- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
SODEXHO MARRIOTT SERVICES, INC.
(Name of Subject Company)
SODEXHO MARRIOTT SERVICES, INC.
(Name of Person Filing Statement)
----------------
Common Stock, $1.00 par value per share
Rights to purchase Series A Junior Participating Preferred Stock
(Title of Class of Securities)
833793 10 2
(CUSIP Number of Class of Securities)
Robert A. Stern, Esq.
Senior Vice President and General Counsel
Sodexho Marriott Services, Inc.
9801 Washingtonian Boulevard
Gaithersburg, Maryland 20878
(301) 987-4000
(Name, Address and Telephone Number of
Person Authorized to Receive Notice and Communications
On Behalf of the Person Filing Statement)
----------------
Copies to:
Howard I. Flack, Esq. Thomas H. McCormick, Esq.
Joseph G. Connolly, Jr., Esq. Thomas J. Plotz, Esq.
Hogan & Hartson, L.L.P. Shaw Pittman
555 13th Street, N.W. 2300 N Street, N.W.
Washington, D.C. 20004 Washington, D.C. 20037
(202) 637-5600 (202) 663-8000
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
- -------------------------------------------------------------------------------
Item 1. Subject Company Information.
The name of the subject company is Sodexho Marriott Services, Inc., a
Delaware corporation ("SMS"). The address of the principal executive offices
of SMS is 9801 Washingtonian Boulevard, Gaithersburg, Maryland 20878. The
telephone number for SMS at its principal executive offices is (301) 987-4000.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (together with the
Exhibits, Schedules and Annexes hereto, this "Statement") relates is SMS's
Common Stock, $1.00 par value per share, along with their associated rights to
purchase Series A Junior Participating Preferred Stock of SMS (the "Shares").
As of May 11, 2001, there were a total of 63,723,383 Shares outstanding.
Item 2. Identity and Background of Filing Person.
The filing person is the subject company. The name, business address and
business telephone number of SMS are set forth in Item 1 of this Statement.
This Statement relates to the tender offer by SMS Acquisition Corp. (the
"Purchaser"), a Delaware corporation and a wholly-owned subsidiary of Sodexho
Alliance, S.A., a French corporation ("Sodexho"), to purchase all of the
outstanding Shares at a purchase price of $32.00 per Share, net to the seller
in cash (the "Offer Price"), upon the terms and subject to the conditions set
forth in the Purchaser's Offer to Purchase, dated May 17, 2001 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer").
Copies of the Offer to Purchase and the Letter of Transmittal are filed as
Exhibits (a)(1) and (a)(2), respectively, to the Schedule TO (as defined
below) and are incorporated by reference herein in their entirety as noted
below. As of the date hereof, Sodexho was the beneficial owner of 29,949,925
Shares, which represented approximately 47% of all of the voting power and
economic interest in SMS.
The Offer is described in a Tender Offer Statement on Schedule TO (which
includes the information required to be reported under Rule 13e-3 promulgated
under the Securities Exchange Act of 1934, as amended ("Securities Exchange
Act")), dated May 17, 2001 (as amended from time to time, the "Schedule TO"),
which was filed by Sodexho and the Purchaser with the Securities and Exchange
Commission (the "SEC") on May 17, 2001. The Offer is being made in accordance
with the Agreement and Plan of Merger, dated as of May 1, 2001, among SMS,
Sodexho and the Purchaser (the "Merger Agreement"). The Merger Agreement
provides that, subject to the satisfaction or waiver of certain conditions,
following completion of the Offer, and in accordance with the Delaware General
Corporation Law (the "DGCL"), the Purchaser will be merged with and into SMS
(the "Merger"). Following the consummation of the Merger, SMS will continue as
the surviving corporation (the "Surviving Corporation") and will be a wholly-
owned subsidiary of Sodexho. As more fully described in Item 3 below, at the
effective time of the Merger (the "Effective Time"), each issued and
outstanding Share (other than Shares owned by SMS, Sodexho, Purchaser or any
other subsidiary of Sodexho, which Shares shall be canceled and retired, and
Shares held by stockholders who properly exercise their appraisal rights in
accordance with all of the relevant provisions of Section 262 of the DGCL)
will be converted into the right to receive $32.00 in cash or any greater
amount per Share paid pursuant to the Offer (the "Merger Consideration").
The Schedule TO states that the principal offices of Sodexho and Purchaser
are located at 3, avenue Newton, 78180 Montigny-le-Bretonneux, France.
Item 3. Past Contacts, Transactions, Negotiations and Agreements.
Certain contracts, agreements, arrangements or understandings of SMS or its
affiliates and certain of its directors and executive officers are, except as
noted below, described in the Information Statement (the "Information
Statement") pursuant to Section 14(f) of the Securities Exchange Act and Rule
14f-1 thereunder that is attached as Annex B to this Statement and is
incorporated herein by reference. Except as described in this
2
Statement or incorporated herein by reference, to the knowledge of SMS, as of
the date of this Statement, there exists no material agreement, arrangement or
understanding or any actual or potential conflict of interest between SMS or
its affiliates and (1) SMS's executive officers, directors or affiliates or
(2) Sodexho, Purchaser or their respective executive officers, directors or
affiliates.
In considering the recommendations of the Board of Directors of SMS (the
"SMS Board") and the special committee (the "Special Committee") of the SMS
Board with respect to the Offer, the Merger and the Merger Agreement and the
fairness of the consideration to be received in the Offer and the Merger,
stockholders should be aware that certain officers and directors of Sodexho,
Purchaser and SMS have interests in the Offer and the Merger which are
described below, in Annex B hereto and in the sections of the Offer to
Purchase listed below, and which may present them with certain potential
conflicts of interest.
The Special Committee and the SMS Board were aware of these potential
conflicts of interest and considered them along with the other matters
described below in Item 4, "The Solicitation or Recommendation--(d) Special
Committee's Reasons for the Recommendation" and "The Solicitation or
Recommendation--(e) SMS Board's Reasons for the Recommendation."
Certain Agreements, Arrangements and Transactions with Sodexho in Connection
with the Merger Agreement.
The Merger Agreement
The summary of the Merger Agreement and the description of the conditions of
the Offer contained in the sections entitled "Special Factors--The Merger
Agreement" and "The Offer--13. Conditions of the Offer," respectively, in the
Offer to Purchase, which is being mailed to stockholders together with this
Statement and filed as an exhibit to the Schedule TO, are incorporated by
reference herein. Such summary and description are qualified in their entirety
by reference to the Merger Agreement, which is included as Annex A in the
Offer to Purchase and is incorporated by reference herein.
The Confidentiality Agreement
On April 5, 2001, SMS and Sodexho entered into a confidentiality agreement
(the "Confidentiality Agreement"). Under the terms of the Confidentiality
Agreement, SMS agreed to furnish certain confidential information concerning
its business, operations and assets to Sodexho and its representatives in
connection with Sodexho's evaluation of a possible transaction with SMS.
Certain Other Agreements, Arrangements and Transactions with Sodexho.
1998 Agreements
In March 1998, SMS and Sodexho entered into a number of agreements. These
agreements include: a Stockholder Agreement, a Tax Sharing Agreement, a
Royalty Agreement, an Assistance Agreement and a Guaranty Agreement. These
agreements are described below under Item 4, "The Solicitation or
Recommendation--(c) Background of the Offer--Formation of SMS" and are
described in more detail in SMS's Definitive Proxy Statement, dated February
12, 1998, for a Special Meeting of Stockholders held on March 17, 1998 under
the sections entitled "The Transactions--Arrangements between SMS and Sodexho"
and "The Transactions--Arrangements between SMS and New Marriott--Tax Sharing
Agreement," which sections are incorporated by reference herein.
SMS paid Sodexho $2.25 million and $2.0 million under the Royalty Agreement
in its 1999 fiscal year and 2000 fiscal year, respectively.
SMS paid Sodexho $2.25 million and $7.0 million under the Assistance
Agreement in its 1999 fiscal year and 2000 fiscal year, respectively.
3
SMS paid Sodexho $3.2 million and $3.15 million under the Guaranty Agreement
in its 1999 fiscal year and 2000 fiscal year, respectively.
Sodexho paid SMS $9.21 million during the 2000 fiscal year under the Tax
Sharing Agreement relating to tax returns filed prior to the formation of SMS.
See Note 10 of the Notes to the Consolidated Financial Statements on page 44
of SMS's Annual Report on Form 10-K for the fiscal year ended September 1,
2000, which section is incorporated by referenced herein.
Extension of Royalty Agreement
In March 2001, SMS and Sodexho amended the Royalty Agreement to extend the
royalty rate beyond its initial expiration date of March 27, 2001 until August
31, 2001 in light of the pending acquisition proposal from Sodexho. This
amendment is described below under Item 4, "The Solicitation or
Recommendation--(c) Background of the Offer--Formation of SMS."
Other Relationships and Transactions
Sodexho also guarantees (1) the payment when due of certain deferred
compensation amounts payable by SMS to SMS employees and (2) the obligations
of SMS with respect to certain insurance costs. These agreements and
arrangements are described in more detail in Note 5 and Note 8 of the Notes to
the Consolidated Financial Statements on pages 36-37 and 39-40 of SMS's Annual
Report on Form 10-K for the fiscal year ended September 1, 2000, which
sections are incorporated by reference herein.
SMS paid Sodexho $0.3 million and $0.3 million pursuant to these agreements
and arrangements in its 1999 fiscal year and 2000 fiscal year, respectively.
During fiscal year 2000, SMS and Sodexho entered into a Software Sublicense
Agreement pursuant to which SMS subleases a certain facilities management
software program from Sodexho. SMS made no payments to Sodexho under this
agreement in fiscal year 2000.
Certain Agreements, Arrangements and Transactions between SMS and its
Directors, Executive Officers and Affiliates.
Employment Agreements
SMS has fourteen executive officers, whose names and titles are set forth in
Schedule I hereto; thirteen of the fourteen executive officers have employment
agreements. The employment agreements provide for twenty-four months of the
benefits specified below in the case of disability, termination for other than
cause, death or disability, or voluntary termination for good cause. "Good
cause" includes, among other things, if at any time prior to March 27, 2006,
the stock of SMS is no longer publicly traded or if Sodexho owns greater than
or equal to 90% of the outstanding Shares (which events may occur upon
completion of the Offer and will occur upon completion of the Merger). The
benefits are: salary continuation; continued participation in health and
dental benefits; continued stock vesting; continued 401(k) participation; and
pro-rated incentive compensation based on time worked during the fiscal year.
Treatment of Shares, Options and Other Stock-Based Awards
Any Shares (to the extent not tendered pursuant to the Offer), SMS stock
options or other stock-based awards held by any director or officer of SMS
will be converted as described in the Offer to Purchase under the sections
entitled "Special Factors--The Merger Agreement--The Merger" and "Special
Factors--The Merger Agreement--SMS Options and Other Stock-Based Awards,"
which sections are incorporated by reference herein.
The table on Schedule II hereto sets forth beneficial ownership of Shares,
SMS stock options and restricted stock units by the directors and executive
officers of SMS as of May 1, 2001.
4
Indemnification
Under the Merger Agreement, the directors and officers of SMS are entitled
to certain rights of indemnification and to be insured by the Surviving
Corporation or Sodexho with respect to certain matters from and after the
completion of the Merger. See the Offer to Purchase under the section entitled
"Special Factors--The Merger Agreement--Certain Covenants," which section is
incorporated by reference herein.
Special Committee Compensation
The members of the Special Committee received compensation in connection
with serving on the Special Committee as follows: Daniel J. Altobello,
Chairman--$85,000 and Mary Metz, member--$70,000. The SMS Board and the
Special Committee believe that the forgoing payments do not affect the Special
Committee's independence or impartiality.
Item 4. The Solicitation or Recommendation.
(a) Recommendation of the Special Committee.
The Special Committee, at the meeting held on May 1, 2001:
(1) determined that it is fair to and in the best interests of SMS and its
stockholders (other than Sodexho and its affiliates) to consummate the
Offer and the Merger upon the terms and subject to the conditions of the
Merger Agreement and in accordance with Delaware law;
(2) resolved to recommend that the SMS Board approve and declare advisable
the Offer, the Merger and the Merger Agreement; and
(3) resolved to recommend that SMS's stockholders accept the Offer, tender
their Shares pursuant thereto and adopt the Merger Agreement and the Merger
if submitted for their approval.
The Special Committee recommends that stockholders accept the Offer and
tender their Shares in the Offer.
(b) Recommendation of the SMS Board.
On May 1, 2001, the SMS Board, by unanimous decision of those directors
participating and based upon the recommendation of the Special Committee:
(1) determined that the Merger Agreement and the transactions contemplated
thereby are fair to and in the best interests of SMS and its stockholders
(other than Sodexho);
(2) approved and declared advisable the Merger Agreement; and
(3) resolved to recommend that SMS's stockholders accept the Offer and
approve the Merger Agreement if submitted for their approval.
The SMS Board recommends that stockholders accept the Offer and tender their
Shares in the Offer.
Messrs. Pierre Bellon, Bernard Carton and Edouard de Royere did not attend
the meeting in light of their positions, in the case of Mr. Bellon as Chairman
and Chief Executive Officer of Sodexho, in the case of Mr. Carton as Senior
Vice President and Chief Financial Officer of Sodexho, and in the case of Mr.
de Royere as a director of Sodexho.
(c) Background of the Offer.
Formation of SMS. SMS is the result of the combination in March 1998 of the
operations of Marriott Management Services and Sodexho North America. On March
27, 1998, Marriott International, Inc. spun off its lodging, senior living and
distribution services businesses to its stockholders, retaining its Marriott
Management Services business. Immediately thereafter, the Marriott Management
Services business was merged with the
5
North American operations of Sodexho and the company changed its name to
Sodexho Marriott Services, Inc. In connection with the merger, Sodexho
received 29,949,925 Shares, which at that time represented 48.4% of the
outstanding common stock of SMS. The foregoing transactions shall be referred
to herein as the "1998 Transactions."
In March 1998, SMS and Sodexho entered into a number of agreements. These
agreements include: a Stockholder Agreement, a Tax Sharing Agreement, a
Royalty Agreement, an Assistance Agreement and a Guaranty Agreement. Under the
Stockholder Agreement, Sodexho is entitled to designate three directors to the
eight-member SMS Board. Under the Tax Sharing Agreement, the parties made
certain representations and agreements with respect to the tax treatment of
the 1998 Transactions, including a restriction on Sodexho's ability to acquire
a 50% or greater ownership interest in SMS before March 27, 2001. Under the
Royalty Agreement, SMS has the right to use the name "Sodexho" in connection
with SMS's operations in the United States and Canada for a period of ten
years. The annual royalty rate was initially 0.05 percent of the annual gross
revenues of SMS until March 27, 2001 and thereafter was to be a rate
negotiated by the parties in good faith based on the fair market value. As
described below, the parties have agreed to extend the initial 0.05 percent
rate until August 31, 2001. Under the Assistance Agreement, Sodexho provides
various services to SMS, including services relating to purchasing, catering,
site support, marketing, management and administration, legal, fiscal, human
resources, communications and cash management. The annual fee for these
services is currently 0.15 percent of SMS's annual gross revenues. Each year
the independent directors of SMS assess the fair market value of the services
that Sodexho provides to SMS to confirm that it exceeds the combined fee paid
by SMS under the Royalty Agreement and the Assistance Agreement. Under the
Guaranty Agreement, Sodexho guarantees SMS's obligations under its $620
million credit facility. SMS pays Sodexho a guarantee fee of 0.50 percent per
annum of the outstanding amount under this facility.
On March 26, 2001, SMS sent to Sodexho a proposed amendment to the Royalty
Agreement to extend the 0.05 percent royalty rate beyond its initial
expiration date of March 27, 2001 until August 31, 2001 in light of the
pending acquisition proposal from Sodexho. After initially rejecting the
request, on April 9, 2001 Sodexho accepted the proposed extension.
