<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 12, 1997 Commission File No. 1-12188
MARRIOTT INTERNATIONAL, INC.
Delaware 52-0936594
(State of Incorporation) (I.R.S. Employer Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Shares outstanding
Class at October 10, 1997
- -------------------- -------------------
Common Stock $1.00 127,630,044
par value per share
1
<PAGE>
MARRIOTT INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Forward-Looking Statements 3
Part I. Financial Information (Unaudited):
Condensed Consolidated Statements of Income -
Twelve and Thirty-Six Weeks Ended September 12, 1997 and September 6, 1996 4
Condensed Consolidated Balance Sheet -
as of September 12, 1997 and January 3, 1997 5
Condensed Consolidated Statement of Cash Flows -
Thirty-Six Weeks Ended September 12, 1997 and September 6, 1996 6
Notes to Condensed Consolidated Financial Statements 7-11
Management's Discussion and Analysis of Results of Operations
and Financial Condition 12-18
Part II. Other Information and Signature:
Legal Proceedings 19
Changes in Securities 19
Defaults Upon Senior Securities 19
Submission of Matters to a Vote of Security Holders 19
Other Information 19
Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
When used throughout this report, the words "believes", "anticipates",
"expects", "intends", "hopes" and other similar expressions, which are
predictions of or indicate future events and trends identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties
which could cause actual results to differ materially from those projected,
including: competition within each of the Company's business segments; business
strategies and their intended results; the balance between supply of and demand
for hotel rooms, timeshare units and senior living accommodations; the Company's
continued ability to obtain new operating contracts and franchise agreements;
the Company's ability to develop and maintain positive relations with current
and potential hotel and retirement community owners and contract services
clients; the effect of international, national and regional economic conditions;
the availability of capital to fund investments; the Company's ability to
achieve synergies and performance improvements subsequent to closing on
acquisitions; the Company's ability to successfully complete its recently
announced spin-off and merger transactions; and other risks described from time
to time in the Company's filings with the Securities and Exchange Commission,
including those set forth on Exhibit 99 filed herewith. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements. The Company also undertakes no obligation to publicly update or
revise any forward-looking statement to reflect current or future events or
circumstances.
3
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve weeks ended Thirty-six weeks ended
------------------------------ ----------------------------
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
SALES
Lodging
Rooms.............................. $ 991 $ 836 $ 2,950 $ 2,473
Food and beverage.................. 314 271 1,027 901
Other.............................. 299 194 791 588
------------- ------------ ------------- ------------
1,604 1,301 4,768 3,962
Contract Services.................... 1,072 909 3,390 2,763
------------- ------------ ------------- ------------
2,676 2,210 8,158 6,725
------------- ------------ ------------- ------------
OPERATING COSTS AND EXPENSES
Lodging
Departmental direct costs
Rooms............................ 227 196 656 571
Food and beverage................ 253 220 780 690
Other operating expenses........... 993 784 2,937 2,391
------------- ------------ ------------- ------------
1,473 1,200 4,373 3,652
Contract Services.................... 1,054 882 3,287 2,669
------------- ------------ ------------- ------------
2,527 2,082 7,660 6,321
------------- ------------ ------------- ------------
OPERATING PROFIT
Lodging............................. 131 101 395 310
Contract Services................... 18 27 103 94
------------- ------------ ------------- ------------
Operating profit before corporate
expenses and interest........... 149 128 498 404
Corporate expenses..................... (22) (17) (64) (48)
Interest expense....................... (24) (23) (77) (60)
Interest income........................ 8 7 19 25
------------- ------------ ------------- ------------
INCOME BEFORE INCOME TAXES 111 95 376 321
Provision for income taxes............. 44 37 149 125
------------- ------------ ------------- ------------
NET INCOME............................. $ 67 $ 58 $ 227 $ 196
============= ============ ============= ============
EARNINGS PER SHARE..................... $ 0.49 $ 0.43 $ 1.67 $ 1.44
============= ============ ============= ============
DIVIDENDS DECLARED PER SHARE........... $ 0.09 $ 0.08 $ 0.26 $ 0.24
============= ============ ============= ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
(Unaudited)
<TABLE>
<CAPTION>
September 12, January 3,
1997 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents............... $ 359 $ 268
Accounts and notes receivable...... 1,041 754
Other.............................. 468 410
---------- ---------
1,868 1,432
---------- ---------
Property and equipment..................... 1,496 1,894
Intangible assets.......................... 1,773 648
Investments in affiliates.................. 544 496
Notes and other receivable................. 355 293
Other assets............................... 288 312
---------- ---------
$ 6,324 $ 5,075
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable................... $ 1,011 $ 891
Other current liabilities.......... 1,109 868
---------- ---------
2,120 1,759
---------- ---------
Long-term debt............................. 1,433 1,010
Other long-term liabilities................ 979 749
Convertible subordinated debt.............. 306 297
Shareholders' equity
Common stock, 128.6 million
shares issued..................... 129 129
Additional paid-in capital......... 678 653
Retained earnings.................. 744 628
Treasury stock, at cost............ (65) (150)
---------- ---------
1,486 1,260
---------- ---------
$ 6,324 $ 5,075
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-six weeks ended
---------------------------------
September 12, September 6,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................... $ 227 $ 196
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization............................ 128 102
Income taxes and other................................... 160 125
Timeshare activity, net.................................. (45) (27)
Working capital changes.................................. 44 111
------------- -------------
Cash provided by operations.................................. 514 507
------------- -------------
INVESTING ACTIVITIES
Acquisitions................................................. (856) (319)
Dispositions................................................. 438 57
Capital expenditures......................................... (350) (182)
Loan advances................................................ (63) (79)
Loan collections and sales................................... 29 94
Other........................................................ (123) (87)
------------- -------------
Cash used in investing activities............................ (925) (516)
------------- -------------
FINANCING ACTIVITIES
Issuances of long-term debt.................................. 584 283
Repayments of long-term debt................................. (11) (105)
Issuances of common stock.................................... 28 31
Dividends paid............................................... (32) (29)
Purchases of treasury stock.................................. (67) (20)
------------- -------------
Cash provided by financing activities........................ 502 160
------------- -------------
INCREASE IN CASH AND EQUIVALENTS............................... 91 151
CASH AND EQUIVALENTS, beginning of period...................... 268 219
------------- -------------
CASH AND EQUIVALENTS, end of period............................ $ 359 $ 370
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements of Marriott
International, Inc. and its subsidiaries (the Company) have been prepared
without audit. Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes
the disclosures made are adequate to make the information presented not
misleading. However, the condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended January 3, 1997. Capitalized terms not otherwise defined herein
have the meanings specified in the Annual Report.
In the opinion of the Company, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
the Company as of September 12, 1997 and January 3, 1997, and the results of
operations for the thirty-six weeks and twelve weeks ended September 12, 1997
and September 6, 1996. Interim results are not necessarily indicative of
fiscal year performance because of seasonal and short-term variations. All
material intercompany transactions and balances between Marriott
International, Inc. and its subsidiaries have been eliminated.
Certain amounts previously presented have been reclassified to conform to the
1997 presentation.
2. Earnings Per Share
------------------
Earnings per share is computed on a fully diluted basis using the weighted
average number of common shares and common equivalent shares outstanding plus
other potentially dilutive securities which, in the aggregate, totaled 139.4
million and 138.6 million for the thirty-six weeks ended September 12, 1997
and September 6, 1996, respectively, and 139.7 million and 140.2 million for
the twelve weeks ended September 12, 1997 and September 6, 1996,
respectively. Common equivalent shares are computed using the treasury stock
method based on the higher of average or end of period market prices. The if
converted method is used for convertible subordinated debt.
3. Acquisitions and Dispositions
-----------------------------
Renaissance Hotel Group N.V. On March 29, 1997, the Company acquired
substantially all of the outstanding common stock of Renaissance Hotel Group
N.V. (RHG), an operator and franchisor of 150 hotels in 38 countries under
the Renaissance, New World and Ramada International brands. The total
acquisition cost, of approximately $1 billion, was funded with proceeds from
commercial paper borrowings, supported by the Company's long-term revolving
credit facility. The acquisition has been accounted for using the purchase
method of accounting. The purchase cost has been allocated to the assets
acquired and liabilities assumed based on estimated fair values.
7
<PAGE>
Goodwill is being amortized on a straight-line basis over 40 years. Amounts
allocated to management and licensing agreements are being amortized on a
straight-line basis over the estimated lives of the agreements.
The Company's reported results of operations include RHG's operating results
from the date of acquisition. Summarized below are the unaudited pro forma
consolidated results of operations of the Company for the thirty-six weeks
ended September 12, 1997 and September 6, 1996, as if RHG had been acquired
at the beginning of the respective periods (in millions, except per share
amounts).
<TABLE>
<CAPTION>
Thirty-six weeks Thirty-six weeks
ended ended
September 12, 1997 September 6, 1996
------------------ -----------------
<S> <C> <C>
Sales................ $ 8,357 $ 7,305
============= =============
Net Income........... $ 223 $ 181
============= =============
Earnings Per Share... $ 1.63 $ 1.33
============= =============
</TABLE>
Unaudited pro forma net income includes interest expense on borrowings
relating to the Company's acquisition of RHG's common stock as well as the
impact on historical interest expense of the revaluation of RHG's debt based
on the Company's borrowing cost. Amortization expense deducted in determining
net income reflects the impact of the excess of the purchase price over the
net tangible assets acquired. The unaudited pro forma consolidated results of
operations are not intended to reflect the Company's expected future results
of operations.
Dr. Henry Cheng Kar-Shun is the Managing Director of New World Development
Company (New World) and, together with his family and affiliated
corporations, owns or otherwise controls a majority of New World's common
stock. Effective June 1, 1997, Dr. Cheng was appointed to the Company's Board
of Directors. Dr. Cheng, New World and their affiliates own all or a portion
of 87 hotels that are operated by the Company, and prior to the Company's
acquisition of RHG, owned a majority of RHG common stock. New World and other
affiliates of Dr. Cheng have indemnified RHG, its subsidiaries and the
Company for certain lease, debt, guarantee and other obligations in
connection with the formation of RHG as a hotel management company in 1995.
Certain Property Sales. On April 3, 1997, the Company agreed to sell and
leaseback, under long-term, limited-recourse leases, 14 limited service
hotels for approximately $149 million in cash. Concurrently, the Company
agreed to pay security deposits of approximately $15 million, which will be
refunded upon expiration of the leases. These operating leases have initial
terms of 17 years, and are renewable at the option of the Company. As of
September 12, 1997, sales of 10 of these hotels had closed. On October 10,
1997, the Company agreed to sell, and leaseback under long-term limited-
recourse leases another nine limited service hotels for approximately $129
million in cash. Concurrently, the Company agreed to pay security deposits of
approximately $13 million, which will be refunded upon expiration of the
leases.
8
<PAGE>
On April 11, 1997, the Company sold five senior living communities for cash
consideration of approximately $79 million. On September 12, 1997, the
Company agreed to sell another seven senior living communities for cash
consideration of approximately $93 million, two of which closed on that date.
The Company will continue to operate all of the communities under long-term
management agreements.
Forum Group, Inc. On March 25, 1996, a wholly-owned subsidiary of the Company
acquired all of the outstanding shares of common stock of Forum Group, Inc.
(Forum), for total cash consideration of approximately $303 million. On June
21, 1997, the Company sold 29 retirement communities acquired as part of the
Forum acquisition, to Host Marriott Corporation (together with its
subsidiaries, Host Marriott) for approximately $550 million, including
approximately $87 million to be received as expansions at certain communities
are completed. The $463 million received at closing, which is subject to
adjustment based on finalization of working capital levels at the properties,
was comprised of $205 million in cash, $187 million of outstanding debt, $50
million of notes receivable due in 12 months, and $21 million of notes
receivable due January 1, 2001. The notes receivable from Host Marriott bear
interest at nine percent. Under the terms of sale, Host Marriott purchased
all of the common stock of Forum which, at the time of the sale, included the
29 communities, certain working capital and associated debt. The Company will
continue to operate these communities under long-term management agreements.
4. Commitments
-----------
The Company issues guarantees to lenders and other third parties in
connection with financing transactions and other obligations. These
guarantees are limited, in the aggregate, to $205 million at September 12,
1997, including $126 million applicable to guarantees by or debt obligations
of Host Marriott, partnerships in which Host Marriott is the general partner
or other affiliated entities. New World and another affiliate of Dr. Cheng
have severally indemnified the Company for loan guarantees with a maximum
funding of $18 million (which are included in the $126 million above) and
guarantees by RHG of leases with minimum annual payments of approximately $59
million.
As of September 12, 1997, the Company had extended approximately $225 million
of loan commitments to owners of lodging and senior living properties.
Previously, the Company had a $225 million line of credit available to Host
Marriott which was terminated by mutual consent on June 19, 1997.
Letters of credit outstanding on the Company's behalf at September 12, 1997
totaled $138 million, the majority of which related to the Company's self-
insurance program.
At September 12, 1997, the Company had a repurchase obligation of $75 million
related to notes receivable from timeshare interval purchasers that have been
sold with limited recourse.
5. New Accounting Standards
------------------------
On January 4, 1997, the Company adopted FAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," with no material effect on the Company's consolidated financial
statements. The Company will adopt FAS No. 128, "Earnings per Share" and FAS
No. 129, "Disclosure of Information about Capital Structure"
9
<PAGE>
in the fourth quarter of 1997, and FAS No. 130, "Reporting Comprehensive
Income" and FAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" during 1998. These statements are not expected to have a
material effect on the Company's consolidated financial statements.
6. Subsequent Event
----------------
On October 1, 1997, the Company announced a definitive agreement to combine
the operations of Marriott Management Services with the North American
operations of Sodexho Alliance, S.A. (Sodexho Alliance), a worldwide food
and management services organization. The combined company, Sodexho
Marriott Services, Inc. (SMS), will be the largest provider of food and
facilities management services in North America, with over 4,800 accounts and
annual sales in excess of $4 billion, and is expected to be listed on the New
York Stock Exchange.
Prior to the merger, a new company comprised of the Company's lodging, senior
living and distribution services businesses will be spun off, on a tax-free
basis, to the Company's shareholders. This new company, which will adopt the
Marriott International, Inc. name, will apply for listing on the New York
Stock Exchange.
Immediately following the spin-off, Sodexho Alliance will make a cash
contribution of approximately $305 million to its North American operations,
which will then be merged with the Company's food service and facilities
management business, to form SMS. As consideration for the merger, Sodexho
Alliance will receive approximately 124 million common shares of SMS. The
Company's shareholders and Sodexho Alliance will own 51 percent and 49
percent, respectively, of SMS. The spin-off and merger transactions are
expected to be completed in early 1998.
In connection with this transaction, the Company expects that its public debt
and commercial paper borrowings will be refinanced by SMS. Prior to the
spin-off, the Company intends to offer to repurchase its outstanding public
senior debt, currently totaling $720 million, through a tender offer. In
addition, the Company intends to repay all outstanding commercial paper prior
to the spin-off and merger transactions. The Company's commercial paper ($580
million outstanding as of October 17, 1997) is supported by a committed bank
revolving credit facility of $1.5 billion. Each outstanding zero-coupon
convertible subordinated note (LYONs) of the Company would be convertible
into 8.76 common shares of both the new Marriott International and SMS. The
LYONs debt will be assigned to the new Marriott International and, through an
intercompany agreement, SMS will assume a pro rata share of the debt
obligation based on the respective equity values of the two companies.
The new Marriott International and SMS will enter into agreements under which
the new Marriott International will distribute food and supplies and provide
administrative and data processing services to SMS. The rights to all
Marriott trademarks and tradenames will be conveyed to the new Marriott
International, which will license certain Marriott tradenames used in the
management services business to SMS. In a transaction expected to result in a
reported loss, Sodexho Alliance has agreed to acquire the Company's food
service and facilities management operations
10
<PAGE>
in the United Kingdom for approximately $50 million in cash. This transaction is
expected to close in the fourth quarter of 1997.
The definitive agreement is subject to customary conditions, including approval
by the Company's shareholders, receipt of a favorable ruling from the Internal
Revenue Service, and other regulatory approvals.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
- --------------------------------------------------------------------------
Financial Condition
- -------------------
RESULTS OF OPERATIONS
Twelve Weeks Ended September 12, 1997 Compared to Twelve Weeks Ended September
- ------------------------------------------------------------------------------
6, 1996
- -------
The Company reported net income of $67 million for the 1997 third quarter, on
sales of $2,676 million. This represents a 16 percent increase in net income and
21 percent increase in sales over the third quarter of 1996. Earnings per share
of $.49 for the quarter increased 14 percent over the corresponding 1996
quarter. Excluding the impact of the RHG acquisition, net income and earnings
per share for the quarter were up 24 percent and 23 percent, respectively, on 13
percent sales growth.
LODGING added a net of 39 hotels (6,095 rooms) during the third quarter of 1997.
The Company expects to operate and franchise nearly 1,500 hotels (300,000 rooms)
by the end of 1997. Hotels by brand are as follows:
<TABLE>
<CAPTION>
Hotels at September 12, 1997
---------------------------------
Company-operated Franchised
----------------- --------------
Brand Units Rooms Units Rooms
- ----------------------------------- ----- ------- ----- -------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites.................... 201 86,598 122 37,101
Ritz-Carlton........................................... 30 10,229 - -
Renaissance............................................ 63 24,404 8 2,587
New World.............................................. 15 7,387 - -
Ramada International................................... 33 7,047 41 7,438
Residence Inn.......................................... 111 14,529 137 15,056
Courtyard.............................................. 204 29,869 126 15,471
Fairfield Inn and Suites............................... 51 7,133 277 24,360
TownePlace Suites...................................... 1 95 - -
--- ------- --- -------
Total.................................................. 709 187,291 711 102,013
=== ======= === =======
</TABLE>
Lodging operating profits were up 30 percent, on a sales increase of 23 percent.
The revenue increase resulted from REVPAR growth across all brands, and the net
addition of 413 hotels since the beginning of 1996, including the Renaissance
acquisition. This revenue growth resulted in the Company earning higher base
management and franchise fees. Revenue growth also contributed to higher house
profits which resulted in higher incentive management fees.
Certain third quarter hotel performance statistics are significantly affected by
comparisons for properties in the Atlanta area, which benefited from sharply
higher REVPAR during the 1996 Summer Olympics. Excluding the Atlanta properties,
REVPAR for comparable company-operated U.S. properties across the Marriott
lodging brands, increased eight percent in the 1997 quarter. The following table
includes a summary of average room rates and occupancy statistics for the third
12
<PAGE>
quarter of 1997 and 1996, by brand on a reported basis./1/
<TABLE>
<CAPTION>
Twelve weeks ended
-----------------------------------------------------
September 12, 1997 September 6, 1996
----------------------- -----------------------
Brand Rate Occupancy Rate Occupancy
- --------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites.... $ 121.24 79.6% $ 112.57 79.6%
Ritz-Carlton........................... 169.21 79.9% 168.28 76.5%
Renaissance............................ 112.85 71.6% 109.02 71.4%
Residence Inn.......................... 97.08 87.0% 91.09 88.9%
Courtyard.............................. 83.93 83.7% 78.85 83.6%
Fairfield Inn and Suites............... 53.09 82.0% 54.22 82.0%
</TABLE>
Sales for Marriott Hotels, Resorts and Suites, which comprise more than 60
percent of total lodging sales, increased seven percent over the prior year. A
seven percent increase in average room rate generated a REVPAR increase of seven
percent which drove higher base management and franchise fees. Profit growth
also reflects higher incentive fees at many hotels and the net addition of 54
properties since the beginning of 1996. Excluding the Atlanta properties, REVPAR
increased nine percent.
Ritz-Carlton reported an increase in average room rates of one percent and
occupancy increased three percentage points to 80 percent, resulting in a five
percent increase in REVPAR. Excluding the Atlanta properties, REVPAR increased
eight percent in the 1997 third quarter. Ritz-Carlton remains on schedule to
open new, managed properties in San Juan, Puerto Rico and Kuala Lumpur, Malaysia
by early 1998.
Renaissance Hotel Group (RHG), which is comprised of the Renaissance, New World
and Ramada International brands, contributed $177 million in sales during the
1997 third quarter. After intangible amortization and interest expense, the RHG
acquisition reduced earnings per share by $.04 in the 1997 third quarter and is
expected to reduce 1997 earnings per share by $.10 to $.14. REVPAR for Company-
operated U.S. Renaissance hotels increased four percent due to higher room
rates. Excluding the effect of the Atlanta area properties, REVPAR increased
nine percent. Integration of RHG into the Company's payroll, procurement,
marketing and sales, reservation and yield management systems continues to
progress on schedule.
Limited-service brands represent approximately 21 percent of total lodging sales
for the third quarter. Excluding the effect of the Atlanta area properties, each
of the brands increased REVPAR for the quarter.
* Residence Inn, the Company's quality extended-stay brand, posted a REVPAR
increase of six percent, excluding the effect of the Atlanta area
properties, due to an increase in average room rates of nine percent
offset by a two percent decrease in occupancy, to 87 percent. Sales
increased by eight percent, primarily due to the net addition of 52
properties since the beginning of fiscal year 1996 and the increase in
REVPAR.
- -----------
/1/ Comparable statistics are used throughout this discussion, and are based on
Company-operated U.S. properties. The Ramada International and New World brands
do not have any U.S. properties.
13
<PAGE>
* Courtyard, the Company's moderate price lodging brand, achieved a sales
increase of seven percent. Average room rates increased by nine percent,
excluding the effect of the Atlanta area properties, resulting in a REVPAR
increase of nine percent. Sales and profits also reflect the net addition
of 77 units from the beginning of fiscal year 1996.
* Fairfield Inn and Suites, the Company's economy lodging brand, had an
increase in REVPAR of two percent over last year, excluding the Atlanta
area properties. While occupancy declined one percent, to 81 percent, for
Company-operated units, average room rates increased by three percent.
Sales increased due to the improved average room rates and the net addition
of 98 units since the beginning of fiscal year 1996, including the
Company's 300th unit in Minneapolis/St. Paul.
Marriott Vacation Club International sold approximately 5,200 timeshare
intervals in the third quarter representing an increase of 27 percent over the
prior year due to strong performances at existing locations and the opening of
three new resort locations.
CONTRACT SERVICES reported operating profit of $18 million on sales of $1,072
million for the 1997 third quarter, representing a 33 percent decrease and an 18
percent increase, respectively, from the third quarter of 1996. Profit
comparisons in the 1997 quarter were affected by recent sales to investors of 36
senior living communities, which continue to be operated under long-term
agreements. Excluding the impact of these transactions (which are largely
offset by reduced interest expense), contract services's profits were up
slightly in the quarter.
Marriott Management Services sales and profits advanced in this seasonally slow
quarter by seven and eight percent, respectively. Higher profits in health care
and corporate services reflected sales gains in existing accounts and
contributions from new contracts. The higher education group benefited from an
increased number of board days in the 1997 third quarter.
Marriott Senior Living Services reported a sales increase of 13 percent in the
third quarter of 1997 over the same period in 1996, primarily due to the opening
of 12 communities since the third quarter of 1996 and a one percentage point
increase in occupancy, to 95 percent, for comparable properties. Operating
profit declined as "ownership profits" from 36 sold properties were replaced
with "managed operating profits". During the third quarter, the Company opened
two Brighton Gardens and one Village Oaks assisted living communities. At the
end of the quarter, the Company operated 81 communities totaling 16,114 units,
and had 23 additional communities under construction.
Marriott Distribution Services' sales were up sharply in the 1997 third quarter
as a result of the recent addition of several major restaurant customers.
Profits were lower in the 1997 quarter due to start-up costs associated with new
centers, as well as costs of integrating the new business into existing
distribution centers.
14
<PAGE>
CORPORATE ACTIVITY. Interest expense increased four percent over the third
quarter of 1996, despite lower effective interest rates. The average debt
balance increased due to the acquisition of RHG; however, the increase was
partially offset by proceeds from real estate sales. Corporate expenses
increased due to non-cash items associated with investments generating
significant income tax benefits as well as modest staffing increases to
accommodate growth and new business development. The effective income tax rate
increased from 39 percent to 39.5 percent reflecting approximately a one
percentage point increase due to nondeductible goodwill amortization associated
with the RHG acquisition, partially offset by tax credits generated by certain
investments.
