as a merger or other business combination
transaction involving, or the sale or other transfer of all or
substantially all of the stock or assets of the Company to, any third
party; and
"Aggregate Consideration" is defined as (i) in the case of the sale,
exchange or purchase of the Company's equity securities, the total
consideration paid for such securities (including amounts paid to holder of
options, warrants and convertible securities), plus the principal amount of
all indebtedness for borrowed money (subject to a maximum of $550 million
of such indebtedness)) assumed, defeased or retired in connection with a
Transaction (minus cash on hand and cash proceeds from the exercise of
outstanding options) and (ii) in the case of a sale or disposition by the
Company of assets, the total consideration paid for such assets, plus the
net value of any current assets not sold by the Company and the principal
amount of all indebtedness for borrowed money (subject to a maximum of $550
million of such indebtedness) assumed, defeased or retired in connection
with a Transaction.
The Company has also agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
outside counsel, and to indemnify Goldman Sachs and certain related persons
against certain liabilities in connection with their engagement, including
certain liabilities under the federal securities laws.
In the ordinary course of its business, Goldman Sachs has provided certain
investment banking services to the Company from time to time, including having
acted as the Company's financial advisor with respect to the acquisition of
Rykoff-Sexton, Inc. in December 1997, having acted as co-managing underwriter
of a secondary public offering of 7,808,898 Shares in March 1999 and having
acted as the Company's financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Merger Agreement.
Goldman Sachs has also provided certain investment banking services to Parent
from time to time, including having acted as Parent's financial advisor in
connection with Parent's acquisition of Stop & Shop Companies in 1996, having
acted as the lead managing underwriter in connection with Parent's public
offering of 30,000,000 common shares, par value NLG 0.50 per share (the "Parent
Shares"), of Parent in April 1998 and 45,000,000 Parent Shares in September
1998, and in connection with Parent's public offering of NLG 1,300,000,000
aggregate principal amount of 3% Convertible Subordinated Notes due 2003 in
September 1998 (the "Convertible Notes"). Goldman Sachs also expects to assist
Parent in connection with securing long-term financing to replace a short-term
credit facility that Parent expects to use to fund the cash purchase price
pursuant to the Offer and the Merger. As of March 7, 2000, Goldman Sachs had
accumulated a long position of 17,400 Shares, a long position of $15,682,000
aggregate principal amount of the Convertible Notes against which Goldman Sachs
is short $59,930,000 aggregate principal amount of the Convertible Notes and a
long position of warrants to purchase 2,000,000 Parent Shares against which
Goldman Sachs is short warrants to purchase 6,780,450 Parent Shares.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to others with respect to the Offer.
Item 6. Interest in Securities of the Subject Company.
Except as set forth below, and other than ordinary course purchases under
the Company's 401(k) Retirement Savings Plan (the "401(k) Plan") and Employee
Stock Purchase Plan, there have been no
22
<PAGE>
transactions in Shares which were effected during the past 60 days by the
Company, or to the best knowledge of the Company, by any executive officer,
director, affiliate or subsidiary of the Company.
On January 10, 2000, James Miller exercised a reload stock option. The
option was exercised for 9,600 shares at an exercise price of $10.50 per share.
In accordance with the reload feature of the option exercised, (i) 7,250 Shares
otherwise issuable upon exercise of the option were used to satisfy the
exercise price and tax withholding obligations arising from such exercise, so
that a net of 2,350 Shares were issued to Mr. Miller and (ii) Mr. Miller was
issued a new option for 7,250 Shares with a strike price of $18.44 per Share.
On January 10, 2000, Mark Kaiser exercised a reload stock option. The option
was exercised for 9,760 Shares at an exercise price of $10.63 per share. In
accordance with the reload feature of the option exercised, (i) 7,410 Shares
otherwise issuable upon exercise of the option were used to satisfy the
exercise price and tax withholding obligations arising from such exercise, so
that a net of 2,350 Shares were issued to Mr. Kaiser and (ii) Mr. Kaiser was
issued a new option for 7,410 Shares with a strike price of $18.44 per share.
On January 10, 2000, David Abramson exercised a reload stock option. The
option was exercised for 5,900 Shares at an exercise price of $5.50 per Share.
In accordance with the reload feature of the option exercised, (i) 3,546 Shares
otherwise issuable upon exercise of the option were used to satisfy the
exercise price and tax withholding obligations arising from such exercise, so
that a net of 2,354 Shares were issued to Mr. Abramson and (ii) Mr. Abramson
was issued a new option for 3,546 Shares with a strike price of $18.44 per
Share.
On March 6, 2000, the Company issued 452,297 Shares to the 410(k) Plan. The
Shares were valued at $17.6875 per Share, for a total contribution of
$8,000,003.19. On March 9, 2000, the Company transferred $310,200.53 to the
401(k) Plan. Also on March 9, 2000, the 401(k) Plan took an additional
$653,483.91 from its forfeiture account and used the total of $963,684.44 to
purchase 38,021 Shares on the open market at a weighted average price per Share
of $25.3461. These transactions were in satisfaction of the Company's
obligation to make its 1% fixed and 2% matching contribution to the 401(k) Plan
for the 1999 Plan year (based on the calendar year).
Item 7. Purposes of the Transaction and Plans or Proposals.
(a) Except as set forth in this Statement, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in (i) a tender offer or other acquisition of securities by
or of the Company; (ii) an extraordinary transaction, such as a merger,
reorganization or liquidation, involving the Company or any subsidiary of the
Company; (iii) a purchase, sale or transfer of a material amount of assets by
the Company or any subsidiary of the Company; or (iv) any material change in
the present dividend rate or policy, indebtedness or capitalization of the
Company.
(b) Except as set forth in this Statement, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to
in Item 7(a) above.
Item 8. Additional Information to be Furnished.
(a) Section 14(f) Information Statement
The Information Statement attached as Annex B hereto is being furnished in
connection with the possible designation by Purchaser pursuant to the Merger
Agreement of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's stockholders.