Recent Contacts and Negotiations. On January 24, 2001, SMS received an
unsolicited letter from Sodexho dated January 24, 2001, in which Sodexho
proposed to acquire all of the capital stock of SMS that it did not own for
$27.00 per Share in cash.
On January 29, 2001, the SMS Board met to discuss the Sodexho proposal.
Because Sodexho is the beneficial owner of approximately 47% of the
outstanding Shares and certain of the SMS directors (Pierre Bellon, Bernard
Carton and Edouard de Royere) serve on the SMS Board as representatives of
Sodexho and may have an interest in the consummation of the proposal that
conflicts with the interests of SMS and its other stockholders, the SMS Board
formed a Special Committee composed of two independent directors, Daniel J.
Altobello, a private investor and former Chairman of Onex Food Services, Inc.,
and Mary S. Metz, President of the S.H. Cowell Foundation. The SMS Board
appointed Mr. Altobello as chairman of the Special Committee. Neither member
of the Special Committee is an officer or employee of SMS, Sodexho or any of
their affiliates. The SMS Board delegated to the Special Committee power to:
(1) review and evaluate the terms and conditions and determine the
advisability of Sodexho's acquisition proposal; (2) consider whether there are
alternatives to such proposal that would be in the best interests of SMS and
its stockholders; (3) make or accept, reject, or seek to modify the terms of
the proposal or any alternative transaction; (4) negotiate the price,
structure, form, terms and conditions of any such transaction and the form,
terms and conditions of any definitive agreements in connection therewith if
the Special Committee deemed it appropriate or advisable; (5) determine
whether any such transaction is fair to and in the best interests of SMS and
its stockholders other than Sodexho; (6) recommend to the entire SMS Board
what action, if any, should be taken by SMS with respect to any such
transaction; and (7) take such other action related to or arising in
connection with any such transaction as the Special Committee deems necessary,
appropriate or advisable. Sodexho's designees on the SMS Board, Pierre Bellon,
Bernard Carton and Edouard de Royere, attended the meeting but did not
participate in the discussion or vote. Later on January 29, 2001, SMS publicly
announced the formation of the Special Committee.
6
The Special Committee was authorized by the SMS Board to retain independent
financial and legal advisors to assist it in its evaluation of the Sodexho
proposal. During February 2001, the members of the Special Committee received
presentations from several internationally recognized investment banking firms
for the purpose of retaining independent financial advisors to the Special
Committee and ultimately decided to retain UBS Warburg LLC ("UBS Warburg").
During this month the Special Committee also conducted interviews with several
nationally recognized law firms, and retained Shaw Pittman, Washington, D.C.
("Shaw Pittman"), as its legal advisor and Potter Anderson & Corroon LLP,
Wilmington, Delaware ("Potter Anderson"), as its Delaware legal advisor.
On February 21, 2001, the Special Committee held its first meeting at the
offices of Shaw Pittman. At the meeting, Potter Anderson advised the Special
Committee as to its fiduciary duties and responsibilities in considering and
acting upon the acquisition proposal. The Special Committee also discussed
with its legal advisors and UBS Warburg various possible deal structures,
current conditions in the financial markets, and the implications of Sodexho's
statement in its January 24, 2001 letter that it would not consider a sale of
any portion of its ownership interest in SMS as part of any alternative to its
proposal.
On February 26, 2001, at the Sodexho annual shareholders meeting, Pierre
Bellon spoke briefly about the pending proposal to acquire SMS, noting that at
the $27.00 per Share price, the accretion to Sodexho's earnings was limited
and Sodexho intended to pursue the acquisition only if it would clearly
benefit Sodexho's shareholders.
On February 27, 2001, at the direction of the Special Committee, SMS entered
into an engagement letter with UBS Warburg and issued a press release
announcing that the Special Committee had retained financial and legal
advisors.
On February 28, 2001, UBS Warburg began its financial due diligence review
of SMS, which included a review of public and non-public documents relating to
SMS, including historical and projected financial information, as well as
research reports, industry information and various agreements to which SMS is
a party.
On March 5, 2001, representatives of UBS Warburg and Shaw Pittman met with
SMS senior management to discuss SMS's business, prospects and financial
objectives, including management's financial forecasts for the period from
September 2, 2000 through September 2, 2005. On that day, Shaw Pittman
commenced its legal due diligence review of SMS.
On March 13, 2001, the Special Committee held a telephonic meeting during
which a summary of the due diligence review by UBS Warburg was discussed. The
Special Committee reviewed with UBS Warburg a number of factors, including
management's financial projections, the potential financial impact on SMS of a
favorable determination by the federal government with respect to SMS's bids
on two military contracts and the consequences to SMS of a potential
acquisition by Sodexho of Wood Management Services, a competitor of SMS. The
Special Committee also discussed with UBS Warburg some of SMS's strengths and
weaknesses, including its market position, its customer base, its balance
sheet, its prospects for growth, the effect of changes in the labor market and
the health care industry and certain factors relating to SMS's ability to
expand internationally. The Special Committee asked UBS Warburg to prepare a
valuation analysis of SMS.
On March 13, 2001, Shaw Pittman called Davis Polk & Wardell ("Davis Polk")
to report that the Special Committee had instructed UBS Warburg to contact
Goldman Sachs International ("Goldman Sachs") to facilitate any confirmatory
due diligence that Sodexho would like to perform, subject to the parties
signing a confidentiality agreement. Davis Polk responded that in view of
Sodexho's existing knowledge of SMS's operations through its participation on
the SMS Board since 1998, Sodexho had concluded that it needed little
additional due diligence material. On April 5, 2001, Sodexho and SMS signed
the Confidentiality Agreement.
In the course of its evaluation of Sodexho's proposal throughout February
and March 2001, the Special Committee concluded, in light of Sodexho's
statement that it would not consider a sale of its interest in SMS, that an
acquisition of SMS by a third party was not a feasible alternative.
Accordingly, UBS Warburg was not
7
authorized to and did not solicit indications of interest from any third party
with respect to an acquisition of SMS.
On March 15, 2001, SMS issued a press release announcing that SMS had been
awarded two military contracts with anticipated revenues of $850 million over
eight years.
On March 22, 2001, representatives of UBS Warburg and Goldman Sachs met in
New York to discuss their respective client's approaches to valuation. UBS
Warburg advised Goldman Sachs that UBS Warburg's preliminary financial
analysis indicated that SMS was worth more than $27.00 per Share and suggested
that Goldman Sachs and Sodexho refine their analysis of SMS with a view to
making a higher offer.
On March 29, 2001, representatives of UBS Warburg and Goldman Sachs spoke
via conference call to discuss in further detail approaches to valuation of
the transaction. During this conference call Goldman Sachs focused in
particular on the accretion/dilution impact of the transaction to Sodexho's
earnings per share.
On April 9, 2001, representatives of UBS Warburg and Goldman Sachs spoke via
conference call to review Goldman Sachs' model with respect to the
accretion/dilution impact of the transaction to Sodexho. UBS Warburg and
Goldman Sachs agreed on the technical aspects of the accretion/dilution
analysis, but disagreed on whether the appropriate measure of
accretion/dilution was before or after amortization of goodwill.
On April 11, 2001, the Special Committee held a telephonic meeting at which
UBS Warburg reported to the Special Committee on its communications with
Goldman Sachs. The Special Committee discussed negotiating strategies for UBS
Warburg to use with Goldman Sachs, as well as due diligence requests by
Sodexho. After discussions with its legal advisors, the Special Committee
provided guidance to UBS Warburg for further negotiations.
On April 12, 2001, representatives of UBS Warburg and Goldman Sachs met in
New York. The discussion focused mainly on valuation metrics. At this meeting,
UBS Warburg conveyed the Special Committee's formal rejection of Sodexho's
$27.00 offer. On instructions from Sodexho, Goldman Sachs indicated that
Sodexho would be willing to increase its offer to $30.00 per Share. UBS
Warburg and Goldman Sachs discussed timing generally, including Sodexho's
upcoming board meeting and delivery of a draft of the Merger Agreement.
Following that meeting, representatives of UBS Warburg contacted the members
of the Special Committee to advise them of the proposed increase in the offer
price.
On April 17, 2001, Davis Polk sent a draft of the Merger Agreement to Shaw
Pittman.
In a series of conversations between April 17, 2001 and April 22, 2001, UBS
Warburg indicated that the Special Committee would be unlikely to support an
offer at $30.00 per Share and would consider a transaction at a price per
Share in the mid-$30s. At Sodexho's request, Goldman Sachs informed UBS
Warburg that Sodexho would not consider a transaction at or anywhere near
$35.00 per Share. Additionally, Goldman Sachs explained that Sodexho's board
was scheduled to meet on April 25, 2001 and would at that meeting determine
whether to proceed with the transaction or publicly announce termination of
discussions. On behalf of Sodexho, Goldman Sachs requested clarification
regarding the Special Committee's view on price before the Sodexho board
meeting.
On April 20, 2001, representatives of Shaw Pittman had a telephone
conference with representatives of Davis Polk in which they expressed their
preliminary views regarding the principal issues raised by their review of the
draft Merger Agreement, including that the proposed $75 million fee payable to
Sodexho by SMS upon termination of the Merger Agreement by SMS under certain
conditions was unacceptably high, and that the representations and warranties
of the parties in the draft Merger Agreement should be substantially modified.
On April 23, 2001, the Special Committee held a telephonic meeting during
which UBS Warburg formally reported to the Special Committee that on April 12,
2001, Goldman Sachs had indicated to it that Sodexho would be willing to raise
its offer to $30.00 per Share. The Special Committee provided further guidance
to UBS
8
Warburg as to price negotiations. The Special Committee also discussed the
draft Merger Agreement with its legal advisors and provided guidance as to the
negotiation of the Merger Agreement. The Special Committee noted that SMS's
management had prepared an analysis of the treatment of stock options in
connection with the proposed transaction with Sodexho. The Special Committee
agreed to defer consideration of management's analysis until the parties had
reached agreement on price.
Following this meeting, UBS Warburg called Goldman Sachs and reported that
the Special Committee had rejected the offer at $30.00 per Share and repeated
that the Special Committee believed that a price per Share in the mid-$30s was
appropriate.
On April 24, 2001, Shaw Pittman sent Davis Polk a markup of the Merger
Agreement reflecting the comments of the Special Committee and its advisors.
Also on April 24, 2001, at Sodexho's request, representatives from SMS and
Shaw Pittman participated in a conference call with Sodexho to answer
questions relating to SMS equity-based compensation.
On April 25, 2001, the Sodexho board of directors met in Paris and
authorized a best and final offer of $32.00 per Share in cash. On instructions
from the Sodexho board, Goldman Sachs spoke with UBS Warburg and sent a letter
to Mr. Altobello, confirming that $32.00 per Share was Sodexho's best and
final price. In view of this, and noting that it was not in the interest of
either party to needlessly prolong discussions, Sodexho indicated to Mr.
Altobello that, unless accepted by 5:00 p.m. Eastern Time on April 26, 2001,
the offer would expire and, consistent with its disclosure obligations,
Sodexho would publicly announce the termination of discussions. Later that
evening, Davis Polk provided Shaw Pittman with a draft press release regarding
such an announcement.
The Special Committee held a telephonic meeting on the evening of April 25,
2001 to discuss the April 25, 2001 letter. At the request of the Special
Committee, UBS Warburg discussed its preliminary views regarding the fairness
of the $32.00 proposal. The Special Committee instructed UBS Warburg to
respond to Sodexho's statement that $32.00 per Share was its best and final
offer with a counteroffer of $32.50 per Share.
On the morning of April 26, 2001, UBS Warburg called Goldman Sachs to
request that Sodexho increase its offer to $32.50 per Share. After
consultation with Sodexho, Goldman Sachs advised UBS Warburg that Sodexho
would under no circumstances increase its offer. Following that discussion,
the Special Committee held a telephonic meeting in order to discuss Sodexho's
response. UBS Warburg reported that Goldman Sachs had confirmed Sodexho's
position that the $32.00 proposal was Sodexho's best and final offer and that
UBS Warburg believed it could deliver a fairness opinion based on that price.
The Special Committee agreed that it would end negotiations with Sodexho as to
price and accept the offer subject to certain conditions, including
negotiation by counsel of a definitive Merger Agreement on terms acceptable to
the Special Committee, receipt and review by the Special Committee of an
updated financial analysis by UBS Warburg, and the delivery by UBS Warburg of
a fairness opinion. Representatives of UBS Warburg then so advised Goldman
Sachs. Later that evening, Shaw Pittman distributed to management of SMS for
the first time the marked-up version of the draft Merger Agreement, and
indicated to Davis Polk that management was expected to make a number of
proposals regarding treatment of options and other related compensation
issues.
The next morning, Davis Polk and Shaw Pittman met in New York to discuss the
Merger Agreement. The parties made progress on many issues, including the
scope of the parties' respective representations and warranties, but were
unable to resolve several important points. In particular, the size of the
break-up fee, the right of Sodexho to match any competing offer made for SMS,
and Sodexho's ability to terminate the Offer because of a material adverse
change in SMS's business were left open at the end of the meeting. On that
same day and over the course of the weekend, SMS management also began
discussions with Davis Polk about the treatment in the transaction of various
stock-based awards held by SMS employees.
On April 29, 2001 and April 30, 2001, UBS Warburg provided the Special
Committee with a summary of its financial analysis of Sodexho's proposal.
9
On Monday, April 30, 2001 and Tuesday, May 1, 2001, Shaw Pittman, Davis Polk
and SMS management continued to discuss the remaining open issues on the
Merger Agreement. These issues were resolved on the afternoon of May 1, 2001,
with Sodexho agreeing, among other things, to reduce the break-up fee to $20
million. On the evening of May 1, 2001, the Special Committee held a
telephonic meeting with its legal and financial advisors. UBS Warburg reviewed
with the Special Committee its financial analyses and orally expressed its
opinion (subsequently confirmed in writing) that as of the date of the opinion
$32.00 per Share is fair to the SMS stockholders (other than Sodexho and its
affiliates) from a financial point of view. In addition, Shaw Pittman reviewed
with the Special Committee the principal terms of the Merger Agreement,
including the changes made as a result of the negotiations that took place
from April 27, 2001 through May 1, 2001. After further discussion and
consideration of the advice of its financial and legal advisors, the Special
Committee (1) determined that it is fair to and in the best interests of SMS
and its stockholders (other than Sodexho and its affiliates) to consummate the
Offer and the Merger upon the terms and subject to the conditions of the
Merger Agreement and in accordance with Delaware law, (2) resolved to
recommend that the SMS Board approve and declare advisable the Offer, the
Merger and the Merger Agreement, and (3) resolved to recommend that the SMS
stockholders accept the Offer, tender their Shares pursuant thereto and adopt
the Merger Agreement and the Merger if submitted for their approval.
Later in the evening of May 1, 2001, a meeting of the SMS Board was convened
at the offices of Shaw Pittman to discuss the transaction and consider the
recommendation of the Special Committee. All board members were present except
Messrs. Bellon, Carton and de Royere, Sodexho's designees on the SMS Board,
who did not attend the meeting in light of the subject matter being
considered. At the meeting, the Special Committee advised the SMS Board of its
conclusions. In addition, the financial and legal advisors to the Special
Committee made oral presentations to the SMS Board summarizing the financial
analysis of the proposed transaction and the Merger Agreement. After
discussions with the Special Committee's financial and legal advisors, the SMS
Board, by unanimous decision of those directors in attendance, (1) determined
that the Merger Agreement and the transactions contemplated thereby are fair
to and in the best interests of SMS and its stockholders (other than Sodexho),
(2) approved and declared advisable the Merger Agreement and (3) resolved to
recommend that SMS's stockholders accept the Offer and approve the Merger
Agreement if submitted for their approval.
On the evening of May 1, 2001, the parties executed the Merger Agreement.
On May 2, 2001, Sodexho and SMS announced in separate press releases that
the parties had executed the Merger Agreement providing for the Offer and the
acquisition of all Shares held by the public at a price of $32.00 per Share.
(d) Special Committee's Reasons for the Recommendation.
In reaching the recommendations described above, the Special Committee
considered a number of factors, including the following:
1.SMS Operating and Financial Condition. The Special Committee took into
account the current and historical financial condition and results of
operations of SMS, as well as the prospects and strategic objectives of
SMS, including the risks involved in achieving those prospects and
objectives, and the current and expected conditions in the general economy
and in the food services and facilities management industries.
2.Transaction Financial Terms/Premium to Market Price. The Special
Committee considered the relationship of the Offer Price to the historical
market price of the Shares. The Offer Price represents a premium of 28.6%
over the closing price per Share on January 24, 2001, the day before the
public announcement of Sodexho's preliminary proposal to acquire all of the
outstanding Shares, a premium of 30.9% over the closing price per Share one
week prior to Sodexho's announcement, a premium of 53.8% over the closing
price per Share one month prior to Sodexho's announcement, and a premium of
18.5% over Sodexho's initial offer price of $27.00 per Share. The Special
Committee discussed with its financial advisors whether, in comparing the
premiums represented by the Offer Price with premiums paid in comparable
transactions, it would be most appropriate to compare the proposed
transaction with transactions in which a controlling stockholder acquires
from the public the remaining interest in a company rather than
transactions in which a buyer acquires a controlling interest in a company.
10
The Special Committee believes that, after extensive negotiations on its
behalf with Sodexho's representatives, SMS has obtained the highest price
per Share that Sodexho is willing to pay. The Special Committee took into
account the fact that the terms of the Offer were determined through
extensive negotiations between Sodexho and SMS and its financial and legal
advisors, all of whom are unaffiliated with Sodexho. The Special Committee
also considered the risk that further price negotiations with Sodexho could
cause Sodexho to abandon the transaction.
The Special Committee also considered the form of consideration to be
paid to SMS stockholders in the Offer and the Merger, and the certainty of
value of such cash consideration compared to stock. The Special Committee
was aware that the consideration to be received by SMS's stockholders in
the Offer and the Merger would be taxable to such stockholders for federal
income tax purposes.
3.Strategic Alternatives. The Special Committee considered the fact that
Sodexho currently owns approximately 47% of the capital stock of SMS. The
Special Committee also took into account Sodexho's statement in its letter
of January 24, 2001 that it has no interest in, and would not consider, a
sale of any portion of its ownership interest in SMS as part of any
alternative to its proposal. Accordingly, the Special Committee concluded
that an acquisition of SMS by a third party was not a feasible alternative.
4.UBS Warburg's Fairness Opinion. The Special Committee took into account
presentations from UBS Warburg and the fairness opinion, dated May 1, 2001,
that, based upon and subject to certain considerations and assumptions, the
consideration to be received by the holders of Shares (other than Sodexho
and its affiliates) in the Offer and the Merger is fair from a financial
point of view to such holders. A copy of the fairness opinion is attached
hereto as Annex A and incorporated herein by reference. For information
regarding the analysis conducted by UBS Warburg, see the Offer to Purchase
under the section entitled "Special Factors--Opinion of Financial Advisor,"
which section is incorporated by reference herein. SMS stockholders are
urged to read the fairness opinion and the Offer to Purchase under the
section entitled "Special Factors--Opinion of Financial Advisor" in their
entirety. The Special Committee was aware that UBS Warburg becomes entitled
to certain fees described below under Item 5, "Persons/Assets Retained,
Employed, Compensated or Used" and in the Offer to Purchase under the
section entitled "The Offer--15. Fees and Expenses," which section is
incorporated by reference herein, upon the consummation of the Offer.
5.Timing of Completion. The Special Committee considered the anticipated
timing of the consummation of the transactions contemplated by the Merger
Agreement. In that regard, the Special Committee noted that stockholders
who tender in the Offer would receive their consideration earlier than they
would have had SMS pursued only a merger transaction. The Special Committee
further noted that if sufficient Shares were tendered in the Offer to
enable Sodexho to effect a merger without a stockholder vote then all
stockholders would receive their consideration more quickly than they would
have had SMS pursued a merger transaction that required a stockholder vote.
6.Limited Conditions to Consummation. The Special Committee considered the
fact that the obligation of Sodexho to consummate the Offer and the Merger
is subject to a limited number of conditions, including, among others, the
condition that sufficient Shares be tendered that, when added to the Shares
already owned by Sodexho and its affiliates, would give Sodexho and its
affiliates a majority of the outstanding Shares of SMS on a fully diluted
basis. The Special Committee also considered the fact that consummation of
the Offer and the Merger is not subject to a financing condition. Subject
to the limited conditions set forth in the Merger Agreement, Sodexho is
required to purchase Shares in the Offer. Once Sodexho purchases any Shares
in the Offer, Sodexho will be obligated to consummate the Merger subject to
the limited conditions set forth in the Merger Agreement.
7.Appraisal Rights. The Special Committee considered the fact that
stockholders who do not tender their Shares pursuant to the Offer and who
perfect their appraisal rights will have the right to dissent from the
Merger and to demand appraisal of the fair value of their Shares under the
DGCL, whether or not a stockholder vote is required, as described below
under Item 8, "Additional Information--(b) Delaware General Corporation
Law."
11
8.Possible Conflicts of Interest. The Special Committee also took into
account the possible conflicts of interest of certain directors and members
of management of both SMS and Sodexho discussed herein under Item 3, "Past
Contacts, Transactions, Negotiations and Agreements."
(e) SMS Board's Reasons for the Recommendation.
In reaching its determinations referred to above, the SMS Board considered
the following factors, each of which, in the view of the SMS Board, supported
such determinations:
(1) the conclusions and recommendations of the Special Committee;
(2) the factors referred to above as having been taken into account by the
Special Committee, including the receipt by the Special Committee of the
opinion of UBS Warburg that, based upon and subject to the assumptions
stated therein, the $32.00 per Share to be received by the SMS stockholders
(other than Sodexho and its affiliates) in the Offer and the Merger
pursuant to the Merger Agreement is fair from a financial point of view to
such stockholders, and the financial analysis presented by UBS Warburg to
the SMS Board; and
(3) the fact that the Offer Price and the terms and conditions of the
Merger Agreement were the result of extensive negotiations between the
Special Committee and Sodexho.
The members of the SMS Board, including the members of the Special Committee
but excluding members who are directors or officers of Sodexho, evaluated the
Offer and the Merger in light of their knowledge of the business, financial
condition and prospects of SMS, and based upon the advice of financial and
legal advisors.
The SMS Board, including the members of the Special Committee, believes that
the Offer and the Merger are procedurally fair based on a number of factors,
including:
(1) the fact that the Special Committee consisted of independent directors
appointed to represent the interests of SMS's stockholders (other than
Sodexho and its affiliates);
(2) the fact that the Special Committee retained and was advised by its own
independent legal counsel;
(3) the fact that the Special Committee retained and was advised by UBS
Warburg, as its independent financial advisor, to assist it in evaluating a
potential transaction with Sodexho;
(4) the nature of the deliberations pursuant to which the Special Committee
evaluated the Offer and the Merger and the alternatives thereto; and
(5) the fact that the Offer Price resulted from extensive bargaining
between representatives of the Special Committee, on the one hand, and
representatives of Sodexho, on the other.
The SMS Board and the Special Committee recognized that, while the
consummation of the Offer and the Merger will result in all stockholders
(other than Sodexho and its affiliates) being entitled to receive $32.00 per
Share in cash for each of their Shares, it will eliminate the opportunity for
current stockholders (other than Sodexho and its affiliates) to participate in
the benefit of increases, if any, in the value of SMS's business following the
Merger. Nevertheless, the Special Committee and the SMS Board concluded that
this fact did not justify foregoing the receipt of the immediate cash premium
represented by the Offer Price.
Neither the Special Committee nor the SMS Board considered the liquidation
of SMS's assets to be a viable course of action. Therefore, no appraisal of
liquidation values was sought for purposes of evaluating the Offer and the
Merger.
In view of the wide variety of factors considered in connection with their
evaluation of the Offer and the Merger, neither the Special Committee nor the
SMS Board found it practicable to, and did not, quantify or otherwise attempt
to assign relative weights to the specific factors they considered in reaching
their determinations.
The foregoing discussion of the information and factors considered by the
Special Committee and the SMS Board is not intended to be exhaustive but is
believed to include all material factors considered by the Special Committee
and the SMS Board. SMS's executive officers have not been asked to make a
recommendation as to the Offer or the Merger.
12
(f) Intent to Tender.
Except as described in this paragraph, after reasonable inquiry and to the
best of SMS's knowledge, each director, executive officer, affiliate and
subsidiary of SMS currently intends, subject to compliance with applicable law
including Section 16(b) of the Securities Exchange Act, to tender all Shares
held of record or beneficially owned by such person or entity to the Purchaser
in the Offer. SMS stock options held by directors and executive officers as of
the Effective Time will be converted into Sodexho stock options or cash as
described in Item 3 above.
Item 5. Persons/Assets Retained, Employed, Compensated or Used.
Pursuant to the engagement letter dated February 27, 2001 among UBS Warburg,
SMS and the Special Committee, SMS paid UBS Warburg a retainer fee of $750,000
upon execution of the engagement letter and an opinion fee of $1.5 million
upon the delivery of UBS Warburg's fairness opinion to the Special Committee.
These amounts will be offset against a transaction fee payable to UBS Warburg
upon the consummation of the Offer of approximately $8.6 million. SMS has
agreed to reimburse UBS Warburg for its expenses incurred in performing its
services. In addition, SMS has agreed to indemnify UBS Warburg and its
affiliates, their respective directors, officers, agents and employees and
each person, if any, controlling UBS Warburg or any of its affiliates against
certain liabilities and expenses related to or arising out of UBS Warburg's
engagement and any related transactions.
Except as set forth above, neither SMS nor any person acting on its behalf
has or currently intends to employ, retain or compensate any person to make
solicitations or recommendations to the stockholders of SMS on its behalf with
respect to the Offer, except that such solicitations or recommendations may be
made by directors, officers or employees of SMS, for which services no
additional compensation will be paid.
Item 6. Interest in Securities of the Subject Company.
Except as described in Schedule III hereto, no transactions in Shares have
been effected during the past sixty (60) days by SMS or, to the knowledge of
SMS, by any director, executive officer or affiliate of SMS.
Item 7. Purposes of the Transaction and Plans or Proposals.
Except as set forth in this Statement, SMS is not currently undertaking or
engaged in any negotiations in response to the Offer that relate to (1) a
tender offer for or other acquisition of SMS's securities by SMS, any
subsidiary of SMS or any other person; (2) an extraordinary transaction, such
as a merger, reorganization or liquidation, involving SMS or any subsidiary of
SMS; (3) a purchase, sale or transfer of a material amount of assets of SMS or
any subsidiary of SMS; or (4) any material change in the present dividend rate
or policy, or indebtedness or capitalization of SMS.
Except as set forth in this Statement, there are no transactions,
resolutions of the SMS Board, agreements in principle or signed contracts in
response to the Offer that relate to one or more of the events referred to in
the preceding paragraph.
Item 8. Additional Information.
(a) Information Statement Provided Pursuant to Section 14(f) of the
Securities Exchange Act and Rule 14f-1 Thereunder.
The Information Statement attached hereto as Annex B is being furnished to
the stockholders of SMS in connection with the possible designation by
Sodexho, pursuant to the Merger Agreement, of certain individuals to be
appointed to the SMS Board other than at a meeting of the stockholders of SMS.
13
(b) Delaware General Corporation Law.
Appraisal Rights. SMS is incorporated under the laws of the State of
Delaware. Under Section 262 of the DGCL ("Section 262"), any holder of Shares
at the Effective Time (a "Remaining Stockholder") who does not wish to accept
the Merger Consideration pursuant to the Merger has the right to seek an
appraisal and be paid the "fair value" of its Shares at the Effective Time
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) judicially determined and paid to it in cash
provided that such holder complies with the provisions of such Section 262.
The following is a brief summary of the statutory procedures to be followed
by a Remaining Stockholder in order to dissent from the Merger and perfect
appraisal rights under Delaware law. This summary is not intended to be
complete and is qualified in its entirety by reference to Section 262, the
text of which is set forth in the Offer to Purchase as Annex C thereto and is
incorporated by reference herein in its entirety. Any Remaining Stockholder
considering demanding appraisal is advised to consult legal counsel. Appraisal
rights will not be available unless and until the Merger is consummated.
Remaining Stockholders of record who desire to exercise their appraisal
rights must fully satisfy all of the following conditions. A written demand
for appraisal of Shares must be delivered to the Secretary of SMS (x) before
the taking of the vote on the approval and adoption of the Merger Agreement if
the Merger is being consummated following approval thereof at a meeting of
SMS's stockholders (a "Long-Form Merger") or (y) within 20 days after the date
that the Surviving Corporation mails to the Remaining Stockholders a notice
(the "Notice of Merger") to the effect that the Merger has been approved
and/or is effective and that appraisal rights are available (and includes in
such notice a copy of Section 262 and any other information required thereby)
if the Merger is being effected without a vote or meeting of SMS's
stockholders either in a Short-Form Merger pursuant to Section 253 of the DGCL
or otherwise by stockholder written consent without a meeting of stockholders
(both of which are referred to in this discussion as a "Short-Form Merger").
If the Merger is effected as a Long-Form Merger, this written demand for
appraisal of Shares must be in addition to and separate from any proxy or vote
abstaining from or against the approval and adoption of the Merger Agreement,
and neither voting against, abstaining from voting, nor failing to vote on the
Merger Agreement will constitute a demand for appraisal within the meaning of
Section 262. In the case of both a Long-Form Merger and a Short-Form Merger,
any stockholder seeking appraisal rights must hold the Shares for which
appraisal is sought on the date of the making of the demand, continuously hold
such Shares through the Effective Time, and otherwise comply with the
provisions of Section 262. Any holder of Shares who votes or delivers a
written consent in favor of the Merger Agreement, as the case may be, will
lose appraisal rights under Section 262.
In the case of both a Short-Form Merger and a Long-Form Merger, a demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the stock certificates. If
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary. If
Shares are owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a stockholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, he is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which the holder is the record
owner. In such case, the written demand must set forth the number of Shares
covered by such demand. Where the number of Shares is not expressly stated,
the demand will be presumed to cover all Shares outstanding in the name of
such record owner. Beneficial owners who are not record owners and who intend
to exercise appraisal rights should instruct the record owner to comply
strictly with the statutory requirements with respect to the exercise of
appraisal rights before the date of any meeting of stockholders of SMS called
to approve the Merger in the case of a Long-Form Merger and within 20 days
following the mailing of the Notice of Merger in the case of a Short-Form
Merger.
Remaining Stockholders who elect to exercise appraisal rights must mail or
deliver their written demands to: Joan McGlockton, Secretary, Sodexho Marriott
Services, Inc., 9801 Washingtonian Boulevard, Suite 1251,
14
Gaithersburg, Maryland 20878. The written demand for appraisal should specify
the stockholder's name and mailing address, the number of Shares covered by
the demand and that the stockholder is thereby demanding appraisal of such
Shares. In the case of a Long-Form Merger, SMS must, within ten days after the
Effective Time, provide notice of the Effective Time to all stockholders who
have complied with Section 262 and have not voted for approval and adoption of
the Merger Agreement.
Remaining Stockholders electing to exercise their appraisal rights under
Section 262 must not vote for the approval and adoption of the Merger
Agreement or consent thereto in writing. Voting or consenting in favor of the
approval and adoption of the Merger Agreement, or delivering a proxy in
connection with the stockholders meeting called to approve the Merger
Agreement (unless the proxy votes against, or expressly abstains from the vote
on, the approval and adoption of the Merger Agreement), will constitute a
waiver of the stockholder's right of appraisal and will nullify any written
demand for appraisal submitted by the stockholder.
Regardless of whether the Merger is effected as a Long-Form Merger or a
Short-Form Merger, within 120 days after the Effective Time, either SMS or any
stockholder who has complied with the required conditions of Section 262 and
who is otherwise entitled to appraisal rights may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
Shares of the dissenting stockholders. This petition must also be served on
the Surviving Corporation. If a petition for an appraisal is timely filed,
after a hearing on such petition, the Delaware Court of Chancery will
determine which stockholders are entitled to appraisal rights and thereafter
will appraise the Shares owned by such stockholders, determining the fair
value of such Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value.
In determining fair value, the Delaware Court of Chancery is to take into
account all relevant factors. In Weinberger v. UOP, Inc., et al., the Delaware
Supreme Court discussed the factors that could be considered in determining
fair value in an appraisal proceeding, stating that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered
and that "[f]air price obviously requires consideration of all relevant
factors involving the value of a company." The Delaware Supreme Court stated
that in making this determination of fair value the court must consider
"market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which were known or which could be ascertained
as of the date of merger which throw any light on future prospects of the
merged corporation . . ." The Delaware Supreme Court has construed Section 262
to mean that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered." However, the
court noted that Section 262 provides that fair value is to be determined
"exclusive of any element of value arising from the accomplishment or
expectation of the merger."
Remaining Stockholders who in the future consider seeking appraisal should
have in mind that the fair value of their Shares determined under Section 262
could be more than, the same as, or less than the Merger Consideration if they
do seek appraisal of their Shares, and that opinions of investment banking
firms as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. The cost of the appraisal
proceeding may be determined by the Delaware Court of Chancery and taxed upon
the parties as the Delaware Court of Chancery deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Delaware
Court of Chancery may order that all or a portion of the expenses incurred by
any dissenting stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all Shares
entitled to appraisal. In the absence of such a determination or assessment,
each party bears its own expenses.
Any Remaining Stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the Shares
subject to such demand for any purpose, or to receive payment of dividends or
other distributions on such Shares, except for dividends or other
distributions payable to stockholders of record at a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any former holder of
Shares shall have the right to withdraw his or her demand for appraisal and to
accept the Merger Consideration. After this period, such holder
15
may withdraw his or her demand for appraisal only with the consent of SMS as
the Surviving Corporation. If no petition for appraisal is filed with the
Delaware Court of Chancery within 120 days after the Effective Time,
stockholders' rights to appraisal shall cease and all stockholders shall be
entitled to receive the Merger Consideration. Inasmuch as SMS has no
obligation to file such a petition, and Sodexho has no present intention to
cause or permit the Surviving Corporation to do so, any stockholder who
desires such a petition to be filed is advised to file it on a timely basis.
No petition timely filed in the Delaware Court of Chancery demanding appraisal
shall be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and such approval may be conditioned upon such terms as the
Delaware Court of Chancery deems just.
Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.
Appraisal rights cannot be exercised at this time. The information set forth
above is for informational purposes only with respect to alternatives
available to stockholders if the Merger is consummated. Stockholders who will
be entitled to appraisal rights in connection with the Merger will receive
additional information concerning appraisal rights and the procedures to be
followed in connection therewith before such stockholders have to take any
action relating thereto.
Stockholders who sell Shares in the Offer will not be entitled to exercise
appraisal rights with respect to those Shares but, rather, will receive the
price paid in the Offer.
Merger without Stockholder Vote. Under Section 253 of the DGCL, if the
Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of the
outstanding Shares, Purchaser will be able to effect the Merger after
consummation of the Offer without a vote of the stockholders of SMS. However,
if the Purchaser does not acquire at least 90% of the Shares pursuant to the
Offer or otherwise and a vote of the stockholders of SMS is required under
Delaware law, a significantly longer period of time will be required to effect
the Merger.
Section 203. In general, Section 203 of the DGCL ("Section 203") prevents an
"interested stockholder" (including a person who owns or has the right to
acquire 15% or more of the corporation's outstanding voting stock) from
engaging in a "business combination" (defined to include mergers and certain
other actions) with a Delaware corporation for a period of three years
following the date such person became an interested stockholder. The
restrictions of Section 203 do not apply to any stockholder as to which, prior
to the time it became an interested stockholder, the board of directors of the
corporation approved the transaction which resulted in the stockholder
becoming an interested stockholder. Since the SMS Board approved Sodexho's
initial acquisition of Shares in 1998 and has approved the Merger Agreement,
Sodexho and the Purchaser do not believe that the restrictions of Section 203
would apply to the Merger. In addition, Sodexho and the Purchaser believe that
the restrictions of Section 203 are inapplicable to the Merger because Sodexho
has been an interested stockholder of SMS for more than three years.
(c) Rights Agreement.
SMS and The Bank of New York are parties to a Rights Agreement, as amended
(the "Rights Agreement"), pursuant to which SMS authorized and declared a
dividend distribution of one right ("Right") to purchase one one-thousandth of
a share of Series A Junior Participating Preferred Stock (the "Preferred
Stock") for each outstanding share of common stock to stockholders of record
at the close of business on the Record Date (as defined in the Rights
Agreement), and authorized the issuance of one Right with each future share of
common stock issued by SMS before the Distribution Date (as defined in the
Rights Agreement). The Rights attach to all certificates representing shares
of outstanding common stock of SMS and are not exercisable or transferable
apart from the common stock upon the earlier of (i) ten days following the
date (a "Stock Acquisition Date") of a public announcement that a person or
group of affiliated or associated persons (with the exception of Sodexho and
certain owners of "Exempt Shares" as defined in the Rights Agreement) (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of common stock or (ii) ten
business days following the commencement of a tender offer or exchange offer,
the
16
consummation of which would result in a person or group becoming the
beneficial owner of 30% of more of such outstanding shares of common stock.
In the event (i) SMS is the surviving corporation in a merger with an
Acquiring Person and the SMS common stock is not changed or exchanged, or (ii)
any person becomes the beneficial owner of 30% or more of then outstanding
shares of common stock (except pursuant to an offer for all outstanding shares
of common stock which the SMS Board determines to be fair to and otherwise in
the best interests of SMS and its stockholders), each holder of a Right will,
in lieu of the right to receive on one-thousandth of a share of Preferred
Stock, thereafter have the right to receive, upon exercise, common stock (or,
in certain circumstances, cash, property or other securities of SMS) having a
value equal to two times the exercise price of the Right. Notwithstanding any
of the foregoing, following the occurrence of either of the events set forth
in this paragraph, all Rights that are (or, under certain circumstances
specified in the Rights Agreement, were) beneficially owned by any Acquiring
Person will be null and void.
In the event that, at any time following the Stock Acquisition Date, (i) SMS
is acquired in a merger or other business combination transaction in which SMS
is not the surviving corporation or shares of SMS common stock are changed
into or exchanged for stock, cash or other property, or (ii) 50 percent or
more of SMS's assets or earning power is sold or transferred, each holder of a
SMS Right (except SMS Rights which previously have been voided as set forth
above) will thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a value equal to two times the exercise price
of the SMS Right.
(d) Antitrust.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules that have been promulgated thereunder by the Federal Trade Commission
("FTC"), certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the FTC, and certain
waiting period requirements have been satisfied. This information was
furnished to the Antitrust Division on March 7, 2001 and the waiting period
requirements were satisfied on April 6, 2001.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the acquisition of Shares pursuant
to the Offer. At any time before or after the consummation of any such
transactions, the Antitrust Division or the FTC could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of Shares pursuant to the Offer or
seeking divestiture of the Shares so acquired or divestiture of Sodexho's or
SMS's substantial assets. Private parties (including individual states) may
also bring legal actions under the antitrust laws. SMS does not believe that
the consummation of the Offer will result in a violation of any applicable
antitrust laws. However, there can be no assurance that a challenge to the
Offer on antitrust grounds will not be made, or if such a challenge is made,
what the result will be. See the Offer to Purchase under the section entitled
"The Offer--13. Conditions of the Offer," which section is incorporated by
reference herein, for certain conditions to the Offer, including conditions
with respect to litigation and certain governmental actions.
(e) Litigation.
Following Sodexho's January 25, 2001 announcement that it had made a
proposal to acquire the outstanding Shares, nine separate lawsuits were filed
in the Delaware Court of Chancery on behalf of a purported class of SMS
stockholders, excluding Sodexho and the other defendants. The actions, which
were styled Feldman v. Shaw, et al., C.A. No. 18640; Bieler v. Shaw, et al.,
C.A. No. 18641; McMullen v. Shaw, et al., C.A. No. 18642; Alessi v. Shaw, et
al., C.A. No. 18644; Piven v. Shaw, et al., C.A. No. 18645; Goldberg v. Shaw,
et al., C.A. No. 18650; Remmen v. Shaw, et al., C.A. No. 18651; Berg v. Shaw,
et al., C.A. No. 18653; and Burt v. Shaw, et al., C.A. No. 18661, were
subsequently consolidated by order of the court under the caption In re
Sodexho Marriott Shareholders Litigation, Cons. C.A. No. 18640 (the "Action").
That order designates the complaint in the Feldman action to be the operative
complaint in the Action. That complaint names as defendants SMS,
17
the members of the SMS Board and Sodexho, and generally alleges that the
$27.00 per Share offer announced by Sodexho on January 25, 2001 would provide
inadequate value to SMS stockholders, that Sodexho improperly used its
position as a large stockholder of SMS in making that proposal and that the
members of the SMS Board were beholden to Sodexho and could not impartially
evaluate the proposal. That complaint seeks preliminary and permanent
injunctive relief against the transaction proposed by Sodexho, monetary
damages in an unspecified amount and plaintiffs' costs and attorneys' fees.
Prior to SMS and Sodexho entering into the Merger Agreement, the parties to
the Action reached an agreement in principle to settle the Action based on the
facts (1) that plaintiffs' counsel and their financial advisor had conveyed
plaintiffs' views about the adequacy of Sodexho's earlier proposal to the
advisors to the Special Committee and that those views had been taken into
consideration by the members of the Special Committee in reaching their
determination to recommend to the full SMS Board that the SMS Board approve
the Merger Agreement, (2) that Sodexho was aware of the allegations made in
the complaints in the Action and took into account the desirability of
addressing those claims in determining to increase the per Share consideration
to be paid to SMS's stockholders from $27.00 to $32.00 per Share, and (3) that
the $32.00 per Share consideration provided in the Merger Agreement was within
the range of fairness for such shares in the view of plaintiffs' financial
advisor. The proposed settlement is subject to a number of conditions,
including, among other things, that plaintiffs' counsel conclude, after
completion of appropriate discovery, that the proposed settlement is fair and
reasonable to members of the putative class, and approval by the Delaware
Court of Chancery of the settlement. Subject to final court approval of the
settlement, plaintiffs' counsel intend to apply to the Court for an award of
their fees and expenses. Defendants have agreed not to oppose such an
application up to an aggregate amount of $725,000, as may be awarded by the
Court.
18
Item 9. Exhibits.
The following Exhibits are filed herewith:
Exhibit
No. Description
------- -----------
(a)(1) Letter to the stockholders of SMS, dated May 17, 2001.*
(a)(2) Offer to Purchase, dated May 17, 2001 (incorporated by reference to
Exhibit (a)(1) to the Schedule TO of Sodexho and the Purchaser filed
with the SEC on May 17, 2001).
(a)(3) Form of Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) to the Schedule TO of Sodexho and the Purchaser filed with
the SEC on May 17, 2001).
(a)(4)(A) Opinion of UBS Warburg, dated as of May 1, 2001 (included as Annex A
to this Statement).*
(a)(4)(B) Presentation of representatives of UBS Warburg to the Special
Committee of the SMS Board, dated May 1, 2001 (incorporated by
reference to Exhibit (c)(2) to the Schedule 13E-3 of SMS filed with
the SEC on May 17, 2001).
(a)(5) Press Release issued by SMS on May 2, 2001 (incorporated by
reference to press release under cover of Schedule 14D-9C filed with
the SEC by SMS on May 2, 2001).
(a)(6) Press Release issued by Sodexho on May 2, 2001 (incorporated by
reference to press release under cover of Schedule TO-C filed with
the SEC by Sodexho on May 2, 2001).
(a)(7) Notice of Guaranteed Delivery (incorporated by reference to Exhibit
(a)(3) to the Schedule TO of Sodexho and the Purchaser filed with
the SEC on May 17, 2001).
(a)(8) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees (incorporated by reference to Exhibit (a)(4) to the
Schedule TO of Sodexho and the Purchaser filed with the SEC on May
17, 2001).
(a)(9) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by reference to
Exhibit (a)(5) to the Schedule TO of Sodexho and the Purchaser filed
with the SEC on May 17, 2001).
(a)(10) Letter to Participants in SMS's Employee Stock Purchase Plan
(incorporated by reference to Exhibit (a)(6) to the Schedule TO of
Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(a)(11) Letter to holders of old Marriott International, Inc. certificates
(incorporated by reference to Exhibit (a)(7) to the Schedule TO of
Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(a)(12) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (incorporated by reference to Exhibit (a)(8) to
the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(13) Summary advertisement, dated May 17, 2001 (incorporated by reference
to Exhibit (a)(9) to the Schedule TO of Sodexho and the Purchaser
filed with the SEC on May 17, 2001).
(a)(14) Complaint of Barry Feldman against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A.
and Sodexho Marriott Services, Inc. (incorporated by reference to
Exhibit (a)(11) to the Schedule TO of Sodexho and the Purchaser
filed with the SEC on May 17, 2001).
(a)(15) Complaint of Arthur Bieler against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A.
and Sodexho Marriott Services, Inc. (incorporated by reference to
Exhibit (a)(12) to the Schedule TO of Sodexho and the Purchaser
filed with the SEC on May 17, 2001).
19
Exhibit
No. Description
------- -----------
(a)(16) Complaint of John McMullen against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and
Sodexho Marriott Services, Inc. (incorporated by reference to Exhibit
(a)(13) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(a)(17) Complaint of Margaret Alessi, individually and on behalf of others
similarly situated, against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(14)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(18) Complaint of Sylvia Piven, individually and on behalf of others
similarly situated, against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(15)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(19) Complaint of Audrey Goldberg against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and
Sodexho Marriott Services, Inc. (incorporated by reference to Exhibit
(a)(16) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(a)(20) Complaint of Gary Remmen against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(17)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(21) Complaint of Neil Berg against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(18)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(22) Complaint of C. Oliver Burt against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and
Sodexho Marriott Services, Inc. (incorporated by reference to Exhibit
(a)(19) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(e)(1) Agreement and Plan of Merger, dated as of May 1, 2001, among Sodexho,
the Purchaser and SMS (included as Annex A of the Offer to Purchase,
which is incorporated by reference to Exhibit (a)(1) to the Schedule
TO of Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(e)(2) Confidentiality Agreement, dated as of April 5, 2001, between Sodexho
and SMS (incorporated by reference to Exhibit (d)(8) to the Schedule
TO of Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(e)(3) Information Statement of SMS pursuant to Section 14(f) of the
Securities Exchange Act, dated May 17, 2001 (included as Annex B to
this Statement).*
(e)(4) SMS's Definitive Proxy Statement, dated February 12, 1998, for a
Special Meeting of Stockholders held on March 17, 1998 filed with the
SEC on February 13, 1998.
20
Exhibit
No. Description
------- -----------
(e)(5) Note 5, Note 8 and Note 10 of the Notes to the Consolidated Financial
Statements of SMS on pages 36-37, 39-40 and 44 of SMS's Annual Report
on Form 10-K for the fiscal year ended September 1, 2000 filed with
the SEC on November 13, 2000.
(e)(6) Tax Sharing and Indemnification Agreement, dated as of March 27, 1998,
by and among Marriott International, Inc., New Marriott, Inc. and
Sodexho (incorporated by reference to Exhibit 9 of Amendment No. 1 to
Sodexho's Schedule 13D filed with the SEC on April 15, 1998).
(e)(7) Royalty Agreement, dated as of March 27, 1998, by and between Sodexho
and SMS (incorporated by reference to Exhibit 10.19 of SMS's Form 10-
K/A filed with the SEC on April 30, 1998).
(e)(8) Stockholder Agreement, dated as of March 27, 1998, between SMS and
Sodexho (incorporated by reference to Exhibit 3 of Sodexho's Schedule
13D filed with the SEC on April 6, 1998).
(e)(9) Assistance Agreement, dated as of March 27, 1998, by and between
Sodexho and SMS (incorporated by reference to Exhibit (d)(5) to the
Schedule TO of Sodexho and the Purchaser filed with the SEC on May 17,
2001).
(e)(10) Sodexho Guaranty, dated as of March 27, 1998, from Sodexho as
Guarantor in favor of the Lender Parties referred to in the Credit
Agreement referred to therein (incorporated by reference to Exhibit
(d)(6) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(e)(11) Guaranty fee letter, dated as of March 27, 1998, between Sodexho and
SMS (incorporated by reference to Exhibit (d)(7) to the Schedule TO of
Sodexho and the Purchaser filed with the SEC on May 17, 2001).
- --------
*Included with this Statement and a copy mailed to the stockholders.
21
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
SODEXHO MARRIOTT SERVICES, INC.
Date: May 17, 2001 By: /s/ Robert A. Stern
-----------------------------
Robert A. Stern
Title: Senior Vice President and
General Counsel
22
Schedule I
EXECUTIVE OFFICERS OF SMS
The following table sets forth the name and current title of each executive
officer of SMS.
Name Current Title
---- -------------
Rodney Bond............. President, School Services
Stephen J. Brady........ Senior Vice President, Corporate Communications
John M. Bush............ Senior Vice President and Chief Financial Officer
William W. Hamman....... Executive Vice President, President, Education Services
Garry C. Knox........... President, Canada Division
Michel Landel........... President and Chief Executive Officer
Ollie Lawrence, Jr. .... Senior Vice President and Chief Human Resources Officer
Richard Macedonia....... President, Health Care Services
Thomas M. Mulligan...... President, Corporate Services
Emeka Okeani............ National Vice President, Laundries
Bernard Royer........... Senior Vice President, Procurement and Distribution
Robert A. Stern......... Senior Vice President and General Counsel
Philippe Taillet........ Senior Vice President and Chief Information Officer
Susan H. Tatum.......... Senior Vice President, Marketing
I-1
Schedule II
BENEFICIAL OWNERSHIP TABLE
The following table sets forth information regarding the beneficial
ownership of Shares, SMS stock options and restricted stock units as of April
27, 2001 by the directors and executive officers of SMS.
Under the Securities Exchange Act, a person is deemed to be a "beneficial
owner" of a security if he or she has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities over which that person has the right to acquire beneficial
ownership within 60 days. More than one person may be deemed to be a
beneficial owner of the same securities.
The table is based upon information supplied by the directors and executive
officers of SMS.
Vested Stock Restricted Stock
Shares Stock Options(1) Options(2) Units
---------- ---------------- ------------ ----------------
Daniel J. Altobello..... 4,001(3) 0 0 0
Pierre Bellon........... 29,949,925 0 0 0
Stephen J. Brady........ 2,336 34,000 8,250(8) 4,000
Rodney Bond............. 454(4) 71,803 46,863(9) 6,000
John M. Bush............ 1,657(5) 87,450 33,579(10) 6,000
Bernard Carton.......... 10,100 0 0 0
Edouard de Royere....... 1 0 0 0
William W. Hamman....... 57,297(6) 160,162 75,713(11) 8,000
Garry C. Knox........... 1,117(7) 37,937 7,125(12) 4,000
Michel Landel........... 13,000 187,500 48,750(13) 15,000
Ollie Lawrence, Jr...... 2,793 40,000 6,250(14) 6,000
Richard Macedonia....... 0 74,748 26,147(15) 8,000
John W. Marriott III.... 1 0 0 0
Thomas M. Mulligan...... 0 85,000 18,750(16) 8,000
Mary S. Metz............ 200 0 0 0
Emeka Okeani............ 0 51,088 23,685(17) 4,000
Bernard Royer........... 0 75,000 11,250(18) 8,000
William J. Shaw......... 14,839 0 0 0
Robert A. Stern......... 185 108,082 44,167(19) 6,000
Philippe Taillet........ 0 60,000 12,500(20) 6,000
Susan H. Tatum.......... 318 62,270 24,549(21) 6,000
---------- --------- ------- ------
TOTALS.................. 30,058,313 1,135,040 387,578 95,000
- --------
(1) All of the stock options disclosed hereunder have an exercise price less
than the Offer Price of $32.00 per Share.
(2) Reflects stock options vested as of April 27, 2001.
II-1
(3) Includes 400 Shares owned by Mr. Altobello's wife. Mr. Altobello
disclaims beneficial ownership of such Shares.
(4) Includes 452 Shares held in Mr. Bond's SMS 401(k) plan account.
(5) Includes 1,568 Shares held in Mr. Bush's SMS 401(k) plan account.
(6) Includes 9,139 Shares of restricted stock, 45,692 Shares of deferred
stock awards and 180 Shares held in Mr. Hamman's SMS 401(k) plan account.
(7) Includes 618 Shares held in Mr. Knox's SMS 401(k) plan account.
(8) Includes options to purchase 4,500 Shares at $28.7813 per Share and 3,750
Shares at $16.5625 per Share.
(9) Includes options to purchase 1,980 Shares at $2.3238 per Share, 4,569
Shares at $4.2802 per Share, 6,284 Shares at $5.2478 per Share, 6,093
Shares at $8.5551 per Share, 6,854 Shares at $9.5598 per Share, 6,777
Shares at $12.2061 per Share, 5,483 Shares at $17.9933 per Share, 3,198
Shares at $22.2498 per Share, 4,000 Shares at $28.7813 per Share and
1,625 Shares at $16.5625 per Share.
(10) Includes options to purchase 2,742 Shares at $8.5551 per Share, 3,046
Shares at $9.5598 per Share, 3,198 Shares at $12.2061 per Share, 5,483
Shares at $17.9933 per Share, 4,110 Shares at $22.2498 per Share, 3,750
Shares at $28.7813 per Share, 2,500 Shares at $16.5625 per Share and
8,750 Shares at $10.6600 per Share.
(11) Includes options to purchase 4,569 Shares at $9.5598 per Share, 14,924
Shares at $12.2061 per Share, 11,879 Shares at $17.9933 per Share, 14,841
Shares at $22.2498 per Share, 17,000 Shares at $28.7813 per Share and
12,500 Shares at $16.5625 per Share.
(12) Includes an option to purchase 7,125 Shares at $28.7813 per Share.
(13) Includes options to purchase 23,750 Shares at $28.7813 per Share and
25,000 Shares at $16.5625 per Share.
(14) Includes an option to purchase 6,250 Shares at $15.00 per Share.
(15) Includes options to purchase 6,853 Shares at $17.9933 per Share, 7,419
Shares at $22.2498 per Share, 7,250 Shares at $28.7813 per Share and
4,625 Shares at $16.5625 per Share.
(16) Includes options to purchase 4,050 Shares at $28.7813 per Share, 1,950
Shares at $31.4060 per Share, 1,500 Shares at $21.9688 per Share and
11,250 Shares at $16.5625 per Share.
(17) Includes options to purchase 838 Shares at $9.5598 per Share, 3,046
Shares at $12.2061 per Share, 6,092 Shares at $17.9933 per Share, 5,709
Shares at $22.2498 per Share, 4,250 Shares at $28.7813 per Share and
3,750 Shares at $16.5625 per Share.
(18) Includes an option to purchase 11,250 Shares at $15.00 per Share.
(19) Includes options to purchase 3,960 Shares at $12.2061 per Share, 10,965
Shares at $17.9933 per Share, 7,992 Shares at $22.2498 per Share, 8,750
Shares at $28.7813 per Share, 7,500 Shares at $16.5625 per Share and
5,000 Shares at $14.8437 per Share.
(20) Includes options to purchase 7,500 Shares at $23.6880 per Share and 5,000
Shares at $16.5625 per Share.
(21) Includes options to purchase 1,600 Shares at $9.5598 per Share, 6,092
Shares at $12.2061 per Share, 6,397 Shares at $17.9933 per Share, 4,110
Shares at $22.2498 per Share, 3,850 Shares at $28.7813 per Share and
2,500 Shares at $16.5625 per Share.
II-2
Schedule III
INTEREST IN SECURITIES OF SMS
Except as described below, no transactions in Shares have been effected
during the past sixty (60) days by SMS or, to the knowledge of SMS, by any
director, executive officer or affiliate of SMS.
(a)Pursuant to the SMS Employee Stock Purchase Plan (the "ESPP"), Mellon
Investor Services LLC has purchased 37,302 Shares since March 1, 2001, on
behalf of the ESPP participants, all of whom are or were employees of SMS. The
aggregate purchase price for such acquisition was $944,922. The highest per
Share purchase price paid was $31.74 and the lowest per Share purchase price
paid was $29.14. As of the date hereof, none of such Shares have been
allocated to the individual ESPP participants.
Garry C. Knox, President, Canada Division, sold 112 Shares on March 7, 2001
at a price of $29.19. Mr. Knox was required to sell such Shares because he had
previously exceeded the $10,000 purchase limit established pursuant to the
ESPP.
(b)Pursuant to the SMS 401(k) Employees' Retirement Savings Plan (the
"401(k) Plan"), T. Rowe Price Trust Company has purchased 80,939.291 Shares
since March 1, 2001, on behalf of the 401(k) Plan participants, all of whom
are or were employees of SMS. The aggregate purchase price for such
acquisition was $2,426,744. The highest per Share purchase price paid was
$31.75 and the lowest per Share purchase price paid was $28.09. As of the date
hereof, none of such Shares have been allocated to any director, executive
officer or affiliate of SMS.
III-1
[UBS WARBURG LETTERHEAD APPEARS HERE] Annex A
May 1, 2001
Special Committee of the Board of Directors
Sodexho Marriott Services, Inc.
9801 Washingtonian Boulevard
Gaithersburg, MD 20878
Members of the Special Committee:
We understand that Sodexho Marriott Services, Inc., a Delaware corporation
(the "Company"), is considering a transaction whereby SMS Acquisition Corp.
("Merger Subsidiary"), a Delaware corporation controlled by Sodexho Alliance
S.A. ("Sodexho Alliance"), will tender for the outstanding shares of common
stock, par value $1.00 per share (the "Common Stock"), of the Company not
currently owned by Sodexho Alliance or its affiliates. Pursuant to the terms
of the proposed Agreement and Plan of Merger dated May 1, 2001 (the "Merger
Agreement"), Merger Subsidiary will commence a cash tender offer (the "Offer")
to acquire all of the outstanding shares of Common Stock (other than shares
held by Sodexho Alliance or its Affiliates (as such term is defined in the
Merger Agreement)) for a cash payment in the amount of $32.00 per share (the
"Consideration"). Pursuant to the Merger Agreement, the Offer will be followed
by a merger of the Merger Subsidiary with and into the Company (the "Merger"
and, together with the Offer, the "Transaction") in which the remaining shares
of Common Stock not tendered in the Offer (other than shares held by Sodexho
Alliance or its Affiliates) will convert into the right to receive the
Consideration. The terms and conditions of the Transaction are more fully set
forth in the Merger Agreement.
You have requested our opinion as to the fairness from a financial point of
view to the holders of the shares of Common Stock (other than Sodexho Alliance
and its Affiliates) of the Consideration to be received by such holders in the
Transaction.
UBS Warburg LLC ("UBSW") has acted as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with the
Transaction. UBSW will receive a fee from the Company in connection with the
rendering of this opinion and upon the consummation of the Transaction. In the
ordinary course of business, UBSW, its successors and affiliates may trade or
have traded securities of the Company and/or Sodexho Alliance for their own
accounts and the accounts of their customers and, accordingly, may at any time
hold a long or short position in such securities.
This letter does not constitute a recommendation to any shareholder of the
Company as to whether such shareholder should tender its shares of Common
Stock in the Offer or how such shareholder should vote with respect to the
Merger. At your direction, we have not been asked to, nor do we, offer any
opinion as to the material terms of the Merger Agreement or the form of the
Transaction contemplated thereby. In rendering this opinion, we have assumed,
with your consent, that the final executed form of the Merger Agreement does
not differ in any material respect from the drafts that we have examined, and
that the Company, Sodexho Alliance and Merger Subsidiary will comply with all
the material terms of the Merger Agreement. We have not been authorized to and
have not solicited indications of interest from any party with respect to a
business combination with the Company.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company, (ii) reviewed the reported prices and trading
activity for the Common Stock of the Company, (iii) reviewed certain internal
financial information and other data relating to the business and financial
prospects of the Company, including estimates and financial forecasts prepared
by management of the Company, that were provided to us by the Company and not
publicly available,
A-1
[UBS WARBURG LETTERHEAD APPEARS HERE]
(iv) conducted discussions with members of the senior management of the
Company concerning the business and financial prospects of the Company, (v)
reviewed publicly available financial and stock market data with respect to
certain other companies in lines of business we believe to be generally
comparable to those of the Company, (vi) compared the financial terms of the
Transaction with the publicly available financial terms of certain other
transactions which we believe to be generally relevant, (vii) reviewed drafts
of the Merger Agreement, and (viii) conducted such other financial studies,
analyses, and investigations, and considered such other information as we
deemed necessary or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification of any of the information reviewed
by us for the purpose of this opinion and have, with your consent, relied on
such information being complete and accurate in all material respects. In
addition, at your direction, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company, nor have we been furnished with any such evaluation or appraisal. In
addition, at your direction, we have assumed that the financial projections
internally prepared by Sodexho Marriott Services were reasonably prepared on
bases reflecting the best currently available estimates and good faith
judgments of the management of Sodexho Marriott Services as to the future
performance of Sodexho Marriott Services. Our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
This letter has been prepared for the information of the Special Committee
of the Board of Directors in connection with its consideration of the proposed
Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be received by the holders of shares of
Common Stock (other than Sodexho Alliance and its Affiliates) in the
Transaction is fair from a financial point of view to such holders.
Very truly yours,
UBS WARBURG LLC
A-2
Annex B
SODEXHO MARRIOTT SERVICES, INC.
9801 Washingtonian Boulevard
Gaithersburg, MD 20878
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
NO VOTE OR OTHER ACTION OF STOCKHOLDERS OF SODEXHO MARRIOTT SERVICES, INC. IS
REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND A PROXY TO SODEXHO MARRIOTT
SERVICES, INC.
GENERAL
This Information Statement is being mailed on or about May 17, 2001 as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of Sodexho Marriott Services, Inc., a Delaware corporation ("SMS"), to
the holders of record of shares of SMS's Common Stock, $1.00 par value per
share, along with their associated rights to purchase Series A Junior
Participating Preferred Stock of SMS (the "Shares"). Capitalized terms used
and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9. You are receiving this Information Statement in connection
with the possible election of persons designated by Sodexho Alliance, S.A., a
French corporation ("Sodexho"), to a majority of seats on the Board of
Directors of SMS (the "SMS Board "). On May 1, 2001, SMS entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Sodexho and SMS
Acquisition Corp. (the "Purchaser"), a Delaware corporation and a wholly-owned
subsidiary of Sodexho, pursuant to which the Purchaser has commenced a tender
offer to purchase all of the outstanding Shares at a purchase price of $32.00
per Share, net to the seller in cash (the "Offer Price"), upon the terms and
subject to conditions set forth in the Purchaser's Offer to Purchase, dated
May 17, 2001 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with any amendments and supplements thereto,
collectively constitute the "Offer"). Copies of the Offer to Purchase and the
Letter of Transmittal have been mailed to SMS stockholders and are filed as
Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on
Schedule TO (as amended from time to time, the "Schedule TO") filed by Sodexho
and the Purchaser with the Securities and Exchange Commission (the "SEC") on
May 17, 2001. The Merger Agreement provides that, subject to the satisfaction
or waiver of certain conditions, following completion of the Offer, and in
accordance with the Delaware General Corporation Law (the "DGCL"), the
Purchaser will be merged with and into SMS (the "Merger"). Following
consummation of the Merger, SMS will continue as the surviving corporation
(the "Surviving Corporation") and will be a wholly-owned subsidiary of
Sodexho. At the effective time of the Merger (the "Effective Time"), each
issued and outstanding Share (other than Shares owned by SMS, Sodexho,
Purchaser or any other subsidiary of Sodexho, which Shares shall be canceled
and retired, and Shares held by stockholders who properly exercise their
appraisal rights in accordance with the provisions of Section 262 of the DGCL)
will be converted into the right to receive $32.00 in cash or any greater
amount per Share paid pursuant to the Offer (the "Merger Consideration").
The Offer, the Merger and the Merger Agreement are more fully described in
the Schedule 14D-9, to which this Information Statement forms Annex B, which
was filed by SMS with the SEC on May 17, 2001 and which is being mailed to SMS
stockholders along with this Information Statement.
This Information Statement is being mailed to you in accordance with Section
14(f) of the Securities Exchange Act of 1934 ("Securities Exchange Act") and
Rule 14f-1 promulgated thereunder. The information set forth herein
supplements certain information set forth in the Schedule 14D-9. Information
set forth herein
B-1
related to Sodexho, the Purchaser or the Sodexho Designees (as defined below)
has been provided by Sodexho. You are urged to read this Information Statement
carefully. You are not, however, required to take any action in connection
with the matters set forth herein.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on May
17, 2001. The Offer is currently scheduled to expire at 12:00 midnight, New
York City time, on Thursday, June 14, 2001, unless the Purchaser extends it.
VOTING SECURITIES OF SMS
The Shares belong to the only class of equity securities of SMS outstanding
which is entitled to vote at a meeting of stockholders of SMS. Each Share is
entitled to one vote. As of the close of business on May 11, 2001, there were
63,723,383 Shares outstanding.
RIGHTS TO DESIGNATE DIRECTORS AND SODEXHO DESIGNEES
The SMS Board currently consists of eight members. The Merger Agreement
provides that, upon the acceptance for payment of any Shares by the Purchaser
pursuant to the Offer, Sodexho will be entitled to designate such number of
directors (the "Sodexho Designees") on the SMS Board, rounded up to the next
whole number, as is equal to the product obtained by multiplying (i) the total
number of directors on the SMS Board (giving effect to the election by Sodexho
of any additional directors) by (ii) the percentage that the number of Shares
beneficially owned by Sodexho and/or the Purchaser bears to the total number
of Shares outstanding.
The Merger Agreement provides that SMS will take all reasonable action
necessary to cause the Sodexho Designees to be elected or appointed to the SMS
Board, including increasing the number of directors and seeking and accepting
resignations of incumbent directors. The Merger Agreement also provides that
SMS will, subject to applicable law and stock exchange regulations, use all
reasonable efforts to cause Sodexho Designees to constitute the number of
members, rounded up to the next whole number, on (i) each committee of the SMS
Board (other than the special committee and the audit committee) and (ii) each
board of directors of each material subsidiary of SMS that represents the same
percentage as such individuals represent on the SMS Board.
Notwithstanding the foregoing, SMS will use all reasonable efforts to ensure
that at least two of the members of the SMS Board or such committees as of the
date of the Merger Agreement who are not employees of SMS remain members of
the SMS Board and such committees until the Effective Time.
The Sodexho Designees will be selected by Sodexho from among the individuals
listed below. Each of the following individuals has consented to serve as a
director of SMS if appointed or elected. None of the Sodexho Designees
currently is a director of, or holds any positions with, SMS. Sodexho has
advised SMS that, to the best of Sodexho's knowledge, except as set forth
herein, none of the Sodexho Designees has been involved in any transaction
with SMS or any of its directors, executive officers or affiliates that is
required to be disclosed pursuant to the rules and regulations of the SEC
other than with respect to transactions between Sodexho and SMS that have been
described in the Schedule TO or the Schedule 14D-9. It is expected that
Sodexho Designees may assume office at any time following the purchase by
Purchaser of any Shares pursuant to the Offer, and that, upon assuming office,
the Sodexho Designees will thereafter constitute at least a majority of the
SMS Board. It is currently not known which of the current directors of SMS
will resign.
The name, age, citizenship, present principal occupation or employment and
five-year employment history of each of the individuals who may be selected as
Sodexho Designees are set forth below. Where no date is shown, the individual
has occupied the position indicated for the past five years. Unless otherwise
indicated, each
B-2
occupation set forth opposite an individual's name refers to employment with
Sodexho. None of the persons listed below has, during the past five years, (i)
been convicted in a criminal proceeding or (ii) been a party to any judicial
or administrative proceeding that resulted in a judgment, decree or final
order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws. Unless otherwise indicated, the
business address of each such person is c/o Sodexho Alliance, S.A., 3, avenue
Newton, 78180 Montigny-le-Bretonneux, France. Unless otherwise indicated, each
person listed below is a citizen of France. None of the Sodexho Designees
beneficially owns more than 1% of the outstanding Shares.
Current Principal Occupation or Employment and
Name and Address Five-Year Employment History
---------------- ---------------------------------------------------------
Raphael Dubrule..... Mr. DuBrule, age 60, serves as the Corporate Secretary
and General Counsel of Sodexho.
Albert George....... Mr. George, age 57, serves as President of Sodexho. Mr.
George has been with Sodexho for over thirty years. Prior
to his recent appointment as President, Mr. George served
as Chief Operating Officer of the Services Vouchers and
Cards business.
Denis Robin......... Mr. Robin, age 44, serves as the Director of Group
Corporate Finance and Development of Sodexho. Mr. Robin
is also a Director and the President of the Purchaser.
Sian Herbert-Jones.. Ms. Herbert-Jones, age 40, serves as the Director of
Finance and Treasury of Sodexho, and is a citizen of the
United Kingdom. Ms. Herbert-Jones is also a Director and
the Secretary of the Purchaser.
B-3
BENEFICIAL OWNERSHIP OF COMMON STOCK BY THE
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Shares by (i)
each of SMS's directors, (ii) each of the Chief Executive Officer and the
other four most highly compensated executive officers of SMS for fiscal year
2000 ("Named Executive Officers"), (iii) all directors and executive officers
of SMS as a group as of April 27, 2001 and (iv) each beneficial owner of 5% or
more of the outstanding Shares.
Common Stock
---------------------
Amount
Beneficially Percent
Name Owned(1) of Class
---- ------------ --------
Directors:
Daniel J. Altobello(2).................................. 4,001 *
Pierre Bellon(3)........................................ 29,949,925 47.1%
Bernard Carton.......................................... 10,100 *
Edouard de Royere....................................... 1 *
Michel Landel(4)........................................ 61,750 *
John W. Marriott III.................................... 1 *
Mary S. Metz............................................ 200 *
William J. Shaw......................................... 14,839 *
Named Executive Officers:
William W. Hamman(5).................................... 133,010 *
Thomas M. Mulligan(6)................................... 18,750 *
Robert A. Stern(7)...................................... 44,352 *
Anthony F. Alibrio(8)................................... 135,360 *
All Directors and Executive Officers as a Group:
(21 including the foregoing) 30,445,049 47.8%
Other Beneficial Owners of More Than 5% of the
Outstanding Shares:
Sodexho Alliance, S.A.(3)............................... 29,949,925 47.1%
Transamerica Corporation
Transamerica Insurance Corporation of California
Transamerica Investment Services, Inc.(9)............... 7,486,126 11.7%
- --------
* Less than 1 percent.
(1) Based on the number of Shares outstanding at April 27, 2001, plus the
number of Shares acquirable by the specified person(s) within 60 days of
April 27, 2001. Reflects the issuance of stock options, restricted stock
and deferred stock.
(2) Includes 400 Shares owned by Mr. Altobello's wife (Mr. Altobello disclaims
beneficial ownership of such Shares).
(3) Includes 29,949,925 Shares beneficially owned by Sodexho. Mr. Bellon,
along with members of his family, is the majority shareholder of Bellon,
S.A., which is the majority shareholder of Sodexho. Sodexho beneficially
owns 29,949,925 Shares. Bellon S.A., as the majority shareholder of
Sodexho, and Mr. Bellon, as the majority shareholder of Bellon S.A., may
each be deemed to have beneficial ownership of 29,949,925 Shares
beneficially owned by Sodexho. Except to the extent of their pecuniary
interest in such Shares, Bellon S.A. and Mr. Bellon disclaim beneficial
ownership of such Shares. The address for Sodexho is 3, avenue Newton,
78180 Montigny-le-Bretonneux, France.
(4) Includes 48,750 Shares acquirable by Mr. Landel within 60 days of April
27, 2001.
B-4
(5) Includes 75,713 Shares acquirable by Mr. Hamman within 60 days of April
27, 2001. Includes 9,139 Shares of unvested restricted stock. Shares of
restricted stock are voted by the holder thereof. Includes 45,692 Shares
of deferred stock awards. Includes 180 Shares held by Mr. Hamman in SMS's
401(k) plan account.
(6) Includes 750 Shares acquirable by Mr. Mulligan within 60 days of April 27,
2001.
(7) Includes 44,167 Shares acquirable by Mr. Stern within 60 days of April 27,
2001.
(8) Includes 70,629 Shares acquirable by Mr. Alibrio within 60 days of April
27, 2001. Includes 11,423 shares of unvested restricted stock. Shares of
restricted stock are voted by the holder thereof. Includes 53,307 Shares
of deferred stock awards.
(9) Pursuant to a 13G/A filed with the SEC by Transamerica on February 17,
1999, Transamerica may be deemed to be the beneficial owner of 7,486,126
Shares, of which 1,100,000 Shares are owned directly by Transamerica. The
remaining 6,386,126 Shares, including 1,888,576 Shares owned for the
benefit of non-affiliate investment advisory clients of Transamerica
Investment Services, Inc. ("TIS") are beneficially owned by direct and
indirect subsidiaries of Transamerica. TIS is deemed to be the beneficial
owner of 7,486,126 Shares pursuant to separate arrangements whereby TIS
acts as investment advisor to certain individuals and entities, including
Transamerica Occidental Life Insurance Company ("Occidental"),
Transamerica Life Insurance and Annuity Company ("TALIAC") and
Transamerica Life Insurance Company of Canada ("TLIC Canada"), each of
which are insurance companies as defined in Section 3(a)(19) of the
Securities Exchange Act and are subsidiaries of Transamerica. Occidental,
TALIAC and TLIC Canada directly own 2,353,000, 2,052,350 and 6,700 Shares,
respectively. Each of the individuals and entities for which TIS acts as
investment advisor has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the
securities purchased or held pursuant to such arrangements. Transamerica
Insurance Corporation of California ("TICC") is deemed to be the
beneficial owner of the 4,412,550 Shares beneficially owned by its
subsidiary, Occidental, and by its indirect subsidiaries, TALIAC and TLIC
Canada. The address for Transamerica is 600 Montgomery Street, San
Francisco, California 94111. The address for TIS and TICC is 1150 South
Olive Street, Los Angeles, California 90015.
CURRENT SMS BOARD
The SMS Board currently consists of eight members, with each director
serving a one-year term (and until his or her respective successor is duly
elected and qualified). The terms of the directors will expire at the 2002
annual meeting of stockholders. The following sets forth biographical
information on each director:
William J. Shaw, age 55, has served as Chairman of the SMS Board since March
27, 1998. Mr. Shaw has served as President and Chief Operating Officer of
Marriott International, Inc. ("Marriott International") since March 31, 1997
(including service in the same capacity with SMS's predecessor until March
1998). Mr. Shaw joined Marriott Corporation in 1974, was elected Corporate
Controller in 1979 and a Vice President in 1982. In 1986, Mr. Shaw was elected
Senior Vice President-Finance and Treasurer of Marriott Corporation. He was
elected Executive Vice President of Marriott Corporation and promoted to Chief
Financial Officer in April 1988. In February 1992, he was elected President of
the Marriott Service Group, which then included Marriott International's
Contract Service Group. Mr. Shaw was elected Executive Vice President and
President-Marriott Service Group in October 1993. Mr. Shaw serves on the Board
of Marriott International. He also serves as a trustee of the University of
Notre Dame and the Suburban Hospital Foundation.
Daniel J. Altobello, age 60, has served as a director of SMS since March 27,
1998. Since October 1, 2000, Mr. Altobello has been a private investor and
active board member of several companies. From September 1995 until October
2000, Mr. Altobello was the Chairman of Onex Food Services, Inc., the parent
corporation of Caterair International, Inc. and LSG/SKY Chefs, and the largest
airline catering company in the world. From 1989 to 1995, Mr. Altobello served
as Chairman, President and Chief Executive Officer of Caterair International
B-5
Corporation. From 1979 to 1989, he held various managerial positions with the
food service management and in-flight catering divisions of Marriott
Corporation, including Executive Vice President of Marriott Corporation and
President, Marriott Airport Operations Group. Mr. Altobello began his
management career at Georgetown University, including service as Vice
President, Administration Services. He is a member of the Board of Directors
of American Management Systems, Inc., Colorado Prime Foods, Care First, Inc.
of which he is non-executive chairman, Care First of Maryland, Inc., MESA Air
Group, World Airways, Inc., First Union Realty Trust, Atlantic Aviation
Holdings, Friedman, Billings and Ramsey Group, Inc., an advisory director of
Thayer Capital Partners, and a trustee of Loyola Foundation, Inc., Mt. Holyoke
College, Suburban Hospital Foundation, Inc. and the Woodstock Theological
Center at Georgetown University.
Pierre Bellon, age 71, has served as a director of SMS since March 27, 1998.
Mr. Bellon is Chairman and Chief Executive Officer of Sodexho, a worldwide
food and management services company, which he founded in 1966 and which has
been listed on the Paris Bourse since 1983. In addition, he is Vice Chairman
of the Mouvement des Entreprises de France (Confederation of French Industries
and Services), Conseil National du Patronat Francais (Confederation of French
Industries and Services), and from 1969-1979 was a member of the Conseil
Economique et Social (Social and Economic Council) in France. Mr. Bellon also
serves as a director of L'Air Liquide (an industrial gas company).
Bernard Carton, age 67, has served as a director of SMS since March 27,
1998. Mr. Carton is Senior Vice President and Chief Financial Officer of
Sodexho, a position he has held since he joined Sodexho in 1975. Prior to
joining Sodexho, Mr. Carton held positions with several French and American
companies, including Manpower, Inc. (Vice President, Finance for European
Operations 1970-1975), Control Data Corporation (Vice President, Finance
European countries 1962-1970) and General Electric Company (Engineer 1960-
1962).
Edouard de Royere, age 68, has served as a director of SMS since March 27,
1998. Mr. de Royere is a director and Honorary Chairman of L'Air Liquide since
1997, and its former Chairman and Chief Executive Officer, a position he held
from 1985 until his retirement in 1995. Prior to such time, Mr. de Royere
served in various capacities at L'Air Liquide, including Vice President (1982-
1985), Assistant Vice President (1980-1982), Assistant to the Chief Executive
Officer (1979) and General Counsel and Company Secretary (1967-1979). Mr. de
Royere also serves as a director of Sodexho (a food management company),
L'Oreal S.A. (a beauty and personal care company), Groupe Danone (a food and
beverage company) and Solvay S.A. (a chemical and pharmaceutical company).
Michel Landel, age 49, has served as President, Chief Executive Officer, and
a member of the SMS Board since May 3, 1999. Mr. Landel joined Sodexho in 1984
as Chief Operating Manager for Eastern Africa, Libya and Algeria. He was
promoted to President of Remote Site operations in Africa in 1986, where he
served until his move to Sodexho's North American Operations. Mr. Landel
served as President and Chief Executive Officer of Sodexho North America from
1989 to March 27, 1998. He was appointed an Executive Vice President of SMS as
of March 27, 1998 and was also appointed President, Corporate Services, on
June 16, 1998. From 1980 to 1984, Mr. Landel served as General Manager for the
Poliet Group in France, a manufacturer and distributor of building materials.
He began his career with Chase Manhattan Bank in France. At Chase, he worked
within the accounting and control department for Europe, then started the
company's Ivory Coast operations, becoming the first country operations
manager for Chase.
John W. Marriott III, age 40, has served as a director of SMS since March
27, 1998. In March 2000, Mr. Marriott was named Executive Vice President,
Sales and Marketing of Marriott International. From 1996 to March 2000, Mr.
Marriott was the Senior Vice President of Marriott International's Mid-
Atlantic Region in the Hotel Division. Mr. Marriott joined Marriott
Corporation in 1986 as a Sales Manager and subsequently served as a Restaurant
Manager and then a director of Food and Beverage. In 1989, Mr. Marriott served
as Executive Assistant to the Chairman, J. W. Marriott, Jr., who is his
father. He has also held positions as Director of Financial Planning, Hotel
Director of Marketing, General Manager of the Crystal City Marriott, Director
of Finance in Marriott International's Treasury Department, Director of
Finance and Development at Host Marriott Corporation, and Vice President,
Lodging Development for the Ritz-Carlton hotel brand. Since 1993, Mr.
B-6
Marriott has been the Chief Executive Officer and President of JWM Family
Enterprises, L.P., a partnership focused on hotel acquisitions and operations.
Mr. Marriott is also a Director of Crestline Capital Corporation.
Mary S. Metz, age 64, has served as a director of SMS since October 17,
2000, replacing Doctor R. Crants for the balance of his term. Since January
1999, Dr. Metz has been the President of the S.H. Cowell Foundation, having
served on the Cowell Board of Directors since 1991. Dr. Metz is Dean Emeritus
of University Extension, University of California at Berkeley after holding
the title of Dean of University Extension, University of California at
Berkeley from 1991 to 1998. Dr. Metz was President of Mills College in
Oakland, California from 1981 until 1990. Dr. Metz is a member of the board of
directors of Union BanCal, SBC Communications, Inc., Pacific Gas and Electric
Corporation, Long's Drugstores, the S.H. Cowell Foundation, and the American
Conservatory Theater.
2000 Board Meetings
The SMS Board met four times during the 2000 Fiscal Year. No director
attended fewer than 75% of the total number of meetings of the SMS Board and
committees on which such director served during that time with the exception
of Edouard de Royere who attended 50% of the total number of meetings of the
SMS Board and committees.
Board Committees
The SMS Board has two standing committees: Audit and Compensation Policy.
SMS presently does not have a standing nominating committee. The SMS Board
nominates persons for director. The SMS Board may consider persons nominated
by stockholders, provided that such candidates are nominated pursuant to the
advance notice and other procedures set forth in SMS's bylaws.
Audit Committee. The members of the Audit Committee are Edouard de Royere,
Mary S. Metz and Daniel J. Altobello, who serves as Chair. A vacancy was
created on the Audit Committee as a result of the resignation of Doctor R.
Crants on April 13, 2000. On October 17, 2000, the SMS Board appointed Dr.
Metz to replace Mr. Crants for the balance of his term. The Audit Committee
met four times during the 2000 Fiscal Year with SMS's independent auditors,
management representatives and internal auditors. The independent auditors and
internal auditors have unrestricted access to the Audit Committee and vice
versa. The Audit Committee performs various functions, as described in the
Audit Committee Report appearing below.
Compensation Policy Committee. The members of the Compensation Policy
Committee are Bernard Carton, William J. Shaw, and Mary S. Metz. Mr. Shaw
served as Acting Chair of the Compensation Policy Committee during the balance
of the 2000 Fiscal Year after the resignation, on April 13, 2000, of Doctor R.
Crants who had served as Chair of the Committee. On October 17, 2000, the SMS
Board appointed Dr. Metz to replace Mr. Crants for the balance of his term and
appointed her Chair of the Compensation Policy Committee. The Compensation
Policy Committee met four times during the 2000 Fiscal Year. The Compensation
Policy Committee:
. determines the compensation of senior officers and certain other
employees;
. administers employee compensation and benefit plans; and
. reviews the operations and policies of such plans.
Compensation of Directors
Directors who are also employees of SMS receive no additional compensation
for service as directors. Other directors who are not employees receive an
annual retainer fee of $25,000. Non-employee directors also receive a fee of
$1,250 for attendance at the SMS Board, committee or stockholder meetings. The
Chairman of the Board, who is not an employee of SMS, receives an annual
retainer fee of $50,000. The Chair of each committee
B-7
of the SMS Board receives an additional annual fee of $1,250. Directors are
also reimbursed for travel expenses and other out-of-pocket costs incurred in
attending meetings.
Audit Committee Report
The Audit Committee of the SMS Board is composed of three independent
directors and operates under a written charter adopted by the SMS Board.
The Audit Committee performs the functions described in its Charter. These
functions include:
. recommending to SMS's Board the appointment of independent auditors;
. approving the scope of audits and other services to be performed by the
independent and internal auditors; and
. reviewing the results of internal and external audits, the accounting
principles applied in financial reporting and the adequacy of financial
and operational controls.
The Audit Committee reviews SMS's financial reporting process on behalf of
the SMS Board. Management has the primary responsibility for the financial
statements and the reporting process, including the system of internal
controls.
In this context, the Audit Committee has met and held discussions with
management and the independent auditors. Management represented to the Audit
Committee that SMS's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the consolidated financial statements
with management and the independent auditors. The Audit Committee discussed
with the independent auditors matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication With Audit Committees).
In addition, the Audit Committee has discussed with the independent auditors
the auditor's independence from SMS and its management, including matters in
the written disclosures and letters provided by the independent auditors to
the Audit Committee as required by the Independence Standards Board Standard
No. 1 (Independence Discussions With Audit Committees).
The Audit Committee has discussed with SMS's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee has met with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, the
evaluations of SMS's internal controls, and the overall quality of SMS's
financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the SMS Board, and the SMS Board has approved, that
the audited financial statements be included in SMS's Annual Report on Form
10-K for the year ended September 1, 2000, for filing with the SEC. The Audit
Committee and the SMS Board also have recommended, subject to stockholder
approval, the selection of SMS's independent auditors.
Members of the Audit Committee:
Daniel J. Altobello
Edouard de Royere
Mary S. Metz
B-8
CERTAIN TRANSACTIONS
Relationship between SMS and Marriott International. In March 1998, SMS and
Marriott International entered into a number of agreements. These agreements
provide, among other things, for Marriott International to (i) provide SMS
with various administrative and consulting services including services related
to employee benefits, casualty claims, payroll, and information resources;
(ii) grant to SMS certain limited nonexclusive trademark rights; and (iii)
provide distribution services. SMS paid to Marriott International
approximately $64 million for services provided during the 2000 Fiscal Year,
including reimbursements but excluding pass-through product costs, pursuant to
these services. SMS provides certain services to Marriott International
pursuant to agreements for (i) food services; and (ii) management services
including maintenance, administrative and security. Marriott International
paid to SMS approximately $4 million for services provided during the 2000
Fiscal Year, including reimbursements, pursuant to these agreements. For a
more detailed description of these agreements see SMS's Definitive Proxy
Statement, dated February 12, 1998, for the Special Meeting of Stockholders
held on March 17, 1998.
Relationship between SMS and Sodexho. The relationship between SMS and
Sodexho is described in the Schedule 14D-9 under Item 3, "Past Contacts,
Transactions, Negotiations and Agreements--Certain Other Agreements,
Arrangements and Transactions with Sodexho."
Certain members of SMS's management and certain members of the SMS Board
have interests in the transactions contemplated by the Merger Agreement. These
interests, which are described in the Schedule 14D-9, may present those
individuals with certain conflicts of interest.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires SMS's executive
officers and directors, and persons who own more than ten percent of a
registered class of SMS's equity securities ("Reporting Persons"), to file
reports of beneficial ownership and changes in beneficial ownership of SMS's
equity securities with the SEC and the New York Stock Exchange. Specific due
dates for these reports have been established, and SMS is required to report
any failure by such persons to file such reports on a timely basis during its
most recent fiscal year. During the 2000 Fiscal Year, the Reporting Persons of
SMS were in compliance with these requirements with the exception of one
transaction not timely reported by Bernard Carton, one transaction not timely
reported by Anthony J. Wilson and two transactions not timely reported by
Thomas M. Mulligan. Mr. Wilson has since resigned from SMS effective March 31,
2000.
B-9
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The table below summarizes the compensation paid to the Named Executive
Officers for services in all capacities to SMS in the years indicated.
Long-Term
Annual Compensation Compensation
------------------------------------ --------------------
Fiscal Salary Other Annual Stock All Other
Name and Position Year (1) Bonus Compensation Options Compensation
- ----------------- ------ -------- -------- ------------ ------- ------------
Michel Landel.......... 2000 $419,617 $180,000 $ 18,705(5) 100,000 $61,912(8)
President & CEO 1999 $370,771 $115,139 $ 50,000 0 $20,848
1998 $143,847(2) $ 94,983(4) $349,789(6) 47,500 $ 1,961
Anthony F. Alibrio..... 2000 $342,089 $103,345 $ 0 50,000 $13,304(9)
Executive Vice 1999 $329,508 $102,547 $ 0 0 $10,331
President & 1998 $198,952(3) $130,693 $334,599(7) 45,000 $ 7,392
President, Health
Care Services
William W. Hamman...... 2000 $289,465 $ 90,000 $ 0 50,000 $11,223(10)
Executive Vice 1999 $271,975 $ 84,643 $ 0 0 $18,261
President & 1998 $163,740(3) $107,566 $365,781(7) 34,000 $12,202
President, Higher
Education Services
Thomas M. Mulligan..... 2000 $229,224 $ 72,000 $ 0 45,000 $27,388(11)
President, Corporate 1999 $202,291 $ 73,931 $ 11,260 3,000 $22,343
Services
Robert A. Stern........ 2000 $219,616 $ 60,000 $ 0 50,000 $ 8,034(12)
Senior Vice President 1999 $204,504 $ 67,291 $ 0 0 $ 9,023
and General Counsel 1998 $114,764(3) $101,379 $101,997(7) 17,500 $ 5,744
- --------
(1) Salary amounts include base salary earned and paid in cash and the amount
of base salary deferred at the election of the Named Executive Officer
under any of the following: Sodexho Marriott Services Executive Deferred
Compensation Plan (the "Deferred Plan"); the Sodexho Marriott Services,
Inc. 401(k) Employees' Retirement Savings Plan and Trust (the "401(k)
Plan"); the Sodexho Deferred Compensation Plan (the "Sodexho Deferred
Plan"); the Sodexho Supplemental Savings Plus Plan (the "Supplemental
Plan").
(2) Includes compensation earned through SMS only. Compensation paid by his
previous employer, Sodexho North America, is not included per SEC
disclosure rules.
(3) Compensation received during Transition Period (January 3, 1998-August 28,
1998).
(4) The amount listed for Mr. Landel relates to the portion of his fiscal 1998
bonus attributable to employment with SMS.
(5) Mr. Landel resides outside the area of the corporate office. SMS
reimbursed him $18,705 for commuting costs related to traveling to the
corporate office for business meetings.
(6) Under the terms of the 1998 Transactions, 42% of the value held in the
International Catering Corp. 1996 Stock Option Plan was paid in cash to
participants at the time of the 1998 Transactions. The amount listed in
this column for Mr. Landel includes the amount paid to him under this
plan. The remaining 58% value was redenominated into options to purchase
the Shares.
(7) All shares of deferred bonus stock of SMS's predecessor, which were held
(both vested and unvested) for the Named Executive Officers who became
employees of SMS at the time of the 1998 Transactions, were paid to the
individuals on March 27, 1998. Amounts shown in this column include cash
and stock payouts including any payment deferred into the Marriott
International Executive Deferred Compensation Plan. All shares of
restricted and deferred stock of SMS's predecessor, which were held by Mr.
Alibrio and Mr. Hamman, were converted to Shares as of March 27, 1998. The
total number of restricted or deferred
B-10
stock held by Mr. Alibrio and Mr. Hamman as of the end of the 2000 Fiscal
Year, and the aggregate value of the shares is as follows:
Aggregate*
Deferred Restricted Value
Named Executive Stock Stock 9/1/00
--------------- -------- ---------- ----------
Mr. Alibrio................................... 53,307 11,423 $1,051,863
Mr. Hamman.................................... 45,692 11,423 $ 928,119
--------
* Based on a $16.25 share price. This reflects the average of the high and
low trading prices on the New York Stock Exchange on September 1, 2000,
the last day of the 2000 Fiscal Year.
(8) SMS made contributions of $5,187 to the 401(k) Plan, $10,914 to the
Deferred Plan, and $30,760 to Mr. Landel's pension plan in France.
Additionally, Mr. Landel's balance in the Supplemental Plan accrued
earnings of $15,051.
(9) SMS made contributions of $5,101 to the 401(k) Plan and $8,203 to the
Deferred Plan.
(10) SMS made contributions of $5,041 to the 401(k) Plan and $6,182 to the
Deferred Plan.
(11) SMS made contributions of $4,391 to the 401(k) Plan, $4,423 to the
Deferred Plan and $8,400 to the Sodexho Deferred Plan. Additionally, Mr.
Mulligan's balance in the Supplemental Plan accrued earnings of $10,174.
(12) SMS made contributions of $4,652 to the 401(k) Plan and $3,382 to the
Deferred Plan.
Stock Option Tables
The following tables provide information regarding options to purchase the
Shares.
Option Grants In Last Fiscal Year
% of Total Stock
Options Granted Grant Date
Stock Options to Employees in Exercise Price Expiration Present Value
Name Granted (#) Fiscal Year ($/Share) Date (1) ($)
---- ------------- ---------------- -------------- ---------- -------------
Michel Landel........... 100,000 3.86% 16.5625 11/22/09 1,017,931
Anthony F. Alibrio...... 50,000 1.93% 16.5625 11/22/09 508,966
William W. Hamman....... 50,000 1.93% 16.5625 11/22/09 508,966
Thomas M. Mulligan...... 45,000 1.74% 16.5625 11/22/09 458,069
Robert A. Stern......... 30,000 1.16% 16.5625 11/22/09 305,379
Robert A. Stern......... 20,000 0.77% 14.8437 4/19/10 182,459
- --------
(1) The Black-Scholes option pricing model was used to determine the present
value of the options on the Grant Date for purposes of this disclosure.
The material assumptions used in this calculation include: a 10-year
option term, an exercise price of $16.5625 for November option grants and
$14.8437 for April option grants, an interest rate of 5.87%, volatility of
44.21%. These inputs resulted in option values of $10.18 per share for the
November option grants and $9.12 per share for the April option grants in
the 2000 Fiscal Year.
B-11
Aggregated Stock Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Shares Value of Unexercised
Underlying Unexercised In- the- Money
Options At Fiscal Year Stock Options At
End (#) Fiscal Year End ($) (1)
------------------------- -------------------------
Shares
Acquired on
Name Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------------ ----------- ------------- ----------- -------------
Michel Landel........... 23,317 $211,982 11,875 135,625 0 0
Anthony F. Alibrio...... 11,422 $ 75,102 35,002 147,168 0 0
William W. Hamman....... 0 0 46,797 88,365 90,919 0
Thomas M. Mulligan...... 0 0 3,750 56,250 0 0
Robert A. Stern......... 0 0 21,886 71,196 16,014 28,126
- --------
(1) Based on a $16.25 share price. This reflects the average of the high and
low trading prices of the Shares on the New York Stock Exchange on
September 1, 2000, the last day of the 2000 Fiscal Year.
Employment Agreements
SMS employment agreements are described in the Schedule 14D-9 under Item 3,
"Past Contracts, Transactions, Negotiations and Agreements--Certain
Agreements, Arrangements and Transactions between SMS and its Directors,
Executive Officers and Affiliates."
Report on Executive Compensation by the Compensation Policy Committee
This report discusses the compensation philosophy of SMS. The Compensation
Policy Committee of SMS considers and approves compensation decisions for the
Chief Executive Officer and other members of the senior executive team based
on analysis provided to the Compensation Policy Committee by senior human
resources management of SMS. The Compensation Policy Committee is made up
entirely of non-employee directors. The Compensation Policy Committee met four
times during the 2000 Fiscal Year.
Compensation Philosophy
The Compensation Policy Committee and the SMS Board have approved a
compensation philosophy which supports SMS's short and long term business
strategy by focusing employees, including the senior executive team, on
performance and results; this includes SMS results and, just as importantly,
stockholder returns. The Compensation Policy Committee believes that aligning
the financial interests of SMS executives with SMS stockholders will enhance
SMS's performance.
The three components of compensation: annual salary, annual incentives, and
long-term incentives are designed to complement each other and provide a total
compensation opportunity that is competitive when SMS reaches its financial
goals. The total compensation opportunity is greater than market for business
results in excess of SMS's goals. Consistent with SMS's compensation
philosophy, each individual total compensation package for the senior
executive team focuses more heavily on annual and long term incentives than
base salary.
The Named Executive Officers, including the Chief Executive Officer, have a
large percentage of their cash compensation "at risk" through the annual
incentive plan. In addition, their other compensation is tied to stockholder
returns through the use of stock options as the primary long-term incentive
vehicle.
The Compensation Policy Committee believes that this performance and
results-based compensation philosophy will attract and retain the type of
executive talent necessary to grow SMS's position as the market leader in food
and facilities management in North America. SMS's compensation plans have been
developed
B-12
and communicated in a manner designed to encourage a culture where executives
understand expectations, choose to remain with SMS and seek to improve
results. SMS will continue to refine its executive compensation programs over
the next several years as it further develops strategic objectives.
Compensation Programs and Components
The Compensation Policy Committee relies on the senior human resources
management of SMS to provide a comparative analysis of the compensation levels
of the Named Executive Officers to other similarly situated executives. The
analysis is based on external data obtained through independent outside
consultants. The data reflects compensation practices of comparable companies.
The cash compensation package (annual salary and target incentive
opportunity) for each executive is based on the median level of cash
compensation as determined by external data. In order for the cash
compensation of senior executives to be fully competitive, the target level of
annual incentive must be achieved. This puts a sizable amount of cash
compensation "at risk" for the senior executive team. Long-term incentives are
established based on median long-term incentive values for a comparative group
of companies of like size and similar industries, as provided by independent
outside consultants. Companies used for compensation comparison purposes may
differ from those included in the performance chart below.
Annual Salary
There is no set annual salary grading structure for the senior executive
team, as each salary is based on an analysis of executive and position-
specific data. The actual salary for each Named Executive Officer is set in
the context of the external data based on a qualitative assessment of factors
including individual performance, internal equity, experience and the business
unit and segment's potential. Future salary increases are determined based on
SMS's compensation philosophy, aggregate increases for executives in corporate
America and the qualitative assessment described previously. None of these
factors is weighted or subject to a formula. Annual salaries may be below the
median of external market data due to SMS's focus on at-risk compensation that
emphasizes incentive pay. This expectation assumes that appropriate (meaning
aggressive but achievable) targets are set for annual and long-term incentives
to provide a competitive total compensation opportunity.
Annual Incentives
Annual incentives for the Named Executive Officers include a target and
maximum annual incentive opportunity communicated as a percentage of base
salary. The target incentive level coupled with the appropriate annual salary
provides a competitive total cash compensation opportunity. Individual
executive incentives are based on an appropriate mixture of Company, division,
function, and specific performance objectives including but not limited to the
following: financial performance measures such as profit, sales, retention,
EBIT (Earnings Before Interest and Taxes), EPS (Earnings Per Share), a
reduction in receivables and other goals related to purchasing and safety.
Long-Term Incentives
SMS grants long-term incentives, typically in the form of annual stock
option awards, to its more seasoned management population, including members
of the senior executive team and the Chief Executive Officer. These grants are
made only when performance justifies the award. Stock options only provide
value when the market value of the underlying stock increases over the grant
date price.
CEO Compensation and Other Named Executive Officers
In the form of base salary, bonus payments, stock, stock options and other
payments, Mr. Landel received in the 2000 Fiscal Year the compensation
reflected and described in the Summary Compensation Table. The determination
of such compensation to Mr. Landel followed generally the philosophy and
programs described
B-13
above for SMS's executive officers and was based upon the Compensation Policy
Committee's consideration of Mr. Landel's previous work experience and
positions of responsibility and authority; his performance, and the
competitive rate in the industry for such experience and responsibility.
The salaries for Mr. Landel and the other Named Executive Officers were
reviewed by the Compensation Policy Committee in October 1999. Mr. Landel
received an increase in base pay in January, 2000 of 7.5%, which resulted in
his annual pay rate increasing to $430,000. This salary is below the median
for the comparator survey group. The other four Named Executive Officers
received base salary increases ranging from 6% to 15%.
SMS paid bonuses to the Named Executive Officers for the 2000 Fiscal Year.
For Messrs. Alibrio, Hamman and Mulligan, the bonuses paid were based upon
achievement of personal objectives and the performance of each of their
respective divisions against the targets established for their respective
divisions. For Messrs. Landel and Stern, the bonuses paid were based upon
achievement of personal objectives and the performance of SMS against the
achievement of the targets established for SMS. While SMS did not meet all of
its incentive targets, the Compensation Policy Committee recognized the
critical need for retention and stability among the senior executive officers
in its decision to award bonuses.
Impact of Internal Revenue Code 162(m)
The Omnibus Budget Reconciliation Act of 1993 added provisions to the
Internal Revenue Code under section 162(m) which limits the tax deductibility
of compensation expense in excess of $1 million to certain executive officers.
For the reporting periods, none of the compensation paid to the Named
Executive Officers by SMS is expected to exceed the $1 million limitation. If,
in future years, compensation exceeds the $1 million limit, SMS may take steps
to preserve the tax deduction. The Compensation Policy Committee reserves the
right to pay non-deductible compensation expense if it believes this to be in
the best interests of SMS and its stockholders.
Conclusion
The Compensation Policy Committee believes that the programs that have been
implemented for the senior executive team are appropriate and effective in
serving the needs of SMS and its stockholders.
Members of the Compensation Policy Committee:
Bernard Carton
William J. Shaw
Mary S. Metz
B-14
Performance Graphs
The following line graph compares the cumulative total stockholder return on
the Shares against the cumulative total returns of the Standard & Poor's
Corporation Composite 500 Index (the "S&P Index") and the Standard & Poor's
Corporation Lodging-Hotels Composite Index (the "S&P Lodging-Hotels Index")
over the period commencing October 1, 1993, (the initial trading date for the
Shares) and ending March 27, 1998. The graph assumes an initial investment of
$100 on October 1, 1993, and reinvestment of dividends.
SMS believes the information provided has only limited relevance to an
understanding of SMS in its current state because the lodging and senior
living services business ceased to be a part of SMS on March 27, 1998.
Comparison of Five-Year Cumulative Total
Shareholder Returns Through March 27, 1998
[GRAPHIC APPEARS HERE]
- -----------------------------------------------------------------------------------------------
10/1/93 12/31/93 12/30/94 12/29/95 1/3/97 1/2/98 3/27/98
- -----------------------------------------------------------------------------------------------
Marriott International, Inc. $100 $112.1 $109.8 $150.5 $217.8 $271.5 $316
- -----------------------------------------------------------------------------------------------
S&P Lodging-Hotels Index 100 105 93.3 110.3 131.4 181.3 202
- -----------------------------------------------------------------------------------------------
S&P 500 Index 100 102.3 103.6 142.53 175.3 228.5 258
- -----------------------------------------------------------------------------------------------
B-15
The following line graph compares the cumulative total stockholder return on
the Shares against the cumulative total returns of the S&P 500 Index, the
Russell 2000 Index and a peer group index of companies (the "Peer Group") over
the period commencing March 30, 1998 and ending September 1, 2000. This graph
assumes an initial investment of $100 on March 30, 1998, and reinvestment of
dividends. The Peer Group index consists of the following companies: Morrison
Health Care and ServiceMaster. In SMS's proxy statement for the 1999 Fiscal
Year, Compass Group PLC was listed in the Peer Group index. Compass Group PLC
is no longer traded on an exchange in the United States and, thus, is no
longer included in the Peer Group index.
Comparison of Cumulative Total Shareholder Returns
For Twenty-Nine Months Ended September 1, 2000
[GRAPHIC APPEARS HERE]
- ----------------------------------------------------------------------------
3/30/98 8/28/98 9/3/99 9/1/2000
- ----------------------------------------------------------------------------
Sodexho Marriott $100 $97 $56 $61
- ----------------------------------------------------------------------------
S&P 500 Index 100 95 124 139
- ----------------------------------------------------------------------------
Russell 2000 Index 100 75 92 114
- ----------------------------------------------------------------------------
Peer Group Index 100 96 104 117
- ----------------------------------------------------------------------------
B-16
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
(a)(1) Letter to the stockholders of SMS, dated May 17, 2001.*
(a)(2) Offer to Purchase, dated May 17, 2001 (incorporated by reference to
Exhibit (a)(1) to the Schedule TO of Sodexho and the Purchaser filed
with the SEC on May 17, 2001).
(a)(3) Form of Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) to the Schedule TO of Sodexho and the Purchaser filed with
the SEC on May 17, 2001).
(a)(4)(A) Opinion of UBS Warburg, dated as of May 1, 2001 (included as Annex A
to this Statement).*
(a)(4)(B) Presentation of representatives of UBS Warburg to the Special
Committee of the SMS Board, dated May 1, 2001 (incorporated by
reference to Exhibit (c)(2) to the Schedule 13E-3 of SMS filed with
the SEC on May 17, 2001).
(a)(5) Press Release issued by SMS on May 2, 2001 (incorporated by
reference to press release under cover of Schedule 14D-9C filed with
the SEC by SMS on May 2, 2001).
(a)(6) Press Release issued by Sodexho on May 2, 2001 (incorporated by
reference to press release under cover of Schedule TO-C filed with
the SEC by Sodexho on May 2, 2001).
(a)(7) Notice of Guaranteed Delivery (incorporated by reference to Exhibit
(a)(3) to the Schedule TO of Sodexho and the Purchaser filed with
the SEC on May 17, 2001).
(a)(8) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees (incorporated by reference to Exhibit (a)(4) to the
Schedule TO of Sodexho and the Purchaser filed with the SEC on May
17, 2001).
(a)(9) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by reference to
Exhibit (a)(5) to the Schedule TO of Sodexho and the Purchaser filed
with the SEC on May 17, 2001).
(a)(10) Letter to Participants in SMS's Employee Stock Purchase Plan
(incorporated by reference to Exhibit (a)(6) to the Schedule TO of
Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(a)(11) Letter to holders of old Marriott International, Inc. certificates
(incorporated by reference to Exhibit (a)(7) to the Schedule TO of
Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(a)(12) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (incorporated by reference to Exhibit (a)(8) to
the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(13) Summary advertisement, dated May 17, 2001 (incorporated by reference
to Exhibit (a)(9) to the Schedule TO of Sodexho and the Purchaser
filed with the SEC on May 17, 2001).
(a)(14) Complaint of Barry Feldman against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A.
and Sodexho Marriott Services, Inc. (incorporated by reference to
Exhibit (a)(11) to the Schedule TO of Sodexho and the Purchaser
filed with the SEC on May 17, 2001).
(a)(15) Complaint of Arthur Bieler against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A.
and Sodexho Marriott Services, Inc. (incorporated by reference to
Exhibit (a)(12) to the Schedule TO of Sodexho and the Purchaser
filed with the SEC on May 17, 2001).
1
Exhibit
No. Description
------- -----------
(a)(16) Complaint of John McMullen against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and
Sodexho Marriott Services, Inc. (incorporated by reference to Exhibit
(a)(13) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(a)(17) Complaint of Margaret Alessi, individually and on behalf of others
similarly situated, against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(14)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(18) Complaint of Sylvia Piven, individually and on behalf of others
similarly situated, against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(15)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(19) Complaint of Audrey Goldberg against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and
Sodexho Marriott Services, Inc. (incorporated by reference to Exhibit
(a)(16) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(a)(20) Complaint of Gary Remmen against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(17)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(21) Complaint of Neil Berg against William J. Shaw, Daniel J. Altobello,
Pierre Bellon, Bernard Carton, Edouard de Royere, Michel Landel, John
W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and Sodexho
Marriott Services, Inc. (incorporated by reference to Exhibit (a)(18)
to the Schedule TO of Sodexho and the Purchaser filed with the SEC on
May 17, 2001).
(a)(22) Complaint of C. Oliver Burt against William J. Shaw, Daniel J.
Altobello, Pierre Bellon, Bernard Carton, Edouard de Royere, Michel
Landel, John W. Marriott III, Mary S. Metz, Sodexho Alliance, S.A. and
Sodexho Marriott Services, Inc. (incorporated by reference to Exhibit
(a)(19) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(e)(1) Agreement and Plan of Merger, dated as of May 1, 2001, among Sodexho,
the Purchaser and SMS (included as Annex A of the Offer to Purchase,
which is incorporated by reference to Exhibit (a)(1) to the Schedule
TO of Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(e)(2) Confidentiality Agreement, dated as of April 5, 2001, between Sodexho
and SMS (incorporated by reference to Exhibit (d)(8) to the Schedule
TO of Sodexho and the Purchaser filed with the SEC on May 17, 2001).
(e)(3) Information Statement of SMS pursuant to Section 14(f) of the
Securities Exchange Act, dated May 17, 2001 (included as Annex B to
this Statement).*
(e)(4) SMS's Definitive Proxy Statement, dated February 12, 1998, for a
Special Meeting of Stockholders held on March 17, 1998 filed with the
SEC on February 13, 1998.
2
Exhibit
No. Description
------- -----------
(e)(5) Note 5, Note 8 and Note 10 of the Notes to the Consolidated Financial
Statements of SMS on pages 36-37, 39-40 and 44 of SMS's Annual Report
on Form 10-K for the fiscal year ended September 1, 2000 filed with
the SEC on November 13, 2000.
(e)(6) Tax Sharing and Indemnification Agreement, dated as of March 27, 1998,
by and among Marriott International, Inc., New Marriott, Inc. and
Sodexho (incorporated by reference to Exhibit 9 of Amendment No. 1 to
Sodexho's Schedule 13D filed with the SEC on April 15, 1998).
(e)(7) Royalty Agreement, dated as of March 27, 1998, by and between Sodexho
and SMS (incorporated by reference to Exhibit 10.19 of SMS's Form 10-
K/A filed with the SEC on April 30, 1998).
(e)(8) Stockholder Agreement, dated as of March 27, 1998, between SMS and
Sodexho (incorporated by reference to Exhibit 3 of Sodexho's Schedule
13D filed with the SEC on April 6, 1998).
(e)(9) Assistance Agreement, dated as of March 27, 1998, by and between
Sodexho and SMS (incorporated by reference to Exhibit (d)(5) to the
Schedule TO of Sodexho and the Purchaser filed with the SEC on May 17,
2001).
(e)(10) Sodexho Guaranty, dated as of March 27, 1998, from Sodexho as
Guarantor in favor of the Lender Parties referred to in the Credit
Agreement referred to therein (incorporated by reference to Exhibit
(d)(6) to the Schedule TO of Sodexho and the Purchaser filed with the
SEC on May 17, 2001).
(e)(11) Guaranty fee letter, dated as of March 27, 1998, between Sodexho and
SMS (incorporated by reference to Exhibit (d)(7) to the Schedule TO of
Sodexho and the Purchaser filed with the SEC on May 17, 2001).
- --------
*Included with this Statement and a copy mailed to the stockholders.
3