UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

  Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

PERFORMANCE FOOD GROUP COMPANY

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

o  No fee required.

 

 

 

Common stock, par value $0.01 per share, of Performance Food Group Company

(the “PFG common stock”)

 

 

35,505,683 shares of PFG common stock (including restricted shares), 219,771 stock appreciation rights to be settled in PFG common stock, and 2,488,949 options to purchase PFG common stock (2,055,698 with an exercise price of less than $34.50).

 

(set forth the amount on which the filing fee is calculated and state how it was determined):

 

The transaction value was determined based upon the sum of (a) $34.50 per share of 35,505,683 shares of PFG common stock (including restricted shares); (b) $34.50 minus weighted average exercise price of $27.45 per share of the outstanding options to purchase 2,055,698 shares of PFG common stock with an exercise price of less than $34.50; and (c) $34.50 minus a grant price of $29.46 for each of the 219,771 stock appreciation rights. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.0000393 by the sum calculated in the preceding sentence.

 

 

$1,240,546,380.24

 

 

$48,753.47

 

þ  Fee paid previously with preliminary materials:

 

 

 

 

 

 

 

 

 

 

 

12500 West Creek Parkway

Richmond, Virginia 23238

 

April 14, 2008

 

Dear Shareholder:

 

On January 17, 2008, the board of directors of Performance Food Group Company (which we refer to as “PFG,” “we,” “us” or “our”) adopted and approved, and on January 18, 2008 PFG entered into, an agreement and plan of merger (which we refer to as the “merger agreement”) with VISTAR Corporation and its wholly-owned subsidiary Panda Acquisition, Inc. VISTAR Corporation is indirectly controlled by private equity funds affiliated with The Blackstone Group, with a minority interest held by an affiliate of Wellspring Capital Management LLC. Under the terms of the merger agreement, Panda Acquisition, Inc. will be merged with and into us, with PFG continuing as the surviving corporation. If the merger is completed, you will be entitled to receive $34.50 in cash (less any applicable withholding tax requirements), without interest, for each share of PFG common stock that you own.

 

You will be asked, at a special meeting of our shareholders to be held on May 14, 2008, at 9:00 a.m., local time, to vote on a proposal to approve the merger agreement so that the merger can occur. After careful consideration, our board of directors has adopted and approved the merger agreement and determined that the merger and the merger agreement are advisable and in the best interests of PFG and our shareholders. Our board of directors recommends that you vote “FOR” the approval of the merger agreement and “FOR” the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the merger agreement.

 

The special meeting will be held at PFG’s executive offices located at 12500 West Creek Parkway, Richmond, Virginia 23238. Notice of the special meeting and the related proxy statement is enclosed.

 

The accompanying proxy statement gives you detailed information about the special meeting and the merger and includes a copy of the merger agreement attached thereto as Annex A. The receipt of cash in exchange for shares of PFG common stock pursuant to the merger will constitute a taxable transaction to U.S. persons for U.S. federal income tax purposes. We encourage you to read the proxy statement and the merger agreement carefully and in their entirety. You may also obtain additional information about PFG from documents we have filed with the Securities and Exchange Commission.

 

Your vote is very important, regardless of the number of shares you own. We cannot complete the merger unless holders of a majority of all outstanding shares of PFG common stock entitled to vote on the matter vote to approve the merger agreement. If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy in the accompanying reply envelope, or submit your proxy by telephone or the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

 

Our board of directors and management appreciate your continuing support of PFG, and we urge you to support this transaction.

 

Sincerely,

 

Robert C. Sledd

Chairman of the Board

 

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

The proxy statement is dated as of April 14, 2008 and is first being mailed to shareholders on or about April 14, 2008.

12500 West Creek Parkway

Richmond, Virginia 23238

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On May 14, 2008

 

Dear Shareholder:

 

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Performance Food Group Company, a Tennessee corporation (which we refer to as “PFG,” “we,” “us” or “our”), will be held on Wednesday, May 14, 2008, at 9:00 a.m. local time, at PFG’s executive offices located at 12500 West Creek Parkway, Richmond, Virginia 23238 for the following purposes:

 

1. To consider and vote on a proposal to approve the Agreement and Plan of Merger (which we refer to as the “merger agreement”), dated as of January 18, 2008, by and among PFG, VISTAR Corporation, a Colorado corporation, and Panda Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of VISTAR Corporation, as the merger agreement may be amended from time to time, pursuant to which each outstanding share of common stock of PFG will be converted into the right to receive $34.50 in cash without interest, less any applicable tax withholding requirements;

 

2. To consider and vote on any proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the merger agreement if there are insufficient votes at the time of such adjournment or postponement to approve the merger agreement; and

 

3. To transact such other business as may properly come before the special meeting and any and all adjourned or postponed sessions thereof.

 

The record date for the determination of shareholders entitled to notice of and to vote at the special meeting is April 3, 2008. Accordingly, only shareholders of record as of the close of business on that date will be entitled to notice of and to vote at the special meeting or any adjournment or postponement of the special meeting.

 

We urge you to read the accompanying proxy statement carefully as it sets forth details of the proposed merger and other important information related to the merger.

 

Your vote is important, regardless of the number of shares of PFG common stock you own. The approval of the merger agreement requires the affirmative approval of the holders of a majority of the outstanding shares of our common stock entitled to vote thereon. An adjournment or postponement proposal would require that the votes cast in favor of adjournment or postponement exceed the votes cast against adjournment or postponement. Even if you plan to attend the special meeting in person, we request that you complete, date, sign and return the enclosed proxy, or submit your proxy by telephone or the Internet, prior to the special meeting in order to ensure that your shares will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by telephone or the Internet, your shares will not be counted for purposes of determining whether a quorum is present at the meeting and will have the same effect as a vote against the approval of the merger agreement, but will not affect the outcome of the vote regarding the adjournment or postponement proposal. If you are a shareholder of record, voting in person at the special meeting will revoke any proxy previously submitted.

 

Please note that space limitations may make it necessary to limit attendance at the special meeting to shareholders. If you attend, please note that you may be asked to present valid picture identification. “Street name” holders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the special meeting.

 

Under Tennessee law, holders of PFG common stock do not have dissenters’ rights in connection with the merger.

 

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY IN THE ACCOMPANYING REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. YOUR PROXY MAY BE REVOKED AT ANY TIME IN THE MANNER MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT THAT ACCOMPANIES THIS NOTICE.

 

By Order of the Board of Directors,

Joseph J. Traficanti
Secretary

 

Richmond, Virginia

April 14, 2008

TABLE OF CONTENTS

 

References to “PFG,” “we,” “our” or “us” in this proxy statement refer to Performance Food Group Company and its subsidiaries unless otherwise indicated by context.

 

This Summary Term Sheet, together with the “Questions and Answers About the Special Meeting” beginning on page 8, summarizes selected information in the proxy statement and may not contain all the information important to you. You should carefully read this entire proxy statement, its annexes and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the special meeting. In addition, this proxy statement incorporates by reference important business and financial information about PFG. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in “Where You Can Find More Information” beginning on page 80.

 

 

 

 

 

 

 

See “The Merger Agreement — Treatment of Options and Other Awards” beginning on page 53.

 

 

 

 

 

 

 

The merger agreement may be terminated at any time prior to the consummation of the merger, whether before or after shareholder approval has been obtained:

 

 

 

 

 

 

 

 

 

 

 

 

See “Questions and Answers About the Special Meeting” beginning on page 8 and “The Special Meeting” beginning on page 14.

 

 

 

 

 

 

 

In addition, Blackstone and Wellspring will continue to beneficially own additional equity in VISTAR valued at approximately $150 million. VISTAR and Merger Sub may replace or amend the debt commitment letters, which may include changing, among other things, the types and amounts of debt and the terms of the debt used to finance the merger, so long as such amendments would not adversely impact the ability of VISTAR and Merger Sub to consummate the transactions contemplated by the merger agreement in a timely manner or the likelihood of the consummation of the transactions contemplated by the merger agreement. See “The Merger — Financing of the Merger” beginning on page 39.

 

 

 

 

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting. These questions and answers do not address all questions that may be important to you as a PFG shareholder. You should still carefully read the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

 

 

 

 

 

 

 

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of PFG, the expected completion and timing of the merger and other information relating to the merger. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary Term Sheet,” “The Merger,” and in statements containing the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimates” or other similar expressions. For each of these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of PFG. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise. In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

 

Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect our views only as of the date of this proxy statement. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

Performance Food Group Company is a Tennessee corporation headquartered in Richmond, Virginia. Our principal executive offices are located at 12500 West Creek Parkway, Richmond, Virginia 23238 and our telephone number is (804) 484-7700.

 

PFG was founded in 1987 through the combination of various foodservice distribution businesses and has grown internally through increased sales to existing and new customers and through acquisitions of existing businesses. PFG is the nation’s third largest Broadline foodservice distributor based on 2007 net sales. We market and distribute over 68,000 national and proprietary brand food and non-food products to over 41,000 customers. Our extensive product line and distribution system allow us to service both of the major customer types in the foodservice or “food-away-from-home” industry: “street” foodservice customers, which include independent restaurants, hotels, cafeterias, schools, healthcare facilities and other institutional customers, and multi-unit, or “chain,” customers, which include regional and national casual and family dining, quick-service restaurants and other institutional customers.

 

For a more detailed description of the business and properties of PFG, see our Annual Report on Form 10-K for the fiscal year ended December 29, 2007, which is incorporated by reference herein, or visit our website at www.pfgc.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement and is not incorporated by reference herein. PFG is publicly traded on the NASDAQ Global Select Market under the symbol “PFGC.” See “Where You Can Find More Information.”

 

VISTAR Corporation is a Colorado corporation headquartered in Centennial, Colorado. The principal office address of VISTAR is 12650 East Arapahoe Road, Centennial, Colorado 80112, and its telephone number is (800) 880-9900. VISTAR, formerly Multifoods Distribution Group, Inc., was acquired by an affiliate of Wellspring in September 2002 which sold a majority equity interest in VISTAR to Blackstone in July 2007. VISTAR operates two businesses (Vistar Specialty Markets and Roma Foodservice) that focus on different sub-segments within the food distribution industry. Vistar Specialty Markets is the leading specialty food distributor in the United States and is the only national distributor to the vending, office coffee services, theatre, and fund-raising markets, with leading market share in each of these categories. Roma Foodservice is a foodservice distributor with a particular focus on Italian foods and products that cater to independent Italian pizzerias, and has the number one market share in the independent pizza distribution market. At the time of the merger, VISTAR will be indirectly controlled by private equity funds affiliated with Blackstone, with a minority interest held by an affiliate of Wellspring.

 

Panda Acquisition, Inc., which we refer to as Merger Sub, is a Delaware corporation that was formed solely for the purpose of completing the proposed merger. Upon the consummation of the proposed merger, Panda Acquisition, Inc. will cease to exist and PFG will survive the merger as a wholly-owned subsidiary of VISTAR. Panda Acquisition, Inc. is wholly-owned by VISTAR and has not engaged in any business except as contemplated by the merger agreement. The principal office address of Merger Sub is c/o VISTAR Corporation, 12650 East Arapahoe Road, Centennial, Colorado 80112, telephone (800) 880-9900.

 

This proxy statement is furnished in connection with the solicitation of proxies by our board of directors in connection with the special meeting of our shareholders relating to the merger.

 

The special meeting is scheduled to be held as follows:

 

Date:		May 14, 2008
Time:		9:00 a.m., local time
Place:		12500 West Creek Parkway Richmond, Virginia 23238

 

At the special meeting, you will be asked to vote on a proposal to approve the merger agreement and to approve the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of such adjournment or postponement to approve the merger agreement. If our shareholders fail to approve the merger agreement, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement, and we encourage you to read it carefully and in its entirety.

 

We have fixed the close of business on April 3, 2008 as the record date for the special meeting, and only holders of record of PFG common stock on the record date are entitled to vote at the special meeting. On the record date, there were 35,583,765 shares of PFG common stock outstanding and entitled to vote.

 

Each share of PFG common stock entitles the holder to one vote on all matters properly coming before the special meeting. The presence, in person or representation by proxy, of shareholders entitled to cast a majority of the votes of all issued and outstanding shares entitled to vote, shall constitute a quorum for the purpose of considering the proposals. Shares of PFG common stock represented at the special meeting but not voted, including shares of PFG common stock for which proxies have been received but for which shareholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies in favor of the proposal to approve the merger agreement.

 

Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of PFG common stock entitled to vote on the matter. For the proposal to approve the merger agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not be counted as votes cast or shares voting on the proposal to approve the merger agreement, but will count for the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as if you vote against the approval of the merger agreement. In addition, if your shares are held in the name of a broker, bank or other nominee, your broker, bank or other nominee will not be entitled to vote your shares on the proposal to approve the merger agreement in the absence of specific instructions. These non-voted shares, or “broker non-votes,” will be counted for purposes of determining a quorum, but will have the same effect as a vote against the approval of the merger agreement. Your broker, bank or nominee will vote your shares only if you provide instructions on how to vote by following the instructions provided to you by your broker, bank or nominee.

If a quorum is present, any proposal to adjourn or postpone the special meeting requires that the votes cast in favor of adjournment or postponement exceed the votes cast against adjournment or postponement. For any proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of such adjournment or postponement to approve the merger agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions and broker non-votes will count for the purpose of determining whether a quorum is present, but broker non-votes will not count as shares voted for or against the proposal to adjourn the meeting. As a result, abstentions and broker non-votes will have no effect on the vote to adjourn the special meeting, which requires that the votes cast in favor of adjournment exceed the votes cast against adjournment.

 

As of April 3, 2008, the record date, the directors and executive officers of PFG held and were entitled to vote, in the aggregate, 621,095 shares of PFG common stock outstanding as of that date, representing approximately 1.75% of the outstanding PFG common stock. If our directors and executive officers vote their shares in favor of approving the merger agreement, approximately 1.75% of the outstanding shares of PFG common stock will have voted for the proposal to approve the merger agreement. This means that additional holders of approximately 17,170,788 shares, or approximately 48.25% of all shares entitled to vote at the special meeting, would need to vote for the proposal to approve the merger agreement in order for it to be approved.

 

Shareholders of record may submit proxies by mail. Shareholders who wish to submit a proxy by mail should mark, date, sign and return the proxy card in the envelope furnished. If you hold your shares in your name as a shareholder of record, you may submit a proxy by telephone or electronically through the Internet by following the instructions included with your proxy card. Shareholders who hold shares beneficially through a nominee (like a bank or broker) may be able to submit a proxy by mail, or by telephone or the Internet if those services are offered by the nominee.

 

Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. Where a specification is indicated by the proxy, it will be voted in accordance with the specification. If you hold your shares in your name as a shareholder of record and sign your proxy card without indicating your vote, your shares will be voted “FOR” the approval of the merger agreement and “FOR” any adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of such adjournment or postponement to approve the merger agreement, and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.

 

You have the right to revoke your proxy at any time before the vote taken at the special meeting:

 

 

Please do not send in your stock certificates with your proxy card. If the merger is completed, a separate letter of transmittal will be mailed to you following completion of the merger that will enable you to receive the merger consideration in exchange for your stock certificates.

 

So long as PFG’s common stock is not delisted from the NASDAQ Global Select Market prior to the effective time of the merger, shareholders of PFG are not entitled to dissenters’ rights under Tennessee law in connection with the merger.

 

This proxy solicitation is being made and paid for by PFG on behalf of our board of directors. In addition, we have retained Georgeson Inc. to assist in the solicitation. We anticipate that we will pay Georgeson Inc. approximately $17,000 plus out-of-pocket expenses for their assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These individuals will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of PFG common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses. In addition, we will indemnify Georgeson Inc. against any losses arising out of that firm’s proxy soliciting services on our behalf.

 

We are not currently aware of any business to be acted upon at the special meeting other than the matters discussed in this proxy statement. Under our bylaws, business transacted at the special meeting is limited to the purposes stated in the notice of the special meeting, which is provided at the beginning of this proxy statement. If other matters do properly come before the special meeting, or at any adjournment or postponement of the special meeting, we intend that shares of PFG common stock represented by properly submitted proxies will be voted in accordance with the recommendations of our board of directors.

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Georgeson Inc., toll-free at (888) 293-6903, or contact PFG in writing at our principal executive offices at 12500 West Creek Parkway, Richmond, Virginia 23238, Attention: Corporate Secretary, or by telephone at (800) 484-7700.