23
<PAGE>
(b) Section 203 of the Delaware General Corporation Law
As a Delaware corporation, the Company is subject to Section 203 ("Section
203") of the DGCL. Under Section 203, certain "business combinations" between a
Delaware corporation whose stock is publicly traded or held of record by more
than 2,000 stockholders and an "interested stockholder" are prohibited for a
three-year period following the time that such a stockholder became an
interested stockholder, unless (i) the corporation has provided in its
certificate of incorporation not to be governed by Section 203 (the Company's
certificate of incorporation contains no such provision), (ii) the transaction
in which the stockholder became an interested stockholder or the business
combination was approved by the Board of Directors of the corporation before
the other party to the business combination became an interested stockholder,
(iii) upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the commencement of the transaction
(excluding voting stock owned by directors who are also officers or held in
employee benefit plans in which the employees do not have a confidential right
to tender or vote stock held by the plan) or (iv) the business combination was
approved by the Board of Directors of the corporation and ratified by 66 2/3%
of the voting stock which the interested stockholder did not own. The term
"business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions which
increase an "interested stockholder's" percentage ownership of stock. The term
"interested stockholder" is defined generally as a stockholder who, together
with affiliates and associates, owns (or, if such stockholder is an affiliate
or associate of the corporation, within three years prior, did own) 15% or more
of a Delaware corporation's voting stock.
Prior to execution of the Merger Agreement, the Board of Directors of the
Company approved the Merger Agreement and the transactions contemplated
thereunder, including the Offer and the Merger, and, therefore, the
restrictions of Section 203 are inapplicable to the Offer, the Merger and the
related transactions.
(c) Section 253 of the Delaware General Corporation Law
Under Section 253 of the DGCL, if Purchaser acquires at least 90% of the
outstanding Shares, Purchaser will be able to effect the Merger after
consummation of the Offer without a meeting of the Company's stockholders.
However, if Purchaser does not acquire at least 90% of the outstanding Shares
upon consummation of the Offer, a meeting of the Company's stockholders will be
required under the DGCL to effect the Merger.
(d) Appraisal Rights
No appraisal rights are available to holders of Shares in connection with
the Offer. However, if the Merger is consummated, persons who are holders of
Shares, at the effective time of the Merger, will have certain rights under
Section 262 of the DGCL to demand appraisal of their Shares. Such rights, if
the statutory procedures are complied with, could lead to a judicial
determination of the fair value (excluding any element of value arising from
accomplishment or expectation of the Merger) required to be paid in cash to
such dissenting holders for their Shares in lieu of the merger consideration of
$26.00 per Share. The value so determined could be more or less than the Offer
Price.
(e) Antitrust
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules that have been promulgated thereunder by the
Federal Trade Commission ("FTC"), certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the FTC
and certain waiting period requirements have been satisfied. The acquisition of
Shares pursuant to the Offer is subject to such requirements. There may be
similar antitrust requirements in other jurisdictions.
24
<PAGE>
On March 10, 2000, each of Parent and the Company filed with the FTC and the
Antitrust Division a Premerger Notification and Report Form in connection with
the purchase of Shares pursuant to the Offer. Under the provisions of the HSR
Act applicable to the Offer, the purchase of Shares pursuant to the Offer may
not be consummated until the expiration of a 15-calendar day waiting period
following the filing by Parent and the Company, unless both the Antitrust
Division and the FTC terminate the waiting period prior thereto. If, within
such 15-calendar day waiting period, either the Antitrust Division or the FTC
requests additional information or documentary material from Parent and/or the
Company, the waiting period would be extended for an additional 10 calendar
days following substantial compliance by Parent and/or the Company with such
request. Thereafter, the waiting period may be extended only by court order.
Only one extension of such waiting period pursuant to a request for additional
information is authorized by the HSR Act and the rules promulgated thereunder,
except by court order. Any such extension of the waiting period will not give
rise to any withdrawal rights not otherwise provided for by applicable law.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares
by Purchaser pursuant to the Offer. At any time before or after the purchase by
Purchaser of Shares pursuant to the Offer, either of the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the purchase
of Shares pursuant to the Offer or seeking the divestiture of Shares purchased
by Purchaser or the divestiture of substantial assets of Parent, its
subsidiaries or the Company. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances.
Although the Company believes that Purchaser's acquisition of Shares
pursuant to the Offer would not violate the antitrust laws, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such challenge is made, what the outcome will be.
(f) Amendment to the Rights Agreement
The Company and ChaseMellon Shareholder Services, L.L.C., parties to the
Rights Agreement, amended the Rights Agreement as of March 6, 2000 in
accordance with the terms and conditions set forth in Amendment No. 1 to the
Rights Agreement ("Amendment No. 1"), a copy of which amendment is included as
Exhibit 7 hereto and is incorporated herein by reference. Pursuant to Amendment
No. 1, neither Parent, Purchaser, nor any of their Affiliates or Associates
shall be deemed to be an Acquiring Person solely by virtue (as such terms are
defined in the Rights Agreement) of (i) the approval, execution, delivery or
performance of the Merger Agreement, (ii) the making or consummation of the
Offer or the Merger in accordance with the provisions of the Merger Agreement
or any public announcement relating thereto, (iii) the acquisition of shares of
Common Stock in accordance with the provisions of the Merger Agreement pursuant
to the Offer or the Merger or (iv) the consummation of any other transaction to
be effected pursuant to the Merger Agreement in accordance with the provisions
thereof. A copy of the Rights Agreement is included as Exhibit 6 hereto and is
incorporated herein by reference.
25
<PAGE>
Item 9. Material to be filed as Exhibits.
The following exhibits are filed herewith:
<TABLE>
<C> <S>
Exhibit 1 Offer to Purchase.(1)(2)
Exhibit 2 Letter of Transmittal.(1)(2)
Exhibit 3 Agreement and Plan of Merger, dated as of March 7, 2000, among
Parent, Purchaser and the Company (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
with the Commission on March 13, 2000).
Exhibit 4 Letter to Stockholders dated March 13, 2000.(2)
Exhibit 5 Press Release, dated March 7, 2000 (incorporated by reference to
the Company's Current Report on Form 8-K filed with the
Commission on March 13, 2000).
