<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ARAMARK CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement no.:
3) Filing Party:
4) Date Filed:
<PAGE>
[LOGO OF ARAMARK APPEARS HERE]
Aramark Corporation
Joseph Neubauer
Chairman and
Chief Executive Officer
[PRELIMINARY COPIES]
January 8, 1998
Dear fellow owner:
The attached material spells out the full details of Share 100, our
proposed ownership restructuring which will be voted on at ARAMARK's annual
stockholders' meeting scheduled for February 10, 1998.
I urge you to read the proxy statement carefully -- we have attempted to
make the lengthy legal document reader-friendly and informative. The detailed
question and answer section, in particular, puts into perspective the future
outlook that the Share 100 program holds for manager owners.
The key features of Share 100 are as follows:
. Outside stockholders will receive $347.50 a share ($34.75 on a Class
B equivalent share basis) for all their Class A Common Stock.
. Our Company will then be 100% employee-owned. Approximately 1,000
owner managers will own shares directly, and more than 10,000
employees will own shares through the employee benefit plans.
. Class B stockholders will receive various classes of stock designed
to track the performance of the Company's main business groups.
Owner managers will receive 50% of the stock of the business group
for which they work and 50% of a composite stock. The composite
stock is representative of all the Company's operations.
. Class B Common Stock has been appraised at $29.55 per share.
. Any management stockholder who sold shares in the internal market or
exercised purchase opportunities using the stock-for-stock exercise
method since September 1, 1997 will also receive the benefit of this
higher valuation.
. It is anticipated that employee benefit plans will exchange a
portion of their shares for approximately $133 million in cash,
which will be invested in a portfolio of securities. The benefit
plans will, however, continue to be substantially invested in the
Company's common stock.
. The Company will borrow approximately $440 million to buy out the
equity interests of the outside stockholders and pay cash as elected
by the benefit plans, and pay the other costs and expenses of Share
100.
. We do not anticipate that the incurrence of this additional
borrowing will affect our ability to make ongoing investments in our
businesses including acquisitions.
Share 100 realizes our management team's desire to control our own
destiny, and provides an exceptional investment return for our outside
investors. For our outside investors, I gratefully recognize the faith you have
had in us over the years. For our owner managers, I urge you to embrace this
unique entrepreneurial opportunity, thereby supporting both the continued
success of the Company and your own personal goals.
Sincerely,
Aramark Tower
1101 Market Street
Philadelphia, PA 19107-2988
215-238-3880
<PAGE>
[LOGO OF ARAMARK APPEARS HERE]
----------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------------------------------------------
To Our Stockholders:
The annual meeting of stockholders of ARAMARK Corporation (the "Company")
will be held on the Sixteenth Floor of ARAMARK Tower, 1101 Market Street,
Philadelphia, Pennsylvania, on February 10, 1998, at 3:00 P.M., Philadelphia
time, for the following purposes:
1. To consider and vote upon a proposal to authorize certain amendments
to the Company's Restated Certificate of Incorporation (the
"Certificate of Incorporation") described in the accompanying Proxy
Statement, that would reclassify each share of the Company's Class A
Common Stock into one share of a new class of redeemable preferred
stock, which will be immediately redeemed by the Company in exchange
for:
(a) $347.50 per share ($34.75 on a Class B equivalent share
basis) in cash or, at the election of the holders in lieu of cash;
(b) $347.50 principal amount ($34.75 on a Class B equivalent
share basis) of 7.25% Guaranteed Convertible Installment Promissory
Notes due 2007 (subject to certain suitability requirements and
treatment of fractional amounts described in the accompanying Proxy
Statement); or
(c) assuming the holder is a former manager of the Company (or a
permitted transferee) or a Company benefit plan, one share of a new
class of common stock of the Company.
2. To consider and vote upon a proposal to authorize certain amendments
to the Certificate of Incorporation, as described in the accompanying
Proxy Statement, that would amend the Company's Class B Common Stock
to provide that for a 30-day period the Class B Common Stock will be
redeemable by the Company, which redemption right would be immediately
exercised by the Company, thereby causing each share of Class B Common
Stock to be exchanged for either:
(a) new classes of Company stock intended to reflect separately
the performance of the Company's various business groups; or
(b) at the election of the holder, or if the holder is employed
by the magazine and book business of the Company, $29.55 per share in
cash.
<PAGE>
3. To consider and vote upon a proposal to further amend the Certificate
of Incorporation, as described in the accompanying Proxy Statement:
(a) to increase the number of shares of common stock authorized
for issuance from 175,000,000 to 200,000,000;
(b) to provide that, upon consummation of any future public
offering of the Company's common stock, stockholder action may be
taken only at an annual meeting of stockholders or at a special
meeting of stockholders and stockholder action by written consent
shall be prohibited; and
(c) to provide that, upon consummation of any future public
offering of the Company's common stock, the Board of Directors shall
be classified into three classes, each of which, after a transitional
arrangement, will serve for three years, with one class being elected
each year.
4. To consider and vote upon certain amendments to, and the restatement
of, the Amended and Restated Stockholders' Agreement.
5. To elect directors for the ensuing year.
6. To transact such other business as may properly come before the annual
meeting and at any adjournments thereof.
The Board of Directors has fixed the close of business on December 29,
1997 as the record date for determination of the stockholders entitled to notice
of and to vote at the meeting and any adjournments thereof. A list of
stockholders will be open for examination by stockholders for any purpose
germane to the annual meeting for a period of ten days prior to the annual
meeting at the offices of the Company at ARAMARK Tower, 1101 Market Street,
Philadelphia, Pennsylvania.
Whether or not you expect to attend the meeting in person, please fill
in, date and sign the enclosed proxy card and mail it in the return envelope
provided for that purpose.
Martin W. Spector
Executive Vice President,
General Counsel and Secretary
Dated: January 8, 1998
2
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................................... 1
PROXY STATEMENT SUMMARY.................................................... 5
Questions and Answers for Management Investors........................... 20
Summary Comparison of Terms of Common Stocks............................. 42
RISK FACTORS............................................................... 48
THE ANNUAL MEETING......................................................... 56
SHARE 100.................................................................. 58
General.................................................................. 58
Background and Reasons for Share 100..................................... 59
Recommendation of the Board of Directors................................. 62
Opinion of Financial Advisor............................................. 62
Opinion of HLHZ.......................................................... 66
Appraisals of Common Stock............................................... 67
Structure of Share 100................................................... 68
Interests of Certain Persons in Share 100................................ 68
Certain Effects of Share 100............................................. 70
Certain Projections...................................................... 70
Dividend Policy.......................................................... 72
Certain Management and Allocation Policies............................... 72
No Appraisal Rights...................................................... 75
Certain U.S. Federal Income Tax Considerations........................... 75
THE PLAN OF RECAPITALIZATION............................................... 79
General.................................................................. 79
Effective Time........................................................... 79
The Reclassification..................................................... 79
Procedure for Holders of Shares.......................................... 81
Cash-Out of Former Managers.............................................. 86
Treatment of Certain Selling Management Holders.......................... 86
Treatment of Magazine and Book Employees................................. 87
Certain Contingent Payments.............................................. 87
Treatment of Outstanding Options......................................... 88
Treatment of Employee Benefit Plans...................................... 90
Conditions............................................................... 90
Termination; Amendment................................................... 91
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION........................ 92
General.................................................................. 92
The Reclassification..................................................... 92
Increase of Authorized Common Stock...................................... 93
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Proposed Amendments to Certificate of Incorporation
Relating to Stockholder Action and the Board of Directors........... 93
Vote Required.......................................................... 98
Recommendation of the Board of Directors............................... 98
CHANGES TO CERTAIN AGREEMENTS............................................... 99
The Stockholders' Agreement............................................ 99
Voting................................................................. 99
Recommendation of the Board of Directors............................... 99
The Registration Rights Agreement...................................... 99
FINANCING OF SHARE 100...................................................... 100
General................................................................ 100
The Bank Facility...................................................... 100
Sources and Uses of Funds.............................................. 100
Estimated Costs and Fees............................................... 101
HISTORICAL AND PRO FORMA CAPITALIZATION..................................... 102
PRO FORMA FINANCIAL INFORMATION............................................. 103
DESCRIPTION OF THE BUSINESS................................................. 108
Food and Support Services Group........................................ 108
Uniform and Career Apparel Group....................................... 109
Educational Resources Group............................................ 109
Composite Group........................................................ 110
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION................................................................... 111
Results of Operations.................................................. 111
Financial Condition and Liquidity...................................... 114
SECURITY OWNERSHIP BEFORE AND AFTER SHARE 100............................... 115
DESCRIPTION OF CAPITAL STOCK................................................ 116
Existing Capital Stock................................................. 116
Capital Stock After the Effective Time................................. 117
Determinations by the Board of Directors............................... 122
Inter-Group Interest of Composite Group in Business Groups............. 123
DESCRIPTION OF INSTALLMENT NOTES............................................ 125
General................................................................ 126
Maturity and Interest.................................................. 126
Conversion............................................................. 126
Optional Redemption.................................................... 127
Assignability of Installment Notes..................................... 127
Guarantee.............................................................. 127
Covenant............................................................... 127
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ELECTION OF DIRECTORS..................................................... 128
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 138
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS.......................... 139
FINANCIAL STATEMENTS...................................................... 139
PROPOSALS BY STOCKHOLDERS FOR PRESENTATION AT THE 1999 ANNUAL MEETING..... 139
LEGAL OPINION............................................................. 139
PROXY SOLICITATION........................................................ 139
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................. 139
Annex I -- Illustrations of Certain Terms...................... I-1
Annex II -- J.P. Morgan Fairness Opinion........................ II-1
Annex III -- Share 100 -- Plan of Recapitalization............... III-1
Annex IV -- Form of Installment Note............................ IV-1
Annex V -- Restated Certificate of Incorporation............... V-1
Annex VI -- Amended and Restated Stockholders' Agreement........ VI-1
Annex VII -- ARAMARK Corporation and Subsidiaries -- Index to
Financial Information............................... VII-1
</TABLE>
iii
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Page on which
term is defined
in the Proxy
Term Statement
- ---- ---------------
<S> <C>
Amendment Certificates............................................. 4
Annual Meeting..................................................... 1
Appraisal Price.................................................... 67
ARAMARK Ownership Program..........................................133
Arrangement........................................................137
ATROI..............................................................137
Available Dividend Amount..........................................118
Bank Facility......................................................100
Benefit Plans...................................................... 80
Board.............................................................. 2
Business Group..................................................... 2
Business Group Stock............................................... 2
Business Group Stocks.............................................. 2
Business Group Subsidiary..........................................120
Business Groups.................................................... 2
By-Laws............................................................ 94
Call Option........................................................ 86
Certificate of Incorporation....................................... 3
Certificates....................................................... 83
Charter Amendments................................................. 4
Chase.............................................................. 69
Class A Cash Consideration......................................... 1
Class A Common Stock............................................... 1
Class A Composite Stock............................................ 1
Class A Election................................................... 10
Class A Stock Consideration........................................ 1
Class B Cash Consideration......................................... 2
Class B Common Stock............................................... 1
Class B Composite Stock............................................ 2
Class B Election................................................... 10
Class B Redemption Feature......................................... 2
Classified Board Amendment......................................... 3
Code............................................................... 75
Common Stock....................................................... 1
Company............................................................ 1
Composite Group.................................................... 2
Composite Stock.................................................... 2
Contingent Payment................................................. 87
Continuing Holders................................................. 58
Conversion Ratio...................................................121
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Corporate Employees................................................ 3
DGCL............................................................... 11
DSUs............................................................... 90
EBIT...............................................................137
Education Group Employees.......................................... 2
Education Group Stock.............................................. 2
Educational Resources Group........................................ 2
Effective Time..................................................... 10
Election........................................................... 10
Election Date...................................................... 11
Exchange Agent..................................................... 11
Extraordinary Dividend............................................. 87
Extraordinary Redemption........................................... 87
Food and Support Group Employees................................... 2
Food and Support Group Stock....................................... 2
Food and Support Services Group.................................... 2
Form of Election................................................... 10
Former Managers.................................................... 80
Fractional Amounts................................................. 84
Goldman Sachs...................................................... 8
Group.............................................................. 2
Group Stock........................................................ 2
Group Stock Consideration.......................................... 2
Group Stocks....................................................... 2
Groups............................................................. 2
Guaranteed Notes................................................... 76
HLHZ............................................................... 66
Increased Capital Amendment........................................ 3
Individual......................................................... 85
Installment Notes.................................................. 2
Inter-Group Interest............................................... 51
Inter-Group Interest Fraction......................................124
IRS................................................................ 75
ISPOs..............................................................134
J.P. Morgan........................................................ 7
Magazine and Book Business......................................... 3
Magazine and Book Employees........................................ 3
Management Investor................................................ 2
Merger............................................................. 87
Noncontinuing Former Management Holder............................. 86
Notes Consideration................................................ 2
Number of Shares Issuable..........................................124
Outside Stockholders............................................... 60
Outstanding Business Group Fraction................................124
Permitted Transferees.............................................. 3
Plan of Recapitalization........................................... 1
Pooled Debt........................................................ 73
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
Public Offering.................................................... 87
Public Offering Date............................................... 92
Reclassification................................................... 1
Record Date........................................................ 1
Redeemable Transitory Participating Preferred Stock................ 79
Registration Rights Agreement...................................... 3
Related Person..................................................... 85
Relative........................................................... 85
Repurchased Shares................................................. 88
Restated Charter................................................... 4
Restated Stockholders' Agreement................................... 99
Restricted Investors...............................................135
RONA...............................................................137
RTPPS.............................................................. 75
Sale............................................................... 87
Selling Holder..................................................... 86
Series Preferred Stock.............................................116
SHARE 100.......................................................... 1
Stock Option Plan.................................................. 88
Stock Option Plans................................................. 88
Stockholder Action Amendment....................................... 3
Stockholders' Agreement............................................ 3
Stockholders' Agreement Amendment.................................. 3
Suitability Requirement............................................ 84
TIN................................................................ 77
Uniform and Career Apparel Group................................... 2
Uniform Group Employees............................................ 3
Uniform Group Stock................................................ 2
United States Alien................................................ 77
</TABLE>
vi
<PAGE>
[PRELIMINARY COPIES]
[LOGO OF ARAMARK APPEARS HERE]
-------------------------
PROXY STATEMENT
-------------------------
INTRODUCTION
This Proxy Statement, mailed to stockholders on or about January 8, 1998,
is furnished in connection with the solicitation by the Board of Directors of
ARAMARK Corporation (the "Company") of proxies in the accompanying form from
holders of outstanding shares of the Company's Common Stock, Class A, $.01 par
value per share ("Class A Common Stock"), and outstanding shares of the
Company's Common Stock, Class B, $.01 par value per share ("Class B Common
Stock," and together with the Class A Common Stock, "Common Stock"), for use at
an annual meeting of stockholders to be held on the Sixteenth Floor of ARAMARK
Tower, 1101 Market Street, Philadelphia, Pennsylvania, on February 10, 1998, at
3:00 P.M., Philadelphia time, and at any adjournments thereof (the "Annual
Meeting"). The Company's executive offices are located at ARAMARK Tower, 1101
Market Street, Philadelphia, Pennsylvania 19107 (telephone: 215-238-3000).
Only holders of shares of Common Stock of record at the close of business
on December 29, 1997 (the "Record Date") are entitled to vote at the Annual
Meeting. On that date, there were outstanding _________ shares of Class A
Common Stock and ___________ shares of Class B Common Stock. Each holder of
Common Stock entitled to vote will have the right to one vote for each such
share standing in his, her or its name on the books of the Company.
At the Annual Meeting, holders of Common Stock will be asked to consider
and approve various elements of a Plan of Recapitalization dated as of January
6, 1998 (the "Plan of Recapitalization") which contemplates the recapitalization
of the Company and certain transactions and other matters (collectively, "Share
100").
Share 100 involves the reclassification (the "Reclassification") of the
Company's Common Stock as a result of which each outstanding share of Class A
Common Stock will be reclassified and will then be redeemable for:
(a) $347.50 ($34.75 on a Class B equivalent share basis) in cash (the
"Class A Cash Consideration"), unless the holder, subject to certain
conditions, elects to accept the offer of the Company to receive, in lieu
of the Class A Cash Consideration, either one of the following
alternatives;
(b) one share of a new class of common stock of the Company (the "Class A
Stock Consideration"), designated as Class A - Composite Group (the "Class
A Composite Stock"), but only if the holder is a Former Manager or a
Company Benefit Plan; or
<PAGE>
(c) $347.50 ($34.75 on a Class B equivalent share basis) principal
amount (the "Notes Consideration") of 7.25% Guaranteed Convertible
Installment Promissory Notes due 2007 (the "Installment Notes"), subject to
certain Suitability Requirements (Proposal 1).
The Reclassification also provides that each share of Class B Common
Stock will become redeemable (the "Class B Redemption Feature") for:
(a) $29.55 per share in cash (the "Class B Cash Consideration"); or
(b) one or more of the following classes of common stock (the "Group
Stock Consideration"): (1) Class E - Educational Resources Group (the
"Education Group Stock"); (2) Class F - Food and Support Services Group
(the "Food and Support Group Stock"); (3) Class U - Uniform and Career
Apparel Group (the "Uniform Group Stock"); and (4) Class B - Composite
Group (the "Class B Composite Stock") (Proposal 2).
Continuing Holders of Class B Common Stock will be entitled to elect, in
lieu of the Group Stock Consideration, the Class B Cash Consideration in
exchange for their Class B Common Stock, provided that it is a condition to
Share 100 that Continuing Holders of no more than $25 million of the Class B
Common Stock elect the Class B Cash Consideration. For purposes of the election
by holders of Class B Common Stock, each management investor under the
Stockholders' Agreement (a "Management Investor") and all of his or her
Permitted Transferees must make the same election for all of their shares, and
if not, will be deemed to have made the same election for all of their shares as
the election made by the holders of a majority of the Class B Common Stock owned
by those persons.
The Education Group Stock, the Food and Support Group Stock and the
Uniform Group Stock (collectively, the "Business Group Stocks," and each a
"Business Group Stock") are intended to reflect separately the performance of
each of the Company's principal businesses -- educational resources business
(the "Educational Resources Group"); food and support services business (the
"Food and Support Services Group"); and uniform and career apparel business (the
"Uniform and Career Apparel Group"; and collectively with the Educational
Resources Group and Food and Support Services Group, the "Business Groups," and
each, a "Business Group"). The Class A Composite Stock and the Class B
Composite Stock (collectively, the "Composite Stock") reflect the "residual"
interest in each of the Business Groups and any other businesses or investments
of the Company and its subsidiaries (the "Composite Group"; and collectively
with the Educational Resources Group, Food and Support Services Group and
Uniform and Career Apparel Group, the "Groups," and each, a "Group"). The
Business Group Stocks and the Composite Stock are referred to collectively as
the "Group Stocks" and each, a "Group Stock."
The Class B Common Stock will be redeemed on a share-for-share basis from
holders who are entitled to receive the Group Stock Consideration based on their
employment status, as determined by the Company's Board of Directors (the
"Board"), as follows:
(a) employees of the Educational Resources Group and their Permitted
Transferees (collectively, "Education Group Employees") will receive 50%
Education Group Stock and 50% Class B Composite Stock;
(b) employees of the Food and Support Services Group and their
Permitted Transferees (collectively, "Food and Support Group Employees")
will receive 50% Food and Support Group Stock and 50% Class B Composite
Stock;
2
<PAGE>
(c) employees of the Uniform and Career Apparel Group and their
Permitted Transferees (collectively, "Uniform Group Employees") will
receive 50% Uniform Group Stock and 50% Class B Composite Stock; and
(d) employees who do not work exclusively for a single Business
Group, including executive officers and other corporate staff of the
Company, and their Permitted Transferees (collectively, "Corporate
Employees") will receive 100% Class B Composite Stock.
Permitted transferees under the Stockholders' Agreement of Management Investors
("Permitted Transferees") will receive the same Group Stock Consideration as
such Management Investors. Employees of the magazine and book business (the
"Magazine and Book Business") and their Permitted Transferees (collectively,
"Magazine and Book Employees") will be entitled to receive only the Class B Cash
Consideration.
As part of Share 100, stockholders also will be asked to consider and
approve three related proposals to further amend the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"): (i) to
increase the number of shares of Common Stock authorized for issuance from
175,000,000 to 200,000,000, to provide greater assurance that a sufficient
number of shares would be available in the event of a conversion of a class of
Business Group Stock into Class A Composite Stock or Class B Composite Stock
(the "Increased Capital Amendment"); (ii) to provide that, upon the consummation
of any future public offering of the Company's common stock, stockholder action
may be taken only at an annual meeting of stockholders or at a special meeting
of stockholders and stockholder action by written consent shall be prohibited
(the "Stockholder Action Amendment"); and (iii) to provide that, upon the
consummation of any future public offering of the Company's common stock, the
Board shall be classified into three classes, each of which, after a
transitional arrangement, will serve for three years, with one class being
elected each year (the "Classified Board Amendment") (Proposal 3).
Share 100 also contemplates certain amendments to, and the restatement
of, the Amended and Restated Stockholders' Agreement (the "Stockholders'
Agreement"), which amendments are designed to give effect to, and take account
of, Share 100 (the "Stockholders' Agreement Amendment") (Proposal 4).
Additionally, implementation of Share 100 will result in the termination of the
Amended and Restated Registration Rights Agreement (the "Registration Rights
Agreement") because after Share 100 is implemented, all holders of Class A
Common Stock who are a party to the Registration Rights Agreement will no longer
own any of the Common Stock.
In addition, at the Annual Meeting, stockholders will be asked to elect
directors for the ensuing year.
Holders of Group Stock will be stockholders of the Company and will be
subject to the risks associated with an investment in the Company and all of its
businesses, assets and liabilities. Financial effects that arise from a Group
and affect the Company's results of operations or financial condition could, if
significant, affect the results of operations or financial condition of other
Groups or the Appraisal Price of the classes of common stock relating to the
other Groups and reduce the assets of the Company legally available for payment
of future dividends on such other classes of common stock. When evaluating Share
100, stockholders of the Company should be aware of certain risk factors
relating thereto. See "RISK FACTORS."
If Share 100 is approved by the stockholders, the Company will file with
the Secretary of State of the State of Delaware an amended and restated
Certificate of Incorporation, a Certificate of
3
<PAGE>
Designations with respect to the Redeemable Transitory Participating Preferred
Stock, and a Certificate of Designations with respect to the Group Stocks
(collectively, the "Amendment Certificates") to effect the Reclassification, the
Increased Capital Amendment, the Stockholder Action Amendment and the Classified
Board Amendment (the "Charter Amendments"). After the implementation of Share
100, the Company will file a restated Certificate of Incorporation in the form
attached hereto as Annex V (the "Restated Charter") with the Secretary of State
of the State of Delaware integrating the provisions effected by the Amendment
Certificates into a single instrument. At any time prior to such filing with
the Secretary of State of the State of Delaware, including after adoption of
Share 100 by the Company's stockholders, the Board may abandon Share 100 without
further action by the stockholders. Each of the proposals relating to Share 100
(Proposals 1, 2, 3 and 4) is conditioned upon the approval of the others and
will not be implemented if any such proposal is not approved by stockholders.
The Board believes adoption of Share 100, including each of the proposals
which constitute a part thereof, is in the best interests of the Company and its
stockholders and, accordingly, the Board unanimously recommends that
stockholders vote FOR Proposals 1, 2, 3 and 4, and thereby approve Share 100.
4
<PAGE>
PROXY STATEMENT SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement. Reference is made to, and this Proxy
Statement Summary is qualified in its entirety by, the more detailed
information contained in this Proxy Statement including the Annexes hereto.
Stockholders are urged to read this Proxy Statement including the Annexes
hereto in its entirety.
Annual Meeting
The Company will hold its Annual Meeting on the Sixteenth Floor of
ARAMARK Tower, 1101 Market Street, Philadelphia, Pennsylvania, on February
10, 1998, at 3:00 P.M., Philadelphia time. Only holders of record of Common
Stock, as of the close of business on December 29, 1997, are entitled to
notice of, to attend and to vote at the Annual Meeting.
The Reclassification of the Class A Common Stock (Proposal 1)
requires the affirmative vote of the holders of a majority of the
outstanding Class A Common Stock voting as a single class and the
affirmative vote of the holders of a majority of the outstanding Common
Stock voting as a single class. The Reclassification of the Class B Common
Stock (Proposal 2) requires the affirmative vote of the holders of a
majority of the outstanding Class B Common Stock voting as a single class
and the affirmative vote of the holders of a majority of the outstanding
Common Stock voting as a single class. Each of the Charter Amendments (other
than the Reclassification) (Proposal 3) requires the affirmative vote of the
holders of a majority of the outstanding Common Stock voting as a single
class. Amendments to the Stockholders' Agreement (Proposal 4) require,
pursuant to the Stockholders' Agreement, the affirmative vote by Management
Investors who hold (in combination with their Permitted Transferees) at
least a majority of the Common Stock held by Management Investors and their
Permitted Transferees. Accordingly, the votes by Management Investors for
the Stockholders' Agreement will be binding on their Permitted Transferees,
notwithstanding a different vote by such Permitted Transferees.
Each of the proposals relating to Share 100 (Proposals 1, 2, 3 and
4) is conditioned upon the approval of the others and will not be
implemented if any such proposal is not approved by stockholders.
SHARE 100
General.
Share 100 contemplates the Reclassification of the Company's Common
Stock as a result of which:
(i) each outstanding share of Class A Common Stock will be
reclassified and will then be redeemable for (a) $347.50 ($34.75
on a Class B share equivalent basis) in cash (Class A Cash
Consideration), unless the holder elects to accept the offer of
the Company to receive, in lieu of the Class A Cash
Consideration, either one of the following alternatives; (b) one
share of Class A Composite Stock, but only if the holder is a
Former Manager or a Company Benefit Plan; or (c) $347.50 ($34.75
on a
5
<PAGE>
Class B share equivalent basis) principal amount of Installment
Notes, subject to certain Suitability Requirements; and
(ii) each share of Class B Common Stock will become redeemable
for (a) $29.55 in cash or (b) one or more of the following
classes of Common Stock: (1) Education Group Stock; (2) Food and
Support Group Stock; (3) Uniform Group Stock; and (4) Class B
Composite Stock.
The Education Group Stock, the Food and Support Group Stock and the
Uniform Group Stock are intended to reflect separately the performance
of each of the Business Groups. The Composite Stock reflects the
"residual" interest in each of the Business Groups and any other
businesses or investments of the Company or any of its subsidiaries.
The Class B Common Stock will be redeemed from the holders thereof
based upon the employment status, as determined by the Board, of the
holder with a particular Group. See "THE PLAN OF RECAPITALIZATION."
Class B Cash Election. Continuing Holders of Class B Common Stock
will be entitled to elect, in lieu of the Group Stock Consideration,
$29.55 per share in cash (Class B Cash Consideration) in exchange for
their Class B Common Stock, provided that it is a condition to Share
100 that Continuing Holders of no more than $25 million of the Class B
Common Stock elect the Class B Cash Consideration. For purposes of the
election by holders of Class B Common Stock, each Management Investor
and all of his or her Permitted Transferees must make the same election
for all of their shares, and if not, will be deemed to have made the
same election for all of their shares as the election made by the
holders of a majority of the Class B Common Stock owned by those
persons. See "SHARE 100 -- General".
Former Managers. Holders of Class A Common Stock who are Former
Managers may continue their equity investment in the Company by making
a Class A Election for the Class A Stock Consideration. Former
Managers who do not make such Election will have their Class A Common
Stock called by the Company pursuant to the terms of the Stockholders'
Agreement, for $29.55 per share (on a Class B equivalent share basis).
See "THE PLAN OF RECAPITALIZATION -- Cash-Out of Former Managers."
Class A Contingent Payment. Any holder of Class A Common Stock
(other than a Former Manager) who makes a Class A Election for the
Class A Cash Consideration or the Notes Consideration will also be
entitled to a contingent cash payment in excess of the Class A Cash
Consideration or Notes Consideration, if within two years from the
Effective Time the Company engages in certain corporate transactions.
See "THE PLAN OF RECAPITALIZATION -- Certain Contingent Payments."
Magazine and Book Employees. Holders of Class B Common Stock who
are Magazine and Book Employees will be entitled to receive only the
Class B Cash Consideration in Share 100. See "SHARE 100 -- Treatment
of Magazine and Book Employees."
Charter Amendments. Share 100 also contemplates three further
amendments to the Certificate of Incorporation: (i) to increase the
number of shares of Common Stock
6
<PAGE>
authorized for issuance from 175,000,000 to 200,000,000 (Increased
Capital Amendment); (ii) to provide that, upon consummation of any
future public offering of the Company's common stock, stockholder
action may be taken only at an annual meeting of stockholders or at a
special meeting of stockholders and stockholder action by written
consent shall be prohibited (Stockholder Action Amendment); and (iii)
to provide that, upon consummation of any future public offering of the
Company's common stock, the Board shall be classified into three
classes, each of which, after a transitional arrangement, will serve
for three years, with one class being elected each year (Classified
Board Amendment). See "AMENDMENTS TO RESTATED CERTIFICATE OF
INCORPORATION."
Stockholders' Agreement Amendment. Share 100 also contemplates
certain amendments to, and the restatement of, the Stockholders'
Agreement, designed to give effect to, and take account of, Share 100.
Additionally, implementation of Share 100 will result in the
termination of the Registration Rights Agreement. See "CHANGES TO
CERTAIN AGREEMENTS."
Reasons for Share 100.
Share 100 was adopted by the Board to eliminate the equity interests
of outside stockholders in the Company and to align more closely
management stockholders' investment interests with the performance of
the Business Group for which each employee works. It will also allow
the Company to (i) preserve the financial, strategic and operational
benefits it currently enjoys as a single company and (ii) maintain
flexibility that would not be available if the Groups were separate
legal entities. See "SHARE 100 -- Background and Reasons for Share
100."
Recommendation of the Board of Directors.
The Board believes adoption of Share 100 (including the amendments
to the Certificate of Incorporation that constitute a part thereof) is
in the best interests of the Company and its stockholders and,
accordingly, unanimously recommends that stockholders vote FOR Share
100.
Opinion of Financial Advisor.
At the meeting of the Board on January 6, 1998, the Company's
independent financial advisor, J.P. Morgan Securities Inc. ("J.P.
Morgan"), delivered its oral opinion to the Board, which was later
confirmed in writing as of the date of this Proxy Statement, to the
effect that from a financial point of view (i) the consideration to be
received by holders of each class of Common Stock is fair to those
holders and (ii) the exchange ratios to be applied in connection with
the Reclassification of the Class B Common Stock are fair to those
holders. The full text of the J.P. Morgan written opinion, which sets
forth the procedures followed, limits of the review undertaken,
assumptions made and other matters considered in connection with
rendering its opinion, is attached as Annex II to this Proxy Statement
and should be read carefully in its entirety.
7
<PAGE>
Interests of Certain Persons in Share 100.
In considering Share 100, stockholders should be aware that certain
members of the Company's management and the Board have certain
interests that present them with potential conflicts of interest in
connection with Share 100. The Board was aware of these interests when
it approved Share 100 and considered them at that time among the other
matters described under "SHARE 100--Background and Reasons for Share
100."
The interests that give rise to certain potential conflicts of
interests in connection with Share 100 include, among others: (i) the
Company's directors and its executive officers will not receive any of
the Business Group Stocks, while most other Management Investors will
receive part Business Group Stock and part Class B Composite Stock in
exchange for their Class B Common Stock, (ii) Permitted Transferees of
one Company director own both Class A Common Stock and Class B Common
Stock and all of the other directors (and/or their Permitted
Transferees) own Class B Common Stock, (iii) two Company directors also
serve as trustees for the Company's Benefit Plans, and, as such, are
subject to certain fiduciary duties that may give rise to different
investment priorities and concerns with respect to the shares held
under the Benefit Plans, (iv) an affiliate of one bank that is a co-
agent of, and participates in, the Company's Bank Facility and which
anticipates serving as co-arranger and participating in, the amended
Bank Facility to be used in connection with the financing of Share 100
is a substantial holder of the Class A Common Stock, (v) Goldman, Sachs
& Co. ("Goldman Sachs"), which acts in a fiduciary capacity with
respect to the Class A Common Stock held by certain of its funds, has
historically been a financial advisor to the Company, was a participant
in discussions that influenced the development of Share 100 in which
its funds would receive $347.50 ($34.75 on a Class B equivalent share
basis) in exchange for their shares of Class A Common Stock in the
Reclassification, will receive a fee in connection with its financial
advisory services to the Company in connection with Share 100, and may
again provide financial advisory services to the Company from time to
time after the implementation of Share 100, (vi) an affiliate of J.P.
Morgan serves as a co-agent of, and participates in, the Company's
existing Bank Facility and anticipates serving as co-agent of, and
participating in, the amended Bank Facility and J.P. Morgan anticipates
serving as co-arranger of the amended Bank Facility, all upon Share 100
becoming effective, for which they will receive additional fees, and
(vii) Share 100 will have an impact on stockholders that varies
depending upon whether such holders own Class A Common Stock or Class B
Common Stock and upon the Group in which the holder is employed.
For further information concerning these and other matters that
present certain potential conflicts of interest in connection with
Share 100, see "SHARE 100 -- Background and Reasons for Share 100" and
" -- Interests of Certain Persons in Share 100."
Certain Management and Allocation Policies.
If Share 100 is approved by the stockholders and implemented by the
Board, the Company will provide unaudited supplemental selected
financial information for each Business Group, in addition to the
audited consolidated financial statements of the Company. Consistent
with the Restated Charter and relevant policies, each Business Group's
financial results will include allocated portions of the Company's
corporate general and administrative costs and other shared services.
Principal corporate activities, which include the allocation of
8
<PAGE>
debt, will be allocated to the Groups based on methods that Company
management believes to be reasonable and will be reflected in the
respective supplemental selected financial information as described in
"SHARE 100--Certain Management and Allocation Policies."
No Appraisal Rights.
Under Delaware law, holders of shares of the Common Stock will not
have a right to an appraisal of their shares by the Delaware Court of
Chancery in connection with Share 100.
Certain Federal Income Tax Considerations.
The Reclassification should constitute a "recapitalization" of the
Company within the meaning of Section 368(a)(l)(E) of the Internal
Revenue Code of 1986 (the "Code"). As such, the Reclassification
should not be a taxable transaction to the Company or the holders of
Common Stock who, following the Reclassification, continue to hold
common stock, but should be a taxable transaction to the holders of
Common Stock whose stock is redeemed for cash or Installment Notes.
Stockholders whose Common Stock is redeemed should, subject to certain
exceptions, obtain capital gain treatment to the extent they recognize
gain as a result of the Reclassification and may be eligible to receive
installment sale treatment for federal income tax purposes, in each
case, depending upon the form or forms of consideration which they
receive. See "SHARE 100 -- Certain U.S. Federal Income Tax
Considerations" for a detailed description of certain U.S. federal
income tax consequences expected to result from the Reclassification.
Risk Factors
Stockholders are urged to read the section titled "RISK FACTORS" for
a description of certain risk factors relating to Share 100 and the
ownership of securities of the Company after Share 100. The following
include some of the risk factors described in the section titled "RISK
FACTORS": (i) the risks associated with an investment in the Company
and all of its businesses, assets and liabilities; (ii) limited
separate stockholder rights with respect to the five classes of Common
Stock; (iii) fiduciary duties of the Board are to all stockholders
regardless of class or series; (iv) the potential diverging interests
of any two classes of common stock; (v) the ability of the Board to
change management and allocation policies; (vi) the ability of the
Board to transfer funds among the Groups; (vii) the effect of
allocating financing costs among the Groups; (viii) the ability of the
Board to issue authorized but unissued shares of stock; (ix) the change
of the Company's capitalization to one that is more highly leveraged;
and (x) the possibility of a court finding that the Company's issuance
of cash or Installment Notes in Share 100 was a fraudulent conveyance.
The Plan of Recapitalization
General; Effective Time.
The Plan of Recapitalization provides for (i) the Reclassification,
(ii) adoption of the Charter Amendments (other than the
Reclassification), and (iii) the Stockholders' Agreement Amendments and
the Registration Rights Agreement termination. Share 100 will become
effective at the time the Amendment Certificates are filed with the
Secretary of State of the
9
<PAGE>
State of Delaware (the "Effective Time"). Assuming stockholder
approval of each of the proposals relating to Share 100, the filings of
the Amendment Certificates and the Restated Charter are currently
anticipated to be made as promptly as practicable after the Annual
Meeting.
Procedure for Holders of Shares.
Class A Common Stock--
Class A Cash Consideration: Holders of Class A Common Stock
--------------------------
who desire to receive the Class A Cash Consideration should complete
and return a Green Form of Election and concurrently deliver the
Certificates representing their shares of Class A Common Stock.
Notes Consideration: Holders of Class A Common Stock who
-------------------
desire to receive the Notes Consideration and who meet to the Company's
satisfaction the Suitability Requirements must make a proper and timely
election (the "Class A Election") for such consideration on the
enclosed Green Form of Election and should concurrently deliver the
Certificates representing their shares of Class A Common Stock.
Class A Stock Consideration: Holders of Class A Common Stock
---------------------------
who desire to receive the Class A Stock Consideration and who are
Former Managers or Company Benefit Plans must make a Class A Election
for such consideration on the enclosed Green Form of Election, but need
not concurrently deliver the Certificates representing such Class A
Common Stock to the Exchange Agent. Holders of Class A Common Stock
electing the Class A Stock Consideration should deliver the
Certificates representing their shares of Class A Common Stock pursuant
to instructions to be contained in a certificate profile report
delivered by the Company promptly after the Effective Time.
Class B Common Stock--
Group Stock Consideration: Continuing Holders of Class B
-------------------------
Common Stock who desire to receive the Group Stock Consideration need
not complete or return a Blue Form of Election. Such holders should
deliver the Certificates representing their shares of Class B Common
Stock pursuant to instructions to be contained in an ownership
statement or a certificate profile report delivered by the Company
promptly after the Effective Time.
Class B Cash Consideration: Continuing Holders of Class B
--------------------------
Common Stock who desire to receive the Class B Cash Consideration must
make a proper and timely election (the "Class B Election," and together
with the Class A Election, each an "Election") for such consideration
on the enclosed Blue Form of Election and should concurrently deliver
the Certificates representing their shares of Class B Common Stock.
Magazine and Book Employees should complete and return a Blue Form of
Election and concurrently deliver the Certificates representing their
shares of Class B Common Stock.
Form of Election. To make an effective Election, a holder of Class
A Common Stock or a Continuing Holder of Class B Common Stock must
complete and sign a Green or Blue, as applicable, Form of
Election/Letter of Transmittal ("Form of Election") and return it to
the
10
<PAGE>
Special Exchange Agent Group, consisting of three members of management
of the Company and formed for the specific purpose of acting, and
authorized by the Board to act, as Exchange Agent with respect to Share
100 (the "Exchange Agent"), at ARAMARK Corporation, The ARAMARK Tower,
1101 Market Street, Philadelphia, Pennsylvania 19107, Attention:
Exchange Agent, prior to 10:00 A.M., Philadelphia time, on the day of
the Annual Meeting or, if the Annual Meeting is postponed or adjourned
without approval and adoption of Share 100, on the day on which Share
100 is approved and adopted by the Company's stockholders (the later of
such days being referred to herein as the "Election Date").
Any holder of Class A Common Stock (other than a Former Manager) who
fails to make a proper and timely Class A Election will receive the
Class A Cash Consideration. Any Continuing Holder of Class B Common
Stock who fails to make a proper and timely Class B Election will
receive the Group Stock Consideration.
Even if you plan to vote against Share 100, you should nonetheless
make a proper and timely Election to ensure that you will receive the
desired consideration in the event Share 100 is ultimately approved and
becomes effective.
You can make an effective Election without concurrently delivering
your Certificates. However, the Company will not issue any cash or
Installment Notes until the Certificates with respect to which payment
is to be made have been properly surrendered to the Exchange Agent.
Accordingly, if you desire to receive cash or Installment Notes as
promptly as possible following the Effective Time, you should deliver
your Certificates concurrently with your Form of Election. If Share
100 is not approved or is not consummated, we will return your
Certificates.
Conditions; Termination; Amendment.
The Company's obligation to consummate Share 100 is subject to,
among other conditions: (i) the approval and adoption of Share 100 by
the requisite vote and consent of the stockholders of the Company, (ii)
receipt of the proceeds of the Financing, (iii) receipt by the Board of
satisfactory appraisals or similar reports supporting the conclusions
that (a) sufficient surplus is available to permit consummation of the
transactions contemplated by Share 100 under the General Corporation
Law of Delaware (the "DGCL") and (b) the fair value of the Company's
total assets will exceed the fair value of its total liabilities
immediately after the Effective Time, (iv) receipt by the Board of
satisfactory opinions of counsel and (v) election of the Class B Cash
Consideration by the holders of no more than $25 million of the Class B
Common Stock. Most of such conditions may be waived by the Company.
For additional conditions to the Company's obligation to consummate
Share 100, see "THE PLAN OF RECAPITALIZATION -- Conditions."
The Plan of Recapitalization may be terminated and Share 100
abandoned by the Board at any time prior to the Effective Time,
notwithstanding its approval by the Company's stockholders.
At any time prior to the Effective Time, the Board may modify or
amend any term of the Plan of Recapitalization as set forth herein, add
any new term or waive almost any
11
<PAGE>
condition thereof, provided that no such modification, amendment,
addition or waiver that requires stockholder or any other approval
under the DGCL or any other applicable law, or under the Certificate of
Incorporation or the Stockholders' Agreement or Registration Rights
Agreement, will occur following the Annual Meeting unless such approval
is obtained. In the event of a material modification to the Plan of
Recapitalization, a supplement to this Proxy Statement will be
distributed to stockholders and, if necessary, stockholders' proxies
will be resolicited.
Financing of Share 100
The Company will increase its aggregate debt level by approximately
$440 million to finance Share 100, including amounts required to redeem
shares and to pay the fees and expenses incurred in connection with
Share 100. The Company anticipates amending its current unsecured
revolving credit facility. See "FINANCING OF SHARE 100."
Description of Capital Stock
For a summary description of the Group Stocks, see "-- Summary
Comparison of Terms of Common Stocks." For a detailed description of
the Group Stocks, see "DESCRIPTION OF CAPITAL STOCK."
Description of Installment Notes
For a summary description of the Installment Notes, see "DESCRIPTION
OF INSTALLMENT NOTES." For information regarding certain federal
income tax consequences, see "SHARE 100 -- Certain U.S. Federal Income
Tax Considerations -- Treatment of Redemption of Class A Common Stock
for Installment Notes." The form of Installment Note is included herein
as Annex IV.
Election of Directors
Stockholders will also elect twelve directors at the Annual Meeting.
See "ELECTION OF DIRECTORS."
12
<PAGE>
THE COMPANY
The following table presents certain summary historical and pro forma
consolidated financial information for the Company as of the dates and for the
periods indicated. The pro forma consolidated income statement data gives effect
to Share 100 (including the Reclassification, the incurrence of additional
indebtedness and the payment of fees and expenses in connection therewith) as if
it had been consummated at the beginning of the respective periods indicated.
The pro forma consolidated balance sheet data gives effect to Share 100 as if it
had been consummated as of June 27, 1997. All such information is derived from
the more detailed information contained in the Consolidated Financial Statements
of the Company and the notes thereto, and the Historical and Pro Forma
Capitalization and Pro Forma Financial Information of the Company, and the notes
thereto, included elsewhere herein or in Annex VII.
<TABLE>
<CAPTION>
ARAMARK Corporation and Subsidiaries
-----------------------------------------------------------------
For the nine months
Pro Forma ended on or near Pro Forma
nine months June 30 Fiscal Year
ended -------------------- ended
June 1997(6) 1997 1996 1996(6)
------------ ---- ---- -----------
(in millions, except per share amounts and ratios)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 4,676.4 $ 4,676.4 $ 4,560.3 $ 6,122.5
Earnings before
depreciation and
amortization, interest,
and income taxes 426.6 426.6 337.2 478.0
Earnings before interest
and income taxes 283.2 283.2 200.9 295.2
Interest expense, net 109.8 88.6 88.9 145.4
Income before extraordinary
item and cumulative effect
of change in accounting for
income taxes (2) 132.9 145.7 70.1 94.5
Net income 145.7 67.3
Earnings per share: (3)
Income before extraordinary
item and cumulative effect
of change in accounting
for income taxes (2) $ 4.66 $ 3.26 $ 1.47 $ 2.99
Net Income $ 3.26 $ 1.41
Ratio of earnings to fixed
charges (4) 2.2x 2.6x 1.9x 1.8x
Balance Sheet Data (at period end):
Total assets $ 2,784.6 $ 2,783.4 $ 2,665.2
Long-term borrowings:
Senior 1,599.2 1,159.2 1,150.7
Subordinated 130.0 130.0 161.2
Common stock subject to
potential repurchase (5) 20.0 23.6 16.8
Shareholders' equity (deficit) (51.7) 381.0 268.2
</TABLE>
<TABLE>
<CAPTION>
ARAMARK Corporation and Subsidiaries
--------------------------------------------------------------------------------
Fiscal Year Ended on or near
September 30
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
(in millions, except per share amounts and ratios)
Income Statement Data:
Revenues $ 6,122.5 $ 5,600.6 $ 5,161.6 $ 4,890.7 $ 4,865.3
Earnings before
depreciation and
amortization, interest,
and income taxes 478.0 433.9 415.7 399.4 387.4
Earnings before interest
and income taxes 295.2 277.0 272.0 268.9 261.6
Interest expense, net 116.0 109.4 108.5 125.7 137.9
Income before extraordinary
item and cumulative effect
of change in accounting for
income taxes (2) 112.2 100.2 95.0 84.3 70.7
Net income 109.5 93.5 86.1 77.1 67.4
Earnings per share: (3)
Income before extraordinary
item and cumulative effect
of change in accounting
for income taxes (2) $ 2.37 $ 2.01 $ 1.87 $ 1.64 $ 1.40
Net Income $ 2.31 $ 1.88 $ 1.69 $ 1.49 $ 1.33
Ratio of earnings to fixed
charges (4) 2.1x 2.1x 2.1x 1.9x 1.7x
Balance Sheet Data (at period end):
Total assets $ 2,830.8 $ 2,643.3 $ 2,122.0 $ 2,040.6 $ 2,005.0
Long-term borrowings:
Senior 1,160.7 1,109.4 691.5 533.8 629.5
Subordinated 161.2 165.4 290.4 474.9 413.5
Common stock subject to
potential repurchase (5) 18.6 19.1 20.8 21.7 20.4
Shareholders' equity (deficit) 296.2 252.3 182.6 124.1 103.8
</TABLE>
(1) Fiscal 1992 was a fifty-three week period. See note 1 to the consolidated
financial statements.
(2) See notes 3 and 6 to the consolidated financial statements.
(3) Based on weighted average shares of common stock outstanding for all
periods. See note 1 to the consolidated financial statements.
(4) For the purpose of determining the ratio of earnings to fixed charges,
earnings include pre-tax income plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest on all indebtedness (excluding
capitalized interest) plus that portion of operating lease rentals
representative of the interest factor (deemed to be one-third of operating
lease rentals).
(5) See note 7 to the consolidated financial statements.
(6) For pro forma information, see "PRO FORMA FINANCIAL INFORMATION."
13
<PAGE>
SUPPLEMENTAL PRO FORMA SELECTED FINANCIAL DATA
FOR
THE EDUCATIONAL RESOURCES GROUP
The supplemental pro forma selected financial data below has been
derived from the consolidated financial statements of the Company, and
presents selected financial data of the businesses underlying the
Education Group Stock as described in "DESCRIPTION OF THE BUSINESS --
Educational Resources Group." The Income Statement Data was prepared
as if Share 100 had been consummated at the beginning of the periods
presented and the Balance Sheet Data was prepared as if Share 100 had
occurred on June 27, 1997. The information presented below has been
prepared in accordance with the proposed management and allocation
policies described in "SHARE 100 -- Certain Management and Allocation
Policies," and includes (i) the historical results of the Educational
Resources Group, (ii) an allocated portion of the Company's
indebtedness and related interest expense and (iii) an allocated
portion of the Company's corporate general and administrative costs.
Holders of Group Stock will be stockholders of the Company and will
be subject to the risks associated with an investment in the Company
and all of its businesses, assets and liabilities. Financial effects
that arise from a Group and affect the Company's results of operations
or financial condition could, if significant, affect the results of
operations or financial condition of other Groups or the Appraisal
Price of the classes of Common Stock relating to the other Groups and
reduce the assets of the Company legally available for payment of
future dividends on such other classes of Common Stock. When
evaluating Share 100, stockholders of the Company should be aware of
certain risk factors relating thereto. See "RISK FACTORS". See "SHARE
100--Appraisals of Common Stock" for a discussion of information
considered by HLHZ in rendering its appraisals. Additionally, the
consolidated financial statements (and notes thereto) of the Company
and the information contained in "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION," "SHARE 100,"
"DESCRIPTION OF CAPITAL STOCK," and "PRO FORMA FINANCIAL INFORMATION"
should be read in conjunction with this information.
14
<PAGE>
THE EDUCATIONAL RESOURCES GROUP
-------------------------------
<TABLE>
<CAPTION>
Nine months
------------------ Fiscal
Note 1997 1996 1996
---- ------ ------ ------
(in millions except per share amounts, unaudited)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues (a) $244.9 $217.2 $289.3
Earnings before depreciation and amortization, interest
and income taxes 36.3 31.7 37.0
Depreciation and amortization (a) 12.4 11.2 14.7
Operating income (a) 23.9 20.5 22.3
Allocated corporate overhead (b) 1.1 1.1 1.4
Interest expense on allocated debt (c) 2.7 2.9 3.7
Income before income taxes 20.1 16.5 17.2
Net income (d) 11.5 9.1 9.4
Earnings available for Education Group Stock (e) 0.8 0.6 0.7
Earnings per Education Group Share (e) $ 3.79 $ 3.01 $ 3.12
Balance Sheet Data:
Total Assets $215.7
Allocated Debt (c) 44.0
</TABLE>
Notes to Supplemental Data:
(a) For information on business segments see Note 11 to the Company's fiscal
1996 consolidated financial statements in Annex VII.
(b) Represents an allocation of indirect corporate expenses. See "SHARE 100 --
Certain Allocation and Management Policies" for a further discussion of
the allocation of corporate expenses and the Board of Directors' authority
to modify allocation methodologies at its discretion. Costs of corporate
departments providing direct services to the various Groups are included
in operating income as reported. Corporate expenses of $.4 million, $.4
million and $.5 million are included in Educational Resources Group
operating income for the nine months ended June 27, 1997, the nine months
ended June 28, 1996 and fiscal 1996, respectively.
(c) Debt is managed on a consolidated basis. Allocated debt of the Educational
Resources Group consists of (i) the Company's debt, if any, that has been
allocated in its entirety to the Educational Resources Group and (ii) a
portion of the Company's debt that is allocated among the Groups ("pooled
debt"). The interest rate on the Educational Resources Group pooled debt
is based on the effective rate of the Company's total pooled debt. See
"SHARE 100 -- Certain Allocation and Management Policies" for additional
information regarding allocated debt and related interest expense and the
Board of Directors' authority to modify allocation methodologies at its
discretion.
(d) The Educational Resources Group is included in the consolidated federal
income tax return filed by the Company. Accordingly, the provision for
federal income taxes and related payment of tax are determined on a
consolidated basis. A provision for income taxes in determining net income
for the Educational Resources Group was computed in accordance with the
Company's tax allocation policy for the Groups. In general, the tax
provisions included in determining net income approximate the provisions
which would be required if the Educational Resources Group were a separate
taxpayer. See "SHARE 100 -- Certain Allocation and Management Policies"
for additional information regarding the tax allocation policy. Deferred
tax assets attributable to the Educational Resources Group are included in
the Total Assets caption above.
(e) Earnings available for Education Group Stock represents total net income
of the Educational Resources Group reduced by the portion thereof
allocable to the Inter-Group Interest. See "DESCRIPTION OF CAPITAL STOCK
-- Inter-Group Interest of Composite Group in Business Groups." The per
share amount is determined by dividing earnings available for the
Education Group Stock by the weighted average number of shares of
Education Group Stock outstanding.
15
<PAGE>
SUPPLEMENTAL PRO FORMA SELECTED FINANCIAL DATA
FOR
THE FOOD AND SUPPORT SERVICES GROUP
The supplemental pro forma selected financial data below has been
derived from the consolidated financial statements of the Company and
presents selected financial data of the businesses underlying the Food
and Support Group Stock as described in "DESCRIPTION OF THE BUSINESS --
Food and Support Services Group." The Income Statement Data was
prepared as if Share 100 had been consummated at the beginning of the
periods presented and the Balance Sheet Data was prepared as if Share
100 had occurred on June 27, 1997. The information presented below has
been prepared in accordance with the proposed management and allocation
policies described in "SHARE 100 -- Certain Management and Allocation
Policies," and includes (i) the historical results of the Food and
Support Services Group, (ii) an allocated portion of the Company's
indebtedness and related interest expense and (iii) an allocated
portion of the Company's corporate general and administrative costs.
Holders of Group Stock will be stockholders of the Company and will
be subject to the risks associated with an investment in the Company
and all of its businesses, assets and liabilities. Financial effects
that arise from a Group and affect the Company's results of operations
or financial condition could, if significant, affect the results of
operations or financial condition of other Groups or the Appraisal
Price of the classes of Common Stock relating to the other Groups and
reduce the assets of the Company legally available for payment of
future dividends on such other classes of Common Stock. When evaluating
Share 100, stockholders of the Company should be aware of certain risk
factors relating thereto. See "RISK FACTORS." See "SHARE 100--
Appraisals of Common Stock" for a discussion of information considered
by HLHZ in rendering its appraisals. Additionally, the consolidated
financial statements (and notes thereto) of the Company and the
information contained in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION," "SHARE 100,"
"DESCRIPTION OF CAPITAL STOCK," and "PRO FORMA FINANCIAL INFORMATION"
should be read in conjunction with this information.
16
<PAGE>
THE FOOD AND SUPPORT SERVICES GROUP
-----------------------------------
<TABLE>
<CAPTION>
Nine months
------------------ Fiscal
Note 1997 1996 1996
---- ------ ------ ------
(in millions except per share amounts, unaudited)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues (a) $3,020.6 $2,828.8 $3,816.0
Earnings before depreciation and amortization,
other expense/income, interest and income taxes 199.7 177.8 273.4
Depreciation and amortization (a) 74.8 72.3 96.5
Earnings before other expense/income, interest and
income taxes 124.9 105.5 176.9
Other expense/income, net (a) - 2.7 2.7
Operating income (a) 124.9 102.8 174.2
Allocated corporate overhead (b) 8.1 8.0 10.6
Interest expense on allocated debt (c) 67.1 70.5 91.9
Income before income taxes 49.7 24.3 71.7
Net income (d) 22.4 12.4 37.0
Earnings available for Food and Support Group Stock (e) 4.9 2.7 8.1
Earnings per Food and Support Group share (e) $ 1.32 $ 0.73 $ 2.18
Balance Sheet Data:
Total Assets $1,273.6
Allocated Debt (c) 1,084.0
</TABLE>
Notes to Supplemental Data:
(a) For information on business segments, see Note 11 to the Company's fiscal
1996 consolidated financial statements in Annex VII.
(b) Represents an allocation of indirect corporate expenses. See "SHARE 100 --
Certain Allocation and Management Policies" for a further discussion of
the allocation of corporate expenses and the Board of Directors' authority
to modify allocation methodologies at its discretion. Costs of corporate
departments providing direct services to the various Groups are included
in operating income as reported. Corporate expenses of $7.2 million, $6.0
million and $7.9 million are included in Food and Support Services Group
operating income for the nine months ended June 27, 1997, the nine months
ended June 28, 1996 and fiscal 1996, respectively.
(c) Debt is managed on a consolidated basis. Allocated debt of the Food and
Support Services Group consists of (i) the Company's debt, if any, that
has been allocated in its entirety to the Food and Support Services Group
and (ii) a portion of the Company's debt that is allocated among the
Groups ("pooled debt"). The interest rate on the Food and Support Services
Group pooled debt is based on the effective rate of the Company's total
pooled debt. See "SHARE 100 -- Certain Allocation and Management Policies"
for additional information regarding allocated debt and related interest
expense and the Board of Directors' authority to modify allocation
methodologies at its discretion.
(d) The Food and Support Services Group is included in the consolidated
federal income tax return filed by the Company. Accordingly, the provision
for federal income taxes and related payment of tax are determined on a
consolidated basis. A provision for income taxes in determining net income
for the Food and Support Services Group was computed in accordance with
the Company's tax allocation policy for the Groups. In general, the tax
provisions included in determining net income approximate the provisions
which would be required if the Food and Support Services Group were a
separate taxpayer. See "SHARE 100 --Certain Allocation and Management
Policies" for additional information regarding the tax allocation policy.
Deferred tax assets attributable to the Food and Support Services Group
are included in the Total Assets caption above.
(e) Earnings available for Food and Support Group Stock represents total net
income of the Food and Support Services Group reduced by the portion
thereof allocable to the Inter-Group Interest. See "DESCRIPTION OF CAPITAL
STOCK -- Inter-Group Interest of Composite Group in Business Groups." The
per share amount is determined by dividing earnings available for the Food
and Support Group Stock by the weighted average number of shares of Food
and Support Group Stock outstanding.
17
<PAGE>
SUPPLEMENTAL PRO FORMA SELECTED FINANCIAL DATA
FOR
THE UNIFORM AND CAREER APPAREL GROUP
The supplemental pro forma selected financial data below has been
derived from the consolidated financial statements of the Company, and
presents selected financial data of the businesses underlying the
Uniform Group Stock as described in "DESCRIPTION OF THE BUSINESS --
Uniform and Career Apparel Group." The Income Statement Data was
prepared as if Share 100 had been consummated at the beginning of the
periods presented and the Balance Sheet Data was prepared as if Share
100 had occurred on June 27, 1997. The information presented below has
been prepared in accordance with the proposed management and allocation
policies described in "SHARE 100 - Certain Management and Allocation
Policies," and includes (i) the historical results of the Uniform and
Career Apparel Group, (ii) an allocated portion of the Company's
indebtedness and related interest expense and (iii) an allocated
portion of the Company's corporate general and administrative costs.
Holders of Group Stock will be stockholders of the Company and will
be subject to the risks associated with an investment in the Company
and all of its businesses, assets and liabilities. Financial effects
that arise from a Group and affect the Company's results of operations
or financial condition could, if significant, affect the results of
operations or financial condition of other Groups or the Appraisal
Price of the classes of Common Stock relating to the other Groups and
reduce the assets of the Company legally available for payment of
future dividends on such other classes of Common Stock. When evaluating
Share 100, stockholders of the Company should be aware of certain risk
factors relating thereto. See "RISK FACTORS." See "SHARE 100--
Appraisals of Common Stock" for a discussion of information considered
by HLHZ in rendering its appraisals. Additionally, the consolidated
financial statements (and notes thereto) of the Company and the
information contained in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION," "SHARE 100,"
"DESCRIPTION OF CAPITAL STOCK," and "PRO FORMA FINANCIAL INFORMATION"
should be read in conjunction with this information.
18
<PAGE>
THE UNIFORM AND CAREER APPAREL GROUP
------------------------------------
<TABLE>
<CAPTION>
Nine months
--------------------- Fiscal
Note 1997 1996 1996
---- ------ ---- ----
(in millions except per share amounts, unaudited)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues (a) $933.1 $800.8 $1,049.2
Earnings before depreciation and amortization,
other expense/income, interest and
income taxes 134.8 123.0 164.8
Depreciation and amortization (a) 43.9 39.2 52.2
Earnings before other expense/income,
interest and income taxes 90.9 83.8 112.6
Other expense/income, net (a) - (31.6) (31.6)
Operating income (a) 90.9 115.4 144.2
Allocated corporate overhead (b) 3.7 4.1 5.5
Interest expense on allocated debt (c) 27.9 29.3 38.2
Income before income taxes 59.3 82.0 100.5
Net income (d) 35.9 49.4 60.5
Earnings available for Uniform
Group Stock (e) 4.3 5.9 7.3
Earnings per Uniform Group share (e) $2.38 $3.27 $4.01
Balance Sheet Data:
Total Assets $1,028.7
Allocated Debt (c) 450.0
</TABLE>
Notes to Supplemental Data:
(a) For information on business segments, see Note 11 to the Company's fiscal
1996 consolidated financial statements in Annex VII.
(b) Represents an allocation of indirect corporate expenses. See "SHARE 100--
Certain Allocation and Management Policies" for a further discussion of the
allocation of corporate expenses and the Board of Directors' authority to
modify allocation methodologies at its discretion. Costs of corporate
departments providing direct services to the various Groups are included in
operating income as reported. Corporate expenses of $1.3 million, $1.1
million and $1.4 million are included in Uniform and Career Apparel Group
operating income for the nine months ended June 27, 1997, the nine months
ended June 28, 1996 and fiscal 1996, respectively.
(c) Debt is managed on a consolidated basis. Allocated debt of the Uniform and
Career Apparel Group consists of (i) the Company's debt, if any, that has
been allocated in its entirety to the Uniform and Career Apparel Group and
(ii) a portion of the Company's debt that is allocated among the Groups
("pooled debt"). The interest rate on the Uniform and Career Apparel Group
pooled debt is based on the effective rate of the Company's total pooled
debt. See "SHARE 100 -- Certain Allocation and Management Policies" for
additional information regarding allocated debt and related interest
expense and the Board of Directors' authority to modify allocation
methodologies at its discretion.
(d) The Uniform and Career Apparel Group is included in the consolidated
federal income tax return filed by the Company. Accordingly, the provision
for federal income taxes and related payment of tax are determined on a
consolidated basis. A provision for income taxes in determining net income
for the Uniform and Career Apparel Group was computed in accordance with
the Company's tax allocation policy for the Groups. In general, the tax
provisions included in determining net income approximate the provisions
which would be required if the Uniform and Career Apparel Group were a
separate taxpayer. See "SHARE 100 -- Certain Allocation and Management
Policies" for additional information regarding the tax allocation policy.
Deferred tax assets attributable to the Uniform and Career Apparel Group
are included in the Total Assets caption above.
(e) Earnings available for Uniform Group Stock represents total net income of
the Uniform and Career Apparel Group reduced by the portion thereof
allocable to the Inter-Group Interest. See "DESCRIPTION OF CAPITAL STOCK --
Inter-Group Interest of Composite Group in Business Groups." The per share
amount is determined by dividing earnings available for the Uniform Group
Stock by the weighted average number of shares of Uniform Group Stock
outstanding.
19
<PAGE>
Questions and Answers for Management Investors
To assist management owners to better understand Share 100, a summary
description of certain significant provisions of the Plan of Recapitalization is
provided below in a question and answer format.
Topic Q/A
----- ---
Introduction............................................... 1 - 23
Share 100..................................................24 - 35
What Will I Receive in Share 100?..........................36 - 45
Terms of the New Classes of Stock..........................46 - 56
Employee Benefit Plans.....................................57 - 59
Appraisal Price............................................60 - 64
Stock Options and Purchase Opportunities...................65 - 66
Exercise of Purchase Opportunities/Purchase of Stock.......67 - 77
Recent Sales of Stock......................................78 - 80
Future Transfers and Sales of Stock........................81 - 93
Deferred Payment Program/Bank Loans........................94 - 98
Taxes......................................................99 - 101
Introduction
1. Q: What is the name of this plan?
A: We're calling it Share 100.
2. Q: Why?
A: Because nearly 15 years after the "buyout," we are finally completing
the "buyback."
3. Q: Meaning . . .?
A: We are repurchasing the remaining 20% of our stock that, since 1984,
has been in the hands of outside investors.
Now, we will own 100% of our company. We'll share 100% in all the
assets. We'll share 100% in all the profits we earn, and we'll share
100% of all the value we add and create for our customers.
Approximately 1,000 owner managers will own shares directly, and more
than 10,000 employees will own shares through the employee benefit
plans.
4. Q: So, this is basically about a buyback?
A: Actually, the buyback is just the beginning.
20
<PAGE>
5. Q: What else is involved?
A: We're also going to restructure the Company to give you more direct
ability to impact your investment in the stock of the Company.
6. Q: How?
A: 50% of your stock will be Business Group-specific. The other 50% will
be a composite stock consisting of our three principal Business
Groups--Educational Resources, Food and Support Services and Uniform
and Career Apparel. 100% of your stock will be composite stock if you
do not work exclusively for a single Business Group (such as executive
officers and other corporate staff).
7. Q: So, if I'm in Campus Services. . .?
A: 50% of your total shares will be in the Food and Support Group Stock
and 50% in the Class B Composite Stock.
8. Q: And if I work for WearGuard. . .?
A: 50% of the total shares you hold will be in Uniform Group Stock and 50%
in the Class B Composite Stock.
9. Q: And the same for Children's World employees?
A: Yes. And the same is true for employees of our Educational Resources
Group. 50% of the shares of all employees in this Business Group will
be Education Group Stock and 50% will be Class B Composite Stock.
10. Q: Can the value of the Business Group stock go up or down independent of
the Composite Stock?
A: Sure. The value of each Business Group stock will be determined
primarily by the performance of the Business Group.
11. Q: Will the Company, or any of these Business Groups, be publicly traded?
A: No.
12. Q: Is this the first step in the Company, or any of our Business Groups,
going public?
A: No. It's a step that allows us to fully capture 100% of the value we
create. And, more importantly, it fully positions us to realize our
unique potential as a Company.
21
<PAGE>
13. Q: So, we have no plans to go public?
A: No plans at this time. Right now we have no need to do it. With our
strong cash flows, there's no need for additional capital. And creating
the Business Group Stocks allows for more market-oriented valuations.
14. Q: Does all of this require a vote of approval from ARAMARK shareholders?
A: Yes.
15. Q: How does that work?
A: Share 100 will not be approved unless we receive an affirmative vote
from the holders of a majority of both the outstanding Class A and
Class B Common Stock.
16. Q: Is a "Yes" vote expected?
A: Yes.
17. Q: Is there any reason why a shareholder would vote "No?"
A: Every owner of Class A and Class B Common Stock must come to that
conclusion on their own.
18. Q: What happens if the Plan is not approved by the stockholders?
A: The capital structure of the Company stays the way it is today.
19. Q: Will each Business Group be governed by a different Board of Directors?
A: No.
20. Q: Is there any potential downside to this Plan?
A: There are always risks associated with any major transaction. This is a
major transaction. Our debt and our interest costs will rise. This will
reduce our available cash flow and could restrict our financial
flexibility during an economic downturn. But in the opinion of the
Board of Directors and senior management, the Company has more than
sufficient financial and operating strength to manage these risks.
21. Q: What about our Magazine and Book Business?
A: It's not going to be included in this program. The business needs short
term, cash-based specific incentives due to the current state of its
industry. Share
22
<PAGE>
100, which is designed to create long term incentives for management
owners, is not the appropriate incentive program.
22. Q: What about the employees in that business?
A: All owner-managers in the Magazine and Book business will be cashed
out. They will be given $29.55 in cash for every share they currently
hold. We will be implementing a new incentive program to fully and
fairly compensate these men and women for the difficult and important
work they are doing to turn that business around. But, it will be a
cash incentive program.
23. Q: How do I find out more information about this Share 100?
A: The remainder of these questions and answers, which are a little more
formal in style, and this entire Proxy Statement are designed to
provide you with additional information. You should read it carefully
before you make any decision on how to vote or what election, if any,
you should make.
Share 100
24. Q: What is Share 100?
A: Share 100 is a comprehensive plan that will change the ownership of the
Company. The plan will (i) eliminate the equity interests of outside
stockholders and (ii) align more closely the investment interests of
management owners with the performance of the Business Group for which
they work.
The Company will eliminate the equity interests of outside stockholders
by repurchasing their shares. The Company will also, in effect, offer
to repurchase from the Company's retirement and profit sharing plans
the Company stock held in such plans. The trustees, as fiduciaries for
the plans, have preliminarily indicated, subject to further review and
advice of their independent legal counsel and financial advisors, that
they will elect on behalf of the plans to exchange approximately 30% of
their existing shares for cash and to retain 70% of their investment.
The Company will pay for these shares and for the other costs and
expenses of Share 100 by borrowing approximately $440 million in
additional funds from its banks. Accordingly, future increases in value
of the Company's equity due to improved performance of the Company as a
whole will be for the benefit of the management owners and the
Company's retirement and profit sharing plans. Similarly, any future
decreases in value will be borne solely by the management owners and
the Company's retirement and profit sharing plans.
The Company will align more closely the investment interests of
management owners with the performance of the Business Groups for which
they work by creating three new classes of Common Stock, called
Business Group Stocks, and by converting a portion of the existing
shares of Common Stock held by
23
<PAGE>
management investors who work for these Business Groups into shares of
the Business Group Stocks. The Business Group Stocks are intended to
reflect separately the performance of the Company's main Business
Groups.
As a result of Share 100, the Appraisal Price of the Class A Common
Stock (on a Class B equivalent share basis) will increase to $34.75 per
share, and the Appraisal Price of the Class B Common Stock will
increase to $29.55 per share. The difference in the Appraisal Price of
the stock held by Benefit Plans and outside stockholders (Class A
Common Stock) and owner managers (Class B Common Stock), which
difference is due primarily to differences in liquidity, has existed
since the buyout in 1984 and is anticipated to continue in the future.
The Business Group Stocks and the Class B Composite Stock will each
have an initial Appraisal Price of $29.55 per share, and the Class A
Composite Stock (on a Class B equivalent share basis) will have an
initial Appraisal Price of $34.75 per share.
25. Q: What is Business Group Stock?
A: Business Group Stock is the name of the three new classes of common
stock of the Company designed to track separately the performance of
the Company's three main Business Groups:
. Education Group Stock is intended to reflect separately the
performance of the Educational Resources Group;
. Food and Support Group Stock is intended to reflect separately the
performance of the Food and Support Services Group; and
. Uniform Group Stock is intended to reflect separately the
performance of the Uniform and Career Apparel Group.
26. Q: What is Composite Stock?
A: The Composite Stock is intended to reflect a "residual" interest in the
three main Business Groups in addition to reflecting any other business
or investments of the Company or any of its subsidiaries. Composite
Stock is comprised of two new classes of common stock of the Company,
Class A Composite Stock (which is the class of ARAMARK stock that will
be owned by the Company's retirement and profit-sharing plans) and
Class B Composite Stock.
27. Q: Will all management owners receive the same class of stock in Share
100?
A: No. Generally, most management owners will receive part Business Group
Stock and part Class B Composite Stock; and management owners who do
not work exclusively for a single Business Group will receive all Class
B Composite Stock. The Board believes that this will better align all
management owners with the businesses whose operations they can impact.
24
<PAGE>
28. Q: Why is Share 100 being proposed?
A: Share 100 is being proposed to accomplish the following objectives:
. to become a 100% employee-owned Company, with approximately 1,000
owner managers owning shares directly, and more than 10,000 employees
owning shares through the employee benefit plans,
. to better align management objectives with business objectives by
increasing management ownership and by giving management owners a
more direct economic interest in the Business Groups for which they
work,
. to maintain the ARAMARK business culture by continuing common
ownership, governance and operating control of the Business Groups,
. to establish a more market-oriented valuation, through appraisals of
the individual Business Groups,
. to facilitate comparisons with competitors of the individual Business
Groups, and
. to maintain flexibility to engage in future strategic transactions,
if appropriate.
29. Q: What stockholder vote is required to approve Share 100?
A: Share 100 will not be implemented unless all of Share 100 and all the
related proposals are approved. Although different proposals require
different votes for approval, if all of the proposals receive the
affirmative vote of the holders of a majority of the outstanding Class A
Common Stock and of the holders of a majority of the outstanding Class B
Common Stock, they will all be approved.
Based on preliminary indications received by the Company, the Company
believes the directors and executive officers of the Company, the
trustees of the Company's employee benefit plans, on behalf of such
plans, and certain holders of Class A Common Stock currently intend to
vote in favor of all of such proposals. Those persons have voting
control over approximately 64% of the Class A Common Stock and 46% of
the Class B Common Stock.
30. Q: What happens if Share 100 is not approved by the stockholders?
A: The capital structure of the Company will remain as it is today.
25
<PAGE>
31. Q: Is the Company being divided into separate companies?
A: No. The Company will remain organized as it is today and all of the
Business Group Stocks and the Composite Stock will be Common Stocks of
ARAMARK Corporation. However, the Appraisal Prices of the Business
Group Stocks will be determined primarily on the basis of the
performance of their respective Business Groups (each of which is a
separate part of the Company).
Share 100 does not in any way affect our relations with our clients or
our suppliers. Our existing contracts will continue unaffected by Share
100.
32. Q: Will each Business Group be governed by a different Board of Directors?
A: No. The Board of Directors of the Company will remain the sole board of
directors and will address and resolve issues involving the interests
of any of the Business Groups.
33. Q: How will diverging interests between Business Groups be resolved?
A: Basically, diverging interests will continue to be resolved as they are
today -- by the Board.
When making decisions with regard to matters that create potential
diverging interests, the Board will act in accordance with the terms of
the Restated Charter, the Company's management and allocation policies
and its fiduciary duties. The Board could also from time to time refer
matters to an existing committee or one or more new committees of the
Board, and have such committee or committees report to the Board on
such matters or decide such matters.
34. Q: Will the Company or any of the Business Groups become publicly traded
as a result of Share 100?
A: No. The Company and the Business Groups will remain private. The
Company has no present intention to have its stock, or the stock of any
of its Business Groups, publicly traded. The Company will continue,
however, to file financial statements with the Securities and Exchange
Commission following Share 100.
35. Q: Are there any risks to the Company as a result of Share 100?
A: There are always risks associated with any major transaction. The Board
has considered the risk of diverging interests among the holders of the
classes of Business Group Stock and the Composite Stock, and the risk
of the increased debt that the Company plans to incur as part of Share
100. This increased leverage will result in higher interest costs, and
could also lead to higher
26
<PAGE>
interest rates. The increased debt will reduce available cash flow and
could restrict financial flexibility during an economic downturn.