 

This discussion of the merger is qualified by reference to the merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

As part of its ongoing evaluation of its business, PFG’s board of directors and senior management regularly evaluate PFG’s long-term strategic alternatives and prospects for continued operations as an independent company. These strategic discussions have included the possibility of business combinations with other entities.

 

In late 2006, PFG’s board of directors learned that the parent company of Company A, a larger foodservice distributor, intended to sell Company A in an auction process and PFG’s board of directors determined that it would be advisable to consider the possible acquisition of Company A or certain of its assets. In December 2006, PFG engaged Evercore to assist it in connection with its evaluation of a possible transaction with Company A. With the assistance of Evercore, in December 2006 and January 2007 PFG’s board of directors evaluated PFG’s options related to making a viable offer for some or all of the business of Company A. The alternatives considered by PFG’s board included seeking an investment from a private equity firm to obtain adequate equity financing necessary to support the level of debt that would be required to make such a bid or joining with another potential strategic buyer to acquire certain of Company A’s assets. During this time, and in connection with considering the possibility of making a bid for Company A, PFG, along with representatives of Evercore, met with a number of private equity firms, including Blackstone, to discuss the possibility of making a proposal to acquire Company A. PFG also entered into discussions with Company B, a larger foodservice distributor, about the prospect of making a joint proposal to acquire Company A with PFG acquiring certain assets of Company A and Company B acquiring all other assets of Company A.

 

Ultimately, PFG was unable to reach an agreement with any third party for either alternative, so PFG decided to submit an initial range of valuation at which it would be prepared to acquire Company A without a partner. Company A’s parent company rejected this initial range and PFG was not allowed to participate further in that process. Company A ultimately was sold to a consortium of two private equity firms.

 

During the first half of 2007, PFG’s board of directors and management continued to consider PFG’s position in the foodservice distribution industry and the inherent risks associated with the execution of its business plan. The board considered the challenges that PFG faced in achieving increased scale by growing its business through the acquisition of other foodservice distribution companies with significant size in attractive markets and in transactions that would be accretive to PFG. The board also considered certain actions that management had discussed with the board, including the possible closing of one or more of PFG’s unprofitable or marginally profitable distribution centers.

 

Consistent with these discussions, in March 2007, PFG’s board of directors asked Evercore to begin work on an analysis of PFG’s reasonably available strategic alternatives. Representatives of Evercore met with various members of PFG’s senior management team to discuss PFG’s near and longer-term prospects assuming various scenarios, and on April 5, 2007, Evercore presented its analysis at a meeting of PFG’s board of directors.

 

In early May 2007, following the public announcement that two private equity firms had entered into an agreement to acquire Company A at a price that the PFG board believed represented an extraordinary valuation, Blackstone contacted Evercore expressing interest in exploring the possibility of a potential business combination with PFG.

 

On May 16, 2007, at a regularly scheduled board meeting, the PFG board discussed the preliminary contact from Blackstone. Evercore provided an updated presentation to the board, taking into account the announcement of the planned sale of Company A, outlining a potential range of values that PFG might achieve for its shareholders if it remained an independent public company or, alternatively, if PFG were sold. The board discussed with representatives of Evercore the representatives’ views regarding the anticipated levels

of interest in PFG by private equity firms, including those with whom PFG had discussions regarding a possible offer to acquire Company A, the compelling valuations that private equity firms were then paying in other acquisition transactions, the likely strategic buyers that might be interested in pursuing a transaction with PFG, and the strategic position and prospects of PFG if it were to remain independent. The board also discussed possible responses to Blackstone and the advisability of approaching other private equity firms that management had met with in connection with the Company A auction process to determine whether any of these firms might be interested in a transaction with PFG. After discussion, the board authorized management to provide certain limited PFG financial information to Blackstone, subject to its executing a confidentiality agreement with PFG. Management subsequently provided Blackstone with its then current estimate of PFG’s expected 2007 earnings before interest, taxes, depreciation and amortization, or EBITDA, the then current expected net sales for 2007 and expected stock compensation expense for 2007, in each case assuming the potential closure of three of PFG’s distribution centers. The board also authorized Evercore to contact other private equity firms with whom PFG had had prior discussions in connection with the Company A auction process to determine these firms’ interest in pursuing a possible transaction with PFG. In the event that such firms were interested in pursuing a potential transaction with PFG, the board authorized management to provide those firms the same financial information that would be provided to Blackstone, subject to those parties also executing confidentiality agreements with PFG.

 

On May 25, 2007, PFG’s board of directors met to receive an update on the ongoing progress of Evercore’s contacts with various private equity firms. Evercore reported to the board that it had contacted three other private equity firms in addition to Blackstone. Two of these firms indicated that they were not interested in pursuing a transaction with PFG, while the other firm expressed interest. Evercore also informed the board that Blackstone had provided them with a preliminary indication of interest in acquiring all of PFG’s outstanding shares of common stock at an all cash price of up to $40.00 per share based on the limited information that had been made available to Blackstone at the time and subject to numerous conditions including satisfactory completion of due diligence and obtaining of financing on satisfactory terms. Evercore also informed the board that PFG and its legal advisor were currently negotiating a confidentiality agreement with Blackstone, and that Blackstone had requested more information to continue its due diligence and analysis of PFG’s business. After discussion, the board authorized Evercore to continue to have discussions with Blackstone and the other private equity firm that was interested in a potential transaction but requested that the board be allowed to understand the terms and scope of any due diligence request from Blackstone before PFG responded to the request. The board also directed Evercore to participate in meetings with Blackstone and authorized PFG and its legal advisor to negotiate the terms of an engagement letter with Evercore as PFG’s financial advisor in connection with its consideration of a possible strategic transaction. This engagement letter was executed on August 1, 2007. PFG’s board and management also agreed at this meeting that members of management would not have any discussions regarding post-transaction employment arrangements without the prior authorization of PFG’s board.

 

On June 4, 2007, PFG and Blackstone executed a confidentiality agreement. On June 27, 2007, PFG executed a confidentiality agreement with the other private equity firm that had continued to express interest in a possible transaction with PFG, referred to herein as “PE Firm Y”. PFG would later execute confidentiality agreements with Wellspring and VISTAR, which at the time was controlled by an affiliate of Wellspring but later became controlled by an affiliate of Blackstone with a minority interest held by an affiliate of Wellspring.

 

On June 27, 2007, Messrs. Spinner and Austin and representatives of Evercore met with representatives of PE Firm Y at PE Firm Y’s offices. The purpose of that meeting was for members of PFG’s management to meet the representatives of PE Firm Y and discuss PFG’s business and business plan and its 2007 year-to-date operating performance. PFG also provided PE Firm Y with certain financial information that PE Firm Y could use in preparing a possible value that PE Firm Y would be willing to pay to acquire all of PFG’s outstanding common stock. This financial information consisted of historical and 2007 estimated revenue and EBITDA, as well as EBITDA margin information and operating expenses as a percentage of revenue, both on a consolidated basis and by operating segment, sales force productivity trends, average drop sizes and gross margin per delivery, earned income for PFG’s broadline operating segment, sample distribution center profitability levels, historical and projected corporate-level expenses and longer-term financial objectives for

PFG. This information also included historical industry financial information and trend analysis, management’s then current estimated five-year projected performance for PFG, broken down by net sales, EBITDA, earnings before interest and taxes, or EBIT, net income and diluted earnings per share. The financial information related to PFG was adjusted for the possible closing or consolidation of three of PFG’s distribution centers.

 

On June 28, 2007, Messrs. Spinner and Austin and representatives of Evercore met with representatives of Blackstone in Evercore’s office. The purpose of the meeting was for members of PFG’s management to meet the Blackstone representatives and discuss PFG’s business and business plan and its 2007 year-to-date operating performance. PFG also provided Blackstone with certain financial information that Blackstone could use in preparing a possible value that Blackstone would be willing to pay to acquire all of PFG’s outstanding common stock. This financial information consisted of historical and 2007 estimated revenue and EBITDA, as well as EBITDA margin information and operating expenses as a percentage of revenue, both on a consolidated basis and by operating segment, sales force productivity trends, average drop sizes and gross margin per delivery, earned income for PFG’s broadline operating segment, sample distribution center profitability levels, historical and projected corporate-level expenses and longer-term financial objectives for PFG. This information also included historical industry financial information and trend analysis, management’s then current estimated five-year projected performance for PFG, broken down by net sales, EBITDA, EBIT, net income and diluted earnings per share. The financial information related to PFG was adjusted for the possible closing or consolidation of three of PFG’s distribution centers.

 

PFG’s board of directors met again on July 3, 2007, and received an update regarding Evercore’s progress in soliciting interest from private equity firms. Evercore informed the board that of the four private equity firms previously contacted, PE Firm Y and Blackstone had signed confidentiality agreements and were provided certain financial information but that the other two firms with whom PFG had engaged in discussions regarding the Company A auction were not interested in pursuing a transaction with PFG. Evercore had also contacted a fifth private equity firm that had indicated a willingness to engage in further discussions, but this firm subsequently determined that it was not interested in pursuing a transaction and did not enter into a confidentiality agreement with PFG. Members of management and Evercore updated the board on the meetings that had taken place with PE Firm Y and Blackstone on June 27, 2007 and June 28, 2007, respectively. Representatives of Evercore also noted that Blackstone and PE Firm Y had asked for additional information from PFG in order to further pursue their due diligence. The board discussed with Evercore the advisability of contacting a likely potential strategic acquiror but decided to not do so at that time given the early stages of the discussions. The board also discussed with Evercore’s representatives when PFG might receive initial indications of interest from the private equity firms still interested in pursuing a transaction with PFG.

 

From June 27, 2007 to July 16, 2007, PFG continued to provide information to Blackstone and PE Firm Y and to respond to each firm’s additional due diligence requests.

 

On July 16, 2007 the board met and received an update from Evercore with respect to its contacts with private equity firms who had a potential interest in a business transaction with PFG. Evercore noted that Blackstone orally indicated a preliminary interest in purchasing all of PFG’s common stock at a purchase price of $38-$40 per share in cash. PE Firm Y had stated a preliminary indication of interest at a range of $39-$40 per share in cash. Evercore noted that each firm’s indication of interest was subject to further due diligence and the arranging of financing, and that each had requested access to a data room containing additional information about PFG in order to complete their diligence. The board discussed whether to permit access to a data room at that time and again discussed the advisability of contacting a likely potential strategic acquiror.

 

The board then discussed with Evercore and management the execution risk for PFG of achieving its business plan. The board was provided with the views and opinions of PFG’s senior management regarding the potential advantages and disadvantages to PFG’s shareholders of remaining an independent public company and the risks to PFG of executing its business plan. After discussion, the board authorized management to provide the private equity firms with access to an online data room to allow them to complete their due diligence. The board also determined that it would be in the best interests of PFG’s shareholders to wait to

contact a likely potential strategic acquiror until a reasonable period of time before consideration of a transaction with a private equity firm to see if it would be interested in pursuing a transaction with PFG.

 

From July 16, 2007 into August 2007, management of PFG, together with Evercore and PFG’s legal advisor, began the process of gathering legal and financial due diligence material and established an online data room for use by potential acquirors in conducting their due diligence.

 

During this same time period, the leveraged finance markets began to experience turmoil as a result of the downturn in the residential real estate market and weaknesses in the sub-prime segment of the mortgage-backed securities market. As the debt financing markets began to deteriorate, investors became increasingly unwilling to purchase debt that had previously been committed for previously announced leveraged buyout transactions. As a result, a backlog began to develop for the financing of these transactions. Lenders that had committed to finance these types of transactions were now unable to syndicate the debt on the terms at which the lenders had committed to provide the financing, and many previously announced transactions were stalled as the buyers waited for the lenders to fund these transactions.

 

On July 30, 2007, the PFG board held a meeting to receive a presentation from Evercore on the status of its representatives’ and PFG management’s discussions with Blackstone and PE Firm Y and the current state of the financing markets. The board also asked Evercore to provide its views on other potential alternatives for PFG to grow its business if a sale transaction was not ultimately pursued. At this meeting, Evercore’s representatives provided their views on the status of the financing capital markets generally and the financing market for leveraged buyout transactions specifically. Evercore’s representatives also discussed with the PFG board the possibility for PFG to engage in strategic acquisitions, identifying potential targets and the likely methods for financing any such acquisition as well as Evercore’s analysis of the possible financial impact on PFG of an assumed acquisition.

 

In August 2007, Evercore informed each of Blackstone and PE Firm Y that they would need to have their final indications of interest to PFG in advance of PFG’s August 22, 2007 scheduled board meeting. As a result of the continued turmoil in the leveraged finance markets and the further deterioration of the debt financing markets, Blackstone informed Evercore that it needed additional time to finalize its indication and PE Firm Y informed Evercore that it was not prepared to proceed with the transaction.

 

On September 10, 2007, representatives of Blackstone met with representatives of Evercore to inform them that in light of recent developments in the leveraged finance markets and the deterioration of the debt financing markets it was reducing its indicated price at which it would be willing to consider purchasing all of PFG’s outstanding common stock to $34.00 per share in cash. Alternatively, Blackstone proposed a transaction structure to Evercore whereby PFG would acquire all of the stock of VISTAR in a transaction that would result in the combined entity remaining a public company, with Blackstone and Wellspring owning approximately 20% of the combined company. In this transaction structure, PFG would pay a special dividend to all of its shareholders, including affiliates of Blackstone and Wellspring, following consummation of the merger that would be financed by borrowings.

 

On September 11, 2007, the board held a special meeting to receive an update on Evercore’s continued communications with Blackstone on behalf of PFG. Mr. Spinner reported to the board Blackstone’s reduced indication of interest and representatives of Evercore described for the board Blackstone’s alternative proposal. The board engaged in a discussion of the alternative transaction structure, including the potential positive and negative attributes of the proposal, and whether such a transaction was in the best interests of PFG and its shareholders. Evercore also presented its valuation analysis of VISTAR and the proposed alternative transaction and the mechanics of how the transaction would be effected, before presenting its preliminary valuation analysis of PFG on a stand-alone basis. After discussion, the members of the board determined, that given the information then available to them, the alternative transaction structure was not likely to be in the best interests of PFG’s shareholders.

 

Evercore next presented its preliminary valuation analysis of Blackstone’s reduced indication of interest. After discussion, the board determined that the $34.00 per share indication of interest was unacceptable. The board instructed Evercore to inform Blackstone that PFG was not prepared to engage in further discussions

regarding either the acquisition by PFG of VISTAR or the acquisition of PFG by Blackstone on the terms indicated by Blackstone.

 

Following this meeting, representatives of Evercore communicated to Blackstone and Wellspring that PFG did not intend to have further discussions with them, and Blackstone’s, Wellspring’s and VISTAR’s, as well as their representatives’ and advisors’, access to the online data room was terminated. In the following weeks, representatives of Wellspring indicated to Evercore and PFG that Blackstone and Wellspring might be willing to increase their indicated price per share for PFG’s outstanding stock; subsequently, representatives of Wellspring informed PFG and Evercore that they would increase the price at which they were interested in acquiring all of PFG’s outstanding common stock to $36.00 per share.

 

On October 9, 2007, representatives of Evercore had a telephone conversation with representatives of Blackstone and Wellspring. During that conversation the parties discussed Blackstone’s and Wellspring’s $36.00 per share indication. Blackstone and Wellspring noted that they did not have committed financing at that time but expressed confidence in their ability to obtain a financing commitment for a transaction at that price and requested that PFG grant them permission under the confidentiality agreement to pursue financing with various sources. Blackstone and Wellspring indicated that they anticipated that it would take them three to four weeks to obtain a commitment letter and complete the due diligence they had begun in August.

 

On October 10, 2007, the board met and was presented with Evercore’s update on the process, including Evercore’s conversation with Blackstone and Wellspring on the previous day. Evercore then presented its analysis of Blackstone and Wellspring’s $36.00 per share cash indication price in comparison to PFG management’s internally prepared projections. The board discussed Evercore’s presentation. Representatives of Evercore then left the meeting and representatives of Goldman Sachs & Co., who had previously provided advice to PFG, joined the call to discuss with the board an analysis that they had prepared regarding historical leveraged financed buyouts and the credit markets generally, noting that although the credit markets had improved modestly, structuring leveraged buyout financing had become more complex and expensive than it had been in the past.