Thirty-Six Weeks Ended September 12, 1997 Compared to Thirty-Six Weeks
- -----------------------------------------------------------------------
Ended September 6, 1996/1/
-----------------------
The Company reported net income of $227 million for the first three quarters, on
sales of $8,158 million. This represents a 16 percent increase in net income and
21 percent increase in sales over the same period in 1996. Earnings per share of
$1.67 for the period increased 16 percent over the corresponding 1996 period.
Excluding the impact of the RHG acquisition, net income and earnings per share
for the period were up 21 and 22 percent, respectively, on 16 percent sales
growth.
LODGING operating profits were up 27 percent, on a sales increase of 20 percent.
The revenue increase resulted from REVPAR growth across all brands averaging
eight percent, the net addition of 413 hotels since the beginning of 1996,
including the Renaissance acquisition, and fewer holidays in the first quarter
of 1997. This revenue growth resulted in the Company earning higher base
management and franchise fees. Revenue growth also contributed to higher house
profits which resulted in higher incentive management fees. The following table
is a summary of year-to-date rate and occupancy statistics by brand.
<TABLE>
<CAPTION>
Thirty-six weeks ended
------------------------------------------------------
September 12, 1997 September 6, 1996
----------------------- ----------------------
Brand Rate Occupancy Rate Occupancy
- -------------------------------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites... $ 126.84 79.5% $ 117.01 79.2%
Ritz-Carlton.......................... 184.28 80.4% 177.80 76.5%
Renaissance........................... 117.37 72.8% 112.21 72.4%
Residence Inn......................... 95.41 85.8% 88.48 87.3%
Courtyard............................. 83.85 82.4% 78.29 82.5%
Fairfield Inn and Suites.............. 50.89 78.4% 50.26 79.8%
</TABLE>
Sales for Marriott Hotels, Resorts and Suites, which comprise over 65 percent of
total lodging sales, increased nine percent for the first three quarters over
the same period in 1996, due to strong REVPAR growth and the addition of 54
properties since the beginning of 1996.
- -----------
/1/ Year-to-date 1996 statistics for REVPAR, occupancy and average room rates
have been adjusted to make them comparable to the 1997 statistics. Due to the
variations in the Company's fiscal year, which ends on the Friday closest to
December 31, the week including the 1996 New Year's holiday is included in the
first quarter of 1996, and the week including the 1997 New Year's holiday is
included in the fourth quarter of 1996. The adjusted year-to-date 1996
statistics are based on the same calendar days as the 1997 statistics.
Comparable statistics are used throughout this discussion, and are based on
Company-operated U.S. properties. The Ramada International and New World brands
do not have any U.S. properties.
15
<PAGE>
REVPAR grew nine percent as average room rates increased by eight percent and
occupancy increased slightly year-over-year. Profits increased as improved
REVPAR generated higher base management fees and higher house profits, resulting
in increased incentive fees at many hotels.
Ritz-Carlton reported an increase in average room rates of four percent and
occupancy increased four percentage points to 80 percent, resulting in a nine
percent increase in REVPAR.
RHG contributed $360 million of sales since the March 29, 1997 acquisition.
After intangible amortization and interest expense, the RHG acquisition reduced
year-to-date earnings per share by $.08 and is expected to reduce full year 1997
earnings per share by $.10 to $.14. REVPAR, for Company-operated U.S.
Renaissance hotels, increased five percent due to higher room rates and a slight
increase in occupancy.
Limited-service brands represented over 20 percent of total lodging sales for
the first three quarters. Residence Inn, Courtyard and Fairfield Inn and Suites
represent the Company in the limited service segments. In addition, the Company
opened the first property under the TownePlace Suites brand, which is designed
to attract extended-stay travelers in the moderate price range.
* Residence Inn posted a REVPAR increase of six percent, due to an increase
in average room rates of eight percent, to $95.41, offset by a slight
decrease in occupancy to 86 percent. In addition to REVPAR increases for
comparable properties, the net addition of 52 properties since the
beginning of fiscal year 1996, including its fourth property outside the
U.S., contributed to a 10 percent growth in sales.
* Courtyard sales increased by nine percent. Average room rates increased
seven percent, to $83.85, while occupancy remained at 82 percent, resulting
in a REVPAR net increase of seven percent. Sales and profits also reflect
the net addition of 77 units from the beginning of fiscal year 1996.
Courtyard opened its 300th unit in Fort Worth, Texas during this period and
expanded its non-U.S. operations to 10 franchised Courtyard units in the
United Kingdom.
* Fairfield Inn and Suites increased sales by nine percent over last year. A
one percent increase in average room rate to $50.89 was offset by a slight
decline in occupancy, to 78 percent for Company-operated units, resulting
in relatively no change in REVPAR. Sales increased due to the net addition
of 98 units since the beginning of fiscal year 1996, including the
Company's 300th unit in Minneapolis/St. Paul.
Marriott Vacation Club International (MVCI) sold over 16,500 timeshare intervals
in the first three quarters of 1997 representing an increase of 26 percent over
the prior year. The Company's increase in sales resulted from very strong
performance in several locations, including MVCI's first European location in
Marbella, Spain, as well as Fort Lauderdale and Orlando, Florida and Hilton
Head, South Carolina. Increased profits from resort development were offset by
reduced financing income, due to lower note sales in the first three quarters of
1997.
16
<PAGE>
CONTRACT SERVICES reported operating profit of $103 million on sales of $3,390
million, representing 10 percent and 23 percent increases, respectively, from
the first three quarters of 1996. This profit growth was impacted by (i)
start-up losses for new senior living communities and new distribution services
accounts and centers, (ii) the sale-leaseback of four senior living communities
in August 1996, and (iii) the sale, subject to long-term management agreements,
of 29 senior living communities in June 1997.
Marriott Management Services reported increased profits on a seven percent
increase in sales over the first three quarters of 1996. Increases in sales
were due to the increased number of operating days for higher education, school
services and corporate accounts during the period, and increased sales on
existing comparable accounts.
Marriott Senior Living Services reported year-to-date profit growth on sales
growth of 36 percent primarily due to the acquisition of Forum in the second
quarter of 1996. In addition, occupancy rates on comparable properties increased
two percentage points, to 94 percent and average per diem rates also increased
by five percent, to over $99. A net of 55 properties opened since the
beginning of 1996, including the Company's first properties to feature special
care centers for people with Alzheimer's and other memory disorders, and the
Company's first two Village Oaks communities.
Marriott Distribution Services more than doubled sales by adding several major
restaurant accounts. Three new distribution centers were opened in 1997, an
increase of five since the third quarter of last year. Profits declined due to
the start-up costs at these new centers as well as costs associated with
integration of new business within existing centers.
CORPORATE ACTIVITY. Interest expense increased 28 percent over the first three
quarters of 1996, despite lower effective interest rates, as the average debt
balance increased to finance the RHG acquisition, net of the proceeds of real
estate sales throughout the year. Interest income decreased from $25 million to
$19 million reflecting reduced loans receivable as a result of the collection
and sale of over $200 million of loans in the second half of 1996. Corporate
expenses increased due to non-cash items associated with investments generating
significant income tax benefits as well as modest staff increases to accommodate
growth and new business development.
The effective income tax rate increased from 39 percent to 39.5 percent
reflecting approximately a one percentage point increase due to nondeductible
goodwill amortization associated with the RHG acquisition, partially offset by
tax credits generated by certain investments.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents totaled $359 million at September 12, 1997, an increase of
$91 million from year end. Cash provided by operations of $514 million
increased slightly over 1996 as higher net income was offset by working capital
changes reported due to the timing of the 1996 year end. EBITDA increased 20
percent to $581 million. EBITDA is an indicative measure of the Company's
operating performance which can be used to measure the Company's ability to
service debt, fund capital expenditures and expand its business. However,
EBITDA is not an alternative to net income, operating profit, cash from
operations, or any other operating or liquidity measure prescribed by generally
accepted accounting principles.
Net cash used in investing activities totaled $925 million for the first three
quarters of 1997, primarily consisting of the RHG acquisition and expenditures
for the construction of limited-service lodging properties and senior living
communities. Cash generated from dispositions of $438 million, primarily
comprised $209 million from the sale of the 29 Forum properties to Host
Marriott, as well as $103 million from the sale of Senior Living Services
communities and $99 million from the sale of limited service hotels. The Company
expects that, over time, it will sell certain lodging and senior living service
properties under development, or to be developed, while continuing to operate
them under long-term agreements.
The Company entered into a $1.5 billion bank credit facility on March 27, 1997.
This new facility has a term of five years and bears interest at LIBOR plus a
spread, presently 21.5 basis points, based on the Company's senior debt rating.
Additionally, annual fees are paid on the total facility at a rate, presently 11
basis points, also based on the Company's senior debt rating.
The Company continues to grow its businesses, in part, by investing in new
units. The Company's principal investments will continue to include loans,
minority equity interests, business acquisitions and direct development and
ownership of certain lodging and senior living services projects. The Company
expects that cash generated by operations, together with its borrowing capacity
and proceeds from the sale of assets, will be sufficient to finance its planned
growth and capital requirements.
18
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
There are no material legal proceedings pending against the Company.
Item 2. Changes in Securities
- ------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
None.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
Exhibit
No. Descriptions
------- ------------
4 Restated Bylaws of Marriott International, Inc.
10.1 Second Amendment to Distribution Agreement, dated as of
June 21, 1997, by and among Marriott International,
Inc., Host Marriott Corporation and Host Marriott
Services Corporation.
10.2 Stock Purchase Agreement, dated as of June 21, 1997, by
and between Host Marriott Corporation and Marriott
Senior Living Services, Inc.
11 Computation of Earnings Per Share
12 Computation of Ratio of Earnings to Fixed Charges
99 Forward-Looking Statements
(b) Reports on Form 8-K
On July 7, 1997, the Company filed a report announcing that it had completed
the sale of all of the issued and outstanding stock of Forum Group, Inc.
to Host Marriott. On September 3, 1997, the Company filed a supplementary
report containing pro forma financial information, reflecting the sale.
On September 5, 1997, the Company filed a report describing beneficial
ownership of LYONs in connection with a registered secondary offering
thereof.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARRIOTT INTERNATIONAL, INC.
October 24, 1997 /s/ Stephen E. Riffee
---------------------------
Stephen E. Riffee
Vice President, Finance and
Chief Accounting Officer
21
<PAGE>
Exhibit 4
RESTATED BYLAWS
OF
MARRIOTT INTERNATIONAL, INC.
ARTICLE I
OFFICES
Section 1.1 The registered office shall be in the City of Dover, County of
Kent, State of Delaware.
Section 1.2 The Corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 All meetings of the shareholders for the election of directors
shall be held in Montgomery County, State of Maryland, at such place as may be
fixed from time to time by the board of directors or at such other place either
within or without the State of Delaware as shall be designated from time to time
by the board of directors and stated in the notice of the meeting. Meetings of
shareholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meetings
or in a duly executed waiver of notice thereof.
Section 2.2 Annual shareholders' meetings shall be held on the second
Tuesday of May of each year, or at such other time as may be designated by the
board of directors, in the notice of the annual meeting, for the purpose of
electing directors and considering such other business as may properly come
before the meeting.
Section 2.3 Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each
<PAGE>
shareholder entitled to vote at such meeting not less than ten days nor more
than sixty days before the date of the meeting.
Section 2.4 The officer responsible for the Corporation's stock ledger
shall prepare at least ten days before every shareholders' meeting a complete
list of shareholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address and number of shares registered in the name of
each shareholder. The list shall be available for examination by any
shareholder for any purposes germane to the meeting, during ordinary business
hours in the Office of the Corporate Secretary at the Corporation's Headquarters
for a period of at least ten days prior to the meeting. The list shall also be
available at the shareholders' meeting for the inspection of any shareholders.
Section 2.5 Written notice of a special meeting, stating the place, date
and hour of the meeting, and the purpose or purposes for which the meeting is
called, shall be given to each shareholder entitled to vote at such meeting, not
less than ten nor more than sixty days before the date of the meeting.
Section 2.6 Business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
Section 2.7 The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting.
Section 2.8 When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
-2-
<PAGE>
Section 2.9 Each shareholder shall at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such shareholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
Section 3.1 Except as otherwise fixed by or pursuant to the provisions of
Article FOURTH of the Certificate of Incorporation relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional directors under
specified circumstances, the number of the directors of the Corporation shall be
fixed from time to time by the board of directors but shall not be less than
three. The directors, other than those who may be elected by the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, as determined by the board of directors of the Corporation, one
class to be originally elected for a term expiring at the annual meeting of
shareholders to be held in 1994, another class to be originally elected for a
term expiring at the annual meeting of shareholders to be held in 1995, and
another class to be originally elected for a term expiring at the annual meeting
of shareholders to be held in 1996, with each class to hold office until its
successor is elected and qualified. At each annual meeting of the shareholders
of the Corporation, the successors of the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election. Advance notice of shareholder nominations for the election of
directors shall be given in the manner provided in Section 3.13 of Article III
of these Bylaws.
Section 3.2 Except as otherwise provided for or fixed by or pursuant to
the provisions of Article FOURTH of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect directors
under specified circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the board of directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the board of directors. Any
director elected in accordance with the preceding sentence shall hold office for
-3-
<PAGE>
the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director. Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect directors under specified circumstances, any director may be removed from
office, with or without cause and only by the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all
the shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
Section 3.3 The business of the Corporation shall be managed by its board
of directors which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4 The board of directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 3.5 The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
shareholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the shareholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.6 Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 3.7 Special meetings of the board may be called by the chairman of
the board, the president, or the secretary on the written request of any two
directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director
-4-
<PAGE>
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram not less than twenty-four (24) hours notice
before the date of the meeting, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 3.8 At all meetings of the board of directors such number of
directors as shall be not less than one-third of the total number of the full
board of directors nor less than two shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting
of the board of directors the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 3.9 Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 3.10 The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of two or more of the directors of the Corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; provided, in the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
Section 3.11 Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
-5-
<PAGE>
COMPENSATION OF DIRECTORS
Section 3.12 The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefore. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
NOMINATION OF DIRECTORS
Section 3.13 Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, nominations for the election of directors may be made by the board
of directors or a proxy committee appointed by the board of directors or by any
shareholder entitled to vote in the election of directors. However, any
shareholder entitled to vote in the election of directors at a meeting may
nominate a director only if written notice of such shareholder's intent to make
such nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual meeting of
shareholders, ninety days in advance of the date established by the Bylaws for
the holding of such meeting, and (ii) with respect to an election to be held at
a special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders. Each such notice shall set forth: (a) the name
and address of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the shareholder is
a holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all arrangements
or understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (d) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or intended
to be nominated, by the board of directors; and (e) the consent of each nominee
to serve as a director of the Corporation if so elected. The chairman of the
meeting may refuse
-6-
<PAGE>
to acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
SHAREHOLDER PROPOSAL
Section 3.14. Any shareholder entitled to vote in the election of
directors and who meets the requirements of the proxy rules under the Securities
Exchange Act of 1934, as amended, may submit to the directors proposals to be
considered for submission to the shareholders of the Corporation for their vote.
The introduction of any shareholder proposal that the directors decide should be
voted on by the shareholders of the Corporation, shall be made by notice in
writing delivered or mailed by first class United States mail, postage prepaid,
to the secretary of the Corporation, and received by the secretary not less than
(i) with respect to any proposal to be introduced at an annual meeting of
shareholders, one hundred and twenty days in advance of the date established for
the holding of such meeting, and (ii) with respect to any proposal to be
introduced at a special meeting of shareholders, the close of business on the
seventh day following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (a) the name and address of
the shareholder who intends to make the proposal and the text of the proposal to
be introduced; (b) the class and number of shares of stock held of record, owned
beneficially and represented by proxy by such shareholder as of the record date
for the meeting (if such date shall then have been made publicly available) and
as of the date of such notice; and (c) a representation that the shareholder
intends to appear in person or by proxy at the meeting to introduce the proposal
or proposals, specified in the notice. The Chairman of the meeting may refuse
to acknowledge the introduction of any shareholder proposal not made in
compliance with the foregoing procedure.
Notwithstanding any other provision of these Bylaws, the Corporation shall
be under no obligation to include any shareholder proposal in its proxy
statement materials if the board of directors reasonably believes that the
proponent(s) thereof have not complied with Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, and the Corporation shall not be required to include in its proxy
statement materials any shareholder proposal not required to be included in its
proxy materials in accordance with such Act, rules and regulations.
-7-
<PAGE>
ARTICLE IV
NOTICES
Section 4.1 Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or shareholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 4.2 Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 5.1 The officers of the Corporation shall consist of a president,
a secretary, a treasurer, and, if deemed necessary, expedient, or desirable by
the board of directors, a chairman and/or a vice chairman of the board of
directors, chief executive officer, chief operating officer, chief financial
officer, chief legal officer, controller, one or more executive vice presidents,
senior vice presidents, vice presidents, assistant vice presidents, assistant
secretaries, assistant treasurers and such other officers with such titles as
the resolution of the board of directors choosing them shall designate. Except
as may otherwise be provided in the resolution of the board of directors
choosing him/her, no officer need be a director of the Corporation. Any number
of offices may be held by the same person as the directors may determine.
Section 5.2 Corporate officers shall be appointed at the first board of
directors' meeting held after the annual shareholders' meeting and at such other
meetings as the board may determine.
Section 5.3 Corporate officers shall serve for such terms and shall have
such duties and powers as may be designated in the Bylaws or by the board of
directors.
-8-
<PAGE>
Section 5.4 Corporate officers shall hold office until a successor is
elected and qualified or until their earlier resignation or removal from office.
Any officer may resign at any time upon written notice to the Corporation.
Corporate officers may be removed at any time by majority vote of the board of
directors. Vacancies in corporate offices may be filled by the board of
directors.
THE CHAIRMAN OF THE BOARD
Section 5.5 The chairman of the board shall preside at all meetings of
shareholders and directors.
THE VICE-CHAIRMAN OF THE BOARD
Section 5.6 The vice-chairman of the board shall preside at meetings of
shareholders and directors if the chairman of the board is absent or unable to
serve as chairman at any such meeting.
THE PRESIDENT
Section 5.7 The president shall have general and active supervision of the
business of the Corporation and shall see that all orders and resolutions of the
board of directors are carried into effect and shall be responsible to the
chairman, as well as to the board of directors for the execution of such duties
and powers. The president shall, in the absence or inability to act of the
chairman and vice-chairman of the board, assume and carry out all
responsibilities set forth with respect to such chairman and vice-chairman.
Section 5.8 He shall execute bonds, mortgages, and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the Corporation.
THE VICE PRESIDENTS
Section 5.9 Executive vice presidents, senior vice presidents, vice
presidents, and assistant vice presidents shall have duties and powers as the
board of directors may designate.
-9-
<PAGE>
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.10 The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the proceedings of
the meetings of the Corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
Section 5.11 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.12 The treasurer shall have the custody of the Corporate funds
and securities and shall deposit all monies and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the board of directors.
Section 5.13 The treasurer shall have the authority to invest the normal
funds of the Corporation in the purchase and acquisition and to sell and
otherwise dispose of these investments upon such terms as he may deem desirable
and advantageous, and shall, upon request, render to the president and the
directors an accounting of all such normal investment transactions.
Section 5.14 He shall disburse the funds of the Corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the
-10-
<PAGE>
president and the board of directors, at its regular meetings, or when the board
of directors so requires, an account of all his transactions as treasurer and of
the financial condition of the Corporation.
Section 5.15 If required by the board of directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 5.16 The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
Section 5.17 The controller shall keep the Corporation's accounting
records and shall prepare accounting reports of the operating results as
required by the board of directors and governmental authorities.
Section 5.18 The controller shall establish systems of internal control
and accounting procedures for the protection of the Corporation's assets and
funds.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1 Every holder of stock in the Corporation shall be entitled to
have a certificate signed by, or in the name of the Corporation by, the chairman
or vice-chairman of the board of directors, or the president or a vice
president, and by the secretary or an assistant secretary, or by the treasurer
or an assistant treasurer of the Corporation, certifying the number of shares
owned by him in the Corporation. All certificates shall also be signed by a
transfer agent and by a registrar.
-11-
<PAGE>
Section 6.2 All signatures which appear on the certificate may be
facsimile including, without limitation, signatures of officers of the
Corporation or the signatures of the stock transfer agent or registrar. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent, or registrar at the date of issue.
Section 6.3 If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences, and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided, however, that except
as otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the Corporation shall issue to represent such
class or series of stock, a statement that the Corporation will furnish without
charge, to each shareholder who so requests, the designations, preferences, and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations, or restrictions of
such preferences and/or rights.
LOST CERTIFICATES
Section 6.4 The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen, or destroyed. When authorizing
such issue of a new certificate or certificates, the board of directors may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen, or destroyed.
-12-
<PAGE>
TRANSFERS OF STOCK
Section 6.5 Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon its books.
FIXING RECORD DATE
Section 6.6 In order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED SHAREHOLDERS
Section 6.7 The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1 Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends
-13-
<PAGE>
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
Section 7.2 Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 7.3 The board of directors shall present at each annual meeting
and at any special meeting of the shareholders when called for by vote of the
shareholders a full and clear statement of the business and condition of the
Corporation.
CHECKS
Section 7.4 All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 7.5 The fiscal year of the Corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 7.6 The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization, and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION OF OFFICERS, ETC.
Section 7.7(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason
-14-
<PAGE>
of the fact that such person is or was a director, officer or employee of
the Corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer or employee of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer or employee of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this Section 7.7, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith. For
-15-
<PAGE>
purposes of determining the reasonableness of any such expenses, a certification
to such effect by any member of the Bar of the State of Delaware, which member
of the Bar may have acted as counsel to any such director, officer or employee,
shall be binding upon the Corporation unless the Corporation establishes that
the certification was made in bad faith.
(d) Any indemnification under subsections (a) and (b) of this Section 7.7
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because any such
person has met the applicable standard of conduct set forth in subsections (a)
and (b) of this Section 7.7. Such determination shall be made (1) by the Board
of Directors, by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.
(e) Expenses (including attorneys' fees) incurred by an officer, director
or employee of the Corporation in defending any civil, criminal, administrative
or investigative action, suit or proceeding, shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director, officer, employee or agent
to repay such amount if it shall ultimately be determined that any such person
is not entitled to be indemnified by the Corporation as authorized by this
Section 7.7.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this Section 7.7 shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) The Corporation may but shall not be required to purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under this Section 7.7.
-16-
<PAGE>
(h) For purposes of this Section 7.7, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees, so that any
person who is or was a director, officer or employee of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this Section 7.7 with respect to the resulting or surviving corporation as such
person would have had with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Section 7.7, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer or employee of the Corporation which imposes
duties on, or involves services by, such director, officer or employee with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Section 7.7.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section 7.7 shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) This Section 7.7 shall be interpreted and construed to accord, as a
matter of right, to any person who is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, the full measure of indemnification and
advancement of expenses permitted by Section 145 of the Business Corporation Law
of the State of Delaware.
(l) Any person seeking indemnification or advancement of expenses by virtue
of such person being or having been a director, officer or employee of the
Corporation may seek to enforce the provisions of this Section 7.7 by an action
in law or equity in any court of the United States or any state or
-17-
<PAGE>
political subdivision thereof having jurisdiction of the parties. Without
limitation of the foregoing, it is specifically recognized that remedies
available at law may not be adequate if the effect thereof is to impose delay on
the immediate realization by any such person of the rights conferred by this
Section 7.7 Any costs incurred by any person in enforcing the provisions of this
Section 7.7 shall be an indemnifiable expense in the same manner and to the same
extent as other indemnifiable expenses under this Section 7.7
(m) No amendment, modification or repeal of this Section 7.7 shall have the
effect of or be construed to limit or adversely affect any claim to
indemnification or advancement of expenses made by any person who is or was a
director, officer or employee of this Corporation with respect to any state of
facts which existed prior to the date of such amendment, modification or repeal.
