<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PROSOURCE, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
[ ] No Filing Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock and Class B Common Stock
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PROSOURCE, INC.
1500 San Remo Avenue
Coral Gables, Florida 33146
April 30, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders (the "Special Meeting") of ProSource, Inc. (the "Company") to be
held at 11:30 a.m., local time, on May 20, 1998 at the offices of Kaye, Scholer,
Fierman, Hays & Handler, LLP, 425 Park Avenue, 19th Floor, New York, New York
10022.
As described in the accompanying Proxy Statement, at the Special
Meeting you will be asked to consider and vote on a proposal to approve and
adopt an Agreement and Plan of Merger, dated as of January 29, 1998 (the "Merger
Agreement"), among AmeriServe Food Distribution, Inc., a Delaware corporation
("AmeriServe"), Steamboat Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of AmeriServe ("Merger Sub"), and the Company and to
approve the transactions contemplated thereby, including the Merger (as defined
below). On the terms and subject to the conditions of the Merger Agreement, if
the stockholders of the Company approve and adopt the Merger Agreement, (i)
Merger Sub will be merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation and becoming a wholly-owned
subsidiary of AmeriServe, and (ii) all of the presently issued and outstanding
shares of the Company's Class A common stock, par value $0.01 per share ("Class
A Common Stock"), and Class B common stock, par value $0.01 per share ("Class B
Common Stock" and collectively with the Class A Common Stock, the "Common
Stock"), including fractional shares, will be converted into the right to
receive $15.00 per share in cash (or a pro-rata portion thereof, in the case of
fractional shares), without interest (the "Merger Consideration") (other than
shares held by the Company as treasury stock or shares owned by AmeriServe,
Merger Sub or any subsidiary of the Company, AmeriServe or Merger Sub, which
will be canceled, and shares held by the stockholders of the Company, if any,
who properly exercise their appraisal rights under Delaware law). The Merger
Consideration was determined by negotiations between the Company and AmeriServe,
and is not subject to adjustment. No third party valuations or appraisals were
obtained in connection with the determination of the Merger Consideration. The
same per share valuation was used in determining the consideration payable in
respect of whole and fractional shares. The aggregate Merger Consideration to be
paid in the Merger, including amounts paid by the Company in respect of the
cancellation of options to purchase Common Stock and amounts paid in respect of
fractional shares, is approximately $144 million. Detailed information
concerning the Merger is set forth in the accompanying Proxy Statement which you
are urged to read carefully. A copy of the Merger Agreement is attached as Annex
I to the accompanying Proxy Statement.
Approval and adoption of the Merger Agreement requires the
affirmative vote of the holders of shares of Common Stock entitled to cast a
majority of the votes of all outstanding shares of Common Stock held by
stockholders of record on April 1, 1998 (the "Record Date"). On the Record Date,
the Company had outstanding 9,383,591 shares of Common Stock (3,526,835 shares
of Class A Common Stock and 5,856,756 shares of Class B Common Stock). Holders
of the Class A Common Stock will be entitled to one vote for each share of Class
A Common Stock so held and holders of the Class B Common Stock will be entitled
to ten votes for each share of Class B Common Stock so held. Pursuant to a
Voting Agreement, dated as of January 29, 1998 (the "Voting Agreement"), among
AmeriServe, Merger Sub and Onex DHC LLC,
<PAGE> 3
Onex OMI LLC, ProSource Executive Investco LLC and Onex Ohio LLC (collectively,
the "Onex Stockholders"), the Onex Stockholders have agreed, among other things,
to vote their shares in favor of the Merger, the adoption by the Company of the
Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement. The Onex Stockholders are
controlled by Onex Corporation. The Onex Stockholders beneficially own
approximately 14.1% of the outstanding shares of Class A Common Stock and 89.1%
of the outstanding shares of Class B Common Stock entitled to vote at the
Special Meeting, representing in the aggregate approximately 84.8% of the total
votes entitled to be cast at the Special Meeting and thus have sufficient voting
power to approve and adopt the Merger Agreement without regard to the votes of
other stockholders. A copy of the Voting Agreement is attached as Annex II to
the accompanying Proxy Statement.
Holders of Common Stock who comply with the applicable requirements
of Delaware law will be entitled to appraisal rights under Delaware law in
connection with the Merger as described in the accompanying Proxy Statement.
The Company's Board of Directors has carefully reviewed and
considered the terms and conditions of the Merger Agreement and has determined
that the Merger Agreement and the Merger are fair to and in the best interests
of the Company and its stockholders AND HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. In reaching its
determination, the Board of Directors considered, among other things, the
opinion of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), that as of the
date of such opinion and based upon and subject to certain matters stated
therein, the consideration to be received by the holders of Class A Common Stock
in the Merger, was fair from a financial point of view. The opinion of Morgan
Stanley is included as Annex III to the accompanying Proxy Statement. You are
urged to read the opinion in its entirety for further information with respect
to the assumptions made, matters considered and limits of the review undertaken
by Morgan Stanley.
We urge you to read the enclosed material carefully and request that
you promptly complete and return the enclosed proxy in the enclosed return
envelope, which requires no postage if mailed in the United States. If you
attend the Special Meeting, you may vote in person even if you have previously
returned your proxy.
Sincerely,
/s/ David R. Parker /s/ Thomas C. Highland
----------------------- -------------------------------------
David R. Parker Thomas C. Highland
Chairman of the Board President and Chief Executive Officer
<PAGE> 4
PROSOURCE, INC.
1500 San Remo Avenue
Coral Gables, Florida 33146
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1998
To Our Stockholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders
(including any adjournments or postponements thereof, the "Special Meeting") of
ProSource, Inc., a Delaware corporation (the "Company"), will be held on May 20,
1998, at 11:30 a.m., local time, at the offices of Kaye, Scholer, Fierman, Hays
& Handler, LLP, 425 Park Avenue, 19th Floor, New York, New York 10022 for the
following purposes, which are more fully described in the accompanying Proxy
Statement:
(a) To consider and vote on a proposal (the "Merger Proposal")
to approve and adopt an Agreement and Plan of Merger, dated as of
January 29, 1998 (the "Merger Agreement"), among AmeriServe Food
Distribution, Inc., a Delaware corporation ("AmeriServe"), Steamboat
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of AmeriServe ("Merger Sub"), and the Company pursuant to
which, (i) Merger Sub will be merged with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation
and becoming a wholly-owned subsidiary of AmeriServe, and (ii) each
outstanding share of the Company's Class A common stock, par value
$0.01 per share ("Class A Common Stock"), and Class B Common Stock,
par value $0.01 per share ("Class B Common Stock" and collectively
with the Class A Common Stock the "Common Stock"), including
fractional shares, will be converted into the right to receive
$15.00 in cash (or a pro-rata portion thereof, in the case of
fractional shares), without interest (the "Merger Consideration")
(other than shares held by the Company as treasury stock or shares
owned by AmeriServe, Merger Sub or any subsidiary of the Company,
AmeriServe or Merger Sub, which will be canceled, and shares held by
the stockholders of the Company, if any, who properly exercise their
appraisal rights under Delaware law), and to approve the
transactions contemplated by the Merger Agreement, including the
Merger. A copy of the Merger Agreement is attached as Annex I to the
accompanying Proxy Statement.
(b) To transact such other business as may properly come
before the Special Meeting, including any adjournments or
postponements thereof.
Approval and adoption of the Merger Agreement requires the
affirmative vote of the holders of shares of Common Stock entitled to cast a
majority of the votes of all outstanding shares of Common Stock held by
stockholders of record on April 1, 1998 (the "Record Date"). On the Record Date,
the Company had outstanding 9,383,591 shares of Common Stock (3,526,835 shares
of Class A Common Stock and 5,856,756 shares of Class B Common Stock). Holders
of the Class A Common Stock will be entitled to one
<PAGE> 5
vote for each share of Class A Common Stock so held and holders of the Class B
Common Stock will be entitled to ten votes for each share of Class B Common
Stock so held.
Pursuant to a Voting Agreement, dated as of January 29, 1998 (the
"Voting Agreement"), among AmeriServe, Merger Sub and Onex DHC LLC, Onex OMI
LLC, ProSource Executive Investco LLC and Onex Ohio LLC (collectively, the "Onex
Stockholders"), the Onex Stockholders have agreed to vote their shares in favor
of the Merger, the adoption by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other transactions contemplated by
the Merger Agreement, and against certain other corporate actions, including any
such actions that relate to any competing transaction, and the Onex Stockholders
have granted AmeriServe and Merger Sub an irrevocable proxy to vote all shares
of Common Stock beneficially owned by them and all other shares of Common Stock
of which the Onex Stockholders acquire beneficial ownership after January 29,
1998 and during the term of the Voting Agreement, if any (such shares
collectively, the "Subject Shares"), in such manner. The Onex Stockholders
have also agreed, pursuant to the Voting Agreement, to comply with certain
restrictions on the transfer of the Subject Shares, to waive any rights of
appraisal available in connection with the Merger and to take or refrain from
taking certain other actions. Pursuant to the Voting Agreement, the Onex
Stockholders have granted to Merger Sub an irrevocable option (the "Merger Sub
Option") to purchase the Subject Shares at $15.00 per share (the "Exercise
Price") if the Merger Agreement is terminated under certain circumstances
subject to the terms and conditions of the Voting Agreement. In the event that
Merger Sub purchases the Subject Shares pursuant to the Merger Sub Option, it
will be required to make a cash tender offer for the remaining shares of Common
Stock not held by it at a price of $15.00 per share, subject to certain
conditions set forth in the Voting Agreement. If Merger Sub exercises the
option, purchases the Subject Shares and has not acquired the remaining shares
of Common Stock, then Merger Sub will be obligated to pay the Onex Stockholders
one-half of any consideration in excess of the Exercise Price (net of taxes,
expenses and other specified amounts) received by Merger Sub in respect of the
Subject Shares in connection with certain business combinations during the one
year period following the closing of the Merger Sub Option exercise. The Onex
Stockholders are controlled by Onex Corporation. The Onex Stockholders
beneficially own approximately 14.1% of the outstanding shares of Class A Common
Stock and 89.1% of the outstanding shares of Class B Common Stock entitled to
vote at the Special Meeting, representing in the aggregate approximately 84.8%
of the total votes entitled to be cast at the Special Meeting and thus have
sufficient voting power to approve and adopt the Merger Agreement without regard
to the votes of other stockholders. None of the Onex Stockholders received any
consideration in exchange for agreeing to enter into the Voting Agreement. A
copy of the Voting Agreement is attached as Annex II to the accompanying Proxy
Statement. For a more detailed summary of the foregoing provisions and certain
other provisions of the Voting Agreement, see "The Voting Agreement."
Upon consummation of the Merger, all outstanding shares of Common
Stock (other than shares held by the Company as treasury stock or shares owned
by AmeriServe, Merger Sub or any subsidiary of the Company, AmeriServe or Merger
Sub, which will be canceled, and shares held by the stockholders of the Company,
if any, who properly exercise their appraisal rights under Delaware law),
including fractional shares, will be converted into the right to receive the
$15.00 per share Merger Consideration (or a pro-rata portion thereof, in the
case of fractional shares). The Merger Consideration was determined by
negotiations between the Company and AmeriServe, and is not subject to
adjustment. No third party valuations or appraisals were obtained in connection
with the determination of the Merger Consideration. The same per share valuation
was used in determining the consideration payable in respect of whole and
fractional shares. The aggregate Merger Consideration to be paid in the Merger,
including amounts paid by the Company in respect of the cancellation of options
to purchase Common Stock and amounts paid in respect of fractional shares, is
approximately $144 million.
2
<PAGE> 6
At the Effective Time, outstanding options to purchase shares of
Common Stock granted under any of the Company's option plans, whether or not
then vested or exercisable ("Options"), surrendered by the holder thereof for
cash, will be canceled, and in consideration of such cancellation (except to the
extent that AmeriServe or Merger Sub and the holder of any such Option otherwise
agree), the Company will pay to each such holder of Options an amount in cash in
respect thereof equal to the product of (i) the excess, if any, of the Merger
Consideration over the per share exercise price of such Options and (ii) the
number of shares of Common Stock subject to such Options, less applicable
withholding taxes. As of the Record Date, there were approximately 639,650
Options outstanding, all of which were held by current or former directors,
officers or employees of the Company. Each Option represents the right to
purchase one share of Common Stock. Approximately $1.9 million will be paid by
the Company to Option holders in respect of the cancellation of such Options in
connection with the Merger, including approximately $1.3 million to executive
officers and directors of the Company, less applicable withholding taxes. See
"The Merger Agreement -- The Merger -- Options."
The Company's 1997 Employee Stock Purchase Plan (the "ESPP") permits
full-time employees of the Company and its subsidiaries who have been employed
for at least three months prior to July 1 each year (the first day of the ESPP
plan year) to purchase shares of Class A Common Stock, through payroll
deductions, at 85% of the fair market value of a share of Class A Common Stock
on the first business day of the plan year. Amounts withheld are held in
participant accounts until the last business day of each quarter, at which time
the shares of Class A Common Stock are purchased. Pursuant to the Merger
Agreement, the Company has agreed to amend the ESPP such that, if the Effective
Time occurs prior to the end of the current plan year, the date on which the
Effective Time occurs will be deemed the last day of the current plan year for
purposes of the ESPP. Such amendment will have the effect that on such date,
immediately prior to the Effective Time, in accordance with the ESPP, all
amounts previously withheld from the participants' pay pursuant to the ESPP will
be used to purchase shares of Class A Common Stock from the Company at a
purchase price of $6.035 (85% of the fair market value of the Class A Common
Stock on July 1, 1997 (as determined in accordance with the ESPP), the first
business day of the current plan year). The shares purchased will thereafter be
converted in the Merger into the right to receive the Merger Consideration. See
"The Merger Agreement -- The Merger -- Employee Stock Purchase Plan."
The Company's Board of Directors has carefully reviewed and
considered the terms and conditions of the Merger Agreement and has determined
that the Merger Agreement and the Merger are fair to and in the best interests
of the Company and its stockholders AND HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. See "The Merger -
Background of the Merger" for a detailed description of negotiations between
AmeriServe and the Company, and "The Merger - Reasons for the Merger;
Recommendation of the Board of Directors" for a detailed discussion of the
principal factors considered by the Board of Directors in reaching its
determination that the Merger Agreement and the Merger are fair to and in the
best interest of the Company and its stockholders.
Only holders of record of Common Stock at the close of business on
the Record Date are entitled to notice of and to vote at the Special Meeting or
any adjournments or postponements thereof. A complete list of stockholders
entitled to vote at the Special Meeting will be available for examination, for
proper purposes, during ordinary business hours at the offices of Kaye, Scholer,
Fierman, Hays & Handler, LLP, 425 Park Avenue, 19th Floor, New York, New York
10022 during the ten days prior to the Special Meeting.
3
<PAGE> 7
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and certain actions to be taken in connection with the Merger.
To ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend the Special Meeting. You may revoke
your proxy at any time before it is voted at the Special Meeting by giving due
notice of such revocation to the Secretary of the Company, by signing and
delivering a proxy bearing a later date or by attending the Special Meeting and
voting in person. See "The Special Meeting - Voting and Revocation of Proxies;
Adjournments" for a detailed discussion of the procedure for revoking proxies.
All shares of Common Stock which are represented at the Special
Meeting by a properly executed proxy received and not duly and timely revoked
will be voted at the Special Meeting in accordance with the instructions
contained therein. Proxies that do not contain any instruction to vote for or
against or to abstain from voting on the Merger Proposal will be voted For the
Merger Proposal.
In connection with the proposed Merger, appraisal rights will be
available to those stockholders of the Company who meet and comply with the
requirements of Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL"), a copy of which is included as Annex IV to the Proxy
Statement. See "The Merger - Appraisal Rights" in the Proxy Statement for a
detailed discussion of the appraisal rights available to stockholders under
Section 262 of the DGCL in connection with the proposed Merger. Stockholders
electing to exercise appraisal rights may receive more or less than the $15.00
per share Merger Consideration to be paid to stockholders who do not exercise
appraisal rights.
By Order of the Board Of Directors,
/s/ Paul A. Garcia de Quevedo
-------------------------------
Paul A. Garcia de Quevedo
Secretary
Coral Gables, Florida
April 30, 1998
TO VOTE YOUR SHARES OF COMMON STOCK, PLEASE MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF
THE MERGER IS CONSUMMATED, AFTER THE EFFECTIVE TIME OF THE MERGER, YOU WILL BE
SENT A LETTER OF TRANSMITTAL REGARDING THE SURRENDER OF YOUR CERTIFICATES. SEE
"THE MERGER AGREEMENT -- THE MERGER -- EXCHANGE OF CERTIFICATES" IN THE
ACCOMPANYING PROXY STATEMENT.
IF YOU HAVE ANY QUESTIONS OR REQUIRE ADDITIONAL MATERIAL, PLEASE
CONTACT THE COMPANY'S CORPORATE SECRETARY, PAUL A. GARCIA DE QUEVEDO, AT (305)
740-1000.
4
<PAGE> 8
PROSOURCE, INC.
1500 San Remo Avenue
Coral Gables, Florida 33146
-----------------------
PROXY STATEMENT
-----------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1998
-----------------------
INTRODUCTION
This Proxy Statement (this "Proxy Statement") is being furnished to
holders of Class A common stock, par value $0.01 per share (the "Class A Common
Stock") and holders of Class B common stock, par value $0.01 per share (the
"Class B Common Stock" and collectively with the Class A Common Stock, the
"Common Stock"), of ProSource, Inc., a Delaware corporation (together with its
subsidiaries, except where the context otherwise requires, "ProSource" or the
"Company"), in connection with the solicitation of proxies by and on behalf of
the Company's Board of Directors (the "Board" or the "Board of Directors") for
use at a Special Meeting of stockholders to be held at 11:30 a.m., local time,
on May 20, 1998, at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP,
425 Park Avenue, 19th Floor, New York, New York 10022, and at any adjournments
or postponements thereof (the "Special Meeting").
At the Special Meeting, holders of Common Stock will be asked to
consider and vote on a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of January 29, 1998 (the "Merger Agreement"), among AmeriServe
Food Distribution, Inc., a Delaware corporation ("AmeriServe"), Steamboat
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
AmeriServe ("Merger Sub"), and the Company and to approve the transactions
contemplated by the Merger Agreement, including the Merger (as defined below).
On the terms and subject to the conditions of the Merger Agreement, if the
stockholders of the Company approve and adopt the Merger Agreement, (i) Merger
Sub will be merged with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation (the "Surviving Corporation") and
becoming a wholly-owned subsidiary of AmeriServe, and (ii) each outstanding
share of Common Stock, including fractional shares, will be converted into the
right to receive $15.00 in cash (or a pro-rata portion thereof, in the case of
fractional shares), without interest (the "Merger Consideration") (other than
shares held by the Company as treasury stock or shares owned by AmeriServe,
Merger Sub or any subsidiary of the Company, AmeriServe or Merger Sub, which
will be canceled, and shares held by the stockholders of the Company, if any,
who properly exercise their appraisal rights under Delaware law). A copy of the
Merger Agreement is attached as Annex I to this Proxy Statement. This Proxy
Statement describes the material portions of the Merger Agreement. The
description of the Merger Agreement set forth herein is subject to, and is
qualified in its entirety by reference to, the text of the Merger Agreement.
The Merger Consideration was determined by negotiations
between the Company and AmeriServe, and is not subject to adjustment. No third
party valuations or appraisals were obtained in connection with the
determination of the Merger Consideration. The same per share valuation was used
in determining the consideration payable in respect of whole and fractional
shares. The aggregate Merger Consideration to be paid in the Merger, including
amounts paid by the Company in respect of the cancellation
<PAGE> 9
of options to purchase Common Stock and amounts paid in respect of fractional
shares, is approximately $144 million.
Approval and adoption of the Merger Agreement requires the
affirmative vote of the holders of shares of Common Stock entitled to cast a
majority of the votes of all outstanding shares of Common Stock held by
stockholders of record on April 1, 1998 (the "Record Date"). Pursuant to a
Voting Agreement, dated as of January 29, 1998 (the "Voting Agreement"), among
AmeriServe, Merger Sub and Onex DHC LLC, Onex OMI LLC, ProSource Executive
Investco LLC and Onex Ohio LLC (collectively, the "Onex Stockholders"), the Onex
Stockholders have agreed, among other things, to vote their shares in favor of
the Merger, the adoption by the Company of the Merger Agreement and the approval
of the terms thereof and each of the other transactions contemplated by the
Merger Agreement. The Onex Stockholders are controlled by Onex Corporation
("Onex"). The Onex Stockholders beneficially own approximately 14.1% of the
outstanding shares of Class A Common Stock and 89.1% of the outstanding shares
of Class B Common Stock entitled to vote at the Special Meeting, representing in
the aggregate approximately 84.8% of the total votes entitled to be cast at the
Special Meeting and thus have sufficient voting power to approve and adopt the
Merger Agreement without regard to the votes of other stockholders. None of the
Onex Stockholders received any consideration in exchange for agreeing to enter
into the Voting Agreement. A copy of the Voting Agreement is attached as Annex
II to this Proxy Statement. This Proxy Statement describes the material portions
of the Voting Agreement. The description of the Voting Agreement set forth
herein is subject to, and is qualified in its entirety by reference to, the text
of the Voting Agreement.
The Company's Board of Directors has carefully reviewed and
considered the terms and conditions of the Merger Agreement and has determined
that the Merger Agreement and the Merger are fair to and in the best interests
of the Company and its stockholders AND HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. In reaching its
determination, the Board of Directors considered, among other things, the
opinion of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), that as of the
date of such opinion and based upon and subject to certain matters stated
therein, the consideration to be received by the holders of Class A Common Stock
in the Merger, was fair from a financial point of view. The opinion of Morgan
Stanley is included as Annex III to this Proxy Statement. You are urged to read
the opinion in its entirety for further information with respect to the
assumptions made, matters considered and limits of the review undertaken by
Morgan Stanley.
All information contained in this Proxy Statement concerning
AmeriServe and its subsidiaries, including Merger Sub, has been supplied by
AmeriServe and has not been independently verified by the Company. Except as
otherwise indicated, all other information contained in this Proxy Statement has
been supplied or prepared by the Company.
This Proxy Statement and the accompanying form of proxy (the
"Proxy") and the other enclosed documents are being mailed on or about April 30,
1998 to holders of Common Stock entitled to notice of, and to vote at, the
Special Meeting.
The date of this Proxy Statement is April 30, 1998.
2
<PAGE> 10
TABLE OF CONTENTS
SUMMARY ......................................................................1
THE COMPANIES.........................................................1
THE SPECIAL MEETING...................................................1
THE MERGER............................................................5
THE SPECIAL MEETING...........................................................11
GENERAL ............................................................11
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING......................11
REQUIRED VOTES.......................................................11
VOTING AND REVOCATION OF PROXIES; ADJOURNMENTS.......................12
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM..........................12
APPRAISAL RIGHTS.....................................................13
SOLICITATION OF PROXIES..............................................13
THE MERGER....................................................................14
BACKGROUND OF THE MERGER ............................................14
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS...................................................17
OPINION OF MORGAN STANLEY............................................18
INTERESTS OF CERTAIN PERSONS IN THE MERGER...........................21
SOURCE AND AMOUNT OF FUNDS...........................................23
ACCOUNTING TREATMENT.................................................23
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..............................24
REGULATORY APPROVALS.................................................25
CERTAIN CONSEQUENCES OF THE MERGER...................................25
APPRAISAL RIGHTS.....................................................25
THE MERGER AGREEMENT..........................................................28
THE MERGER...........................................................28
REPRESENTATIONS AND WARRANTIES.......................................31
CERTAIN COVENANTS....................................................32
CONDITIONS TO THE MERGER.............................................35
TERMINATION OF THE MERGER AGREEMENT..................................37
AMENDMENT............................................................37
FEES AND EXPENSES....................................................38
THE VOTING AGREEMENT..........................................................38
TERM AND TERMINATION.................................................38
VOTING ............................................................38
RESTRICTIONS ON TRANSFER AND WAIVER OF APPRAISAL RIGHTS..............39
NO SOLICITATION......................................................39
MERGER SUB OPTION....................................................40
FURTHER AGREEMENTS OF AMERISERVE AND MERGER SUB......................41
THE COMPANIES.................................................................42
PROSOURCE............................................................42
AMERISERVE...........................................................42
(i)
<PAGE> 11
SELECTED FINANCIAL DATA.......................................................44
MARKET PRICES OF COMMON STOCK.................................................46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................................48
STOCKHOLDER PROPOSALS.........................................................50
INDEPENDENT AUDITORS..........................................................50
OTHER MATTERS.................................................................50
AVAILABLE INFORMATION.........................................................51
ANNEX I-- Merger Agreement.................................................I-1
ANNEX II-- Voting Agreement................................................II-1
ANNEX III-- Morgan Stanley Opinion.........................................III-1
ANNEX IV-- Section 262 of the Delaware General Corporation Law.............IV-1
ANNEX V-- Certain Information Regarding ProSource, Inc.....................V-1
(ii)
<PAGE> 12
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement. This summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement and the Annexes hereto. Stockholders
are urged to read this Proxy Statement and the Annexes hereto carefully and in
their entirety.
THE COMPANIES
ProSource....................... The Company provides foodservice distribution
services to chain restaurants in North
America and provides purchasing and logistics
services to the foodservice market. The
Company distributes a wide variety of items,
including fresh and frozen meat and poultry,
seafood, frozen foods, canned and dry goods,
fresh and pre-processed produce, beverages,
dairy products, paper goods and cleaning and
other supplies. The Company serves a variety
of restaurants, including Burger King, Red
Lobster, Long John Silver's, Olive Garden,
TGIFriday's, Chick-fil-A, Chili's, Sonic,
TCBY and Wendy's. ProSource is an indirect
subsidiary of Onex Corporation. See "The
Companies -- ProSource."
AmeriServe...................... AmeriServe is one of the nation's largest
foodservice distributors, distributing a wide
variety of items, including meat, poultry,
frozen foods, canned and dry goods, produce,
beverages, dairy products, paper goods,
cleaning and other supplies and small
equipment. See "The Companies -- AmeriServe."
Merger Sub...................... Merger Sub is a newly incorporated Delaware
corporation organized in connection with the
Merger and is a wholly-owned subsidiary of
AmeriServe. Upon the consummation of the
Merger, Merger Sub will be merged with and
into the Company, with the Company continuing
as the Surviving Corporation and becoming a
wholly-owned subsidiary of AmeriServe.
THE SPECIAL MEETING
Time, Date and Place;
Record Date..................... The Special Meeting of the stockholders of
the Company will be held at 11:30 a.m., local
time, on May 20, 1998 at the offices of Kaye,
Scholer, Fierman, Hays & Handler, LLP, 425
Park Avenue, 19th Floor, New York, New York
10022. Stockholders of record at the close of
business on April 1, 1998, the Record Date,
will be entitled to notice of, and to vote
at, the Special Meeting. The date of the
mailing of this Proxy Statement to
stockholders of the Company is on or about
April 30, 1998.
Effective Time.................. The Merger Agreement provides that, on the
second business day after satisfaction or
waiver of the conditions to the Merger, the
closing of the Merger shall take place
(unless another time is agreed to by the
parties), and
<PAGE> 13
at such time the Company and Merger Sub will
file a certificate of merger with the
Secretary of State of the State of Delaware
and make all other filings or recordings
required by the Delaware General Corporation
Law (the "DGCL") in connection with the
Merger, and the Merger will become effective
upon such filing or at such later time as is
specified in such certificate of merger (the
"Effective Time").
The obligations of each of the Company,
AmeriServe and Merger Sub to consummate the
Merger are subject to various conditions,
including, without limitation, obtaining
requisite Company stockholder approval, the
termination or expiration of the relevant
waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as
amended (the "HSR Act") (see "The Merger --
Regulatory Approvals"), and the absence of
any applicable law, injunction or other legal
restraint prohibiting the consummation of the
Merger. See "The Merger Agreement --
Conditions to the Merger." The Company has
been informed by the Federal Trade Commission
(the "FTC") that the waiting period under the
HSR Act was terminated effective as of
February 13, 1998.
If the stockholders of the Company approve
the Merger Proposal (as defined herein), the
Effective Time is expected to occur as soon
as practicable following the Special Meeting.
Matters to be Considered at
the Special Meeting............. At the Special Meeting, the stockholders of
the Company will consider and vote upon a
proposal to approve and adopt the Merger
Agreement and the transactions contemplated
thereby, including the Merger (the "Merger
Proposal"), pursuant to which Merger Sub will
merge with and into the Company and the
stockholders of the Company will receive
$15.00 in cash, without interest, per share
of Common Stock, other than shares held by
the Company as treasury stock or shares owned
by AmeriServe, Merger Sub or any subsidiary
of the Company, AmeriServe or Merger Sub,
which will be canceled, and shares held by
the stockholders of the Company, if any, who
properly exercise their appraisal rights
under Delaware law. See "The Special
Meeting -- Matters to be Considered at the
Special Meeting."
Required Votes.................. The approval of the Merger Proposal will
require the affirmative vote of the holders
of shares of Common Stock entitled to cast a
majority of the votes of all outstanding
shares of Common Stock entitled to vote at
the Special Meeting. On the Record Date, the
Company had outstanding 9,383,591 shares of
Common Stock (3,526,835 shares of Class A
Common Stock and 5,856,756 shares of Class B
Common Stock). Holders of the Class A Common
Stock will be entitled to one vote for each
share of Class A Common Stock so held and
holders of the Class B Common Stock will be
entitled to ten votes for each share of Class
B Common Stock so held. The Onex Stockholders
have agreed, pursuant to the terms of the
Voting Agreement, to vote all shares of
Common Stock beneficially owned by them and
all other shares of Common Stock of which the
Onex
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<PAGE> 14
Stockholders acquire beneficial ownership
after January 29, 1998 and during the term of
the Voting Agreement, if any (such shares
collectively, the "Subject Shares"), in favor
of the Merger Proposal. The Onex Stockholders
are controlled by Onex. The Onex Stockholders
beneficially own approximately 14.1% of the
outstanding shares of Class A Common Stock
and 89.1% of the outstanding shares of Class
B Common Stock entitled to vote at the
Special Meeting, representing in the
aggregate approximately 84.8% of the total
votes entitled to be cast at the Special
Meeting and thus have sufficient voting power
to approve and adopt the Merger Agreement
without regard to the votes of other
stockholders. None of the Onex Stockholders
received any consideration in exchange for
agreeing to enter into the Voting Agreement.
See "The Special Meeting -- Required Votes,"
"The Voting Agreement" and "Security
Ownership of Certain Beneficial Owners and
Management."
Voting and Revocation of
Proxies; Adjournments........... This Proxy Statement is being furnished to
stockholders of record at the close of
business on the Record Date in connection
with the solicitation of Proxies by and on
behalf of the Board for use at the Special
Meeting. All shares of Common Stock which are
represented at the Special Meeting by a
properly executed Proxy received and not duly
and timely revoked will be voted at the
Special Meeting in accordance with the
instructions contained therein. Proxies that
do not contain any instruction to vote for or
against or to abstain from voting on the
Merger Proposal will be voted For the Merger
Proposal.
The Board of Directors is not currently aware
of any business to be acted upon at the
Special Meeting other than the Merger
Proposal. If, however, other matters are
properly brought before the Special Meeting
or any adjournments or postponements thereof,
the persons appointed as proxies will have
the discretion to vote or act thereon in
accordance with their best judgment, unless
authority to do so is withheld in the Proxy.
The persons appointed as proxies will not
exercise their discretionary voting authority
to vote any such Proxy in favor of any
adjournments or postponements of the Special
Meeting. If the Special Meeting is adjourned,
for whatever reason, the approval of the
Merger Proposal shall be considered and voted
upon by the stockholders of the Company at
the subsequent, reconvened meeting, if any.
Any Proxy signed and returned by a
stockholder may be revoked by such
stockholder at any time before it is voted by
giving due notice of such revocation to the
Company's Corporate Secretary, Paul A. Garcia
de Quevedo, at 1500 San Remo Avenue, Coral
Gables, Florida 33146, by signing and
delivering a Proxy bearing a later date or by
attending the Special Meeting and voting in
person. Attendance at the Special Meeting
without taking other affirmative action as
aforementioned will not constitute a
revocation of a Proxy. See "The Special
Meeting -- Voting and Revocation of Proxies;
Adjournments."
3
<PAGE> 15
Solicitation of Proxies......... The cost of soliciting proxies, which will be
undertaken by mail, telephone, personal
contact or other means of communication, will
be borne by the Company. Arrangements will
also be made with brokerage firms and other
custodians, nominees and fiduciaries for the
forwarding of proxy solicitation material to
certain beneficial owners of the Company's
Common Stock, and the Company will reimburse
such forwarding parties for reasonable
expenses incurred by them. The Company's
regularly retained investor relations
consultant, Corporate Communications, Inc.,
will assist in the solicitation of proxies
from stockholders, and further solicitations
may be undertaken by directors, officers and
employees of the Company. Such persons will
not be compensated for such services, but
will be reimbursed for out of pocket
expenses. See "The Special Meeting --
Solicitation of Proxies."
If you have any questions or require
additional material, please call the
Company's Corporate Secretary, Paul A. Garcia
de Quevedo, at (350) 740-1000. HOLDERS OF
COMMON STOCK SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS. See "The
Merger Agreement -- The Merger -- Exchange of
Certificates."
Security Ownership of
Certain Beneficial
Owners and Management........... As of the Record Date, the Onex Stockholders
beneficially owned an aggregate of 496,583
shares of Class A Common Stock (representing
approximately 14.1% of the outstanding shares
of Class A Common Stock) and 5,218,072 shares
of Class B Common Stock (representing
approximately 89.1% of the outstanding shares
of Class B Common Stock). Such shares
represent in the aggregate approximately
84.8% of the total votes entitled to be cast
at the Special Meeting. The Onex Stockholders
have agreed, pursuant to the terms of the
Voting Agreement, to vote the Subject Shares
in favor of the Merger Proposal.
As of the Record Date, excluding shares held
by Onex and its affiliates which are deemed
beneficially owned by Gerald W. Schwartz, a
director of the Company and Chairman of the
Board, President and Chief Executive Officer
of Onex, the directors and executive officers
of the Company beneficially owned an
aggregate of 17,645 shares of Class A Common
Stock (representing approximately 0.5% of the
outstanding shares of Class A Common Stock)
and 439,200 shares of Class B Common Stock
(representing approximately 7.5% of the
outstanding shares of Class B Common Stock).
Such shares represent in the aggregate
approximately 7.1% of the total votes
entitled to be cast at the Special Meeting.
The directors and executive officers of the
Company have indicated that they intend to
vote their shares of Common Stock in favor of
the Merger Proposal. See "Security Ownership
of Certain Beneficial Owners and Management."
4
<PAGE> 16
THE MERGER
Effect of the Merger;
Merger Consideration............ Upon consummation of the Merger, (i) Merger
Sub will be merged with and into the Company,
with the Company continuing as the Surviving
Corporation and becoming a wholly-owned
subsidiary of AmeriServe, and (ii) each
outstanding share of Common Stock, including
fractional shares, will be converted into the
right to receive $15.00 in cash (or a
pro-rata portion thereof, in the case of
fractional shares), without interest (other
than shares held by the Company as treasury
stock, or shares owned by AmeriServe, Merger
Sub or any subsidiary of the Company,
AmeriServe or Merger Sub, which will be
canceled, and shares held by the stockholders
of the Company, if any, who properly exercise
their appraisal rights under Section 262 of
the DGCL). The Merger Consideration was
determined by negotiations between the
Company and AmeriServe, and is not subject to
adjustment. No third party valuations or
appraisals were obtained in connection with
the determination of the Merger
Consideration. The same per share valuation
was used in determining the consideration
payable in respect of whole and fractional
shares. The aggregate Merger Consideration to
be paid in the Merger, including amounts paid
by the Company in respect of the cancellation
of options to purchase Common Stock and
amounts paid in respect of fractional shares,
is approximately $144 million.
Treatment of Stock
Options......................... At the Effective Time, outstanding options to
purchase shares of Common Stock granted under
any of the Option Plans (as defined herein),
whether or not then vested or exercisable
("Options"), surrendered by the holder
thereof for cash, will be canceled, and in
consideration of such cancellation (except to
the extent that AmeriServe or Merger Sub and
the holder of any such Option otherwise
agree), the Company will pay to each such
holder of Options an amount in cash in
respect thereof equal to the product of (i)
the excess, if any, of the Merger
Consideration over the per share exercise
price of such Options and (ii) the number of
shares of Common Stock subject to such
Options, less applicable withholding taxes.
As of the Record Date, there were
approximately 639,650 Options outstanding,
all of which were held by current and former
directors, officers or employees of the
Company. Each Option represents the right to
purchase one share of Common Stock.
Approximately $1.9 million will be paid by
the Company to Option holders in respect of
the cancellation of such Options in
connection with the Merger, including
approximately $1.3 million to executive
officers and directors of the Company, less
applicable withholding taxes. See "The Merger
Agreement -- The Merger -- Options."
Treatment of the
Company's Employee
Stock Purchase Plan............. The Company's 1997 Employee Stock Purchase
Plan (the "ESPP") permits full-time employees
of the Company and its subsidiaries who have
been
5
<PAGE> 17
employed for at least three months prior to
July 1 each year (the first day of the ESPP
plan year) to purchase shares of Class A
Common Stock, through payroll deductions, at
85% of the fair market value of a share of
Class A Common Stock on the first business
day of the plan year. Amounts withheld are
held in participant accounts until the last
business day of each quarter, at which time
the shares of Class A Common Stock are
purchased. Pursuant to the Merger Agreement,
the Company has agreed to amend the ESPP such
that, if the Effective Time occurs prior to
the end of the current plan year, the date on
which the Effective Time occurs will be
deemed the last day of the current plan year
for purposes of the ESPP. Such amendment will
have the effect that on such date,
immediately prior to the Effective Time, in
accordance with the ESPP, all amounts
previously withheld from the participants'
pay pursuant to the ESPP will be used to
purchase shares of Class A Common Stock from
the Company at a purchase price of $6.035
(85% of the fair market value of the Class A
Common Stock on July 1, 1997 (as determined
in accordance with the ESPP), the first
business day of the current plan year). The
shares purchased will thereafter be converted
in the Merger into the right to receive the
Merger Consideration. At the Effective Time,
the Company will terminate the ESPP, any cash
held in participant accounts after the
purchase described above will be distributed
to the respective participants in the ESPP
and no plan year that would otherwise
commence on or after such date will commence.
If the current plan year ends prior to the
Effective Time, the ESPP will terminate as of
the last day of the plan year. See "The
Merger Agreement -- The Merger -- Employee
Stock Purchase Plan."
Recommendation of the
Board of Directors.............. The Board, at a meeting duly called and held,
has unanimously (i) determined that the
Merger Agreement and the Merger are fair to
and in the best interests of the Company and
its stockholders and (ii) recommended that
the Company's stockholders approve and adopt
the Merger Agreement and the transactions
contemplated thereby. In reaching its
determination that the Merger Agreement and
the Merger are fair to and in the best
interests of the Company and its
stockholders, the Board considered a number
of factors, as more fully described under
"The Merger -- Reasons for the Merger;
Recommendation of the Board of Directors."
Opinion of Morgan
Stanley......................... Morgan Stanley has delivered to the Board of
Directors a written opinion, dated January
29, 1998 (the "Morgan Stanley Opinion"), to
the effect that, as of the date of such
opinion and based upon and subject to certain
matters stated therein, the Merger
Consideration was fair, from a financial
point of view, to the holders of Class A
Common Stock. The full text of the Morgan
Stanley Opinion which sets forth the
assumptions made, matters considered and
limitations on the review undertaken, is
attached as Annex III to this Proxy Statement
and should be read carefully in its entirety.
The Morgan Stanley Opinion is directed to the
Board of Directors and relates only to the
fairness of the Merger Consideration to the
holders of Class A Common
6
<PAGE> 18
Stock, from a financial point of view, does
not address any other aspect of the Merger or
any related transactions and does not
constitute a recommendation to any
stockholder of the Company as to how such
stockholder should vote at the Special
Meeting. See "The Merger -- Opinion of Morgan
Stanley."
Interests of Certain Persons
in the Merger................... Certain directors and executive officers of
the Company may have interests, described
herein, that present them with potential
conflicts of interest in connection with the
Merger. The Board of Directors is aware of
such conflicts and considered them in
addition to the other matters described under
"The Merger -- Reasons for the Merger;
Recommendation of the Board of Directors."
For example, as of the Record Date, excluding
shares held by Onex and its affiliates which
are deemed beneficially owned by Gerald W.
Schwartz, a director of the Company and
Chairman of the Board, President and Chief
Executive Officer of Onex, the executive
officers and directors of the Company
(including one former director of the
Company) owned an aggregate of 486,845 shares
of Common Stock (or approximately 5.2% of the
total outstanding shares of Common Stock).
The aggregate consideration that will be
received upon the consummation of the Merger
by the executive officers and directors of
the Company in respect of such shares will be
$7,302,675. In addition, as of the Record
Date, the current and former executive
officers and directors of the Company had the
right to acquire, in the aggregate, 355,100
shares of Common Stock upon the exercise of
Options granted pursuant to the Option Plans
at exercise prices less than the Merger
Consideration. The cash that will be received
by the executive officers and directors of
the Company upon the consummation of the
Merger pursuant to the surrender of Options
will be approximately $1,255,175, less
applicable withholding taxes. David R.
Parker, the Company's Chairman of the Board,
and Thomas C. Highland, the Company's
President and Chief Executive Officer, are
currently in discussions with AmeriServe
regarding the possible extension of their
employment agreements with the Company and
the terms thereof. Further, pursuant to the
Voting Agreement, the Onex Stockholders have
agreed to vote the Subject Shares in favor of
the Merger Proposal and have granted Merger
Sub the Merger Sub Option (as defined herein)
to purchase the Subject Shares at the
Exercise Price (as defined herein), in each
case, subject to the terms and conditions of
the Voting Agreement. If Merger Sub exercises
the option, purchases the Subject Shares and
has not acquired the remaining shares of
Common Stock, then Merger Sub will be
obligated to pay the Onex Stockholders
one-half of any consideration in excess of
the Exercise Price (net of taxes, expenses
and other specified amounts) received by
Merger Sub in respect of the Subject Shares
in connection with a Third Party Business
Combination (as defined herein) during the
one year period following the closing of the
Option exercise. For detailed information
concerning such conflicts, see "The Merger --
Interests of Certain Persons in the Merger."
7
<PAGE> 19
Conditions to the Merger........ The obligations of each of the Company,
AmeriServe and Merger Sub to consummate the
Merger are subject to various conditions,
including, without limitation, obtaining
requisite Company stockholder approval, the
termination or expiration of the relevant
waiting period under the HSR Act (see "The
Merger -- Regulatory Approvals"), and the
absence of any applicable law, injunction or
other legal restraint prohibiting the
consummation of the Merger. The Company has
been informed by the FTC that the waiting
period under the HSR Act was terminated
effective as of February 13, 1998.
The conditions to closing relating to
approval of the Merger Agreement by Company
stockholders, compliance with the HSR Act and
the absence of any laws, injunctions or other
legal restraints prohibiting the consummation
of the Merger may not be waived by the
parties. The Company does not believe it
could waive any other condition if the effect
of such waiver would be to alter the
consideration to be received by stockholders,
unless the waiver was approved by
stockholders. See "The Merger Agreement --
Conditions to the Merger."
Termination..................... The Merger Agreement is subject to
termination at any time prior to the
Effective Time by the mutual consent of
AmeriServe and the Company. The Merger
Agreement is also subject to termination (i)
by AmeriServe if the Company's stockholders
fail to approve the Merger at the Special
Meeting or if the Company's Board of
Directors withdraws or modifies in a manner
adverse to AmeriServe or Merger Sub its
approval or recommendation of the Merger
Agreement or the Merger (or resolves to do
so) or (ii) by AmeriServe or the Company if
there is any law or regulation that makes
consummation of the Merger illegal or
otherwise prohibited or any judgment,
injunction, order or decree enjoining
AmeriServe or the Company from consummating
the Merger is entered (which, in the case of
any action brought other than by a
governmental entity, has become final and
non-appealable), or if the Merger is not
consummated by July 1, 1998. The Merger
Agreement does not provide for the payment of
monetary penalties to any party in the event
that it is terminated. See "The Merger
Agreement -- Termination of the Merger
Agreement."
The Voting Agreement............ Pursuant to the Voting Agreement, the Onex
Stockholders have agreed, among other things,
to vote the Subject Shares, representing an
aggregate of approximately 84.8% of the total
votes entitled to be cast at the Special
Meeting, in favor of the Merger, the adoption
by the Company of the Merger Agreement and
the approval of the terms thereof and each of
the other transactions contemplated by the
Merger Agreement, and against certain other
corporate actions, including any such actions
that relate to any competing transaction, and
the Onex Stockholders have granted AmeriServe
and Merger Sub an irrevocably proxy to vote
the Subject Shares in such manner. The Onex
Stockholders have also agreed, pursuant to
the Voting Agreement, to comply with certain
restrictions on the transfer of the Subject
Shares, to waive any rights of appraisal
available in connection with the Merger and
to take or refrain from taking certain other
8
<PAGE> 20
actions. Pursuant to the Voting Agreement,
the Onex Stockholders have granted to Merger
Sub an irrevocable option (the "Merger Sub
Option") to purchase the Subject Shares at
$15.00 per share (the "Exercise Price") if
the Merger Agreement is terminated under
certain circumstances subject to the terms
and conditions of the Voting Agreement. In
the event that Merger Sub purchases the
Subject Shares pursuant to the Merger Sub
Option, it will be required to make a cash
tender offer for the remaining shares of
Common Stock not held by it at a price of
$15.00 per share, subject to certain
conditions set forth in the Voting Agreement.
If Merger Sub exercises the option, purchases
the Subject Shares and has not acquired the
remaining shares of Common Stock, then Merger
Sub will be obligated to pay the Onex
Stockholders one-half of any consideration in
excess of the Exercise Price (net of taxes,
expenses and other specified amounts)
received by Merger Sub in respect of the
Subject Shares in connection with a Third
Party Business Combination (as defined
herein) during the one year period following
the closing of the Merger Sub Option
exercise. The Onex Stockholders are
controlled by Onex. None of the Onex
Stockholders received any consideration in
exchange for agreeing to enter into the
Voting Agreement. For a more detailed summary
of the foregoing provisions and certain other
provisions of the Voting Agreement, see "The
Voting Agreement."
Appraisal Rights................ Holders of Common Stock on the Record Date
that do not vote in favor of approving and
adopting the Merger Agreement (including
those who abstain with respect to the Merger
Proposal and those who do not provide
specific voting instructions to brokers who
hold their shares of Common Stock in "street
name") and that otherwise comply with the
applicable statutory procedures of Section
262 of the DGCL will be entitled to appraisal
rights under Section 262 of the DGCL.
Stockholders electing to exercise appraisal
rights may receive more or less than the
$15.00 per share Merger Consideration to be
paid to stockholders who do not exercise
appraisal rights. A summary of the provisions
of Section 262 of the DGCL, including a
summary of the requirements with which
holders of Common Stock desiring to assert
appraisal rights must comply, is contained
herein under the heading "The Merger --
Appraisal Rights." The entire text of Section
262 of the DGCL is attached hereto as Annex
IV.
Certain Federal Income
Tax Consequences................ The receipt of cash by a stockholder of the
Company pursuant to the Merger will be a
taxable transaction for federal income tax
purposes and may also be taxable under
applicable state, local and foreign income
and other tax laws. In general, a stockholder
will recognize gain or loss for federal
income tax purposes in an amount equal to the
difference between the adjusted tax basis of
his, her or its Common Stock and the amount
of cash received in exchange therefor in the
Merger. Such gain or loss generally will be
capital gain or loss if the Common Stock is a
capital asset in the hands of such
stockholder. In the case of an individual,
any such capital gain will be subject to
federal income tax at a maximum rate of 28%
if the holder's holding period in the Common
Stock is more than one year
9
<PAGE> 21
but not more than 18 months and at a maximum
rate of 20% if the holder's holding period is
more than 18 months. The foregoing does not
apply to individuals who are receiving a
payment pursuant to the Merger in exchange
for Options. Such individuals will recognize
ordinary income equal to the full payment
that they are entitled to receive in respect
of such Options (i.e. the Merger
Consideration less the exercise price of the
Option). The foregoing is based on the
opinion of Kaye, Scholer Fierman, Hays &
Handler, LLP, counsel to the Company. See
"The Merger -- Certain Federal Income Tax
Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE
MERGER MAY VARY DEPENDING ON THE PARTICULAR
CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS
RECOMMENDED THAT HOLDERS OF COMMON STOCK
CONSULT THEIR TAX ADVISORS CONCERNING THE
FEDERAL (AND ANY STATE, LOCAL AND FOREIGN)
TAX CONSEQUENCES OF THE MERGER IN THEIR
PARTICULAR CIRCUMSTANCES.
Selected Financial
Data............................ Certain selected financial data of the
Company are set forth under "SELECTED
FINANCIAL DATA." The data should be read in
conjunction with the financial statements and
related notes included in "Certain
Information Regarding ProSource, Inc."
attached as Annex V to this Proxy Statement.
Certain Information in
Connection with the
Class A Common Stock............ The Class A Common Stock is quoted on the
Nasdaq National Market. On January 29, 1998,
the last trading date prior to the public
announcement of the execution of the Merger
Agreement, the closing price of the Class A
Common Stock, as quoted on the Nasdaq
National Market, was $6 15/16 per share. On
April 1, 1998, the closing price of the Class
A Common Stock, as quoted on the Nasdaq
National Market, was $14 3/4 per share.
Stockholders are urged to obtain current
market quotations for the Common Stock prior
to making any decision with respect to the
Merger. See "Market Prices of Common Stock."
10
<PAGE> 22
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of Common Stock
in connection with the solicitation of Proxies by and on behalf of the Board for
use at the Special Meeting to be held at 11:30 a.m., local time, on May 20,
1998, at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP, 425 Park
Avenue, 19th Floor, New York, New York 10022, and at any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will
consider and vote on the Merger Proposal. The Merger Agreement is attached to
this Proxy Statement as Annex I. See "The Merger" and "The Merger Agreement."
The Board of Directors has determined that the Merger Agreement and the Merger
are fair and in the best interests of the Company and its stockholders, has
unanimously approved the Merger Agreement and recommends a vote FOR approval and
adoption of the Merger Proposal. See "The Merger -- Background of the Merger"
and "-- Reasons for the Merger; Recommendation of the Board of Directors."
REQUIRED VOTES
The approval of the Merger Proposal will require the affirmative
vote of the holders of shares of Common Stock entitled to cast a majority of the
votes of all outstanding shares of Common Stock entitled to vote at the Special
Meeting. On the Record Date, the Company had outstanding 9,383,591 shares of
Common Stock (3,526,835 shares of Class A Common Stock and 5,856,756 shares of
Class B Common Stock). Holders of the Class A Common Stock will be entitled to
one vote for each share of Class A Common Stock so held and holders of the Class
B Common Stock will be entitled to ten votes for each share of Class B Common
Stock so held. The Onex Stockholders have agreed, pursuant to the terms of the
Voting Agreement, to vote all of the Subject Shares in favor of the Merger
Proposal. The Onex Stockholders beneficially own approximately 14.1% of the
outstanding shares of Class A Common Stock and 89.1% of the outstanding shares
of Class B Common Stock entitled to vote at the Special Meeting, representing in
the aggregate approximately 84.8% of the total votes entitled to be cast at the
Special Meeting and thus have sufficient voting power to approve and adopt the
Merger Agreement without regard to the votes of other stockholders. A copy of
the Voting Agreement is attached to this Proxy Statement as Annex II. See "The
Voting Agreement" and "Security Ownership of Certain Beneficial Owners and
Management."
As of the Record Date, excluding shares held by Onex and its
affiliates which are deemed beneficially owned by Gerald W. Schwartz, a director
of the Company and Chairman of the Board, President and Chief Executive Officer
of Onex, the directors and executive officers of the Company beneficially owned
an aggregate of 17,645 shares of Class A Common Stock (representing
approximately 0.5% of the outstanding shares of Class A Common Stock) and
439,200 shares of Class B Common Stock (representing approximately 7.5% of the
outstanding shares of Class B Common Stock). Such shares represent in the
aggregate approximately 7.1% of the total votes entitled to be cast at the
Special Meeting. The directors and executive officers of the Company have
indicated that they intend to vote their shares of Common Stock in favor of the
Merger Proposal. See "Security Ownership of Certain Beneficial Owners and
Management."
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<PAGE> 23
VOTING AND REVOCATION OF PROXIES; ADJOURNMENTS
This Proxy Statement is being furnished to stockholders of record at
the close of business on the Record Date in connection with the solicitation of
Proxies by and on behalf of the Board for use at the Special Meeting. All shares
of Common Stock which are represented at the Special Meeting by a properly
executed Proxy received and not duly and timely revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. If a
Proxy is signed and returned without indicating any voting instructions, shares
of Common Stock represented by such Proxy will be voted FOR the Merger Proposal.
The Board of Directors is not currently aware of any business to be acted upon
at the Special Meeting other than as described herein. If, however, other
matters are properly brought before the Special Meeting or any adjournments or
postponements thereof, the persons appointed as proxies will have the discretion
to vote or act thereon in accordance with their best judgment, unless authority
to do so is withheld in the Proxy. The persons appointed as proxies will not
exercise their discretionary voting authority to vote any such Proxy in favor of
any adjournments or postponements of the Special Meeting.
A Proxy signed and returned by a stockholder may be revoked prior to
its being voted by (i) delivering to the Secretary of the Company, at or before
the Special Meeting, a written instrument bearing a later date than the Proxy
that by its terms revokes the Proxy, (ii) duly executing a subsequent Proxy
relating to the same shares and delivering it to the Secretary of the Company at
or before the Special Meeting or (iii) attending the Special Meeting and giving
notice of revocation to the Secretary of the Company or in open meeting prior to
the Proxy being voted (although attendance at the Special Meeting without taking
other affirmative action as aforementioned will not constitute a revocation of a
Proxy). Any written instrument revoking a Proxy must be received before the
taking of the votes at the Special Meeting and should be sent to: ProSource,
Inc., 1500 San Remo Avenue, Coral Gables, Florida 33146, Attention: Paul A.
Garcia de Quevedo, Corporate Secretary.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
April 1, 1998 has been fixed as the Record Date for the
determination of the holders of Common Stock entitled to notice of, and to vote
at, the Special Meeting. Only holders of Common Stock at the close of business
on the Record Date will be entitled to notice of, and to vote at, the Special
Meeting. At the close of business on the Record Date, there were 3,526,835
shares of Class A Common Stock outstanding and entitled to vote at the Special
Meeting, held by approximately 36 stockholders of record and 5,856,756 shares of
Class B Common Stock outstanding and entitled to vote of the Special Meeting,
held by approximately 62 stockholders of record. The presence, in person or by
properly executed Proxy, of a majority of the votes entitled to be cast by the
holders of all outstanding shares of Common Stock is necessary to constitute a
quorum at the Special Meeting. Shares of Common Stock represented by Proxies
that are marked "abstain" or that are not marked as to any particular matter or
matters and Proxies relating to "street name" shares that are voted by brokers
will be counted as shares present for purposes of determining the presence of a
quorum on all matters.
Holders of Class A Common Stock on the Record Date are entitled to
one vote per share of Class A Common Stock and holders of Class B Common Stock
on the Record Date are entitled to ten votes per share of Class B Common Stock,
in each case, exercisable in person or by properly executed Proxy, upon each
matter properly submitted for the vote of stockholders at the Special Meeting.
Abstentions and broker non-votes ("street name" shares for which brokers do not
receive specific voting instructions from beneficial owners) will not be counted
as votes cast in favor of the Merger Proposal. Because the vote on the Merger
Proposal requires the approval of holders of shares of Common Stock entitled to
cast a majority of the votes
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<PAGE> 24
of all outstanding shares of Common Stock entitled to vote at the Special
Meeting, abstentions and broker non-votes will have the same effect as a
negative vote on the Merger Proposal.
APPRAISAL RIGHTS
Holders of Common Stock on the Record Date who do not vote in favor
of approving and adopting the Merger Agreement (including those who abstain with
respect to the Merger Proposal and those who do not provide specific voting
instructions to brokers who hold their shares of Common Stock in "street name")
and who otherwise comply with the applicable statutory procedures of Section 262
of the DGCL will be entitled to appraisal rights under the DGCL in connection
with the Merger. Stockholders of the Company who vote in favor of approving and
adopting the Merger Agreement, including stockholders who return a signed Proxy
without indicating any voting instructions as to the Merger Proposal, however,
will thereby waive their appraisal rights. Stockholders electing to exercise
appraisal rights may receive more or less than the $15.00 per share Merger
Consideration to be paid to stockholders who do not exercise appraisal rights.
The full text of Section 262 of the DGCL is attached as Annex IV to this Proxy
Statement. See "The Merger -- Appraisal Rights" for a further discussion of such
rights and legal consequences of voting shares of Common Stock in favor of the
Merger Proposal.
SOLICITATION OF PROXIES
The cost of soliciting proxies, which will be undertaken by mail,
telephone, personal contact or other means of communication, will be borne by
the Company. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
material to certain beneficial owners of the Company's Common Stock, and the
Company will reimburse such forwarding parties for reasonable expenses incurred
by them. The Company's regularly retained investor relations consultant,
Corporate Communications, Inc., will assist in the solicitation of proxies from
stockholders, and further solicitation may be undertaken by directors, officers
and employees of the Company. Such persons will not be compensated for such
services, but will be reimbursed for out of pocket expenses.
If you have any questions or require additional material, please
call the Company's Corporate Secretary, Paul A. Garcia de Quevedo, at (305)
740-1000.
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD TO THE COMPANY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES REPRESENTING COMMON
STOCK WITH THEIR PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED,
CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A
LETTER OF TRANSMITTAL WHICH WILL BE SENT TO STOCKHOLDERS PROMPTLY AFTER THE
EFFECTIVE TIME. SEE "THE MERGER -- THE MERGER AGREEMENT -- EXCHANGE OF
CERTIFICATES."
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<PAGE> 25
THE MERGER
BACKGROUND OF THE MERGER
In recent years, the foodservice distribution industry in which the
Company operates has been marked by continuing consolidation. From time to time,
as opportunities to acquire other distributors have arisen, the Company has
acquired or attempted to acquire other distributors in an effort to expand its
customer base and improve its geographic customer density. These efforts have
resulted in several acquisitions in recent years, including the acquisition in
March 1995 of the National Accounts Division of The Martin-Brower Company. Not
all of the Company's efforts to make acquisitions have been successful, however,
including two attempts in 1997 to make what would have been significant
acquisitions.
Over a number of years and through October 1997 informal discussions
were held from time to time involving Anthony R. Melman, Vice President of Onex
and a director of the Company, Anthony Munk, Vice President of Onex and a
director of the Company, John V. Holten, Chairman and Chief Executive Officer of
AmeriServe, and, on several occasions, Benoit Jamar, a director of AmeriServe
and a Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), an affiliate of which is an investor in AmeriServe, regarding
AmeriServe's interest in a possible merger or other transaction with ProSource.
Such discussions included a conversation on July 15, 1997 between Messrs. Jamar
and Munk, a meeting on August 1, 1997 involving, among others, Messrs. Holten,
Jamar, Melman and Munk and a conversation in mid-August between Messrs. Jamar
and Munk. During this time, no formal proposals were made.
In November 1997, Mr. Munk, in the course of a conversation with Mr.
Jamar, indicated that, as a result of interest in the food service distribution
industry and in the Company engendered by the sale earlier that year of a
significant competitor, Onex had received unsolicited indications of interest
regarding its investment in the Company. In mid-December 1997, Mr. Jamar called
Mr. Munk to arrange a meeting in early January 1998 to discuss the possibility
of a potential transaction between AmeriServe and ProSource. In that
conversation, Mr. Munk indicated that any proposal by AmeriServe would need to
be made promptly in anticipation of a meeting of the Company's Board scheduled
for late January, at which meeting Mr. Munk indicated the Company intended to
review various strategic alternatives and determine in which direction to
proceed. On January 8, 1998, Messrs. Holten and Jamar spoke with Messrs. Melman
and Munk to discuss a potential transaction between AmeriServe and ProSource. On
January 13, 1998, Holberg Industries, Inc., AmeriServe's indirect parent company
("Holberg") proposed to Onex a merger involving AmeriServe and ProSource under
which each holder of Common Stock would receive $13.00 per share in cash,
subject to, among other things, certain closing conditions and Onex's commitment
to support the transaction. The Company believes that Holberg's determination to
make this offer was based on its independent evaluation of ProSource's business.
The following day Messrs. Jamar, Melman, Munk and Nigel S. Wright, a Principal
of Onex, spoke by telephone and Onex indicated that the proposal was
unacceptable. This determination was made because Onex and its affiliates, the
Company's principal stockholders, were not prepared to vote in favor of a
transaction at such price and believed that a higher per share price was
obtainable through further negotiation.
During the period from January 14 though January 18, 1998, the
parties and their respective legal advisors had several telephone conversations
regarding a possible transaction. On January 21, 1998, AmeriServe's counsel
delivered draft merger and voting agreements to Onex. Messrs. Melman and Munk
advised Mr. Jamar that they were not prepared to comment on or authorize counsel
for Onex and the Company to comment on the draft agreements unless a
satisfactory price were proposed.
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<PAGE> 26
On January 24, 1998, Holberg proposed to Onex a price of $14.50 per
share in cash, with terms of the merger to be as set forth in the draft
agreements previously delivered. The Company believes that Holberg's
determination to make this offer was based on its independent evaluation of
ProSource's business. In a telephone conversation later that day, Onex indicated
that the proposed purchase price was still not satisfactory but that it was a
basis upon which negotiations could proceed. Onex also committed to have its
counsel provide comments on the draft merger agreement and voting agreement and
requested that Holberg advise it of the specific information regarding ProSource
that it would need in order to be able to raise its price. Mr. Jamar agreed to
do so but also advised that ProSource should prepare a presentation outlining
its justification for additional consideration.
The following day, counsel for Onex and ProSource provided written
comments on the draft merger and voting agreements. In addition, further
discussions were held between the parties regarding the timing and progress of
negotiations, as well as procedures for entering into any agreement.
On Monday, January 26, 1998, David Parker, the Company's Chairman of
the Board, briefed each of the members of the Company's Board of Directors
regarding the proposal by AmeriServe and the status of negotiations. In
addition, the Company contacted Morgan Stanley to engage it for purposes of
evaluating the proposed merger consideration and issuing an opinion as to its
fairness, from a financial point of view, to holders of the Class A Common
Stock. That afternoon, the parties' respective legal advisors met at the offices
of AmeriServe's counsel to discuss the terms of the merger agreement and voting
agreement.
Further conversations were held during January 27 and 28, 1998
between the parties and their respective counsel regarding the terms of the
merger agreement and voting agreement, as well as procedures for reaching
definitive agreements. On January 27, 1998, AmeriServe and the Company executed
a confidentiality agreement.
On January 28, 1998, the Company and Morgan Stanley executed an
agreement whereby Morgan Stanley was formally retained to evaluate the proposed
merger consideration and issue the fairness opinion.
Late in the afternoon of January 28th, representatives of Onex,
Holberg and DLJ, as well as their respective counsel, held a telephone
conference call during which certain contractual matters were discussed.
The Board of Directors of the Company met on January 29, 1998 to
consider the proposed terms and conditions of the transaction, as well as to
consider certain other strategic alternatives. These alternatives included
soliciting bids from third parties to acquire the Company, merging with another
company, acquiring one or more other companies, selling a minority interest in
the Company, entering into a strategic alliance with another company and
continuing with the Company's existing business strategies. At this meeting,
after having discussed and considered such strategic alternatives, the Board
turned to the proposed Merger. The Company's legal counsel reviewed the terms of
the proposed merger agreement, and Morgan Stanley made a presentation to the
Board setting forth its analysis of the proposed Merger and the bases therefor,
and delivered its oral opinion indicating that the $14.50 per share
consideration to be received by the holders Class A Common Stock in the proposed
Merger was fair from a financial point of view. After the presentation and
discussion, the Board of Directors approved the Merger, including the cash
purchase price of at least $14.50 per share, and the form of merger agreement
and authorized Mr. Melman to proceed with further negotiations regarding a
possible increase in the merger consideration. The Board's determination to
approve the Merger and the form of merger agreement was based on its
determination that the Merger, including merger consideration of at least $14.50
per share in cash, as compared to the other
15
<PAGE> 27
strategic initiatives considered, represented, in the judgment of the Board, the
best option for maximizing value to holders of Common Stock, taking into account
the uncertainties inherent in such other strategic initiatives.
At approximately 4:15 p.m. on January 29, AmeriServe delivered to
the Company executed copies of the Merger Agreement and Voting Agreement,
together with a letter offering to acquire ProSource for an all cash price of
$14.50 per share on the terms and conditions set forth in the executed Merger
Agreement and Voting Agreement. The offer letter indicated that the offer was
irrevocable until it expired at 9:00 p.m. that evening. Following receipt of the
executed offer letter, management representatives of the Company made a
presentation to representatives of AmeriServe including detailed information
regarding the financial performance of the Company and other aspects of the
Company's operations such as financial information by type of distribution
center, a breakdown of costs and staffing levels by functional area and
disclosure of major capital commitments. After further discussion, at
approximately 9:00 p.m., agreement was reached on a per share purchase price of
$15.00, and the Merger Agreement and Voting Agreement were executed by the
parties. The Company believes that Holberg's determination to raise its offer to
$15.00 per share was based on its independent evaluation of ProSource's
business, which evaluation was based, in part, on the information disclosed in
the presentation by ProSource management to representatives of AmeriServe.
Prior to the presentation by ProSource to AmeriServe on January 29,
no financial or other business information was exchanged by the parties, other
than schedules to the Merger Agreement containing ordinary course disclosures
regarding the Company's outstanding securities, material contracts (including
collective bargaining agreements), recent changes in employee compensation, a
recent change in an accounting principle (which is reflected in the Company's
financial statements for the fiscal year ended December 27, 1997), outstanding
debt, outstanding litigation, descriptions of outstanding employee benefit
plans, certain labor and tax matters and transactions with affiliates. The
schedules include information which is generally known to the public, as well as
non-public information.
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<PAGE> 28
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board has determined that the Merger Agreement and the Merger
are fair to and in the best interests of the Company and its stockholders and
has unanimously approved and adopted the Merger Agreement. Accordingly, the
Board recommends that stockholders vote FOR approval and adoption of the Merger
Agreement.
In reaching its determination that the Merger Agreement and the
Merger are fair to and in the best interests of the Company and its
stockholders, the Board consulted with the Company's legal and financial
advisors and considered the following principal factors which were material to
the Board's decision:
(i) The premium provided by the Merger Consideration over the
historical market prices for the Common Stock, including the fact that the
Merger Consideration represents a premium of 116% over the $6 15/16 per share
last sale price of the Class A Common Stock on January 29, 1998, the trading day
preceding the date on which the execution of the Merger Agreement was publicly
announced. See "Market Prices of Common Stock."
(ii) The Morgan Stanley Opinion to the effect that, based upon and
subject to certain matters stated therein, the Merger Consideration is fair,
from a financial point of view, to the holders of Class A Common Stock and the
presentation of Morgan Stanley at the January 29, 1998 Board meeting in
connection with its opinion. See "-- Opinion of Morgan Stanley."
(iii) The fact that the Merger Consideration to be received by
stockholders of the Company is in the form of cash.
(iv) The Board's view that the terms of the Merger Agreement, as
reviewed by the Board with its legal advisors and Morgan Stanley (see "The
Merger Agreement"), are fair to and in the best interests of the Company and its
stockholders in light of the nature of the transaction.
(v) The fact that AmeriServe's obligations to consummate the Merger
are not contingent upon receipt of financing to provide the necessary funds to
complete the Merger and that the other conditions to closing are fairly limited
in scope.
(vi) The Board's belief, after consultation with its legal counsel,
that the required regulatory approvals could be obtained for the Merger. See
"The Merger -- Regulatory Approvals."
(vii) The Board's knowledge of the business, operations, properties,
assets, financial condition and operating results of the Company and the current
and prospective economic and competitive environment in which the Company
operates.
The foregoing discussion of the information and factors discussed by
the Board is not meant to be exhaustive but is believed to include all material
factors considered by the Board. In view of the variety of factors considered in
connection with its evaluation of the Merger, the Board did not find it
practicable to, and did not quantify or otherwise attempt to assign any
particular weight to the various factors that it considered in reaching its
determination that the Merger Agreement and the Merger are fair to and in the
best interests of the Company and its stockholders. In addition, individual
members of the Board may have given different weight to different factors. As a
result of its consideration of the foregoing and other relevant considerations,
the Board determined that the Merger Agreement and the Merger are fair to and in
the best interests of the Company and its stockholders and unanimously approved
and adopted the Merger Agreement.
17
<PAGE> 29
OPINION OF MORGAN STANLEY
ProSource retained Morgan Stanley to provide a fairness opinion in
connection with the Merger based on Morgan Stanley's qualifications, expertise
and reputation, as well as Morgan Stanley's investment banking relationship and
familiarity with ProSource. On January 29, 1998, Morgan Stanley delivered its
oral opinion to the ProSource Board that, as of such date and based upon and
subject to the various considerations set forth in the opinion, the $14.50 per
share consideration to be received by the holders of Class A Common Stock
pursuant to the proposed Merger Agreement was fair from a financial point of
view to such holders. That opinion was subsequently confirmed in writing with
respect to the $15.00 per share consideration provided for in the Merger
Agreement.
The full text of Morgan Stanley's written opinion which sets forth,
among other things, assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex III to this Proxy Statement. ProSource
stockholders are urged to, and should, read the opinion carefully and in its
entirety. Morgan Stanley's opinion is directed to the ProSource Board, addresses
only the fairness from a financial point of view of the consideration to be
received by the holders of the Class A Common Stock, and does not address any
other aspect of the Merger or constitute a recommendation to any stockholder of
ProSource as to how such stockholder should vote on the Merger Proposal. The
summary of the Morgan Stanley Opinion as set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.
In connection with rendering its opinion, Morgan Stanley, among
other things: (i) reviewed certain publicly available financial statements and
other information regarding the Company and certain of its competitors,
including research reports prepared by the equity research analysts of Morgan
Stanley and other investment banks; (ii) reviewed certain internal financial
statements and other financial and operating data concerning the Company
prepared by the management of the Company; (iii) reviewed certain financial
projections prepared by the management of the Company; (iv) discussed the past
and current operations and financial condition and the financial, strategic and
operating outlook of the Company with senior executives of the Company; (v)
reviewed the reported prices and trading activity for the Class A Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Class A Common Stock with that of certain other
comparable publicly-traded companies and their securities; (vii) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; and (viii) reviewed the Merger Agreement and the
Voting Agreement.
Morgan Stanley assumed and relied upon without independent
verification the accuracy and completeness of the information reviewed by it for
the purposes of rendering its opinion. With regard to the financial projections,
Morgan Stanley assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the future financial
performance of ProSource. Morgan Stanley did not make any independent valuation
or appraisal of the assets or liabilities of ProSource nor was it furnished with
any such appraisals. In addition, Morgan Stanley assumed that the Merger would
be consummated in accordance with the terms set forth in the Merger Agreement.
Morgan Stanley's opinions were necessarily based on economic, market and other
conditions in effect on, and the information made available to Morgan Stanley as
of, the respective dates thereof.
In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition, business combination or other extraordinary transaction involving
the Company, nor did Morgan Stanley negotiate with AmeriServe or any parties
which may have expressed interest in any possible acquisition of ProSource or
certain of its constituent businesses.
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<PAGE> 30
The following is a brief summary of certain analyses performed by
Morgan Stanley and reviewed with the ProSource Board on January 29, 1998, in
connection with Morgan Stanley's presentation and opinion to the ProSource Board
on such date:
ProSource Class A Common Stock Performance. Morgan Stanley's
analysis of ProSource Class A Common Stock performance consisted of: a review of
closing prices and trading volumes from November 11, 1996, the date of the
initial public offering, through January 27, 1998; ProSource's indexed price
performance from November 11, 1996 through January 27, 1998 relative to the
indexed price performance of a comparable company index (the "Comparable Company
Index") which was comprised of U.S. Foodservice, Inc. (formerly JP Foodservice),
Performance Food Group and SYSCO (the "Comparable Public Companies"); and the
high and low prices for ProSource Class A Common Stock in the 12 months ended
January 27, 1998. From November 12, 1996 through January 27, 1998 ProSource
Class A Common Stock underperformed the Comparable Company Index. In the twelve
month period ended January 27, 1998, the ProSource Class A Common Stock closed
at a high of $14.00 and a low of $6.00 per share.
Comparable Company Analysis. As a part of its analysis, Morgan
Stanley compared certain financial and operating data of ProSource with
corresponding publicly available information of the Comparable Public Companies.
The financial information analyzed included a review of financial ratios such as
multiples of price to estimated 1997, 1998 and 1999 earnings per share ("EPS"),
multiples of aggregate value (defined as market value of equity plus book value
of debt and preferred stock less cash and marketable securities) to latest
twelve months ("LTM") ended September 30, 1997, forecasted 1997 and 1998
revenue, EBITDA (defined as earnings before interest, taxes, depreciation and
amortization) and EBIT (defined as earnings before interest and taxes).
Morgan Stanley noted that, based on a compilation of earnings
projections dated January 23, 1998 obtained from Institutional Brokers Estimate
System ("IBES"), the Comparable Public Companies traded at multiples of share
price to (i) forecasted 1997 earnings per share in a range of 20.0 times to 32.0
times, compared to 24.1 times for ProSource, (ii) forecasted 1998 earnings per
share in a range of 16.4 times to 22.3 times, compared to 10.1 times for
ProSource, and (iii) forecasted 1999 earnings per share in a range of 13.4 times
to 17.1 times, compared to 8.2 times for ProSource. Morgan Stanley also noted
that the Comparable Public Companies traded at multiples of aggregate value to
(i) LTM revenue, EBITDA and EBIT of 0.3 times to 0.6 times, 10.1 times to 11.9
times, and 13.4 times to 15.4 times, respectively, compared to 0.1 times, 8.0
times and 14.0 times, respectively, for ProSource, (ii) forecasted 1997 EBITDA
and EBIT of 9.6 times to 11.7 times, and 12.6 times to 15.1 times, respectively,
compared to 7.8 times and 13.2 times, respectively, for ProSource, and (iii)
forecasted 1998 EBITDA and EBIT of 8.0 times to 10.8 times, and 10.0 times to
14.0 times, respectively, compared to 5.9 times and 9.8 times, respectively, for
ProSource. Based on the financial ratios of the Comparable Public Companies,
Morgan Stanley calculated theoretical per share trading ranges for ProSource
based on earnings per share and EBITDA multiples of $5.25 to $6.25 and $11.50 to
$14.25, respectively.
In order to compare ProSource's current operating performance with
that of the Comparable Public Companies, Morgan Stanley considered various
financial measures of performance. Morgan Stanley noted that the Comparable
Public Companies had LTM EBITDA, EBIT and net income margins in a range of 2.6%
to 4.9%, 2.0% to 3.8%, and 0.9% to 2.1%, respectively, compared to 0.7%, 0.4%,
and 0.2%, respectively, for ProSource.
No company utilized in the comparable companies analysis is
identical to the Company. In evaluating the Comparable Public Companies, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
19
<PAGE> 31
many of which are beyond the Company's control, such as the impact of
competition on the Company and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of the Company or the industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable company data.
Precedent Transaction Analysis. Morgan Stanley reviewed certain
publicly available information regarding eleven transactions from 1994 to 1998
involving the acquisition of companies determined by Morgan Stanley to be
comparable to ProSource. For each transaction Morgan Stanley compared certain
financial and market statistics, including the aggregate value of the
transaction as a multiple of LTM EBITDA and the market value of equity of the
transaction as a multiple of estimated LTM net income. In these transactions,
Morgan Stanley noted that multiples of aggregate value to LTM EBITDA and
multiples of the market value of equity as a multiple of LTM net income were
within a range of 8.3 times and 13.9 times, and 16.8 times and 60.1 times,
respectively. Pursuant to this analysis, Morgan Stanley calculated per share
values for ProSource ranging from $9.50 to $14.00 per share.
No transaction utilized in the comparable transaction analysis is
identical to the Merger. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the Company's control, such as the impact of
competition on the Company and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of the Company or the industry or in financial markets in general. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis. Morgan Stanley performed several
discounted cash flow analyses in order to estimate the present values per share
of ProSource Class A Common Stock based on certain financial projections
prepared by management of the Company for fiscal year 1998, as well as certain
sensitivities thereto intended to reflect the inherent uncertainty of financial
forecasts and which incorporate differing assumptions of sales growth, EBITDA
margins and capital expenditures. Morgan Stanley discounted the unlevered free
cash flows of the Company (net income available to the holders of ProSource
Class A Common Stock plus depreciation and amortization, deferred taxes,
after-tax net interest expense less the sum of capital expenditures and
investment in non-cash working capital) over the forecast period at a range of
discount rates of 9.0% to 10.0%, the estimated weighted average cost of capital
range for the Company. The present value of such free cash flows was then added
to the present value of the Company's terminal value, computed using a range of
terminal EBITDA multiples from 7.5 times to 8.5 times and discounted at the
aforementioned range of discount rates. Based on the assumptions set forth
above, the discounted cash flow analysis yielded a per share value up to $13.50
per share.
The preparation of a fairness opinion is a complex process and is
not necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses or factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
process underlying the Morgan Stanley Opinion. In addition, Morgan Stanley may
have deemed various assumptions more or less probable than other assumptions so
that the ranges of valuations resulting from any particular analysis described
above should not be taken to be Morgan Stanley's view of the actual value of
ProSource.
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In performing its analyses, Morgan Stanley made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of ProSource. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
a part of Morgan Stanley's analyses of the fairness from a financial point of
view of the consideration to be received by the holders of Class A Common Stock
pursuant to the Merger Agreement and were provided to the Company's Board of
Directors in connection with the delivery of the Morgan Stanley Opinion. The
analyses do not purport to be appraisals or to reflect the prices at which the
Company might actually be valued in the marketplace.
As described above, the Morgan Stanley Opinion, including Morgan
Stanley's presentation to ProSource's Board of Directors, was one of many
factors taken into consideration by the Company's Board of Directors in making
its determination to approve the Merger. Consequently, the Morgan Stanley
analysis described above should not be viewed as determinative of the opinion of
ProSource's entire Board of Directors or the view of management with respect to
the value of the Company.
Morgan Stanley is a nationally recognized investment banking and
advisory firm. As part of its investment banking business, Morgan Stanley is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuation, for corporate and other purposes. Morgan Stanley is a full
service securities firm engaged in securities trading and brokerage activities,
as well as providing investment banking, financing and financial advisory
services. In the ordinary course of its trading and brokerage activities, Morgan
Stanley or its affiliates may, from time to time, hold long or short positions
in, and may trade or otherwise effect transactions for its own accounts or for
the accounts of customers, debt or equity securities or senior loans of
ProSource and Onex Corporation. In the past, Morgan Stanley and its affiliates
have provided financial advisory and financing services to ProSource and Onex
Corporation and have received fees for the rendering of such services.
Pursuant to a letter agreement entered into on January 28, 1998,
between ProSource and Morgan Stanley, ProSource has agreed to pay to Morgan
Stanley a fee of $500,000. ProSource has also agreed to reimburse Morgan Stanley
for its expenses and fees of its outside legal counsel and to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities, including liabilities under federal
securities laws, and expenses, related to Morgan Stanley's engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company have
interests, described herein, that present them with potential conflicts of
interest in connection with the Merger. The Board of Directors is aware of the
conflicts summarized below and considered them (to the extent in existence at
the time) along with the other matters described under "-- Reasons for the
Merger; Recommendation of the Board of Directors."
Interests in Common Stock and Options. As of the Record Date,
excluding shares held by Onex and its affiliates which are deemed beneficially
owned by Gerald W. Schwartz, a director of the Company and Chairman of the
Board, President and Chief Executive Officer of Onex, the executive officers and
directors of the Company (including one former director of the Company) owned an
aggregate of 486,845 shares of Common Stock (or approximately 5.2% of the total
outstanding shares of Common Stock). Shares of Common Stock held by the
executive officers and directors of the Company will be converted into
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the right to receive the same consideration as shares of Common Stock held by
other stockholders. Accordingly, the aggregate consideration that will be
received upon the consummation of the Merger by the executive officers and
directors of the Company in respect of such shares will be $7,302,675.
In addition, as of the Record Date, the executive officers and
directors of the Company (including one former director of the Company) had the
right to acquire, in the aggregate, 355,100 shares of Common Stock upon the
exercise of Options granted pursuant to the Option Plans at exercise prices less
than the Merger Consideration. Pursuant to the Merger Agreement, at the
Effective Time, outstanding Options, whether or not then vested or exercisable,
surrendered by the holder thereof for cash, will be canceled, and in
consideration of such cancellation (except to the extent that AmeriServe or
Merger Sub and the holder of any such Option otherwise agree), the Company shall
pay to each such holder of Options an amount in cash in respect thereof equal to
the product of (i) the excess, if any, of the Merger Consideration over the per
share exercise price of such Options and (ii) the number of shares of Common
Stock subject to such Options, less applicable withholding taxes. The cash that
will be received by the executive officers and directors of the Company upon the
consummation of the Merger pursuant to the surrender of Options will be
approximately $1,255,175, less applicable withholding taxes. See "The Merger
Agreement -- The Merger -- Options."
Severance Arrangements. At the request of AmeriServe, the Company
has adopted a new severance payment plan (the "Severance Plan") effective and
conditioned upon consummation of the Merger, pursuant to which all regular
full-time employees of the Company and its subsidiaries, including executive
officers of the Company, may receive separation benefits. Under the Severance
Plan, any employee whose employment is terminated without cause is eligible to
receive severance payments. In order to receive such payments, the employee
must, among other things, continue his or her employment through a severance
date to be determined by the Company, sign a release of any claims that he or
she may have against the Company and continue to comply with existing
confidentiality and non-solicitation agreements. Severance payments, which are
payable in normal payroll intervals, will consist of a number of weeks of the
employee's base salary at the time of severance, based on the employee's length
of service and level of responsibility, subject to minimum and maximum payments
depending on level of responsibility (e.g. a minimum of 26 weeks and maximum of
52 weeks for employees at the level of "Director").
Voting Agreement. Pursuant to the Voting Agreement, the Onex
Stockholders have agreed to vote the Subject Shares in favor of the Merger
Proposal and have granted Merger Sub the Merger Sub Option to purchase the
Subject Shares at the Exercise Price, in each case, subject to the terms and
conditions of the Voting Agreement. If Merger Sub exercises the option,
purchases the Subject Shares and has not acquired the remaining shares of Common
Stock, then Merger Sub will be obligated to pay the Onex Stockholders one-half
of any consideration in excess of the Exercise Price (net of taxes, expenses and
other specified amounts) received by Merger Sub in respect of the Subject Shares
in connection with a Third Party Business Combination (as defined herein) during
the one year period following the closing of the Option exercise. See "The
Voting Agreement."
Stay Bonus Arrangements. At the request of AmeriServe, to provide
incentive for a successful transition of the Company's ownership, the Company
expects to adopt a stay bonus program, subject to consummation of the Merger,
under which certain employees will be eligible to receive a cash bonus for
remaining employed with the Company for a specified period after the Effective
Time. As of the date of this Proxy Statement the individual amounts to be
awarded to eligible employees and the aggregate amount available under such plan
are in the process of being finalized. Under the terms of the Merger Agreement,
any stay bonus plan will be subject to the review and approval of AmeriServe.
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Employment Agreements. David R. Parker, the Company's Chairman of
the Board, and Thomas C. Highland, the Company's President and Chief Executive
Officer, are currently in discussions with AmeriServe regarding the possible
extension of their employment agreements with the Company and the terms thereof.
Such discussions were initiated by AmeriServe following execution of the Merger
Agreement and Voting Agreement and public announcement of the proposed Merger.
The existing employment agreements of Messrs. Parker and Highland are currently
scheduled to expire on July 1, 1999, subject to automatic one-year renewals
unless either the Company or the applicable employee gives notice of termination
by January 1 prior to the date of expiration.
In addition, AmeriServe has made an oral commitment to retain all
employees of the Company, including executive officers, through January 1999
unless terminated for cause.
Indemnification and Insurance. Pursuant to the Merger Agreement, for
six years after the Effective Time, AmeriServe will cause the Surviving
Corporation, subject to any mandatory limitation imposed under applicable law,
to indemnify and hold harmless the present and former officers, directors,
employees and agents of the Company and its subsidiaries in respect of acts or
omissions occurring on or prior to the Effective Time or arising out of or
pertaining to such persons' having served the Company or its subsidiaries in
such capacities or the transactions contemplated by the Merger Agreement to the
same extent as is provided under the Company's certificate of incorporation and
bylaws in effect on the date of the Merger Agreement. During such six-year
period, AmeriServe and the Surviving Corporation have agreed not to amend the
indemnification or exculpation provisions of the certificate of incorporation or
bylaws of the Surviving Corporation in a manner inconsistent with the foregoing
or otherwise adverse to such persons.
AmeriServe has agreed that, for six years after the Effective Time,
it will cause the Surviving Corporation, subject to certain limitations, to use
its best efforts to provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering each
such person currently covered by the Company's officers' and directors'
liability insurance policy on terms substantially similar to those of such
policy in effect on the date of the Merger Agreement. See "The Merger Agreement
- -- Certain Covenants -- Director and Officer Liability."
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the Merger and pay
related fees and expenses is approximately $350 million. AmeriServe has
indicated that it currently anticipates that funds for consummation of the
Merger will be provided from general funds available to AmeriServe and its
affiliates and by borrowings from enhancement of existing financing sources.
ACCOUNTING TREATMENT
The Merger will be accounted for by AmeriServe as a "purchase" in
accordance with generally accepted accounting principles. Therefore, the
aggregate consideration paid by AmeriServe in connection with the Merger will be
allocated to the Company's assets and liabilities based upon their fair values,
with any excess being treated as goodwill. The assets and liabilities and
results of operations of the Company will be consolidated into the assets and
liabilities and results of operations of AmeriServe subsequent to the
consummation of the Merger.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP,
counsel to the Company, the following are, under currently applicable law,
certain United States federal income tax considerations generally applicable to
holders of Common Stock who receive the Merger Consideration pursuant to the
Merger. The tax treatment described herein may vary depending upon each
stockholder's particular circumstances and tax position. Certain stockholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations, persons who are not citizens or
residents of the United States (the "U.S."), stockholders who do not hold their
shares of Common Stock as capital assets and stockholders who have acquired
their existing Common Stock upon the exercise of options or otherwise as
compensation) may be subject to special rules not discussed below. No ruling
from the Internal Revenue Service (the "IRS") will be applied for with respect
to the federal income tax consequences discussed herein and, accordingly, there
can be no assurance that the IRS will agree with the conclusions stated herein.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in U.S. federal income tax
consequences different from those discussed below. In addition, this discussion
does not consider the effect of any applicable foreign, state, local or other
tax laws. Each stockholder should consult his, her or its own tax advisor as to
the particular tax consequences to such stockholder of the Merger, including the
applicability and effect of any foreign, state, local or other tax laws.
The receipt of cash in exchange for Common Stock pursuant to the
Merger will be a taxable transaction for federal income tax purposes and may
also be a taxable transaction under applicable state, local and foreign income
and other tax laws. The tax consequences of such receipt may vary depending
upon, among other things, the particular circumstances of the stockholder. In
general, a stockholder will recognize gain or loss for federal income tax
purposes equal to the difference between the adjusted tax basis of his, her or
its Common Stock and the amount of cash received in exchange therefor in the
Merger. Such gain or loss generally will be capital gain or loss if the Common
Stock is a capital asset in the hands of such stockholder. In the case of an
individual, any such capital gain will be subject to federal income tax at a
maximum rate of 28% if the holder's holding period in the Common Stock is more
than one year but not more than 18 months and at a maximum rate of 20% if the
holder's holding period is more than 18 months. The foregoing does not apply to
individuals who are receiving a payment pursuant to the Merger in exchange for
Options. Such individuals will recognize ordinary income equal to the full
payment that they are entitled to receive in respect of such Options (i.e., the
Merger Consideration less the exercise price of the Option).
The receipt of cash by a stockholder of the Company pursuant to the
Merger may be subject to backup withholding unless the stockholder (i) is a
corporation or comes within certain other exempt categories, or (ii) provides a
certified taxpayer identification number on Form W-9 and otherwise complies with
the backup withholding rules. Backup withholding is not an additional tax; any
amounts so withheld may be credited against the federal income tax liability of
the stockholder subject to the withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, STOCKHOLDERS
ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR FOREIGN
INCOME OR OTHER TAX LAWS.
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REGULATORY APPROVALS
The Merger is subject to the requirements of the HSR Act and the
rules and regulations thereunder, which provide that certain transactions may
not be consummated until required information and materials are furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the FTC and the requisite waiting period expires or is terminated. The Company
and AmeriServe (or their respective parents) made all filings required by the
Antitrust Division and the FTC on February 9, 1998, commencing a thirty-day
waiting period. The Company has been informed by the FTC that the waiting period
under the HSR Act was terminated effective as of February 13, 1998. However, at
any time before or after the Effective Time, the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking divestiture of substantial
assets of AmeriServe or the Company or to enjoin the Merger. In addition, other
governmental agencies, including state antitrust authorities, and other persons
(such as customers or competitors of the Company or AmeriServe) could take
similar action under the antitrust laws.
CERTAIN CONSEQUENCES OF THE MERGER
As a result of the Merger, Merger Sub will be merged with and into
the Company and the Company will become a wholly-owned subsidiary of AmeriServe.
AmeriServe has advised the Company that following the consummation of the
Merger, it anticipates that it will cause the Surviving Corporation to seek to
have the Class A Common Stock, which is currently traded on the Nasdaq National
Market, delisted, and to have it deregistered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
APPRAISAL RIGHTS
Under the DGCL, any stockholder that does not wish to accept $15.00
per share for his, her or its shares of Common Stock as provided in the Merger
Agreement has the right to dissent from the Merger and to seek an appraisal of,
and to be paid the fair value (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) for the shares of Common Stock,
provided that such stockholder complies with the provisions of Section 262 of
the DGCL. Stockholders electing to exercise appraisal rights may receive more or
less than the $15.00 per share Merger Consideration to be paid to stockholders
who do not exercise appraisal rights.
Holders of record of Common Stock who do not vote in favor of the
Merger Agreement (including those who abstain with respect to the Merger
Proposal and those who do not provide specific voting instructions to brokers
who hold their shares of Common Stock in "street name") and who otherwise comply
with the applicable statutory procedures will be entitled to appraisal rights
under Section 262 of the DGCL. A person having a beneficial interest in shares
of Common Stock held of record in the name of another person, such as a broker
or nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY
BY THE FULL TEXT OF SECTION 262 OF THE DGCL THAT IS REPRINTED IN ITS ENTIRETY AS
ANNEX IV. ALL REFERENCES IN SECTION 262 OF THE DGCL AND IN THIS SUMMARY TO A
"STOCKHOLDER" OR "HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF COMMON STOCK
AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
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Under Section 262 of the DGCL, holders of shares of Common Stock
("Appraisal Shares") who follow the procedures set forth in Section 262 of the
DGCL will be entitled to have their Appraisal Shares appraised by the Delaware
Chancery Court and to receive payment in cash of the "fair value" of such
Appraisal Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262 of the DGCL, where a proposed merger is to be
submitted for approval at a meeting of stockholders, the corporation, not less
than 20 days prior to the meeting, must notify each of its stockholders who was
a stockholder on the record date for such meeting with respect to shares for
which appraisal rights are available, that appraisal rights are so available,
and must include in such notice a copy of Section 262 of the DGCL.
This Proxy Statement constitutes such notice to the holders of
Appraisal Shares and the applicable statutory provisions of the DGCL are
attached to this Proxy Statement as Annex IV. Any stockholder who wishes to
exercise such appraisal rights or that wishes to preserve his, her or its right
to do so should review the following discussion and Annex IV carefully because
failure to timely and properly comply with the procedures therein specified will
result in the loss of appraisal rights under the DGCL.