 

After discussion of PFG’s business and prospects and current market conditions, the board determined that it would be in the best interests of PFG’s shareholders to continue to negotiate with Blackstone and Wellspring and to contact Company B, a likely potential strategic acquiror, to inquire about its interest in engaging in a possible transaction with PFG. Counsel for PFG was also instructed to prepare a draft merger agreement for a possible transaction with Blackstone, Wellspring and VISTAR.

 

On October 11, 2007, representatives of Evercore also contacted Company B to determine whether it might be interested in pursuing a business combination transaction with PFG. On October 15, 2007, Company B informed Evercore that it had analyzed the possibility of pursuing a transaction with PFG and that it was not interested in pursuing such a transaction.

 

During the week of October 15, 2007, Messrs. Spinner and Austin, together with representatives of Evercore, met with representatives of Blackstone, Wellspring and VISTAR to provide them with certain financial information regarding PFG. At this meeting, representatives of Blackstone and Wellspring also discussed the two private equity firms’ valuation analysis related to a possible transaction and their underlying assumptions, including the impact on their valuation analysis of the potential synergies of PFG and VISTAR and the assumptions about PFG’s business made by Blackstone and Wellspring in connection with their $36.00 per share indication. At the meeting, and in conversations following the meeting, representatives of Blackstone and Wellspring indicated that $36.00 per share was the maximum price that they would be willing to pay for all of PFG’s outstanding common stock.

 

The PFG board met again on October 23, 2007, and was updated on the meeting management and representatives of Evercore had with Blackstone and Wellspring the prior week and on Evercore’s conversations with Company B. Evercore reviewed with the board its analysis of the $36.00 per share indication, noting that it had been informed by Blackstone that this was the highest price Blackstone would be willing to pay. Counsel to PFG discussed with the board a possible time line for reaching an agreement and the material terms likely to be contained in an acquisition agreement. After discussion, the board determined that it was in

the best interests of PFG’s shareholders to continue discussions with Blackstone and Wellspring and agreed to allow Blackstone, VISTAR and Wellspring to again access the online data room and permit them to contact proposed financing sources.

 

During the weeks of October 22, 2007 and October 29, 2007, members of PFG’s management and representatives of Evercore and PFG’s legal advisor had multiple telephone conferences with representatives of Blackstone and Wellspring and their legal and accounting advisors to discuss possible structures for a transaction.

 

During late October and November 2007, Blackstone and Wellspring and their representatives engaged in extensive legal, accounting and financial due diligence, including meeting on numerous occasions with members of PFG’s senior management team.

 

On November 1, 2007, representatives of PE Firm Y contacted Evercore expressing a renewed interest in PFG. Evercore informed PE Firm Y that if it were interested, its price needed to be within 10% of its initial indication of interest.

 

On November 2, 2007 the board of directors met again to discuss the process to date. The terms of a draft merger agreement were summarized by counsel for PFG and the board engaged in general discussion regarding the potential terms of an agreement. The board requested that any draft agreement be circulated to the board before being sent to Blackstone. Representatives of Evercore also informed the board of its recent conversations with PE Firm Y. PFG was never contacted again by PE Firm Y prior to signing the merger agreement about its interest in entering into a possible transaction with PFG.

 

During the week of November 9, 2007, members of PFG’s senior management held meetings with representatives of VISTAR, Blackstone and Wellspring and their potential financing sources in which members of PFG’s management presented this group with certain business and financial information regarding PFG so that the financing sources could reach a decision on lending commitments.

 

On November 9, 2007, PFG received an unsolicited indication of interest in PFG from a diversified company with foodservice operations based outside of the United States, referred to herein as “Company C”. Counsel to PFG negotiated a confidentiality agreement with Company C that was signed on November 15, 2007, and Company C was later granted access to the online data room to conduct due diligence. On November 16, 2007, Messrs. Spinner and Austin and representatives of Evercore met in New York with representatives of Company C to discuss certain PFG financial information and Company C’s interest in a possible transaction with PFG. At this meeting, Company C proposed a transaction structure whereby PFG would acquire certain of Company C’s international foodservice operations, with Company C receiving an ownership interest in PFG. Company C was informed by PFG management and Evercore that, given other alternatives that PFG was considering, it was not likely that PFG would be interested in Company C’s proposed transaction but that if Company C wanted to submit an indication of interest to acquire all of the outstanding stock of PFG that PFG’s board of directors would consider that indication of interest. Company C informed PFG that it would submit a preliminary indication of interest in PFG prior to the board’s scheduled November 28th board meeting.

 

On November 16, 2007, PFG delivered a draft merger agreement and disclosure schedules to Blackstone and Wellspring and their counsel.

 

On November 20, 2007, at a special meeting, the PFG board met again for an update. Evercore updated the board on Company C’s interest and on progress made since its last meeting. Evercore noted that Blackstone and Wellspring continued to have due diligence discussions with PFG’s management but that Blackstone and Wellspring had indicated that they could finalize their due diligence shortly. The board agreed to continue to allow Company C access to the online data room, provided that it delivered an indication of interest to PFG by November 28, 2007, the date of the next scheduled board meeting. Company C subsequently contacted Evercore and informed it that it would not deliver an indication of interest with respect to a transaction to acquire all of PFG’s outstanding common stock, and its and its representatives’ access to the online data room was terminated.

In early December 2007, representatives of Blackstone contacted Evercore to discuss Blackstone’s concerns following its due diligence investigation of PFG. These concerns related to (i) Blackstone’s inability to utilize a portion of the cash on PFG’s balance sheet to finance a portion of the merger consideration because of working capital needs for the business and regulatory capital requirements related to PFG’s captive insurance company; (ii) the impact of reductions to actuarial insurance accruals on 2007 results; (iii) the fact that the proposed capital structure for PFG following consummation of the merger could potentially conflict with several agreements to which PFG or certain of its subsidiaries is a party; and (iv) the terms of PFG’s change in control agreements. Blackstone informed PFG’s management and representatives of Evercore that it needed more time to analyze its diligence findings, including the potentially conflicting agreements, and to consider ways in which Blackstone and PFG might eliminate the potential conflicts following consummation of the merger.

 

On December 6, 2007, Mr. Spinner met with representatives of Blackstone to discuss the various due diligence issues that Blackstone had raised. Blackstone informed Mr. Spinner at this meeting that it was not prepared to assume any costs associated with remedying the potentially conflicting agreements, and that PFG could either agree to secure amendments to the agreements that would eliminate Blackstone’s concerns prior to signing or make securing the amendments a condition to Blackstone’s obligation to close the transaction.

 

On December 10, 2007, PFG held a board meeting at which Mr. Spinner and representatives of Evercore briefed the board on the due diligence issues raised by Blackstone, including Blackstone’s concerns regarding the potential costs of remedying the potentially conflicting agreements, and described for the board Blackstone’s proposed solutions. The board discussed the matter and the proposed solutions and advised management and Evercore to meet with Blackstone and inform Blackstone that none of its proposed solutions were acceptable to PFG but that PFG would continue to work with Blackstone to attempt to find an alternative solution.

 

In mid-December 2007, members of PFG’s management and representatives of Evercore and PFG’s legal advisor held a number of telephone conferences with Blackstone and its representatives and advisors to discuss ways to address Blackstone’s concerns. On December 19, 2007, representatives of Blackstone and Wellspring, along with their legal and financial advisors, and PFG’s management and representatives of PFG’s legal and financial advisor held a telephone conference to discuss the potentially conflicting agreements. During this telephone conference, Blackstone informed PFG that it actively worked with its potential financing sources, legal counsel, accountants and other advisors to refine the proposed capital and organizational structure of PFG following consummation of the merger in light of its diligence findings and that it had identified a potential solution that did not require amending the agreements, but that the solution it had developed involved significant time delay and uncertainty. Blackstone informed PFG’s management that it was not prepared to assume the risk of this alternative, nor was it prepared to absorb any cost associated with this issue. As a result, Blackstone proposed three possible alternatives to solve the issue, resulting in a range of reductions in the per share merger consideration from $0.14 to $2.04 per share. These alternatives contemplated: (i) PFG approaching the counterparties to these agreements in advance of executing a merger agreement regarding their willingness to amend the agreements and, upon obtaining the amendments, entering into a merger agreement; (ii) PFG approaching the counterparties to these agreements regarding their willingness to amend the agreements and inserting a condition to closing in a merger agreement regarding elimination of the potential conflicts arising from the agreements; or (iii) the parties executing a merger agreement that contained a condition to closing regarding elimination of the potential conflicts arising from the agreements, but without approaching the counterparties to these agreements in advance. The parties discussed the three proposed alternatives in detail and PFG’s management informed Blackstone that it would discuss the alternatives with the PFG board.

 

On December 21, 2007, the PFG board of directors met to discuss the status of the parties’ attempts to address Blackstone’s and Wellspring’s concerns related to this issue. Messrs. Spinner and Austin, as well as representatives of Evercore, described the proposals and alternatives in detail for the board, including Blackstone’s efforts to address its concerns in a way that would not require amendments to the agreements but that might result in significant delay, as well as the negative impact on the per share merger consideration of

each of the three alternatives. Representatives of Evercore described for the board the analysis they had prepared of the financial impact of each proposed alternative on the per share merger consideration. After discussing the various proposed alternatives, the board authorized PFG’s management and Evercore to advise Blackstone that the board would be willing to consider a transaction at $35.00 per share in cash, but only if satisfactory resolution of this issue was not a condition to Blackstone’s obligation to close the merger. Later that day, representatives of Evercore contacted representatives of Blackstone to advise them of the PFG board’s position. Blackstone’s representatives immediately informed Evercore that Blackstone was unwilling to pay $35.00 per share, but that it would be willing to consider offering $34.00 per share if Blackstone was not assuming any cost or uncertainty with respect to this issue. Representatives of Evercore responded that Blackstone’s revised offer was unacceptable to the PFG board and the parties ceased discussions regarding a possible transaction. PFG also terminated Blackstone’s, Wellspring’s and VISTAR’s, and their representatives’ and advisors’, access to the online data room.

 

On December 27, 2007, pursuant to a suggestion made by VISTAR’s financial advisor, representatives of Blackstone forwarded Blackstone’s and Wellspring’s comments to the draft merger agreement and disclosure schedules that had been circulated by PFG’s legal advisor on November 16, 2007. Thereafter, on January 4, 2008, representatives of Blackstone informed PFG and Evercore that, based on additional work Blackstone and its advisors had undertaken to analyze the outstanding issues, they had satisfied themselves that they could proceed with the transaction without further conditions or delays based on any remaining diligence issues, but that, in return, they were unwilling to increase their indicated price above $34.00 per share.

 

On January 9, 2008, the PFG board of directors met to discuss the status of the parties’ discussions regarding a possible transaction. Mr. Spinner described for the board the discussions that had taken place between Blackstone’s and Wellspring’s representatives and PFG’s management and Evercore’s representatives since the last board meeting, noting that Blackstone had informed PFG that in light of its earlier due diligence concerns described above, Blackstone was unwilling to offer a price in excess of $34.00 per share in cash. The board discussed the reasons cited by Blackstone and authorized PFG’s management to respond to Blackstone with management’s views on Blackstone’s stated reasons. The board and management discussed their view that it was important to bring this process to a prompt conclusion so that the shareholders could either receive the benefit of any transaction or the management team could eliminate the distraction of the protracted process of considering a transaction. To this end, the board instructed Messrs. Spinner, Austin and Traficanti, along with independent board members John Stokely and Eddie Adair, and PFG’s representatives from Evercore and its legal advisor to meet with Blackstone and Wellspring in person as soon as practicable to attempt to reach a conclusion to this process.

 

On January 14, 2008, Messrs. Spinner, Austin, Traficanti, Stokely and Adair, along with representatives from Evercore and PFG’s legal advisor, met in person with representatives of Blackstone, Wellspring and their legal advisors in New York City. At this meeting, representatives of Blackstone and Wellspring expressed significant interest in entering into a transaction with PFG and described for PFG’s management and board members the status of their financing commitments, noting that the financing commitments had been fully negotiated and that the lenders were prepared to sign the related commitment letters. At this meeting, PFG’s representatives informed Blackstone that its previously indicated price of $34.00 per share was unacceptable to the PFG board and that the comments to the merger agreement sent to PFG on December 27, 2007 were also unacceptable in several respects. Representatives of Blackstone and Wellspring each responded that they were prepared to negotiate quickly to resolve any issues with the comments to the merger agreement sent to PFG on December 27, 2007.

 

Over the course of the remainder of the afternoon the parties and their respective advisors negotiated certain key terms of the merger agreement, including, among other terms, the per share merger consideration, the definition of what would constitute a PFG material adverse effect, the limited guarantees that Blackstone and Wellspring would provide to PFG to support the obligations of VISTAR and Merger Sub under the merger agreement, the termination fee and reverse termination fee payable by the parties in certain circumstances upon termination of the merger agreement, the go-shop and no-shop provisions, including the timing and number of any matching rights that VISTAR would have in the event that PFG received a superior proposal, and certain negative operational covenants during the pre-closing period. Blackstone and Wellspring also indicated on the afternoon of January 14, 2008 that their best and final price was $34.50 per share.

On January 15, 2008, the PFG board held a board meeting to discuss Blackstone and Wellspring’s best and final price of $34.50 per share and the status of certain terms of the merger agreement that the parties had negotiated on January 14, 2008. Messrs. Stokely and Adair described for the board their views on the status of the negotiations of the terms of the merger agreement and the efforts that they and PFG’s management and advisors had taken to increase the certainty for PFG and its shareholders that the transaction would be consummated.

 

On January 15, 2008 the parties and their representatives again met in person to further negotiate the terms of the merger agreement and the ancillary agreements, including the limited guarantees of Blackstone and Wellspring.

 

Over the course of the next two days, the representatives of the parties continued to finalize the terms of the merger agreement and the ancillary agreements.

 

On January 17, 2008, PFG’s board met at the offices of its legal advisor for the primary purpose of considering Blackstone’s and Wellspring’s proposal. Representatives of Evercore and PFG’s legal advisor attended this meeting, as well as certain members of senior management. A representative of PFG’s legal advisor reviewed with the board their applicable fiduciary duties and responsibilities and described for the board in detail the terms of the merger agreement, including the provisions relating to the payment of termination fees and expense reimbursement, the material adverse effect definition, the go-shop and no-shop provisions, the pre-closing negative operational covenants, the disclosure schedules to the merger agreement, and the debt financing commitments in place for VISTAR. Representatives of Evercore then presented their financial analysis with respect to PFG, the proposed merger and certain other available alternatives for enhancing shareholder value. See “The Merger — Opinion of Evercore Group, L.L.C.” beginning on page 28 for a description of the presentation of Evercore. The board considered the $34.50 per share proposal by Blackstone and Wellspring compared to the potential stock price appreciation assumed (based on management’s assumptions as to future financial performance) with respect to PFG’s other available alternatives for enhancing shareholder value (and the execution and other risks associated with each alternative), including the possibility of acquiring certain foodservice distribution companies or returning value to shareholders through a dividend or share repurchase program financed through borrowings.

 

Following further discussion, the board requested that Evercore provide its view regarding the fairness from a financial point of view of the $34.50 per share in cash to be received by holders of PFG’s common stock pursuant to the proposed merger agreement. Representatives of Evercore then rendered an oral opinion, subsequently confirmed by delivery of a written opinion dated January 17, 2008, that, as of that date, and subject to the matters and assumptions set forth in the opinion, the $34.50 per share in cash to be received by the holders of outstanding shares of PFG common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders. The full text of the written opinion of Evercore, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached as Annex B to this proxy statement.

 

Mr. Spinner next presented the views of management regarding the proposed transaction, concluding with management’s recommendation that the Blackstone and Wellspring proposal be approved. Mr. Spinner and Mr. Austin then provided the board with a current business and financial update. Questions were asked regarding Mr. Spinner’s recommendation and the basis for such recommendation, including the viability of other strategic alternatives available to PFG.

 

Following Mr. Spinner’s presentation, the other directors discussed the transaction, the recommendation of management and the presentation by representatives of Evercore. After discussion, the board unanimously adopted and approved the merger agreement and the transactions contemplated by the merger agreement, and unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of PFG and its shareholders and are fair to, and in the best interests of, PFG and PFG’s shareholders. PFG’s board further directed management to include in this proxy statement their recommendation that PFG’s shareholders vote for the approval of the merger agreement and the consummation of the merger.

The merger agreement was executed by the parties on January 18, 2008, following the board meeting and final negotiation of the merger agreement and disclosure schedules. Before the stock market opened on January 18, 2008, PFG issued a joint press release with Blackstone and Wellspring announcing the transaction.