Exhibit 6 Amended and Restated Rights Agreement, dated as of October 4,
1999, between the Company and ChaseMellon Shareholder Services,
L.L.C. (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-3 filed with the
Commission on December 22, 1999 (Commission File No. 333-
93453)).
Exhibit 7 Amendment, dated as of March 6, 1999, to the Amended and
Restated Rights Agreement, dated as of October 4, 1999
(incorporated by reference to Exhibit 9 to the Form 8-A/A
of the Company filed with the Commission on March 7, 2000
(Commission File
No. 001-12601)).
Exhibit 8 Opinion of Goldman, Sachs & Co., dated March 7, 2000.(3)
Exhibit 9 Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 thereunder.(4)
</TABLE>
- --------
(1) Filed as an exhibit to the Tender Offer Statement on Schedule TO, dated
March 13, 2000, of Parent and Purchaser and incorporated herein by
reference.
(2) Included in copy mailed to stockholders.
(3) Filed herewith as Annex A to this Schedule 14D-9.
(4) Filed herewith as Annex B to this Schedule 14D-9.
26
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
U.S. Foodservice
By: /s/ David M. Abramson
----------------------------------
Name: David M. Abramson
Title: Executive Vice President
and General Counsel
Dated: March 13, 2000
27
<PAGE>
ANNEX A
[LETTERHEAD OF GOLDMAN SACHS]
PERSONAL AND CONFIDENTIAL
- -------------------------
March 7, 2000
Board of Directors
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, MD 21046
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $0.01
per share (the "Shares"), of U.S. Foodservice (the "Company") of the $26.00 per
Share in cash proposed to be paid by Koninklijke Ahold N.V. ("Buyer") in the
Tender Offer and the Merger (as defined below) pursuant to the Agreement and
Plan of Merger, dated as of March 7, 2000, among Buyer, Snow Acquisition, Inc.
("Acquisition Sub"), an indirect wholly-owned subsidiary of Buyer, and the
Company (the "Agreement"). The Agreement provides for a tender offer for all of
the Shares (the "Tender Offer") pursuant to which Acquisition Sub will pay
$26.00 per Share in cash for each Share accepted. The Agreement further
provides that following completion of the Tender Offer, Acquisition Sub will be
merged into the Company (the "Merger") and each then outstanding Share (other
than Shares already owned directly or indirectly by Buyer, the Company or any
of their subsidiaries or any Shares held by dissenting stockholders) will be
converted into the right to receive $26.00 in cash.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
to the Company from time to time, including having acted as its financial
advisor with respect to the acquisition of Rykoff-Sexton, Inc. in December
1997, having acted as co-managing underwriter of a secondary public offering of
7,808,898 Shares in March 1999 and having acted as the Company's financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We have also provided certain
investment banking services to Buyer from time to time, including having acted
as Buyer's financial advisor in connection with Buyer's acquisition of the Stop
& Shop Companies in March 1996, having acted as the lead managing underwriter
in connection with Buyer's public offering of 30,000,000 Common Shares, par
value NLG 0.50 per share (the "Buyer Shares"), of Buyer in April 1998 and
45,000,000 Buyer Shares in September 1998, and in connection with Buyer's
public offering of NLG 1,300,000,000 aggregate principal amount of 3%
Convertible Subordinated Notes due 2003 in September 1998 (the "Convertible
Notes"). We also may provide investment banking services to Buyer
A-1
<PAGE>
and its subsidiaries in the future. In that regard, we note that Buyer, with
the Company's consent, has requested that Goldman, Sachs & Co. assist it in
connection with securing long-term financing to replace a short-term facility
Buyer has put in place to fund the cash purchase price pursuant to the Tender
Offer and the Merger. Goldman, Sachs & Co. provides a full range of financial
advisory and securities services and, in the course of its normal trading
activities, may from time to time effect transactions and hold securities,
including derivative securities, of the Company or Buyer for its own account
and for the accounts of its customers. As of the date hereof, Goldman, Sachs &
Co. had accumulated a long position of 17,400 Shares, a long position of
$15,682,000 aggregate principal amount of the Convertible Notes against which
Goldman, Sachs & Co. is short $59,930,000 aggregate principal amount of the
Convertible Notes and a long position of warrants to purchase 2,000,000 Buyer
Shares against which Goldman, Sachs & Co. is short warrants to purchase
6,780,450 Buyer Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five fiscal years ended June 30, 1999; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior
management of the Company regarding its past and current business operations,
financial condition and future prospects. In addition, we have reviewed the
reported price and trading activity for the Shares, compared certain financial
and stock market information for the Company with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the foodservice
distribution industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal. We were not requested to
solicit, and did not solicit, interest from other parties with respect to an
acquisition or other business combination with the Company. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement and such
opinion does not constitute a recommendation as to whether or not any holder
of Shares should tender such Shares in connection with such transaction, or,
if applicable, as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $26.00
per Share in cash to be received by the holders of Shares in the Tender Offer
and the Merger is fair from a financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- --------------------------------
(GOLDMAN, SACHS & CO.)
A-2
<PAGE>
ANNEX B
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, Maryland 21046
(410) 312-7100
Information Statement Pursuant to
Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 Thereunder
This Information Statement ("Information Statement") is being mailed on or
about March 13, 2000, as part of the Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") of U.S. Foodservice (the "Company") to
the holders of shares of common stock, $0.01 par value per share, of the
Company (the "Shares"). The Information Statement is being furnished in
connection with the Agreement and Plan of Merger, dated as of March 7, 2000
(the "Merger Agreement"), by and among Koninklijke Ahold N.V., a company
organized under the laws of The Netherlands ("Parent"), Snow Acquisition, Inc.,
a Delaware corporation and an indirect wholly owned subsidiary of Parent
("Purchaser"), and the Company, in accordance with the terms and subject to the
conditions of which (i) Purchaser, on behalf of Parent, will commence a tender
offer (the "Offer") to purchase all outstanding Shares, including the
associated preferred share purchase rights, at a price of $26.00 per Share, net
to the seller in cash, without interest thereon, and (ii) following the
consummation of the Offer, Purchaser will be merged with and into the Company
(the "Merger"). As a result of the Offer and the Merger, the Company will
become an indirect wholly owned subsidiary of Parent.