A holder of Appraisal Shares wishing to exercise such holder's
appraisal rights (i) must not vote in favor of the Merger Agreement or consent
thereto in writing (including a consent given by returning a signed Proxy
without indicating any voting instructions as to the Merger Proposal) and (ii)
must deliver to the Company prior to the vote on the Merger Agreement at the
Special Meeting, a written demand for appraisal of such holder's Appraisal
Shares. This written demand for appraisal must be in addition to and separate
from any proxy or vote abstaining from or against the Merger. This demand must
reasonably inform the Company of the identity of the stockholder and of the
stockholder's intent thereby to demand appraisal of his, her or its shares. A
holder of Appraisal Shares wishing to exercise such holder's appraisal rights
must be the record holder of such Appraisal Shares on the date the written
demand for appraisal is made and must continue to hold such Appraisal Shares
until the consummation of the Merger. Accordingly, a holder of Appraisal Shares
who is the record holder of Appraisal Shares on the date the written demand for
appraisal is made, but who thereafter transfers such Appraisal Shares prior to
consummation of the Merger, will lose any right to appraisal in respect of such
Appraisal Shares.
Only a holder of record of Appraisal Shares is entitled to
assert appraisal rights for the Appraisal Shares registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as such holder's name appears on such holder's
stock certificates. If the Appraisal Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the Appraisal Shares are owned of record
by more than one owner as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker who holds
Appraisal Shares as nominee for several beneficial owners may exercise appraisal
rights with respect to the Appraisal Shares held for one or more beneficial
owners while not exercising such rights with respect to the Appraisal Shares
held for other beneficial owners; in such case, the written demand should set
forth the number of Appraisal Shares as to which appraisal is sought. When no
number of Appraisal Shares is expressly mentioned, the demand will be presumed
to cover all Appraisal Shares in brokerage accounts or other nominee forms and
those who wish to exercise appraisal rights under Section 262 of the DGCL are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such a nominee.
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ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO
PROSOURCE, INC., 1500 SAN REMO AVENUE, CORAL GABLES, FLORIDA 33146, ATTENTION:
PAUL A. GARCIA DE QUEVEDO, CORPORATE SECRETARY.
Within ten days after the consummation of the Merger, the Company
will notify each stockholder that has properly asserted appraisal rights under
Section 262 of the DGCL and has not voted in favor of or consented to the Merger
of the date the Merger became effective.
Within 120 days after the consummation of the Merger, but not
thereafter, the Company or any stockholder who has complied with the statutory
requirements summarized above may file a petition in the Delaware Chancery Court
demanding a determination of the fair value of the Appraisal Shares that are
entitled to appraisal rights. The Company is under no obligation to and has no
present intention to file a petition with respect to the appraisal of the fair
value of the Appraisal Shares that are entitled to appraisal rights.
Accordingly, it will be the obligation of stockholders wishing to assert
appraisal rights to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262 of the DGCL.
Within 120 days after the consummation of the Merger, any
stockholder that has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from the Company a
statement setting forth the aggregate number of Appraisal Shares not voted in
favor of adoption of the Merger Agreement and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
Appraisal Shares. Such statements must be mailed within ten days after a written
request therefor has been received by the Company, or within ten days after
expiration of the period for delivery of demands for appraisal under Section 262
of the DGCL, whichever is later.
If a petition for an appraisal is filed on a timely basis, after a
hearing on such petition, of which the Register in Chancery (if so ordered by
the Delaware Chancery Court) shall give notice to stockholders, the Delaware
Chancery Court will determine the stockholders entitled to appraisal rights and
will appraise the "fair value" of their Appraisal Shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. Stockholders considering seeking appraisal
should be aware that the fair value of their Appraisal Shares as determined
under Section 262 of the DGCL could be more than, the same as or less than the
value of the consideration they would receive pursuant to the Merger Agreement
if they did not seek appraisal of their Appraisal Shares and that investment
banking opinions as to fairness from a financial point of view, such as the
Morgan Stanley Opinion, are not necessarily opinions as to fair value under
Section 262 of the DGCL.
In determining fair value, the Delaware Chancery Court is to take
into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware
Supreme Court discussed the factors that could be considered in determining fair
value in an appraisal proceeding, stating that "proof of value by any techniques
or methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that, in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 of the DGCL provides
that fair value is to be "exclusive of any element of value arising from the
accomplishment or
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expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value."
The Delaware Chancery Court will determine the amount of interest,
if any, to be paid upon the amounts to be received by stockholders whose
Appraisal Shares have been appraised. The costs of the action may be determined
by the Delaware Chancery Court and taxed upon the parties as the Delaware
Chancery Court deems equitable. The Delaware Chancery Court may also order that
all or a portion of the expenses incurred by any stockholder in connection with
an appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares that has duly demanded an appraisal
in compliance with Section 262 of the DGCL will not, after the consummation of
the Merger, be entitled to vote the Appraisal Shares subject to such demand for
any purpose or be entitled to the payment of dividends or other distributions
on those Appraisal Shares (except dividends or other distributions payable to
holders of record of Appraisal Shares as of a record date prior to the
consummation of the Merger).
If any stockholder that properly demands appraisal of his, her or
its Appraisal Shares under Section 262 of the DGCL fails to perfect, or
effectively withdraws or loses, his, her or its right to appraisal, as provided
in Section 262 of the DGCL, the Appraisal Shares of such stockholder will be
converted into the right to receive the consideration receivable with respect to
such Appraisal Shares in accordance with the Merger Agreement. A stockholder
will fail to perfect, or effectively lose or withdraw, his, her or its right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the consummation of the Merger, or if such stockholder delivers to
the Company a written withdrawal of his, her or its demand for appraisal. Any
such attempt to withdraw an appraisal demand more than 60 days after the
consummation of the Merger will require the written approval of the Company.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH
EVENT A STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE
WITH RESPECT TO HIS, HER OR ITS APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER
AGREEMENT).
THE MERGER AGREEMENT
The following is a brief summary of certain material provisions of
the Merger Agreement that is attached as Annex I to this Proxy Statement. Such
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement. All capitalized terms used herein and not
defined are used as defined in the Merger Agreement. Stockholders are urged to
review the Merger Agreement carefully and in its entirety.
THE MERGER
In General. The Merger Agreement provides that, following the
approval and adoption of the Merger Agreement by the stockholders of the Company
and the satisfaction or waiver of the other conditions to the Merger, Merger Sub
will be merged with and into the Company, the separate existence of Merger Sub
will cease and the Company will continue as the Surviving Corporation. Following
the Merger, the Surviving Corporation will be a wholly-owned subsidiary of
AmeriServe. As a result of the Merger, the
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Surviving Company will possess all the property, rights, privileges, immunities,
powers and franchises of the Company and Merger Sub, and be subject to all
debts, restrictions, disabilities and duties of the Company and Merger Sub.
Effective Time. The Merger Agreement provides that on the second
business day after satisfaction or waiver of the conditions to the Merger, the
closing of the Merger shall take place (unless another time is agreed to by the
parties), and at such time the Company and Merger Sub will file a certificate of
merger with the Secretary of State of the State of Delaware and make all other
filings or recordings required by the DGCL in connection with the Merger, and
the Merger will become effective upon such filing or at such later time as is
specified in such certificate of merger. If the stockholders of the Company
approve the Merger Proposal, the Effective Time is expected to occur as soon as
practicable following the Special Meeting.
Conversion of Securities. At the Effective Time, (i) each
outstanding share of Common Stock owned by the Company, AmeriServe, Merger Sub
or any subsidiary of the Company, AmeriServe or Merger Sub immediately prior to
the Effective Time will be canceled and no payment shall be made with respect
thereto; (ii) each share of common stock of Merger Sub outstanding immediately
prior to the Effective Time will be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation; and (iii) each share of Common Stock outstanding immediately prior
to the Effective Time and held by any holder (other than the Company,
AmeriServe, Merger Sub or any subsidiary of the Company, AmeriServe or Merger
Sub), including shares held by officers, directors and employees of the Company,
will, except as provided in the following paragraph, be converted into the right
to receive the Merger Consideration.
Shares of Common Stock outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto and who has delivered a written demand for appraisal of such
shares in accordance with Section 262 of the DGCL will not be converted into a
right to receive the Merger Consideration, unless such holder fails to perfect,
withdraws or otherwise loses his, her or its right to appraisal. If after the
Effective Time such holder fails to perfect, withdraws or loses his, her or its
right to appraisal, such shares will be treated as if they had been converted as
of the Effective Time into a right to receive the Merger Consideration.
Exchange of Certificates. Promptly after the Effective Time,
AmeriServe or a paying agent designated by AmeriServe (and reasonably
satisfactory to the Company) (the "Exchange Agent") will mail to each holder of
shares of Common Stock at the Effective Time a letter of transmittal for use in
effecting the surrender of the certificates representing shares of Common Stock
(the "Certificates") in exchange for the Merger Consideration. The letter of
transmittal will specify that the delivery shall be effected and risk of loss
and title shall pass only upon proper delivery of the Certificates representing
the Common Stock to the Exchange Agent. Upon surrender of a Certificate or
Certificates representing shares of Common Stock to the Exchange Agent, together
with a properly completed letter of transmittal covering such shares and other
customary documentation, the holder thereof will be entitled to receive the
Merger Consideration payable in respect of such shares. AmeriServe has agreed to
establish procedures reasonably satisfactory to the Company under which holders
of shares of Common Stock will be able to receive payment of the Merger
Consideration in immediately available funds immediately after the Effective
Time. As of the Effective Time, all shares of Common Stock will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist, and each holder of a Certificate previously representing any such shares
will cease to have any rights with respect thereto, other than the right to
receive the Merger Consideration, without interest, upon surrender of the
Certificates representing such shares, as contemplated by the Merger
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Agreement (except to the extent such shares are held by the Company or any
subsidiary of the Company, AmeriServe or Merger Sub or such shares are held by
stockholders of the Company, if any, who have properly exercised their appraisal
rights under Delaware law).
If any portion of the Merger Consideration is to be paid to a Person
other than the registered holder of the shares of Common Stock represented by
the Certificate or Certificates surrendered in exchange therefor, it will be a
condition to such payment that the Certificate or Certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall: (i) pay to the Exchange Agent any
transfer or other taxes required as a result of such payment to a Person other
than the registered holder of such Common Stock; or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
Any portion of the Merger Consideration made available to the
Exchange Agent that remains unclaimed by the holders of shares of Common Stock
six months after the Effective Time will be returned to AmeriServe, upon demand,
and any such holder who has not exchanged his, her or its shares of Common Stock
for the Merger Consideration prior to that time will thereafter look only to
AmeriServe and the Surviving Corporation for payment of the Merger Consideration
in respect of such shares. Notwithstanding the foregoing, AmeriServe will not be
liable to any holder of shares of Common Stock for any amount paid to a public
official pursuant to applicable abandoned property laws.
Any portion of the Merger Consideration made available to the
Exchange Agent to pay for Common Stock for which appraisal rights have been
perfected shall be returned to AmeriServe upon demand. The Exchange Agent will
be entitled to deduct and withhold from the Merger Consideration such amounts as
may be required under the Code. Such withheld amounts will be treated as having
been paid to the holder of the Certificates in respect of which such deduction
and withholding was made by the Exchange Agent.
STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK
CERTIFICATES TO THE EXCHANGE AGENT WITHOUT A LETTER OF TRANSMITTAL AND SHOULD
NOT RETURN THEIR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Options. At the Effective Time, outstanding Options, whether or not
then vested or exercisable, granted under the Company's Amended Management
Option Plan (1995), 1996 Stock Option Plan and 1997 Directors Stock Option Plan
(collectively, the "Option Plans"), surrendered by the holder thereof for cash,
will be canceled, and in consideration of such cancellation (except to the
extent that AmeriServe or Merger Sub and the holder of any such Option otherwise
agree), the Company will pay to each such holder of Options an amount in cash in
respect thereof equal to the product of (i) the excess, if any, of the Merger
Consideration over the per share exercise price of such Option and (ii) the
number of shares of Common Stock subject to such Options, less applicable
withholding taxes. The provision in the Merger Agreement which allows for
AmeriServe or Merger Sub and any holder of Options to agree on different
consideration for such holder's Options was included in order to permit the
possibility that alternative treatment of Options might be offered to Option
holders. However, no such alternatives have been made available to holders of
Options.
As of the Record Date, there were approximately 639,650 Options
outstanding, all of which were held by current and former directors, officers or
employees of the Company, including 355,100 Options held by executive officers
and directors of the Company, as follows: David R. Parker (96,650), Thomas C.
Highland (62,500), William F. Evans (37,500), Robert S. Donaldson (20,200), Paul
A. Garcia de Quevedo (17,500), Maurice L. Ambler (13,750), Dennis T.
Andruskiewicz (16,500), John E. Foley (25,000), John P. Gainor (17,500), Michael
Carpenter (3,500), C. Lee Johnson (3,500) and R. Geoffrey P. Styles (3,500). See
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"Item 10. Directors and Executive Officers of the Registrant" set forth in
"Certain Information Regarding ProSource, Inc." attached as Annex V to this
Proxy Statement. Each Option represents the right to purchase one share of
Common Stock. Approximately $1.9 million will be paid by the Company to Option
holders in respect of the cancellation of such Options in connection with the
Merger, including approximately $1.3 million to executive officers and directors
of the Company, less applicable withholding taxes.
Employee Stock Purchase Plan. The Company has agreed to amend the
ESPP such that, if the Effective Time occurs prior to the end of the current
plan year, the date on which the Effective Time occurs will be deemed the last
day of the current plan year for purposes of the ESPP. Such amendment will have
the effect that on such date, immediately prior to the Effective Time, in
accordance with the ESPP, all amounts previously withheld from the participants'
pay pursuant to the ESPP will be used to purchase shares of Class A Common Stock
from the Company at a purchase price of $6.035 (85% of the fair market value of
the Class A Common Stock on July 1, 1997 (as determined in accordance with the
ESPP), the first business day of the current plan year). The shares purchased
will thereafter be converted in the Merger into the right to receive the Merger
Consolidation. At the Effective Time, the Company will terminate the ESPP, any
cash held in participant accounts after the purchase described above will be
distributed to the respective participants in the ESPP and no plan year that
would otherwise commence on or after such date will commence. If the current
plan year ends prior to the Effective Time, the ESPP will terminate as of the
last day of the plan year.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
of the Company regarding the Company and its subsidiaries as to, among other
things: (i) due organization, existence and good standing, corporate power and
authority, and qualifications or licensing to do business; (ii) capitalization
and ownership of the Company's subsidiaries; (iii) capitalization of the
Company, including the number of shares of Common Stock and Preferred Stock
outstanding, the number of shares issuable upon the exercise of options and
warrants, and obligations to repurchase or redeem any equity securities; (iv)
the authorization, execution and delivery of the Merger Agreement and the
validity and enforceability thereof; (v) the absence of violations, breaches or
defaults under charter documents, laws, orders or agreements resulting from the
execution and delivery of the Merger Agreement and compliance therewith; (vi)
consents and approvals necessary for consummation of the Merger; (vii)
compliance with the Securities Act and the Exchange Act in connection with the
documents filed by the Company with the Securities and Exchange Commission (the
"Commission") and the fair presentation, in conformity with generally accepted
accounting principles, of the consolidated financial position of the Company by
the financial statements included in the documents filed by the Company with the
Commission; (viii) the absence of undisclosed material liabilities; (ix)
compliance of this Proxy Statement with the applicable provisions of the
Exchange Act; (x) certain matters related to the ownership of properties,
including good and valid title to material properties; (xi) the absence of
certain changes since September 27, 1997; (xii) the absence of pending
litigation and court orders or judgments; (xiii) compliance with laws and the
absence of claims for infringement of certain intellectual property rights;
(xiv) certain employee benefit plan and ERISA matters; (xv) certain tax matters;
(xvi) the ability to prepay material debt instruments; (xvii) the sufficiency
of the Company's insurance policies; (xviii) certain labor matters including as
to existing collective bargaining agreements or other labor union contracts, the
absence of any proceeding alleging unfair labor practices and the absence of
strikes, work stoppages or other labor disputes; (xix) the absence of agreements
restricting the Company's freedom to compete in any line of business or with any
person or in any geographic area; (xx) the absence of interests in the property
of the Company or suppliers, distributors or customers thereof being held by
Onex DHC LLC or its affiliates, or officers and directors of the Company or its
subsidiaries; and (xxi) the absence of any arrangement entitling any investment
bankers or brokers, other than Morgan Stanley, to any fee or commission. Such
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representations and warranties are subject to exceptions set forth in the
schedules to the Merger Agreement containing ordinary course disclosures
regarding the Company's outstanding securities, material contracts (including
collective bargaining agreements), a recent change in employee compensation, a
recent change in an accounting principle (which is reflected in the Company's
financial statements for the fiscal year ended December 27, 1997), outstanding
debt, outstanding litigation, descriptions of outstanding employee benefit
plans, certain labor and tax matters and transactions with affiliates.
The Merger Agreement also contains various representations and
warranties of AmeriServe and Merger Sub as to, among other things: (i) due
organization, existence and good standing, corporate power and authority to do
business; (ii) the authorization, execution and delivery of the Merger Agreement
and the validity and enforceability thereof; (iii) the absence of violations,
breaches or defaults under charter documents, laws, orders or agreements
resulting from the execution and delivery of the Merger Agreement and compliance
therewith; (iv) consents and approvals necessary for consummation of the Merger;
(v) the veracity of information provided by AmeriServe for inclusion in this
Proxy Statement; (vi) the absence of any arrangement made by AmeriServe or
Merger Sub entitling any investment bankers or brokers to any fee or commission
from the Company; and (vii) acknowledgment that certain of the Company's
customers may be entitled to terminate their arrangements with the Company upon
the change of control of the Company effected by the Merger.
CERTAIN COVENANTS
Interim Operations. In the Merger Agreement, the Company has agreed
that prior to the Effective Time the Company and its subsidiaries will conduct
their business only in the ordinary course in substantially the same manner as
theretofore conducted and will use all reasonable efforts to preserve intact
their business organizations and relationships with third parties and to keep
available the services of their current officers and employees.
The Company has also agreed that until the Effective Time, except as
contemplated by the Merger Agreement or with the prior written approval of
AmeriServe, it will not and will cause its subsidiaries not to do any of the
following:
(i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
capital stock, other than dividends and distributions by any direct or indirect
wholly-owned subsidiary of the Company to its parent;
(ii) adjust, split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock;
(iii) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(iv) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options, including Options, to acquire, any
such shares, voting securities or convertible securities (other than the
issuance of shares of Common Stock upon the exercise of Options outstanding as
of the date of the Merger Agreement or pursuant to the ESPP);
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(v) amend its certificate of incorporation, bylaws or other
comparable charter or organizational documents;
(vi) mortgage or otherwise encumber or subject to any encumbrance or
lien or, except in the ordinary course of business consistent with past practice
or pursuant to existing contracts or commitments, sell, lease, license, transfer
or otherwise dispose of any material properties or assets;
(vii) amend, modify or waive any material term of any outstanding
security of the Company and its subsidiaries;
(viii) incur, assume, guarantee or become obligated with respect to
any indebtedness, other than in the ordinary course of business, consistent with
past practice, or incur, assume, guarantee or become obligated with respect to
any other material obligations other than in the ordinary course of business and
consistent with past practice;
(ix) make or agree to make any new capital expenditures or
acquisitions of assets or property or other acquisitions or commitments other
than in the ordinary course of business, consistent with past practice and in
any event not in excess of $10,000,000 in the aggregate;
(x) make any material tax election or take any material tax position
(unless required by law) or change its fiscal year or accounting methods,
policies or practices (except as required by changes in generally accepted
accounting principles) or settle or compromise any material income tax
liability;
(xi) make any loan, advance or capital contributions to or
investment in any person other than in the ordinary course of business
consistent with past practice, but in no event in the amount of more than
$250,000 for any one transaction or $1,000,000 in the aggregate, and other than
investments in cash equivalents made in the ordinary course of business
consistent with past practice;
(xii) pay, discharge or satisfy any claims, liabilities or
obligations, other than the payment, discharge or satisfaction thereof, in the
ordinary course of business consistent with past practice and in accordance with
their terms, or modify or amend in any material respect or terminate any
material contract or agreement to which it is a party, or release or waive any
material rights or claims, other than in the ordinary course of business
consistent with past practice;
(xiii) (A) provide to any current or former director, officer or
employee of the Company or any of its subsidiaries any material increase in
compensation or benefits or any severance payment or other benefit not required
under the terms of an existing employee benefit plan, except for employees who
are not officers or directors in the ordinary course of business consistent with
past practice, (B) grant to any such director, officer or employee any increase
in severance or termination pay (including the acceleration in the
exercisability of Options or in the vesting of shares of Common Stock (or other
property) except for automatic acceleration in accordance with the terms of the
Option Plans or the provision of any tax gross-up), or (C) enter into any
employment, deferred compensation, severance or termination agreement or
arrangement with or for the benefit of any such current or former director,
officer, or employee; or
(xiv) authorize any of, or commit or agree to take any of, the
foregoing actions.
Certain Benefit Plans. AmeriServe has agreed that it will cause the
Surviving Corporation to continue the employee benefit plans and programs of the
Company (other than equity-based plans and programs) through December 31, 1998,
or to provide during such period employee benefits no less favorable
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in the aggregate than are provided pursuant to such employee benefit plans and
programs; provided that with respect to employees of the Company who are subject
to collective bargaining, all benefits will be provided in accordance with the
applicable collective bargaining agreement. AmeriServe has also agreed to
provide employees of the Company who continue as employees of the Surviving
Corporation or AmeriServe with credit for years of service with the Company and
its subsidiaries for purposes of vesting, eligibility and benefit accrual (other
than benefit accrual under any defined benefit plans, including supplemental
retirement plans) under the employee benefit plans of the Surviving Corporation
and AmeriServe which are made available to such employees, to the extent such
service was credited under similar employee benefit plans and programs of the
Company.
Cooperation in Arrangements with Lenders. The Company has agreed
that it will cooperate with and assist AmeriServe and its professionals and
advisors in arranging for the prepayment at the Effective Time of all
indebtedness of the Company and its subsidiaries.
Other Covenants of the Company. The Merger Agreement also contains
covenants of the Company customary for transactions of this type. These include
covenants relating to the preparation of this Proxy Statement and the holding of
the Special Meeting, providing AmeriServe and its representatives with
reasonable access to information regarding the Company, and notification of
certain events.
Director and Officer Liability. For six years after the Effective
Time, AmeriServe has agreed to cause the Surviving Corporation to indemnify and
hold harmless the present and former officers, directors, employees and agents
of the Company and its subsidiaries, and the heirs, executors and administrators
of such persons (the "Indemnified Parties") in respect of acts or omissions
occurring on or prior to the Effective Time or arising out of or pertaining to
any Indemnified Person having been an officer, director, employee or agent of
the Company or any of its subsidiaries or to the transactions contemplated by
the Merger Agreement to the extent provided under the Company's certificate of
incorporation and bylaws in effect on the date of the Merger Agreement (and to
pay expenses in advance of the disposition of any action with respect to any
such matters to the fullest extent permitted by the DGCL, upon receipt from the
person to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 145(e) of the DGCL); provided that such indemnification
will be subject to any mandatory limitation imposed from time to time under
applicable law. Insofar as indemnification for liabilities arising under the
federal securities laws may be permitted to the Indemnified Parties pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy and is therefore unenforceable.
AmeriServe and the Surviving Corporation have agreed not to amend
the certificate of incorporation or bylaws of the Surviving Corporation to amend
the indemnification or exculpation provisions therein in a manner inconsistent
with the foregoing or otherwise adverse to the Indemnified Parties for the
six-year period referred to above. For six years after the Effective Time,
AmeriServe will cause the Surviving Corporation to use its best efforts to
provide officers' and directors' liability insurance in respect of acts or
omissions occurring on or prior to the Effective Time covering each such person
currently covered by the Company's officers' and directors' liability insurance
policy on terms substantially similar to those of such policy in effect on the
date of the Merger Agreement and from an insurer or insurers having claims
paying ratings of at least Best A+, provided that AmeriServe will not be
obligated to cause the Surviving Corporation to pay annual premiums in excess of
$250,000 per annum, and if the Surviving Corporation is unable to obtain such
insurance, it will obtain as much comparable insurance as possible for an annual
premium equal to such maximum amount.
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Other Covenants of AmeriServe. The Merger Agreement also contains
covenants of AmeriServe customary for transactions of this type. These include
covenants relating to confidentiality, the voting of any Common Stock held by
AmeriServe or Merger Sub in favor of the Merger Proposal and causing Merger Sub
to consummate the Merger in accordance with the Merger Agreement.
No Solicitation. Under the Merger Agreement, for twelve months after
any termination of the Merger Agreement, AmeriServe and Merger Sub on the one
hand and the Company and its subsidiaries on the other will not, and will not
permit any of their respective subsidiaries or affiliates to, employ or retain
in any capacity any person who was employed by the Company, in the case of
AmeriServe or Merger Sub, or AmeriServe or Merger Sub, in the case of the
Company, or any of their respective subsidiaries, in a position of division
president or principal executive in charge of a distribution center or any
position senior thereto at any time after January 1, 1998.
Other Mutual Covenants. The Merger Agreement also contains other
mutual covenants of the Company, AmeriServe and Merger Sub in connection with
the consummation of the Merger. These covenants include, among other things,
covenants relating to making governmental filings (including under the HSR Act),
obtaining consents and approvals, using reasonable best efforts to consummate
the Merger and procedures with respect to public announcements.
CONDITIONS TO THE MERGER
Conditions to the Obligations of Each Party. The obligations of the
Company, AmeriServe and Merger Sub to consummate the Merger are subject to the
satisfaction of the following conditions: (i) the Merger Agreement shall have
been approved and adopted by the requisite vote of the outstanding shares of
Common Stock within the meaning and in accordance with the DGCL; (ii) any
applicable waiting period under the HSR Act relating to the Merger shall have
expired or been terminated; and (iii) no provision of any applicable law or
regulation and no judgment, injunction, order, decree or other legal restraint
shall prohibit the consummation of the Merger. As of the date of this Proxy
Statement, the condition set forth in clause (ii) above has been satisfied.
Conditions to the Obligations of AmeriServe and Merger Sub. The
obligations of AmeriServe and Merger Sub to consummate the Merger are further
subject to the satisfaction of the following conditions:
(a) there shall not be instituted and remain pending any action by
any Governmental Entity (i) challenging or seeking to make illegal, to
delay materially or otherwise directly or indirectly to restrain or
prohibit the consummation by AmeriServe or Merger Sub of the Merger,
seeking to obtain material damages or imposing any material adverse
conditions in connection therewith; (ii) seeking to restrain or prohibit
AmeriServe's or Merger Sub's ownership or operation (or that of their
respective subsidiaries or affiliates) of all or any material portion of
the business or assets of the Company and its subsidiaries, or of
AmeriServe and its subsidiaries or affiliates, or to compel AmeriServe or
any of its subsidiaries or affiliates to dispose of or hold separate all
or any material portion of the business or assets of the Company and its
subsidiaries, or of AmeriServe and its subsidiaries and affiliates; (iii)
seeking to impose limitations on the ability of AmeriServe or any of its
subsidiaries or affiliates effectively to exercise full rights of
ownership of the shares of Common Stock, including, without limitation,
the right to vote any shares of Common Stock acquired or owned by
AmeriServe or any of its subsidiaries or affiliates on all matters
properly presented to the Company's stockholders; (iv) seeking to require
divestiture by AmeriServe or any of its subsidiaries, or affiliates of any
shares of Common Stock; or (v) that otherwise would
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reasonably be expected to materially adversely affect the condition
(financial or otherwise), business, or results of operations of the
Company and its subsidiaries, or AmeriServe and its subsidiaries, in each
case taken as a whole, nor shall any judgment, injunction, order or decree
have been entered that would have any of the foregoing effects;
(b) the Company shall have performed in all material respects its
covenants and agreements under the Merger Agreement, and the
representations and warranties of the Company set forth in the Merger
Agreement that are qualified as to materiality shall be true when made and
(except to the extent such representations and warranties relate to a
specific date) as of the Closing as if made at and as of such time, and
the representations and warranties set forth in the Merger Agreement that
are not so qualified shall be true in all material respects when made and
(except to the extent such representations and warranties relate to a
specific date) at and as of the Closing as if made at and as of such time,
and other than any failure of such representations and warranties to be
true (x) arising from or in connection with changes in general economic
conditions or matters generally affecting the industry in which the
Company and its subsidiaries are engaged, (y) arising from the
announcement or the consummation of the transactions contemplated by the
Merger Agreement, or (z) which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect; and
AmeriServe and Merger Sub shall have received a certificate of the Chief
Executive Officer or Chief Financial Officer of the Company to that
effect; and
(c) other than the filing of the Certificate of Merger in accordance
with DGCL, after making reasonable efforts, AmeriServe and its
subsidiaries (including Merger Sub) shall have obtained all regulatory
approvals, licenses and other Consents required to be obtained prior to
the consummation of the Merger and the transactions contemplated by the
Merger Agreement, except such approvals, licenses and other Consents
which, if not obtained, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Conditions to the Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the further satisfaction of the
following conditions:
AmeriServe and Merger Sub shall have performed in all material
respects their covenants and agreements under the Merger Agreement, and
the representations and warranties of AmeriServe and Merger Sub set forth
in the Merger Agreement that are qualified as to materiality shall be true
when made at and as of the Effective Time as if made at and as of such
time, and the representations and warranties set forth in the Merger
Agreement that are not so qualified shall be true in all material respects
when made at and as of the Effective Time as if made at and as of such
time; and the Company shall have received certificates of the Chief
Executive Officer or Chief Financial Officer of AmeriServe and Merger Sub
to that effect.
Waiver of Conditions. The conditions to closing relating to approval
of the Merger Agreement by Company stockholders, compliance with the HSR Act and
the absence of laws, injunctions or other legal restraints prohibiting the
consummation of the Merger may not be waived by the parties. The Company does
not believe it could waive any other condition if the effect of such waiver
would be to alter the consideration to be received by stockholders, unless the
waiver was approved by stockholders.
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TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of the Merger Agreement by the stockholders of the Company):
(i) by mutual written consent of the Company and AmeriServe;
(ii) by AmeriServe if at the Special Meeting at which the Merger
Proposal is voted upon, the requisite approval of Company stockholders
shall not have been obtained;
(iii) by either the Company or AmeriServe, if the Merger has not
been consummated by July 1, 1998 (provided that the party seeking to
terminate the Merger Agreement shall not have breached its obligations
under the Merger Agreement in any material respect);
(iv) by either the Company or AmeriServe, if there shall be any law
or regulation that makes consummation of the Merger illegal or otherwise
prohibited, or any judgment, injunction, order or decree enjoining
AmeriServe or the Company from consummating the Merger (or the existence
of which would otherwise result in the failure of the condition set forth
in Section 9.2(a) of the Merger Agreement) is entered and, in the case of
any action brought other than by a Governmental Entity, such judgment,
injunction, order or decree shall become final and non-appealable; or
(v) by AmeriServe, at any time prior to the Effective Time, by
action of the Board of Directors of AmeriServe, if the Board of Directors
of the Company shall have withdrawn or modified in a manner adverse to
AmeriServe or Merger Sub its approval or recommendation of the Merger
Agreement or the Merger, or shall have resolved to do any of the
foregoing.
The Merger Agreement does not provide for the payment of monetary
penalties to any party in the event that it is terminated.
Certain Breaches. AmeriServe and Merger Sub would have the right to
terminate the Merger Agreement if any of the representations and warranties of
the Company described under "The Merger Agreement -- Representations and
Warranties" were not true and correct when made and as of the closing of the
Merger or if the Company failed to perform any of the covenants and agreements
of the Company described under "The Merger Agreement -- Certain Covenants," if,
in either case, such breach or failure to perform would have a material adverse
effect on the Company or prevent or materially delay consummation of the Merger.
The Company would have the right to terminate the Merger Agreement if any of the
representations and warranties of AmeriServe described under "The Merger
Agreement -- Representations and Warranties" were not true and correct in any
material respect when made and as of the closing of the Merger or if AmeriServe
and Merger Sub failed to perform in any material respect any of the covenants
and agreements required to be performed by them and described under "The Merger
Agreement -- Certain Covenants."
AMENDMENT
Any provision of the Merger Agreement may be amended or waived prior
to the Effective Time if, and only if, such amendment or waiver is in writing
and signed by the party to be charged therewith; provided that after the
adoption of the Merger Agreement by the stockholders of the Company, no
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amendment or waiver may, without the further approval of such stockholders,
alter or change (i) the amount or kind of consideration to be received in
exchange for any shares of capital stock of the Company, or (ii) any of the
principal terms of the Merger.
FEES AND EXPENSES
The Merger Agreement provides that all costs and expenses
incurred in connection with the Merger Agreement will be paid by the party
incurring such costs or expenses.
THE VOTING AGREEMENT
The following is a brief summary of certain material provisions of
the Voting Agreement that is attached as Annex II to this Proxy Statement. Such
summary does not purport to be complete and is qualified in its entirety by
reference to the Voting Agreement. All capitalized terms used herein and not
defined are used as defined in the Voting Agreement. Stockholders are urged to
review the Voting Agreement carefully and in its entirety.
TERM AND TERMINATION
The Voting Agreement was entered into on January 29, 1998. The
Voting Agreement will terminate immediately following the earliest to occur of
(x) the Effective Time, (y) the 30th day following the termination of the Merger
Agreement (other than a termination upon the mutual consent of the Company and
AmeriServe), or (z) the termination of the Merger Agreement upon the mutual
consent of the Company and AmeriServe. Notwithstanding the foregoing, in the
event the Merger Sub Option shall have been exercised in accordance with the
Voting Agreement, but the Option Closing shall not have occurred, the Voting
Agreement will not terminate, except that the Voting Agreement may be terminated
by the Onex Stockholders if Merger Sub defaults on its obligation to purchase
the Subject Shares at the Option Closing.
VOTING
Until the termination of the Voting Agreement each Onex Stockholder
has agreed as follows:
At any meeting of stockholders of the Company called to vote upon
the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote or other approval with respect to the
Merger and the Merger Agreement is sought, each Onex Stockholder will vote its
Subject Shares in favor of the Merger, the adoption by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement.
At any meeting of stockholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Onex Stockholders' vote,
consent or other approval as stockholders is sought, the Onex Stockholders will
vote the Subject Shares against (i) any action or agreement that would result in
a breach in any material respect of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Merger Agreement or
of the Onex Stockholders under the Voting Agreement, and (ii) any action or
agreement that would reasonably be expected to impede, interfere with, delay,
postpone or attempt to discourage the Merger, including, but not limited to: (A)
the adoption by the Company of a proposal regarding (1) the acquisition of the
Company by merger, tender offer or otherwise by any person or group, other than
AmeriServe or Merger Sub or any designee thereof (a "Third Party"), or any other
merger, combination or similar transaction with any Third Party; (2) the
acquisition by a Third
38
<PAGE> 50
Party of 10% or more of the assets of the Company and its subsidiaries, taken as
a whole; (3) the acquisition by a Third Party of 10% or more of the outstanding
shares of Common Stock; or (4) the repurchase by the Company or any of its
subsidiaries of 10% or more of the outstanding shares of Common Stock; (B) any
amendment of the Company's certificate of incorporation or by-laws or other
proposal or transaction involving the Company or any of its subsidiaries, which
amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the Merger, the Merger Agreement or any of the
other transactions contemplated by the Merger Agreement or change in any manner
the voting rights of any class of the Company's capital stock; (C) any change in
the control of the board of directors of the Company; (D) any material change in
the present capitalization or dividend policy of the Company; or (E) any other
material change in the Company's corporate structure or business. The Onex
Stockholders have further agreed not to commit or agree to take any action
inconsistent with the foregoing.
In addition, under the Voting Agreement, as security for the
agreements of the Onex Stockholders provided for in the Voting Agreement, each
Onex Stockholder has granted to AmeriServe and Merger Sub a proxy to vote the
Subject Shares as indicated above, which proxy is irrevocable during the term of
the Voting Agreement. None of the Onex Stockholders received any consideration
in exchange for agreeing to enter into the Voting Agreement.
RESTRICTIONS ON TRANSFER AND WAIVER OF APPRAISAL RIGHTS
Under the Voting Agreement, each Onex Stockholder has agreed not to
(i) sell, transfer or otherwise dispose of, or enter into any contract, option
or other arrangement or understanding (including any profit sharing arrangement)
with respect to the transfer of, any of the Subject Shares other than to any
direct or indirect wholly-owned subsidiary of Onex (if such subsidiary assumes
the Onex Stockholder's obligations under the Voting Agreement) or pursuant to
the terms of the Voting Agreement and the Merger Agreement, (ii) enter into any
voting arrangement or understanding with respect to the Subject Shares, whether
by proxy, voting agreement or otherwise, or (iii) take any action that would
reasonably be expected to make any of its representations and warranties
contained in the Voting Agreement untrue or incorrect or could have the effect
of preventing or disabling such Onex Stockholder from performing any of its
obligations under the Voting Agreement.
Pursuant to the Voting Agreement each Onex Stockholder has
irrevocably waived any and all rights which it may have as to appraisal, dissent
or any similar or related matter with respect to the Merger.
NO SOLICITATION
The Voting Agreement provides that none of the Onex Stockholders nor
any of their affiliates shall (whether directly or indirectly through any
officer, director, member, advisor, agent, representatives or other
intermediary), nor shall the Onex Stockholders or any of their affiliates
authorize or permit any of their officers, directors, members, advisors, agents,
representatives or other intermediaries to, (i) solicit, initiate, encourage or
take any action intended to or reasonably likely to facilitate any submission of
inquiries, proposals or offers from any person relating to any acquisition or
purchase of all or a material amount of assets of, or any equity interest in,
the Company (or any subsidiary or division thereof) or any merger,
consolidation, tender offer (including a self tender offer), exchange offer,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company (or any subsidiary or division thereof), other
than the transactions contemplated by the Voting Agreement or the Merger
Agreement, or any other transaction the consummation of which would reasonably
be expected to impede, interfere with, prevent or materially delay the Merger or
which would reasonably be expected to materially dilute the benefits to
AmeriServe or Merger Sub of the transactions contemplated by the Merger
Agreement
39
<PAGE> 51
(collectively, "Transaction Proposals") or agree to or endorse any
Transaction Proposal, other than the transactions contemplated by the Merger
Agreement, or (ii) enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other person any information
with respect to the Company's business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or seek
any of the foregoing. Notwithstanding anything in the Voting Agreement to the
contrary, the Onex Stockholders have agreed to promptly advise AmeriServe and
Merger Sub orally and in writing of the receipt by any of them (or any of the
other entities or persons referred to above) of any Transaction Proposal or any
inquiry which is likely to lead to any Transaction Proposal, the material terms
and conditions of such Transaction Proposal or inquiry, and the identity of the
person making any such Transaction Proposal or inquiry. The Onex Stockholders
have agreed to keep AmeriServe and Merger Sub fully informed of the status and
details of any such Transaction Proposal or inquiry. The Voting Agreement
provides that the foregoing restrictions will not restrict the activities of any
individual (whether or not an affiliate of any Onex Stockholder) in his or her
capacity as a director, officer, employee or agent of the Company or any of its
subsidiaries.
MERGER SUB OPTION
Under the Voting Agreement, each Onex Stockholder has granted to
Merger Sub (or its designee), the Merger Sub Option to purchase the Subject
Shares, on the terms and subject to the conditions set forth in the Voting
Agreement. The Merger Sub Option may be exercised by Merger Sub, as a whole and
not in part, at any time during the period commencing upon the termination of
the Merger Agreement (other than a termination based on the mutual consent of
the Company and AmeriServe or a termination by the Company as a result of an
actual material breach by AmeriServe or Merger Sub of their respective
obligations under the Merger Agreement) and ending on the date which is the 30th
calendar day following such termination.
If Merger Sub wishes to exercise the Merger Sub Option, Merger Sub
must send a written notice to the Onex Stockholders of its intention to exercise
the Merger Sub Option, specifying the place, and, if then known, the time and
the date (the "Option Closing Date") of the closing (the "Option Closing") of
the purchase. The Option Closing Date will occur on the fifth business day (or
such later date as shall be no later than five business days following the first
time that the Option Closing is permitted by applicable law or regulation) after
the later of (i) the date on which such notice is delivered, and (ii) the
satisfaction of the conditions described below.
At the Option Closing, the Onex Stockholders have agreed to deliver
to Merger Sub (or its designee) all of the Subject Shares by delivery of a
certificate or certificates evidencing the Subject Shares duly endorsed to
Merger Sub or accompanied by powers duly executed in favor of Merger Sub, with
all necessary stock transfer stamps affixed; and Merger Sub will, and AmeriServe
will cause Merger Sub to, pay to the Onex Stockholders pursuant to the exercise
of the Merger Sub Option, by wire transfer, cash in immediately available funds
to the accounts of the Onex Stockholders (such accounts to be specified in
writing at least two days prior to the Option Closing), an amount equal to the
aggregate Exercise Price.
The Option Closing will be further subject to the satisfaction of
each of the following conditions: (i) no court, arbitrator or governmental body,
agency or official shall have issued any order, decree or ruling and there shall
not be any statute, rule or regulation, restraining, enjoining or prohibiting
the consummation of the purchase and sale of the Subject Shares pursuant to the
exercise of the Merger Sub Option; (ii) any waiting period applicable to the
consummation of the purchase and sale of the Subject Shares pursuant to the
exercise of the Merger Sub Option under the HSR Act shall have expired or been
terminated; and (iii) all actions by or in respect of, and any filing with, any
governmental body, agency, official, or
40
<PAGE> 52
authority required to permit the consummation of the purchase and sale of the
Subject Shares pursuant to the exercise of the Merger Sub Option shall have been
obtained or made and shall be in full force and effect, except such actions and
filings which, if not made or obtained, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. As of the
date of this Proxy Statement, the condition set forth in clause (ii) above has
been satisfied.
FURTHER AGREEMENTS OF AMERISERVE AND MERGER SUB
The Voting Agreement provides that, in the event that Merger Sub
purchases the Subject Shares pursuant to the Option, as promptly as practicable
thereafter, Merger Sub will make a tender offer for the remaining shares of
Common Stock to the stockholders of the Company (the consummation of which shall
be subject only to the condition that no court, arbitrator or governmental body,
agency or official shall have issued any order, decree or ruling and there shall
not be any statute, rule or regulation, restraining, enjoining or prohibiting
the consummation of such tender offer) pursuant to which the stockholders of the
Company (other than the Company, any direct or indirect subsidiary of the
Company or AmeriServe or Merger Sub) will receive an amount of cash
consideration per share equal to $15.00, and will take such actions as may be
necessary or appropriate in order to effectuate such tender offer at the
earliest practicable time.
If, after purchasing the Subject Shares pursuant to the Merger Sub
Option, Merger Sub or any of its affiliates has not acquired the remaining
shares of Common Stock, Merger Sub or any of its affiliates receives any cash or
non-cash consideration in respect of the subject shares in connection with a
Third Party Business Combination (as defined below) during the period commencing
on the date of the Option Closing and ending on the first anniversary thereof,
Merger Sub shall promptly pay over to the Onex Stockholders, as an addition to
the purchase price for the Subject Shares, (x) one-half of the excess, if any,
of such consideration over the aggregate purchase price paid for the Subject
Shares which are sold by Merger Sub hereunder less (y) the sum of (I) the amount
of taxes payable or to be payable by Merger Sub (as estimated by Merger Sub in
good faith) in connection with such Third Party Business Combination (it being
intended and understood that Merger Sub retain one-half of the after-tax profit
from such sale taking into account any adjustment to basis resulting from the
payment to the Onex Stockholders), (II) the amount of expenses of Merger Sub
in connection herewith and the Merger Agreement and in connection with such
Third Party Business Combination, and (III) the pro rata portion (based on share
holdings) of all capital contributions to and retained earnings of the Company
from the date of the Option Closing through the date of the Third Party Business
Combination. If the consideration received by Merger Sub or such affiliates
consists of securities listed on a national securities exchange or traded on the
Nasdaq National Market, the per share value of such consideration will be equal
to the closing price per share of such securities listed on such national
securities exchange or the Nasdaq National Market on the date such transaction
is consummated, and if the consideration received by Merger Sub or such
affiliates is in a form other than securities, the per share value will be
determined in good faith as of the date such transaction is consummated by
Merger Sub and the Onex Stockholders (or, if Merger Sub and the Onex
Stockholders cannot reach agreement, by a nationally recognized investment
banking firm reasonably acceptable to the parties). The term "Third Party
Business Combination" means the occurrence of any of the following events: (A)
the Company, or more than 50% of the outstanding shares of the Company's capital
stock, is acquired by merger or otherwise by any third party; or (B) a third
party acquires all or substantially all of the total assets of the Company and
its subsidiaries, taken as a whole; provided, that in no event will any
transaction in which shares of the Company's capital stock or any of its assets
are sold or transferred directly or indirectly in connection with or as a part
of a sale or other transaction involving the sale, merger or other similar
transaction of AmeriServe or any of its material assets or business constitute a
Third Party Business Combination, and
41
<PAGE> 53
in no event will a sale of any division, line of business or similar unit of the
Company and its subsidiaries constitute a Third Party Business Combination.
THE COMPANIES
PROSOURCE
The Company provides foodservice distribution services to chain
restaurants in North America and provides purchasing and logistics services to
the foodservice market. The Company distributes a wide variety of items,
including fresh and frozen meat and poultry, seafood, frozen foods, canned and
dry goods, fresh and pre-processed produce, beverages, dairy products, paper
goods and cleaning and other supplies. The Company serves a variety of
restaurants, including Burger King, Red Lobster, Long John Silver's, Olive
Garden, TGIFriday's, Chick-fil-A, Chili's, Sonic, TCBY and Wendy's. ProSource is
an indirect subsidiary of Onex Corporation.
The Company was formed in 1992 to acquire Burger King Distribution
Services, the "in-house" distributor for Burger King Corporation, which serviced
approximately 4,150 Burger King restaurants. Since the acquisition, ProSource
has, through a combination of acquisitions and internal growth, become a leading
distributor to chain restaurants, servicing approximately 12,700 restaurants
within 19 different restaurant chains as of December 27, 1997. In March 1995,
the Company acquired substantially all of the assets and assumed certain
liabilities of the National Accounts Division of The Martin-Brower Company,
which added a total of approximately 8,000 restaurants within 11 chains included
in the Company's current customer base. The Company has also been successful in
expanding through internally generated sales. Since the Company's formation in
1992, net sales have grown from $1.3 billion in 1993 (the first full year of
operations) to $3.9 billion in 1997.
A more detailed description of the business and properties of the
Company is set forth in "Certain Information Regarding ProSource, Inc."
attached as Annex V to this Proxy Statement.
The Company's principal executive offices are located at 1500 San
Remo Avenue, Coral Gables, Florida 33146, telephone number (305) 740-1000.
AMERISERVE
AmeriServe is one of the nation's largest foodservice distributors,
distributing a wide variety of items, including meat, poultry, frozen foods,
canned and dry goods, produce, beverages, dairy products, paper goods, cleaning
and other supplies and small equipment. It serves a total of 25,500 restaurants
in the United States, Canada and Mexico and has more than 5,000 employees
operating out of 35 distribution centers. In addition to its corporate
headquarters in Dallas, AmeriServe has customer support offices in Wichita,
Kansas, Louisville, Kentucky and Irvine, California.
AmeriServe's principal executive offices are located at 14841 Dallas
Parkway, Dallas, Texas 75240-2100 and its telephone number is (972) 338-7000.
Merger Sub is a newly incorporated Delaware corporation organized in
connection with the Merger, and has not carried on any activities other than in
connection with the Merger. Merger Sub is a wholly-owned subsidiary of
AmeriServe. Upon the consummation of the Merger, Merger Sub will be merged with
and into the Company, with the Company continuing as the Surviving Corporation
and
42
<PAGE> 54
becoming a wholly-owned subsidiary of AmeriServe. Merger Sub's principal
executive offices are located at 545 Steamboat Road, Greenwich, Connecticut
06830 and its telephone number is (203) 661-2500.
43
<PAGE> 55
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the
Company for the periods indicated. The data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto included in "Certain Information Regarding ProSource, Inc." attached as
Annex V to this Proxy Statement.
(In millions, except per share and certain other data)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------------------
December 27, December 28, December 30, December 31, December 25,
1997 1996 1995(a) 1994(b) 1993(c)
--------------------------------------------------------------------------
(52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 3,901.2 $ 4,125.0 $ 3,461.8 $ 1,598.1 $ 1,329.3
Cost of sales 3,591.4 3,806.8 3,193.3 1,464.5 1,210.9
--------------------------------------------------------------------------
Gross profit 309.8 318.2 268.5 133.6 118.4
Operating expenses 302.1 301.3 255.2 131.0 114.2
Loss on impairment of long-live assets -- 15.7 -- -- --
Restructuring and contract-termination charges -- 28.5 0.7 -- --
--------------------------------------------------------------------------
Income (loss) from operations 7.7 (27.3) 12.6 2.6 4.2
Interest expense, net 9.2 13.1 13.3 6.6 5.5
--------------------------------------------------------------------------
Loss before income taxes, extraordinary items and
cumulative effect of a change in accounting
principle (1.5) (40.4) (0.7) (4.0) (1.3)
Income tax benefit (provision) 0.5 15.4 (0.1) 1.6 0.5
--------------------------------------------------------------------------
Loss before extraordinary items and cumulative
effect of a change in accounting principle (1.0) (25.0) (0.8) (2.4) (0.8)
Extraordinary (loss) gain, net (6.3) 0.6 (0.8) -- --
Cumulative effect of a change in accounting
principle, net (6.4) -- -- -- --
--------------------------------------------------------------------------
Net loss $ (13.7) $ (24.4) $ (1.6) $ (2.4) $ (0.8)
==========================================================================
Net loss per common share (basic and diluted):
Loss before extraordinary items and cumulative
effect of a change in accounting principle $ (0.11) $ (4.31) $ (0.18) $ (1.01) $ (0.35)
Extraordinary items, net (0.67) 0.11 (0.17) -- --
Cumulative effect of a change in accounting
principle, net (0.69) -- -- -- --
--------------------------------------------------------------------------
Net loss per common share $ (1.47) $ (4.20) $ (0.35) $ (1.01) $ (0.35)
==========================================================================
Average outstanding shares used in calculation
(in thousands) 9,334 5,796 4,441 2,353 2,348
==========================================================================
Balance Sheet Data (at end of period):
Working capital $ 106.0 $ 85.5 $ 115.9 $ 41.6 $ 42.7
Total assets 548.1 503.7 487.3 216.9 199.6
Total debt 174.2 112.6 162.7 65.1 68.5
Stockholders' equity 64.4 78.5 49.4 22.5 25.3
Other Data:
Net asset turnover 16.4x 20.1x 18.3x 16.5x 13.6x
Depreciation and amortization $ 11.2 $ 10.9 $ 12.7 $ 8.0 $ 7.9
Capital expenditures $ 30.0 $ 20.0 $ 5.7 $ 1.4 $ 3.5
Number of restaurants served (at end of period) 12,715 14,641 14,562 6,752 5,113
</TABLE>
44
<PAGE> 56
(a) Includes the effects of the acquisition of substantially all of the assets
and the assumption of certain liabilities of the National Accounts
Division of The Martin-Brower Company on March 31, 1995.
(b) Includes the effects of the acquisition of certain assets and the
assumption of certain liabilities of Malone Products, Inc. on October 31,
1994.
(c) Includes the effects of the acquisition of certain operating assets of
McCabe's Quality Foods, California, Inc. on February 27, 1993 and the
effects of the acquisition of certain assets and the assumption of certain
liabilities of Valley Food Services, Inc. on March 27, 1993.
(d) The per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". For further discussion of this and the impact of Statement No.
128, see the Notes to the Company's Consolidated Financial Statements
included in "Certain Information Regarding ProSource, Inc." attached as
Annex V to this Proxy Statement.
(e) Certain amounts presented above for prior years have been reclassified to
conform to the current year's presentation.
45
<PAGE> 57
MARKET PRICES OF COMMON STOCK
The Company's Class A Common Stock began trading on the Nasdaq
National Market under the symbol "PSDS" on November 12, 1996. The table sets
forth the high and low sales prices per share for the Company's Class A Common
Stock as reported on the Nasdaq National Market for each fiscal quarter
subsequent to the commencement of trading.
Sale Prices
-----------
1996 High Low
---- ---
Fourth Quarter (from November 12, 1996).................. $14 1/8 $ 9 3/4
1997
First Quarter............................................ $14 1/8 $10 1/2
Second Quarter........................................... 13 3/8 6 1/4
Third Quarter............................................ 9 1/8 6 3/4
Fourth Quarter........................................... 9 3/4 6
1998
First Quarter............................................ $14 3/4 $ 6 1/2
On January 29, 1998, the last trading date prior to public
announcement of the execution of the Merger Agreement, the closing price of the
Common Stock, as quoted on the Nasdaq National Market was $ 6 15/16 per share.
On April 1, 1998, the closing price of the Class A Common Stock, as reported on
the Nasdaq National Market was $14 3/4 per share. Stockholders are urged to
obtain current market quotations for the Class A Common Stock prior to making
any decision with respect to the Merger.
At the close of business on the Record Date, there were 3,526,835
shares of Class A Common Stock outstanding and entitled to vote at the Special
Meeting, held by approximately 36 stockholders of record and 5,856,756 shares of
Class B Common Stock outstanding and entitled to vote of the Special Meeting,
held by approximately 62 stockholders of record. At such date, the Company had
approximately 1,200 beneficial owners of its Class A Common Stock and Class B
Common Stock, in the aggregate.
The Company has not paid any cash dividends on its Common Stock
since inception. The current policy of the Company's Board of Directors is to
retain all earnings to provide funds for the operation and expansion of the
Company's business. The Company does not anticipate declaring or paying cash
dividends on the Common Stock in the foreseeable future. The terms of the
Company's credit agreements prohibit it from paying dividends to its
stockholders without the approval of the lending group. Holders of Class A
Common Stock and Class B Common Stock share ratably in any dividend declared by
the Board of Directors, subject to the preferential rights of any outstanding
Preferred Stock.
Each share of Class A Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes. Except as otherwise
required by law, the Class A Common Stock and Class B Common Stock vote together
on all matters submitted to a vote of stockholders, including the Merger
Proposal. Each share of Class B Common Stock is convertible at the option of the
holder thereof into one share of Class A Common Stock. Any shares of Class B
Common Stock transferred to a person other than
46
<PAGE> 58
an existing holder of Class B Common Stock or any affiliate thereof shall
automatically convert into shares of Class A Common Stock upon such disposition.
In addition, in the event that any employee of the Company holding Class B
Common Stock ceases to be an employee for any reason, the shares of Class B
Common Stock held by such employee shall automatically convert into shares of
Class A Common Stock, unless transferred to Onex or its affiliates, or another
employee stockholder.
47
<PAGE> 59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock at February 9, 1998 by (i)
each person known to the Company to own beneficially more than 5% of any class
of the Company's outstanding Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer of the Company, and (iv) all executive
officers and directors of the Company, as a group. On that date 3,526,835 shares
of Class A Common Stock and 5,856,756 shares of Class B Common Stock were
outstanding. All information with respect to beneficial ownership has been
furnished to the Company by the respective stockholders of the Company. Except
as otherwise indicated in the footnotes, each beneficial owner has the sole
power to vote and to dispose of all shares held by such holder.
<TABLE>
<CAPTION>
Class A and B
Shares of Class A Shares of Class B Combined
Common Stock Common Stock Voting
Beneficially Owned (1) Beneficially Owned (1) Power (2)
------------------------ --------------------------- ----------
Name Number Percentage Number Percentage Percentage
- ----------------------------------------- ------ ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Onex DHC LLC(3) (7)
421 Leader Street
Marion, Ohio 43302.................. 500,000 14.2% 4,951,242 84.5% 80.5%
Onex Corporation (4) (7)
161 Bay Street
Toronto, Ontario
Canada............................... 500,000 14.2 5,236,956 89.4 85.1
Onex OMI LLC (7)......................... -- -- 285,714 4.9 4.6
Onex Ohio LLC (7)........................ -- -- 379,242 6.5 6.1
Steamboat Acquisition Corp. (7)
Nebco Evans Holding Company
Nebco Evans Distributors, Inc
Holberg Industries, Inc.
Holberg Incorporated
John V. Holten
545 Steamboat Road
Greenwich, CN 06830................. 496,583 14.1 5,218,072 89.1 84.8
AmeriServe Food Distribution, Inc. (7)
14841 Dallas Parkway
Dallas, TX 75240.................... 496,583 14.1 5,218,072 89.1 84.8
The Kaufman Fund, Inc.
140 E. 45th Street, 43rd Floor
New York, NY 10017.................. 1,000,000 28.4 -- -- 1.6
Skyline Asset Management
311 South Wacker Drive, Ste. 4500
Chicago, IL 60606.................... 480,300 13.6 -- -- *
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202.................. 300,000 8.5 -- -- *
David R. Parker (5)...................... 7,337 * 174,378 3.0 2.3
Thomas C. Highland (5)................... 1,118 * 94,188 1.6 1.2
Daniel J. Adzia (5)...................... -- -- 55,500 * *
William F. Evans (5)..................... 4,187 * 55,500 * *
Gerald W. Schwartz (4)................... 500,000 14.2 5,236,956 89.4 85.1
Anthony R. Melman (6).................... -- -- -- -- --
</TABLE>
48
<PAGE> 60
<TABLE>
<CAPTION>
Class A and B
Shares of Class A Shares of Class B Combined
Common Stock Common Stock Voting
Beneficially Owned (1) Beneficially Owned (1) Power (2)
------------------------ ------------------------ ----------
Name Number Percentage Number Percentage Percentage
- ------------------------------------------- ------ ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Michael Carpenter ......................... -- -- 18,200 * *
Anthony Munk (6) .......................... -- -- -- -- --
C. Lee Johnson ............................ -- -- 4,500 * *
R. Geoffrey P. Styles ..................... 1,000 * 7,300 * *
Robert S. Donaldson (5) ................... 1,732 * 25,960 * *
All directors and executive officers of the
Company as a group (17 persons) ....... 517,645 14.7 5,778,495 97.0 92.2
</TABLE>
- -----------------
*Less than 1%.
(1) Each share of Class B Common Stock is presently convertible at the option
of the holder thereof into one share of Class A Common Stock. Any shares
of Class B Common Stock transferred to a person other than an existing
holder of Class B Common Stock or any affiliate thereof shall
automatically convert into shares of Class A Common Stock upon such
disposition. In addition, in the event that any employee of the Company
holding Class B Common Stock ceases to be an employee for any reason, the
shares of Class B Common Stock held by such employee shall automatically
convert into shares of Class A Common Stock, unless transferred to Onex or
another employee stockholder. All information in the table assumes that no
shares of Class B Common Stock are converted into shares of Class A Common
Stock.
(2) The column entitled "Class A and Class B Combined Voting Power Percentage"
in the table shows the combined voting power of the votes attributable to
Class A Common Stock (each share of which is entitled to one vote) and
Class B Common Stock (each share of which is entitled to ten votes) of the
holders thereof.
(3) Onex DHC LLC's beneficial ownership of the Company's Common Stock includes
(i) 500,000 shares of Class A Common Stock and 4,572,000 shares of Class B
Common Stock beneficially owned directly by Onex DHC LLC and (ii) 379,242
shares of Class B Common Stock beneficially owned directly by Onex Ohio
LLC, which Onex DHC LLC may be deemed to own beneficially as a result of
its direct beneficial ownership of 74.9% of the equity of Onex Ohio LLC
(clauses (i) and (ii) together referred to as the "DHC Shares").
(4) As the direct and indirect beneficial owner of 100% of the equity of Onex
DHC LLC, and the direct beneficial owner of 25.1% of the equity of Onex
Ohio LLC, Onex Corporation may be deemed to own beneficially the DHC
Shares. In addition, as the indirect beneficial owner of 100% of the
equity of Onex OMI LLC, Onex Corporation may be deemed to own beneficially
285,714 shares of Class B Common Stock beneficially owned directly by Onex
OMI LLC. Gerald W. Schwartz is the Chairman of the Board, President and
Chief Executive Officer of Onex Corporation and the indirect holder of all
the issued and outstanding Multiple Voting Shares (defined below) of Onex
Corporation, and therefore may also be deemed to own beneficially such
shares of Common Stock.
(5) Includes shares of Class B Common Stock which the directors and executive
officers have the right to acquire through the exercise of options within
60 days as follows: David R. Parker - 31,078; Thomas C. Highland - 19,188;
Daniel J. Adzia - 10,500; William F. Evans - 10,500; and Robert S.
Donaldson - 5,560.
(6) Excludes shares in which Messrs. Melman and Munk have an indirect
interest, with respect to which Mr. Schwartz, Onex Corporation and Onex
DHC LLC share beneficial ownership.
(7) Based on information contained in a Statement on Schedule 13D (the
"Schedule 13D") filed with the Commission on February 9, 1998 by
AmeriServe, Merger Sub and certain of their affiliates (the "Filing
Persons"), as of January 29, 1998, under the definition of "beneficial
ownership" as set forth in Rule 13d-3 under the Exchange Act, Merger Sub
may be deemed to beneficially own the Subject Shares subject to the Voting
Agreement. If Merger Sub were to exercise the Merger Sub Option, Merger
Sub would have the power to dispose of all of the Subject Shares. Unless
and until Merger Sub or its designee, if any, acquires shares of Common
Stock upon exercise of the Merger Sub Option, neither Merger Sub nor such
designee, if any, has any power to dispose of any shares of Common Stock.
The Filing Persons may be deemed to share the power to direct the voting
of the Subject Shares with respect to the Merger and certain related
actions, in accordance with the terms of the Voting Agreement, and, upon
exercise of the Merger Sub Option, would have the shared power to direct
the voting of and the disposition of such shares.
In addition, as of December 27, 1997, Messrs. Schwartz and Styles
beneficially owned 13,051,878 and 17,000 subordinate voting shares of Onex
Corporation ("Subordinate Voting Shares"), respectively, representing 27.6% of
the outstanding Subordinate Voting Shares in the case of Mr. Schwartz, and less
than 1% of the outstanding Subordinate Voting Shares in the case of Mr. Styles.
All directors and executive officers of the Company as a group owned 13,068,878
Subordinate Voting Shares, representing 27.6% of the outstanding Subordinate
Voting Shares. Subordinate Voting Shares beneficially owned includes shares
which Mr. Styles (9,000) may have the right to acquire through the exercise of
options within 60 days (the
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options become exercisable in the event that the average market price of the
Subordinate Voting Shares exceeds the exercise price of the options (Cdn.
$13.25) by at least 25%). Mr. Schwartz also beneficially owns 100,000 multiple
voting shares of Onex Corporation ("Multiple Voting Shares"), representing all
of the outstanding Multiple Voting Shares. All information with respect to
beneficial ownership of Onex Corporation capital stock has been furnished by the
respective stockholders of Onex Corporation. Subordinate Voting Shares carry one
vote per share and as a class are entitled to 40% of the aggregate votes
attached to all voting shares of Onex Corporation, to elect 40% of Onex
Corporation's board of directors and to appoint the auditors. Multiple Voting
Shares are entitled to elect 60% of Onex Corporation's board of directors and
carry such number of votes in the aggregate as represents 60% of the aggregate
votes attached to all voting shares of Onex Corporation.
STOCKHOLDER PROPOSALS
The Company will hold a 1998 Annual Meeting only if the Merger is
not consummated. In the event of such a meeting, in order to have been
considered for inclusion in the Company's proxy materials for the 1998 Annual
Meeting of Stockholders, stockholder proposals must have been received at the
Company's principal executive offices in Coral Gables, Florida not later than
December 1, 1997.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of December
27, 1997 and December 28, 1996 and for each of the three years in the period
ended December 27, 1997, included in "Certain Information Regarding ProSource,
Inc." attached as Annex V to this Proxy Statement, have been audited by KPMG
Peat Marwick LLP, independent auditors, as stated in their report included
therein.
Representatives of KPMG Peat Marwick LLP are expected to attend the
Special Meeting and will have an opportunity to make a statement if they so
desire and to respond to appropriate questions from stockholders.
OTHER MATTERS
The Board of Directors is not currently aware of any business to be
acted upon at the Special Meeting other than the Merger Proposal. If, however,
other matters are properly brought before the Special Meeting, the persons
appointed as proxies will have the discretion to vote or act thereon in
accordance with their best judgment, unless authority to do so is withheld in
the Proxy.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission at Seven
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, like the Company, that file
electronically with the Commission at the following address: http://www.sec.gov.
The Class A Common Stock is quoted on the Nasdaq National Market, and such
reports, proxy statements and other information may be inspected at the offices
of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY STATEMENT
OTHER THAN THOSE CONTAINED HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
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ANNEX I
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
AMERISERVE FOOD DISTRIBUTION, INC.
STEAMBOAT ACQUISITION CORP.
and
PROSOURCE, INC.
Dated as of January 29, 1998
================================================================================
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w
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
SECTION 1.1. The Merger................................................. 2
SECTION 1.2. Closing.................................................... 2
SECTION 1.3. Effective Time of the Merger............................... 2
SECTION 1.4. Effects of the Merger...................................... 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1. Conversion of Shares....................................... 2
SECTION 2.2. Surrender and Payment...................................... 3
SECTION 2.3. Dissenting Shares.......................................... 4
SECTION 2.4. Stock Options and Stock Plans.............................. 5
ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1. Certificate of Incorporation............................... 6
SECTION 3.2. Bylaws..................................................... 6
SECTION 3.3. Directors and Officers..................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.1. Organization, Standing and Corporate Power................. 6
SECTION 4.2. Subsidiaries............................................... 7
SECTION 4.3. Capital Structure.......................................... 8
SECTION 4.4. Authority; Noncontravention................................ 8
SECTION 4.5. SEC Documents; Financial Statements; No Undisclosed
Liabilities............................................ 9
SECTION 4.6. Disclosure Documents....................................... 10
SECTION 4.7. Property; Sufficiency of Assets............................ 10
SECTION 4.8. Absence of Certain Changes or Events....................... 10
SECTION 4.9. Litigation................................................. 12
SECTION 4.10. Compliance with Laws, Etc.................................. 12
<PAGE> 65
Page
SECTION 4.11. Absence of Changes in Stock or Benefit Plans............... 12
SECTION 4.12. ERISA Compliance........................................... 13
SECTION 4.13. Tax Matters................................................ 15
SECTION 4.14. Debt Instruments........................................... 16
SECTION 4.15. Insurance.................................................. 17
SECTION 4.16. Labor Matters.............................................. 17
SECTION 4.17. No Restrictive Agreements.................................. 17
SECTION 4.18. Interests of Officers and Directors........................ 17
SECTION 4.19. Brokers.................................................... 18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
SECTION 5.1. Organization, Standing and Corporate Power................. 18
SECTION 5.2. Authority; Noncontravention................................ 18
SECTION 5.3. Disclosure Documents....................................... 19
SECTION 5.4. Brokers.................................................... 20
SECTION 5.5. Company Contracts ......................................... 20
ARTICLE VI
COVENANTS OF THE COMPANY
SECTION 6.1. Conduct of Business........................................ 20
SECTION 6.2. Shareholder Meeting; Proxy Material........................ 22
SECTION 6.3. Access to Information...................................... 22
SECTION 6.4. Covenants Regarding Certain Benefit Plans.................. 23
SECTION 6.5. Cooperation in Arrangements with Lenders................... 23
ARTICLE VII
COVENANTS OF PARENT
SECTION 7.1. Confidentiality............................................ 23
SECTION 7.2. Obligations of Merger Subsidiary........................... 24
SECTION 7.3. Voting of Shares........................................... 24
SECTION 7.4. Director and Officer Liability............................. 24
ARTICLE VIII
COVENANTS OF PARENT AND THE COMPANY
SECTION 8.1. HSR Act Filings; Reasonable Efforts; Notification.......... 25
SECTION 8.2. Public Announcements....................................... 27
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Page
SECTION 8.3. No Solicitation............................................ 27
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party................ 27
SECTION 9.2. Conditions to the Obligations of Parent and Merger
Subsidiary.............................................. 27
SECTION 9.3. Conditions to the Obligations of the Company............... 29
ARTICLE X
TERMINATION
SECTION 10.1. Termination................................................ 29
SECTION 10.2. Effect of Termination...................................... 30
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices.................................................... 30
SECTION 11.2. Survival of Representations and Warranties................. 31
SECTION 11.3. Amendments; No Waivers..................................... 31
SECTION 11.4. Fees and Expenses.......................................... 31
SECTION 11.5. Successors and Assigns; Parties in Interest................ 32
SECTION 11.6. Governing Law.............................................. 32
SECTION 11.7. Counterparts; Effectiveness; Interpretation................ 32
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<PAGE> 67
INDEX OF DEFINED TERMS
Page Page
Agreement.........................1 Governmental Entity...............9
Benefit Plans....................13 HSR Act...........................9
CA Act............................9 indebtedness.....................16
Certificate of Merger.............2 Indemnified Parties..............25
Class A Shares....................1 Material Adverse Effect...........7
Class B Shares....................1 Merger............................1
Closing...........................2 Merger Consideration..............3
Code.............................13 Merger Subsidiary.................1
Company...........................1 Multiemployer Plan...............14
Company Option....................5 Multiple Employer Plan...........14
Company Proxy Statement..........10 Option Plans......................5
Company Shareholder Approval......8 Parent............................1
Company Shareholder Meeting......22 Parent Material Adverse Effect...19
Consents..........................9 person............................4
Constituent Corporations..........2 Plans............................13
Controlled Group Liability.......13 Preferred Shares..................7
DGCL..............................1 Qualified Plans..................14
Dissenting Shares.................4 SEC...............................9
Effective Time....................2 SEC Documents.....................9
ERISA............................13 Securities Act...................10
ERISA Affiliate..................13 Shares............................1
ESPP..............................5 Stockholders......................1
Exchange Act......................9 Voting Agreement..................1
GAAP..............................9
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of January
29, 1998, by and among ProSource, Inc. , a Delaware corporation (the "Company"),
AmeriServe Food Distribution, Inc., a Delaware corporation ("Parent"), and
Steamboat Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub").
WHEREAS, the Board of Directors of the Company has unanimously (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger (as defined herein), are fair to and in the best interests
of the shareholders of the Company, (ii) determined that the consideration to be
paid in the Merger is fair to and in the best interests of the shareholders of
the Company, (iii) approved this Agreement and the transactions contemplated
hereby, including the Merger, and (iv) resolved to recommend approval and
adoption of this Agreement, the Merger and the other transactions contemplated
hereby by such shareholders;
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved the merger of Merger Sub into the Company as set forth
below (the "Merger"), upon the terms and subject to the conditions set forth in
this Agreement and the General Corporation Law of the State of Delaware (the
"DGCL"), whereby (i) each issued and outstanding share of Class A Common Stock,
par value $0.01 per share, of the Company (the "Class A Shares") shall be
converted into the right to receive the Merger Consideration (as defined herein)
and (ii) each issued and outstanding share of Class B Common Stock, par value
$0.01 per share, of the Company (the "Class B Shares" and, together with the
Class A Shares, the "Shares") shall be converted into the right to receive the
Merger Consideration, in each case excluding Class A Shares and Class B Shares
owned, directly or indirectly, by the Company or any subsidiary of the Company
or by Parent, Merger Sub or any other subsidiary of Parent and Dissenting Shares
(as defined herein);
WHEREAS, as a condition to the willingness of Parent and Merger Sub to
enter into this Agreement and consummate the transactions contemplated hereby,
Parent has required that Onex DHC LLC, a Wyoming limited liability company, and
certain of its affiliates (together, the "Stockholders"), agree, among other
things, to vote all Shares beneficially owned by the Stockholders in accordance
with the Voting Agreement, dated as of the date hereof, among the Stockholders,
Parent and Merger Sub (the "Voting Agreement") and comply with the other
provisions of the Voting Agreement; and in order to induce Parent and Merger Sub
to enter into this Agreement, the Stockholders will execute and deliver the
Voting Agreement; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the consummation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:
<PAGE> 69
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the DGCL, Merger Sub shall
be merged with and into the Company at the Effective Time (as defined herein).
At the Effective Time, the separate corporate existence of Merger Sub shall
cease, and the Company (i) shall continue as the surviving corporation as a
direct or indirect wholly owned subsidiary of Parent (Merger Sub and the Company
are sometimes hereinafter referred to as "Constituent Corporations" and, as the
context requires, the Company, after giving effect to the Merger, is sometimes
hereinafter referred to as the "Surviving Corporation") and (ii) shall succeed
to and assume all the rights and obligations of Merger Sub in accordance with
the DGCL.
SECTION 1.2. Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 10.1, and subject to the satisfaction or waiver of the conditions set
forth in Article IX, the closing of the Merger (the "Closing") shall take place
at 10:00 a.m. on the second business day after satisfaction or waiver of the
conditions set forth in Article IX, at the offices of Wachtell, Lipton, Rosen &
Katz, 51 West 52nd Street, New York, New York, unless another date, time or
place is agreed to in writing by the parties hereto. At the time of the Closing,
the Company and Merger Sub will cause the Merger to be consummated by filing
this Agreement or a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in such form as required by and
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required by the DGCL in connection with the
Merger.
SECTION 1.3. Effective Time of the Merger. The Merger shall, subject
to the DGCL, become effective as of such date and time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware or at
such later date and time as is specified in the Certificate of Merger (the
"Effective Time").
SECTION 1.4. Effects of the Merger. From and after the Effective Time,
the Surviving Corporation shall possess all the property, rights, privileges,
immunities, powers and franchises and be subject to all of the debts,
restrictions, disabilities and duties of the Company and Merger Sub, all as
provided under the DGCL.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1. Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any Shares or any
shares of capital stock of Merger Sub:
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(a) each Share owned by the Company or owned by Parent, Merger Sub or
any subsidiary of any of the Company, Parent or Merger Sub immediately
prior to the Effective Time shall be canceled, and no payment shall be made
with respect thereto;
(b) each share of common stock of Merger Sub outstanding immediately
prior to the Effective Time shall be converted into and become one fully
paid and nonassessable share of common stock of the Surviving Corporation
and shall constitute the only outstanding shares of capital stock of the
Surviving Corporation; and
(c) each Share outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section 2.1(a) or as provided in
Section 2.3 with respect to Dissenting Shares, be converted into the right
to receive $15.00 in cash without interest (the "Merger Consideration").
SECTION 2.2. Surrender and Payment. (a) At the Effective Time, Parent
shall, or shall cause Merger Sub to, deposit in trust, or enter into such other
agreement or arrangement as may be reasonably satisfactory to the Company, with
a bank or trust company designated by Parent and reasonably acceptable to the
Company (the "Exchange Agent"), cash in an aggregate amount equal to the product
of (i) the number of Shares issued and outstanding at the Effective Time (other
than Shares owned by the Company, Parent or Merger Sub or any subsidiary of the
Company, Parent or Merger Sub) and (ii) the Merger Consideration (the "Exchange
Fund"). Promptly after the Effective Time, Parent will send, or will cause the
Exchange Agent to send, to each holder of Shares at the Effective Time a letter
of transmittal for use in such exchange (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates representing Shares to the Exchange Agent). The
Exchange Agent shall, pursuant to irrevocable instructions given by Parent or
Merger Sub, make the payments provided in this Section. The Exchange Fund shall
not be used for any other purpose, except as provided in this Agreement.
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a properly
completed letter of transmittal covering such Shares and other customary
documentation, will be entitled to receive the Merger Consideration payable in
respect of such Shares. Parent shall establish procedures reasonably
satisfactory to the Company under which holders of Shares will be able to
receive payment of the Merger Consideration in immediately available funds
immediately after the Effective Time. As of the Effective Time, all such Shares
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate previously
representing any such Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, without interest,
upon surrender of the certificates representing such Shares, as contemplated
hereby.
(c) If any portion of the Merger Consideration is to be paid to a
person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so
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surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
person other than the registered holder of such Shares or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable. For purposes of this Agreement, "person" means an individual, a
corporation, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article II.
(e) Any portion of the Exchange Fund that remains unclaimed by the
holders of Shares six months after the Effective Time shall be returned to
Parent, upon Parent's demand, and any such holder who has not exchanged his
Shares for the Merger Consideration in accordance with this Section prior to
that time shall thereafter look only to Parent and the Surviving Corporation for
payment of the Merger Consideration in respect of his Shares. Notwithstanding
the foregoing, Parent shall not be liable to any holder of Shares for any amount
paid to a public official pursuant to and in accordance with the requirements of
applicable abandoned property, escheat or similar laws.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.2(a) to pay for Shares for which the right
to a determination of fair market value, as contemplated by Section 2.3, has
been perfected shall be returned to Parent upon Parent's demand.
SECTION 2.3. Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, Shares that are issued and outstanding immediately
prior to the Effective Time and which are held by holders who have not voted in
favor of or consented to the Merger and who shall have delivered a written
demand for appraisal of such Shares in the time and manner provided in Section
262 of the DGCL and shall not have failed to perfect or shall not have
effectively withdrawn or lost their rights to appraisal and payment under the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration, but shall be entitled to receive the consideration as
shall be determined pursuant to Section 262 of the DGCL; provided, however,
that, if any such holder shall have failed to perfect or shall have effectively
withdrawn or lost his, her or its right to appraisal and payment under the DGCL,
such holder's Shares shall thereupon be deemed to have been converted, at the
Effective Time, into the right to receive the Merger Consideration set forth in
Section 2.1(c) of this Agreement, without any interest thereon.
(b) The Company shall give Parent and Merger Sub (i) prompt notice of
any demands for appraisal pursuant to Section 262 of the DGCL received by the
Company, withdrawals of such demands and any other instruments served pursuant
to the DGCL and received by the Company, and (ii) the opportunity to direct all
negotiations and proceedings with respect
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to demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any such
demands for appraisal or offer to settle any such demands.
SECTION 2.4. Stock Options and Stock Plans. (a) Parent and the Company
shall take all actions necessary to provide that at the Effective Time, (i) each
Company Option (defined below) surrendered for cash, shall be canceled, and (ii)
in consideration of such cancellation, and except to the extent that Parent or
Merger Sub and the holder of any such Company Option otherwise agree, the
Company shall pay to each such holder of Company Options an amount in cash in
respect thereof equal to the product of (1) the excess, if any, of the Merger
Consideration over the per share exercise price thereof and (2) the number of
Shares subject thereto immediately prior to the Effective Time less applicable
withholding taxes. "Company Option" means any option granted, whether or not
exercisable (it being understood that all Company Options shall be deemed to be,
and shall be treated under this Article II as though, such Company Options were
fully vested and fully exercisable immediately prior to the Effective Time), and
not exercised or expired, to a current or former employee, director or
independent contractor of the Company or any of its subsidiaries or any
predecessor thereof to purchase Shares pursuant to the Amended Management Option
Plan (1995), the 1996 Stock Option Plan, and the 1997 Directors Stock Option
Plan (collectively, the "Option Plans").
(b) Prior to the Effective Time, the Company shall use its reasonable
efforts to (i) obtain any consents from holders of Company Options and (ii) make
any amendments to the terms of such stock option or compensation plans or
arrangements that, in the case of either clause (i) or (ii), are necessary to
give effect to the transactions contemplated by this Section.
(c) Immediately prior to the Effective Time, the Company shall
terminate the Option Plans.
(d) In the event the current Plan Year (as such term is defined in the
Company's 1997 Employee Stock Purchase Plan (the "ESPP")) ends prior to the
Effective Time, the Company shall take all such action as may be necessary in
accordance with the ESPP to terminate the ESPP as of the last day of such Plan
Year, with the effect, among other things, that no new Plan Year shall commence
thereafter. In the event the current Plan Year under the ESPP would not
otherwise end prior to the Effective Time, then prior to the date that is five
days prior to the Effective Time, the Company shall amend the ESPP such that the
date on which the Effective Time occurs shall be the last day of the current
Plan Year for purposes of the ESPP with respect to the current Plan Year, with
the effect that on such date immediately prior to the Effective Time, Shares
will be purchased from the Company as provided in Section 5.3 of the ESPP, and
the Shares purchased shall thereafter be converted in the Merger, as provided
for in Section 2.1(c). At the Effective Time, the Company shall terminate the
ESPP, any cash held in participants' accounts after giving effect to this
Section shall be distributed to the respective participants in the ESPP and no
Plan Year that would otherwise commence on or after such date shall commence.
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ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1. Certificate of Incorporation. The certificate of
incorporation of the Merger Sub in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended as
provided therein and in accordance with applicable law; provided that the
provisions thereof as to indemnification and exculpation of directors shall be
no less favorable than those contained in the certificate of incorporation of
the Company, as previously filed as an exhibit to the SEC Documents.
SECTION 3.2. Bylaws. The bylaws of the Merger Sub in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended or
repealed as provided therein and in accordance with the certificate of
incorporation and applicable law; provided that the provisions thereof as to
indemnification and exculpation of directors shall be no less favorable than
those contained in the bylaws of the Company, as previously filed as an exhibit
to the SEC Documents.
SECTION 3.3. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with applicable law, the officers and directors of Merger Sub at the Effective
Time shall be the officers and directors of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub:
SECTION 4.1. Organization, Standing and Corporate Power. Each of the
Company and each of its significant subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of the
Company and each of its significant subsidiaries is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed (individually or in the aggregate) would
not reasonably be expected to (i) have a material adverse effect on the
condition (financial or otherwise), business, or results of operations of the
Company and its subsidiaries taken as a whole, or (ii) prevent or materially
delay consummation of any of the transactions contemplated by this Agreement (a
"Material Adverse Effect"). The Company has delivered to Parent complete and
correct copies of its certificate of incorporation and bylaws, and the
certificate of incorporation and bylaws (or equivalent organizational documents)
of its significant subsidiaries, in each case as amended to the date of this
Agreement. For purposes of this Agreement, a "subsidiary" of any person means
another person in which such first person, directly or indi-
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rectly, owns 50% or more of the equity interests or has the right, through
ownership of equity, contractually or otherwise, to elect at least a majority of
its Board of Directors or other governing body, and "significant subsidiary" has
the meaning given that term in Regulation S-X promulgated by the United States
Securities and Exchange Commission.
SECTION 4.2. Subsidiaries. All the outstanding shares of capital stock
or other ownership interests of each significant subsidiary of the Company have
been validly issued and are fully paid and nonassessable and, all such shares or
ownership interests are owned by the Company, by another subsidiary of the
Company or by the Company and another such subsidiary, free and clear of all
encumbrances and liens and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or equity interests). All of the subsidiaries of the Company
that are not "significant subsidiaries" would not, if taken in the aggregate,
constitute a "significant subsidiary" and are not otherwise material to the
Company.
SECTION 4.3. Capital Structure. The authorized capital stock of the
Company consists of 50,000,000 Class A Shares, 10,000,000 Class B Shares and
10,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred
Shares"). As of December 31, 1997, (i) 3,490,835 Class A Shares were issued and
outstanding, (ii) 5,892,756 Class B Shares were issued and outstanding, (iii) no
Shares were held by the Company or by any of the Company's subsidiaries, (iv)
10,500 Class A Shares were reserved for issuance pursuant to the outstanding
Company Options, (v) 629,150 Class B Shares were reserved for issuance pursuant
to the outstanding Company Options, (vi) 300,000 Class A Shares and no Class B
Shares were reserved for issuance pursuant to the ESPP, and (vii) no shares of
Preferred Stock were issued, reserved for issuance or outstanding. Except as set
forth above or on Schedule 4.3, no shares of capital stock or other equity or
voting securities of the Company are issued, reserved for issuance or
outstanding, except for Shares referred to in clauses (iv) and (v) above which
may be issued upon exercise of the outstanding Company Options. All outstanding
shares of capital stock of the Company are, and all Shares which may be issued
pursuant to the Option Plans will, when issued, be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth on Schedule 4.3, there are not any bonds, debentures, notes
or other indebtedness or securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of the Company may vote. Other than the
Shares, Company Options, Option Plans and the ESPP, or as set forth on Schedule
4.3, there are not any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party or by which any of them is bound
obligating the Company or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other equity or voting securities of the Company or of any of its subsidiaries
or obligating the Company or any of its subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. There are no outstanding rights,
commitments, agreements, arrangements or undertakings of any kind obligating the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire or
dispose of any shares of capital stock or other equity or voting securities of
the Company or any
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of its subsidiaries or any securities of the type described in the two
immediately preceding sentences.
SECTION 4.4. Authority; Noncontravention. (a) The Company has the
requisite corporate power and authority to enter into this Agreement and,
subject to the Company Shareholder Approval (as defined below) required in
connection with the consummation of the Merger, to consummate the transactions
contemplated by this Agreement. The Merger requires the approval by the
affirmative vote of the holders of Shares entitled to cast a majority of the
votes of all outstanding Shares (the "Company Shareholder Approval"), which
approval is the only vote of the holders of any class or series of the capital
stock of the Company necessary to approve the Merger and this Agreement and the
transactions contemplated hereby.
(b) The execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company, except for the Company Shareholder Approval in connection
with the consummation of the Merger. This Agreement has been duly executed and
delivered by the Company and, assuming this Agreement constitutes a valid and
binding agreement of Parent and Merger Sub, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or to a loss of a benefit under, or result in the
creation of any encumbrance or lien upon any of the properties or assets of the
Company or any of its subsidiaries under, (i) the certificate of incorporation
or bylaws of the Company or the comparable charter or organizational documents
of any of its subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lien, lease or any other contract, agreement, instrument,
permit, commitment, concession, franchise or license applicable to the Company
or any of its subsidiaries or their respective properties or assets, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets other than, in the case of clauses (ii) and
(iii) above, any such conflicts, violations, defaults, rights, losses or liens
that (x) individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect or (y) are set forth on Schedule 4.4.
(d) No consent, approval, franchise, order, license, permit, waiver or
authorization of, or registration, declaration or filing with or exemption,
notice, application, or certification by or to (collectively, "Consents") any
federal, state or local government or any arbitral panel or any court, tribunal,
administrative or regulatory agency or commission or other governmental
authority, department, bureau, commission or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company or any of
its subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (i)
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the filing of the documents referred to in Section 1.2 in accordance with the
DGCL and similar documents with the relevant authorities of other states in
which the Company is qualified to do business, (ii) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (iii) compliance
with any applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act"), (iv)
such notifications as may be required pursuant to the Competition Act (Canada)
(the "CA Act") or the Investment Canada Act (Canada), and (v) such other
Consents as to which the failure to obtain or make would not reasonably be
expected to have a Material Adverse Effect.
SECTION 4.5. SEC Documents; Financial Statements; No Undisclosed
Liabilities. (a) The Company has filed, and made available to Parent true and
complete copies of, all required reports, schedules, forms, statements, exhibits
and other documents filed with the Securities and Exchange Commission ("SEC")
since January 1, 1996 (the "SEC Documents"). As of their respective dates, and
except to the extent later modified in subsequent SEC Documents, the SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act"), or the Exchange Act, as the case may be, applicable to
such SEC Documents, and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with United States generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis throughout the periods
involved ("GAAP") (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(c) Except as set forth in the SEC Documents, and except for
liabilities and obligations arising in the ordinary course of business
consistent with past practice, neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise), except for liabilities and obligations which,
individually or in the aggregate, have not had or would not reasonably be
expected to have a Material Adverse Effect.
SECTION 4.6. Disclosure Documents. (a) The definitive proxy statement
of the Company (the "Company Proxy Statement") to be filed with the SEC in
connection with the Merger, and any amendments or supplements thereto will, when
filed, comply in all material respects with the applicable requirements of the
Exchange Act.
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(b) At the time of filing the Company Proxy Statement with the SEC, at
the time the Company Proxy Statement or any amendment or supplement thereto is
first mailed to shareholders of the Company, at the time such shareholders vote
on adoption of this Agreement, and at the Effective Time, the Company Proxy
Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The representations and warranties
contained in this Section 4.6 will not apply to statements or omissions included
in the Company Proxy Statement based upon information furnished to the Company
in writing by Parent or Merger Sub specifically for use therein.
SECTION 4.7. Property; Sufficiency of Assets. Except in each case as
would not reasonably be expected to have a Material Adverse Effect, the Company
and its subsidiaries (i) have good and valid title to all property material to
the business of the Company and reflected in the latest audited financial
statements included in the SEC Documents as being owned by the Company and its
subsidiaries or acquired after the date thereof (except properties sold or
otherwise disposed of in the ordinary course of business since the date
thereof), and (ii) are collectively the lessee of all property material to the
business of the Company and reflected as leased in the latest audited financial
statements included in the SEC Documents (or on the books and records of the
Company as of the date thereof) or acquired after the date thereof (except for
leases that have expired by their terms) and are in peaceful and undisturbed
possession of the properties purported to be leased thereunder, and each such
lease is valid and in full force and effect without default thereunder by the
lessee or the lessor. Such owned and leased property that is tangible personal
property is in good working order, reasonable wear and tear excepted, and is
suitable for the use for which it is intended, except that, which individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
SECTION 4.8. Absence of Certain Changes or Events. Except as disclosed
in the SEC Documents or as set forth on Schedule 4.8, since September 27, 1997,
the Company and its subsidiaries have conducted their business only in the
ordinary course consistent with past practice, and, except in the ordinary
course of business consistent with past practice, there has not been:
(i) any event, occurrence or development of a state of circumstances
which has had or would reasonably be expected to have a Material Adverse
Effect,
(ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any
of the Company's capital stock or any repurchase, redemption or other
acquisition by the Company or any of its subsidiaries of any outstanding
shares of capital stock or other securities of the Company or any of its
subsidiaries,
(iii) any adjustment, split, combination or reclassification of any of
its capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock,
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(iv) (A) any granting by the Company or any of its subsidiaries to any
current or former director, officer or employee of the Company or any of
its subsidiaries of any material increase in compensation or benefits,
except for grants to employees who are not officers or directors in the
ordinary course of business consistent with past practice, (B) any granting
by the Company or any of its subsidiaries to any such director, officer or
employee of any increase in severance or termination pay (including the
acceleration in the vesting of Shares (or other property) or the provision
of any tax gross-up), except for grants to employees who are not officers
or directors in the ordinary course of business consistent with past
practice, or (C) any entry by the Company or any of its subsidiaries into
any employment, deferred compensation, severance or termination agreement
or arrangement with or for the benefit of any such current or former
director, officer or employee, except with employees who are not officers
or directors in the ordinary course of business consistent with past
practice,
(v) any change in accounting methods, principles or practices by the
Company or any of its subsidiaries,
(vi) any amendment, waiver or modification of any material term of any
outstanding security of the Company or any of its subsidiaries,
(vii) any incurrence, assumption or guarantee by the Company or any of
its subsidiaries of any material indebtedness for borrowed money or other
material obligations, or any creation or assumption by the Company or any
of its subsidiaries of any encumbrance or lien on any asset other than in
the ordinary course of business consistent with past practice (including
borrowings under pre-existing credit facilities, not resulting in total
consolidated funded indebtedness as of the date of this Agreement in excess
of $200 million),
(viii) any making of any loan, advance or capital contributions to or
investment in any person other than in the ordinary course of business
consistent with past practice,
(ix) any single or related series of transactions or commitments made,
or any single or related series of contracts or agreements entered into, by
the Company or any of its subsidiaries involving aggregate obligations of
more than $2,000,000 for any transaction or series of transactions, or any
capital expenditures in excess of $20,000,000 in the aggregate,
(x) any acquisition or disposition of any assets or any merger or
consolidation with any person on behalf of the Company or any of its
subsidiaries (other than sales of inventory in the ordinary course of
business in accordance with past practice and other than dispositions of
used, obsolete or outmoded equipment or machinery in the ordinary course of
business in accordance with past practice),
(xi) any relinquishment by the Company or any of its subsidiaries of
any contract or other right, in either case, material to the Company and
its subsidiaries taken as a
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whole, other than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by the
Agreement, or
(xii) any agreement, commitment, arrangement or undertaking by the
Company or any of its subsidiaries to perform any action described in
clauses (i) through (xi).
SECTION 4.9. Litigation. Except as set forth on Schedule 4.9, there is
no Action or proceeding pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its subsidiaries that, individually
or in the aggregate, has resulted in or would reasonably be expected to have a
Material Adverse Effect, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity outstanding against the Company or any of its
subsidiaries which could reasonably be expected to have a Material Adverse
Effect.
SECTION 4.10. Compliance with Laws, Etc. The conduct by the Company
and its subsidiaries of their business is and has been in compliance with all
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees,
applicable thereto and does not infringe upon or conflict in any respect with
any patent, copyright, trademark, trade name, service mark, brand name, any
related regulations or other intellectual property rights of any other person,
except for violations, failures so to comply, infringements or conflicts, if
any, that, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
SECTION 4.11. Absence of Changes in Stock or Benefit Plans. Except as
set forth on Schedule 4.11, except as required under this Agreement, since
September 27, 1997, there has not been (i) any acceleration, amendment or change
of the period of exercisability or vesting of any Company Options under the
Option Plans (including any discretionary acceleration of the exercise periods
or vesting by the Company's Board of Directors or any committee thereof or any
other persons administering an Option Plan) or authorization of cash payments in
exchange for any Company Options under any of such Option Plans, (ii) any
adoption or material amendment by the Company or any of its subsidiaries of any
collective bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, stock appreciation right, retirement, vacation,
severance, disability, death benefit, hospitalization, medical, worker's
compensation, supplementary unemployment benefits, or other plan, arrangement or
understanding or any employment agreement providing compensation or benefits to
any current or former employee, officer, director or independent contractor of
the Company or any of its subsidiaries or any beneficiary thereof or entered
into, maintained or contributed to, as the case may be, by the Company or any of
its subsidiaries (collectively, "Benefit Plans"), or (iii) any adoption of, or
amendment to, or change in employee participation or coverage under, any Benefit
Plans which would increase materially the expense of maintaining such Benefit
Plans above the level of the expense incurred in respect thereof for the fiscal
year ended on December 28, 1996. Except as expressly contemplated hereby or as
provided in the Option Plans, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(either alone or in conjunction with any other event) result in, cause the
accelerated vesting or delivery of, or increase the amount or value of, any
payment or benefit to any employee of the Company.
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SECTION 4.12. ERISA Compliance. (a) For purposes of this Agreement,
the following definitions apply: "Code" means the Internal Revenue Code of 1986,
as amended, and the Treasury regulations thereunder; "Controlled Group
Liability" means any and all liabilities under (i) Title IV of ERISA, (ii)
section 302 of ERISA, (iii) sections 412 and 4971 of the Code, (iv) the
continuation coverage requirements of section 601 et seq. of ERISA and section
4980B of the Code, and (v) corresponding or similar provisions of foreign laws
or regulations, other than such liabilities that arise solely out of, or relate
solely to, the Plans; "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and the regulations thereunder; "ERISA Affiliate" means,
with respect to any entity, trade or business, any other entity, trade or
business that is a member of a group described in Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity,
trade or business, or that is a member of the same "controlled group" as the
first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.
(b) Schedule 4.12 includes a complete list of all employee benefit
plans, programs, policies and practices providing benefits to any current or
former employee, officer or director of the Company or any of its subsidiaries
or beneficiary or dependent thereof, whether or not written, and whether
covering one person or more than one person, sponsored or maintained by the
Company or to which the Company contributes or is obligated to contribute
("Plans"). Without limiting the generality of the foregoing, the term "Plans"
includes all employee welfare benefit plans within the meaning of Section 3(1)
of ERISA, all employee pension benefit plans within the meaning of Section 3(2)
of ERISA, and all other employee benefit, bonus, incentive, deferred
compensation, stock purchase, stock option, severance ,change of control and
fringe benefit plans, programs or agreements .
(c) With respect to each Plan, the Company has delivered or made
available to Parent and Merger Sub a true, correct and complete copy of: (i)
each writing constituting a part of such Plan, including without limitation all
plan documents (including benefit schedules), trust agreements, and insurance
contracts and other funding vehicles; (ii) the most recent Annual Report (Form
5500 Series) and accompanying schedule, if any; (iii) the current summary plan
description and any material modifications thereto, if any; (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the IRS. Except as
specifically provided in the foregoing documents delivered to Parent and Merger
Sub, there are no amendments to any Plan or any new Plan that have been adopted
or approved nor has the Company undertaken to make any such amendments or adopt
or approve any new Plan.
(d) Schedule 4.12 identifies each Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code ("Qualified
Plans"). Except as set forth in Schedule 4.12(d), the IRS has issued a favorable
determination letter with respect to each Qualified Plan that has not been
revoked, and, to the knowledge of the Company, no circumstances exist nor have
any events occurred that could adversely affect the qualified status of any
Qualified Plan or the related trust. No Plan is intended to meet the
requirements of Code Section 501(c)(9).
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(e) All contributions required to be made to any Plan by applicable
law or regulation or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any Plan,
for any period through the date hereof have been timely made or paid in full or,
to the extent not required to be made or paid on or before the date hereof, have
been fully reflected on the financial statements contained in the SEC Documents.
(f) The Company has complied, and is now in compliance, in all
material respects with all provisions of ERISA, the Code and all laws and
regulations applicable to the Plans. There is not now, nor, to the knowledge of
the Company, do any circumstances exist that could give rise to, any requirement
for the posting of security with respect to a Plan or the imposition of any
encumbrance or lien on the assets of the Company under ERISA or the Code. No
non-exempt prohibited transaction has occurred with respect to any Plan.
(g) The Company does not maintain or contribute to any Plan that is
subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code.
All liabilities in connection with the termination of any employee pension
benefit plan that was sponsored, maintained or contributed to by the Company at
any time within the past three years (and any other material liabilities under
Title IV of ERISA with respect to any such plan) have been fully satisfied. Each
such employee pension benefit plan has received a favorable determination letter
from the IRS with respect to its termination.
(h) Except as set forth on Schedule 4.12, no Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
(a "Multiemployer Plan") or a plan that has two or more contributing
sponsors at least two of whom are not under common control, within the
meaning of Section 4063 of ERISA (a "Multiple Employer Plan"). No Plan that is
a Multiemployer Plan is in reorganization or is insolvent and, to the best
knowledge of the Company, no circumstances exist that would be reasonably
expected to result in a reorganization or insolvency of any such
Multiemployer Plan. Neither the Company nor any of its subsidiaries has
withdrawn or partially withdrawn from any Multiemployer Plan or has any
liabilities under any Multiemployer Plan that have not been fully satisfied.
There are no more than 450 employees of the Company and its subsidiaries who
are currently participating in or have accrued benefits under a Multiemployer
Plan.
(i) There does not now exist, nor do any circumstances exist that
could result in, any Controlled Group Liability that would be a liability of the
Company following the Closing.
(j) The Company has no material liability for life, health, medical or
other welfare benefits to former employees or beneficiaries or dependents
thereof, except for health continuation coverage as required by Section 4980B of
the Code or Part 6 of Title I of ERISA and at no expense to the Company.
(k) All Plans covering foreign employees of the Company or any of its
subsidiaries comply with applicable local law and are fully funded and/or book
reserved to the extent applicable.
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(l) Except as set forth on Schedule 4.12, no labor organization or
group of employees of the Company has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or threatened to
be brought or filed, with the National Labor Relations Board or any other labor
relations tribunal or authority. Each of the Company and its subsidiaries have
complied with the Worker Adjustment and Retraining Notification Act.
(m) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Plans, any fiduciaries thereof with respect
to their duties to the Plans or the assets of any of the trusts under any of the
Plans which could reasonably be expected to result in any material liability of
the Company to the Pension Benefit Guaranty Corporation, the Department of
Treasury, the Department of Labor or any Multiemployer Plan.
SECTION 4.13. Tax Matters. Except as set forth in the SEC Documents:
(a) Each of the Company and each of its subsidiaries has filed all
federal income tax and other material tax returns and reports required to be
filed by it. All such returns are complete and correct in all material respects.
Each of the Company and each of its subsidiaries has paid (or the Company has
paid on its subsidiaries' behalf) all taxes shown as due on such returns and all
material taxes required to be paid by it for which no return was required to be
filed.
(b) Except as set forth on Schedule 4.13, no tax return of the
Company or any of its subsidiaries is under audit or examination by
any taxing authority, and no written or unwritten notice of such an audit or
examination has been received by the Company or any of its subsidiaries.
Each deficiency resulting from any audit or examination relating to
taxes by any taxing authority has been paid, except for deficiencies being
contested in good faith by appropriate proceedings and which have been
reserved against in accordance with GAAP. None of the federal income tax
returns of the Company and its subsidiaries consolidated in such returns has
been examined and settled with the IRS for any year, and no years are otherwise
closed.
(c) No liens for taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for statutory
liens for taxes not yet due or taxes that are being contested in good faith
by appropriate proceedings and that have been reserved against in accordance
with GAAP.
(d) None of the Company or any of its subsidiaries is a party to or is
bound by any tax sharing agreement, tax allocation agreement, tax indemnity
obligation or similar written or unwritten agreement or arrangement with respect
to taxes (including any advance pricing agreement, closing agreement or other
agreement relating to taxes with any taxing authority), other than agreements or
arrangements among the Company and its subsidiaries.
(e) The disallowance of a deduction under Section 162(m) of the Code
for employee remuneration will not apply to any amount paid or payable by the
Company or any of its subsidiaries under any contract, Option Plan, Benefit
Plan, program, arrangement or understanding currently in effect.
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(f) No amount or other entitlement that could be received (whether in
cash or property or the vesting of property) in connection with the transactions
contemplated hereby (either alone or in conjunction with any other event) will
be an "excess parachute payment" (as such term is defined in Section 280G(b)(1)
of the Code).
(g) As used in this Agreement, "taxes" shall include all federal,
state, local and foreign income, property, sales, excise, withholding and other
taxes, tariffs or governmental charges of any nature whatsoever, and all
interest, penalties and additions to tax with respect to any of the foregoing.
SECTION 4.14. Debt Instruments. Except as set forth on Schedule 4.14,
all loan or credit agreements, notes, bonds, mortgages, indentures and other
agreements and instruments pursuant to which any material indebtedness of the
Company or any of its subsidiaries is outstanding or may be incurred are
prepayable at any time without penalty, subject to a notice period of not more
than thirty days. For purposes of this Section, "indebtedness" shall mean, with
respect to any person, without duplication, (i) all obligations of such person
for borrowed money, or with respect to deposits or advances of any kind to such
person, (ii) all obligations of such person evidenced by bonds, debentures,
notes or similar instruments, (iii) all obligations of such person upon which
interest charges are customarily paid, (iv) all obligations of such person under
conditional sale or other title retention agreements relating to property
purchased by such person, (v) all obligations of such person issued or assumed
as the deferred purchase price of property or services (excluding obligations of
such person to creditors for raw materials, inventory, services and supplies
incurred in the ordinary course of such person's business), (vi) all capitalized
lease obligations of such person, (vii) all obligations of others secured by any
encumbrance or lien on property or assets owned or acquired by such person,
whether or not the obligations secured thereby have been assumed, (viii) all
obligations of such person under interest rate or currency swap transactions
(valued at the termination value thereof), (ix) all letters of credit issued for
the account of such person (excluding letters of credit issued for the benefit
of suppliers to support accounts payable to suppliers incurred in the ordinary
course of business), (x) all obligations of such person to purchase securities
(or other property) which arises out of or in connection with the sale of the
same or substantially similar securities or property, and (xi) all guarantees
and arrangements having the economic effect of a guarantee of such person of any
indebtedness of any other person.
SECTION 4.15. Insurance. The Company and its subsidiaries are covered
by valid and currently effective insurance policies issued in favor of the
Company that are customary for companies of similar size and financial
condition.
SECTION 4.16. Labor Matters. Except as disclosed in the SEC Documents
or as set forth on Schedule 4.16, (i) neither the Company nor any of its
subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement with a labor union or labor organization; (ii) to
the knowledge of the Company, neither the Company nor any of its subsidiaries is
the subject of any proceeding asserting that it or any of its subsidiaries has
committed an unfair labor practice or seeking to compel it to bargain with any
labor organization as to wages or conditions of employment; (iii) there is no
strike, work stoppage or other labor dis-
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pute involving the Company or any of its subsidiaries pending or, to the
Company's knowledge, threatened; (iv) to the knowledge of the Company, no
material action, suit, complaint, charge, arbitration, inquiry, proceeding or
investigation by or before any Governmental Entity brought by or on behalf of
any employee, prospective employee, former employee, retiree, labor organization
or other representative of its employees is pending or threatened against the
Company or any of its subsidiaries; (v) to the knowledge of the Company, no
material grievance is pending or threatened against the Company or any of its
subsidiaries; and (vi) neither the Company nor any of its subsidiaries is a
party to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Entity relating to employees or employment practices.
SECTION 4.17. No Restrictive Agreements. Except as disclosed in the
SEC Documents, the Company and its subsidiaries are not parties to or bound by
any agreement, contract, policy, license, document, instrument, arrangement or
commitment that limits the freedom of the Company or any of its subsidiaries to
compete in any line of business or with any person or in any geographic area or
which would so limit the freedom of the Company or any of its subsidiaries or
affiliates after the Effective Time.
SECTION 4.18. Interests of Officers and Directors. None of Onex DHC
LLC, a Wyoming limited liability company, or any of its respective affiliates
(other than the Company or any of its subsidiaries) has any interest in any
property, real or personal, tangible or intangible, used in or pertaining to the
business of the Company or its subsidiaries, or any supplier, distributor or
customer of the Company or its subsidiaries, or any other relationship,
contract, agreement, arrangement or understanding with the Company or any of its
subsidiaries, except as set forth in Schedule 4.18 or as disclosed in the SEC
Documents and except for rights under the Benefit Plans and the Option Plans and
the normal rights of a holder of a non-controlling, direct or indirect interest
in equity securities. To the Company's knowledge, none of the Company's or any
of its subsidiaries' other officers or directors or any of their respective
affiliates (other than the Company or any of its subsidiaries) has any material
interest in any material property, real or personal, tangible or intangible,
used in the business of the Company or its subsidiaries, or any supplier,
distributor or customer of the Company or its subsidiaries, or any other
relationship, contract, agreement, arrangement or understanding with the Company
or any of its subsidiaries, except as disclosed in the SEC Documents and except
for rights under the Benefit Plans and the Option Plans and the normal rights of
a holder of a non-controlling, direct or indirect interest in equity
securities.
SECTION 4.19. Brokers. Morgan Stanley & Co. Incorporated, the fees and
expenses of which will be paid by the Company (and copies of whose engagement
letters and a calculation of the fees that would be due thereunder has been
provided to Parent), has orally delivered to the Company's Board of Directors
its opinion that the consideration to be paid in the Merger is fair to the
holders of Shares from a financial point of view, and shall deliver such opinion
in writing to the Company's Board of Directors prior to the date the Company
files the Company Proxy Statement with the SEC. In addition, no other broker,
investment banker, financial advisor or other person, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or any of its subsidiaries. No
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such engagement letters obligate the Company to continue to use their services
or pay fees or expenses in connection with any future transaction.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Sub represent and warrant to the Company as follows:
SECTION 5.1. Organization, Standing and Corporate Power. Each of
Parent and Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of its respective state of incorporation and has
the requisite corporate power and authority to carry on its business as now
being conducted.
SECTION 5.2. Authority; Noncontravention. (a) Parent and Merger Sub
have all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and,
assuming this Agreement constitutes a valid and binding agreement of the
Company, constitutes a valid and binding obligation of such party, enforceable
against such party in accordance with its terms.
(c) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or to a loss of a material benefit under, or
result in the creation of any encumbrance or lien upon any of the properties or
assets of Parent or any of its subsidiaries under, (i) the certificate of
incorporation or bylaws of Parent or Merger Sub, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or any other contract,
agreement, instrument, permit, concession, franchise or license applicable to
Parent or Merger Sub or their respective properties or assets, or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent, Merger Sub or any other subsidiary of Parent or
their respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights, losses or liens that
individually or in the aggregate would not impair the ability of Parent and
Merger Sub to perform their respective obligations under this Agreement or
prevent the consummation of any of the transactions contemplated by this
Agreement (a "Parent Material Adverse Effect").
(d) No Consent of any Governmental Entity is required by or with
respect to Parent, Merger Sub or any other subsidiary of Parent in connection
with the execution and deliv-
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ery of this Agreement or the consummation by Parent or Merger Sub, as the case
may be, of any of the transactions contemplated by this Agreement, except for
(i) the filing of the documents referred to in Section 1.2 in accordance with
the DGCL and similar documents with the relevant authorities of other states in
which the Company is qualified to do business, (ii) the filing of a premerger
notification and report form under the HSR Act, (iii) compliance with any
applicable requirements of the Exchange Act, and (iv) such other Consents as to
which the failure to obtain or make could not reasonably be expected to have a
Parent Material Adverse Effect.
SECTION 5.3. Disclosure Documents. The information with respect to
Parent and its subsidiaries that Parent furnishes to the Company in writing,
specifically for use in the Company Proxy Statement will not contain, any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading at the time of filing the Company
Proxy Statement with the SEC, at the time the Company Proxy Statement or any
amendment or supplement thereto is first mailed to shareholders of the Company,
at the time the shareholders vote on adoption of this Agreement and at the
Effective Time.
SECTION 5.4. Brokers. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission from the Company in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Merger Sub.
SECTION 5.5. Company Contracts. Parent and Merger Sub acknowledge that
some of the Company's customers may be entitled, pursuant to the terms of their
contracts with the Company, to terminate their arrangements with the Company
upon the change of control of the Company effected by the Merger.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.1. Conduct of Business. During the period from the date of
this Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, carry on their business in the ordinary course of business in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees (as a group) and preserve their relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the Effective Time, the
Company shall not, and shall not permit any of its subsidiaries to, except as
contemplated by this Agreement or with the prior written approval of Parent:
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(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
capital stock, other than dividends and distributions by any direct or indirect
wholly owned subsidiary of the Company to its parent, (ii) adjust, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its subsidiaries or any
other securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(b) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options, including Company Options, to acquire,
any such shares, voting securities or convertible securities (other than the
issuance of Shares upon the exercise of Company Options outstanding as of the
date hereof or pursuant to the ESPP);
(c) amend its certificate of incorporation, bylaws or other comparable
charter or organizational documents;
(d) mortgage or otherwise encumber or subject to any encumbrance or
lien or, except in the ordinary course of business consistent with past practice
or pursuant to existing contracts or commitments, sell, lease, license, transfer
or otherwise dispose of any material properties or assets;
(e) amend, modify or waive any material term of any outstanding
security of the Company and its subsidiaries;
(f) incur, assume, guarantee or become obligated with respect to any
indebtedness (as defined in Section 4.14), other than in the ordinary course of
business, consistent with past practice , or incur, assume, guarantee or become
obligated with respect to any other material obligations other than in the
ordinary course of business and consistent with past practice;
(g) make or agree to make any new capital expenditures or acquisitions
of assets or property or other acquisitions or commitments other than in the
ordinary course of business, consistent with past practice and in any event not
in excess of $10,000,000 in the aggregate;
(h) make any material tax election or take any material tax position
(unless required by law) or change its fiscal year or accounting methods,
policies or practices (except as required by changes in GAAP) or settle or
compromise any material income tax liability;
(i) make any loan, advance or capital contributions to or investment
in any person other than in the ordinary course of business consistent with past
practice, but in no event in the amount of more than $250,000 for any one
transaction or $1,000,000 in the aggregate, and other than investments in cash
equivalents made in the ordinary course of business consistent with past
practice;
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(j) pay, discharge or satisfy any claims, liabilities or obligations,
other than the payment, discharge or satisfaction thereof, in the ordinary
course of business consistent with past practice and in accordance with their
terms, or modify or amend in any material respect or terminate any material
contract or agreement to which it is a party, or release or waive any material
rights or claims, other in the ordinary course of business consistent with past
practice;
(k) (i) provide to any current or former director, officer or employee
of the Company or any of its subsidiaries any material increase in compensation
or benefits or any severance payment or other benefit not required under the
terms of an existing Plan, except for employees who are not officers or
directors in the ordinary course of business consistent with past practice, (ii)
grant to any such director, officer, or employee any increase in severance or
termination pay (including the acceleration in the exercisability of Company
Options or in the vesting of Shares (or other property) except for automatic
acceleration in accordance with the terms of the Option Plans or the provision
of any tax gross-up), or (iii) enter into any employment, deferred compensation,
severance or termination agreement or arrangement with or for the benefit of any
such current or former director, officer, or employee; or
(l) authorize any of, or commit or agree to take any of, the foregoing
actions.
SECTION 6.2. Shareholder Meeting; Proxy Material. The Company shall
cause a meeting of its shareholders (the "Company Shareholder Meeting") to be
duly called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of this Agreement and the Merger. The Directors of
the Company shall recommend approval and adoption of this Agreement and the
Merger by the Company's shareholders. In connection with such meeting, the
Company (i) will promptly prepare and file with the SEC, will use its reasonable
efforts to have cleared by the SEC and will thereafter mail to its shareholders
as promptly as practicable the Company Proxy Statement and all other proxy
materials for such meeting, (ii) will use its best efforts to obtain the
necessary approvals by its shareholders of this Agreement and the transactions
contemplated hereby, and (iii) will otherwise comply with all legal requirements
applicable to such meeting. The Company has been advised that all of its
directors currently intend to vote all shares owned by them in favor of the
Merger. The Company will provide Parent with a copy of the preliminary proxy
statement and all modifications thereto prior to filing or delivery to the SEC
and will consult with Parent in connection therewith. The Company will notify
Parent promptly of the receipt of any comments from the SEC or its staff and of
any request by the SEC or its staff for amendments or supplements to the Company
Proxy Statement or for additional information and will supply Parent with copies
of all correspondence between the Company or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to the
Company Proxy Statement or the Merger. If at any time prior to the Company
Shareholder Meeting there shall occur any event that should be set forth in an
amendment or supplement to the Company Proxy Statement, the Company will
promptly prepare and mail to its shareholders such an amendment or supplement.
The Company will not mail any Company Proxy Statement, or any amendment or
supplement thereto, to which Parent reasonably objects.
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SECTION 6.3. Access to Information. From the date hereof until the
Effective Time, the Company will give Parent, its counsel, financial advisors,
auditors and other authorized representatives access (during normal business
hours and upon reasonable notice) to the offices, properties, officers,
employees, accountants, auditors, counsel and other representatives, books and
records of the Company and its subsidiaries, will furnish to Parent, its
counsel, financial advisors, auditors and other authorized representatives such
financial, operating and property related data and other information as such
persons may reasonably request, and will instruct the Company's and its
subsidiaries' employees, counsel and financial advisors to cooperate with Parent
in its investigation of the business of the Company and the subsidiaries, and
will exercise all reasonable efforts to obtain from landlords such estoppel
certificates as Parent may request. The Company and its subsidiaries shall not
be required to take any action under this Section 6.3 that (i) would violate any
confidentiality or similar obligation of the Company or its subsidiaries, or
(ii) would reasonably be expected to result in the waiver of attorney-client or
work product privilege.
SECTION 6.4. Covenants Regarding Certain Benefit Plans. Parent agrees
that it shall cause the Surviving Corporation to continue the employee benefit
plans and programs of the Company (other than equity-based plans and programs)
through December 31, 1998, or to provide during such period employee benefits no
less favorable in the aggregate than are provided pursuant to such employee
benefit plans and programs; provided that with respect to employees of the
Company who are subject to collective bargaining, all benefits shall be provided
in accordance with the applicable collective bargaining agreement. Parent shall
provide employees of the Company who continue as employees of the Surviving
Corporation or Parent with credit for years of service with the Company and its
subsidiaries for purposes of vesting, eligibility and benefit accrual (other
than benefit accrual under any defined benefit plans, including supplemental
retirement plans) under the employee benefit plans of the Surviving Corporation
and Parent which are made available to such employees, to the extent such
service was credited under similar employee benefit plans and programs of the
Company.
SECTION 6.5. Cooperation in Arrangements with Lenders. The Company
shall, and shall cause its subsidiaries to, cooperate with and assist Parent and
its professionals and advisors in arranging for the prepayment at the Effective
Time of all indebtedness (as defined in Article IV) of the Company and its
subsidiaries and shall provide whatever other assistance and cooperation Parent
and its professionals and advisors might reasonably request in connection
therewith.
ARTICLE VII
COVENANTS OF PARENT
Parent agrees that:
SECTION 7.1. Confidentiality. Prior to the Effective Time and after
any termination of this Agreement, Parent will hold, and will use its reasonable
best efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in
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confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, and not use for any purpose other than the
consummation of the transactions contemplated by this Agreement , all documents
and information concerning the Company and its subsidiaries furnished to Parent
in connection with the transactions contemplated by or otherwise in accordance
with this Agreement except to the extent that such information can be shown to
have been (i) previously known on a nonconfidential basis by Parent, (ii) in the
public domain through no fault of Parent, or (iii) later lawfully acquired by
Parent from sources other than the Company, not under a duty of confidentiality
to the Company or a subsidiary of the Company; provided that Parent may disclose
such information to its officers, directors, employees, accountants, counsel,
consultants, advisors and agents who Parent determines need to know the same in
connection with the transactions contemplated by this Agreement and to its (and
its parent entities') lenders and equity investors in connection with obtaining
the financing for the transactions contemplated by this Agreement so long as
such persons are informed by Parent of the confidential nature of such
information and are directed by Parent to treat such information confidentially
and in accordance with this Section 7.1. Parent shall be responsible for any
unauthorized disclosure or use of any such documents and information by any of
its officers, directors, employees, accountants, counsel, consultants, advisors
and agents. Parent's obligation to hold any such information in confidence shall
be satisfied if it exercises the same care with respect to such information as
it would take to preserve the confidentiality of its own similar information. If
this Agreement is terminated, Parent will, and will use its best efforts to
cause its officers, directors, employees, accountants, counsel, consultants,
advisors and agents to, deliver to the Company, upon request, all documents and
other materials and all copies thereof, obtained by Parent or on its behalf from
the Company in connection with this Agreement and to destroy all documents (in
any form, including, without limitation, electronic media) prepared by or on
behalf of Parent or any person or entity to whom Parent provided information
under this Section that include or reflect any information provided by or on
behalf of the Company.
SECTION 7.2. Obligations of Merger Sub. Parent will take all action,
and provide all financing, necessary to cause Merger Sub to perform its
obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement.
SECTION 7.3. Voting of Shares. Each of Parent and Merger Sub agrees to
vote all Shares beneficially owned by it, if any, in favor of adoption of this
Agreement at the Company Shareholder Meeting.
SECTION 7.4. Director and Officer Liability. (a) For six years after
the Effective Time, Parent will cause the Surviving Corporation to indemnify and
hold harmless the present and former officers, directors, employees and agents
of the Company and its subsidiaries, and the heirs executors and administrators
of such persons (the "Indemnified Parties") in respect of acts or omissions
occurring on or prior to the Effective Time or arising out of or pertaining to
any Indemnified Person having been an officer, director, employee or agent of
the Company or any of its subsidiaries or to the transactions contemplated by
this Agreement to the extent provided under the Company's certificate of
incorporation and bylaws in effect on the date hereof (and shall pay expenses in
advance of the disposition of any action with respect to any such matters to the
fullest extent permitted by the DGCL, upon receipt from the person to whom
expenses are
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advanced of the undertaking to repay such advances contemplated by Section
145(e) of the DGCL); provided that such indemnification shall be subject to any
mandatory limitation imposed from time to time under applicable law. Parent and
Surviving Corporation shall not amend the certificate of incorporation or bylaws
of the Surviving Corporation to amend the indemnification or exculpation
provisions therein in a manner inconsistent with this Section or otherwise
adverse to the Indemnified Parties for the six-year period referred to above.
For six years after the Effective Time, Parent will cause the Surviving
Corporation to use its best efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring on or prior to the
Effective Time covering each such person currently covered by the Company's
officers' and directors' liability insurance policy on terms substantially
similar to those of such policy in effect on the date hereof and from an insurer
or insurers having claims paying ratings of at least Best A+, provided that in
satisfying its obligation under this Section, Parent shall not be obligated to
cause the Surviving Corporation to pay annual premiums in excess of $250,000 per
annum, and if the Surviving Corporation is unable to obtain the insurance
required by this Section, it shall obtain as much comparable insurance as
possible for an annual premium equal to such maximum amount.
(b) The Indemnified Parties are intended third party beneficiaries of
this Section to the extent such provisions benefit any such Indemnified Party.
ARTICLE VIII
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 8.1. HSR Act Filings; Reasonable Efforts; Notification. (a)
Each of Parent and the Company shall (i) promptly (but in no in event more than
eight business days after the date of this Agreement) make or cause to be made
the filings required of such party or any of its subsidiaries under the HSR Act
and the CA Act with respect to the transactions contemplated by this Agreement,
(ii) comply at the earliest practicable date with any request under the HSR Act
and the CA Act for additional information, documents, or other material received
by such party or any of its subsidiaries from the Federal Trade Commission or
the Department of Justice or any other Governmental Entity in respect of such
filings or such transactions, and (iii) cooperate with the other party in
connection with any such filing, and in connection with resolving any
investigation or other inquiry of any such agency or other Governmental Entity
under the HSR Act, the CA Act, the Sherman Act, as amended, the Clayton Act, as
amended, the Federal Trade Commission Act, as amended, and any other federal or
state statutes, rules, regulations, orders or decrees that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade with respect to any such filing or any such
transaction. Each party shall promptly inform the other party of any
communication with, and any proposed understanding, undertaking, or agreement
with, any Governmental Entity regarding any such filings or any such
transaction. Neither party shall participate in any meeting, with any
Governmental Entity in respect of any such filings, investigation, or other
inquiry without giving the other party
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notice of the meeting and, to the extent permitted by such Governmental Entity,
the opportunity to attend and participate.
(b) Each of Parent and the Company shall use its reasonable best
efforts to take such reasonable action as may be required to cause the
expiration of the notice periods under the HSR Act, the CA Act or any state
statutes, rules, regulations, orders or decrees that are designed to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade with respect to the transactions contemplated hereby as
promptly as possible after the execution of this Agreement.
(c) Each of the parties agrees to use its reasonable best efforts to
take, or cause to be taken, all reasonable actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all
reasonable things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable the Merger and the other
transactions contemplated by this Agreement, including (i) the obtaining of all
other necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all other necessary registrations and
filings (including other filings with Governmental Entities, if any), (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the preparation of the Company Proxy Statement, (iv) the repayment of all
of the Company's indebtedness as contemplated by Section 6.5 at the Effective
Time, and (v) the execution and delivery of any additional instruments necessary
to consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement.
(d) Notwithstanding anything to the contrary in Section 8.1(a), (b) or
(c), neither Parent nor Merger Sub shall be required to waive any of the
conditions to the Merger set forth in Article IX.
(e) The Company shall give prompt notice to Parent upon becoming aware
of (i) any representation or warranty made by it contained in this Agreement
becoming untrue or inaccurate in any respect that would result in the failure to
satisfy the condition in Section 9.2(b), or (ii) the failure by it to comply
with or satisfy in any respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement that would result in the
failure to satisfy the condition in Section 9.2(b); provided, however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(f) The Company shall give prompt notice to Parent, and Parent or
Merger Sub shall give prompt notice to the Company, of:
(i) any written notice or other written communication from any person
alleging that the consent of such person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any written notice or other written communication from any
Governmental Entity in connection with the transactions contemplated by
this Agreement; and
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(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting it or any of its subsidiaries which
relate to the consummation of the transactions contemplated by this
Agreement.
SECTION 8.2. Public Announcements. Parent and Merger Sub, on the one
hand, and the Company, on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by applicable law, court process or by obligations
pursuant to any listing agreement with any national securities exchange or with
the Nasdaq National Market. The parties agree that the initial press release to
be issued with respect to the transactions contemplated by this Agreement will
be in the form attached hereto.
SECTION 8.3. No Solicitation. Prior to the Effective Time and for
twelve months after any termination of this Agreement, Parent and Merger Sub, on
the one hand, and the Company, on the other hand, shall not, and shall not
permit any of their respective subsidiaries or affiliates to, employ or retain
in any capacity any person who was employed by the Company, in the case of
Parent and Merger Sub, or Parent or Merger Sub, in the case of the Company, or
any of their respective subsidiaries in a position of division president or
principal executive in charge of a distribution center or any position senior
thereto at any time after January 1, 1998.
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party. The
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the outstanding Shares of the Company within the meaning
and in accordance with the DGCL;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated; and
(c) no provision of any applicable law or regulation and no judgment,
injunction, order, decree or other legal restraint shall prohibit the
consummation of the Merger.
SECTION 9.2. Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger are further
subject to the satisfaction of the following conditions:
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(a) there shall not be instituted and remain pending any action by any
Governmental Entity (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by Parent or Merger Sub of the Merger, seeking to obtain material
damages or imposing any material adverse conditions in connection therewith,
(ii) seeking to restrain or prohibit Parent's or Merger Sub's ownership or
operation (or that of their respective subsidiaries or affiliates) of all or any
material portion of the business or assets of the Company and its subsidiaries,
or of Parent and its subsidiaries or affiliates, or to compel Parent or any of
its subsidiaries or affiliates to dispose of or hold separate all or any
material portion of the business or assets of the Company and its subsidiaries,
or of Parent and its subsidiaries and affiliates, (iii) seeking to impose
limitations on the ability of Parent or any of its subsidiaries or affiliates
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote any Shares acquired or owned by Parent or
any of its subsidiaries or affiliates on all matters properly presented to the
Company's shareholders, (iv) seeking to require divestiture by Parent or any of
its subsidiaries or affiliates of any Shares, or (v) that otherwise would
reasonably be expected to materially adversely affect the condition (financial
or otherwise), business, or results of operations of the Company and its
subsidiaries, or Parent and its subsidiaries, in each case taken as a whole, nor
shall any judgment, injunction, order or decree have been entered that would
have any of the foregoing effects;
(b) the Company shall have performed in all material respects its
covenants and agreements under this Agreement, and the representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality shall be true when made and at and (except to the extent such
representations and warranties relate to a specific date) as of the Closing as
if made at and as of such time, and the representations and warranties set forth
in this Agreement that are not so qualified shall be true in all material
respects when made and (except to the extent such representations and warranties
relate to a specific date) at and as of the Closing as if made at and as of such
time, and other than any failure of such representations and warranties to be
true (x) arising from or in connection with changes in general economic
conditions or matters generally affecting the industry in which the Company and
its subsidiaries are engaged, (y) arising from the announcement or the
consummation of the transactions contemplated by this Agreement, or (z) which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect; and Parent and Merger Sub shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of the
Company to that effect; and
(c) other than the filing of the Certificate of Merger in accordance
with DGCL, after making reasonable efforts, Parent and its subsidiaries
(including Merger Sub) shall have obtained all regulatory approvals, licenses
and other Consents required to be obtained prior to the consummation of the
Merger and the transactions contemplated by this Agreement, except such
approvals, licenses and other Consents which, if not obtained, would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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SECTION 9.3. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the further
satisfaction of the following conditions:
Parent and Merger Sub shall have performed in all material
respects their covenants and agreements under this Agreement, and the
representations and warranties of Parent and Merger Sub set forth in this
Agreement that are qualified as to materiality shall be true when made at
and as of the Effective Time as if made and at and as of such time, and the
representations and warranties set forth in this Agreement that are not so
qualified shall be true in all material respects when made and at and as of
the Effective Time as if made at and as of such time; and the Company shall
have received certificates of the Chief Executive Officer or Chief
Financial Officer of Parent and Merger Sub to that effect.
ARTICLE X
TERMINATION
SECTION 10.1. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the shareholders of the Company):
(a) by mutual written consent of the Company and Parent;
(b) by Parent if at the Company Shareholder Meeting or any adjournment
thereof at which the Company Shareholder Approval is voted upon, the Company
Shareholder Approval shall not have been obtained;
(c) by either the Company or Parent, if the Merger has not been
consummated by July 1, 1998 (provided that the party seeking to terminate the
Agreement shall not have breached its obligations under this Agreement in any
material respect);
(d) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited, or any judgment, injunction, order or decree enjoining Parent or the
Company from consummating the Merger (or the existence of which would otherwise
result in the failure of the condition set forth in Section 9.2(a)) is entered
and, in the case of any action brought other than by a Governmental Entity, such
judgment, injunction, order or decree shall become final and non-appealable; or
(e) by Parent, at any time prior to the Effective Time, by action of
the Board of Directors of Parent, if the Board of Directors of the Company shall
have withdrawn or modified in a manner adverse to Parent or Merger Sub its
approval or recommendation of this Agreement or the Merger, or shall have
resolved to do any of the foregoing.
SECTION 10.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.1, this Agreement shall become void and of no effect with
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no liability on the part of any party hereto or their respective officers and
directors, except that the agreements contained in Sections 7.1, 11.4 and 11.6
shall survive the termination hereof. Specifically, and without limiting the
generality of the foregoing, Parent and Merger Sub agree that termination of
this Agreement shall be their sole and exclusive remedy for any nonwillful
breach by the Company of its representations, warranties and covenants under
this Agreement and the Company agrees that termination of this Agreement shall
be its sole and exclusive remedy for any nonwillful breach by Parent or Merger
Sub of their representations, warranties and covenants under this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to Parent or Merger Sub, to:
AmeriServe Food Distribution, Inc.
545 Steamboat Road
Greenwich, Connecticutt 06830
Telecopy: (203) 661-5756
Attention: A. Petter 0stberg
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy: (212) 403-2000
Attention: Adam O. Emmerich, Esq.
if to the Company, to:
ProSource, Inc.
530 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Telecopy: (305) 529-2573
Attention: Chairman of the Board
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Telecopy: (212) 836-8689
Attention: Joel I. Greenberg, Esq.
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or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective when delivered at the address specified
in this Section.
SECTION 11.2. Survival of Representations and Warranties. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement except for the
representations, warranties and agreements set forth in Sections 7.1, 7.4, 11.4
and 11.6.
SECTION 11.3. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, by the party to be charged
therewith; provided that after the adoption of this Agreement by the
shareholders of the Company, no such amendment or waiver shall, without the
further approval of such shareholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company, or (ii) any of the principal terms of the Merger.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.4. Fees and Expenses. All costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such cost or
expense.
SECTION 11.5. Successors and Assigns; Parties in Interest. The
provisions of this Agreement shall be binding upon, and inure to the benefit of
the parties hereto and their respective successors and assigns, provided that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other parties hereto
except that Merger Sub may transfer or assign, in whole or from time to time in
part, to one or more of Parent or any of its wholly owned subsidiaries, any or
all of its rights or obligations, but any such transfer or assignment will not
relieve Merger Sub of its obligations under this Agreement. Except as expressly
set forth herein nothing in this Agreement, express or implied, is intended to
or shall confer upon any person not a party hereto any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, including to
confer third party beneficiary rights.
SECTION 11.6. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware, without giving
effect to principles of conflicts of laws.
SECTION 11.7. Counterparts; Effectiveness; Interpretation. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by
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all of the other parties hereto. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
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The parties hereto have caused this Agreement to be duly executed by
their respective authorized officers as of the day and year first above written.
PROSOURCE, INC.
By:/s/ David R. Parker
Name: David R. Parker
Title: Chairman of the Board
AMERISERVE FOOD DISTRIBUTION, INC.
By:/s/ John V. Holten
Name: John V. Holten
Title: Chairman and Chief Executive
Officer
STEAMBOAT ACQUISITION CORP.
By:/s/ John V. Holten
Name: John V. Holten
Title: Chairman of the Board and
President
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<PAGE> 100
ANNEX II
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement") dated as of January 29, 1998, by
and among AmeriServe Food Distribution, Inc., a Delaware corporation ("Parent"),
Steamboat Acquisition Corp., a Delaware corporation ("Merger Sub") and Onex DHC
LLC, a Wyoming limited liability company, and certain of its affiliates the
names of which appear on the signature pages hereto (together, the
"Stockholders").
WHEREAS, Parent, Merger Sub and ProSource, Inc. , a Delaware
corporation (the "Company"), have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"; capitalized terms used but
not defined herein shall have the meanings set forth in the Merger Agreement;
provided that the terms "Merger" and "Merger Agreement" shall not include any
amendments or modifications thereto unless such amendments and modifications
have been approved in writing by the Stockholders), providing for the merger
(the "Merger") of Merger Sub with and into the Company, upon the terms and
subject to the conditions set forth in the Merger Agreement; and
WHEREAS, the Stockholders beneficially own 496,583 Class A Shares and
5,218,072 Class B Shares (such Class A Shares and Class B Shares, together with
any other Class A Shares and Class B Shares that the Stockholders acquire
beneficial ownership of after the date hereof and during the term of this
Agreement, whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means of
purchase, dividend, distribution or otherwise, being collectively referred to
herein as the "Subject Shares"), owned by each of the Stockholders in the
amounts indicated beneath their respective names on the signature pages hereto;
and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent and Merger Sub have requested and required that the
Stockholders enter into this Agreement.
NOW, THEREFORE, to induce Parent and Merger Sub to enter into, and in
consideration of its entering into, the Merger Agreement, and in consideration
of the promises and the representations, warranties and agreements contained
herein, the parties hereto agree as follows:
1. Representations and Warranties of the Stockholders. Each of the
Stockholders hereby represents and warrants to Parent and Merger Sub as of the
date hereof as follows:
(a) Authority; No Conflicts. Each Stockholder has the necessary legal
capacity, power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by and
on behalf of each Stockholder, and, assuming due authorization, execution and
delivery by Parent and Merger Sub, constitutes a legal, valid and binding
obligation of the Stockholders, enforceable in accordance with its terms. Except
for the filings required under the HSR Act or the Exchange Act, (i) no filing
with, and no permit, authorization,
<PAGE> 101
consent or approval of, any Governmental Entity or any other person is necessary
for the execution and delivery of this Agreement by and on behalf of any
Stockholder and the consummation by any Stockholder of the transactions
contemplated hereby, and (ii) none of the execution and delivery of this
Agreement by and on behalf of any Stockholder, the consummation of the
transactions contemplated hereby and compliance with the terms hereof by any
Stockholder will conflict with, or result in any violation of, or default (with
or without notice or lapse of time or both) under any provision of, any trust
agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise, license, judgment,
order, notice, decree, statute, law, ordinance, rule or regulation applicable to
any Stockholder or to any Stockholder's property or assets.
(b) The Subject Shares. Each Stockholder is the beneficial owner of
the Subject Shares indicated beneath its respective name on the signature pages
hereto and has, and throughout the term of this Agreement and at the Option
Closing Date will have, and will have the power and authority to convey to, and
will at the Option Closing convey to, Merger Sub, good and marketable title to
such Subject Shares free and clear of all encumbrances and liens (other than any
arising as a result of actions taken or omitted by Parent or Merger Sub). The
Stockholders do not beneficially own any shares of capital stock of the Company
or securities convertible into or exchangeable for shares of capital stock of
the Company, other than the Subject Shares. The Stockholders have the sole right
and power to vote and dispose of the Subject Shares, and none of the Subject
Shares is subject to any voting trust or other agreement, arrangement or
restriction with respect to the voting or transfer (other than the provisions of
the Securities Act) of any of the Subject Shares, except as contemplated by this
Agreement.
2. Representations and Warranties of Parent and Merger Sub. Each of
Parent and Merger Sub hereby represents and warrants to the Stockholders that it
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by and on behalf of each of
Parent and Merger Sub and, assuming due authorization, execution and delivery by
the Stockholders, constitutes a legal, valid and binding obligation of Parent
and Merger Sub enforceable in accordance with its terms. Except for the filings
required under the HSR Act and the Exchange Act, (i) no filing with, and no
permit, authorization, consent or approval of, any Governmental Entity or any
other person is necessary for the execution of this Agreement by and on behalf
of Parent or Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby, and (ii) none of the execution and delivery of
this Agreement by Parent and Merger Sub, the consummation of the transactions
contemplated hereby nor the compliance with the terms hereof by Parent and
Merger Sub will conflict with, or result in any violation of, or default (with
or without notice or lapse of time or both) under any provision of, the
certificate of incorporation or by-laws of Parent or Merger Sub, any trust
agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise, license, judgment,
order, notice, decree, statute, law, ordinance, rule or regulation applicable to
Parent or Merger Sub or to Parent's or Merger Sub's property or assets. If the
Option (as defined herein) is exercised, the Subject Shares will be acquired for
investment for Parent's and Merger Sub's own ac-
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count, not as a nominee or agent and not with a view to the distribution of any
part thereof. Neither Parent nor Merger Sub has any present intention of
selling, granting any participation in or otherwise distributing the same nor
does Parent or Merger Sub have any contract, undertaking, agreement or
arrangement with any person with respect to any of the Subject Shares. Each of
Parent and Merger Sub further understands that the Subject Shares may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act or pursuant to an exemption therefrom.
3. Covenants of the Stockholders. Until the termination of this
Agreement in accordance with Section 8 hereof, the Stockholders agree as
follows:
(a) Voting of Subject Shares. At any meeting of stockholders of the
Company called to vote upon the Merger and the Merger Agreement or at any
adjournment thereof or in any other circumstances upon which a vote or other
approval with respect to the Merger and the Merger Agreement is sought, each
Stockholder shall vote its Subject Shares in favor of the Merger, the adoption
by the Company of the Merger Agreement and the approval of the terms thereof and
each of the other transactions contemplated by the Merger Agreement.
At any meeting of stockholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Stockholders' vote, consent
or other approval as stockholders are sought, the Stockholders shall vote the
Subject Shares against (i) any action or agreement that would result in a breach
in any material respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or of the
Stockholders hereunder, and (ii) any action or agreement that would reasonably
be expected to impede, interfere with, delay, postpone or attempt to discourage
the Merger, including, but not limited to: (A) the adoption by the Company of a
proposal regarding (1) the acquisition of the Company by merger, tender offer or
otherwise by any person or group, other than Parent or Merger Sub or any
designee thereof (a "Third Party"), or any other merger, combination or similar
transaction with any Third Party; (2) the acquisition by a Third Party of 10% or
more of the assets of the Company and its subsidiaries, taken as a whole; (3)
the acquisition by a Third Party of 10% or more of the outstanding Shares; or
(4) the repurchase by the Company or any of its subsidiaries of 10% or more of
the outstanding Shares; (B) any amendment of the Company's certificate of
incorporation or by-laws or other proposal or transaction involving the Company
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger Agreement
or change in any manner the voting rights of any class of the Company's capital
stock; (C) any change in the control of the board of directors of the Company;
(D) any material change in the present capitalization or dividend policy of the
Company; or (E) any other material change in the Company's corporate structure
or business. The Stockholders further agree not to commit or agree to take any
action inconsistent with the foregoing.
(b) Proxies. As security for the agreements of the Stockholders
provided for herein, each Stockholder hereby grants to Parent and Merger Sub a
proxy to vote the Subject Shares as indicated in Section 3(a) above. Each
Stockholder agrees that this proxy shall be ir-
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revocable during the term of this Agreement and coupled with an interest and
each of the Stockholders, Parent and Merger Sub will take such further action or
execute such other instruments as may be necessary to effectuate the intent of
this proxy and hereby revokes any proxy previously granted by any Stockholder
with respect to any of the Subject Shares.
(c) Transfer Restrictions. Each Stockholder agrees not to (i) sell,
transfer, pledge, encumber, assign or otherwise dispose of or hypothecate
(including by gift or by contribution or distribution to any trust or similar
instrument or to any beneficiaries of such Stockholder (collectively,
"Transfer")), or enter into any contract, option or other arrangement or
understanding (including any profit sharing arrangement) with respect to the
Transfer of, any of the Subject Shares other than pursuant to the terms hereof
and the Merger Agreement, (ii) enter into any voting arrangement or
understanding with respect to the Subject Shares, whether by proxy, voting
agreement or otherwise, or (iii) take any action that would reasonably be
expected to make any of its representations or warranties contained herein
untrue or incorrect or could have the effect of preventing or disabling such
Stockholder from performing any of its obligations hereunder. Notwithstanding
the foregoing, each Stockholder may transfer its Subject Shares to another
direct or indirect wholly owned subsidiary of Onex Corporation on condition that
the transferee executes and delivers to Parent and Merger Sub an instrument in
writing, in form and substance reasonably satisfactory to Parent and Merger Sub,
assuming all of such Stockholder's obligations under this Agreement.
(d) Appraisal Rights. Each Stockholder hereby irrevocably waives any
and all rights which it may have as to appraisal, dissent or any similar or
related matter with respect to the Merger.
(e) No Solicitation. None of the Stockholders nor any of their
affiliates shall (whether directly or indirectly through any officer, director,
member, advisor, agent, representatives or other intermediary), nor shall the
Stockholders or any of their affiliates authorize or permit any of their
officers, directors, members, advisors, agents, representatives or other
intermediaries to, (i) solicit, initiate, encourage or take any action intended
to or reasonably likely to facilitate any submission of inquiries, proposals or
offers from any person relating to any acquisition or purchase of all or a
material amount of assets of, or any equity interest in, the Company (or any
subsidiary or division thereof) or any merger, consolidation, tender offer
(including a self tender offer), exchange offer, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company (or any subsidiary or division thereof), other than the transactions
contemplated by this Agreement or the Merger Agreement, or any other transaction
the consummation of which would reasonably be expected to impede, interfere
with, prevent or materially delay the Merger or which would reasonably be
expected to materially dilute the benefits to Parent or Merger Sub of the
transactions contemplated by the Merger Agreement (collectively, "Transaction
Proposals") or agree to or endorse any Transaction Proposal, other than the
transactions contemplated by the Merger Agreement, or (ii) enter into or
participate in any discussions or negotiations regarding any of the foregoing,
or furnish to any other person any information with respect to the Company's
business, properties or assets or any of the foregoing, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort to attempt by any other person to do or seek any of the foregoing.
Notwithstanding any-
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thing in this Agreement to the contrary, from and after the date hereof, the
Stockholders shall promptly advise Parent and Merger Sub orally and in writing
of the receipt by any of them (or any of the other entities or persons referred
to above) of any Transaction Proposal or any inquiry which is likely to lead to
any Transaction Proposal, the material terms and conditions of such Transaction
Proposal or inquiry, and the identity of the person making any such Transaction
Proposal or inquiry. The Stockholders will keep Parent and Merger Sub fully
informed of the status and details of any such Transaction Proposal or inquiry.
Nothing in this Section shall restrict the activities of any individual (whether
or not an affiliate of any Stockholder) in his or her capacity as a director,
officer, employee or agent of the Company or any of its subsidiaries.
(f) Merger Agreement. Each Stockholder accepts the terms and
conditions of the Merger Agreement as they apply to the holders of Shares.
4. Option.
(a) The Stockholders hereby grant to Merger Sub (or its designee), an
irrevocable option to purchase the Subject Shares, on the terms and subject to
the conditions set forth herein (the "Option").
(b) The Option may be exercised by Merger Sub, as a whole and not in
part, at any time during the period commencing upon the occurrence of any of the
following events and ending on the date which is the 30th calendar day following
the first to occur of such events:
(i) the Merger Agreement shall have been terminated pursuant to
Section 10.1(b) thereof;
(ii) the Merger Agreement shall have been terminated pursuant to
Section 10.1(c) thereof (other than a termination by the Company following
a failure to consummate the Merger as a result of an actual material breach
by Parent or Merger Sub of their respective obligations under the Merger
Agreement);
(iii) the Merger Agreement shall have been terminated pursuant to
Section 10.1(d) thereof;
(iv) the Merger Agreement shall have been terminated pursuant to
Section 10.1(e) thereof; or
(v) the Merger Agreement shall have been terminated for any other
reason (other than a termination as a result of an actual material breach
by Parent or Merger Sub of their respective obligations under the Merger
Agreement).
(c) If Merger Sub wishes to exercise the Option, Merger Sub shall send
a written notice to the Stockholders of its intention to exercise the Option,
specifying the place, and, if then known, the time and the date (the "Option
Closing Date") of the closing (the "Option Closing") of the purchase. The Option
Closing Date shall occur on the fifth business day (or such later date as shall
be no later than five business days following the first time that the Option
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Closing shall be permitted by applicable law or regulation) after the later of
(i) the date on which such notice is delivered, and (ii) the satisfaction of the
conditions set forth in Section 4(f).
(d) At the Option Closing, the Stockholders shall deliver to Merger
Sub (or its designee) all of the Subject Shares by delivery of a certificate or
certificates evidencing the Subject Shares duly endorsed to Merger Sub or
accompanied by powers duly executed in favor of Merger Sub, with all necessary
stock transfer stamps affixed.
(e) At the Option Closing, Merger Sub shall, and Parent shall cause
Merger Sub to, pay to the Stockholders pursuant to the exercise of the Option,
by wire transfer, cash in immediately available funds to the accounts of the
Stockholders (such accounts to be specified in writing at least two days prior
to the Option Closing), an amount equal to the product of $15.00 and the number
of Subject Shares (the "Subject Shares Purchase Price").
(f) The Option Closing shall be subject to the satisfaction of each of
the following conditions:
(i) no court, arbitrator or governmental body, agency or official
shall have issued any order, decree or ruling and there shall not be any
statute, rule or regulation, restraining, enjoining or prohibiting the
consummation of the purchase and sale of the Subject Shares pursuant to the
exercise of the Option;
(ii) any waiting period applicable to the consummation of the purchase
and sale of the Subject Shares pursuant to the exercise of the Option under
the HSR Act shall have expired or been terminated; and
(iii) all actions by or in respect of, and any filing with, any
governmental body, agency, official, or authority required to permit the
consummation of the purchase and sale of the Subject Shares pursuant to the
exercise of the Option shall have been obtained or made and shall be in
full force and effect, except such actions and filings which, if not made
or obtained, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
5. Further Agreements of Parent and Merger Sub.
(a) Parent and Merger Sub hereby agree that, in the event that Merger
Sub purchases the Subject Shares pursuant to the Option, as promptly as
practicable thereafter, Merger Sub will, and Parent will cause Merger Sub to,
make a tender offer for the remaining Shares to the stockholders of the Company
(the consummation of which shall be subject only to the condition that no court,
arbitrator or governmental body, agency or official shall have issued any order,
decree or ruling and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of such tender offer)
pursuant to which the stockholders of the Company (other than the Company, any
direct or indirect subsidiary of the Company or Parent or Merger Sub) will
receive an amount of cash consideration per Share equal to $15.00, and will take
such actions as may be necessary or appropriate in order to effectuate such
tender offer at the earliest practicable time.
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(b) Subject to the last sentence of this Section 5(b), if, after
purchasing the Subject Shares pursuant to the Option, Merger Sub or any of its
affiliates has not acquired the remaining Shares, Merger Sub or any of its
affiliates receives any cash or non-cash consideration in respect of the Subject
Shares in connection with a Third Party Business Combination (as defined below)
during the period commencing on the date of the Option Closing and ending on the
first anniversary thereof, Merger Sub shall promptly pay over to the
Stockholders, as an addition to the Subject Shares Purchase Price, (x) one-half
of the excess, if any, of such consideration over the aggregate Subject Shares
Purchase Price paid for the Subject Shares which are sold by Merger Sub
hereunder less (y) the sum of (I) the amount of taxes payable or to be payable
by Merger Sub (as estimated by Merger Sub in good faith) in connection with such
Third Party Business Combination (it being intended and understood that Merger
Sub retain one-half of the after-tax profit from such sale taking into account
any adjustment to basis resulting from the payment required by this section),
and (II) the amount of expenses of Merger Sub in connection herewith and the
Merger Agreement and in connection with such Third Party Business Combination,
and (II) the pro rata portion (based on share holdings) of all capital
contributions to and retained earnings of the Company from the date of date of
the Option Closing through the date of the Third Party Business Combination;
provided that, (i) if the consideration received by Merger Sub or such
affiliates shall be securities listed on a national securities exchange or
traded on the Nasdaq National Market, the per share value of such consideration
shall be equal to the closing price per share of such securities listed on such
national securities exchange or the Nasdaq National Market on the date such
transaction is consummated, and (ii) if the consideration received by Merger Sub
or such affiliates shall be in a form other than securities, the per share value
shall be determined in good faith as of the date such transaction is consummated
by Merger Sub and the Stockholders, or, if Merger Sub and the Stockholders
cannot reach agreement, by a nationally recognized investment banking firm
reasonably acceptable to the parties. The term "Third Party Business
Combination" means the occurrence of any of the following events: (A) the
Company, or more than 50% of the outstanding shares of the Company's capital
stock, is acquired by merger or otherwise by any Third Party; or (B) a Third
Party acquires all or substantially all of the total assets of the Company and
its subsidiaries, taken as a whole; provided, however, that in no event will any
transaction in which shares of the Company's capital stock or any of its assets
are sold or transferred directly or indirectly in connection with or as a part
of a sale or other transaction involving sale, merger or other similar
transaction of Parent or any of its material assets or business constitute a
Third Party Business Combination, and in no event will a sale of any division,
line of business or similar unit of the Company and its subsidiaries constitute
a Third Party Business Combination.
6. Stop Transfer Order. The Stockholders hereby authorize and request
the Company's counsel to notify the Company's transfer agent that there is a
stop transfer order with respect to all of the Subject Shares (and that this
Agreement places limits on the voting of the Subject Shares).
7. Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder, except as expressly provided herein with respect to
Parent's and Merger Sub's rights under the Option, shall be assigned by any of
the parties without the prior written consent of the other parties, except that
each of Parent or Merger Sub may assign, in its sole discretion,
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any or all of its rights, interests and obligations hereunder to any direct or
indirect wholly owned subsidiary of Parent. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their permitted assigns and their respective successors
(including the Company as successor to Merger Sub pursuant to the Merger),
heirs, agents, representatives, trust beneficiaries, attorneys, affiliates and
associates and all of their respective predecessors, successors, permitted
assigns, heirs, executors and administrators.
8. Termination. This Agreement shall terminate, and no party shall
have any rights or obligations hereunder and this Agreement shall become null
and void and have no further effect immediately following the earliest to occur
of (x) the Effective Time, (y) the 30th day following the termination of the
Merger Agreement pursuant to Section 10.1(b), 10.1(c), 10.1(d) or 10.1(e)
thereof, or (z) the termination of the Merger Agreement pursuant to Section
10.1(a) thereof. Notwithstanding the foregoing, in the event the Option shall
have been exercised in accordance with Section 4, but the Option Closing shall
not have occurred, this Agreement shall not terminate, except that this
Agreement may be terminated by the Stockholders if Merger Sub defaults on its
obligation to purchase the Subject Shares at the Option Closing. Nothing in this
Section shall relieve any party of liability for breach of this Agreement.
9. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by the party to be charged therewith.
(b) Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or sent by overnight
courier (providing proof of delivery) to Parent and Merger Sub in accordance
with Section 11.1 of the Merger Agreement and to the Stockholders c/o Kaye,
Scholer, Fierman, Hays & Handler, LLP, 425 Park Avenue New York, New York 10022,
Telecopy: (212) 836-8689, Attention: Joel I. Greenberg, Esq. (or at such other
address for a party as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
each party need not sign the same counterpart.
(e) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
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<PAGE> 108
10. Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court of the United
States located in the Southern District of the State of New York or in a New
York state court located in Manhattan, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit such party to the personal jurisdiction of
any Federal court located in the Southern District of the State of New York or
any New York state court located in Manhattan in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action relating to this Agreement or
the transactions contemplated hereby in any court other than a Federal court
sitting in the Southern District of the State of New York or a New York state
court located in Manhattan, and (iv) waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this Agreement
or any of the transactions contemplated hereby.
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<PAGE> 109
IN WITNESS WHEREOF, Parent, Merger Sub and the Stockholders have each
caused this Agreement to be signed by its signatory thereunto duly authorized,
each as of the date first written above.
AMERISERVE FOOD DISTRIBUTION, INC.
By:/s/ John V. Holten
Name: John V. Holten
Title: Chairman and Chief Executive
Officer
STEAMBOAT ACQUISITION CORP.
By:/s/ John V. Holten
Name: John V. Holten
Title: Chairman of the Board and
President
ONEX DHC LLC
(479,498 Class A Shares and
4,458,696 Class B Shares)
By:/s/ Anthony R. Melman
Name: Anthony R. Melman
Title: Attorney-in-fact
ONEX OMI LLC
(285,714 Class B Shares)
By:/s/ Anthony R. Melman
Name: Anthony R. Melman
Title: Attorney-in-fact
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<PAGE> 110
PROSOURCE EXECUTIVE INVESTCO LLC
(17,085 Class A Shares and
94,420 Class B Shares)
By:/s/ Anthony R. Melman
Name: Anthony R. Melman
Title: Attorney-in-fact
ONEX OHIO LLC
(379,242 Class B Shares)
By:/s/ Anthony R. Melman
Name: Anthony R. Melman
Title: Attorney-in-fact
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<PAGE> 111
ANNEX III
MORGAN STANLEY
Morgan Stanley & Co.
Incorporated
One Financial Place
440 South LaSalle Street
Chicago, IL 60605
(312) 706-4000
January 29, 1998
Board of Directors
ProSource, Inc.
1500 San Remo Avenue
Coral Gables, FL 33146
Members of the Board:
We understand that ProSource, Inc. ("ProSource" or the "Company"), AmeriServe
Food Distribution, Inc. ("Buyer") and Steamboat Acquisition Corp., a
wholly-owned subsidiary of the Buyer ("Acquisition Sub") have entered into an
Agreement and Plan of Merger, dated as of January 29, 1998, (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Acquisition Sub with and into ProSource. Pursuant to the Merger, ProSource
will become a wholly-owned subsidiary of Buyer and each outstanding share of
Class A common stock, par value $0.01 per share (the "Class A Common Stock"), of
the Company and Class B common stock, par value $0.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common Stock"),
of the Company, other than shares held in treasury or held by Buyer or any
affiliate of Buyer or as to which dissenters' rights have been perfected, will
be converted into the right to receive $15.00 per share in cash. The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
We further understand that Onex Corporation and affiliates of Onex Corporation
("Onex") control approximately 85.1% of the voting power of the Common Stock and
that Buyer, Acquisition Sub and Onex have entered into a Voting Agreement dated
as of January 29, 1998 (the "Voting Agreement") pursuant to which Onex agreed to
take certain actions to support the transactions contemplated by the Merger
Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of Class A Common Stock pursuant to the Merger Agreement is fair
from a financial point of view to such holders.
<PAGE> 112
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared
by the management of the Company;
(iii) reviewed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial
condition and the prospects of the Company with senior
executives of the Company;
(v) reviewed the reported prices and trading activity for the
Class A Common Stock;
(vi) compared the financial performance of the Company and the
reported prices and trading activity of the Class A Common
Stock with that of certain other comparable publicly-traded
companies and their securities;
(vii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
(viii) reviewed the Merger Agreement and the Voting Agreement; and
(ix) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such appraisals.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction involving the Company, nor did we
negotiate with Buyer or any parties which may have expressed interest in any
possible acquisition of the Company or certain of its constituent businesses.
We have been engaged to provide this opinion to the Board of Directors of the
Company in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for the Company and Onex and
have received fees for the rendering of these services.
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<PAGE> 113
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing by the Company in respect of this transaction with the Securities
and Exchange Commission.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of Class A Common Stock pursuant to
the Merger Agreement is fair from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ William H. Strong
--------------------------------------
William H. Strong
Managing Director
III-3
<PAGE> 114
ANNEX IV
DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251 (g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange
<PAGE> 115
or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b.
and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation,
either before the effective date of the merger or consolidation or within
ten days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in such
notice a copy of this section; provided that, if the notice is given on or
after the effective date of the merger or consolidation, such notice shall
be given by the surviving or resulting corporation to all such holders of
any class or series of
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stock of a constituent corporation that are entitled to appraisal rights.
Such notice may, and, if given on or after the effective date of the merger
or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given; provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation
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and to the stockholders shown on the list at the addresses therein stated. Such
notice shall also be given by one or more publications at least one week before
the day of the hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or
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<PAGE> 118
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE> 119
ANNEX V
CERTAIN INFORMATION REGARDING
PROSOURCE, INC.
<PAGE> 120
CERTAIN INFORMATION REGARDING
PROSOURCE, INC.
The following information is excerpted from the Company's Annual Report
on Form 10-K for the Fiscal Year ended December 27, 1997, as filed with the
Securities and Exchange Commission on March 3, 1998 and amended on April 30,
1998.
ITEM 1. BUSINESS.
ProSource, Inc. ("ProSource" or the "Company") provides foodservice
distribution services to chain restaurants in North America and provides
purchasing and logistics services to the foodservice market. The Company
distributes a wide variety of items, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods and cleaning and other supplies.
The Company serves a variety of restaurants, including Burger King, Red Lobster,
Long John Silver's, Olive Garden, TGIFriday's, Chick-fil-A, Chili's, Sonic, TCBY
and Wendy's. ProSource is an indirect subsidiary of Onex Corporation (together
with its affiliates, "Onex"). See "Controlling Stockholder."
The Company was formed in 1992 to acquire Burger King Distribution
Services ("BKDS"), the "in-house" distributor for Burger King Corporation
("BKC"), which serviced approximately 4,150 Burger King restaurants. Since the
acquisition, ProSource has, through a combination of acquisitions and internal
growth, become a leading distributor to chain restaurants, servicing
approximately 12,700 restaurants within 16 different restaurant chains as of
December 27, 1997. In March 1995, the Company acquired substantially all of the
assets and assumed certain liabilities of the National Accounts Division ("NAD")
of The Martin-Brower Company ("Martin-Brower"), which added a total of
approximately 8,000 restaurants within 11 chains included in the Company's
current customer base. The Company has also been successful in expanding through
internally generated sales. Since the Company's formation in 1992, net sales
have grown from $1.3 billion in 1993 (the first full year of operations) to $3.9
billion in 1997.
The Company was incorporated in 1992 as a Delaware corporation. Its
principal executive offices are located at 1500 San Remo Avenue, Coral Gables,
Florida 33146, and the Company's telephone number is (305) 740-1000. The Company
operates under the name "ProSource Distribution Services."
OPERATIONS AND DISTRIBUTION
The Company's operations can generally be categorized into two business
processes: (i) product replenishment and (ii) order fulfillment. Product
replenishment involves the management of logistics from the vendor location
through the delivery of products to the Company's distribution centers. Order
fulfillment involves all activities from customer order placement through
delivery to the restaurant location. Supporting the Company's business processes
are its network of 34 distribution centers, its fleet of approximately 1,500
tractors and trailers and its management information systems.
Product Replenishment. While the Company is responsible for purchasing
products to be delivered to its customers, each chain typically selects the
vendor and negotiates the price at which most products will be purchased. See
"Purchasing and Supply." The Company determines the distribution centers which
will warehouse products for each customer and the quantities in which such
products will be purchased. Order quantities for each product are systematically
determined for each distribution center, taking into account both recent sales
history and projected customer demand. The number of distribution centers used
to serve
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a customer is based on the number and location of the restaurants to be
serviced. Given the Company's experience in managing its product flow, losses
due to shrinkage, damage and product obsolescence represent less than 0.1% of
1997 net sales.
The Company works with its chain customers in order to optimize
transportation from vendor locations to distribution warehouses. By utilizing
the collective demand of its customers for in-bound transportation, its existing
fleet of trucks and its expertise in managing transportation, the Company can
offer its customers in-bound transportation (i.e. transportation of products
from the vendor to the distribution center), in many instances on a more
economical basis than that offered by the vendors that have traditionally
provided such services. The Company believes it can offer its customers lower
in-bound transportation costs through (i) use of the Company's delivery fleet to
backhaul products, (ii) consolidation of products from more than one vendor or
for use by more than one customer to increase truckloads and (iii) brokering the
freight to third party carriers with whom the Company has negotiated lower
transportation rates. In 1997, the Company managed approximately 38% of the
total freight tonnage to its distribution centers. The Company utilizes a number
of third party carriers to provide in-bound transportation services. None of
these carriers are material to the Company's operations.
The Company currently warehouses approximately 7,000 types of products
for its customers at its distribution centers. Currently, no one distribution
center maintains inventories for all customers and, as a result, some customers
are not serviced by the distribution center closest to them. The Company has
begun implementing a new national network of distribution centers. Through this
"network optimization" program, which is expected to take up to 5 years to
complete, the Company intends to consolidate and integrate its existing
distribution network into a hub and spoke network utilizing approximately six
large regional distribution centers ("RDCs"), and nineteen local distribution
centers ("LDCs"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." Under
the new network, high volume products will be shipped directly to both RDCs and
LDCs, with low volume products being shipped only to RDCs which will supply
these products to the LDCs. The Company expects its new distribution network to
reduce costs by enabling the Company to fully service more customers from a
distribution center closer to the customer, and thereby reduce transportation
costs. In addition, the new network should provide the Company with additional
distribution center capacity for continued growth. The consolidation of all
customers into common distribution facilities in conjunction with the
development of the network should optimize in-bound transportation costs,
outbound miles, inventory investment and warehouse capacity.
Upon receipt of the product at the distribution centers, it is
inspected and stored in racks. Each distribution center contains ambient,
refrigerated and frozen space as well as offices for operating, sales and
customer service personnel and a computer networked with the Company's
centralized computer system.
Order Fulfillment. The Company places a significant emphasis on
providing a high service level in order fulfillment. For the year ended December
27, 1997, the Company achieved order fill rates of 99.7% and on-time deliveries
of 92.3%. By providing a high level of service and reliability, the Company
believes that it can reduce the number of reorders and redeliveries, reducing
costs for both the Company and its customers. Each restaurant places product
orders based on recent usage, estimated sales and existing restaurant
inventories. The Company has developed pre-established routes and pre-arranged
delivery times with each customer. Product orders are placed with the Company
one to three times a week either through the Company's customer service
representative or through electronic transmission using the Company's
proprietary software. Approximately 53% of the restaurants served by the Company
transmit product orders electronically. Orders are generally placed on a
designated day in order to coordinate with the Company's pre-established
delivery schedules. Processing and dispatch of each order is generally completed
within 24
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hours of receipt and the Company's standards require each order to be delivered
to the customer within one hour of a pre-arranged delivery time.
Products are picked and labeled at each distribution center. The
products are placed on either a pallet or one of the Company's delivery carts
for loading of outbound trailers. Delivery routes are scheduled both to fully
utilize the trailer's load capacity and minimize the number of miles driven. The
Company transports approximately 2.1 million tons of product and its trucks
travel approximately 60 million miles annually. The Company currently utilizes
several unloading methods at the restaurant including (i) gravity aided rollers,
(ii) hand carts and ramps and (iii) its cart delivery system.
Fleet. The Company's fleet, as of December 27, 1997, consisted of
approximately 1,500 vehicles, including approximately 600 tractors and 900
trailers. The Company leases approximately 500 of the tractors from Penske Truck
Leasing, Co. L.P. pursuant to full-service leases which include maintenance,
licensing and fuel tax reporting. The remaining tractors are leased under
similar full-service leases from a variety of truck leasing companies. The
Company leases approximately 400 trailers from GE Capital Services. The
remainder are either Company-owned or leased from various other companies. Lease
terms average 4-6 years for tractors and 7-10 years for trailers.
Substantially all of the Company's vehicles contain on-board computers.
The computers assist in managing fleet operations and provide expense controls,
automated service level data collection and real-time driver feedback, thereby
enhancing the Company's service level to customers. Substantially all of the
Company's trailers contain three temperature-controlled compartments, which
allow the Company to simultaneously deliver frozen food, refrigerated food and
dry goods.
Management Information Systems. The Company currently has in place a
variety of information technology systems, including electronic ordering,
inventory management, financial and routing systems. In addition, in connection
with its "network optimization" program, the Company intends to put in place new
customer ordering and warehouse management systems. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
CUSTOMERS
The Company's customers as of December 27, 1997 consisted of 3,110
franchisees and 14 franchisor/owners of approximately 12,700 quick service and
casual dining chain restaurants representing 16 restaurant chains. The Company
is generally one of a limited number of suppliers to the chains it serves. The
largest chains served by the Company in 1997 were Burger King and Red Lobster,
representing 46% and 15% of 1997 net sales, respectively. The Company's largest
customer is Darden Restaurants, Inc. (owner of all Olive Garden and Red Lobster
restaurants), representing 21% of the Company's 1997 net sales. No other chain
or single customer accounted for more than 10% of the Company's net sales in
1997. In January 1997, the Company announced the termination, effective April 1,
1997, of its distribution agreement with ARCOP, the purchasing cooperative for
Arby's, which represented approximately 10% of the Company's net sales in 1996.
The Company has contracts with customers representing approximately 75%
of net sales, with terms ranging from 2-7 years and an average term of three
years. In connection with the acquisition of BKDS in 1992, the Company entered
into an exclusive distributor agreement and related distribution agreements with
BKC, pursuant to which, through 2002, (i) the Company is designated as the
exclusive distributor to BKC's company-owned and operated Burger King
restaurants in the United States (which accounted for approximately 5% of 1997
net sales), (ii) the Company is one of ten companies approved as regional
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distributors to franchised Burger King restaurants in the United States, and
(iii) the Company is the only company approved by BKC to service Burger King
restaurants on a national basis. BKC has the right to terminate these contracts
(i) upon a material failure to perform by the Company and (ii) in the case of
the exclusive distributor agreement, upon the bankruptcy of the Company. In
addition to the 520 BKC-owned restaurants, as of December 27, 1997, the Company
also serviced 4,554 Burger King restaurants owned by franchisees. In the
aggregate, this represents approximately 68% of all Burger King restaurants in
the United States. The Company has also entered into two distribution agreements
with Darden Restaurants, Inc. pursuant to which the Company is the primary
distributor to its restaurants, Olive Garden and Red Lobster, operating in the
United States and Canada. All Olive Garden and Red Lobster restaurants are
currently company-owned. Olive Garden and Red Lobster have the right to
terminate their respective agreements upon (i) a material change in ownership of
the Company other than as a result of a public offering by the Company, (ii) a
material breach by the Company, (iii) the bankruptcy of the Company and (iv) a
failure of the Company to meet certain performance reliability standards. Both
agreements terminate in 2002. The Company believes that from time to time it may
not have been in strict compliance with all of the performance reliability
standards in these and other contracts. However, it is not aware of any issues
of non-compliance which could reasonably be expected to result in early
termination of material contracts.
PURCHASING AND SUPPLY
The Company purchases and distributes a wide variety of items,
including fresh and frozen meat and poultry, seafood, frozen foods, canned and
dry goods, fresh and pre-processed produce, beverages, dairy products, paper
goods and cleaning and other supplies. Due to the high volume of proprietary
products required by chain restaurants, the chain typically negotiates product
sourcing directly with vendors and then requires the distributor to use such
vendors and purchase at the negotiated price. Furthermore, customers within the
same chain often cooperate to utilize internal or third party purchasing
organizations. Because suppliers for proprietary products are generally
designated by the chain, the loss of any such supplier would likely result in
the development of a new source of supply by such chain. Substantially all types
of non-proprietary products distributed by the Company are available from a
variety of suppliers, some of which also supply the Company with proprietary
products. Accordingly, the Company does not believe that the loss of any
supplier would have a material adverse effect on the Company's operating results
or its ability to serve its customers.
The Company's emphasis on supply chain management has allowed the
Company to identify the purchasing of non-proprietary products as a value-added
service which it can provide to customers. The Company has formed a purchasing
subsidiary which pools the needs of its customers for non-proprietary products,
such as unlabeled paper products, cleaning supplies and produce, and uses the
resulting purchasing power to negotiate lower prices with vendors. The Company
and its customers share in the cost savings, improving margins for the Company
and reducing costs for its customers. The Company believes that expansion of its
purchasing services represents an important opportunity for growth.
MARKETING AND CUSTOMER SERVICE
The Company's senior management, together with a team of marketing,
sales and customer service personnel, are involved in maintaining relationships
with key customers and securing new accounts. The Company targets as potential
new customers restaurant chains offering menu categories not covered by the
Company's existing customers, chains operating in geographic areas in which the
Company could benefit from increased customer density, and growing regional
chains which could be added to the national chains which have traditionally been
the Company's focus. In seeking new customers, the Company attempts to
concentrate on growing chains which might benefit from the industry focus that
it, as a specialist in
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distribution to chain restaurants, brings, as well as chains which the Company
believes would benefit from the quality of service and attention to supply chain
management that the Company provides to its customers.
The Company's customer service activities are highly customized to the
unique needs of the customer. Each customer has a dedicated account manager who
is responsible for overseeing all of its service needs and coordinating the
services provided through an account team of customer service professionals,
including a dedicated "logistics services manager." The logistics services
manager is responsible for coordinating day-to-day product flow for the
customer, as well as working closely with the customer's purchasing and
marketing organization.
The Company rigorously monitors customer service levels. The Company
utilizes frequent trips to the customer's site for regularly scheduled reviews
and key project meetings and telephone conferencing in order to ensure close
coordination between the Company and the customer. In addition, the Company
monitors customer perceptions through periodic surveys.
COMPETITION
The foodservice distribution industry is highly competitive. The
Company competes with other systems foodservice distribution companies focused
on chain restaurants and with broadline foodservice distributors. The Company's
principal national competitors are Sysco Corp., U.S. Foodservice, Inc. (formerly
JP Foodservice, Inc.), Alliant Foodservice Inc. (formerly Kraft Distribution),
MBM Corp., AmeriServe Food Distribution, Inc. ("AmeriServe"), Marriott
Distribution Services Inc., Performance Food Group, and McLane Company, Inc. The
Company also competes with regional distributors, principally for business from
franchisee-owned Burger King restaurants. The Company believes that distributors
in the foodservice industry compete on the basis of price and the quality and
reliability of service. Because a number of the Company's customers prefer a
distributor that is able to service their restaurants on a nationwide basis, the
Company believes that it is in a strong position to compete for national chain
accounts. The Company attributes its ability to compete effectively against
smaller regional and local distributors in part to the cost advantages resulting
from its size, centralized purchasing operations and ability to offer broad
market coverage through a wide network of distribution centers. However, in
light of the consolidation in the foodservice distribution industry, the Company
could face increased competition to the extent that there is an increase in the
number of foodservice distributors specializing in distribution to chain
restaurants on a nationwide basis. See "Merger Agreement."
Distribution fees received from a number of the Company's customers
decreased significantly in 1993 and 1994 as a result of competitive pricing
pressures. While distribution fees have stabilized since that time, there can be
no assurance that severe competitive pricing pressure will not recur in the
future.
EMPLOYEES
As of December 27, 1997, the Company had approximately 3,400 full-time
employees, of whom approximately 340 were employed in corporate support
functions and approximately 3,060 were warehouse, driver and administrative
staff in the distribution centers. Approximately 560 of the Company's employees
were covered by 11 collective bargaining contracts with 7 local unions, all of
which are associated with the International Brotherhood of Teamsters. The
Company has not experienced any significant labor disputes or work stoppages.
The Company believes that its relationships with its employees are good.
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REGULATORY MATTERS
The Company is subject to a number of federal, state and local laws,
regulations and codes, including those relating to the protection of human
health and the environment, compliance with which has required, and will
continue to require, capital and operating expenditures. The Company is not
aware of any violations of, or pending changes in, such laws, regulations and
codes that are likely to result in material penalties or material increases in
compliance costs. The Company, however, is not able to predict the impact of any
changes in the requirements or mode of enforcement of these laws, regulations
and codes on its operating results.
The Company owns and leases distribution centers, at some of which
on-site vehicle fueling activities may have resulted in releases of diesel or
other petroleum products to the soil or groundwater. The Company may be subject
to liability for clean-up of contaminated soil or groundwater at these
distribution centers and is in the process of investigating or remediating the
contamination. Although there can be no assurances, the Company does not believe
that the estimated costs associated with any required investigation or
remediation will have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
CONTROLLING STOCKHOLDER
The Company is controlled by Onex Corporation. Onex, based in Toronto,
Canada, is a publicly listed (on The Toronto Stock Exchange and The Montreal
Exchange) diversified company that operates through autonomous subsidiaries and
strategic partnerships. Onex had consolidated revenues of Cdn. $8.9 billion for
1996 (Cdn. $8.1 billion for the 9 months ended September 30, 1997) and
consolidated assets of Cdn. $3.8 billion at December 31, 1996 (Cdn. $5.3 billion
at September 30, 1997). In addition to its interests in ProSource, as of
December 31, 1997, Onex had investments in a broad range of companies, including
Onex Food Services, Inc. (which does business through its subsidiaries, Sky
Chefs, Inc. and Caterair International Inc.), Celestica International Holdings
Inc., Dura Automotive Systems, Inc., Tower Automotive, Inc., Phoenix Pictures
Inc., Vencap, Inc. and Lantic Sugar Limited, its most recently acquired
subsidiary. None of Onex's current businesses competes with or is a customer of
the Company. Onex currently owns approximately 89% of the Company's outstanding
Class B common stock, $.01 par value per share (the "Class B Common Stock"), and
approximately 14% of the Company's outstanding Class A common stock, $.01 par
value per share (the "Class A Common Stock" and, collectively with the Class B
Common Stock, "Common Stock"), representing approximately 85% of the combined
voting power of the outstanding Common Stock. See "Security Ownership of Certain
Beneficial Owners and Management."
MERGER AGREEMENT
On January 29, 1998, the Company signed a definitive merger agreement
with AmeriServe. Under the terms of the agreement, AmeriServe has agreed to pay
$15.00 in cash for each outstanding share of the Company's common stock. In
addition, under the agreement, all outstanding options will be accelerated and
option holders will receive $15.00 less the applicable exercise for each share
issuable upon exercise of the options. The merger is subject to regulatory
approvals and other customary conditions to closing. Onex Corporation and
certain of its affiliates have committed to vote in favor of the merger, which
will assure the necessary stockholder approval. The merger is expected to close
in the second quarter of fiscal 1998.
Upon consummation of the merger, the Company will become a wholly-owned
subsidiary of AmeriServe. AmeriServe has advised the Company that following the
consummation of the Merger, it anticipates that it will cause the Surviving
Corporation to seek to have the Class A Common Stock, which
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is currently traded on the Nasdaq National Market, delisted. In addition,
following the consummation of the Merger, the Class A Common Stock will be
eligible for deregistration under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
FORWARD-LOOKING STATEMENTS
This Annex V contains certain forward-looking statements within the
meaning of Section 21E of the Exchange Act that involve risks and uncertainties.
Such forward looking statements include, among other things, statements
regarding sources of growth and plans and objectives of management for future
operations (including those concerning the Company's new distribution center
network and new information systems and upgrades), the potential impact of
pending litigation and anticipated capital expenditures and working capital
needs. Actual outcomes may be affected by economic trends impacting its
customers and the restaurant industry, in general. Also, the Company is in a
highly competitive business, is in the process of integrating its operations,
and is implementing a strategic plan intended to expand its business through
acquisitions and internal growth and improve its cost structure. There can be no
assurance that in its highly competitive business environment, the Company will
achieve the planned efficiencies and cost savings, successfully acquire other
distributors, or increase its business with new or existing customers.
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ITEM 2. PROPERTIES.
The Company leases its principal executive office and corporate support
center which is located in Coral Gables, Florida. The facility consists of
approximately 83,000 square feet. The Company operates 34 distribution centers
and 5 remote locations, of which 25 facilities (representing an aggregate of
approximately 1,574,176 square feet) are leased and 14 facilities (representing
an aggregate of approximately 794,238 square feet) are owned by the Company.
The following table sets forth certain information with respect to the
Company's operating distribution centers:
APPROXIMATE
LOCATION SQUARE FEET
- -------- -----------
Atlanta, Georgia (1) 217,670
Burlington, New Jersey 60,880
Chester, New York 127,100
Chicago, Illinois 91,021
Cleveland, Ohio 40,540
Columbus, Ohio 174,000
Dallas, Texas (1)(3) 165,423
Denver, Colorado 92,145
Detroit, Michigan 34,897
Greensboro, North Carolina 41,000
Gridley, Illinois 146,100
Humbolt, Tennessee 35,000
Houston, Texas (1) 74,900
Kansas City, Kansas (1)(4) 175,642
Lakeland, Florida 31,806
Los Angeles, California (2) 245,540
Miami, Florida 31,225
New Orleans, Louisiana 36,180
New York, New York 35,000
Norman, Oklahoma (5) 63,000
Orlando, Florida 143,200
Oxford, Massachusetts 40,000
Phoenix, Arizona 38,200
Portland, Oregon 70,400
San Jose, California 31,500
Trenton, Ontario 20,000
Virginia Beach, Virginia 23,045
Washington, DC (6) 83,000
---------
Total: 2,368,414
=========
(1) Two facilities.
(2) Three facilities.
(3) Includes approximately 28,223 square feet of supplemental space in two
remote facilities.
(4) Includes approximately 26,172 square feet of supplemental space in a remote
facility.
(5) Includes approximately 11,000 square feet of supplemental space in a remote
facility.
(6) Includes approximately 30,000 square feet of supplemental space in a remote
facility.
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ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are parties to various legal actions
arising in the ordinary course of business. Management believes that the outcome
of such cases will not have a material adverse effect on the consolidated
results of operations or the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders during the
fourth quarter ended December 27, 1997.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
See "MARKET PRICES OF COMMON STOCK" in the body of the Proxy Statement.
ITEM 6. SELECTED FINANCIAL DATA.
See "SELECTED FINANCIAL DATA" in the body of the Proxy Statement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In the following comparisons of the results of operations, the fiscal
years ended December 27, 1997, December 28, 1996 and December 30, 1995 are
referred to as 1997, 1996 and 1995, respectively. The Company's fiscal year ends
on the last Saturday in December. Consequently, the Company will periodically
have a 53 week fiscal year. 1997, 1996 and 1995 each consisted of 52 weeks.
RESULTS OF OPERATIONS
The following sets forth, for the periods indicated, the components of
the Company's consolidated statements of operations expressed as percentage of
net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
December 27, December 28, December 30,
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales 100.00% 100.00% 100.00%
Cost of sales 92.06 92.29 92.24
---------------------------------------------------
Gross profit 7.94 7.71 7.76
Operating expenses 7.74 7.30 7.37
Loss on impairment of long-lived assets -- 0.38 --
Restructuring and contract-termination charges -- 0.69 0.02
---------------------------------------------------
Income (loss) from operations 0.20 (0.66) 0.37
Interest expense, net (0.24) (0.32) (0.39)
---------------------------------------------------
Loss before income taxes, extraordinary items and
cumulative effect of a change in accounting principle (0.04) (0.98) (0.02)
Income tax benefit 0.01 0.37 --
---------------------------------------------------
Loss before extraordinary items and cumulative effect
of a change in accounting principle (0.03) (0.61) (0.02)
Extraordinary (loss) gain, net (0.16) 0.01 (0.02)
Cumulative effect of a change in accounting principle, net (0.16) -- --
---------------------------------------------------
Net loss (0.35)% (0.60)% (0.04)%
===================================================
</TABLE>
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YEAR ENDED DECEMBER 27, 1997 COMPARED TO YEAR ENDED DECEMBER 28, 1996
Net sales declined 5.4% to $3,901.2 million in 1997 from $4,125.0
million in 1996. The decrease is primarily attributed to the Company's decision
to terminate its distribution contract with ARCOP, the purchasing cooperative
for Arby's, effective April 1, 1997. In 1996, sales to company-owned and
franchisee-owned Arby's restaurants accounted for approximately 10% of the
Company's sales. The Company was able to partially mitigate the effect this had
on 1997's operations by increasing its sales to its current customer base. This
was accomplished by two methods: (1) increasing its sales to existing
restaurants and (2) increasing the number of restaurants served (primarily
franchisee-owned Burger King restaurants).
Gross profit decreased by 2.7% to $309.8 million in 1997 from $318.2
million in 1996. The gross profit percentage increased slightly to 7.9% in 1997
from 7.7% in 1996 as a result of the Company's efforts to increase its
value-added services and a change in sales mix.
Operating expenses increased slightly by 0.3% to $302.1 million in 1997
from $301.3 million in 1996. As a percentage of net sales, operating expenses
increased to 7.7% in 1997 from 7.3% in 1996 due primarily to the impact that
certain fixed costs have on a lower sales volume. The Company has also incurred
higher expenses in the fourth quarter of 1997 due to the start-up of new
distribution centers as part of its new network program.
The Company generated income from operations totaling $7.7 million in
1997 compared to a loss from operations of $27.3 million in 1996. The 1996 loss
from operations was caused by restructuring charges of $10.9 million,
contract-termination charges of $17.6 million, and a loss on impairment of
long-lived assets of $15.7 million. Excluding these non-recurring items, the
Company generated income from operations of $16.9 million in 1996. The 1997
operating income was negatively affected by the reduction in gross profit caused
by the lower sales volume and the start-up costs incurred in the fourth quarter,
discussed previously.
Net interest expense decreased 30.0% to $9.2 million in 1997 from $13.1
million in 1996. This is due to the prepayment of indebtedness in November 1996
with the proceeds of the Company's initial public offering as well as a lower
effective interest rate on the Company's new credit facilities, which closed in
March 1997.
The Company recognized an income tax benefit in 1997 of $0.5 million
compared to $15.4 million in 1996 as a result of a lower pre-tax loss in 1997.
The effective income tax rates for 1997 and 1996 were 32.9% and 38.2%,
respectively. The decreased 1997 effective tax rate is due to an increase in
permanent tax differences, relative to taxable loss, which resulted in a lower
recorded tax benefit.
The Company recognized an extraordinary loss of $10.3 million ($6.3
million net of taxes) in 1997 associated with the early retirement of its
previous credit facility in March 1997. This charge includes the write-off of
deferred financing costs ($6.3 million), prepayment penalties ($2.7 million) and
costs associated with the termination of interest-rate protection agreements
($1.3 million). In 1996, the Company recognized an extraordinary gain of $0.6
million, net of taxes, due to the pay-off of subordinated debt with the proceeds
from the Company's initial public offering.
During the fourth quarter of 1997, the Financial Accounting Standards
Board's Emerging Issues Task Force reached a consensus on Issue No. 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project that Combines Business Process Reengineering and Information
Technology Transformation." The consensus requires that the cost of business
process reengineering
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activities, whether done internally or by third parties, is to be expensed as
incurred. As a result, any remaining unamortized portion of previously
capitalized business process reengineering costs is required to be written off.
The cumulative impact of initially conforming to this new standard in the fourth
quarter of 1997 was reported as a change in accounting principle, resulting in a
charge of $9.7 million ($6.4 million net of taxes).
YEAR ENDED DECEMBER 28, 1996 COMPARED TO YEAR ENDED DECEMBER 30, 1995
Net sales increased 19.2% to $4,125.0 million in 1996 from $3,461.8
million in 1995. The increase in net sales is primarily attributable to the
acquisition of NAD on March 31, 1995. Net sales, excluding the effect of the NAD
acquisition, increased to $1,916.1 million in 1996 from $1,791.2 million in
1995, a $124.9 million or 7.0% increase when compared to 1995. This increase in
net sales is primarily due to increased sales to existing accounts as a result
of the addition of new restaurants and increased sales volume at existing
restaurants.
Gross profit increased 18.5% to $318.2 million in 1996 compared to
$268.5 million in 1995 primarily due to the increase in net sales. The gross
profit percentage decreased to 7.7% in 1996 from 7.8% in 1995 due primarily to
the inclusion for the entire year in 1996 of NAD sales which have a higher
product cost than other Company sales.
Operating expenses increased 18.1% to $301.3 million in 1996 from
$255.2 million in 1995 primarily due to the increase in net sales. As a
percentage of net sales, operating expenses declined to 7.3% in 1996 from 7.4%
in 1995 due primarily to the impact of the higher product cost per unit sold by
NAD.
Losses from operations in 1996 were $27.3 million (as compared to
earnings from operations of $12.6 million in 1995), as a result of restructuring
charges of $10.9 million, contract-termination charges of $17.6 million, and a
loss on impairment in value of long-lived assets of $15.7 million. The
restructuring charges and impairment losses are related to a plan to consolidate
and integrate the Company's corporate and network operations. Of the
restructuring charges, approximately $7.9 million related to the termination of
existing facility leases, $1.2 million represents costs to be incurred after
cessation of operations in the closed facilities and $1.8 million represents all
other costs. The contract-termination charges consist of $10.6 million of costs
associated with terminating the distribution agreement with ARCOP, the
purchasing cooperative for Arby's, and $7.0 million in costs associated with the
termination of various agreements in connection with the Company's initial
public offering in November 1996. The application of Statement of Financial
Accounting Standards No.121, which became effective on January 1, 1996 and
requires that long-lived assets be reviewed for impairment (measured based on
the fair value of assets), required the Company to recognize a loss of
approximately $7.3 million on land and owned buildings and $4.3 million on
furniture and equipment and leasehold improvements it intends to hold and use
through the completion of the plan and $4.1 million of capitalized software
costs which do not meet the long-term information technology strategy of the
Company. Earnings from operations excluding restructuring and contract
termination charges and impairment losses were $16.9 million in 1996 compared to
$13.3 million in 1995.
Net interest expense decreased to $13.1 million in 1996 from $13.3
million in 1995. Net interest expense as a percentage of net sales decreased
17.9% from 0.39% to 0.32% as a result of lower interest rates and improved net
asset turnover.
The income tax benefit in 1996 was $15.4 million compared to an income
tax provision of $0.1 million in 1995. The change in the tax benefit was
attributable to the Company's greater pre-tax loss in 1996.
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The 1995 provision resulted from a pre-tax loss which, due to permanent
differences arising from the NAD acquisition, translated into a relatively small
amount of taxable income.
The extraordinary items in both 1996 and 1995 relate to the early
retirement of debt. In 1996, the pay-off of subordinated debt with the proceeds
from the initial public offering resulted in a gain of $0.6 million, net of the
related tax provision of $0.4 million. In 1995, the debt refinancing associated
with the NAD acquisition resulted in the write-off of unamortized deferred debt
issuance costs of $0.8 million, net of the related tax benefit of $0.5 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its liquidity needs through cash provided by
operations, normal vendor trade-credit terms, operating leases and borrowings
under its credit facilities. Excluding $18.8 million of non-recurring payments
for acquisition, contract termination and restructure related items, the Company
generated net cash of $0.4 million from operating activities in 1997. The
Company generated net cash from operating activities of $21.3 million and $50.0
million in 1996 and 1995, respectively. The significant cash flow in 1995 was
attributable to the one-time benefit of acquiring assets without assuming
certain corresponding liabilities in connection with the acquisition of NAD.
Cash flow in 1997 was negatively impacted primarily by an increase in inventory.
Cash used for capital expenditures was $30.0 million in 1997, primarily
for computer system upgrades ($13.3 million) and distribution facilities and
equipment ($8.7 million). In 1996, the Company used $20.0 million for capital
expenditures, primarily for the Company's cart delivery program ($6.6 million)
and computer system upgrades ($9.5 million). Cash used in investing activities
was $175.6 million in 1995, primarily to fund the NAD acquisition for $170.3
million and capital expenditures of $5.7 million (primarily for cart delivery
equipment and computer systems upgrades). The Company anticipates capital
expenditures of approximately $19.0 million in 1998 (consisting primarily of
$9.6 million for computer system upgrades and $7.4 million for distribution
facilities and equipment); however, there can be no assurance that capital
expenditures will not exceed such amount.
On November 15, 1996 the Company completed an initial public offering
of 3,400,000 shares of its Class A Common Stock. The net proceeds of the
offering of $43.2 million were used primarily to prepay $25.3 million in
outstanding indebtedness under subordinated notes payable and repay $16.6
million of outstanding indebtedness under the Company's previous credit
facility. The reduction of outstanding indebtedness with the proceeds resulted
in a reduction of interest expense in 1997.
In March 1997, the Company entered into five-year loan agreements
aggregating $225 million with a group of financial institutions to replace its
previous credit facility. The agreements, which consist of a $150 million
accounts receivable securitization facility and a $75 million revolving-credit
facility, bear interest based on either the prime rate or LIBOR plus an
additional spread based on certain financial ratios and mature on March 14,
2002. The effective rate at December 27, 1997 was 7.34%. The Company is required
to comply with various covenants and borrowings are subject to calculations
based on accounts receivable and inventory. These agreements are secured by
liens on substantially all of the Company's assets and contain various
restrictions on, among other things, the Company's ability to pay dividends and
dispose of assets. ProSource Receivables Corporation ("PRC"), a subsidiary of
ProSource Services Corporation, the Company's principal operating subsidiary
("PSC"), is the legal borrower for the accounts receivable securitization
facility. Pursuant to the terms of the accounts receivable securitization
facility PSC sells, on an ongoing basis and without recourse, an undivided
interest in a designated pool of trade accounts receivable to PRC. In order to
maintain the designated balance in the pool of accounts receivable sold, PSC
V-13
<PAGE> 132
is obligated to sell undivided interests in new receivables as existing
receivables are collected. PSC has retained substantially the same credit risk
as if the receivables had not been sold. PSC, as agent for PRC, retains
collection and administrative responsibilities on the receivables sold to PRC.
The creditors for this facility have security interests in PRC's assets
(consisting primarily of accounts receivable purchased from PSC) and are
entitled to be satisfied by such assets prior to equity holders.
The Company borrowed an additional $61.6 million in 1997 under its
credit facilities to fund its operating, investing and other financing
activities and increase its cash and cash equivalents by $9.7 million. The
Company paid approximately $4.6 million in 1997 for fees associated with the
early extinguishment of its previous credit facility and for deferred loan fees
on its new credit facilities, which closed in March 1997. Approximately $0.6
million was paid in 1997 to acquire and retire treasury stock.
The Company believes that the combination of cash flow generated from
operations and borrowings under the existing credit facilities are sufficient to
satisfy its anticipated capital expenditures and working capital needs for at
least twelve months. Management may determine that it is necessary or desirable
to obtain financing for growth through additional bank borrowings or the
issuance of new debt or equity securities.
The Company is a holding company with no independent operations or
assets other than an investment in its operating subsidiaries and, as such, is
dependent on its operating subsidiaries to obtain cash flow. The Company's
credit agreements include certain restrictive covenants which limit the flow of
funds from the Company's subsidiaries to the parent company. Such covenants are
not expected to have a material effect on the ability of the parent to meet its
cash obligations.
IMPACT OF FLUCTUATION IN PRODUCT COST AND INFLATION
A majority of the restaurants served by the Company purchase products
from the Company based on product cost plus a negotiated fixed dollar amount per
unit of measure. As a result, the Company's gross margin percentage may be
positively or negatively impacted as the product cost per unit of measure
decreases or increases, respectively. The Company's product mix changed
substantially in 1995 as a result of the NAD acquisition because casual dining
chain restaurants (which constituted the substantial portion of restaurants
served by NAD), particularly those which serve seafood, have a higher average
product cost per unit of measure than quick service chain restaurants, thereby
reducing gross margin as a percentage of sales. Similarly, periods of inflation
in food and other product prices result in higher sales values and product costs
per unit of measure. While such increases do not affect the Company's gross
profit, they do result in a lower gross profit percentage. However, inflation in
operating expenses without corresponding productivity improvements can have a
negative effect on the Company's operating results as operating expenses
increase while gross profit remains constant. Conversely, periods of deflation
can have a positive effect on the Company's results.
INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000
Since 1995, the Company has been actively engaged in a program to
replace and/or upgrade its significant transaction processing systems. This
effort was initiated to effect the integration of acquired businesses. As a
result of this program, the Company believes that it will be Year 2000 compliant
on all of its significant applications by the end of 1998. In addition, the
Company at this time does not believe that the cost of Year 2000 remediation for
its transaction processing systems will have a material financial impact on the
Company's financial operations over the next two years. The Company has engaged
a firm to conduct an outside review to ensure the Company's entire enterprise
compliance readiness. Until this review is
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<PAGE> 133
complete, however, there can be no assurance that significant efforts will not
be required to ensure Year 2000 compliance, including with respect to its
customer and vendor relationships. See "Liquidity and Capital Resources."
QUARTERLY RESULTS AND SEASONALITY
Set forth is summary information with respect to the Company's
operations for the most recent eight fiscal quarters. Historically, the
restaurant and foodservice business is seasonal with lower sales in the first
calendar quarter. Furthermore, the Company may experience quarterly fluctuations
in net sales depending on the timing of any acquisitions or lost accounts.
Management believes the Company's quarterly results will continue to be impacted
by the seasonality of the restaurant business and the timing of any future
acquisitions or lost business.
The 1996 and first three quarters of 1997 income (loss) per share
amounts have been restated to comply with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share". For further discussion of this and the
impact of Statement No. 128, see the notes to the consolidated financial
statements.
<TABLE>
<CAPTION>
Fiscal Year Ended 1997
---------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter (a) Quarter Quarter
--------------- --------------- --------------- ---------------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $1,017.0 $ 970.8 $ 945.8 $ 967.6
Gross profit 80.6 76.2 77.3 75.7
Income (loss) from operations 2.5 2.6 4.3 (1.7)
Income (loss) before extraordinary item and
cumulative effect of a change in
accounting principle 0.2 0.1 0.7 (2.0)
Net income (loss) (6.1) 0.1 0.7 (8.4)
Net income (loss) per common share - basic
and diluted (0.64) 0.01 0.08 (0.90)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended 1996
---------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 968.7 $ 1,045.4 $ 1,053.5 $ 1,057.4
Gross profit 73.2 81.9 80.8 82.3
Income (loss) from operations (26.9) 5.6 5.8 (11.8)
Income (loss) before extraordinary item (19.2) 1.2 1.4 (8.4)
Net income (loss) (19.2) 1.2 1.4 (7.8)
Net income (loss) per common share - basic (3.61) 0.23 0.26 (1.07)
Net income (loss) per common share - diluted (3.61) 0.23 0.25 (1.07)
</TABLE>
(a) Includes the effects resulting from the Company's decision to terminate
its distribution contract with ARCOP, the purchasing cooperative for
Arby's, effective April 1, 1997.
V-15
<PAGE> 134
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PROSOURCE, INC.
Index to Consolidated Financial Statements
Independent Auditors' Report...........................................V-17
Audited Consolidated Financial Statements:
Consolidated Balance Sheets...................................V-18
Consolidated Statements of Operations.........................V-19
Consolidated Statements of Stockholders' Equity...............V-20
Consolidated Statements of Cash Flows.........................V-21
Notes to Consolidated Financial Statements....................V-22
V-16
<PAGE> 135
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
ProSource, Inc.:
We have audited the accompanying consolidated balance sheets of ProSource, Inc.
and subsidiaries as of December 27, 1997 and December 28, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 27, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ProSource, Inc. and
subsidiaries as of December 27, 1997 and December 28, 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 27, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 13 to the consolidated financial statements, the Company
changed its method of capitalization of business process reengineering
activities in the fourth quarter of 1997.
KPMG PEAT MARWICK LLP
/s/KPMG PEAT MARWICK LLP
Miami, Florida
February 20, 1998
V-17
<PAGE> 136
PROSOURCE, INC.
CONSOLIDATED BALANCE SHEETS
December 27, 1997 and December 28, 1996
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,501 $ 2,763
Accounts receivable, net of allowance for doubtful accounts of
$4,085 and $2,334 respectively 222,247 219,340
Inventories 160,621 144,040
Deferred income taxes, net 7,190 10,914
Prepaid expenses and other current assets 8,434 7,373
----------- -----------
Total current assets 410,993 384,430
Property and equipment, net 59,961 49,637
Intangible assets, net 39,883 41,436
Deferred income taxes, net 28,802 16,100
Other assets 8,462 12,121
----------- -----------
Total assets $ 548,101 $ 503,724
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 277,953 $ 254,907
Accrued liabilities 27,012 42,475
Current portion of long-term debt -- 1,500
----------- -----------
Total current liabilities 304,965 298,882
Long-term debt, less current portion 174,200 111,084
Other noncurrent liabilities 4,521 15,243
----------- -----------
Total liabilities 483,686 425,209
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value
Authorized 10,000,000 shares: none issued -- --
Class A common stock, $.01 par value
Authorized 50,000,000 shares; issued and outstanding 3,496,499
shares and 3,400,000 shares, respectively 35 34
Class B common stock, $.01 par value
Authorized 10,000,000 shares; issued and outstanding 5,856,756
shares and 5,963,856 shares, respectively 58 60
Additional paid-in capital 104,934 105,256
Accumulated deficit (40,580) (26,901)
Accumulated foreign-currency translation adjustments (32) 66
----------- -----------
Total stockholders' equity 64,415 78,515
----------- -----------
Total liabilities and stockholders' equity $ 548,101 $ 503,724
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
V-18
<PAGE> 137
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 27, 1997,
December 28, 1996 and December 30, 1995
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 3,901,165 $ 4,125,054 $ 3,461,837
Cost of sales 3,591,368 3,806,811 3,193,270
----------- ----------- -----------
Gross profit 309,797 318,243 268,567
Operating expenses, including management fees to Onex of
$0, $729 and $808, respectively 302,080 301,295 255,216
Loss on impairment of long-lived assets -- 15,733 --
Restructuring and contract-termination charges -- 28,466 711
----------- ----------- -----------
Income (loss) from operations 7,717 (27,251) 12,640
Interest expense, including interest to Onex of $0, $1,888
and $1,738, respectively (11,745) (14,824) (14,678)
Interest income 2,552 1,694 1,339
----------- ----------- -----------
Loss before income taxes, extraordinary items and
cumulative effect of a change in accounting
principle (1,476) (40,381) (699)
Income tax benefit (provision) 485 15,410 (85)
----------- ----------- -----------
Loss before extraordinary items and cumulative
effect of a change in accounting principle (991) (24,971) (784)
Extraordinary (loss) gain on early retirement of debt, net of income tax benefit
(provision) of $4,073, $(397) and $502,
respectively (6,262) 610 (772)
Cumulative effect of a change in accounting principle, net
of income tax benefit of $3,293 (6,426) -- --
----------- ----------- -----------
Net loss $ (13,679) $ (24,361) $ (1,556)
=========== =========== ===========
Net loss per common share (basic and diluted):
Loss before extraordinary items and cumulative
effect of a change in accounting principle $ (0.11) $ (4.31) $ (0.18)
Extraordinary items, net (0.67) 0.11 (0.17)
Cumulative effect of a change in accounting principle, net (0.69) -- --
----------- ----------- -----------
Net loss per common share $ (1.47) $ (4.20) $ (0.35)
=========== =========== ===========
Weighted average number of shares 9,333,527 5,795,676 4,440,692
</TABLE>
See accompanying notes to consolidated financial statements.
V-19
<PAGE> 138
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 27, 1997,
December 28, 1996 and December 30, 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
Additional
Common Stock paid-in Accumulated
Class A Class B capital deficit
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, December 25, 1994 $-- $ 23 $ 23,504 $ (984)
Issuance of 2,858,500 Class B shares -- 29 28,556 --
Acquisition and retirement of 23,000 Class B shares -- -- (222) --
Net loss -- -- -- (1,556)
Foreign-currency translation adjustments -- -- -- --
--- ---- --------- --------
Balance, December 30, 1995 -- 52 51,838 (2,540)
Issuance of 3,400,000 Class A shares, net 34 -- 43,193 --
Amendment to 1995 Option Plan -- -- 1,224 --
Issuance of 285,714 Class B shares to Onex -- 3 3,997 --
Conversion of subordinated notes payable to Onex
into 459,242 Class B shares -- 5 4,594 --
Issuance of 61,500 Class B shares -- -- 615 --
Acquisition and retirement of 20,000 Class B shares -- -- (205) --
Net loss -- -- -- (24,361)
Foreign-currency translation adjustments -- -- -- --
--- ---- --------- --------
Balance, December 28, 1996 34 60 105,256 (26,901)
Issuance of 33,799 Class A shares under the Employee
Stock Purchase Plan -- -- 204 --
Acquisition and retirement of 44,400 Class B shares -- (1) (554) --
Conversion of 62,700 Class B shares into 62,700 Class A
shares 1 (1) -- --
Compensation expense accrued under the 1997
Directors Stock Option Plan -- -- 28 --
Net loss -- -- -- (13,679)
Foreign-currency translation adjustments -- -- -- --
--- ---- --------- --------
Balance, December 27, 1997 $35 $ 58 $ 104,934 $(40,580)
=== ==== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
foreign-
currency
translation
adjustments Total
----------- -----
<S> <C> <C>
Balance, December 25, 1994 $-- $ 22,543
Issuance of 2,858,500 Class B shares -- 28,585
Acquisition and retirement of 23,000 Class B shares -- (222)
Net loss -- (1,556)
Foreign-currency translation adjustments 71 71
---- --------
Balance, December 30, 1995 71 49,421
Issuance of 3,400,000 Class A shares, net -- 43,227
Amendment to 1995 Option Plan -- 1,224
Issuance of 285,714 Class B shares to Onex -- 4,000
Conversion of subordinated notes payable to Onex
into 459,242 Class B shares -- 4,599
Issuance of 61,500 Class B shares -- 615
Acquisition and retirement of 20,000 Class B shares -- (205)
Net loss -- (24,361)
Foreign-currency translation adjustments (5) (5)
---- --------
Balance, December 28, 1996 66 78,515
Issuance of 33,799 Class A shares under the Employee
Stock Purchase Plan -- 204
Acquisition and retirement of 44,400 Class B shares -- (555)
Conversion of 62,700 Class B shares into 62,700 Class A
shares -- --
Compensation expense accrued under the 1997
Directors Stock Option Plan -- 28
Net loss -- (13,679)
Foreign-currency translation adjustments (98) (98)
---- --------
Balance, December 27, 1997 $(32) $ 64,415
==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
V-20
<PAGE> 139
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 27, 1997,
December 28, 1996 and December 30, 1995
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,679) $(24,361) $ (1,556)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization 11,231 10,937 12,693
Bad debt expense 2,275 1,682 1,845
Loss (gain) on early retirement of debt 10,335 (1,007) 1,274
Cumulative effect of a change in accounting principle 9,719 -- --
Deferred income tax benefit (8,978) (14,085) (1,749)
Loss on impairment of long-lived assets -- 15,733 --
Noncash contract-termination charges -- 5,224 --
Gain on sales of property and equipment (655) (154) (184)
Changes in operating assets and liabilities, net of effects of companies acquired
(Increase) decrease in accounts receivable (5,182) 9,067 (13,441)
(Increase) decrease in inventories (16,581) (3,608) 7,706
Increase in prepaid expenses and other assets (3,949) (13,854) (1,208)
Increase in accounts payable 23,046 12,262 43,518
(Decrease) increase in accrued and other noncurrent liabilities (25,952) 23,450 1,099
--------- -------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (18,370) 21,286 49,997
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (29,997) (19,987) (5,683)
Proceeds from sales of property and equipment 1,786 154 362
Payment for purchase of net assets acquired -- -- (170,279)
--------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES (28,211) (19,833) (175,600)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt to Onex -- (15,000) (2,085)
Repayments of long-term debt to others (589,701) (558,902) (578,813)
Borrowings on long-term debt from Onex -- -- 18,750
Borrowings on long-term debt from others 651,317 528,633 660,491
Fees incurred in conjunction with long-term debt (4,644) -- --
Proceeds from issuance of common stock to Onex -- 7,000 26,500
Proceeds from issuance of common stock to others -- 37,464 2,085
Payments to acquire and retire treasury stock (555) (205) (222)
--------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 56,417 (1,010) 126,706
--------- -------- ---------
Effect of exchange-rate changes on cash (98) (5) 71
--------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,738 438 1,174
--------- -------- ---------
Cash and cash equivalents at beginning of year 2,763 2,325 1,151
--------- -------- ---------
Cash and cash equivalents at end of year $ 12,501 $ 2,763 $ 2,325
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year
for:
Interest to Onex $ -- $ 2,927 $ 41
========= ======== =========
Interest to others $ 10,938 $ 16,435 $ 12,291
========= ======== =========
Income taxes, net of refunds $ -- $ -- $ 993
========= ======== =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In October 1997, the Company issued 33,799 Class A common shares to employees
under the 1997 Employee Stock Purchase Plan at $6.035 per share in exchange for
accrued compensation totaling $204.
During 1997, the Company recognized $28 of compensation expense associated with
the 1997 Directors Stock Option Plan.
See accompanying notes to consolidated financial statements.
V-21
<PAGE> 140
PROSOURCE, INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1997, December 28, 1996 and December 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE BUSINESS
ProSource, Inc. (the "Company") provides foodservice
distribution services to chain restaurants in North America
and provides purchasing and logistics services to the
foodservice market. The Company's 3,400 associates serve
approximately 12,700 restaurants, consisting primarily of
Burger King, Red Lobster, Long John Silver's, Olive Garden,
TGIFriday's, Chick-fil-A, Chili's, Sonic, TCBY and Wendy's
restaurant concepts, from 34 distribution centers and its
Corporate Support Center in Coral Gables, Florida.
The Company operates through ProSource Services Corporation
("PSC"), a wholly owned subsidiary, and PSC's four main
wholly-owned operating subsidiaries, ProSource Distribution
Services Limited ("ProSource Canada"), BroMar Services, Inc.
("BroMar"), ProSource Receivables Corporation ("PRC"), and PSD
Transportation Services, Inc. ("PSD"). PSC commenced
operations in July 1992. PRC and PSD commenced operations
during fiscal 1997. The consolidated financial statements
include the results of the operations of PSC, PRC and PSD from
their inception and the results of operations of ProSource
Canada and BroMar, which were formed or acquired by the
Company in connection with the acquisition of the National
Accounts Division ("NAD") of The Martin-Brower Company
("Martin-Brower"), since the date of acquisition. The Company
is a subsidiary of Onex Corporation (collectively with its
affiliates, "Onex"), a company traded on the Toronto and
Montreal stock exchanges.
The Company operates on a 52- to 53-week accounting year,
ending on the last Saturday of each calendar year.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Operations of the companies
and businesses acquired have been included in the accompanying
consolidated financial statements from their respective dates
of acquisition. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
V-22
<PAGE> 141
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) CASH AND CASH EQUIVALENTS
Cash on hand and in banks and short-term securities with
maturities of three months or less when purchased are
considered cash and cash equivalents.
(e) INVENTORIES
Inventories, consisting primarily of food items, are stated at
the lower of cost or net realizable value. Cost is determined
using the weighted-average-cost method and the first-in,
first-out method. Cost of inventory using the
weighted-average-cost method represents 34%, 32% and 32 % of
inventories in 1997, 1996, and 1995, respectively.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is computed using
the straight-line method over the estimated useful lives of
the related assets. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of
the lease term or estimated useful lives of the related
assets.
Costs of normal maintenance and repairs are charged to expense
when incurred. Replacements or betterments of properties are
capitalized. When assets are retired or otherwise disposed of,
their cost and the applicable accumulated depreciation and
amortization are removed from the accounts, and the resulting
gain or loss is reflected in the consolidated statements of
operations.
(g) INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method
over the following periods:
Goodwill 40 years
Noncompete agreements 5 years
Customer lists 12 years
Goodwill represents the excess of cost over fair value of net
assets acquired. The Company periodically evaluates the
recoverability of recorded costs for goodwill based upon
estimations of future undiscounted related operating income
from the acquired companies. Should the Company determine it
probable that future estimated undiscounted related operating
income from any of its acquired companies will be less than
the carrying amount of the associated goodwill, an impairment
of goodwill would be recognized, and goodwill would be reduced
to the amount estimated to be recoverable. The Company
believes that no material impairment existed at December 27,
1997 and December 28, 1996.
V-23
<PAGE> 142
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) DEFERRED DEBT-ISSUANCE COSTS
Included in other assets are deferred debt-issuance costs
which are amortized over the term of the related debt.
(i) SELF-INSURANCE
The Company self-insures up to certain retention limits under
its workers' compensation (except for a period during
1996-1997), auto liability and medical and dental insurance
programs. Costs in excess of retention limits are insured
under various contracts with insurance carriers. Estimated
costs for claims for which the Company is responsible are
determined based on historical claims experience, adjusted for
current trends. The liability related to workers' compensation
is discounted to net present value using a risk-free treasury
rate for maturities that match the expected settlement
periods. At December 27, 1997 and December 28, 1996, the
estimated accrued liabilities related to workers' compensation
were approximately $3.3 million and $4.4 million,
respectively, net of a discount of approximately $1.0 million
and $1.6 million, respectively.
(j) NET LOSS PER COMMON SHARE
In February 1997, Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" was issued. SFAS No.
128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform
with the requirements of SFAS No. 128.
(k) INCOME TAXES
The Company and its wholly-owned domestic subsidiaries file
consolidated federal and state tax returns in the United
States. Separate foreign tax returns are filed for the
Company's Canadian subsidiary. The Company follows the asset
and liability method of accounting for income taxes prescribed
by SFAS No. 109, "Accounting for Income Taxes". Under the
asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities.
The effect on deferred taxes of a change in tax rates is
recognized in income in the year that includes the enactment
date.
V-24
<PAGE> 143
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) TRANSLATION OF FOREIGN CURRENCY
The accounts of ProSource Canada are translated into U.S.
dollars in accordance with SFAS No. 52, "Foreign Currency
Translation". Consequently, all balance sheet accounts are
translated at the current exchange rate. Income and expense
accounts are translated at the average exchange rates in
effect during the year. Adjustments resulting from the
translation are included in accumulated foreign-currency
translation adjustments as a component of stockholders'
equity.
(m) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of
comprehensive income and its components. In June 1997, the
FASB also issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This
statement establishes standards for reporting information
about a company's operating segments and related disclosures
about its products, services, geographic areas of operations
and major customers. Both statements will be adopted by the
Company in 1998. Management believes the adoption of these
statements will not materially impact the Company's results of
operations, cash flows or financial position.
(n) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance
sheets for cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair
value because of their short-term maturities. The carrying
amounts reported for long-term debt approximate fair value
because they are variable-rate instruments that reprice
monthly.
(o) RECLASSIFICATIONS
Certain amounts previously presented in the financial
statements of prior years have been reclassified to conform to
the current year presentation.
(2) BUSINESS COMBINATIONS
On March 31, 1995, the Company completed the acquisition of
substantially all of the assets and the assumption of certain
liabilities of NAD from Martin-Brower. The total cost of the
acquisition of $170 million was funded through a borrowing of $116
million under the Company's previous revolving credit facility, a $9
million note payable to Martin-Brower (net of a discount to reflect a
constant interest rate), $18.5 million in notes payable to Onex, and
the issuance of 2,650,000 shares of the Company's Class B common stock,
valued at approximately $26.5 million. The acquisition has been
accounted for under the purchase method of accounting. The accompanying
consolidated financial statements include the assets acquired of
approximately $232 million, consisting primarily of accounts receivable
and inventories, and liabilities assumed of approximately $87 million,
V-25
<PAGE> 144
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(2) BUSINESS COMBINATIONS (CONTINUED)
consisting primarily of trade accounts payable, based on their
estimated fair values at the acquisition date. As a result of this
transaction, the Company recorded goodwill of approximately $25
million. In addition, the Company incurred an extraordinary charge
relating to the write-off of approximately $0.8 million of unamortized
deferred-debt issuance costs on debt repaid at the acquisition date.
On March 30, 1996, the Company revised its estimates of certain costs
related to the acquisition by $12 million. The effect of the revision
increased acquisition-related liabilities by $12 million, deferred tax
assets by approximately $4.4 million and goodwill by approximately $7.6
million. During 1997, the Company reviewed the adequacy of its reserve
associated with the NAD acquisition and concluded that the costs of
integrating NAD would be higher than originally anticipated,
principally due to employee related costs. As a result, in 1997 the
Company increased the acquisition reserve by reclassifying $3.4 million
from the restructuring reserve (see note 3). Management believes that
the recorded acquisition reserve at December 27, 1997 is sufficient to
cover all remaining costs associated with the integration of NAD.
(3) RESTRUCTURING, TERMINATION CHARGES AND IMPAIRMENT OF LONG-LIVED ASSETS
In conjunction with the NAD acquisition, the Company incurred
restructuring costs of approximately $0.7 million in 1995 primarily
relating to costs incurred to consolidate and integrate certain
functions and operations. In 1996, as a result of a study to analyze,
among other things, ways to integrate the NAD operations, improve
customer service, reduce operating costs and increase existing
warehouse capacity, the Company adopted a plan, which was approved by
its Board of Directors, to consolidate and integrate its corporate and
network operations, including the closing of 19 distribution facilities
under lease agreements and 11 owned distribution facilities. As a
result, in the first quarter of 1996, the Company accrued restructuring
charges of $10.9 million, primarily related to the termination of the
existing facility leases and employee related costs. The Company began
the integration of some of these facilities, including communications
to its employees and its customers in 1996. During 1997, the Company
undertook a thorough evaluation of each specific facility's return on
investment and alternative uses. As a result, the Company now intends
to close 10 distribution facilities currently leased and 9 distribution
facilities currently owned. The Company expects to complete the plan in
stages through the year 2002. During 1997 and 1996, the Company paid in
the aggregate $1.7 million and $2.8 million, respectively, in costs
primarily related to facility leases and relocation costs. In addition,
during 1997 the Company reclassified $3.4 million to acquisition
related liabilities, which had no impact on 1997 operating results. As
of December 27, 1997, the Company had approximately $3.0 million of
accrued unpaid restructuring charges. Management believes that the
remaining accrued restructuring charges, which consist primarily of
costs associated with the termination of existing facility leases, are
adequate to complete its plans.
The significant change brought about by the plan to integrate and
consolidate the existing distribution network impaired the value of
long-lived assets to be held and used until the plan is completed. As a
result, in conjunction with the recording of the restructuring reserves
in the first quarter of 1996, the Company recognized a loss on
impairment in value of long-lived assets. The loss consisted of $7.3
million of land and owned buildings, $4.3 million of furniture and
equipment and leasehold improvements management plans to hold and use
through the completion of the plan,
V-26
<PAGE> 145
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(3) RESTRUCTURING, TERMINATION CHARGES AND IMPAIRMENT OF LONG-LIVED ASSETS
(CONTINUED)
and $4.1 million of capitalized software costs which do not meet the
long-term information technology strategy of the Company. The Company
measured the amount of the loss by comparing fair value of the land and
the owned buildings (determined by independent appraisals and updated
with current comparisons to similar assets) to capitalized cost. The
carrying value of furniture and equipment and capitalized software
costs was written down to net realizable value since it is being
replaced.
The Company discontinued its distribution services to Arby's
restaurants effective April 1, 1997. In connection therewith, as of
December 28, 1996, the Company accrued approximately $10.6 million of
costs associated with the termination of this agreement. During 1997,
the Company paid and charged in the aggregate $9.1 million in costs
primarily related to lease costs in connection with idle equipment and
warehouse space and costs associated with rerouting the Company's
transportation fleet required as a result of the loss of the Arby's
business. In addition, the Company reclassified approximately $1.2
million to the allowance for doubtful accounts receivable to reserve
against outstanding Arby's accounts receivable. As of December 27,
1997, the Company had approximately $0.3 million of accrued unpaid
termination charges which management believes will be paid during 1998.
(4) PROPERTY AND EQUIPMENT
Property and equipment and related depreciable lives were as follows
(in thousands):
<TABLE>
<CAPTION>
December 27, December 28, Depreciable
1997 1996 Lives
----------- ------------ ---------------
<S> <C> <C> <C>
Land $ 3,662 $ 3,636 --
Buildings and improvements 17,092 16,413 15 to 40 years
Warehouse and transportation
equipment 25,592 24,465 3 to 10 years
Computer software 7,391 4,262 1 1/2to 5 years
Leasehold improvements 8,966 4,384 3 to 13 years
Office equipment 8,209 7,261 3 to 7 years
Projects in progress 18,456 11,760 --
------- -------
89,368 72,181
Less accumulated
depreciation 29,407 22,544
------- -------
and amortization
Property and equipment, net $59,961 $49,637
======= =======
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
V-27
<PAGE> 146
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
----------- ------------
<S> <C> <C>
Goodwill $41,298 $41,298
Identifiable intangibles 3,870 3,870
------- -------
45,168 45,168
Less accumulated amortization 5,285 3,732
------- -------
Intangible assets, net $39,883 $41,436
======= =======
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consisted of the following loan agreements with banks
(in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
------------ ------------
<S> <C> <C>
$150 million accounts receivable securitization facility,
due March 14, 2002 $125,000 $ --
$75 million revolving credit facility, due March 14, 2002 49,200 --
$210 million revolving credit facility, retired and repaid
March 14, 1997 -- 84,834
$15 million term-loan facility, retired and repaid
March 14, 1997 -- 12,750
$15 million term-loan facility, retired and repaid
March 14, 1997 -- 15,000
-------- --------
Total long-term debt 174,200 112,584
Less current portion -- 1,500
-------- --------
Long-term debt, less current portion $174,200 $111,084
======== ========
</TABLE>
(a) EXISTING CREDIT FACILITIES
In March, 1997, the Company entered into two five-year loan
agreements aggregating $225 million (the "Existing Credit
Facilities") with a group of financial institutions to replace
its previous credit facility. In connection with this early
retirement of long-term debt, the Company recorded a pre-tax
extraordinary charge of $10.3 million ($6.3 million net of
taxes) in the first quarter of fiscal 1997. This charge
reflected the write-off of deferred financing costs of $6.3
million, prepayment penalties of $2.7 million and $1.3 million
in costs associated with the termination of interest-rate
protection agreements.
The Existing Credit Facilities bear interest based on either
the prime rate or LIBOR plus an additional spread based on
certain financial ratios and mature on March 14, 2002. The
effective rate at December 27, 1997 was 7.34%. The Company is
required to comply with various covenants in connection with
the Existing Credit Facilities and borrowings are subject to
calculations based on accounts receivable and inventory. The
revolving credit facility is secured by liens on substantially
all of the Company's assets and contains various restrictions
on, among other things, the Company's ability to pay dividends
and dispose of assets. Additionally, in the event of a change
in control, the outstanding principal amount of these
facilities shall become due and payable. PRC is the legal
borrower for the accounts
V-28
<PAGE> 147
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(6) LONG-TERM DEBT(CONTINUED)
receivable securitization facility. Pursuant to the terms of
the accounts receivable securitization facility PSC sells, on
an ongoing basis and without recourse, an undivided interest
in a designated pool of trade accounts receivable to PRC. In
order to maintain the designated balance in the pool of
accounts receivable sold, PSC is obligated to sell undivided
interests in new receivables as existing receivables are
collected. PSC has retained substantially the same credit risk
as if the receivables had not been sold. PSC, as agent for
PRC, retains collection and administrative responsibilities on
the receivables sold to PRC. The creditors for this facility
have security interests in PRC's assets (consisting primarily
of accounts receivable purchased from PSC) and are entitled to
be satisfied by such assets prior to equity holders. The
Company pays a quarterly variable commitment fee, as defined
in the agreements, based on the unused portion of the
facilities which fee averaged 0.33% of such unused portion
during 1997. At December 27, 1997, the Company had
approximately $35 million available under the Existing Credit
Facilities.
(b) PREVIOUS CREDIT FACILITY
On March 31, 1995, in conjunction with the acquisition of NAD,
the Company entered into a $240 million Loan and Security
Agreement (the "Previous Credit Facility") with a group of
banks that was retired and repaid before its maturity on March
14, 1997. The Previous Credit Facility provided for a
revolving-credit facility of up to $210 million and term loans
aggregating $30 million. The interest rate on the Previous
Credit Facility was reset every month to reflect current
market rates. The effective rate during fiscal 1996 and 1995
was 8.7 percent. This rate reflected the effect of
interest-rate protection agreements, which were terminated on
March 14, 1997 in connection with the retirement of this
facility.
(7) LEASES
The Company leases certain of its facilities, vehicles and other
equipment under long-term operating leases. Certain transportation
equipment leases call for contingent rental payments based upon total
miles. Future minimum lease payments under non-cancelable operating
leases as of December 27, 1997, by fiscal year are as follows (in
thousands):
<TABLE>
<S> <C>
1998 $ 28,600
1999 25,183
2000 22,222
2001 18,342
2002 13,581
Thereafter 36,315
--------
Total $144,243
========
</TABLE>
Rent expense, including contingent rental expense, was approximately
$36.8 million, $39.3 million and $30.6 million during fiscal years
1997, 1996 and 1995, respectively.
V-29
<PAGE> 148
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(8) INCOME TAXES
The income tax benefit (provision) before extraordinary items and
cumulative effect of a change in accounting principle for fiscal years
1997, 1996 and 1995, respectively, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current taxes:
Federal $ (582) $ 937 $ (1,236)
State (545) (9) (408)
-------- -------- --------
Total current taxes (1,127) 928 (1,644)
-------- -------- --------
Deferred taxes, excluding other components:
Federal 1,170 11,449 1,126
State 404 3,217 264
-------- -------- --------
Total deferred taxes, excluding
other components 1,574 14,666 1,390
-------- -------- --------
Other:
Alternative minimum tax-credit
(utilization) carryforwards 38 (184) 666
Utilization of operating-loss -- (497)
-------- --------
carryforwards --
--------
Total other 38 (184) 169
-------- -------- --------
Income tax benefit (provision) $ 485 $ 15,410 $ (85)
======== ======== ========
</TABLE>
The following table summarizes the differences between the Company's
effective income tax rate and the statutory Federal income tax rate for
fiscal years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes (net of federal taxes) 5.0 5.2 (16.9)
Goodwill amortization (0.7) (0.3) (10.9)
Other (5.4) (0.7) (18.4)
------ ------ ------
32.9% 38.2% (12.2)%
====== ====== ======
</TABLE>
V-30
<PAGE> 149
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(8) INCOME TAXES (CONTINUED)
The tax effects of each type of temporary difference that gave rise to
the Company's deferred tax assets and deferred tax liabilities at
December 27, 1997 and December 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Acquisition-related expenses $ 1,262 $ 3,567
Accounts receivable, principally due to allowance for
doubtful accounts 2,011 1,222
Property, plant and equipment, principally due to
differences in depreciation 1,063 1,935
Self-insurance reserves 3,355 3,493
Impairment of long-lived assets 3,231 4,036
Restructuring and contract-termination charges 3,224 8,121
Benefit of federal and state net operating-loss
carryforwards 23,933 5,797
Other 2,682 2,025
-------- --------
Total deferred tax assets 40,761 30,196
Less valuation allowance -- --
-------- --------
Total deferred tax assets, net $ 40,761 $ 30,196
======== ========
Deferred tax liabilities:
Computer software $ (3,225) $ (1,811)
Acquisition-related liabilities (1,138) (803)
Other (406) (568)
-------- --------
Total deferred tax liabilities (4,769) (3,182)
-------- --------
Net deferred tax assets $ 35,992 $ 27,014
======== ========
</TABLE>
In order to fully realize the net deferred tax assets at December 27,
1997, the Company will need to generate future taxable income of
approximately $90 million. Management believes that it is more likely
than not that the Company's deferred tax asset will be realized as a
result of future taxable income, expected to be generated based on the
Company's reasonable projections of future earnings. The Company
anticipates that increases in taxable income will result primarily from
(i) future projected revenue and gross margin growth through the
addition of new restaurant chains and the expansion of services
provided to new and existing restaurant chains, (ii) a reduction in
interest expense due to a reduction in its indebtedness, (iii) cost
savings through its corporate and network consolidation plan and (iv)
other cost-reduction initiatives. In addition, management believes
reasonable tax planning strategies and other potential transactions
will be available that could be used to realize the deferred tax asset
before the expiry of any material net operating losses, which will not
begin to occur until after 2010.
V-31
<PAGE> 150
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(8) INCOME TAXES (CONTINUED)
At December 27, 1997 and December 28, 1996, other current assets
included income taxes receivable of approximately $0.4 million and $1.5
million, respectively, which consisted primarily of overpayments of tax
liabilities and pending carryback refund claims. United States federal
income tax returns for fiscal years 1992 and 1993 are currently under
examination by the Internal Revenue Service. A preliminary assessment
is pending which is not material to the consolidated financial position
or results of operations as of December 27, 1997.
(9) EMPLOYEE BENEFIT PLANS
(a) DEFINED-CONTRIBUTION PLANS
On January 1, 1997, the Company's defined contribution plan,
which covers substantially all employees, was renamed the
ProSource Retirement Advantage Plan. Eligible employees can
contribute up to 15% of base compensation, with the following
benefits: (i) Company contributions of 2 percent, (ii)
additional Company matching of 50 percent of the first 6
percent contributed by the employee, and (iii) vesting of
Company contributions ratably over four years of service.
The Company also had a Money Purchase Plan which covered those
former NAD salaried employees not covered by a defined-benefit
plan. Under this plan, the Company contributed 10 percent of
eligible salary. The Money Purchase Plan was terminated
effective December 1996.
The amount of contribution expense incurred by the Company for
these plans was approximately $1.5 million, $2.7 million and
$2.2 million for fiscal years 1997, 1996 and 1995,
respectively.
(b) DEFINED-BENEFIT PENSION PLANS
In conjunction with the changes to the ProSource Retirement
Advantage Plan in 1997, the Company terminated all three
noncontributory defined-benefit pension plans covering
substantially all employees except those covered by
multiemployer pension plans under collective-bargaining
agreements. The Company settled all pension obligations
related to these terminated plans in 1997 through (i) the
purchase of annuities, (ii) lump-sum payments, or (iii) the
transfer of plan benefits into the ProSource Retirement
Advantage Plan, at the participant's discretion. In 1997, the
Company recognized no gain or loss associated with the
termination of these defined-benefit pension plans. At
December 27, 1997, the Company's remaining accrual of $9,000
combined with excess plan assets of approximately $46,000 are
expected to cover any remaining costs relating to the
termination of these plans.
Pension costs of approximately $1.1 million and $0.9 million
reflected in the consolidated statements of operations for
fiscal years 1996 and 1995, respectively, were determined
based on actuarial studies. The Company's pension expense for
contributions to the various
V-32
<PAGE> 151
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
multiemployer pension plans under collective-bargaining
agreements was approximately $1.1 million, $1.2 million, and
$0.9 million for fiscal years 1997, 1996 and 1995,
respectively.
(10) STOCKHOLDERS' EQUITY
Under the ProSource, Inc. Employee Stock Purchase Plan (the "Stock
Plan"), officers and key employees of the Company ("Management
Employees") purchased a total of 408,100 shares of Class B common stock
at $10.00 per share in 1992, 132,500 shares of Class B common stock at
$11.00 per share in 1993 and 1994, and 270,000 shares of Class B common
stock at $10.00 per share in 1995 and 1996. In connection with the
purchases of Class B common stock, each Management Employee entered
into a Management Shareholders Agreement with the Company and Onex.
The ProSource, Inc. Amended Management Option Plan (1995) (the "1995
Option Plan") provides certain Management Employees with options to
purchase one-half the number of shares of Class B common stock
purchased under the Stock Plan at the same price per share paid by such
stockholder (either $10.00 or $11.00). Subject to the 1995 Option Plan,
options granted under the 1995 Option Plan are exercisable until
December 31, 2000. No additional options will be granted under the 1995
Option Plan. The 1995 Option Plan was amended in November 1996 to
provide that all unvested options vest at a rate of 10% per year
through December 31, 1999, when all remaining options vest. As a
result, the Company recorded a pretax charge in 1996 of $1.2 million
reflecting the difference between the market price of the Company's
Class A common stock on the date of amendment and the exercise price of
such options.
Under the 1996 Stock Option Plan (the "1996 Option Plan"), the Company
may grant options to its employees for up to 550,000 shares of Class B
common stock. In 1997 and 1996, the Company granted options to purchase
16,000 and 358,000 shares, respectively, of Class B common stock at
$14.00 per share. Options under the 1996 Option Plan vest ratably over
four years from the date of grant. These options cannot be exercised,
however, until the earlier of (i) the date on which the market value of
the Company's common stock is 25% greater than the exercise price and
(ii) the eighth anniversary of the date of grant. Subject to the
provisions of the 1996 Option Plan, vested options may be exercised for
a period of up to 10 years from the date of grant.
Under the ProSource, Inc. 1997 Directors Stock Option Plan (the "1997
Directors Plan"), which was approved by the shareholders in April 1997,
the Company may grant options to its directors, who so elect to receive
such options in lieu of fees, to purchase shares of Class A common
stock at $4.00 per share below the stated fair market value on the date
of grant. Options to purchase up to 100,000 shares of Class A common
stock may be granted under this plan. In April 1997, the Company
granted options to purchase 10,500 shares of Class A common stock at
$5.25 per share. Options under the 1997 Directors Plan vest and become
exercisable one year from the date of grant, provided that the holder
thereof is still a director of the Company at such time. Subject to the
provisions of the 1997 Directors Plan, options may be exercised for a
period of up to 10 years after the vesting date. During the year ended
December 27, 1997, the Company recognized $28,000 of compensation
expense associated with this plan.
V-33
<PAGE> 152
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(10) STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's three option plans for the
years ended December 27, 1997, December 28, 1996, and December 30, 1995
is as follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
1997 Exercise 1996 Exercise 1995 Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding -
beginning 706,450 $ 12.10 327,700 $ 10.16 237,450 $ 10.22
Options granted 26,500 10.53 388,750 13.69 101,750 10.00
Options exercised -- -- (125) 10.00 -- --
Options canceled (93,300) 11.91 (9,875) 10.00 (11,500) 10.00
-------- -------- -------- -------- -------- --------
Options outstanding -
ending 639,650 $ 12.06 706,450 $ 12.10 327,700 $ 10.16
======== ======== ======== ======== ======= ========
Options exercisable -
year-end 176,449 $ 11.86 78,401 $ 10.13 41,500 $ 10.12
======== ======== ======== ======== ======== ========
</TABLE>
The following table summarizes information about stock options
outstanding at December 27, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------- ------------------------------
Number Weighted Avg. Number
Exercise Outstanding Remaining Weighted Avg. Exercisable Weighted Avg.
Prices at 12/27/97 Contractual Life Exercise Price at 12/27/97 Exercise Price
------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 5.25 10,500 9 years $ 5.25 - $ 5.25
10.00 262,100 3 years 10.00 87,034 10.00
11.00 33,050 3 years 11.00 9,915 11.00
14.00 334,000 9 years 14.00 79,500 14.00
------- ------- -------- ------ --------
Totals 639,650 6 years $ 12.06 176,449 $ 11.86
======= ======= ======== ======= ========
</TABLE>
During fiscal year 1996, the Company adopted SFAS No. 123. Under the
provisions of the new standard, the Company elected to continue using
the intrinsic-value method of accounting for stock-based compensation
plans granted to employees under Accounting Principles Board Opinion
No. 25 and provide pro-forma disclosure for the fair-value based method
of accounting for compensation costs related to stock-option plans and
other forms of stock-based compensation under SFAS No.
123.
The Company estimated the weighted-average fair value of each option
granted during 1997, 1996 and 1995 at $5.41, $7.34 and $8.27,
respectively. The fair value of these options was computed at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997, 1996 and 1995, respectively:
risk-free interest rates of 6.3%, 6.2% and 6.3%; dividend yields of
0.0% for all years presented, volatility factors of the expected market
price of the Company's common stock of 33.0% for all years presented
and a weighted-average expected life of the options of 5, 7 and 7
years, respectively.
V-34
<PAGE> 153
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(10) STOCKHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in
computing the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the computed fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except per share
data).
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss $ (13,943) $ (23,817) $ (1,587)
Pro forma net loss per share - basic and diluted $ (1.49) $ (4.10) $ (0.35)
</TABLE>
In conjunction with the acquisition of NAD, the Company issued warrants
to Martin-Brower. At December 27, 1997 and December 28, 1996, the
warrants were exercisable for 283,425 shares of Class B common stock at
$12.35 per share during the period from April 1, 1997 through March 31,
2000, and upon consummation of certain transactions.
On November 15, 1996, the Company completed the issuance of 3,400,000
shares of Class A common stock (at a price of $14.00 per share) through
an initial public offering, resulting in net proceeds to the Company of
approximately $43.2 million, after deducting underwriting discounts and
commissions, and other offering costs of approximately $4.4 million.
The net proceeds of the offering were used: (i) to prepay $15 million
in outstanding principal and $1.1 million in accrued interest under a
subordinated note payable to Onex; (ii) to prepay, at a discount, $10
million in outstanding principal and $0.1 million in accrued interest
under a subordinated note payable to Martin-Brower for a total payment
of $9.2 million and (iii) to repay $16.6 million of outstanding
indebtedness under the Company's revolving-credit facility, after
deducting a $1.3 million payment concurrent with the offering for the
termination of a consulting agreement between the Company and certain
former owners of an acquired company. Also in connection with the
initial public offering, the Company incurred a noncash charge of $4
million resulting from the issuance to Onex of 285,714 shares of Class
B common stock valued at the initial public-offering price in exchange
for the agreement of Onex to relinquish its rights to receive an annual
fee, previously paid in cash, for management services rendered to the
Company.
Under the ProSource, Inc. 1997 Employee Stock Purchase Plan, which was
approved by the shareholders in April 1997, employees of the Company
purchased a total of 33,799 shares of Class A common stock at $6.035
per share in 1997. In January 1998, an additional 30,336 shares of
Class A common stock were purchased by employees at $6.035 per share
under this plan.
V-35
<PAGE> 154
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(11) CONTINGENCIES AND GUARANTEES
The Company has guaranteed the principal due on certain loans obtained
by its officers and employees in connection with the purchase of common
stock under the Stock Plan. At December 27, 1997, such guarantees
amounted to approximately $0.8 million and were covered by a letter of
credit. At December 27, 1997, the Company was also obligated for $15.0
million in other letters of credit issued on behalf of the Company
primarily as a guarantee of payment for obligations arising from
workers' compensation claims. At December 27, 1997, the Company had
$9.2 million available in unused letters of credit under its Existing
Credit Facilities.
The Company and its subsidiaries are parties to various legal actions
arising in the ordinary course of business. Management believes that
the outcome of such cases will not have a material adverse effect on
the consolidated results of operations or the financial position of the
Company.
(12) CONCENTRATIONS OF CREDIT RISK
Burger King Corporation ("BKC") owned and franchisee-owned Burger King
restaurants collectively accounted for 46%, 41% and 45% of the
Company's sales in fiscal years 1997, 1996 and 1995, respectively.
Sales to BKC-owned restaurants represented approximately 5% of sales
for each of the aforementioned years. Amounts due from BKC-owned
restaurants at December 27, 1997 and December 28, 1996 were $5.8
million and $5.5 million, respectively.
In addition, sales to Darden Restaurants, Inc. (owner of Red Lobster
and Olive Garden restaurants) accounted for 21%, 20%, and 18% of the
Company's sales in fiscal years 1997, 1996 and 1995, respectively.
Amounts due from Darden Restaurants, Inc. at December 27, 1997 and
December 28, 1996, were approximately $41.4 million and $41.1 million,
respectively.
Sales to Arby's restaurants (primarily franchisee-owned) accounted for
10% of Company sales in fiscal years 1996 and 1995. No other customer
or restaurant concept accounted for more than 10% of the Company's
sales in fiscal years 1997, 1996 or 1995. The Company periodically
performs credit evaluations on its customers' financial condition and
generally does not require collateral.
(13) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
During the fourth quarter of 1997, the Financial Accounting Standards
Board's Emerging Issues Task Force reached a consensus on Issue No.
97-13, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project that Combines Business Process
Reengineering and Information Technology Transformation." The consensus
requires that the cost of business process reengineering activities,
whether done internally or by third parties, is to be expensed as
incurred. As a result, any remaining unamortized portion of previously
capitalized business process reengineering costs is required to be
written off. The cumulative impact of initially conforming to this new
standard in the fourth quarter of 1997 was reported as a change in
accounting principle in the accompanying consolidated statements of
operations, with a cumulative charge, net of tax, of $6.4 million, or
$0.69 per share.
V-36
<PAGE> 155
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(14) NET LOSS PER SHARE
For all years presented in the accompanying consolidated statements of
operations, all stock options and other potential common shares were
excluded from the calculation of diluted loss per share, since they
would produce anti-dilutive results. As a result, there are no
reconciling items to the numerator and denominator of the basic and
diluted loss per share computations.
The following were outstanding during fiscal 1997, but were excluded
from the computation of diluted net loss per common share for fiscal
1997.
<TABLE>
<CAPTION>
Related Number of Conversion
Common Stock Shares Price per Share Expiration
------------------- --------------- ----------
<S> <C> <C> <C>
Options - 1995 Option Plan 288,650 shares - Class B $10.00 or $11.00 December 2000
Options - 1996 Option Plan 340,500 shares - Class B $14.00 November 2006 to January 2007
Options - 1997 Director's Plan 10,500 shares - Class A $ 5.25 April 2007
Stock Warrants 283,425 shares - Class B $12.35 March 2000
$0.5 million convertible 25,000 shares - Class A
subordinated note $20.00 November 1999
</TABLE>
(15) SUBSEQUENT EVENT
On January 29, 1998, the Company signed a definitive merger agreement
with AmeriServe Food Distribution, Inc. ("AmeriServe"). Under the terms
of the agreement, AmeriServe has agreed to pay $15.00 in cash for each
outstanding share of the Company's common stock. In addition, under the
agreement, all outstanding options will be accelerated and option
holders will receive $15.00 less the applicable exercise for each share
issuable upon exercise of the options. AmeriServe has indicated that it
intends to refinance all of the Company's outstanding debt.
The merger is subject to regulatory approvals and other customary
conditions to closing. Onex Corporation and certain of its affiliates,
which own approximately 61% of the Company's outstanding stock,
representing approximately 85% of the voting power, have committed to
vote in favor of the merger, which will assure the necessary
shareholder approval. The merger is expected to close in the second
quarter of fiscal 1998.
V-37
<PAGE> 156
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
ProSource, Inc.:
Under date of February 20, 1998, we reported on the consolidated balance sheets
of ProSource, Inc. and subsidiaries as of December 27, 1997 and December 28,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 27, 1997, which are included in the Company's Annual Report on Form
10-K. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedules in the
Company's Annual Report on Form 10-K. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
/s/KMPG PEAT MARWICK LLP
Miami, Florida
February 20, 1998
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<PAGE> 157
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS INFORMATION
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 689 $ 670
Due from subsidiaries ................................. 2,621 2,936
--------- ---------
Total current assets ........................ 3,310 3,606
Investment in subsidiaries .................................. 58,735 72,526
Deferred income taxes ....................................... 2,387 2,383
--------- ---------
Total assets ................................ $ 64,432 $ 78,515
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities ................................... $ 17 $ --
--------- ---------
Total current liabilities ............................. 17 --
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock ....................................... -- --
Class A Common Stock .................................. 35 34
Class B Common Stock .................................. 58 60
Additional paid-in capital ............................ 104,934 105,256
Accumulated deficit ................................... (40,580) (26,901)
Accumulated foreign currency translation adjustments .. (32) 66
--------- ---------
Total stockholders' equity .................. 64,415 78,515
--------- ---------
Total liabilities and stockholders' equity .. $ 64,432 $ 78,515
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL INFORMATION.
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<PAGE> 158
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DEFICIT) INFORMATION FOR THE YEARS ENDED DECEMBER 27, 1997,
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(52 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Revenues ................................................................... $ -- $ -- $ --
Operating expenses ......................................................... -- -- (3)
Contract termination charges ............................................... -- (5,224) --
Interest expense ........................................................... -- (748) (729)
Interest income ............................................................ 18 33 53
Equity in losses of subsidiaries ........................................... (13,693) (21,418) (1,294)
-------- -------- --------
Loss before income taxes and extraordinary item ......................... (13,675) (27,357) (1,973)
Income tax (provision) benefit ............................................. (4) 2,386 417
-------- -------- --------
Loss before extraordinary item .......................................... (13,679) (24,971) (1,556)
Gain on early retirement of debt net of tax provision of $397 ............. -- 610 --
-------- -------- --------
Net loss ................................................................ (13,679) (24,361) (1,556)
Retained earnings (deficit), beginning of year ............................. (26,901) (2,540) (984)
-------- -------- --------
Retained earnings (deficit), end of year ................................... $(40,580) $(26,901) $ (2,540)
======== ======== ========
</TABLE>
See accompanying notes to condensed financial information.
V-40
<PAGE> 159
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOW INFORMATION
FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND
DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(52 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................................... $(13,679) $(24,361) $ (1,556)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Undistributed losses of subsidiaries .................................. 13,693 21,418 914
Contract termination charges .......................................... -- 5,224 --
Dividends received from subsidiaries .................................. -- -- 7,208
Deferred income taxes ................................................. (4) (1,989) (103)
Gain on early retirement of debt ...................................... -- (1,007) --
Amortization of note discount ......................................... -- 740 592
Changes in operating assets and liabilities:
Decrease in other current assets .................................... -- -- 58
Increase (decrease) in accrued liabilities .......................... 17 (110) 100
-------- -------- --------
Net cash provided by (used in) operating activities ............... 27 (85) 7,213
-------- -------- --------
Cash flows from investing activities:
Capital contributions to subsidiaries ................................... -- (31,802) (38,897)
Advances to/from subsidiaries ........................................... 90 (2,870) (7,170)
-------- -------- --------
Net cash provided by (used in) investing activities ............... 90 (34,672) (46,067)
-------- -------- --------
Cash flows from financing activities:
Issuance of long-term debt .............................................. -- -- 12,326
Repayments of long-term debt ............................................ -- (9,766) (2,085)
Proceeds from issuance of common stock .................................. -- 44,464 28,585
Payments to acquire and retire treasury stock ........................... -- (205) (222)
-------- -------- --------
Net cash provided by financing activities ........................... -- 34,493 38,604
-------- -------- --------
Effect of exchange-rate changes on cash .................................... (98) (5) 71
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................ 19 (269) (179)
Cash and cash equivalents, beginning of year ............................... 670 939 1,118
-------- -------- --------
Cash and cash equivalents, end of year ..................................... $ 689 $ 670 $ 939
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................................ $ -- $ -- $ 41
======== ======== ========
Income taxes, net of refunds ........................................ $ -- $ -- $ 1
======== ======== ========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In October 1997, the parent issued 33,799 Class A common shares to
employees under the 1997 Employee Stock Purchase Plan at $6.035 per share in
exchange for a reduction in advances owed by subsidiaries of $204.
During 1997, the parent recognized $28 of compensation expense (included in
equity in losses of subsidiaries) associated with the 1997 Directors Stock
Option Plan.
During 1997, the parent retired treasury stock totalling $555 in exchange
for a reduction in advances owed by subsidiaries. A subsidiary remitted this
amount to the affected stockholders.
See accompanying notes to condensed financial information.
V-41
<PAGE> 160
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(1) BASIS OF PRESENTATION
In the parent company-only financial statements, the Company's
investment in subsidiaries is stated at cost plus equity in undistributed
earnings (losses) of subsidiaries since the date of acquisition. The parent
company-only financial statements should be read in conjunction with the
ProSource, Inc. consolidated financial statements.
(2) STOCKHOLDERS' EQUITY
In November 1996, the Parent changed its capital structure to
10,000,000 authorized shares of $0.01 par value Preferred Stock, 50,000,000
authorized shares of $0.01 par value Class A Common Stock and 10,000,000
authorized shares of $0.01 par value Class B Common Stock. Each share of Class A
Common Stock is entitled to one vote per share and each share of Class B Common
Stock is entitled to ten votes. In addition, each share of Class B Common Stock
is convertible at the option of the holder thereof into one share of Class A
Common Stock and will automatically convert into one share of Class A Common
Stock upon certain events.
In November 1996, the Parent's board of directors declared a 100-to-1
stock split. The Parent's additional paid-in capital account and the Class B
Common Stock account have been restated to retroactively reflect the stock
split.
On November 15, 1996, the Parent completed the issuance of 3,400,000
shares of Class A Common Stock (at a price of $14 per share) through an initial
public offering, resulting in net proceeds of approximately $43.2 million, after
deducting underwriting discounts and commissions, and other offering costs of
approximately $4.4 million. The net proceeds of the offering were partially used
to pay a $10 million subordinated note and the remainder was advanced as a
capital contribution to ProSource Services Corporation, a wholly-owned
subsidiary.
(3) TERMINATION OF CONTRACT AGREEMENTS
In connection with the initial public offering, the Parent incurred a
noncash charge of $4 million resulting from the issuance to Onex of 285,714
shares of Class B Common Stock valued at the initial public offering price in
exchange for the agreement of Onex to relinquish its right to receive an annual
fee, previously paid in cash, for management services rendered to the Company.
In November 1996, the Parent amended the ProSource, Inc. Management
Option Plan (1995) to provide for unvested options to vest at a rate of 10% per
year through December 31, 1999, when all remaining options will vest. In
connection with this amendment, the Parent Company recorded a pre-tax charge of
$1.2 million reflecting the difference between the market price of the Company's
Class A Common Stock on the date of amendment and the exercise price of such
options.
V-42
<PAGE> 161
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION (CONTINUED)
DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(4) RECLASSIFICATION
Certain amounts previously presented in the financial statements of
prior years have been reclassified to conform to the current year presentation.
V-43
<PAGE> 162
PROSOURCE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 30, 1995,
DECEMBER 28, 1996 AND DECEMBER 27,
1997 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<S> <C>
BALANCE, December 31, 1994 ..................... $ 2,911
Acquired allowance of NAD ............. 1,893
Additions charged to costs and expenses 1,845
Recoveries ............................ 153
Write-offs ............................ (4,217)
-------
BALANCE, December 30, 1995 ..................... $ 2,585
Additions charged to costs and expenses 1,682
Recoveries ............................ 709
Write-offs ............................ (2,642)
-------
BALANCE, December 28, 1996 ..................... $ 2,334
Additions charged to costs and expenses 2,275
Recoveries ............................ 268
Reclassifications ..................... 1,160
Write-offs ............................ (1,952)
-------
BALANCE, December 27, 1997 ..................... $ 4,085
=======
</TABLE>
V-44
<PAGE> 163
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ----- -------- ----------------------------------
<S> <C> <C>
David R. Parker 54 Chairman of the Board of Directors
Thomas C. Highland 56 President, Chief Executive Officer and Director
Daniel J. Adzia 55 Vice-Chairman, Chief Marketing Officer and Director
Gerald W. Schwartz 55 Director
Anthony R. Melman 50 Director
Michael Carpenter 50 Director
Anthony Munk 37 Director
C. Lee Johnson 65 Director
R. Geoffrey P. Styles 67 Director
William F. Evans 50 Executive Vice President, Chief Financial Officer
Robert S. Donaldson 42 Executive Vice President, Chief Operating Officer, ProSource
Distribution Operations
Paul A. Garcia de Quevedo 43 Vice President, Treasurer and Secretary
Maurice L. Ambler 50 Senior Vice President, Human Resources
Dennis T. Andruskiewicz 44 Senior Vice President, Operations Support
Bruce O. Burnham 54 Senior Vice President, Procurement and Supply Chain Services
John E. Foley 48 Senior Vice President, Chief Information Officer
John P. Gainor 40 Senior Vice President, Logistics and Chief Operating Officer,
PSD Transportation Services
</TABLE>
David R. Parker Mr. Parker has served as Chairman of the Board of
Directors since the formation of the Company in 1992. From July 1, 1991 to July
1, 1992, Mr. Parker was an independent investor, working primarily on the
formation of the Company and the acquisition of BKDS from BKC. Prior to such
time, he was Senior Executive Vice President of Ryder System, Inc. and President
of the Vehicle Leasing and Services Division. Previously, he was Chief Operating
Officer of Ryder's Business Services Group which included the company's
worldwide aviation support businesses and its insurance management services
businesses. Before joining Ryder System in 1984, Mr. Parker was Executive Vice
President and Sector Executive of American Can Company (Primerica). Mr. Parker
serves on the Boards of Directors of Premark International, Inc., SunTrust Bank,
Miami, N.A. and Tupperware Corporation.
Thomas C. Highland Mr. Highland has served as President, Chief
Executive Officer and a Director of the Company since its formation in 1992.
Before serving in this capacity, Mr. Highland was President of BKDS from 1988 to
1992. Prior thereto, he held various executive positions at Warner Lambert
Company, including Vice President, U.S. Distribution, Director, Distribution
Operations, Pharmaceutical Group and Director, Distribution Center Operations
from 1963 to 1988.
V-45
<PAGE> 164
Daniel J. Adzia Mr. Adzia has served as Vice-Chairman, Chief Marketing
Officer of the Company since the acquisition of NAD in March 1995 and a Director
of the Company since April 1995. From 1975 to 1995, Mr. Adzia served in various
executive capacities at Martin-Brower including President of NAD. Prior to
joining Martin-Brower, Mr. Adzia held various sales and sales management
positions with Oscar Mayer & Co.
Gerald W. Schwartz Mr. Schwartz has served as a Director of the Company
since its formation in 1992. Mr. Schwartz is Chairman of the Board, President
and Chief Executive Officer of Onex Corporation and has served in such capacity
since its formation in 1983. Mr. Schwartz serves on the Board of Directors of
Alliance Communications Corporation. He is Vice-Chairman and Member of the
Executive Committee of Mount Sinai Hospital and is a Director or Governor of a
number of other organizations, including Junior Achievement, Canadian Council of
Christians and Jews, and The Starlight Foundation.
Anthony R. Melman Mr. Melman has served as a Director of the Company
since its formation in 1992. Mr. Melman has been Vice President of Onex
Corporation since 1984. Prior to joining Onex, Mr. Melman held various executive
positions at Canadian Imperial Bank of Commerce and Union Acceptances Limited, a
South African merchant banking organization. Mr. Melman serves on the Board of
Directors of Purolator Courier Ltd., Celestica, Inc., BT Bank of Canada and
AlphaNet Telecom, Inc.
Michael Carpenter Mr. Carpenter has served as a Director of the Company
since October 1992. Since January 1995, he has been Chairman and Chief Executive
Officer of Travelers Life and Annuity Company. He also serves as Executive Vice
President of Travelers Group, Inc., responsible for business development and
planning. Mr. Carpenter was Chairman of the Board, President and Chief Executive
Officer of Kidder, Peabody Group Inc., a wholly owned subsidiary of General
Electric Company from January 1989 to June 1994. Mr. Carpenter serves on the
Board of Directors of General Signal, Inc., a diversified manufacturing company.
Anthony Munk Mr. Munk has served as a Director of the Company since
January 1995. He joined Onex Corporation in April 1988, and is currently a Vice
President. During the period January 1995 to September 1995, Mr. Munk served as
Senior Vice President of The Horsham Corporation, a Canadian based company which
has interests in gold, real estate and refining ventures, and is currently a
Director of Barrick Gold Corporation.
C. Lee Johnson Mr. Johnson has served as a Director of the Company
since October 1992. Since October 1997, he has been President Emeritus of
Limited Distribution Services (a subsidiary of The Limited, Inc.), where he was
President from 1986 to 1997. From 1984 to 1986, he was Senior Vice President,
Beatrice U.S. Food Corporation and the President, Beatrice Distribution, Inc.
Mr. Johnson serves on the Executive Committee and Board of Directors of the
Columbus Chamber of Commerce.
R. Geoffrey P. Styles Mr. Styles has served as a Director of the
Company since October 1992 and is a director of Onex Corporation. From
1990-1996, he served as Chairman of the Board of Directors of Drivers Jonas
(Canada) Ltd. He serves as Chairman and Director of Grosvenor International
Holdings Limited and is on the Boards of Directors of Royal Trust Company, The
Geon Company, Echo Bay Mines Ltd., Fairwater Capital Corporation and Working
Ventures Canadian Fund Inc.
William F. Evans Mr. Evans has served as Executive Vice President,
Chief Financial Officer of the Company since July 1995. Prior to joining the
Company, he was the Senior Vice President, Corporate Operations of H&R Block,
Inc. from August 1992 to June 1995. Prior to 1992, Mr. Evans served in executive
capacities at D&B Software Services, Inc. from 1990 to 1992, Management Science
America, Inc.
V-46
<PAGE> 165
from 1989 to 1990 and Electromagnetic Sciences, Inc. from 1985 to 1989. From
June 1980 to November 1985, Mr. Evans served as a partner of KPMG Peat Marwick
LLP, the Company's independent auditors. Mr. Evans serves as a Director of
Interim Services, Inc. Mr. Evans is a certified public accountant.
Robert S. Donaldson Mr. Donaldson has served as Executive Vice
President Chief Operating Officer, ProSource Distribution Operations since
January 1998. From January 1995 to January 1998, he served as Senior Vice
President, Field Operations of the Company. From January 1993 to December 1994,
he served as Vice President of Business Development of the Company. Prior to
joining the Company, Mr. Donaldson was the President of Institution Food House,
Inc., a broadline foodservice distributor from 1986 to 1993 and Vice President
of Sky Brothers, Inc., a foodservice distributor from 1973 to 1986.
Paul A. Garcia de Quevedo Mr. Garcia has served as Vice President,
Treasurer and Secretary of the Company since its formation in 1992. Prior to
such time, Mr. Garcia served as Vice President, Finance, for BKDS. Mr. Garcia
joined BKDS in January 1986. Mr. Garcia is a certified public accountant.
Maurice L. Ambler Mr. Ambler has served as Senior Vice President of
Human Resources of the Company since January 1997. From July 1992 to December
1996, Mr. Ambler served as Vice President of Human Resources. Prior to such
time, Mr. Ambler was Senior Director of Human Resources of BKDS from April 1991
to June 1992, and Director of Human Resources for BKDS from July 1990 to April
1991. Prior to joining BKDS, Mr. Ambler held various human resources positions
at ITT Sheraton, Pepsico Inc.'s Pizza Hut and Frito-Lay divisions and Miller
Brewing Company.
Dennis T. Andruskiewicz Mr. Andruskiewicz has served as Senior Vice
President, Operations Support of the Company since September 1996 and
Vice-President, Field Operations since the acquisition of NAD in March 1995.
Before serving in such capacity, Mr. Andruskiewicz was the Vice President of
Distribution for Martin-Brower from 1990 to 1995 and the Director of
Distribution for the Planters Life Savers Division of RJR Nabisco from 1987 to
1990.
Bruce O. Burnham Mr. Burnham joined the Company in December 1997 and
serves as the Senior Vice President, Procurement and Supply Chain Services. Mr.
Burnham has twenty years of experience in distribution, supply chain management
and strategic purchasing. From July 1994 to December 1997, Mr. Burnham served as
Vice President, Purchasing and Distribution for Boston Chicken, Inc. From May
1990 to July 1994, Mr. Burnham served as Corporate Vice President of Procurement
for Service America Corporation.
John E. Foley Mr. Foley has served as Senior Vice President, Chief
Information Officer since January 1998. From August 1995 to January 1998, he
served as Senior Vice President, Operations Development of the Company and
Senior Vice President, Finance and Systems, Chief Financial Officer from April
1994 to July 1995. Prior to joining the Company, Mr. Foley was the Senior Vice
President, Grand Metropolitan Computer Systems for Grand Metropolitan, PLC from
1992 to 1995 and Vice President, MIS for BKC from 1990 to 1992.
John P. Gainor Mr. Gainor has served as Senior Vice President,
Logistics and Chief Operating Officer, PSD Transportation Services, the
Company's transportation subsidiary, since January 1998, Senior Vice President,
Logistics and Purchasing from November 1995 to January 1998, Vice President,
Operations Support from July 1992 to May 1993 and from November 1994 to November
1995 and Eastern Region, Vice President from June 1993 to October 1994. Prior to
joining the Company in April 1992, he held various executive positions,
including Director, Transportation and Planning, Manager, Transportation,
Manager, Private Carriage Operations and Regional Transportation Manager, at
Warner Lambert Company since 1982.
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Each director is elected annually by the Company's stockholders and
holds office until the next annual meeting of stockholders and until his
successor is elected and qualified. Each executive officer is elected annually
by the Board of Directors and holds office until his successor is elected and
qualified. There are no family relationships among any of the directors or
executive officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who beneficially own more than ten percent of the
Company's Class A Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it
and written representations from certain reporting persons that no Form 5s were
required for those persons, the Company believes that, except for the Initial
Statement on Form 3 for Maurice L. Ambler, Senior Vice President, Human
Resources, which was filed late, all filing requirements applicable to its
officers, directors and greater than ten percent stockholders were complied with
during the year ended December 27, 1997.
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<PAGE> 167
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding
compensation earned during the Company's three most recently completed fiscal
years by the chief executive officer and each of the five other most highly
compensated executive officers during 1997, including one former executive
officer (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS/
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL ANNUAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR COMPENSATION ($)(1) OPTIONS(#)(2) ($)(3)
- --------------------------- ------ ----------------- ------------ ------------- ------------
SALARY BONUS
($) ($)
-------- ------
<S> <C> <C> <C> <C> <C> <C>
1997 450,000 - (4) - 7,950
David R. Parker 1996 324,038 - 35,148 25,000 90,500
Chairman of the Board of Directors........ 1995 300,000 150,000 (4) 5,000 153,120
1997 450,000 - (4) - 7,950
Thomas C. Highland 1996 324,038 - 33,104 25,000 90,500
President, Chief Executive Officer........ 1995 300,000 150,000 (4) 3,750 103,120
1997 320,000 - 47,406 - 7,950
Daniel J. Adzia 1996 310,000 - 61,448 15,000 15,000
Vice Chairman, Chief Marketing Officer.... 1995(5) 225,385 112,500 (4) 22,500 21,410
William F. Evans 1997 315,000 - 60,333 - 7,950
Executive Vice President, Chief Financial 1996 287,500 - 44,548 15,000 135,051
Officer................................... 1995(6) 116,346 82,282 (4) 22,500 -
Robert S. Donaldson 1997 199,550 - (4) - 25,155
Executive Vice President, Chief Operating 1996 175,961 - (4) 10,000 30,601
Officer, ProSource Distribution Operations 1995 157,500 58,575 (4) - 13,749
William G. Berryman 1997 177,187 35,000 (4) - 43,689
Senior Vice President, Information 1996 117,789 35,000 (4) 10,000 75,320
Technology(7).............................
</TABLE>
- ------------------
(1) The amounts shown in the "Other Annual Compensation" column consist of
the following (i) Mr. Parker: For 1996, $14,000 car allowance, $13,000
perquisite allowance and $8,148 of interest paid by the Company in
respect of an outstanding loan, (ii) Mr. Highland: For 1996, $14,000
car allowance, $13,000 perquisite allowance and $6,104 of interest paid
by the Company in respect of an outstanding loan, (iii) Mr. Adzia: For
1997 and 1996, respectively, $14,400 and $4,528 car allowance, $13,000
and $16,283 perquisite allowance and $20,006 and $40,637 of interest
paid by the Company in respect of an outstanding loan, and (iv) Mr.
Evans: For 1997 and 1996, respectively, $14,400 and $11,100 car
allowance, $5,000 and $5,000 perquisite allowance and $40,933 and
$28,448 of interest paid by the Company in respect of an outstanding
loan. The loans referred to in the previous sentence were provided by a
third party lender to finance, in part, certain purchases of Common
Stock by employees, including the Named Executive Officers, and were
guaranteed by the Company. Effective as of March 21, 1997 (November 20,
1997 with respect to Mr. Adzia), the lender released the Company from
its guaranty of such loans and took a pledge of the shares as security
for the loans. As of December 27, 1997, the Company continued to
guarantee the loan to Mr. Evans.
V-49
<PAGE> 168
(2) Options to acquire shares of Class B Common Stock.
(3) The amounts shown in the "All Other Compensation" column for each Named
Executive Officer in 1997 consist of $7,950 in the Company's
contributions to its defined contribution plan, plus $17,205 in
educational payments in the case of Mr. Donaldson, and $35,739 in
relocation payments, in the case of Mr. Berryman. See "Defined
Contribution Plans." Amounts for 1995 and 1996 have been restated to
reflect the reversal of accruals previously made for the benefit of the
Named Executive Officers under the Company's proposed Supplemental
Executive Retirement Plan. The Company subsequently determined not to
adopt such plan.
(4) Excludes perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for the Named Executive Officer.
(5) Represents amounts paid from April 1, 1995 through the end of 1995.
Prior to such time Mr. Adzia was employed by NAD.
(6) Represents amounts paid from July 28, 1995 through the end of 1995.
Prior to such time Mr. Evans was not employed by the Company.
(7) 1996 represents amounts paid from April 29, 1996 through the end of
1996. Prior to such time Mr. Berryman was not employed by the Company.
Due to a change in responsibilities, Mr. Berryman was not reelected as
an executive officer in January 1998.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (each an "Employment
Agreement") with each of Messrs. David R. Parker, Thomas C. Highland, Daniel J.
Adzia, Paul A. Garcia de Quevedo, Dennis T. Andruskiewicz and John E. Foley
(each an "Employee"). Each Employment Agreement provides that the Employee will
receive an annual salary (subject to increase at the discretion of the Board of
Directors), a cash bonus calculated in accordance with the Company's management
bonus or incentive compensation plan in effect from time to time and certain
benefits. The term of each Employment Agreement is three years (one year in the
case of Mr. Andruskiewicz), with automatic one year extensions unless terminated
earlier by the Company or the Employee upon prior written notice. In the event
that the Company terminates the Employee's employment for disability or without
cause, the Employee is entitled to receive his salary, a pro rata portion of the
actual incentive payment that he would have received under the management
incentive plan for the year in which termination occurs and all other benefits
in effect for senior management employees at the time of termination
("Termination Benefits") for a period of one year from the date of termination,
except in the case of Mr. Highland. In the event that the Company terminates Mr.
Highland's employment for disability or without cause, he is entitled to receive
payment in an amount equal to 150% of the sum of the Termination Benefits for a
period of eighteen months from the date of termination.
Effective April 1, 1998, Mr. Adzia's current employment agreement will
terminate and he will become a consultant to the Company. Under the terms of
this consulting agreement, Mr. Adzia will receive annual compensation of $75,000
through April 1, 2000. In addition, Mr. Adzia will be eligible for an incentive
bonus of up to $200,000 based on achieving certain agreed upon targets. All
benefits, bonuses and other types of compensation previously provided under his
employment contract, with the exception of medical coverage and existing stock
options, will terminate on March 31, 1998.
Each Employee is also subject to a one-year covenant not to compete
effective upon termination of employment for any reason, except in the case of
Mr. Highland (eighteen months).
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<PAGE> 169
DIRECTOR COMPENSATION
Directors who are not officers or employees of the Company or Onex are
entitled to receive an annual fee of $14,000, plus $1,500 for each Board of
Directors meeting attended, $1,000 for each committee meeting attended and a
$2,500 annual fee for serving as chairman of a committee. All directors are
reimbursed for out-of-pocket expenses.
1997 Directors Stock Option Plan. Under the 1997 Directors Stock Option
Plan (the "Directors Plan"), each outside director may elect to receive in lieu
of all or any portion of such director's annual retainer fee, a stock option
exercisable for a number of shares of Class A Common Stock equal to the amount
of such fee or portion thereof divided by $4.00. The exercise price for such
stock option will be equal to $4.00 per share below the Fair Market Value of a
share of Class A Common Stock on the date of grant; provided, however, that in
no event will the exercise price of such Stock Option be less than 50% of the
Fair Market Value of a share of Class A Common Stock on the date of the grant.
"Fair Market Value" is defined as the average closing price of a share of Class
A Common Stock on the Nasdaq National Market (or such other exchange on which
shares of Class A Common Stock are listed) for the five trading days immediately
preceding the applicable date. The duration of the Directors Plan is ten years.
The number of shares of Class A Common Stock currently available for use in the
Directors Plan is 89,500.
The date of grant of a stock option is the date of the annual meeting
of stockholders of the Company. A stock option vests and becomes exercisable on
the day prior to the date of the next annual meeting of stockholders after the
date of grant. In the event that a stock option grantee is not a member of the
Board on the vesting date, any stock option which has not become vested and
exercisable as of such time will expire without vesting. Vested stock options
may be exercised for 10 years from the date of grant.
The Directors Plan may be amended by the Board of Directors; provided,
however, that approval of the stockholders is required to (i) materially
increase the benefits accruing to participants under the Directors Plan, (ii)
materially increase the number of securities which may be issued under the
Directors Plan or (iii) materially modify the requirements as to eligibility for
participation in the Directors Plan. The Directors Plan may be terminated at any
time by the Board of Directors or by the approval of the stockholders.
The Directors Plan contains provisions designed to preserve for
directors the benefits of grants in the event of a Change of Control (as defined
in the Directors Plan). Upon a Change of Control any unvested option will vest.
A director may surrender any option and receive cash equal to the excess of the
Change of Control Price (as defined in the Directors Plan) over the exercise
price.
Currently, three members of the Board of Directors (Messrs. Carpenter,
Johnson and Styles) are eligible to participate in the Directors Plan and such
directors received options totaling 10,500 during 1997. Messrs. Carpenter,
Johnson and Styles have elected to receive 50%, 100% and 100%, respectively, of
their annual retainer fee for 1998 in stock options. In light of the fact that,
if the proposed merger is consummated, the Company will not hold an annual
meeting in 1998, the Company has waived such elections and in lieu thereof
agreed to pay the directors the annual retainer to which they would otherwise be
entitled in cash. See "Business--Merger Agreement."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Nominating Committee consists of Messrs. Johnson,
Melman and Parker. The Equity Compensation Committee (the "Committee") consists
of Messrs. Carpenter, Johnson and Styles. Mr. Parker is Chairman of the Board of
ProSource.
V-51
<PAGE> 170
OPTION PLANS AND OTHER EQUITY BASED COMPENSATION PLANS
Amended Management Option Plan (1995). The Amended Management Option
Plan (1995) (the "1995 Option Plan") provides for the grant of "non-qualified
stock options" ("NQSO's") to management employees of the Company ("1995 Employee
Participants") at the time that such employees purchase Class B Common Stock.
Options granted under the 1995 Option Plan have an exercise price equal to the
price at which the 1995 Employee Participant purchased such stock. Options are
exercisable for shares of Class B Common Stock. The 1995 Option Plan provides
for it to be administered by the Board of Directors of the Company or a
committee thereof, and currently is administered by the Committee. Options
granted under the 1995 Option Plan are not transferable or assignable.
Options vest according to the following schedule: ten percent at the
end of years 1995 through 1999, with the remaining 50% vesting at the end of
such five-year period. Options granted under the 1995 Option Plan remain
exercisable until December 31, 2000. In the event the Company sells
substantially all of its assets or all of the Company's or any of its principal
subsidiaries' shares of Common Stock in a transaction in which the consideration
is principally other than common stock and results in Onex earning certain
specified rates of return on its initial purchase of Common Stock, then all
unexercised options under the 1995 Option Plan with respect to periods not yet
ended are deemed earned and exercised immediately prior to the date the
triggering transaction closes.
The 1995 Option Plan terminates on the earlier of (i) December 31, 2000
and (ii) the sale of all of the Common Stock owned by Onex, the sale of all of
the issued and outstanding stock of the Company or the sale of all or
substantially all of the assets of a subsidiary of the Company.
At December 27, 1997, options to purchase 295,150 shares of Class B
Common Stock were outstanding. Additionally, during 1997, 53,300 options were
canceled. No options were granted in 1997, and no additional options will be
granted under the 1995 Option Plan.
1996 Stock Option Plan. Pursuant to the 1996 Option Plan, executive
officers and key employees of the Company are eligible to receive awards of
stock options. The 1996 Option Plan provides for the award of NQSO's only. The
1996 Option Plan is administered by the Committee. Subject to the provisions of
the 1996 Option Plan, the Committee determines when and to whom awards are
granted, and the number of shares covered by each award. The Committee may
interpret the 1996 Option Plan and may at any time adopt such rules and
regulations for the 1996 Option Plan as it deems advisable. In addition, the
Committee may cancel or suspend awards. Options granted under the 1996 Option
Plan are not transferable or assignable, other than upon death.
The exercise price for options granted under the 1996 Option Plan is at
least 100% of the fair market value of a share of Class B Common Stock on the
date of grant. Options vest ratably on each of the first four anniversaries of
the date of grant. However, notwithstanding such vesting, no option becomes
exercisable until the earlier of (i) the date on which the Market Value of the
Class B Common Stock is at least 25% greater than the exercise price of such
option and (ii) the eighth anniversary of the date of grant. "Market Value" of
the Class B Common Stock is determined by taking the average closing price of
the Class A Common Stock on the Nasdaq National Market or the principal
securities exchange on which the Common Stock is listed for the five consecutive
trading days immediately preceding the applicable date. Subject to the
foregoing, vested options may be exercised for a period of up to 10 years from
the date of grant.
V-52
<PAGE> 171
The Committee may provide for the payment of the option price in cash,
by delivery of other Common Stock having a fair market value equal to the
exercise price, by a combination thereof or by such other manner as the
Committee shall determine, including a cashless exercise procedure.
The Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the 1996 Option Plan; provided, however, that, to the
extent required by Rule 16b-3 promulgated under the Exchange Act or any other
law, regulation or stock exchange rule, no such change shall be effective
without the requisite approval of the Company's stockholders. In addition, no
such change may adversely affect any award previously granted, except with the
written consent of the grantee.
The Company has reserved 550,000 shares of Class B Common Stock for
issuance upon exercise of options granted under the 1996 Option Plan. During
1997, the Company granted options to purchase 16,000 shares, none of which went
to Named Executive Officers or directors. At December 27, 1997, options to
purchase 334,000 shares of Class B Common Stock were outstanding. Additionally,
40,000 options were canceled during 1997. No options may be granted under the
1996 Option Plan after the tenth anniversary of the approval of the 1996 Option
Plan.
1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase
Plan (the "Employee Plan") was adopted by the Company's stockholders on April
29, 1997. The purpose of the Employee Plan is to permit eligible employees to
purchase Class A Common Stock, through payroll deductions, at a specified
percentage of the fair market value of the Class A Common Stock. It is intended
that the Employee Plan qualify as an employee stock purchase plan under Section
423 of the Code.
The Employee Plan is administered by the Committee. Subject to the
express provisions of the Employee Plan, the Committee, by majority action
thereof, is authorized to interpret and prescribe, amend and rescind rules
relating to the Employee Plan and to make all other determinations necessary or
advisable for the administration of the Employee Plan.
The Employee Plan generally operates on the basis of a 12-month period
beginning July 1 of each year (each a "Plan Year"). The first Plan Year
commenced July 1, 1997. With respect to any Plan Year, all full-time employees
of the Company and its participating subsidiaries (including officers and
directors who are also employees) who have been employed continuously for at
least three months prior to July 1 of such Plan Year are eligible to participate
in the Employee Plan. No eligible employee may participate in the Employee Plan
if after the purchase such employee would own (or have the right to purchase)
stock of the Company possessing 5% or more of the total combined voting power or
value of all classes of capital stock of the Company.
An eligible employee electing to participate in the Employee Plan may
contribute funds for the purchase of Class A Common Stock under the Employee
Plan by directing his or her employer to withhold (in increments of 1%) not less
than 1% and not more than 15% of his or her Base Earnings (as defined in the
Employee Plan). A participant may elect to reduce (but not increase) the amount
of rate of withholding for any Plan Year. Amounts withheld will be held by the
participant's employer and automatically applied to purchase Class A Common
Stock unless refunded to the participant by written election or direction of
such participant.
Amounts withheld from (and not refunded to) a participant in the
Employee Plan will be used to purchase Class A Common Stock as of the last
business day of each quarter of the Plan Year at a price equal to 85% of the
Fair Market Value (as defined in the Employee Plan) of a share of Class A Common
Stock on the first business day of such Plan Year.
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<PAGE> 172
No participant in the Employee Plan may purchase Class A Common Stock
under the Employee Plan and all other employee stock purchase plans of the
Company and any of its subsidiaries at a rate in excess of $25,000 in Fair
Market Value of such stock (determined as of the first business day of the Plan
Year with respect to which stock is granted) for each calendar year in which any
such right to purchase stock granted to such participant is outstanding at any
time. If a participant is not entitled to purchase Class A Common Stock under
any such other plan during a Plan Year, the total number of shares purchased
under the Employee Plan for the participant with respect to that Plan Year may
not exceed (1) $25,000 divided by (ii) the Fair Market Value of a share of Class
A Common Stock on the first day of such Plan Year.
The Board of Directors may at any time terminate, amend or modify the
Employee Plan, provided that approval of stockholders is required to (i)
increase the total amount of Class A Common Stock which may be offered under the
Employee Plan (except for adjustments in the outstanding shares of Class A
Common Stock by reason of a stock dividend or split, combination,
recapitalization, or reclassification), (ii) withdraw the administration of the
Employee Plan from the Committee or (iii) permit any member of the Committee to
be eligible to participate in the Employee Plan.
During 1997, 33,799 shares of Class A Common Stock were issued under
this plan. Of this amount, Named Executive Officers accounted for 7,275 shares.
Currently, 235,865 shares of Class A Common Stock are available to be purchased
under the Employee Plan.
The Employee Plan is scheduled to remain in effect until June 30, 2002.
DEFINED CONTRIBUTION PLANS
401(k) Plan. The Company maintains the ProSource Retirement Advantage
Plan (the "401(k) Plan"), a defined contribution retirement plan with a cash or
deferral arrangement as described in Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code"). The 401(k) Plan is intended to be qualified
under Section 401(a) of the Code. All regular employees who are at least 21
years old, work at least 1,000 hours a year and are not excluded by a bargaining
agreement are eligible to participate in the 401(k) Plan. The 401(k) Plan
provides that each participant may make pre-tax elective contributions from 1%
to 15% of his or her compensation, subject to statutory limits. The Company
contributes to the 401(k) Plan (i) 2% of an eligible employee's compensation,
and (ii) fifty cents for every dollar contributed by the employee up to the
first 6% of an eligible employee's compensation. All contributions made by
participants are fully vested and are not subject to forfeiture. A participant
vests in any contributions made by the Company at a rate of 25% for each year of
service. Each participant's entire 401(k) account is distributed to the
participant or his or her beneficiary, without regard to vesting, upon
retirement, death, disability, or termination of employment with the Company
after the completion of four years of service. The trustee under the 401(k)
Plan, at the direction of each participant, invests the assets of the 401(k)
Plan in a number of investment options.
V-54
<PAGE> 173
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in
the body of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Shareholders Agreements. All of the Company's employees, including
executive officers, and directors who purchased Class B Common Stock from the
Company prior to the Company's initial public offering are parties to
shareholders agreements (the "Shareholders Agreements") under which all such
Class B Common Stock, as well as Class A Common Stock issuable upon conversion
thereof and securities convertible into shares of Class B Common Stock
(including shares issued upon exercise of options), held by them are subject to
certain restrictions on transfer. Such restrictions provide, among other things,
that, in the case of employee stockholders, sales through the public markets are
subject to a right of first offer in favor of the Company, and, if the Company
declines to purchase the shares, limitations on the amount sold. The
Shareholders Agreements also provide that, subject to certain exceptions,
employee stockholders have the right to participate with Onex in certain sales
of Common Stock and that Onex may compel the sale of Common Stock by such
stockholders in connection with certain sales of shares by Onex. In addition,
the Shareholders Agreements provide employee and director stockholders with
"piggyback" registration rights. The Shareholders Agreements terminate if Onex
ceases to hold in the aggregate 20% of the outstanding voting capital stock of
the Company of if another person or group holds in the aggregate a greater
percentage of the outstanding voting capital stock of the Company than Onex.
V-55
<PAGE> 174
PROSOURCE, INC.
1500 San Remo Avenue
Coral Gables, Florida 33146
THIS PROXY IS SOLICITED BY THE COMPANY'S
BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, MAY 20, 1998
The undersigned holder of Common Stock of ProSource, Inc., a Delaware
corporation (the "Company"), hereby appoints David R. Parker, Thomas C. Highland
and Paul A. Garcia de Quevedo and each of them, as proxies for the undersigned,
each with full power of substitution, for and in the name of the undersigned to
act for the undersigned and to vote, as designated below, all of the shares of
Common Stock of the Company that the undersigned is entitled to vote at the
Special Meeting of Stockholders of the Company, to be held on Wednesday, May 20,
1998 at 11:30 a.m. local time, at the offices of Kaye, Scholer, Fierman, Hays &
Handler, LLP, located at 425 Park Avenue, New York, New York, and at any
adjournment or postponement thereof.
The Board of Directors recommends a vote FOR approval and adoption of
the Merger Agreement and the transactions contemplated thereby, including the
Merger.
1. To approve and adopt the Agreement and Plan of Merger, dated as of
January 29, 1998, among AmeriServe Food Distribution, Inc., Steamboat
Acquisition Corp. ("Merger Sub") and the Company, and to approve the
transactions contemplated thereby, including the merger of Merger Sub with and
into the Company, with the Company as the surviving corporation in the Merger
(the "Merger").
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the
Special Meeting and any adjournments or postponements thereof. In their
discretion, the persons appointed as proxies are authorized to vote upon such
other business as may properly come before the Special Meeting and any
adjournments or postponements thereof; provided that such persons will not
exercise their discretionary voting authority to vote this proxy in favor of any
adjournments or postponements of the Special Meeting.
<PAGE> 175
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL SET FORTH IN ITEM 1 AND WITH REGARD
TO OTHER MATTERS THAT MAY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR
ADJOURNMENT THEREOF, IN THE DISCRETION OF THE PROXYHOLDERS AS DESCRIBED IN THE
PROXY STATEMENT; PROVIDED THAT SUCH PERSONS WILL NOT EXERCISE THEIR
DISCRETIONARY VOTING AUTHORITY TO VOTE THIS PROXY IN FAVOR OF ANY ADJOURNMENTS
OR POSTPONEMENTS OF THE SPECIAL MEETING.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the accompanying Proxy Statement dated April 30,
1998, relating thereto.
___________________________________
(Signature)
___________________________________
(Signature if held jointly)
Date_________________________, 1998
Please sign exactly as name appears
hereon and mail it promptly even
though you now plan to attend the
Special Meeting of Stockholders.
When shares are held by joint
tenants, both should sign. When
signing as Attorney, Executor,
Administrator, Guardian or Trustee,
please add your full title as such.
If a corporation, please sign in
full corporate name by president or
other authorized officer. If a
partnership or other entity, please
sign in the name of such partnership
or other entity by authorized
person.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
2