 

In reaching its decision to adopt and approve the merger agreement and the transactions contemplated thereby, including the merger and to recommend that our shareholders approve the merger agreement, our board of directors consulted with management, Evercore and PFG’s outside legal counsel. Our board of directors considered a number of factors, including, without limitation, the following potentially positive factors in support of the merger:

 

 

 

 

 

The board of directors also considered and balanced against the potentially positive factors the following potentially negative factors concerning the merger:

 

 

 

After taking into account all of the factors set forth above, as well as others, the board of directors determined that the potentially positive factors outweighed the potentially negative factors and that the merger agreement and the transactions contemplated thereby, including the merger are advisable, and fair to, and in the best interests of PFG and our shareholders. The members of the board of directors have unanimously adopted and approved the merger agreement and the merger and recommend that PFG’s shareholders vote “FOR” the approval of the merger agreement at the special meeting.

 

This discussion of the information and factors considered by our board of directors is not intended to be exhaustive, but is believed to address the material information and factors considered by our board of directors. In view of the number and variety of these factors, our board of directors did not find it practicable to make specific assessments of, or otherwise assign relative weights to, the specific factors and analyses considered in reaching its determination. The determination to adopt and approve the merger agreement and the transactions contemplated thereby, including the merger, was made after consideration of all of the factors and analyses as a whole. In deciding to adopt and approve the merger agreement and the transactions contemplated thereby, including the merger, individual members of our board of directors may have given different weights to the different factors considered by our board of directors.

 

Pursuant to a letter agreement dated August 1, 2007, PFG engaged Evercore to act as its financial advisor in connection with evaluating strategic and financial alternatives. At a meeting of the board of directors of PFG on January 17, 2008, Evercore presented to the board of directors Evercore’s financial analyses with respect to whether the merger consideration to be received by the holders of PFG’s common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders. In the course of this presentation, the members of the board of directors were reminded or informed of the material assumptions that Evercore made in carrying out its analyses, the matters considered by Evercore and the limits of Evercore’s review. At that meeting Evercore orally rendered its opinion to the board of directors, which oral opinion was subsequently confirmed in a written opinion dated January 17, 2008, that, as of January 17, 2008, based upon and subject to the assumptions made, matters considered and limits of the review undertaken by Evercore, the merger consideration to be received by the holders of PFG common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

The full text of Evercore’s written opinion, dated January 17, 2008, is attached as Annex B to this proxy statement. You are encouraged to read Evercore’s opinion carefully in its entirety, as it sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Evercore in rendering its opinion. The following is a summary of Evercore’s

opinion and the methodology that Evercore used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

 

Evercore’s opinion only addresses the fairness from a financial point of view of the merger consideration to be received by holders of shares of PFG common stock pursuant to the merger agreement, and Evercore was not asked to express, nor has it expressed, any opinion with respect to any other aspect of the merger. Specifically, Evercore does not express any view on, and its opinion does not address, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of PFG, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of PFG, or any class of such persons, whether relative to the merger consideration or otherwise. Evercore assumed that any modification to the structure of the merger will not vary in any respect material to its analysis. Evercore’s opinion does not address the relative merits of the merger as compared to other business or financial strategies that might be available to PFG, nor does it address the underlying business decision of PFG to engage in the merger. Evercore’s opinion does not constitute a recommendation to the board of directors or to any other persons in respect of the merger, including as to how any holder of shares of PFG common stock should vote or act in respect of the merger. Evercore is not a legal, regulatory, accounting or tax expert and has assumed the accuracy and completeness of assessments by PFG and its advisors with respect to legal, regulatory, accounting and tax matters.

 

Evercore’s opinion was addressed to, and for the information and benefit of, the board of directors of PFG in connection with their evaluation of the merger. Evercore expresses no opinion as to the price at which any securities of PFG will trade at any future time.

 

In connection with rendering its opinion, Evercore, among other things:

 

 

In arriving at its opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore

assumes no liability therefor. For purposes of rendering its opinion, members of the management of PFG provided Evercore with certain financial projections, which we refer to as the management projections. With respect to the management projections, Evercore assumed that they were reasonably prepared on bases reflecting the best available estimates and good faith judgments of PFG management as to the matters covered thereby.

 

In arriving at its opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to the consummation of the merger will be satisfied without material waiver or modification thereof. Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the merger will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on PFG or the consummation of the merger or materially reduce the benefits of the merger. Evercore also assumed that the final form of the merger agreement would not differ in any material respect from the last draft of the merger agreement reviewed by Evercore.

 

Evercore does not make or assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of PFG, nor has Evercore been furnished with any such appraisals, nor has Evercore evaluated the solvency or fair value of PFG under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to it as of, January 17, 2008. It is understood that subsequent developments may affect Evercore’s opinion and that Evercore does not have any obligation to update, revise or reaffirm its opinion.

 

In receiving Evercore’s opinion on January 17, 2008 and reviewing with Evercore the written materials prepared by Evercore in support of its opinion, the board of directors of PFG was aware of the assumptions and other matters discussed above. The opinion was approved by the Opinion Committee of Evercore.

 

Evercore’s opinion was only one of many factors considered by the board of directors of PFG in its evaluation of the merger and should be viewed together with the other factors considered by the PFG board of directors. For a discussion of the other factors considered by the PFG board of directors, see “The Merger — Reasons for the Merger — Recommendation of the Board of Directors” beginning on page 26 of this proxy statement.”

 

Summary of Analyses

 

The following is a summary of the material analyses performed by Evercore and presented to the board of directors of PFG in connection with rendering its opinion. This summary is qualified in its entirety by reference to the full text of Evercore’s written opinion, which is attached as Annex B to this proxy statement. You are urged to read the full text of the Evercore opinion carefully in its entirety for the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Evercore.

 

Some of the financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully the financial analyses, the summary data and tables must be read together with the full text of the analyses. The summary data and tables alone are not a complete description of the financial analyses. Considering the summary data and tables alone could create a misleading or incomplete view of Evercore’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 17, 2008, and is not necessarily indicative of current market conditions.

 

Historical Public Market Trading Levels Analysis

 

Evercore reviewed the historical high and low closing prices of PFG common stock over the 52 weeks ended on January 16, 2008. The table below illustrates the premium or discount implied by the $34.50 per

share merger consideration to the closing price of PFG common stock on January 16, 2008 and the high and low closing share prices of PFG common stock for that period.

 

 

Selected Public Company Trading Analysis

 

Using publicly available information, Evercore reviewed the market values and implied trading multiples of selected publicly traded food and foodservice distribution companies that Evercore deemed to be similar to PFG for purposes of this analysis. These companies were chosen because they are publicly traded companies in the United States that operate in similar industries to PFG and have similar lines of business to PFG. Evercore noted, however, that none of the selected publicly traded companies is identical or directly comparable to PFG.

 

Food and Foodservice Distributors

 

Nash-Finch Company

Spartan Stores, Inc.

Supervalu Inc.

Sysco Corporation

United Natural Foods, Inc.

 

Evercore calculated and analyzed the ratio of total enterprise value, which we refer to as TEV, to estimated 2007 calendar year earnings before interest, taxes, depreciation and amortization, or EBITDA, for the above selected publicly-traded companies, as well as the ratio of TEV to estimated 2008 calendar year EBITDA. Review of TEV to EBITDA multiples is a customary form of valuation analysis for businesses of this type. Evercore calculated all multiples for the selected companies based on each respective company’s closing share prices as of January 16, 2008. These calculations were based on publicly available financial data including I/B/E/S International, Inc., or I/B/E/S, estimates. I/B/E/S is a data source that monitors and publishes a compilation of earnings per share and other financial data produced by selected research analysts on companies of interest to investors. The range of implied multiples that Evercore calculated is summarized below:

 

 

Evercore then applied ranges of selected multiples derived from those described above for the selected companies to corresponding financial data based on financial projections provided by management of PFG. The 2007 estimated EBITDA multiples ranged from 6.5x to 8.5x and the 2008 estimated EBITDA multiples ranged from 5.5x to 7.5x. These ranges of multiples were then applied to the relevant EBITDA metrics in

order to derive an implied per share equity value reference range. The ranges of implied per share equity values for PFG derived from this analysis are summarized below:

 

 

Precedent Transactions Analysis

 

Evercore performed an analysis of selected merger and acquisition transactions involving companies that Evercore deemed to be similar in certain respects to the proposed merger because such transactions occurred in industry sectors similar to PFG’s operations and overall business. Evercore identified and analyzed a group of 12 merger and acquisition transactions of food and foodservice distribution companies that were announced between 2000 and 2007. Evercore calculated the enterprise value as a multiple of EBITDA during the last twelve months prior to the acquisition, or LTM, implied by these transactions. Multiples for the selected transactions were based on publicly available financial information. Although none of the transactions is, in Evercore’s opinion, identical or directly comparable to the merger, the transactions included were chosen because, in Evercore’s opinion, they may be considered similar to the merger in certain respects for purposes of Evercore’s analysis.

 

 

The range of implied multiples that Evercore calculated is summarized below:

 

 

Evercore applied LTM EBITDA multiples ranging from 10.0x to 13.0x (13.0x being the highest such multiple in any of the transactions listed in the table above). This range of multiples was then applied to the

relevant estimated EBITDA metrics as of December 31, 2007 in order to derive an implied enterprise value reference range and, with appropriate adjustments, an implied per share equity reference range. The range of implied per share equity values for PFG derived from this analysis are summarized below:

 

 

Discounted Cash Flow Analysis

 

Evercore performed a discounted cash flow, or DCF, analysis, which calculated the present value of PFG’s future unlevered, after-tax free cash flow based upon assumptions with respect to such cash flow and assumed discount rates. The financial forecast used in Evercore’s DCF analysis was based upon the management projections.

 

Evercore calculated ranges of estimated terminal values by multiplying either (i) calendar year 2009 estimated EBITDA, or (ii) calendar year 2011 estimated EBITDA, by selected multiples ranging from 6.5x to 8.5x. Evercore performed this DCF analysis on both a two-year and four-year basis because management’s projections contemplated operating improvements in the third and fourth years of the business plan. The estimated interim after-tax free cash flows and terminal values were then discounted to present value at December 31, 2007 using weighted average cost of capital discount rates of 8.5% to 10.5%. The range for weighted average cost of capital was determined by application of the capital asset pricing model to PFG as well as to the companies identified above under the caption “Selected Public Company Trading Analysis” to determine their after-tax weighted average cost of capital. The terminal EBITDA multiple range of 6.5x to 8.5x was selected based on a review of current and historical EBITDA trading multiples of PFG, as well as of companies identified above under the caption “Selected Public Company Trading Analysis.” In deriving the equity value, Evercore assumed net debt as of December 31, 2007 of $42 million. This analysis indicated the following implied per share equity reference ranges for PFG:

 

 

While discounted cash flow analysis is a widely used valuation methodology, it necessarily relies on numerous assumptions, including assets and earnings growth rates, terminal values and discount rates. As a result, it is not necessarily indicative of PFG’s actual, present or future value or results, which may be significantly more or less favorable than suggested by such analysis.

 

Present Value of Equity

 

Evercore performed a present value of future stock price analysis of PFG based upon the management projections. Evercore calculated implied per share equity reference ranges by (i) calculating the implied terminal value per share by multiplying either (a) calendar year 2009 estimated earnings per share by selected multiples ranging from 14.0x to 18.0x, or (b) calendar year 2011 estimated earnings per share by selected multiples ranging from 16.0x to 20.0x, and then (ii) discounting the implied per share equity value to present value at December 31, 2007 using an equity discount rate of 10.0%. The terminal earnings per share multiple range was selected based on a review of current and historical trading multiples of PFG, as well as of

companies identified above under the caption “Selected Public Company Trading Analysis.” This analysis indicated the following implied per share equity reference range for PFG:

 

 

Leveraged Buyout Analysis

 

Based upon the future unlevered free cash flows described above, Evercore analyzed a potential valuation of PFG based upon a hypothetical leveraged buyout of the company by a generic financial sponsor, taking into account expectations for financial returns typical of such investors. Evercore assumed, among other things, the following in its leveraged buyout analysis: (i) an entry leverage debt multiple of 5.1x 2007 estimated EBITDA on terms consistent with the indicative terms proposed in the debt financing package provided to VISTAR by its financing sources under the debt and equity commitment letters; (ii) a range of selected exit multiples of 6.5x to 8.5x calendar year 2011 estimated EBITDA; and (iii) an equity investment that would achieve an annual rate of return during the investment period beginning December 31, 2007 of 20.0%. The exit EBITDA multiple range was selected based on a review of current and historical trading multiples of PFG, as well as of companies identified above under the caption “Selected Public Company Trading Analysis.” This analysis indicated the following implied per share equity reference range for PFG:

 

 

General

 

The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. As a result, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Evercore made qualitative judgments as to the significance and relevance of each analysis and factor that it considered. Accordingly, Evercore believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, without considering all analyses and factors, could create a misleading or incomplete view of the processes underlying its analyses and opinion. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions, so that the ranges of valuations resulting from any of the foregoing analyses should not be taken to be Evercore’s view of the actual value of PFG. The foregoing summary does not purport to be a complete description of all analyses performed by Evercore.

 

Evercore made numerous assumptions with respect to risks associated with industry performance, general business and economic conditions and other matters, many of which are beyond the control of PFG. Any estimates contained in Evercore’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Evercore’s analysis of the fairness of the merger consideration to be received by the holders of PFG common stock pursuant to the merger agreement, from a financial point of view, to such holders and were prepared in connection with the delivery by Evercore of its opinion to the board of directors of PFG.

 

The merger consideration was determined through the course of negotiations with Blackstone, Wellspring and VISTAR. Evercore provided advice to PFG during these negotiations. Evercore did not, however, recommend any specific merger consideration to PFG or suggest that any specific merger consideration constituted the only appropriate merger consideration.

Evercore is an internationally recognized investment banking and advisory firm. Evercore, as part of its investment banking business, is continuously engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, competitive biddings and valuations for corporate, estate and other purposes. The board of directors of PFG selected Evercore because its investment banking professionals have had substantial experience in transactions comparable to the merger. In the ordinary course of its business, Evercore and its affiliates may from time to time trade in the securities or the indebtedness of PFG, Wellspring and Blackstone, or their respective affiliates or any currencies or commodities (or derivative thereof) for (i) its own account, (ii) the accounts of investment funds and other clients under the management of Evercore and (iii) for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities, indebtedness, currencies or commodities (or derivative thereof) for any such account.

 

Pursuant to the terms of an engagement letter, PFG has agreed to pay Evercore an advisory fee of $10,000,000, (i) $200,000 of which was paid to Evercore upon signing the engagement letter, (ii) $1,750,000 of which was paid to Evercore following delivery of its written fairness opinion and (iii) the remainder of which is contingent upon, and payable upon, consummation of the merger. PFG has also agreed to reimburse Evercore for reasonable and customary out of pocket expenses (including legal fees) incurred in performing its services. In addition, PFG has agreed to indemnify Evercore and any of its members, partners, officers, directors, advisors, representatives, employees, agents, affiliates or controlling persons, against any losses, claims, damages, liabilities, or expenses to which any such person described above may become subject under any applicable federal or state law, or otherwise, related to, or arising out of or in connection with Evercore’s engagement by PFG, Evercore’s performance of any service pursuant to the engagement letter or any transaction contemplated by the engagement letter. Prior to this engagement, Evercore and its affiliates provided financial advisory services to PFG but did not receive fees for the rendering of those services other than reimbursement of expenses.

 

PFG’s senior management does not as a matter of course make public projections as to future performance or earnings beyond the current fiscal year and is especially wary of making projections for extended earnings periods due to the unpredictability of the underlying assumptions and estimates. However, senior management did provide financial forecasts to Blackstone, Wellspring, VISTAR and other potential acquirors and their advisors and potential financing sources in connection with their consideration of a possible transaction with PFG. These projections, and others, were also provided to PFG’s board of directors and to Evercore, PFG’s financial advisor. We have included in this proxy statement the projections that were deemed material by our board of directors for purposes of considering and evaluating the merger. The inclusion of these projections should not be regarded as an indication that management, our board of directors or Evercore or any other recipient of these or other financial projections considered, or now considers, these projections, or any other projections provided in connection with the transaction, to be a reliable prediction of future results and they should not be relied on as such. In addition, because the financial projections summarized in the table below were based on PFG’s preliminary results for 2007, the detailed 2008 budget prepared by management and the determination of PFG to close only one distribution center, and reflected the economic and industry conditions in effect at the time that its board of directors approved the merger agreement, PFG believes that these projections better reflect PFG’s expectations with respect to its future financial performance than any other projections prepared by management in connection with the transaction, including those provided to Blackstone, Wellspring, VISTAR, PE Firm Y, and Blackstone’s, Wellspring’s and VISTAR’s advisors and potential financing sources, as described below.