You are receiving this Information Statement in connection with the possible
election of persons designated by Parent to a majority of the seats on the
Company's Board of Directors (the "Board") under the circumstances described in
the Merger Agreement. This Information Statement is required by Section 14(f)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Rule 14f-1 thereunder. See "Parent Designees" below.
Purchaser commenced the Offer on March 13, 2000. The Offer is scheduled to
expire at 12:00 midnight, New York City time, on Friday, April 7, 2000, unless
the Offer is extended pursuant to the terms of the Merger Agreement.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-
9.
The information contained in this Information Statement or incorporated by
reference herein concerning Parent, Purchaser, or their respective officers,
directors, representatives or affiliates or actions or events with respect to
any of them, was provided by Parent or Purchaser and the Company takes no
responsibility for such information.
Parent's Designees
The Merger Agreement provides that, promptly upon the consummation of the
Offer, Purchaser shall be entitled to designate such number of directors (the
"Designees"), rounded up to the next whole number, on the Board as is equal to
the product of the total number of directors on the Board (determined after
giving effect to any increase in the size of such Board pursuant to this
sentence) multiplied by the percentage that the number of Shares beneficially
owned by Purchaser or its affiliates at such time bears to the total number of
Shares then outstanding. At such time, the Company shall use commercially
reasonable efforts to take any and all such action needed to cause the
Designees to be appointed to the Board, including using its commercially
reasonable efforts to cause certain directors to resign and/or increasing the
size of the Board; provided, however, that the Company and Purchaser shall use
their respective commercially reasonable efforts so that the Board shall
continue to have at least three members who were directors of the Company on
the signing date of the Merger Agreement (the "Continuing Directors").
B-1
<PAGE>
Parent has informed the Company that it will choose the Designees from the
directors and executive officers of Parent and/or its affiliates listed in
Schedule I attached hereto. Parent has informed the Company that each of the
directors and executive officers listed in Schedule I has consented to act as a
director if so designated. The business address of Parent and Purchaser is
Albert Heijnweg 1, 1507 EH Zaandam, The Netherlands.
It is expected that the Designees may assume office at any time following
the purchase by Purchaser pursuant to the Offer of such number of Shares
representing not less than a majority of the outstanding shares of Common Stock
on a fully-diluted basis and that, upon assuming office, the Designees will
thereafter constitute at least a majority of the Company's Board.
Following the election or appointment of the Designees pursuant to the terms
of the Merger Agreement and prior to the Effective Time, any amendment or
modification of the Merger Agreement, the Company's Restated Certificate of
Incorporation, as amended, or the Company's Amended and Restated By-laws, any
termination of the Merger Agreement by the Company, any extension by the
Company of the time for the performance of any of the obligations or other acts
of Parent or Purchaser or waiver of any of the Company's rights under the
Merger Agreement, and any other consent or action by the Company pursuant to
the Merger Agreement, shall be effected only if there are in office one or more
Continuing Directors and such action is approved by a majority of such
Continuing Directors.
Based solely on the information set forth in the Offer to Purchase, none of
the Designees (i) is currently a director of, or holds any position with, the
Company, (ii) has a familial relationship with any current directors or
executive officers of the Company, (iii) to the best knowledge of Parent,
beneficially owns any securities (or any rights to acquire such securities) of
the Company or (iv) has been involved in any transactions with the Company or
any of its directors, officers or affiliates which are required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"), except as may be disclosed herein.
Certain Information Regarding the Company
The Shares are the only class of voting securities of the Company
outstanding. The holders of a majority of the outstanding Shares represented in
person or by proxy will constitute a quorum. Each stockholder is entitled to
one vote per share. Assuming the presence of a quorum, the affirmative vote of
a plurality in interest of the stockholders present in person or by proxy and
entitled to vote thereon is required to elect the directors. As of March 3,
2000, there were 102,587,339 Shares outstanding.
B-2
<PAGE>
Information Concerning Directors and Executive
Officers of the Company
The Current Members of the Board
The Board currently consists of nine members. The Board is divided into
three classes and each director serves for a term of three years and until his
successor is duly elected and qualified or until his death, resignation or
removal. The names of the current members of the Board, their ages (as of
October 14, 1999) and certain other information about them are set forth below.
As indicated above, some of the current members of the Board may resign
effective immediately following the purchase of the Shares by Purchaser
pursuant to the Offer.
<TABLE>
<CAPTION>
Positions
Name (Date with U.S. Director Principal Occupations Other
Term Expires) Foodservice Since During Last Five Years Age Directorships
- ------------- ----------- -------- ---------------------- --- -------------
<S> <C> <C> <C> <C> <C>
James L. Miller Chairman of the 1989 Chairman of the Board of 50 None
(2000) Board of Directors Directors and Chief
and Chief Executive Officer, U.S.
Executive Officer; Foodservice, 7/89 to
President present
President, U.S.
Foodservice, 7/89 to
12/97 and 1/98 to
present
Mark P. Kaiser Executive Vice 1996 Executive Vice 42 None
(2002) President-Sales, President-Sales,
Marketing and Marketing and
Procurement; Procurement, U.S.
Director Foodservice, '98 to
present
Senior Vice President-
Sales, Marketing and
Procurement, U.S.
Foodservice, '93 to '98
David M. Abramson Executive Vice 1994 Executive Vice President 46 None
(2000) President and and General Counsel,
General Counsel; U.S. Foodservice, 1/98
Secretary; Director to present
Secretary, U.S.
Foodservice, 9/96 to
present
Senior Vice President
and General Counsel,
U.S. Foodservice, 7/96
to 1/98
President and Managing
Principal, Levan,
Schimel, Belman &
Abramson, P.A. (a law
firm), '92 to '96
Michael J. Drabb Director 1994 Executive Vice 66 New York Life
(2002) President, O'Brien Asset Mainstay VP
Management, Inc. (an Fund, Inc.;
institutional asset MONY Series
management firm), 8/93 Fund, Inc.
to present
Eric E. Glass Director 1996 Chairman of the Board, 59 Gettysburg
(2001) The Taney Corporation (a Hospital
stairway components
manufacturer), '95 to
present
Paul I. Latta, Jr. Director 1996 Retired, 6/99 to present 56 None
(2001)
Senior Vice President,
The Rouse Company (a
real estate development
and management company),
'93 to 6/99
Dean R. Silverman Director 1996 Managing Director of 48 None
(2000) Finance and Strategy,
Washington Capitals NHL
franchise, 7/99 to
present
President, Dean &
Company Strategy
Consultants, Inc. (a
strategic management
consulting company),
7/93 to 7/99
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
Positions
Name (Date with U.S. Director Principal Occupations Other
Term Expires) Foodservice Since During Last Five Years Age Directorships
- ------------- ----------- -------- ---------------------- --- -------------
<S> <C> <C> <C> <C> <C>
Lewis Hay, III Director 1991 Vice President and Chief 44 Utilities,
(2001) Financial Officer, FPL Inc. (a
Group, Inc. (a public holding
holding company), 8/99 company that
to present owns and
operates water
Senior Vice President and waste
and Chief Financial water
Officer, Florida Power utilities)
and Light Company (a
wholly owned subsidiary
of FPL Group and a
regulated electric
utility), 8/99 to
present.
President, LSME
Acquisition Company, LLC
(a company formed to
acquire
telecommunications
operations), 6/99 to
7/99
Executive Vice
President, U.S.
Foodservice, 9/97 to
5/99
Senior Vice President
and Chief Financial
Officer, U.S.
Foodservice, '91 to '97
Jeffrey D. Serkes Director 1996 Vice President-Finance, 40 IBM Credit
(2002) Sales and Corporation
Distribution,
International Business
Machines Corporation,
6/99 to present
Vice President and
Treasurer, IBM, 1/95 to
5/99
</TABLE>
Executive Officers
The following individuals currently serve as executive officers of the
Company:
<TABLE>
<CAPTION>
Principal Occupation During
Last Five Years and
Name Position Directorships
---- -------- ----------------------------
<S> <C> <C>
James L. Miller Chairman of the Board of Chairman of the Board of
Directors; Chief Executive Directors and Chief
Officer; President Executive Officer, 7/89 to
present; President, 7/89 to
12/97 and 1/98 to present
Mark P. Kaiser Executive Vice President- Executive Vice President-
Sales, Marketing and Sales, Marketing and
Procurement; Director Procurement, '98 to present;
Senior Vice President-Sales,
Marketing and Procurement,
'93 to '98
David M. Abramson Executive Vice President and Executive Vice President and
General Counsel; Secretary; General Counsel, 1/98 to
Director present; Secretary, 9/96 to
present; Senior Vice
President and General
Counsel, 7/96 to 1/98;
President and Managing
Principal, Levan, Schimel,
Belman & Abramson, P.A. (a
law firm), '92 to '96
George T. Megas Senior Vice President and Senior Vice President and
Chief Chief
Financial Officer Financial Officer, 4/99 to
present; Vice President-
Finance, '91 to 4/99
</TABLE>
B-4
<PAGE>
Board of Directors and Committees of the Board
The Board 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 held during the
period he served as a director and the total number of meetings held by each
committee of the Board on which he served during the period for which he
served.
The Board currently has standing audit, nominating and compensation
committees.
The Audit Committee. 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. The compensation committee, which held three
meetings during fiscal 1999, currently consists of Mr. Drabb, who is the
Chairman, Mr. Glass and Mr. Latta. James P. Miscoll served as a member of the
compensation committee during fiscal 1999 and until his term as a director
concluded on November 18, 1999. This committee is responsible for establishing
the compensation and benefits of the executive officers of U.S. Foodservice,
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. 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 potential candidates for
membership on the Board. The Company's Restated Certificate of Incorporation,
as amended, 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 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 the Company 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
B-5
<PAGE>
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.
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.
B-6
<PAGE>
Security Ownership
The information presented below regarding beneficial ownership of the Shares
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
shares any 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 presented herein concerning the Shares gives effect to the
Company's two-for-one split of the common stock of the Company in the form of a
dividend which was completed on August 4, 1999.
Security Ownership of Directors and Executive Officers
The following table presents, as of January 31, 2000, information regarding
the beneficial ownership of the common stock by each director and each
executive officer of the Company named in the summary compensation table under
the "Executive Compensation" section of this Information Statement and all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name of Beneficial Owner Ownership Class(1)
------------------------ ---------- ----------
<S> <C> <C>
David M. Abramson(2)................................ 109,748 *
Michael J. Drabb(3)................................. 24,000 *
Eric E. Glass(4).................................... 20,800 *
Lewis Hay, III(5)................................... 261,749 *
Mark P. Kaiser(6)................................... 232,507 *
Paul I. Latta, Jr.(7)............................... 20,000 *
George T. Megas(8).................................. 105,468 *
James L. Miller(9).................................. 776,918 *
Jeffrey D. Serkes(10)............................... 16,000 *
Dean R. Silverman(11)............................... 18,200 *
All directors and executive officers as a group
(10 persons)(12)................................... 1,585,389 1.5%
</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 outstanding options exercisable within 60 days to purchase
99,709 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) Includes outstanding options exercisable within 60 days to purchase
22,000 shares.
(4) Includes outstanding options exercisable within 60 days to purchase
20,000 shares.
(5) Includes outstanding options exercisable within 60 days to purchase
222,524 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 outstanding options exercisable within 60 days to purchase
140,918 shares.
(7) Includes outstanding options exercisable within 60 days to purchase
16,000 shares.
(8) Includes outstanding options exercisable within 60 days to purchase
62,988 shares.
(9) Includes outstanding options exercisable within 60 days to purchase
418,943 shares.
B-7
<PAGE>
(10) Includes outstanding options exercisable within 60 days to purchase 16,000
shares.
(11) Includes outstanding options exercisable within 60 days to purchase 16,000
shares.
(12) Includes outstanding options exercisable within 60 days to purchase
1,035,082 shares. The information regarding beneficial ownership of Shares
by this group is included in reliance upon reports filed with the SEC or
the Company by such parties.
Security Ownership of Principal Stockholders
The following table presents, as of December 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 Shares:
<TABLE>
<CAPTION>
Amount and
Nature of
Name of Beneficial Percent of
Beneficial Owner Ownership Class
---------------- ---------- ----------
<S> <C> <C>
T. Rowe Price Associate, Inc.(1).................... 12,327,376 12.1%
Putnam Investments, Inc.(2)......................... 7,347,774 7.2%
</TABLE>
- --------
(1) Based on a Schedule 13G/A filed on February 9, 2000 by T. Rowe Price
Associates, Inc. ("TRP"). It was reported that TRP has sole voting power
over 1,691,458 shares, sole dispositive power over 12,327,376 shares, and
shared voting or dispositive power over no shares. The address of TRP is
100 East Pratt Street, Baltimore, MD 21202. The information regarding
beneficial ownership of Shares by this person is included in reliance upon
reports filed with the SEC by such person.
(2) Based on a Schedule 13G filed on February 18, 2000 by (i) Marsh and
McLennan Companies, Inc. ("M&M"), (ii) Putnam Investments, Inc. ("PII"),
(iii) Putnam Investment Management, Inc. ("PIM") and (iv) The Putnam
Advisory Company, Inc. ("PAC"). It was reported that (i) M&M holds no
shares in any capacity, (ii) PII has shared voting power over 707,510
shares and shared dispositive power over 7,347,774 shares, (iii) PIM has
shared dispositive power over 5,013,400 shares and (iv) PAC has shared
voting power over 707,510 shares and shared dispositive power over
2,334,374 shares. The address of M&M is 1166 Avenue of the Americas, New
York, NY 10036, and the address of each of PII, PIM and PAC is One Post
Office Square, Boston, MA 02109. The information regarding beneficial
ownership of Shares by this person is included in reliance upon reports
filed with the SEC by such person.
B-8
<PAGE>
Compensation of Executive Officers and Directors
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 Chief
Executive Officer 1997 350,000 448,875 -- -- 127,097 5,361
Mark P. Kaiser.......... 1999 360,000 383,868 -- 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 5,056
David M. Abramson....... 1999 325,000 346,547 -- 651,849 82,214 83,879
Executive Vice President 1998 300,000 330,000 -- -- 19,540 6,719
and General Counsel 1997 225,000 288,562 -- -- 25,000 5,506
George T. Megas(4)...... 1999 180,663 120,000 -- 908,743 60,088 45,826
Senior Vice President 1998 160,000 91,385 -- -- 8,162 5,623
and 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 its 401(k) retirement savings plan,
referred to as 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,
B-9
<PAGE>
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, $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
$87,449 representing the portion of the Company's fiscal 1999 contributions,
plus accrued interest, under the SERP credited to Mr. Hay's self-directed
account. The amount under the SERP credited to Mr. Hay's self-directed
account was forfeited upon Mr. Hay's resignation as an officer of the
Company.
(4) Formerly Vice President-Finance, Mr. Megas was elected Senior Vice
President and Chief Financial Officer upon Mr. Hay's resignation.
(5) On April 22, 1999, Mr. Hay resigned his position as Executive Vice
President and Chief Financial Officer effective May 31, 1999. Mr. Hay
received salary payments through the end of fiscal 1999 and a bonus
payment with respect to the entire fiscal year.
B-10
<PAGE>
Stock Option Grants in Fiscal 1999
The following table sets forth information concerning all stock options
granted during fiscal 1999 to the named executive officers:
Option Grants in Fiscal 1999
Individual Grants
<TABLE>
<CAPTION>
Potential
Realizable
Value of Assumed
Annual Rates of
Number of % of Total Stock Price
Shares Options Appreciation for
Underlying Granted to Exercise Option Term(3)
Options Employees in Price Expiration ----------------------
Name Granted Fiscal 1999 ($/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 4/15/00(6) 70,169(7) 43,530(7)
16,636 .76(5) 24.00 4/15/00(6) 24,527 49,315
</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.
B-11
<PAGE>
(5) Reflects reload options granted under reload option provisions of the
Company's 1994 Stock Incentive Plan.
(6) Under the terms of the Company's 1994 Stock Incentive Plan, the expiration
dates for the options of Mr. Hay shown in the table were accelerated to
April 15, 2000 as a result of Mr. Hay's resignation as an officer effective
May 31, 1999. The original expiration dates for Mr. Hay's options to
purchase 135,000 and 16,636 shares shown in the table were August 19, 2008
and August 31, 2005, respectively.
(7) The amount shown reflects the potential realizable value only for the
options to purchase 45,000 shares that will be vested prior to the
accelerated option expiration date. See footnote (6) above.
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 1999
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 7/3/99(#) at 7/3/99($)(1)
Shares Value ------------------------- -------------------------
Acquired on Realized
Name Exercise(#) ($) 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>
- --------
<TABLE>
<S> <C>
</TABLE>
(1) Value based on the last reported sale price of a share of Common Stock of
$21.50 on July 2, 1999, as reported on the New York Stock Exchange
composite tape, minus the exercise price.
Executive Employment Contracts and Severance Agreements
The Company has entered into an employment agreement with James L. Miller,
dated as of July 3, 1989 and amended as of September 1, 1991 and 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 one-year 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 as
of 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
B-12
<PAGE>
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 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 and amended as of December 23, 1999, 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 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, or termination by the
executive for any reason within the 30-day period following six months after
commencement of the employment term. 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,
(2) welfare fringe benefits for three years substantially equivalent to those
provided prior to termination and (3) continuing health insurance coverage on
substantially equivalent terms to that provided prior to termination for (a)
the executive for the remainder of his life, (b) the executive's spouse for the
remainder of her life and (c) the executive's dependents. In addition, Mr.
Miller will be entitled to receive, until he reaches the age of 65, continuing
life insurance coverage on substantially equivalent terms to that 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 amended as of December 23, 1999, 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 (including with respect to continuing health insurance
coverage) as the Company's employment agreements with Messrs. Miller and Kaiser
dated as of January 4, 1996, as amended.
The Company has entered into an employment agreement with George T. Megas,
dated as of June 24, 1999, pursuant to which Mr. Megas is employed as Senior
Vice President and Chief Financial Officer of U.S.
B-13
<PAGE>
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 (other than with respect
certain continuing health insurance and life insurance coverage) 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.
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
B-14
<PAGE>
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.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Board 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 compensation 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.
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 B-19, 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, as amended (the "Securities Act") or
the Exchange Act, whether made before or after the date of this information
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 information 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
B-15
<PAGE>
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.
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.
B-16
<PAGE>
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*
Certain Relationships and Related Transactions
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 received salary payments through
October 15, 1999, reflecting payment of Mr. Hay's accrued vacation benefits for
the period after his resignation. Mr. Hay 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 of
Rykoff-Sexton by merger, 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 the public offering
and sale by the ML investors of all of their U.S. Foodservice common stock. The
Company paid the expenses of this registration of approximately $0.9 million,
excluding 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 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.
- --------
* Mr. Miscoll served as a member of the compensation committee during fiscal
1999 and until his term as a director concluded on November 18, 1999.
B-17
<PAGE>
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 the Company's common
stock, to file with the SEC and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of the Shares and all other
equity securities of the Company beneficially owned by them. Such persons are
required by SEC regulations to furnish the Company with copies of all Section
16(a) reports that they file.
To the Company's knowledge, based solely upon review of copies of such
reports furnished to the Company or written representations from certain
reporting persons, during the fiscal year ended on July 3, 1999, all Section
16(a) filing requirements applicable to the directors, executive officers and
greater than 10% stockholders were complied with by such persons, except that
Dean R. Silverman filed one late report with respect to his ownership of Shares
held though his individual retirement account.
B-18
<PAGE>
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 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.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
November 1994 June 1995 June 1996 June 1997 June 1998 July 1999
<S> <C> <C> <C> <C> <C>
U.S. Foodservice $100 $127 $227 $274 $310 $391
Peer Group $100 $112 $131 $143 $197 $241
S&P 500 Index $100 $117 $144 $190 $244 $299
</TABLE>
B-19
<PAGE>
SCHEDULE I
PARENT DESIGNEES
<TABLE>
<S> <C>
Name, Age and Current Present Principal Occupation or Employment;
Business Address* Material Positions Held During the Past Five Years
- --------------------- --------------------------------------------------
C.H. van der Hoeven.............. Member of the Corporate Executive Board of Koninklijke
(Age: 52) Ahold N.V. (1985 to present); President and Chief
Executive Officer of Koninklijke Ahold N.V. (3/93 to
present); Member of the Supervisory Board of ABN AMRO
Bank N.V.; Director of Ahold U.S.A., Inc.; Membre du
Conseil d'Administration de LVMH (4/99 to present);
Member of the Supervisory Board of KPN (7/98 to
present)
J.G. Andreae..................... Member of the Corporate Executive Board of Koninklijke
(Age: 53) Ahold N.V. (1997 to present); Executive Vice President
of Koninklijke Ahold N.V. (10/97 to present); Former
President of Albert Heijn B.V. (1992 to 10/97); Member
of the Corporate Executive Board of Albert Heijn B.V.
(10/97 to present); President of the Supervisory Board
of S.V.M.; Former Member of the Supervisory Board of
KLM-catering; Co-chairman of ECR Europe; Co-chairman of
ECR NL; Director of Ahold U.S.A., Inc.
A.M. Meurs....................... Member of the Corporate Executive Board of Koninklijke
(Age: 49) Ahold N.V. (1997 to present); Executive Vice President
and Chief Financial Officer of Koninklijke Ahold N.V.
(4/97 to present); Treasurer of Snow Acquisition, Inc.;
Supervisory Director B of Disco Ahold International
Holdings N.V.; Former Senior Vice President of Business
Development of Koninklijke Ahold N.V. (4/96 to 4/97);
Former Senior Vice President of Finance of Koninklijke
Ahold N.V. (3/93 to 4/96); Former Vice President of
Finance Koninklijke Ahold N.V.; Former Director of
Ahold Americas Holdings, Inc.; Former Executive Vice
President of Croesus, Inc.; Member of the Supervisory
Board of Van Den Boom Groep; Member of the Supervisory
Board of Van der Hoop Effectenbank N.V.; Director and
Executive Vice President of Ahold U.S.A., Inc.; Member
of the Supervisory Board of Schuitema (3/99 to present)
A.S. Noddle...................... Executive Vice President of Koninklijke Ahold N.V.
(Age: 59) (9/98 to present); Supervisory Director B of Disco
Ahold International Holdings N.V.; Director of
Inversiones Santa Isabel S.A.; Former President and
Chief Executive Officer of Giant Food Stores, Inc.
(10/92 to 1/97); Director of Ahold U.S.A., Inc.; Former
President and Chief Executive Officer of Ahold U.S.A.
Support Services, Inc. (1/97 to 9/98) (Citizen of the
United States)
R.G. Tobin....................... Member of the Corporate Executive Board of Koninklijke
c/o Ahold U.S.A., Inc Ahold N.V. (1998 to present); President of Snow
14101 Newbrook Drive Acquisition, Inc.; Executive Vice President of
Chantilly, Virginia 20151 Koninklijke Ahold N.V. (9/98 to present); Director and
(Age: 61) President of Ahold Americas Holdings, Inc.; Chairman,
Director, President and Chief Executive Officer of
Ahold U.S.A.,Inc.; Director of Ahold Finance U.S.A.,
Inc.; Former President and Chief Executive Officer of
Croesus, Inc.; Director and former Chairman, President
and Chief Executive Officer of The Stop & Shop
Companies, Inc. (a wholly owned subsidiary of
Koninklijke Ahold N.V. since 1996) (6/60 to present)
(Citizen of the United States)
</TABLE>
* Unless otherwise indicated, the current business address for each individual
listed is Albert Heijnweg 1, 1507 EH Zaandam, The Netherlands, Telephone:
011-31-75-6599111.
<PAGE>
<TABLE>
<S> <C>
Name, Age and Current Present Principal Occupation or Employment;
Business Address* Material Positions Held During the Past Five Years
- --------------------- --------------------------------------------------
A. Buitenhuis.................... Senior Vice President of Finance and Fiscal Affairs of
(Age: 53) Koninklijke Ahold N.V. (4/96 to present); Former Vice
President of Fiscal Affairs of Koninklijke Ahold N.V.
A.H.P.M. van Tielraden .......... Senior Vice President and General Counsel of
(Age: 44) Koninklijke Ahold N.V. (1/00 to present); Secretary of
Snow Acquisition, Inc.; Former Vice President and
Deputy General Counsel of Koninklijke Ahold N.V. (11/97
to 1/00); Director of Ralico SDN BHD; Supervisory B
member of Paiz Ahold B.V.; Former Director of Legal
Affairs Hagemeyer N.V. (5/95 to 8/97); Former Senior
Legal Advisor of Unilever Nederland B.V. (9/94 to
5/95); Former General Counsel of Quest International
(11/89 to 9/94)
M.J. Dorhout Mees................ Senior Vice President of Business Development of
(Age: 42) Koninklijke Ahold N.V. (6/97 to present); Former Senior
Vice President of Sales and Services of Albert Heijn
B.V. (1994 to 1997); Former Deputy Director of Customer
Services of Albert Heijn B.V.
L.A.P.A. Verhelst................ Senior Vice President of Administration of Koninklijke
(Age: 56) Ahold N.V. (4/97 to present); Former Managing Director
of Pays-Bas Property Fund N.V. (4/95 to 3/97); Former
Member of the Executive Board of Koninklijke Bols
Wessanen N.V. (1/94 to 12/94); President of the
Supervisory Board of AVIO-Diepen B.V.
C. Sterk......................... Senior Vice President of Financial Services of
(Age: 58) Koninklijke Ahold N.V. (11/99 to present); Senior Vice
President of Administration of Koninklijke Ahold N.V.
(1979 to 3/97); President of Albert Heijn B.V. (4/97 to
11/99)
E.J. Smith....................... Executive Vice President of Finance, Chief Financial
c/o Ahold U.S.A., Inc. Officer and Assistant Secretary of Ahold U.S.A., Inc.
14101 Newbrook Drive (1997 to present); Director and Vice President of
Chantilly, Virginia 20151 Croesus, Inc.; Director, Secretary and Treasurer of
(Age: 42) Ahold Americas Holdings, Inc.; Director, Vice President
and Assistant Secretary of Ahold Finance U.S.A., Inc.;
Former Secretary and Executive Vice Presidnet of
Finance of Ahold U.S.A. Support Services, Inc.;
Assistant Secretary and Former Executive Vice President
of Giant Food Stores, Inc. (1987-1997)
</TABLE>
* Unless otherwise indicated, the current business address for each individual
listed is Albert Heijnweg 1, 1507 EH Zaandam, The Netherlands, Telephone:
011-31-75-6599111.
I-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
Exhibit 1 Offer to Purchase.(1)(2)
Exhibit 2 Letter of Transmittal.(1)(2)
Exhibit 3 Agreement and Plan of Merger, dated as of March 7, 2000, among
Parent, Purchaser and the Company (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed with
the Commission on March 13, 2000).
Exhibit 4 Letter to Stockholders dated March 13, 2000.(2)
Exhibit 5 Press Release, dated March 7, 2000 (incorporated by reference to the
Company's Current Report on Form 8-K filed with the Commission on
March 13, 2000).
Exhibit 6 Amended and Restated Rights Agreement, dated as of October 4, 1999,
between the Company and ChaseMellon Shareholder Services, L.L.C.
(incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-3 filed with the Commission on
December 22, 1999 (Commission File No. 333-93453)).
Exhibit 7 Amendment, dated as of March 6, 2000, to the Amended and Restated
Rights Agreement, dated as of October 4, 1999 (incorporated by
reference to Exhibit 9 to the Form 8-A/A of the Company filed with
the Commission on March 7, 2000 (Commission File No. 001-12601)).
Exhibit 8 Opinion of Goldman, Sachs & Co., dated March 7, 2000.(3)
Exhibit 9 Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 thereunder.(4)
</TABLE>
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(1) Filed as an exhibit to the Tender Offer Statement on Schedule TO, dated
March 13, 2000, of Parent and Purchaser and incorporated herein by
reference.
(2) Included in copy mailed to stockholders.
(3) Filed herewith as Annex A to this Schedule 14D-9.
(4) Filed herewith as Annex B to this Schedule 14D-9.
<PAGE>
Exhibit 4
U.S. Foodservice
9755 Patuxent Woods Drive
Columbia, Maryland 21046
March 13, 2000
Dear Stockholder:
I am pleased to inform you that our Company has entered into an Agreement
and Plan of Merger, dated as of March 7, 2000 (as amended from time to time,
the "Merger Agreement"), with Koninklijke Ahold N.V. ("Royal Ahold") and Snow
Acquisition, Inc., an indirect wholly owned subsidiary of Royal Ahold
("Purchaser"). Pursuant to the Merger Agreement, Purchaser has today commenced
a cash tender offer (the "Offer") to purchase all of the outstanding common
shares, par value $0.01 per share (the "Shares"), of the Company at a purchase
price of $26 per Share, net to the stockholder in cash, without interest. The
Offer will be followed by a merger (the "Merger") of Purchaser with and into
the Company, pursuant to which any remaining Shares will be converted into the
right to receive $26 per Share in cash, without interest.
Your Board of Directors has unanimously approved the Merger Agreement and
the Offer and determined that the Offer is fair to and in the best interests of
the stockholders of the Company. Your Board of Directors recommends that you
accept the Offer and tender your Shares pursuant to the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including, among
other things, the opinion of Goldman, Sachs & Co., the Company's financial
advisor, that the consideration to be received by the stockholders in the Offer
and the Merger is fair from a financial point of view.
In addition to the attached Schedule 14D-9, enclosed is the Offer to
Purchase together with related materials, including a Letter of Transmittal, to
be used for tendering your Shares pursuant to the Offer. These documents state
the terms and conditions of the Offer, provide detailed information about the
transactions and include instructions as to how to tender your Shares. I urge
you to read these documents carefully in making your decision with respect to
tendering your Shares pursuant to the Offer.
Sincerely,
/s/ Jim Miller
-----------------------------
Jim Miller
President and Chief Executive
Officer