Management has carefully reviewed these risks with the Board, which has
concluded the Company is well positioned from a financial point of view
to address these risks. In addition, the operating characteristics of
the Company will be unchanged as a result of Share 100, and accordingly
no additional operating risks should develop as a by-product of the
transaction.
What Will I Receive in Share 100?
36. Q: Which stock will I receive in Share 100?
A: The stock that you receive in exchange for the Class B Common Stock you
currently hold will depend on the particular Business Group you work
for:
. most management owners will receive 50% Business Group Stock of the
particular Business Group in which they are employed and 50% Class B
Composite Stock;
. management owners who do not work exclusively for a single Business
Group, including executive officers and other corporate staff of the
Company, will receive Class B Composite Stock; and
. management owners in the Magazine and Book Business will receive
$29.55 per share in cash.
37. Q: What will be the exchange ratio for exchanging the existing shares of
Class B Common Stock into Business Group Stock or Class B Composite
Stock in Share 100?
A: The exchange ratio will be one for one. You will receive the same
aggregate number of shares of Business Group Stock and Class B
Composite Stock as the total number of shares of Class B Common Stock
you hold immediately before Share 100. For example, if you own 1,000
shares of Class B Common Stock, you will receive 500 shares of Business
Group Stock and 500 shares of Class B Composite Stock.
38. Q: Do I have to invest more money at this time to participate in Share
100?
A: No. The shares of Class B Common Stock you presently hold will be
exchanged for Class B Composite Stock and Business Group Stock, as
applicable, without any additional investment by you in the Company.
39. Q: Can I choose which class of Business Group Stock I receive in Share
100?
A: No.
27
<PAGE>
40. Q: Can I choose to receive cash in lieu of any class of stock in Share
100?
A: Yes. You may receive $29.55 in cash per share in lieu of Business Group
Stock and Class B Composite Stock; however, Share 100 is conditioned on
the holders of current Class B Common Stock with an aggregate Appraisal
Price of no more than $25 million electing to redeem their Class B
Common Stock for cash.
You cannot elect to receive cash in lieu of stock for only part of the
stock you own. Any election must be for all of the stock owned by you
and all of your Permitted Transferees.
However, the Company's internal market will continue as in the past.
The next internal market will begin on March 15.
41. Q: Will each of my Permitted Transferees be required to exchange his/her
shares?
A: Yes. Your Permitted Transferees will receive the same Business Group
Stock and/or Class B Composite Stock that you receive in Share 100. You
and your Permitted Transferees, if any, must all make the same election
whether to receive cash in lieu of stock, and if not unanimous, the
election made by those who hold a majority of such shares will apply to
all shares of Class B Common Stock held by you and them.
42. Q: After Share 100, will I still own the Class B Common Stock that I
currently own?
A: No. Employees of a Business Group will own part Business Group Stock of
the particular Business Group in which they are employed and part Class
B Composite Stock. Employees who do not work exclusively for a single
Business Group, including executive officers and other corporate staff
of the Company, will own Class B Composite Stock.
43. Q: Will I receive new stock certificates?
A: No. Your shares will be "uncertificated." However, you may obtain new
certificates from the Company. If you have shares pledged to secure a
loan, the lender may require you to obtain new certificates.
44. Q: What should I do with the stock certificates that I currently hold?
A: The Company will mail to you shortly after Share 100, an ownership
statement reflecting all of your and your Permitted Transferees' new
shares as a group and your purchase opportunities and stock options.
This statement will be similar to the ownership statement you currently
receive. The Company will also mail to you a certificate profile report
which will list all of
28
<PAGE>
your current stock certificates and instructions for sending your stock
certificates to the Company.
After the Company receives the stock certificates for your shares of
Class B Common Stock, the Company will send to you a statement of
registered shares which will show the new shares of Group Stock and
Composite Stock you receive in Share 100.
Your shares will be "uncertificated" and you will not receive stock
certificates unless you request them. The ownership statement will
include instructions for requesting certificates for your new shares as
well as instructions for obtaining a statement of registered shares,
even if you cannot find your current stock certificates.
45. Q: But what if I am receiving cash in Share 100?
If you are receiving cash in Share 100, you should send in your
certificates representing shares of Class B Common Stock to the Company
along with a completed and signed Blue Form of Election/Transmittal
Letter prior to the date of the Annual Meeting. We cannot mail your
check until we receive your stock certificates. If you have lost any of
your stock certificates, follow the instructions on the Blue Form of
Election/Transmittal Letter.
Terms of the New Classes of Stock
46. Q: Will management's voting rights be affected by Share 100?
A: Yes. Immediately after Share 100, each share will continue to have one
vote. However, the management stockholders will have 97% of the vote
after Share 100 (compared to approximately 92% of the vote before Share
100).
47. Q: Will I be entitled to vote on any matters submitted to a vote of the
holders of Composite Stock or only those matters concerning my Business
Group?
A: The holders of Composite Stock and Business Group Stock will vote
together as a single voting group. Each share of Composite Stock and
Business Group Stock will have one vote. If in the future there is a
public offering of any class of Business Group Stock, the voting rights
of the Class B Composite Stock and the Business Group Stocks that have
not been part of the public offering will increase to ten votes per
share.
48. Q: Will I receive dividends on any class of the Business Group Stock or
the Composite Stock?
A: The Board does not currently intend to pay dividends on any class of
Business Group Stock or Composite Stock, and instead plans to retain
future earnings, if any, for the development of the Company's
businesses.
29
<PAGE>
49. Q: If one class of Business Group Stock or Composite Stock receives a
dividend, will other classes of Business Group Stock and Composite
Stock receive a dividend?
A: The Board does not currently intend to pay dividends. However, in the
event that in the future the Board contemplates dividends, the Board
will be able, in its sole discretion, to pay dividends exclusively on
any class of Business Group Stock or on the Composite Stock or on all,
in equal or unequal amounts. However, if any dividend is paid on the
Composite Stock, then a dividend must be paid on the Class A Composite
Stock equal to ten times the per share amount paid on the Class B
Composite Stock.
50. Q: If one class of Business Group Stock or Composite Stock splits, will
all other classes of Business Group Stock and Composite Stock split?
A: Not necessarily. The Board will be able, in its sole discretion, to
split any class of Business Group Stock or Composite Stock.
51. Q: Will the Company be able to sell one of the Business Groups without
first getting the approval of holders of that stock?
A: Yes, the Company will be able to do so, just like it can now. So long
as the assets of a Business Group continue to represent less than
substantially all of the properties and assets of the Company, the
Board may approve sales and other dispositions of all or any amount of
the properties and assets of that Business Group without stockholder
approval.
52. Q: Will the Company be able to convert any class of Business Group Stock
into Composite Stock in the future?
A: Yes. The Company may, at any time, convert shares of any class of
Business Group Stock into shares of Class A Composite Stock or Class B
Composite Stock on the basis of the ratio of the Appraisal Price of
the applicable Business Group Stock to the Appraisal Price of the
applicable Composite Stock.
53. Q: Will the Company be able to create a separate company for a Business
Group and then convert that class of Business Group Stock into shares
of the separate company?
A: Yes. The Company may redeem any class of Business Group Stock for a
number of shares of one or more wholly owned subsidiaries of the
Company that holds all the assets and liabilities attributable to that
Business Group.
54. Q: Will the Company be able to change the terms of any Business Group
Stock without first getting approval of the stockholders?
30
<PAGE>
A: No. If a proposed amendment would alter or change the powers,
preferences or special rights of any class of Business Group Stock to
affect it adversely, that class of Business Group Stock would be
entitled to vote as a separate class on the amendment.
However, the Company could effectively cause the terms to change in
connection with an underwritten public offering by calling the shares
of the class of Business Group Stock for conversion into Class A
Composite Stock or Class B Composite Stock and creating a new class of
Business Group Stock (for substantially the same Business Group as was
the Business Group Stock called for conversion) designated for the
stated purpose of having an underwritten public offering. The holders
of the Business Group Stock called for conversion could then, at their
election prior to the conversion date, convert their shares into
shares of the new class of Business Group Stock, at a conversion ratio
determined by the Board.
55. Q: If I accept a transfer of employment from one Business Group to
another, could the Company require me to exchange my Business Group
Stock of my former Business Group for Business Group Stock of my new
Business Group?
A: Yes. The Company would be able to convert your Business Group Stock of
your former Business Group for Business Group Stock of your new
Business Group on the basis of the ratio of the Appraisal Price of
your former Business Group Stock to the Appraisal Price of your new
Business Group Stock.
56. Q: Will there be a separate Stockholders' Agreement for each Business
Group, or will all Business Group Stock and Composite Stock be
governed by one Stockholders' Agreement?
A: The current Stockholders' Agreement will be amended and restated to
reflect any necessary changes as a result of Share 100. Its terms will
apply to all Business Group Stock and Composite Stock held by
management owners and their permitted transferees. No other
stockholders' agreement will be entered into.
Employee Benefit Plans
57. Q: What will be the effect of Share 100 on the retirement and profit
sharing plans?
A: Because of the increase in the Appraisal Price, the value of your
account will increase.
The retirement and profit sharing plans, as holders of Class A Common
Stock, have the option of receiving cash or receiving shares of Class
A Composite Stock in Share 100. The trustees, as fiduciaries for the
plans, have preliminarily indicated, subject to further review and
advice of their
31
<PAGE>
independent legal counsel and financial advisors, that they will elect
on behalf of the plans to exchange approximately 30% of their existing
shares of Class A Common Stock for cash and to retain 70% of their
investment in ARAMARK by electing to convert shares into shares of
Class A Composite Stock. The $81 million of cash proceeds would be
diversified and invested in other assets.
The Magazine and Book Retirement Plan is being amended so that the
plan will no longer provide for investment in employer stock. The
trustees, as fiduciaries for the plan, have preliminarily indicated,
subject to further review and advice of their independent legal
counsel and financial advisors, that they will elect on behalf of the
plan to exchange all of the plan's existing shares of Class A Common
Stock for cash. The $52 million of cash proceeds would be diversified
and invested in other assets.
58. Q: Which stocks will the Company use for future employer contributions to
the retirement and profit sharing plans?
A: The Company currently intends to make future employer stock
contributions to the plans in Class A Composite Stock.
59. Q: What will be the effect of Share 100 on the Stock Unit Retirement
Plan?
A: Deferred Common Stock Units ("DSUs") in each participant's account for
Class B Common Stock will be converted into DSUs for Class B Composite
Stock. Future employer contributions will be made in DSUs for Class B
Composite Stock.
Appraisal Price
60. Q: At the time of Share 100, will the Appraisal Price of the Class B
Common Stock differ from any of the Business Group Stock Appraisal
Prices?
A: No. The Appraisal Price of the Class B Common Stock immediately before
Share 100 will equal the Appraisal Prices of the Business Group Stocks
and the Class B Composite Stock immediately after Share 100.
61. Q: How can they all be the same?
A: Generally, the Appraisal Price per share of a Business Group Stock is
the value of the entire equity of the Business Group divided by the
sum of the outstanding shares plus the number of shares included in
the residual Composite Stock. The Company will adjust the number of
shares included in the residual Composite Stock for each Business
Group so that all of the Appraisal Prices will be the same at the
Effective Time of Share 100.
62. Q: When and how will the Appraisal Price of each class of Common Stock be
determined in the future?
32
<PAGE>
A: Houlihan, Lokey, Howard & Zukin Financial Advisers, Inc. (the
independent appraisal firm selected by the Board since 1994 to provide
appraisals) will provide an appraisal of the fair market value of each
class of Common Stock as of December 1, March 1, June 1 and September
1 of each year.
63. Q: What will happen to the Appraisal Price after Share 100?
A: There will be a new appraisal as of March 1 of the Composite Stocks
and Business Group Stocks which will be in effect for the first
internal market period following Share 100 beginning March 15. Going
forward, the Appraisal Prices of each of the Business Group Stocks
will fluctuate depending on the performance of the Business Group to
which it relates, and the Appraisal Prices of the Composite Stocks
will fluctuate depending upon the performance of the various Business
Groups and other factors affecting the Company as a whole.
64. Q: Will the Appraisal Price of each of the Business Group Stocks be
totally independent after Share 100?
A: No. Notwithstanding the attribution of the Company's assets and
liabilities (including contingent liabilities) and stockholders'
equity among the Business Groups for the purposes of determining the
Appraisal Prices of the Business Group Stocks, holders of each class
of Business Group Stock will be stockholders of the same Company and
will continue to be subject to all the risks associated with an
investment in the Company and all of its businesses, assets and
liabilities. The attribution and the change in the equity structure of
the Company contemplated by Share 100 will not affect title to the
assets or responsibility for the liabilities of the Company or any of
its subsidiaries. As a result, Share 100 will not affect the rights of
holders of the Company's or any of its subsidiaries' debt. The results
of operations or financial condition of any Business Group could
affect the results of operations or financial condition of the other
Business Groups and the Appraisal Prices of the Business Group Stock
relating to those Business Groups. In addition, any net losses of any
Business Group and dividends or distributions on, or repurchases of,
Business Group Stock of any Business Group will reduce the assets of
the Company legally available for payment of dividends on all classes
of Common Stock.
Stock Options and Purchase Opportunities
65. Q: What will happen to my unexercised outstanding stock options and
purchase opportunities?
A: Your unexercised outstanding stock options and purchase opportunities
will be converted for the same consideration (either cash or Business
Group Stock and/or Class B Composite Stock) and in the same
proportions into which your Class B Common Stock is exchanged pursuant
to Share 100.
33
<PAGE>
66. Q: Will I receive new grant certificates for my outstanding stock options
and purchase opportunities?
A: No. You will receive an ownership statement shortly after Share 100
that will reflect all your shares and purchase opportunities.
Exercise of Purchase Opportunities/Purchase of Stock
67. Q: If I work for one Business Group, will I be able to purchase shares of
Business Group Stock of another Business Group or shares of Class A
Composite Stock?
A: No. To the extent you have purchase opportunities, you will be able to
purchase the Business Group Stock that corresponds to the Business
Group of your employment and will also be able to purchase, as part of
each purchase opportunity, some Class B Composite Stock.
68. Q: If I am awarded grants in the future, will grants be for Business
Group Stock or Composite Stock?
A: Generally, the grants will be for part Business Group Stock that
corresponds to the Business Group in which a management owner is
employed and for part Class B Composite Stock, and management owners
who do not work exclusively for a single Business Group, including
executive officers and other Corporate staff of the Company, will
receive grants for all Class B Composite Stock.
69. Q: If I accept a transfer of employment from one Business Group to
another, could the Company require me to exchange my purchase
opportunities relating to my former Business Group for purchase
opportunities relating to my new Business Group?
A: Yes. The Company would be able to require you to exchange your former
Business Group purchase opportunities for purchase opportunities
relating to your new Business Group. The exercise price per share and
the number of shares granted would be appropriately adjusted based on
the relative Appraisal Prices of the Business Group Stocks at the time
of the transfer.
70. Q: Will my existing grants have the same exercise schedule once they are
converted to Business Group Stock and/or Class B Composite Stock?
A: Yes. Existing grants, after conversion, will have the same exercise
schedule.
71. Q: If my current purchase opportunities for Class B Common Stock are
converted into purchase opportunities for Business Group Stock and
Class B Composite Stock, will I be able to exercise the purchase
opportunities for Business Group Stock without also exercising the
purchase opportunities for Class B Composite Stock?
34
<PAGE>
A: No. You will be required to exercise your purchase opportunities
proportionally. For example, assume the next installment of your
purchase opportunity is for 300 shares of Class B Common Stock, and in
Share 100 it is converted into an installment for 150 shares of
Business Group Stock and 150 shares of Class B Composite Stock. If you
wanted to exercise the installment for 150 total shares, you would
have to exercise it for 75 shares of Business Group Stock and 75
shares of Class B Composite Stock. The Company will make rounding
adjustments to avoid the need to exercise for fractional shares.
72. Q: Will I be able to purchase shares the same way I have in the past?
A: Yes. The Company will distribute a prospectus to you prior to the
exercise periods and you should follow the instructions in the
prospectus.
73. Q: How will I know what the Appraisal Price of my stock is when I
exercise my option or purchase opportunity?
A: Similar to the Company's current practice, the Company will have each
class of Business Group Stock and Composite Stock independently
appraised quarterly (December 1, March 1, June 1 and September 1) by
an independent appraiser. This information generally is communicated
with the Chairman's quarterly letter to stockholders. Additionally,
recorded updates of Appraisal Prices can be obtained by calling 1-888-
96-OWNER.
74. Q: Will I still have to pay taxes when I exercise?
A: Yes, just as you would if you exercised a purchase opportunity now.
All outstanding purchase opportunities are non-qualified stock options
for U.S. income tax purposes. The difference between your exercise
price and the higher Appraisal Price in effect at the time you
exercise is income to you, taxable at the time of exercise.
75. Q: Can I still use the stock-for-stock exercise method when I exercise?
A: Yes. The Company will distribute to you a prospectus prior to the
exercise periods, and you should follow the instructions in the
prospectus.
76. Q: Can I still borrow to purchase the shares covered by my purchase
opportunity?
A: Yes. Generally, if you wish to borrow money to purchase shares, you
must make your own financing arrangements with outside lenders. In
addition, for certain exercises of purchase opportunities, the
Company's Deferred Payment Program will also be available.
77. Q: Will the Company inform me prior to the time that I purchase stock
from the Company (through the exercise of a purchase opportunity or
option)
35
<PAGE>
or sell stock to the Company (in the internal market or otherwise) of
any pending or potential transaction that could increase or decrease
the value of the stock?
A: No. The Company will continue its current practice of not disclosing
any pending or potential transaction in connection with your decision
to purchase from or sell to the Company any shares of Company stock
owned by you. It is in the best interests of the Company and the
stockholders taken as a whole for the Company to be able to conduct
orderly transactions in common stock on a continual basis (including
in connection with the internal market and repurchases upon
termination of employment) and for the Company concurrently to be able
to consider from time to time on a confidential basis potential
transactions that could affect the fair market value and/or the
Appraisal Price of the shares. The Company does not make a practice of
disclosing publicly its projections or the status of any transaction
that may be under consideration.
Recent Sales of Stock
78. Q: Will the Company make an adjustment to the price paid for any shares
of Class B Common Stock that I recently sold to the Company in the
internal market?
A: Yes. After the implementation of Share 100, the Company will make an
adjustment to the price paid for any shares the Company repurchased in
the internal market in the period between September 1, 1997 and the
implementation of Share 100. The amount of the adjustment will be the
difference between $29.55 per share, the Appraisal Price at Share 100,
and the price you received. The Company will send you a check for this
amount after the implementation of Share 100.
79. Q: Will the Company also make an adjustment for shares exchanged when I
exercised stock options or purchase opportunities using the stock-for-
stock method during that period?
A: Yes. The amount of the adjustment will be the difference between
$29.55 per share, the Appraisal Price at the implementation of Share
100, and the Appraisal Price at the time of your exercise for all
shares exchanged when using the stock-for-stock exercise method
between September 1, 1997 and the Effective Time of Share 100. The
Company will send you a check for this amount after the implementation
of Share 100.
80. Q: What will be the treatment of this adjustment for U.S. federal income
tax purposes?
A: The cash payment to you should be treated as an "adjustment of
purchase price" of your shares of Class B Common Stock actually sold
to the Company or constructively sold to the Company when you
exercised your stock options
36
<PAGE>
or purchase opportunities using the stock-for-stock method. As such,
the payment should be treated as additional sales proceeds received by
you, generally taxable as 1998 capital gain. If you held the stock
actually or constructively sold for 12 months or less, the gain will
be taxed at your ordinary income tax rate; if you held the stock more
than 12 months but not more than 18 months, the gain will be taxed at
no more than 28%; and, if you held the stock more than 18 months, the
gain will be taxed at no more than 20%. Your tax basis in the new
stock will be adjusted downward to reflect the cash payment.
Future Transfers and Sales of Stock
81. Q: Will I be able to transfer shares of Business Group Stock or Class B
Composite Stock?
A: Generally, the restrictions of the Stockholders' Agreement will
continue, and accordingly, you will not be able to sell or otherwise
transfer your shares of Business Group Stock or Class B Composite
Stock (other than in limited instances).
82. Q: If my shares of Class B Common Stock are converted into shares of
Business Group Stock and Class B Composite Stock, will I be able to
sell or transfer shares of Business Group Stock without also selling
or transferring shares of Class B Composite Stock?
A: No. Shares of Class B Composite Stock and Business Group Stock will
have to be sold or transferred proportionally together: generally, for
each share of Class B Composite Stock you sell or transfer, you must
also sell or transfer one share of Business Group Stock with it. The
Company will make rounding adjustments to avoid the need to sell or
transfer fractional shares.
83. Q: May I still transfer shares for estate or tax planning purposes?
A: Yes. As in the past, you may transfer your shares for estate or tax
planning purposes as gifts to your spouse, child, grandchild or
parent, or a trust for the benefit of any of them, or to a qualifying
charitable organization. You may also make other transfers to your
family members, their trusts or other entities if the transfer is
approved by the Board. You must, however, transfer your Class B Common
Stock and Business Group Stock proportionally together.
84. Q: May I still pledge my shares?
A: Yes. As in the past, you may pledge your shares to a commercial bank
or savings and loan institution as security for your indebtedness.
However, you may do so only if the lender agrees that, upon
realization of its security, the lender will dispose of the shares
only in compliance with the terms of the Stockholders' Agreement. If
you are eligible and elect to participate in the
37
<PAGE>
Company's Deferred Payment Program, you will be required to pledge
shares to the Company.
85. Q: Can I still sell shares back to the Company in the internal market?
A: Yes.
86. Q: Will there be any change in the guidelines or the timing of the
internal market?
A: Yes. The general guideline will be increased, so that a management
owner may sell up to $250,000 of shares in any internal market. The
timing and other terms of the internal market will not be changed.
87. Q: Will the Stock Repurchase Policy change as a result of Share 100?
A: No.
88. Q: Will the Emergency Buyback Program still be available?
A: Yes.
89. Q: What will happen to my stock if my employment is terminated?
A: The current provisions of the Stockholders' Agreement will continue to
apply. The Company will have the right to call your shares of Class B
Composite Stock and Business Group Stock. At any time during the 10
years following the termination of your employment, the Company has
the right to call any or all of your shares and any and all of the
shares of your permitted transferees.
90. Q: Do the call rights still apply to a termination of my employment with
the Business Group that is beyond my control?
A: Yes. The call rights apply to all terminations of employment with the
Company and its subsidiaries without regard to cause, including death,
permanent and complete disability, voluntary or involuntary
termination of employment and retirement.
91. Q: If I voluntarily terminate my employment, the Company has the right to
call my shares of common stock. Will the Company inform me prior to
the time I terminate my employment of any pending or potential
transaction that could increase the value of the Class B Composite
Stock or Business Group Stock?
A: No. The Company will continue its current practice of not disclosing
any pending or potential transaction in connection with your decision
to terminate your employment (or in connection with your decision to
exercise a put or in any other circumstance). It is in the best
interests of the Company and the
38
<PAGE>
stockholders taken as a whole for the Company to be able to conduct
orderly transactions in common stock on a continual basis (including
in connection with the internal market and repurchases upon
termination of employment) and for the Company concurrently to be able
to consider from time to time on a confidential basis potential
transactions that could affect the fair market value and/or the
Appraisal Price of the shares. The Company does not make a practice of
disclosing publicly its projections or the status of any transaction
that may be under consideration.
92. Q: Will I be able to require the Company to repurchase shares?
A: Generally, no. However, upon your death, complete disability or normal
retirement, you or your estate, as appropriate, subject to the
Company's financing agreements, can require the Company to purchase up
to 30% of your shares. The Company will be required to purchase these
shares for cash at the current Appraisal Price for Class B Composite
Stock or the applicable class of your Business Group Stock.
93. Q: Who will set the Stock Repurchase Policy and internal market
guidelines for each Business Group Stock and the Class B Composite
Stock?
A: The Board will set the Stock Repurchase Policy and internal market
guidelines for each Business Group Stock and the Class B Composite
Stock.
Deferred Payment Program/Bank Loans
94. Q: What will happen to my outstanding obligations under the Deferred
Payment Program?
A: Any outstanding obligations under the Deferred Payment Program will
remain intact.
95. Q: What will happen to those shares that are being held as collateral by
the Company for obligations under the Deferred Payment Program?
A: The shares the Company is holding as collateral for obligations under
the Deferred Payment Program will be exchanged automatically for
shares of Class B Composite Stock or Business Group Stock, as
applicable.
96. Q: Will the Deferred Payment Program still be offered?
A: Yes, subject to continuing Board approval.
97. Q: Will the Deferred Payment Program provisions be changed as a result of
Share 100?
39
<PAGE>
A: No, except for minor administrative changes that may be necessary to
reflect Share 100 and except that the Program and its terms will
continue to be subject to Board approval.
98. Q: What will happen to my outstanding bank loans and the shares the bank
is holding as collateral?
A: The shares the bank is holding as collateral will be exchanged for
shares of Class B Composite Stock or Business Group Stock, as
applicable. Although we believe your outstanding bank loans should
remain intact, that decision will be made by your bank.
Taxes
99. Q: Will I have to pay any additional taxes as a result of Share 100?
A: Generally, no. If, however, you receive cash in redemption of your
shares under Share 100, you will be subject to tax on the capital gain
resulting from that redemption. The amount of that capital gain will
be the difference between your tax basis in the shares redeemed and
the redemption price you received. Furthermore, if you receive cash as
a payment adjusting the price paid for any shares of Class B Common
Stock the Company repurchased in the internal market between September
1, 1997 and the closing of Share 100, you will be subject to tax on
the capital gain resulting from that adjustment. The amount of that
capital gain will be the entire amount of the adjusting payment you
receive. In addition, if you receive a cash payment adjusting for
shares exchanged when you exercised using the stock-for-stock method,
you will be subject to tax on capital gain resulting from that
adjustment. The amount of that capital gain will be less than the
entire amount of the adjusting payment you receive.
100. Q: How will I know the cost and tax basis for my Composite Stock or
Business Group Stock?
A: The basis of the Class B Common Stock you currently hold will be
carried over to the Composite Stock or Business Group Stock that you
will receive in exchange for such Class B Common Stock. Likewise, your
holding period for capital gain purposes for Class B Common Stock will
carryover to Composite Stock or Business Group Stock you receive in
exchange for it.
101. Q: As a non-U.S. resident stockholder who is not a United States citizen,
are there any tax consequences to me from Share 100?
A: Yes. A non-United States stockholder who is not a United States
resident generally should recognize no gain or loss for United States
tax purposes on the exchange of Company stock for (i) Composite Stock
or Business Group Stock or both or (ii) cash. Continued ownership of
Company stock will subject any individual holders to potential United
States estate tax upon the
40
<PAGE>
death of the individual. As to the possible tax effect of the
transactions under foreign tax law, each holder is directed to seek
advice from qualified foreign tax advisors.
41
<PAGE>
Summary Comparison of Terms of Common Stocks
The following is a comparison of the Class A Common Stock and Class B Common
Stock (Common Stock) with the Class A Composite Stock and Class B Composite
Stock (Composite Stock) and the Education Group Stock, Food and Support Group
Stock and Uniform Group Stock (Business Group Stock). Difference in classes
within the Common Stock, Composite Stock and Business Group Stock will be
specifically noted below. This summary is qualified in its entirety by the more
detailed information contained in this Proxy Statement and the Annexes hereto.
See "PROXY STATEMENT SUMMARY," "RISK FACTORS," "SHARE 100 -- Certain Management
and Allocation Policies" and "DESCRIPTION OF CAPITAL STOCK." Stockholders are
urged to read carefully this Proxy Statement and the Annexes hereto in their
entirety.
<TABLE>
<CAPTION>
COMMON STOCK BUSINESS GROUP STOCK COMPOSITE STOCK
- ------------------------ ------------------------- ------------------------
<S> <C> <C>
BUSINESS OF THE COMPANY
All businesses of the The Business Groups are The Composite Group is
Company. comprised of the generally comprised of
Educational Resources (i) an interest in each
Group, Food and Support Business Group (the
Services Group and the Inter-Group Interest),
Uniform and Career which excludes the
Apparel Group. interest represented by
any outstanding shares
of Business Group
Stock, and (ii) all
other businesses in
which the Company or
any of its subsidiaries
may be engaged (other
than those comprising
the Business Groups).
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BUSINESS GROUP STOCK COMPOSITE STOCK
- -------------------------- ------------------------ ------------------------
<S> <C> <C>
DIVIDENDS
The Company currently does The Company currently The Company currently
not pay dividends on the does not intend to pay does not intend to pay
Common Stock. dividends on the dividends on the
Business Group Stock. Composite Stock.
The holders of shares of
Class A Common Stock and The dividends on any The holders of shares
Class B Common Stock Group Stock are limited of Class A Composite
would be entitled to to the dividends that Stock and Class B
receive the same could be payable if it Composite Stock will be
dividends and other were a separate company entitled to receive the
distributions, ratably, (Available Dividend same dividends and
with the holder of one Amount). The Board may, other distributions,
share of Class A Common in its sole discretion, ratably, with the
Stock entitled to receive declare and pay holder of one share of
ten times what the holder dividends exclusively on Class A Composite Stock
of one share of Class B any Business Group entitled to receive ten
Common Stock is entitled Stock, exclusively on times what the holder
to receive. the Composite Stock, or of one share of Class B
on all such classes of Composite Stock is
common stock, in equal entitled to receive.
or unequal amounts,
notwithstanding the The dividends on any
relative Available Group Stock are limited
Dividend Amounts, the to the dividends that
amount of prior could be payable if it
dividends declared on were a separate company
each class, the (Available Dividend
respective voting or Amount). The Board,
liquidation rights of subject to the
each class or any other limitations set forth
factor. above, may, in its sole
discretion, declare and
pay dividends,
exclusively on any
Business Group Stock,
exclusively on
Composite Stock, or on
all such classes of
common stock, in equal
or unequal amounts,
notwithstanding the
relative Available
Dividend Amounts, the
amount of prior
dividends declared on
each class, the
respective voting or
liquidation rights of
each class or any other
factor.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BUSINESS GROUP STOCK COMPOSITE STOCK
- -------------------------- ------------------------ ------------------------
<S> <C> <C>
VOTING RIGHTS
One vote per share. The holders of Business The holders of
Group Stock and Composite Stock and
Composite Stock will Business Group Stock
vote together as a will vote together as a
single voting group. single voting group.
Each Business Group Each Composite Stock
Stock will have one vote will have one vote per
per share. Upon the share. Upon the
occurrence of an occurrence of an
underwritten public underwritten public
offering of any class of offering of any class
Business Group Stock, of Business Group
each share of Business Stock, each share of
Group Stock will Class B Composite Stock
thereafter have 10 votes will thereafter have 10
per share; except that votes per share.
the class of Business
Group Stock that is
offered in such
underwritten public
offering will continue
to have one vote per
share; and except that
any class of Business
Group Stock having 10
votes per share that is
offered in a subsequent
underwritten public
offering will thereafter
have one vote per share.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BUSINESS GROUP STOCK COMPOSITE STOCK
- -------------------------- ------------------------ ------------------------
<S> <C> <C>
CONVERSION AT OPTION OF
COMPANY
The Company may, at any The Company may, at any The Company may, at any
time, convert all time, convert all time, convert all
outstanding shares of outstanding shares of outstanding shares of
Class B Common Stock into any class of Business Class B Composite Stock
Class A Common Stock, Group Stock into a into Class A Composite
with each outstanding number of shares of Stock, with each
share of Class B Common Class A Composite Stock outstanding share of
Stock converted into or Class B Composite Class B Composite Stock
one-tenth of a share of Stock equal to the ratio converted into
Class A Common Stock. of the Appraisal Price one-tenth of a share of
of one share of the Class A Composite Stock.
Business Group Stock to
the Appraisal Price of If a full-time employee
one share of Class A of the Company or any
Composite Stock or Class of its subsidiaries
B Composite Stock, as accepts a transfer in
applicable. employment from one
Group to another, the
If a full-time employee Board may declare that
of the Company or any of all or any part of the
its subsidiaries accepts outstanding shares of
a transfer in employment any class of common
from one Group to stock held by such
another, the Board may individual or a
declare that all or any Permitted Transferee of
part of the outstanding such individual be
shares of any class of converted into a number
common stock held by of shares of such other
such individual or a class or classes of
Permitted Transferee of common stock as the
such individual be Board determines.
converted into a number
of shares of such other
class or classes of
common stock as the
Board determines.
CONVERSION AT OPTION OF
HOLDER
A holder of Class B Common During the period after None.
Stock may at any time, shares of any class of
but only with the prior Business Group Stock are
approval of the Board, called for conversion as
convert each of his or provided in paragraph 1
her shares into one-tenth of "Conversion at the
of a share of Class A Option of Company,"
Common Stock. above, the holders of
those shares may in lieu
of such conversion,
convert their shares
into shares of a new
class of Business Group
Stock (for substantially
the same Business Group
Stock as was the class
of Business Group Stock
being converted), if
any, that the Board may
designate for the stated
purpose of having an
underwritten public
offering.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BUSINESS GROUP STOCK COMPOSITE STOCK
- -------------------------- ------------------------ ------------------------
<S> <C> <C>
MANDATORY CONVERSION
If a holder of Class B None. None.
Common Stock ceases to be
either a director,
full-time employee of the
Company or a Permitted
Transferee thereof, then
each share of Class B
Common Stock held by such
holder shall be converted
into one-tenth of a share
of Class A Common Stock.
REDEMPTION IN EXCHANGE
FOR STOCK OF SUBSIDIARY
None. The Company may redeem None.
any class of Business
Group Stock for a number
of shares of one or more
wholly owned
subsidiaries of the
Company that hold all of
the assets and
liabilities attributed
to that Business Group.
LIQUIDATION
Holders of Common Stock Holders of Business Holders of Composite
are entitled to receive Group Stock will be Stock will be entitled
the net assets of the entitled to receive the to receive the net
Company, if any, net assets of the assets of the Company,
remaining for Company, if any, if any, remaining for
distribution to holders remaining for distribution to holders
of Common Stock, ratably, distribution to holders of common stock,
with the holder of one of common stock, ratably ratably with the
share of Class A Common with the holders of holders of Business
Stock entitled to receive Composite Stock, with Group Stock, with the
ten times what the holder the holder of one share holder of one share of
of one share of Class B of Class A Composite Class A Composite Stock
Common Stock is entitled Stock entitled to entitled to receive ten
to receive. receive ten times what times what the holder
the holder of one share of one share of Class B
of Class B Composite Composite Stock or
Stock or Business Group Business Group Stock is
Stock is entitled to entitled to receive.
receive.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BUSINESS GROUP STOCK COMPOSITE STOCK
- -------------------------- ------------------------ ------------------------
<S> <C> <C>
CERTAIN MANAGEMENT AND
ALLOCATION POLICIES
The Company currently has The Company intends to The Company intends to
centralized management of follow certain policies follow certain policies
most financial with respect to the with respect to the
activities, does not allocation to the Groups allocation to the
allocate Company of principal corporate Groups of principal
indebtedness to its activities, including corporate activities,
business segments, (i) the centralized including (i) the
partially allocates to management of most centralized management
its business segments financial activities, of most financial
corporate general and (ii) the allocation of activities, (ii) the
administrative costs, and Company indebtedness allocation of Company
does not generally either among the Groups indebtedness either
allocate to its business or in its entirety to among the Groups or in
segments federal income one Group, (iii) the its entirety to one
taxes and tax benefits. accounting for transfers Group, (iii) the
of cash or other accounting for
property from one Group transfers of cash or
to another Group, (iv) other property from one
the financial impacts of Group to another Group,
issuances of additional (iv) the financial
shares of Business Group impacts of issuances of
Stock or Composite additional shares of
Stock, (v) the Composite Stock or
allocation of corporate Business Group Stock,
general and (v) the allocation of
administrative costs, corporate general and
and (vi) the allocation administrative costs,
of federal income taxes and (vi) the allocation
and tax benefits. of federal income taxes
and tax benefits.
STOCKHOLDERS OF ONE
COMPANY
-- Holders of Business Holders of Composite
Group Stock will Stock will continue to
continue to be subject be subject to the risks
to the risks associated associated with an
with an investment in investment in the
the Company and all of Company and all of its
its businesses, assets businesses, assets and
and liabilities. liabilities. Financial
Financial effects effects arising from
arising from the any of the Business
Composite Group that Groups that affect the
affect the Company's Company's results of
results of operations or operations or financial
financial condition condition could, if
could, if significant, significant, affect the
affect the results of results of operations
operations or financial or financial position
position of any of the of the Composite Group
Business Groups or the or the market price of
market price of any the Composite Stock.
class of Business Group
Stock.
</TABLE>
47
<PAGE>
RISK FACTORS
Stockholders should carefully consider all of the information set forth
in this Proxy Statement and, in particular, the specific risk factors described
below.
Stockholders of One Company; Financial Effects on One Group Could Affect Another
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and stockholders' equity between the Groups, holders of
Group Stock will be stockholders of the Company and will continue to be subject
to all of the risks associated with an investment in the Company and all of its
businesses, assets and liabilities. Such allocation and the change in the equity
structure of the Company contemplated by Share 100 will not affect title to the
assets or responsibility for the liabilities of the Company or any of its
subsidiaries. As a result, the implementation of Share 100 will not affect the
rights of holders of any debt of the Company or its subsidiaries. Financial
impacts arising from any of the Groups that impact the Company's results of
operations or financial condition could impact the results of operations or
financial condition of the other Groups and the Appraisal Price of the Group
Stocks. In addition, any net losses of any of the Groups and dividends or
distributions on, or repurchases of, any Group Stock will reduce the legally
available funds of the Company available for payment of dividends on all of the
Group Stock. Accordingly, the Company's consolidated financial statements should
be read in conjunction with the supplemental pro forma selected financial
information of each of the Business Groups.
If Share 100 is approved by the stockholders and implemented by the
Board, the Company will provide, to holders of each Group Stock, financial
statements, management's discussion and analysis of financial condition and
results of operations, business descriptions and other information for the
consolidated Company and supplemental selected financial information for each of
the Business Groups.
Limited Separate Stockholder Voting Rights; Effects on Voting Power
Under Share 100, holders of each Group Stock would not be provided any
rights specifically related to their corresponding Group or have any right to
vote on matters as a separate class, other than separate voting rights in
limited circumstances as required by the DGCL. Separate meetings for the holders
of any Group Stock would not be held.
Under Share 100, holders of all Group Stock would vote as one class on
all matters coming before any meeting of stockholders and would not have any
separate class voting rights except in limited circumstances as required by the
DGCL. Under the DGCL, the holders of the outstanding shares of a class are
entitled to vote as a class upon a proposed amendment to a corporation's
certificate of incorporation, whether or not entitled to vote on such amendment
by the certificate of incorporation, if the amendment would change the
authorizing number of shares or the par value of such class or would alter or
change the powers, preferences or special rights of such class so as to affect
them adversely. For this purpose, if a proposed amendment would alter or change
the powers, preferences or special rights of one or more classes so as to affect
them adversely, but would not so affect any other classes, then only the shares
of the class so affected by the amendment would be entitled to vote as a
separate class on the amendment.
Certain matters on which holders of Group Stock would vote together as a
single class could involve a divergence or the appearance of a divergence of
interests between the holders of different Group Stocks. For example, the
Restated Charter does not require that a merger or consolidation of
48
<PAGE>
the Company requiring the approval of the Company's stockholders be approved by
a separate vote of holders of any classes of Common Stock. As a result, if
holders of any one or more classes of the Common Stock that possess the
requisite voting power vote to approve the merger or consolidation, the merger
or consolidation could be consummated even if the holders of a majority of some
other class of Common Stock vote against the merger or consolidation. See "--
Potential Diverging Interests" and "-- Allocation of Proceeds of Mergers."
If Share 100 is approved by stockholders, each Group Stock will have one
vote per share. Upon the occurrence of an underwritten public offering by the
Company of any class of Business Group Stock, however, each share of Class B
Composite Stock and Business Group Stock will thereafter have 10 votes per
share; provided that the class of Business Group Stock that is offered in the
underwritten public offering will thereafter continue to be entitled to one vote
per share; provided, further, that any class of Business Group Stock having ten
votes per share that is offered in a subsequent underwritten public offering
will, after the consummation of such underwritten public offering, be entitled
to one vote per share. See "DESCRIPTION OF CAPITAL STOCK -- Capital Stock After
the Effective Time -- Composite Stock and Business Group Stock -- Voting
Rights."
Fiduciary Duties of the Board of Directors Are to All Stockholders Regardless of
Class or Series
Under Delaware law, the Board has a duty to act with due care and in the
best interests of all the Company's stockholders, including the holders of all
Group Stocks. The existence of the various Group Stocks may give rise to
occasions when the interests of the holders of different Group Stocks may
diverge or appear to diverge. See "-- Potential Diverging Interests." The Board
will address and resolve any issues involving material divergence of interests
between the holders of different Group Stocks.
Although the Company is not aware of any precedent concerning the manner
in which principles of Delaware law would be applied in the context of a capital
structure involving multiple classes or series of capital stock the rights of
which include terms designed to reflect the separate performance of specified
businesses, principles of Delaware law provide that a board of directors must
act in accordance with its good faith business judgment of the corporation's
best interests, taking into consideration the interests of all stockholders
regardless of class or series. Under these principles of Delaware law and the
"business judgment rule," a good faith determination made by a disinterested and
adequately informed board of directors with respect to any matter having a
disparate impact upon any Group Stock would be a defense to any challenge to
such determination made by or on behalf of any of such groups of holders.
Nevertheless, a Delaware court hearing a case involving such a challenge may
decide to apply principles of Delaware law other than those discussed above, or
may fashion new principles of Delaware law, in order to decide such a case,
which would be a case of first impression. There may arise circumstances
involving a divergence of interests in which the Board is held to have properly
discharged its responsibilities to act with due care and in the best interests
of the Company and all of its stockholders, but in which holders of any of the
Group Stocks consider themselves to be disadvantaged relative to another class.
In such a case, under the general principles of Delaware law discussed above,
such holders would not have any other remedy under Delaware law with respect to
the circumstances giving rise to the divergence of interests.
Potential Diverging Interests
The existence of separate classes of common stock could give rise to
occasions when the interests of the holders of different Group Stocks diverge or
appear to diverge. Examples include determinations by the Board to (i) pay or
omit the payment of dividends on any Group Stock,
49
<PAGE>
(ii) allocate consideration to be received by holders of each of the classes of
common stock in connection with a merger or consolidation involving the Company,
(iii) convert one class of common stock into shares of another class of common
stock, (iv) approve certain dispositions of assets attributed to any Group, (v)
so long as there is an Inter-Group Interest, allocate the proceeds of issuances
of an Business Group Stock either to the Composite Group in respect of its
Inter-Group Interest or to such Business Group and (vi) make operational and
financial decisions with respect to one Group that could be considered to be
detrimental to another Group, including whether to make transfers of funds among
Groups. When making decisions with regard to matters that create potential
diverging interests, the Board would act in accordance with the terms of the
Restated Charter, the management and allocation policies described in
"SHARE 100 -- Certain Management and Allocation Policies" to the extent
applicable and its fiduciary duties. See "-- Fiduciary Duties of the Board of
Directors Are to All Stockholders Regardless of Class or Series." The Board
could also from time to time refer matters involving such conflict issues to an
existing committee or one or more new committees of the Board and have such
committee or committees report to the Board on such matters or decide such
matters to the extent permitted by the bylaws and applicable law. Specific
potential conflicts of interests are discussed below under separate headings.
No Assurance of Payment of Dividends
The Board does not intend currently to pay dividends on any class of Group
Stock. Determinations as to the future dividends on any of the Group Stocks
would be based primarily upon the financial condition, results of operations and
business requirements of the relevant Group and the Company as a whole.
Dividends on any of the Group Stocks, if any, would be payable out of the lesser
of (i) all assets of the Company legally available for the payment of dividends
and (ii) the Available Dividend Amount with respect to the relevant Group. The
holders of shares of Class A Composite Stock and Class B Composite Stock shall
be entitled to receive the same dividends and other distributions, ratably with
the holder of one share of Class A Composite Stock entitled to receive ten times
what the holder of one share of Class B Composite Stock is entitled to receive.
Subject only to such limitations, the Board reserves the right to declare and
pay dividends on the Class A Composite Stock, Class B Composite Stock, Education
Group Stock, Food and Support Group Stock and Uniform Group Stock in any amount
and could, in its sole discretion, declare and pay dividends exclusively on any
or all of such Group Stocks, in equal or unequal amounts, notwithstanding the
relative Available Dividend Amounts, the amount of prior dividends declared on
each class, the respective voting or liquidation rights of each class or any
other factor. In addition, net losses of any Group, dividends and distributions
on any Group Stock and any repurchases of any Group Stock would reduce the
assets of the Company legally available for future dividends on all Group
Stocks. See "SHARE 100 -- Dividend Policy" and "DESCRIPTION OF CAPITAL STOCK --
Capital Stock After the Effective Time -- Composite Stock and Business Group
Stock -- Dividends."
Allocation of Proceeds of Mergers
The Charter Amendments do not contain any provisions governing how
consideration to be received by holders of Common Stock in connection with a
merger involving the entire Company is to be allocated among holders of
different classes of Common Stock. In any such merger, the percentage of the
consideration to be allocated to holders of any class of Common Stock will be
determined by the Board and may be materially more or less than that which might
have been allocated to such holders had the Board chosen a different method of
allocation. See " -- Limited Separate Stockholder Voting Rights; Effects on
Voting Power."
50
<PAGE>
Optional Conversion of Class of Common Stock
The Board could, in its sole discretion, determine to convert shares of any
of the Business Groups into shares of Class A Composite Stock or Class B
Composite Stock at any time. Any such determination could be made at a time when
either or both of the Class A Composite Stock or Class B Composite Stock or such
class of Business Group Stock may be considered to be overvalued or undervalued.
In determining whether to convert one class of Business Group Stock into Class A
Composite Stock or Class B Composite Stock, the Board would act in accordance
with its good faith business judgment that any such conversion is in the best
interests of the Company, taking into consideration the interests of all common
stockholders, including both the holders of the class of Business Group Stock
being converted and the holders of Class A Composite Stock or Class B Composite
Stock into which it is to be converted. See "DESCRIPTION OF CAPITAL STOCK --
Capital Stock After the Effective Time -- Composite Stock and Business Group
Stock -- Conversion and Redemption."
Disposition of Group Assets
As long as the assets of a Group continue to represent less than
substantially all of the properties and assets of the Company, the Board may
approve sales and other dispositions of all or any amount of the properties and
assets of such Group without stockholder approval, because under the DGCL
stockholder approval is required only for a sale or other disposition of all or
substantially all of the properties and assets of the entire Company. The
appropriate disposition of proceeds would be subject to determination by the
Board in accordance with the Restated Charter, approved allocation policies and
its fiduciary duties. See "--Fiduciary Duties of the Board of Directors Are to
All Stockholders Regardless of Class or Series."
Allocation of Proceeds Upon Issuance of Any Class of Business Group Stock
If the Composite Group, at the time the Company issues any shares of any
class of Business Group Stock, holds an inter-group interest representing an
interest in the equity value of any of the Business Groups (an "Inter-Group
Interest"), the Board would, in its sole discretion, determine whether to
allocate all or any portion of the proceeds of such issuance to the applicable
Business Group or to the Composite Group. To the extent the net proceeds of such
issuance of shares of the Business Group Stock are allocated to the applicable
Business Group, the financial records of the applicable Business Group would
reflect the receipt of such proceeds. To the extent such net proceeds are
allocated to the Composite Group, the Inter-Group Interest would be reduced. See
"DESCRIPTION OF CAPITAL STOCK -- Inter-Group Interest of Composite Group in
Business Groups." Any such allocation may favor one Group at the expense of
another. Any such allocation will be made by the Board in its good faith
business judgment that such allocation is in the best interests of the Company,
taking into consideration the interests of all common stockholders. See "--
Fiduciary Duties of the Board of Directors Are to All Stockholders Regardless of
Class or Series." In addition, if the Company issues shares of any class of
Business Group Stock for the account of the Composite Group in respect of the
Composite Group's Inter-Group Interest in the applicable Business Group, the
voting power of holders of shares of such Business Group Stock immediately prior
to such issuance would be diluted for any class vote by such holders even though
no consideration received for such shares would be allocated to such Business
Group. Moreover, if the Company issues additional shares of any class of
Business Group Stock, the voting power of holders of shares of other Business
Group Stock immediately prior to such issuance would be diluted for any class
vote by such holders even though no consideration received for such shares would
be allocated to such other Business Group.
51
<PAGE>
Operational and Financial Decisions
The Board could, in its sole discretion, from time to time, make
operational and financial decisions or implement policies that affect
disproportionately the businesses of any of the Groups, such as transfers of
services, funds or assets among Groups and other inter-Group transactions, the
allocation of financing opportunities in the public markets and the allocation
of business opportunities, resources and personnel that may be suitable for the
Groups. Any such decision may favor one Group at the expense of another. All
such decisions will be made by the Board in its good faith business judgment and
in accordance with procedures and policies adopted by the Board from time to
time, including the policies described under "SHARE 100 -- Certain Management
and Allocation Policies," to ensure that such decisions will be made in a manner
consistent with the best interests of the Company, taking into consideration the
interests of all common stockholders. For further discussion of potential
divergence of interests, see "-- Fiduciary Duties of the Board of Directors Are
to All Stockholders Regardless of Class or Series," "-- Allocation of Financing
Costs; Transfers of Funds Among Groups; Equity Contributions," "SHARE 100 --
Certain Management and Allocation Policies."
Management and Allocation Policies Subject to Change
The Company's policies described herein with respect to dividends, the
allocation of corporate expenses, assets and liabilities, the allocation of
proceeds of sales of each class of Group Stock and other matters may be modified
or rescinded, or additional policies may be adopted, in the sole discretion of
the Board without approval of the stockholders, although the Board has no
present intention to do so. Any determination of the Board to modify or rescind
such policies, or to adopt additional policies, including any such decision that
would have disparate impacts upon holders of any class of Group Stock, would be
made in accordance with the Board's good faith business judgment of the best
interests of the Company, taking into consideration the interests of all common
stockholders. See " -- Potential Diverging Interests."
Allocation of Financing Costs; Transfers of Funds Among Groups; Equity
Contributions
As described under "SHARE 100 -- Certain Management and Allocation
Policies," most financial activities will be managed by the Company on a
centralized basis. Such financial activities include cash management and the
issuance and repayment of short-term and long-term debt. In the event that cash
or other property allocated to one Group is transferred to another Group (other
than transfers made with respect to the Inter-Group Interest upon the payment of
any dividend or other distribution on any class of Business Group Stock), such
transfer would be accounted for in one of the following ways, as determined by
the Board: (i) as a reallocation of Pooled Debt, as described under the caption
referred to above, (ii) as an increase or decrease in the Number of Shares
Issuable with Respect to the Inter-Group Interest, (iii) as a sale of assets
among the Groups, or (iv) as a short-term or long-term loan from one Group to
another Group. There are no specific criteria to determine which of the
foregoing would be applied to a particular transfer of cash or property from one
Group to another Group. Such determination would be made by the Board in the
exercise of its business judgment based upon all relevant circumstances,
including the financing needs and objectives of the recipient Group, the
investment objectives of the transferring Group, the availability, cost and time
associated with alternative financing sources, prevailing interest rates and
general economic conditions. Any such determination could affect the amount of
interest expense reflected in the financial records of the applicable Group. All
transfers of material assets from one Group to another Group will be deemed to
be made on a fair value basis for the foregoing purposes, as determined by the
Board.
52
<PAGE>
A portion of the Company's debt may be allocated to each Group, and
interest expense will be charged to each Group, based primarily on the weighted
average interest rate of such Pooled Debt or in some instances on a specific
allocation. As a result, changes in the amount of Pooled Debt could affect such
weighted average interest rate and, therefore, could affect the interest expense
charged among the Groups in respect of their allocated portions. In addition, in
obtaining its financing through increases of its allocated Pooled Debt, the
Group receiving the proceeds would receive a "benefit" or "detriment" to the
extent such weighted average rate is lower or higher, respectively, than the
market rate for a hypothetical borrowing of debt by such Group if such Group
were a stand-alone corporation. Debt of the Company also may be allocated in its
entirety to one Group as determined by the Board.
The Board could, in its sole discretion, determine that a transfer of cash
or other property from one Group to another Group should be accounted for as a
short-term or long-term loan. The Board would establish the terms on which loans
among the Groups would be made, including interest rate, amortization schedule,
maturity and redemption terms. In the event that the Board determines that a
transfer of funds between Groups should be accounted for as a loan, the Group
receiving the funds would receive a "benefit" or "detriment" to the extent the
rate determined by the Board is lower or higher, respectively, than the market
rate for a hypothetical borrowing of debt by such Group if such Group were a
stand-alone corporation.
The Board also could, in its sole discretion, determine from time to time
to contribute, as additional equity, cash or other property of the Composite
Group to any of the Business Groups, thereby increasing the Inter-Group
Interest. Similarly, the Board could, in its sole discretion, determine from
time to time to transfer cash or other property from any of the Business Groups
to the Composite Group as a reduction in such equity, thereby decreasing the
Inter-Group Interest. Although any increase in the Inter-Group Interest
resulting from an equity contribution by the Composite Group to any of the
Business Groups or any decrease in the Inter-Group Interest resulting from a
transfer of funds from any of the Business Groups to the Composite Group would
be determined by reference to the then current Appraisal Price of the applicable
class of Business Group Stock, such changes could occur at a time when such
shares could be considered undervalued or overvalued. The holders of outstanding
shares of any class of Business Group Stock would not have an opportunity to
participate in a similar transaction.
Absence of Approval Rights with Respect to Future Issuances of Authorized Shares
The authorized but unissued shares of capital stock would be available for
issuance from time to time by the Company at the sole discretion of the Board
for any proper corporate purpose. Such issuances could include shares of any
class of Group Stock, as well as the issuance of such shares upon the conversion
or exercise of securities of the Company that are convertible into or
exercisable or exchangeable for such shares. The approval of the stockholders of
the Company will not be sought by the Company for the issuance of authorized but
unissued shares of any class of Group Stock (or the reissuance of previously
issued shares that have been reacquired by the Company) or securities of the
Company that are convertible into or exercisable or exchangeable for such
shares, unless deemed advisable by the Board or required by applicable law or
regulation.
Leverage; Earnings; Financial Condition
Share 100 will immediately change the Company's capitalization to one that
is more highly leveraged. On a pro forma basis (assuming consummation of Share
100), at June 27, 1997, the Company would have had approximately $1.75 billion
of short-term and long-term debt and an
53
<PAGE>
approximately $52 million deficit in stockholders' equity as compared to the
approximately $1.3 billion of short-term and long-term debt and approximately
$381 million of stockholders' equity actually existing on such date. As more
fully described below, if Share 100 had occurred as of September 27, 1996 (the
prior fiscal year end), the Company would have reported, on a pro forma basis,
net income of approximately $133 million for the nine months ended June 27,
1997, compared to net income of approximately $146 million actually reported for
the period. The Company's ratio of earnings to fixed charges for such period
would have been 2.2x on a pro forma basis as compared to the 2.6x actually
reported. See "HISTORICAL AND PRO FORMA CAPITALIZATION" and "PRO FORMA FINANCIAL
INFORMATION."
These changes in the Company's capitalization are expected to have several
important consequences, including, but not limited to, the following: (i)
significant additional interest expense and principal repayment obligations will
be incurred by the Company, and the Company will require substantial additional
cash for required payments with respect to such obligations, (ii) the ability of
the Company to satisfy its obligations (including its obligations to pay
interest on the additional indebtedness incurred), to reduce its debt and to
increase its equity will be even more dependent than previously upon the future
performance of the Company, which will continue to be subject to prevailing
economic conditions as well as financial, business and other factors affecting
the business and operations of the Company, including factors beyond the control
of the Company, and (iii) the indebtedness incurred and the resulting deficit in
stockholders' equity could limit the Company's ability to effect future
financings and may otherwise restrict corporate activities. See "FINANCING OF
SHARE 100."
In the event that the projections for the Company's operations described
under "SHARE 100--Certain Projections" are not substantially realized, funds
needed to permit the Company to meet its obligations will have to be derived
from alternative sources. Possible alternative sources include reductions in the
Company's activities, including possible reductions in certain expenditures or
expenses of the Company. Additional funds could also be obtained through the
sale of assets, but no specific assets have been selected as probable candidates
for such sales.
Although the Company expects to continue its practice of entering into
various types of interest rate protection agreements, the Company's capital
structure after Share 100 will include approximately $440 million of additional
variable rate indebtedness, causing the Company to be more sensitive to
prevailing interest rates than prior to Share 100.
Fraudulent Conveyance
If a court in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that, at the time the
Company issued, distributed or redeemed the Class B Common Stock and the
Redeemable Transitory Participating Preferred Stock and the cash, Installment
Notes and Group Stocks in Share 100, the Company (i) was insolvent, (ii) was
rendered insolvent by reason of such distributions, (iii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay as such debts matured, such
court could void the distributions to stockholders and require that such holders
return the same (or equivalent amounts) to the Company or to a fund for the
benefit of its creditors (including, under certain circumstances, the banks
providing a substantial portion of the financing for Share 100). The measure of
insolvency for purposes of the foregoing will vary depending upon the law of the
jurisdiction which is being applied. Generally, however, the Company would be
considered insolvent if the fair value of the Company's assets is less than the
amount of the Company's total debts and
54
<PAGE>
liabilities or if the Company has incurred debt beyond its ability to repay as
such debt matures. It is a condition to consummation of Share 100 that the Board
has received an appraisal supporting the conclusion that the fair value of the
Company's assets immediately following Share 100 will exceed its liabilities.
See "SHARE 100--Opinion of HLHZ." In addition, the Board and management believe
that the Company will be able to repay its debt as it matures following Share
100, as shown in the projections set forth in "SHARE 100--Certain Projections."
See also "SHARE 100--Opinion of HLHZ" and "PRO FORMA FINANCIAL INFORMATION."
Certain Accounting Treatment
As described under "PRO FORMA FINANCIAL INFORMATION," Share 100 will be
accounted for as a redemption of shares not subject to purchase accounting.
Accordingly, notwithstanding receipt of the appraisals described herein, the
Company's assets will be reflected on the Company's consolidated financial
statements after Share 100 at their historical cost and will not, for accounting
purposes, be adjusted to reflect their then current fair market value. As a
result of this accounting treatment, had Share 100 been consummated as of June
27, 1997, the Company would have had a deficit in stockholders' equity of
approximately $52 million, as shown in the Company's pro forma consolidated
balance sheet at June 27, 1997 contained in "PRO FORMA FINANCIAL INFORMATION."
See also "SHARE 100--Certain Projections."
55
<PAGE>
THE ANNUAL MEETING
This Proxy Statement and the enclosed form of proxy are being furnished in
connection with the solicitation of proxies by the Board for use at the Annual
Meeting to be held on the Sixteenth Floor of ARAMARK Tower, 1101 Market Street,
Philadelphia, Pennsylvania, on February 10, 1998, at 3:00 P.M., Philadelphia
time, for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.
On December 29, 1997, the date for determining stockholders entitled to
vote at the meeting, _____________ shares of Class A Common Stock and
_____________ shares of Class B Common Stock were outstanding and entitled to
vote held by an aggregate of approximately ____________ stockholders of record.
Each such share of Common Stock entitles the holder thereof to one vote. Any
shareholder giving a proxy may revoke it at any time before it is voted by
delivering another later dated proxy or written notice of revocation to the
Company's Secretary at or before the Annual Meeting or by attending and voting
in person at the Annual Meeting. A proxy, if executed and not revoked, will be
voted for each of the proposals described herein, unless it contains specific
instructions to the contrary, in which event it will be voted in accordance with
such instructions. The persons named in the proxy also may vote in favor of a
proposal to adjourn the Annual Meeting to a subsequent date or dates without
further notice, in order to solicit and obtain sufficient votes to approve the
matters being considered at the Annual Meeting. If a proxy is returned which
specifies a vote against a proposal, such discretionary authority will not be
used to adjourn the Annual Meeting in order to solicit additional votes in favor
of such proposal.
A majority of the votes entitled to be cast on matters to be considered at
the Annual Meeting constitutes a quorum. If a share is represented for any
purpose at the Annual Meeting, it is deemed to be present for quorum purposes
and for all other matters as well. Abstentions are included in determining the
number of votes present or represented at the Annual Meeting.
The Charter Amendments would implement Proposals 1, 2 and 3. Proposal 1
(the Reclassification of the Class A Common Stock) requires the affirmative vote
of the holders of a majority of the outstanding Class A Common Stock voting as a
single class and the affirmative vote of the holders of a majority of the
outstanding Common Stock voting as a single class. Proposal 2 (the
Reclassification of the Class B Common Stock) requires the affirmative vote of
the holders of a majority of the outstanding Class B Common Stock voting as a
single class and the affirmative vote of the holders of a majority of the
outstanding Common Stock voting as a single class. Proposal 3 (the Charter
Amendments other than the Reclassification) requires the affirmative vote of the
holders of a majority of the outstanding Common Stock voting as a single class.
Amendments to the Stockholders' Agreement (Proposal 4) require the affirmative
vote by Management Investors who hold (in combination with their Permitted
Transferees) at least a majority of the Common Stock held by Management
Investors and their Permitted Transferees. Accordingly, the votes by Management
Investors for the Stockholders' Agreement will be binding on their Permitted
Transferees, notwithstanding a different vote by such Permitted Transferees. The
affirmative vote of the holders of a plurality of the shares of Common Stock
present or represented at the Annual Meeting will be required to elect the
directors for the ensuing year. Abstentions will have the effect of a vote
against Proposals 1, 2, 3 and 4 but will have no effect on the election of the
directors for the ensuing year.
Each of the proposals relating to Share 100 (Proposals 1, 2, 3 and 4) is
conditioned upon the approval of the others and will not be implemented if any
such proposal is not approved by stockholders. Accordingly, a vote against any
one proposal, or an abstention, will have the effect of a vote against all four
of such proposals.
56
<PAGE>
Management does not intend to present, and does not have any reason to
believe that others will present, any item of business at the Annual Meeting
other than those specifically set forth in the accompanying Notice of Annual
Meeting of Stockholders. However, if other matters are presented for a vote, the
proxy agents will have the right to vote the shares represented by proxy cards
on such matters in accordance with their discretion.
Holders of Class A Common Stock and Continuing Holders of Class B Common
Stock who plan to vote their shares against Share 100 and the related proposals
should nonetheless make proper and timely Elections on the enclosed Form of
Election in accordance with the procedures described herein to ensure that they
will receive the desired form or forms of consideration in the event Share 100
and the related proposals are ultimately approved and become effective. See "THE
PLAN OF RECAPITALIZATION -- Procedure for Holders of Shares."
The Company's directors and executive officers, and their Permitted
Transferees, all of whom have advised the Company that they intend to vote for
approval of Share 100 and the related proposals, have sole or shared voting
power with respect to approximately 46% of the outstanding Class B Common Stock.
Goldman Sachs, Chase and certain individual stockholders, who have advised the
Company that they intend to vote for approval of Share 100 and the related
proposals, have sole or shared voting power with respect to approximately 17% of
the outstanding Class A Common Stock. The trustees of the Benefit Plans, who
have preliminarily indicated their intention to vote for approval of Share 100
and the related proposals, have voting power with respect to approximately 47%
of the outstanding Class A Common Stock. See "SHARE 100 -- Interests of Certain
Persons in Share 100" and "SECURITY OWNERSHIP BEFORE AND AFTER SHARE 100."
57
<PAGE>
SHARE 100
General
At the Annual Meeting, holders of the Common Stock will be asked to
consider and approve various elements of a restructuring pursuant to the Plan of
Recapitalization which contemplates the recapitalization of the Company and
certain transactions and other matters. Share 100 involves the Reclassification
of the Company's Common Stock as a result of which (i) each share of Class A
Common Stock will be redeemable for: (a) $347.50 ($34.75 on a Class B equivalent
share basis) in cash (Class A Cash Consideration), unless the holder, subject to
certain conditions, elects to accept the offer of the Company to receive, in
lieu of the Class A Cash Consideration, any one of the following alternatives;
(b) one share of Class A Composite Stock (Class A Stock Consideration), but only
if the holder is a Former Manager or a Company Benefit Plan as described in "THE
PLAN OF RECAPITALIZATION -- The Reclassification --Class A Common Stock"; or (c)
$347.50 ($34.75 on a Class B equivalent share basis) principal amount of
Installment Notes (Notes Consideration), subject to certain Suitability
Requirements described in "THE PLAN OF RECAPITALIZATION -- Procedure for Holders
of Shares -- Certain Suitability Requirements" and the treatment of fractional
amounts described in "THE PLAN OF RECAPITALIZATION -- Procedure for Holders of
Shares -- Treatment of Fractional Shares" (Proposal 1) and (ii) each share of
Class B Common Stock will become redeemable (Class B Redemption Feature) for (a)
$29.55 in cash (Class B Cash Consideration) or (b) one or more of the following
classes of common stock (Group Stock Consideration): (1) Education Group Stock;
(2) Food and Support Group Stock; (3) Uniform Group Stock; and (4) Class B
Composite Stock (Proposal 2).
Holders of Class B Common Stock, other than Magazine and Book Employees
(the "Continuing Holders"), will be entitled to elect, in lieu of the Group
Stock Consideration, the Class B Cash Consideration in exchange for their Class
B Common Stock, provided that it is a condition to Share 100 that Continuing
Holders of no more than $25 million of the Class B Common Stock elect the Class
B Cash Consideration. See "THE PLAN OF RECAPITALIZATION -- Treatment of Magazine
and Book Employees" for information related to Magazine and Book Employees. For
purposes of the election by Continuing Holders of Class B Common Stock, each
Management Investor and all of his or her Permitted Transferees must make the
same election for all of their shares, and if not, will be deemed to have made
the same election for all of their shares as the election made by the holders of
a majority of the Class B Common Stock owned by such holders.
The Business Group Stocks are intended to reflect separately the
performance of each of the Business Groups. The Composite Stock reflects the
"residual" interest in each of the Business Groups and any other businesses or
investments of the Company or any of its subsidiaries (Composite Group).
The Class B Common Stock will be redeemed on a share-for-share basis from
holders who are entitled to receive the Business Group Stock Consideration based
upon their employment status, as determined by the Board, as follows: (i)
Education Group Employees will receive 50% Education Group Stock and 50% Class B
Composite Stock; (ii) Food and Support Group Employees will receive 50% Food and
Support Group Stock and 50% Class B Composite Stock; (iii) Uniform Group
Employees will receive 50% Uniform Group Stock and 50% Class B Composite Stock;
and (iv) Corporate Employees will receive 100% Class B Composite Stock.
Former Managers who fail to make a Class A Election or make a Class A
Election for any form of consideration other than the Class A Stock
Consideration will have all of their Class A
58
<PAGE>
Common Stock called by the Company. According to the terms of the Stockholders'
Agreement, the purchase price for such shares of Class A Common Stock will be
$29.55 per share (on a Class B equivalent share basis). See "THE PLAN OF
RECAPITALIZATION -- Cash-Out of Former Managers."
Any holder of Class A Common Stock (other than a Former Manager) who makes
a Class A Election for the Class A Cash Consideration or the Notes Consideration
will also be entitled to a contingent cash payment in excess of the Class A Cash
Consideration or Notes Consideration, if within two years from the Effective
Time the Company engages in certain corporate transactions. See "THE PLAN OF
RECAPITALIZATION -- Certain Contingent Payments."
As part of Share 100, stockholders also will be asked to consider and
approve three related proposals to further amend the Certificate of
Incorporation: (i) to increase the number of shares of Common Stock authorized
for issuance from 175,00,000 to 200,000,000 in order to provide greater
assurance that a sufficient number of shares would be available in the event of
a conversion of a class of Business Group Stock into Class A Composite Stock or
Class B Composite Stock (Increased Capital Amendment); (ii) to provide that,
upon the consummation of any future public offering of the Company's common
stock, stockholder action may be taken only at an annual meeting of stockholders
or at a special meeting of stockholders, and stockholder action by written
consent shall be prohibited (Stockholder Action Amendment); and (iii) to provide
that, upon the consummation of any future underwritten public offering of the
Company's common stock, the Board shall be classified into three classes, each
of which, after a transitional arrangement, will serve for three years, with one
class being elected each year (Classified Board Amendment) (Proposal 3).
Share 100 also contemplates certain amendments to, and the restatement of,
the Stockholders' Agreement, which amendments are designed to give effect to,
and take account of, Share 100 (Proposal 4). Additionally, implementation of
Share 100 will result in the termination of the Registration Rights Agreement
because after Share 100, all holders of Class A Common Stock who are a party to
the Registration Rights Agreement will no longer own any of the Company's Common
Stock.
If Share 100 is approved, the Company will file with the Secretary of State
of the State of Delaware the Amendment Certificates to effect the Charter
Amendments. The Certificates of Designations to be filed will contain the
provisions set forth in Parts 4A and 4C of the Restated Charter and the amended
and restated Certificate of Incorporation to be filed will contain the remaining
provisions of the Restated Charter. At any time prior to such filing with the
Secretary of State of the State of Delaware, including after adoption of Share
100 by the Company's stockholders, the Board may abandon Share 100 without
further action by the stockholders. After implementation of Share 100, the
Company will file the Restated Charter with the Secretary of State of the State
of Delaware.
The authorized but unissued shares of Group Stock would be available for
issuance by the Company, from time to time, as determined by the Board, for any
proper corporate purpose, which could include raising capital, paying stock
dividends, providing compensation or benefits to employees or acquiring other
companies or businesses. The approval of the stockholders of the Company will
not be solicited by the Company for the issuance from the authorized but
unissued shares of Group Stock of additional shares of Composite Stock or
Business Group Stock unless such approval is deemed advisable by the Board or is
required under the DGCL.
Background and Reasons for Share 100
59
<PAGE>
Share 100 was adopted by the Board following its review of various
alternatives designed to eliminate the equity interests of outside stockholders
in the Company and to align more closely the investment interests of management
owners with the performance of the Groups for which they work. The Board
believes the issuance of Group Stock best accomplishes the objective of aligning
management owners' investment interests with the performance of the respective
Groups for which they work. During the 1997 fiscal year, senior members of the
Company's management began preliminary discussions with J.P. Morgan and with
Goldman Sachs and other Outside Stockholders ("Outside Stockholders" are holders
of Class A Common Stock other than Company Benefit Plans and Former Managers)
regarding the possible means of achieving the foregoing objectives. Goldman
Sachs and J.P. Morgan historically have been financial advisors to the Company.
An affiliate of J.P. Morgan is co-agent under the Group's bank facility. Goldman
Sachs currently acts in a fiduciary capacity with respect to the Class A Common
Stock held by certain of its funds. Subsequently, members of the Company's
senior management also held discussions with representatives of certain other
substantial Outside Stockholders concerning these matters.
The Company's senior management considered several alternatives for
achieving its objectives, including continuing current operations without change
or spinning off and/or breaking up pieces of the Company. As a result of
studying these alternatives, and discussing them with the Company's advisors and
certain Outside Stockholders, the Company's senior management concluded a
recapitalization of the Company would most nearly achieve all of its objectives.
Accordingly, in early July 1997, the Company's senior management developed
a preliminary recapitalization proposal pursuant to which, among other things,
the Company would redeem from the Outside Stockholders all of their Class A
Common Stock for cash. In discussing this initial proposal with certain Outside
Stockholders, including both individuals and institutions, the Company's
management was made aware that (i) certain Outside Stockholders desired to
receive a contingent cash payment in excess of the Class A Cash Consideration or
Notes Consideration, if within two years from the Effective Time the Company
engages in certain corporate transactions, and (ii) certain institutions were of
the view that the proposed per share price should be higher. As a result of
these discussions and further discussions with certain Outside Stockholders, and
after considering the interests and concerns of all the Company's stockholders
and consulting with the Company's advisors, the Company's senior management
developed a proposed plan which, after a number of additional interim revisions,
became what is now the Plan of Recapitalization. At a meeting held on August 12,
1997, the Board, after receiving a preliminary report from management,
encouraged management to continue its review of the Company's alternatives with
the assistance of its outside legal counsel and financial advisors.
Among the alternatives considered were continuing current operations
without change; the spin-off of subsidiaries comprising each of the Business
Groups; the merger or sale of the Company or of the subsidiaries comprising each
of the Business Groups; the initial public offering of the Company or any
Business Group; or acquiring other businesses. None of the alternatives was
considered likely to further the objective of aligning management owners'
investment interests with the performance of the respective Groups for which
they work, while preserving the financial, strategic and operational benefits of
remaining a single corporation.
On September 22, 1997, October 20, 1997 and [November 11, 1997], the
Company's management and legal advisors, and on October 20, 1997 the Company's
financial advisors, made presentations to the Board concerning Share 100 and, on
[January 6, 1998], after having received and considered more detailed and
updated presentations, the Board unanimously approved Share 100 on
60
<PAGE>
the terms set forth in this Proxy Statement. See "SHARE 100 --Recommendation of
the Board of Directors" and "--Interests of Certain Persons in Share 100."
In arriving at its recommendation and determination that Share 100 is in
the best interests of the Company and its stockholders, the Board, with the
assistance of its financial and legal advisors, considered various strategic,
financial, legal and tax factors and identified the following as the principal
advantages of Share 100:
. Becoming a 100% employee-owned Company.
. Producing a better alignment of management objectives with business
objectives by increasing management ownership and by giving management
owners a more direct economic interest in the respective Groups for
which they work.
. Outside Stockholders will receive, in redemption of their equity
interest, a cash payment (or, if they qualify and elect, Installment
Notes, which are designed to allow them to defer taxable gain that may
be recognized as a result of Share 100), representing a substantial
premium over their original investment in the Company.
. By remaining a single entity, the Company would continue to enjoy
certain financial, strategic and operational benefits that would not
be available if the Business Groups were separate legal entities. For
example, the Business Groups would benefit from the oversight of
certain key, experienced management personnel, administrative
economies and lower borrowing costs.
. Establishing a more market-oriented valuation of the Company's various
businesses through appraisals of each of the Business Groups.
. Facilitating comparisons between each of the Business Groups and their
competitors.
. The Company retaining the flexibility to engage in future strategic
transactions, if appropriate.
The Board also considered the following potential adverse consequences of
Share 100:
. The financing of Share 100 and its repayment will be dependent on the
Company's operations, assets, credit, cash flow and earning power and
that, as a result of Share 100, there will be an increase in the
Company's long-term indebtedness, as well as a deficit in
stockholders' equity and a decrease in net earnings and free cash
flow.
. Holders of Group Stocks would continue to be subject to the risks
associated with an investment in a single company and all of the
Company's businesses, assets and liabilities. See "RISK FACTORS --
Stockholders of One Company; Financial Effects on One Group Could
Affect Another."
. The potential diverging interests of the holders of the various Group
Stocks and the issues that could arise in resolving those conflicts.
See "SHARE 100 -- Certain Management and Allocation Policies" and
"RISK FACTORS -- Potential Diverging Interests."
61
<PAGE>
The Board also considered the following additional factors:
. The financial analyses and presentations of J.P. Morgan and its
opinion that from a financial point of view (i) the consideration to
be received by holders of each class of Common Stock is fair to those
holders and (ii) that the exchange ratios to be applied in connection
with the Reclassification of the Class B Common Stock are fair to the
holders thereof. See "-- Opinion of Financial Advisor."
. The analyses, presentations and written solvency opinion of HLHZ. See
"-- Opinion of HLHZ."
The Board determined that, on balance, the positive aspects of Share 100
outweigh any potentially adverse consequences and concluded that Share 100 is in
the best interests of the Company and its stockholders. The foregoing discussion
of the advantages, adverse consequences and other factors considered by the
Board is not intended to be exhaustive. In view of the wide variety of factors
considered in connection with its evaluation of Share 100, the Board did not
quantify or assign any relative weights to the factors considered in reaching
its determination, although its individual members may have given different
weights to different factors.
In connection with its approval of Share 100, the Board, in order to
isolate certain potential conflicts of interest with respect to certain of its
members, held two separate votes. First, Share 100 was unanimously approved by
the Company's directors, with Mr. Neubauer (the Chairman and Chief Executive
Officer of the Company), Mr. Ksansnak (the Vice Chairman and a trustee for the
Company's Benefit Plans), Mr. Campbell (a trustee for the Company's Benefit
Plans) and Mr. Driscoll (who owns with his Permitted Transferees shares of Class
A Common Stock) not participating in such vote. Immediately after such vote,
Share 100 was unanimously approved by the Company's directors with all directors
participating in such vote. See "SHARE 100 -- Interests of Certain Persons in
Share 100" for the share ownership and other interests of the directors in
connection with Share 100.
Recommendation of the Board of Directors
The Board believes adoption of Share 100 (including the amendments to the
Certificate of Incorporation that constitute a part thereof) is in the best
interests of the Company and its stockholders and, accordingly, unanimously
recommends that stockholders vote FOR Share 100, set forth as Proposals 1, 2, 3
and 4.
Opinion of Financial Advisor
Pursuant to an engagement letter dated August 25, 1997, J.P. Morgan was
retained by the Company to deliver a fairness opinion in connection with Share
100. No limitations were imposed by the Company upon J.P. Morgan with respect to
the investigations made or procedures followed by it in rendering its opinions.
J.P. Morgan was not, however, authorized to solicit, and did not solicit,
inquiries with respect to an acquisition of the Company or any of its
constituent businesses.
J.P. Morgan delivered its written opinion to the Board, dated the date of
this Proxy Statement, that, as of such date, from a financial point of view (i)
the consideration to be received by holders of each class of Common Stock is
fair to those holders and (ii) the exchange ratios to be applied in connection
with the Reclassification of the Class B Common Stock are fair to the holders
thereof.
62
<PAGE>
The full text of the written opinion of J.P. Morgan, which sets forth the
assumptions made, matters considered and limits on the review undertaken in
connection with rendering its opinion, is attached as Annex II to this Proxy
Statement and should be read carefully in its entirety. J.P. Morgan's written
opinion is addressed to the Board, is directed only to (i) the consideration to
be received by the holders of each class of Common Stock and (ii) the exchange
ratios to be applied in connection with the Reclassification of the Class B
Common Stock in Share 100 and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote at the Annual
Meeting. The summary of the opinion of J.P. Morgan set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
In arriving at its opinion, J.P. Morgan reviewed, among other things, the
Plan of Recapitalization, amendments to the Company's Restated Certificate of
Incorporation, this Proxy Statement, the audited financial statements of the
Company for the fiscal year ended October 3, 1997, certain publicly available
information concerning the Business Groups and of certain other companies
engaged in businesses comparable to those of the Business Groups, the reported
market prices for certain other companies' securities deemed comparable, the
terms of business transactions deemed relevant by J.P. Morgan, certain internal
financial analyses and forecasts prepared by the Company, and certain agreements
with respect to outstanding indebtedness or obligations of the Company. J.P.
Morgan also held discussions with certain members of the management of the
Company with respect to certain aspects of Share 100, and the past and current
business operations of the Company, the financial condition and future prospects
and operations of the Company, and certain other matters believed necessary or
appropriate to J.P. Morgan's inquiry. In addition, J.P. Morgan reviewed such
other financial studies and analyses and considered such other information as it
deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by the Company or otherwise reviewed by J.P. Morgan, and
J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of the
Company to which such analyses or forecasts relate. J.P. Morgan has also assumed
that Share 100 will have the tax consequences described in this Proxy Statement,
and in discussions with, and materials furnished to J.P. Morgan by,
representatives of the Company, and that the other transactions contemplated by
the Plan of Recapitalization and the amendments to the Company's Restated
Certificate of Incorporation will be consummated as described in the Plan of
Recapitalization, the amendments to the Company's Restated Certificate of
Incorporation and this Proxy Statement. J.P. Morgan has assumed, without
independent verification, the accuracy of all legal opinions delivered to the
Company by its counsel in connection with Share 100.
J.P. Morgan's opinions are based on economic, market and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of its opinion. Subsequent developments may affect J.P. Morgan's written
opinion, and J.P. Morgan does not have any obligation to update, revise, or
reaffirm such opinion. J.P. Morgan expressed no opinion as to the price at which
the Company's Composite Stocks or Business Group Stocks will be appraised or
traded at any future time.
63
<PAGE>
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
Public Trading Multiples, Food and Support. Using publicly available
information and financial projections prepared by management, J.P. Morgan
compared selected financial data of the Food and Support Services Group with
similar data for selected publicly traded companies engaged in businesses which
J.P. Morgan judged to be analogous to the Food and Support Services Group. The
companies selected by J.P. Morgan were [to be completed]. These companies were
selected, among other reasons, because [to be completed]. For each comparable
company, publicly available financial performance through the twelve months
ended [September 30], 1997 was measured. J.P. Morgan selected the mean and the
median value for each multiple, specifically: [to be completed]. These multiples
were then applied to Food and Support Services Group [to be completed], yielding
implied trading values for Food and Support Group Stock of approximately $___ to
$___ per share.
Discounted Cash Flow Analysis, Food and Support. J.P. Morgan conducted a
discounted cash flow analysis for the purpose of determining the fully diluted
equity value per share for Food and Support Group Stock. J.P. Morgan calculated
the unlevered free cash flows that the Food and Support Services Group is
expected to generate during fiscal years ______ through ______ based upon
financial projections prepared by the management of the Food and Support
Services Group through the years ended __________ and upon management
projections adjusted by J.P. Morgan to reflect [to be completed] during the __-
year period. J.P. Morgan also calculated a range of terminal asset values of the
Food and Support Services Group at the end of the __-year period ending
__________ by applying a perpetual growth rate ranging from ____% to ____% of
the unlevered free cash flow of the Food and Support Services Group during the
final year of the __-year period. The unlevered free cash flows and the range of
terminal asset values were then discounted to present values using a range of
discount rates from __% to __%, which were chosen by J.P. Morgan based upon an
analysis of the weighted average cost of capital the Food and Support Services
Group. The present value of the unlevered free cash flows and the range of
terminal asset values were then adjusted for the Food and Support Services
Group's estimated 199_ fiscal year-end excess cash, option exercise proceeds and
total debt. Based on the adjusted management projections and a discount rate of
___%, the discounted cash flow analysis indicated a range of equity values of
between $___ and $___ per share of Food and Support Group Stock on a stand-alone
basis (i.e., full allocation of overhead).
Public Trading Multiples, Uniform. Using publicly available information and
financial projections prepared by management, J.P. Morgan compared selected
financial data of the Uniform and Career Apparel Group with similar data for
selected publicly traded companies engaged in businesses which J.P. Morgan
judged to be analogous to the Uniform and Career Apparel Group. The companies
selected by J.P. Morgan were [to be completed]. These companies were selected,
among other reasons, because [to be completed]. For each comparable company,
publicly available financial performance through the twelve months ended
[September 30], 1997 was measured. J.P. Morgan selected the mean and the median
value for each multiple, specifically: [to be completed]. These multiples were
then applied to the Uniform and Career Apparel Group [to be completed], yielding
implied trading values for Uniform Group Stock of approximately $___ to $___ per
share.
Discounted Cash Flow Analysis, Uniform. J.P. Morgan conducted a discounted
cash flow analysis for the purpose of determining the fully diluted equity value
per share for Uniform Group Stock. J.P. Morgan calculated the unlevered free
cash flows that the Uniform and Career Apparel Group is expected to generate
during fiscal years ___ through ____ based upon financial projections
64
<PAGE>
prepared by the management of the Uniform and Career Apparel Group through the
years ended ______________ and upon management projections adjusted by J.P.
Morgan to reflect [to be completed] during the __-year period. J.P. Morgan also
calculated a range of terminal asset values of the Uniform and Career Apparel
Group at the end of the __-year period ending __________ by applying a perpetual
growth rate ranging from ___% to ___% of the unlevered free cash flow of the
Uniform and Career Apparel Group during the final year of the __-year period.
The unlevered free cash flows and the range of terminal asset values were then
discounted to present values using a range of discount rates from __% to __%,
which were chosen by J.P. Morgan based upon an analysis of the weighted average
cost of capital of the Uniform and Career Apparel Group. The present value of
the unlevered free cash flows and the range of terminal asset values were then
adjusted for the Uniform and Career Apparel Group's estimated 199_ fiscal year-
end excess cash, option exercise proceeds and total debt. Based on the adjusted
management projections and a discount rate of ___%, the discounted cash flow
analysis indicated a range of equity values of between $___ and $___ per share
of Uniform Group Stock on a stand-alone basis (i.e., full allocation of
overhead).
Public Trading Multiplies, Education. Using publicly available information
and financial projections prepared by management, J.P. Morgan compared selected
financial data of the Educational Resources Group with similar data for selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to the Educational Resources Group. The companies selected by J.P.
Morgan were [to be completed]. These companies were selected, among other
reasons, because [to be completed]. For each comparable company, publicly
available financial performance through the twelve months ended [September 30],
1997 was measured. J.P. Morgan selected the mean and the median value for each
multiple, specifically: [to be completed]. These multiples were than applied to
the Educational Resources Group [to be completed], yielding implied trading
values for Education Group Stock of approximately $___ to $___ per share.
Discounted Cash Flow Analysis, Education. J.P. Morgan conducted a
discounted cash flow analysis for the purpose of determining the fully diluted
equity value per share for Education Group Stock. J.P. Morgan calculated the
unlevered free cash flows that the Educational Resources Group is expected to
generate during fiscal years ___ through ___ based upon financial projections
prepared by the management of the Educational Resources Group through the years
ended ________ and upon management projections adjusted by J.P. Morgan to
reflect [to be completed] during the __-year period. J.P. Morgan also calculated
a range of terminal asset values of the Educational Resources Group at the end
of the __-year period ending ________ by applying a perpetual growth rate
ranging from __% to __% of the unlevered free cash flow of the Educational
Resources Group during the final year of the __-year period. The unlevered free
cash flows and the range of terminal asset values were then discounted to
present values using a range of discount rates from __% to __%, which were
chosen by J.P. Morgan based upon an analysis of the weight average cost of
capital of the Educational Resources Group. The present value of the unlevered
free cash flows and the range of terminal asset values were then adjusted for
the Educational Resources Group's estimated 199_ fiscal year-end excess cash,
option exercise proceeds and total debt. Based on the adjusted management
projections and a discount rate of ___%, the discounted cash flow analysis
indicated a range of equity values of between $___ and $___ per shares of
Education Group Stock on a stand-alone basis (i.e., full allocation of
overhead).
The summary set forth above does not purport to be a complete description
of the analyses of data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and their analysis must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes
65
<PAGE>
underlying its analyses and opinion. J.P. Morgan based its analyses on
assumptions that it deemed reasonable, including assumptions concerning general
business and economic conditions and industry-specific factors. The other
principal assumptions upon which J.P. Morgan based its analyses are set forth
above under the description of each such analysis. J.P. Morgan's analyses are
not necessarily indicative of actual values or actual future results that might
be achieved, which values may be higher or lower than those indicated. Moreover,
J.P. Morgan's analyses are not and do not purport to be appraisals or otherwise
reflective of the prices at which businesses actually could be bought or sold.
As compensation for financial advisory services in connection with Share
100 and for rendering the opinion described above, the Company agreed to pay
J.P. Morgan a fee of $800,000. The Company also agreed to indemnify J.P. Morgan
against certain liabilities, including liabilities arising under the federal
securities laws, and to reimburse J.P. Morgan for its reasonable out-of-pocket
expenses, including the fees and disbursements of its counsel. J.P. Morgan also
provided financial advisory services to the Company in connection with Share
100. In addition, an affiliate of J.P. Morgan also serves as a co-agent under
the Company's existing bank facility, and J.P. Morgan anticipates serving as co-
arranger under the amended Bank Facility upon Share 100 becoming effective, for
which it will receive additional fees. See "-- Interests of Certain Persons in
Share 100" and "FINANCING OF SHARE 100."
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to deliver an opinion to
the Board with respect to Share 100 on the basis of such experience and its
familiarity with the Company.
J.P. Morgan and its affiliates maintain banking and other business
relationships with the Company and its affiliates, for which it receives
customary fees. In the ordinary course of their businesses, affiliates of J.P.
Morgan may actively trade the debt securities of the Company for their own
accounts or for the accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.
Opinion of HLHZ
The specialty investment banking firm of Houlihan, Lokey, Howard & Zukin
Financial Advisors, Inc. ("HLHZ") has been retained by the Board to provide a
written opinion at the implementation of Share 100 to the effect that (a) on a
pro forma basis, the fair market value and present fair saleable value of the
Company's assets would exceed the Company's liabilities including identified
contingent liabilities by an amount at least equal to the total par value of the
Company's outstanding capital stock; (b) the Company should be able to pay its
debts as they mature, following the consummation of Share 100; and (c) the
capital remaining in the Company after Share 100 would not be unreasonably small
for the business in which the Company is engaged, as management has indicated
the business is now conducted and is proposed to be conducted following
consummation of Share 100. In rendering its opinion, HLHZ will make reviews,
analyses and inquiries, including, among others, visiting the Company
headquarters, meeting with members of senior management of the Company and of
its principal businesses and conducting such other studies and investigations as
it deems appropriate. In rendering its opinion, HLHZ will rely, without
independent verification upon, among other things, certain financial information
provided by the Company and other parties, and will not make or obtain any
independent valuation of the Company's assets or properties. HLHZ's opinion will
be based in part on business, economic, market and other conditions as they
exist and
66
<PAGE>
can be evaluated by them as of the date of the delivery of their opinion. HLHZ's
opinion and its engagement letter provide that the opinion may not be delivered
to or relied upon by any person other than the Board and certain lenders
providing financing in connection with Share 100.
HLHZ has substantial experience in the valuation of businesses and has
provided valuation services for the Company from time to time, including in
connection with the appraisal of the Common Stock.
Appraisals of Common Stock
The Company as a matter of course obtains an appraisal of the fair market
value of its Common Stock as of December 1, March 1, June 1 and September 1 of
each year (an "Appraisal Price"). In addition, the Company has obtained
Appraisal Prices as of the implementation of Share 100.
The recent Appraisal Prices of the Class A Common Stock (on a Class
B equivalent share basis) and of the Class B Common Stock are as follows:
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
1996:
March 1 $17.30 $15.40
June 1 $17.90 $15.95
September 1 $18.20 $16.20
December 1 $18.60 $16.70
1997:
March 1 $19.30 $17.55
June 1 $20.10 $18.50
September 1 $21.50 $20.00
December 1
</TABLE>
The Appraisal Price of the Common Stock, immediately before the
implementation of Share 100, is $347.50 for the Class A Common Stock ($34.75 on
a Class B equivalent share basis) and $29.55 for the Class B Common Stock. The
Appraisal Price of the Group Stocks immediately after the implementation of
Share 100 is $347.50 for the Class A Composite Stock ($34.75 on a Class B
equivalent share basis) and $29.55 for the Class B Composite Stock and each of
the Business Group Stocks. The Board will be receiving an update of the
appraisals on the date of the Annual Meeting.
HLHZ, a specialty investment banking firm, provided the appraisals. The
appraisals were based on the capitalization of earnings and cash flow approach
and on the basis of discounted cash flow analysis. Consideration has also been
given to the various rights, terms and features of both the Class A Common Stock
and Class B Common Stock. The appraisals as of December 1, 1997 and as of the
implementation of Share 100 were also affected by the proposal of Share 100,
including the arm's-length negotiation process between senior management and
certain Outside Stockholders described above which established the amount of the
Class A Cash Consideration. The Company has used HLHZ for its quarterly
appraisals since 1994.
In rendering its appraisals, HLHZ: (i) generally holds interviews and
discussions with key senior corporate officers at the Company's corporate
headquarters in Philadelphia, Pennsylvania; (ii) reviews the history and nature
of the Company; (iii) reviews the financial data bearing upon recent
67
<PAGE>
and prospective operations, including the Company's SEC 10-K and 10-Q filings,
other recent SEC filings, audited and interim financial statements, and internal
financial and operating segment data as well as long-term financial forecasts of
the Company; (iv) reviews and analyzes the Company's operating segments and
their prospects; (v) examines capital market information deemed relevant to the
assessment of investment risk return attributes of the Class A Common Stock and
Class B Common Stock; and (vi) analyzes any other factors that it considers
necessary under the circumstances. The internal data and forecasts reviewed by
HLHZ include operating results, business plans and strategic plans for each
Business Group and the Company that are not made generally available to the
stockholders of the Company.
The Company has paid fees of approximately $375,000 plus reimbursement of
certain expenses to HLHZ for the opinion referred to above and for appraisal
services rendered to the Company in connection with Share 100 and during the 12
months prior to the date of this Proxy Statement. In addition, the Company has
agreed to indemnify HLHZ against certain liabilities which it might incur in
connection with the preparation of the opinion and the appraisals referred to
above or otherwise as a result of the services which it rendered.
Structure of Share 100
The use of Redeemable Transitory Participating Preferred Stock and the
Class B Redemption Feature are necessary in Share 100 because, under Delaware
law, the Company may not reclassify the Common Stock directly into cash (or any
combination of consideration an element of which is cash). Certificates for
Redeemable Transitory Participating Preferred Stock will not be sent to the
holders of Class A Common Stock; in lieu thereof, cash and/or, if elected, Class
A Composite Stock and Installment Notes will be issued based upon the number of
shares of Redeemable Transitory Participating Preferred Stock to which such
former holders of Class A Common Stock are entitled in the Reclassification. See
"THE PLAN OF RECAPITALIZATION."
Interests of Certain Persons in Share 100
In considering Share 100, stockholders should be aware that certain members
of the Company's management and the Board have certain interests, described
below, which present them with potential conflicts of interest in connection
with Share 100. The Board was aware of these interests when it approved Share
100 and considered them at that time among the other matters described under
"SHARE 100 -- Recommendation of the Board of Directors."
General. As a result of Share 100, the Company's directors and Corporate
Employees, including executive officers, will be entitled to receive one share
of Class B Composite Stock for each share of Class B Common Stock held by them
immediately prior to the Effective Time. Unlike some other Continuing Holders of
Class B Common Stock, they will not receive Business Group Stock. Furthermore,
Magazine and Book Employees will be entitled to receive only the Class B Cash
Consideration and will not be entitled to retain any equity interest in the
Company.
Holders of Class A Common Stock (including one director of the Company and
his Permitted Transferees, the Benefit Plans and all of the Outside
Stockholders), on the other hand, will be entitled ultimately to receive in
Share 100 $34.75 per share on a Class B equivalent basis in cash, or, if they so
elect, certain consideration (in various combinations at their election)
consisting of cash, Class A Composite Stock (assuming such holder is a Former
Manager or a Benefit Plan) and/or Installment Notes, subject to satisfaction of
the Suitability Requirements. Unlike the Continuing Holders of Class B Common
Stock, the Outside Stockholders of Class A Common Stock will not be permitted to
retain
68
<PAGE>
their equity interest in the Company. For a description of the different rights,
powers and limitations of the various Group Stocks, see "DESCRIPTION OF CAPITAL
STOCK -- Capital Stock After the Effective Time. For a description of the
Installment Notes, see "DESCRIPTION OF INSTALLMENT NOTES."
Share Ownership and Other Interests of Directors and Executive Officers.
For the beneficial ownership of the Company's outstanding capital stock by
the Management Investors, the Outside Stockholders and the Benefit Plans before
and after Share 100, see "SECURITY OWNERSHIP BEFORE AND AFTER SHARE 100" and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
As indicated in the above referenced tables, all of the Company's directors
(and/or their Permitted Transferees) hold Class B Common Stock, with Messrs.
Neubauer and Ksansnak holding a significant number of Class B Common Stock
shares. In addition, Messrs. Neubauer and Ksansnak are also members of senior
management of the Company and will continue to be senior members of management
of the Company after Share 100. Mr. Neubauer played the leading role in
developing Share 100. As a result of Share 100, the relative equity ownership
and voting power of the Management Investors (including all of the directors)
will increase while the equity ownership and voting power of the Benefit Plans
will decrease and the equity ownership and voting power of the Outside
Stockholders will cease. In that connection, Share 100 will have the effect of
increasing the Management Investors' participating equity interest in the
Company from approximately 57% (representing approximately 92% of the voting
power) to approximately 80% of the outstanding participating equity of the
Company (representing approximately 97% of the voting power). After Share 100,
outstanding awards and options held by Messrs. Neubauer and Ksansnak under the
Company's stock option plans will be adjusted to provide that all such options
currently exercisable for Class B Common Stock will become exercisable for Class
B Composite Stock. See "THE PLAN OF RECAPITALIZATION -- Treatment of Outstanding
Options."
Mr. Driscoll, who is a director of the Company, and his Permitted
Transferees hold 16,416 shares of Class A Common Stock. Such shares of Class A
Common Stock held by such persons will be entitled (if the holders qualify and
so elect) only to receive certain consideration consisting (in various
combinations at their election) of cash and/or Installment Notes which is
different from the consideration which holders of Class B Common Stock will be
entitled to receive in Share 100.
Messrs. Campbell and Ksansnak, who are directors of the Company, also serve
as trustees for the Company's Benefit Plans, and, as such, are subject to
certain fiduciary duties which may give rise to different investment priorities
and concerns with respect to the shares held under the Benefit Plans. As of
October 3, 1997, 922,424 shares of Class A Common Stock were held under the
Benefit Plans. The trustees for the Benefit Plans are authorized to vote the
Class A Common Stock held under such Benefit Plans. Based upon, among other
things, the advice of the Benefit Plans' separate legal counsel and financial
advisor, the trustees have preliminarily indicated that they intend to vote this
Class A Common Stock held under the Benefit Plans in favor of Share 100 and to
elect to receive, for all of the Class A Common Stock held under the Benefit
Plans, approximately 30% in cash and 70% in Class A Composite Stock (other than
the magazine and book benefit plan which is likely to elect all cash). See "THE
PLAN OF RECAPITALIZATION -- Treatment of Employee Benefit Plans."
Other Interests. Chase Capital Partners ("Chase") is a substantial Outside
Stockholder, holding 73,520 shares of Class A Common Stock. Chase Manhattan
Bank, an affiliate of Chase, along with an affiliate of J.P. Morgan, serves as
co-agent under the Company's existing bank facility.
69
<PAGE>
If Share 100 is approved and becomes effective, it is anticipated that
Chase Securities Inc., an affiliate of Chase and Chase Manhattan Bank, and J.P.
Morgan will serve as co-arrangers under the amended Bank Facility. J.P. Morgan,
Chase Securities Inc. and their respective bank affiliates will receive
estimated fees of $___ million in connection with the financing of Share 100.
See "FINANCING OF SHARE 100."
Goldman Sachs, which acts in a fiduciary capacity with respect to the Class
A Common Stock held by certain of its funds, and J.P. Morgan have historically
provided financial advisory services to the Company and participated in
discussions with senior members of management of the Company which influenced
the development of Share 100. Goldman Sachs is a substantial Outside
Stockholder, holding 163,440 shares of Class A Common Stock and will be entitled
to a fee of $800,000 for financial advisory services to the Company in
connection with Share 100. J.P. Morgan also provided financial advisory services
and a fairness opinion to the Company in connection with Share 100 for which it
will receive a fee of $800,000. The Company may engage Goldman Sachs and/or J.P.
Morgan to render financial advisory services from time to time after Share 100
is consummated. See "SHARE 100 -- Background and Reasons for Share 100" and "--
Opinion of Financial Advisor."
For certain additional information concerning relationships and
transactions between the Company and certain of its directors, officers and
stockholders, see "ELECTION OF DIRECTORS."
Certain Effects of Share 100
Share 100 will increase the Company's long-term indebtedness, create a
deficit balance in stockholders' equity and decrease net earnings and net cash
flow. See "RISK FACTORS" and "SHARE 100 -- Certain Projections," "FINANCING OF
SHARE 100" and "PRO FORMA FINANCIAL INFORMATION."
After the Effective Time, the Company will continue to be operated and
managed by its present management, under the direction of the Board,
substantially as presently managed and operated. Except for Share 100, and as
otherwise described in this Proxy Statement, there are no present plans or
proposals that would result in any material extraordinary corporate transaction,
such as a merger, reorganization, liquidation, relocation of operations, or sale
or transfer of a material amount of assets involving the Company or its
subsidiaries, or any material change in the Company's corporate structure,
business or composition of its management. See "RISK FACTORS."
Certain Projections
The following projections cover the fiscal years 1998 through 2000. The
Company does not as a matter of course publish projections as to future results
of operations or financial condition. However, in connection with developing the
terms of Share 100, certain projections of the Company's future operating
performance were furnished to certain Outside Stockholders. In addition, in
connection with seeking to obtain financing for Share 100, substantially similar
projections over the expected term of the financing were furnished to certain
current and prospective lending institutions.
The projections, while presented with numerical specificity, are based on a
variety of estimates and assumptions which, though considered reasonable by the
Company, may not be realized, and are inherently subject to significant
business, economic and competitive uncertainties, many of which are beyond the
control of the Company. There can be no assurance that the projections will be
realized, and actual results may vary materially from those shown.
70
<PAGE>
For purposes of the projections, Share 100 is assumed to have occurred as
of the beginning of fiscal 1998. Other significant assumptions are discussed in
the Notes to Projections and should be carefully reviewed along with the risk
factors discussed under "RISK FACTORS." The Company does not intend in the
future to release publicly, on a periodic basis or otherwise, updates to the
projections set forth herein.
Share 100 will be accounted for as a redemption of stock not subject to
purchase accounting, and therefore, assets and liabilities will be carried at
their historical cost. The accounting principles and policies used in preparing
the projections are consistent with the accounting principles and policies used
by the Company in preparing its historical Consolidated Financial Statements
included in Annex VII hereto.
The projections should be read in conjunction with the information
contained under "HISTORICAL AND PRO FORMA CAPITALIZATION" and "PRO FORMA
FINANCIAL INFORMATION" and the Consolidated Financial Statements of the Company
and notes thereto included in Annex VII hereto.
ARAMARK CORPORATION
PROJECTIONS
(in millions)
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $6,567 $7,154 $7,760
Income before depreciation and
amortization, interest and income taxes 564 624 686
Operating income 356 404 452
Interest, net 150 142 132
Net income $ 119 $ 152 $ 186
FUNDS FLOW DATA:
Net income $ 119 $ 152 $ 186
Depreciation and amortization 208 219 234
----- ----- -----
Total sources $ 327 $ 371 $ 420
----- ----- -----
Net capital additions $ 198 $ 208 $ 218
Change in working capital 1 2 2
Other 39 38 34
----- ----- -----
Total uses $ 238 $ 248 $ 254
----- ----- -----
Cash available to service debt and
acquisitions $ 89 $ 123 $ 166
====== ====== ======
</TABLE>
* Share 100 is assumed to have occurred as of the beginning of fiscal
1998.
Notes to Projections:
(a) The projections present consolidated financial information reflecting the
impact on the Company of Share 100. The projections are based on a variety
of estimates and assumptions which, though considered reasonable by the
Company, may not be realized, and are subject to significant business,
71
<PAGE>
economic and competitive uncertainties, many of which are beyond the
control of the Company. Actual results may differ materially from those
shown.
(b) For purposes of the projections, Share 100 is assumed to have occurred as
of the beginning of fiscal 1998. The projections also assume that in Share
100 all Outside Stockholders receive the Class A Cash Consideration,
approximately 75% of Former Managers by number of shares elect to receive
the Class A Stock Consideration and the rest have their shares repurchased
pursuant to the Stockholders' Agreement, the Magazine and Book Benefit Plan
receives the Class A Cash Consideration, all other Benefit Plans receive
30% cash and 70% Class A Composite Stock, all Magazine and Book Employees
receive the Class B Cash Consideration, and all Continuing Holders receive
the Group Stock Consideration.
(c) The provision for income taxes reflects a federal income tax rate of 35%
and a combined state and local rate, before federal income tax benefit, of
7%.
(d) The accounting principles and policies used in preparing the projections
are consistent with the accounting principles and policies used by the
Company in preparing its historical Consolidated Financial Statements
included in Annex VII.
Dividend Policy
The Board does not intend currently to pay dividends on any Group Stock,
and instead plans to retain future earnings, if any, for the repayment of
indebtedness and the development of each of the Groups. In the event that
dividends are paid in the future, the holders of shares of Class A Composite
Stock and Class B Composite Stock shall be entitled to receive the same
dividends and other distributions, ratably, with the holder of one share of
Class A Composite Stock entitled to receive ten times what the holder of one
share of Class B Composite Stock is entitled to receive. While the Board does
not intend currently to change the initial dividend policy regarding the Group
Stocks, it reserves the right to do so at any time and from time to time. See
"DESCRIPTION OF CAPITAL STOCK -- Capital Stock After the Effective Time--
Composite Stock and Business Group Stock -- Dividends."
Certain Management and Allocation Policies
If Share 100 is approved by the stockholders and implemented by the Board,
the Company will prepare consolidated financial statements in accordance with
generally accepted accounting principles for the Company and supplemental
selected financial information for each of the Business Groups. The supplemental
selected financial information of each of the Business Groups reflects the
results of operations of the businesses included therein. Consistent with the
Certificate of Incorporation and relevant policies, such Business Groups'
supplemental selected financial information will include allocated portions of
the Company's corporate general and administrative costs and other shared
services. Notwithstanding such allocations, holders of each class of Business
Group Stock will continue to be subject to all of the risks associated with an
investment in the Company and all of its businesses, assets and liabilities. See
"RISK FACTORS -- Stockholders of One Company; Financial Effects on One Group
Could Affect Another."
If Share 100 is approved by the stockholders and implemented by the Board,
principal corporate activities will be allocated to the Groups based on methods
that management of the Company believes to be reasonable and will be reflected
in the Business Groups' supplemental selected financial information as follows:
72
<PAGE>
(i) Most financial activities will be managed by the Company on a
centralized basis. Such financial activities include cash management, and
the issuance and repayment of short-term and long-term debt. In the event
that cash or other property allocated to one Group is transferred to
another Group (other than transfers made with respect to the Inter-Group
Interest upon the payment of any dividend or other distribution on a class
of Business Group Stock), such transfer will be accounted for in one of the
following ways, as determined by the Board: (A) as a reallocation of Pooled
Debt, (B) as a short-term or long-term loan from one Group to another
Group, (C) as an increase or decrease in the Number of Shares Issuable with
Respect to the Inter-Group Interest, or (D) as a sale of assets between the
two Groups. There are no specific criteria to determine which of the
foregoing would be applied to a particular transfer of cash or property
from one Group to another Group. Such determination would be made by the
Board in the exercise of its business judgment based upon all relevant
circumstances, including the financing needs and objectives of the
recipient Group, the investment objectives of the transferring Group, the
availability, cost and time associated with alternative financing sources,
prevailing interest rates and general economic conditions. All transfers of
material assets from one Group to another Group will be made on a fair
value basis for the foregoing purposes, as determined by the Board.
(ii) Debt of the Company is either allocated among the Groups
("Pooled Debt") or is allocated in its entirety to one Group. Cash
allocated to one Group that is used to repay Pooled Debt will decrease such
Group's allocated portion of Pooled Debt. Cash or other property allocated
to one Group that is transferred to another Group will, if so determined by
the Board, decrease the transferring Group's allocated portion of Pooled
Debt and, correspondingly, increase the recipient Group's allocated portion
of Pooled Debt. Pooled Debt bears interest at a rate based on the weighted
average interest rate of such debt calculated on a periodic basis and
applied to the average Pooled Debt balance during the period. Any expense
related to debt of the Company that is allocated in its entirety to any
Group will be allocated in whole to such Group, and any expense related to
increases in Pooled Debt will be reflected in the weighted average interest
rate of such Pooled Debt as a whole. The Board in the future could
determine to allocate interest expense on Pooled Debt on another basis. For
example, the Board could allocate interest expense on Pooled Debt based on
its estimate of the interest costs that would be incurred if the Business
Groups were separate companies.
(iii) Cash or other property allocated to one Group that is
transferred to another Group, could, if so determined by the Board, be
accounted for either as a short-term loan or as a long-term loan. The Board
would establish the terms on which loans among the Groups would be made,
including interest rate, amortization schedule, maturity and redemption
terms.
(iv) Cash or other property allocated to the Composite Group that
is contributed as additional equity to a Business Group will increase the
Number of Shares Issuable with Respect to the Inter-Group Interest. Cash or
other property allocated to a Business Group that is transferred to the
Composite Group would, if so determined by the Board, decrease the Number
of Shares Issuable with Respect to the Inter-Group Interest.
(v) All financial impacts of issuances of additional shares of any
class of Business Group Stock, the proceeds of which are attributed to such
Business Group, would be reflected entirely in the financial records of
such Business Group. All financial impacts of issuances of additional
shares of Composite Stock or additional shares of any class of Business
Group Stock, the proceeds of which are attributed to the Inter-Group
Interest of the Composite
73
<PAGE>
Group, would not be reflected in the financial records of the applicable
Business Group. Financial impacts of dividends or other distributions on,
and purchases of, shares of any class of Business Group Stock will be
reflected in the respective financial records of such Business Group,
except that so long as the Composite Group has an Inter-Group Interest, the
Composite Group would be credited, and the appropriate Business Group's
financial records would be charged, with an amount that is proportionate to
the aggregate amount paid in respect of any such dividend on, or other
distribution with respect to, the Business Group Stock of such Business
Group.
(vi) Corporate general and administrative costs and other shared
services are generally allocated to the Groups based upon utilization of
such services by each Group. Where determinations based on utilization
alone are impracticable, other methods and criteria that management
believes to be equitable and to provide a reasonable estimate of the cost
attributable to each Group are used.
(vii) Federal income taxes, which are determined on a consolidated
basis, are allocated to each Group in accordance with the Company's tax
allocation policy and reflected in the financial statements for each Group.
In general, the consolidated federal tax provision and related tax payments
or refunds are allocated among the Groups, based principally upon the
financial income, taxable income, credits and other amounts directly
related to the respective Group. Tax benefits that cannot be used by the
Group generating such attributes, but can be utilized on a consolidated
basis, are allocated to the Group that generated such benefits. As a
result, the amount of federal taxes payable or refundable allocated to the
Group is not necessarily comparable to that which would have resulted if
the Group had filed a separate tax return. State income taxes generally are
computed on a separate company basis.
The above policies may be modified or rescinded, or additional policies may
be adopted, in the sole discretion of the Board, without approval of the
stockholders, although the Board has no present plans to do so. Any
determination of the Board to modify or rescind such policies, or to adopt
additional policies, including any such decision that would have disparate
effects upon holders of any of the classes of Group Stock, would be made by the
Board in its good faith business judgment of the Company's best interests,
taking into consideration the interests of all common stockholders. See "RISK
FACTORS--Fiduciary Duties of the Board of Directors Are to All Stockholders
Regardless of Class or Series."
The Company currently has centralized management of most financial
activities, does not allocate Company indebtedness to its business segments,
partially allocates to its business segments corporate general and
administrative costs, and does not allocate to its business segments federal
income taxes and tax benefits.
Decisions as to such allocations are typically made by the Company's
corporate financial personnel under the overall direction of the Company's chief
financial officer. Any allocation of material significance would be reported to
the Audit and Corporate Practices Committee of the Board. The Company
anticipates that such procedures would continue after the implementation of
Share 100.
74
<PAGE>
No Appraisal Rights
Under the DGCL, holders of shares of Common Stock will not have a
right to an appraisal of their shares by the Delaware Court of Chancery
in connection with Share 100.
Certain U.S. Federal Income Tax Considerations
The following summary of the direct U.S. federal income tax
consequences of Share 100 is based on the opinion of Milbank, Tweed,
Hadley & McCloy, tax counsel to the Company for Share 100. The discussion
is based on the Internal Revenue Code of 1986, as amended to the date
hereof (the "Code") and Treasury Department regulations, published
positions of the Internal Revenue Service ("IRS") and court decisions now
in effect, all of which are subject to change. Although future
legislation or regulations could be enacted or promulgated so as to apply
retroactively to Share 100, upon advice of counsel, the Company believes
that, as a practical matter, it is unlikely that any legislation or
regulations would apply retroactively.
Advance Tax Ruling. The Company has not applied for an advance tax
ruling from the IRS because the IRS has included the issuance of stock
with characteristics similar to the Composite Stock and Business Group
Stock among the transactions upon which it will not issue advance
rulings.
Tax Implications to the Stockholders. This discussion addresses
only those stockholders who hold Company Common Stock and would hold the
Composite Stock or Business Group Stock as a capital asset and is
included for general information only. It does not discuss all aspects of
federal income taxation that may be relevant to a stockholder in light of
that stockholder's particular tax circumstances and does not apply
(except where and to the extent noted) to certain types of stockholders
that may be subject to special treatment under the federal income tax
laws, including corporations, non-United States owners, and pass-through
entities. In addition, neither foreign, state or local tax consequences
nor estate and gift tax considerations are discussed.
Stockholders should consult their own tax advisors with regard to
the application of the U.S. federal tax laws to their particular
situation, as well as to the applicability and effect of any state,
local, or foreign tax laws to which they may be subject and the potential
impact of possible law changes.
Reclassification of Class A Common Stock to Redeemable Transitory
Participating Preferred Stock ("RTPPS")-- The RTPPS is newly created and
promptly redeemed as part of the Reclassification. As such, the
reclassification of Class A Common Stock into RTPPS and the resulting
RTPPS should be disregarded for federal income tax purposes because the
existence and efficacy of RTPPS will be momentary and a mere step in the
plan to convert the Class A Common Stock into cash. If the RTPPS were to
be accorded recognition for tax purposes, the exchange of Class A Common
Stock for RTPPS would be a "recapitalization" of the Company within the
meaning of Section 368(a)(1)(E) of the Code and would result in no gain
or loss to the Company. Because the RTPPS would participate in corporate
growth, it would not constitute "nonqualified preferred stock," so the
exchange of Class A Common Stock for RTPPS would result in no gain or
loss to the exchanging stockholders. Discussions below disregard the
RTPPS for federal income tax purposes.
General-- The Reclassification will constitute a "recapitalization"
of the Company within the meaning of Section 368(a)(1)(E) of the Code.
As a recapitalization, the Reclassification will not be a taxable
transaction to the Company or to stockholders who receive Class A Stock
Consideration or Business Group Stock Consideration. In those cases,
stockholders' tax bases and capital gain holding
75
<PAGE>
periods in Group Stocks will equal the tax bases and include the holding
periods they had in their Class A Common Stock and Class B Common Stock.
The Reclassification will be a taxable transaction to stockholders who
receive cash or Installment Notes, with the consequences described below.
Treatment of Redemption of Class A Common Stock and Class B Common
Stock for Cash-- Individual stockholders who exchange their Class A
Common Stock or Class B Common Stock for cash will realize capital gain
on the exchange equal to the excess of cash received over their tax basis
in their stock, taxable (to the extent not otherwise offset by capital
losses) at a capital gain rate of 20% in most cases, 28% if the
exchanging stockholder's holding period is more than 12 and not more than
18 months and at ordinary income rates if the stock has been held 12
months or less. The foregoing will apply to cash received in lieu of
fractional Installment Notes (i.e., in principal amounts of less than
$10,000 or not of integral multiples of $10,000) for stockholders who
receive Notes Consideration, as if the stockholders received fractional
Installment Notes and then had the fractional Installment Notes redeemed
by the Company.
Treatment of Redemption of Class A Common Stock for Installments
Notes-- Stockholders who exchange their Class A Common Stock, a security
that is not traded on any established securities market, for Installment
Notes will realize capital gain on the exchange but should qualify for
"installment sale" treatment described in Code Section 453. As such, any
gain recognized by the exchanging shareholder may be reported on the
installment method, i.e., the gain is reported when the payments on the
Installment Notes are received or the Installment Notes are otherwise
disposed of. In the case of redeeming stockholders who, on December 31,
1998, own installment obligations that arose from any source in 1998 and
have, in the aggregate, a face amount in excess of $5,000,000, "interest"
on the deferred tax liability attributable to the installment obligations
in excess of $5,000,000 will be imposed under Code Section 453A. If a
stockholder who receives an Installment Note elects out of "installment
sale" treatment, taxable gain will be recognized to the same extent as if
Class A Common Stock had been exchanged for cash in the amount of the
face value of the Installment Note (See Treatment of Redemption of Class
A Common Stock and Class B Common Stock for Cash, above). Tax basis in
Installment Notes is the same as the stockholder's basis in the Class A
Common Stock exchanged for the Installment Notes, increased by the amount
of any taxable gain recognized and reduced by the amount of cash or other
property received by the stockholder on the exchange.
If a stockholder receiving Installment Notes reports gain from the
exchange of Class A Common Stock on the installment method, any
disposition, transmission, sale or distribution (a "disposition") of the
Installment Notes (including by gift) will result in the recognition of
capital gain or loss to the extent of the difference between (1) the
stockholder's tax basis in the Installment Notes and (2)(i) the amount
realized, in the case of a disposition by sale or exchange, or (ii) the
fair market value of the Installment Notes at the time of disposition in
the case of disposition other than by sale or exchange.
Conversion of Installment Notes-- The Installment Notes will be
convertible after February 11, 1999 into Company 7.10% Guaranteed Notes
due 2006 (the "Guaranteed Notes") as described in "DESCRIPTION OF
INSTALLMENT NOTES." The exchange of Installment Notes for Guaranteed
Notes should constitute a taxable disposition of the Installment Notes,
resulting in capital gain or loss. In such a case, a holder's tax basis
in the Guaranteed Notes will equal the fair market value of the
Guaranteed Notes. For purposes of determining whether the Guaranteed
Notes have "original issue discount," the "issue price" of the Guaranteed
Notes will be determined pursuant to Code Section
76
<PAGE>
1273(b) (if the Guaranteed Notes are "traded on an established securities
market") or Code Section 1274 (if the Guaranteed Notes are not traded on
an established securities market).
Holders of the Class A Common Stock should consult their own tax
advisors as to the federal income tax consequences of electing to receive
Installment Notes and converting the Installment Notes into Guaranteed
Notes, as well as the federal income tax consequences of holding the
Guaranteed Notes, including the possible application of the original
issue discount and market discount rules.
Any conversion of Business Group Stock into Class B Composite Stock,
or Business Group Stock or Class B Composite Stock into Class A Composite
Stock, upon the Company's exercise of its right to do so should
constitute a tax-free exchange to the exchanging stockholder. An
exchanging stockholder's tax basis and holding period in the converted
Business Group Stock or Class B Composite Stock would be carried over to
the Class A Composite Stock or Class B Composite Stock received in the
tax-free exchange.
United States Alien Holders-- A holder who is a United States Alien
(as defined below) will not be subject to United States federal income or
withholding tax on any gain realized on the taxable sale or exchange of
any stock, unless (A) the gain is effectively connected with a United
States trade or business conducted by the United States Alien, (B) the
United States Alien is an individual who was present in the United States
for a period or periods of 183 days or more during the taxable year and
certain other conditions are met, or (C) the Company, at various times,
were to be classified as a "United States Real Property Holding
Corporation." The Company has determined that it is not and has not been
and does not believe that it will become a "United States Real Property
Holding Corporation" for federal income tax purposes.
A "United States Alien" is any person that, for United States
federal income tax purposes, is a foreign corporation, a nonresident
alien individual, a nonresident alien fiduciary or a foreign estate or
trust, or a foreign partnership that includes as a member any of the
foregoing persons.
Backup Withholding-- Payors of interest, dividends and certain other
reportable payments are generally required to withhold 31% of those
payments if the payee (i) fails to furnish the Company with its Taxpayer
Identification Number ("TIN"), which, for an individual, would be his or
her Social Security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that it has failed to properly report payments of
interest or dividends or (iv) under certain circumstances, fails to
certify under penalties of perjury that it has furnished a correct TIN
and has been notified by the IRS that it is subject to backup withholding
for failure to report payments of interest or dividends. This rule will
apply to the payments of Class A Cash Consideration and Class B Cash
Consideration. Stockholders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the
procedures for obtaining an exemption.
The amount of any backup withholding from a payment to a holder of
the Composite Stock or Business Group Stock will be allowed as a credit
against the stockholder's federal income tax liability and may entitle
the stockholder to a refund, provided the required information is
furnished to the IRS.
Tax Implications Were Business Group Stock to be Treated as
Property Other Than Company Stock-- In the opinion of tax counsel, both
the Composite Stock and the Business Group Stock will be Company common
stock and the tax implications of Share 100 will be as described above.
Were either the Composite Stock or Business Group Stock treated as
property other than Company stock, the Company could recognize a
significant taxable gain on the issuance of the stock in an amount equal
to the excess of the fair market value of the stock sold over its zero
tax basis in the hands of the
77
<PAGE>
Company. Furthermore, if any of the Business Group Stock were treated as
stock of a Company subsidiary, and not as Company common stock, depending
upon the amount of stock issued, the applicable Business Group would not
be includible in the Company's consolidated federal income tax return,
and any dividends paid or deemed to be paid to the Company by the
Composite Group or the applicable Business Group could be taxed to the
Company, subject to any applicable dividends received deduction. Were
either the Composite Stock or Business Group Stock treated as property
other than Company stock, stockholders could be considered to have
exchanged their Class A Common Stock or Class B Common Stock for
Composite Stock or Business Group Stock in taxable transactions. This
could cause the stockholders to realize taxable gain equal to the
difference between the fair market value of the Composite Stock or
Business Group Stock received in the taxable exchange and the tax bases
in the stockholders' hands of the Class A Common Stock or Class B Common
Stock exchanged. Although it is possible the IRS might assert that
Composite Stock or Business Group Stock is not Company stock, the
Company's tax counsel believes the IRS would not prevail in that
assertion.
78
<PAGE>
THE PLAN OF RECAPITALIZATION
The information contained in this Proxy Statement with respect to
the Plan of Recapitalization does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Plan
of Recapitalization, a copy of which is attached hereto as Annex III and
is incorporated herein by reference, and to the other agreements and
documents referred to herein which are attached as annexes to this Proxy
Statement. Stockholders are urged to read carefully the complete text of
each such document.
General
Share 100 provides for (i) the Reclassification described below in
"--The Reclassification," (ii) adoption of the Charter Amendments (other
than the Reclassification) described in "AMENDMENTS TO THE RESTATED
CERTIFICATE OF INCORPORATION," and (iii) the Stockholders' Agreement
Amendments and the Registration Rights Agreement termination described in
"CHANGES TO CERTAIN AGREEMENTS."
Share 100 is being presented to stockholders as four separate
proposals. Share 100 will not be implemented unless each of Proposals 1,
2, 3 and 4 are approved by stockholders.
It is expected that if Share 100 is not approved by the requisite
vote of the Company's stockholders (see "INTRODUCTION"), or if Share 100
is not consummated for any other reason, including the failure to satisfy
any of the conditions thereto (see "THE PLAN OF RECAPITALIZATION --
Conditions"), the Company's current management, under the direction of
the Board, will continue to manage and operate the Company as an ongoing
business substantially as presently managed and operated. No other
alternative is being considered at the present time. In addition, the
Stockholders' Agreement and the Registration Rights Agreement, in their
existing form, will continue in full force and effect.
Effective Time
Share 100 will become effective at the time the Amendment
Certificates are filed with the Secretary of State of the State of
Delaware (Effective Time). The filings of the Amendment Certificates and
the Restated Charter are currently anticipated to be made as promptly as
practicable after the Annual Meeting. Such filings will be made,
however, only upon satisfaction or, where permissible, waiver of all
conditions contained in the Plan of Recapitalization and provided that
the Plan of Recapitalization has not been terminated. See "THE PLAN OF
RECAPITALIZATION -- Conditions" and "-- Termination; Amendment."
The Reclassification
The following is a description of the Reclassification as it relates
to the Class A Common Stock and Class B Common Stock.
Class A Common Stock. Pursuant to Share 100, each share of Class A
Common Stock outstanding immediately prior to the Effective Time will be
reclassified as, and changed into, one share of Redeemable Transitory
Participating Preferred Stock, par value $1.00 per share (the "Redeemable
Transitory Participating Preferred Stock"), which will be redeemed
immediately after the Effective Time for: (a) the Class A Cash
Consideration (consisting of $347.50 in cash), unless the holder, subject
to certain conditions, elects (a Class A Election) to accept the offer of
the
79
<PAGE>
Company to receive, in lieu of the Class A Cash Consideration, any one of
the following alternatives; (b) one share of Class A Composite Stock
(Class A Stock Consideration), but only if the holder is a Former Manager
or a Company Benefit Plan; or (c) $347.50 principal amount of Installment
Notes (Notes Consideration), subject to the Class A Suitability
Requirements, described in "--Procedure for Holders of Shares--Certain
Suitability Requirements" and the treatment of fractional amounts
described in "--Procedure for Holders of Shares --Treatment of Fractional
Shares." The Class A Stock Consideration will be available only to the
Company's benefit plans which hold Class A Common Stock ("Benefit Plans")
and to individuals who at one time owned (or their Permitted Transferees
owned) Class B Common Stock which was converted into Class A Common Stock
pursuant to the terms of the Certificate of Incorporation upon the
termination of employment with the Company, and their Permitted
Transferees (collectively, "Former Managers"). A Former Manager shall
not be entitled to elect the Class A Stock Consideration with respect to
any shares of Class A Common Stock that were not so converted from Class
B Common Stock, and such unconverted shares shall be eligible to be
exchanged in Share 100 only for cash and/or Installment Notes.
Any holder of Class A Common Stock (other than a Former Manager) who
fails to make a proper and timely Class A Election as to any of his
shares of Class A Common Stock will be entitled to receive only the Class
A Cash Consideration with respect to such shares. Any holder of Class A
Common Stock who is not a Former Manager and who fails to meet to the
Company's satisfaction a Suitability Requirement will be entitled to
receive in Share 100 only the Class A Cash Consideration with respect to
his shares of Class A Common Stock. Holders of Class A Common Stock who
do not desire the tax deferral designed to be provided by the Installment
Notes should not make a Class A Election to receive consideration which
in whole or in part consists of Installment Notes. See "SHARE 100 --
Certain U.S. Federal Income Tax Considerations" and "DESCRIPTION OF
INSTALLMENT NOTES."
Class B Common Stock. Pursuant to Share 100, at the Effective Time
each share of Class B Common Stock will be amended and made subject to
the Class B Redemption Feature. Each share of Class B Common Stock
outstanding immediately prior to the Effective Time will be redeemed
immediately after the Effective Time for (i) the Group Stock
Consideration for Continuing Holders unless the Continuing Holder elects
(a Class B Election) to receive, in lieu of the Group Stock
Consideration, the Class B Cash Consideration (consisting of $29.55 per
share in cash) or (ii) the Class B Cash Consideration for holders who are
Magazine and Book Employees.
Any Continuing Holder of Class B Common Stock who fails to make a
proper and timely Class B Election for the Class B Cash Consideration
will be entitled to receive only the Group Stock Consideration with
respect to such shares. The Class B Common Stock will be redeemed from
the holders thereof based upon the employment status, as determined by
the Board, of the holder with a Group as follows: (i) Education Group
Employees will receive 50% Education Group Stock and 50% Class B
Composite Stock; (ii) Food and Support Group Employees will receive 50%
Food and Support Group Stock and 50% Class B Composite Stock; (iii)
Uniform Group Employees will receive 50% Uniform Group Stock and 50%
Class B Composite Stock; and (iv) Corporate Employees will receive 100%
Class B Composite Stock. Continuing Holders of Class B Common Stock will
be entitled to elect, in lieu of the Group Stock Consideration, the Class
B Cash Consideration (consisting of $29.55 in cash) in exchange for their
Class B Common Stock, provided that it shall be a condition to Share 100
that holders of no more than $25 million of the Class B Common Stock
elect the Class B Cash Consideration. For purposes of the election by
holders of Class B Common Stock, each Management Investor and all of his
or her Permitted Transferees (as identified on the books of the Company)
must make the same election for all of their shares, and if not, will be
deemed to have
80
<PAGE>
made the same election for all of their shares as the election made by
the holders of a majority of the Class B Common Stock owned by those
persons.
Procedure for Holders of Shares
Class A Common Stock.
Class A Cash Consideration: Holders of Class A Common Stock
--------------------------
who desire only to receive the Class A Cash Consideration in respect of
all of their shares of Class A Common Stock should not make a Class A
Election but should complete and return a Green Form of Election and
concurrently deliver the Certificates representing their shares of Class
A Common Stock.
Notes Consideration: Holders of Class A Common Stock who
-------------------
desire, and are eligible, to elect to receive the Notes Consideration in
respect of any of their shares of Class A Common Stock must make a proper
and timely Class A Election for such consideration on the enclosed Green
Form of Election and should concurrently deliver the Certificates
representing their shares of Class A Common Stock.
Class A Stock Consideration: Holders of Class A Common Stock
---------------------------
who desire, and are eligible, to elect to receive the Class A Stock
Consideration in respect of any of their shares of Class A Common Stock
must make a Class A Election for such consideration on the enclosed Green
Form of Election, but need not concurrently deliver their share
certificates representing such Class A Common Stock to the Exchange
Agent. Holders of Class A Common Stock electing the Class A Stock
Consideration should deliver the Certificates representing Class A Common
Stock pursuant to instructions to be contained in an ownership statement
delivered by the Company promptly after the Effective Time.
Class B Common Stock.
Group Stock Consideration: Continuing Holders of Class B
-------------------------
Common Stock who desire to receive the Group Stock Consideration in
respect of all of their shares of Class B Common Stock should not make a
Class B Election and need not complete or return a Blue Form of Election.
Such holders should deliver the Certificates representing Class B Common
Stock pursuant to instructions to be contained in an ownership statement
delivered by the Company promptly after the Effective Time.
Class B Cash Consideration: Continuing Holders of Class B
--------------------------
Common Stock who desire to elect to receive the Class B Cash
Consideration in respect of all of their Class B Shares must make a
proper and timely Class B Election for such consideration on the enclosed
Blue Form of Election in accordance with the procedures described below
and should concurrently deliver the certificates representing their
shares of Class B Common Stock. Magazine and Book Employees should not
make a Class B Election but should complete and return a Blue Form of
Election and concurrently deliver their Certificates representing the
Class B Common Stock.
Form of Election. To make an effective Election, a holder of Class
A Common Stock or a Continuing Holder of Class B Common Stock must
complete and sign a Green or Blue, as applicable, Form of Election and
return it to the Special Exchange Agent Group, consisting of three
members of management of the Company and formed for the specific purpose
of acting, and authorized by the Board to act, as the Exchange Agent, at
ARAMARK Corporation, The ARAMARK Tower, 1101 Market Street, Philadelphia,
Pennsylvania 19107, Attention: Exchange Agent, prior to 10:00 A.M.,
81
<PAGE>
Philadelphia time, on the day of the Annual Meeting or, if the Annual
Meeting is postponed or adjourned without approval and adoption of Share
100, on the day on which Share 100 is approved and adopted by the
Company's stockholders (the Election Date). The Company will not
distribute the Class A Cash Consideration, the Notes Consideration or the
Class B Cash Consideration until it receives the applicable Certificates,
and accordingly, requests that such Certificates be delivered with the
Form of Election in respect of such Elections. Holders who elect the
Class A Stock Consideration or the Group Stock Consideration are
requested to hold their Certificates until they receive an ownership
statement or certificate profile report after the Effective Date, and
then deliver their Certificates to the Company in accordance with such
share ownership statement or certificate profile report.
A Green or Blue, as applicable, Form of Election is being sent to
all holders of record of Class A Common Stock and Class B Common Stock as
of the Record Date together with this Proxy Statement. Additional Forms
of Election may be obtained from the Exchange Agent at ARAMARK
Corporation, The ARAMARK Tower, 1101 Market Street, Philadelphia,
Pennsylvania 19107, Attention: Exchange Agent. Detailed instructions
indicating the procedure to be followed in order properly to complete a
Form of Election are set forth in the Form of Election. Such instruction
should be read and followed carefully in order to ensure that a holder's
desired Election is properly made and effected.
A holder of Class A Common Stock or a Continuing Holder of Class B
Common Stock may revoke or modify his Election by written notice received
by the Exchange Agent no later than 10:00 A.M., Philadelphia time, on the
Election Date, accompanied by a new Form of Election, properly completed
and signed.
The Company has the discretion, which it may delegate to the
Exchange Agent, to determine whether Forms of Election have been properly
completed, signed and submitted, or properly revoked or modified, and to
disregard immaterial defects in Forms of Election. The decision of the
Company (or of the Exchange Agent in the event discretion is delegated)
will be conclusive and binding. Neither the Company nor the Exchange
Agent will be required to notify any person of any defect in a Form of
Election. The Company may waive any procedural defect in a Form of
Election and may seek clarification from any stockholder with respect to
any Election or Elections intended to be made by such stockholder. For
purposes of the Election by Continuing Holders of Class B Common Stock,
each Management Investor and all of his or her Permitted Transferees (as
identified on the books of the Company) must make the same election for
all of their shares, and if not, will be deemed to have made the same
election as the election made by the holders of a majority of the Class B
Common Stock owned by such persons.
Holders of Class A Common Stock or Class B Common Stock who plan to
vote their shares against Share 100 should nonetheless make proper and
timely Elections on the enclosed Green or Blue, as applicable, Form of
Election to ensure that they will receive the desired form or forms of
consideration in the event Share 100 is ultimately approved and becomes
effective.
The Form of Election will serve as a letter of transmittal for use
in surrendering share certificates and specifies that delivery will be
effected, and risk of loss will pass, only upon proper delivery of
certificates representing the Class A Common Stock and Class B Common
Stock to the Exchange Agent. The method of delivery is at the option and
risk of the stockholder, but if by mail, registered mail, return receipt
requested, is suggested. A special envelope has been provided for the
purpose of sending a Form of Election to the Exchange Agent.
82
<PAGE>
In the event Share 100 is not consummated for any reason, the
certificates representing the shares of Class A Common Stock and Class B
Common Stock (the "Certificates") tendered for redemption in Share 100
will be promptly returned to the person who submitted them.
Payment.
Class A Cash Consideration: As promptly as practicable after
--------------------------
the Effective Time, the Exchange Agent will mail to each record holder of
Class A Common Stock who has (i) properly completed and signed and
submitted a Green Form of Election and (ii) surrendered the Certificate,
the Class A Cash Consideration for each such Certificate surrendered.
All consideration to be paid in cash will be paid by check, without
interest. In no case will cash be paid until the shares of Class A
Common Stock have been properly surrendered to the Exchange Agent.
Notes Consideration: As promptly as practicable after the
-------------------
Effective Time, the Exchange Agent will mail to each record holder of
Class A Common Stock who has (i) properly completed and signed and timely
submitted a Green Form of Election and (ii) surrendered the Certificate,
the Notes Consideration, in accordance with such holder's Election or
Elections, for each such Certificate surrendered. In no case will
Installment Notes be issued until the shares of Class A Common Stock have
been properly surrendered to the Exchange Agent.
Class A Stock Consideration: As soon as practicable after the
---------------------------
Effective Time, the Exchange Agent will mail a certificate profile report
and a transmittal form to each record holder who elected the Class A
Stock Consideration advising such holder of the procedure for
surrendering to the Exchange Agent the Certificates representing the
Class A Common Stock in exchange for the Class A Stock Consideration.
Each such holder of Class A Common Stock, upon surrender of same to the
Exchange Agent, will be entitled to receive the Class A Stock
Consideration in respect of each share of Class A Common Stock previously
surrendered.
Group Stock Consideration: As soon as practicable after the
-------------------------
Effective Time, the Exchange Agent will mail an ownership statement or a
certificate profile report and a transmittal form to each record holder
advising such holder of the procedure for surrendering to the Exchange
Agent the Certificates representing the Class B Common Stock in exchange
for Group Stock Consideration. Each such holder of Class B Common Stock,
upon surrender of the Certificates therefor to the Exchange Agent, will
be entitled to receive the Group Stock Consideration in respect of each
such Certificate surrendered.
Class B Cash Consideration: As promptly as practicable after
--------------------------
the Effective Time, (a) the Exchange Agent will mail to each Continuing
Holder of Class B Common Stock who has (i) properly completed and signed
and timely submitted a Blue Form of Election for Class B Cash
Consideration and (ii) surrendered the Certificates, the Class B Cash
Consideration for each such Certificate surrendered; and (b) the Exchange
Agent will mail to each Magazine and Book Employee who has (i) properly
completed and signed and submitted a Blue Form of Election for Class B
Cash Consideration and (ii) surrendered the Certificates, the Class B
Cash Consideration for each such Certificate surrendered. All
consideration to be paid in cash will be paid by check, without interest.
In no case will cash be paid until the shares of Class B Common Stock
have been properly surrendered to the Exchange Agent.
Uncertificated Shares. The Company will not issue share
certificates with respect to the Group Stock. Instead, the Company will
issue such shares in uncertificated form. Each management stockholder
will receive shortly after completion of Share 100, an initial ownership
statement
83
<PAGE>
indicating the Group Stocks held in such holder's and his or her
Permitted Transferee's names as a group, and will receive an updated
ownership statement periodically thereafter. Stockholders will also
receive an initial statement of registered shares that will separately
identify their blocks of Business Group Stock and Class B Composite Stock
which correspond to the separate stock certificates they currently own.
Stockholders will also receive additional statements of registered shares
after any future stock transactions as confirmation. Stockholders may
nevertheless obtain new certificates by following the procedure which
will be set forth on the statement of registered shares. Lenders may
require that the stockholder deliver certificates to the lender for any
shares pledged to secure a loan, in order to effectively perfect the
lender's security interest.
Treatment of Fractional Shares. The Restated Charter provides that
shares of Composite Stock and Business Group Stock are issuable only in
the form of whole shares. Accordingly, no fractional shares (whether in
certificate, scrip or other form) of Group Stock will be issued. With
respect to the Class A Stock Consideration, no fractional shares will be
issued because such holders electing the Class A Stock Consideration will
receive one share of Class A Composite Stock for each share of Redeemable
Transitory Participating Preferred Stock. With respect to Group Stock
Consideration, no fractional shares will be issued because the redemption
will be effected on a share-for-share basis.
A holder of Class A Common Stock who makes an effective Class A
Election to receive consideration consisting in whole or in part of
Installment Notes will not be entitled to receive Installment Notes in
stated face amounts of less than $10,000, or in stated face amounts in
excess of $10,000 (or an integral multiple of $10,000) but less than the
next highest integral multiple of $10,000 ("Fractional Amounts").
Instead, such holder will be entitled to receive promptly from the
Exchange Agent a cash payment in lieu of any such Fractional Amounts
equal to such Fractional Amount. Interest will be paid on the
Installment Notes only to the extent the Installment Notes by their terms
involve the accrual or payment of interest.
Certain Suitability Requirements. In order to ensure compliance
with federal and certain state securities laws which may be applicable to
Share 100, the opportunity for any holder of Class A Common Stock to make
a Class A Election to accept the offer of the Company to receive the
Notes Consideration in the Reclassification is being offered only to any
holder of Class A Common Stock who demonstrates to the Company's
satisfaction, by an affirmative representation on the Form of Election,
that such holder is one of the following (each a "Suitability
Requirement"):
(a) a bank, savings and loan association, trust company,
insurance company, investment company registered under the
Investment Company Act of 1940, pension or profit-sharing trust
(other than a pension or profit-sharing trust of the Company, a
self-employed individual retirement plan or individual retirement
account), an organization described in Code Section 501(c)(3), which
has total assets of not less than $5,000,000 according to its most
recent audited financial statements, a corporation having a net
worth on a consolidated basis, according to its most recent audited
financial statements, of not less than $14,000,000 or any wholly
owned subsidiary thereof;
(b) a director or executive officer of the Company;
(c) a person who makes a valid Class A Election to receive
Installment Notes in the Reclassification with an aggregate value of
$150,000 or more provided such person is able to bear the economic
risk of the investment, the investment does not exceed 10% of such
person's net worth (or joint net worth with a spouse), or such
person (or with such person's
84
<PAGE>
professional advisor who is unaffiliated with and not compensated by
the Company or any affiliate thereof) has the capacity to protect
its own interests in connection with the transaction;
(d) an individual who elects to receive Installment Notes in
the Reclassification whose net worth (or joint net worth with a
spouse) exceeds $1,000,000, provided such person is able to bear the
economic risk of the investment, the investment does not exceed 10%
of such person's net worth (or joint net worth with a spouse), or
such person (or with such person's professional advisor who is
unaffiliated with and not compensated by the Company or any
affiliate thereof) has the capacity to protect its own interests in
connection with the transaction;
(e) an individual who elects to receive Installment Notes in
the Reclassification whose income (or whose joint income with a
spouse) exceeded $200,000 in each of the two most recent years and
who reasonably expects an income in excess of $200,000 in the
current year, provided such person is able to bear the economic risk
of the investment, the investment does not exceed 10% of such
person's net worth (or joint net worth with a spouse), or such
person (or with such person's professional advisor who is
unaffiliated with and not compensated by the Company or any
affiliate thereof) has the capacity to protect its own interests in
connection with the transaction;
(f) a person who has preexisting personal or business contacts
with the Company or any officer, director or controlling person
thereof of a nature and duration such as would enable a reasonably
prudent person to be aware of the character, business acumen and
general business and financial circumstances of the person with whom
the relationship exists;
(g) a person who, by reason of its business or financial
experience or the business or financial experience of its
professional advisor (who is unaffiliated with and is not
compensated by the Company or any affiliate of the Company), could
be reasonably assumed to have the capacity to protect its own
interests in the transaction;
(h) any relative, spouse or relative of the spouse of an
individual who meets any one of the requirements of clauses (b)-(g)
above and who makes a valid Class A Election to receive Installment
Notes in the Reclassification (an "Individual") who has the same
principal residence as such Individual (a "Related Person"), any
trust or estate in which an Individual and any Related Person
collectively own more than 50% of the beneficial interest, any
corporation or other organization of which an Individual and any
Related Person collectively are beneficial owners of more than 50%
(excluding directors' qualifying shares) of the equity securities
("relative" means a person related by blood, marriage or adoption);
or
(i) any entity in which all the equity owners are persons
specified in (a), (b), (d) or (e) above;
provided, however, that persons who are suitable purchasers only as a
result of clause (f) or (g) above shall not total more than 35 persons
and in the event that more than 35 persons rely on clause (f) or (g), the
Company shall determine which 35 persons shall be permitted so to rely.
The Form of Election will contain a section requiring that each holder of
Class A Common Stock who desires to make a Class A Election for Notes
Consideration affirmatively represent that such holder comes within one
of the categories of persons described in clauses (a) through (i) above
and that such holder is acquiring the Installment Notes for investment
and not with a view to distribution. The Company
85
<PAGE>
may request such additional documentation or evidence with respect to such
representation as it deems appropriate, including a representation regarding
investment intent. The good faith determination by the Company that a holder of
Class A Common Stock does not meet the Suitability Requirements shall be
conclusive as to such holder.
Cash-Out of Former Managers
The Company has determined that it will exercise its right, under
the Stockholders' Agreement, to call (the "Call Option") Class A Common Stock
owned by any Former Manager who attempts to sell his or her shares by failing to
make a Class A Election or by making a Class A Election for any form of
consideration other than the Class A Stock Consideration (a "Noncontinuing
Former Management Holder"). Pursuant to the Stockholders' Agreement, the Company
has a Call Option on any or all of the Common Stock owned by any former employee
of the Company (or by his or her Permitted Transferees) exercisable at any time
for a period of up to 10 years after the termination of employment of such
person. Pursuant to the Stockholders' Agreement, all Noncontinuing Former
Management Holders will receive $29.55 per Class B equivalent share upon
exercise by the Company of its Call Option. Accordingly, Noncontinuing Former
Management Holders will receive less than the Class A Cash Consideration for
their shares of Class A Common Stock.
Treatment of Certain Selling Management Holders
The Board has determined that the Company will pay additional
consideration to any holder of Class B Common Stock who sold or sells any such
shares to the Company in the internal market, or who constructively sold or
sells such shares in the course of exercising any options or purchase
opportunities with respect thereto using the stock-for-stock method of exercise,
after September 1, 1997 and prior to the Effective Time (a "Selling Holder").
Accordingly, as soon as practicable after the Effective Time, the Company will
pay to each Selling Holder with respect to each such sale an amount equal to the
product of (a) the difference between (1) the Class B Cash Consideration and (2)
the Appraisal Price in effect at the time of such actual or constructive sale
and (b) the number of shares actually or constructively sold with respect to
each such transaction.
The Company believes that it is important for the success of the
ARAMARK Ownership Program, in general, and Share 100, in particular, that
management employees perceive that all management owners are treated fairly. The
Company believes that these payments, although not required under the
Stockholders' Agreement or otherwise, will further this objective of perceived
fairness.
The cash payment to a Selling Holder will be treated as an
"adjustment of purchase price" of the shares of Class B Common Stock sold to the
Company or deemed sold to the Company upon exercise of stock options or purchase
opportunities using the stock-for-stock method. As such, the payment will be
treated as additional sales proceeds received by a Selling Holder and will
generally be taxable as 1998 capital gain. If the Selling Holder held the stock
sold or deemed sold for 12 months or less, the gain will be taxed at ordinary
income tax rates; if the Selling Holder held the stock more than 12 months but
not more than 18 months, the gain will be taxed at no more than 28%; and, if the
Selling Holder held the stock more than 18 months, the gain will be taxed at no
more than 20%. The Selling Holder's tax basis in the new shares received as a
result of stock-for-stock exercise will be adjusted downward to reflect the cash
payment and the amount by which basis in the new stock is reduced will
constitute basis deemed sold in exchange for cash. The Company
86
<PAGE>
will report the payments to U.S. taxing authorities as 1998 gross proceeds from
transactions required to be reported by a broker on Form 1099-B. Tax withholding
on such payments is not required.
Treatment of Magazine and Book Employees
Magazine and Book Employees will be entitled to receive only the
Class B Cash Consideration in Share 100. The Board concluded that, due to the
current operating challenges facing the Magazine and Book Business and its
recent operating performance, a separate Business Group Stock reflecting the
performance of the Magazine and Book Business would not be appropriate. The
Board determined that long-term equity incentives would not appropriately align
the interests of the Magazine and Book Business employees with current business
objectives. Instead, the Company intends to provide other incentive plans that
will more appropriately align employee interests with the current business
objectives of the Magazine and Book Business.
Certain Contingent Payments
Any holder of Class A Common Stock who receives the Class A Cash
Consideration or the Notes Consideration will also be entitled to a contingent
cash payment (a "Contingent Payment") if, within two years (or two years and
three months in the case of clause (iv) below) from the Effective Time, one of
the following events shall occur: (i) the Company consummates a stock sale,
merger, consolidation or business combination in which the holders of Composite
Stock receive consideration for their shares and in which the holders of the
Company's common stock before the transaction do not hold at least a majority of
the common stock after the transaction ("Merger"); (ii) the Company consummates
a sale of all or substantially all of its assets in which the holders of
Composite Stock receive consideration for their shares ("Sale"); provided that
any one Business Group shall not be deemed to be substantially all of its
assets; (iii) the Company consummates an underwritten public offering of more
than 15% of its Composite Stock ("Public Offering"); (iv) the Company
repurchases 1/3rd or more of its outstanding Composite Stock within any three-
month period for consideration other than its common stock, provided that such
three-month period shall have commenced within the two years after the Effective
Time ("Extraordinary Redemption"); and (v) the Company pays an extraordinary
dividend to holders of its Composite Stock in excess of $34.75 per share
("Extraordinary Dividend"). The right to receive a Contingent Payment, if any,
may be evidenced by a certificate issued by the Company and delivered
simultaneously with the Class A Cash Consideration or Notes Consideration. A
"Merger" shall not include a stock sale, merger, consolidation or business
combination involving any Business Group. A "Public Offering" shall not include
any public offering, secondary offering or other distribution of any Business
Group Stock. All computations are to be done on a Class B Composite Stock
equivalent basis.
Upon consummation of a Merger or Sale, each such former holder of
Class A Common Stock will be entitled to receive for each share of Class A
Common Stock for which Class A Cash Consideration or Notes Consideration was
received in Share 100, the amount, if any, by which the fair market value of the
per share consideration received by the holders of Class B Composite Stock
exceeds the sum of $34.75 per share plus an amount equal to simple interest at
5% annually computed on $34.75 per share from the Effective Date to the relevant
date. Upon consummation of a Public Offering, each such former holder of Class A
Common Stock will be entitled to receive for each share of Class A Common Stock
for which Class A Cash Consideration or Notes Consideration was received in
Share 100, the amount, if any, by which the average of the closing prices of the
Class B Composite Stock issued in the Public Offering during the period
commencing 91 days, and ending 120 days, after the consummation of the Public
Offering exceeds the sum of $34.75 per share plus an amount equal to simple
interest at 5% annually computed on $34.75 per share from the
87
<PAGE>
Effective Date to the relevant date. Upon the occurrence of an Extraordinary
Redemption, each such former holder of Class A Common Stock will be entitled to
receive for each share of Class A Common Stock for which Class A Cash
Consideration or Notes Consideration was received in Share 100, the amount, if
any, equal to the product of (a) the average purchase price of Class B Composite
Stock repurchased by the Company in the Extraordinary Redemption, less the sum
of $34.75 per share plus an amount equal to simple interest at 5% annually
computed on $34.75 per share from the Effective Date to the relevant date and
(b) a factor equal to (i) the number of shares of Class B Composite Stock
repurchased by the Company in the Extraordinary Redemption (the "Repurchased
Shares") divided by (ii) the sum of (x) the larger of the number of Repurchased
Shares or the number of shares of Class B Composite Stock tendered to the
Company in connection with the Extraordinary Redemption plus (y) the number of
shares of Class A Common Stock that were redeemed by the Company in Share 100
for Class A Cash Consideration or Notes Consideration. Upon the occurrence of an
Extraordinary Dividend, each such former holder of Class A Common Stock will be
entitled to receive for each share of Class A Common Stock for which Class A
Cash Consideration or Notes Consideration was received in Share 100, the amount,
if any, equal to the total amount per share distributed by the Company in the
Extraordinary Dividend, less the sum of $34.75 per share plus an amount equal to
simple interest at 5% annually computed on $34.75 per share from the Effective
Date to the relevant date.
Treatment of Outstanding Options
The Company's 1984 Stock Option Plan, Combined Stock Ownership Plan
and the 1996 Director Plan (individually, a "Stock Option Plan," and
collectively, the "Stock Option Plans") each provide that, in the event of a
change in capital structure of the Company as a result of a recapitalization or
reclassification, the number of shares for which options may be granted, the
number of shares subject to outstanding options and the option price therefor
shall be appropriately adjusted. The Stock Option Plans will be amended to
reflect the matters described herein.
General. Share 100 provides that, at the Effective Time, each share
of Class B Common Stock will be redeemed for the Class B Cash Consideration or
the Group Stock Consideration. The exercise price per share for outstanding
options will remain unchanged; and the aggregate number of shares for which
options may be granted under each Stock Option Plan will similarly remain
unchanged. Each outstanding option which prior to the Effective Time is
exercisable in all respects for one share of Class B Common Stock will, after
the Effective Time, be changed into an option exercisable as described below.
Employees Receiving Group Stock in Share 100. All outstanding stock
options exercisable for Class B Common Stock owned by employees who will receive
Group Stock Consideration in Share 100 will be changed into options exercisable
for the same type of, and in the same proportion as the, Group Stock into which
their Class B Common Stock is exchanged in Share 100.
Employees Who Elect Cash in Share 100. Currently exercisable
(vested) options owned by employees who elect the Class B Cash Consideration
will be changed into an amount in cash equal to $29.55 per share (the Class B
Cash Consideration) less the exercise price of such options. The Company will
pay the foregoing amounts (which will be taxable as ordinary compensation and so
will be reduced for required tax withholding) to such holders at the time it
makes payment to holders of Class B Common Stock receiving the Class B Cash
Consideration in Share 100.
Currently unexercisable (unvested) options owned by the foregoing
employees will be changed into: (i) options exercisable for the same type of,
and in the same proportion as the, Group Stock
88
<PAGE>
into which their Class B Common Stock could have been exchanged in Share 100 had
they elected the Group Stock Consideration or, (ii) at the election of the
holder of such options, the right to receive $29.55 per share (the Class B Cash
Consideration) less the exercise price of such options. The Company will pay the
foregoing cash amounts (which will be taxable as ordinary compensation and so
will be reduced for required tax withholding) to such holders, without interest,
on the day that the unvested option would have become exercisable. No cash
payment will be due if the unvested option would not have become exercisable
because the holder is not still an employee of the Company or for any other
reason. To make an effective election regarding such unvested options, a holder
must complete and sign the Blue Form of Election and return it to the Exchange
Agent prior to 10:00 a.m., Philadelphia time, on the Election Date.
Employees Who Are Not Holders. Options (whether vested or unvested)
owned by employees of the Company who are not, and do not have Permitted
Transferees who are, holders of Class B Common Stock (e.g., holders of ISPOs or
EXPOs who do not also hold shares of Class B Common Stock) will be changed into:
(i) options exercisable for the same type of, and in the same proportion as the,
Group Stock which they are eligible to own pursuant to the terms of the Group
Stock or, (ii) at the election of the holder of such options, the right to
receive $29.55 per share (the Class B Cash Consideration) less the exercise
price of such options. With respect to vested options, the Company will pay the
foregoing cash amounts (which will be taxable as ordinary compensation and so
will be reduced for required tax withholding) to such holders at the time it
makes payment to holders of Class B Common Stock receiving the Class B Cash
Consideration in Share 100. With respect to unvested options, the Company will
pay the foregoing cash amount (which will be taxable as ordinary compensation
and so will be reduced for required tax withholding), without interest, on the
day that the unvested option would have become exercisable. No cash payment will
be due if the unvested option would not have become exercisable because the
holder is not still an employee of the Company or for any other reason. To make
an effective election regarding such options, a holder must complete and sign
the Blue Form of Election and return it to the Exchange Agent prior to 10:00
a.m., Philadelphia time, on the Election Date.
Magazine and Book Employees. Currently exercisable (vested) options
owned by Magazine and Book Employees will be changed into an amount in cash
equal to $29.55 per share (the Class B Cash Consideration) less the exercise
price of such options. The Company will pay the foregoing cash amounts (which
will be taxable as ordinary compensation and so will be reduced for required tax
withholding) to such holders at the time it makes payment to holders of Class B
Common Stock receiving the Class B Cash Consideration in Share 100.
Magazine and Book EXPO Holders. EXPOs (whether vested or unvested)
owned by employees of the Magazine and Book Business will be changed into the
right to receive $29.55 per share (the Class B Cash Consideration) less the
exercise price of such EXPOs. The Company will pay the foregoing cash amounts
(which will be taxable as ordinary compensation and so will be reduced for
required tax withholding) to such holders at the time it makes payment to
holders of Class B Common Stock receiving the Class B Cash Consideration in
Share 100.
For more information concerning each of the Stock Option Plans, and
the options outstanding as of the end of fiscal year 1997, see "ELECTION OF
DIRECTORS -- The ARAMARK Ownership Program."
89
<PAGE>
Treatment of Employee Benefit Plans
Retirement and Profit Sharing Plans. The Company and its
subsidiaries maintain the Benefit Plans for their respective employees. A
principal purpose of the Benefit Plans is to provide eligible employees with an
equity interest in the Company. Accordingly, each Benefit Plan contains specific
provisions directing that employer contributions be made primarily in Company
stock. As of October 3, 1997, the Benefit Plans held in the aggregate
approximately 922,424 shares of Class A Common Stock which were allocated to the
accounts of more than 10,000 employees.
In connection with Share 100, the trustees have preliminarily
indicated that they intend to vote this Class A Common Stock held under the
Benefit Plans in favor of Share 100 and to elect to receive, for all of the
Class A Common Stock held under the Benefit Plans, approximately 30% in cash and
70% in Class A Composite Stock. The $81 million of cash proceeds would be
diversified and invested in other funds of the retirement and profit sharing
plans. The provisions requiring that employer contributions be made primarily in
Company stock remain in effect except for the Magazine and Book Retirement Plan.
Accordingly, the Company anticipates that additional Class A Composite Stock
will be contributed to such Benefit Plans to provide benefits to eligible
employees for the current and future years.
On January 6, 1998, the Board voted to amend the Magazine and Book
Retirement Plan. The Magazine and Book Retirement Plan was amended so that the
plan will no longer provide for investment in employer stock. The trustees, as
fiduciaries for the plan, have preliminarily indicated, subject to further
review and advice of their independent legal counsel and financial advisors,
that they will elect on behalf of the plan to exchange all of the plan's
existing shares of Class A Common Stock for cash. The $52 million of cash
proceeds would be diversified and invested in other funds.
The Benefit Plans provide that the trustees for the Benefit Plans
vote Company stock held by them. The trustees have preliminarily indicated that
they are inclined to vote the Class A Common Stock held thereunder in favor of
Share 100. See "SHARE 100--Appraisals of Common Stock" and "--Interests of
Certain Persons in Share 100."
Stock Unit Retirement Plan. Deferred Common Stock Units ("DSUs") in
each participant's account for Class B Common Stock will be converted into DSUs
for Class B Composite Stock. Future employer contributions will be made in DSUs
for Class B Composite Stock.
Conditions
The obligation of the Company to consummate Share 100 is subject to:
(i) the approval and adoption of Share 100 by the requisite vote and consent of
the stockholders of the Company, (ii) receipt of the proceeds of the Financing
(as defined in "FINANCING OF SHARE 100"), (iii) the absence of any action,
proceeding or investigation instituted or threatened prior to the Effective Time
before any court or administrative body seeking to restrain, enjoin or otherwise
prevent the consummation of Share 100 or to obtain damages or any other relief
as a result of Share 100 and the absence of any restraining order or other
injunction in effect prohibiting consummation of Share 100, (iv) receipt of all
material licenses, permits, consents, approvals, authorizations, qualifications
and orders of governmental authorities and parties to contracts with the Company
and its subsidiaries as may be necessary for consummation of Share 100, (v) the
satisfactory performance of all actions and proceedings and provision of all
instruments and documents required to carry out the transactions contemplated by
the Plan of Recapitalization, (vi) all terms and conditions of the Plan of
Recapitalization required to be complied with are satisfied or waived, (vii)
receipt by the Board of
90
<PAGE>
satisfactory appraisals or similar reports supporting the conclusions that (a)
sufficient surplus is available to permit consummation of the transactions
contemplated by the Plan of Recapitalization under the DGCL and (b) the fair
value of the Company's total assets will exceed the fair value of its total
liabilities immediately after the Effective Time, (viii) receipt by the Board
of satisfactory opinions of counsel and (ix) election of the Class B Cash
Consideration by Continuing Holders of no more than $25 million of the Class B
Common Stock. Condition (ix) may be waived by the Board only if at least 500
record holders would own Class B Composite Stock immediately after the
Effective Time. To the extent permitted by applicable law, conditions (i)
through (viii) may be waived by the Board. See "FINANCING OF SHARE 100" for
certain conditions to the receipt of the Financing.
Termination; Amendment
The Plan of Recapitalization may be terminated and Share 100
abandoned by the Board at any time prior to the Effective Time, notwithstanding
approval thereof by the stockholders of the Company.
At any time prior to the Effective Time, the Board may modify or
amend any term of the Plan of Recapitalization as set forth herein, add any new
term or waive any condition thereof, provided that no such modification,
amendment, addition or waiver which requires stockholder or any other approval
under the DGCL or any other applicable law, or under the Certificate of
Incorporation or the Stockholders' Agreement or Registration Rights Agreement,
will occur following the Annual Meeting unless such approval is obtained. The
good faith determination of the Board that an amendment, modification or
supplement to the Plan of Recapitalization complies with the immediately
preceding sentence shall be conclusive as to all stockholders. In the event of a
material modification to the Plan of Recapitalization, a supplement to this
Proxy Statement will be distributed to stockholders and, if necessary,
stockholders' proxies will be resolicited.
91
<PAGE>
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION
The following discussion of the Charter Amendments does not purport
to be complete and is qualified in its entirety by reference to the complete
text of the Restated Charter, a copy of which is attached to this Proxy
Statement as Annex V and is incorporated herein by reference. Stockholders are
urged to read carefully the complete text of the Restated Charter.
General
Pursuant to Share 100, the Amendment Certificates will be filed:
(i) to provide for the Reclassification and certain related matters; (ii) to
increase the number of shares of Common Stock authorized for issuance from
175,000,000 to 200,000,000 (Increased Capital Amendment); (iii) to provide that
upon the consummation of any future underwritten public offering of the
Company's common stock (the "Public Offering Date"), stockholder action shall be
taken only at an annual meeting of stockholders or at a special meeting of
stockholders and stockholder action by written consent shall be prohibited
(Stockholder Action Amendment); and (iv) to provide that upon the occurrence of
the Public Offering Date, the Board shall be classified into three classes, each
of which, after a transitional arrangement, will serve for three years, with one
class being elected each year (Classified Board Amendment).
If Share 100 is approved, the Certificate of Incorporation will be
amended by the Amendment Certificates and will then be restated in its entirety
(the Restated Charter) so as to incorporate the terms of the Reclassification,
the Increased Capital Amendment, the Stockholder Action Amendment and the
Classified Board Amendment into a unified text. As indicated above under
"INTRODUCTION," the Increased Capital Amendment is intended to facilitate Share
100 in accordance with the matters described in this Proxy Statement. The
proposed Increased Capital Amendment, the Stockholder Action Amendment and the
Classified Board Amendment will not be effective unless Share 100 is
consummated.
The Reclassification
At the Effective Time, the Amendment Certificates will be filed in
order to effect the Reclassification. Specifically, Article Fourth of the
Certificate of Incorporation will be amended (as described in Article Fourth of
the Restated Charter) to provide, effective at the Effective Time, for the
reclassification of the capital stock of the Company, pursuant to which (i) each
outstanding share of Class A Common Stock will be reclassified as, and changed
into, one share of Redeemable Transitory Participating Preferred Stock, which
will be redeemable for (and will be redeemed immediately after the Effective
Time for): (a) the Class A Cash Consideration, unless the holder makes an
effective Class A Election for (b) the Class A Stock Consideration or (c) the
Notes Consideration, and (ii) each share of Class B Common Stock will be amended
by adding the Class B Redemption Feature which will provide that for a 30-day
period each such outstanding share will be redeemable for (and will be redeemed
immediately after shares of Class A Composite Stock have been issued for): (a)
the Group Stock Consideration for Continuing Holders, unless the Continuing
Holder makes an effective Class B Election for the Class B Cash Consideration,
or (b) the Class B Cash Consideration for Magazine and Book Employees. In order
to give effect to the terms of the Reclassification, the creation of the Group
Stock and the Redeemable Transitory Participating Preferred Stock and the
Increased Capital Amendment, Article Fourth of the Certificate of Incorporation
will also be amended (as described in Article Fourth of the Restated Charter) to
make conforming changes to the Class A Common Stock and the Class B Common
Stock. Specifically, the
92
<PAGE>
authorized capital of the Class A Common Stock and the Class B Common Stock will
be decreased from 25,000,000 to 5,000,000 shares, and 150,000,000 to 25,000,000,
respectively, and various defined terms and cross-references will be conformed.
Increase of Authorized Common Stock
At the Effective Time, Article Fourth of the Certificate of
Incorporation will be further amended to increase the authorized number of
shares of Common Stock from 175,000,000 to 200,000,000.
As described in "DESCRIPTION OF CAPITAL STOCK -- Capital Stock After
the Effective Time -- Composite Stock and Business Group Stock --Conversion and
Redemption", any conversion of one class of Business Group Stock into Class A
Composite Stock or Class B Composite Stock would be at a rate equal to the ratio
of the Appraisal Price of one share of the applicable Business Group Stock to
the Appraisal Price of one share of the applicable Class A Composite Stock or
Class B Composite Stock. The number of shares issuable in a conversion will
therefore vary based on the relative Appraisal Prices of the two classes of
Common Stock and the number of outstanding shares of the classes to be
converted. Such a conversion may occur at any time at the discretion of the
Board. In the event the Board determined that a conversion was in the best
interests of the Company, but insufficient shares of authorized Common Stock
were available, the Company would be unable to effect such conversion without
the delays associated with seeking approval of stockholders to a further
amendment to the Certificate of Incorporation. The Board believes that the
proposed amendment is in the best interests of the Company and its stockholders
because of the uncertainty as to the number of shares that would be issuable in
the event of a conversion and to avoid possible delays should a conversion be
determined to be in the best interests of the Company, taking into consideration
the interests of all common stockholders.
If the proposed amendment is approved by stockholders and
implemented by the Board, the additional authorized shares of Common Stock would
be available for designation as Common Stock and could be issued by the Company
from time to time, as determined by the Board, for any proper corporate purpose,
which could include raising capital, paying stock dividends, providing
compensation or benefits to employees or acquiring other companies or
businesses. The approval of the stockholders will not be solicited by the
Company for the issuance from the authorized but unissued shares of Common Stock
of such additional shares of Common Stock unless such approval is deemed
advisable by the Board or is required under the DGCL.
Other than as described above, the Company has no present
understanding or agreement with respect to the issuance for any purpose of any
of the additional shares that will be authorized for issuance if Share 100 is
approved by the stockholders.
Proposed Amendments to Certificate of Incorporation Relating to
Stockholder Action and the Board of Directors
General. On [January 6, 1998], the Board unanimously adopted and
declared advisable, and directed that there be submitted to the stockholders of
the Company for adoption at the Annual Meeting, a resolution that the
Certificate of Incorporation be amended in several respects to incorporate the
amendments relating to (i) the requirement that stockholder action may be taken
only at an annual meeting of stockholders or at a special meeting of
stockholders and the prohibition of stockholder action by written consent
(Stockholder Action Amendment) and (ii) the classification of the Board into
three classes (Classified Board Amendment). As more fully discussed below, the
93
<PAGE>
Board believes that the various elements of the Stockholder Action Amendment and
Classified Board Amendment would, if adopted and upon the occurrence of the
Public Offering Date, effectively reduce the possibility that a third party
could effect a sudden or surprise change in majority control of the Board by
making it more time-consuming to gain control of the Board without the support
of the incumbent directors. The Stockholder Action Amendment and Classified
Board Amendment are not intended to impede a transaction that is approved by the
Board. However, adoption of the Stockholder Action Amendment and Classified
Board Amendment may, after the occurrence of the Public Offering Date, have
significant effects on the ability of stockholders of the Company to acquire and
exercise control, to change the composition of the incumbent Board and to
benefit from certain transactions which are opposed by the incumbent Board even
though they may be favored by a majority of the stockholders. Accordingly,
stockholders are urged to read carefully the following sections of this Proxy
Statement, which summarize Annex V to this Proxy Statement setting forth the
full text of the Stockholder Action Amendment and Classified Board Amendment
before voting on the Stockholder Action Amendment and Classified Board
Amendment. Each of these amendments will be voted on as a separate proposal.
Unless each of these amendments is approved at the Annual Meeting, neither of
such amendments will be implemented. Prior to the Public Offering Date, the
Stockholder Action Amendment and the Classified Board Amendment will have no
effect on the governance of the Company, which will continue as if these Charter
Amendments had not been adopted.
The Stockholder Action Amendment and Classified Board Amendment are
being proposed at a time at which the Company is undertaking a significant
corporate transaction to terminate the equity interests of the outside
stockholders in the Company and realign more closely the investment interests of
the Management Investors with the performance of the principal business unit for
which the Company's employees work. The Company and its Business Groups will
remain private, although going public remains an option for the future with
regard to the Company, as a whole, or any of its Business Groups, in particular.
The Company has no current intention to bring in the future itself, or any
business thereof, public. In light of these significant developments and
potential future public offerings, the Board determined that this was an
appropriate time to review the Company's potential vulnerability to, and ability
to discourage, certain types of unsolicited transactions that could interfere
with the continuity of the Board and management while not offering maximum value
to stockholders. Accordingly, and for the reasons described in greater detail
below, the Board determined to present the Stockholder Action Amendment and
Classified Board Amendment to the stockholders at the Annual Meeting.
It should be noted that the effect of the proposed amendments, if
adopted and assuming the occurrence of the Public Offering Date, will be to make
merger proposals and assumptions of control not favored by the Board, as well as
the replacement of management, more difficult.
Description of the Proposed Amendments.
(1) Certain Stockholder Actions. Pursuant to the DGCL, unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken by stockholders of the Company may be taken without a
meeting and without a stockholder vote if a written consent setting forth the
action to be taken is signed by the holders of shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action at a meeting of stockholders. The Certificate of Incorporation does not
currently otherwise provide, and Section 10 of Article II of the By-Laws of the
Company, as amended (the "By-Laws"), currently provides for stockholder action
by written consent. Proposed Article SIXTH of the Certificate of Incorporation
would provide that, upon the occurrence of the Public Offering Date, stockholder
action may be taken only at an annual
94
<PAGE>
meeting of stockholders or at a special meeting of stockholders and stockholder
action by written consent would be prohibited. As is currently provided in
Section 3 of Article II of the By-Laws, a special meeting of stockholders may be
called by the Board or the Chief Executive Officer of the Company. The Chief
Executive Officer is required to call such special meeting upon the written
request of stockholders owning 20% of the voting rights of the stock entitled to
vote at such meeting. The Board currently anticipates that in connection with
the Public Offering Date, the By-Laws would be amended to remove the ability of
stockholders to act by written consent and the right of stockholders to call a
special meeting.
The provisions prohibiting stockholder action by written consent
would give all stockholders of the Company the opportunity to participate in
determining any proposed action and would prevent the holders of a majority of
the common stock from using the written consent procedure to take stockholder
action without affording all stockholders an opportunity to participate. On the
other hand, this amendment will prevent stockholders controlling a majority of
the voting power of the Company from taking legitimate action over the objection
of the Board or a minority of stockholders other than at a meeting of
stockholders at which the proposal is submitted to stockholders. If the By-Laws
are amended as described above, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Board by calling a
special meeting of stockholders prior to such time as the Board or the Chairman
of the Board of the Company believed such consideration to be appropriate.
(2) Classification of the Board of Directors: The By-Laws
currently provide that directors are to be elected to the Board annually for a
term of one year and fix the number of directors of the Company at not more than
nineteen and not less than nine. Proposed Part 5C of Article FIFTH to the
Certificate of Incorporation provide that upon the occurrence of the Public
Offering Date, the directors of the Company, other than those who may be elected
by the holders of any series of preferred stock or any other series or class of
stock as set forth in the Certificate of Incorporation, will be divided into
three classes as nearly equal in number as possible, and designated as Class I,
Class II and Class III. The initial assignment of directors to such classes
shall be made by the Board and the terms of all such directors shall expire at
the first annual meeting of stockholders following the Public Offering Date, or
earlier at a special meeting called for the purpose of electing directors to
such classes, after which Class I directors will have a term expiring at the
next annual meeting of stockholders following such meeting; Class II directors
will have a term expiring at the second annual meeting of stockholders following
such meeting; and Class III directors will have a term expiring at the third
annual meeting of stockholders following such meeting. Members of each class of
directors will hold office until their successors are elected and qualified. At
each succeeding annual meeting of stockholders, the successors of the class of
directors whose term expires at that meeting will be elected by a plurality vote
of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election, and until their successors are elected and qualified. Vacancies
of the Board may be filled by a vote of the directors then in office though less
than a quorum for the remainder of the full term.
Directors of the Company are now elected by the holders of a
plurality of the votes cast. The classification of directors will have the
effect of making it more difficult to change the overall composition of the
Board. At least two stockholders' meetings, instead of one, will be required for
stockholders to effect a change in a majority of the Board. Although there has
been no problem in the past with the continuity or stability of the Board, the
Board believes that after the Public Offering Date the longer time required to
elect a majority of a classified Board would help to assure the continuity and
stability of the Company's affairs and policies in the future, since a majority
of the directors at any given time would have prior experience as directors of
the Company. As described
95
<PAGE>
in greater detail below, the Board has taken note of the fact that a classified
Board may discourage potential bidders from making unsolicited bids for the
Company or from engaging in proxy contests, thereby depriving some stockholders
of the opportunity to participate in and potentially benefit from these types of
transactions. However, the Board has determined that these potential benefits
are outweighed by the potential negative effects that these types of
transactions may have on the Company and the stockholders as a whole.
Purpose and Effects of the Amendments to Certificate of
Incorporation. The purpose of the Stockholder Action Amendment and Classified
Board Amendment is to discourage, after the Public Offering Date, certain types
of transactions, described below, which involve an actual or threatened change
of control of the Company. The Stockholder Action Amendment and Classified Board
Amendment are not being proposed in response to any specific effort of which the
Company is aware to obtain control of the Company. The proposed amendments are
designed, after the Public Offering Date, to make it more difficult and time-
consuming to change majority control of the Board and thus to reduce the
vulnerability of the Company to an unsolicited proposal for the takeover of the
Company that does not contemplate the acquisition of all the Company's
outstanding shares, or an unsolicited proposal for the restructuring or sale of
all or part of the Company. While the Board recognizes that such takeovers might
in some circumstances be beneficial to stockholders, the Board believes that, as
a general rule, they are not in the best interests of the Company and its
stockholders insofar as they do not permit the Board to negotiate with any
potential acquiror from the strongest practical position.
The 1980s provide many examples of accumulations of substantial
stock positions in public companies by third parties as a prelude to proposing a
takeover or a restructuring or sale of all or part of the company or other
similar extraordinary corporate action. Such actions were often undertaken by
the third party without advance notice to or consultation with management of the
company. In many cases, the purchaser sought representation on the company's
board of directors in order to increase the likelihood that its proposal would
be implemented by the company. If the company resisted the efforts of the
purchaser to obtain representation on the company's board, the purchaser would
commence a proxy contest to have its nominees elected to the board in place of
certain directors or the entire board. In some cases, the purchaser was not
truly interested in taking over the company, but used the threat of a proxy
fight and/or a bid to take over the company as a means of obtaining for itself a
special benefit, such as a repurchase of its equity position at a premium over
market price, not available to other stockholders. While the early 1990s
witnessed a decline in these types of transactions, the techniques described
above remain available and the Company could find itself subject to abusive
tactics of this nature.
The Board believes that the imminent threat of removal of incumbent
directors and the Company's management in such situations would severely curtail
their ability to negotiate effectively with such purchasers. The Board and
management would be deprived of the time and information necessary to evaluate
the takeover proposal, to study alternative proposals and to help ensure that
the best price is obtained in any transaction involving the Company which may
ultimately be undertaken. After the occurrence of the Public Offering Date, the
Stockholder Action Amendment and Classified Board Amendment will help ensure
that the Board, if confronted by a proposal from a third party which has
acquired a significant block of Composite Stock and Business Group Stock, will
have sufficient time to review the proposal and appropriate alternatives.
Takeovers or changes in the Board or management of the Company which
are proposed and effected without prior consultation and negotiation are not
necessarily detrimental to the Company and its stockholders. Moreover, the
proposed Stockholder Action Amendment and Classified Board
96
<PAGE>
Amendment, after the occurrence of the Public Offering Date, will make it more
difficult or discourage a proxy contest or the assumption of control by a holder
of a substantial block of the Company's stock or the removal of the incumbent
Board and could thus increase the likelihood that incumbent directors will
retain their positions. In addition, since these amendments are designed to
discourage accumulations of large blocks of the Company's stock by purchasers
whose objective may be to have such stock repurchased by the Company at a
premium, these amendments could tend to reduce temporary fluctuations in the
market price of the Company's stock, after the Public Offering Date, that could
result from accumulations of large blocks of stock. Accordingly, after the
Public Offering Date, stockholders could be deprived of certain opportunities to
sell their stock at a temporarily higher market price. However, the Board
believes that the benefits of seeking to protect its ability to exercise its
discretion to negotiate with or to resist the proponent of an unfriendly or
unsolicited proposal to take over or restructure the Company after the Public
Offering Date, and to seek out appropriate alternatives, if desirable, outweigh
these disadvantages.
Moreover, while it is impossible to predict with any degree of certainty
what impact the Stockholder Action Amendment and Classified Board Amendment
would have on the potential realizable value of a stockholder's investment,
particularly in light of the myriad of factors that can and will impact value,
the Board does not believe that these proposals ultimately will negatively
impact stockholder value. It is conceivable that the Stockholder Action
Amendment and Classified Board Amendment will discourage potential acquirors
from launching certain types of unsolicited transactions aimed at taking control
of the Company after the Public Offering Date, thereby denying stockholders the
opportunity to sell their shares, potentially at a premium to the then current
market prices, to these potential bidders. However, the Board has taken note of
the fact that many large U.S. public corporations have adopted similar
classified board structures, and that these have not deterred acquisitions of
these corporations through negotiated transactions. In fact, as discussed above,
the Board's purpose in recommending adoption of the Stockholder Action Amendment
and Classified Board Amendment is to encourage those who, after the Public
Offering Date, might seek control of the Company to negotiate a transaction with
the Board, thereby giving the Board an opportunity to resist abusive takeover
tactics that might permit a change of control that does not offer value to
stockholders and to structure a transaction in which all stockholders are
permitted to participate. In this way, the Board believes that the Stockholder
Action Amendment and Classified Board Amendment may ultimately enhance the
potential realizable value of a stockholder's investment.
The Certificate of Incorporation does not currently permit cumulative
voting in the election of directors and the By-Laws provide that a plurality of
the votes cast in any election of directors shall elect directors. Accordingly,
the holders of a majority of the Common Stock can now elect all of the directors
then being elected at any annual or special meeting of the Company's
stockholders; moreover, under Delaware law, such holders could remove any
director with or without cause by vote or written consent. If the Stockholder
Action Amendment and Classified Board Amendment are adopted at the Annual
Meeting, removal of incumbent directors, even if favored by a majority of
stockholders will be considerably more difficult after the Public Offering Date,
if not impossible, because stockholders will not be able to act without a
meeting and because under Delaware law classified directors may only be removed
for cause.
The Certificate of Incorporation and By-Laws contain at present no
provisions intended by the Company to have or, to the knowledge of the Board,
having an anti-takeover effect. The Board has no current intention of soliciting
a stockholder vote on any other proposals which could have such an effect. The
Company does have, and after the Effective Time will have, authorized 10,000,000
shares of Series Preferred Stock (as defined in "DESCRIPTION OF CAPITAL STOCK")
which
97
<PAGE>
could be issued with voting power and other rights fixed by the Board without
stockholder approval, except as required by applicable law. Although the Board
presently has no intention of doing so, these shares could be issued (subject to
applicable law) in certain amounts or to certain holders in a manner (e.g., by
giving them disproportionate or class voting rights), which could have the
effect of discouraging takeover attempts and making it more difficult
(particularly if the Stockholder Action Amendment and Classified Board Amendment
become effective) to obtain the vote required for approval of matters submitted
to stockholders of the Company. After the Effective Time, the Company could also
issue for such purpose shares of common stock, the terms of which are not fixed
in the Restated Charter. Moreover, the increase in voting power of Class B
Composite Stock and Business Group Stock in the event of an underwritten public
offering of Business Group Stock described in "DESCRIPTION OF CAPITAL STOCK--
Capital Stock After the Effective Time" could also have the effect of
discouraging takeover attempts and make it more difficult to obtain the vote
required for approval of matters submitted to stockholders of the Company. The
increased voting power of such Group Stock would have the effect of increasing
the voting power of the Company's management and employees in relation to the
holders of the publicly offered stock.
The Stockholders' Agreement, however, does contain certain provisions
having an anti-takeover effect, including the obligation to first offer shares
to the Company prior to certain share transfers and the prohibition on any
person acquiring more than 10% of any class of outstanding shares, unless the
acquisition is approved by the Board. These provisions have the effect of
preventing any person from acquiring a significant percentage of any class of
the Company's common stock, unless approved in advance by the Board.
Vote Required
The Charter Amendments would implement Proposals 1, 2 and 3. Proposal 1
requires the affirmative vote of the holders of a majority of the outstanding
Class A Common Stock voting as a single class and the affirmative vote of the
holders of a majority of the outstanding Common Stock voting as a single class.
Proposal 2 requires the affirmative vote of the holders of a majority of the
outstanding Class B Common Stock voting as a single class and the affirmative
vote of the holders of a majority of the outstanding Common Stock voting as a
single class. Proposal 3 will be voted upon as three separate proposals, each of
which requires the affirmative vote of the holders of a majority of the
outstanding Common Stock voting as a single class. Each of Proposals 1, 2 and 3
(relating to the Reclassification, the Increased Capital Amendment, the
Stockholder Action Amendment and the Classified Board Amendment) is conditioned
upon approval of the others and will not be implemented if any such proposal is
not approved by stockholders and implemented by the Board. Accordingly, a vote
against any such proposal will have the effect of a vote against all such
proposals.
Recommendation of the Board of Directors
The Board believes adoption of the Charter Amendments embodied in Proposals
1, 2 and 3 is in the best interests of the Company and its stockholders and,
accordingly, unanimously recommends stockholders vote FOR Proposals 1, 2 and 3.
98
<PAGE>
CHANGES TO CERTAIN AGREEMENTS
The Stockholders' Agreement
The Board has unanimously approved, and recommends to the stockholders that
they adopt, an amendment and restatement of the Stockholders' Agreement due to
various changes contemplated under Share 100. The Stockholders' Agreement
Amendment will (i) eliminate references to Outside Stockholders, (ii) provide
that the classes of Composite Stock and Business Group Stock are subject to all
of the terms and provisions of the Stockholders' Agreement and (iii) provide
that a stockholder who sells or transfers any shares of common stock must sell
or transfer a proportionate number of shares of each other class of common stock
owned by such stockholder. For the complete text of the Stockholders' Agreement,
as it would read after the Effective Time (the "Restated Stockholders'
Agreement"), see Annex VI to this Proxy Statement. For further information
regarding the Stockholders' Agreement Amendments presented in a questions and
answers format, see "PROXY STATEMENT SUMMARY-- Questions and Answers for
Management Investors."
Voting
The Restated Stockholders' Agreement will become effective immediately
following the Effective Time. Amendments to the Stockholders' Agreement, as
stated in such agreement, require the affirmative vote of (i) at least 75% of
the Common Stock held by Institutional and Individual Investors (taken as a
whole), as such parties are identified on the books of the Company and (ii) by
Management Investors who hold (in combination with their Permitted Transferees),
as such parties are identified on the books of the Company, at least a majority
of the Common Stock held by Management Investors and their Permitted
Transferees. Accordingly, the votes by Management Investors on the enclosed
Proxy Card will be binding on their Permitted Transferees, notwithstanding a
different vote by such Permitted Transferees. No Institutional and Individual
Investors will be stockholders of the Company on or after the Effective Time.
Therefore, amendments to the Stockholders' Agreement require only the
affirmative vote by Management Investors described above.
Recommendation of the Board of Directors
The Board believes adoption of this Proposal is in the best interests of
the Company and its stockholders and, accordingly, unanimously recommends
stockholders vote FOR this Proposal.
The Registration Rights Agreement
Share 100 also contemplates the termination of the Registration Rights
Agreement. The Registration Rights Agreement provides for certain registration
rights on behalf of holders of Class A Common Stock who also are Outside
Stockholders. Since such holders will no longer hold any of the Company's common
stock after Share 100, the Registration Rights Agreement will have no effect.
Accordingly, the Company has determined that the Registration Rights Agreement
will be terminated as of the Effective Time.
99
<PAGE>
FINANCING OF SHARE 100
General
The Company will increase its aggregate debt level by approximately $440
million to finance Share 100, including amounts required to redeem shares and to
pay the fees and expenses incurred in connection with Share 100.
The Bank Facility
The definitive Bank Facility (the "Bank Facility") has not, as of the date
of this Proxy Statement, been executed. Based on negotiations to date, however,
the Company believes that the terms and conditions of the Bank Facility, when
executed, will be substantially as set forth below:
The Bank Facility will be an unsecured revolving credit facility in the
initial amount of $1.4 billion. The borrowers under the Bank Facility will be
ARAMARK Services, Inc. and ARAMARK Uniform Services Group, Inc., and the
guarantors will be the Company and certain wholly-owned domestic subsidiaries of
the Company and the two borrowers.
The outstanding commitments under the Bank Facility will reduce through
scheduled amortizations to $1 billion at the end of the fourth year and will
continue at that level to a final maturity at the end of the seventh year.
Interest under the Bank Facility will be based upon the London Interbank
Offered Rate (LIBOR) plus a spread of .18% to .70% (estimated initially to be
.50%), or the Certificate of Deposit Rate plus a spread of .28% to .80%
(estimated initially to be .60%), or the Prime Rate at the option of the
borrower. The spread will be based on certain financial ratios and credit
ratings. The borrowers will also pay an annual fee of .10% to .30% (estimated
initially to be .25%) on the entire credit facility. J.P. Morgan and Chase
Securities Inc., an affiliate of Chase, will be co-arrangers of the Bank
Facility.
The Bank Facility will contain restrictive covenants which will provide,
among other things, limitations on: (i) the creation of mortgages and security
interests; (ii) dispositions of material assets; and (iii) certain significant
changes of control of the Company. Under the Bank Facility, the Company will be
required to maintain certain specified minimum ratios of cash flow to fixed
charges and to total borrowings and certain minimum levels of net worth.
The Bank Facility will contain various event of default provisions,
including default in payment of principal or interest, material
misrepresentation in the Bank Facility, default in compliance with other terms
of the Bank Facility or the related guarantees, bankruptcy, default on other
indebtedness, failure to satisfy or stay certain judgments or orders entered
against the Company or any of its subsidiaries, failure to pay when due certain
amounts with respect to certain employee benefit plans, and other events with
respect to such plans.
Sources and Uses of Funds
The estimated sources and uses of funds for the Financing, assuming that in
Share 100 all Outside Stockholders receive the Class A Cash Consideration,
approximately 75% of Former Managers by number of shares elect to receive the
Class A Stock Consideration and the rest have their shares repurchased pursuant
to the Stockholders' Agreement, the Magazine and Book Benefit
100
<PAGE>
Plan receives the Class A Cash Consideration, all other Benefit Plans receive
30% cash and 70% Class A Composite Stock, all Magazine and Book Employees
receive the Class B Cash Consideration, and all Continuing Holders receive the
Group Stock Consideration, are as follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Sources of Funds:
Additional borrowings under Bank Facility.. $440.0
======
Uses of Funds:
Redemption of Class A Common Stock
Outside Stockholders..................... $275.9
Benefit Plans............................ 132.5
Former Managers.......................... 18.5
Redemption of Class B Common Stock
Magazine and Book Employees.............. 6.8
Costs and fees............................. 6.3
------
$440.0
======
</TABLE>
Estimated Costs and Fees
Estimated costs and fees in connection with Share 100 and the related
transactions are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Bank Transaction Fees........................................ $
Financial Advisory, Appraisal, Valuation and Accounting Fees.
Legal Fees...................................................
Printing, Engraving and Mailing..............................
Miscellaneous................................................
------
Total.................................................... $6,300
======
</TABLE>
101
<PAGE>
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 27, 1997 on a historical basis and on a pro forma basis after
giving effect to Share 100, including the Reclassification of shares, the
incurrence of additional indebtedness and the payment of fees and expenses. This
table should be read in conjunction with the "PRO FORMA FINANCIAL INFORMATION"
and the Consolidated Financial Statements and related notes thereto appearing in
Annex VII hereto.
<TABLE>
<CAPTION>
June 27, 1997
(unaudited, in millions)
-----------------------------------------
Historical Adjustments Pro Forma(a)
---------- --------------- ------------
<S> <C> <C> <C>
Long-Term Borrowings (excluding
current maturities):
Senior....................... $1,157.1 $440.0(c) $1,597.1
Subordinated................. 130.0 130.0
Obligations under capital
leases..................... 2.1 2.1
-------- ------ --------
Total Long-Term Borrowings... 1,289.2 440.0 1,729.2
-------- ------ --------
Common stock subject to potential
repurchase(b).................. 23.6 (3.6) 20.0
-------- ------ --------
Shareholders' equity............. 381.0 (432.7)(d) (51.7)
-------- ------ --------
Total capitalization......... $1,693.8 $ 3.7 $1,697.5
======== ====== ========
</TABLE>
- --------------------
Notes to Historical and Pro Forma Capitalization
(a) Share 100 has been accounted for as a redemption of shares not subject to
purchase accounting. The pro forma capitalization does not reflect any
adjustments to the carrying values of assets and liabilities of the Company
based on their fair market value as of the effective date of Share 100.
(b) Under the Company's Stockholders' Agreement, in certain circumstances
individual stockholders may cause the Company to repurchase up to 30% of
their shares for cash, subject, under the current Bank Facility, to an
aggregate limit on repurchases of capital stock of $23.6 million at June
27, 1997. On a pro forma basis the repurchase limitation would be $20
million at June 27, 1997.
(c) Reflects an increase in the Bank Facility borrowings to finance the Share
100 transactions.
(d) The pro forma reduction in Shareholders' equity reflects the redemption of
certain Class A and Class B Common Stock as described under "THE PLAN OF
RECAPITALIZATION," a charge of $2.7 million representing the after tax
impact of the nonrecurring costs of Share 100 and the impact of the
potential repurchase feature of common stock described in note (b).
102
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of June 27, 1997 and unaudited Pro Forma Condensed Consolidated Statements of
Income for the fiscal year ended September 27, 1996 and the nine month period
ended June 27, 1997 have been prepared to reflect Share 100, including the
Reclassification, the incurrence of additional indebtedness and the payment of
fees and expenses. Share 100 has been accounted for as a redemption of stock not
subject to purchase accounting. The pro forma information does not reflect any
adjustments to the carrying values of assets and liabilities of the Company
based on their fair market value as of the date of Share 100.
The Pro Forma Condensed Consolidated Statements of Income were prepared as
if Share 100 had occurred at the beginning of the respective periods presented.
The Pro Forma Condensed Consolidated Balance Sheet was prepared as if Share 100
had occurred on June 27, 1997.
No changes in revenues and expenses have been made to reflect the results
of any modification to operations that might have been made had Share 100 been
consummated on the assumed effective dates for presenting pro forma results. The
Pro Forma Condensed Consolidated Statements of Income do not reflect any non-
recurring costs which may be incurred in connection with Share 100. The pro
forma financial statements set forth below are not necessarily indicative of the
consolidated results which would actually have occurred had such transactions
been consummated as of the date and for the periods presented or which may occur
in the future.
The pro forma financial information should be read in conjunction with the
Consolidated Financial Statements and related notes thereto for the Company in
Annex VII.
103
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 27, 1997
(Unaudited)
(In Thousands)
ASSETS
------
<TABLE>
<CAPTION>
Historical(a) Adjustments Pro Forma
------------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 28,731 $ - $ 28,731
Receivables 486,963 486,963
Inventories, at lower of cost or market 359,511 359,511
Prepayments and other current assets 73,337 73,337
---------- ---------- ----------
Total current assets 948,542 - 948,542
---------- ---------- ----------
Property and Equipment, net 846,316 846,316
Goodwill 661,406 661,406
Other Assets 327,178 1,131 (c) 328,309
---------- ---------- ----------
$2,783,442 $ 1,131 $2,784,573
========== ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
<S> <C> <C> <C>
Current maturities of long-term borrowings $ 16,565 $ - $ 16,565
Accounts payable 396,980 396,980
Accrued expenses and current liabilities 455,264 (2,512) (d) 452,752
---------- ---------- ----------
Total current liabilities 868,809 (2,512) 866,297
---------- ---------- ----------
Long-Term Borrowings 1,289,186 440,000 (b) 1,729,186
Deferred Income Taxes & Other
Noncurrent Liabilities 220,815 220,815
Common Stock Subject to Potential Repurchase
Under Provisions of Stockholders' Agreement 23,591 (3,591) (e) 20,000
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A Common Stock, par value $.01 20 (20) -
Class B Common Stock, par value $.01 205 (205) -
Class A and B Composite Stock - 155 155
Education Group Stock - 2 2
Food and Support Group Stock - 37 37
Uniform Group Stock - 18 18
Earnings retained for use in the business 395,322 (436,344) (41,022)
Cumulative translation adjustment 1,601 1,601
Unrealized gain on marketable securities, net 7,484 7,484
Impact of potential repurchase feature of
common stock (23,591) 3,591 (e) (20,000)
---------- ---------- ----------
Total 381,041 (432,766) (b) (51,725)
---------- ---------- ----------
$2,783,442 $ 1,131 $2,784,573
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
104
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 27, 1996
--------------------------------------------
Historical(a) Adjustments Pro Forma
------------- ----------- ---------
<S> <C> <C> <C>
Revenues $6,122,500 $ - $6,122,500
---------- -------- ----------
Costs and Expenses:
Cost of services provided 5,565,038 5,565,038
Depreciation and amortization 182,785 182,785
Selling and general corporate expenses 82,354 82,354
Other expense (income) (2,850) (2,850)
---------- -------- ----------
5,827,327 - 5,827,327
---------- -------- ----------
Operating income 295,173 - 295,173
Interest Expense, net 116,014 29,394 (f) 145,408
---------- -------- ----------
Income before income taxes 179,159 (29,394) 149,765
Provision for Income Taxes 66,931 (11,636) (d) 55,295
---------- -------- ----------
Income before Extraordinary Item $ 112,228 ($17,758) $ 94,470
========== ======== ==========
Earnings per share before
Extraordinary Item(g) $2.37 $2.99
===== =====
<CAPTION>
For the Nine Months Ended June 27, 1997
---------------------------------------
Historical(a) Adjustments Pro Forma
------------- ----------- ---------
<S> <C> <C> <C>
Revenues $4,676,382 $ - $4,676,382
---------- -------- ----------
Cost and Expenses:
Cost of services provided 4,261,481 4,261,481
Depreciation and amortization 143,438 143,438
Selling and general corporate expenses 60,695 60,695
Other expense (income) (72,393) (72,393)
---------- -------- ----------
4,393,221 - 4,393,221
---------- -------- ----------
Operating income 283,161 - 283,161
Interest Expense, net 88,598 21,223 (f) 109,821
---------- -------- ----------
Income before income taxes 194,563 (21,223) 173,340
Provision for Income Taxes 48,822 (8,399) (d) 40,423
---------- -------- ----------
Net income $ 145,741 ($12,824) $ 132,917
========== ======== ==========
Earnings per share(g) $3.26 $4.66
===== =====
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
105
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Statements
(a) Historical Condensed Consolidated Financial Statements of the
Company and Subsidiaries
(b) The following is a summary of the sources and uses of funds borrowed
under the Bank Facility:
<TABLE>
<CAPTION>
Source of Funds:
<S> <C>
Additional borrowings under amended bank credit facility $440.0
======
Uses of Funds:
Redemption of Class A Common Stock:
Outside Stockholders $275.9
Benefit Plans 132.5
Former Managers 18.5
Redemption of Class B Common Stock
Magazine and Book Employees 6.8
Costs and fees 6.3
------
$440.0
======
</TABLE>
The pro forma reduction in Shareholders' Equity reflects the
redemption of certain Class A and Class B Common Stock, a charge of
$2.7 million representing the after tax impact of the nonrecurring
costs of Share 100 and the impact of the potential repurchase
feature of common stock more thoroughly described in note (e).
(c) Financing costs, net of the write-off of previously deferred
financing costs, will be capitalized and amortized over the term of
the Bank Facility.
(d) Recognition of income tax benefits, at statutory rate, related to
certain expenses which will be deductible for income tax purposes.
(e) Under the Company's Stockholders' Agreement, in certain
circumstances individual stockholders may cause the Company to
repurchase up to 30% of their shares for cash, subject, under the
current Bank Facility, to an aggregate limit on repurchases of
capital stock of $23.6 million at June 27, 1997. On a pro forma
basis the repurchase limitation would be $20 million at June 27,
1997.
(f) Represents the additional interest expense related to the
indebtedness incurred in connection with Share 100 plus the
amortization of deferred financing costs. Interest on Bank Facility
borrowings is based upon the average rates in effect during the
respective periods.
106
<PAGE>
(g) The following presents the pro forma earnings per share, reflecting
the Share 100 transaction. The historical per share amounts reflect
the as reported amounts related to the Class A and B Common Stock.
The pro forma amounts reflect the per share amounts related to the
Class A and B Composite Stock issued in connection with Share 100.
<TABLE>
<CAPTION>
For the Nine For the Fiscal
Months Ended Year Ended
June 27, 1997 September 27, 1996
----------------- ---------------------
(in thousands, except per share amounts)
----------------------------------------
<S> <C> <C>
Pro Forma Income from Continuing
Operations $ 132,917 $ 94,470
Preferred Stock Dividends - 769
-------- -------
Earnings Available to Common Stock 132,917 93,701
-------- -------
Less earnings allocable to Group
Stocks:
Educational Resources Group 804 661
Food and Support Services Group 4,922 8,140
Uniform and Career Apparel Group 4,310 7,264
----- -----
10,036 16,065
------ ------
Earnings Available for Composite Stock $ 122,881 $ 77,636
========= ========
Pro Forma Weighted Average Number of
Composite Group Shares 26,367 25,952
------ ------
Pro Forma Earnings per Composite
Group Share $ 4.66 $ 2.99
========= ========
</TABLE>
107
<PAGE>
DESCRIPTION OF THE BUSINESS
The Company is engaged in providing managed services -- food and
support services, uniform and career apparel, educational resources and
magazine distribution. ARAMARK Services, Inc. was organized in 1959 in
Delaware. The Company was formed in September 1984 by the management of
ARAMARK Services, Inc. and acquired ARAMARK Services, Inc. in December
1984 through a merger.
The Company provides most of its services in the United States. The
Company also conducts operations, primarily the management of food
services, in Belgium, Canada, the Czech Republic, Germany, Hungary,
Japan, Korea, Mexico, Spain and the United Kingdom.
The Company employs approximately 150,000 persons, both full and
part time, including approximately 40,000 employees outside the United
States. Approximately 16,000 employees in the United States are
represented by various labor unions.
The Company believes it recognizes benefit from its corporate name
recognition. Nonetheless, consistent with its businesses, the Company
does not have any material trademarks or patents, and its research and
development expenditures are not material in amount. Although the
Company pursues strategies to increase the number and scope of the
services it provides to existing customers, no single customer of the
Company accounts for more than [1]% of its revenues or gross profits.
While the Company focuses its purchasing on selected suppliers and
vendors to realize pricing, quality and service benefits, generally, all
materials and services that the Company purchases are available from more
than one supplier, and the loss of any supplier would not have a material
impact on the Company's results of operations. The Company's businesses
are subject to various governmental environmental regulations, and the
Company has adopted policies designed to comply with such regulations.
Such compliance has not had a material impact on the Company's capital
expenditures, earnings or competitive position.
Food and Support Services Group
The Company provides food, refreshment, specialized dietary and
support services (including maintenance and housekeeping) to businesses,
and to educational, governmental and medical institutions. Food, lodging
and merchandise services are also provided at sports and entertainment
facilities such as convention centers, stadiums, parks, arenas, race
tracks and other recreational facilities.
Food, refreshment, specialized dietary and support services are
operated at customer locations generally under contracts of indefinite
duration which may be subject to termination by either party. However,
food and related services at sports and entertainment facilities
generally are for fixed contract terms well in excess of one year. The
Company's food and support services are performed under various financial
arrangements including various management-fee as well as profit-and-loss
bases.
At most customer food service locations, the equipment and
facilities used in providing these services are owned by the customer.
Vending machines and related equipment, however, are generally owned by
the Company. At most sports and entertainment facilities, the equipment
is owned by the Company.
108
<PAGE>
There is a high level of competition in the food and support
services business from local, regional and national companies as well as
from businesses and institutions which operate their own services. This
competition takes a number of different forms, including pricing,
maintaining high food and service standards, and innovative approaches to
marketing with a strong emphasis on securing and retaining customer
accounts. The Company believes that it is a significant provider of food
and support services in the United States, Spain, Germany, Belgium and
Canada, but that its volume of such business is small in relation to the
total market.
Uniform and Career Apparel Group
The Company rents, sells, cleans, maintains and delivers
personalized work apparel and other textile items for customers
throughout the United States on a contract basis. Also provided are walk-
off mats, cleaning cloths, disposable towels, and other environmental
control items.
The Company operates one of the largest direct marketers of
personalized work clothing, uniforms and related accessories, primarily
in the United States. The Company also operates one of the largest direct
marketers of public safety equipment and public employee uniforms in the
United States. At fiscal year end 1996, the Company acquired a leading
provider of uniform apparel to the hospitality and healthcare markets.
Service contracts for the rental and laundering of work apparel and
other textile items are for well in excess of one year and typically for
an initial term of three to five years. Generally, the direct marketing
business is conducted under an invoice arrangement with customers.
The uniform rental services business is highly competitive in the
areas in which the Company operates, with numerous competitors in each
major operating area. Although no one uniform rental services company is
predominant in this industry, the Company believes that it is a
significant competitor.
Competition in the direct marketing of work clothing, public safety
equipment and related items is from numerous retailers and other direct
marketers at local, regional and national levels. In this market, while
the Company is a significant competitor, the Company's volume of sales is
small in relation to the total market.
The significant competitive factors in the uniform services business
are the quality of services provided to customers and the prices charged
for such services.
Educational Resources Group
The Company provides educational and child care services primarily
at Company-operated facilities, and to a lesser extent on customer sites
and in before and after school programs.
Educational and child care services are provided to and are
primarily paid for on a weekly or semester basis directly by individual
families under short-term agreements. The Company leases a significant
number of its facilities under long-term arrangements.
The Company believes it is a significant provider of educational and
child care services in the United States.
109
<PAGE>
Competition in all phases of this business segment is from both
national and local providers of education services as well as from
private and public institutions which provide for their own education
services. Significant competitive factors in the Company's education
services business are the quality of care, reputation, physical
appearance of facilities, the types of programs offered to the users of
these services and the prices charged for such services.
Composite Group
The Composite Group comprises the residual interest in each of the
Business Groups, and any other businesses or investments of the Company,
including the magazine and book distribution business.
The Company provides wholesale distribution of magazines, books and
other printed matter. These materials are purchased from national
distributors and publishers and are delivered to retail locations
patronized by the general public.
Distribution services are generally rendered under short-term
agreements and for larger accounts under multi-year agreements, which
ordinarily permit the return of unsold magazines and books with full
credit being given to the retailer and with the Company in turn receiving
full credit from its suppliers.
Competition in the distribution of books and periodicals exists
primarily from magazine and book subscriptions, direct distribution by
publishers to retailers and from other wholesale distributors and
alternative uses of retail shelf space. While the Company's volume of
business in the distribution of books and periodicals is small in
relation to the total market, the Company believes the volume of its
wholesale periodical and book distribution makes it a significant
wholesale distributor.
In January 1997, the Company sold an approximate 83% interest in its
health care subsidiary.
110
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Fiscal 1996 Compared to Fiscal 1995.
Overview-- Revenues for the fiscal year ended September 27, 1996
were $6.1 billion, a 9% increase over fiscal 1995, with increases being
recorded by all business segments. Operating income of $295.2 million
increased 7% compared to the prior year. Earnings increased
substantially in both the Food and Support Services segment, including
the positive impact in fiscal 1996 from the return of hockey and
baseball, and the Uniform Services segment. Earnings were equal to last
year for the Health and Education segment and declined dramatically in
the Distributive segment. Total Company operating income includes other
income of $2.9 million described in note 2 to the consolidated financial
statements. The Company's operating income margin decreased to 4.8% from
4.9%, primarily due to the decreased earnings of the Distributive
segment. Excluding the Distributive segment, the fiscal 1996 margin was
5.3% and operating income increased 20% compared to the prior year
period.
Interest expense increased $6.6 million or 6% over the prior year
due to increased debt levels to finance acquisitions, partially offset by
the favorable impact of refinancing certain of the Company's subordinated
debt and lower interest rates. The effective income tax rate decreased
to 37% in fiscal 1996 from 40% in fiscal 1995 due to the favorable impact
resulting from the June 1996 settlement of certain prior years' tax
returns. Fiscal 1996 and 1995 net income reflect extraordinary items for
early extinguishment of debt of $2.8 million and $6.7 million,
respectively, as described in note 3 to the consolidated financial
statements.
Segment Results-- Food and Support Services segment revenues were 8%
higher than the prior year due to new accounts and increased volume at
both U.S. and international food businesses, acquisitions and the return
of hockey and baseball (see notes 2 and 11 to the consolidated financial
statements). Uniform Services segment revenues increased 17% as a result
of year end 1995 acquisitions and increased volume in the uniform rental
business, partially offset by decreased volume from direct marketing of
work clothing and the divestiture described in note 2 to the consolidated
financial statements. Health and Education segment revenues increased 5%
as a result of enrollment growth and pricing at Children's World and new
contracts at correctional institutions in the healthcare business.
Revenue for the Distributive segment increased 7% due to acquisitions
completed during fiscal 1995 and the impact of the change in customer mix
in 1996.
Operating income for the Food and Support Services segment increased
19% due to increased revenues, including those resulting from the return
of hockey and baseball, although the baseball labor contract negotiations
have not yet been concluded. Fiscal 1996 operating income for the
Uniform Services segment includes the $37 million gain on the sale of a
division and charges of $5 million related to changes in estimates
regarding asset realization and environmental matters described in note
11 to the consolidated financial statements; excluding the impact of
these items, as well as the operating results of the 1996 divestiture,
the increase in segment operating income was approximately 16% as
compared to fiscal 1995. Health and Education segment operating income
was equal to the prior year with revenue related increases being offset
by higher operating costs and increased reserves for real estate values
(see note 11 to the consolidated financial statements). The Distributive
segment incurred an operating loss of $5.6 million in fiscal 1996 versus
operating income of $27.4 million in fiscal 1995. Results continue to be
severely impacted by higher operating expenses due to costs of
111
<PAGE>
servicing new customers and reduced margins resulting from the increased
competition and consolidation in the magazine wholesale distribution
industry. The Company believes it is well positioned to take advantage
of the current competitive conditions in this industry, however, the
future impact of these changes is uncertain at this time. The Company
currently projects that fiscal 1997 operating income in the Distributive
segment will continue to be significantly below historical levels prior
to fiscal 1996. The increase in fiscal 1996 General Corporate and Other
Expenses is due primarily to reserves established for asset realization,
legal and other matters described in note 11 to the consolidated
financial statements.
Fiscal 1995 Compared to Fiscal 1994.
Overview-- Revenues for the fiscal year ended September 29, 1995
were $5.6 billion, a 9% increase over fiscal 1994. Operating income of
$277 million increased 4% compared to the prior year. Revenues increased
over the prior year in all business segments and, with the exception of
Health and Education, all business segments posted year-over-year
improvements in operating earnings. Fiscal 1995 consolidated results
were adversely impacted by the National Hockey League strike and Major
League Baseball situation in the United States and Canada. The hockey
strike, which ended in January 1995, resulted in a season that was
approximately half the normal schedule. The baseball strike, which began
in August 1994 and also adversely impacted fiscal 1994 results, ended in
April 1995 resulting in a shortened 1995 season. A decline in average
attendance from prior year was experienced after the resumption of the
season. The baseball situation is still unsettled and may impact fiscal
1996. Had the hockey strike and baseball situation not occurred,
management estimates that consolidated operating income and income before
extraordinary items would have been approximately 5% and 8% higher in
fiscal 1995, and 3% and 5% higher in fiscal 1994, respectively.
The Company's operating income margin, excluding "other income" of
$5.8 million in 1994, decreased to 4.9% from 5.1%. The decrease in
margin is due primarily to the impact of the baseball and hockey
situation described above.
Interest expense increased approximately $1.0 million or 1%, due
primarily to increased debt levels to finance acquisitions and increased
interest rates, largely offset by the impact of refinancing certain of
the Company's indebtedness. See notes 2 and 3 to the consolidated
financial statements. Fiscal 1995 and 1994 net income include an
extraordinary item for early extinguishment of debt of $6.7 million and
$7.7 million, respectively, as described in note 3 to the consolidated
financial statements. Fiscal 1994 net income also included a charge of
$1.3 million related to the cumulative effect of adopting Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. See
note 6 to the consolidated financial statements.
Segment Results-- Food and Support Services segment revenues were 8%
higher than the prior year due to new accounts and increased volume at
both U.S. and international food businesses plus the impact of the
current year acquisition, partially offset by the effects of the hockey
and baseball situation (see notes 2 and 11 to the consolidated financial
statements). Uniform Services segment revenues increased 10% as a result
of increased volume at both the uniform rental and direct marketing
businesses. Health and Education segment revenues increased 10% as a
result of new contracts at correctional institutions and enrollment
growth and pricing at Children's World. Revenue for the Distributive
segment increased 10% due primarily to the current year acquisitions. See
notes 2 and 11 to the consolidated financial statements.
Operating income for the Food and Support Services segment increased
6%. Increased earnings were due to revenue growth and improved margins
in the U.S. food business plus the
112
<PAGE>
current year acquisition. However, earnings were adversely impacted by
the hockey and baseball situation described above (see note 11 to the
consolidated financial statements). Fiscal 1994 operating income for the
Food and Support Services segment also included the $5.8 million gain on
the sale of stock of an affiliate. Uniform Services segment operating
income increased 7% as a result of revenue growth, reduced by higher
merchandise and other operating costs. Operating income for the Health
and Education segment decreased 23% from the prior year due primarily to
higher operating costs and an increase in insurance reserves in the
healthcare services business (see note 11 to the consolidated financial
statements), partially offset by revenue related increases at Children's
World. Distributive segment operating income increased 3%, with revenue
related increases being partially offset by increased operating expenses.
Third Quarter Fiscal 1997 Compared to Third Quarter Fiscal 1996.
Overview-- Revenues of $1.5 billion for the third quarter were 1%
lower than the prior year period, and revenues of $4.7 billion for the
nine month period increased 3% over the prior year period. Operating
income for the three and nine month periods was $78.3 million and $283.2
million, respectively. Operating income for the nine month period
includes a gain of $72.4 million from the divestiture of Spectrum
Healthcare Services, Inc. (Spectrum), which is reflected as "other
expense (income)" in the condensed consolidated statement of income (see
note 2 to the condensed consolidated financial statements included in
Annex VII). Excluding "other expense (income)" and the operating results
for Spectrum, revenues and operating income increased 8% and 15%,
respectively, for the third quarter and increased 8% and 11%,
respectively, for the nine months compared to the prior year periods.
Interest expense for the three and nine months was equal with the prior
year periods, with the impact of lower interest rates being offset by
increased debt levels to finance acquisitions and working capital
requirements. The effective income tax rate for the three and nine month
periods was 39.4% and 25.1%, respectively. The decrease in the effective
tax rate for the nine month period is a result of a permanent difference
in the book and tax basis of the divested Spectrum business (see note 2
to the condensed consolidated financial statements included in Annex
VII). Excluding the Spectrum divestiture gain, the effective tax rate
for the nine month fiscal 1997 period was 40%. The effective tax rates
for the fiscal 1996 third quarter and nine months were 34.0% and 37.4%,
respectively, and reflects the favorable impact from the settlement of an
audit of certain prior years federal income tax returns in June 1996.
Segment Results.
Revenues-- Food and Support Services segment revenues for the three
and nine month periods increased 6% and 7%, respectively, over the prior
year periods due to new accounts (approximately 5% and 3%, respectively)
and increased volume (approximately 2% and 5%, respectively), primarily
in the United States food businesses, partially offset by the unfavorable
impact of foreign currency translation (1%). Uniform Services segment
revenues for the three and nine month periods increased 20% and 17%,
respectively, due to the impact of recent acquisitions (approximately 13%
and 10%, respectively) and increased volume in both the uniform rental
and direct marketing businesses. Health and Education segment revenues,
excluding the divested Spectrum operations, for both the three and nine
months increased 13% over the comparable prior year periods due to
enrollment growth, pricing and new locations at Children's World.
Distributive segment revenues for the third quarter and nine months
decreased 6% and 3%, respectively, from the comparable prior year
periods, due to a decrease in base business of 10% and 8%, respectively,
partially offset by the impact of recent acquisitions.
113
<PAGE>
Operating Income Before Other Expense (Income)-- Food and Support
Services segment operating income increased 19% and 18% for the three and
nine month periods versus the comparable prior year period as a result of
the revenue increase noted above plus effective cost controls at both
United States and international operations. Uniform Services segment
third quarter and nine month operating income increased 8% and 9%,
respectively, over the prior year period due to the revenue increase
noted above plus effective cost controls in the direct marketing
businesses, partially offset by increased operating costs in the uniform
rental business. Health and Education segment operating income for the
three and nine month periods, excluding the operating results of the
divested Spectrum business, increased 16% and 17%, respectively, over the
comparable prior year period due to the revenue increases at Children's
World noted above. The Distributive segment incurred an operating loss
of $8.0 million and $13.4 million for the three and nine month periods,
respectively, a deterioration from the comparable prior year periods of
approximately $4.2 million and $13.9 million, respectively. During the
third quarter the Distributive segment recorded a charge of approximately
$4.0 million related to asset realization. Results for this segment
continue to be severely impacted by higher operating expenses due to
costs of servicing new customers and reduced margins and volume resulting
from increased competition and consolidation in the magazine wholesale
distribution industry. The Company continues to believe it is well
positioned to take advantage of the current competitive conditions in the
industry. However, the future impact of these changes is uncertain at
this time. The Company projects that operating income in the
Distributive segment will continue to be significantly below historical
levels achieved prior to fiscal 1996.
Financial Condition and Liquidity
The Company's indebtedness decreased $42.2 million in the first nine
months of fiscal 1997, with a reduction from application of the
divestiture proceeds being partially offset by increased borrowings for
seasonal working capital needs and capital additions.
In November 1996, the Company issued $125 million of 7.10% senior
notes due December 2006. The net proceeds from the note offering were
used to repay borrowings under the $1 billion credit facility.
As discussed in note 2 to the condensed consolidated financial
statements included in Annex VII, in January 1997, the Company sold an
approximate 83% interest in its Spectrum subsidiary. The cash proceeds
were used to repay borrowings under the $1 billion credit facility. The
divestiture will not have a material impact on the Company's liquidity.
The Company as of July 31, 1997 had approximately $675 million of
unused credit availability under its credit facilities, which management
believes, along with cash flows from operations, is sufficient to fund
operating requirements.
114
<PAGE>
SECURITY OWNERSHIP BEFORE AND
AFTER SHARE 100
The following table presents certain information with respect to
Common Stock of the Company (on a Class B Common Stock equivalent basis)
beneficially owned by certain classes of persons, and as adjusted for Share 100
based on the assumptions set forth in the notes below.
<TABLE>
<CAPTION>
As Adjusted for
At October 3, 1997 Share 100(1) Cash and/or
---------------------------------------------- -------------------------------- Installments
Percentage of Percentage of Notes issued
--------------------------- -------------------- or paid in
Number of Voting Total Number of Voting Total Share 100
Shares Power Outstanding Shares Power Outstanding (in millions)
--------- ------ ----------- --------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Stockholders(1).... 22,910,240 92% 57% 22,042,782 97% 80% $ 25.3
Trustees for various ARAMARK
employee benefit plans...... 9,224,240 4% 23% 5,412,400 3% 20% $132.5
Outside Stockholders(2)....... 7,938,750 4% 20% -- 0% 0% $275.9
---------- --- --- ---------- --- --- ------
Total....................... 40,064,230 100% 100% 27,455,182 100% 100% $433.7
</TABLE>
- ------------------
(1) Includes directors, Former Managers and Permitted Transferees.
(2) Assumes (a) that Benefit Plans elect to receive 30% cash and 70%
Class A Composite Stock (other than the magazine and book benefit
plan which is assumed to elect all cash); (b) that approximately 75%
of Former Managers by number of shares elect to receive the Class A
Stock Consideration and the rest have their shares repurchased
pursuant to the Stockholders' Agreement; and (c) that all other
Continuing Holders of Class B Common Stock will elect to receive the
Group Stock Consideration (see "THE PLAN OF RECAPITALIZATION --
General," "--The Reclassification" and "--Procedure for Holders of
Shares").
115
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of capital stock does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Restated Charter, a copy of which is attached to this Proxy Statement as Annex V
and is incorporated herein by reference. Stockholders are urged to read
carefully the complete text of the Restated Charter.
Existing Capital Stock
General. The authorized capital of the Company consists of 185,000,000
shares, which includes 150,000,000 shares of Class B Common Stock; 25,000,000
shares of Class A Common Stock; and 10,000,000 shares of Series Preferred Stock,
par value $1.00 per share ("Series Preferred Stock"). As of October 3, 1997,
20,450,100 shares of Class B Common Stock were issued and outstanding (not
including 9,361,242 shares subject to options, installment stock purchase
opportunities and deferred stock units granted and outstanding under the Stock
Option Plans), and 1,961,413 shares of Class A Common Stock were issued and
outstanding. No shares of Series Preferred Stock are issued and outstanding.
Management Investors and their Permitted Transferees (approximately 1,400
persons at October 3, 1997) hold all of the shares of outstanding Class B Common
Stock. There is no established public trading market for the Common Stock of the
Company.
The following is a summary of certain provisions of the Certificate of
Incorporation and the By-Laws. The summary is qualified in its entirety by
reference to such documents filed as exhibits to the Company's Form 10-Q for the
first quarter of fiscal 1996 and the Company's Purchase Opportunity Registration
Statement (No. 33-14365), respectively.
The Class A Common Stock and the Class B Common Stock.
Voting--Each share of Class A Common Stock and each share of Class B Common
Stock entitles the holder thereof to one vote on all matters submitted to the
stockholders. All actions submitted to a vote of stockholders are voted upon by
holders of Class A Common Stock and Class B Common Stock voting together except
that the holders of Class A Common Stock and Class B Common Stock vote
separately as classes with respect to amendments to the Certificate of
Incorporation that may alter or change the powers, preferences or special rights
of their respective classes of stock so as to affect them adversely, and such
other matters as may require class votes under the DGCL. There is no provision
in the Certificate of Incorporation permitting cumulative voting.
Dividends and Other Distributions (including Distributions upon Liquidation
of the Company)--Dividends on the Class A Common Stock and the Class B Common
Stock are paid when, as and if declared by the Board and permitted under the
Company's loan agreements. In respect of rights to dividends and other
distributions in cash, stock or property of the Company (including distributions
upon liquidation of the Company, after provision for creditors of the Company
and any shares of the Company's capital stock having a preference on
liquidation, dissolution or winding up of the Company), each share of Class A
Common Stock is entitled to ten times the dividends and other distributions
payable on each share of Class B Common Stock when, as and if such dividends or
distributions may be declared and/or paid; provided, however, that in the case
of dividends or other distributions payable on the Class A Common Stock and the
Class B Common Stock in capital stock of the Company other than preferred stock,
including distributions pursuant to split-ups or divisions of
116
<PAGE>
the Class A Common Stock or the Class B Common Stock, only Class A Common Stock
is distributed with respect to Class A Common Stock and only Class B Common
Stock is distributed with respect to Class B Common Stock. In no event may
either Class A Common Stock or Class B Common Stock be split, divided or
combined unless the other is split, divided or combined equally; provided,
further, that dividends can be paid on the Class A Common Stock without the
Class B Common Stock.
Convertibility--The Class A Common Stock is not convertible. Subject to the
prior approval of the Board, the Class B Common Stock is convertible at all
times, in whole or in part, and without cost to the stockholder, into Class A
Common Stock on the basis of ten shares of Class B Common Stock for each share
of Class A Common Stock. Only full-time employees and directors of the Company
(and their Permitted Transferees while the transferor is a full-time employee or
director) may hold Class B Common Stock. Upon any holder of Class B Common Stock
ceasing to be a full-time employee or director of the Company, such holder's
Class B Common Stock automatically converts into Class A Common Stock, on the
basis of ten shares of Class B Common Stock for each share of Class A Common
Stock. The Board may at any time order the conversion of all the Class B Common
Stock into Class A Common Stock on a ten-for-one basis. No fractions of shares
of Class A Common Stock would be issued on such conversion, but rather such
amounts would be paid in cash based on the market value (or, if the Company is
not publicly traded, the last appraised value) of the Class B Common Stock.
Other--The Class A Common Stock and Class B Common Stock do not carry any
preemptive rights enabling a holder to subscribe for or receive shares of stock
of the Company of any class or any other securities convertible into shares of
stock of the Company.
Capital Stock After the Effective Time
General. After Share 100, the authorized capital of the Company will
consist of 210,000,000 shares, which includes 10,000,000 shares of Series
Preferred Stock; 25,000,000 shares of Class A Composite Stock; 40,000,000 shares
of Class B Composite Stock; 20,000,000 shares of Education Group Stock;
40,000,000 shares of Food and Support Group Stock; and 40,000,000 shares of
Uniform Group Stock. The following summary of the terms of the Redeemable
Transitory Participating Preferred Stock, Composite Stock and Business Group
Stock is qualified in its entirety by reference to the appropriate provisions of
the Restated Charter set forth in Annex V to this Proxy Statement, which is
incorporated herein by reference.
Redeemable Transitory Participating Preferred Stock. In order to facilitate
the Reclassification, the Company will file a Certificate of Designation with
respect to the Redeemable Transitory Participating Preferred Stock. It is
anticipated that no shares of Redeemable Transitory Participating Preferred
Stock will be issued upon reclassification until the Effective Time and that
none will be outstanding immediately after the Reclassification. Each share of
Redeemable Transitory Participating Preferred Stock will be entitled to receive
a dividend of ten times the dividend declared on a share of Class B Composite
Stock. In the event of a liquidation, each share of Redeemable Transitory
Participating Preferred Stock will be entitled to receive ten times what the
holder of a share of Class B Composite Stock is entitled to receive. Each share
of Redeemable Transitory Participating Preferred Stock will have one vote,
voting together with the Class A Composite Stock. The Redeemable Transitory
Participating Preferred Stock is immediately redeemable after the Effective Time
for cash or, if the holder makes an election, for Installment Notes or Class A
Composite Stock, as is more fully discussed in "SHARE 100 -- Structure of Share
100."
117
<PAGE>
As indicated above, the Company will redeem the Redeemable Transitory
Participating Preferred Stock immediately after the Effective Time.
Composite Stock and Business Group Stock.
Class B Redemption Feature--In order to facilitate the Reclassification,
the Company will amend the Certificate of Incorporation to add the Class B
Redemption Feature to each share of Class B Common Stock. The Class B Common
Stock is redeemable for Group Stock or, if the holder makes an election, for
cash, as is more fully discussed in "SHARE 100 -- Structure of Share 100." The
Company will exercise the Class B Redemption Feature immediately after shares of
Class A Composite Stock have been issued. The Class B Redemption Feature will
terminate 30 days after the Effective Time.
Dividends--Dividends on the Composite Stock and Business Group Stocks will
be subject to substantially the same limitations as dividends on the current
Common Stock, which are (i) limited to the Company's surplus, as defined in and
computed in accordance with DGCL (S) 154 (essentially the excess of net assets
over capital, as defined in the DGCL), or in case there is no such surplus, in
certain circumstances, out of the Company's net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year under the DGCL
and (ii) subject to the prior payment of dividends on any outstanding shares of
preferred stock. No distribution may be made to stockholders if, after giving
effect to such distribution, the Company would not be able to pay its debts as
they become due in the usual course of business or the Company's total assets
would be less than its total liabilities plus, subject to certain exceptions,
any amounts necessary to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those of the stockholders
receiving the distribution.
Dividends on the Composite Stock and the Business Group Stocks will be
further limited to an amount not in excess of such Group's Available Dividend
Amount. The holders of shares of Class A Composite Stock and Class B Composite
Stock shall be entitled to receive the same dividends and other distributions,
ratably with the holder of one share of Class A Composite Stock entitled to
receive ten times what the holder of one share of Class B Composite Stock is
entitled to receive; provided, however, that in the case of dividends or other
distributions payable in Composite Stock, only shares of Class B Composite Stock
shall be distributed with respect to Class B Composite Stock and only shares of
Class A Composite Stock shall be distributed with respect to Class A Composite
Stock, and any such distribution shall be made ratably, with the holder of one
share of Class A Composite Stock entitled to receive the same number of shares
of Class A Composite Stock as the number of shares of Class B Composite Stock
the holder of one share of Class B Composite Stock shall be entitled to receive
and provided, further, that the Board can declare dividends on Class A Composite
Stock without the Class B Composite Stock.
"Available Dividend Amount" with respect to any Business Group, on any
date, shall mean the assets attributed to such Business Group which would be by
law available for the payment of dividends if such Business Group were a
separate corporation, as determined by the Board. "Available Dividend Amount"
with respect to the Composite Group, on any date, shall mean the assets
attributed to the Composite Group which would be by law available for the
payment of dividends if each Business Group were a separate corporation and the
Composite Group owned, with respect to each such Business Group, the Number of
Shares Issuable with respect to the Inter-Group Interests, as determined by the
Board.
118
<PAGE>
Except as otherwise provided in the Restated Charter attached as Annex V to
this Proxy Statement, the Board may not declare and pay dividends or
distributions of shares of the Composite Stock or Business Group Stocks (or
convertible securities convertible into or exchangeable or exercisable for
shares of the Composite Stock or Business Group Stocks) on shares of the
Composite Stock, Business Group Stock or shares of the Series Preferred Stock,
except as follows:
(i) dividends or distributions of shares of Composite Stock (or
convertible securities convertible into or exchangeable or exercisable for
shares of Composite Stock) on shares of Composite Stock or shares of the Series
Preferred Stock attributed to the Composite Group;
(ii) dividends or distributions of shares of any class of Business
Group Stock (or convertible securities convertible into or exchangeable or
exercisable for shares of such shares of Business Group Stock) on shares of such
class of Business Group Stock or shares of the Series Preferred Stock attributed
to the respective Business Group; and
(iii) dividends or distributions of shares of any class of Business
Group Stock (or convertible securities convertible into or exchangeable or
exercisable for shares of such class of Business Group Stock) on shares of
Composite Stock or shares of the Series Preferred Stock attributed to the
Composite Group, but only if the sum of (1) the number of shares of such class
of Business Group Stock to be so issued (or the number of such shares which
would be issuable upon conversion, exchange or exercise of any convertible
securities to be so issued) and (2) the number of shares of such class of
Business Group Stock which are issuable upon conversion, exchange or exercise of
any convertible securities then outstanding that are attributed to the Composite
Group is less than or equal to the applicable Number of Shares Issuable with
Respect to the Inter-Group Interest.
The DGCL limits the amount of distributions on capital stock to the amount
of funds legally available therefor, which are determined on the basis of the
entire Company, and not just the respective Groups. Consequently, the amount of
legally available funds would reflect the amount of any net losses of any Group,
any distributions on Composite Stock, Business Group Stock, or any other
preferred stock and any repurchases of Composite Stock, Business Group Stock, or
other preferred stock. Dividend payments on the Composite Stock and each of the
Business Group Stocks could be precluded because of the unavailability of
legally available funds under the DGCL, even though the Available Dividend
Amount test with respect to the relevant Group was met.
Subject to the prior payment of dividends on any outstanding shares of
preferred stock and the foregoing limitations, the Board would be able, in its
sole discretion, to declare and pay dividends exclusively on the Composite
Stock, exclusively on any class of the Business Group Stocks or on all classes
of common stock, in equal or unequal amounts, notwithstanding the relative
Available Dividend Amounts, the amount of prior dividends declared on any class,
the respective voting or liquidation rights of each class or any other factor.
At the time of any dividend, redemption or other distribution on the
outstanding shares of any class of Business Group Stocks (but excluding a
dividend payable in shares of any class of Business Group Stock), the applicable
Business Group's financial records will be charged with an amount equal to the
product of (i) the Fair Value of such dividend, redemption payment or
distribution paid or distributed in respect of the outstanding shares of the
applicable class of Business Group Stock multiplied by (ii) a fraction, the
numerator of which is the Inter-Group Interest Fraction on the record date for
such dividend, redemption or distribution and the denominator of which is the
Outstanding Business Group Fraction on the record date for such dividend,
redemption or distribution.
119
<PAGE>
See Annex I for illustrations of the calculation of the Inter-Group
Interest and the related effects of dividends on shares of Business Group Stock.
Conversion and Redemption--Share 100 will permit the conversion and
redemption of each class of Business Group Stock and conversion of the Class B
Composite Stock upon the terms described below, but will not permit either
mandatory or optional conversion or redemption of the Class A Composite Stock.
(a) Conversion at Election of the Board.
(i) The Board may at any time convert all outstanding shares of any
class of Business Group Stock or of Class B Composite Stock into fully paid and
nonassessable shares of Class A Composite Stock at the applicable Conversion
Ratio; and no further shares of such converted class of common stock may be
issued thereafter.
(ii) The Board may at any time convert all outstanding shares of any
class of Business Group Stock into fully paid and nonassessable shares of Class
B Composite Stock at the applicable Conversion Ratio; and no further shares of
such converted class of Business Group Stock may be issued thereafter.
(iii) During the period after shares of any class of Business Group
Stock are called for conversion as provided above, but before the applicable
conversion date, the holders of such shares may, at their election and in lieu
of such conversion, convert their shares into shares of a new class of Business
Group Stock (for substantially the same Business Group as was the class of
Business Group Stock being converted), if any, that the Board may designate for
the stated purpose of having an underwritten public offering.
(b) Conversion upon Transfer of Employment. If a full-time employee of the
Company or any of its subsidiaries accepts a transfer in employment from one
Group to another, then the Board may declare that all or any part of the
outstanding shares of any class of Business Group Stock held by such individual
or a Permitted Transferee of such individual shall be converted, as of the
effective date of such transfer or such later date not more than 90 days
thereafter, into fully paid and nonassessable shares of such other class or
classes of Common Stock as the Board shall determine, at the applicable
Conversion Ratios.
(c) Redemption in Exchange for Stock of Subsidiary. At any time at which
all of the assets and liabilities attributed to any of the Business Groups (and
no other assets or liabilities of the Company or any subsidiary thereof) are
held directly or indirectly by one or more wholly-owned subsidiaries of the
Company (each, a "Business Group Subsidiary"), the Board may, provided that
there are assets of the Company legally available therefor, redeem all of the
outstanding shares of the applicable Business Group Stock for a number of shares
of common stock of the applicable Business Group Subsidiary equal to the product
of the applicable Outstanding Business Group Fraction multiplied by the number
of shares of the applicable Business Group Subsidiary to be outstanding
immediately following such redemption, on a pro rata basis. The Company will
retain or distribute the balance of the outstanding shares of the common stock
of the applicable Business Group Subsidiary in respect of the Inter-Group
Interest of the Composite Group in the applicable Business Group, if any.
The foregoing provisions allow the Company the flexibility to recapitalize
Class B Composite Stock or any class of the Business Group Stock into Class A
Composite Stock or Class B Composite
120
<PAGE>
Stock that would, after such recapitalization, represent an equity interest in
all of the Company's businesses. The optional exchange could be exercised at any
future time if the Board determined that, under the facts and circumstances then
existing, an equity structure consisting of five classes of Common Stock was no
longer in the best interests of all of the Company's stockholders. Such exchange
may be exercised, however, at a time that is disadvantageous to the holders of
one of the classes of Common Stock. See "RISK FACTORS--Fiduciary Duties of the
Board of Directors Are to All Stockholders regardless of Class or Series" and
"--Potential Diverging Interests."
The "Conversion Ratio" shall be, (i) in the case of conversion of Class B
Composite Stock into Class A Composite Stock, one-tenth of a share of Class A
Composite Stock for each outstanding share of Class B Composite Stock being
converted; and (ii) in the case of conversion of any class of Business Group
Stock into Class A Composite Stock or Class B Composite Stock, the number of
shares of the Class A Composite Stock or Class B Composite Stock equal to the
Appraisal Price of the class of Business Group Stock divided by the Appraisal
Price of the Class A Composite Stock or Class B Composite Stock, as determined
by the Board, for each outstanding share of such Business Group Stock being
converted.
Voting Rights--Each share of Composite Stock and Business Group Stock is
entitled to one vote on all matters submitted for a vote of the Company's
stockholders. Upon the occurrence of an underwritten public offering by the
Company of any class of Business Group Stock, each share of Class B Composite
Stock and Business Group Stock shall be thereafter entitled to 10 votes on all
matters submitted to a vote of the Company's stockholders; provided that the
class of Business Group Stock that is offered in the underwritten public
offering shall thereafter continue to be entitled to one vote per share on all
matters submitted to a vote of the Company's stockholders; provided, further,
that any class of Business Group Stock having ten votes per share that is
offered in a subsequent underwritten public offering shall, after the
consummation of such underwritten public offering, be entitled to one vote per
share on all matters submitted to a vote of the Company's stockholders.
Following implementation of Share 100, the holders of Composite Stock and
Business Group Stocks would vote together as a single voting group, except as
required by Delaware law with respect to certain amendments to the Restated
Charter specifically affecting a class of common stock, in which case a separate
vote by the holders of the particular class affected would also be required.
Accordingly, if a separate vote on a matter by the holders of either the
Composite Stock or any class of the Business Group Stock is not required under
the DGCL and if the Board does not require a separate vote, the class that is
entitled to more than the number of votes required to approve such matter will
be in a position to control the outcome of the vote on such matter even if the
matter involved a divergence or the appearance of a divergence of the interests
between the holders of the Composite Stock and any class of the Business Group
Stock. Conversely, if a separate vote of the holders of either Composite Stock
or any class of the Business Group Stock is required to approve and amendment of
the type described above, such holders could prevent approval of the amendment
notwithstanding that the holders of a majority of the outstanding stock entitled
to vote with respect to both the Composite Stock and Business Group Stocks had
voted in favor of it. Under the DGCL, where a class vote is not required, the
approval of most matters (other than the election of directors who are elected
by a plurality of the votes cast) requires the affirmative vote of a majority of
the shares outstanding and entitled to vote thereto. See "RISK FACTORS--Limited
Separate Stockholder Voting Rights; Effects on Voting Power."
The Charter Amendments will reserve to the Board the right to condition the
submission of a particular matter on receipt of a separate vote of the holders
of outstanding shares of Composite Stock or any class of the Business Group
Stock. The Board has no present intention of imposing such a
121
<PAGE>
separate vote requirement on any matter which it can now foresee. However,
should the Board, in the exercise of its fiduciary duties and its good faith
judgment of the best interests of the Company, conclude that such a separate
vote is necessary or desirable, it has reserved the right to so require.
Liquidation--Under Share 100, in the event of a liquidation, dissolution or
termination of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Company and full
preferential amounts (including any accumulated and unpaid dividends) to which
holders of any class of preferred stock are entitled (regardless of the Group to
which such shares of preferred stock were attributed), the holders of Composite
Stock and each class of Business Group Stock will be entitled to receive the net
assets, if any, of the Company remaining for distribution to holders of Common
Stock, ratably, with the holder of one share of Class A Composite Stock entitled
to receive ten times what the holder of one share of Class B Composite Stock and
each Business Group Stock is entitled to receive, subject to adjustment if
shares of any classes are subdivided, combined or distributed as a dividend.
No holders of Composite Stock will have any special right to receive
specific assets attributable to the Composite Group and no holder of any
Business Group Stock will have any special right to receive specific assets
attributable to a Business Group in the case of a liquidation, dissolution or
termination of the Company.
Neither a merger nor consolidation of the Company into or with any other
corporation, nor a merger or consolidation of any other corporation into or with
the Company, nor any sale, lease, exchange or other disposition of all or any
part of the assets of the Company, nor a reorganization of the Company will,
alone, be deemed to be a liquidation of the Company, or cause the dissolution of
the Company, for purposes of the liquidation provisions set forth above.
Other--The Composite Stock and Business Group Stocks do not carry any
preemptive rights enabling a holder to subscribe for or receive shares of stock
of the Company of any class or any other securities convertible into shares of
stock of the Company.
Determinations by the Board of Directors
Determinations Authorized. The Board shall make such determinations with
respect to the assets and liabilities to be attributed to the Groups, the
application of the provisions of Part 4A of the Restated Charter to transactions
to be engaged in by the Company, including, without limiting the foregoing, the
following determinations:
(i) Upon any acquisition by the Company or its subsidiaries of any
assets or business, or any assumption of liabilities, outside of the ordinary
course of business of any Group, the Board shall determine whether such assets,
business and liabilities (or an interest therein) shall be for the benefit of
one or more Groups and, accordingly, shall be attributed to such Group or
Groups, as the case may be.
(ii) Upon any issuance of any shares of any Business Group Stock at
a time when the Number of Shares Issuable with Respect to the Inter-Group
Interest with respect thereto is greater than zero, the Board shall determine,
based on the use of the proceeds of such issuance and any other relevant
factors, whether all or any part of the shares of such Business Group Stock so
issued shall reduce the applicable Number of Shares Issuable with Respect to the
Inter-Group Interest, and the Number of Shares Issuable with Respect to the
Inter-Group Interest shall be adjusted accordingly.
122
<PAGE>
(iii) Upon any issuance by the Company or any subsidiary thereof of
any convertible securities that are convertible into or exchangeable or
exercisable for shares of any Business Group Stock, if at the time such
convertible securities are issued the Number of Shares Issuable with Respect to
the Inter-Group Interest with respect thereto is greater than zero, the Board
shall determine, based on the use of the proceeds of such issuance of
convertible securities in the business of the Composite Group or such Business
Group and any other relevant factors, whether, upon conversion, exchange or
exercise thereof, the issuance of shares of such Business Group Stock pursuant
thereto shall, in whole or in part, reduce the applicable Number of Shares
Issuable with Respect to the Inter-Group Interest.
(iv) Upon any issuance of any shares of preferred stock of any
series, the Board shall attribute, based on the use of proceeds of such issuance
of shares of preferred stock in the business of any Group or Groups and any
other relevant factors, the shares so issued to such Group or Groups in such
proportion as the Board shall determine.
(v) Upon any redemption or repurchase by the Company or any
subsidiary thereof of shares of preferred stock or of other securities or debt
obligations of the Company, the Board shall determine, based on the property
used to redeem or purchase such shares, other securities or debt obligations and
any other relevant factors, which, if any, of such shares, other securities or
debt obligations redeemed or repurchased shall be attributed to which Group or
Groups and, accordingly, how many of the shares of preferred stock or of such
other securities, or how much of such debt obligations, that remain outstanding,
if any, are thereafter attributed to each Group.
Delegation. The Board may delegate any and all authority under Part 4A of
the Restated Charter to any committee thereof and, to the fullest extent
permitted by law, to any authorized officer or agent.
Record of Determinations. The Secretary of the Company shall maintain a
record of determinations made by the Board pursuant to Part 4A of the Restated
Charter, which shall be made available for inspection by any stockholder upon
request.
Board Determinations Binding. Subject to applicable law, any determinations
made by the Board under any provision of Part 4A of the Restated Charter or
otherwise in furtherance of the application of Part 4A of the Restated Charter
shall be final and binding on all shareholders.
If Share 100 is approved by the stockholders and implemented by the Board,
any determinations made in good faith by the Board under any provision described
under "DESCRIPTION OF CAPITAL STOCK," and any determinations with respect to any
Group or the rights of holders of shares of any class of Common Stock, would be
final and binding on all stockholders of the Company, subject to the rights of
stockholders under applicable Delaware law and under the federal securities
laws.
Inter-Group Interest of Composite Group in Business Groups
After allocation of the debt to be incurred to finance Share 100, the
aggregate appraisal value of 100% of the equity value of the Educational
Resources Group, Food and Support Services Group and Uniform and Career Apparel
Group will be approximately $________ million, $_______ million and $________
million, respectively. Such numbers were determined based on a review of the
history and nature of the Company; a review of financial data bearing upon
recent and prospective operations, including the Company's SEC form 10-K and 10-
Q filings, other recent SEC filings, and
123
<PAGE>
internal financial and operating segment data, as well as long-term financial
forecasts of the Company; a review and analysis of the Groups and their
prospects; capital market information deemed relevant to the assessment of the
investment risk return attributes of each class of Group Stock; and the
Appraisal Price of each class of Group Stock. Based on the determined appraisal
value of 100% of the equity value of each of the Business Groups and the
Appraisal Price of $34.75 per share for each of the Group Stocks (before any
deduction for limited marketability), the number of shares representing 100% of
the equity value of Education Group Stock, Food and Support Group Stock and
Uniform Group Stock will be approximately __________, _________ and _________,
respectively. To the extent not all of such shares of Business Group Stock are
issued upon implementation of Share 100, then the number of such unissued shares
represent the initial balance of the Inter-Group Interest in such Business
Groups that is attributable to the Composite Group.
The "Outstanding Business Group Fraction" means the percentage interest in
a Business Group represented at any time by the outstanding shares of such class
of Business Group Stock, and the "Inter-Group Interest Fraction" means the
remaining percentage interest in a Business Group that is attributed to the
Composite Group. The sum of the Inter-Group Interest Fraction and the
Outstanding Business Group Fraction will always equal 100%. The "Number of
Shares Issuable with Respect to the Inter-Group Interest" means the number of
shares of such class of Business Group Stock that could be sold or otherwise
issued by the Company for the account of the Composite Group in respect of the
Inter-Group Interest. The Inter-Group Interest would not be represented by
actual shares of such class of Business Group Stock and could not be voted by
the Composite Group.
On a pro forma basis assuming Share 100 had occurred at October 3, 1997,
and further assuming that in Share 100 all Outside Stockholders receive the
Class A Cash Consideration, approximately 75% of Former Managers by number of
shares receive the Class A Stock Consideration and the rest have their shares
repurchased pursuant to the Stockholders' Agreement, the Magazine and Book
Benefit Plan receives the Class A Cash Consideration, all other Benefit Plans
receive 30% Class A Cash Consideration and 70% Class A Stock Consideration, all
Magazine and Book Employees receive the Class B Cash Consideration, and all
Continuing Holders receive the Group Stock Consideration, then the Outstanding
Business Group Fraction for each of the Business Groups would be as follows:
<TABLE>
<CAPTION>
Outstanding
Business Group
Business Group Fraction
-------------- --------
<S> <C>
Educational Resources 7%
Food and Support Services 22%
Uniform and Career Apparel 12%
</TABLE>
The number of shares of a class of Business Group Stock representing 100%
of the equity value of such Business Group would increase as a result of an
offering of such Business Group Stock to the extent of the shares issued for the
account of the Business Group. For example, if 20% of the equity value of a
Business Group were issued in a Business Group stock offering, the number of
shares representing such percentage and issued to the public would cause the
number of shares representing 100% of the equity value of the Business Group to
increase by such number.
At the time of any additional sale of any class of the Business Group
Stock, the Board would, in its sole discretion, determine the allocation of the
net proceeds of such sale between the Composite
124
<PAGE>
Group and such Business Group. The Board could allocate 100% of the net proceeds
of a sale of such class of Business Group Stock to the Composite Group or to
such Business Group, in which event the net proceeds would be reflected entirely
in the financial records of the Group to which such proceeds would be allocated.
If the net proceeds of any sale of such class of Business Group Stock were
allocated to the Composite Group in respect of its Inter-Group Interest, the
Number of Shares Issuable with respect to the Inter-Group Interest would be
reduced, the Inter-Group Interest Fraction would accordingly also be reduced and
the Outstanding Interest Fraction would be proportionately increased. If the net
proceeds of any sale of such class of Business Group Stock were allocated to
such Business Group, the Number of Shares Issuable with respect to the Inter-
Group Interest would not be reduced, but the Inter-Group Interest Fraction would
nonetheless be reduced, and the Outstanding Interest Fraction would increase
accordingly.
The Board reserves the right to issue shares of any class of the Business
Group Stock as a distribution on the Composite Stock, although it has no current
intention to do so. Such a distribution would be treated as a distribution of
shares issuable with respect to the Inter-Group Interest and, as a result, the
Number of Shares Issuable with respect to the Inter-Group Interest would
decrease by the number of shares distributed to the holders of Composite Stock,
resulting in a reduction in the Inter-Group Interest Fraction and a
proportionate increase in the Outstanding Business Group Fraction.
Cash or other property allocated to the Composite Group that is contributed
as additional equity to any of the Business Groups would increase the Number of
Shares Issuable with respect to the Inter-Group Interest (based on the then
current appraisal value of shares of the applicable Business Group Stock), and,
accordingly, would increase the Inter-Group Interest Fraction and decrease the
Outstanding Business Group Fraction. Cash or other property allocated to the
applicable Business Group that is transferred to the Composite Group would, if
so determined by the Board, decrease the Number of Shares Issuable with respect
to the Inter-Group Interest (based on the then current appraisal value of shares
of such class of Business Group Stock) and, accordingly, would decrease the
Inter-Group Interest Fraction and increase the Outstanding Business Group
Fraction. The Board could determine, in its sole discretion, to make such
contribution or transfer after consideration of a number of factors, including,
among others, the financing needs and objectives of the recipient Group, the
investment objectives of the transferring Group, the availability, cost and time
associated with alternative financing sources, prevailing interest rates and
general economic conditions.
None of the Business Groups can acquire an Inter-Group Interest in another
Business Group or the Composite Group.
For further discussion and illustrations of the calculation of the Inter-
Group Interest Fraction, the Outstanding Business Group Fraction and the Number
of Shares Issuable with respect to the Inter-Group Interest and the effects
thereon of dividends on, and issuances and repurchase of, shares of each class
of Business Group Stock, and transfers of cash or other property between Groups,
see Annex I hereto.
DESCRIPTION OF INSTALLMENT NOTES
The information contained in this Proxy Statement with respect to the
Installment Notes does not purport to be complete and is qualified in its
entirety by reference to the complete text of the Installment Notes, a copy of
which is attached hereto as Annex IV and incorporated herein by reference. For
information regarding certain federal income tax consequences relating to the
receipt
125
<PAGE>
of Installment Notes in Share 100, see "SHARE 100--Certain U.S. Federal
Income Tax Considerations."
General
The Installment Notes will each be issued as individual promissory
notes without the benefit of an indenture or trustee. The Installment
Notes will be non-negotiable.
The Installment Notes will represent unsecured general obligations
of ARAMARK Services, Inc., a wholly owned subsidiary of the Company, and
will be guaranteed by the Company. The Installment Notes will rank pari
passu with the Company's primary Bank Facility as in effect at the
Effective Time and will rank senior to all subordinated indebtedness of
the Company outstanding as of the Effective Time.
Each share of Redeemable Transitory Participating Preferred Stock
may be redeemed for a portion of an Installment Note constituting $347.50
in principal. The Installment Notes will be issued only in principal
amounts of $10,000 or integral multiples thereof. In order to receive,
among other things, at least one $10,000 principal amount Installment
Note in Share 100, a holder generally must own at least 29 shares of
Redeemable Transitory Participating Preferred Stock immediately prior to
the Effective Time.
No representation is made that Installment Notes are the economic
equivalent of the cash in lieu of which such Installment Notes are
elected. Any holder of Class A Common Stock who elects to receive
Installment Notes must fulfill a Suitability Requirement, as defined in
"THE PLAN OF RECAPITALIZATION -- Procedure for Holders of Shares --
Certain Suitability Requirements." The Installment Notes may not be
acceptable as collateral by banks, other lending institutions or broker-
dealers and may not be an appropriate investment for certain stockholders
of the Company. Stockholders who do not desire the tax deferral designed
to be provided by the Installment Notes should not make an Election to
receive the Installment Notes.
Maturity and Interest
The Installment Notes will mature on August 1, 2007, and will bear
interest at the rate of 7.25% per annum, accruing from the Effective
Time. Interest on the Installment Notes will be payable in arrears semi-
annually on December 15 and June 15 of each year, commencing June 15,
1998. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. The Installment Notes will be
payable both as to principal and interest at the principal executive
offices of the Company or, at the option of the Company, payment may be
made by check mailed to the address of the holder set forth in the
Installment Note.
Conversion
The Installment Notes will be convertible at par, in whole, at any
time after February 11, 1999 at the option of the holder, into the
Company's publicly traded 7.10% Guaranteed Notes due 2006 (Guaranteed
Notes) (subject to the Company's right to redeem such Installment Note
upon such conversion). An exchange of an Installment Note for a
Guaranteed Note will be a taxable exchange and any gain that was deferred
previously will be recognized at that time. See "SHARE 100 -- Certain
U.S. Federal Income Tax Considerations."
126
<PAGE>
Optional Redemption
Each Installment Note, in whole but not in part, will be subject to
redemption upon not less than 30 days' notice by mail, at any time after
June 14, 2004, or if earlier, in lieu of conversion by the holder at the
time the holder exercises his conversion privilege, at the election of
the Company, at a redemption price equal to 100% of its principal amount,
together with accrued and unpaid interest to the date fixed for
redemption.
Assignability of Installment Notes
No assignment or transfer of the Installment Notes will be permitted
except to the estate of the holder upon his death. The restrictions on
assignment or transfer contained in the Installment Notes are intended to
comply with certain provisions of federal regulations related to the
availability of the installment method for reporting gain for federal
income tax purposes by stockholders who receive Installment Notes. See
"SHARE 100--Certain U.S. Federal Income Tax Considerations."
Guarantee
The Company will guarantee the payment of both principal and
interest of the Installment Notes.
Covenant
The Company will furnish to each holder, within 120 days after the
end of each fiscal year, a copy of the audited annual report for such
fiscal year of the Company containing balance sheets of the Company as of
the end of such fiscal year and statements of income and retained
earnings of the Company for such fiscal year.
127
<PAGE>
ELECTION OF DIRECTORS
Twelve directors will be elected by a plurality of the votes cast at
the meeting. The persons listed below are proposed to be elected to
serve until the next annual meeting of stockholders and the election and
qualification of their respective successors:
Joseph Neubauer Lee F. Driscoll, Jr.
James E. Ksansnak Mitchell S. Fromstein
Patricia C. Barron Edward G. Jordan
Robert J. Callander Thomas H. Kean
Alan K. Campbell Reynold C. MacDonald
Ronald R. Davenport James E. Preston
If, due to circumstances not now foreseen, any of the nominees
becomes unavailable for election, the proxy agents named in the proxy
cards will have the right to vote for a substitute in each case, or the
Board will take appropriate action to reduce the number of directors.
Directors
<TABLE>
<CAPTION>
Name (Age as of November 1, 1997) Office Held (Committee) Since
--------------------------------- ----------------------- -----
<S> <C> <C>
Joseph Neubauer (56) Chairman 1979
and Director (1)(2)(3)
James E. Ksansnak (57) Vice Chairman and Director 1997
Patricia C. Barron (54) Director 1997
Robert J. Callander (66) Director (2)(3)(4)(5) 1986
Alan K. Campbell (74) Director (4) 1980
Ronald R. Davenport (61) Director (1)(4)(5) 1980
Lee F. Driscoll, Jr. (71) Director (1) 1973
Mitchell S. Fromstein (69) Director (3)(4) 1990
Edward G. Jordan (67) Director (1)(2)(3) 1980
Thomas H. Kean (62) Director (3)(4) 1994
Reynold C. MacDonald (79) Director (1)(2)(3) 1977
James E. Preston (64) Director (3)(4) 1993
</TABLE>
--------------------------
The numbers following the offices held by the directors indicate
membership in the following Board committees during fiscal 1997:
(1) Audit and Corporate Practices
(2) Executive
(3) Finance
(4) Human Resources, Compensation and Public Affairs
(5) Stock
Directors Meetings and Committees
The Board held nine meetings during fiscal 1997. The Board has
certain standing committees which are described below. During fiscal
1997, each director attended at least 75% of the aggregate of all Board
meetings and all meetings of committees on which he served, except Mr.
Fromstein who attended 13 out of 18 such meetings.
128
<PAGE>
The Audit and Corporate Practices Committee reviews the periodic
financial reports and the accounting principles used by the Company and
the adequacy of the Company's system of internal controls. It also
reviews with the independent public accountant and the internal audit
department the scope of their audits, their audit reports and any
recommendation made by them to determine whether these activities are
reasonably designed to assure the soundness of accounting and financial
procedures. It recommends the action to be taken with respect to the
appointment, and approves the compensation, of the Company's independent
public accountants and monitors compliance with the Company's business
conduct policy. It held four meetings during fiscal 1997.
The Executive Committee, when acting by unanimous vote of all
members, has the full power of the Board when the Board is not in
session, with specific limitations relating to certain corporate
governance or other corporate matters. It did not hold any meetings
during fiscal 1997.
The Finance Committee reviews the overall financial and business
plans of the Company, including capital expenditures, acquisitions and
divestitures, securities issuances and incurrences of debt and the
performance of the Company's retirement benefit plans. It recommends to
the Board specific transactions involving the foregoing, and it has been
empowered by the Board to approve certain financial commitments and
acquisitions and divestitures by the Company up to specified levels. It
held four meetings during fiscal 1997.
The Human Resources, Compensation and Public Affairs Committee
consists entirely of outside directors. The committee determines the
base salary of the Chairman and President (subject to review and approval
by the Board) and approves the salaries and bonuses paid to officers and
other employees who are line of business presidents or whose current or
proposed base salary exceeds $200,000 per annum. It reviews appointments
to senior management positions and the nature and scope of the Company's
employee benefits plans. It also reviews and recommends the compensation
of outside directors and reviews the Company's contribution policy and
practices for its retirement benefit plans. The committee is also
authorized to exercise the Company's rights and powers under the
Stockholders' Agreement, including approval of grants of stock purchase
opportunities under the ARAMARK Ownership Program as well as the annual
approval of an internal market policy providing for the repurchase of
shares from a management investors. It held five meetings during fiscal
1997.
The Stock Committee consists of two outside directors. The
committee has concurrent authority, with the Human Resources,
Compensation and Public Affairs Committee, to approve specific
transactions involving Company stock between officers and directors and
the Company. It did not hold any meetings during fiscal 1997.
Business Experience
The principal occupations the past five years of the Company's
directors and other directorships currently held by directors are as
follows:
Mr. Neubauer has been chief executive officer of the Company since
February 1983 and the chairman since April 1984; he was President of the
Company from February 1983 to May 1997. He is a director of Bell
Atlantic Corporation, Federated Department Stores, Inc. and First Union
Corporation.
Mr. Ksansnak has been vice chairman of the Company since May 1997.
From February 1991 to May 1997 he was executive vice president of the
Company; from May 1986 to February
129
<PAGE>
1991 he was senior vice president of the Company; and from May 1986 to
May 1997 he was chief financial officer of the Company. He is a director
of CSS Industries, Inc. and Advanta Corp.
Ms. Barron has been vice president, Business Operations Support of
Xerox Corporation since April 1997. From 1995 to 1997 she was president,
Engineering Systems of Xerox Corporation and from 1992 to 1994 was
president, Office Document Products of Xerox Corporation. She is a
director of Quaker Chemical Corporation, Reynolds Metals Company, and
Frontier Corporation.
Mr. Callander is executive-in-residence at the Business School of
Columbia University. He was president of Chemical Bank and Chemical
Banking Corporation from August 1990 to June 1992. He is a director of
Barnes Group, Inc. Beneficial Corporation, Latin American Dollar Income
Fund, Omnicom Group Inc., Scudder New Asia Fund, Scudder World Income
Opportunities Fund and The Korea Fund Inc.
Dr. Campbell was vice chairman of the Company from April 1984 to
February 1991 and was executive vice president from December 1980 until
his retirement in September 1990.
Mr. Davenport has been the chairman of Sheridan Broadcasting
Corporation since 1972.
Mr. Driscoll was a partner in the Philadelphia law firm of Ballard,
Spahr, Andrews & Ingersoll from January 1984 until December 1990.
Mr. Fromstein has been chairman, president and chief executive
officer of Manpower Inc. since March 1976. He is a director of Manpower
Inc.
Mr. Jordan was the chairman and chief executive officer of
Consolidated Rail Corporation from 1975 to 1981 and served as the
president of The American College from 1982 until 1987. He is a director
of Acme Metals Incorporated.
Former Governor Kean was the Governor of the State of New Jersey
from 1982 until 1990. He has been the president of Drew University since
1990. He is a director of Amerada Hess Corporation, Bell Atlantic
Corporation, Beneficial Corporation, Fiduciary Trust Company
International and United Health Care Corporation.
Mr. MacDonald served as a consultant to Acme Metals Incorporated
from May 1992 to May 1997. He was chairman of Acme Metals Incorporated
from June 1986 until May 1992. He is a director of Acme Metals
Incorporated and Kaiser Ventures Inc.
Mr. Preston has been the chairman, president, chief executive
officer and a director of Avon Products, Inc. since 1989. He is a
director of Woolworth Corporation and Reader's Digest Association.
130
<PAGE>
Executive Compensation
The table below sets forth information with respect to the
compensation of the named executive officers for services in all
capacities to the Company and its subsidiaries in the years indicated.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Stock Options All Other
Name and Principal Position Fiscal Year Salary Bonus Granted (#) Comp.(1)
- --------------------------- ----------- ------ ----- ----------- --------
<S> <C> <C> <C> <C> <C>
Joseph Neubauer 1997 $900,000 $ 0
Chairman and 1996 $850,000 $700,000 0 $14,500
Chief Executive 1995 $820,000 $650,000 500,000 $15,500
Officer
James E. Ksansnak 1997 $368,000 $ 0
Vice Chairman 1996 $354,000 $300,000 0 $ 6,000
1995 $342,000 $225,000 34,000 $ 5,500
William Leonard 1997 $437,500 $ 80,000
President and Chief 1996 $385,000 $275,000 0 $ 6,000
Operating Officer 1995 $362,000 $325,000 70,000 $ 5,500
Martin W. Spector 1997 $345,000 $ 0
Executive Vice President, 1996 $337,000 $200,000 0 $ 6,000
General Counsel 1995 $327,000 $200,000 10,000 $ 5,500
and Secretary
L. Frederick Sutherland 1997 $347,000 $ 50,000
Executive Vice President 1996 $314,500 $240,000 0 $ 6,000
and Chief Financial 1995 $280,000 $310,000 100,000 $ 5,500
Officer
</TABLE>
- ---------------------------
(1) Other compensation includes employer contributions to the Stock
Unit Retirement Plan, plus for fiscal 1996 and 1995, the value of
interest foregone and not recaptured by the Company relating to
payment of premiums for split dollar life insurance.
131
<PAGE>
Stock Purchase Opportunities
The following table sets forth information with respect to the named
executive officers concerning individual grants of stock purchase
opportunities made in fiscal 1997.
Options Granted in Fiscal 1997
(Stock Purchase Opportunities)
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise or for Option Term (2)
Options Employees in Base price Expiration -------------------
Name Granted(1) Fiscal Year ($/Sh) Date 5% 10%
---- ---------- ------------ ----------- ------------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Joseph Neubauer -- -- -- -- -- --
James E. Ksansnak -- -- -- -- -- --
William Leonard 80,000 2.3% $18.50 January 2002 $262,249 $566,066
Martin W. Spector -- -- -- -- -- --
L. Frederick Sutherland 50,000 1.4% $16.20 January 2002 $131,936 $283,914
</TABLE>
---------------------------
(1) See "The ARAMARK Ownership Program." 30,000 of the options
granted to Mr. Leonard are cumulative installment stock
purchase opportunities. All other options in the table are
installment stock purchase opportunities. All were granted at
a per share exercise price equal to the Appraisal Price of the
shares at the time of grant.
(2) Realizable value refers to the assumed Appraisal Price of the
underlying shares at the time such purchase opportunity expires
minus the exercise price.
The following table sets forth information with respect to the named
executive officers concerning the exercise of options in fiscal 1997 and
the unexercised options held as of October 3, 1997.
Aggregated Option Exercises in Fiscal 1997
and FY-End Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options Options at
at FY-End(2) FY-End(2)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized(1) Unexercisable Unexercisable
---- --------------- -------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Joseph Neubauer 21,404 $ 197,559 0/500,000 $0/$3,250,000
James E. Ksansnak 29,960 $ 434,035 0/35,000 $0/$227,500
William Leonard 72,080 $ 769,114 0/202,120 $0/$1,141,246
Martin W. Spector 145,560 $1,847,532 0/10,000 $0/$65,000
L. Frederick Sutherland 23,848 $ 141,067 0/169,000 $0/$1,050,920
</TABLE>
-----------------------
(1) Value realized refers to the Appraisal Price of the underlying
shares at the time the option was exercised minus the exercise
price of the option.
(2) Options currently exercisable and current values of options are
determined as of October 3, 1997. Current value of an option
refers to the Appraisal Price of the underlying shares minus
the exercise price of the option.
132
<PAGE>
Shareholder Return
The following graph compares the five year cumulative return of Class B Common
Stock (measured by the Appraisal Price) to the Standard & Poor's 500 Stock Index
and the Dow Jones Consumer Non-Cyclical Index.
[GRAPH]
Cumulative total return is stated as a percentage of the base year
(1992) stock price. Cumulative total return in a given year equals (i) the
cumulative amount of dividends paid since the base year, assuming dividend
reinvestment, plus the year-end stock price, (ii) divided by the base year stock
price.
<TABLE>
<CAPTION>
ARAMARK Dow Jones
Fiscal Year Consumer
Ended ARAMARK S&P 500 Non-Cyclical
----------- ------- ------- ------------
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 128.00 112.98 89.88
1994 151.82 117.27 106.31
1995 180.88 151.19 144.26
1996 201.39 181.57 187.36
1997 248.91 252.77 251.14
</TABLE>
The ARAMARK Ownership Program
The ARAMARK Ownership Program (the "ARAMARK Ownership Program") is
designed to provide an opportunity for selected management employees of the
Company and its subsidiaries to
133
<PAGE>
acquire an ownership interest in the Company and thereby give them a more direct
continuing interest in the future success of the Company's business. Under the
Ownership Program, direct ownership in the Company has increased from 62
original management investors in December 1984 to approximately 1,100 management
investors owning approximately 51% of the equity. At October 3, 1997, management
employees and directors held stock purchase opportunities and options for
8,944,212 shares.
The Company's senior management believes that management ownership
has significantly contributed to the Company's success, and intends to continue
to use the Ownership Program to expand both the number of management investors
and their percentage ownership.
Through installment stock purchase opportunities and expanded
ownership purchase opportunities, the Company has granted management employees
an opportunity to invest in, or increase their investment in, the Company.
The purchase price for shares subject to either installment stock
purchase opportunities ("ISPOs") or expanded ownership purchase opportunities
(EXPOs) is the Appraisal Price of the shares (based upon the most recent
available independent appraisal) on the date of the grant. Shares issued
pursuant to the exercise of purchase opportunities are subject to the
Stockholders' Agreement. Generally, purchase opportunities are not transferable,
and each purchase opportunity is exercisable only by the employee to whom it is
granted.
Each installment stock purchase opportunity has an installment
schedule that limits the number of shares of common stock that may be purchased
during each annual installment exercise period. Unless the first installment is
exercised by its expiration date for a minimum number of shares, the entire
installment purchase opportunity is canceled. Thereafter, subsequent annual
installments may be exercised (subject to exercise of a minimum number of
shares) for up to the maximum number of shares specified in the certificate for
that installment. Any portion of an annual installment not exercised by the
appropriate expiration date is canceled. Each installment stock purchase
opportunity is exercisable only while an employee of the Company or a
subsidiary. The Company also grants cumulative ISPOs which are similar to
regular ISPOs except that if a portion of an annual installment is not exercised
during the corresponding exercise period, then it is not canceled but rather may
be exercised during any subsequent exercise period.
Each expanded ownership purchase opportunity provides that once
vested, the entire opportunity or a portion (in 100 share increments) may be
exercised during any of the specified annual exercise periods. Upon termination
of employment, an employee can exercise his or her expanded ownership purchase
opportunity if it is vested, within three months after termination (but not
beyond its expiration date). If it is not vested as such time, the entire grant
is canceled. Expanded ownership opportunities have been awarded to management
employees who had not previously been granted installment stock purchase
opportunities. The size and the structure of the expanded ownership
opportunities were approved, taking into consideration the general compensation
levels of the recipients, the size of the cash investment that would be
required, the general suitability of such an investment to recipients generally,
the goal of encouraging management investors to retain the shares they acquire,
the potential dilution to existing stockholders, and the costs and additional
administrative requirements of such expanded ownership.
In connection with the exercise of installment purchase
opportunities and non-qualified stock options, the Company has adopted a
deferred payment program whereby a portion of the purchase price for certain
installments may be deferred at the election of the employee for approximately
six
134
<PAGE>
years. The deferred payment obligation is a full recourse obligation of the
individual, accrues interest and is secured by a pledge of the shares of common
stock purchased. The interest rate for deferred payment obligations incurred in
the current exercise period has been set at 8.5%. More than 500 employees
(including executive officers) are currently participating in the program. At
fiscal year end, the amount of the deferred payment obligations of Messrs.
Neubauer, Ksansnak, Leonard, Spector and Sutherland were $1,142,940, $612,184,
$1,160,340, $347,224 and $563,840, respectively.
Certain Relationships and Related Transactions
During fiscal 1997, the Company repurchased from five executive
officers and one director 316,099 shares of common stock at an average price per
share of $16.89. The Company anticipates that it will continue to repurchase
shares held by officers and directors, through the Company's internal market,
and following their termination of employment or cessation as a director.
The Company, the members of management who are equity investors in
the Company and certain other investors (collectively, "Restricted Investors")
are parties to the Stockholders' Agreement. Investors are subject to certain
restrictions on transfer, with the Company having certain rights of first offer
in the event of any sales or dispositions by Restricted Investors or their
estates. In addition, upon death, complete disability or normal retirement of
management investors or upon death or complete disability of other individual
Restricted Investors, such persons or their estates may cause the Company to
repurchase for cash up to 30% of their shares at the then current Appraisal
Price but only to the extent such repurchase by the Company is permitted under
the Company's credit agreement. Such repurchased shares may be resold to others,
including replacement personnel. In addition, it is contemplated that shares
which may be issued pursuant to exercise of employee stock options and stock
purchase opportunities would also be subject to the Stockholders' Agreement.
Employment Agreements and Change of Control Arrangements
The Company has employment agreements or arrangements with all of
its officers, under which they are currently being paid annual salaries ranging
up to $950,000. Generally, these are for indeterminate periods terminable by
either party upon notice ranging from eight weeks to six months. Mr. Neubauer's
agreement currently provides for services to February 1998 (with automatic
renewals for successive three year terms unless terminated) at a current annual
base salary of $950,000 and for fully vested supplemental benefits upon his
death of 25% of his highest base salary payable to his surviving spouse, if any,
annually for life or upon his retirement, disability or termination for any
other reason of 50% of his highest base salary payable to him annually for life.
Upon termination by the Company without cause, Mr. Neubauer's management
incentive bonus shall be prorated through the time of termination; his base
salary at time of termination shall continue for a period of three years after
termination; and, his supplemental benefits shall commence at the end of such
three year period. The Company has a split dollar life insurance agreement with
Mr. Neubauer. The agreement relates to life insurance policies owned by a trust
created by Mr. Neubauer. Pursuant to the agreement, the Company pays a
substantial portion of the premiums on the policies, such amounts to be repaid
from the proceeds of the policies upon their termination. The current amount
thus outstanding is $971,376. The Company foregoes charging interest in each
fiscal year on such amount. However, the foregone interest is at least partially
recaptured by the Company by reducing the amount of the interest which would
otherwise accrue on Mr. Neubauer's deferred compensation. The Company holds a
security interest in the policies to secure the repayment of the premium amount
paid by the Company. The arrangement terminates upon the termination of Mr.
Neubauer's employment (other than by reason of his retirement). Messrs.
Ksansnak, Leonard, Spector, and
135
<PAGE>
Sutherland have current annual base salaries of $400,000, $500,000, $360,000 and
$365,000, respectively. Several agreements provide for the deferral of a part of
prior salary and bonus payments with interest, currently at the Moody's long-
term bond index rate, usually payable in equal monthly installments beginning
upon retirement, permanent disability, death or termination of employment.
The Company currently has a severance pay policy, pursuant to which
severance payments are made to executive officers and certain other key
employees on the basis of continuous service, generally equal to between 3 and
18 months of pay if their employment is terminated for reasons other than cause
plus the continuation of certain other benefits during the period of such
payment.
Compensation of Directors
Directors who are employees of the Company are not paid directors'
fees. Directors who are not employees receive an annual retainer of $30,000 for
serving on the Board, $3,000 for services as chairman of a Board committee and
$1,000 for otherwise serving on a committee, and they receive meeting fees of
$1,000 per day for attendance at meetings of the Board, and for each committee
meeting.
Committee Report on Executive Compensation
The Company's compensation programs are designed to support the
Company's overall commitment to continued growth and quality services to
customers. The programs are intended, among other things, to enable the Company
to recruit and retain the best performers, to provide compensation levels
consistent with the level of contribution and degree of accountability, to use
performance measures consistent with the Company's goals, to provide
compensation consistent with competitive market rates, and to include a
significant portion of incentive compensation.
Salary. Salary levels for all salaried employees are generally
reviewed annually. Guideline increases are established generally based upon
overall financial performance of the Company, the current rate of inflation and
general compensation levels in the industries in which the Company operates. For
fiscal 1997, the guideline increase for executive officers, including the five
named individuals, was 3.5%, which was the same as for fiscal 1996. The specific
salary increases for each individual executive officer is based upon a review of
his or her individual performance and development. In the case of Mr. Neubauer,
the review is conducted independently by the Human Resources, Compensation and
Public Affairs Committee without any officers present, subject to final review
and approval by the Board; for all other executive officers, the individual's
supervisor and more senior executives, along with the corporate human resources
department, conduct the review and make a recommendation to the Committee. Mr.
Neubauer's salary was increased by 5.5% during fiscal 1997.
Bonus. Senior executive officers participate in the Company's
management incentive bonus program. Bonuses are awarded annually based in part
upon the attainment of predetermined financial goals and in part upon the
attainment of individual objectives. Generally, non-financial objectives
represent 30% of the bonus potential and are established by the supervisor of
the executive. Financial goals generally represent 70% of the bonus potential.
An employee's bonus potential generally varies, as a percentage of total cash
compensation, dependent upon the level of responsibility of the employee's
position. The measures of financial performance used are for the business unit
which is either under the managerial direction of the participant or, if a staff
executive, is the unit on which the participant impacts most frequently and
significantly. In the case of Mr. Neubauer, the
136
<PAGE>
Committee awards a bonus pursuant to the CEO Annual Performance Bonus
Arrangement (the "Arrangement"), which was approved by stockholders in February
1997. Pursuant to the Arrangement, the Committee selected Revenue and Net Income
as the financial performance measures and set goals for each measure. The
attainment of the performance goals set by the Committee was adjusted for the
sale of a majority interest in the Company's Spectrum Healthcare Services
subsidiary during fiscal 1997. Mr. Neubauer was awarded ____% of his maximum
bonus potential for fiscal 1997.
Performance measures. The Company uses various financial measures
to evaluate the performance of the Company and its business units, with the
specific measures in some cases varying depending upon the line of business
involved. Generally, the measures used are Revenue Growth, EBIT, RONA and, in
addition, for overall corporate performance Net Income and ATROI. "EBIT" is
Earnings Before Interest and Taxes. "RONA" is Return on Net Assets. "ATROI" is
After Tax Return on Investment. Targets for each of these performance measures
are established annually in the Company's business plan, which is approved at
the beginning of the fiscal year by the Board.
Stock Purchase Opportunities. The Human Resources, Compensation and
Public Affairs Committee believes that management ownership contributes to the
Company's success, and supports senior management's goal of expanding both the
number of management investors and their percentage ownership. The Human
Resources, Compensation and Public Affairs Committee, accordingly, grants stock
purchase opportunities to selected management employees. In addition, the Human
Resources, Compensation and Public Affairs Committee oversees the Company's
expanded ownership program, to further expand the number of management owners.
The terms of the installment stock purchase opportunities and the expanded
ownership opportunities are generally described under "--The ARAMARK Ownership
Program." Individual grants are generally made by the Human Resources,
Compensation and Public Affairs Committee in connection with hires, promotions
and other recognition of performance. The amount of a grant generally varies
depending upon the level of responsibility of the employee's position, the
number of purchase opportunities previously granted, and the number of shares
owned. The individual's supervisor and other senior executives, along with the
corporate human resources department, make recommendations to the Human
Resources, Compensation and Public Affairs Committee. The Company has in the
past also made broad-based grants to management employees.
Compensation Committee Interlocks and Insider Participation. Dr.
Campbell, who was an Executive Vice President until his retirement in September
1990, is a member of the Human Resources, Compensation and Public Affairs
Committee.
Members of the Human Resources, Compensation and Public Affairs
Committee:
Robert J. Callander, Chair Mitchell S. Fromstein
Alan K. Campbell The Honorable Thomas H. Kean
Ronald R. Davenport James E. Preston
137
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information as of October 3,
1997 with respect to shares of the Common Stock of the Company
beneficially owned by each person known to the Company to be the
beneficial owner of more than 5% of either class of the Common Stock, by
each director and by each named executive officer.
<TABLE>
<CAPTION>
Class A Class B
------------------------ ------------------------
Number of Number of
Shares/(5)/ Percent Shares/(5)/ Percent
-------------- -------- -------------- --------
<S> <C> <C> <C> <C>
Trustees for various ARAMARK
employee benefit plans/(1)(2)/ 922,424 47.0% 0 *
Goldman, Sachs & Co./(3)/ 163,440 8.3% 0 *
Metropolitan Life Insurance Co./(4)/ 160,904 8.2% 0 *
Joseph Neubauer/(1)/ 0 * 5,253,104 25.7%
James E. Ksansnak 0 * 704,497 3.4%
Patricia C. Barron 0 * 8,500 *
Robert J. Callander 0 * 109,790 *
Alan K. Campbell 0 * 240,943 1.2%
Ronald R. Davenport 0 * 58,000 *
Lee F. Driscoll, Jr. 16,416 * 37,943 *
Mitchell S. Fromstein 0 * 127,297 *
Edward G. Jordan 0 * 120,000 *
Thomas H. Kean 0 * 68,200 *
Reynold C. MacDonald 0 * 2,500 *
James E. Preston 0 * 84,000 *
William Leonard 0 * 553,709 2.7%
Martin W. Spector 0 * 884,712 4.3%
L. Frederick Sutherland 0 * 454,052 2.2%
All directors and executive
officers as a group (22 persons) 16,416 * 9,332,488 45.6%
All employees** and directors
as a group 16,416 * 20,500,992 100.0%
All employees**, directors and
employee benefit plans as a group 938,840 47.9% 20,500,992 100.0%
</TABLE>
- ----------------
(1) The address of this stockholder is ARAMARK Corporation, ARAMARK Tower, 1101
Market Street, Philadelphia, PA 19107.
(2) The trustees are Alan K. Campbell, James E. Ksansnak and Martin W. Spector.
(3) The address of this stockholder is 85 Broad Street, New York, New York
10004.
(4) The address of this stockholder is 200 Park Avenue, New York, New York
10166.
(5) Includes shares issuable upon the exercise of currently exercisable stock
purchase opportunities and options.
* Less than 1%.
** Includes children and other transferees for estate planning
purposes.
138
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board is expected to reappoint the firm of Arthur Andersen LLP
as independent public accountants for the Company for the 1998 fiscal
year. A representative of Arthur Andersen LLP is expected to be present
at the annual meeting and will be offered the opportunity to make a
statement if desiring to do so and will be available to respond to
appropriate questions.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company for the fiscal
year ended October 3, 1997, included in this Proxy Statement at Annex
VII, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report included herein.
PROPOSALS BY STOCKHOLDERS FOR
PRESENTATION AT THE 1999 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for
stockholder action at future annual meetings of the Company in accordance
with regulations adopted by the Securities and Exchange Commission. For
such proposals to be considered for inclusion in the Company's proxy
statement and form of proxy for next year's annual meeting, they must be
received by the Company not later than September 10, 1998. Proposals
should be directed to the attention of the Corporate Secretary.
LEGAL OPINION
The validity of the shares of the Composite Stock and the Business
Group Stocks issuable pursuant to Share 100 will be passed upon by
Milbank, Tweed, Hadley & McCloy, who will rely as to matters of Delaware
law on Morris, Nichols, Arsht & Tunnell. Such counsel will assume that
the Company will not be rendered insolvent as a result of Share 100.
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board. All
expenses of this solicitation including the cost of preparing and mailing
this Proxy Statement will be borne by the Company. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of the Company in person or by telephone, telegram
or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for out-of-
pocket expenses, in connection with such solicitation.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement, including the
projections under "SHARE 100 -- Certain Projections," the ability to
repay the financing and other statements contained herein regarding
matters that are not historical facts, are forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of
1995). Because such statements
139
<PAGE>
include risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially include, but
are not limited to, those discussed in "RISK FACTORS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION."
140
<PAGE>
ANNEX I
ILLUSTRATIONS OF CERTAIN TERMS
The following illustrations demonstrate the calculations of the
Composite Group's Inter-Group Interest in the Food and Support Services
Group (a Business Group) based on the assumptions set forth herein and
using (i) 20 million shares as the number of shares representing 100% if
the equity value of Food and Support Services Group ("Equity Value"),
(ii) 7 million shares as the number of shares of Food and Support Group
Stock initially outstanding (including dilutive options reflected using
the treasury method) (the "Outstanding Shares of Food and Support Group
Stock") and (iii) 13 million shares as the number of shares of Food and
Support Group Stock initially issuable with respect to the Composite
Group's Inter-Group Interest in the Food and Support Services Group (the
"Number of Shares Issuable with respect to the Inter-Group Interest").
Although the following illustrations demonstrate the calculations of the
Composite Group's Inter-Group Interest in the Food and Support Services
Group, the illustrations apply to each of the other Business Groups
(Uniform and Career Apparel Group and Educational Resources Group).
Unless otherwise stated, each illustration below should be read
independently as if none of the other transactions referred to below had
occurred.
At any time, the fractional interest in the Equity Value of the Food
and Support Services Group that is held by the holders of the outstanding
Food and Support Group Stock (the "Outstanding Food and Support Group
Fraction") would be equal to:
Outstanding Shares of Food and Support Group Stock
------------------------------------------
Outstanding Shares of Food and Support Group Stock +
Number of Shares Issuable with Respect to the
Inter-Group Interest
The balance of the Equity Value of the Food and Support Services
Group is for the account of the Composite Group (the "Inter-Group
Interest"), and, at any time, the fractional interest in the Equity Value
of the Food and Support Services Group that is represented by the Inter-
Group Interest (the "Inter-Group Interest Fraction") would be equal to:
Number of Shares Issuable with Respect to the Inter-Group Interest
------------------------------------------
Outstanding Shares of Food and Support Group Stock +
Number of Shares Issuable with Respect to the
Inter-Group Interest
The sum of the Outstanding Food and Support Group Fraction and the
Inter-Group Interest Fraction would always equal 100%.
FUTURE OFFERINGS OF FOOD AND SUPPORT GROUP STOCK
The following illustrations reflect the sale by the Company of 5
million shares of Food and Support Group Stock when 7 million shares of
Food and Support Group Stock are previously issued and outstanding.
I - 1
<PAGE>
Offering for the Food and Support Services Group
Assume all of such shares are identified for the account of the Food
and Support Services Group as an additional equity interest in the Food
and Support Services Group, with the net proceeds reflected in the
financial records of the Food and Support Services Group.
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding.... 7.0 million
Newly issued shares of Food and Support Group Stock......................... 5.0 million
------------
Total issued and outstanding after offering................................. 12.0 million
============
</TABLE>
. The Number of Shares Issuable with respect to the Inter-Group
Interest (13.0 million) would not be changed by the issuance of
any shares of Food and Support Group Stock for the account of
the Food and Support Services Group.
. The total issued and outstanding shares of Food and Support
Group Stock (12.0 million) would represent an Outstanding Food
and Support Group Fraction of 48.0%, calculated as follows:
12.0 million
-----------------------------
12.0 million + 13.0 million
. The Inter-Group Interest Fraction would accordingly be 52.0%.
. After such future offering, in the event of any dividend or
other distribution paid on the outstanding shares of Food and
Support Group Stock (other than a dividend or other
distribution payable in shares of Food and Support Group
Stock), the financial records of the Composite Group would be
credited, and the financial records of the Food and Support
Services Group would be charged, with a total amount equal to
108.3% of the aggregate amount of such dividend or distribution
(representing the ratio of the Number of Shares Issuable with
respect to the Inter-Group Interest (13.0 million) to the total
number of shares of Food and Support Group Stock issued and
outstanding following the public offering (12.0 million)).
Offering for the Composite Group
Assume all of such shares are identified for the account of the
Composite Group with respect to the Inter-Group Interest, with the net
proceeds reflected in the financial records of the Composite Group.
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding.... 7.0 million
Newly issued shares of Food and Support Group Stock......................... 5.0 million
------------
Total issued and outstanding after offering................................. 12.0 million
============
</TABLE>
. The Number of Shares Issuable with Respect to the Inter-Group
Interest would decrease by the number of any shares of Food and
Support Group Stock issued for the account of the Composite
Group.
I - 2
<PAGE>
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Inter-Group Interest prior to offering....... 13.0 million
Shares issued in offering.................................................................. (5.0 million)
------------
Number of Shares Issuable with Respect to the Inter-Group Interest after offering.......... 8.0 million
============
</TABLE>
. The total issued and outstanding shares of Food and Support
Group Stock (12.0 million) would represent an Outstanding Food
and Support Group Fraction of 60.0%, calculated as follows:
12.0 million
-----------------------------
12.0 million + 8.0 million
. The Inter-Group Interest Fraction would accordingly be 40.0%.
. In this case, in the event of any dividend or other
distribution paid on the outstanding shares of Food and Support
Group Stock (other than a dividend or other distribution
payable in shares of Food and Support Group Stock), the
financial records of the Composite Group would be credited, and
the financial records of the Food and Support Services Group
would be charged, with an amount equal to 66.7% of the
aggregate amount of such dividend or distribution (representing
the ratio of the Number of Shares Issuable with Respect to the
Inter-Group Interest (8.0 million) to the total number of
shares of Food and Support Group Stock issued and outstanding
following the public offering (12.0 million)).
OFFERINGS OF CONVERTIBLE SECURITIES
If the Company were to issue any debt or preferred stock convertible
into shares of Food and Support Group Stock, the Outstanding Food and
Support Group Fraction and the Inter-Group Interest Fraction would be
unchanged at the time of such issuance. If any shares of Food and Support
Group Stock were issued upon conversion of such convertible securities,
however, then the Outstanding Food and Support Group Fraction and the
Inter-Group Interest Fraction would be affected as shown above under
"Offering for the Food and Support Services Group," if such convertible
securities were allocated to the Food and Support Services Group, or
under "Offering for the Composite Group," if such convertible securities
were allocated to the Composite Group.
FOOD AND SUPPORT GROUP STOCK DIVIDENDS
The following illustrations reflect dividends of Food and Support
Group Stock on outstanding Food and Support Group Stock and outstanding
Composite Stock, respectively.
Food and Support Group Stock Dividend on Food and Support Group
Stock
Assume the Company declares a dividend of one share of Food and
Support Group Stock on each outstanding share of Food and Support Group
Stock.
I - 3
<PAGE>
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding............ 7.0 million
Newly issued shares of Food and Support Group Stock................................. 7.0 million
------------
Total issued and outstanding after dividend......................................... 14.0 million
============
</TABLE>
. The Number of Shares Issuable with respect to the Inter-Group
Interest would be increased proportionately to reflect the
stock dividend payable in shares of Food and Support Group
Stock to holders of Food and Support Group Stock.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Inter-Group Interest prior to dividend..................... 13.0 million
Adjustment to reflect dividend of shares on outstanding shares of Food and Support Group Stock........... 13.0 million
------------
Number of Shares Issuable with respect to the Inter-Group Interest after dividend........................ 26.0 million
============
</TABLE>
. The total issued and outstanding shares of Food and Support
Group Stock (14.0 million) would continue to represent an
Outstanding Food and Support Group Fraction of 35.0%,
calculated as follows:
14.0 million
------------------------------
14.0 million + 26.0 million
. The Inter-Group Interest Fraction accordingly would continue to
be 65.0%.
Food and Support Group Stock Dividend on Composite Stock
Assume 20 million shares of Composite Stock are outstanding and the
Company declares a dividend of 1/2 of a share of Food and Support Group
Stock on each outstanding share of Composite Stock.
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding............. 7.0 million
Newly issued shares of Food and Support Group Stock.................................. 10.0 million
------------
Total issued and outstanding after dividend.......................................... 17.0 million
============
</TABLE>
. Any dividend of shares of Food and Support Group Stock to the
holders of shares of Composite Stock will be treated as a
dividend of shares issuable with respect to the Inter-Group
Interest. As a result, the Number of Shares Issuable with
respect to the Inter-Group Interest would decrease by the
number of shares of Food and Support Group Stock dividended to
the holders of Composite Stock.
<TABLE>
<S> <C>
Number of Shares Issuable with respect to the Inter-Group Interest prior to dividend.... 13.0 million
Shares dividended on outstanding shares of Composite Stock.............................. (10.0 million)
------------
Number of Shares Issuable with Respect to the Inter-Group Interest after dividend....... 3.0 million
============
</TABLE>
I - 4
<PAGE>
The Company will not dividend to holders of Composite Stock shares
of Food and Support Group Stock exceeding the then Number of Shares
Issuable with Respect to the Inter-Group Interest.
. The total issued and outstanding shares (17.0 million) would
represent an Outstanding Interest Fraction of 85.0%, calculated
as follows:
17.0 million
-----------------------------
17.0 million + 3.0 million
. The Inter-Group Interest Fraction would accordingly be 15.0%.
Note, however, that after the dividend the holders of Composite
Stock would also hold 10.0 million shares of Food and Support
Group Stock, which would represent a direct interest of 50.0%
in the equity value of the Food and Support Services Group
(and, together with the 15.0% Inter-Group Interest, would
continue to be a total interest in the equity value of the Food
and Support Services Group of 65.0%).
REPURCHASES OF FOOD AND SUPPORT GROUP STOCK
The following illustrations reflect the repurchase by the Company of
5 million shares of Food and Support Group Stock.
Repurchase with Food and Support Services Group Funds
Assume all such shares are identified as having been repurchased
with funds allocated to the Food and Support Services Group, with the
financial records of the Food and Support Services Group being charged
with the consideration paid for such shares:
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding....... 7.0 million
Shares of Food and Support Group Stock repurchased............................. (5.0 million)
-----------
Total issued and outstanding after repurchase.................................. 2.0 million
===========
</TABLE>
. The Number of Shares Issuable with respect to the Inter-Group
Interest (13.0 million) would not be changed by the repurchase
of any shares of Food and Support Group Stock with funds
allocated to the Food and Support Services Group.
. The total issued and outstanding shares of Food and Support
Group Stock (2.0 million) would represent an Outstanding Food
and Support Group Fraction of 13.3%, calculated as follows:
2.0 million
-----------------------------
2.0 million + 13.0 million
. The Inter-Group Interest Fraction would accordingly be 86.7%.
I - 5
<PAGE>
Repurchase with Composite Group Funds
Assume all such shares are identified as having been repurchased
with funds allocated to the Composite Group, with the financial records
of the Composite Group being charged with the consideration paid for such
shares:
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding....... 7.0 million
Shares of Food and Support Group Stock repurchased............................. (5.0 million)
-----------
Total issued and outstanding after repurchase.................................. (2.0 million)
===========
</TABLE>
. The Number of Shares Issuable with respect to the Inter-Group
Interest would be increased by the number of any shares of Food
and Support Group Stock repurchased with funds allocated to the
Composite Group.
<TABLE>
<S> <C>
Number of Shares Issuable with respect to the Inter-Group Interest prior to repurchase...... 13.0 million
Shares repurchased with funds allocated to Composite Group.................................. 5.0 million
------------
Number of Shares Issuable with respect to the Inter-Group Interest after repurchase......... 18.0 million
============
</TABLE>
. The total issued and outstanding shares of Food and Support
Group Stock (2.0 million) would represent an Outstanding Food
and Support Group Fraction of 10.0%, calculated as follows:
2.0 million
-----------------------------
2.0 million + 18.0 million
. The Inter-Group Interest Fraction would accordingly be 90.0%.
TRANSFERS OF ASSETS BETWEEN GROUPS
Contribution of Assets from Composite Group to Food and Support
Services Group
The following illustration reflects the contribution as additional
equity by the Composite Group to the Food and Support Services Group of
$10 million of assets attributed to the Composite Group on a date on
which the Fair Market Value of Food and Support Group Stock is $35 per
share.
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding.............. 7.0 million
Newly issued shares of Food and Support Group Stock................................... 0.0 million
-----------
Total issued and outstanding after contribution....................................... 7.0 million
===========
</TABLE>
. The Number of Shares Issuable with respect to the Inter-Group
Interest would be increased to reflect the contribution to the
Food and Support Services Group of assets attributed to the
Composite Group.
<TABLE>
<S> <C>
Number of Shares Issuable with respect to the Inter-Group Interest prior to contribution........................ 13.0 million
Adjustment to reflect contribution to Food and Support Services Group of assets attributed to Composite Group... 0.3 million
------------
Number of Shares Issuable with respect to the Inter-Group Interest after contribution........................... 13.3 million
============
</TABLE>
I - 6
<PAGE>
. The total issued and outstanding shares of Food and Support Group
Stock (7.0 million) would represent an Outstanding Food and Support Group
Fraction of 34.0%, calculated as follows:
7.0 million
-----------------------------
7.0 million + 13.3 million
. The Inter-Group Interest Fraction would accordingly be 66.0%.
Transfer of Assets from Food and Support Services Group to Composite
Group
The following illustration reflects the transfer by the Food and
Support Services Group to the Composite Group of $10 million of assets
attributed to the Food and Support Services Group on a date on which the
Fair Market Value of Food and Support Group Stock is $35 per share,
assuming such transfer has been determined by the Board of Directors to
be treated as a reduction in the Composite Group's equity interest in the
Food and Support Services Group.
<TABLE>
<S> <C>
Shares of Food and Support Group Stock previously issued and outstanding....... 7.0 million
Newly issued shares of Food and Support Group Stock............................ 0.0 million
-----------
Total issued and outstanding after transfer.................................... 7.0 million
===========
</TABLE>
. The Number of Shares Issuable with respect to the Inter-Group
Interest would be decreased to reflect the contribution to the
Composite Group of assets allocated to the Food and Support
Services Group.
<TABLE>
<S> <C>
Number of Shares Issuable with respect to the Inter-Group Interest prior to transfer.......................... 13.0 million
Adjustment to reflect transfer to Composite Group of assets allocated to Food and Support Services Group...... (0.3 million)
------------
Number of Shares Issuable with respect to the Inter-Group Interest after transfer............................. 12.7 million
============
</TABLE>
. The Company will not make transfers of assets of the Food and
Support Services Group to the Composite Group the fair value of
which exceeds the Fair Market Value of the then Number of
Shares Issuable with respect to the Inter-Group Interest.
. The total issued and outstanding shares of Food and Support
Group Stock (7.0 million) would represent an Outstanding Food
and Support Group Fraction of 36.0%, calculated as follows:
7.0 million
-----------------------------
7.0 million + 12.7 million
. The Inter-Group Interest Fraction would accordingly be 64.0%.
I - 7
<PAGE>
ANNEX III
SHARE 100 -- PLAN OF RECAPITALIZATION
Share 100 -- PLAN OF RECAPITALIZATION, dated as of January 6, 1998,
adopted by the Board of Directors of ARAMARK Corporation, a Delaware corporation
(the "Company").
ARTICLE I.
THE RECLASSIFICATION AND RELATED MATTERS
1.01 The Reclassification. (a) Subject to the terms and conditions of
this Share 100 -- Plan of Recapitalization (the "Plan"), at the Effective Time
(as such term is defined in Section 1.01(b) hereof), the Company shall be
recapitalized (together with the transactions and matters contemplated thereby
and provided for herein, the "Recapitalization"), as a result of which the
capital stock of the Company shall be reclassified (the "Reclassification") in
accordance with Section 1.02 hereof and the provisions of the General
Corporation Law of the State of Delaware (the "DGCL") and redeemed in accordance
with this Article I for the appropriate Redemption Consideration (as defined in
Sections 1.04(c) and 1.05(b) hereof).
(b) The Plan shall become effective (the "Effective Time") at the
time the following documents are filed with the Secretary of State of the State
of Delaware: an amended and restated Certificate of Incorporation, which
certificate will incorporate the provisions contained in the Restated Charter
other than Parts 4A and 4C contained therein; a Certificate of Designations,
which certificate will incorporate the provisions contained in Part 4A of the
Restated Charter; and a Certificate of Designations, which certificate will
incorporate the provisions contained in Part 4C of the Restated Charter
(collectively, the "Amendment Certificates").
1.02 Reclassification of Stock. At the Effective Time:
(a) Each outstanding share of Common Stock, Class A, $.01 par value
per share ("Class A Common Stock") shall, without any action on the part of the
holder thereof, be reclassified as, and changed into, one fully paid and
nonassessable share of Redeemable Transitory Participating Preferred Stock, par
value $1.00 per share (the "Redeemable Transitory Participating Preferred
Stock"), of the Company, the terms of which are set forth in Article Fourth,
Section 4C of the Restated Charter. Among other terms, the shares of Redeemable
Transitory Participating Preferred Stock shall be redeemable at the option of
the Company at any time for $347.50 per share in cash, without interest (the
"Class A Cash Consideration"); provided, however, that:
(i) certain holders of Redeemable Transitory Participating
Preferred Stock who meet to the Company's satisfaction certain suitability
requirements described in Section 1.08 hereof and who comply with such
additional requirements as the Company may prescribe, in lieu of the Class
A Cash Consideration, the Company shall deliver, without interest, to such
qualifying holder, at the valid and effective election of the holder (as
provided for in Section 1.06(b) hereof), $347.50 principal amount of the
Company's 7.25% Guaranteed Convertible Installment Promissory Notes due
2007 (the "Installment Notes"), subject to the treatment of fractional
amounts described in Section 1.06(f) hereof; and
III-1
<PAGE>
(ii) certain holders of Redeemable Transitory Participating
Preferred Stock who are individuals who at one time owned (or their
permitted transferees owned) Common Stock, Class B, $.01 par value per
share ("Continuing Class B Common Stock"), which was converted into Class A
Common Stock pursuant to the terms of the previously filed Restated
Certificate of Incorporation upon the termination of employment with the
Company, and their permitted transferees (collectively, "Former Managers"),
and to the Company's benefit plans which hold Class A Common Stock, in lieu
of the Class A Cash Consideration, the Company shall deliver, without
interest, to such qualifying holder, at the valid and effective election of
the holder (as provided for in Section 1.06(b) hereof) (together with the
election referred to in clause (i) above, a "Class A Election"), one share
of Common Stock, Class A -- Composite Group, $.01 par value per share (the
"Class A Composite Stock"); and
(b) Each share of Continuing Class B Common Stock shall, without
any action on the part of the holder thereof, be amended to allow the Company to
redeem the Continuing Class B Common Stock after shares of Class A Composite
Stock have been issued and up to 30 days following the Effective Time.
Immediately after the Class A Composite Stock has been issued, the Continuing
Class B Common Stock shall, without any action on the part of the holder thereof
or the Company, be redeemed, as set forth in Article Fourth, Section 4D of the
Restated Charter, as follows:
(i) employees of ARAMARK Educational Resources Company and
its subsidiaries (the "Educational Resources Group"), and their permitted
transferees, shall receive one share of Common Stock, Class E --Educational
Resources Group, $.01 par value per share (the "Class E Common Stock") and
one share of Common Stock, Class B --Composite Group, $.01 par value per
share (the "Class B Composite Stock"), for each two shares of Continuing
Class B Common Stock, subject to the treatment of fractional shares
described in Section 1.06(f) hereof;
(ii) employees of ARAMARK Services, Inc. and its subsidiaries
(the "Food and Support Services Group"), and their permitted transferees,
shall receive one share of Common Stock, Class F -- Food and Support
Services Group, $.01 par value per share (the "Class F Common Stock") and
one share of Class B Composite Stock, for each two shares of Continuing
Class B Common Stock, subject to the treatment of fractional shares
described in Section 1.06(f) hereof;
(iii) employees of ARAMARK Uniform Services, Inc. and its
subsidiaries (the "Uniform and Career Apparel Group"), and their permitted
transferees, shall receive one share of Common Stock, Class U -- Uniform
and Career Apparel Group, $.01 par value per share (the "Class U Common
Stock") and one share of Class B Composite Stock, for each two shares of
Continuing Class B Common Stock, subject to the treatment of fractional
shares described in Section 1.06(f) hereof;
(iv) employees who do not work exclusively for a single
Business Group, including executive officers and other corporate staff of
the Company, and their permitted transferees, shall receive one share of
Class B Composite Stock for each share of Continuing Class B Common Stock;
and
(v) employees of the magazine and book business and their
permitted transferees (the "Magazine and Book Employees") shall receive
$29.55 in cash for each share of Continuing Class B Common Stock;
III-2
<PAGE>
provided, however, that the holders of Continuing Class B Common Stock other
than Magazine and Book Employees (the "Continuing Holders") shall, in lieu of
the consideration described in this Section 1.02(b)(i), (ii), (iii) and (iv), be
permitted to make a valid and effective election (as provided for in Section
1.06(b) hereof) (the "Class B Election"; together with a Class A Election, each
an "Election") to receive $29.55 per share in cash, without interest.
The Educational Resources Group, Food and Support Services Group and
Uniform and Career Apparel Group are hereinafter referred to as the "Business
Groups," and each a "Business Group." The Class E Common Stock, Class F Common
Stock and Class U Common Stock are hereinafter referred to as "Business Group
Stock." Business Group Stock with Class A Composite and Class B Composite Stock
are hereinafter referred to as the "Group Stock."
1.03 Redemption.
(a) Immediately following the Effective Time, all outstanding shares of
Redeemable Transitory Participating Preferred Stock shall be redeemed by the
Company in accordance with their terms and pursuant to the Class A Election, if
any, validly made by holders of Redeemable Transitory Participating Preferred
Stock with respect thereto.
(b) Immediately following the issuance of any shares of Class A Composite
Stock, all outstanding shares of Continuing Class B Common Stock shall be
redeemed by the Company in accordance with their terms and pursuant to the Class
B Election, if any, validly made by holders of Continuing Class B Common Stock
with respect thereto.
1.04 No Exchange of Class A Common Stock; Redemption of Redeemable
Transitory Participating Preferred Stock. (a) Holders of Class A Common Stock
shall not be required to surrender or otherwise exchange their shares in order
to receive the Redeemable Transitory Participating Preferred Stock to which they
are entitled as a result of the Reclassification. At the Effective Time, each
share of Class A Common Stock outstanding immediately prior to such time, shall,
without any action on the part of the holder thereof, be reclassified as and
changed into one share of Redeemable Transitory Participating Preferred Stock,
with certificates formerly representing Class A Common Stock after the Effective
Time representing Redeemable Transitory Participating Preferred Stock.
(b) Upon surrender in accordance with Section 1.06(b) hereof of a
certificate or certificates (other than in the case of holders of uncertificated
shares of Class A Common Stock, who need not send any certificates) which
immediately prior to the Effective Time represented Class A Common Stock and
which as of the Effective Time represent Redeemable Transitory Participating
Preferred Stock ("Certificates"), the holder of such shares shall be entitled to
the following consideration:
(i) if no valid Class A Election (as described in Section 1.06(b)
hereof) is made, a cash payment of $347.50 for each share of Redeemable
Transitory Participating Preferred Stock in respect of the redemption
effected pursuant to Section 1.03(a) hereof;
(ii) if the Class A Election for Installment Notes is validly made
pursuant to the procedures described in Section 1.06(b) hereof, a
certificate or certificates representing $347.50 principal amount of
Installment Notes (subject to the treatment of fraction amounts described
in Section 1.06(f) hereof) for each share of Redeemable Transitory
Participating Preferred Stock represented by such Certificates, if any, in
respect of the redemption effected pursuant to Section 1.03(a) hereof;
III-3
<PAGE>
(iii) if the Class A Election for Class A Composite Stock is validly
made pursuant to the procedures described in Section 1.06(b) hereof, one
uncertificated share of Class A Composite Stock.
(c) The cash, or (if a valid Class A Election is made) the Installment
Notes and/or Class A Composite Stock to which holders of Redeemable Transitory
Participating Preferred Stock are entitled as a result of the Recapitalization
pursuant to Section 1.02(a) or this Section 1.04 hereof is collectively referred
to herein as "Redemption Consideration."
1.05 Redemption of Continuing Class B Common Stock. (a) Upon surrender
in accordance with Section 1.06(c) hereof of a certificate or certificates
representing Continuing Class B Common Stock ("Certificates"), the holder of
such shares shall be entitled to the following consideration:
(i) if no valid Class B Election (as described in Section 1.06(c)
hereof) is made, (a) employees of the Educational Resources Group and their
permitted transferees shall receive, in uncertificated form, one-half share
of Class E Common Stock and one-half share of Class B Composite Stock,
subject to the treatment of fractional shares described in Section 1.06(f)
hereof, (b) employees of the Food and Support Services Group and their
permitted transferees shall receive, in uncertificated form, one-half share
of Class F Common Stock and one-half share of Class B Composite Stock,
subject to the treatment of fractional shares described in Section 1.06(f)
hereof, (c) employees of the Uniform and Career Apparel Group and their
permitted transferees shall receive, in uncertificated form, one-half
shares of Class U Common Stock and one-half share of Class B Composite
Stock, subject to the treatment of fractional shares described in Section
1.06(f) hereof; and employees who do not work exclusively for a single
Business Group, including executive officers and other corporate staff of
the Company, and their permitted transferees, shall receive, in
uncertificated form, one share of Class B Composite Stock; and
(ii) if a Class B Election is validly made or the holder is a
Magazine and Book Employee, a cash payment of $29.55 for each share of
Continuing Class B Common Stock in respect of the redemption effected
pursuant to Section 1.03(b) hereof.
(b) Class B Composite Stock, Class E Common Stock, Class F Common Stock
or Class U Common Stock, or (if a valid Class B Election is made) cash to which
holders of Continuing Class B Common Stock are entitled as a result of the
Recapitalization pursuant to Section 1.02(b) or this Section 1.05 hereof and the
consideration described in Section 1.04(c) hereof is collectively referred to
herein as "Redemption Consideration."
1.06 Payment. (a) On or before the Closing Date (as such term is
defined in Section 1.14 hereof), the Company shall be authorized to form the
Special Exchange Agent Group, to consist of three members of management of the
Company, for the purpose of acting as the Exchange Agent with respect to the
matters set forth in this Plan (the "Exchange Agent"). Immediately following
the Effective Time, the Company shall (i) deliver to the Exchange Agent, in
trust for the benefit of holders of Redeemable Transitory Participating
Preferred Stock who make valid Class A Elections with respect thereto,
immediately upon receipt, certificates representing the aggregate principal
amount of Installment Notes issuable to each such holder pursuant to Sections
1.02(a) and 1.04 hereof, and (ii) irrevocably set aside or deposit with the
Exchange Agent, in a separate account on the books of the Company specifically
established for such purpose, in trust for the benefit of holders of Class A
Common Stock (which, as of the Effective Time, represent Redeemable Transitory
Participating
III-4
<PAGE>
Preferred Stock) and Continuing Class B Common Stock, immediately upon receipt,
the aggregate amount of cash (in immediately available funds) payable pursuant
to Section 1.02, 1.04 and 1.05 hereof as the cash portion of the Redemption
Consideration. Any portion of the Redemption Consideration remaining with the
Exchange Agent on the ninetieth day after the date of the Effective Time shall
be released and repaid by the Exchange Agent to the Company, after which time
persons entitled thereto may look, subject to applicable escheat and other
similar laws, only to the Company for payment thereof.
(b) To make an effective Election, a holder of Class A Common Stock
(which, as of the Effective Time, represents Redeemable Transitory Participating
Preferred Stock) or a Continuing Holder shall be required properly to complete
and sign a green or blue, as applicable, Form of Election ("Form of Election"),
a copy of which shall be sent to such holders with the proxy materials relating
to the annual meeting of stockholders (the "Annual Meeting") to be held for the
purpose of considering and voting upon adoption of this Plan and related
matters, and return it to the Exchange Agent, prior to 10:00 A.M., Philadelphia
time, on the day of the Annual Meeting or, if the Annual Meeting is postponed or
adjourned without approval and adoption of this Plan, on the day on which this
Plan is approved and adopted by the Company's stockholders (the later of such
days being referred to herein as the "Election Date"). Finally, for a Class A
Election for Installment Notes to be valid and effective, a holder of Class A
Common Stock (which, as of the Effective Time, represents Redeemable Transitory
Participating Preferred Stock) must meet to the Company's satisfaction the
suitability requirements set forth in Section 1.08 hereof.
A holder of Class A Common Stock or a Continuing Holder may revoke or
modify his or her Election by written notice received by the Exchange Agent no
later than 10:00 A.M., Philadelphia time, on the Election Date, accompanied by a
new Form of Election, properly completed and signed.
The Company shall have the discretion, which it may delegate to the
Exchange Agent, to determine whether Forms of Election have been properly
completed, signed and submitted, or properly revoked or modified, and to
disregard immaterial defects in Forms of Election. The decision of the Company
(or of the Exchange Agent in the event discretion is delegated) in this regard
shall be conclusive and binding. Neither the Company nor the Exchange Agent
shall be required to notify any person of any defect in a Form of Election. The
Company may waive any procedural defect in a Form of Election and may seek
clarification from any stockholder with respect to any Election or Elections
intended to be made by such stockholder.
For purposes of the Election by Continuing Holders, each management
investor (a "Management Investor") and permitted transferee (a "Permitted
Transferee") under the Amended and Restated Stockholders' Agreement dated as of
December 14, 1984, by and among the Company and the persons named therein (the
"Stockholders' Agreement"), must make the same election for all of their
Continuing Class B Common Stock, and if not, will be deemed to have made the
same election for all of their Continuing Class B Common Stock as the election
made by the holders of a majority of the Continuing Class B Common Stock owned
by such persons.
(c) As promptly as practicable after the Effective Time:
(i) the Exchange Agent will mail to each holder of Class A Common
Stock (which, as of the Effective Time, represents Redeemable Transitory
Participating Preferred Stock) who has (i) properly completed and signed
and submitted a green Form of Election for cash and (ii) surrendered the
Certificate or Certificates, cash for each such Certificate surrendered.
All consideration to be paid in cash will be paid by check, without
interest. In no case will cash
III-5
<PAGE>
be paid until the shares of Class A Common Stock have been properly
surrendered to the Exchange Agent;
(ii) the Exchange Agent will mail to each holder of Class A Common
Stock (which, as of the Effective Time, represents Redeemable Transitory
Participating Preferred Stock) who has (i) properly completed and signed
and timely submitted a green Form of Election for Installment Notes and
(ii) surrendered the Certificate or Certificates, Installment Notes, in
accordance with such holder's Election or Elections, for each such
Certificate surrendered. In no case will Installment Notes be issued until
the shares of Class A Common Stock have been properly surrendered to the
Exchange Agent;
(iii) the Exchange Agent will mail an ownership statement and a
transmittal form to each record holder who elected the Class A Composite
Stock advising such holder of the procedure for surrendering to the
Exchange Agent the Certificates representing the Class A Common Stock
(which, as of the Effective Time, represents Redeemable Transitory
Participating Preferred Stock) in exchange for Class A Composite Stock.
Each such holder of Class A Common Stock, upon surrender of same to the
Exchange Agent together with a properly completed and signed transmittal
form, will be entitled to receive the Class A Composite Stock in respect of
each share of Class A Common Stock previously surrendered;
(iv) the Exchange Agent will mail an ownership statement and a
transmittal form to each record holder advising such holder of the
procedure for surrendering to the Exchange Agent the Certificates
representing the Continuing Class B Common Stock in exchange for Class B
Composite Stock and/or Business Group Stock. Each such holder of
Continuing Class B Common Stock, upon surrender of same to the Exchange
Agent together with a properly completed and signed transmittal form, will
be entitled to receive such consideration in respect of each such
Certificate surrendered; and
(v) the Exchange Agent will mail (a) to each Continuing Holder who
has (y) properly completed and signed and timely submitted a blue Form of
Election for cash and (z) surrendered the Certificates, cash for each such
Certificate surrendered; and (b) to each Magazine and Book Employee who has
(y) promptly completed and signed and submitted a blue Form of Election for
cash and (z) surrendered the Certificates, cash for each such Certificate
surrendered. All consideration to be paid in cash will be paid by check,
without interest. In no case will cash be paid until the shares of
Continuing Class B Common Stock have been properly surrendered to the
Exchange Agent.
(d) In the event any Certificate shall have been lost, stolen, destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, the Company shall issue in exchange
for such lost, stolen or destroyed Certificate, the Redemption Consideration
deliverable in respect thereof in accordance with this Article I. When
authorizing such issuance of the Redemption Consideration in redemption
therefor, the Company may, in its discretion and as a condition precedent to the
payment thereof, require the owner of such lost, stolen or destroyed Certificate
to give the Company a bond in such sum as it may direct as indemnity against any
claim that may be made against the Company with respect to the Certificate
alleged to have been lost, stolen or destroyed.
(e) The Company shall not issue share certificates with respect to the
Group Stock unless specifically requested by a stockholder. Instead, the
Company shall issue such shares in uncertificated form. The Company shall
deliver to each stockholder promptly after the Election Time an ownership
III-6
<PAGE>
statement indicating the Group Stock held in such holder's name, which shall
contain instructions detailing the delivery of Certificates representing shares
of Class A Common Stock and Continuing Class B Common Stock.
(f) With respect to each Continuing Holder who continues to hold one
share of Continuing Class B Common Stock after giving effect to the redemption
described in Section 1.02(b) hereof, the Company shall redeem each such
remaining share for one share of Class B Composite Stock.
A holder of Class A Common Stock (which, as of the Effective Time,
represents Redeemable Transitory Participating Preferred Stock) who makes an
effective Class A Election to receive consideration consisting in whole or in
part of Installment Notes will not be entitled to receive Installment Notes in
stated face amounts of less than $10,000, or in stated face amounts in excess of
$10,000 (or an integral multiple of $10,000) but less than the next highest
integral multiple of $10,000 ("Fractional Amounts"). Instead, such holder will
be entitled to receive promptly from the Exchange Agent a cash payment in lieu
of any such Fractional Amounts equal to such Fractional Amount. All cash in
lieu of Fractional Amounts unclaimed after the Effective Time, shall be held by
the Company, and persons entitled thereto may look, subject to applicable
escheat and other similar laws, only to the Company for payment thereof.
Interest will be paid on the Installment Notes only to the extent the
Installment Notes by their terms involve the accrual or payment of interest.
1.07. Amendments to Restated Certificate of Incorporation and
Stockholders' Agreements. (a) As part of this Plan, in addition to the
Reclassification, the following transactions shall be effected as of the
Effective Time:
(i) the Amendment Certificates shall be filed pursuant to the DGCL,
with the effect that the Restated Certificate of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be
amended by such Amendment Certificates; and after implementation of the
Recapitalization, the Restated Certificate of Incorporation of the Company,
shall be restated in its entirety (the "Restated Charter") as set forth as
Exhibit A hereto, and, as so amended and restated, shall be the Restated
Charter of the Company until thereafter amended as provided therein and in
accordance with the DGCL; and
(ii) the Stockholders' Agreement, as in effect immediately prior to
the Effective Time, shall be amended and restated at the Effective Time as
set forth in Exhibit B, and, as so amended and restated, shall be the
Stockholders' Agreement with respect to the matters set forth therein until
thereafter amended in accordance with their terms.
(b) The elements of this Plan shall be submitted to stockholders at the
Annual Meeting. Each of the proposals (the Reclassification, the amendments
incorporated in the Restated Charter, and the amendments to the Stockholders'
Agreement referred to herein) is conditioned upon the approval of the others and
this Plan will not be implemented if any such proposal is not approved by
stockholders. The ratification and consent to such proposals also constitutes
the ratification and consent of any and all further steps as shall be necessary
or appropriate in the judgment of the Company's management to effect the Plan as
described herein.
1.08 The Suitability Requirements. The opportunity for any holder of
Class A Common Stock to make a Class A Election to accept the offer of the
Company to receive Installment Notes in the Reclassification shall be offered to
any holder of Class A Common Stock who demonstrates to the Company's
satisfaction, by an affirmative representation on the Form of Election, that
such holder is one of the following:
III-7
<PAGE>
(a) a bank, savings and loan association, trust company, insurance
company, investment company registered under the Investment Company Act of 1940,
pension or profit-sharing trust (other than a pension or profit-sharing trust of
the Company, a self-employed individual retirement plan or individual retirement
account), an organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, which has total assets of not less than $5,000,000
according to its most recent audited financial statements, a corporation having
a net worth on a consolidated basis, according to its most recent audited
financial statements, of not less than $14,000,000 or any wholly owned
subsidiary thereof;
(b) a director or executive officer of the Company;
(c) a person who makes a valid Class A Election to receive Installment
Notes in the Reclassification with an aggregate value of $150,000 or more
provided such person is able to bear the economic risk of the investment, the
investment does not exceed 10% of such person's net worth (or joint net worth
with a spouse), or such person (or with such person's professional advisor who
is unaffiliated with and not compensated by the Company or any affiliate
thereof) has the capacity to protect its own interests in connection with the
transaction;
(d) an individual who elects to receive Installment Notes in the
Reclassification whose net worth (or joint net worth with a spouse) exceeds
$1,000,000, provided such person is able to bear the economic risk of the
investment, the investment does not exceed 10% of such person's net worth (or
joint net worth with a spouse), or such person (or with such person's
professional advisor who is unaffiliated with and not compensated by the Company
or any affiliate thereof) has the capacity to protect its own interests in
connection with the transaction;
(e) an individual who elects to receive Installment Notes in the
Reclassification whose income (or whose joint income with a spouse) exceeded
$200,000 in each of the two most recent years and who reasonably expects an
income in excess of $200,000 in the current year, provided such person is able
to bear the economic risk of the investment, the investment does not exceed 10%
of such person's net worth (or joint net worth with a spouse), or such person
(or with such person's professional advisor who is unaffiliated with and not
compensated by the Company or any affiliate thereof) has the capacity to protect
its own interests in connection with the transaction;
(f) a person who has preexisting personal or business contacts with the
Company or any officer, director or controlling person thereof of a nature and
duration such as would enable a reasonably prudent person to be aware of the
character, business acumen and general business and financial circumstances of
the person with whom the relationship exists;
(g) a person who, by reason of its business or financial experience or
the business or financial experience of its professional advisor (who is
unaffiliated with and is not compensated by the Company or any affiliate of the
Company), could be reasonably assumed to have the capacity to protect its own
interests in the transaction;
(h) any relative, spouse or relative of the spouse of an individual who
meets any one of the requirements of clauses (b)-(g) above and who makes a valid
Class A Election to receive Installment Notes in the Reclassification (an
"Individual") who has the same principal residence as such Individual (a
"Related Person"), any trust or estate in which an Individual and any Related
Person collectively own more than 50% of the beneficial interest, any
corporation or other organization of which an Individual and any Related Person
collectively are beneficial owners of more
III-8
<PAGE>
than 50% (excluding directors' qualifying shares) of the equity securities
("relative" means a person related by blood, marriage or adoption); or
(i) any entity in which all the equity owners are persons specified in
(a), (b), (d) or (e) above;
provided, however, that persons who are suitable purchasers only as a result of
clause (f) or (g) above shall not total more than 35 persons and in the event
that more than 35 persons rely on clause (f) or (g), the Company shall determine
which 35 persons shall be permitted so to rely. The Form of Election shall
contain a section requiring that each holder of Class A Common Stock who desires
to make a Class A Election for Installment Notes affirmatively represent that
such holder comes within one of the categories of persons described in clauses
(a) through (i) of this Section 1.08 and that such holder is acquiring the
Installment Notes for investment and not with a view to distribution. The
Company shall be entitled to request such additional documentation or evidence
with respect to such representation as it deems appropriate, including a
representation regarding investment intent. The good faith determination by the
Company that a holder of Class A Common Stock does not meet the suitability
requirements shall be conclusive as to such holder. Holders of Class A Common
Stock who fail to meet to the Company's satisfaction such suitability
requirements shall be entitled to receive in the Recapitalization only cash for
all of the shares of Class A Common Stock held by such holders immediately prior
to the Effective Time.
1.09 Cash-Out of Former Managers. The Company shall exercise its right,
under the Stockholders' Agreement, to call (the "Call Option") Class A Common
Stock owned by any Former Managers who attempt to sell his or her shares by
failing to make a Class A Election or by making a Class A Election for any form
of consideration other than the Class A Composite Stock (a "Noncontinuing Former
Management Holder"). Pursuant to the Stockholders' Agreement, the Company will
pay to all Noncontinuing Former Management Holders $29.55 per Continuing Class B
Common Stock equivalent share upon exercise by the Company of its Call Option.
1.10 Treatment of Certain Selling Management Holders. The Company shall
pay additional consideration to any holder of Continuing Class B Common Stock
who sold or sells any such shares to the Company in the internal market, or who
constructively sold such shares in the course of exercising any options or
purchase opportunities with respect thereto using the stock-for-stock method of
exercise, after September 1, 1997 and prior to the Effective Time (a "Selling
Holder"). Accordingly, as soon as practicable after the Effective Time, the
Company shall pay to each Selling Holder with respect to each such sale an
amount equal to the product of (a) the difference between (i) $29.55 and (ii)
the appraisal price in effect at the time of such actual or constructive sale
and (b) the number of shares actually or constructively sold with respect to
each such transaction. The terms of any such payment and any disputes arising
in connection therewith shall be resolved by the Board or a committee thereof,
and all such resolutions shall be final and binding on the Company and its
stockholders.
1.11 Certain Contingent Payments. The Company shall pay to any holder
of Class A Common Stock who shall receive the Class A Common Stock cash
consideration or Installment Notes a contingent cash payment (a "Contingent
Payment") if, within two years (or two years and three months in the case of
clause (d) below) from the Effective Time, one of the following events shall
occur: (a) the Company consummates a stock sale, merger, consolidation or
business combination in which the holders of Class A Composite Stock and Class B
Composite Stock receive consideration for their shares and in which the holders
of the Company's common stock before the transaction do not hold at least a
majority of the common stock after the transaction ("Merger"); (b) the Company
III-9
<PAGE>
consummates a sale of all or substantially all of its assets in which the
holders of Class A Composite Stock and Class B Composite Stock receive
consideration for their shares ("Sale"); provided that any one Business Group
shall not be deemed to be substantially all of its assets; (c) the Company
consummates an underwritten public offering of more than 15% of its Class A
Composite Stock and Class B Composite Stock ("Public Offering"); (d) the Company
repurchases one-third or more of its outstanding Class A Composite Stock and
Class B Composite Stock within any three-month period for consideration other
than its common stock, provided that such three-month period shall have
commenced within the two years after the Effective Time ("Extraordinary
Redemption"); and (e) the Company pays an extraordinary dividend to holders of
its Class A Composite Stock and Class B Composite Stock in excess of $34.75 per
share ("Extraordinary Dividend"). The right to receive a Contingent Payment, if
any, shall be evidenced by a certificate issued by the Company and delivered
simultaneously with the Class A Common Stock cash consideration or Installment
Notes. For purposes of this Section 1.11, a "Merger" shall not include a stock
sale, merger, consolidation or business combination involving any Business
Group, and a "Public Offering" shall not include any public offering, secondary
offering or other distribution of any Business Group Stock. All computations
shall be done on a Class B Composite Stock equivalent basis.
Upon consummation of a Merger or Sale, each such former holder of Class A
Common Stock shall be entitled to receive for each share of Class A Common Stock
for which Class A Common Stock cash consideration or Installment Notes were
received in the Recapitalization, the amount, if any, by which the fair market
value of the per share consideration received by the holders of Class B
Composite Stock exceeds the sum of $34.75 per share plus an amount equal to
simple interest at 5% annually computed on $34.75 per share from the Effective
Date to the relevant date. Upon consummation of a Public Offering, each such
former holder of Class A Common Stock shall be entitled to receive for each
share of Class A Common Stock for which Class A Common Stock cash consideration
or Installment Notes were received in the Recapitalization, the amount, if any,
by which the average of the closing prices of the Class B Composite Stock issued
in the Public Offering during the period commencing 91 days, and ending 120
days, after the consummation of the Public Offering exceeds the sum of $34.75
per share plus an amount equal to simple interest at 5% annually computed on
$34.75 per share from the Effective Date to the relevant date. Upon the
occurrence of an Extraordinary Redemption, each such former holder of Class A
Common Stock shall be entitled to receive for each share of Class A Common Stock
for which Class A Common Stock cash consideration or Installment Notes were
received in the Recapitalization, the amount, if any, equal to the product of
(a) the average purchase price of Class B Composite Stock repurchased by the
Company in the Extraordinary Redemption, less the sum of $34.75 per share plus
an amount equal to simple interest at 5% annually computed on $34.75 per share
from the Effective Date to the relevant date and (b) a factor equal to (i) the
number of shares of Class B Composite Stock repurchased by the Company in the
Extraordinary Redemption (the "Repurchased Shares") divided by (ii) the sum of
(x) the larger of the number of Repurchased Shares or the number of shares of
Class B Composite Stock tendered to the Company in connection with the
Extraordinary Redemption plus (y) the number of shares of Class A Common Stock
that were redeemed by the Company in the Recapitalization for Class A Common
Stock cash consideration or Installment Notes. Upon the occurrence of an
Extraordinary Dividend, each such former holder of Class A Common Stock will be
entitled to receive for each share of Class A Common Stock for which Class A
Common Stock cash consideration or Installment Notes were received in the
Recapitalization, the amount, if any, equal to the total amount per share
distributed by the Company in the Extraordinary Dividend, less the sum of $34.75
per share plus an amount equal to simple interest at 5% annually computed on
$34.75 per share from the Effective Date to the relevant date. The terms of any
such payment and any disputes arising in connection therewith shall be resolved
by the Board or a committee thereof, and all such resolutions shall be final and
binding on the Company and its stockholders.
III-10
<PAGE>
1.12 Treatment of Outstanding Options. The Company shall cause the
Company's 1984 Stock Option Plan, Combined Stock Ownership Plan and the 1996
Director Plan (individually, a "Stock Option Plan," and collectively, the "Stock
Option Plans") to be amended as follows:
(a) General. The exercise price per share for outstanding options will
remain unchanged; and the aggregate number of shares for which options may be
granted under the Stock Options Plans shall similarly remain unchanged. Each
outstanding option which prior to the Effective Time is exercisable in all
respects for one share of Continuing Class B Common Stock shall, after the
Effective Time, be changed into an option exercisable as described below.
(b) Employees Receiving Group Stock in the Recapitalization. All
outstanding stock options exercisable for Continuing Class B Common Stock owned
by employees who shall receive Business Group Stock in the Recapitalization
shall be changed into options exercisable for the same type of, and in the same
proportion as the, Business Group Stock into which their Continuing Class B
Common Stock shall be exchanged in the Recapitalization.
(c) Employees Who Elect Cash in the Recapitalization. Currently
exercisable (vested) options owned by employees who elect the Continuing Class B
Common Stock cash consideration shall be changed into an amount in cash equal to
$29.55 per share (the Continuing Class B Common Stock cash consideration) less
the exercise price of such options. The Company shall pay the foregoing amounts
(which shall be taxable as ordinary compensation and so shall be reduced for
required tax withholding) to such holders at the time it makes payment to
holders of Continuing Class B Common Stock receiving the Continuing Class B
Common Stock cash consideration in the Recapitalization.
Currently unexercisable (unvested) options owned by the foregoing
employees shall be changed into: (i) options exercisable for the same type of,
and in the same proportion as the, Business Group Stock into which their
Continuing Class B Common Stock could have been exchanged in the
Recapitalization had they elected Business Group Stock or, (ii) at the election
of the holder of such options, the right to receive $29.55 per share (the
Continuing Class B Common Stock cash consideration) less the exercise price of
such options. The Company shall pay the foregoing cash amounts (which shall be
taxable as ordinary compensation and so shall be reduced for required tax
withholding) to such holders, without interest, on the day that the unvested
option would have become exercisable. No cash payment shall be due if the
unvested option would not have become exercisable because the holder is not
still an employee of the Company or for any other reason. To make an effective
election regarding such unvested options, a holder must complete and sign a blue
Form of Election and return it to the Exchange Agent prior to 10:00 A.M.,
Philadelphia time, on the Election Date.
(d) Employees Who Are Not Holders. Options (whether vested or unvested)
owned by employees of the Company who are not, and do not have Permitted
Transferees who are, holders of Continuing Class B Common Stock (e.g., holders
of ISPOs or EXPOs who do not also hold shares of Continuing Class B Common
Stock) shall be changed into: (i) options exercisable for the same type of, and
in the same proportion as the, Business Group Stock which they are eligible to
own pursuant to the terms of the Business Group Stock or, (ii) at the election
of the holder of such options, the right to receive $29.55 per share (the
Continuing Class B Common Stock cash consideration) less the exercise price of
such options. With respect to vested options, the Company shall pay the
foregoing amounts (which shall be taxable as ordinary compensation and so shall
be reduced for required tax withholding) to such holders at the time it makes
payment to holders of Continuing Class B Common Stock receiving the Continuing
Class B Common Stock cash consideration in the Recapitalization.
III-11
<PAGE>
With respect to unvested options, the Company will pay the foregoing cash amount
(which shall be taxable as ordinary compensation and so shall be reduced for
required tax withholding), without interest, on the day that the unvested option
would have become exercisable. No cash payment shall be due if the unvested
option would not have become exercisable because the holder is not still an
employee of the Company or for any other reason. To make an effective election
regarding such options, a holder must complete and sign a blue Form of Election
and return it to the Exchange Agent prior to 10:00 A.M., Philadelphia time, on
the Election Date.
(e) Magazine and Book Employees. Currently exercisable (vested) options
owned by Magazine and Book Employees shall be changed into an amount in cash
equal to $29.55 per share (the Continuing Class B Common Stock cash
consideration) less the exercise price of such options. The Company will pay
the foregoing amounts (which shall be taxable as ordinary compensation and so
shall be reduced for required tax withholding) to such holders at the time it
makes payment to holders of Continuing Class B Common Stock receiving the
Continuing Class B Common Stock cash consideration in the Recapitalization.
(f) Magazine and Book EXPO Holders. Expanded ownership purchase
opportunities ("EXPOs") (whether vested or unvested) owned by Magazine and Book
Employees shall be changed into the right to receive $29.55 per share (the
Continuing Class B Common Stock cash consideration) less the exercise price of
such EXPOs. The Company shall pay the foregoing amounts (which shall be taxable
as ordinary compensation and so shall be reduced for required tax withholding)
to such holders at the time it makes payment to holders of Continuing Class B
Common Stock receiving the Continuing Class B Common Stock cash consideration in
the Recapitalization.
1.13 Treatment of Employee Benefit Plans.
(a) Retirement and Profit Sharing Plans. The Magazine and Book
Retirement Plan shall be amended so that the purpose of the plan shall no longer
be to invest primarily in employer stock.
(b) Stock Unit Retirement Plan. Deferred Common Stock Units ("DSUs") in
each participant's account for Continuing Class B Common Stock shall be
converted into DSUs for Class B Composite Stock.
1.14 Closing. The closing of the transactions contemplated by this Plan
(the "Closing") shall take place (a) at the offices of the Company, at the
ARAMARK Tower, 1101 Market Street, Philadelphia, Pennsylvania, at 3:00 P.M.,
local time, on the later of (i) the day of the Annual Meeting (including any
adjournments or postponements thereof), or (ii) the day on which the last of the
conditions set forth in Article II hereof is fulfilled or waived (subject to
applicable law), or (b) at such other time and place and on such other date as
the Board shall fix (the "Closing Date").
ARTICLE II.
CONDITIONS PRECEDENT
2.01 Conditions Precedent to Consummation of the Recapitalization. The
consummation of the transactions contemplated by this Plan is subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
III-12
<PAGE>
(a) Approval of Stockholders. The approval and adoption of this Plan and
all actions contemplated by this Plan that require the approval or consent of
the Company's stockholders shall have been obtained in accordance with the DGCL,
the Restated Certificate of Incorporation of the Company and the Stockholders'
Agreement.
(b) Financing. The Company, ARAMARK Services, Inc. and ARAMARK Uniform
Services Group, Inc. shall have entered into a bank facility on terms and
conditions satisfactory to the Company, entitling the Company to receive, at the
Effective Time, cash proceeds sufficient (i) to satisfy the Company's obligation
to pay to its stockholders and benefit plans at the Effective Time, in
redemption of Class A Common Stock (which, as of the Effective Time, represents
Redeemable Transitory Participating Preferred Stock) and Continuing Class B
Common Stock, the aggregate amount of the cash portion of the Redemption
Consideration; (ii) to satisfy the obligation of the Company to make all
necessary cash payments in respect of (y) refinancing of any indebtedness, the
payment of which may be accelerated by virtue of the consummation of any of the
transactions contemplated by this Plan and (z) the payment of all fees and
expenses in connection with the Recapitalization; and (iii) to provide the
Company with sufficient funds to satisfy its working capital requirements; and
all conditions to the availability of funds under such agreements shall have
been satisfied or waived.
(c) Receipt of Licenses, Permits and Consents. The Company shall have
received evidence, in form and substance reasonably satisfactory to it, that
such licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with the Company and
its subsidiaries as are necessary for consummation of the Recapitalization have
been obtained and are in full force and effect (other than those which, if not
obtained, would not have a material adverse effect on (i) the transactions
contemplated hereby, (ii) the financial condition, results of operations or
business of the Company and its subsidiaries taken as a whole or (iii) the
continuation of the operations and business of the Company and its subsidiaries
after the consummation of the Recapitalization).
(d) Litigation. No action, proceeding or investigation shall have been
instituted or threatened prior to the Effective Time before any court or
administrative body to restrain, enjoin or otherwise prevent the consummation of
this Plan or the transactions contemplated hereby or to recover any damages or
obtain other relief as a result of this Plan, and no restraining order or
injunction issued by any court of competent jurisdiction shall be in effect
prohibiting the consummation of this Plan.
(e) Actions and Proceedings. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by, or incidental
to, this Plan and all other related legal matters shall have been reasonably
satisfactory to and approved by the Company and its counsel shall have been
furnished with such certified copies of such corporate actions and proceedings
and such other instruments and documents as such counsel shall have reasonably
requested.
(f) Appraisals. The Board shall have received appraisals or similar
reports satisfactory to such Board supporting the conclusions that (a)
sufficient surplus is available to permit consummation of the transactions
contemplated by the Plan under the DGCL and (b) the fair value of the Company's
total assets will exceed the fair value of the Company's total liabilities
immediately after the Effective time.
(g) Fairness Opinion. The Board shall have received the written opinion,
in form satisfactory to it, on or prior to the submission of this Plan to the
stockholders for their approval, of an independent investment banking firm to
the effect from a financial point of view (i) the consideration
III-13
<PAGE>
to be received by holders of each class of Common Stock is fair to those holders
and (ii) the exchange ratios to be applied in connection with the
Reclassification of the Continuing Class B Common Stock are fair to the holders
thereof.
(h) Legal Opinions. The Board shall have received, in form and substance
satisfactory to it, such legal opinions as have been agreed between the Company
and its counsel.
(i) $25 Million Cash Limit to Continuing Holders. Continuing Holders
shall have elected to receive no more than $25 million in cash as Redemption
Consideration in respect of Continuing Class B Common Stock.
(j) Conditions Complied With. All terms and conditions of this Plan
required to be complied with or satisfied prior to the Closing Date shall have
been duly complied with, satisfied or waived.
To the extent permitted by applicable law, conditions (a) through (h) and
(j) may be waived by the Board. Condition (i) may be waived by the Board only
if at least 500 record holders would own Class B Composite Stock immediately
after the Effective Time.
ARTICLE III.
MISCELLANEOUS
3.01 Termination and Abandonment. This Plan may be terminated and the
transactions contemplated hereby may be abandoned at any time by the Board,
notwithstanding approval and adoption thereof by the stockholders of the
Company.
3.02 Amendment and Modification. At any time prior to the Effective
Time, the Board may modify or amend any term of this Plan as set forth herein,
add any new term or waive any condition thereof, provided that no such
modification, amendment, addition or waiver which requires stockholder or any
other approval under the DGCL or any other applicable law, or under the Restated
Certificate of Incorporation or the Stockholders' Agreement, will occur
following the Annual Meeting unless such approval is obtained. In the event of
a material modification to this Plan, a supplement to the proxy statement mailed
in connection with the Recapitalization will be distributed to stockholders and,
if necessary, stockholders' proxies will be resolicited. The good faith
determination by the Board that an amendment, modification addition or waiver to
this Plan complies with this Section 3.02 shall be conclusive as to all
stockholders of the Company.
3.03 Board Determinations. The good faith determination by the Board with
respect to the interpretation or implementation of any element of this Plan
shall be conclusive as to all stockholders of the Company. The Board may
delegate any and all such matters to any committee thereof and, to the fullest
extent permitted by law, to any authorized officer or agent.
III-14
<PAGE>
Exhibits
(to Share 100 - Plan of Recapitalization)
Exhibit A (the Restated Charter) and Exhibit B (the Amended and Restated
Stockholders' Agreement) to Share 100 - Plan of Recapitalization are set forth
in full as Annexes V and VI, respectively, to this Proxy Statement.
III-15
<PAGE>
ANNEX IV
This Note is not transferable
except to the estate of the Payee
upon death of the Payee.
Form of
7.25% GUARANTEED CONVERTIBLE
INSTALLMENT PROMISSORY NOTE DUE 2007
------------------------------------
February __, 1998
$__________
Philadelphia, Pennsylvania
1. For value received, ARAMARK SERVICES, INC., a Delaware corporation
(the "Company"), hereby promises to pay to ________, ________________ (the
"Payee"), the sum of $__________, on August 1, 2007, and interest at the rate of
7.25% per annum on the unpaid balance thereof.
2. Payments. Both the principal of this Note and interest thereon are
payable in lawful money of the United States of America at the principal
executive offices of the Company, or at the option of the Company, payment may
be made by check mailed to the address of the Payee set forth above or such
other address as the Payee shall designate in writing to the Company.
3. Interest. Interest shall be payable at the rate of 7.25% per annum
from the date of original issue in arrears in semiannual installments on the
15th day of each December and June, beginning June 15, 1998. Interest shall be
computed on the basis of a 360-day year of 12 30-day months.
4. Conversion Feature.
(1) Conversion Privilege and Conversion Price. At the option of the
-----------------------------------------
Payee, at any time after the first anniversary of the original issue of this
Note, this Note may be converted in whole at the principal amount thereof into
an equivalent principal amount of 7.10% Guaranteed Notes due December 1, 2006
(the "Publicly Traded Notes"). No conversion may occur at any time when there
exists a default under any indebtedness of the Company. The Publicly Traded
Notes will be issued pursuant to the existing Indenture between the Company and
The Bank of New York, as trustee, dated as of July 15, 1991 (the "Indenture").
(2) Exercise of Conversion Privilege. In order to exercise the
--------------------------------
conversion privilege, the Payee shall surrender this Note, duly endorsed or
assigned to the Company or in blank, at the principal executive offices of the
Company, accompanied by written notice to the Company that the Payee irrevocably
elects to convert this Note.
(3) Effectiveness of Conversion. Unless earlier redeemed pursuant to
---------------------------
Section 5, the Note shall be deemed to have been converted on the 30th day
following the day of surrender of the Note for conversion in accordance with the
foregoing provisions, and at such time the rights of the
IV-1
<PAGE>
Payee under the Note shall cease, and the Payee shall be treated for all
purposes as the record holder of such Publicly Traded Notes at such time.
Effective as of the conversion date, the Company shall issue to the Payee
Publicly Traded Notes, in the principal amount of $1,000, or a whole number
multiple thereof, equal to the total aggregate principal amount to which the
Payee of Notes is entitled upon conversion. No payment or adjustment is to be
made on conversion for interest accrued hereon or for interest accrued on the
Publicly Traded Note issued on conversion.
(4) Taxes on Conversions. The Company covenants that all Publicly
--------------------
Traded Notes which may be issued upon conversion of Notes will upon issue be
validly issued and binding obligations of the Company and the Company will pay
all transfer taxes, liens and charges with respect to the issue thereof.
5. Redemption. Except as provided in this Section 5, this Note may not be
prepaid without the consent of the Payee.
(1) In Lieu of Conversion. At any time after the Payee shall give
---------------------
written notice to the Company that the Payee irrevocably elects to convert this
Note and prior to the conversion date, this Note may be redeemed in whole, but
not in part, at the option of the Company, by payment of a redemption price
equal to 100% of the principal amount hereof, together with accrued interest, if
any, to the date of such redemption. Upon such redemption, this Note will be
canceled and no conversion into Publicly Traded Notes shall be effected.
(2) After June 14, 2004. At any time on or after June 15, 2004, this
-------------------
Note may be redeemed in whole, but not in part, at the option of the Company, by
giving at least 30 days' prior written notice to the Payee of such redemption
(which notice may be given prior to June 15, 2004 and shall state the redemption
date and a redemption price equal to 100% of the principal amount hereof,
together with accrued interest, if any, to the date of such redemption) and by
payment of such redemption price on the redemption date. Upon such redemption,
this Note will be canceled.
6. Events of Default. The principal of this Note and accrued unpaid
interest thereon shall (if not already due and payable) upon demand by the Payee
become due and payable forthwith, if one or more of the following events of
default shall happen and be continuing at the time of such demand (except that
no demand shall be necessary in case of Clause (5) below):
(1) Nonpayment of Principal. Default shall be made in the punctual
-----------------------
payment of principal due hereunder when and as the same shall become due and
payable and such default shall continue for a period of 5 days.
(2) Nonpayment of Interest. Default shall be made in the payment of
----------------------
any installment of interest on this Note and such default shall continue for 30
days after written notice thereof has been given to the Company by the Payee.
(3) Covenant Default. Default shall be made in any of the covenants
----------------
or agreements made in this Note (other than those covered in paragraphs (1) or
(2)) for 30 days after written notice thereof has been given to the Company by
the Payee.
(4) Cross Default. An event or condition shall occur that results in
-------------
the acceleration of the maturity of indebtedness for money borrowed by the
Company aggregating in excess of $100,000,000, and such indebtedness shall not
have been discharged and such acceleration shall not have been rescinded or
annulled.
IV-2
<PAGE>
(5) Bankruptcy. The Company shall make an assignment for the benefit
----------
of creditors, file a petition in bankruptcy, be adjudicated insolvent or
bankrupt, petition or apply to any tribunal for any receiver or trustee of the
Company, commence any proceeding relating to the Company under any bankruptcy,
reorganization, re-adjustment of debt, dissolution or liquidation law or statute
of any jurisdiction, whether now or hereafter in effect, or there shall be
commenced against the Company any such proceeding which shall remain undismissed
for a period of 60 days, or the Company by any act shall indicate its consent
to, approval of or acquiescence in any such proceeding or the appointment of any
receiver of or trustee for the Company or any substantial part of its property,
or shall suffer any such receivership or trusteeship to continue undischarged
for a period of 60 days.
7. Covenant -- Annual Financial Statements. So long as this Note shall
remain unpaid, the Company will furnish to the Payee as soon as available and in
any event within 120 days after the end of each fiscal year of the Company, a
copy of the audited annual report for such year for the Company containing
balance sheets of the Company as of the end of such fiscal year and statements
of income and retained earnings of the Company for such fiscal year, together
with the report thereon of Arthur Andersen LLP or other independent certified
public accountants of recognized standing.
8. Restrictions on Transfer. This Note is not transferable except to the
estate of the Payee upon death of the Payee.
9. Unsecured. This Note shall be an unsecured obligation of the Company
and shall not have the benefit of any security.
10. No Sinking Fund. This Note shall not have the benefit of any sinking
fund.
11. Expenses of Collection. The Company covenants that if any payment of
principal or interest hereunder is not paid when due and payable, it will, to
the extent that it may lawfully promise so to do, pay to the Payee such further
amount as shall be sufficient to cover the cost and expense of collection,
including reasonable compensation to the attorneys of the Payee for all services
rendered in that connection.
12. Course of Dealing. No course of dealing between the Company and the
Payee or any delay on the part of the Payee in exercising any rights under this
Note shall operate as a waiver of any rights of the Payee.
13. Governing Law. This Note shall be governed by the laws of the
Commonwealth of Pennsylvania.
ARAMARK SERVICES, INC.
By:
---------------------------------
Treasurer
IV-3
<PAGE>
Guarantee
---------
ARAMARK Corporation (the "Guarantor") hereby unconditionally guarantees to
the Payee the due and punctual payment of the principal of, and interest, if any
(together with any additional amounts payable pursuant to the terms of this
7.25% Guaranteed Convertible Installment Promissory Note due 2007 (this
"Note")), on this Note, when and as the same shall become due and payable,
whether at maturity or upon redemption or upon declaration of acceleration or
otherwise, according to the terms of this Note. The Guarantor agrees that in
the case of default by the Company in the payment of any such principal or
interest (together with any additional amounts payable pursuant to the terms of
this Note), the Guarantor shall duly and punctually pay the same. The Guarantor
hereby agrees that its obligations hereunder shall be absolute and unconditional
irrespective of any extension of the time for payment of this Note, any
modification of this Note, any invalidity, irregularity or unenforceability of
this Note, any failure to enforce the same or any waiver, modification, consent
or indulgence granted to the Company with respect thereto by the Payee, or any
other circumstances which may otherwise constitute a legal or equitable
discharge of a surety or guarantor. The Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of a
merger or bankruptcy of the Company, any right to require a demand or proceeding
first against the Company, protest or notice with respect to this Note or the
indebtedness evidenced thereby and all demands whatsoever, and covenants that
this guarantee will not be discharged as to this Note except by payment in full
of the principal and interest, if any (together with any additional amounts
payable pursuant to the terms of this Note), thereon.
The Guarantor irrevocably waives any and all rights to which it may be
entitled, by operation of law or otherwise, upon making any payment hereunder
(i) to be subrogated to the rights of the Payee against the Company with respect
to such payment or otherwise to be reimbursed, indemnified or exonerated by the
Company in respect thereof or (ii) to receive any payment, in the nature of
contribution or for any other reason, from any other obligor with respect to
such payment.
This Guarantee shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania.
ARAMARK CORPORATION
By:
-------------------------------
Treasurer
IV-4
<PAGE>
[ FORM OF CONVERSION NOTICE ]
To: ARAMARK Services, Inc.
The Payee of this Note hereby irrevocably exercises the option to convert
this Note into new 7.10% Guaranteed Notes due December 1, 2006 of ARAMARK
Services, Inc. ("Publicly Traded Notes") in accordance with the terms of this
Note, and directs that the Publicly Traded Notes issuable and deliverable upon
the conversion, be issued and delivered to the Payee.
Dated:
- ------------------------------
Name
- ------------------------------
Address
- ------------------------------ --------------------------------
(Please print name and address, Signature
including zip code number)
SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING
NUMBER
- ------------------------------
IV-5
<PAGE>
ANNEX V
RESTATED CERTIFICATE OF INCORPORATION
OF
ARAMARK CORPORATION
(Originally Incorporated on September 7, 1984
under the name "ARA Acquiring Company")
FIRST: The name of the Corporation is ARAMARK CORPORATION.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 210,000,000 shares, consisting
of:
(i) 10,000,000 shares of Series Preferred Stock, $1.00 par value per
share (the "Series Preferred Stock"); and
(ii) 200,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock").
The Common Stock may be issued in one or more series, which series may be
referred to in this Restated Certificate of Incorporation, or in any Certificate
of Designation with respect to such Common Stock, as classes of Common Stock.
Immediately upon the filing of this Restated Certificate of
Incorporation, each share of Common Stock, Class A, $.01 par value per share, of
the Corporation, issued and outstanding immediately prior to such filing, shall,
without any action by the holder thereof, be reclassified as, and changed into,
one share of Redeemable Transitory Participating Preferred Stock, $1.00 par
value per share (the "Redeemable Transitory Participating Preferred Stock").
In addition to the classes and series of stock expressly designated and
set forth in Part 4D, the Board of Directors shall have the full authority
permitted by law to fix full or limited, or no voting power, and such other
designations, preferences and relative, participating, optional or other special
rights (including, as examples and not as a limitation, multiple voting powers
and conversion rights), and qualifications, limitations or restrictions of any
series of Preferred Stock or any class or series of Common Stock that may be
desired. A statement of the designations, preferences, and relative,
participating, optional or other special rights of each class and series of
stock, and the qualifications, limitations and restrictions in respect thereof,
is as follows:
V-1
<PAGE>
4A. Common Stock
1. Designation. The following five classes of Common Stock are
designated and consist of the number of shares as follows:
(a) 25,000,000 shares of Common Stock, Class A -- Composite
Group, $.01 par value per share (the "Class A Common Stock"), and
(b) 40,000,000 shares of Common Stock, Class B -- Composite
Group, $.01 par value per share (the "Class B Common Stock"), and
(c) 20,000,000 shares of Common Stock, Class E -- Educational
Resources Group, $.01 par value per share (the "Class E Common Stock"), and
(d) 40,000,000 shares of Common Stock, Class F -- Food and
Support Services Group, $.01 par value per share (the "Class F Common Stock"),
and
(e) 40,000,000 shares of Common Stock, Class U -- Uniform and
Career Apparel Group, $.01 par value per share (the "Class U Common Stock").
The Class A Common Stock and the Class B Common Stock are referred to
collectively as the "Composite Common Stock"; the Class E Common Stock, the
Class F Common Stock and the Class U Common Stock (and such other Common Stock,
the terms of which shall specifically provide that such Common Stock is Business
Group Common Stock) are referred to collectively as the "Business Group Common
Stock".
The number of shares of each such class or series may from time to time
be increased (but not above the number of shares that would cause the aggregate
number of shares of all classes of Common Stock to exceed the total number of
authorized shares of Common Stock) or decreased (but not below the number of
shares of such class then outstanding) by the Board of Directors. The Common
Stock shall be issuable only in whole shares. The preferences and rights of
each of the five classes of Common Stock designated above, and the
qualifications, limitations and restrictions thereon, shall be in all respects
identical, except as otherwise provided in this Part 4A of this Restated
Certificate of Incorporation.
2. Dividends.
Subject to any provision in this Article FOURTH with respect to any
stock of the Corporation to the contrary, out of the assets of the Corporation
which are by law available for the payment of dividends, dividends and other
distributions may be, but shall not be required to be, declared and paid upon
shares of Common Stock, subject to all of the limitations set forth below.
Subject to such limitations, the Board of Directors may declare and pay
dividends or other distributions exclusively on Composite Common Stock or on any
class of Business Group Common Stock or on any combination thereof, in equal or
unequal amounts, notwithstanding the relative Available Dividend Amounts, the
amount of dividends and other distributions previously declared on each class,
the respective voting or liquidation rights of each class or any other factor.
(a) Distributions on the Composite Common Stock. Dividends and
other distributions on Composite Common Stock may be declared and paid only out
of the Available Dividend Amount for the Composite Common Stock. The holders of
shares of Class A Common
V-2
<PAGE>
Stock and Class B Common Stock shall be entitled to receive the same dividends
and other distributions, ratably, with the holder of one share of Class A Common
Stock entitled to receive ten times what the holder of one share of Class B
Common Stock is entitled to receive; provided, however, that in the case of
dividends or other distributions payable in Composite Common Stock, only shares
of Class B Common Stock shall be distributed with respect to Class B Common
Stock and only shares of Class A Common Stock shall be distributed with respect
to Class A Common Stock, and any such distribution shall be made ratably, with
the holder of one share of Class A Common Stock entitled to receive the same
number of shares of Class A Common Stock as the number of shares of Class B
Common Stock the holder of one share of Class B Common Stock shall be entitled
to receive.
(b) Distributions on the Business Group Common Stock. Dividends
and other distributions on any class of Business Group Common Stock may be
declared and paid only out of the Available Dividend Amount for such class of
Business Group Common Stock.
(c) Share Distributions. Except as otherwise provided in this
Part 4A, the Board of Directors may not declare and pay dividends or
distributions of shares of the Common Stock (or Convertible Securities
convertible into or exchangeable or exercisable for shares of the Common Stock)
on shares of the Common Stock or shares of the Series Preferred Stock, except as
follows:
(i) dividends or distributions of shares of Composite
Common Stock (or Convertible Securities convertible into or exchangeable or
exercisable for shares of Composite Common Stock) on shares of Composite Common
Stock or shares of the Series Preferred Stock attributed to the Composite Group;
(ii) dividends or distributions of shares of any class of
Business Group Common Stock (or Convertible Securities convertible into or
exchangeable or exercisable for shares of such class of Business Group Common
Stock) on shares of such class of Business Group Common Stock or shares of the
Series Preferred Stock attributed to the respective Business Group; and
(iii) dividends or distributions of shares of any class of
Business Group Common Stock (or Convertible Securities convertible into or
exchangeable or exercisable for shares of such class of Business Group Common
Stock) on shares of Composite Common Stock or shares of the Series Preferred
Stock attributed to the Composite Group, but only if the sum of (1) the number
of shares of such class of Business Group Common Stock to be so issued (or the
number of such shares which would be issuable upon conversion, exchange or
exercise of any Convertible Securities to be so issued) and (2) the number of
shares of such class of Business Group Common Stock which are issuable upon
conversion, exchange or exercise of any Convertible Securities then outstanding
that are attributed to the Composite Group is less than or equal to the
applicable Number of Shares Issuable with Respect to the Inter-Group Interest.
3. Voting Rights.
(a) Subject to the special voting rights of the holders of any
other stock of the Corporation, the Common Stock (and any other stock of the
Corporation which may be entitled to vote with the holders of Common Stock),
voting as a single class except where the classes or series of Common Stock or
any of them (and such other stock) are required by law to vote as separate
classes
V-3
<PAGE>
or series on a particular matter, shall possess all of the voting power of the
Corporation with respect to the election of directors and for all other
purposes.
(b) Except as otherwise provided in the following paragraph,
each share of Common Stock shall be entitled to one vote on all matters
submitted to a vote of the Corporation's stockholders.
(c) Upon the consummation of a Public Offering of any class of
Business Group Common Stock, each share of Class B Common Stock and Business
Group Common Stock shall be thereafter entitled to ten votes on all matters
submitted to a vote of the Corporation's stockholders; provided that the class
of Business Group Common Stock that is offered in the Public Offering shall
thereafter continue to be entitled to one vote per share on all matters
submitted to a vote of the Corporation's stockholders; provided, further, that
any class of Business Group Common Stock having ten votes per share that is
offered in a subsequent Public Offering shall, after consummation of such Public
Offering, be entitled to one vote per share on all matters submitted to a vote
of the Corporation's stockholders.
(d) In addition to and not in limitation of all rights of the
Board of Directors of the Corporation to take action with respect to any class
or series of stock by resolution pursuant to applicable Delaware law, the number
of authorized shares of any class or series of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote thereon, without a separate class or series vote of the holders
of the affected class or series, unless such a vote is otherwise required herein
or in any Certificate of Designation with respect to such class or series.
4. Liquidation.
(a) Liquidation Value. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after provision
for the payment of creditors and after provision shall be made for holders of
all shares of stock of the Corporation having a preference upon liquidation,
dissolution or winding up, the remaining assets of the Corporation shall be
distributed among the holders of Common Stock and, to the extent provided in
this Article FOURTH, the holders of any other stock of the Corporation which may
be entitled to share in such distribution. Such distribution to holders of each
class of Common Stock shall be on a per share basis in proportion to the
respective liquidation units per share of such class of Common Stock. Each share
of Class A Common Stock shall have ten liquidation units, and each share of
Class B Common Stock and each share of Business Group Common Stock shall have
one liquidation unit. If the Corporation shall in any manner subdivide (by stock
split, reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of any class of Common
Stock, or declare a dividend or other distribution in shares of any class of
Common Stock to holders of such class, the per share liquidation units of such
class shall be appropriately adjusted, as determined by the Board of Directors.
(b) Actions Not Considered Liquidation. None of the following
shall be considered a liquidation, dissolution or winding up of the Corporation
within the meaning of this section: (1) a consolidation or merger of the
Corporation with or into any other corporation; (2) a merger of any other
corporation into the Corporation; (3) a reorganization of the Corporation; (4)
the purchase or redemption of all or part of the outstanding shares of any class
or classes of the
V-4
<PAGE>
Corporation; (5) a sale or transfer of all or any part of the assets of the
Corporation; or (6) a share exchange to which the Corporation is a party.
5. Conversion and Redemption of Common Stock.
(a) Conversion at Election of the Board of Directors.
(i) Conversion into Class A Common Stock. The Board of
Directors may at any time declare that all outstanding shares of any class of
Business Group Common Stock or of Class B Common Stock shall be converted, as of
the applicable Conversion Date, into fully paid and nonassessable shares of
Class A Common Stock at the applicable Conversion Ratio; and no shares of such
converted class of Common Stock may be issued or reissued thereafter.
(ii) Conversion into Class B Common Stock. The Board of
Directors may at any time declare that all outstanding shares of any class of
Business Group Common Stock shall be converted, as of the applicable Conversion
Date, into fully paid and nonassessable shares of Class B Common Stock at the
applicable Conversion Ratio; and no shares of the class of Common Stock so
converted may be issued or reissued thereafter.
(iii) Conversion into new Business Group Common Stock.
During the period after all shares of any class of Business Group Common Stock
are called for conversion as provided above, but before the applicable
Conversion Date, the holders of such shares may, at their election and in lieu
of such conversion, convert their shares into shares of a new class of Business
Group Common Stock (for substantially the same Business Group as was the class
of Business Group Common Stock being converted), if any, that the Board of
Directors may designate for the stated purpose of having a Public Offering at
the applicable Conversion Ratio, provided that notice of such conversion shall
be given in accordance with the provisions of this Part 4A.
(b) Conversion upon Transfer of Employment. If a full-time
employee of the Corporation or any of its Subsidiaries accepts a transfer in
employment from one Group to another, then the Board of Directors may declare
that all or any part of the outstanding shares of any class of Business Group
Common Stock held by such individual (a "Management Investor") or a Permitted
Transferee of such Management Investor shall be converted, as of the effective
date of such transfer or such later date not more than 90 days thereafter, into
fully paid and nonassessable shares of such other class or classes of Common
Stock as the Board of Directors shall determine, at the applicable Conversion
Ratios at the applicable Conversion Ratio, provided that notice of such
conversion shall be given in accordance with the provisions of this Part 4A.
(c) The "Conversion Ratio" shall be, (i) in the case of
conversion of Class B Common Stock into Class A Common Stock, one-tenth of a
share of Class A Common Stock for each outstanding share of Class B Common Stock
being converted, and (ii) in any other case of conversion of any class of Common
Stock (the "Converting Class") into any other class of Common Stock (the "New
Class"), the number of shares of the New Class equal to the Appraisal Price of
the Converting Class divided by the Appraisal Price of the New Class, as
determined by the Board of Directors, for each outstanding share of such
Converting Class being converted.
(d) Redemption of Common Stock for Subsidiary Stock. At any
time at which all of the assets and liabilities attributed to a Business Group
(and no other assets or liabilities of the Corporation or any Subsidiary
thereof) are held directly or indirectly by one or more wholly-owned
Subsidiaries of the Corporation (each, a "Business Group Subsidiary"), the Board
of
V-5
<PAGE>
Directors may, provided that there are assets legally available therefor, redeem
all of the outstanding shares of the related Business Group Common Stock in
exchange for the number of shares of common stock of each Business Group
Subsidiary equal to the product of the Outstanding Fraction for such Business
Group multiplied by the number of shares of common stock of such Business Group
Subsidiary to be outstanding immediately following such exchange of shares, such
Business Group Subsidiary shares to be delivered to the holders of shares of the
related Business Group Common Stock on the Redemption Date either directly or
indirectly through another such Business Group Subsidiary (as a wholly-owned
subsidiary thereof) and to be divided among the holders of such Business Group
Common Stock pro rata in accordance with the number of shares of such Business
Group Common Stock held by each on such Redemption Date, each of which shares of
common stock of such Business Group Subsidiary shall be, upon such delivery,
fully paid and nonassessable.
(e) Notice of Conversion or Redemption. Notice of conversion or
redemption of any shares of Common Stock shall be given by the Corporation by
first-class mail, and in the case of conversion pursuant to paragraph (a) or
redemption pursuant to paragraph (d), not less than 10 nor more than 60 days'
prior to the date fixed by the Board of Directors of the Corporation for such
conversion or redemption (the "Conversion Date" or "Redemption Date"), to the
holders of record of the shares to be converted or redeemed at their respective
addresses then appearing on the records of the Corporation. The notice shall
state: (1) the Conversion Date or the Redemption Date; (2) the class of Common
Stock subject to such conversion or redemption (and in the case of a conversion
pursuant to paragraph (b), the number of shares of each class of Common Stock
being converted) and the class or classes of Common Stock into which such shares
are converted; (3) the applicable Conversion Ratio(s) or the number of shares of
common stock of such Business Group Subsidiary being issued for each share of
Common Stock being redeemed; (4) the new class of Business Group Common Stock,
if any, that was designated by the Board of Directors and into which such holder
may elect to convert his shares, and the Conversion Ratio therefor; (5) that
dividends on the shares of Common Stock to be converted or redeemed shall cease
to accrue on the Conversion Date or the Redemption Date, as the case may be; and
(6) the place or places where such shares of Common Stock to be converted or
redeemed are to be surrendered for payment.
(f) Procedure. In the event of any such conversion or
redemption pursuant to paragraph (a), (b) or (d), the certificate or
certificates, if any, representing shares of Common Stock being converted or
redeemed held by such holder shall thereupon and thereafter be deemed to
represent the number of whole shares of Common Stock or of common stock of such
Business Group Subsidiary issuable upon such conversion or redemption and the
right to receive cash in lieu of fractional shares pursuant to paragraph (g)
hereof. The issuance of such shares and the registration thereof upon such
conversion or redemption shall be made without charge to the holder thereof for
any stamp or other similar tax in respect of such issuance. As promptly as
practicable after the surrender for conversion or redemption of a certificate,
if any, representing shares of Common Stock, the Corporation will issue and
register the number of whole shares of Common Stock or of common stock of such
Business Group Subsidiary issuable upon such conversion or redemption, in the
name of such holder and shall deliver to such holder a cash adjustment for any
fraction of a share as provided pursuant to paragraph (g) hereof, if not evenly
convertible or redeemable. Such conversion or redemption shall be deemed to have
been made on the applicable Conversion Date or Redemption Date, and all rights
of such holder arising from ownership of such shares of Common Stock shall cease
at such time, and the person or persons in whose name or names the shares of
Common Stock or of common stock of such Business Group Subsidiary are to be
issued shall be treated for all purposes as having become the record holder or
holders of such shares at such time and shall have and may exercise all the
rights and powers appertaining thereto. No adjustments in respect of any past
dividends and other distributions shall be made upon the conversion or
redemption of any share of
V-6
<PAGE>
Common Stock; provided, however, that if any share of any class of Common Stock
shall be converted or redeemed subsequent to the record date for the payment of
a dividend or other distribution on shares of such class of Common Stock but
prior to such payment, the registered holder of such shares at the close of
business on such record date shall be entitled to receive the dividend or other
distribution payable to holders of such class of Common Stock.
(g) No Fractional Shares. No fractions of shares of Common
Stock or of common stock of such Business Group Subsidiary are to be issued upon
conversion or redemption, but in lieu thereof the Corporation will pay therefor
in cash, a sum equal to the number of shares of Common Stock not evenly
convertible or redeemable multiplied by the per share Appraisal Price of the
shares of Common Stock being converted or redeemed.
6. Determinations by the Board of Directors.
(a) Determinations Authorized. The Board of Directors shall
make such determinations with respect to the assets and liabilities to be
attributed to the Groups, the application of the provisions of this Part 4A to
transactions to be engaged in by the Corporation, including, without limiting
the foregoing, the following determinations:
(i) Upon any acquisition by the Corporation or its
Subsidiaries of any assets or business, or any assumption of liabilities,
outside of the ordinary course of business of any Group, the Board of Directors
shall determine whether such assets, business and liabilities (or an interest
therein) shall be for the benefit of one or more Groups and, accordingly, shall
be attributed to such Group or Groups, as the case may be.
(ii) Upon any issuance of any shares of any Business
Group Common Stock at a time when the Number of Shares Issuable with Respect to
the Inter-Group Interest with respect thereto is greater than zero, the Board of
Directors shall determine, based on the use of the proceeds of such issuance and
any other relevant factors, whether all or any part of the shares of such
Business Group Common Stock so issued shall reduce the applicable Number of
Shares Issuable with Respect to the Inter-Group Interest, and the Number of
Shares Issuable with Respect to the Inter-Group Interest shall be adjusted
accordingly.
(iii) Upon any issuance by the Corporation or any
Subsidiary thereof of any Convertible Securities that are convertible into or
exchangeable or exercisable for shares of any Business Group Common Stock, if at
the time such Convertible Securities are issued the Number of Shares Issuable
with Respect to the Inter-Group Interest with respect thereto is greater than
zero, the Board of Directors shall determine, based on the use of the proceeds
of such issuance of Convertible Securities in the business of the Composite
Group or such Business Group and any other relevant factors, whether, upon
conversion, exchange or exercise thereof, the issuance of shares of such
Business Group Common Stock pursuant thereto shall, in whole or in part, reduce
the applicable Number of Shares Issuable with Respect to the Inter-Group
Interest.
(iv) Upon any issuance of any shares of the Series
Preferred Stock of any series, the Board of Directors shall attribute, based on
the use of proceeds of such issuance of shares of the Series Preferred Stock in
the business of any Group or Groups and any other relevant factors, the shares
so issued to such Group or Groups in such proportion as the Board of Directors
shall determine.
V-7
<PAGE>
(v) Upon any redemption or repurchase by the Corporation
or any Subsidiary thereof of shares of Series Preferred Stock or of other
securities or debt obligations of the Corporation, the Board of Directors shall
determine, based on the property used to redeem or purchase such shares, other
securities or debt obligations and any other relevant factors, which, if any, of
such shares, other securities or debt obligations redeemed or repurchased shall
be attributed to which Group or Groups and, accordingly, how many of the shares
of Series Preferred Stock or of such other securities, or how much of such debt
obligations, that remain outstanding, if any, are thereafter attributed to each
Group.
(b) Delegation. The Board of Directors may delegate any and all
authority under this Part 4A to any committee thereof and, to the fullest extent
permitted by law, to any authorized officer or agent.
(c) Record of Determinations. The Secretary of the Corporation
shall maintain a record of determinations made by the Board of Directors
pursuant to this Part 4A, which shall be made available for inspection by any
stockholder upon request.
(d) Board Determinations Binding. Subject to applicable law,
any determinations made by the Board of Directors under any provision of this
Part 4A or otherwise in furtherance of the application of this Part 4A shall be
final and binding on all stockholders.
7. Certain Definitions. The following terms as used in this
Restated Certificate of Incorporation shall be deemed to have the meanings set
forth in this section.
(a) "Appraisal Price" of shares of a class of Common Stock
shall mean the fair market value of such shares, as determined by an Appraiser
according to the most recent existing appraisal of shares of such class of
Common Stock, which appraisal shall be as of a date not more than six months
prior to the use thereof; provided that, in the case of a class of Common Stock
that is publicly traded, the Board of Directors may determine that the Appraisal
Price is a trading price or quotation as of a recent date or an average trading
price or quotation for a recent period, all as determined by the Board of
Directors.
(b) "Appraiser" shall mean a firm headquartered in the United
States of nationally recognized standing in the business of appraisal or
valuation of securities which does not own any stock of the Corporation and
which has been selected by the Board of Directors to act as an independent
appraiser.
(c) "Available Dividend Amount" with respect to any Business
Group, on any date, shall mean the assets attributed to such Business Group
which would be by law available for the payment of dividends if such Business
Group were a separate corporation, as determined by the Board of Directors.
"Available Dividend Amount" with respect to the Composite Group, on any date,
shall mean the assets attributed to the Composite Group which would be by law
available for the payment of dividends if each Business Group were a separate
corporation and the Composite Group owned, with respect to each such Business
Group, the Number of Shares Issuable with respect to the Inter-Group Interest,
as determined by the Board of Directors.
(d) "Business Group" shall mean the Education Group, the Food
and Support Services Group, the Uniform Group, or any other Group as may be
designated as such by the Board of Directors, as the case may be. A Business
Group, as of any date, shall comprise:
V-8
<PAGE>
(i) all businesses, assets and liabilities of the
related Business Group Companies, as of the date hereof;
(ii) all assets and liabilities of the Corporation and
its Subsidiaries attributed by the Board of Directors to such Business Group,
whether or not such assets or liabilities are or were also assets and
liabilities of any of such Business Group Companies;
(iii) all properties and assets transferred to such
Business Group from any other Group pursuant to transactions in the ordinary
course of business of both such Business Group and such other Group or otherwise
as the Board of Directors may have directed;
(iv) all properties and assets transferred to such
Business Group from the Composite Group in connection with an increase in the
related Number of Shares Issuable with Respect to the Inter-Group Interest; and
(v) the interest of the Corporation or any of its
Subsidiaries in any business or asset acquired and any liabilities assumed by
the Corporation or any of its Subsidiaries outside of the ordinary course of
business and attributed to such Business Group, as determined by the Board of
Directors;
provided that (1) from and after the payment date of any dividend or other
distribution with respect to shares of the related Business Group Common Stock
(other than a dividend or other distribution payable in shares of such Business
Group Common Stock, with respect to which adjustment shall be made in the
related Number of Shares Issuable with Respect to the Inter-Group Interest, or
in securities of the Corporation attributed to such Business Group, for which
provision shall be made as set forth in clause (2) of this proviso), such
Business Group shall no longer include an amount of assets or properties
previously attributed to such Business Group as have a Fair Value on the record
date for such dividend or distribution equal to the product of (a) the Fair
Value on such record date of the aggregate of such dividend or distribution to
holders of shares of such Business Group Common Stock declared multiplied by (b)
a fraction the numerator of which is equal to the Inter-Group Interest Fraction
for such Business Group in effect on the record date for such dividend or
distribution and the denominator of which is equal to the Outstanding Fraction
for such Business Group in effect on the record date for such dividend or
distribution, (2) if the Corporation shall pay a dividend or make some other
distribution with respect to shares of such Business Group Common Stock payable
in securities of the Corporation that are attributed to such Business Group
(other than such Business Group Common Stock), there shall be excluded from such
Business Group an interest in such Business Group equivalent to the number or
amount of such securities that is equal to the product of the number or amount
of securities so distributed to holders of such Business Group Common Stock
multiplied by the fraction specified in clause (b) of this proviso (determined
as of the record date for such distribution) (and such interest in such Business
Group shall be attributed to the Composite Group) and, to the extent interest is
or dividends are paid on the securities so distributed, such Business Group
shall no longer include a corresponding ratable amount of assets paid as such
interest or dividends as would have been paid in respect of the securities
equivalent to such interest in such Business Group deemed held by the Composite
Group if the securities equivalent to such interest were outstanding (and in
such eventuality such assets as are no longer included in such Business Group
shall be attributed to the Composite Group) and (3) from and after any transfer
of any assets or properties from such Business Group to the Composite Group,
such Business Group shall no longer include such assets or properties so
contributed or transferred. The Corporation may also, to the extent a dividend
or distribution on such Business Group Common Stock has been paid in Convertible
Securities that are convertible into or exchangeable or exercisable for such
Business Group Common Stock, cause such
V-9
<PAGE>
Convertible Securities as are deemed to be held by the Composite Group for
purposes of calculating the Number of Shares Issuable with Respect to the Inter-
Group Interest to be deemed to be converted, exchanged or exercised for purposes
of such calculations, in which case such Convertible Securities shall no longer
be deemed to be held by the Composite Group.
(e) "Business Group Companies" shall mean, as of any date, the
Educational Resources Group Companies with respect to the Educational Resources
Group, the Food and Support Services Group Companies with respect to the Food
and Support Services Group, the Uniform and Career Apparel Group Companies with
respect to the Uniform and Career Apparel Group, or the respective companies
included in any Business Group as may be designated by the Board of Directors.
(f) "Composite Group" shall mean, as of any date:
(i) the interest of the Corporation or any of its
Subsidiaries on such date in all of the assets, liabilities and businesses of
the Corporation or any of its Subsidiaries (and any successor companies), other
than any assets, liabilities and businesses attributed to any Business Group;
(ii) a proportionate undivided interest in each and every
business, asset and liability attributed to a Business Group equal to the Inter-
Group Interest Fraction for such Business Group as of such date;
(iii) all properties and assets transferred to the
Composite Group from any Business Group pursuant to transactions in the ordinary
course of business of both the Composite Group and such Business Group or
otherwise as the Board of Directors may have directed;
(iv) all properties and assets transferred to the
Composite Group from any Business Group in connection with a reduction of the
Number of Shares Issuable with Respect to the Inter-Group Interest for such
Business Group;
(v) the interest of the Corporation or any of its
Subsidiaries in any business or asset acquired and any liabilities assumed by
the Corporation or any of its Subsidiaries outside the ordinary course of
business and attributed to the Composite Group, as determined by the Board of
Directors; and
(vi) from and after the payment date of any dividend,
redemption or other distribution with respect to shares of any Business Group
Common Stock (other than a dividend or other distribution payable in shares of
such Business Group Common Stock, with respect to which adjustment shall be made
in the related Number of Shares Issuable with Respect to the Inter-Group
Interest, or in securities of the Corporation attributed to such Business Group,
for which provision shall be made as provided below), an amount of assets or
properties previously attributed to such Business Group as were paid in such
dividend or other distribution with respect to shares of such Business Group
Common Stock as have a Fair Value on the record date for such dividend or
distribution equal to the product of (1) the Fair Value on such record date of
the aggregate of such dividend or distribution to holders of shares of such
Business Group Common Stock declared multiplied by (2) a fraction the numerator
of which is equal to the Inter-Group Interest Fraction in effect on the record
date for such dividend or distribution and the denominator of which is equal to
the Outstanding Fraction for such Business Group in effect on the record date
for such dividend or distribution;
V-10
<PAGE>
provided that from and after any transfer of any assets or properties from the
Composite Group to such Business Group, the Composite Group shall no longer
include such assets or properties so transferred (other than as reflected in
respect of such a transfer by the Inter-Group Interest Fraction).
If the Corporation shall pay a dividend or make some other distribution with
respect to shares of such Business Group Common Stock payable in securities of
the Corporation that are attributed to such Business Group (other than such
Business Group Common Stock), the Composite Group shall be deemed to hold an
interest in such Business Group equivalent to the number or amount of such
securities that is equal to the product of the number or amount of securities so
distributed to holders of such Business Group Common Stock multiplied by a
fraction the numerator of which is equal to the Inter-Group Interest Fraction in
effect on the record date for such dividend or distribution and the denominator
of which is equal to the Outstanding Fraction for such Business Group in effect
on the record date for such dividend or distribution and, to the extent interest
is or dividends are paid on the securities so distributed, the Composite Group
shall include, and there shall be transferred thereto from such Business Group,
a corresponding ratable amount of assets paid as such interest or dividends as
would have been paid in respect of such securities so deemed to be held by the
Composite Group if such securities were outstanding. The Corporation may also,
to the extent the securities so paid as a dividend or other distribution to the
holders of such Business Group Common Stock are Convertible Securities and at
the time are convertible into or exchangeable or exercisable for shares of such
Business Group Common Stock, treat such Convertible Securities as are so deemed
to be held by the Composite Group to be deemed to be converted, exchanged or
exercised, and shall do so to the extent such Convertible Securities are
mandatorily converted, exchanged or exercised (and to the extent the terms of
such Convertible Securities require payment of consideration for such
conversion, exchange or exercise, the Composite Group shall then no longer
include an amount of properties or assets required to be paid as such
consideration for the amount of Convertible Securities deemed converted,
exchanged or exercised (and such Business Group shall be attributed such
properties or assets)), in which case, from and after such time, the securities
into or for which such Convertible Securities so deemed to be held by the
Composite Group were so considered converted, exchanged or exercised shall be
deemed held by the Composite Group and such Convertible Securities shall no
longer be deemed to be held by the Composite Group.
(g) A "contribution" or "transfer" of assets or properties from one
Group to another shall refer to the reattribution of such assets or properties
from the contributing or transferring Group to the other Group and correlative
phrases shall have correlative meanings.
(h) "Convertible Securities" at any time shall mean any securities of
the Corporation or of any Subsidiary thereof (other than shares of Common
Stock), including warrants but not including employee stock options, outstanding
at such time that by their terms are convertible into or exchangeable or
exercisable for or evidence the right to acquire any shares of any class of
Common Stock, whether convertible, exchangeable or exercisable at such time or a
later time or only upon the occurrence of certain events, but in respect of
antidilution provisions of such securities only upon the effectiveness thereof.
(i) "Education Group" shall mean, as of any date, the Business Group
that on the date hereof included the Education Group Companies. The Education
Group's related Business Group Common Stock is the Class E Common Stock.
(j) "Education Group Companies" shall mean each of ARAMARK Educational
Resources Company, a Delaware corporation and its Subsidiaries as of the date
hereof.
V-11
<PAGE>
(k) "Fair Value" of any business or assets shall mean the fair market
value determined by the Board of Directors. In making such determination, the
Board of Directors may rely on an appraisal prepared by an independent
investment banking or appraisal firm experienced in valuation matters.
(l) "Food and Support Services Group" shall mean, as of any date, the
Business Group that on the date hereof included the Food and Support Services
Group Companies. The Food and Support Services Group's related Business Group
Common Stock is the Class F Common Stock.
(m) "Food and Support Services Group Companies" shall mean each of
ARAMARK Services, Inc., a Delaware corporation and its Subsidiaries as of the
date hereof.
(n) "Group" shall mean, as of any date, any of the Composite Group and
the Business Groups.
(o) "Inter-Group Interest Fraction" as of any date for any Business
Group shall mean a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to the Inter-Group Interest for such Business Group on
such date and the denominator of which shall be the sum of (A) such Number of
Shares Issuable with Respect to the Inter-Group Interest and (B) the aggregate
number of shares of the related Business Group Common Stock outstanding on such
date (including the dilutive impact of outstanding employee stock options
calculated using the treasury stock method).
(p) "Number of Shares Issuable with Respect to the Inter-Group
Interest" for any Business Group shall be determined by the Board of Directors
at the time of the first issuance of shares of the related Business Group Common
Stock, and shall be equal to the Fair Value of such Business Group divided by
the Appraisal Price of such Business Group Common Stock, minus the aggregate
number of shares of such Business Group Common Stock outstanding as of such date
(including the dilutive impact of outstanding employee stock options calculated
using the treasury stock method); provided, however, that such number shall from
time to time thereafter be:
(i) adjusted as determined by the Board of Directors to be
appropriate to reflect equitably any subdivision (by stock split or otherwise)
or combination (by reverse stock split or otherwise) of such Business Group
Common Stock or any dividend or other distribution of shares of such Business
Group Common Stock to holders of shares of such Business Group Common Stock or
any reclassification of such Business Group Common Stock;
(ii) decreased (but to not less than zero) by action of the
Board of Directors by (1) the number of shares of such Business Group Common
Stock issued or sold by the Corporation that, immediately prior to such issuance
or sale, were included in the Number of Shares Issuable with Respect to the
Inter-Group Interest, (2) the number of shares of such Business Group Common
Stock issued upon conversion, exchange or exercise of Convertible Securities
that, immediately prior to the issuance or sale of such Convertible Securities,
were included in the Number of Shares Issuable with Respect to the Inter-Group
Interest, (3) the number of shares of such Business Group Common Stock issued by
the Corporation as a dividend or other distribution (including in connection
with any reclassification or exchange of shares) to holders of Composite Common
Stock, (4) the number of shares of such Business Group Common Stock issued upon
the conversion, exchange or exercise of any Convertible Securities issued by the
Corporation as a dividend or other distribution (including in connection with
any reclassification or exchange of shares) to holders of
V-12
<PAGE>
Composite Common Stock, or (5) the number (rounded, if necessary, to the nearest
whole number) equal to the quotient of (a) the aggregate Fair Value as of the
date of contribution of properties or assets (including cash) transferred from
such Business Group to the Composite Group in consideration for a reduction in
the Number of Shares Issuable with Respect to the Inter-Group Interest divided
by (b) the Appraisal Price of one share of such Business Group Common Stock as
of the date of such transfer; and
(iii) increased by (1) the number of outstanding shares of such
Business Group Common Stock repurchased by the Corporation for consideration
that is attributed to the Composite Group and (2) the number (rounded, if
necessary, to the nearest whole number) equal to the quotient of (a) the Fair
Value of properties or assets (including cash) theretofore attributed to the
Composite Group that are contributed to such Business Group in consideration of
an increase in the Number of Shares Issuable with Respect to the Inter-Group
Interest, divided by (b) the Appraisal Price of one share of such Business Group
Common Stock as of the date of such contribution and (3) the number of shares of
such Business Group Common Stock into or for which Convertible Securities are
deemed converted, exchanged or exercised pursuant to the penultimate sentence of
the definition of "Composite Group."
(q) "Outstanding Fraction", as of any date, for any Business Group
means the fraction the numerator of which shall be the number of shares of the
related Business Group Common Stock outstanding on such date (including the
dilutive impact of outstanding employee stock options calculated using the
treasury stock method) and the denominator of which shall be the sum of the
number of shares of such related Business Group Common Stock outstanding on such
date (including the dilutive impact of outstanding options calculated using the
treasury stock method) and the Number of Shares Issuable with Respect to the
Inter-Group Interest for such Business Group on such date.
(r) "Permitted Transferee" shall have the meaning as defined in
the Stockholders' Agreement.
(s) "Public Offering" shall mean any underwritten offering for cash to
the public, either on behalf of the Corporation or any of its securityholders,
pursuant to an effective registration statement under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
(t) "Stockholders' Agreement" shall mean the Amended and Restated
Stockholders' Agreement dated as of December 14, 1984, by and among the
Corporation and the persons named therein as the same has been and may be
amended and a copy of which is on file with the Secretary of the Corporation and
will be provided to any stockholder upon request.
(u) "Subsidiary" shall mean any corporation or other entity of which
the Corporation shall, directly or indirectly, own 50% or more of the equity, as
determined by the Board of Directors and any other corporation or other entity
in which the Corporation shall directly or indirectly have an equity investment
and which the Board of Directors shall in its sole discretion designate.
(v) "Uniform Group" shall mean, as of any date, the Business Group
that on the date hereof included the Uniform Group Companies. The Uniform
Group's related Business Group Common Stock is the Class U Common Stock.
V-13
<PAGE>
(w) "Uniform Group Companies" shall mean each of ARAMARK Uniform
Services, Inc., a Delaware corporation and its Subsidiaries as of the date
hereof.
4B. Series D Stock
1. Designation. There shall be a series of Series Preferred Stock
which shall consist of 20,000 shares and shall be designated as Adjustable Rate
Callable Nontransferable Series D Preferred Stock (the "Series D Stock"). The
number of authorized shares of Series D Stock may be increased by resolution of
the Board of Directors.
2. Rank.
(a) Rank of Series D Stock. To the extent and in the manner
provided in this Part 4B, the Series D Stock shall, with respect to dividend
rights and rights on liquidation, rank (i) junior to or on parity with, as the
case may be, any other stock of the Corporation, the terms of which shall
specifically provide that such stock shall rank senior to, or on parity with, as
the case may be, the Series D Stock with respect to dividend rights or rights on
liquidation or both and (ii) senior to any other stock of the Corporation.
(b) Certain Definitions. The following terms as used in this
Part 4B shall be deemed to have the meanings set forth in this section.
(1) The term "Participating Stock" shall mean the Common
Stock and any other stock of the Corporation of any class which has the right to
participate in dividends and distributions of the Corporation without limit as
to the amount or percentage.
(2) The term "Parity Stock" with respect to Series D
Stock shall mean the Series D Stock and all other stock of the Corporation
ranking equally therewith as to the payment of dividends or the distribution of
assets upon liquidation. The term "Dividend Parity Stock" with respect to Series
D Stock shall mean the Series D Stock and all other stock of the Corporation
ranking equally therewith as to the payment of dividends. The term "Liquidation
Parity Stock" with respect to Series D Stock shall mean the Series D Stock and
all other stock of the Corporation ranking equally therewith as to distribution
of assets upon liquidation.
(3) The term "Junior Stock" with respect to Series D
Stock shall mean the Participating Stock and all other stock of the Corporation
ranking junior thereto as to the payment of dividends and the distribution of
assets upon liquidation. The term "Dividend Junior Stock" with respect to Series
D Stock shall mean the Participating Stock and all other stock of the
Corporation ranking junior thereto as to the payment of dividends. The term
"Liquidation Junior Stock" with respect to Series D Stock shall mean the
Participating Stock and all other stock of the Corporation ranking junior
thereto as to distribution of assets upon liquidation.
(4) The term "Senior Stock" with respect to Series D
Stock shall mean all stock of the Corporation ranking senior thereto as to the
payment of dividends or distribution of assets upon liquidation.
V-14
<PAGE>
3. Dividends.
(a) Cumulative Dividends. The holders of record of Series D
Stock shall be entitled to receive, as and if declared by the Board of
Directors, cumulative cash dividends thereon at the per annum rate per share
equal to the Established Dividend Rate (as defined in paragraph (c)), and no
more, but only out of funds legally available for the payment of such
distributions under the General Corporation Law of the State of Delaware.
Dividends on the Series D Stock shall not be payable unless and until declared
by the Board of Directors. Dividends shall accrue from the date of original
issuance. Accumulations of dividends shall not bear interest.
(b) Limitations Upon Dividend Arrearage. Unless dividends that
have been declared and are payable upon the Series D Stock have been paid, no
dividend or other distribution (except in Junior Stock) shall be declared or
paid on Dividend Junior Stock and no amount shall be set aside for or applied to
the redemption, purchase or other acquisition of (i) any Dividend Junior Stock
or Liquidation Junior Stock other than by exchange therefor of Junior Stock or
out of the proceeds of a substantially concurrent sale of shares of Junior Stock
or (ii) any Parity Stock except in accordance with a purchase or exchange offer
made simultaneously by the Corporation to all holders of record of Parity Stock
which, considering the annual dividend rates and the other relative rights and
preferences of such shares, in the opinion of the Board of Directors (whose
determination shall be conclusive), will result in fair and equitable treatment
among all such shares.
(c) The "Established Dividend Rate" shall initially be $25.00,
and shall be reset as provided in this paragraph. On each December 16, beginning
December 16, 1998 and continuing so long as any shares of Series D Stock shall
be outstanding, the Established Dividend Rate shall be reset at a rate equal to
$1,000 multiplied by 50% of the One Year Treasury Rate that shall have been in
effect at the close of business on the December 1 next preceding (or if such
December 1 shall not have been a business day, the business day next preceding
such December 1), rounded up to the nearest $1.00; provided, however, that the
Established Dividend Rate shall in no event be greater than $50.00. For purposes
of the preceding sentence, the "One Year Treasury Rate" shall mean the rate for
direct obligations of the United States having a constant maturity of 1-year, as
published in H.15(519) under the heading "Treasury Constant Maturities", or, if
not so published by such December 16, such rate as determined in good faith by
the Corporation, which determination absent manifest error shall be conclusive.
The Corporation shall file with the duly appointed transfer agent for the Series
D Stock a certificate stating the new Established Dividend Rate determined as
provided in this paragraph and showing the computation thereof, and will cause a
notice stating the new Established Dividend Rate and the computation thereof to
be mailed to the holders of shares of Series D Stock.
4. Liquidation Rights.
(a) Liquidation Value. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Series D Stock shall be entitled to receive from the assets of the
Corporation, payment in cash, of $1,000 per share, plus a further amount equal
to unpaid cumulative dividends on Series D Stock accrued to the date when such
payments shall be made available to the holders thereof, and no more, before any
amount shall be paid or set aside for, or any distribution of assets shall be
made to the holders of Liquidation Junior Stock. If, upon such liquidation,
dissolution or winding up, the amounts available for distribution to the holders
of all Liquidation Parity Stock shall be insufficient to permit the payment in
full to such holders of the preferential amounts to which they are entitled,
then such amounts shall be paid ratably
V-15
<PAGE>
among the shares of Liquidation Parity Stock in accordance with the respective
preferential amounts (including unpaid cumulative dividends, if any) payable
with respect thereto if paid in full.
(b) Actions Not Considered Liquidation. None of the following
shall be considered a liquidation, dissolution or winding up of the Corporation
within the meaning of this section: (1) a consolidation or merger of the
Corporation with or into any other corporation; (2) a merger of any other
corporation into the Corporation; (3) a reorganization of the Corporation; (4)
the purchase or redemption of all or part of the outstanding shares of any class
or classes of the Corporation; (5) a sale or transfer of all or any part of the
assets of the Corporation; or (6) a share exchange to which the Corporation is a
party.
5. Redemption.
(a) Optional Redemption. The Series D Stock may be called for
redemption and redeemed out of funds legally available therefor at the option of
the Corporation by resolution of the Board of Directors, in whole at any time or
in part at any time or from time to time upon the notice hereinafter provided
for in paragraph (c), by the payment therefor of the redemption price per share
of $1,000 plus an amount equal to the accrued and unpaid cumulative dividends
thereon to the date fixed by the Board of Directors as the redemption date. In
addition, the Corporation may so call for redemption at any time all, but not
less than all, of the shares of Series D Stock held by any person or entity.
(iii) Notice having been mailed as aforesaid, from and
after the redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price of the shares called for
redemption), dividends on the shares of Series D Stock so called for redemption
shall cease to accrue, and from and after the redemption date or such earlier
date as funds shall be set aside for payment of the redemption price (unless
default shall be made by the Corporation in providing money for the payment of
the redemption price of the shares called for redemption) said shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of the Corporation
shall so require and the notice shall so state), such shares shall be redeemed
by the Corporation at the redemption price aforesaid.
(iv) Shares of Series D Stock redeemed by the
Corporation shall be restored to the status of authorized and unissued shares of
Series Preferred Stock, undesignated as to series, and, except as otherwise
provided by the express terms of any outstanding series, may be reissued by the
Corporation as shares of one or more series of Series Preferred Stock.
6. Voting Rights.
(a) No Voting Rights Generally. Except as expressly provided
to the contrary in this Part 4B or as otherwise required by law, the holders of
Series D Stock shall have no right to vote at, or to participate in, any meeting
of stockholders of the Corporation, or to receive any notice of such meeting.
V-16
<PAGE>
(b) Rights Upon Dividend Arrearage.
(1) In the event dividends that have been declared and
are payable upon the Series D Stock shall be in arrears, the number of directors
constituting the full board shall be increased by two, and the holders of the
Series D Stock voting noncumulatively and separately as a single series together
with the holders of any other shares of Series Preferred Stock having the right
to elect directors as a series under circumstances when dividends are in
arrears, shall be entitled to elect two members of the Board of Directors of the
Corporation at the next annual meeting of stockholders of the Corporation or at
a special meeting called as hereinafter provided in this section. Such voting
rights of the holders of Series D Stock shall continue until all declared and
unpaid dividends thereon shall have been paid in full, whereupon such special
voting rights of the holders of Series D Stock shall cease (and the respective
terms of the two additional directors shall thereupon expire and the number of
directors constituting the full board shall be decreased by two) subject to
being again revived from time to time upon the recurrence of the conditions
described in this section as giving rise thereto.
(2) At any time when such right of holders of Series D
Stock to elect two additional directors shall have so vested, the Corporation
may, and upon the written request of the holders of record of not less than 10%
of the Series D Stock then outstanding (or 10% of all Series Preferred Stock
having the right to vote for such directors in case holders of shares of other
series of Series Preferred Stock shall also have the right to elect directors as
a series in circumstances when dividends are in arrears) shall, call a special
meeting of holders of such Series D Stock (and other series of Series Preferred
Stock, if applicable) for the election of directors. In the case of such a
written request, such special meeting shall be held within 60 days after the
delivery of such request, and, in either case, at the place and upon the notice
provided by law and in the bylaws of the Corporation; except that the
Corporation shall not be required to call such a special meeting if such request
is received less than 120 days before the date fixed for the next ensuing annual
meeting of stockholders of the Corporation; provided, that the holders of Series
D Stock receive notice of such meeting and their right to vote thereat.
(3) Whenever the number of directors of the Corporation
shall have been increased by two as provided in this section, the number as so
increased may thereafter be further increased or decreased in such manner as may
be permitted by the bylaws of the Corporation and without the vote of the
holders of Series D Stock. No such action shall impair the right of the holders
of Series D Stock to elect and to be represented by two directors as provided in
this section.
(4) The two directors elected as provided in this section
shall serve until the next annual meeting of stockholders of the Corporation and
until their respective successors shall be elected and qualified or the earlier
expiration of their terms as provided in this section. No such director may be
removed without the vote or consent of holders of a majority of the shares of
Series D Stock (or holders of a majority of shares of Series Preferred Stock
having the right to vote in the election of such director in case holders of
shares of other series of Series Preferred Stock shall also have the right to
elect such director as a class). If, prior to the expiration of the term of any
such director, a vacancy in the office of such director shall occur, such
vacancy shall, until the expiration of such term, in each case be filled by
appointment made by the remaining director elected as provided in this section.
7. Restrictions on Transfer. The shares of Series D Stock shall
not be transferable (other than by will or the laws of descent), except that
such shares may be transferred with the consent of the Board of Directors of the
Corporation.
V-17
<PAGE>
8. No Conversion Rights. The holders of shares of Series D Stock
shall not have the right to convert such shares into other securities of the
Corporation.
4C. Redeemable Transitory Participating Preferred Stock
1. Designation. There shall be a series of Series Preferred Stock
which shall consist of 2,000,000 shares and shall be designated as Redeemable
Transitory Participating Preferred Stock. The number of authorized shares of
Redeemable Transitory Participating Preferred Stock may be increased by
resolution of the Board of Directors.
2. Rank. The Redeemable Transitory Participating Preferred Stock
shall, with respect to dividend rights and rights on liquidation, rank: (i)
junior to, or on parity with, as the case may be, any other stock of the
Corporation, the terms of which shall specifically provide that such series
shall rank senior to, or on parity with, as the case may be, the Redeemable
Transitory Participating Preferred Stock with respect to dividend rights and
rights on liquidation, including the Series D Stock, as to which the Redeemable
Transitory Participating Preferred Stock shall rank junior with respect to
dividend rights and rights on liquidation, (ii) senior to any other stock of the
Corporation with respect to rights on liquidation, except with respect to the
Class A Common Stock, as to which rights the Redeemable Transitory Participating
Preferred Stock shall rank on a parity with the Class A Common Stock, and (iii)
senior to any other stock of the Corporation with respect to dividend rights,
except with respect to the Class A Common Stock, as to which rights the
Redeemable Transitory Participating Preferred Stock shall rank on a parity with
the Class A Common Stock. (All of such stock of the Corporation to which the
Redeemable Transitory Participating Preferred Stock ranks prior is at times
referred to collectively for purposes of this Part 4C as the "Junior
Securities.")
3. Dividends. Except as otherwise provided herein, the holders of
the shares of Redeemable Transitory Participating Preferred Stock shall not be
entitled to receive any dividends or other distributions. If the Board of
Directors declares any dividend or other distribution on the Class A Common
Stock as permitted under the General Corporation Law of the State of Delaware,
whether of cash, other assets, evidences of indebtedness or other securities of
the Corporation or another corporation, or rights to subscribe therefor
(collectively, "Dividends"), then concurrently therewith the Board of Directors
shall declare, and each share of Redeemable Transitory Participating Preferred
Stock shall be entitled to receive out of funds legally available therefor, a
Dividend equal to the amount and kind of Dividend per share declared on the
Class A Common Stock. The record date and payment date for such Dividends on
the Redeemable Transitory Participating Preferred Stock shall be the same as for
the Dividend declared on the Class A Common Stock.
4. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Redeemable Transitory Participating Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders for each share of Redeemable Transitory
Participating Preferred Stock then outstanding an amount in cash equal to the
amount each share of Class A Common Stock would receive, plus an amount in cash
equal to all declared but unpaid Dividends thereon to the date fixed for
liquidation, and no more, before any payment shall be made or any assets
distributed to the holders of any of the Junior Securities; provided however,
that the holders of outstanding shares of Redeemable Transitory Participating
Preferred Stock shall not be entitled to receive such liquidation payment until
the liquidation payments on all outstanding shares of any stock of the
Corporation having liquidation rights ranking senior to the Redeemable
Transitory Participating
V-18
<PAGE>
Preferred Stock shall have been paid in full. If the assets of the Corporation
are not sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of Redeemable Transitory Participating Preferred
Stock and any outstanding shares of any other stock of the Corporation having
liquidation rights on parity with the Redeemable Transitory Participating
Preferred Stock, then the holders of all such shares shall share ratably in such
distribution of assets in accordance with the amount which would be payable on
such distribution if the amounts to which the holders of outstanding shares of
Redeemable Transitory Participating Preferred Stock and the holders of such
other outstanding shares of stock of the Corporation are entitled were paid in
full. Thereafter, the holders of Redeemable Transitory Participating Preferred
Stock will share ratably with the holders of the Class A Common Stock all
additional assets legally available for distribution to holders of Class A
Common Stock.
(b) None of the following shall be considered a liquidation,
dissolution or winding up of the Corporation within the meaning of this section:
(1) a consolidation or merger of the Corporation with or into any other
corporation; (2) a merger of any other corporation into the Corporation; (3) a
reorganization of the Corporation; (4) the purchase or redemption of all or part
of the outstanding shares of any class or classes of the Corporation; (5) a sale
or transfer of all or any part of the assets of the Corporation; or (6) a share
exchange to which the Corporation is a party.
5. Redemption.
(a) Subject to any restriction applicable to the redemption
pursuant to the General Corporation Law of the State of Delaware, the
Corporation, at its option, by resolution of the Board of Directors, may redeem
the Redeemable Transitory Participating Preferred Stock, in whole but not in
part, at any time after the issuance thereof, upon the notice hereinafter
provided for in paragraph (b) below, by payment therefor of a redemption price
of $347.50 per share in cash, without interest (the "cash redemption price");
provided, however, that if the Board of Directors determines by resolution, the
Corporation may offer, as alternative redemption consideration per share,
without interest: (i) to certain holders of Redeemable Transitory Participating
Preferred Stock who meet to the Corporation's satisfaction certain suitability
requirements described in (d) below and who comply with such additional
procedural requirements as the Corporation may prescribe, in lieu of the $347.50
per share cash redemption price, to pay or deliver to such qualifying holder, at
the election of the holder, $347.50 principal amount of the Corporation's 7.25%
Guaranteed Convertible Installment Promissory Notes due 2007 (the "Installment
Notes"); and (ii) to certain holders of Redeemable Transitory Participating
Preferred Stock who are described in (e) below, in lieu of the $347.50 per share
cash redemption price, to pay or deliver to such qualifying holder, at the
election of the holder, one share of Class A Common Stock. In addition, in
connection with the election of alternative redemption consideration which the
Corporation may offer to qualifying holders of shares of Redeemable Transitory
Participating Preferred Stock, the Board of Directors may prescribe procedures
for making a proper and timely election with the result that the failure of any
holder of Redeemable Transitory Participating Preferred Stock to comply with the
prescribed procedures will result in the loss of the election option for such
holder and such holder shall in such case be entitled to receive only the
redemption price in cash as set forth above.
Holders of shares of Redeemable Transitory Participating Preferred
Stock who qualify to make an election to receive either of the alternative
redemption considerations set forth in clauses (i) or (ii) above, may make such
election with respect to any or all of their shares; provided, however, that the
Corporation shall not issue Installment Notes with a face principal amount other
than $10,000 or integral multiples thereof. Each such holder who would
otherwise be entitled to receive
V-19
<PAGE>
any amount of an Installment Note other than $10,000 or integral multiples
thereof shall receive the amount of such fractional interest of an Installment
Note in cash.
(b) Notice of redemption of shares of Redeemable Transitory
Participating Preferred Stock shall be given by the Corporation by first-class
mail, not less than 10 nor more than 60 days prior to the date fixed by the
Board of Directors for the redemption (a "redemption date"), to the holders of
record of Redeemable Transitory Participating Preferred Stock at their
respective addresses then appearing on the records of the Corporation; such
notice may be made in advance of the date of issuance to the persons who will
become the holders of Redeemable Transitory Participating Preferred Stock on the
date on which the Redeemable Transitory Participating Preferred Stock shall be
issued, and shall be adequate if included in the proxy statement mailed to
holders in connection with consideration of this Restated Certificate of
Incorporation. The notice of redemption shall state: (1) the redemption date;
(2) the redemption consideration; (3) the place or places where the shares of
Redeemable Transitory Participating Preferred Stock are to be redeemed for
payment of the redemption consideration; (4) the procedures for making a proper
and timely election for any of the redemption consideration other than the
redemption price, including the time and date by which such election must be
made to be effective, which may be a time and date prior to the date of
issuance; and (5) that failure by an otherwise qualified holder (or person who
will become the holder, as the case may be) to make such proper and timely
election will result in loss of the election option, and such person in such
case shall be entitled to receive only the cash redemption price.
(c) Notice having been mailed as aforesaid, from and after the
redemption date or such earlier date as funds shall be set aside for payment of
the redemption consideration (unless default shall be made by the Corporation in
providing cash, Installment Notes, Class A Common Stock or any of them, for the
payment of the redemption consideration of the shares called for redemption)
said shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the redemption consideration) shall cease. On the
redemption date, such shares shall be redeemed by the Corporation for the
redemption consideration aforesaid.
(d) Qualification to Elect Installment Notes. If the Corporation
chooses, by resolution of the Board of Directors, to offer to qualified holders
of shares of Redeemable Transitory Participating Preferred Stock which have been
called for redemption the option to elect to receive Installment Notes in lieu
of cash, then in order to qualify to make an election for Installment Notes,
each holder must demonstrate to the Corporation's satisfaction, and it shall be
a further qualification that such holder shall so have demonstrated, that such
holder is one of the following:
(i) a bank, savings and loan association, trust company,
insurance company, investment company registered under the Investment Company
Act of 1940, pension or profit-sharing trust (other than a pension or profit-
sharing trust of the Corporation, a self-employed individual retirement plan or
individual retirement account), an organization described in Section 501(c)(3)
of the Internal Revenue Code, which has total assets of not less than $5,000,000
according to its most recent audited financial statements, a corporation having
a net worth on a consolidated basis, according to its most recent audited
financial statements, of not less than $14,000,000 or any wholly owned
subsidiary thereof;
(ii) a director or executive officer of the Corporation;
(iii) a person who makes a valid election to receive
Installment Notes with an aggregate value of $150,000 or more provided such
person is able to bear the economic
V-20
<PAGE>
risk of the investment, the investment does not exceed 10% of such person's net
worth (or joint net worth with a spouse), or such person (or with such person's
professional advisor who is unaffiliated with and not compensated by the
Corporation or any affiliate thereof) has the capacity to protect its own
interests in connection with the transaction;
(iv) an individual who elects to receive Installment Notes
whose net worth (or joint net worth with a spouse) exceeds $1,000,000, provided
such person is able to bear the economic risk of the investment, the investment
does not exceed 10% of such person's net worth (or joint net worth with a
spouse), or such person (or with such person's professional advisor who is
unaffiliated with and not compensated by the Corporation or any affiliate
thereof) has the capacity to protect its own interests in connection with the
transaction;
(v) an individual who elects to receive Installment Notes
whose income (or whose joint income with a spouse) exceeded $200,000 in each of
the two most recent years and who reasonably expects an income in excess of
$200,000 in the current year, provided such person is able to bear the economic
risk of the investment, the investment does not exceed 10% of such person's net
worth (or joint net worth with a spouse), or such person (or with such person's
professional advisor who is unaffiliated with and not compensated by the
Corporation or any affiliate thereof) has the capacity to protect its own
interests in connection with the transaction;
(vi) a person who has preexisting personal or business
contacts with the Corporation or any officer, director or controlling person
thereof of a nature and duration such as would enable a reasonably prudent
person to be aware of the character, business acumen and general business and
financial circumstances of the person with whom the relationship exists;
(vii) a person who, by reason of its business or financial
experience or the business or financial experience of its professional advisor
(who is unaffiliated with and is not compensated by the Corporation or any
affiliate of the Corporation), could be reasonably assumed to have the capacity
to protect its own interests in the transaction;
(viii) any relative, spouse or relative of the spouse of an
individual who meets any one of the requirements of clauses (ii)-(vii) above and
who makes a valid election to receive Installment Notes (an "Individual") who
has the same principal residence as such Individual (a "Related Person"), any
trust or estate in which an Individual and any Related Person collectively own
more than 50% of the beneficial interest, any corporation or other organization
of which an Individual and any Related Person collectively are beneficial owners
of more than 50% (excluding directors' qualifying shares) of the equity
securities ("relative" means a person related by blood, marriage or adoption);
or
(ix) any entity in which all the equity owners are persons
specified in (i), (ii), (iv) or (v) above;
provided, however, that persons who qualify only as a result of clause (vi) or
(vii) above shall not total more than 35 persons and in the event that more than
35 persons rely on clause (vi) or (vii), the Corporation shall determine which
35 persons shall be permitted so to rely. The Corporation may request such
documentation or evidence with respect to such qualifications as it deems
appropriate. The good faith determination by the Corporation that a holder of
Redeemable Transitory Participating Preferred Stock does not meet the foregoing
requirements shall be conclusive as to such holder.
V-21
<PAGE>
(e) Qualification to Elect Class A Common Stock. If the
Corporation chooses, by resolution of the Board of Directors, to offer to
qualified holders of shares of Redeemable Transitory Participating Preferred
Stock which have been called for redemption the option to elect to receive Class
A Common Stock in lieu of cash, then in order to qualify to make an election for
Class A Common Stock, each holder must be (i) a benefit plan of the Corporation
or (ii) an individual who at one time owned (or his or her Permitted Transferees
owned) shares of Common Stock, Class B, $.01 par value per share, which stock
was converted into shares of Common Stock, Class A, $.01 par value per share,
pursuant to the terms of the Certificate of Incorporation of the Corporation in
effect prior to the filing of this Restated Certificate of Incorporation upon
the termination of employment with the Corporation, and their Permitted
Transferees.
6. Voting Rights. Subject to the special voting rights of the
holders of any other stock of the Corporation and except as required by law to
vote as a separate series, the Redeemable Transitory Participating Preferred
Stock, shall vote with the Class A Common Stock (and any other stock of the
Corporation entitled to vote therewith) with respect to the election of
directors and for all other purposes. Each share of Redeemable Transitory
Participating Preferred Stock will be entitled to cast one vote on all matters
submitted to a vote of the holders of Class A Common Stock.
7. Effect of Redemption. Shares of Redeemable Transitory
Participating Preferred Stock redeemed by the Corporation shall be restored to
the status of authorized and unissued shares of Series Preferred Stock,
undesignated as to series.
4D. Continuing Common Stock
1. Classes.
The following two classes of Common Stock are (i) the continuing
classes of Common Stock that were authorized, issued and outstanding immediately
prior to the filing of this Restated Certificate of Incorporation and (ii)
designated and consist of the number of shares as follows:
(a) 5,000,000 shares of Common Stock, Class A, $.01 par value
per share (the "Continuing Class A Common Stock"), and
(b) 25,000,000 shares of Common Stock, Class B, $.01 par value
per share (the "Continuing Class B Common Stock").
The Continuing Class A Common Stock and the Continuing Class B Common
Stock shall have the powers, preferences and rights and the qualifications,
limitations and restrictions thereon set forth in this Part 4D and shall not
have the powers, preferences and rights and the qualifications, limitations and
restrictions thereon set forth in this Restated Certificate of Incorporation
with respect to any other class or series of Common Stock designated by the
Board of Directors. The powers, preferences and rights of the Continuing Class
A Common Stock and the Continuing Class B Common Stock, and the qualifications,
limitations and restrictions thereon, shall be in all respects identical, except
as otherwise provided in this Part 4D.
2. Dividends.
Subject to any provision in this Article FOURTH with respect to any
stock of the Corporation to the contrary, out of the assets of the Corporation
which are by law available for the payment of dividends, dividends and other
distributions may be, but shall not be required to be,
V-22
<PAGE>
declared and paid upon shares of Continuing Class A Common Stock and Continuing
Class B Common Stock, and the holders of shares of Continuing Class A Common
Stock and Continuing Class B Common Stock shall be entitled to receive the same
dividends and other distributions, ratably with the holder of one share of
Continuing Class A Common Stock entitled to receive ten times what the holder of
one share of Continuing Class B Common Stock is entitled to receive; provided,
however, that in the case of dividends or other distributions payable in Common
Stock, only shares of Continuing Class B Common Stock shall be distributed with
respect to Continuing Class B Common Stock and only shares of Continuing Class A
Common Stock shall be distributed with respect to Continuing Class A Common
Stock, and any such distribution shall be made ratably, with the holder of one
share of Continuing Class A Common Stock entitled to receive the same number of
shares of Continuing Class A Common Stock as the number of shares of Continuing
Class B Common Stock the holder of one share of Continuing Class B Common Stock
shall be entitled to receive; and provided further, that the Board of Directors,
may declare and pay dividends and other distributions with respect to the
Continuing Class A Common Stock without declaring or paying any dividend or
other distribution with respect to the Continuing Class B Common Stock.
3. Voting Rights.
(a) Subject to the special voting rights of the holders of any
other stock of the Corporation, the Continuing Class A Common Stock and the
Continuing Class B Common Stock shall be entitled to vote with other classes or
series of Common Stock with respect to the election of directors and for all
other purposes.
(b) Each share of Continuing Class A Common Stock and
Continuing Class B Common Stock shall be entitled to one vote on all matters
submitted to a vote of the Corporation's stockholders.
4. Liquidation.
Upon the liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after provision for the payment of creditors
and after provision shall be made for holders of all shares of stock of the
Corporation having a preference upon liquidation, dissolution or winding up, the
remaining assets of the Corporation shall, subject to Part 4A, be distributed
among the holders of all class of Common Stock, with the holder of one share of
Continuing Class A Common Stock entitled to receive ten times what the holder of
one share of Continuing Class B Common Stock is entitled to receive (with the
holder of one share of Continuing Class B Common Stock entitled to receive the
same as a holder of one share of Class B Common Stock is entitled to receive).
5. Conversion of Continuing Class B Common Stock.
(a) Each share of Continuing Class B Common Stock may at any
time, but only with the prior approval of the Board of Directors, be converted
at the election of the holder thereof into one-tenth of a fully paid and
nonassessable share of Continuing Class A Common Stock. Subject to the terms of
any such approval, the holder of shares of Continuing Class B Common Stock may
elect to convert any or all of such shares at one time or at various times in
such holder's discretion. Such right shall be exercised by the surrender of the
certificate representing each share of Continuing Class B Common Stock to be
converted to the agent for the registration of transfer of shares of Continuing
Class B Common Stock at its office, or to the Corporation at its principal
executive offices, accompanied by a written notice of the election by the holder
thereof to convert and (if so required by the transfer agent or by the
Corporation) by instruments of transfer, in form
V-23
<PAGE>
satisfactory to the transfer agent and to the Corporation, duly executed by such
holder or the holder's duly authorized attorney.
(b) If a holder of Continuing Class B Common Stock ceases to be
either a director or full-time employee of the Corporation or any of its
Subsidiaries (a "Management Investor") or a Permitted Transferee of a person who
is then a Management Investor, then each share of Continuing Class B Common
Stock held by such holder shall thereupon be converted into one-tenth of a share
of Continuing Class A Common Stock effective immediately. No share of Continuing
Class B Common Stock may be issued other than to a Management Investor or a
person who would be a Permitted Transferee of a Management Investor, and any
such share issued to any other person shall ipso facto be converted into one-
tenth of a share of Continuing Class A Common Stock effective at the time of the
purported issuance. For purposes hereof, "Subsidiary" shall have the meaning set
forth in Part 4A(7).
(c) At any time when the Board of Directors authorizes and
directs the conversion of all the Continuing Class B Common Stock into
Continuing Class A Common Stock, then, at the time designated by the Board for
the occurrence of such event, each outstanding share of Continuing Class B
Common Stock shall be converted into one-tenth of a share of Continuing Class A
Common Stock and no further shares of Continuing Class B Common Stock may be
issued thereafter.
(d) In the event of any such conversion pursuant to paragraph
(a), (b) or (c), the certificate or certificates representing shares of
Continuing Class B Common Stock held by such holder shall thereupon and
thereafter be deemed to represent the number of whole shares of Continuing Class
A Common Stock issuable upon such conversion and the right to receive cash in
lieu of fractional shares pursuant to paragraph (f) hereof. Upon the surrender
of any such certificate to the agent for the registration of transfer of shares
of Continuing Class B Common Stock at its office, or to the Corporation at its
principal executive offices, such certificate shall be canceled and a
certificate for the number of whole shares of Continuing Class A Common Stock to
which he shall be entitled, together with a cash adjustment for any fraction of
a share if not evenly convertible pursuant to paragraph (f) hereof, shall be
issued and delivered to the holder thereof as hereinafter provided.
(e) The issuance of a certificate for shares of Continuing
Class A Common Stock upon conversion of shares of Continuing Class B Common
Stock shall be made without charge for any stamp or other similar tax in respect
of such issuance. However, if any such certificate is to be issued in a name
other than that of the holder of the share or shares of Continuing Class B
Common Stock converted, the person or persons requesting issuance thereof shall
pay to the transfer agent or to the Corporation the amount of any tax which may
be payable in respect of any such transfer, or shall establish to the
satisfaction of the transfer agent or of the Corporation that such tax has been
paid. As promptly as practicable after the surrender for conversion of a
certificate representing shares of Continuing Class B Common Stock and the
payment of any tax as herein before provided, the Corporation will deliver or
cause to be delivered at the office of the transfer agent to, or upon the
written order of, the holder of such certificate, a certificate or certificates
representing the number of whole shares of Continuing Class A Common Stock
issuable upon such conversion, issued in such name or names as such holder may
direct together with a cash adjustment for any fraction of a share as provided
pursuant to paragraph (f) hereof, if not evenly convertible. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of the surrender of the certificate representing shares of Continuing
Class B Common Stock (if on such date the transfer books of the Corporation
shall be closed, then immediately prior to the close of business on the first
date thereafter that said books shall be open) or, in the case of a conversion
under paragraph (b) or (c) of this Section, immediately upon the event giving
rise to the conversion, and all rights of such holder
V-24
<PAGE>
arising from ownership of shares of Continuing Class B Common Stock shall cease
at such time, and the person or persons in whose name or names the certificate
representing shares of Continuing Class A Common Stock are to be issued shall be
treated for all purposes as having become the record holder or holders of such
shares of Continuing Class A Common Stock at such time and shall have and may
exercise all the rights and powers appertaining thereto. No adjustments in
respect of any past dividends and other distributions shall be made upon the
conversion of any share of Continuing Class B Common Stock; provided, however,
that if any share of Continuing Class B Common Stock shall be converted
subsequent to the record date for the payment of a dividend or other
distribution on shares of Continuing Class B Common Stock but prior to such
payment, the registered holder of such shares at the close of business on such
record date shall be entitled to receive the dividend or other distribution
payable to holders of Continuing Class B Common Stock. The Corporation shall at
all times reserve and keep available, solely for the purpose of issue upon
conversion of outstanding shares of Continuing Class B Common Stock, such number
of shares of Continuing Class A Common Stock as may be issuable upon the
conversion of all such outstanding shares of Continuing Class B Common Stock,
provided that the Corporation may deliver shares of Continuing Class A Common
Stock held in the treasury of the Corporation.
(f) No fractions of shares of Continuing Class A Common Stock
are to be issued upon conversion, but in lieu thereof the Corporation will pay
therefor in cash, a sum equal to the number of shares of Continuing Class B
Common Stock not evenly convertible multiplied by the per share fair market
value of the Continuing Class B Common Stock, as determined by an Appraiser
according to the most recent existing appraisal; provided, however, that such
appraisal shall be as of a date not more than six months prior to its use
hereunder.
6. Redemption.
(a) Subject to any restriction applicable to the redemption
pursuant to the General Corporation Law of the State of Delaware, the
Corporation, at its option, may redeem the Continuing Class B Common Stock
during the 30 day period following the filing of this Restated Certificate of
Incorporation, in whole or in part at any time after the issuance of at least
one share of Class A Common Stock, for the redemption consideration set forth
below:
(i) employees of the Education Group and their Permitted
Transferees shall receive one share of Class E Common Stock and one share
of Class B Common Stock for each two shares of Continuing Class B Common
Stock;
(ii) employees of the Food and Support Services Group and
their Permitted Transferees shall receive one share of Class F Common Stock
and one share of Class B Common Stock for each two shares of Continuing
Class B Common Stock;
(iii) employees of the Uniform Group and their Permitted
Transferees shall receive one share of Class U Common Stock and one share
of Class B Common Stock for each two shares of Continuing Class B Common
Stock;
(iv) employees who do not work exclusively for a single
Business Group, including executive officers and other corporate staff of
the Corporation, and their Permitted Transferees, shall receive one share
of Class B Common Stock for each share of Continuing Class B Common Stock;
and
V-25
<PAGE>
(v) employees of the magazine and book business and
their Permitted Transferees (the "Magazine and Book Employees") shall
receive $29.55 in cash for each share of Continuing Class B Common Stock;
provided, however, as alternative redemption consideration, without interest,
holders of Continuing Class B Common Stock other than Magazine and Book
Employees may elect (the "Continuing Holders") $29.55 per share in cash. Any
terms not otherwise defined in this paragraph 6(a) shall have the meanings set
forth in Part 4A(7). The good faith determination by the Corporation of the
redemption consideration to which a holder is entitled shall be conclusive as to
such holder.
Continuing Holders who elect to receive $29.55 per share in cash
for each share of Continuing Class B Common Stock must make such election with
respect to all of their shares. For purposes of the election by Continuing
Holders, each Management Investor and all of his or her Permitted Transferees
(as identified on the books of the Corporation) must make the same election for
all of their shares, and if not, will be deemed to have made the same election
for all of their shares as the election made by the holders of a majority of the
Class B Common Stock owned by those persons. With respect to each Continuing
Holder who continues to hold one share of Class B Common Stock after giving
effect to the redemption described above, the Corporation shall redeem each such
remaining share for one share of Class B Common Stock. In addition, in
connection with the election of alternative redemption consideration which the
Corporation may offer to qualifying holders of shares of Continuing Class B
Common Stock, the Board of Directors may prescribe procedures for making a
proper and timely election with the result that the failure of any Continuing
Holder to comply with the prescribed procedures will result in the loss of the
election option for such holder and such holder shall in such case be entitled
to receive only the Class B Common Stock and/or Business Group Stock as set
forth above.
(b) Notice of redemption of shares of Continuing Class B Common
Stock shall be given by the Corporation by first-class mail, not less than 10
nor more than 60 days prior to the date fixed by the Board of Directors for the
redemption (a "redemption date"), to the holders of record of Continuing Class B
Common Stock at their respective addresses then appearing on the records of the
Corporation; such notice shall be adequate if included in the proxy statement
mailed to holders in connection with consideration of this Restated Certificate
of Incorporation. The notice of redemption shall state: (1) the redemption date;
(2) the redemption consideration; (3) the place or places where the shares of
Continuing Class B Common Stock are to be redeemed for payment of the redemption
consideration; (4) the procedures for making a proper and timely election for
the alternative redemption consideration, including the time and date by which
such election must be made to be effective, which may be a time and date prior
to the date of this Restated Certificate of Incorporation; and (5) that failure
by an otherwise qualified holder to make such proper and timely election will
result in loss of the election option for the alternative redemption
consideration, and such person in such case shall be entitled to receive only
the redemption consideration.
(c) Notice having been mailed as aforesaid, from and after the
redemption date or such earlier date as funds shall be set aside for payment of
the redemption consideration or the alternative redemption consideration, as the
case may be, (unless default shall be made by the Corporation in providing cash,
Common Stock or either of them, for the payment of the redemption consideration
of the shares called for redemption) said shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the redemption
consideration or the alternative redemption consideration, as the case may be),
shall cease. Upon surrender in accordance with said notice of the certificates
for any shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors of the
V-26
<PAGE>
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation for the aforesaid redemption consideration or the
alternative redemption consideration, as the case may be.
(d) Effect of Redemption. Shares of Continuing Class B Common
Stock redeemed by the Corporation shall be restored to the status of authorized
and unissued shares of Common Stock.
FIFTH: Subject to the rights of holders of Series Preferred Stock to
elect additional directors under certain circumstances, the Corporation shall be
governed in accordance with the following provisions:
5A. Number of Directors
The Board of Directors of the Corporation shall consist of not less than
nine and not more than 19 members and the Chief Executive Officer of the
Corporation shall always be one of the members. The exact number of directors
within such minimum and maximum shall be fixed by the Board of Directors.
5B. Election
Directors need not be elected by written ballot.
5C. Classification
Upon the consummation of a Public Offering (as defined in Part
4A(7)) of any class of Common Stock, the directors of the Corporation, other
than those directors, if any, elected by the holders of any series of Series
Preferred Stock or any other series or class of stock as set forth in this
Restated Certificate of Incorporation, shall be divided into three classes as
nearly equal in number as possible, and designated as Class I, Class II and
Class III. The initial assignment of directors to such classes shall be made by
the Board of Directors and the terms of all such directors shall expire at the
first annual meeting of stockholders following the Public Offering, or earlier
at a special meeting called for the purpose of electing directors to such
classes, after which Class I directors shall have a term expiring at the next
annual meeting of stockholders following such meeting; Class II directors shall
have a term expiring at the second annual meeting of stockholders following such
meeting; and Class III directors shall have a term expiring at the third annual
meeting of stockholders following such meeting. At each such succeeding annual
meeting of stockholders of the Corporation, the successors of the class of
directors whose term expires at that meeting shall be elected by a plurality
vote of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election, and until their successors are elected and qualified.
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 80 percent of
the voting power of the then outstanding Common Stock, voting together as a
single class, shall be required to alter, amend or repeal, or adopt any
provision inconsistent with, this Part 5C.
SIXTH: Subject to the rights of the holders of Series Preferred Stock to
elect additional directors under certain circumstances or to consent to actions
taken by the Corporation which specifically require the approval of such
holders, after the consummation of a Public Offering (as defined in Part 4A(7))
of any class of Common Stock, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of
V-27
<PAGE>
the Corporation and may not be effected by any consent in writing in lieu of a
meeting of such stockholders. Notwithstanding anything in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of at least
80 percent of the voting power of the then outstanding Common Stock, voting
together as a single class, shall be required to alter, amend or repeal, or
adopt any provision inconsistent with, this Article "SIXTH."
SEVENTH: The by-laws of the Corporation may be made, altered, amended,
changed, added to or repealed by the Board of Directors of the Corporation
without the assent or vote of the stockholders.
EIGHTH: Each person who was or is made a party or is threatened to be
made a party to or is involuntarily involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative ("proceeding"), by
reason of the fact that he or a person of whom he is the legal representative is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation, or
as its representative in a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer or representative or in any other capacity while serving as a
director, officer or representative shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by him in connection therewith; provided,
however, that the Corporation shall indemnify any such person seeking indemnity
in connection with an action, suit or proceeding (or part thereof) initiated by
such person only if such action, suit or proceeding (or part thereof) was
authorized by the Board of Directors. Such right shall be a contract right and
shall include the right to be paid by the Corporation expenses incurred in
defending any such proceeding in advance of its final disposition upon delivery
to the Corporation of an undertaking, by or on behalf of such person, to repay
all amounts so advanced if it should be determined ultimately that such person
is not entitled to be indemnified under this section or otherwise.
If a claim under this Article is not paid in full by the Corporation
within ninety days after a written claim has been received by the Corporation,
the claimant unpaid may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and if successful in whole
or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claim, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant had not met the applicable standard of conduct.
V-28
<PAGE>
The rights conferred by this Article shall not be exclusive of any other
right which such person may have or hereafter acquire under any statute,
provision of this Restated Certificate of Incorporation, by-laws, agreement,
vote of stockholders or disinterested directors or otherwise.
The Corporation may maintain insurance, at its expense, to protect itself
and any such director, officer or representative against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify him against such expense, liability or loss under the Delaware General
Corporation Law.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation in
the manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed by the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said Court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the Court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
ELEVENTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as director.
V-29
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates and also further amends the Corporation's Certificate of
Incorporation, as heretofore amended and restated, having been duly adopted
pursuant to the provisions of Section 242 and 245 of the General Corporation Law
of the State of Delaware, has been duly executed this ___ day of February, 1998.
ARAMARK CORPORATION
By:/s/ Martin W. Spector
---------------------
Martin W. Spector
Executive Vice President
V-30
<PAGE>
ANNEX VI
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
OF
ARAMARK CORPORATION
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT dated as of the ____ day of
February, 1998, which further amends and restates the Amended and Restated
Stockholders' Agreement dated as of December 14, 1984 (the "Agreement"), by and
among ARAMARK CORPORATION (formerly The ARA Group, Inc. and ARA Holding
Company), a Delaware corporation ("ARAMARK"), and the parties identified on the
books of ARAMARK as "Management Investors" or their "Permitted Transferees" or
as "Outside Investors".
In consideration of the terms and conditions herein contained, the parties
hereto mutually agree as follows:
The parties hereto (other than ARAMARK) and any other person who hereafter
acquires equity securities of ARAMARK pursuant to the provisions of, and subject
to the restrictions and rights set forth in, this Agreement are sometimes
hereinafter referred to collectively, as the "Stockholders" or, individually, as
a "Stockholder." The Management Investors and their Permitted Transferees are
sometimes hereinafter referred to collectively as the "Management Investor
Group." Unless otherwise explicitly set forth herein, the term "Management
Investors" shall mean only those individuals so identified on the books of
ARAMARK, exclusive of such individuals' respective heirs, Permitted Transferees
(as identified on the books of ARAMARK) or other Transferees (as defined in
Section 2.03(a) hereof); provided that the Board of Directors of ARAMARK may,
from time to time and in its sole discretion, designate any Stockholder then
employed by ARAMARK or its Subsidiaries a "Management Investor." Stockholders
who are Permitted Transferees are identified as such on the books of ARAMARK,
along with the identity of their respective transferors. Where a full-time
employee or director has acquired or acquires equity securities of ARAMARK in
joint tenancy with their spouses or in any other manner other than sole direct
ownership, such employee or director is deemed to be a Management Investor and
such record owner is deemed to be his or her Permitted Transferee.
A Transferee who is not already a party to this Agreement, by executing the
document referred to in Section 2.03(a) hereof, shall thereby become entitled to
the benefits of this Agreement and shall be deemed to be an "Outside Investor",
except: if such Transferee is an employee of ARAMARK, then he or she shall be
deemed to be a "Management Investor"; if such Transferee is a Transferee
pursuant to Section 3.01 of a Management Investor (or of his or her Permitted
Transferee), then he or she shall be deemed to be a "Permitted Transferee" of
such Management Investor. Determination of the classification of a Stockholder
by the Board of Directors shall be conclusive and binding on all parties hereto.
ARAMARK's Common Stock, Class A -- Composite Group, $.01 par value per
share (the "Class A Common Stock"), Common Stock, Class B -- Composite Group,
$.01 par value per share (the "Class B Common Stock"), Common Stock, Class E --
Educational Resources Group, $.01 par value per share (the "Class E Common
Stock"), Common Stock, Class F -- Food and Support
VI-1
<PAGE>
Services Group, $.01 par value per share (the "Class F Common Stock"), and
Common Stock, Class U -- Uniform and Career Apparel Group, $.01 par value per
share (the "Class U Common Stock"), along with any other class of common stock
of ARAMARK designated after the date hereof and determined by the Board of
Directors to be subject to this Agreement are collectively referred to herein as
the "Common Stock," and when so referred to shall be treated as one class to
which all the provisions of this Agreement apply.
For purposes of this Agreement only, the employment of a Management
Investor shall be deemed terminated if he or she shall cease to be a director or
an active, full-time employee of ARAMARK or its Subsidiaries. Such termination
of employment shall not change the designation of such person as a Management
Investor.
The parties hereto desire to restrict the sale, assignment, transfer,
encumbrance or other disposition of the Common Stock, including issued and
outstanding shares of Common Stock as well as shares of Common Stock which may
be issued hereafter, or which may become issuable pursuant to the exercise of
options, and to provide for certain rights and obligations with respect thereto
as hereinafter provided.
1. Certain Definitions.
1.01 "Affiliate" shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with another Person.
1.02 "Appraisal Price" of shares of any class of Common Stock shall
mean the fair market value of such shares, as determined by an Appraiser
according to the most recent existing appraisal of shares of such class of
Common Stock, which appraisal shall be as of a date not more than six months
prior to the use thereof. Such determination by the Appraiser shall be
conclusive and binding on all Stockholders and ARAMARK. Notwithstanding the
foregoing, for purposes of this Agreement, the "Appraisal Price" of the Class A
Common Stock shall mean ten times the Appraisal Price of the Class B Common
Stock.
1.03 "Appraiser" shall mean a firm headquartered in the United States
of nationally recognized standing in the business of appraisal or valuation of
securities which does not own any stock of ARAMARK and which has been selected
by the Board of Directors to act as an independent appraiser. The Board of
Directors shall review its selection of an Appraiser annually.
1.04 "Call" or "Called" shall mean ARAMARK's option to purchase
Common Stock from the holder thereof referred to in Sections 6 and 7 hereof.
1.05 "Completely Disabled" and "Complete Disability" shall mean a
"permanent and total disability" as now defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code").
1.06 "Normal Retirement" shall mean voluntary termination of
employment with ARAMARK after attaining the age of 60, on at least 90 days prior
written notice of such termination, where the retiree does not intend to, at the
time of termination, and in fact does not, engage in full-time employment
following such termination other than employment that is with a governmental or
a charitable, non-profit organization and that is not competitive with ARAMARK.
VI-2
<PAGE>
1.07 "Person" shall mean a corporation, an association, a
partnership, an organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
1.08 "Promissory Note" shall mean a subordinated installment note of
ARAMARK substantially in the form of Exhibit A to this Agreement, with a stated
annual rate of interest equal to the Applicable Federal Rate (as such term is
defined in the Code) as of the issue date of the Promissory Note, as determined
by ARAMARK; with equal annual installments of principal equal in amount to the
least of (1) 10% of the original principal amount of the Promissory Note, (2)
the Management Investor's highest annual base salary as an employee of ARAMARK,
or (3) $100,000; and with the final installment of principal equal to the
outstanding balance and due at the final maturity; and with the first
installment of principal due on the April 15 or October 15 occurring closest to
the first anniversary of the issue date of the Promissory Note; and with the
final maturity no later than the tenth anniversary of the Management Investor's
termination of employment; and with such other insertions as ARAMARK shall
reasonably make.
1.09 "Put" shall mean the option of the holder to cause ARAMARK to
purchase Common Stock referred to in Section 5 hereof.
1.10 "Subsidiary" shall mean any corporation or other entity of which
ARAMARK shall, directly or indirectly, own 50% or more of the equity, as
determined for purposes of this Agreement by the ARAMARK Board of Directors and
any other corporation or other entity in which ARAMARK shall directly or
indirectly have an equity investment and which the ARAMARK Board of Directors
shall in its sole discretion designate.
2. Limitations on Transfers of Shares.
2.01 Transfers Prohibited Unless Specifically Permitted. No
Stockholder shall transfer any shares of Common Stock at any time, unless such
sale, assignment, pledge or encumbrance or other transfer shall have been
effected in accordance with the terms of Section 3, 4, 5, 6 or 7 of this
Agreement. ARAMARK shall not transfer upon its books any shares of Common Stock
held or owned by any of the Stockholders to any person except in accordance with
this Agreement.
2.02 Inconsistent Agreements Prohibited. Unless approved by the
Board of Directors, no Stockholder shall grant any proxy or enter into or agree
to be bound by any voting trust with respect to Common Stock nor shall any
Stockholder enter into any stockholder agreement or arrangement of any kind with
any person with respect to Common Stock inconsistent with the provisions of this
Agreement (whether or not such agreement and arrangement is with other
Stockholders or holders of Common Stock that are not parties to this Agreement),
including but not limited to, any agreement or arrangement with respect to the
acquisition, disposition or voting of shares of Common Stock, or act, for any
reason, as a member of a group or in concert with any other persons in
connection with the acquisition, disposition or voting of shares of Common Stock
in any manner which is inconsistent with the provisions of this Agreement.
2.03 Requirements for all Transfers.
(a) Transferee Must Agree to be Bound by Agreement. Unless otherwise
explicitly provided herein, no Stockholder shall sell, assign, pledge,
encumber or otherwise transfer any shares of Common Stock to any person
(all such persons, regardless of the method of transfer, shall be referred
to collectively as "Transferees" and individually as a
VI-3
<PAGE>
"Transferee") unless (a) such Transferee shall have executed, as a
condition to its acquisition of shares (or, in the case of a Transferee by
will or the laws of descent, record ownership on the books of ARAMARK) of
Common Stock, an appropriate document confirming that such Transferee takes
such shares subject to all the terms and conditions of this Agreement and
(b) such document shall have been delivered to and approved by ARAMARK
prior to such Transferee's acquisition of shares (or, in the case of a
Transferee by will or the laws of descent, record ownership on the books of
ARAMARK) of Common Stock. ARAMARK shall not unreasonably withhold or delay
its approval of any such document.
(b) Transfer Must Comply with Securities Laws. No Stockholder shall
sell, assign, pledge, encumber or otherwise transfer any shares of Common
Stock at any time if such action would constitute a violation of any
federal or state securities or blue sky laws or a breach of the conditions
to any exemption from registration of the Common Stock under any such laws
or a breach of any undertaking or agreement of such Stockholder entered
into pursuant to such laws or in connection with obtaining an exemption
thereunder. Any Stockholder who proposes to sell, assign, pledge, encumber
or transfer any shares of Common Stock may deliver to ARAMARK an opinion of
counsel that such action would not result in any such violation or breach.
The delivery of such opinion shall be deemed to establish compliance with
the provisions of this Section 2.03(b) unless, within ten days after the
receipt by ARAMARK of such opinion, counsel for ARAMARK shall deliver an
opinion that such action would result in any such violation or breach (such
opinion to state the basis of the legal conclusions reached therein).
(c) Endorsement of Stock Certificates. Each certificate representing
shares of Common Stock shall bear endorsements reading substantially as
follows:
The securities represented by this certificate are subject to the
right of the Corporation to repurchase such securities on the terms and
conditions set forth in a Stockholders' Agreement dated as of December 14,
1984, as the same may be amended from time to time, a copy of which may be
obtained from the Corporation or from the holder of this instrument. No
transfer of such securities will be made on the books of the Corporation
unless accompanied by evidence of compliance with the terms of such
Agreement.
Such certificate shall bear any additional endorsement which may be
required for compliance with federal or state securities or blue sky laws.
In the case of uncertificated shares of Common Stock, the books of ARAMARK
shall bear appropriate notations reflecting the foregoing.
(d) Transfer Must be Proportionate. No stockholder shall sell,
assign, pledge, encumber or otherwise transfer any shares of Common Stock
without simultaneously selling, assigning, pledging, encumbering or
otherwise transferring to the same Transferee a proportionate number of
shares of each class of Common Stock owned by such selling stockholder.
The initial proportionate number shall be one share for one share; subject
to increase or decrease for any single transfer or class of transfer as may
be determined by the Board of Directors with respect to the various classes
of Common Stock as a result of any change in the relative Appraisal Price,
or any subdivision or consolidation of shares, stock dividend, stock split,
recapitalization, reclassification or similar capital adjustment or for any
other reason.
VI-4
<PAGE>
3. Certain Permitted Transfers of Shares.
3.01 Estate Planning Transfers, etc. Subject to the restrictions set
forth in Section 2.03 and Section 4.05, a Stockholder shall be entitled to make
the following transfers of shares of Common Stock: (A) if made for nominal
consideration or as gifts: (i) any transfer or assignment to any one or more of
the following relatives of the Stockholder - spouse, child, grandchild, parent -
or to a trust of which there are and continue to be, during the term of this
Agreement no principal beneficiaries other than one or more of such relatives;
(ii) any transfer to any charitable organization which qualifies as such under
Section 501 (c) (3) or any successor provision of the Code; (iii) any transfer
to a legal representative in the event any Stockholder becomes mentally
incompetent; (iv) any transfer of record title to any nominee or custodian,
provided that the Stockholder so transferring such shares remains the beneficial
owner thereof; and (B) any transfer among members of a family, their trusts or
other entities, if approved by the Board of Directors.
3.02 Permitted Pledges. A Stockholder shall be entitled to pledge
his or her shares of Common Stock to ARAMARK, a commercial bank, savings and
loan institution or any other lending or financial institution as security for
any indebtedness of such Stockholder to such lender; provided that such lender
shall first agree not to dispose of such shares except in compliance with the
provisions of this Agreement.
3.03 Authority of Board of Directors to Approve Transfers; Actions by
Board of Directors. Notwithstanding any other provision of this Agreement, the
Board of Directors shall have the authority to approve any transfer, or class,
category or type of transfer, of Common Stock. Such authority of the Board of
Directors shall extend to, among other things, (i) the authority to create an
internal market for shares of the Company's stock pursuant to which Management
Investors would be offered the opportunity to sell a portion of their shares at
the times and on the terms set by the Board of Directors, and (ii) the authority
to waive entirely the restrictions (including, without limitation, restrictions
relating to rights of first offer and reoffer, calls upon termination of
employment and sales, transfers and other dispositions of shares) set forth in
this Agreement. Any such approval may be revoked by the Board of Directors at
any time without notice and such revocation shall be effective with respect to
any action, including any or all transfers or proposed transfers, unless, prior
to such revocation, the shares have been presented to the transfer agent for the
purpose of registering such transfer, in proper form and satisfying the
requirements of Section 8-401 of the Uniform Commercial Code or such other
applicable law relating to the duty of an issuer to register securities
transfers.
The Board of Directors may delegate any and all authority it has under
this Agreement to any committee thereof and/or to any authorized officer or
agent.
4. Rights of First Offer and Reoffer of Shares.
4.01 Transfers by Stockholders.
(a) A Stockholder may sell shares of Common Stock, by complying with
the terms of this Section 4. The selling Stockholder shall first give
written notice (a "Notice") to ARAMARK stating such selling Stockholder's
desire to make such transfer, the numbers and classes of shares of Common
Stock to be transferred (the "Offered Shares"), and the price which the
selling Stockholder proposes to be paid for the Offered Shares, which
proposed price shall not be greater than the Appraisal Price of such shares
of Common Stock (the "First Offer Price").
VI-5
<PAGE>
(b) Upon receipt of the Notice, ARAMARK shall have the irrevocable
and exclusive option to buy up to all of the Offered Shares at the First
Offer Price; provided, however, that ARAMARK shall not have the right to
purchase any of the Offered Shares unless either (i) ARAMARK purchases all
such Offered Shares, or (ii) such selling Stockholder consents to the
purchase of less than all of the Offered Shares. ARAMARK's option under
this Section 4.01(b) shall be exercisable by a written notice to such
selling Stockholder, given within 45 days from the date of receipt of the
Notice.
4.02 Transfer of Offered Shares to Third Parties. If the Notice
required to be given pursuant to Section 4.01 has been duly given, and ARAMARK
determines not to exercise its option to purchase the Offered Shares or
determines (with the consent of the Stockholder who has made the First Offer) to
exercise its option to purchase less than all the Offered Shares, then the
Stockholder who has made such First Offer shall be free, for a period of 90 days
from the earlier of (i) the expiration of the option period with respect to such
First Offer pursuant to Section 4.01 or (ii) the date such Stockholder shall
have received written notice from ARAMARK stating that ARAMARK intends not to
exercise in whole or in part the option granted under Section 4.01 to sell to
any third-party Transferees the remaining Offered Shares, at a price equal to or
greater than the First Offer Price; provided, however, that the Transferee
complies with the provisions of Section 2.03; and provided further that, in the
case where such selling Stockholder is a Management Investor or a Permitted
Transferee, such Transferee shall have been approved by ARAMARK as a suitable
investor in a privately-owned services management company. ARAMARK shall not
unreasonably withhold or delay such approval.
4.03 Reoffers. In the event the proposed purchase price of a third-
party Transferee for the Offered Shares is less than the First Offer Price, the
Stockholder desiring to sell at such lesser price shall not sell or otherwise
transfer any of the Offered Shares unless such selling Stockholder shall first
reoffer the Offered Shares at such lesser price to ARAMARK by giving written
notice (the "Reoffer Notice") to ARAMARK of such selling Stockholder's intention
to make such transfer at such lower price (the "Reoffer Price"). ARAMARK shall
then have an irrevocable and exclusive option to purchase all or part of the
Offered Shares at the Reoffer Price, exercisable in the same manner as provided
in Section 4.01. In the event ARAMARK does not then elect to purchase all the
remaining Offered Shares, or ARAMARK elects (with the consent of the Stockholder
desiring to sell) to purchase less than all the remaining Offered Shares, the
remaining Offered Shares may be sold by such selling Stockholder within 30 days
following the earlier of (i) the expiration of the option period with respect to
such Reoffer pursuant to Section 4.01, or (ii) the last date on which such
selling Stockholder shall have received written notice from ARAMARK stating that
ARAMARK intends not to exercise in whole or in part the option granted in this
Section 4.03, at a price equal to or greater than the Reoffer Price; provided,
however, that the Transferee complies with the provisions of Section 2.03; and
provided further that, in the case where such selling Stockholder is a
Management Investor or a Management Investor's Permitted Transferee, such
Transferee shall have been approved by ARAMARK as a suitable investor in a
privately-owned services management company. ARAMARK shall not unreasonably
withhold or delay such approval.
4.04 Waiting Period With Respect to Subsequent Transfers. In the
event that ARAMARK does not exercise its option to purchase any or all of the
Offered Shares at the First Offer Price or at the Reoffer Price, and the
Stockholder desiring to sell shall not have sold the remaining Offered Shares to
any Transferee for any reason before the expiration of the 30 day period
described in Section 4.03 in the event of a Reoffer, or, if no Reoffer Notice is
given, the 90 day period described in Section 4.02, then such selling
Stockholder shall not sell any shares of Common Stock to any Transferee or other
Stockholder (other than to Permitted Transferees pursuant to Section 3.01) at
VI-6
<PAGE>
any price for a period of three months from the last day of such 30 or 90 day
period, as the case may be.
4.05 No Sales of Control.
(a) Subject to Section 4.05(b) and except as provided in Section
3.03 (transfers approved by the Board of Directors), no Person or group of
Persons, as defined in Section 13 (d) (3) of the Securities Exchange Act of
1934 (the "Exchange Act"), including for the purposes of this paragraph as
part of such Person's group, Transferees pursuant to Section 3.01, shall
become (whether through the purchase of shares pursuant to this Agreement
or otherwise or through any other action) the holder, directly or
indirectly, of 10% or more of the outstanding shares of any class of Common
Stock. Any transaction resulting in a violation of this Section 4.05(a)
shall be void, and of no effect against ARAMARK, and ARAMARK shall not
record any such purported transfer on its books. Two or more Stockholders
owning in the aggregate 10% or more of such outstanding shares shall not be
deemed to be a group of Persons for the purposes of this Section 4.05
solely because such Stockholders are parties to this Agreement or because
such Stockholders are related by blood or marriage and/or because such
Stockholders are officers or directors of ARAMARK.
(b) The provisions of Section 4.05(a) shall not apply to the
acquisition by ARAMARK, directly or indirectly, of shares of Common Stock,
notwithstanding that as a result of such acquisition any Person or group of
Persons acting in concert would own 10% or more of such outstanding shares
subsequent to such an acquisition, but shall apply to any subsequent
acquisition or other action by such Person or group of Persons.
4.06 Form of Consideration for Shares. No offer to purchase or to
sell shares of Common Stock shall be deemed to be a valid offer under this
Section 4 unless the purchase price of such offer is payable in cash or
securities that can be readily valued by reference to quoted trading prices. The
purchase price of shares upon exercise of an option under this Section 4 in
respect of a Notice which specifies only cash as the form of consideration shall
be payable only in cash.
4.07 Merger Transaction. Subject to any applicable provisions of the
Certificate of Incorporation or any loan agreement or instruments to which
ARAMARK is a party, ARAMARK may enter into any agreement of merger to merge with
or into any other corporation; and, in such event, Sections 4.01 through 4.06 of
this Agreement shall not be applicable to such merger and all shares may be
transferred for such consideration as approved by the Board of Directors and the
Stockholders in accordance with applicable law.
5. Put of Shares upon Death, Complete Disability or Normal Retirement.
5.01 Put in Event of Death, Complete Disability or Normal Retirement.
Subject to any instruments or agreements of ARAMARK from time to time in effect
restricting or otherwise governing the repurchase or retirement of shares of
ARAMARK's capital stock (the "Loan Agreements") and to applicable law, unless a
Call pursuant to Section 6.01 shall have been exercised by ARAMARK, upon the
death, Complete Disability or Normal Retirement of any Management Investor Group
member, at the option of such Management Investor Group member, such Management
Investor Group member's estate, heirs or personal representative, and such
Management Investor Group member's Permitted Transferees (other than Permitted
Transferees specified in Section 3.01(A)(ii)) (collectively, the "Holders" of
such Management Investor Group member's shares) and within 30 days of receipt by
ARAMARK of a Notice from such Holders, which notice must be given
VI-7
<PAGE>
within 30 days from the date of the appointment of a personal representative of
such Management Investor Group member, the date he or she became Completely
Disabled, or the date of his or her Normal Retirement, ARAMARK shall purchase
from such Holders the shares of Common Stock held by such Holders specified in
such Notice up to 30% of such shares so held at a purchase price determined in
accordance with Section 5.02. ARAMARK shall be under no obligation to purchase
such shares unless it shall have received a Notice from such Holders in
accordance with this Section 5.01.
5.02 Purchase Price of Put Shares. The purchase price for the shares
of Common Stock purchased pursuant to Section 5.01 shall be the Appraisal Price
of such shares. ARAMARK shall satisfy its obligation to purchase shares upon
the exercise of any Put granted under Section 5.01 with cash.
6. Call of Shares upon Termination of Employment.
6.01 Call in Event of Termination. Unless the shares of Common Stock
held by a Management Investor and his or her Permitted Transferees have been
earlier sold pursuant to Section 4 (rights of first offer and reoffer),
including the earlier recording of the transfer of such shares on the books of
ARAMARK, ARAMARK shall have an exclusive and irrevocable option, at any time and
from time to time during the period of 10 years following the termination of
employment of such Management Investor for any reason whatsoever (including
without limitation death, Complete Disability or Normal Retirement) to make a
purchase or purchases of up to all of the shares of Common Stock owned by such
Management Investor and his or her Permitted Transferees, at a purchase price,
with respect to any such exercise, determined in accordance with Section 6.02.
6.02 Purchase Price. The purchase price per share for any shares of
Common Stock purchased pursuant to Section 6.01 shall be the lesser of (i) the
Appraisal Price of such shares of Common Stock at the time ARAMARK gives notice
that it is exercising its Call option and (ii) the Appraisal Price of such
shares of Common Stock at the date of termination of employment, plus in the
case where ARAMARK gives notice it is exercising its Call option more than 120
days after the date of termination of employment, 8% simple interest on such
amount from the date of termination of employment through the date ARAMARK gives
notice that it is exercising its Call option. ARAMARK shall satisfy its
obligations to purchase shares upon the exercise of such Calls with cash up to
the least of $100,000, or the Management Investor's highest annual base salary
as an employee of ARAMARK, or 10% of the aggregate purchase price for such
Called shares and, at the Company's option, with cash and/or Promissory Notes
valued at their principal amount for the remainder.
7. Involuntary Transfer of Shares.
7.01 Certain Involuntary Transfers; Seller's Notice. Except for
involuntary transfers (by foreclosure or otherwise) to ARAMARK of shares of
Common Stock pledged to ARAMARK, in the event a Stockholder shall involuntarily
transfer directly or indirectly any or all of his or her shares, for any reason
other than as a result of those events specified in Section 6, such Stockholder
shall give written notice within 30 days of such involuntary transfer (the
"Stockholder Notice") to ARAMARK, with a copy to the Transferee, stating the
fact that the involuntary transfer occurred, the reason therefor, the date of
the transfer, the name and address of the Transferee and the number of shares
acquired by the Transferee (the "Acquired Shares"). For purposes of this
Section 7 an involuntary transfer shall include, without limitation, a court-
ordered transfer, constructive trust or other device designed to transfer
economic benefit of share ownership.
VI-8
<PAGE>
7.02 Right to Repurchase. For a period of 60 days from the date of
receipt of the Stockholder Notice or, failing receipt of such notice, 60 days
from the date ARAMARK sends written notice to the Transferee that the transfer
is deemed to be an involuntary transfer subject to repurchase under this
Agreement, ARAMARK shall have an irrevocable and exclusive option to buy all of
the Acquired Shares, exercisable in the same manner as provided in Section 4.01,
and the provisions of such applicable Section shall be followed in their
entirety except that the purchase price shall be as provided in Section 7.03.
7.03 Purchase Price. The purchase price for shares purchased
pursuant to Section 7.02 shall be payable in cash and shall be equal to the
Appraisal Price such shares of Common Stock at the time ARAMARK gives notice
that it is exercising its Call option.
8. Limited Access to Information.
8.01 No Duty to Disclose Information. Each of the parties to this
Agreement acknowledges and agrees that it is in the best interests of ARAMARK
and the Stockholders taken as a whole for ARAMARK to be able to conduct orderly
transactions in Common Stock on a continual basis (including in connection with
the internal market and repurchases upon termination of employment and
otherwise), and for ARAMARK concurrently to be able to consider from time to
time on a confidential basis potential transactions which could affect the fair
market value and/or the Appraisal Price of the Common Stock. Each of the
parties to this Agreement acknowledges and agrees that, at the time of a sale by
a Stockholder of shares of Common Stock pursuant to this Agreement, there may
have occurred or be proposed or pending an event or a transaction that could
affect the Appraisal Price of the Common Stock, and that the Appraisal Price of
the Common Stock (and, accordingly, the repurchase price) may be substantially
less than the fair market value as of the current date, and further acknowledges
and agrees that ARAMARK may have valid business reasons not to, and in any case
shall not be required to, disclose any event or transaction that may have
occurred or be proposed or pending at the time of any such sale.
8.02 Sale of ARAMARK Following Call. In the event that any entity,
person, or any group of persons acting in concert (excluding the Management
Investors as a group), acquires in any manner shares of Common Stock with 50% of
the ordinary voting rights of the outstanding shares of Common Stock or in the
event of the redemption or repurchase of all the shares of Common Stock in
connection with a sale of all or substantially all the assets of ARAMARK, or the
winding up, dissolution or liquidation of ARAMARK, within 90 days from the date
of a sale pursuant to Section 6.01 then, subject to the Loan Agreements, ARAMARK
and/or the purchaser of such shares of Common Stock with 50% of the ordinary
voting rights of the outstanding shares of Common Stock shall pay to the Holders
whose shares have been so purchased the excess, if any, of the amount per share
realized by ARAMARK's stockholders upon such acquisition, redemption,
repurchase, winding up, dissolution or liquidation over the purchase price per
share paid to such Holders pursuant to Section 6 less the interest paid on any
Promissory Notes paid as consideration for such stock and less a financing cost
for carrying such stock for any cash received, based on an interest rate equal
to the rate paid by ARAMARK under the Loan Agreements at the date of payment
hereunder, for the period from the date of payment to such Holders pursuant to
Section 6 to the date of such acquisition, redemption, repurchase, winding up,
dissolution or liquidation, for each share purchased by ARAMARK. Determination
of whether or not any such payment is appropriate, and the amount of such
payment, shall be made by the Board of Directors; and such determination shall
be conclusive and binding on all parties hereto.
VI-9
<PAGE>
9. No Right to Continued Employment. Neither this Agreement nor the
ownership of Common Stock by a Management Investor shall confer upon any
Management Investor any right to continue in the employ of ARAMARK or any of its
Subsidiaries or limit in any respect the right of ARAMARK or its Subsidiaries to
terminate his or her employment at any time.
10. Closing.
10.01 Closing Date; Purchase Price. Any selling Stockholder and
ARAMARK, as purchaser, of shares of Common Stock pursuant to Section 4, 5, 6 or
7 shall mutually determine a closing date (the "Closing Date") which, unless
this Agreement otherwise explicitly provides, shall be not more than 60 business
days after ARAMARK gives notice that it will purchase such shares; provided,
however, that absent agreement, the Closing Date shall be the business day
determined by ARAMARK. In respect of shares of Common Stock distributed by any
employee benefit plan upon termination of employment, the Closing Date shall be
such date selected by ARAMARK consistent with the orderly administration of such
plan.
Notwithstanding anything in this Agreement to the contrary, the
Closing Date may be delayed in any case in which ARAMARK cannot, in compliance
with the Loan Agreements or applicable law, purchase any shares of Common Stock
that it is otherwise obligated to purchase until the earliest practicable date
when such closing may be effected in compliance with such Loan Agreements or
applicable law. The closing shall be held at 11:00 a.m., local time, at the
offices of ARAMARK or at such other time or place as the parties may agree.
The determination date of the Appraisal Price shall be appropriately
changed if the Closing Date is delayed in accordance with the foregoing
paragraph.
10.02 Shares No Longer Outstanding. If a selling Stockholder shall
fail to deliver the certificates representing the shares of Common Stock to be
sold or shall otherwise fail to perform any obligation required to be performed
at the closing and ARAMARK shall have been ready to purchase such shares at the
closing, then effective at the closing, such shares shall no longer be deemed to
be outstanding, and all rights of the holder thereof as stockholder of ARAMARK
(except the right to receive from ARAMARK the purchase price therefor) shall
cease.
10.03 Deliveries at Closing; Method of Payment of Purchase Price. On
the Closing Date, any selling Stockholder shall deliver certificates with
appropriate transfer tax stamps affixed and with stock powers endorsed in blank,
representing the shares of Common Stock to be purchased, and ARAMARK, as
purchaser shall deliver to such Stockholder the purchase price which is payable
in cash (or by wire transfer or check) and the other consideration, if any, to
be given in exchange for such shares. In addition, if the person selling shares
is the personal representative of a deceased Stockholder, the personal
representative shall also deliver to the purchaser or purchasers (i) copies of
letters testamentary or letters of administration evidencing his or her
appointment and qualification, (ii) a certificate issued by the Internal Revenue
Service pursuant to Section 6325 of the Code discharging the shares being sold
from liens imposed by the Code and (iii) an estate tax waiver issued by the
state of the decedent's domicile.
11. Term. The terms and provisions of this Agreement may be terminated
by an instrument in writing signed by Management Investors who hold, in
combination with their Permitted Transferees, at least the majority of the
Common Stock held by Management Investors and their Permitted Transferees and by
ARAMARK. Notwithstanding the foregoing, the Board of Directors may terminate the
restrictive terms and provisions set forth herein with respect to any class of
VI-10
<PAGE>
Common Stock, effective upon or after the occurrence of a sale of shares of such
class of Common Stock to the public pursuant to an underwritten, registered
public offering under the Securities Act of 1933, as amended (the "Securities
Act").
12. Registration of Common Stock. In the event of any registration under
the Securities Act and public offering of Common Stock, each Stockholder shall,
at a meeting convened for the purpose of amending the Certificate of
Incorporation, vote to increase the authorized number of shares of Common Stock
and, if necessary, to subdivide the outstanding shares of Common Stock of
ARAMARK, in both instances as recommended by a majority of the members of the
Board of Directors in order to effectuate such public offering.
13. Injunctive Relief. It is acknowledged that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the event
of any such failure, an aggrieved person will be irreparably damaged and will
not have an adequate remedy at law. Any such person shall, therefore, be
entitled to injunctive relief, including specific performance, to enforce such
obligations, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
14. Notices. All notices, statements, instructions or other documents
required to be given hereunder, shall be in writing and shall be given either
personally, or by mailing the same in a sealed envelope, first-class mail,
postage prepaid, addressed to ARAMARK at its principal offices to the attention
of the General Counsel and to the other parties at their addresses reflected in
the stock records of ARAMARK, or sent by telegram, telex, telecopy or similar
form of telecommunication. All notices, statements, instructions and other
documents hereunder that are mailed shall be deemed to have been given on the
date of mailing.
15. Cooperation. ARAMARK agrees that it will use all reasonable efforts
under the circumstances to help any Stockholder desiring to dispose of its
Common Stock pursuant to the provisions of this Agreement to do so.
16. Miscellaneous.
16.01 Successor and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties, and their respective successors and
assigns. The provisions of this Agreement are for the sole benefit of the
parties hereto and their heirs, executors, administrators, legal
representatives, successors and assigns, and they shall not be construed as
conferring any rights on any other persons. If any Transferee of any Stockholder
shall acquire any shares of Common Stock, in any manner, whether by operation of
law or otherwise, such shares shall be held subject to all of the terms of this
Agreement, and by taking and holding such shares such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.
ARAMARK may assign to any other Person its rights with respect to any
specific transaction pursuant to Section 4, 5, 6 or 7, provided that Person
complies with the provisions of Section 2.03.
16.02 Governing Law. Regardless of the place of execution, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware applicable to agreements made and to be wholly performed in
such State.
VI-11
<PAGE>
16.03 Headings. Paragraph headings are inserted herein for
convenience only and do not form a part of this Agreement.
16.04 Entire Agreement; Amendment. This Agreement contains the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, supersedes all prior written agreements and negotiations and oral
understandings, if any, and may not be amended, supplemented or discharged
except by performance or by an instrument in writing signed by Management
Investors who hold (in combination with their Permitted Transferees) at least a
majority of the Common Stock held by Stockholders, and by ARAMARK. In the event
of the amendment or modification of this Agreement in accordance with its terms,
the Stockholders shall cause the Board of Directors of ARAMARK to meet within 30
days following such amendment or modification or as soon thereafter as is
practicable for the purpose of amending the Certificate of Incorporation and By-
Laws of ARAMARK, as may be required as a result of such amendment or
modification, and proposing such amendments to the stockholders of ARAMARK
entitled to vote thereon, and such action shall be the first action to be taken
at such meeting.
16.05 Inspection. A copy of this Agreement shall be filed with the
Secretary of ARAMARK and kept with the records of ARAMARK and shall be made
available for inspection by any stockholder of ARAMARK at the principal offices
of ARAMARK.
16.06 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Pages Omitted]
VI-12
<PAGE>
EXHIBIT A
(to Amended and Restated
Stockholders' Agreement)
THIS NOTE IS NOT TRANSFERABLE UNLESS AS A CONDITION
PRECEDENT TO THE EFFECTIVENESS OF ANY TRANSFER THE
PAYEE HAS OBTAINED THE WRITTEN CONSENT OF THE
COMPANY AS TO THE PROPOSED TRANSFER.
$__________
Philadelphia, Pennsylvania
_____________, 19__
SUBORDINATED INSTALLMENT NOTE
1. For value received, ARAMARK CORPORATION (formerly The ARA Group, Inc.
and ARA Holding Company), a Delaware corporation (the "Company"), hereby
promises to pay to (the "Payee") the sum of $ in
equal, annual installments of $and one final installment of $ on each
[April/October] 15 commencing on [April/October] 15, 19 , and to pay simple
interest at the rate of % per annum on the unpaid balance thereof, semi-
annually in arrears on each April 15 and October 15.
2. The Payee may not sell, assign or otherwise transfer or encumber any
portion of this Note or interest herein without first procuring the written
consent of the Company, which consent the Company is under no obligation to
provide. No transfer of this Note shall be effective unless such transfer is in
compliance with the foregoing, including the requirements set forth in the
legend provided for above.
3. Both the principal of this Note and interest thereon are payable in
lawful money of the United States of America at 1101 Market Street,
Philadelphia, PA 19107, or such address of any subsequent principal executive
office of the Company within the United States of America as the Company shall
designate in writing to the Payee, or at the option of the Company, by check
mailed to the Payee at such address for the Payee as is indicated on the books
of the Company.
4. This Note may be prepaid in full, or in part, any time, without
premium or penalty. All prepayments shall be applied first to accrued interest
and then to installments of principal in the order of their maturities.
5. The indebtedness evidenced by this Note and the payment of the
principal of and interest on this Note are hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, to the prior payment in full of
all Senior Indebtedness.
5.1 "Senior Indebtedness" means the principal of, premium, if any,
interest and any other amounts due on (1) all Indebtedness incurred, assumed or
guaranteed by the Company, either before or after the date hereof, (excluding
any debt which by the terms of the instrument creating or evidencing the same is
not superior in right of payment to this Note), including, without limitation,
(a) any amount payable with respect to any lease, conditional sale or
installment sale agreement or other financing instrument or agreement which in
accordance with generally accepted accounting principles
VI-13
<PAGE>
is, at the date hereof or at the time the lease, conditional sale or installment
sale agreement or other financing instrument or agreement is entered into, or
assumed or guaranteed by, directly or indirectly, the Company, required to be
reflected as a liability on the face of the balance sheet of the Company, (b)
any amounts payable in respect to any interest rate exchange agreement, currency
exchange agreement or similar agreement and (c) any subordinated indebtedness of
a corporation merged with or into or acquired by the Company; and (2) any
renewals or extensions or refunding of any such Senior Indebtedness or evidences
of indebtedness issued in exchange for such Senior Indebtedness.
5.2 "Indebtedness" means (a) all items, except items of capital stock or
of surplus or of general contingency reserves or of reserves for deferred income
taxes, which in accordance with generally accepted accounting principles in
effect on the date hereof should be included in determining total liabilities as
shown on the liability side of a balance sheet of the Company as at the date of
which Indebtedness is to be determined, (b) all indebtedness secured by any
mortgage, pledge, lien or conditional sale or other title retention agreement
existing on any property or asset owned or held by the Company, whether or not
such indebtedness shall have been assumed, and (c) all indebtedness of others
which the Company has directly or indirectly guaranteed, endorsed, discounted or
agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which the Company has agreed to supply or advance
funds or otherwise to become liable directly or indirectly with respect thereto,
including, without limitation, indebtedness arising out of the sale or transfer
of accounts or notes receivable or any moneys due or to become due.
6. In the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether voluntary or involuntary and whether in
bankruptcy, insolvency or receivership proceedings, or upon an assignment for
the benefit of creditors or any readjustment of debt, arrangement or composition
among creditors or any other marshalling of the assets and liabilities of the
Company or otherwise), then holders of Senior Indebtedness shall first be paid
in full, or provision made for such payment, before any payment or distribution,
directly or indirectly (including by way of set off) is made upon the principal
of or interest on this Note, and to that end the holders of Senior Indebtedness
shall be entitled to receive in payment thereof any payment or distribution of
assets of the Company, whether in cash or property or securities, which may be
payable or deliverable in any such proceeding in respect of this Note. The
Payee irrevocably authorizes, empowers and directs all receivers, custodians,
trustee, liquidators, conservators and others having authority in the premises
to effect all such payments and deliveries. Notwithstanding any statute,
including without limitation the Federal Bankruptcy Code, any rule of law or
bankruptcy procedures to the contrary, the right of the holders of the Senior
Indebtedness to have all of the Senior Indebtedness paid and satisfied in full
prior to the payment of any amounts due the payee under this Note shall include,
without limitation, the right of the holders of the Senior Indebtedness to be
paid in full all interest accruing on the Senior Indebtedness due them after the
filing of any petition by or against the Company in connection with any
bankruptcy or similar proceeding or any other proceeding referred to in
paragraph 6 hereof, prior to the payment of any amounts in respect of the Note,
including, without limitation, any interest due to the Payee accruing after such
date.
7. No payment, directly or indirectly (including by way of set off),
shall be made by the Company with respect to the principal of or interest on
this Note if (i) an event of default has happened with respect to any Senior
Indebtedness, as defined therein or in the instrument under which the same is
outstanding which if occurring prior to the stated maturity of such Senior
Indebtedness, permits holders thereof upon the giving of notice or passage of
time, or both, to accelerate the maturity thereof ("Senior Indebtedness
Default") and has not been cured, (ii) a payment by the Company to or for the
benefit of Payee would, immediately after giving effect thereto, result in a
Senior Indebtedness Default, or (iii) full payment of all amounts then due for
principal of (or
VI-14
<PAGE>
premium, if any), interest or any other amounts due on Senior Indebtedness shall
not then have been made or duly provided for. Upon the occurrence of any events
described in (i), (ii) or (iii) described above, notwithstanding any event of
default under this Note by the Company, the Payee may not accelerate the
maturity of all or any portion of this Note, or take any action towards
collection of all or any portion of this Note or enforcement of any rights,
powers or remedies under this Note, or applicable law until the earlier of the
date on which a Senior Indebtedness Default (or in the case of (iii) required
payments shall have been duly provided for) have been cured or such Senior
Indebtedness has been paid in full.
8. In the event that, notwithstanding the foregoing, the Company shall
make any payment prohibited by Section 6 or 7, then, except as hereinafter in
this Section otherwise provided, unless and until any such Senior Indebtedness
Default shall have been cured or waived or shall cease to exist, such payment
shall be held in trust for the benefit of and shall be paid over to the holders
of Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instrument evidencing
the Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay in full all Senior Indebtedness then due,
after giving effect to any concurrent payment to the holders of such Senior
Indebtedness.
9. Subject to the payment in full of all Senior Indebtedness at the time
outstanding, the Payee shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until this Note shall be paid in
full, and no payments or distributions to the holders of Senior Indebtedness by
or on behalf of the Company from the proceeds that would otherwise be payable to
the Payee, or by or on behalf of the Payee, shall as between the Company and the
Payee, be deemed to be a payment by the Company to or for the account of holders
of Senior Indebtedness.
10. No holder of Senior Indebtedness shall be prejudiced in his or her
right to enforce subordination of this Note by any act on the part of the
Company. The above provisions in regard to subordination are intended solely
for the purpose of defining the relative rights of the Payee on the one hand,
and the holders of Senior Indebtedness, on the other hand, and nothing contained
in this Note is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness and the Payee, the
obligation of the Company, which is absolute and unconditional, to pay to the
Payee, subject to the rights of the holders of Senior Indebtedness, the
principal of and interest on this Note as and when the same shall become due and
payable in accordance with its terms, subject to the rights, if any, under the
above subordination provisions, of holders of Senior Indebtedness to receive
cash, property or securities of the Company payable in respect thereof.
11. The principal of this Note and accrued unpaid interest thereon shall
(if not already due and payable) upon written demand by the Payee become due and
payable forthwith, if there shall have been a default in the payment of any
interest on, or principal of, this Note when it becomes due and payable (but
only if such payment is not prohibited by the provisions of this Note), and such
default shall have continued for a period of 30 days after written notice of
such default shall have been given to the Company and shall be continuing at the
time of such written demand.
12. No course of dealing between the Company and the Payee or any delay
on the part of the Payee in exercising any rights under this Note shall operate
as a waiver of any rights of the Payee.
VI-15
<PAGE>
13. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given when delivered, or deposited in the
mails, first-class, postage prepaid, or delivered to a telegraph office for
transmission, if to the Payee, at such address for the Payee as is indicated on
the books of the Company or if to the Company, at the address of the principal
executive offices of the Company as provided above.
14. This Note shall be governed by the laws of the State of Delaware.
ARAMARK CORPORATION
By:
----------------------------
Treasurer
VI-16
<PAGE>
ANNEX VII
ARAMARK CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements Page
- ---------------------------- ----
Report of Independent Public Accountants VII-2
Report of Chartered Accountants VII-3
Consolidated Balance Sheets:
As of September 27, 1996 and September 29, 1995 VII-4
Consolidated Statements of Income:
Fiscal Years 1996, 1995 and 1994 VII-6
Consolidated Statements of Cash Flows:
Fiscal Years 1996, 1995 and 1994 VII-7
Consolidated Statements of Shareholders' Equity:
Fiscal Years 1996, 1995 and 1994 VII-8
Notes to Consolidated Financial Statements VII-11
Unaudited Interim Financial Statements
- --------------------------------------
Condensed Consolidated Balance Sheets;
As of June 27, 1997 and September 27, 1996 VII-25
Condensed Consolidated Statements of Income
Three and Nine Months Ended June 1997 and 1996 VII-26
Condensed Consolidated Statements of Cash Flow
For the Nine Months Ended June 1997 and 1996 VII-27
Notes to the Condensed Consolidated Financial Statements VII-28
VII-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To ARAMARK Corporation:
We have audited the accompanying consolidated balance sheets of ARAMARK
Corporation (a Delaware corporation) and subsidiaries as of September 27, 1996
and September 29, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended September 27, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Versa Services Ltd., the Company's
Canadian subsidiary, prior to fiscal 1995, which statements reflect revenues
representing 5.6% of consolidated revenues for fiscal year 1994. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for Versa
Services Ltd. for fiscal year 1994, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors for fiscal
1994, the financial statements referred to above present fairly, in all material
respects, the financial position of ARAMARK Corporation and subsidiaries as of
September 27, 1996 and September 29, 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
September 27, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, ARAMARK
Corporation changed its method of accounting for income taxes in fiscal 1994.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 11, 1996
VII-2
<PAGE>
REPORT OF CHARTERED ACCOUNTANTS
-------------------------------
To The Directors of Versa Services Ltd.:
We have audited the consolidated balance sheet of Versa Services Ltd. as at
September 28, 1994 and the consolidated statements of income and retained
earnings and cash flows for the fifty-two week period then ended (not presented
separately herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at September 28, 1994, and
the results of its operations and the changes in its financial position for the
fifty-two week period then ended in accordance with accounting principles
generally accepted in Canada.
Mississauga, Canada ERNST & YOUNG
November 16, 1994 Chartered Accountants
VII-3
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, 1996 and September 29, 1995
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 25,283 $ 23,082
Receivables (less allowances: 1996, $16,351;
1995, $15,996) 576,447 503,835
Inventories 316,043 312,818
Prepayments and other current assets 67,977 70,675
- -------------------------------------------------------------------------------------------------------------------
Total current assets 985,750 910,410
- -------------------------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land, buildings and improvements 445,086 419,522
Service equipment and fixtures 1,137,387 1,047,559
Leased property under capital leases 12,489 10,213
- -------------------------------------------------------------------------------------------------------------------
1,594,962 1,477,294
Less-Accumulated depreciation 770,327 705,082
- -------------------------------------------------------------------------------------------------------------------
824,635 772,212
- -------------------------------------------------------------------------------------------------------------------
Goodwill 643,880 657,707
- -------------------------------------------------------------------------------------------------------------------
Other Assets (including $95 million invested
in an acquisition made at year end 1996) 376,505 302,987
- -------------------------------------------------------------------------------------------------------------------
$2,830,770 $2,643,316
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII-4
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 26,041 $ 8,384
Accounts payable 496,040 448,518
Accrued payroll and related expenses 163,151 157,106
Other accrued expenses and current liabilities 278,609 257,752
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 963,841 871,760
- ---------------------------------------------------------------------------------------------------------------
Long-Term Borrowings:
Senior 1,183,047 1,115,371
Subordinated 161,189 165,414
Obligations under capital leases 3,670 2,370
- ---------------------------------------------------------------------------------------------------------------
1,347,906 1,283,155
Less-current portion 26,041 8,384
- --------------------------------------------------------------------------------------------------------------
Total long-term borrowings 1,321,865 1,274,771
- ---------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Noncurrent Liabilities 230,249 225,441
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 18,614 19,060
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Series C preferred stock, redemption value $1,000;
authorized: 40,000 shares; issued: 1996 - 0 shares;
1995 - 14,965 shares - 14,965
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued: 1996 - 1,978,326 shares;
1995 - 2,148,069 shares 20 21
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued: 1996 - 22,732,673 shares;
1995 - 23,499,782 shares 227 235
Earnings retained for use in the business 309,437 247,805
Cumulative translation adjustment 5,131 8,318
Impact of potential repurchase feature of common stock (18,614) (19,060)
- --------------------------------------------------------------------------------------------------------------
Total 296,201 252,284
- ---------------------------------------------------------------------------------------------------------------
$2,830,770 $2,643,316
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII-5
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended September 27, 1996, September 29, 1995 and
September 30, 1994
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $6,122,500 $5,600,645 $5,161,578
- ----------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of services provided 5,565,038 5,094,179 4,686,086
Depreciation and amortization 182,785 156,869 143,763
Selling and general corporate expense 82,354 72,602 70,196
Other expense (income), net (2,850) - (5,792)
- ----------------------------------------------------------------------------------------------------------------
5,827,327 5,323,650 4,894,253
- ----------------------------------------------------------------------------------------------------------------
Operating income 295,173 276,995 267,325
Gain on Issuance of Stock by an Affiliate - - 4,658
- ----------------------------------------------------------------------------------------------------------------
Earnings before interest and income taxes 295,173 276,995 271,983
Interest Expense, net 116,014 109,418 108,499
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 179,159 167,577 163,484
Provision For Income Taxes 66,931 67,388 67,119
Minority Interest - - 1,332
- ----------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item and Cumulative
Effect of Change in Accounting for Income Taxes 112,228 100,189 95,033
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes of $1,839 in 1996,
$4,458 in 1995 and $5,118 in 1994) 2,758 6,686 7,677
Cumulative Effect of Change in Accounting for
Income Taxes - - 1,277
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 109,470 $ 93,503 $ 86,079
================================================================================================================
Earnings Per Share:
Income before extraordinary item and
cumulative effect of change in
accounting for income taxes $2.37 $2.01 $1.87
Net income $2.31 $1.88 $1.69
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII-6
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended September 27, 1996, September 29,1995 and September
30, 1994 (in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 109,470 $ 93,503 $ 86,079
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 182,785 156,869 143,763
Income taxes deferred (27,604) 4,920 (2,174)
Minority interest -- -- 1,332
Cumulative effect of accounting change -- -- 1,277
Gain on issuance of stock by affiliate -- -- (4,658)
Extraordinary item 2,758 6,686 7,677
Changes in noncash working capital:
Receivables (62,239) (25,162) (40,557)
Inventories (9,734) (13,992) (6,915)
Prepayments (209) 13,244 (15,675)
Accounts payable 28,973 25,186 36,956
Accrued expenses 27,245 22,737 36,926
Changes in other noncurrent liabilities (461) (6,525) (1,368)
Changes in other assets (9,217) 4,020 (6,445)
Other (2,494) (2,232) (9,186)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 239,273 279,254 227,032
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (190,896) (193,470) (145,935)
Disposals of property and equipment 13,099 16,063 11,525
Sale of investments -- 16,203 13,543
Divestiture of certain businesses 51,285 1,719 7,297
Increase in short-term investments -- -- (16,203)
Purchase of subsidiary stock -- (20,491) (17,623)
Acquisition of certain businesses:
Working capital other than cash acquired (8) (12,227) (3,066)
Property and equipment (8,076) (36,261) (573)
Additions to intangibles and other assets (104,679) (306,067) (6,734)
Other (8,362) (2,268) 7,758
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (247,637) (536,799) (150,011)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 155,510 486,844 167,329
Payment of long-term borrowings including premiums (95,510) (209,742) (210,511)
Redemption of preferred stock (6,359) (1,984) (17,647)
Proceeds from issuance of common stock 13,949 9,718 12,416
Repurchase of common stock (54,849) (26,435) (25,729)
Payment of preferred stock dividend (1,067) (1,049) (1,917)
Other (1,109) (4,151) (1,337)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 10,565 253,201 (77,396)
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,201 (4,344) (375)
Cash and cash equivalents, beginning of year 23,082 27,426 27,801
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 25,283 $ 23,082 $ 27,426
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII-7
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1996
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
--------- -------- -------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 29, 1995 $14,965 $21 $235 $ - $247,805 $8,318 $(19,060)
Net income 109,470
Dividends on preferred stock (769)
Issuance of Class A common stock to
employee benefit plans 5,728
Issuance of Class B common stock 25 30,519
Retirement of common and preferred stock (14,965) (1) (33) (36,247) (47,069)
Change during the period (3,187) 446
-------- --- ---- -------- -------- ------- ---------
Balance, September 27, 1996 $ - $20 $227 $ - $309,437 $ 5,131 $(18,614)
======== === ==== ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII-8
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 1995
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
--------- -------- -------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 $16,949 $21 $243 $ - $178,587 $7,550 $(20,791)
Net income 93,503
Dividends on preferred stock (1,046)
Issuance of Class A common stock to
employee benefit plans 6,576
Issuance of Class B common stock 31 20,637
Retirement of common and preferred stock (1,984) (39) (27,213) (23,239)
Change during the period 768 1,731
-------- --- ---- -------- -------- ------- ---------
Balance, September 29, 1995 $14,965 $21 $235 $ - $247,805 $ 8,318 $(19,060)
======== === ==== ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII-9
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
--------- -------- -------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1993 $34,596 $21 $243 $ - $104,827 $6,037 $(21,651)
Net income 86,079
Dividends on preferred stock (1,337)
Issuance of Class A common stock to
employee benefit plans 1 8,881
Issuance of Class B common stock 25 18,910
Retirement of common and preferred stock (17,647) (1) (25) (27,791) (10,982)
Change during the period 1,513 860
-------- --- ---- -------- -------- ------- ---------
Balance, September 30, 1994 $16,949 $21 $243 $ - $178,587 $ 7,550 $(20,791)
======== === ==== ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII-10
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR
The Company's fiscal year is the fifty-two or fifty-three week period which ends
on the Friday nearest September 30th. The fiscal years ended September 27, 1996,
September 29, 1995 and September 30, 1994 are fifty-two week periods.
PRINCIPLES OF CONSOLIDATION, ETC.
The consolidated financial statements include the accounts of the Company and
all its subsidiaries. All significant intercompany balances and transactions
have been eliminated. Certain reclassifications were made to the prior year
financial statements to conform to the fiscal 1996 presentation.
In fiscal 1997, the Company is required to adopt the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The adoption
will not have a material impact on the consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CURRENCY TRANSLATION
Gains and losses resulting from the translation of financial statements of
non-U.S. subsidiaries are reflected as a currency translation adjustment in
shareholders' equity. Currency transaction gains and losses included in
operating results for fiscal 1996, 1995 and 1994 were not significant.
CURRENT ASSETS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories are valued at the lower of cost (principally the first-in, first-out
method) or market. The LIFO (last-in, first-out) method of determining cost is
used to value directly marketed work clothing and public safety clothing and
equipment. The stated value of inventories determined using the LIFO method is
not significantly different from replacement or current cost. Personalized work
apparel and linens in service are recorded at cost and are amortized over their
estimated useful lives, approximately two years. In accordance with industry
practice, magazines and books are sold to retailers with the right to return
unsold items for ultimate credit from the publishers.
The components of inventories are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Food 24.2% 23.4%
Work clothing, safety equipment and linens 59.4% 61.0%
Magazines and books 7.5% 8.0%
Parts, supplies and novelties 8.9% 7.6%
- --------------------------------------------------------------------------------
100.0% 100.0%
- --------------------------------------------------------------------------------
</TABLE>
VII-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives on a straight-line basis. Gains and losses on
dispositions are included in operating results. Maintenance and repairs are
charged to operations currently, and replacements and significant improvements
are capitalized. The estimated useful lives for the major categories of property
and equipment are 10 to 40 years for buildings and improvements and 3 to 10
years for service equipment and fixtures. Depreciation expense in fiscal 1996,
1995 and 1994 was $129.1 million, $116.4 million and $107.5 million,
respectively.
GOODWILL
Goodwill, which represents the excess of cost over fair value of the net assets
of acquired businesses, is being amortized on a straight-line basis principally
over 40 years. The Company develops operating income projections for each of its
lines of business and evaluates the recoverability and amortization period of
goodwill using these projections. Based upon management's current assessment,
the estimated remaining amortization period of goodwill is appropriate and the
remaining balance is fully recoverable. Accumulated amortization at September
27, 1996 and September 29, 1995 is $150.5 million and $130.2 million,
respectively.
OTHER ASSETS
Other assets consist primarily of investments in less than 50% owned entities,
contract rights, customer lists, and long-term receivables. Investments in which
the Company owns more than 20% but less than a majority are accounted for using
the equity method. Contract rights and customer lists are being amortized on a
straight-line basis over the expected period of benefit, 3 to 20 years. As
discussed in Note 2, at September 27, 1996, other assets includes approximately
$95 million related to the purchase price of an acquisition consummated at
year end.
OTHER LIABILITIES
Other noncurrent liabilities consist primarily of deferred compensation,
insurance accruals, deferred gains arising from sale and leaseback transactions
and subordinated installment notes arising from repurchases of common stock.
The Company is self-insured for a limited portion of the risk retained under its
general liability and workers' compensation and malpractice insurance
arrangements. Self-insurance reserves are determined based on actuarial
analyses. The self-insurance reserves for workers' compensation insurance are
accrued on a present value basis using a discount rate which approximates a
risk-free rate.
EARNINGS PER SHARE
Earnings per share is reported on a fully diluted Common Stock, Class B
equivalent basis (which reflects Common Stock, Class A shares converted to a
Class B basis, ten for one) and is based upon the weighted average number of
common shares outstanding during the respective periods, plus the common
equivalent shares, if dilutive, that would result from the exercise of stock
options. Fully diluted earnings per share approximates primary earnings per
share and is equivalent to fully diluted earnings per share under the
"two-class" method.
VII-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Interest Paid $108.1 $107.4 $108.2
Income Taxes Paid $ 91.4 $ 53.5 $ 54.0
</TABLE>
Significant noncash investing and financing activities are as follows:
o During fiscal 1996, 1995 and 1994, the Company contributed $5.7 million,
$6.6 million and $8.9 million, respectively, of Class A Common Stock to its
employee benefit plans to fund previously accrued obligations. In addition,
during fiscal 1996, 1995 and 1994, the Company contributed $1.7 million,
$1.8 million and $1.8 million, respectively, of stock units to its stock
unit retirement plan in satisfaction of its accrued obligations. See Note
5.
o During fiscal 1996, 1995 and 1994, the Company received $7.2 million, $9.4
million and $4.0 million, respectively, of employee notes under its
Deferred Payment program as partial consideration for the issuance of
Common Stock Class B. Also, during fiscal 1996, 1995, and 1994, the Company
issued subordinated installment notes of $26.8 million, $22.5 million and
$13.2 million, respectively, as partial consideration for repurchases of
Common Stock. See Note 7.
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.:
In the first quarter of fiscal 1996, the Company sold a division of its Uniform
Services business. The net selling price was approximately $51 million in cash
and resulted in a pre-tax gain of $37 million, which was offset by other charges
related to asset realization ($20 million) and insurance, legal and other
matters ($14 million) and is reflected as "Other expense (income)" in the
accompanying consolidated statements of income. The divested operations were not
material to the Company's consolidated revenues or operating income.
At fiscal 1996 year end, the Company acquired a provider of uniform apparel to
the hospitality and healthcare markets for cash of approximately $95 million.
The acquisition will be accounted for under the purchase method of accounting.
Due to the timing of the closing of the transaction, the cost of the acquisition
has been included in "Other Assets" until appraisals and other valuations have
been completed. The Company's pro forma results of operations for fiscal 1996
and 1995 would not have been materially different assuming the acquisition had
occurred as of the beginning of the respective periods.
During fiscal 1995, the Company acquired a number of businesses: a provider of
food and support services to stadiums and arenas late in the first quarter; two
magazine and book distribution companies, one in the first quarter and one late
in the third quarter; a uniform rental business late in the fourth quarter; and
a direct marketer of public safety clothing and equipment late in the fourth
quarter; all for aggregate consideration of approximately $360 million in cash.
The acquisitions were accounted for under the purchase method of accounting and
the fiscal 1995 financial statements reflect the results of operations and cash
flows of the acquired companies from the dates of the acquisitions. Had these
acquisitions occurred as of the beginning of the fiscal period, pro forma
consolidated revenues and earnings before interest, taxes, depreciation and
amortization would have been approximately 4% and 6%, and 6% and 7% greater in
fiscal 1995 and 1994, respectively. Additionally, net income and earnings per
share would have been approximately 9% and 18% lower in fiscal 1995 and 1994,
respectively.
VII-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (Continued)
Pro forma results are unaudited and are based on historical results, adjusted
for the impact of certain acquisition related adjustments, such as: increased
amortization of intangibles, increased interest expense on acquisition debt, and
the related income tax effects. Pro forma results do not reflect any synergies
that might be achieved from combined operations and therefore, in management's
opinion, are not indicative of what actual results would have been if the
acquisitions had occurred at the beginning of the respective periods. In
addition, they are not intended to be a projection of future results.
In the fourth quarter of fiscal 1994, the Company initiated a tender offer for
the 30% minority interest of its Canadian subsidiary. The transaction was
completed in fiscal 1995 for total cash consideration of approximately $38
million, of which $20.5 million was paid in fiscal 1995.
During the fourth quarter of fiscal 1994, an affiliate, 33% owned by the
Company, sold common stock through a public offering. The Company sold
approximately 9% of its equity investment in connection with the public
offering, received net proceeds of $6.9 million and recorded a gain of $5.8
million, which is included in "Other expense (income)." At the time a
subsidiary/affiliate sells its stock to third parties, the Company recognizes
the resultant change in its net investment in the subsidiary/affiliate through
the income statement in accordance with the Securities and Exchange Commission
Staff Accounting Bulletin No. 51 (SAB No. 51). In accordance with SAB No. 51,
the Company recognized a pre-tax gain of $4.7 million, and recorded a related
tax provision of $1.9 million, representing the increase in book value of the
Company's remaining investment created by the sale of the incremental new shares
in the public offering. The Company's percentage ownership of the affiliate
after the transaction is 28%.
NOTE 3. EXTRAORDINARY ITEM:
The following have been reflected as extraordinary items in the consolidated
financial statements:
During fiscal 1996, the Company redeemed its $80 million 8-1/4% senior notes for
a premium. The debt extinguishment was financed through the issuance of a $125
million 6.79% senior note. Additionally, the Company replaced its credit
facility with a new $1 billion credit facility (see Note 4), writing off the
unamoritized balance of financing costs related to the old credit facility. The
resultant extraordinary charge on these transactions was $2.8 million or $0.06
per share.
During fiscal 1995, the Company redeemed its $125 million 12% subordinated
debentures and its $50 million 10.25% senior note for a premium. The debt
extinguishment was financed through the issuance of 8.15% and 8% senior notes
(see Note 4). The resultant extraordinary charge was $6.7 million or $0.13 per
share.
During fiscal 1994, the Company redeemed the remaining $182.3 million of its
12-1/2% subordinated debentures for a premium. The debt extinguishment was
financed through borrowings under the Company's revolving credit facility. The
resultant extraordinary charge was $7.7 million or $0.15 per share.
VII-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS:
Long-term borrowings at September 27, 1996 and September 29, 1995 are summarized
in the following table:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(in thousands)
<S> <C> <C>
SENIOR:
Credit facility borrowings $ 596,400 $ 592,900
Canadian credit facility 45,123 50,674
6.79% note, payable in installments through 2003 125,000 -
8% notes, due April 2002 100,000 100,000
8.15% notes, due May 2005 150,000 150,000
10-5/8% notes, due August 2000 100,000 100,000
8-1/4% notes, redeemed in 1996 - 80,000
Other 66,524 41,797
- -----------------------------------------------------------------------------------------------------
1,183,047 1,115,371
- -----------------------------------------------------------------------------------------------------
SUBORDINATED:
8-1/2% subordinated notes, due June 2003 100,000 100,000
10% exchangeable debentures and notes, due August 2000 58,849 59,299
Other 2,340 6,115
- -----------------------------------------------------------------------------------------------------
161,189 165,414
- -----------------------------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES 3,670 2,370
- -----------------------------------------------------------------------------------------------------
1,347,906 1,283,155
Less-current portion 26,041 8,384
- -----------------------------------------------------------------------------------------------------
$1,321,865 $1,274,771
=====================================================================================================
</TABLE>
The non-amortizing $1.0 billion revolving credit facility ("Credit Agreement")
is provided by a group of banks and matures in June 2001. Interest under the
Credit Agreement is based on the Prime Rate, LIBOR plus a spread of .15% to
.625% (as of September 27, 1996 - .33%) or the Certificate of Deposit Rate plus
a spread of .25% to .725% (as of September 27, 1996 - .43%), at the option of
the Company. The Company pays a fee of .10% to .375% (as of September 27, 1996 -
.17%) on the entire credit facility. The spread and fee margins are based on
certain financial ratios as defined.
The non-amortizing C$80 million Canadian revolving credit facility provides for
either U.S. dollar or Canadian dollar borrowings and matures in June 2001.
Interest on this facility is based on the Canadian Bankers Acceptance Rate, U.S.
Prime Rate, Canadian Prime Rate or LIBOR plus a spread of up to 5/8%, as
defined. As of September 27, 1996, all borrowings under this facility are
payable in Canadian dollars, with a weighted average interest rate of 4.6%. The
Company pays a fee of .17% on the entire credit facility.
The Company's Children's World Learning Centers, Inc. (CWLC) subsidiary also has
a $125 million revolving credit facility with a group of banks. The credit
facility matures in August 2003, with quarterly commitment reductions of $5
million starting in September 2001, which increase to $6.25 million starting
September 2002. Interest under the credit facility is based on the Prime Rate
plus a spread of 0% to 1/4% or LIBOR plus a spread of 1/2% to 1%, at the option
of CWLC. CWLC pays a fee of .2% to .375% (as of September 27, 1996 - 1/4%) on
the unborrowed portion of the credit facility. The spread and fee margins are
based on certain financial ratios as defined. As of September 27, 1996 there
were no borrowings outstanding under this credit facility.
VII-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
The 6.79% note is payable in $25 million annual installments beginning January
1999, with a final maturity of January 2003.
The 10-5/8% senior notes require a sinking fund payment of $50 million in August
1999 with a final maturity in August 2000.
The 8-1/2% subordinated notes may be redeemed at the Company's option, in whole
or in part, beginning June 1998 at a price equal to 104.25% of their principal
amount and thereafter at prices declining to par in 2002, together with accrued
interest.
The 10% subordinated exchangeable debentures and notes may be exchanged at any
time in whole or part, at the option of the holder, for 10-5/8% senior notes due
August 2000 at an exchange ratio of .93.
Accrued interest on borrowings totaling $24.3 million at September 27, 1996 and
$22.0 million at September 29, 1995 is included in current liabilities as "Other
accrued expenses."
The Company utilizes derivative financial instruments, such as interest rate
swap and forward exchange agreements to manage changes in market conditions
related to debt obligations and foreign currency exposures. At September 27,
1996 and September 29, 1995, the Company has $250 million and $175 million of
interest rate exchange agreements fixing the rate on a like amount of borrowings
under the Credit Agreement at an average effective rate of 6.2% and 6.3%,
respectively. As of September 27, 1996, interest rate exchange agreements remain
in effect for periods ranging from 9 to 34 months. All interest rate agreements
are accounted for as hedges and the related gains or losses are recognized in
income as a component of interest expense over the period being hedged. During
fiscal 1996, the Company entered into a $24 million foreign currency swap
agreement maturing in August 1998, which hedges the currency exposure of its net
investment in Spain. The counterparties to the above derivative agreements are
major international banks. The Company continually monitors its positions and
credit ratings of its counterparties, and does not anticipate nonperformance by
the counterparties.
The following summarizes the fair value of the Company's financial instruments
as of September 27, 1996 and September 29, 1995. The fair values were computed
using market quotes, if available, or based on discounted cash flows using
market interest rates as of the end of the respective periods.
<TABLE>
<CAPTION>
1996 1995
---------------------------- ---------------------------
Carrying Fair Carrying Fair
Asset/(Liability) in millions Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt $(1,347.9) $(1,364.6) $(1,283.2) $(1,313.3)
Interest rate swap agreements - 0.1 - 0.7
Foreign currency swap agreement 0.4 0.1 (2.6) (2.5)
</TABLE>
The Credit Agreement contains restrictive covenants which provide, among other
things, limitations on liens, dispositions of material assets and repurchases of
capital stock. The terms of the Credit Agreement also require that the Company
maintain certain specified minimum ratios of cash flow to fixed charges and to
total borrowings and certain minimum levels of net worth (as defined). At
September 27, 1996, the Company was in compliance with all of these covenants.
VII-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
Long-term borrowings maturing in the next five years, excluding capital lease
obligations, are as follows:
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
1997 $ 26,041
1998 4,061
1999 79,719
2000 142,487
2001 686,941
</TABLE>
NOTE 5. EMPLOYEE PENSION AND PROFIT SHARING PLANS:
In the United States, the Company maintains qualified contributory and
non-contributory retirement plans for eligible employees, with Company
contributions to the plans based on earnings performance or salary level.
Qualified non-contributory profit sharing plans are maintained by certain
businesses, with annual contributions determined by management. The Company has
a non-qualified stock unit retirement plan for certain employees. The total
expense of the above plans for fiscal 1996, 1995 and 1994 was $15.7 million,
$15.3 million and $14.5 million, respectively. During fiscal 1996, 1995 and
1994, the Company contributed 32,475 shares, 41,114 shares and 59,919 shares,
respectively, of Common Stock, Class A to these plans to partially fund
previously accrued obligations. In addition, during fiscal 1996, 1995 and 1994,
the Company contributed to the stock unit retirement plan 104,938 stock units,
120,700 stock units and 143,125 stock units, respectively, which are convertible
into Common Stock, Class B, in satisfaction of its accrued obligations. The
value of the stock units was credited to capital surplus. The Company
participates in various multi-employer union administered pension plans.
Contributions to these plans, which are primarily defined benefit plans, result
from contractual provisions of labor contracts and were $13.6 million, $13.1
million and $11.9 million for fiscal 1996, 1995 and 1994, respectively.
Additionally, the Company maintains several contributory and noncontributory
defined benefit pension plans, primarily in Canada and the United Kingdom. The
projected benefit obligation of these plans as of September 27, 1996, which is
fully funded, is $44.7 million. Pension expense related to these plans is not
material to the consolidated financial statements.
NOTE 6. INCOME TAXES:
Effective October 2, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires deferred tax assets or liabilities to be
recognized for the estimated future tax effects of temporary differences between
the financial reporting and tax bases of the Company's assets and liabilities
based on the enacted tax law and statutory tax rates applicable to the periods
in which the temporary differences are expected to affect taxable income. The
cumulative effect of this change in accounting principle was a charge of $1.3
million, or $0.03 per share, in the first quarter of fiscal 1994. In June 1996
the Company settled certain prior years' tax returns.
VII-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
The components of income before income taxes by source of income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
United States $172,572 $159,851 $143,052
Non-U.S. 6,587 7,726 20,432
- -------------------------------------------------------------------------------------------------------------
$179,159 $167,577 $163,484
==============================================================================================================
</TABLE>
Non-U.S. income before income taxes includes the gain on the sale of an
affiliate's stock in fiscal 1994 (see Note 2), and increased interest expense
subsequent to fiscal 1994 due to increased borrowing levels.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $73,919 $46,579 $51,935
State and local 17,335 12,064 11,827
Non-U.S. 3,281 3,825 5,531
- --------------------------------------------------------------------------------------------------------------
94,535 62,468 69,293
- --------------------------------------------------------------------------------------------------------------
Deferred:
Federal (23,210) 3,189 (1,516)
State and local (5,379) 739 (351)
Non-U.S. 985 992 (307)
- --------------------------------------------------------------------------------------------------------------
(27,604) 4,920 (2,174)
- --------------------------------------------------------------------------------------------------------------
$66,931 $67,388 $67,119
==============================================================================================================
</TABLE>
The provision for income taxes varies from the amount determined by applying the
United States Federal statutory rate to pre-tax income as a result of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
(% of pre-tax income)
<S> <C> <C> <C>
United States statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes, resulting from:
State income taxes, net of Federal tax benefit 4.3 4.7 4.6
Permanent book/tax differences, primarily
resulting from purchase accounting 2.1 1.7 3.0
Favorable impact of June 1996 tax settlement (2.8) - -
Tax credits and other (1.2) (1.2) (1.6)
- -----------------------------------------------------------------------------------------------------------
Effective income tax rate 37.4% 40.2% 41.0%
===========================================================================================================
</TABLE>
As of September 27, 1996 and September 29, 1995, the components of deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $61,095 $65,901
Inventory 5,549 10,451
Investments 12,813 12,406
Other 10,837 14,053
-------- --------
Gross deferred tax liability 90,294 102,811
-------- --------
</TABLE>
VII-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Deferred tax assets:
Insurance $ 26,455 $23,579
Employee compensation and benefits 34,889 34,693
Accruals and allowances 30,638 27,530
Intangibles 3,415 6,534
Other 8,709 3,223
Valuation allowance (815) (1,240)
--------- --------
Net deferred tax asset 103,291 94,319
--------- --------
Net deferred tax liability/(asset) $(12,997) $ 8,492
========= ========
</TABLE>
NOTE 7. CAPITAL STOCK:
There are two classes of common stock authorized and outstanding, Common Stock,
Class A and Common Stock, Class B. Each Class A and Class B Share is entitled to
one vote on all matters submitted to shareholders, voting together as a single
class except where otherwise required by law. Each Class A Share is entitled to
ten times the dividends and other distributions payable on each Class B Share.
Class B Shares may be held only by employees, directors and their family
members, and upon termination of employment each Class B Share is automatically
converted into 1/10 of a Class A Share.
During fiscal 1996, the Company redeemed, at par, all its outstanding Series C
Preferred Stock for $6.4 million in cash and the issuance of $8.6 million of
Common Stock, Class B. During fiscal 1995 and 1994 the Company repurchased 1,984
and 17,647 preferred shares for $2.0 million and $17.6 million, respectively.
As of September 27, 1996, the Company's stock option plans provided for the
issuance of up to 44,861,642 options to purchase shares of Common Stock, Class
B. The Company granted installment stock purchase opportunities under its stock
ownership program in fiscal 1996, 1995 and 1994 which provide for the purchase
of shares of Common Stock, Class B. Installment stock purchase opportunities are
exercisable in six annual installments with the exercise price of each purchase
opportunity equal to the current fair market value at the time the purchase
opportunity is granted. The Company has a program to grant non-qualified stock
options to additional qualified employees on an annual basis. Under the program,
options vest after three years and may be exercised for a period of three years
after vesting. The exercise price of each option is equal to the current fair
market value at the date of grant. In fiscal 1995 and 1996, the Company granted
cumulative installment stock purchase opportunities under its existing stock
ownership program which are similar to the installment stock purchase
opportunities discussed above, however, any purchase opportunities not exercised
during an installment period may be carried forward to subsequent installment
periods. The Company has a Deferred Payment Program which enables holders of
non-qualified stock options and installment purchase opportunities to defer a
portion of the total amount required to exercise the options. Interest currently
accrues on deferred payments at 8.25% compounded annually and is payable when
the deferred payments are due. At September 27, 1996 and September 29, 1995 the
receivables from individuals under the Deferred Payment Program were $19.0
million and $17.5 million, respectively, which are reflected as a reduction of
Shareholders' Equity. The Company holds as collateral all shares purchased in
which any portion of the purchase price is financed under the Deferred Payment
Program until the deferred payment is received from the individual by the
Company. Status of the options, including installment stock purchase
opportunities, under the various ownership programs follows:
<TABLE>
<CAPTION>
Number of Shares Average Option Price
----------------------------------------- ----------------------------
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Options granted 4,133,100 4,409,920 4,314,635 $14.75 $13.11 $11.19
Options exercised 1,938,142 3,084,830 2,588,030 $8.83 $6.17 $6.33
Options outstanding 10,367,984 10,107,199 10,383,764 $12.17 $10.47 $8.05
</TABLE>
VII-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
At September 27, 1996, 539,720 of the outstanding option shares were exercisable
at an average option price of $3.72. The Company has reserved 11,117,149 shares
of Common Stock, Class B at September 27, 1996 for issuance of stock pursuant to
its employee ownership and benefit programs.
The Company and its shareholders are parties to an Amended and Restated
Shareholders' Agreement. Pursuant to this agreement, holders of common stock who
are individuals, upon their death, complete disability or normal retirement, may
cause the Company to repurchase up to 30% of their shares for cash at the then
appraised value, but only to the extent such repurchase by the Company is
permitted under the Credit Agreement. Under this Credit Agreement restriction,
repurchases of capital stock cannot exceed an aggregate limit, which amount was
$18.6 million at September 27, 1996 and $19.1 million at September 29, 1995.
Pursuant to interpretations of its rules related to "Redeemable Preferred
Stock," the Securities and Exchange Commission has requested that these amounts
representing the Company's potential repurchase of its Common Stock be presented
as a separate item and accordingly, the Company's Shareholders' Equity reflects
this reclassification in the consolidated financial statements. Also, the
Shareholders' Agreement provides that the Company may, at its option, repurchase
shares from individuals who are no longer employees. Such repurchased shares may
be resold to others including replacement personnel at prices equal to or
greater than the repurchase price. Generally, payment for shares repurchased can
be, at the Company's option, in cash or subordinated installment notes, which
are subordinated to all other indebtedness of the Company. Interest on these
notes is payable semi-annually and principal payments are made annually over
varying periods not to exceed ten years. The noncurrent portion of these notes
($49.2 million as of September 27, 1996 and $36.8 million as of September 29,
1995) is included in the consolidated balance sheets as "Other Noncurrent
Liabilities" and the current portion of these notes ($13.4 million as of
September 27, 1996 and $11.3 million as of September 29, 1995) is included in
the consolidated balance sheets as "Accounts Payable."
NOTE 8. COMMITMENTS AND CONTINGENCIES:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Facilities under capital leases $12,489 $10,213
Less-accumulated amortization 9,269 8,211
- -----------------------------------------------------------------------------------------------------
$ 3,220 $ 2,002
=====================================================================================================
</TABLE>
Rental expense for all operating leases was $128.6 million, $124.2 million and
$121.2 million for fiscal 1996, 1995 and 1994, respectively.
Following is a schedule of the future minimum rental commitments under all
noncancelable leases as of September 27, 1996:
<TABLE>
<CAPTION>
Fiscal Year Operating Capital
- -------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
1997 $128,812 $1,220
1998 73,228 1,088
1999 66,948 837
2000 60,500 691
2001 54,393 255
Subsequent years 151,346 244
- -------------------------------------------------------------------------------------------------------------
Total minimum rental obligations $535,227 4,335
=======================================================================================
Less-amount representing interest 665
- -------------------------------------------------------------------------------------------------------------
Present value of capital leases 3,670
Less-current portion 796
- -------------------------------------------------------------------------------------------------------------
Noncurrent obligations under capital leases $2,874
=============================================================================================================
</TABLE>
VII-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES: (Continued)
The Company has capital commitments of approximately $34 million at September
27, 1996 in connection with several long-term concession contracts at stadiums
and arenas. The Company is party to certain claims and litigation arising in the
ordinary course of business. The Company believes it has meritorious defenses to
these claims and is of the opinion that adequate reserves have been provided for
the ultimate resolution of these matters.
NOTE 9. ARAMARK SERVICES, INC. AND SUBSIDIARIES:
The following financial information has been summarized from the separate
consolidated financial statements of ARAMARK Services, Inc. (a wholly owned
subsidiary of ARAMARK Corporation) and the subsidiaries which it currently owns.
ARAMARK Services, Inc. is the borrower under the Credit Agreement and certain
other senior debt described in Note 4 and incurs the interest expense
thereunder. This interest expense is only partially allocated to all of the
other subsidiaries of ARAMARK Corporation.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Revenues $3,200,388 $2,975,397 $2,763,098
Cost of services provided 3,024,136 2,808,554 2,594,291
Net income 15,503 14,749 18,677
<CAPTION>
1996 1995
----------- ------------
(in thousands)
<S> <C> <C>
Current assets $ 395,243 $ 366,370
Noncurrent assets 1,630,023 1,545,474
Current liabilities 495,147 435,289
Noncurrent liabilities 1,419,648 1,377,799
</TABLE>
VII-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for fiscal 1996 and
1995:
<TABLE>
<CAPTION>
Fiscal Quarter
-------------------------------------------------------
1996 First Second Third Fourth Year
- ----------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Revenues $1,549,374 $1,464,626 $1,546,296 $1,562,204 $6,122,500
Cost of services provided 1,413,632 1,343,275 1,407,732 1,400,399 5,565,038
Income before extraordinary item 24,989 15,299 29,805 42,135 112,228
Extraordinary item (1) - 1,589 1,169 - 2,758
Net income 24,989 13,710 28,636 42,135 109,470
Earnings per share:
Income before extraordinary item $.52 $.32 $.64 $.92 $2.37
Net income $.52 $.28 $.61 $.92 $2.31
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarter
-------------------------------------------------------
1995 First(2) Second Third(3) Fourth Year
- ----------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Revenues $1,380,516 $1,364,518 $1,423,824 $1,431,787 $5,600,645
Cost of services provided 1,264,665 1,255,607 1,290,258 1,283,649 5,094,179
Income before extraordinary item 20,753 13,350 28,057 38,029 100,189
Extraordinary item (1) - - 6,686 - 6,686
Net income 20,753 13,350 21,371 38,029 93,503
Earnings per share:
Income before extraordinary item $.42 $.26 $.56 $.77 $2.01
Net income $.42 $.26 $.43 $.77 $1.88
</TABLE>
(1) See Note 3.
(2) Fiscal 1995 first quarter results were adversely impacted by the National
Hockey League strike (see Note 11).
(3) Fiscal 1995 third quarter results were adversely impacted by the Major
League Baseball strike (see Note 11).
In the first and second fiscal quarters, within the Food and Support Services
segment there is a lower level of activity at the higher margin leisure and
recreational food service operations which is partly offset by increased
activity in the educational market. In addition, there is a seasonal increase in
volume of directly marketed work clothing during the first quarter. Whereas in
the third and fourth fiscal quarters, there is a significant increase at leisure
and recreational accounts which is partially offset by the effect of summer
closings in the educational market.
V-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS:
The Company provides or manages services in the following business segments:
Food and Support Services - Food, refreshment, specialized dietary and support
- -------------------------
services, including maintenance and housekeeping, provided to business,
educational, governmental and medical institutions and in recreational and other
facilities serving the general public. Fiscal 1994 operating income includes a
$5.8 million gain on the sale of stock of an affiliate as described in Note 2.
The 1995 and 1994 segment operating results were adversely impacted by the Major
League Baseball strike in the U.S. and Canada. Additionally, the fiscal 1995
segment operating results were adversely impacted by the National Hockey League
strike in the U.S. and Canada and a decrease in average attendance at Major
League Baseball games subsequent to the resumption of the season in April 1995.
Had the hockey strike and baseball situation not occurred, it is estimated that
segment reported results for revenues and operating income would have been
approximately 2% and 10% greater in fiscal 1995, and 2% and 6% greater in fiscal
1994, respectively. Also, total Company operating income and income before
extraordinary items would have been approximately 5% and 8% higher in fiscal
1995, and 3% and 5% higher in fiscal 1994, respectively.
Uniform Services - Rental of personalized work apparel and linens for business
- ----------------
and institutions on a contract basis and the direct marketing of work clothing,
safety equipment and accessories. Fiscal 1996 operating income includes the $37
million gain on the sale of a division and charges of $5 million related to
changes in estimates regarding asset realization and environmental matters (see
Note 2); excluding the impact of these items as well as the impact of the
operating results of the 1996 divestiture the increase in segment operating
income was approximately 16%. The impact on revenues was not material. The
acquisition for $95 million consummated in the fourth quarter of fiscal 1996
discussed in Note 2 is included in the identifiable asset disclosure in fiscal
1996.
Health and Education - General management of child care centers, and specialized
- --------------------
services to emergency rooms, and other hospital specialties, and medical
services to correctional institutions. Fiscal 1996 operating income includes
additional charges of approximately $13 million for insurance claims and real
estate exposures (see Note 2). Fiscal 1995 segment operating income is lower
than 1994 primarily due to an increase in insurance reserves, reflecting a
refinement in the claims estimation methodology.
Distributive - Wholesale distribution of magazines and other published materials
- ------------
to retail locations patronized by the general public. In fiscal 1996, the
Distributive Segment operating results were severely impacted by higher
operating costs related to servicing new customers and reduced margins resulting
from increased competition and consolidation in the magazine wholesale
distribution industry.
Revenues by segment are substantially comprised of services to unaffiliated
customers and clients. Operating income reflects expenses directly related to
individual segments plus an allocation of expenses applicable to more than one
segment. General corporate expenses include expenses not specifically
identifiable with an individual segment. The increase in fiscal 1996 General
Corporate expenses is due primarily to reserves established for asset
realization, legal and other matters (see Note 2). Direct selling expenses are
approximately 1% of revenues for fiscal 1996, 1995 and 1994. Corporate assets
consist principally of goodwill not allocable to any individual segment and
other noncurrent assets.
V-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS: (Continued)
<TABLE>
<CAPTION>
Revenues Operating Income
------------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Food and Support
Services $3,816.0 $3,521.2 $3,274.3 $174.2 $146.4 $138.4
Uniform Services 1,049.2 893.4 810.5 144.2 102.6 96.0
Health and Education 781.0 742.9 673.3 28.1 28.5 37.2
Distributive 476.3 443.1 403.5 (5.6) 27.4 26.5
-------- -------- -------- ------ ------ ------
Total $6,122.5 $5,600.6 $5,161.6 340.9 304.9 298.1
======== ======== ========
<CAPTION>
<S> <C> <C> <C>
General Corporate and Other Expenses (45.7) (27.9) (30.8)
------ ------ ------
Operating Income 295.2 277.0 267.3
Gain on Issuance of Stock by an Affiliate - - 4.7
Interest Expense, net (116.0) (109.4) (108.5)
------ ------ ------
Income Before Income Taxes, Minority Interest,
Extraordinary Item, and Accounting Change $179.2 $167.6 $163.5
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Depreciation Capital
and Amortization Expenditures
------------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Food and Support
Services $ 96.5 $ 89.7 $ 85.5 $ 99.5 $128.2 $ 83.2
Uniform Services 52.2 40.7 36.3 54.7 66.7 39.9
Health and Education 19.6 18.2 16.5 39.2 26.6 18.4
Distributive 8.3 3.5 2.3 4.6 3.9 2.0
------ ------ ------ ------ ------ ------
176.6 152.1 140.6 198.0 225.4 143.5
Corporate 6.2 4.8 3.2 1.0 4.3 3.0
------ ------ ------ ------ ------ ------
$182.8 $156.9 $143.8 $199.0 $229.7 $146.5
====== ====== ====== ====== ====== ======
<CAPTION>
Identifiable Assets
-------------------------------------
1996 1995 1994
-------- -------- --------
(in millions)
<S> <C> <C> <C>
Food and Support
Services $1,286.4 $1,264.5 $1,085.7
Uniform Services 986.8 891.2 608.7
Health and Education 308.3 272.0 280.2
Distributive 174.1 131.5 74.2
-------- -------- --------
2,755.6 2,559.2 2,048.8
Corporate 75.2 84.1 73.2
-------- -------- --------
$2,830.8 $2,643.3 $2,122.0
======== ======== ========
</TABLE>
Most services are provided in the United States, with operations also being
conducted in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan,
Korea, Mexico, Spain and the United Kingdom. The Company's non-U.S. operations
for each year contributed approximately 15% of total revenues and 8% of total
operating income, and identifiable assets for these operations were
approximately 10% of the total.
VII-24
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
------
<TABLE>
<CAPTION>
June 27, September 27,
1997 1996
-------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 28,731 $ 25,283
Receivables 486,963 576,447
Inventories, at lower of cost or market 359,511 316,043
Prepayments and other current assets 73,337 67,977
---------- ----------
Total current assets 948,542 985,750
---------- ----------
Property and Equipment, net 846,316 824,635
Goodwill 661,406 643,880
Other Assets 327,178 376,505
---------- ----------
$2,783,442 $2,830,770
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term borrowings $ 16,565 $ 26,041
Accounts payable 396,980 496,040
Accrued expenses and other liabilities 455,264 441,760
---------- ----------
Total current liabilities 868,809 963,841
---------- ----------
Long-Term Borrowings 1,289,186 1,321,865
Deferred Income Taxes and Other Noncurrent
Liabilities 220,815 230,249
Common Stock Subject to Potential Repurchase
Under Provisions of Shareholders' Agreement 23,591 18,614
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01 20 20
Class B common stock, par value $.01 205 227
Earnings retained for use in the business 395,322 309,437
Cumulative translation adjustment 1,601 5,131
Unrealized gain on marketable securities, net 7,484 -
Impact of potential repurchase feature of
common stock (23,591) (18,614)
---------- ----------
Total 381,041 296,201
---------- ----------
$2,783,442 $2,830,770
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
VII-25
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------- ---------------------------
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues $1,531,614 $1,546,296 $4,676,382 $4,560,296
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of services provided 1,384,834 1,407,732 4,261,481 4,164,639
Depreciation and amortization 47,658 45,787 143,438 136,265
Selling and general corporate expenses 20,803 19,068 60,695 61,353
Other expense (income), net - - (72,393) (2,850)
---------- ---------- ---------- ----------
1,453,295 1,472,587 4,393,221 4,359,407
---------- ---------- ---------- ----------
Operating income 78,319 73,709 283,161 200,889
Interest Expense, net 28,596 28,580 88,598 88,900
---------- ---------- ---------- ----------
Income before income taxes 49,723 45,129 194,563 111,989
Provision for Income Taxes 19,589 15,324 48,822 41,896
---------- ---------- ---------- ----------
Income before Extraordinary Item 30,134 29,805 145,741 70,093
Extraordinary Item due to Early Extinguishment
of Debt (net of income taxes) - 1,169 - 2,758
---------- ---------- ---------- ----------
Net income $ 30,134 $ 28,636 $ 145,741 $ 67,335
========== ========== ========== ==========
Earnings Per Share:
Income before extraordinary item $ .69 $.64 $3.26 $ 1.47
Net income $ .69 $.61 $3.26 $ 1.41
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
VII-26
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------
June 27, June 28,
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 145,741 $ 67,335
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 143,438 136,265
Income taxes deferred (1,344) (25,343)
Extraordinary item - 2,758
Changes in noncash working capital (87,544) (89,961)
Other operating activities, including gain on
divestiture of certain businesses (82,139) (9,810)
--------- ---------
Net cash provided by operating activities 118,152 81,244
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (136,497) (119,197)
Disposals of property and equipment 14,439 5,761
Divestiture of certain businesses 111,613 50,823
Acquisition of certain businesses (9,536) (10,445)
Other investing activities (4,698) (11,628)
--------- ---------
Net cash used in investing activities (24,679) (84,686)
--------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 128,869 166,568
Payment of long-term borrowings including premiums (171,200) (128,250)
Proceeds from issuance of common stock 13,728 13,674
Repurchase of stock (59,874) (48,956)
Other financing activities (1,548) (1,616)
--------- ---------
Net cash provided by (used in) financing activities (90,025) 1,420
--------- ---------
Increase (decrease) in cash and cash equivalents 3,448 (2,022)
Cash and cash equivalents, beginning of period 25,283 23,082
--------- ---------
Cash and cash equivalents, end of period $ 28,731 $ 21,060
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
VII-27
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
-------------------------------------------
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of the Company, the statements include all adjustments (which include only
normal recurring adjustments) required for a fair statement of financial
position, results of operations and cash flows for such periods. The
results of operations for the interim periods are not necessarily
indicative of the results for a full year.
(2) OTHER INCOME:
------------
In January 1997, the Company sold an approximate 83% interest in its
Spectrum Healthcare Services, Inc. subsidiary (Spectrum). Total
consideration was approximately $158 million and included cash ($125
million), notes and a warrant. The transaction resulted in a pre-tax gain
of $72.4 million, net of transaction costs and reserves established for
indemnification of certain matters related to insurance, legal and other
matters ($20 million), and is reflected as "other expense (income)" in the
accompanying condensed consolidated statements of income. No income taxes
have been provided on the gain due to permanent differences in the
underlying book and tax basis of the divested entity. In fiscal 1996, this
business had approximately $500 million in annual revenues and a normalized
operating margin of approximately 4%. Cash proceeds from the divestiture
were used to repay borrowings under the $1 billion credit facility.
In the first quarter of fiscal 1996, the Company sold the King Size
division of its Uniform Services business. The net selling price was
approximately $51 million in cash plus "warrants" and resulted in a pre-tax
gain of $37 million, which was offset by other charges related to asset
realization ($20 million) and insurance, legal and other matters ($14
million), including a $2 million charge for environmental liabilities, and
is reflected as "other expense (income)" in the accompanying consolidated
statement of income. The environmental liabilities relate to several minor
remediation projects involving properties no longer in service. These
remediation projects will not have any material on-going financial impact
on the Company's financial statements. The King Size operations were not
material to the Company's consolidated revenues or operating income.
(3) LONG TERM BORROWINGS:
--------------------
In November 1996, the Company issued $125 million of 7.10% senior notes due
December 2006. The net proceeds from the note offering were used to repay
borrowings under the $1 billion credit facility.
In January 1996, the Company redeemed its $80 million 8-1/4% senior note
for a premium resulting in an extraordinary item for debt extinguishment of
$1.6 million (net of tax benefit of $1.0 million) and issued a $125 million
6.79% senior note due January 2003, with annual principal repayments of $25
million beginning January 1999. During the third quarter of fiscal 1996,
the Company replaced its existing credit facility with a new $1 billion
credit facility. The new facility is non-amortizing and matures on June 30,
2001. The Company wrote off the unamortized balances of financing costs
related to the old credit facility which is reflected as an extraordinary
item for debt extinguishment of $1.2 million (net of tax benefit of $0.8
million).
(4) CAPITAL STOCK:
-------------
During the first nine months of fiscal 1997, pursuant to the ARAMARK
Ownership Program, employees purchased 2,111,131 shares or $20.9 million of
Class B Common Stock for $13.7 million of cash and $7.2 million of deferred
payment obligations.
VII-28
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(5) SUPPLEMENTAL CASH FLOW INFORMATION:
----------------------------------
The Company made interest payments of $84.6 million and $81.9 million and
income tax payments of $43.7 million and $70.6 million during the first
nine months of fiscal 1997 and 1996, respectively. During the first nine
months of fiscal 1997, the Company purchased $31.6 million of its Class A
Common Stock and $48.1 million of its Class B Common Stock, issuing $19.8
million in subordinated installment notes as partial consideration.
(6) PROSPECTIVE ACCOUNTING CHANGES:
------------------------------
In fiscal 1997, the Company is required to adopt the provisions of Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation". As permitted by SFAS No. 123, the Company will continue
to apply its existing accounting policy under APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and will provide the expanded
disclosures required by SFAS No. 123 in the fiscal 1997 Form 10-K.
In fiscal 1998, the Company is required to adopt the provisions of SFAS No.
128, "Earnings per Share". SFAS No. 128 requires the disclosure of "basic"
and "diluted" earnings per share. For the three and nine month periods ended
June 27, 1997, pro forma basic earnings per share under SFAS No. 128 would
be $0.72 and $3.45, respectively. Diluted earnings per share would not be
materially different from reported earnings per share.
(7) ARAMARK SERVICES, INC. AND SUBSIDIARIES:
---------------------------------------
The following financial information has been summarized from the separate
consolidated financial statements of ARAMARK Services, Inc. (a wholly owned
subsidiary of ARAMARK Corporation) and the subsidiaries which it currently
owns. ARAMARK Services, Inc. is the borrower under the revolving credit
facility and certain other senior debt agreements and incurs the interest
expense thereunder. This interest expense is only partially allocated to all
of the other subsidiaries of ARAMARK Corporation.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
------------------------- ------------------------
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(in thousands)
Revenues $ 846.0 $ 789.6 $2,602.9 $2,443.0
Cost of services provided 795.5 748.3 2,447.8 2,307.9
Net income 6.9 2.8 21.4 10.2
<CAPTION>
June 27, September 27,
1997 1996
-------- -------------
(in thousands)
<S> <C> <C>
Current assets $ 380.0 $ 395.2
Noncurrent assets 1,636.4 1,630.0
Current liabilities 473.5 495.1
Noncurrent liabilities 1,414.6 1,419.6
</TABLE>
VII-29
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(8) DERIVATIVES:
-----------
The Company utilizes derivative financial instruments, such as interest
rate swaps and forward exchange agreements to manage changes in market
conditions related to debt obligations and foreign currency exposures. All
interest rate swaps are accounted for as hedges under the accrual method
with the net payments under the terms of the swap agreements recognized
currently in income as a component of interest expense. Gains or losses on
the termination of interest rate swaps are deferred and amortized over the
remaining life of the terminated swap agreement. Interest rate swaps, for
which the designated debt instrument being hedged is extinguished, are
accounted for on the fair value method from the extinguishment date, if not
concurrently terminated, with gains and losses recognized currently in the
condensed consolidated statement of income. The Company has a foreign
currency swap agreement which hedges the currency exposure of its net
investment in a foreign subsidiary and accordingly, gains and losses on the
currency swap are recorded as a component of the cumulative translation
adjustment.
VII-30
<PAGE>
ARAMARK CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
February 10, 1998
The undersigned, having received the Notice of Annual Meeting
of Stockholders and Proxy Statement dated January 8, 1998, hereby appoints
Joseph Neubauer, Martin W. Spector and Donald S. Morton, and each of them,
proxies, with full power of substitution, and hereby authorizes them to
represent and vote the shares of Common Stock of ARAMARK Corporation (the
"Company"), which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of the Company to be held on
Tuesday, February 10, 1998, at 3:00 P.M., Philadelphia time, and any adjournment
thereof, and especially to vote as set forth below and on the reverse hereof.
1. Approval of the amendments to the Restated
Certificate of Incorporation to provide for the
reclassification of each share of the Company's Class
A Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of the amendments to the Restated
Certificate of Incorporation to provide for an
amendment to the Company's Class B Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the amendment to the Restated Certificate
of Incorporation:
To increase the number of shares of Common Stock
authorized for issuance from 175,000,000 to
200,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To provide that, upon consummation of any public
offering of the Company's common stock, stockholder
action may be taken only at an annual meeting of
stockholders or at a special meeting of stockholders
and stockholder action by written consent shall be
prohibited.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To provide that, upon consummation of any public
offering of the Company's common stock, the Board of
Directors shall be classified into three classes,
each of which, after a transitional arrangement, will
serve for three years, with one class being elected
each year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of the amendments to, and the restatement
of, the Amended and Restated Stockholders' Agreement
dated December 14, 1994.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
5. Election of the following directors for the ensuing
year:
Joseph Neubauer Lee F. Driscoll, Jr.
James E. Ksansnak Mitchell S. Fromstein
Patricia C. Barron Edward G. Jordan
Robert J. Callander Thomas H. Kean
Alan K. Campbell Reynold C. MacDonald
Ronald R. Davenport James E. Preston
[ ] FOR [ ] WITHHOLD
[ ] WITHHOLD for Directors Written Below:
-----------------------------------------------------
6. IN THEIR DISCRETION, the proxies are authorized to
vote upon such other business as may properly come
before the meeting and at any adjournments thereof.
IF YOU SPECIFY A CHOICE AS TO THE ACTION TO BE TAKEN ON AN
ITEM, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SUCH CHOICE. IF YOU DO NOT
SPECIFY A CHOICE, IT WILL BE VOTED FOR ITEMS 1-5 AND AT THE DISCRETION OF THE
PROXY HOLDER AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
Any proxy or proxies previously given for the meeting are revoked.
Dated:
----------------------------------
----------------------------------
(Signature)
----------------------------------
(Signature if held jointly)
Please sign exactly as the name appears hereon. If
shares are held as joint tenants, both joint tenants
should sign. Attorneys-in-fact, executors,
administrators, trustees, guardians, corporation
officers or others signing in a representative
capacity should indicate the capacity in which they
are signing.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