 

PFG believes that the assumptions PFG’s management used as a basis for the projections were reasonable at the time the projections were prepared, given information PFG’s management had at the time. However, the projections do not take into account any circumstances or events occurring after the date they were prepared and you should not assume that the projections remain accurate as of the date of this proxy statement or that the projections will continue to be accurate or reflective of PFG’s management’s view at the time you consider whether to vote for approval of the merger agreement. The internal financial forecasts upon which these projections were based are subjective in many respects and are thus susceptible to various interpretations. The

projections reflect numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond PFG’s control. The projections are also subject to significant uncertainties in connection with changes to PFG’s business and its financial condition and results of operations, and include numerous estimates and assumptions related to PFG’s business that are inherently subject to significant economic, political and competitive uncertainties, including those factors described above under “Special Note Regarding Forward-Looking Statements” beginning on page 12, all of which are difficult to predict and many of which are beyond PFG’s control. As a result, although the projections set forth below were prepared in good faith based upon assumptions believed to be reasonable at the time the projections were prepared, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. Since the projections set forth below cover multiple years, such information by its nature becomes less reliable with each successive year.

 

The financial projections, including projections of EBITDA, set forth below were not prepared with a view toward public disclosure or toward complying with United States generally accepted accounting principles, or GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. PFG’s independent registered public accounting firm has not examined or compiled any of the financial projections, expressed any conclusions or provided any form of assurance with respect to the financial projections and, accordingly, assumes no responsibility for them.

 

Our use of the term EBITDA may vary from others in our industry. EBITDA should not be considered as an alternative to net income (loss), operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows as measures of liquidity. EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our actual results as reported under GAAP. For example, EBITDA:

 

 

Since the date of the projections described below, PFG has made publicly available its actual results of operations for the fiscal year ended December 29, 2007. You should review PFG’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007 to obtain this information. See “Where You Can Find More Information” beginning on page 80. Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the financial projections set forth below. No one has made or makes any representation to you regarding the information included in these projections or the future financial results of PFG.

 

For the foregoing reasons, as well as the bases and assumptions on which the financial projections presented below were compiled, the inclusion of these specific portions of the financial projections in this proxy statement should not be regarded as an indication that such projections will be an accurate prediction of future results or events, and they should not be relied on as such. Except as required by applicable securities laws, PFG has not updated and does not intend to update or otherwise revise the financial projections or the specific portions presented below to reflect circumstances existing after the date when such projections were made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the projections are shown to be in error.

A summary of the above-described financial projections is set forth below:

 

 

 

 

The projected financial information set forth in the table above was prepared by members of PFG’s senior management and was based on the latest operating results available to management at that time for the 2007 fiscal year and the detailed 2008 budget that management had developed at the time. In developing the projected financial information for the fiscal years 2008 through 2011, management made numerous assumptions about our business, our industry, the restaurant industry, and general business and economic conditions.

 

From time to time in the ordinary course of business members of PFG’s senior management prepare, update and refine internal financial forecasts based on the latest operating results and plans available to management at the time. In preparation for meetings with PE Firm Y on June 27, 2007 and Blackstone on June 28, 2007, members of PFG’s senior management prepared preliminary five-year financial projections for PFG that were based on the operating results available to management at that time. These projections, which were prepared for the purpose of eliciting a full valuation at which Blackstone and PE Firm Y would be willing to acquire all of PFG’s outstanding common stock, were prepared in light of then current economic and industry conditions and were further adjusted for the potential impact of the possible closure of three distribution centers. These projections were provided to PE Firm Y on June 27, 2007 and Blackstone on June 28, 2007 at the meetings between the parties and PFG’s members of senior management present at the meetings described for PE Firm Y and Blackstone the assumptions underlying these projections.

 

On November 9, 2007, members of PFG’s senior management met with representatives of Blackstone, Wellspring, VISTAR and their advisors and potential financing sources to discuss PFG’s business operations and results of operations through the first three quarters of 2007. At this meeting, PFG’s senior management presented updated five-year financial projections to Blackstone, Wellspring, VISTAR and the advisors and potential financing sources that had been refined based on PFG’s latest operating results and plans available to management and in light of then current economic and industry conditions and management’s then current view with respect to possibly reducing the number of PFG’s distribution centers that were being considered for

closure to two. PFG management also had revised these projections in light of the challenging economic environment that had continued to develop as well as the increasingly challenging environment then being faced by restaurant companies in general, and those in the casual dining segment in particular. These financial projections had also been revised to reflect management’s then current views with respect to the possible reduction in the number of distribution centers that should be considered for closure.

 

We have not updated and do not intend to update or otherwise revise these projections to reflect circumstances existing since their preparation or to reflect the occurrence of subsequent events even in the event that any or all of the underlying assumptions are no longer appropriate.

 

At the effective time of the merger, Merger Sub will be merged with and into PFG. In connection with the merger and subject to the conditions set forth in the merger agreement:

 

 

If the merger is completed, the PFG common stock will be delisted from the NASDAQ Global Select Market and deregistered under the Securities Exchange Act of 1934, and we will no longer file periodic reports with the SEC on account of the PFG common stock.

 

Under the HSR Act and the rules promulgated thereunder by the FTC, the merger cannot be completed until PFG and affiliates of Blackstone each file a notification and report form under the HSR Act and the applicable waiting period has expired or been terminated. PFG and such affiliates of Blackstone filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ on February 21, 2008 and February 20, 2008, respectively, and the waiting period under the HSR Act expired at 11:59 p.m. eastern time on March 24, 2008. At any time before or after consummation of the merger, notwithstanding the termination of the waiting period under the HSR Act, the Antitrust Division or the FTC could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of PFG or

VISTAR or its private equity sponsors. At any time before or after the consummation of the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of PFG or VISTAR or its private equity sponsors. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

While there can be no assurance that the merger will not be challenged by a governmental authority or private party on antitrust grounds, PFG believes that the merger can be effected in compliance with federal, state and foreign antitrust laws. The term “antitrust laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other federal, state and foreign statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

 

In connection with the merger, VISTAR will cause approximately $1,240,546,380.24 (based upon the number of shares of common stock (including shares of restricted stock), options to purchase shares of common stock and stock appreciation rights, with an exercise price or grant price of less than $34.50 per share, outstanding as of January 15, 2008) to be paid out to our shareholders and holders of other equity interests in PFG, with any remaining funds to be used to repay existing indebtedness of VISTAR and PFG and to pay fees and expenses in connection with the proposed merger, the financing arrangements and the related transactions. These payments are expected to be funded by a combination of the following:

 

 

In addition, Blackstone and Wellspring will continue to beneficially own additional equity in VISTAR valued at approximately $150 million.

 

Equity Financing

 

VISTAR’s indirect parent company has received equity commitment letters from private equity funds affiliated with each of Blackstone and Wellspring, pursuant to which the funds have committed to contribute or cause to be contributed an aggregate of $759.5 million in cash to it in connection with the proposed merger. The Blackstone and Wellspring funds have the right to effect the purchase of the equity directly or indirectly through affiliated entities or other designated co-investors, provided that this will not affect the equity commitments of Blackstone’s and Wellspring’s affiliated funds. The obligations of the Blackstone and Wellspring funds, respectively, to fund or cause the funding of these equity commitments are subject to the satisfaction or waiver by VISTAR and Merger Sub (as determined by the Blackstone fund) of each of the conditions precedent to VISTAR’s and Merger Sub’s obligations to complete the merger, in the case of the Wellspring fund’s equity commitment, the substantially concurrent funding of the equity investment of the Blackstone fund, and the substantially concurrent consummation of the merger in accordance with the merger agreement. In the event that VISTAR does not require all of the equity commitments in order to consummate the merger and pay any related fees and expenses, the amount to be funded will be reduced in a manner determined by Blackstone and Wellspring.

Debt Financing

 

Commitment Letter — Credit Facilities

 

VISTAR’s indirect parent company and VISTAR have received a fully executed commitment letter dated as of January 18, 2008 (the “Credit Facilities Commitment Letter”), from Wachovia Capital Markets, LLC (“WCM”), Wachovia Bank, National Association (“Wachovia Bank”), Credit Suisse Securities (USA) LLC (“CS Securities”), Credit Suisse (“Credit Suisse”), GE Capital Markets, Inc. (“GECM”) and General Electric Capital Corporation (“GE Capital”). The Credit Facilities Commitment Letter provides for up to $1.1 billion in a senior secured asset-based revolving credit facility or, if availability under the asset-based revolving credit facility would be less than $165 million at closing (after giving effect to extensions of credit on the closing date), up to $825 million in senior secured credit facilities consisting of a $100 million revolving credit facility, a $75 million synthetic letter of credit facility and a $650 million term loan facility for the purposes of financing the merger, repaying or refinancing certain existing indebtedness of VISTAR and its subsidiaries and of PFG and our subsidiaries, paying fees and expenses incurred in connection with the merger and the other transactions contemplated in connection therewith, including the financing, providing working capital and for other general corporate purposes of VISTAR and its subsidiaries (including the surviving corporation).

 

Subject to the terms and conditions set forth in the Credit Facilities Commitment Letter, the initial lenders indicated below have each severally, but not jointly, committed to provide the indicated percentage of the senior secured credit facilities that are the subject of the Credit Facilities Commitment Letter:

 

 

The commitments pursuant to the Credit Facilities Commitment Letter expire on July 31, 2008.

 

The documentation governing the senior secured credit facilities has not been finalized and, accordingly, the actual terms of the facilities may differ from those described in this proxy statement.

 

Conditions Precedent to the Commitments Under the Credit Facilities Commitment Letter

 

The availability of the senior secured credit facilities is subject to, among other things:

 

 

 

Commitment Letter — Senior Notes

 

The indirect parent of VISTAR and VISTAR have received a fully executed commitment letter dated as of January 18, 2008 (the “Senior Notes Commitment Letter”), from WCM, Wachovia Investment Holdings, LLC (“Wachovia Investments”), DLJ Investment Partners III, L.P. (“DLJ III”), DLJ Investment Partners, L.P. (“DLJ”), IP III Plan Investors, L.P. (“IP”), Blackstone Mezzanine Partners II L.P. (“Blackstone Mezzanine”), Blackstone VPS Capital Partners V L.P. (“VPS”), Blackstone VPS Capital Partners V-AC L.P. (“VPS-AC”), Blackstone Participation Partnership V VPS L.P. (“Participation”), Blackstone Family Investment Partnership V VPS L.P. (“Family”), Blackstone Family Investment Partnership V-SMD L.P. (“Family SMD”), and Wellspring Capital Partners IV, L.P. (“Wellspring IV”). The Senior Notes Commitment Letter provides for the purchase of up $300 million in senior notes issued by VISTAR for the purposes of financing the merger, repaying or refinancing certain existing indebtedness of VISTAR and its subsidiaries and of PFG and our subsidiaries and paying fees and expenses incurred in connection with the merger and the other transactions contemplated in connection therewith.

Subject to the terms and conditions set forth in the Senior Notes Commitment Letter, the initial purchasers indicated below have each severally, but not jointly, committed to purchase the indicated amount of the senior notes of VISTAR that are the subject of the Senior Notes Commitment Letter:

 

 

The commitments pursuant to the Senior Notes Commitment Letter expire on July 31, 2008.

 

The documentation governing the senior notes has not been finalized and, accordingly, the actual terms of the senior notes may differ from those described in this proxy statement.

 

Conditions Precedent to the Commitments Under the Senior Notes Commitment Letter

 

The availability of the senior notes is subject to, among other things:

 

 

 

Alternative Financing Arrangements

 

Pursuant to the merger agreement, VISTAR is obligated to use its reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable to arrange the debt financing on the terms and conditions set forth in the debt commitment letters (subject to certain exceptions). In the event that any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letters, VISTAR must use its reasonable best efforts to arrange to obtain alternative financing from alternative sources in an amount sufficient, when combined with the funds under the equity commitment letters, to consummate the transactions contemplated by the merger agreement on terms not materially less favorable to VISTAR in the aggregate (as determined in the good faith reasonable judgment of VISTAR) than the debt financing (including the flex provisions related to the debt financing) as promptly as practicable following the occurrence of such event but no later than the closing as defined in the merger agreement (see “The Merger Agreement — Marketing Period”).

 

The merger agreement does not contain any condition relating to the receipt of financing by VISTAR. VISTAR is not required to consummate the merger until the completion of the marketing period described under “The Merger Agreement — Marketing Period.” VISTAR and Merger Sub may replace or amend the debt commitment letters, which may include changing, among other things, the types and amounts of debt and the terms of the debt used to finance the merger, so long as such amendments would not adversely impact the ability of VISTAR and Merger Sub to timely consummate the transactions contemplated by the merger agreement or the likelihood of the consummation of the transactions contemplated by the merger agreement. See “The Merger — Financing of the Merger” beginning on page 39.

 

In connection with the merger agreement, private equity funds affiliated with each of Blackstone and Wellspring have executed limited guarantees in which they each agree to guarantee the due and punctual payment of up to $30.0 million and $10.0 million, respectively of the VISTAR termination fee subject to the terms and limitations set forth in the merger agreement and the limited guarantees, including a cap on each fund’s liability under each of the limited guarantees. If the VISTAR termination fee is paid, then PFG’s termination of the merger agreement and receipt of payment of the $40.0 million VISTAR termination fee shall be the sole and exclusive remedy of PFG and PFG’s subsidiaries against VISTAR, Merger Sub, and any of their respective current, former or future representatives, affiliates, directors, officers, employees, partners, managers, members, or stockholders for any loss or damage suffered as a result of the breach of the merger agreement or any representation, warranty, covenant or agreement contained therein by VISTAR or Merger Sub or the failure of the merger to be consummated. The merger agreement also provides that PFG shall not be entitled to an injunction or injunctions to prevent breaches of the merger agreement by VISTAR or Merger Sub or to enforce specifically the terms and provisions of the merger agreement.

 

Notwithstanding anything to the contrary in the merger agreement, to the extent that PFG incurs any losses or damages in connection with the merger agreement or the transactions contemplated thereby, under the merger agreement the maximum aggregate liability of VISTAR and Merger Sub is limited to $40.0 million, inclusive of any termination fee, and the maximum liability, directly or indirectly, of each of the Blackstone and Wellspring private equity funds party to the limited guarantees is limited to the express obligations of the

funds under their respective limited guarantees. Each limited guarantee will remain in full force and effect until the earlier of:

 

 

If PFG or any of its affiliates asserts a claim other than as permitted under the limited guarantees, including that the limitations on each guarantor’s liability under the limited guarantees or that any provision of the limited guarantees, are illegal, invalid, or unenforceable in whole or in part, then the limited guarantees will immediately terminate and become null and void by their terms.

 

In considering the recommendations of the board of directors, PFG’s shareholders should be aware that certain of PFG’s directors and executive officers have interests in the transaction that may be different from, and/or in addition to, the interests of PFG’s shareholders generally. Our board of directors was aware of these potential conflicts of interest when reaching its decision to adopt and approve the merger agreement and to recommend that our shareholders vote in favor of approving the merger agreement.

 

Treatment of Equity Awards

 

Upon the consummation of the merger, all of our equity compensation awards (including our awards held by directors and executive officers), except as agreed by PFG and VISTAR, will be subject to the treatment described under “The Merger Agreement — Treatment of Options and Other Awards.” All of the related cash payments will be without interest and less any applicable withholding tax requirements.

 

The table below sets forth, as of April 3, 2008, for each of our directors and executive officers (before any deduction for applicable withholding tax requirements):

 

 

 

 

 

Change in Control Agreements

 

We have entered into agreements with certain of our key executives, including each of our executive officers, which provide for certain payments to be made to the executive if, within two years following a change in control of PFG (which will occur at the effective time of the merger), his or her employment with PFG is terminated by PFG for any reason other than Good Cause (as defined below) or if the executive terminates his or her employment with PFG for Good Reason (as defined below). Upon either such termination, the executive is entitled to receive:

 

(i) 299.9% of his or her base salary (defined as the higher of the executive’s annual base salary immediately prior to the change in control of PFG or the executive’s highest annual base salary in effect after the change in control but prior to termination);

 

(ii) 299.9% of his or her bonus (based upon the executive’s average percentage of his bonus paid for each of the three calendar years prior to the change in control to his then current base salary multiplied by the executive’s annual base salary immediately prior to the change in control or the highest bonus percentage after the change in control multiplied by the executive’s highest annual base salary after the change in control, whichever is higher); and

 

(iii) an amount necessary to reimburse the executive for any excise tax payable under Section 4999 of the Internal Revenue Code of 1986, as amended, which we refer to herein as the “Code”, in connection with the change in control.