Accordingly, any amendment, modification or repeal of this Section 7.7 shall be
deemed to have prospective application only and shall not be applied
retroactively.
BOOKS AND RECORDS
Section 7.8 No shareholder shall have any right of inspecting any account,
or book, or paper or document of this Corporation, except as conferred by law or
by resolution of the shareholder or directors.
Section 7.9 The accounts, books, papers and documents of this Corporation
shall be kept at the principal office of the Corporation in Montgomery County,
Maryland or at such other place or places as may be required by law or
designated by resolution of the shareholders or directors.
ARTICLE VIII
BYLAW AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, these Bylaws
may be altered, amended or repealed at any regular meeting of the shareholders
(or at any special meeting thereof duly called for that purpose) by a majority
vote of the shares represented and entitled to vote at such meeting; provided
that in the notice of such special meeting notice of such purpose shall be
given. Subject to the laws of the State of Delaware, the Certificate of
Incorporation and these Bylaws, the board of directors may by majority vote of
those present at any meeting at which a quorum is present amend these Bylaws, or
enact such other Bylaws as in their judgment may be advisable for the regulation
of the conduct of the affairs of the Corporation, except that Sections 3.1, 3.2
and 3.13 of Article III and Articles VIII and IX of the Bylaws may be amended
only by the
-18-
<PAGE>
affirmative vote of the holders of at lease sixty-six and two-thirds percent
(66 2/3%) of the voting power of all the shares of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.
ARTICLE IX
SHAREHOLDER ACTION
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Except as otherwise required by law and subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of shareholders of the
Corporation may be called only by the board of directors pursuant to a
resolution approved by a majority of the entire board of directors.
END OF BYLAWS
-19-
<PAGE>
Exhibit 10.1
AMENDMENT NO. 2 TO DISTRIBUTION AGREEMENT
THIS AMENDMENT NO. 2 TO DISTRIBUTION AGREEMENT (this "Agreement") is made
and entered into as of the 21st day of June, 1997, by and between HOST MARRIOTT
CORPORATION, a Delaware corporation ("Host Marriott"; successor by change of
name to Marriott Corporation), HOST MARRIOTT SERVICES CORPORATION, a Delaware
corporation ("HMSC"), and MARRIOTT INTERNATIONAL, INC., a Delaware corporation
("MII").
RECITALS
--------
WHEREAS, Host Marriott and MII are parties to that certain Distribution
Agreement, dated as of September 15, 1993, as amended by Amendment No. 1 dated
as of December 29, 1995 among Host Marriott, MII, and (as successor by spin-off
to Host Marriott's the Host/Travel Plazas Business), HMSC (as so amended, the
"Distribution Agreement"); and
WHEREAS, Host Marriott and MII are parties to that certain Stock Purchase
Agreement, dated as of June 21, 1997 (the "Stock Purchase Agreement"); and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to MII's obligation to consummate the transactions contemplated by the
Stock Purchase Agreement; and
WHEREAS, Host Marriott and MII desire to amend the Distribution Agreement
as set forth herein, and HMSC has agreed to execute this amendment for the
avoidance of doubt as to whether its signature is necessary for an amendment to
the Distribution Agreement to be effective.
NOW, THEREFORE, in consideration of the foregoing recitals and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
1. The last sentence of the first paragraph of Section 6.07(a) of the
Distribution Agreement is hereby deleted in its entirety and replaced with the
following:
"The Right shall terminate on June 21, 2017."
2. Except as specifically amended hereby, the Distribution Agreement shall
remain unchanged and in full force and effect.
SIGNATURE PAGE FOLLOWS
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized representatives as of the day and year first above
written.
HOST MARRIOTT CORPORATION
By: s/ Robert E. Parsons, Jr.
-----------------------------
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
MARRIOTT INTERNATIONAL, INC.
By: s/ Paul E. Johnson, Jr.
-----------------------------
Name: Paul E. Johnson, Jr.
Title: Vice President
HOST MARRIOTT SERVICES CORPORATION
By: s/ Joe Martin
-----------------------------
Name: Joe Martin
Title: Vice President and General Counsel
<PAGE>
Exhibit 10.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of June 21, 1997 ("Closing Date")
by (i) HOST MARRIOTT CORPORATION, a Delaware corporation ("Purchaser"), and (ii)
MARRIOTT SENIOR LIVING SERVICES, INC., a Delaware corporation ("Seller").
RECITALS
Forum Group, Inc., an Indiana corporation (the "Company"), is the owner,
directly or indirectly, of the Communities described below. Seller is the owner
of all of the issued and outstanding common stock (collectively, the "Stock") of
the Company. Subject to the terms and conditions set forth in this Agreement,
Seller desires to sell to Purchaser, and Purchaser desires to purchase from
Seller, the Stock.
NOW, THEREFORE, in consideration of the foregoing premises, of the mutual
covenants set forth in this Agreement, and of other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, Seller and
Purchaser agree as follows:
I. INTERPRETATION
1.1 DEFINITIONS. As used in this Agreement, the following capitalized terms
shall have the meanings indicated:
AFFILIATE: any Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with
the Person specified. For purposes of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common
control with") of a Person means the possession, direct or indirect, of the
power to (i) vote more than 50% of the voting securities of such Person, or
(ii) direct or cause the direction of the management and policies of such
Person, whether by contract or otherwise. Notwithstanding the foregoing, in
no event shall Seller or any Person which is controlled by or is under
common control with Seller, be deemed an "Affiliate" of Purchaser or any
Person which is controlled by or is under common control with Purchaser.
AGREEMENT: this Stock Purchase Agreement, together with all exhibits
referenced in this Stock Purchase Agreement.
ASSETS: the properties and assets described in Sections 2.1 and 2.2 that
are required to be owned by the Company, directly or indirectly through one
or more Subsidiaries, as of the Closing Date, but specifically not
including the Excluded Assets.
BASE LIFECARE CONTRACTS: as defined in Section 6.6.1.
BOOKS: as defined in Section 2.1.16.
BUDGETED CAPITAL IMPROVEMENTS: the improvements contemplated in the Capital
Expenditure Budgets.
BUSINESS DAY: any day that is not a Saturday, a Sunday, a federal holiday
or a holiday under the laws of the State of Maryland.
<PAGE>
CAPITAL EXPENDITURE BUDGET: a budget for each Community which sets forth,
as of the Closing Date, the capital improvements which the Company plans to
undertake during the Company's 1997 fiscal year (other than capital
improvements relating to the development of Expansion Units), and the
estimated expenditures for such improvements, all as set forth on Exhibit
E-4.
CLOSING: full settlement of the Transaction, including the transfer of the
Stock from Seller to Purchaser.
CLOSING ACCOUNTING: as defined in Section 6.4.1.
CODE: the Internal Revenue Code of 1986, as amended from time to time.
COMMERCIAL LEASES: as defined in Section 2.1.6.
COMMUNITY: each retirement facility owned by the Company at Closing,
directly or indirectly through one or more Subsidiaries, in whole or in
part, and described in Section 2.1.
COMPANY: as defined in the Recitals.
COMPLETED EXPANSION PROJECTS: as defined in Section 7.14.1.
CONTRACTS: as defined in Section 2.1.8.
CURRENT ASSETS: the total assets of the Company or any Subsidiary which may
be properly classified as current assets in conformity with GAAP, including
the following assets of the Company or any Subsidiary: (i) all cash and
cash equivalents, (ii) inventories, (iii) accounts receivable (less a
reasonable reserve for uncollectible accounts), (iv) marketable securities
representing the investment of cash, and (v) prepaid expenses of the
Company or any Subsidiary. Notwithstanding the foregoing, Current Assets
shall exclude (a) any Financing Reserve, (b) any Lifecare Reserve
maintained pursuant to Section 6.6.2 with respect to Base Lifecare
Contracts, (c) cash in the amount of the Lifecare Payment for Excess
Lifecare Contracts pursuant to Section 6.6.3 (including all Lifecare
Payments under Lifecare Contracts at Overland Park), (d) (for the avoidance
of doubt, even though the same may not be a current asset under GAAP) all
deferred management fees payable by FRP to the Company in respect of the
FRP Management Agreement for periods prior to January 1, 1994, and (e) all
other amounts which by the terms of this Agreement are expressly excluded
from Current Assets.
CURRENT LIABILITIES: the total liabilities of the Company or any Subsidiary
which may be properly classified as current liabilities in conformity with
GAAP. Notwithstanding the foregoing, Current Liabilities shall exclude (i)
the principal amount of the Existing Financing, (ii) the capitalized cost
of the Leases, (iii) all Taxes (other than ad valorem real estate taxes),
(iv) (for the avoidance of doubt, even though the same may not be a current
liability under GAAP) all deferred management fees payable by FRP to the
Company in respect of the FRP Management Agreement for periods prior to
January 1, 1994, (v) the liability to repay, refund or reimburse to any
Resident all or any portion of any Lifecare Payment in respect of Base
Lifecare Contracts, and (vi) all other amounts which by the terms of this
Agreement are expressly excluded from Current Liabilities.
<PAGE>
DEPOSITS: as defined in Section 2.1.11.
DISTRIBUTION AGREEMENT AMENDMENT: the Amendment to Distribution Agreement
in the form of Exhibit D-11.
DOCUMENTARY CONVENTIONS: means, with respect to any document or agreement
that states in substance that it is governed thereby, that such document or
agreement shall be deemed to include the following provisions and all
references in any such provisions to "this Agreement," "hereunder,"
"hereby" or similar phrases shall refer to the document or agreement in
which such provisions are incorporated:
(i) Modifications. No modification to this Agreement shall be valid
unless in writing and signed by all parties thereto. No purported
waiver of any of the provisions of this Agreement shall be valid or
effective unless in writing signed by the party against whom such
waiver is sought to be enforced.
(ii) Survival. All representations, warranties and covenants in this
Agreement shall survive and not be merged in the execution of this
Agreement.
(iii)Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Maryland, without
reference to conflicts of laws principles.
(iv) Captions; Pronouns. Captions in this Agreement are for
convenience of reference only and shall not be considered in
construing this Agreement. Whenever the context shall so require, the
singular shall include the plural, the male gender shall include the
female, and vice versa. "Include," "includes" and "including" shall be
deemed to be followed by "without limitation" whether or not they are
in fact followed by such words or words of like import.
(v) Exhibits. All exhibits to this Agreement are incorporated in this
Agreement as though set forth in full in the text of this Agreement.
(vi) Counterparts. Multiple originals of this Agreement may be
executed, each of which shall constitute one and the same agreement.
This agreement may be executed in counterparts, and it shall not be
necessary that the original signature of each party to this Agreement
appear on each such counterpart.
(vii) Severability. In the event that one or more of the provisions of
this Agreement shall be held to be illegal, invalid or unenforceable,
such provisions shall be deemed severable and the remaining provisions
of this Agreement shall continue in full force and effect.
(viii) Not Construed Against Drafter. Each party to this Agreement
acknowledges that it was represented by counsel in connection with
this Agreement, and that it and its counsel reviewed and participated
in the preparation and negotiation of this Agreement. Consequently,
any rule of construction to the effect that ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement.
<PAGE>
(ix) Business Day. To the extent that the date of any performance
required under this Agreement falls on a date which is not a business
day, the date of performance shall be extended to the next succeeding
business day.
(x) Waivers. No waiver of any provision or right set forth in this
Agreement shall be valid unless it is in writing signed by the party
against which such waiver is sought to be enforced. The failure of any
party to insist on strict performance of any of the provisions of this
Agreement or to exercise any right granted to it under this Agreement
shall not be construed as a waiver of the requirement of such
performance.
(xi) Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of each party, and nothing in this Agreement,
express or implied, is intended to confer upon any other person or
entity any rights or remedies of any nature whatsoever under or by
reason of this Agreement. Nothing in this Agreement is intended to
relieve or discharge the obligation of any third person to any party
to this Agreement.
EMPLOYEES: collectively, all officers and employees of the Company and/or
any Subsidiary prior to the Closing Date.
ENCUMBRANCE: any lien, security interest, mortgage, deed of trust, pledge,
charge, option, encroachment, easement, covenant, lease, reservation or
restriction of any kind.
ENGINEERING: as defined in Section 2.1.17.
ENVIRONMENTAL LAWS: collectively, all federal, state and local laws,
ordinances and regulations applicable to the Company, any Subsidiary or any
Community relating to the protection of the environment, including the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Resource Conservation and Recovery Act of 1976, as amended,
the Clean Water Act, as amended, the Clean Air Act, as amended, the Federal
Insecticide, Fungicide and Rodenticide Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Toxic Substance and Control
Act of 1976, as amended, and the Occupational Safety and Health Act, as
amended.
ENVIRONMENTAL REPORTS: the reports described on Exhibit C-7.
EQUIPMENT LEASES: as defined in Section 2.1.5.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate: as defined in Section 4.31.1.
EXCESS LIFECARE CONTRACTS: as defined in Section 6.6.3.
EXCLUDED ASSETS: collectively, (i) all proprietary information, patents,
know-how, trade secrets, devices, inventions and other intellectual
property of the Company and its subsidiaries, whether patentable or not,
and the tangible embodiment of such information in any medium, including
written, magnetic, computerized or other form (collectively, "Proprietary
Materials"); (ii) all copyrights of the Company and its subsidiaries
throughout the world, whether registered or unregistered, including all
<PAGE>
foreign and domestic registrations and pending applications for
registration, the right to sue for any past, present or future infringement
or unauthorized use thereof, the right to collect damages and seek other
relief in connection therewith, and including the copyright in the works
identified on Exhibit B-3 to this Agreement; (iii) all trade names,
trademarks, service marks, designs and logos used or reserved by the
Company, any Subsidiary or Excluded Subsidiary or any Community or Excluded
Community prior to the Closing throughout the world (collectively,
"Trademarks"), whether registered or unregistered, and all goodwill
associate therewith, all foreign and domestic registrations and pending
applications for registration, the right to sue for any past, present or
future infringement or unauthorized use thereof, the right to collect
damages and seek other relief in connection therewith, and including marks
identified on Exhibit B-3 to this Agreement, but not including the names of
the Communities which do not contain the "Forum" mark or a variation
thereof; (iv) the Excluded Subsidiaries (including the Excluded
Communities); (v) all awards for or settlements of litigation, claims or
disputes arising from events or circumstances, or during any periods, prior
to Closing, whenever received or paid (other than tax refunds, which shall
be addressed as set forth in the Tax Agreement); (vi) all amounts received
in connection with Employees arising from events or circumstances, or
during any periods, prior to Closing, including unemployment insurance
refunds; (vii) Medicare and Medicaid refunds for periods prior to Closing;
(viii) accounts receivable written off as uncollectible prior to Closing;
(ix) any other assets of the Company or any Subsidiary not on the Final
Closing Accounting and not constituting Assets; (x) the interest of the
manager under the FRP Management Agreement, the FFI Management Agreement
and the FRC-I Management Agreement; and (xi) the interest of the Company or
any Subsidiary under any Third Party Management Agreements.
EXCLUDED COMMUNITY: each retirement facility owned by the Company, directly
or indirectly through one or more Excluded Subsidiaries, in whole or in
part, and described on Exhibit B-1.
EXCLUDED SUBSIDIARY: each Person other than the Subsidiaries which is or
was owned, directly or indirectly, in whole or in part, by the Company,
including the Persons described on Exhibit B-2.
EXISTING FINANCING: collectively, the FFI Financing, the FRP Financing, the
FKy Financing, the Panther Financing and the FRC-I Financing.
EXISTING FINANCING DOCUMENTS: all documents evidencing, securing,
guaranteeing, or executed in connection with the Existing Financing, other
than documents to which neither the Company nor any of its Affiliates is a
party in connection with the securitization of the Existing Financing.
EXISTING LENDERS: the holders, respectively, of the Existing Financing.
EXISTING MANAGEMENT AGREEMENTS: collectively, the FFI Management Agreement,
the FRC-I Management Agreement, the FRP Management Agreement and any other
contract entered into by the Company or any Subsidiary for the provision of
management services to any Community existing prior to the Closing Date.
EXPANSION AGREEMENT: an Expansion Agreement for each Community in the form
of Exhibit D-3.
EXPANSION CLOSING DATE: as defined in Section 3.3.1.2.
EXPANSION GUARANTY: a Guaranty in the form of Exhibit D-5.
<PAGE>
EXPANSION NOTE: a Note in the form of Exhibit D-4.
EXPANSION PAYMENT: as defined in Section 3.3.1.2.
EXPANSION PHASE: each phase for the construction of a group of Expansion
Units for any Community, as indicated on Exhibit A-10.
EXPANSION UNITS: the additional Residential Units described by number and
type on Exhibit A-10.
FFI FINANCING: the loan in the original principal amount of $124,666,650
made by Nomura Asset Capital Corporation to FFI and Forum Ohio, and
assigned by Nomura Asset Capital Corporation to LaSalle National Bank, as
trustee for the benefit of certificateholders.
FFI MANAGEMENT AGREEMENT: collectively, (i) the Management Agreement
between FFI, as owner, and the Company, as manager, dated January 30, 1994,
with respect to Desert Harbor, Tucson, Deer Creek, Overland Park,
Brookside, Memorial Woods and Parklane, and (ii) the Management Agreement
between Forum Ohio, as owner, and the Company, as manager, dated September
1, 1995 with respect to Knightsbridge.
FINAL CLOSING ACCOUNTING: as defined in Section 6.4.2.
FINANCING RESERVE: any cash reserve, escrow or other account held by or on
behalf of the Existing Lenders, together with all accrued interest thereon,
including the Collection Accounts, Cash Collateral Accounts, Debt Service
Payment Sub-Account, Basic Carrying Cost Sub-Account, and Capital Reserve
Sub-Account, as such terms are defined in the Existing Financing Documents,
but excluding any Security Deposit Reserve.
FKy FINANCING: collectively, (i) the loan in the original principal amount
of $7,700,000 made by the Lexington Fayette Urban County Government to
Lexington Country Place Associates II, and the guaranty thereof by the
Company and the pledge of FKy's stock and FKy's "Excess Cash Flow" as
collateral security therefor, and (ii) the loan in the original principal
amount of $2,751,400 made by RIHT Mortgage Service Co. to Lexington Country
Place Associates.
FRC-I FINANCING: collectively, (i) the loans in the aggregate original
principal amount of $28,500,000 made by Mitsui Leasing (U.S.A.) Inc., BOT
Leasing America Inc., Redwood Properties, Inc. and ORIX USA Corporation to
FRC-I, and (ii) the loan in the original principal amount of up to
$2,500,000 made by GATX Realty Corporation to FRC-I.
FRC-I MANAGEMENT AGREEMENT: the Management Agreement between FRC- I, as
owner, and the Company, as manager, dated as of January 1, 1990 with
respect to Remington II.
FRP FINANCING: the loan in the original principal amount of $50,706,556
made by Nomura Asset Capital Corporation to FRP, and assigned by Nomura
Asset Capital Corporation to LaSalle National Bank, as trustee for
certificateholders.
<PAGE>
FRP MANAGEMENT AGREEMENT: the Management Agreement between FRP, as owner,
and the Company, as manager, dated December 31, 1986, as amended by First
Amendment dated June 29, 1989, Second Amendment dated September 29, 1989,
Third Amendment dated May 27, 1992 and Fourth Amendment dated November 9,
1993, with respect to Foulk Manor North, Foulk Manor South, Lincoln
Heights, Millcroft, Montebello, Montevista, Myrtle Beach Manor, Park Summit
and Shipley Manor.
GAAP: Generally accepted accounting principles applied consistent with the
Company's past practice.
GOVERNMENTAL AUTHORITY: any federal, state or local government, and any
political subdivision, agency, department, bureau, board, commission or
other instrumentality of any such government.
GROUP I EXPANSION UNITS: the Expansion Units for which a Zero Percent (0%)
development/construction fee is payable as indicated on Exhibit A-10.
Group II EXPANSION UNITS: the Expansion Units for which a Six Percent (6%)
development/construction fee is payable as indicated on Exhibit A-10.
GUARANTY: the Guaranty in the form of Exhibit D-2.
HAZARDOUS SUBSTANCES: any dangerous, toxic or hazardous material,
pollutant, contaminant, chemical, waste or substance (including urea-
formaldehyde, poly-chlorinated biphenyls, asbestos, petroleum and petroleum
products) which is regulated by any Environmental Law.
IMPROVEMENTS: as defined in Section 2.1.3.
INDEMNITY AGREEMENT: the Indemnity Agreement in the form of Exhibit D-8.
INTEREST RATE: the rate that is 100 basis points above the highest "Prime
Rate" reported in the "Money Rates" section of the eastern edition of The
Wall Street Journal published from time to time, provided that the Interest
Rate for any date on which The Wall Street Journal is not published shall
mean the rate that is 100 basis points above the highest "Prime Rate"
reported in the "Money Rates" section of the eastern edition of The Wall
Street Journal published immediately prior to such date.
IRS: the Internal Revenue Service.
KNIGHTSBRIDGE LEASE: the Amended and Restated Ground Lease dated November
1, 1988 between Richard S. Zimmerman, as Lessor, and Forum Ohio, as lessee,
and the guaranty thereof by the Company dated May 3, 1990, with respect to
Knightsbridge.
KNOWLEDGE OF SELLER: the actual knowledge of Seller, after reasonable
investigation. A reasonable investigation shall mean that Seller has shown
the relevant statement to, and has consulted with, those individual
employees of Seller who are identified in Exhibit C-11.
LAFAYETTE LEASE: the Lease and Option dated December 1, 1983 between
Lafayette at Country Place Associates (a/k/a Lexington Country Place
Associates II), as Lessor, and Forum Kentucky, as lessee, and the Company
as guarantor, as supplemented by an Addendum dated June 1, 1985 and as
amended and supplemented on November 16, 1994 and amended and further
supplemented on January 18, 1996, with respect to Lafayette, together with
the Consent and Release dated December 1996 between Lexington Country Place
Associates II, Forum Kentucky and the Company.
<PAGE>
LAND: as defined in Section 2.1.1.
LEASES: collectively, the Knightsbridge Lease, the Lexington Lease and the
Lafayette Lease.
LESSOR: the lessor, respectively, under each Lease.
LEXINGTON LEASE: the Lease and Option dated March 31, 1983 between
Lexington Country Place Associates, as Lessor, and Forum Kentucky, as
lessee, and the Company, as guarantor, as amended and supplemented on
January 18, 1996, with respect to Lexington.
LICENSE LETTER: the letter agreement dated the Closing Date between MI and
Purchaser relating to certain trademark matters.
LIFECARE CONTRACT: any agreement with a Resident which requires the
Resident to pay a Lifecare Payment.
LIFECARE PAYMENT: any amount paid, loaned or otherwise provided by a
Resident to the Company or any Subsidiary in excess of four (4) months'
rent, upon or in connection with the commencement of such Resident's
occupancy at a Community (other than Security Deposits, key deposits,
common area charges, reservation deposits, priority deposits and similar
fees and routine deposits).
LIFECARE RESERVE: any cash reserve, escrow or other account, bond or
collateral which is required by law or by agreement to be held or
maintained to secure refunds of Lifecare Payments by the Company or any
Subsidiary to a Resident, together with all accrued interest thereon
required by law to be retained, or otherwise retained, in such reserve,
escrow or other account.
LITIGATION: any court action, administrative or regulatory action,
governmental investigation, arbitration proceeding or mediation proceeding.
MAJORITY PERCENTAGE INTEREST: the percentage of ownership interests in FRP
and FRC-I, respectively, which are owned, directly or indirectly, by the
Company, and which are agreed to be 79.2% for FRP and 58.95% for FRC-I as
of Closing.
MATERIAL ADVERSE EFFECT: with respect to any Person and its subsidiaries, a
material adverse effect on the business, results of operations or financial
condition of the Person and its subsidiaries, in the aggregate.
MEDICAID/MEDICARE CONTRACTS: any contracts with any Governmental Authority,
or with any other Person, which are necessary for the Company or any
Subsidiary to be reimbursed, paid or otherwise compensated for the care of
elderly, disabled or low income individuals, pursuant to Title XVIII and
Title XIX of the Social Security Act, Title 42 United States Code, Chapter
7, as amended from time to time, or any similar state law governing the
care of elderly, disabled or low-income individuals. For purposes of this
definition, the term "care" includes any acute health care, long-term care,
preventative care, or other type of health care, or any good or service
provided in connection with the provision of such care.
MI: Marriott International, Inc., a Delaware corporation.
MINORITY PERCENTAGE INTEREST: the percentage of ownership interests in FRP
and FRC-I, respectively, which are not owned, directly or indirectly, by
the Company, and which are agreed to be 20.8% for FRP and 41.05% for FRC-I
as of Closing.
<PAGE>
NET CURRENT ASSETS: Current Assets less Current Liabilities.
NET CURRENT ASSETS TARGET: as defined in Section 6.12.
NEW OPERATING AGREEMENT: an Operating Agreement in the form of Exhibit D-6.
NEW OPERATOR: Marriott Senior Living Services, Inc., a Delaware
corporation, in its capacity as operator under a New Operating Agreement.
NONCOMPETITION AGREEMENT: the Noncompetition Agreement in the form of
Exhibit D-10.
NON-IMPUTATION ENDORSEMENT: the endorsement to the Title Policies in the
form of Exhibit D-14.
NOTE: the Promissory Note in the form of Exhibit D-1.
ORGANIZATIONAL DOCUMENTS: the material documents governing the formation
of, and issuance of equity interests in, the Company and each Subsidiary,
including (i) in the case of the Company and each Subsidiary which is a
corporation, the articles of incorporation, bylaws, stock and stockholders
agreements (if any), (ii) in the case of each Subsidiary which is a limited
partnership, the certificate of limited partnership and partnership
agreement, and (iii) in the case of each Subsidiary which is a limited
liability company, the articles of organization and members agreement.
PANTHER FINANCING: the loan in the original principal amount of $32,215,000
made by the Montgomery County Health Facilities Development Corporation to
Panther Holdings (as assignee of Panther Creek - Oxford Limited
Partnership), the repayment of which supports payment of the Series A
Woodlands Bonds and Series B Woodlands Bonds.
PERMITS: all licenses, permits, orders, consents, approvals, registrations,
authorizations, qualifications, certificates, certifications and filings
with Governmental authorities under any federal, state or local laws.
PERSON: an individual, partnership, joint venture, corporation, trust,
limited liability company, unincorporated association, Governmental
Authority or any other form of entity.
PERSONAL PROPERTY: as defined in Section 2.1.4.
PLACED IN SERVICE: as defined in each Expansion Agreement.
PLAN: as defined in Section 4.31.1.
POOL I: collectively, the Communities identified on Exhibit A-11 as
comprising "Pool I."
POOL II: collectively, the Communities identified on Exhibit A-11 as
comprising "Pool II."
POOL III: collectively, the Communities identified on Exhibit A-11 as
comprising "Pool III."
POOL IV: collectively, the Communities identified on Exhibit A-11 as
comprising "Pool IV."
POOL V: collectively, the Communities identified on Exhibit A-11 as
comprising "Pool V."
<PAGE>
POOLING AGREEMENT: a Pooling Agreement in the form of Exhibit D-7.
PURCHASE PRICE: as defined in Section 3.2.
PURCHASER'S ACCOUNTANTS: Arthur Andersen, L.L.P. or another firm of
certified public accountants selected by Purchaser.
PURCHASER'S DESIGNEE: as defined in Section 8.4.
RESIDENT: the Resident(s) of each Residential Unit.
RESIDENCE AGREEMENT: as defined in Section 2.1.7.
RESIDENTIAL UNIT: each individual living unit located within a Community,
including independent living units, Ambassador apartments, and assisted
living, Alzheimer's, specialized care or nursing beds.
RESTRICTIVE AGREEMENT: any covenant, condition or restriction contained in
a recorded instrument set forth on Schedule A to any Title Policy which
burdens the Land or any Improvements, or any part of the Land or
Improvements, for the benefit of other real property, including the terms
of any reciprocal easement agreement, any community association agreement,
any property owners' association agreement, and any agreement limiting the
use of the Land or the Improvements or the design of the Improvements.
SCHEDULED VALUE: the amount set forth on Exhibit A-10 as the scheduled
value for each Expansion Unit.
SEC: Securities and Exchange Commission.
SEC DOCUMENTS: all reports and registration statements filed, or required
to be filed, by the Company or any Subsidiary pursuant to the Securities
Laws.
SECURITIES LAWS: the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the Investment Company Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
SECURITY DEPOSITS: the liabilities associated with any Deposits made by any
Resident which are refundable and which secure performance by such
Residents of the terms of its Residence Agreement (expressly excluding any
Lifecare Payments).
SECURITY DEPOSIT RESERVE: any cash reserve, escrow or other account of the
Company or any Subsidiary, whether held by the Company or any Subsidiary or
the Existing Lenders, which holds Security Deposits, together with interest
earned thereon.
SELLER'S ACCOUNTANTS: Arthur Andersen, L.L.P., or another firm of certified
public accountants selected by Seller.
SERIES A WOODLANDS BONDS: All of the $15,450,000 principal amount of Series
A Health Facilities Development Revenue Refunding Bonds (Panther Creek-
Oxford Limited Partnership Project) 1986 Series A due September 1, 2008,
issued by the Montgomery County Health Facilities Development Corporation
(CUSIP number 613 913 AP7).
<PAGE>
SERIES B WOODLANDS BONDS: All of the $16,765,000 principal amount of Series
B Health Facilities Development Revenue Refunding Bonds (Panther Creek-
Oxford Limited Partnership Project) 1986 Series A due September 1, 2008,
issued by the Montgomery County Health Facilities Development Corporation
(CUSIP number 613 913 AP7).
STOCK: as defined in the Recitals.
SUBSIDIARY: each Person which is owned, directly or indirectly, in whole or
in part, by the Company and is described on Exhibit A-1.
SUBSIDIARY STOCK: collectively, (i) all of the issued and outstanding stock
of each Subsidiary which is a corporation, (ii) all of the general and
limited partnership interests of each Subsidiary which is a partnership,
and (iii) all of the membership interests of each Subsidiary which is a
limited liability company.
TAX OR TAXES: as defined in the Tax Agreement.
TAX AGREEMENT: the Tax Matters Agreement in the form of Exhibit D-9.
THIRD PARTY MANAGEMENT AGREEMENTS: any contract entered into by the
Company, any Subsidiary and/or any Excluded Subsidiary for the provision of
management services to any senior living community other than the
Communities.
TITLE COMPANY: Chicago Title Insurance Corporation, or such other reputable
title company as Purchaser may select upon written notice to Seller.
TITLE POLICIES: the owner's policies of title insurance issued by the Title
Company at Closing, insuring that each Subsidiary holds fee simple title
(or leasehold title in the case of Knightsbridge, Lafayette and Lexington)
to the Land and fee simple title (or leasehold title in the case of
Lafayette and Lexington) to the Improvements in the Community owned by it,
subject to such Encumbrances as Purchaser shall have approved.
TOTAL COST: the sum of all hard and soft costs incurred by Seller, the
Company, the Subsidiaries and/or their Affiliates prior to Closing, or by
Seller and/or its Affiliates after Closing, in connection with the
development, design, permitting, demolition, construction, equipping,
licensing and Placement in Service of each Expansion Unit. Total Cost shall
include amounts paid to or charged by Seller or Affiliates of Seller.
TOTAL COST CERTIFICATION: as defined in the Expansion Agreement.
TRANSACTION: collectively, (i) the transactions contemplated by this
Agreement, including the transfer of Stock from Seller to Purchaser or
Purchaser's Designee, (ii) the disposition or dissolution by the Company of
the Excluded Subsidiaries prior to Closing, (iii) the disposition,
distribution or transfer by the Company and the Subsidiaries, as
applicable, of the Excluded Communities and Excluded Assets prior to
Closing, and (iv) the execution of the other Transaction Documents.
TRANSACTION DOCUMENTS: collectively, this Agreement, the Note, the
Guaranty, the Expansion Agreements, the Expansion Notes, the Expansion
Guaranties, the New Operating Agreements, the Pooling Agreements, the
Indemnity Agreement, the Tax Agreement, the Noncompetition Agreement, the
Distribution Agreement Amendment and the License Letter.
<PAGE>
1.2 DEFINITION OF COMMUNITIES. As used in this Agreement, the following
capitalized terms shall refer to the Communities indicated:
BROOKSIDE: The Forum at Brookside, Louisville, Kentucky.
CORAL OAKS: Coral Oaks Retirement Community, Palm Harbor, Florida.
DEER CREEK: Forum at Deer Creek, Deerfield Beach, Florida.
DESERT HARBOR: Desert Harbor, Peoria, Arizona.
FORWOOD MANOR: Forwood Manor, Wilmington, Delaware.
FORUM @ CROSSING: The Forum at the Crossing, Indianapolis, Indiana.
FOULK MANOR NORTH: Foulk Manor North, Wilmington, Delaware.
FOULK MANOR SOUTH: Foulk Manor South, Wilmington, Delaware.
FOUNTAINVIEW: Fountainview, West Palm Beach, Florida.
KNIGHTSBRIDGE: The Forum at Knightsbridge, Columbus, Ohio.
LAFAYETTE: Lafayette at Country Place, Lexington, Kentucky.
LEXINGTON: Lexington at Country Place, Lexington, Kentucky.
LINCOLN HEIGHTS: Forum at Lincoln Heights, San Antonio, Texas.
MEMORIAL WOODS: The Forum at Memorial Woods Healthcare, Houston, Texas.
MILLCROFT: Millcroft Retirement & Nursing Home, Wilmington, Delaware.
MONTEBELLO: Montebello on Academy, Albuquerque, New Mexico.
MONTEVISTA: Montevista at Coronado, El Paso, Texas.
MYRTLE BEACH MANOR: Myrtle Beach Manor, Myrtle Beach, South Carolina.
OVERLAND PARK: The Forum at Overland Park, Overland Park, Kansas.
PARK LANE: The Forum at Park Lane, Dallas, Texas.
PARK SUMMIT: Park Summit at Coral Springs, Coral Springs, Florida.
PUEBLO NORTE: The Forum - Pueblo Norte, Scottsdale, Arizona.
REMINGTON I: Remington Club I at Rancho Bernardo, San Diego, California.
REMINGTON II: Remington Club II at Rancho Bernardo, San Diego, California.
SHIPLEY MANOR: Shipley Manor, Wilmington, Delaware.
SPRINGWOOD COURT: Springwood Court, Ft. Myers, Florida.
TIFFANY HOUSE: Tiffany House, Ft. Lauderdale, Florida.
TUCSON: Forum at Tucson, Tucson, Arizona.
WOODLANDS: Forum at The Woodlands (a/k/a Chambrel), Montgomery County,
Texas.
<PAGE>
1.3 DEFINITION OF SUBSIDIARIES. As used in this Agreement, the following
capitalized terms shall refer to the Subsidiaries indicated:
FFI: FGI Financing I Corporation, a Delaware corporation.
FII: Forum Investments I, L.L.C., a Delaware limited liability company.
FORUM A/H: Forum A/H, Inc., a Delaware corporation.
FORUM ALPHA: Forum Alpha Investments, Inc., a Delaware corporation.
FORUM DELAWARE: Forum Delaware, Inc., a Delaware corporation.
FORUM KENTUCKY: Forum of Kentucky, Inc., a Kentucky corporation.
FORUM OHIO: Forum Ohio Healthcare, Inc., an Ohio corporation.
FORUM RETIREMENT: Forum Retirement, Inc., a Delaware corporation.
FRC-I: Forum Retirement Communities I, L.P., a Delaware limited
partnership.
FRC-II: Forum Retirement Communities II, L.P., a Delaware limited
partnership.
FRP: FRP Financing Limited, L.P., a Delaware limited partnership.
FRPLP: Forum Retirement Partners, L.P., a Delaware limited partnership.
PANTHER GENPAR: Panther GenPar, Inc., a Delaware corporation.
PANTHER HOLDINGS: Panther Holdings Level I, L.P., a Delaware limited
partnership.
PUEBLO NORTE: Forum Pueblo Norte, Inc., an Arizona corporation.
1.4 INTEGRATION. This Agreement and the Transaction Documents contain the final
and entire understanding between Seller and Purchaser with respect to the
Company and the purchase and sale of the Stock, and are intended to be an
integration of all prior or contemporaneous promises, covenants,
agreements, conditions, undertakings, warranties or representations between
them. There are no promises, covenants, agreements, conditions,
undertakings, warranties or representations, oral or written, express or
implied, between Seller and Purchaser with respect to the Company, the
purchase and sale of the Stock, or the Transaction, other than as set forth
in this Agreement and the Transaction Documents. Without limiting the
generality of the foregoing, the Preliminary Term Sheet dated December 19,
1996, the Transaction Term Sheet dated March 17, 1997, the letter of intent
dated March 17, 1997 (as amended), and the Confidentiality Agreement dated
August 9, 1996, are superseded in their entirety by this Agreement and the
other Transaction Documents.
<PAGE>
II. THE COMMUNITIES AND OTHER ASSETS
2.1 IDENTIFICATION OF COMMUNITIES. On the Closing Date, Seller shall cause the
Company to own, directly or through one or more Subsidiaries, the
Communities identified on Exhibit A-2. Each such Community shall consist of
the following, except to the extent described in Excluded Assets or
otherwise specifically excluded in this Section 2.1:
2.1.1the fee interest (or leasehold interest, in the case of the Leases) in
the parcel or parcels of real property underlying such Community, as
more particularly described on Exhibit A-3, together with (i) all
rights, ways, easements, development rights, privileges and
appurtenances to such land, (ii) all strips and gores appurtenant to
such land, and (iii) all right, title and interest of the Company or
the applicable Subsidiary in and to any land lying in the bed of any
streets, roads and alleys appurtenant to such land (collectively,
"Land");
2.1.2all right, title and interest of the Company and/or the applicable
Subsidiary as lessee in, to and under the Leases;
2.1.3all improvements located upon any Land, including all Residential
Units (including the number and type of Residential Units set forth on
Exhibit A-9), common areas, healthcare facilities, meeting rooms,
dining facilities, lounges, exercise facilities, parking, and related
improvements (collectively, "Improvements");
2.1.4all furniture, furnishings, fixtures, equipment and other tangible
personal property owned by the Company and/or the applicable
Subsidiary and used exclusively in connection with any Community,
including all room furnishings, lobby, meeting room, common area and
dining room furnishings, office equipment, healthcare equipment,
kitchen equipment, exercise equipment, rugs, artwork, chinaware,
glassware, flatware, linen, stationery, supplies, consumables,
cleaning and maintenance supplies, food, beverage, retail and medical
inventories, fuel, and automobiles and other motor vehicles
(collectively, "Personal Property");
2.1.5all right, title and interest of the Company and/or the applicable
Subsidiary as lessee in, to and under any lease of furniture,
furnishings, fixtures, equipment and other tangible personal property
to which the Company and/or the applicable Subsidiary is a party and
which is used exclusively in connection with any Community
(collectively, "Equipment Leases");
2.1.6all right, title and interest of the Company and/or the applicable
Subsidiary as lessor in, to and under all leases, subleases, licenses,
concessions and similar agreements for the use or occupancy of space
(other than Residential Units) in any Land or Improvements, together
with all guaranties and other collateral securing the obligations of
the lessees under such leases, subleases, licenses, concessions and
similar agreements (collectively, "Commercial Leases");
2.1.7all right, title and interest of the Company and/or the applicable
Subsidiary as lessor in, to and under all occupancy agreements,
leases, subleases, licenses, concessions and similar agreements for
the use or occupancy of Residential Units, together with all
guaranties and other collateral securing the obligations of the
<PAGE>
Residents under such leases, subleases, licenses, concessions and
similar agreements, and all right, title and interest of the Company
and/or the applicable Subsidiary in, to and under all Lifecare
Contracts or other contracts, agreements or arrangements with
Residents for the provision of services (collectively, "Residence
Agreements");
2.1.8all right, title and interest of the Company and/or the applicable
Subsidiary in, to and under all contracts, purchase orders and other
agreements for the provision of services or supplies to the Company,
the applicable Subsidiary or Community, or to which the Company and/or
the Subsidiary is otherwise a party, obligor, or beneficiary,
including all guaranties, warranties, and indemnities in connection
therewith, but specifically excluding the Medicaid/Medicare Contracts
and the Existing Management Agreements (collectively, "Contracts");
2.1.9all right, title and interest of the Company and/or the applicable
Subsidiary in, to and under all Medicaid/Medicare Contracts;
2.1.10 all right, title and interest of the applicable Subsidiary, as
owner, in, to and under the FRP Management Agreement, the FFI
Management Agreement and the FRC-I Management Agreement;
2.1.11 all right, title and interest of the Company and/or the applicable
Subsidiary in and to all deposits received from lessees or prospective
lessees under Commercial Leases, Residents or prospective Residents
under any Residence Agreement or subscription or reservation agreement
for any Residence Agreement, or any party to a Contract, which is
refundable to such party upon occurrence of certain events or
conditions, but specifically excluding the Lifecare Payments
(collectively, "Deposits");
2.1.12 all right, title and interest of the Company and/or the applicable
Subsidiary in and to the Lifecare Payments with respect to Excess
Lifecare Contracts as set forth in Section 6.6.3;
2.1.13 subject to the receipt of any required approval from any
Governmental Authority, all right, title and interest of the Company
and/or the applicable Subsidiary in and to all Permits required in
connection with the use, ownership, operation, maintenance and leasing
of the Community, but specifically excluding those Permits required to
be held by New Operator (collectively, "Community Permits");
2.1.14 all Current Assets of the Company and/or the applicable Subsidiary,
to the extent included in the calculation of Net Current Assets
pursuant to Section 1.1;
2.1.15 all Financing Reserves as of the Closing Date;
2.1.16 all right, title and interest of the Company and/or the applicable
Subsidiary in, to and under all books, records, lists of prospective
Residents, files, reports, surveys, studies, projections, budgets, tax
returns, and strategic plans in connection with the acquisition,
development, use, ownership, operation, marketing, leasing,
management, maintenance and financing of any Community, excluding
internal reports, studies and strategic plans of Seller and its
Affiliates which do not relate exclusively to the Communities
("Books");
<PAGE>
2.1.17 all right, title and interest of the Company and/or the applicable
Subsidiary in, to and under all plans, specifications, drawings,
models, studies, reports, investigations and other work product of
engineers and architects in connection with the Community, including
in connection with any Expansion Units ("Engineering");
2.1.18 the Lifecare Reserve required with respect to any Excess Lifecare
Contracts; and
2.1.19 all other assets and properties of the Company and/or the applicable
Subsidiary, of every kind and description, wherever located, tangible
or intangible, contingent or otherwise, now or hereafter existing
prior to Closing, which are used or held for use exclusively in
connection with the Community.
The description of the Communities and Assets in this Section 2.1 does not
constitute a representation or warranty on the part of Seller. All
representations and warranties with respect to the Communities and Assets
are set forth in Article IV.
2.2 OTHER FORUM GROUP ASSETS. In addition to the Communities, on the Closing
Date, Seller shall cause the Company to own, directly or through one or
more Subsidiaries, the following:
2.2.1all right, title and interest of the Company for accrued but unpaid
deferred management fees for periods prior to January 1, 1994 under
the FRP Management Agreement;
2.2.2all Current Assets included in the calculation of Net Current Assets
pursuant to Section 1.1;
2.2.3 the Series B Woodlands Bonds, owned by Panther Holdings;
2.2.4all right, title and interest of Seller and its Affiliates in, to and
under any other receivables owing from the Company or any Subsidiary
to Seller and/or its Affiliates existing immediately prior to Closing,
excluding those that are included in the calculation of Net Current
Assets and excluding those that are created under this Agreement or
under any other Transaction Document; and
2.2.5long term-debt owed by FRP and/or FRPLP to the Company in the
approximate amount of $291,000 (as of December 31, 1996).
The description of the Assets in this Section 2.2 does not constitute a
representation or warranty on the part of Seller. All representations and
warranties with respect to the Assets are set forth in Article IV.
2.3 EXCLUDED COMMUNITIES AND SUBSIDIARIES. Prior to the Closing Date, Seller,
at its sole cost and expense, shall cause the Company to transfer or
otherwise remove from the Company and its Subsidiaries the Excluded Assets
and all other assets of the Company not required under Sections 2.1 or 2.2
to be owned by the Company or the Subsidiaries as of Closing.
<PAGE>
III. PURCHASE AND SALE OF STOCK
3.1 TRANSFER OF STOCK AND BONDS. Upon the terms and subject to the conditions
set forth in this Agreement, Seller shall sell to Purchaser, and Purchaser
shall acquire from Seller, as of the Closing Date, all of the Stock. Upon
the terms and subject to the conditions set forth in this Agreement, MI
shall sell to Purchaser, and Purchaser shall acquire from MI, as of the
Closing Date, the Series A Woodlands Bonds.
3.2 PURCHASE PRICE. At the Closing, Purchaser shall pay or cause to be paid to
Seller the sum of $276,676,178 ("Purchase Price"), which has been
calculated pursuant to Exhibit E-1. The Purchase Price shall be payable as
follows:
3.2.1Purchaser shall pay to Seller on June 23, 1997, by wire transfer of
immediately available federal funds, the sum of $205,276,645, which
has been calculated pursuant to Exhibit E-1.
3.2.2The balance of the Purchase Price shall be evidenced by the Note to be
executed by Purchaser's Designee at Closing with an initial principal
amount of $71,399,533, which has been calculated pursuant to Exhibit
E-1. The amounts evidenced by the Note shall be due and payable in
accordance with the terms of the Note. The Note shall be fully
guaranteed by Purchaser pursuant to the Guaranty to be executed by
Purchaser at Closing.
3.3 EXPANSION PAYMENTS.
3.3.1In addition to the Purchase Price described in Section 3.2, Purchaser
shall pay or cause to be paid to Seller the following amounts:
3.3.1.1 If all Expansion Units for an Expansion Phase are Placed in
Service on or before the Closing Date, then on the Closing Date
Purchaser shall cause the Subsidiary which owns such Expansion
Units (the "applicable Subsidiary" for purposes of this Section
3.3) to pay to Seller the sum of Six Percent (6%) of the Total
Costs of such Expansion Units to the extent that such Expansion
Units are Group II Expansion Units. Amounts paid pursuant to this
Section 3.3.1.1 shall constitute a development/ construction fee
to Seller.
3.3.1.2 If all Expansion Units for an Expansion Phase are not Placed
in Service on or before the Closing Date, then on the date
("Expansion Closing Date") which is three (3) Business Days after
the Placement in Service of all Expansion Units for an Expansion
Phase, Purchaser shall (i) cause the applicable Subsidiary to pay
to Seller an amount equal to the Total Costs of such Expansion
Units, plus the sum of Six Percent (6%) of the Total Costs of
such Expansion Units to the extent that such Expansion Units are
Group II Expansion Units (provided that in no event shall such
sum of the Total Costs and Six Percent (6%) of the Total Costs
exceed the Scheduled Values for such Expansion Units), less any
portion of the Total Costs paid prior to the Closing Date by the
applicable Subsidiary to Seller in respect of such Total Costs,
and (ii) pay or cause Purchaser's Designee to pay to Seller an
amount equal to the excess of (a) the Scheduled Values for such
Expansion Units over (b) the amounts paid pursuant to the
foregoing clause (i) (such amounts, collectively, the "Expansion
Payments"). Amounts paid pursuant to clause (i) shall constitute
cost reimbursement and a development/construction fee to Seller,
and amounts paid pursuant to clause (ii) shall constitute an
increase in the Purchase Price. Seller shall give Purchaser not
less than thirty (30) days prior written notice of each
anticipated Expansion Closing Date.
<PAGE>
3.3.2The amount described in Section 3.3.1.1 shall be payable as follows:
Purchaser shall cause the applicable Subsidiary to pay to Seller on
the Closing Date, by wire transfer of immediately available federal
funds, Thirty-five Percent (35%) of such amount. The remaining Sixty-
five percent (65%) of such amount shall be evidenced by an Expansion
Note to be executed on the Closing Date by such Subsidiary (or, at
Purchaser's option, by the Company on behalf of such Subsidiary). Such
Expansion Note shall be fully guaranteed by Purchaser pursuant to an
Expansion Guaranty to be executed by Purchaser on the Closing Date.
3.3.3The Expansion Payments described in Section 3.3.1.2 shall be payable
as follows:
3.3.3.1 Purchaser shall cause the applicable Subsidiary to pay to
Seller on the Expansion Closing Date, by wire transfer of
immediately available federal funds, Thirty-five Percent (35%) of
the amounts set forth in clause (i) of Section 3.3.1.2. The
remaining Sixty-five percent (65%) of such amounts shall be
evidenced by an Expansion Note to be executed on the Expansion
Closing Date by such Subsidiary (or, at Purchaser's option, by
the Company on behalf of such Subsidiary). Such Expansion Note
shall be fully guaranteed by Purchaser pursuant to an Expansion
Guaranty to be executed by Purchaser on the Expansion Closing
Date.
3.3.3.2 Purchaser shall pay or cause Purchaser's Designee to pay to
Seller on the Expansion Closing Date, by wire transfer of
immediately available federal funds, Thirty-five Percent (35%) of
the amounts set forth in clause (ii) of Section 3.3.1.2. The
remaining Sixty-five percent (65%) of such amounts shall be
evidenced by an Expansion Note to be executed on the Expansion
Closing Date by Purchaser or Purchaser's Designee. If such
Expansion Note is executed by Purchaser's Designee, then it shall
be fully guaranteed by Purchaser pursuant to an Expansion
Guaranty to be executed by Purchaser on the Expansion Closing
Date.
3.3.4Purchaser shall contribute or advance, or cause Purchaser's Designee
to contribute or advance, to the applicable Subsidiary, such amounts
as shall be necessary for the applicable Subsidiary to have sufficient
cash on hand to pay the amounts due and payable by such Subsidiary at
Closing or on each Expansion Closing Date pursuant to Section 3.3.2 or
Section 3.3.3.1. At Purchaser's option, subject to restrictions under
the Existing Financing Documents, the cash portion of the amount
payable by the applicable Subsidiary pursuant to Section 3.3.2 or
Section 3.3.3.1 may be increased up to the total amount due pursuant
to such Sections. In such event, (i) the amount evidenced by the
applicable Expansion Note shall be reduced pro tanto, and (ii) at
Purchaser's option, in connection with the Expansion Notes being
executed by Purchaser's Designee on such date, or the Expansion
Payment(s) payable in connection with the next Expansion Unit(s)
Placed in Service, the relative proportions of cash and Expansion
Notes shall be modified such that the total amount of original
indebtedness evidenced by the Expansion Notes, cumulatively through
the date of issuance of the new Expansion Notes, equals Sixty-five
percent (65%) of the cumulative Expansion Payments incurred through
such date.
<PAGE>
3.3.5Seller represents and warrants to Purchaser that Seller has caused or
will cause the Company and each Subsidiary to record on its books, for
tax and accounting purposes (and from and after Closing Seller shall
cooperate with Purchaser to cause the Company and each Subsidiary to
record on its books, for tax and accounting purposes): (i) the Total
Costs for the Expansion Units included in each Expansion Phase as to
which all Expansion Units are Placed in Service at or prior to the
Closing Date, and (ii) the portion of the Total Costs actually paid to
Seller or its Affiliates prior to Closing in connection with all
Expansion Units not Placed in Service at or prior to Closing. Seller
further represents and warrants to Purchaser that to the extent that
Total Costs for the Expansion Units described in the foregoing clause
(i) have been advanced by Seller or its Affiliates on behalf of the
applicable Subsidiary, all such advances have been recorded on the
books of the Company and/or the applicable Subsidiary as advances or
capital contributions by Seller or its Affiliates, and shall (if
advances) be owned by the Company at Closing pursuant to Section
2.2.4. At such time as Seller delivers to Purchaser the Final Closing
Accounting pursuant to Section 6.4.2, Seller shall deliver to
Purchaser an updated Total Cost Certification for the Expansion Units
described in the foregoing clause (i).
3.3.6The provisions of this Section 3.3 shall apply to the Expansion Units
covered by the Expansion Agreements referenced in Section 7.12 at the
time such Expansion Agreements shall have been executed pursuant to
Section 7.12.
3.3.7Seller and Purchaser acknowledge that as of Closing the Expansion
Units within the Expansion Phases described on Exhibit A-10 as "open"
have been Placed in Service as of Closing.
IV. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
4.1 ORGANIZATION. Seller (i) is a corporation duly formed, validly existing and
in good standing under the laws of the State of Delaware, (ii) has full
power and authority to execute and deliver, and perform its obligations
under, this Agreement, without the consent of any other Person (other than
as set forth on Exhibit C-8), and (iii) has duly authorized the execution,
delivery and performance of this Agreement by the officer executing this
Agreement. The Company (i) is a corporation duly formed, validly existing
and in good standing under the laws of the State of Indiana, (ii) is duly
qualified as a foreign corporation in each jurisdiction in which it
transacts business, except for any such failure to be qualified as would
not reasonably be expected to have a Material Adverse Effect on the
Company, and (iii) has full power and authority to conduct its business as
it is presently being conducted and to own, lease and operate its
properties and assets. Each Subsidiary (i) is a corporation, limited
liability company or limited partnership duly formed, validly existing and
in good standing under the laws of the jurisdiction of its formation, (ii)
is duly qualified as a foreign corporation, limited liability company or
limited partnership in each jurisdiction in which it transacts business,
except for any such failure to be qualified as would not reasonably be
expected to have a Material Adverse Effect on such Subsidiary, and (iii)
has full power and authority to conduct its business as it is presently
being conducted and to own, lease and operate its properties and assets.
<PAGE>
4.2 AUTHORIZATION. This Agreement has been duly executed by Seller and,
assuming the due execution of this Agreement by Purchaser, is a valid and
binding obligation of Seller, enforceable against Seller in accordance with
its terms, except that such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting generally the rights of creditors, and general principles of
equity.
4.3 NO VIOLATION. The execution, delivery and performance of this Agreement,
and the consummation of the Transaction, will not violate, result in a
breach of or constitute a default under any material agreement to which
Seller is a party or by which any of Seller's assets are bound, except for
any such violation, breach or default as would not reasonably be expected
to have a Material Adverse Effect on the Company. The performance of this
Agreement, and the consummation of the Transaction, will not violate,
result in a breach of or constitute a default under any material agreement
to which the Company or any Subsidiary is a party or by which any of its or
their assets are bound, except for any such violation, breach or default as
would not reasonably be expected to have a Material Adverse Effect on the
Company.
4.4 NO CONSENTS. No consent, approval or authorization of, or declaration,
notice, filing or registration with, any Governmental Authority, or any
other Person, is required to be made or obtained by Seller, the Company or
any Subsidiary in connection with the execution, delivery and performance
of this Agreement and the consummation of the Transaction, except (i) as
set forth on Exhibit C-8, (ii) as may be required in connection with the
transfer or issuance of Permits by Governmental Authorities, and (iii) to
the extent the failure to obtain or make such consent, approval or
authorization of, or declaration, notice, filing or registration, would not
reasonably be expected to have a Material Adverse Effect upon the Company
or any Subsidiary. Purchaser acknowledges that Seller is making no
representation or warranty as to whether any consent or approval is
required (i) under the Lexington Lease, the Lafayette Lease or the
Collateral Pledge and Security Agreement dated as of February 10, 1995,
between the Company, FKy and Central Bank & Trust Company, as trustee, in
connection with execution, delivery and performance of the New Operating
Agreement for Lafayette and/or Lexington, or (ii) by the U.S. Department of
Housing and Urban Development in connection with the transfer of Stock of
the Company pursuant to this Agreement, with respect to Lexington.
4.5 BANKRUPTCY. Neither Seller nor the Company nor any Subsidiary is the
subject debtor under any federal, state or local bankruptcy or insolvency
proceeding, or any other proceeding for dissolution, liquidation or winding
up of its assets. Purchaser acknowledges that the Company and certain of
its subsidiaries were the subject of bankruptcy proceedings under Chapter
11 of the United States Bankruptcy Code (case nos. 91-1678-FJO- 11 through
91-1690-FJO-11, United States Bankruptcy Court, Southern District of
Indiana, Indianapolis Division), which proceedings commenced on February
19, 1991 and were formally closed as of May 17, 1996.
4.6 COMPANY AND SUBSIDIARY STOCK - CORPORATIONS. Exhibit C-1 sets forth a
complete and accurate list of the following with respect to the Company and
each Subsidiary which is a corporation: (i) the jurisdiction in which
incorporated, (ii) the jurisdictions in which qualified to transact
business, (iii) the authorized shares of common stock, (iv) the par value
of each share of common stock, (v) the number of shares of common stock
which are issued and outstanding, (vi) the registered owner of all issued
<PAGE>
and outstanding shares of common stock, (vii) the authorized shares of any
other classes of stock, (viii) the par value of each share of such other
classes of stock, (ix) the number of shares of such other classes of stock
which are issued and outstanding, and (x) the registered owner of all
issued and outstanding shares of such other classes of stock. Except as set
forth on Exhibit C-1, no shares of any other class or series of capital
stock of the Company or any such Subsidiary are authorized, issued or
outstanding. All of the shares described on Exhibit C-1, including the
Stock, have been duly and validly authorized and issued, and are fully paid
and nonassessable.
4.7 SUBSIDIARY STOCK - OTHER ENTITIES. Exhibit C-1 sets forth a complete and
accurate list of the following with respect to each Subsidiary which is a
limited liability company or limited partnership: (i) the jurisdiction in
which formed, (ii) the jurisdictions in which qualified to transact
business, (iii) the classes of membership or partnership interests, and
(iv) the registered owner of each membership or partnership interest, and
the percentage of membership or partnership interest owned. Except as set
forth on Exhibit C-1, no other membership or partnership interests are
authorized, issued or outstanding. To the Knowledge of Seller, all of the
membership and partnership interests described on Exhibit C-1 have been
duly and validly authorized and issued, and the owners of such interests
have been duly admitted as members or partners of the applicable
Subsidiary.
4.8 OWNERSHIP OF STOCK. Seller owns, of record and beneficially, all of the
Stock, free and clear of all Encumbrances, including any agreement,
understanding or restriction affecting the voting rights or other incidents
of record or beneficial ownership pertaining to the Stock. There are no
subscriptions, options, warrants, calls, commitments, preemptive rights or
other rights of any kind outstanding for the purchase of, nor any
securities convertible or exchangeable for, any equity interests of the
Company. There are no restrictions upon the voting or transfer of any
shares of the Stock pursuant to the Organizational Documents of the Company
or any agreement or other instrument to which Seller or the Company is a
party or by which Seller or the Company is bound other than restrictions on
transfer under applicable Securities Laws and state laws and regulations.
Upon consummation of the Transaction, Purchaser will be the owner of the
Stock, free and clear of all Encumbrances other than any Encumbrances
arising as a result of action by Purchaser.
4.9 OWNERSHIP OF SUBSIDIARY STOCK. Except as set forth on Exhibit C-2, the
Company and each Subsidiary owns, of record and beneficially, all of the
shares of stock, membership interests and partnership interests as
described on Exhibit C-1, free and clear of all Encumbrances, including any
agreement, understanding or restriction affecting the voting rights or
other incidents of record or beneficial ownership pertaining to such
shares, membership interests or partnership interests. There are no
subscriptions, options, warrants, calls, commitments, preemptive rights or
other rights of any kind outstanding for the purchase of, nor any
securities convertible or exchangeable for, any equity interests of any
Subsidiary. Except as set forth on Exhibit C-2, there are no restrictions
upon the voting or transfer of any such shares, membership interests or
partnership interests pursuant to the Organizational Documents of any
Subsidiary or any agreement or other instrument to which Seller, the
Company or any Subsidiary is a party or by which Seller, the Company or any
Subsidiary is bound, other than restrictions on transfer under applicable
Securities Laws and state laws and regulations.
<PAGE>
4.10 FINANCIAL STATEMENTS. Seller has delivered to Purchaser audited financial
statements for the most recently completed full or partial fiscal year
("Financial Statements") for the following Subsidiaries: FFI and Forum Ohio
(consolidated), FRC-I, FRP, and FRPLP. Except as may be otherwise set forth
in the Financial Statements, to the Knowledge of Seller, the Financial
Statements fairly present in all material respects the financial position
and results of operations and cash flows of such Subsidiaries as of the
date of or for the periods indicated therein, in accordance with GAAP.
4.11 EVENTS SUBSEQUENT TO JANUARY 3, 1997. Since January 3, 1997, to the
Knowledge of Seller there has not occurred (i) an event or condition that
has had or is reasonably likely to have a Material Adverse Effect on the
Company or any Subsidiary, excluding any such effects resulting directly
from new federal or state legislation or regulations, general economic
conditions or changes in generally accepted accounting principles, (ii) any
Encumbrance of any assets of the Company or any Subsidiary, except for any
Encumbrance that would not reasonably be expected to have a Material
Adverse Effect on the Company or any Subsidiary, (iii) indebtedness
incurred by the Company or any Subsidiary for borrowed money or any
commitment to borrow money entered into by the Company or any Subsidiary,
or any loans made or agreed to be made by the Company or any Subsidiary,
other than in the ordinary course of business consistent with past
practice, or (iv) any liability incurred involving $50,000 or more except
in the ordinary course of business.
4.12 UNDISCLOSED LIABILITIES. To the Knowledge of Seller, the Company and the
Subsidiaries do not have any liability (contingent or otherwise) that is
material to their financial condition taken as a whole or that, when
combined with all similar liabilities would be material to their financial
condition taken as a whole, except for Current Liabilities or as disclosed
in the Financial Statements, this Agreement and/or the Exhibits to this
Agreement, and except for liabilities incurred in the ordinary course of
business consistent with past practice. Notwithstanding the foregoing,
Seller makes no representation or warranty under this Section 4.12 with
respect to liabilities in connection with the Communities that result from,
relate to, arise out of or are based upon any Environmental Laws.
4.13 TITLE TO LAND AND IMPROVEMENTS. Each Subsidiary holds good fee simple title
(or good leasehold title in the case of Knightsbridge, Lafayette and
Lexington) to the Land, and good fee simple title (or good leasehold title
in the case of Lafayette and Lexington) to the Improvements, in the
Community indicated on Exhibit A-3 as owned by it, free and clear of all
Encumbrances securing payment of monetary indebtedness other than
Encumbrances securing the Existing Financing, but subject to all matters
set forth on Schedule A to the Title Policies.
4.14 TITLE TO OTHER ASSETS. The Company and each Subsidiary holds good title to
all Personal Property, free and clear of all Encumbrances other than those
Encumbrances securing the Existing Financing.
4.15 LEASES AND RESIDENCE AGREEMENTS.
4.15.1 The Leases are all of the leases of land and other real property
used in connection with the Communities. Seller has provided to
Purchaser a correct and complete copy of each Lease and all amendments
and addenda thereto. To the Knowledge of Seller, the Leases are in
full force and effect in accordance with their terms. There exists no
material default on the part of the Company or any of its Affiliates
<PAGE>
under any Lease, or any event or condition which after notice or
passage of time or both would constitute such a default. To the
Knowledge of Seller, there exists no material default on the part of
the Lessor under any Lease, or any event or condition which after
notice or passage of time or both would constitute such a default.
4.15.2 The Commercial Leases set forth on Exhibit A-5 are all of the
leases, subleases, licenses, concessions and similar agreements for
the use or occupancy of space (other than the Residential Units) in
the Communities that, if entered into during the term of a New
Operating Agreement, would have required the consent of the owner.
Seller has provided to Purchaser a correct and complete copy of each
Commercial Lease and all amendments thereto. To the Knowledge of
Seller, all Commercial Leases are in full force and effect in
accordance with their terms. There exists no material default on the
part of the Company or any of its Affiliates under any Commercial
Lease, or any event or condition which after notice or passage of time
or both would constitute such a default. To the Knowledge of Seller,
there exists no material default on the part of the tenant under any
Commercial Lease or any event or condition which after notice or
passage of time or both would constitute such a default. Any Deposit
under any Commercial Lease has been held in accordance with the terms
of such Commercial Lease and the requirements of applicable law. No
commission or other fee will be due or payable to any real estate
agent, broker or finder after Closing in connection with any
Commercial Lease.
4.15.3 Exhibit C-3 is a complete and accurate summary of the following
information by Community as of the dates indicated therein: (i) number
of occupied Residential Units, (ii) number of Residential Units, (iii)
occupancy level, (iv) Security Deposits and (v) and receivables aging
report. Seller has provided to Purchaser for each Community the
current form of the Residence Agreement for such Community. Any
Deposit under any Residence Agreement has been held in accordance with
the terms of such Residence Agreement and the requirements of
applicable law.
4.15.4 The Equipment Leases set forth on Exhibit A-6 are all of the leases
of furniture, furnishings, fixtures, equipment and other tangible
personal property used in connection with the Communities requiring
payments of over $10,000 per annum. Seller has provided to Purchaser a
correct and complete copy of each Equipment Lease and all amendments
thereto. To the Knowledge of Seller, all Equipment Leases are in full
force and effect in accordance with their terms. There exists no
material default on the part of the Company or any of its Affiliates
under any Equipment Lease, or any event or condition which after
notice or passage of time or both would constitute such a default. To
the Knowledge of Seller, there exists no material default on the part
of the lessor under any Equipment Lease, or any event or condition
which after notice or passage of time or both would constitute such a
default.
4.16 CONTRACTS. The Contracts set forth on Exhibit A-7 are all of the contracts
for the provision of services or supplies to the Communities (other than
the Medicaid/Medicare Contracts and the Existing Management Agreements), or
to which the Company and/or any Subsidiary is a party, an obligor or
beneficiary requiring payments of over $10,000 per annum and which can not
be cancelled by the Company or the applicable Subsidiary without penalty
upon not more than ninety (90) days prior notice. Seller has provided to
<PAGE>
Purchaser a correct and complete copy of each Contract and all amendments
thereto. To the Knowledge of Seller, all such Contracts are in full force
and effect in accordance with their terms. There exists no material default
on the part of the Company or any of its Affiliates under any Contract or
any event or condition which after notice or passage of time or both would
constitute such a default. To the Knowledge of Seller, there exists no
material default on the part of any other party under any Contract or any
event or condition which after notice or passage of time or both would
constitute such a default.
4.17 MEDICAID/MEDICARE CONTRACTS. The Medicaid/Medicare Contracts set forth on
Exhibit A-8 are all of the contracts with any Governmental Authority, or
with any other Person that provides insurance, managed care, or other type
of care or insurance, in each case which contracts are entered into
pursuant to Title XVIII and Title XIX of the Social Security Act, Title 42
United States Code, Chapter 7, as amended from time to time, or any similar
state law governing the care of elderly, disabled, or low-income
individuals, to which the Company and/or any Subsidiary is a party, an
obligor or beneficiary. Seller has provided to Purchaser a correct and
complete copy of each Medicaid/Medicare Contract and all amendments
thereto. To the Knowledge of Seller, all such Medicaid/Medicare Contracts
are in full force and effect in accordance with their terms. To the
Knowledge of Seller, there exists no material default on the part of any
party under any Medicaid/Medicare Contract or any event or condition which
after notice or passage of time or both would constitute such a default.
4.18 RESTRICTIVE AGREEMENTS. Seller has provided to Purchaser a correct and
complete copy of each Restrictive Agreement and all amendments thereto. To
the Knowledge of Seller, all such Restrictive Agreements are in full force
and effect in accordance with their terms. There exists no material default
on the part of the Company or any of its Affiliates under any Restrictive
Agreement or any event or condition which after notice or passage of time
or both would constitute such a default. To the Knowledge of Seller, there
exists no material default on the part of any other party under any
Restrictive Agreement or any event or condition which after notice or
passage of time or both would constitute such a default.
4.19 CERTAIN MANAGEMENT AGREEMENTS. Seller has provided to Purchaser a correct
and complete copy of the FFI Management Agreement, the FRP Management
Agreement and the FRC-I Management Agreement, and all amendments thereto.
The FFI Management Agreement, the FRP Management Agreement and the FRC-I
Management Agreement are the only contracts or agreements between the
Company and its Affiliates, on the one hand, and the Company or Seller and
their respective Affiliates on the other hand, with respect to the
management or operation of the Communities governed by such Existing
Management Agreements. Such Management Agreements are in full force and
effect in accordance with their terms. To the Knowledge of Seller, there
exists no material default on the part of any party under any such
Management Agreements or any event or condition which after notice or
passage of time or both would constitute such a default. All amounts due
and payable by Seller, the Company or any Subsidiary under the FFI
Management Agreement, the FRP Management Agreement and the FRC-I Management
Agreement have been paid in full through March 31, 1997, other than
deferred management fees under the FRP Management Agreement for periods
prior to January 1, 1994 in the approximate amount of $15,780,000.
4.20 EXISTING FINANCING. The documents listed on Exhibit C-6 are all of the
principal Existing Financing Documents, other than Uniform Commercial Code
financing statements. Seller has provided to Purchaser a correct and
<PAGE>
complete copy of, or given Purchaser access to, each of the Existing
Financing Documents and all amendments thereto. All of the Existing
Financing Documents are in full force and effect in accordance with their
terms. There exists no material default on the part of the Company or any
of its Affiliates under the Existing Financing Documents or any event or
condition which after notice or passage of time or both would constitute
such a default. To the Knowledge of Seller, there exists no material
default on the part of any other party under the Existing Financing
Documents or any event or condition which after notice or passage of time
or both would constitute such a default. The Existing Financing Documents
do not require the consent of any party thereto to the consummation of the
Transaction, other than the consent of the Existing Lenders to the
assignment of certain of the Existing Management Agreements. As of the
Closing Date, the outstanding principal balance of the Existing Financing
is as follows:
FFI Financing: $122,775,736
FKy Financing: $ 7,340,387
FRC-I Financing: $ 26,589,254
FRP Financing: $ 47,433,317
Panther Financing: $ 32,215,000
As of the Closing Date, the capitalized value of the Lafayette Lease is
$8,933,821, and the capitalized value of the Lexington Lease is $2,380,387,
in each case determined in accordance with GAAP.
4.21 INSURANCE POLICIES. Exhibit C-4 sets forth a complete and accurate list of
all pending claims under any insurance policy held by the Company or any
Subsidiary, or any blanket policies under which the Company or any
Subsidiary is covered ("Policies"). The Company and the Subsidiaries are
not in material default with respect to any of the Policies, and the
Company and Subsidiaries have not received any written notice of a default,
premium increase or cancellation with respect to any of the Policies. To
the Knowledge of Seller, neither Seller, the Company nor any Subsidiary has
received any notice from any insurance company of any defects or
inadequacies in any Community that would materially adversely affect its
insurability or materially increase the cost of insurance from the current
levels.
4.22 CONDEMNATION. There is not pending or, to the Knowledge of Seller,
threatened, any taking by power of eminent domain or condemnation
proceedings for the permanent or temporary taking or condemnation of all or
any portion of the Assets.
4.23 COMMITMENTS TO GOVERNMENTAL AUTHORITIES. To the Knowledge of Seller,
neither the Company nor any Subsidiary has made any commitments to any
Governmental Authority, utility company, school board, church or other
religious body, or to any other organization, group or individual, relating
to the Assets which would impose on any of them any material obligation to
make any contributions of money, dedication of land or grants of easements
or rights-of-way, or to construct, install or maintain any improvements,
public or private, on or off the Land.
4.24 LITIGATION. Except as set forth on Exhibit C-5, there is no Litigation
instituted, pending or, to the Knowledge of Seller, threatened (or
unasserted but considered probable of assertion), against Seller, the
Company or any Subsidiary or against any Asset, or any right of the Company
or any Subsidiary in any Asset which, if adversely decided, would
<PAGE>
reasonably be expected to have a Material Adverse Effect on the Company or
any Subsidiary. There is no actual or, to the Knowledge of Seller,
threatened Litigation which prohibits, enjoins, or restrains, or presents a
claim to prohibit, enjoin or restrain, the consummation of the Transaction
in accordance with this Agreement.
4.25 COMPLIANCE WITH LAW. To the Knowledge of Seller, the Company and each
subsidiary is operating in all material respects in compliance with all
applicable laws, statutes, ordinances and regulations, whether federal,
state or local. To the Knowledge of Seller, neither the Company nor any
Subsidiary has received any written notification from any Governmental
Authority asserting a material violation of any statute, ordinance or
regulation. To the Knowledge of Seller, neither the Company nor any
Subsidiary is subject to any regulatory or supervisory cease and desist
order, agreement, directive or memorandum of understanding, and none of
them has received any written communication requesting that they enter into
any of the foregoing. This Section 4.25 shall not be deemed or construed to
make any representation or warranty with respect to compliance with, or
violations of, Environmental Laws.
4.26 PERMITS. To the Knowledge of Seller, all Permits (including Community
Permits) required for the development, ownership, maintenance, operation,
use, occupancy, marketing and leasing of the Assets, as of immediately
prior to consummation of the Transaction, have been issued to the Company
or the applicable Subsidiary and are in full force and effect, except for
any such Permits as are not material in the aggregate to the development,
ownership, maintenance, operation, use, occupancy, marketing or leasing of
the Assets, and except that Seller is unable to locate certificates of
occupancy for certain Communities which have been disclosed to Purchaser.
There is no pending or, to the Knowledge of Seller, threatened Litigation
with respect to revocation, cancellation, suspension or nonrenewal of any
such material Permit and, to the Knowledge of Seller, there has occurred no
event which (whether with notice or lapse of time or both) will result in
such a revocation, cancellation, suspension or nonrenewal of any such
material Permit. Seller, the Company and the Subsidiaries have received no
written notice from any Governmental Authority asserting the violation of
the terms of any such material Permit, or threatening to revoke, cancel,
suspend or not renew any such material Permit, other than any such
notifications of violations that have been cured or otherwise resolved.
Seller makes no representation or warranty concerning whether any of the
Permits referenced in this Section 4.26 will remain in full force and
effect following the Closing. For purposes of this Section 4.26 only, the
"Knowledge of Seller" shall include due inquiry by Seller of the general
managers of each Community. Notwithstanding the foregoing, Seller makes no
representation or warranty under this Section 4.26 with respect to Permits
required under any Environmental Laws.
4.27 PROPRIETARY RIGHTS. The Company's and the Subsidiaries' use of all
trademarks, trade names, and other trade rights, whether or not registered,
is not infringing upon or otherwise violating in any material respect the
rights of any third party in or to such rights, and no proceedings have
been instituted against or notices received by Seller, the Company or any
Subsidiary that are presently outstanding alleging that the Company's and
any Subsidiary's use of such rights infringes upon or otherwise violates
any rights of a third party in or to such rights.
4.28 ADJOINING LAND. Neither Seller nor any Affiliate of Seller owns or
otherwise has an interest, direct or indirect, in any land or improvements
adjoining any of the Land, other than land which is intended to be used
other than for or in conjunction with a senior living community.
<PAGE>
4.29 ENVIRONMENTAL MATTERS.
4.29.1 To the Knowledge of Seller, there is no material inaccuracy in the
Environmental Reports. Except for Hazardous Substances which are
identified in the Environmental Reports as being present at, on or
under the Assets, to the Knowledge of Seller, there is in existence
at, on or under the Assets no Hazardous Substances. Except as
described in the Environmental Reports, to the Knowledge of Seller, no
Hazardous Substances have leaked, escaped or been discharged, emitted
or otherwise released, from the Assets onto adjoining properties, or
from adjoining properties onto the Assets. To the Knowledge of Seller,
Seller, the Company and the Subsidiaries are not generators of any
Hazardous Substances (other than medical wastes generated in the
ordinary course of the business of operating the Communities), and are
in compliance in all material respects with all laws, regulations and
requirements regarding the use, transportation and disposal of
Hazardous Substances. To the Knowledge of Seller, except as described
in the Environmental Reports, Seller, the Company and the Subsidiaries
have received no notice, demand, request for information, complaint or
order from any Governmental Authority with respect to the alleged
presence at, or release from, the Assets of any Hazardous Substance or
alleged violation of any Environmental Law.
4.29.2 For purposes of this Section 4.29.2 only, "Environmental Permits"
shall refer to any Permits which are required under any Environmental
Laws. To the Knowledge of Seller, all Environmental Permits required
for the development, ownership, maintenance, operation, use,
occupancy, marketing and leasing of the Assets, as of immediately
prior to consummation of the Transaction, have been issued to the
Company or the applicable Subsidiary and are in full force and effect,
except for any such Environmental Permits as are not material in the
aggregate to the development, ownership, maintenance, operation, use,
occupancy, marketing or leasing of the Assets. There is no pending or,
to the Knowledge of Seller, threatened Litigation with respect to
revocation, cancellation, suspension or nonrenewal of any such
material Environmental Permit and, to the Knowledge of Seller, there
has occurred no event which (whether with notice or lapse of time or
both) will result in such a revocation, cancellation, suspension or
nonrenewal of any such material Environmental Permit. Seller, the
Company and the Subsidiaries have received no written notice from any
Governmental Authority asserting the violation of the terms of any
such material Environmental Permit, or threatening to revoke, cancel,
suspend or not renew any such material Environmental Permit, other
than any such notifications or violations that have been cured or
otherwise resolved to the Company's reasonable satisfaction. Seller
makes no representation or warranty concerning whether any of the
Environmental Permits referenced in this Section 4.29.2 will remain in
full force and effect following the Closing. For purposes of this
Section 4.29.2 only, the "Knowledge of Seller" shall include due
inquiry by Seller of the general managers of each Community.
4.30 SEC DOCUMENTS. To the Knowledge of Seller, without investigation, (i) the
Company filed all SEC Documents, if any, required by the Securities Laws
prior to March 25, 1996, when the Company's reporting obligations under the
Securities Laws ceased, and (ii) each Subsidiary has filed all SEC
Documents, if any, required by the Securities Laws. To the Knowledge of
Seller, without investigation, such SEC Documents were, when filed, in
compliance, in all material respects, with the Securities Laws.
<PAGE>
4.31 EMPLOYEE BENEFIT PLANS.
4.31.1 Exhibit C-9 contains a correct and complete list of each material
Plan. For purposes of this Agreement the term "Plan" means each bonus,
deferred compensation, incentive compensation, fringe benefit, stock
purchase, stock option, severance pay, medical, life or other
insurance, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by the Company or by
any trade or business, whether or not incorporated, that together with
the Company would be deemed a "single employer" under Section 414 of
the Code (an "ERISA Affiliate") for the benefit of any employee or
director or former employee or former director of the Company or any
Subsidiary. Exhibit C-9 identifies each material Plan that is (or at
any time prior to the Closing was) sponsored, maintained or
contributed to or required to be contributed to by the Company or any
Subsidiary.
4.31.2 With respect to each of the Plans, Seller has made available to
Purchaser correct and complete copies of each of the following
documents: (i) the Plans and related documents (including all
amendments thereto); (ii) the most recent Summary Plan Description,
together with each Summary of Material Modifications, required under
ERISA with respect to the Plans, and all material employee
communications relating to the Plans; and (iii) the most recent
determination letter received from the IRS with respect to each Plan
that is intended to be qualified under Section 401(a) of the Code and
all material communications to or from the IRS or any other
governmental or regulatory authority relating to each Plan.
4.31.3 No liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate since the effective date of ERISA that
has not been satisfied in full, and, no condition exists that presents
a material risk to the Company of incurring a liability under such
Title.
4.31.4 Neither the Company nor any ERISA Affiliate, nor any of the Plans,
nor any trust created thereunder, nor any trustee or administrator
thereof, has engaged in a transaction that violates Section 406 of
ERISA or Section 4975(c) of the Code in connection with which the
Company or any Subsidiary could incur, directly or indirectly, either
a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA, a
tax imposed pursuant to Section 4975 or 4976 of the Code or any other
liability or cost.
4.31.5 Full payment has been made, or will be made in accordance with
Section 404(a)(6) of the Code, of all amounts that the Company or any
ERISA Affiliate is required to pay under the terms of each of the
Plans and Section 412 of the Code. No pension plan (within the meaning
of Section 3(2) of ERISA) sponsored or maintained by the Company or
any ERISA Affiliate or any trust established thereunder has incurred
any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of each of each such plan
ended prior to the date of this Agreement.
4.31.6 None of the Plans is a "multiemployer pension plan," as such term is
defined in Section 3(37) of ERISA.
<PAGE>
4.31.7 Except as set forth in Exhibit C-9, there are no actions, suits or
claims pending, or, to the best knowledge of Seller, threatened or
anticipated (other than routine claims for benefits) against any Plan
or any related trust that involves or relates to any current or former
employee or director of the Company or any Subsidiary or against the
Company or any Subsidiary with respect to any Plan. There is no
judgment, decree, injunction, rule or order of any court, governmental
body, commission, agency or arbitrator outstanding against or in favor
of any Plan or any fiduciary thereof (other than rules of general
applicability) that involves or relates to the Company, any Subsidiary
or any current or former employee or director of the Company or any
Subsidiary. There are no pending or threatened audits or
investigations by any governmental body, commission or agency
involving any Plan that involves or relates to the Company, any
Subsidiary or any current or former employee or director thereof.
4.32 EMPLOYEES.
4.32.1 As of the Closing Date, the Company and each Subsidiary shall have
no Employees, and all personnel employed or engaged in connection with
the operation of the Communities shall be employees of the New
Operator.
4.32.2 Except as set forth in Exhibit C-10, neither the Company nor any
Subsidiary is a party to any written, oral or implied contract or
agreement with any current or former employee or director of the
Company or any Subsidiary. Seller has made available to Purchaser
correct and complete copies of each written contract or agreement
listed in Exhibit C-10. The Company and each Subsidiary are and have
been in compliance with the terms and conditions of all such written,
oral and implied contracts and agreements.
4.32.3 Except as set forth in Exhibit C-10, (i) neither the Company nor any
Subsidiary is a party to or bound by any collective bargaining
agreement, (ii) no labor union or other organization represents,
purports to represent or has attempted to represent any employee of
the Company or any Subsidiary, and (iii) there is no active or current
union organization activity involving any employee of the Company or
any Subsidiary.
4.32.4 Except as set forth in Exhibit C-10, the Company and each Subsidiary
are in compliance with all federal, state, local and foreign laws and
regulations and the common law relating to employment and employment
practices, including, but not limited to, the Fair Labor Standards
Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, state and local human rights laws, ERISA, the
National Labor Relations Act, state labor laws, the Worker Adjustment
and Retaining Act of 1988, the Rehabilitation Act of 1974, the
Occupational Safety and Health Act, state workers' compensation laws,
state disability laws, state unemployment laws, the Immigration Reform
and Control Act of 1986, the Polygraph Protection Act of 1988, the
Equal Pay Act, the Consolidated Omnibus Budget Reconciliation Act of
1986 and the Americans with Disabilities Act.
4.32.5 Except as set forth in Exhibit C-10, there are no claims, causes of
action, charges, suits, complaints, administrative proceedings,
government investigations or proceedings, arbitrations or other
proceedings pending or threatened against the Company or any
Subsidiary relating to any current or former employee or director of
<PAGE>
the Company or any Subsidiary, relating to employment or employment
practices, and neither Seller, the Company nor any Subsidiary has
received any notice of, nor has knowledge of any basis for any claim
or assertion of liability against the Company or any Subsidiary
relating to any federal, state, local or foreign law and regulations
or the common law relating to employment or employment practices in
regard of any current or former employee or director of the Company or
any Subsidiary.
4.32.6 The Company and each Subsidiary are in compliance with all
applicable laws, rules and regulations relating to wages and hours and
with all applicable laws, rules and regulations relating to the
payment and withholding of taxes, and the Company and each Subsidiary
have withheld all amounts required by law or agreement to be withheld
from the wages or salaries of their employees, and neither the Company
nor any Subsidiary is liable for any arrearage of wages or any taxes
or penalties for failure to comply with any of the foregoing.
4.33 NO BROKERS. No agent, broker or finder has acted for Seller in connection
with this Agreement and the Transaction.
4.34 OPERATION OF COMMUNITIES PRIOR TO CLOSING. Prior to Closing, the Company
and the Subsidiaries have continued to own, operate, manage, maintain,
market, lease, repair and replace the Assets in substantially the same
manner, and to substantially the same standard of quality, as the Assets
were owned, operated, managed, maintained, marketed, leased, repaired and
replaced on March 17, 1997, except as otherwise contemplated or required by
this Agreement.
4.35 EXPANSION LAND. Except with respect to the expansion project planned for
Desert Harbor, the Company and/or the applicable Subsidiary has acquired
fee title to all land required in connection with the expansion of the
Communities contemplated by the Expansion Agreements.
4.36 SERIES A WOODLANDS BONDS. MI holds good title to the Series A Woodlands
Bonds, free and clear of all Encumbrances.
PURCHASER ACKNOWLEDGES THAT EXCEPT FOR THE REPRESENTATIONS, WARRANTIES AND
COVENANTS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS, (I) PURCHASER IS ACCEPTING THE LAND, IMPROVEMENTS, PERSONAL PROPERTY,
AND ANY PERSONAL PROPERTY SUBJECT TO ANY EQUIPMENT LEASE, IN ITS "AS IS, WHERE
IS" CONDITION AS OF THE CLOSING DATE, AND (II) SELLER IS MAKING NO
REPRESENTATIONS OR WARRANTIES CONCERNING, AND SHALL HAVE NO LIABILITY TO
PURCHASER WITH RESPECT TO, THE USE OR CONDITION OF THE LAND, IMPROVEMENTS,
PERSONAL PROPERTY, OR PERSONAL PROPERTY SUBJECT TO ANY EQUIPMENT LEASE,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY AND ANY IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
<PAGE>
V. REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND PURCHASER'S DESIGNEE
Purchaser represents and warrants to Seller as follows:
5.1 ORGANIZATION. Purchaser (i) is a corporation duly formed, validly existing
and in good standing under the laws of the State of Delaware, (ii) is
qualified to transact business in each state in which it transacts
business, (iii) has full power and authority to execute and deliver, and
perform its obligations under, this Agreement, without the consent of any
other Person (other than as set forth on Exhibit C-8), and (iv) has duly
authorized the execution, delivery and performance of this Agreement by the
officer executing the same on its behalf. Purchaser's Designee (i) is a
corporation duly formed, validly existing and in good standing under the
laws of the State of Delaware, (ii) is qualified to transact business in
each state in which it transacts business, and (iii) has full power and
authority to perform its obligations under this Agreement, without the
consent of any other Person (other than as set forth on Exhibit C-8).
5.2 AUTHORIZATION. This Agreement has been duly executed by Purchaser and,
assuming the due execution of this Agreement by Seller, is a valid and
binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except that such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting generally the rights of creditors, and general
principles of equity. Assuming the due execution of this Agreement by
Seller and the designation by Purchaser of a Purchaser's Designee, it is a
valid and binding obligation of Purchaser's Designee, enforceable against
Purchaser's Designee in accordance with its terms, except that such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting generally the
rights of creditors, and general principles of equity.
5.3 NO VIOLATION. The execution, delivery and performance of this Agreement,
and the consummation of the Transaction, will not violate, result in a
breach of or constitute a default under any agreement to which Purchaser or
Purchaser's Designee is a party or by which its assets are bound.
5.4 NO CONSENTS. Except as set forth on Exhibit C-8, no consent, approval or
authorization of, or declaration, notice, filing or registration with, any
Governmental Authority, or any other Person, is required to be made or
obtained by Purchaser or Purchaser's Designee in connection with the
execution, delivery and performance of this Agreement and the consummation
of the Transaction described in this Agreement.
5.5 BANKRUPTCY. Neither Purchaser nor Purchaser's Designee is the subject
debtor under any Federal, state or local bankruptcy or insolvency
proceeding, or any other proceeding for dissolution, liquidation or winding
up of its assets.
5.6 NO BROKERS. No agent, broker or finder has acted for Purchaser or
Purchaser's Designee in connection with this Agreement and the Transaction.
5.7 ACQUISITION FOR INVESTMENT. Purchaser acknowledges that the shares of Stock
to be purchased by it or Purchaser's Designee pursuant to this Agreement
are being acquired in good faith for investment, solely for its own account
and not with a view to any distribution or other disposition of such shares
or any part thereof, or any interest therein, except in accordance with the
Securities Act of 1933, as amended.
<PAGE>
VI. CLOSING
6.1 TIME AND PLACE. Closing shall be held on the Closing Date at the offices of
Arnold & Porter, 555 Twelfth Street, N.W., Washington, D.C. 20004, or at
such other location as Seller and Purchaser may mutually determine.
6.2 DELIVERIES BY SELLER. At Closing, Seller shall deliver to Purchaser the
following:
6.2.1The original certificates representing all of the Stock, together with
stock powers duly executed by Seller;
6.2.2The original certificates representing all of the Subsidiary Stock
held by the Company or any Subsidiary (with the exception of (i) the
Subsidiary Stock of FKy and FRP, which has been pledged to the
Existing Lenders in connection with the Existing Financing and (ii)
the Subsidiary Stock which is not certificated);
6.2.3An Expansion Agreement for each Community for which Expansion Units
are planned, duly executed by Seller, other than with respect to the
Completed Expansion Projects and those Communities (or Expansion
Phases within such Communities) identified in Section 7.12;
6.2.4An agreement between the Company and the applicable Subsidiary
effecting the termination, as of immediately prior to Closing, of
Existing Management Agreements other than the FFI Management
Agreement, the FRP Management Agreement and the FRC-I Management
Agreement;
6.2.5A New Operating Agreement, duly executed by Seller (and joined in by
MI) and the applicable Subsidiary, effective as of prior to Closing,
for the following Communities: Lafayette and Lexington.
6.2.6A New Operating Agreement, duly executed by Seller (and joined in by
MI), for the following Communities: Pueblo Norte, Tiffany House,
Fountainview, Coral Oaks, Springwood Court, The Woodlands, Forum @
Crossing, Forwood Manor and Remington I;
6.2.7An assignment by the Company to Seller, duly executed by the Company
and Seller, as of immediately prior to Closing, of all of its rights
and obligations as manager under the Existing Management Agreements
for the following Communities: Foulk Manor North, Foulk Manor South,
Lincoln Heights, Millcroft, Montebello, Montevista, Myrtle Beach, Park
Summit, Shipley Manor, Tucson, Deer Creek, Overland Park, Brookside,
Memorial Woods, Park Lane, Desert Harbor, Knightsbridge and Remington
II;
6.2.8A Pooling Agreement for each of Pool I, Pool II, Pool III, Pool IV and
Pool V, duly executed by Seller;
6.2.9 The Indemnity Agreement duly executed by Seller and MI;
6.2.10 The Tax Agreement duly executed by Seller and MI;
6.2.11 The Noncompetition Agreement duly executed by Seller and MI;
6.2.12 The Distribution Agreement Amendment duly executed by MI;
<PAGE>
6.2.13 The Total Cost Certification with respect to any Expansion Units for
which a payment is made at Closing pursuant to Section 3.3;
6.2.14 The MSLS Completion Certificate (as defined in the Expansion
Agreement) for Park Summit IV (3 of 30 Expansion Units);
6.2.15 The License Letter, duly executed by MI;
6.2.16 Such resolutions and other evidence of authority as may be
reasonably required by Purchaser to evidence the authority of Seller
and its Affiliates to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents, as
applicable, and to evidence the authority of the Company and each
Subsidiary to take such actions as may be required prior to Closing
under this Agreement;
6.2.17 The minute books of the Company and each Subsidiary, and original
counterparts of the Existing Financing Documents (or, if such
originals are not available, copies thereof);
6.2.18 The written resignation of all Persons who are directors or officers
of the Company or any Subsidiary (other than the independent directors
of Forum Retirement, FFI and Forum Ohio), duly executed by such
Persons;
6.2.19 Such title affidavits and indemnities as the Title Company may
require from Seller in order for the Title Company to (i) delete from
the Title Policies the "standard form" exceptions for parties in
possession, unrecorded easements, mechanics' liens, survey matters and
the "gap," and (ii) issue the Non-Imputation Endorsement with respect
to the Title Policy to be issued at Closing for each Community;
6.2.20 An estoppel certificate executed by each Lessor in form acceptable
to Purchaser;
6.2.21 An estoppel certificate executed by each Existing Lender (other than
the holder of the Series A Woodlands Bonds or Series B Woodlands
Bonds) in form acceptable to Purchaser;
6.2.22 Evidence reasonably satisfactory to Purchaser of the transfer by the
Company and the Subsidiaries of the Excluded Assets, effective as of
prior to Closing;
6.2.23 As assignment of the Series A Woodlands Bonds duly executed by MI;
6.2.24 The opinion of its legal counsel addressing the matters set forth on
Exhibit D-12, in form reasonably satisfactory to Purchaser; and
6.2.25 All other documents required to be delivered by Seller at or prior
to the Closing Date pursuant to this Agreement or otherwise required,
or reasonably requested by Purchaser, in connection with this
Agreement.
<PAGE>
6.3 DELIVERIES BY PURCHASER. At Closing, Purchaser shall deliver to Seller the
following:
6.3.1The portion of the Purchase Price due on the Closing Date pursuant to
Section 3.2, by wire transfer of immediately available federal funds
to an account designated by Seller;
6.3.2 The Note duly executed by Purchaser's Designee;
6.3.3 The Guaranty duly executed by Purchaser;
6.3.4An Expansion Agreement for each Community for which Expansion Units
are planned, duly executed by the Subsidiary which owns such
Community, other than with respect to the Completed Expansion Projects
and those Communities (or Expansion Phases within such Communities)
identified in Section 7.12;
6.3.5The Expansion Notes required under Section 3.3.2, duly executed by
Purchaser's Designee or the applicable Subsidiary, as applicable;
6.3.6The Expansion Guaranties required under Section 3.3.2, duly executed
by Purchaser;
6.3.7The New Operating Agreements duly executed by the Subsidiary which
owns such Community for the following Communities: Pueblo Norte,
Tiffany House, Fountainview, Coral Oaks, Springwood Court, The
Woodlands, Forum @ Crossing, Forwood Manor and Remington I;
6.3.8The Pooling Agreement for each of Pool I, Pool II, Pool III, Pool IV
and Pool V, duly executed by Purchaser's Designee;
6.3.9The Indemnity Agreement duly executed by Purchaser and Purchaser's
Designee;
6.3.10 The Tax Agreement duly executed by Purchaser, Purchaser's Designee,
and the Company;
6.3.11 The Noncompetition Agreement duly executed by Purchaser and the
Company;
6.3.12 The Distribution Agreement Amendment duly executed by Purchaser;
6.3.13 The License Letter, duly executed by Host;
6.3.14 Such resolutions and other evidence of authority as may be
reasonably required by Seller to evidence the authority of Purchaser
and Purchaser's Designee to execute, deliver and perform its
obligations under this Agreement and the other Transaction Documents,
as applicable, and to evidence the authority of the Company and each
Subsidiary to take such actions as may be required from and after
Closing under this Agreement;
6.3.15 The opinion of its legal counsel addressing the matters set forth on
Exhibit D-13, in form reasonably satisfactory to Seller; and
6.3.16 All other documents required to be delivered by Purchaser at or
prior to the Closing Date pursuant to this Agreement or otherwise
required, or reasonably requested by Seller, in connection with this
Agreement.
<PAGE>
6.4 CLOSING ACCOUNTING.
6.4.1Seller has prepared and Purchaser has accepted, subject to its review
and approval of the Final Closing Accounting, the accounting ("Closing
Accounting") attached to this Agreement as Exhibit E-2. The Closing
Accounting is based upon Seller's estimate of the financial position
of the Company and the Subsidiaries, and sets forth the following: (i)
the amount of all Financing Reserves (by entity), (ii) the amount of
all Security Deposit Reserves (by Community), (iii) the amount of
Security Deposits (by entity), (iv) the estimated amount of Net
Current Assets (consolidated for the Company and the Subsidiaries),
other than cash, and (v) the amount of cash (consolidated for the
Company and the Subsidiaries), other than petty cash and similar
amounts maintained at each Community. Upon request, Seller shall make
available to Purchaser reasonable back-up (including Current Assets
and Current Liabilities by Community) of the matters set forth in the
Closing Accounting. The Closing Accounting shall estimate assets and
liabilities of the Company and the Subsidiaries as of the end of the
fifth 4-week accounting period in Seller's fiscal year, and shall be
prepared in accordance with GAAP.
6.4.2On or before the date which is one hundred twenty (120) days following
the Closing Date, Seller shall furnish to Purchaser a final accounting
("Final Closing Accounting") which shall be based upon the actual
financial position of the Company and the Subsidiaries as of the
Closing Date, and shall set forth the following: (i) the amount of all
Financing Reserves (by entity), (ii) the amount of all Security
Deposit Reserves (by Community), (iii) the amount of Security Deposits
(by entity), and (iv) the amount of Net Current Assets (by entity),
including all cash. The Final Closing Accounting shall be accompanied
by a report of Seller's Accountants, based upon agreed-upon procedures
determined by Seller and Purchaser promptly following Closing. Upon
request, Seller shall make available to Purchaser reasonable back-up
(including Current Assets and Current Liabilities by Community) of the
matters set forth in the Final Closing Accounting. The Final Closing
Accounting shall estimate assets and liabilities of the Company and
the Subsidiaries as of 12:01 am on the Closing Date, and shall be
prepared in accordance with GAAP. Purchaser shall cause the Company to
permit Seller and Seller's Accountants to have access during normal
business hours to the records of the Company and the Subsidiaries
reasonably requested by them for purposes of analyzing the Final
Closing Accounting.
6.4.3Following the delivery of the proposed Final Closing Accounting to
Purchaser, Purchaser shall have the right to cause Purchaser's
Accountants to review and/or audit the proposed Final Closing
Accounting. Seller shall permit the Purchaser's Accountants to have
access during normal business hours to all of the working papers,
analyses and schedules of the Sellers' Accountants utilized or
prepared in connection with the preparation of the Final Closing
Accounting. Within the 45-day period after receipt of the proposed
Final Closing Accounting from Seller, Purchaser shall, in a written
notice to Seller, either accept the proposed Final Closing Accounting
or describe in reasonable detail any proposed adjustments to such
proposed Final Closing Accounting and the reasons therefor. If Seller
has not received such notice of proposed adjustments within such 45-
day period, Purchaser shall be deemed irrevocably to have accepted the
proposed Final Closing Accounting.
<PAGE>
6.4.4Purchaser and Seller shall negotiate in good faith to resolve any
disputes over any proposed adjustments to the Final Closing
Accounting. In the event that Seller and Purchaser are unable to agree
with respect to the Final Closing Accounting, within seven (7) days of
Seller's receipt, Seller and Purchaser shall mutually agree upon an
independent public accounting firm, which shall make a determination
of such dispute based on not more than two rounds of presentations by
Seller and Purchaser and not by independent review. The findings of
such firm, which shall not exceed in amount the amount claimed by
either party as to any matter in dispute, shall be conclusive and
binding upon Seller and Purchaser for purposes of this Agreement. The
fees and expenses of such firm shall be borne 50% by Seller and 50% by
Purchaser. Seller or Purchaser, as applicable, shall pay to the other
such amounts as may be required by the determination of the
independent accounting firm, together with interest thereon at the
Interest Rate from the Closing Date through the date of payment, by
wire transfer of immediately available funds on or before the date
which is five (5) Business Days after such determination.
6.4.5Seller and Purchaser acknowledge that the Purchase Price calculated at
Closing pursuant to Exhibit E-1 assumes that Net Current Assets exceed
the Net Current Assets Target by an amount equal to estimated cash on
hand (other than petty cash and similar amounts maintained at the
Communities), which cash is reduced by the Minority Percentage
Interest. If the Final Closing Accounting indicates Net Current Assets
exceeded the Net Current Assets Target (as determined in Section 6.12)
by more than the Net Current Assets calculation used at Closing, then
the Purchase Price shall be increased by the amount of such excess
(reduced by the Minority Percentage Interest) and Purchaser shall pay
to Seller the amount of such excess (as so reduced), together with
interest thereon at the Interest Rate from the Closing Date through
the date of payment, by wire transfer of immediately available funds
on or before the date which is twenty (20) days after the date of its
approval of the Final Closing Accounting pursuant to Section 6.4.3. If
the Final Closing Accounting indicates Net Current Assets exceeded the
Net Current Assets Target (as determined in Section 6.12) by less than
the Net Current Assets calculation used at Closing (or were less than
the Net Current Assets Target (as determined in Section 6.12)), then
the Purchase Price shall be reduced by the amount of such shortfall
(reduced by the Minority Percentage Interest) and Purchaser shall pay
to Seller the amount of such shortfall (as so reduced), together with
interest thereon at the Interest Rate from the Closing Date through
the date of payment, by wire transfer of immediately available funds
on or before the date which is twenty (20) days after the date of
Purchaser's approval of the Final Closing Accounting pursuant to
Section 6.4.3; provided that if the Final Closing Accounting indicates
that Net Current Assets at either FRP or FRC-I were less than the Net
Current Assets Target (as determined in Section 6.12) for such
Subsidiary then the amount of such shortfall attributable to the
excess of the Net Current Assets Target over the Net Current Assets
shall not be reduced by the applicable Minority Percentage Interest.
In the event of any dispute concerning the Final Closing Accounting,
Seller or Purchaser, as applicable, shall pay to the other the amount
not in dispute, and the amount in dispute shall be payable pursuant to
Section 6.4.4.
<PAGE>
6.5 CAPITAL EXPENDITURES.
6.5.1Seller has prepared, and Purchaser has accepted subject to its review
and approval of final information pursuant to Section 6.5.4, the
estimate, as of the end of the fifth 4-week accounting period in
Seller's 1997 fiscal year, of all amounts expended by each Subsidiary
(including accrued liabilities set forth on the Closing Accounting)
towards Budgeted Capital Improvements, attached to this Agreement as
Exhibit E-4 (the "Estimated Capital Improvement Expenditures"). Upon
request, Seller shall make available to Purchaser reasonable back-up
of the matters set forth in such estimate.
6.5.2Seller has approved, and Purchaser has accepted subject to its review
and approval of final information pursuant to Section 6.5.4, an
estimate as to the amount by which the Estimated Capital Improvement
Expenditures are more or less than the product obtained by multiplying
(i) the total projected expenditures shown for such Budgeted Capital
Improvements in the applicable Capital Expenditure Budget by (ii) a
fraction, the numerator of which is the number of days elapsed prior
to Closing in the Company's 1997 fiscal year, and the denominator of
which is 364. With respect to FRP and FRC-I, any such surplus or
shortfall was reduced to reflect only the Majority Percentage
Interest. Purchaser and Seller acknowledge that all such surpluses and
shortfalls in the aggregate for all Subsidiaries result in a
shortfall, and that as a result the Purchase Price to be paid at
Closing will be reduced by the amount of such shortfall (the
"Estimated Capital Expenditure Shortfall").
6.5.3The amount of any Financing Reserve which is used for the payment of
expenditures otherwise payable out the "FF&E Reserve" under any
management or operating agreements in effect from and after Closing
shall be treated as a pre-funding of such "FF&E Reserve."
Consequently, the amounts which under such management or operating
agreements would be payable into the "FF&E Reserve" after Closing
shall constitute "Operating Expenses" under such management or
operating agreements, but shall be distributed to the applicable
Subsidiary (in lieu of being deposited in the "FF&E Reserve" under
such management or operating agreements) until such time as such
amounts equal the amounts on deposit in such Financing Reserve as of
the Closing Date.
6.5.4On or before the date which is one hundred twenty (120) days following
the Closing Date, Seller shall furnish to Purchaser an accounting, as
of the Closing Date, of all amounts actually expended or accrued by
each Subsidiary towards Budgeted Capital Improvements. Such accounting
shall be in substantially the same form as Exhibit E-4. Upon request,
Seller shall make available to Purchaser reasonable back-up of the
matters set forth in such accounting. At such time, Seller shall
determine whether the amounts expended by each Subsidiary towards
Budgeted Capital Expenditures are (i) more, in the aggregate, than the
amount obtained by multiplying (x) the total projected expenditures
shown for such Budgeted Capital Expenditures in the applicable Capital
Expenditures Budget by (y) a fraction, the numerator of which is the
number of days elapsed prior to Closing in the Company's 1997 fiscal
year and the denominator of which is 364 (a "Capital Expenditure
Surplus") or (ii) less, in the aggregate, than such amount (a "Capital
Expenditure Shortfall"). With respect to FRP and FRC-I, any such
determination of surplus or shortfall shall be
<PAGE>
reduced to reflect only the Majority Percentage Interest; provided
that with respect to shortfalls the Majority Percentage Interest will
only be taken into account to the extent that the Net Current Assets
of such Subsidiary determined in the Final Closing Accounting are in
excess of the Net Current Assets Target of such Subsidiary. If there
is a Capital Expenditure Surplus, the Purchase Price will be increased
by an amount equal to the sum of such Capital Expenditure Surplus plus
the Estimated Capital Expenditure Shortfall. If there is a Capital
Expenditure Shortfall that exceeds the Estimated Capital Expenditure
Shortfall, the Purchase Price will be decreased by the amount of such
excess. If there is a Capital Expenditure Shortfall that is less than
the Estimated Capital Expenditure Shortfall, the Purchase Price will
be increased by the difference. Any amounts required to be paid under
this Section 6.5.4 shall be made, together with interest thereon at
the Interest Rate from the Closing Date through the date of payment,
by wire transfer of immediately available funds on or before the date
which is twenty (20) days after the date of approval of the Final
Closing Accounting pursuant to Section 6.4.3. Any dispute concerning
such adjustments shall be resolved in the manner described in Section
6.4, mutatis mutandis.
6.6 LIFECARE PAYMENTS.
6.6.1The following Lifecare Contracts shall comprise the "Base Lifecare
Contracts" for purposes of this Agreement: up to 149 Lifecare
Contracts for Pueblo Norte, and up to 144 Lifecare Contracts for
Brookside.
6.6.2For those Base Lifecare Contracts in effect as of Closing, the
following shall apply:
6.6.2.1 Purchaser shall receive no compensation, whether in the form
of an adjustment to the Purchase Price or otherwise, for Lifecare
Payments received by the Company or any Subsidiary prior to the
Closing Date from the Residents under such Base Lifecare
Contracts;
6.6.2.2 From and after Closing, Seller, at its sole cost and expense,
shall maintain all Lifecare Reserves required by any applicable
law or any Governmental Authority in connection with such Base
Lifecare Contracts, and shall make all payments required under
such Base Lifecare Contracts. To the extent required by
applicable law or any Governmental Authority, such Lifecare
Reserves may be in the name of the Company or the applicable
Subsidiary, but Seller and Purchaser acknowledge that their
intent is that Seller, to the extent permitted by law and
Governmental Authority, shall have complete dominion and control
over such Lifecare Reserves (including the right to direct
payment), and shall have complete responsibility for the
maintenance thereof;
6.6.2.3 At such time as may be permitted under applicable law and
Governmental Authority, Seller shall have the right to distribute
to itself all Lifecare Reserves described in Section 6.6.2.2. To
the extent that such Lifecare Reserves are held in the name of
the Company or any Subsidiary, Purchaser shall cause the Company
or such Subsidiary to cooperate fully in effecting such
distribution to Seller; and
<PAGE>
6.6.2.4 Notwithstanding any provision of any New Operating Agreement
to the contrary, Lifecare Payments received by the Company or any
Subsidiary prior to the Closing Date from the Residents under
Base Lifecare Contracts shall not constitute "Gross Revenues"
under the New Operating Agreement, whether in full or the portion
thereof amortizing after the Closing Date.
6.6.3For those Lifecare Contracts in effect at any Community as of Closing
in excess of the Base Lifecare Contracts ("Excess Lifecare
Contracts"), the following shall apply:
6.6.3.1 The Purchase Price shall be decreased by the amount of any
Lifecare Payment (reduced by any applicable Minority Interest
Percentage) received in respect of the Excess Lifecare Contracts
(plus such interest thereon as may be required under applicable
law as of the Closing Date), except to the extent any such
Lifecare Payment is accrued as a Current Liability, and except to
the extent of the amount of any Lifecare Reserve maintained by
the applicable Subsidiary with respect to such Excess Lifecare
Contracts; and
6.6.3.2 From and after Closing, Purchaser, at its sole cost and
expense, shall maintain all Lifecare Reserves required by
applicable law or any Governmental Authority in connection with
the Excess Lifecare Contracts and shall make all payments
required under the Excess Lifecare Contracts.
6.6.4Lifecare Contracts shall be allocated between Base Lifecare Contracts
and Excess Lifecare Contracts based on their effective date, with
those Lifecare Contracts having an earlier effective date being
allocated to Base Lifecare Contracts, and those Lifecare Contracts
with a later effective date being allocated to Excess Lifecare
Contracts.
6.6.5Seller has provided to Purchaser, and Purchaser has accepted subject
to its review and approval of final information pursuant to this
Section 6.6.5, a list (itemized by Resident), as of the end of the
fifth 4-week accounting period in Seller's fiscal year, of the
following: (i) all Lifecare Contracts in effect, (ii) all Lifecare
Payments received under such Lifecare Contracts, and (iii) all
Lifecare Reserves maintained with respect to such Lifecare Contracts.
Such list forms the basis for implementing, at Closing, the provisions
of Sections 6.6.1 through 6.6.4, and is attached to this Agreement as
Exhibit E-3. On the date which is one hundred twenty (120) days after
the Closing Date, Seller shall provide to Purchaser a list (itemized
by Resident) of all Lifecare Contracts actually in effect, all
Lifecare Payments actually received under such Lifecare Contracts, and
all Lifecare Reserves maintained with respect to such Lifecare
Contracts, all as of the Closing Date. Seller and Purchaser, both
acting reasonably and in good faith, shall make such adjustments to
the Purchase Price as shall be required based upon the actual Lifecare
Contracts and Lifecare Payments as of the Closing Date. Within twenty
(20) days after completion of such adjustments, Seller and Purchaser
shall each make such payments to the other, together with interest
thereon at the Interest Rate from the Closing Date through the date of
payment, as may be required as a result of such adjustments.
<PAGE>
6.7 SECURITY DEPOSITS. Seller and Purchaser acknowledge that the Purchase Price
calculated at Closing pursuant to Exhibit E-1 was based on certain
assumptions of levels of Security Deposit Reserves and liabilities
associated with Security Deposits that resulted in an increase in the
Purchase Price (such increase, the "Estimated Security Deposit Reserve
Surplus"). If the Final Closing Accounting indicates that the Security
Deposit Reserves exceeded the liabilities associated with Security Deposits
by more than the Estimated Security Deposit Reserve Surplus, then the
Purchase Price shall be increased by the amount of such excess (reduced by
the Minority Percentage Interest) and Purchaser shall pay to Seller the
amount of such excess (as so reduced), together with interest thereon at
the Interest Rate from the Closing Date through the date of payment, by
wire transfer of immediately available funds on or before the date which is
twenty (20) days after the date of its approval of the Final Closing
Accounting pursuant to Section 6.4.3. If the Final Closing Accounting
indicates that the Security Deposit Reserves exceeded the liabilities
associated with Security Deposits by less than the Estimate Security
Deposit Reserve Surplus, or if the liability of the Company or the
applicable Subsidiary for Security Deposits as of the Closing exceeded the
amount of any Security Deposit Reserves associated therewith, then such
shortfall will be deemed to be a Current Liability for purposes of
determining the final Net Current Assets and will be reduced by the
Minority Percentage Interest to the extent set forth in Section 6.4.5. In
the event of any dispute concerning the Final Closing Accounting, Seller
and Purchaser, as applicable, shall pay to the other the amount not in
dispute, and the amount in dispute shall be payable pursuant to Section
6.4.4.
6.8 CERTAIN PURCHASE PRICE ADJUSTMENTS. Seller and Purchaser acknowledge that
certain payments made in respect of the Tax Agreement may be accounted for
as an adjustment to the Purchase Price. Without limiting the generality of
the foregoing, with respect to each Subsidiary which is a partnership for
purposes of federal income taxes, amounts paid under the Tax Agreement as a
result of taxable income or gain realized by such Subsidiary for the period
prior to Closing shall be accounted for as an adjustment to the Purchase
Price.
6.9 NEW OPERATING AGREEMENT MATTERS.
6.9.1For purposes of the definition of "Owner's Initial Cost" set forth in
Section 1.01 of each New Operating Agreement, the Purchase Price,
Existing Financing and Purchaser's budgeted costs in connection with
the Transaction shall be allocated among the Communities as set forth
on Exhibit E-5. Within ten (10) days after Seller and Purchaser agree
to the Final Closing Accounting pursuant to Section 6.4, Seller and
Purchaser shall make such revisions to such definition of "Owner's
Initial Cost" as may be necessary to conform such definition to the
Final Closing Accounting and to reflect all actual out-of-pocket costs
and expenses incurred by Purchaser or its Affiliates in connection
with the Transaction.
6.9.2The Capital Expenditure Budget for each Community shall constitute the
"Repairs and Equipment Estimate" described in Section 8.02D of the New
Operating Agreement for such Community for the balance of the 1997
fiscal year.
6.9.3The operating projections for each Community attached as Exhibit E-6
shall constitute the Annual Operating Projection described in Section
9.03 of the New Operating Agreement for such Community for the balance
of the 1997 fiscal year.
<PAGE>
6.9.4Any cost, expense, liability or other amount (an "Expense") that would
otherwise constitute an "Operating Expense" under any New Operating
Agreement shall be excluded from "Operating Expenses" and shall be
borne solely by Seller and its Affiliates (or, if constituting a
Current Liability shown on the Final Closing Accounting, shall be
borne solely by Purchaser and its Affiliates) to the extent that it is
attributable to, or relates to, the employment of any person by the
Company or any of its Affiliates prior to Closing. Such Expenses to be
excluded from "Operating Expenses" shall include (i) the pro rata
portion of any payment, bonus, or profit sharing allocation that is
paid or provided with respect to, or relates to, a period that
includes the Closing, including bonuses and other forms of incentive
compensation, (ii) deferred compensation or benefits that relate to
periods prior to Closing, and (iii) unused personal time, vacation pay
or sick leave (collectively, "Leave") accrued prior to Closing
(whether or not pay or benefits with respect to such Leave is paid or
provided separately or as a part of regular payroll).
6.9.5Any Expense that would otherwise constitute an "Operating Expense"
under any New Operating Agreement shall be excluded from "Operating
Expenses" and shall be borne solely by Seller and its Affiliates (or,
if constituting a Current Liability shown on the Final Closing
Accounting, shall be borne solely by Purchaser and its Affiliates) to
the extent that it is attributable to, or relates to, any person who
is or was an employee of the Company or any of its Affiliates prior to
Closing and who is on disability or similar leave at the time of
Closing (except for Operating Expenses for employer contributions to
welfare benefit plans), provided that any Expense that is attributable
to or relates to the employment of any such person after such person
returns to active employment with the Seller or any of its Affiliates
after Closing may be treated as an Operating Expense, subject to the
terms of the New Operating Agreement.
6.10 TRANSACTION COSTS.
6.10.1 Purchaser shall pay (i) all recordation, transfer, documentary and
similar taxes, if any, levied upon transfer of the Stock by Seller to
Purchaser, (ii) all costs and premiums charged by the Title Company in
connection with its search of title to the Communities and issuance of
the Title Policies, (iii) the fees and expenses of Claris Services
Corporation, Purchaser's Accountants, and any other appraiser,
engineer, environmental consultant, advisor or consultant retained by
Purchaser, (iv) the fees and expenses of Purchaser's legal counsel in
connection with the Transaction, (v) such other usual and customary
costs, expenses and charges as may be lawfully imposed by any Person
other than Seller and its Affiliates in connection with the
Transaction, and (vi) such other costs as are specifically required to
be borne by Purchaser under this Agreement.
6.10.2 Seller shall pay (i) the costs and expenses of its legal counsel,
the Seller's Accountants and any other advisors or consultants
retained by Seller, and (ii) such other costs as are specifically
required to be borne by Seller under this Agreement.
6.11 EMPLOYEES. Prior to Closing, Seller shall take all such actions as may be
necessary or appropriate such that, effective as of the Closing, the
Company and its Subsidiaries shall have no employees or directors (other
than the independent directors of Forum Retirement, FFI and Forum Ohio).
<PAGE>
Prior to Closing, Seller shall take all such actions (including but not
limited to obtaining employee waivers and consents) as may be necessary or
appropriate such that, on and after the Closing, the Company and its
Subsidiaries shall no longer sponsor, be a party to, participate in, or
have any obligation under or with respect to any Plan, or any contract or
agreement listed on Exhibit C-10. Prior to Closing, Seller shall provide to
Purchaser a written description of the actions taken (or to be taken) by
Seller in order to comply with the provisions of this Section 6.11, and the
actions by Seller to seek to cause the Company and its Subsidiaries to
cease being a party to, or obligated under, any union contract, collective
bargaining agreement or other labor contract. The delivery to Purchaser of
the written description provided for by the preceding sentence, or the
failure of Purchaser to object to the contents thereof, shall not in any
way limit, restrict, or constitute a waiver of any of Purchaser's rights
hereunder or satisfy, relieve, or in any way modify any of Seller's
obligations hereunder, except Seller's obligation to deliver such written
description.
6.12 NET CURRENT ASSETS TARGET. Within five (5) days of Purchaser's receipt of
the "Interim Accountings" under the New Operating Agreements for the ninth
4-week accounting period in Seller's 1997 fiscal year, Seller and Purchaser
shall mutually determine, both acting reasonably and in good faith, the
amount of Net Current Assets ("Net Current Assets Target") for all
Subsidiaries which is sufficient to meet the reasonably anticipated working
capital needs of such Subsidiaries, taking into account the actual
experience of each individual Subsidiary, as well as the restrictions set
forth in the Existing Financing Documents. Such determination shall exclude
extraordinary cash needs, or cash required to fund capital expenditures in
excess of amounts payable into the FF&E Reserve under the New Operating
Agreement or any other management agreement in effect from and after
Closing. Seller and Purchaser agree that the Net Current Assets Target
shall not be less than $553/Residential Unit nor more than
$1,000/Residential Unit. Any dispute concerning such determination shall be
resolved in the manner described in Section 6.4.4, mutatis mutandis.
VII. COVENANTS AFTER CLOSING
7.1 BOOKS AND RECORDS. Upon request of Purchaser from time to time after
Closing, Seller shall deliver to Purchaser all or any portion of the Books
requested by Purchaser. So long as any Books, to the extent that they
pertain to the period preceding the Closing Date, remain in existence and
available, Seller and Purchaser shall each (at its expense) have the right
to inspect and to make copies of the same at any time during normal
business hours for any proper purpose upon reasonable prior notice.
7.2 FINANCIAL INFORMATION.
7.2.1On or before July 21, 1997, Seller shall deliver to Purchaser (i)
year-to-date 1997 financial information through the second quarter as
may be required under the Existing Financing Documents for FRC-I and
FFI, and (ii) balance sheet information with account detail by entity
as of June 20, 1997, with the Seller to assist Purchaser in the
recording of the acquisition by entity.
7.2.2On or before July 30, 1997, Seller shall deliver to Purchaser year-to-
date 1997 financial statements through the second quarter (10-Q) and
such other financial information as may be required under the Existing
Financing Documents for FRP.
<PAGE>
7.2.3On or before August 5, 1997, (i) Seller support the preparation of a
balance sheet, income statement and statement of cash flows for the
Company and its Subsidiaries (on a consolidated basis) for the fiscal
years ending January 3, 1997, March 31, 1996 and March 31, 1995,
together with an unqualified audit report thereon issued by KPMG Peat
Marwick LLP (engaged by Purchaser) and/or Purchaser's Accountants, and
(ii) Seller shall deliver a balance sheet, income statement and
statement of cash flows for the Company and its Subsidiaries (on a
consolidated basis) for year-to-date 1997 and 1996 through the second
quarter, unaudited, with footnotes, in 10-Q format.
7.3 FURTHER ASSURANCES. From and after Closing, promptly upon request, Seller
and Purchaser shall promptly take all appropriate action and execute all
documents, instruments and conveyances of any kind which may be reasonably
necessary or advisable to effect the transfer of the Stock to Purchaser's
Designee and otherwise carry out any of the provisions of this Agreement.
Without limiting the generality of the foregoing, Seller and Purchaser
shall promptly take all appropriate action and execute all documents
reasonably necessary to effect the transfer of the Excluded Assets,
effective prior to Closing, by the Company and its Subsidiaries to Seller
or its Affiliates, provided that all costs, expenses and liabilities
incurred in connection with such transfer shall be borne by Seller.
7.4 EQUIPMENT LEASES. Seller acknowledges that all Equipment Leases and
Contracts in effect as of the Closing Date are acceptable to it, and agrees
that after Closing, the New Operator shall not require the termination of
such Equipment Leases or Contracts prior to the expiration of their term.
7.5 MEDICAID/MEDICARE CONTRACTS. In connection with the Transaction, Seller and
Purchaser shall fully cooperate with each other to cause all
Medicaid/Medicare Contracts to continue in full force and effect (or to the
extent required by law, to cause new Medicaid/Medicare Contracts to be
entered into) in favor of the Company and each Subsidiary from and after
Closing. Without limiting the generality of the foregoing, Seller and
Purchaser shall each promptly furnish all information as may be required by
any Governmental Authority in connection with such Medicaid/Medicare
Contracts. Seller and Purchaser shall each provide to the other copies of
all applications, documents, correspondence and written communications that
each of them or their Affiliates files with, sends to or receives from any
Governmental Authority in connection with the Medicaid/Medicare Contracts.
7.6 PERMITS. In connection with the Transaction, Seller and Purchaser shall
fully cooperate with each other, (i) to cause all Permits to continue in
full force and effect (or to the extent required by law, to cause new
Permits to be issued) in favor of the Company and each Subsidiary from and
after Closing, or (ii) to the extent permitted by law, to cause all Permits
to be issued in the name of the New Operator from and after Closing.
Without limiting the generality of the foregoing, Seller and Purchaser
shall each promptly furnish all information as may be required by any
Governmental Authority in connection with the transfer or issuance of such
Permits (other than confidential or proprietary information not customarily
required for such transfers and issuances and not required by applicable
law, provided that the party withholding such information is diligently and
reasonably contesting the legality of the requirement that such information
be provided). Seller and Purchaser shall each provide to the other copies
of all applications, documents, correspondence and written communications
that each of them or their Affiliates files with, sends to or receives from
any Governmental Authority in connection with the Permits.
<PAGE>
7.7 NOTICES OF VIOLATION. In the event that prior to Closing any Governmental
Authority shall issue any notice of violations of orders or requirements,
against or affecting the Assets, such notice shall be promptly complied
with by Seller at its sole cost and expense.
7.8 CASUALTY. In the event that prior to Closing, all or any portion of the
Assets is damaged or destroyed by fire or other casualty, and restoration
of the Assets is not completed as of Closing, then in addition to the
Assets otherwise required under this Agreement to be owned by the Company
and the Subsidiaries as of Closing, there shall be included all insurance
proceeds in respect of such casualty (or the right to receive the same),
less such portion as shall have been expended in connection with the
restoration of the Assets to their condition as of prior to such casualty
(and such proceeds, or the right to receive the same, shall not be
considered a Current Asset in the calculation of Net Current Assets).
7.9 CONDEMNATION. In the event that prior to Closing, any Governmental
Authority shall condemn, on a permanent or temporary basis, all or any
portion of the Assets, then in addition to the Assets required under this
Agreement to be owned by the Company and the Subsidiaries as of Closing,
there shall be included all proceeds of such condemnation (or the right to
receive the same), less such portion as shall have been expended in
connection with the restoration of the Assets to their condition as of
prior to such condemnation or taking (and such proceeds, or the right to
receive the same, shall not be considered a Current Asset in the
calculation of Net Current Assets).
7.10 CHANGE OF NAMES. As soon as practicable following Closing, taking into
account the timing of the renewal of Permits, but in no event later than
the one (1) year anniversary of the Closing Date, Purchaser shall cause the
name of the Company and each Subsidiary to be changed so as to eliminate
reference to the word "Forum" or variations thereof. Notwithstanding the
foregoing, if such change is prohibited by, or would violate, any Contract
to which the Company or any Subsidiary is a party or otherwise bound, or
the Existing Financing Documents, then such change shall be effected by
Purchaser at the earliest possible time that such change would no longer be
prohibited by, or violate, such Contract or the Existing Financing
Documents. Seller shall reimburse Purchaser for all out-of-pocket filing
costs (not including any fees of outside legal counsel) incurred by
Purchaser in connection with the change of names described in this Section
7.10.
7.11 NOTICES, CONSENTS AND APPROVALS. Purchaser and Seller shall fully cooperate
with each other to give such notices of the Transaction, and to obtain such
consents to and approvals of the Transaction, as may be required, including
those notices, consents and approvals set forth on Exhibit C-8. Purchaser
and Seller shall each provide such additional information, documents,
materials and filings as may be required to give such notices or obtain
such consents and approvals. Purchaser and Seller shall each furnish to the
other and its counsel such information and assistance as may be reasonably
requested in connection with the giving of such notices or obtaining such
consents and approvals.
7.12 EXPANSION AGREEMENTS. Seller and Purchaser acknowledge that an Expansion
Agreement is not being executed at Closing with respect to the following
Communities (or to certain Expansion Phases within such Communities):
Remington II, Montevista I, Myrtle Beach II, and Lincoln Heights II/III.
From and after Closing, Seller and Purchaser shall use commercially
reasonable efforts to obtain the consent of any Person whose consent is
<PAGE>
required as a condition to the execution of the Expansion Agreement or the
construction of the Expansion Units described in such Expansion Agreement.
Promptly upon obtaining all consents required with respect to any Community
(or to Expansion Phases within such Community), Seller shall execute, and
Purchaser shall cause the applicable Subsidiary to execute, an Expansion
Agreement for such Community (or Expansion Phase).
7.13 EXPANSION OF DESERT HARBOR. Seller and Purchaser acknowledge that as of the
Closing Date, (i) FFI does not own a portion of the land on which Desert
Harbor will be expanded pursuant to the Expansion Agreement executed at
Closing with respect to Desert Harbor, and (ii) Seller has contracted to
acquire such land. After Closing, Seller shall cause fee title to such land
to be transferred to FFI, at the sole cost and expense of Seller, and
Purchaser shall cause FFI to cooperate as may be necessary in connection
with such transfer.
7.14 CERTAIN EXPANSION PROJECTS.
7.14.1 Upon request of Purchaser from time to time, Seller shall assign to
Purchaser or Purchaser's Affiliates all warranties and guaranties
received by Seller or any of its Affiliates in connection with the
design, construction and equipping of the following expansion projects
affecting the Communities and completed prior to Closing: Brookside I,
Brookside II, Brookside IV, Foulk Manor South, Montebello I, Lafayette
I, Deer Creek I, Myrtle Beach I, Pueblo Norte I, Shipley Manor, and
Park Summit IV (3 of 30 Expansion Units) (collectively, "Completed
Expansion Projects"). If for any reason such warranties and guaranties
are not assignable to Purchaser or its Affiliates, Seller shall fully
cooperate with Purchaser and its Affiliates in enforcing or otherwise
exercising its rights with respect to such warranties and guaranties.
7.14.2 Seller warrants to Purchaser and its Affiliates that materials,
equipment, Decorative Items, FF&E, Trade Equipment, Soft Goods and
Fixed Asset Supplies (as such terms are defined in the form of
Expansion Agreement) furnished in connection with the Completed
Expansion Projects which were substantially completed on or after
January 1, 1997 and prior to Closing shall be of good quality and new
and that the construction and installation of the same will be free
from defects not inherent in the quality required or permitted.
Seller's warranty excludes remedy for damage or defect caused by
abuse, improper or insufficient maintenance, improper operation, or
normal wear and tear under normal usage. The foregoing warranty shall
expire as to any deficiencies not noted in writing by Purchaser to
Seller prior to the date which is one (1) year after Substantial
Completion (as defined in the Expansion Agreement) of each such
Completed Expansion Project, other than latent defects, and two (2)
years with respect to latent defects (such warranty not to include
defects in equipment for which a commercially reasonable
manufacturer's warranty was obtained at the time of the purchase
thereof). Purchaser shall have the right, prior to expiration of such
two (2) year period for latent defects warranty, to notify Seller of
conditions which Purchaser reasonably believes and can indicate with
reasonable specificity do or will constitute latent defects. The
parties will attempt to agree upon whether such condition constitutes
or will constitute a latent defect, and failing agreement either party
may submit such dispute to binding arbitration in accordance with the
terms of Section 11.3 of the Expansion Agreement. Seller and Purchaser
acknowledge that the only Completed Expansion Project which was
substantially completed on or after January 1, 1997 and prior to
Closing is Park Summit IV (3 of 30 Expansion Units).
<PAGE>
7.15 HUD CONSENT TO LEXINGTON EXPANSION. Seller and Purchaser acknowledge that
the consent of the U.S. Department of Housing and Urban Development may be
required in connection with the construction of certain Expansion Units at
Lexington. From and after closing, Seller shall at its sole cost and
expense take such action as may be reasonably necessary to obtain such
consent, and Purchaser shall fully cooperate as may be reasonably necessary
to obtain such consent.
7.16 ADDITIONAL SELLER WORK. Seller shall, at its sole cost and expense,
complete the work described on Exhibit E-7. Seller shall use commercially
reasonable efforts to substantially complete all such work by December 31,
1997.
VIII. MISCELLANEOUS
8.1 JURISDICTION. Any suit, action or proceeding under or in connection with
this Agreement or the Transaction shall be brought in any federal or state
court of competent jurisdiction located in the State of Maryland. By
execution of this Agreement, each party consents to the exclusive
jurisdiction of such courts, and waives any right to challenge the
jurisdiction of such courts or the appropriateness of venue in such courts.
EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR THE TRANSACTION DESCRIBED IN THIS AGREEMENT.
8.2 DOCUMENTARY CONVENTIONS. This Agreement shall be governed by the
Documentary Conventions.
8.3 NOTICES. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be hand-delivered, delivered by nationally
recognized overnight courier, mailed by certified or registered mail,
postage prepaid, return receipt requested, or telecopied with confirmation
of receipt, to the addresses set forth below, or to such other addresses of
which either party shall notify the other party in accordance with this
Section 8.3, and shall be deemed given as of the time of such mailing or
delivery, as applicable:
If to Seller: Marriott Senior Living Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Chief Financial Officer
Telecopy: 301/380-6540
<PAGE>
With a copy to: Marriott International Law Department
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: General Counsel
Telecopy: 301/380-6727
And a copy to: O'Melveny & Myers LLP
555 13th Street, N.W.
Washington, D.C. 20004
Attention: David G. Pommerening,
Esquire
Telecopy: 202/383-5414
If to the Purchaser: Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817-1109
Attention: Steven J. Fairbanks
Telecopy: 301/380-6338
with a copy to: Host Marriott Corporation
Law Department 923
10400 Fernwood Road
Bethesda, Maryland 20817-1109
Attention: David L. Buckley, Esquire
Telecopy: 301/380-3588
with a copy to: Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Attention: Michael D. Goodwin,
Esquire
Telecopy: 202/942-5999
8.4 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon, and
shall inure to the benefit of, Seller and Purchaser and their respective
heirs, legal representatives, successors and assigns. Notwithstanding the
foregoing, neither Seller nor Purchaser shall assign this Agreement, except
that Purchaser shall have the absolute right, upon written notice to
Seller, to assign all or any portion of this Agreement and all or any
portion of its rights under this Agreement to any Person One Hundred
Percent (100%) of the voting stock, membership interests or partnership
interests of which is owned by Purchaser ("Purchaser's Designee"), provided
that any such assignment shall not relieve Purchaser from any obligations
or liabilities under this Agreement. Any purported assignment of this
Agreement in violation of this Section 8.4 shall be null and void.
8.5 DEFAULT AND REMEDIES. The remedies for breach of or default under
representations, warranties or covenants under this Agreement, and
liability for damages in connection with any such breach or default, are
limited to the extent set forth in the Indemnity Agreement, and may be
brought only in accordance with the Indemnity Agreement.
8.6 PUBLICITY. Seller and Purchaser shall mutually agree as to the form and
substance of any press release, press contact or other method of publicity
relating to this Agreement or the Transaction, and shall consult with each
other as to the form and substance of other public disclosure related
thereto, provided that nothing in this Section 8.6 shall prohibit Seller or
Purchaser, following notice to the other, from making any disclosure or
filing which its counsel deems necessary under New York Stock Exchange
Rules or other applicable law.
[signatures on following page]
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement under
seal as of the Closing Date.
Seller:
MARRIOTT SENIOR LIVING SERVICES, INC.,
a Delaware corporation
By:/s/Paul E. Johnson, Jr.
Name:Paul E. Johnson, Jr.
Title:President
Purchaser:
HOST MARRIOTT CORPORATION, a Delaware
corporation
By:/s/Steven J. Fairbanks
Name:Steven J. Fairbanks
Title:Vice President
Joinder of Marriott International, Inc.
This undersigned is joining in this Agreement for the sole purpose of
evidencing its agreement to transfer to Purchaser the Series A Woodlands Bonds
in accordance with the terms of this Agreement.
MARRIOTT INTERNATIONAL, INC.,
a Delaware corporation
By:/s/Paul E. Johnson, Jr.
Name:Paul E. Johnson, Jr.
Title:Vice President
<PAGE>
LIST OF EXHIBITS
EXHIBIT A: THE COMMUNITIES
A-1 List of Subsidiaries
A-2 List of Communities
A-3 Description of Land
A-4 List of Leases
A-5 List of Commercial Leases
A-6 List of Equipment Leases
A-7 List of Contracts
A-8 List of Medicaid/Medicare Contracts
A-9 Residential Units
A-10 Expansion Units
A-11 Pools
EXHIBIT B: EXCLUDED ASSETS
B-1 Excluded Communities
B-2 Excluded Subsidiaries
B-3 Selected Excluded Assets
EXHIBIT C: DISCLOSURES
C-1 Stock of Forum Group
C-2 Encumbrances upon Subsidiary Stock
C-3 Rent Roll and Receivables Aging Report
C-4 Insurance Claims
C-5 Litigation
C-6 Existing Financing Documents
C-7 Environmental Reports
C-8 Required Consents, Approvals and Notices
C-9 Employee Benefit Plans
C-10 Employee Agreements
C-11 Certain Employees of Seller
EXHIBIT D: FORMS OF CLOSING DOCUMENTS
D-1 Note
D-2 Guaranty
D-3 Expansion Agreement
D-4 Expansion Note
D-5 Expansion Guaranty
D-6 New Operating Agreement
D-7 Pooling Agreement
D-8 Indemnity Agreement
D-9 Tax Agreement
<PAGE>
D-10 Noncompetition Agreement
D-11 Distribution Agreement Amendment
D-12 Opinion of Seller's Counsel
D-13 Opinion of Purchaser's Counsel
D-14 Non-Imputation Endorsement
EXHIBIT E: FINANCIAL MATTERS
E-1 Calculations to Determine Purchase Price
E-2 Closing Accounting
E-3 Lifecare Contracts, Lifecare Reserves and
Lifecare Payments
E-4 Capital Expenditure Budgets
E-5 Determination of Owner's Initial Cost
E-6 Annual Operating Projections
E-7 Additional Seller Work
<PAGE>
EXHIBIT 11
PAGE 1 OF 2
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
($ in millions, except per share amounts)
<TABLE>
<CAPTION>
Twelve weeks ended Thirty-six weeks ended
------------------------------ ------------------------------
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Computation of Primary Earnings Per Share
- -----------------------------------------
Net Income................................................ $ 67.5 $ 58.0 $ 227.4 $ 196.0
============= ============= ============= =============
Shares -
Weighted average number of shares outstanding............. 127.3 127.8 126.8 127.4
Assumed distribution of shares reserved under employee
stock purchase plan, less shares assumed purchased at
the average market price................................. - 0.1 - 0.1
Assumed issuance of shares granted under employee
stock option plan, less shares assumed purchased at
the average market price............................... 4.6 4.4 4.3 4.4
Assumed distribution of shares granted under deferred
stock incentive plan, less shares assumed purchased at
average market price................................... 3.0 3.1 3.0 3.1
------------- ------------- ------------- -------------
134.9 135.4 134.1 135.0
============= ============= ============= =============
Primary Earnings Per Share................................ $ .50 $ .43 $ 1.70 $ 1.45
============= ============= ============= =============
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 2 OF 2
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
($ in millions, except per share amounts)
<TABLE>
<CAPTION>
Twelve weeks ended Thirty-six weeks ended
----------------------------- ----------------------------
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Computation of Fully Diluted Earnings Per Share
- -----------------------------------------------
Earnings -
Net Income......................................................... $ 67 $ 58 $ 227 $ 196
After-tax interest expense on convertible subordinated debt..... 2 2 5 4
------------- ------------ ------------- ------------
Net income for fully diluted earnings per share.................... $ 69 $ 60 $ 232 $ 200
============= ============ ============= ============
Shares -
Weighted average number of shares outstanding...................... 127.3 127.8 126.8 127.4
Assumed distribution of shares reserved under employee
stock purchase plan, less shares assumed purchased at
greater of average or ending market price..................... 0.1 0.1 0.1 0.2
Assumed issuance of shares granted under employee stock
option plan, less shares assumed purchased at greater
of average or ending market price............................. 4.6 4.5 4.8 4.7
Assumed distribution of shares granted under deferred
stock incentive plan, less shares assumed purchased at
greater of average or ending market price..................... 3.0 3.1 3.0 3.1
Assumed issuance of common shares upon conversion of
convertible subordinated debt................................. 4.7 4.7 4.7 3.2
------------- ------------ ------------- ------------
139.7 140.2 139.4 138.6
============= ============ ============= ============
Fully Diluted Earnings Per Share................................... $ .49 $ .43 $ 1.67 $ 1.44
============= ============ ============= ============
</TABLE>
<PAGE>
EXHIBIT 12
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in Millions)
<TABLE>
<CAPTION>
Thirty-six weeks
Ended Fiscal Year Ended
------------------ ----------------------------------------------------
September 12, 1997 1996 1995 1994 1993 1992
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income Before Cumulative Effect of a Change
in Accounting Principle $ 227 $ 306 $ 247 $ 200 $ 159 $ 134
Add/(Deduct):
Tax on Income Before Cumulative Effect of a
Change in Accounting-Principle 149 196 165 142 116 103
Fixed Charges 121 142 107 84 73 72
Interest Capitalized as Property and Equipment (11) (9) (8) (4) (3) (2)
(Income)/Loss Related to
certain 50%-or-Less-Owned-Affiliates 0 1 0 (2) (1) 2
-------- -------- -------- -------- -------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES $ 486 $ 636 $ 511 $ 420 $ 344 $ 309
======== ======== ======== ======== ======== ========
Fixed Charges:
Interest Including Amounts Capitalized as
Property and Equipment $ 88 $ 94 $ 61 $ 36 $ 30 $ 27
Portion of Rental Expense Representative of
Interest 33 48 45 45 40 44
Share of Interest Expense of
certain 50%-or-Less-Owned-Affiliates 0 0 1 3 3 1
-------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 121 $ 142 $ 107 $ 84 $ 73 $ 72
======== ======== ======== ======== ======== ========
-------- -------- -------- -------- -------- --------
RATIO OF EARNINGS TO FIXED CHARGES 4.0 4.5 4.8 5.0 4.7 4.3
======== ======== ======== ======== ======== ========
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges as
prescribed by the rules and regulations of the Commission, earnings represents
income before cumulative effect of a change in accounting principle, plus, when
applicable, (a) taxes on such income, (b) fixed charges, and (c) the Company's
equity interest in losses of certain 50%-or-less-owned-affiliates; less (x)
undistributed earnings of 50%-or-less-owned-affiliates, and (y) interest
capitalized. Fixed charges represent interest (including amounts capitalized),
amortization of deferred financing costs, the portion of rental expense deemed
representative of interest and, when applicable, the Company's share of the
interest expense of certain 50%-or-less-owned-affiliates.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-02-1998 JAN-02-1998
<PERIOD-START> JAN-04-1997 JUN-20-1997
<PERIOD-END> JUN-20-1997 SEP-12-1997
<CASH> 351 359
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,729 1,868
<PP&E> 2,359 1,920
<DEPRECIATION> 421 424
<TOTAL-ASSETS> 6,627 6,324
<CURRENT-LIABILITIES> 1,962 2,120
<BONDS> 2,235 1,739
0 0
0 0
<COMMON> 129 129
<OTHER-SE> 1,200 1,357
<TOTAL-LIABILITY-AND-EQUITY> 6,627 6,324
<SALES> 2,878 2,676
<TOTAL-REVENUES> 2,878 2,676
<CGS> 0 0
<TOTAL-COSTS> 2,691 2,527
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34 24
<INCOME-PRETAX> 138 111
<INCOME-TAX> 35 44
<INCOME-CONTINUING> 83 67
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 83 67
<EPS-PRIMARY> .62 .50
<EPS-DILUTED> .61 .49
</TABLE>
<PAGE>
EXHIBIT 99
FORWARD-LOOKING STATEMENTS
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report or presented elsewhere by management.
Dependence on Others: The Company's present growth strategy for development of
additional lodging and senior living facilities entails entering into and
maintaining various arrangements with present and future property owners,
including Host Marriott Corporation and New World Development Company Limited.
There can be no assurance that any of the Company's current strategic
arrangements will be continued, or that the Company will be able to enter into
future collaborations.
Contract Terms for New Units: The terms of the operating contracts, distribution
agreements, franchise agreements and leases for each of the Company's lodging
facilities, retirement communities, and contract service units are influenced by
contract terms offered by the Company's competitors at the time such agreements
are entered into. Accordingly, there can be no assurance that contracts entered
into or renewed in the future will be on terms that are as favorable to the
Company as those under existing agreements.
Competition: The profitability of hotels, vacation timeshare resorts, retirement
communities, food service and facilities management accounts and distribution
centers operated by the Company is subject to general economic conditions,
competition, the desirability of particular locations, the relationship between
supply of and demand for hotel rooms, vacation timeshare resorts, senior living
facilities, food services, facilities management and distribution services, and
other factors. The Company generally operates in markets that contain numerous
competitors and the continued success of the Company will be dependent, in large
part, upon the ability to compete in such areas as access, location, quality of
accommodations, amenities, specialized services, cost containment and, to a
lesser extent, the quality and scope of food and beverage services and
facilities.
Supply and Demand: During the 1980s, construction of lodging facilities in the
United States resulted in an excess supply of available rooms, and the
oversupply had an adverse effect on occupancy levels and room rates in the
industry. Although industry conditions have improved, the lodging industry may
be adversely affected in the future by (i) international, national and regional
economic conditions, (ii) changes in travel patterns, (iii) taxes and government
regulations which influence or determine wages, prices, interest rates,
construction procedures and costs, and (iv) the availability of capital. The
Company's timeshare and senior living services businesses are also subject to
the same or similar uncertainties and, accordingly, there can be no assurance
that the present level of demand for timeshare intervals and senior living
communities will continue, or that there will not be an increase in the supply
of competitive units, which could reduce the prices at which the Company is able
to sell or rent units.
Effect of Acquisitions: The benefit to the Company of acquisitions such as RHG
depends, in part, on the Company's ability to integrate the acquired businesses
into existing operations. Such integration may be more difficult, costly and
time consuming than anticipated.
<PAGE>
Spin-off and Merger Transactions: The benefits of these transactions are
contingent upon the Company's ability to execute its revised business strategy
as well as upon receipt of the tax ruling and shareholder and regulatory
approvals. While the Company anticipates that these will be received, there can
be no assurance that these may not be delayed or may contain conditions or
restrictions that will reduce or delay the benefits of the transaction.