 

In accordance with the terms of the agreements, one-third of the amounts payable pursuant to clauses (i) and (ii) must be paid in equal semi-monthly installments over the twelve months following termination and the balance in a lump sum payment made within five business days after the expiration of the twelve-month period. Amounts payable pursuant to clause (iii) above must be paid within thirty days following termination of employment. Alternatively, the agreements provide that the executive may elect to receive all of the amounts payable pursuant to clauses (i), (ii) and (iii) above within thirty days following termination of employment. In addition to the payments described above, the executive and his or her spouse and family will be covered by all health, dental, disability, survivor income and life insurance plans of PFG for the twelve-

month period following the termination of service unless the executive and his spouse and family are eligible for coverage under any new employer’s plan.

 

For purpose of the executive change in control agreements described above, “Good Cause” exists if after the occurrence of a change in control of PFG:

 

(1) the executive engages in material acts or omissions constituting dishonesty, breach of fiduciary obligation or intentional wrongdoing or malfeasance which are demonstrably injurious to PFG; or

 

(2) the executive is convicted of a violation involving fraud or dishonesty.

 

For purpose of the executive change in control agreements described above, “Good Reason” exists if after the occurrence of a change in control of PFG:

 

(1) there is a significant change in the nature or the scope of the executive’s authority; or

 

(2) there is a reduction in the executive’s rate of base salary;

 

(3) PFG changes the principal location in which the executive is required to perform services outside a 35 mile radius of such location without the executive’s consent;

 

(4) there is a reasonable determination by the executive that, as a result of a change in circumstances significantly affecting his position, he or she is unable to exercise the authority, powers, functions or duties attached to his position; or

 

(5) PFG terminates or amends any incentive, bonus, deferred compensation or similar plan or arrangement (an Incentive Plan) so that, when considered in the aggregate with any substitute plan or other substitute compensation, the Incentive Plan in which he or she is participating fails to provide him or her with a level of benefits equivalent to at least 75% of the value of the level of benefits provided in the aggregate by the terminated or amended Incentive Plan at the date of such termination or amendment and such a decline is not related to a decline in performance.

 

The executive change in control agreements also contain certain confidentiality and non-competition covenants, including that for a period of one year following a termination described above, the executive generally cannot directly or indirectly own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business which is in competition with any business conducted by PFG or any affiliate of PFG in any state in which PFG or any affiliate of PFG conducts business on the date of the change in control.

 

The executive officers are also entitled, upon termination under certain circumstances, to certain payments under the PFG Amended and Restated Senior Management Severance Plan, which we refer to as the senior management severance plan, including discretionary transition pay, severance pay up to 93 weeks, and a prorated bonus. The senior management severance plan states, however, that in the event that an executive receives benefits pursuant to a change in control agreement, the executive is not entitled to any benefits pursuant to the senior management severance plan.

 

The following table shows the amount of potential cash payments (bonus and base salary multiples) payable to each of our executive officers under the change in control agreements described above based on compensation and benefit levels in effect on April 3, 2008, and assuming the merger is completed on July 31, 2008, and the executive’s employment terminates effective July 31, 2008 under circumstances that entitle him or her to the potential severance payments immediately thereafter. The table also shows the estimated value of continuing insurance benefits and the estimated value of tax reimbursement expected to be due under

Section 4999 of the Code and the change in control agreements in respect of these severance payments and the other payments and benefits described in this proxy statement.

 

 

Supplemental Executive Retirement Plan

 

PFG maintains a Supplemental Executive Retirement Plan, or SERP, in which certain key executives participate, including all of the executive officers, other than Mr. Sledd who voluntarily elected not to participate. Under the SERP, PFG credits to the participants’ accounts a percentage of compensation (salary and bonus) based on the attainment of certain performance criteria. The maximum percentage that may be credited is 20%. Since the beginning of fiscal year 2007, the performance criteria have been based solely upon PFG’s earnings before interest and taxes. Account balances are credited with interest at a rate of 8%.

 

For contributions credited for periods beginning before December 31, 2006, participants vest in their SERP account at a rate of 20% per year, beginning after the second year of service with PFG or any company PFG previously acquired, and are fully vested after six years of service. For contributions credited for periods beginning on or after December 31, 2006, contributions are 50% vested after five years of service, with an additional 10% per year for each year of service thereafter and are fully vested after ten years of service. In accordance with the terms of the SERP, all unvested account balances will vest at the effective time of the merger. Generally, no payments are made under the SERP prior to a normal, early, delayed, or disability retirement date or the participant’s death. PFG anticipates that the SERP will be terminated as of the effective time of the merger and account balances (including previously unvested balances that vest at the effective time of the merger) will be payable shortly thereafter.

 

The following table shows the total and vested and unvested SERP account balances of the executive officers as of April 3, 2008:

 

 

Executive Deferred Compensation Plan

 

Pursuant to PFG’s Executive Deferred Compensation Plan, certain members of PFG’s senior management, including all of the executive officers, may defer a portion of their cash compensation, including base salary and non-equity incentive plan compensation, using either a flat dollar amount, a specified percentage of compensation or a specified percentage of compensation in excess of a specified dollar amount. Credits are made to each participant’s account monthly. All of the executive officers’ contributions are immediately vested and non-forfeitable.

Each participant may elect, at the time of each year’s deferral election, the time and form of payout. The participant may receive payments as of a specified date, or over a period of time ranging from two to ten years (including the period during which the participant is actively employed), or upon termination of employment. A participant may also make an irrevocable alternate election at the time an account is initially established. The alternate election allows for a participant to receive a lump sum distribution in the event the participant terminates employment within two years of a change in control of PFG or his or her employment is terminated involuntarily or voluntarily following a reduction in compensation, responsibility or work location.

 

PFG anticipates that the Executive Deferred Compensation Plan will be terminated as of the effective time of the merger and the account balances of the executive officers will be paid. The following table shows the total Executive Deferred Compensation Plan account balances of the executive officers as of April 3, 2008:

 

 

Bonus Pool

 

In connection with the merger, PFG’s compensation committee approved the payment of cash bonuses totaling $1.0 million to certain of PFG’s employees on February 28, 2008. Payments under this plan were made on March 6, 2008 to employees identified by the compensation committee in recognition of these employees’ services provided in connection with the negotiation of the merger agreement and consummation of the merger, including assisting VISTAR’s efforts related to financing the transaction.

 

The amounts paid to PFG’s executive officers were as follows:

 

 

Time-Based Vesting Cash Incentives in Lieu of Annual Equity Awards

 

In lieu of granting equity awards that are ordinarily awarded by PFG’s compensation committee to certain of PFG’s employees in the first quarter of a fiscal year, PFG’s compensation committee approved awards to certain employees, including Mr. Middleton and Mr. Paterak, on February 28, 2008 that provide for the payment of cash incentives to these employees in the event that the merger is consummated and the employee continues to be employed by the surviving corporation following consummation of the merger. These payments will be made 25% per year on the first four anniversaries of the closing, contingent upon continued employment, and will not be accelerated as a result of consummation of the merger. The total amount of these cash payments is $8.0 million, with Mr. Middleton’s award totalling $200,000 and Mr. Paterak’s award totalling $300,000.

Management Arrangements

 

As of the date of this proxy statement, no member of our senior management has entered into any amendments or modifications to existing employment agreements or arrangements with us in connection with the merger. Further, no member of our senior management has entered into detailed discussions with VISTAR, Blackstone, Wellspring or any of their affiliates regarding long-term compensation arrangements for periods following consummation of the merger nor has any member of our management team entered into any agreement, arrangement or understanding regarding any such compensation. Given the advisability of preparing for the integration of the VISTAR and PFG businesses, members of our management team may have general discussions with representatives of VISTAR, Blackstone and Wellspring, regarding their continued roles with the combined company and the combined company’s compensation programs. Although it is possible that some or all of our management team may also enter into more specific discussions with representatives of Blackstone, Wellspring and VISTAR regarding their role and compensation arrangements with the combined company and may ultimately enter into new arrangements with VISTAR, Blackstone or Wellspring or their affiliates, it is anticipated that the terms of any definitive agreements for such continued employment will not be finalized prior to the shareholders’ meeting and it is not a condition to the closing of the merger that any member of management enter into any employment arrangement with VISTAR, Blackstone, Wellspring or any of their affiliates. To date, no such discussions have taken place.

 

Benefit Arrangements with Surviving Corporation

 

The commitments by VISTAR with respect to benefit arrangements are described below under “The Merger Agreement — Employee Benefits.”

 

Indemnification and Insurance

 

See “The Merger Agreement — Indemnification and Insurance.”

 

The following is a summary of certain material U.S. federal income tax consequences of the merger to holders of PFG common stock whose shares of PFG common stock are converted into the right to receive cash pursuant to the merger agreement. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our shareholders. For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of PFG common stock that is, for U.S. federal income tax purposes:

 

 

A “non-U.S. holder” is a person (other than a partnership) that is not a U.S. holder.

 

For U.S. federal income tax purposes, if a partnership holds PFG common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. A partner of a partnership holding PFG common stock should consult his, her or its own tax advisor.

 

This discussion is based on current law, which is subject to change, possibly with retroactive effect. It applies only to holders that are beneficial owners who hold shares of PFG common stock as capital assets, and may not apply to shares of PFG common stock received in connection with the exercise of employee stock options or otherwise as compensation, holders who hold an equity interest, directly or indirectly, in VISTAR

or the surviving corporation after the merger, or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, holders subject to the alternative minimum tax, U.S. holders that have a functional currency other than the U.S. dollar, or holders who hold PFG common stock as part of a hedge, straddle or a constructive sale or conversion transaction). This discussion does not address the receipt of cash in connection with the cancellation of shares of restricted stock, stock appreciation rights or options to purchase shares of PFG common stock, or any other matters relating to equity compensation or benefit plans.

 

U.S. Holders

 

The exchange of shares of PFG common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of PFG common stock are converted into the right to receive cash pursuant to the merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received in exchange for the shares (determined before the deduction of any applicable withholding tax requirements) and the U.S. holder’s adjusted tax basis in the shares. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). The gain or loss will be long-term capital gain or loss provided that a U.S. holder’s holding period for the shares is more than 12 months at the time of the consummation of the merger. Long-term capital gains of individuals are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

 

Backup withholding of tax may apply to cash payments to which a non-corporate U.S. holder is entitled under the merger agreement, unless the holder or other payee provides a taxpayer identification number (social security number, in the case of individuals, or employer identification number, in the case of other U.S. holders), certifies that the number is correct, and otherwise complies with the backup withholding rules. Each U.S. holder should complete and sign the Substitute Form W-9 included as part of the letter of transmittal that will be sent to shareholders following consummation of the merger and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowable as a refund or a credit against a U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

Cash received pursuant to the merger will also be subject to information reporting under certain circumstances unless an exemption applies.

 

Non-U.S. Holders

 

Any gain realized on the receipt of cash pursuant to the merger by a non-U.S. holder generally will not be subject to U.S. federal income tax unless:

 

 

An individual non-U.S. holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the merger under regular graduated U.S. federal income tax rates. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax on

the gain derived from the merger, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States. If a non-U.S. holder that is a foreign corporation falls under the first bullet point immediately above, it will be subject to tax on its net gain in the same manner as if it were a U.S. person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.

 

PFG believes that it is not and has not been at any time during the five years preceding the merger a “United States real property holding corporation” for U.S. federal income tax purposes.

 

Information reporting and, depending on the circumstances, backup withholding will apply to the cash received pursuant to the merger, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person as defined under the Code) or such owner otherwise establishes an exemption. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. holder’s U.S. federal income tax liability, if any, provided that such non-U.S. holder furnishes the required information to the Internal Revenue Service in a timely manner.

 

The U.S. federal income tax consequences set forth above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each holder should consult their own tax advisor regarding the applicability of the rules discussed above to the holder and the particular tax effects to the holder of the merger in light of such holder’s particular circumstances, including the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of restricted shares, stock appreciation rights or options to purchase shares of PFG common stock, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

 

There are no material relationships between VISTAR and Merger Sub or any of their respective affiliates, on the one hand, and PFG or any of our affiliates, on the other hand, other than in respect of the merger agreement.

 

We are aware of three purported class action lawsuits related to the proposed merger, that have been filed in the Chancery Court for the State of Tennessee, 20th Judicial District at Nashville: Crescente v. Performance Food Group Company, et al., Case No. 08-140-IV; Neel v. Performance Food Group Company, et al., Case No. 08-151-II; and Friends of Ariel Center for Policy Research v. Sledd, et al., Case No. 08-224-II. Each complaint asserts claims for breach of fiduciary duties against PFG’s directors, alleging, among other things, that the consideration to be paid to the shareholders pursuant to the merger agreement is unfair and inadequate, and not the result of a full and adequate sale process, and that the PFG directors engaged in “self-dealing”. Two of the complaints also allege aiding and abetting or undue control claims against The Blackstone Group, Wellspring Capital Management, LLC and VISTAR. The complaints each seek, among other relief, class certification, an injunction preventing completion of the merger and attorney’s fees and expenses. The cases are in the early stages and none of the defendants, including PFG and the individual defendants, have responded to the complaints.

 

By order entered January 28, 2008, the Neel case was transferred to Chancery Court Part IV where the Crescente case is pending. An agreed order was entered by the Court on February 14, 2008, consolidating the Crescente and Neel cases and appointing counsel for those plaintiffs as co-lead counsel for the renamed consolidated matter, In re: Performance Food Group Co. Shareholders Litigation, Case No. 08-140-IV. On March 12, 2008, the Friends of Ariel Center for Policy Research case was transferred and consolidated into In re: Performance Food Group Shareholders Litigation.

PFG and the individual defendants deny the allegations contained in the complaints described above and will vigorously defend the cases. At this time, PFG is unable to predict whether or not additional lawsuits relating to the merger will be filed.

 

We estimate that we will incur, and will be responsible for paying, transaction-related fees and expenses, consisting primarily of financial, legal, accounting and tax advisory fees, SEC filing fees, printing, proxy solicitation, mailing expenses and other related charges, totaling approximately $13.5 million. This amount includes the following estimated fees and expenses:

 

 

This section of the proxy statement describes the material provisions of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger.

 

The merger agreement provides for the merger of Merger Sub with and into PFG upon the terms, and subject to the conditions, of the merger agreement. The merger will be effective at the time and date on which the articles of merger are duly filed with the Secretary of State of the State of Tennessee (or at a later time, if agreed upon by the parties and specified in the articles of merger). We expect to complete the merger as promptly as practicable after meeting the conditions precedent to the merger, including that our shareholders approve the merger agreement and, if necessary, the expiration of the marketing period, as described below.

 

As the surviving corporation, PFG will continue to exist following the merger. Upon consummation of the merger, it is presently expected that the directors of Merger Sub will be the initial directors of the surviving corporation and the officers of PFG will be the initial officers of the surviving corporation. All directors and officers of the surviving corporation will hold their positions until their successors are duly elected, designated or qualified or until the earlier of their death, resignation or removal in accordance with the surviving corporation’s charter and bylaws.

 

PFG or VISTAR may terminate the merger agreement prior to the consummation of the merger in certain circumstances, whether before or after the approval of the merger agreement by PFG shareholders. Additional details on termination of the merger agreement, including any termination fee that may be payable, are described in “— Termination of the Merger Agreement” and “— Termination Fees — Effects of Terminating the Merger Agreement.”

 

Except for certain provisions of the merger agreement related to director and officer indemnification and insurance, nothing in the merger agreement, express or implied, is intended to or shall confer upon any person other than the parties to the merger agreement and their respective successors and permitted assigns any right, benefit or remedy of any nature whatsoever or by reason of the merger agreement.

 

Each share of PFG common stock issued and outstanding at the effective time of the merger will automatically be cancelled and will cease to exist and will be converted into the right to receive $34.50 in cash, without interest and less any applicable withholding tax requirements, other than shares owned by VISTAR or Merger Sub immediately prior to the merger that will be cancelled or shares owned by PFG’s subsidiaries which will remain outstanding. After the merger is effective, each holder of a certificate representing shares of PFG common stock will no longer have any rights with respect to the shares, except for the right to receive $34.50 in cash per share without interest and less any applicable withholding tax requirements.

 

Except as otherwise agreed by PFG and Vistar:

 

 

 

The effect of the merger upon our employee stock purchase plan and certain other employee benefit plans is described below under “— Employee Benefits.”

 

Prior to the effective time, VISTAR is required to designate a paying agent reasonably acceptable to us to make payment of the merger consideration as described above. At or prior to the effective time of the merger, VISTAR will provide, or cause to be provided, to the paying agent cash necessary to pay for the shares of PFG common stock to be converted into the right to receive the merger consideration.

 

Upon the consummation of the merger, our stock transfer books will be closed and there will be no further registration of transfers of shares of our common stock on our records.

 

As soon as reasonably practicable after the consummation of the merger, the surviving corporation will cause to be mailed to you a form of letter of transmittal and/or instructions for use in effecting the surrender of your stock certificates for payment of the merger consideration. The paying agent will pay you the merger consideration after you have (1) surrendered your stock certificates to the paying agent and (2) provided to the paying agent your signed letter of transmittal and any other items specified by the instructions contained in the letter of transmittal. Interest will not be paid or accrue in respect of the merger consideration. VISTAR, PFG and the surviving corporation are each entitled to deduct and withhold, or to cause the paying agent to deduct and withhold, from any amounts payable or otherwise deliverable to you pursuant to the merger agreement the amount of any merger consideration required to be deducted or withheld for any applicable withholding tax requirements. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.

 

If any cash deposited with the paying agent is not disbursed (or is not then pending disbursement subject only to the paying agent’s routine administrative procedures) within one year following the effective time of the merger, the cash (including any interest received with respect thereto) will be returned to the surviving corporation upon demand, and thereafter holders of our common stock as of the consummation of the merger shall be entitled to look only to the surviving corporation (subject to abandoned property, escheat or similar laws) only as general creditors thereof with respect to the merger consideration payable under the merger agreement.

 

If the paying agent is to pay some or all of your merger consideration to a person other than you, as the registered owner of a stock certificate, you must have your certificates properly endorsed or otherwise in proper form for transfer, and you must pay any transfer or other taxes payable required by reason of the payment of merger consideration to a person other than the registered holder of the stock certificate surrendered or establish to VISTAR’s satisfaction that the taxes have been paid or are not applicable.

 

The transmittal instructions will tell you what to do if you have lost your stock certificate or if it has been lost, stolen, defaced or destroyed. You will have to provide an affidavit to that fact and, if required by the surviving corporation or the paying agent, post a bond in an amount that the surviving corporation or paying agent reasonably directs as indemnity against any claim that may be made against it or VISTAR in respect of the certificate.

 

The merger agreement contains representations and warranties made by us to VISTAR and Merger Sub and representations and warranties made by VISTAR and Merger Sub to us. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed by the parties in connection with negotiating its terms (including exceptions described in the confidential disclosure schedules to the merger agreement and in our public filings with the SEC). Moreover, some of those representations and warranties may not be accurate or complete as of any particular date because they are subject to a contractual standard of materiality or material adverse effect different from that generally applicable to public disclosures to shareholders or used for the purpose of allocating risk among the parties to the merger agreement rather than establishing matters of fact.

 

In the merger agreement, PFG, VISTAR and Merger Sub each made representations and warranties relating to, among other things:

 

 

In the merger agreement, VISTAR and Merger Sub also each made representations and warranties relating to, among other things, the equity commitment letters, debt commitment letters, availability of the funds necessary to perform its obligations under the merger agreement, limited guarantees, litigation that seeks to delay or prevent the consummation of the merger, expected solvency of VISTAR and PFG at the effective time of the merger, the operations of VISTAR and Merger Sub, ownership of our capital stock, contracts with our managers and directors that relate to us or the transactions contemplated by the merger agreement, Merger Sub’s capital structure, and the vote of Parent’s stockholders required to consummate the transactions contemplated by the merger agreement.

 

PFG also made representations and warranties relating to, among other things:

 

 

 

Many of PFG’s representations and warranties are qualified by a material adverse effect standard. In addition, none of the representations or warranties has any legal effect among the parties to the merger agreement after the effective time of the merger. For purposes of the merger agreement, “material adverse effect” on PFG, which we refer to in the merger agreement as a Company Material Adverse Effect and in this proxy statement as a PFG material adverse effect or material adverse effect on PFG, is defined to mean any event, circumstance, change or effect that is, or would reasonably be expected to be, individually or in the aggregate, materially adverse to the business, assets, financial condition or results of operations of PFG and our subsidiaries, taken as a whole; provided, however, that none of the following shall constitute, or shall be considered in determining whether there has occurred, and no event, circumstance, change or effect resulting from or arising out of any of the following shall constitute, a “material adverse effect” on PFG:

 

 

 

Certain of VISTAR’s and Merger Sub’s representations and warranties are qualified by a material adverse effect standard. For purpose of the merger agreement, “material adverse effect” on VISTAR, which we refer to in the merger agreement as a Parent Material Adverse Effect and in this proxy statement as a VISTAR material adverse effect or material adverse effect on VISTAR, is defined to mean an event, circumstance, change or effect that would reasonably be likely to prevent or materially delay VISTAR’s or Merger Sub’s ability to consummate the transactions contemplated by the merger agreement.

 

We have agreed that, during the period from the date of the merger agreement and continuing until the earlier of the termination of the merger agreement or the consummation of the merger, we and each of our subsidiaries shall, except as required by law or the merger agreement, as set forth in the relevant section of the disclosure schedules related to the merger agreement, or to the extent VISTAR shall otherwise consent in writing (which consent shall not be unreasonably withheld or delayed), conduct our business in the ordinary course consistent with past practice, and:

 

 

 

We have also agreed in the merger agreement that, until the earlier of the consummation of the merger or the termination of the merger agreement, except as required by law or the merger agreement, as set forth in the relevant section of the disclosure schedules related to the merger agreement, or to the extent VISTAR shall otherwise consent in writing (which consent shall not be unreasonably withheld or delayed), we shall not, and shall not permit any of our subsidiaries to:

 

 

 

 

 

Notwithstanding the foregoing, nothing contained in the merger agreement shall give VISTAR, directly or indirectly, the right to control or direct PFG’s or PFG’s subsidiaries’ operations prior to the effective time of the merger; prior to the effective time of the merger, each of PFG and VISTAR shall exercise, consistent with the terms and conditions of the merger agreement, complete control and supervision over its and its subsidiaries’ respective operations; and no consent of VISTAR shall be required with respect to any matter set forth above or elsewhere in the merger agreement to the extent the requirement of such consent would violate applicable law.

 

You should not rely on the covenants in the merger agreement as actual limitations on the business of PFG, because PFG may take certain actions that are either expressly permitted in the confidential disclosure schedule to the merger agreement or as otherwise consented to by VISTAR, which may be given without prior notice to the public.

 

Upon the terms and subject to the conditions set forth in the merger agreement, each of the parties to the merger agreement has agreed to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective the merger, including the causing of all conditions necessary for the completion of the merger to be satisfied and to consummate and make effective the merger and the other transactions contemplated by the merger agreement; the obtaining of all necessary actions or non-actions, expirations of all necessary waiting periods, waivers, consents, clearances, approvals, orders and authorizations from governmental entities required by the parties and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with governmental entities, if any) required by the parties; the obtaining of all necessary consents, approvals or waivers from third parties (provided, however, in no event shall obtaining any such consent, approval or waiver be required as a condition to closing under the merger agreement); the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the merger to which it is a party, including seeking to have any stay or temporary restraining order entered into by any court or other governmental entity vacated or reversed; and the execution or delivery of any additional instruments necessary to consummate the merger and carry out fully the purposes of the merger agreement. Notwithstanding anything in the merger agreement to the contrary, VISTAR has agreed to take, and to cause its affiliates and owners to take, whatever action may be necessary to resolve as promptly as possible any objections relating to the consummation of the merger as may be asserted under the HSR Act or any other applicable merger control, antitrust, competition or fair trade laws with respect to the merger.

 

VISTAR has agreed to use reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable to arrange the debt financing on the terms and conditions described in the debt commitment letters (subject to VISTAR and Merger Sub’s rights to replace or amend the debt financing commitments as described below), including using reasonable best efforts to maintain in effect the debt and equity commitment letters, satisfy, on a timely basis, all conditions within its control applicable to VISTAR and Merger Sub to obtaining the debt financing as set forth in the debt commitment letters, enter into definitive agreements with respect to the debt commitment letters on the terms and conditions contemplated by the debt commitment letters (including the flex provisions related to the debt financing) or on other terms reasonably acceptable to VISTAR and consummate the debt financing at or prior

to the closing of the merger. PFG has agreed to provide, and cause its subsidiaries to, and use its commercially reasonable efforts to cause their respective representatives, including legal and accounting advisors, to provide all cooperation reasonably requested by VISTAR in connection with the debt financing and the other transactions contemplated by the merger agreement. See “The Merger — Financing of the Merger” for a description of the debt financing arranged by VISTAR to fund the proposed merger and related transactions.

 

In the event any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letters, VISTAR has also agreed to promptly notify PFG and to use its reasonable best efforts to arrange to obtain alternative financing from alternative sources in an amount sufficient, when combined with the funds under the equity commitment letters, to consummate the transactions contemplated by the merger agreement on terms and conditions not materially less favorable to VISTAR in the aggregate (as determined in VISTAR’s good faith reasonable judgment) than those contemplated by the debt financing commitments (including the flex provisions related to the debt financing) as promptly as practicable following the occurrence of such event, but no later than the last day of the marketing period described below.

 

VISTAR may replace or amend the debt commitment letters by adding lenders, lead arrangers, bookrunners, syndication agents or similar entities that did not sign the debt commitment letters as of the date of the merger agreement, or otherwise so long as the terms would not adversely impact VISTAR’s and Merger Sub’s ability to timely consummate the transactions contemplated by the merger agreement or the likelihood of the consummation of the transactions contemplated by the merger agreement.

 

Unless otherwise agreed to by the parties to the merger agreement, the parties are required to close the merger no later than the second business day after the satisfaction or waiver of the conditions described under “— Conditions to the Merger” below, provided that if the marketing period has not ended at that time, the parties are obligated to close the merger on the date following the satisfaction or waiver of the conditions that is the earliest of a date during the marketing period specified by VISTAR on no less than two business days’ notice and the final day of the marketing period.

 

For purposes of the merger agreement, “marketing period” means the first period of twenty (20) consecutive business days throughout which VISTAR has the financial information that we are required to provide them under the merger agreement, the mutual conditions to the parties’ obligations to close the merger are satisfied, and the conditions to VISTAR’s and Merger Sub’s obligations to close the transaction shall have been satisfied and no condition exists that would cause any of their conditions to fail to be satisfied at any time during the 20-business day period. The marketing period will not be deemed to have commenced if, prior to the completion of the marketing period, KPMG shall have withdrawn its audit opinion with respect to any financial statements contained in our reports filed with the SEC since January 1, 2004.

 

The purpose of the marketing period is to provide VISTAR a reasonable period of time during which it can market and place the debt financing contemplated by the debt financing commitments for the purposes of financing the merger. If VISTAR is unable to market and place the debt financing contemplated by the debt commitment letters during the marketing period, it still must close the transaction no later than the last day of the marketing period if the conditions to its obligations to close the merger under the merger agreement are satisfied as of that date.

 

Conditions to Each Party’s Obligations.  Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

 

The waiting period under the HSR Act with respect to the merger expired at 11:59 p.m. eastern time on March 24, 2008.

 

Conditions to VISTAR’s and Merger Sub’s Obligations.  The obligations of VISTAR and Merger Sub to complete the merger are subject to the satisfaction of the following additional conditions, which may be waived in writing in whole or in part by VISTAR or Merger Sub to the extent permitted by applicable law:

 

 

Conditions to PFG’s Obligations.  Our obligation to complete the merger is subject to the satisfaction of the following additional conditions, which may be waived in writing in whole or in part by us to the extent permitted by applicable law:

 

 

 

If a failure to satisfy one of these conditions to the merger is not considered by our board of directors to be material to our shareholders, our board of directors could waive compliance with that condition. Our board of directors is not aware of any condition to the merger that cannot be satisfied. After the merger agreement has been adopted by our shareholders, however, the merger consideration cannot be changed and the merger agreement cannot be altered in a manner adverse to our shareholders without re-submitting the revisions to our shareholders for their approval.

 

Subject to certain restrictions, we have agreed that we will, and will cause our subsidiaries to, give VISTAR and its directors, employees, representatives, financial advisors, lenders, legal counsel, accountants and other advisors and representatives (including representatives of certain affiliates of Blackstone and Wellspring) such access, at reasonable times upon reasonable advance notice and under reasonable circumstances so as to minimize disruption to or impairment of our business, to the books and records, financial, operating and other data, assets, properties, facilities, plants, offices, auditors, authorized representatives, business and operations of PFG as is reasonably necessary or appropriate in connection with VISTAR’s review of PFG with respect to the transactions contemplated by the merger agreement. PFG has entered into confidentiality agreements with VISTAR and the affiliates of Blackstone and Wellspring that have been and will be provided access to the information set forth above.

 

Solicitation Period

 

The merger agreement provides that from the date of the merger agreement until 12:01 a.m. New York City time on March 9, 2008 (which March 9, 2008 date we refer to as the no-shop period start date), we and our subsidiaries and our respective officers, directors, employees, agents, advisors and other representatives (which we collectively refer to as our representatives) had the right to:

 

 

Notwithstanding the foregoing, we were not during the go-shop period, and are not now, permitted to provide certain competitively sensitive information to any person engaged in the marketing and distribution of food and non-food products to independent restaurants, hotels, cafeterias, schools, healthcare facilities and other institutional customers, franchisees and corporate-owned units of casual and family dining and quick-service restaurants with annual revenues in excess of $5 billion unless that person has made a superior proposal (as defined below) at a price higher than $34.50 per share of our common stock and (1) completed legal, financial and accounting due diligence (other than with respect to the withheld information); (2) provided firm financing commitments to us; and (3) agreed to contract terms and conditions in each case (including with respect to regulatory filings and approvals) no less favorable in the aggregate to us than those contained in the merger agreement.

Within forty-eight hours after the no-shop period start date, we were required to notify VISTAR in writing of the number and identity of excluded parties (as defined below) and provide to VISTAR a copy of any acquisition proposal (as defined below) made by each such excluded party. There were no excluded parties as of the expiration of the go-shop period.

 

For purposes of the merger agreement, an acquisition proposal means any inquiry, offer or proposal, on its most recently amended and modified terms, from any person or group other than VISTAR or any of its affiliates relating to any transaction or proposed transaction or series of related transactions involving:

 

 

For purposes of the merger agreement, an excluded party refers to any person, group of persons or group that includes any person (so long as such person and the other members of such group, if any, who were members of such group immediately prior to the no-shop period start date constitute at least 50% of the equity financing of such group at all times following the no-shop period start date and prior to the termination of the merger agreement) from whom we or any of our representatives received after the execution of the merger agreement and prior to the no-shop period start date a written acquisition proposal that our board believes in good faith is bona fide and constitutes or could reasonably be expected to result in a superior proposal (as defined under “— No Solicitation of Competing Proposals After the Solicitation Period” below); provided that any excluded party shall cease to be an excluded party at such time as the acquisition proposal (as such acquisition proposal may be revised during the course of ongoing negotiations, in which event it may temporarily cease to be a superior proposal or an acquisition proposal that could reasonably be expected to result in a superior proposal, so long as such negotiations are ongoing and our board of directors in good faith determines that it subsequently constitutes a superior proposal or could reasonably be expected to result in a superior proposal) made by such excluded party fails to constitute either a superior proposal or, in the good faith judgment of our board, an acquisition proposal that could reasonably be expected to result in a superior proposal.

 

No Solicitation of Competing Proposals After the Solicitation Period

 

The merger agreement provides that, except as otherwise permitted under the merger agreement or as may relate to any excluded party, we and our subsidiaries and our respective directors and officers will, and we will cause our other representatives to:

 

 

Notwithstanding the restrictions on solicitation described above and subject to certain exceptions with respect to excluded parties, if at any time following the no-shop period start date and prior to obtaining shareholder approval of the merger agreement, we or any of our representatives receive a written acquisition proposal by any person or group of persons made on or after the no-shop period start date and which did not arise from or in connection with a breach by us of the above-described non-solicitation covenants, we and our representatives may contact such person or group of persons to clarify the terms and conditions of such acquisition proposal.

 

Additionally, if our board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel that such acquisition proposal constitutes or could reasonably be expected to lead to a superior proposal, and after consultation with outside legal counsel, that failure to take such action would reasonably be expected to result in a breach of its fiduciary duties under applicable law, we and our representatives may:

 

 

The merger agreement requires us to advise VISTAR of the receipt by us of any acquisition proposal made on or after the no-shop period start date, any request for non-public information made by any person or group that has informed us that it is considering making an acquisition proposal or any request for discussions or negotiations with us or our representatives relating to an acquisition proposal within in each case 24 hours of receipt thereof, and within such 24-hour period, we shall provide VISTAR with the number of persons or groups making such acquisition proposals and a written summary of the material terms of such acquisition proposal (including the identity of the person or group making the acquisition proposal). We also agreed in the merger agreement that, from and after the no-shop period start date, we will also promptly notify VISTAR orally and in writing if we determine to begin providing information or to engage in discussions regarding an acquisition proposal and will keep VISTAR informed on a reasonably current basis of any material change to the terms and conditions of any acquisition proposal (including any amendment or modification to any acquisition proposal made by an excluded party).

 

For purposes of the merger agreement, a superior proposal means an acquisition proposal made in writing and not solicited in violation of our non-solicitation covenants, on its most recently amended and modified terms, with all thresholds in the definition of acquisition proposal changed to 50%, that is on terms that our board of directors determines, in its good faith judgment, after consultation with its financial advisor and outside legal counsel, would, if consummated, be more favorable from a financial point of view to our shareholders than the transactions contemplated by the merger agreement after taking into account the likelihood of consummation (as compared to the transactions contemplated by the merger agreement) and all material legal, financial (including the financing terms of any such acquisition proposal), regulatory or other aspects of such acquisition proposal.

 

Requirement to Hold a Special Meeting of Shareholders; Make Recommendation and Solicit Proxies

 

The merger agreement provides that we will, as soon as practicable following the date we entered into the merger agreement, duly call, give notice of, convene and hold a special meeting of our shareholders for the purpose of seeking our shareholders’ approval of the merger agreement. Except in certain limited circumstances described below, our board of directors (or any committee thereof) must recommend, and we must take all action that is both reasonable and lawful to solicit from our shareholders proxies in favor of the approval of the merger agreement and take all other reasonable actions necessary or advisable to secure the

vote or consent of our shareholders that are required by the NASDAQ Global Select Market rules or the Tennessee Business Corporation Act. The merger agreement also requires that we call, give notice of, convene and hold the shareholders meeting even if our board of directors withdraws, qualifies or modifies (or publicly proposes to withdraw, qualify or modify) in a manner adverse to VISTAR its recommendation that the shareholders vote in favor of approval of the merger agreement or if it approves or recommends (or publicly proposes to approve or recommend) any acquisition proposal unless the merger agreement has been terminated under certain circumstances and we have paid to VISTAR the applicable termination fee. Furthermore, without the prior written consent of VISTAR, approval of the merger agreement is the only matter (other than procedural matters) which we can propose to be acted upon by our shareholders at the special meeting of our shareholders.

 

Subject to certain exceptions, the merger agreement prohibits our board of directors from:

 

 

We refer to the actions described in the first two bullet points immediately above as making an adverse recommendation change.

 

Change of Recommendation Other than in Response to an Acquisition Proposal

 

At any time prior to obtaining shareholder approval of the merger agreement, if there has occurred a material development or change in circumstances occurring or arising after the date of the merger agreement that was not known to us or our board of directors as of or prior to the date of the merger agreement (and not relating to any acquisition proposal) and our board of directors determines in good faith, after consultation with outside legal counsel, that, in light of such event, a failure to withdraw, qualify or modify (or propose publicly to withdraw, qualify or modify) in a manner adverse to VISTAR its recommendation that the shareholders vote in favor of approval of the merger agreement or approve or recommend (or propose publicly to approve or recommend) any acquisition proposal would be a breach of its fiduciary duties under applicable law, our board of directors may undertake any such action; provided that before our board of directors may take the foregoing action, we must:

 

 

Change of Recommendation/Termination in Response to Superior Proposal

 

At any time prior to obtaining shareholder approval of the merger agreement, if we have received a written acquisition proposal that has not been withdrawn or abandoned and that our board of directors

concludes in good faith constitutes a superior proposal after giving effect to the match rights described below, if applicable, our board of directors may:

 

 

Our board of directors may not take either of the foregoing actions unless we have:

 

 

If during such 48-hour notice period any revisions are made to the superior proposal that our board of directors in its good faith judgment determines are material (which would include an adjustment to the purchase price), we would be required to deliver a new written notice to VISTAR and Merger Sub and to comply with the foregoing requirements but the notice period will be reduced to 24 hours.

 

Notwithstanding the foregoing, we will not be entitled to enter into any agreement (other than certain confidentiality agreements) with respect to a superior proposal unless the merger agreement is concurrently terminated by its terms and we have paid concurrently to VISTAR the termination fee described in further detail below in “— Termination Fees — Effects of Terminating the Merger Agreement.”

 

Nothing in the merger agreement will prohibit us or our board of directors from complying with Rules 14d-9 or 14e-2(a) promulgated under the Exchange Act or from making any disclosure to our shareholders if, in the good faith judgment of the board of directors or any committee thereof, after consultation with outside counsel, the failure to do so would reasonably be expected to violate its obligations under applicable law or is otherwise required under applicable law; provided, however, that neither we nor our board of directors (or any committee thereof) will be permitted to recommend that our shareholder tender any securities in connection with any tender or exchange offer (or otherwise approve, endorse or recommend any acquisition proposal), unless our board of directors makes an adverse recommendation change (any such disclosure (other than a “stop, look and listen” communication or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act) will be considered an adverse recommendation change unless our board of directors expressly reaffirms its recommendation at least two business days prior to

our shareholders’ meeting if VISTAR has delivered to us a written request to do so at least 48 hours (or such shorter period as is practicable if 48 hours is impracticable) prior to the time such reaffirmation is to be made.

 

The merger agreement may be terminated at any time prior to the consummation of the merger, whether before or after our shareholders have approved the merger agreement:

 

 

 

 

 

 

 

 

Termination Fees Payable by PFG

 

Under certain circumstances, as described in more detail below, we have agreed to pay VISTAR by wire transfer of same day funds a termination fee of $40.0 million. Had we terminated the merger agreement during the go-shop period under circumstances in which the termination fee would have been payable, the termination fee would have been $20.0 million. Because we did not receive any acquisition proposals during the go-shop period, any termination fee payable by us following a termination of the merger agreement will be $40.0 million.

 

We will pay the $40.0 million termination fee to VISTAR if VISTAR terminates the merger agreement because:

 

 

We will also pay the $40.0 million termination fee to VISTAR if, prior to our shareholders’ approval of the merger agreement, we terminate the merger agreement under the circumstances in the merger agreement described in “Special Meeting of PFG Shareholders — Change of Recommendation/Termination in Response to Superior Proposal” in order to enter into a definitive agreement with respect to an acquisition proposal.

 

Finally, we will pay the $40.0 million termination fee to VISTAR if a bona fide acquisition proposal shall have been made directly to our shareholders or any person shall have publicly announced an intention to make an acquisition proposal or an acquisition proposal shall have otherwise become publicly known and following such event:

 

 

 

and within 12 months after such termination, we enter into, or submit to our shareholders for approval, a definitive agreement with respect to an acquisition proposal, or consummate an acquisition proposal (in each case using “50%” in the definition of acquisition proposal instead of “20%”), which in each case need not be the same acquisition proposal that was publicly announced or made known prior to the termination of the merger agreement.

 

Reimbursement of VISTAR’s Expenses

 

We have also agreed to pay up to a total maximum payment by us of $7.5 million (without duplication of any termination fee) of VISTAR’s and its affiliates’ reasonably documented out-of-pocket fees and expenses incurred in connection with the transactions contemplated by the merger agreement if we or VISTAR terminate the merger agreement because our shareholders fail to approve the merger agreement at a duly called meeting of our shareholders to obtain such approval. We are also obligated to pay such fees and expenses if we terminate the merger agreement pursuant to a termination right available to us under the merger agreement when we or VISTAR could have terminated the merger agreement because our shareholders had failed to approve the merger agreement at a duly called meeting of our shareholders to obtain such approval.

 

Termination Fee Payable by VISTAR

 

VISTAR has agreed to pay us by wire transfer of immediately available funds a termination fee of $40.0 million if:

 

 

In connection with the merger agreement, private equity funds affiliated with each of Blackstone and Wellspring have executed limited guarantees in which they each agree to guarantee the due and punctual payment of up to $30.0 million and $10.0 million, respectively of the VISTAR termination fee subject to the terms and limitations set forth in the merger agreement and the limited guarantees, including a cap on each fund’s liability under each of the limited guarantees. If the $40.0 million VISTAR termination fee is paid following a termination of the merger agreement in connection with which PFG is entitled to receive payment of the VISTAR termination fee, then receipt of payment of the VISTAR termination fee shall be the sole and exclusive remedy of PFG and PFG’s subsidiaries against VISTAR, Merger Sub, and any of their respective current, former or future representatives, affiliates, directors, officers, employees, partners, managers, members, or stockholders for any loss or damage suffered as a result of the breach of the merger agreement or any representation, warranty, covenant or agreement contained therein by VISTAR or Merger Sub or the failure of

the merger to be consummated. The merger agreement also provides that PFG shall not be entitled to an injunction or injunctions to prevent breaches of the merger agreement by VISTAR or Merger Sub or to enforce specifically the terms and provisions of the merger agreement.

 

Notwithstanding anything to the contrary in the merger agreement, to the extent that PFG incurs any losses or damages in connection with the merger agreement or the transactions contemplated thereby, under the merger agreement the maximum aggregate liability of VISTAR and Merger Sub is limited to $40.0 million, inclusive of any termination fee, and the maximum liability, directly or indirectly, of each of the Blackstone and Wellspring private equity funds party to the limited guarantees is limited to the express obligations of the funds under their respective limited guarantees. Each limited guarantee will remain in full force and effect until the earlier of:

 

 

If PFG or any of its affiliates asserts a claim other than as permitted under the limited guarantees, including that the limitations on each guarantor’s liability under the limited guarantees or that any provision of the limited guarantees, are illegal, invalid, or unenforceable in whole or in part, then the limited guarantees will immediately terminate and become null and void by their terms.

 

Except as otherwise described under “— Effects of Terminating the Merger Agreement,” and subject to certain limited exceptions, all costs and expenses incurred in connection with the merger agreement and the merger will be paid by the party incurring such expenses whether or not the merger is consummated.

 

The surviving corporation has agreed to pay to each employee who continues as an employee of PFG during the benefits continuation period (one year from the effective time of the merger) salary, wages, cash incentive opportunities, severance, medical benefits and other welfare benefit plans programs and arrangements which are at least comparable in the aggregate to those provided by us prior to the closing of the merger; provided, that with respect to continuing employees who are subject to employment agreements and/or change of control agreements or arrangements that have not been superseded by agreements with VISTAR, the surviving corporation shall expressly assume the agreements or arrangements, and fulfill all obligations under the agreements or arrangements. During the benefits continuation period, the surviving corporation has agreed to pay, subject to the terms and conditions as it shall establish and the terms of applicable employment agreements, any continuing employee whose employment is involuntarily terminated by VISTAR, the surviving corporation or any of their subsidiaries without cause an amount of severance pay in cash equal to the amount of cash severance pay that would have been payable to the continuing employee under the terms of the severance policy applicable to the continuing employee immediately prior to the date of the merger agreement or, if applicable, the continuing employee’s employment agreement.

The merger agreement also provides that the surviving corporation shall:

 

 

Under to the merger agreement, we are also required to suspend the offering period under our Employee Stock Purchase Plan, which we refer to as the ESPP, as of the date of the merger agreement and ensure that there are no outstanding rights of participants under the ESPP following its termination as of the effective time of the merger. With respect to persons participating in the ESPP on the date of the merger agreement (and who have not withdrawn from or otherwise ceased participation in the ESPP prior to that date), we must apply accumulated contributions on that date to the deemed purchase of PFG common stock in accordance with the ESPP’s terms.

 

Each of PFG and VISTAR has agreed that if any “fair price,” “moratorium,” “control share acquisition” or other form of anti-takeover statute or regulation becomes applicable to the transactions contemplated by the merger agreement, they and their respective boards of directors will grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated by the merger agreement may be consummated as promptly as possible on the terms contemplated by the merger agreement, and otherwise to act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated by the merger agreement.

 

Each of PFG, VISTAR and Merger Sub has agreed to not disseminate any press release or other public announcement concerning the merger or the merger agreement or the other transactions contemplated by the merger agreement to any third party, except as may be required by applicable law or by any listing agreement with the NASDAQ Global Select Market, without the prior consent of the other parties to the merger agreement (which consent shall not be unreasonably withheld). However, VISTAR’s consent will not be required, and we need not consult with VISTAR, in connection with any press release or public statement to be issued or made with respect to any acquisition proposal or adverse recommendation change as described above. In addition, without the prior consent of the other parties to the merger agreement, we may communicate with customers, vendors, suppliers, financial analysts, investors and media representatives in a manner consistent with its past practice in compliance with applicable law and we may disseminate the information included in a press release or other document previously approved for external distribution by VISTAR.

 

The merger agreement provides that the charter and/or bylaws of the surviving corporation shall contain provisions with respect to indemnification not less favorable than those set forth in our charter and bylaws as

of the date the merger agreement was signed, and the provisions may not (except as necessary to comply with applicable law) be amended, repealed or otherwise modified for a period of six years from the effective time of the merger in any manner that would adversely affect the rights under those provisions of individuals who at, or prior to, the effective time of the merger were directors or officers of PFG.

 

In addition, the merger agreement provides that PFG shall, to the fullest extent permitted under applicable law or under our charter, bylaws or any applicable indemnification agreements, and regardless of whether the merger becomes effective, indemnify, defend and hold harmless, and, after the effective time of the merger, the surviving corporation shall to the fullest extent permitted under applicable law, indemnify, defend and hold harmless each present and former director or officer of PFG or any of our subsidiaries against any costs or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to (x) the fact that the person is or was an officer, director, employee, agent or other fiduciary of PFG or our subsidiary or (y) the merger agreement or the transactions contemplated by the merger agreement, whether in any case asserted or arising before or after the effective time of the merger. The surviving corporation has agreed to, and VISTAR has agreed to cause the surviving corporation to promptly advance, to the fullest extent permitted by law, to the party his or her legal expenses (including the cost of any investigation and preparation incurred in connection therewith); provided that any person to whom expenses are advanced provides an undertaking, to the extent then required by the Tennessee Business Corporation Act, to repay the advances if it is finally judicially determined that the person is not entitled to indemnification.

 

The merger agreement also provides that the surviving corporation shall honor and fulfill in all respects the obligations of PFG pursuant to indemnification agreements with our directors, officers, employees or agents existing at or prior to the effective time of the merger to the fullest extent permitted by applicable law or under the relevant charter or bylaws.

 

The merger agreement further provides that the surviving corporation shall obtain a “tail” insurance policy from an insurance carrier with the same or better credit rating as our current insurance carrier with respect to directors’ and officers’ liability insurance that provides coverage for the six years following the effective time of the merger at least comparable in amount and scope to the coverage provided under our directors and officers insurance policy in effect as of the effective time of the merger for the individuals who are or were directors and officers of PFG or any of our subsidiaries for claims arising from facts or events occurring prior to the effective time of the merger. If PFG is unable to obtain the “tail” insurance policies for a cost of less than 200% of the last annual premium paid by PFG for such directors’ and officers’ insurance policy, PFG shall be entitled to obtain as much comparable “tail” insurance as possible for a premium equal to that specified dollar amount.

 

The parties may amend the merger agreement at any time; provided, however, that after our shareholders adopt the merger agreement, there shall be no amendment that by law requires further approval by our shareholders without the approval having been obtained. All amendments to the merger agreement must be in writing signed by us, VISTAR and Merger Sub.

 

At any time before the consummation of the merger, each of the parties to the merger agreement may, by written instrument: