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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FORUM GROUP, INC.
(NAME OF SUBJECT COMPANY)
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FORUM GROUP, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, WITHOUT PAR VALUE
(TITLE OF CLASS OF SECURITIES)
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349841304
(CUSIP NUMBER OF CLASS OF SECURITIES)
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MARK L. PACALA, CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
FORUM GROUP, INC.
11320 RANDOM HILLS ROAD
SUITE 400
FAIRFAX, VIRGINIA 22030
(703) 277-7000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
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COPIES TO:
ROBERT A. PROFUSEK
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Forum Group, Inc. (the "Company"). The
address of the principal executive offices of the Company is 11320 Random
Hills Road, Suite 400, Fairfax, Virginia 22030. The class of equity securities
to which this Statement relates is Common Stock, without par value, of the
Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer (the "Offer") disclosed in a
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"), dated
February 23, 1996 (the "Commencement Date") by FG Acquisition Corp.
("Purchaser"), an Indiana corporation and wholly owned indirect subsidiary of
Marriott International, Inc., a Delaware corporation ("Parent"), to purchase
all of the outstanding Shares at a purchase price of $13.00 per Share, net to
the seller in cash (as paid pursuant to the Offer, the "Offer Consideration"),
without interest thereon, on the terms and subject to the conditions to the
Offer (the "Conditions"), dated the Commencement Date (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together, as
amended and supplemented from time to time, constitute the "Offer Documents").
The Offer to Purchase states that the address and principal executive offices
of Purchaser and Parent are 10400 Fernwood Road, Bethesda, Maryland 20817.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 15, 1996 (the "Merger Agreement"), among Parent, Purchaser and
the Company. See Item 3(b)(2) for a description of the Merger Agreement. A
copy of the Merger Agreement is filed as Exhibit 1 hereto and is incorporated
herein by this reference. A copy of the press release issued jointly by Parent
and the Company relating to the Merger Agreement is filed as Exhibit 2 hereto
and is incorporated herein by this reference.
ITEM 3. IDENTITY AND BACKGROUND
(a) Name and Address of the Company. The name and business address of the
Company, which is the person filing this Statement, are set forth in Item 1
above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
as of the date hereof, there are no material contracts, agreements,
arrangements or understandings nor any actual or potential conflicts of
interest between the Company and its affiliates and (i) the Company, its
executive officers, directors or affiliates or (ii) Parent, its executive
officers, directors and affiliates. Reference is also made to Items 4 and 5
and Schedule I for additional information in response to this Item.
(b)(1) Certain Contracts, Etc. Certain contracts, agreements, arrangements
or understandings between the Company or its affiliates and certain of its
directors and executive officers are described under the captions "Director
Compensation," "Compensation of Executive Officers," "Compensation Committee
Report on Executive Compensation," "Certain Relationships and Transactions"
and "Security Ownership of Certain Beneficial Owners and Management" on pages
4, 6-11, 14-17 of the Company's Proxy Statement, dated August 4, 1995, for the
Company's 1995 Annual Meeting of Shareholders (the "1995 Annual Meeting Proxy
Statement"), a copy of which was previously furnished to shareholders. A copy
of such portions of the 1995 Annual Meeting Proxy Statement is filed as
Exhibit 3 hereto and is incorporated herein by this reference.
As described in the 1995 Annual Meeting Proxy Statement, the Company is
presently a party to an employment agreement with Mark L. Pacala, Chairman and
Chief Executive Officer of the Company, a copy of which is filed as Exhibit 4
hereto and incorporated herein by this reference. Such agreement provides for
the payment of certain severance benefits in the event Mr. Pacala terminates
his employment, or his employment is terminated, within 12 months following
the occurrence of certain change-in-control events (which would include the
consummation of the Offer and/or the Merger). The Company is also presently a
party to a letter agreement with Dennis L. Lehman, Senior Vice President and
Chief Financial Officer of the Company, a copy of which is filed as Exhibit 5
hereto and incorporated herein by this reference. Such agreement provides for
the payment of certain severance benefits in the event Mr. Lehman's employment
is terminated for any reason other than for cause. The Company estimates that
the maximum amount payable pursuant to such agreements is approximately
$1.2 million. The Merger Agreement provides that the Company will honor and,
on and after the effective time of the Merger (the "Effective Time"), Parent
will cause the surviving corporation in the Merger (the "Surviving
Corporation") to honor, all employment, severance, termination, consulting and
retirement agreements to which the Company or any of its subsidiaries is a
party on the date of the Merger Agreement, subject to the right of the
Surviving Corporation to amend or otherwise modify the terms and provisions of
any such agreements in accordance with the terms thereof. The Company believes
that the foregoing covenant would apply to the agreements between the Company
and each of Messrs. Pacala and Lehman.
Pursuant to the Merger Agreement, Parent has agreed to adopt effective
immediately following the Effective Time a severance plan, a copy of which is
filed as Exhibit 6 hereto and incorporated herein by this reference.
Pursuant to the Merger Agreement, all options and other rights to acquire
Shares ("Stock Options") granted to employees under any stock option plan,
program or similar arrangement of the Company or any subsidiary of the Company
(each as amended, an "Option Plan"), whether or not then exercisable, will be
cancelled by the Company immediately prior to the earlier of (x) the purchase
of Shares pursuant to the Offer (sometimes referred to herein as the
"consummation of the Offer") and (y) the Effective Time, and the holders
thereof will be entitled to receive from the Company, for each Share subject
to such Stock Option, an amount in cash equal to the difference between the
Merger Price (as defined in the Merger Agreement) and the exercise price per
share of such Stock Option, which amount will be paid at the time the Stock
Option is cancelled. All applicable withholding taxes attributable to such
payments will be deducted from the amounts payable and all such taxes
attributable to the exercise of Stock Options will be withheld from the
proceeds received in respect of Shares issuable on such exercise. Except as
provided in the Merger Agreement or as otherwise agreed to by the parties and
to the extent permitted by the Option Plans, the Option Plans will terminate
as of the Effective Time and the provisions in any other plan providing for
the issuance or grant by the Company of any interest in respect of the capital
stock of the Company will be deleted as of the Effective Time.
The Company entered into a letter agreement with each of Investors GenPar,
Inc. and Apollo Investment Fund, each dated as of October 3, 1995 (the "Letter
Agreements") (copies of which are filed as Exhibits 7 and 8 hereto and
incorporated herein by this reference), confirming that the Company will
indemnify such parties and their affiliates in connection with certain
litigation arising out of the 1993 recapitalization of the Company. Such
confirmation of the Company's obligation to provide such indemnification is
subject to the consummation of the Offer, the Merger or a similar transaction
prior to March 31, 1997.
(b)(2) The Merger Agreement. The following is a summary of certain
provisions of the Merger Agreement, a copy of which is filed as Exhibit 1
hereto and is incorporated herein by this reference. For purposes of this Item
3(b)(2), except as set forth herein with respect to certain terms the meaning
of which may not be readily apparent, capitalized terms used and not otherwise
defined herein have the meanings given to such terms in the Merger Agreement.
The following summary is qualified in its entirety by reference to the Merger
Agreement.
The Offer. The Merger Agreement provides for the making of the Offer by the
Purchaser. Subject only to the Conditions, the Purchaser has agreed to accept
for payment and pay for all Shares tendered pursuant to the Offer as soon as
practicable following the Expiration Date (as defined below). The Merger
Agreement provides that the Purchaser, subject only to the Conditions, will
extend the period of time during which the Offer is open until the first
business day following the date on which the Conditions are satisfied or
waived; provided, that the Purchaser shall be permitted but shall not be
obligated to extend the time the Offer is open if either (x) the Company is in
breach in any material respect of its covenants or agreements contained in the
Merger Agreement or (y) there is a reasonable likelihood that one or more of
the Conditions cannot be satisfied; and provided, further, that the Purchaser
shall in no event be permitted or obligated to extend the period of time the
Offer is open beyond July 15, 1996. The Purchaser will not otherwise extend
the period of time during which the Offer is open beyond the twentieth
business day following commencement of the Offer unless any of the Conditions
shall not have been satisfied. The term "Expiration Date" means 12:00
midnight, New York City time, on Thursday, March 21, 1996, unless and until
the Purchaser, subject to the terms of the Merger Agreement, shall have
extended the period of time during which the Offer is open, in which event the
term "Expiration Date" shall refer to the latest time and date at which the
Offer, as so extended by the Purchaser, shall expire.
2
The obligation of the Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to (i) the tender and non-withdrawal
of Shares which, when added to the Shares then beneficially owned by Parent,
constitute two-thirds of the outstanding Shares and represent two-thirds of
the voting power of the outstanding Shares on a Fully Diluted Basis (as
defined below), and (ii) the satisfaction of the other Conditions. The
Purchaser has agreed that, without the written consent of the Company, no
amendment to the Offer may be made which changes the form of consideration to
be paid or decreases the price per Share or the number of Shares sought in the
Offer or which imposes additional conditions to the Offer other than the
Conditions or amends any other term of the Offer in any manner adverse to
holders of Shares. "Fully Diluted Basis" means as of any date of determination
a basis that includes all outstanding Shares, together with all Shares
issuable upon exercise of vested Stock Options and warrants.
The Merger. The Merger Agreement provides that, as soon as practicable
following the purchase of Shares pursuant to the Offer, and the satisfaction
or waiver of the other conditions to the Merger, or on such other date as the
parties thereto may agree (such agreement to require the approval of the
majority of the Continuing Directors (as defined below), if at that time there
shall be any Continuing Directors), the Purchaser will be merged with and into
the Company. The Merger shall become effective by filing with the Secretary of
State of Indiana articles of merger in accordance with the relevant provisions
of the Indiana Business Corporation Law (the "IBCL") at such time (the time
the Merger becomes effective being the "Effective Time").
At the Effective Time, (i) each Share issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive $13.00
in cash, or any higher price paid per Share in the Offer, without interest
thereon (the "Merger Price"); (ii) (a) each Share held in the treasury of the
Company or held by any wholly owned subsidiary of the Company and each Share
held by Parent or any wholly owned subsidiary of Parent immediately prior to
the Effective Time will be cancelled and retired and cease to exist; provided,
that Shares held beneficially or of record by any plan, program or arrangement
sponsored or maintained for the benefit of employees of Parent or the Company
or any subsidiaries thereof will not be deemed to be held by Parent or the
Company regardless of whether Parent or the Company has, directly or
indirectly, the power to vote or control the disposition of such Shares; and
(b) each Share held by any holder who has perfected any dissenters' rights
under the IBCL, if applicable (the "Dissenting Shares"), will not be converted
into or be exchangeable for the right to receive the Merger Price; and (iii)
each share of common stock of the Purchaser issued and outstanding immediately
prior to the time of the Effective Date will be converted into and
exchangeable for one share of common stock of the Surviving Corporation.
The Merger Agreement provides that the Articles of Incorporation and By-laws
of the Purchaser as in effect at the Effective Time shall be the Articles of
Incorporation and By-laws of the Surviving Corporation until amended in
accordance with applicable law. The Merger Agreement also provides that (i)
the directors of the Purchaser at the Effective Time will be the initial
directors of the Surviving Corporation, (ii) the officers of the Company at
the Effective Time will be the initial officers of the Surviving Corporation,
and (iii) the initial officers and directors of the Surviving Corporation will
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Articles of
Incorporation and By-laws of the Surviving Corporation, or as otherwise
provided by applicable law.
Recommendation. In the Merger Agreement, the Company states that the Board
of Directors of the Company (the "Board" or "Board of Directors") has
unanimously (i) determined that the Offer and the Merger are fair to and in
the best interests of the shareholders of the Company and (ii) subject to the
fiduciary duties of the Board, resolved to recommend acceptance of the Offer
and approval and adoption of the Merger Agreement and the Merger by the
shareholders of the Company.
Interim Agreements of Parent, the Purchaser and the Company. Except as
contemplated by the Merger Agreement, the Company has covenanted and agreed
that, during the period from the date of the Merger Agreement to the
consummation of the Offer and, if Parent makes a request pursuant to Section
1.4 of the Merger Agreement, until such time as the directors designated by
Parent in accordance with the Merger Agreement
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constitute in their entirety a majority of the Board (the "Board
Reorganization"), the Company and its subsidiaries will each conduct its
operations according to its ordinary course of business, consistent with past
practice, and will use all reasonable efforts to (i) preserve intact its
business organization, (ii) maintain its material rights and franchises, (iii)
keep available the services of its officers and key employees, and (iv) keep
in full force and effect insurance comparable in amount and scope of coverage
to that maintained as of the date of the Merger Agreement.
Without limiting the generality of and in addition to the foregoing, and
except as otherwise contemplated by the Merger Agreement ,prior to the
consummation of the Offer and the Board Reorganization, neither the Company
nor any of its subsidiaries will, without the prior written consent of Parent:
(a) amend its charter, by-laws or other governing documents; (b) authorize for
issuance, issue, sell, deliver or agree to commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other securities or amend any of the terms of any such securities or
agreements (subject to certain exceptions); (c) split, combine or reclassify
any shares of its capital stock, declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock or redeem or otherwise acquire any of
its securities or any securities of its subsidiaries; (d) (i) pledge or
otherwise encumber shares of capital stock of the Company or any of its
subsidiaries; or (ii) incur, assume or prepay any long-term debt; or (iii)
except in the ordinary course of business and consistent with past practices,
(A) incur, assume, or prepay letters of credit or any material short-term
debt, (B) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for any material obligations of
any other person except wholly owned subsidiaries of the Company, or (C) make
any material loans, advances or capital contributions to, or investments in,
any other person; or (iv) change the practices of the Company and its
subsidiaries with respect to the timing of payments or collections; or (v)
mortgage or pledge any assets or create or permit to exist any lien thereupon
except certain permitted liens; (e) except (i) for arrangements entered into
in the ordinary course of business consistent with past practices, (ii) as
required by law or (iii) as specifically contemplated in the Merger Agreement,
enter into, adopt or materially amend any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans,
funds or other arrangements of or for the benefit or welfare of any Company
employee (or any other person for whom the Company or its subsidiaries will
have any liability), or (except for normal increases in the ordinary course of
business that are consistent with past practices) increase in any manner the
compensation or fringe benefits of any Company employee (or any other person
for whom the Company or its subsidiaries will have any liability) or pay any
benefit not required by any existing plan and arrangement (including the
granting of stock options, stock appreciation rights, shares of restricted
stock or performance units) or enter into any contract, agreement, commitment
or arrangement to do any of the foregoing; (f) (i) transfer, sell, lease,
license or dispose of any lines of business, subsidiaries, divisions,
operating units or facilities (other than facilities that have been closed or
are currently proposed to be closed) outside the ordinary course of business,
(ii) enter into any material joint venture agreements, acquisition agreements
or partnership agreements or (iii) enter into any other material agreement,
commitment or transaction outside the ordinary course of business; (g) acquire
or agree to acquire, by merging or consolidating with, by purchasing an equity
interest in or a portion of the assets of, or by any other manner, (i) any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets of any other person, in each case where such action would be material
to the Company and its subsidiaries taken as a whole or (ii) any facility or
site upon which the Company intends to locate any facility; (h) except as may
be required by law, take any action to terminate or materially amend any of
its pension plans or retiree medical plans; (i) modify, amend, terminate or
waive any rights under any material contract except in the ordinary course of
business consistent with past practice (other than an arrangement, agreement
or contract proposal previously submitted by the Company or a subsidiary
thereof which proposal, upon acceptance thereof, cannot be revised or
withdrawn); (j) effect any change in any of its methods of accounting in
effect as of December 31, 1995, except as may be required by law or generally
accepted accounting principles; (k) enter into any material arrangement,
agreement or contract that, individually or in the aggregate with other
material arrangements, agreements and contracts entered into after the date of
the Merger Agreement, would have or
4
constitute a Material Adverse Effect (as defined below) after the date of the
Merger Agreement; and (l) enter into a legally binding commitment with respect
to, or any agreement to take, any of the foregoing actions; provided, that
with respect to Forum Retirement Partners, L.P. ("FRP") and Forum Retirement,
Inc., the general partner of FRP ("FRI"), the Company is obligated only to use
its reasonable efforts to cause FRP to comply with the foregoing provisions of
the Merger Agreement (subject to the fiduciary duties of FRI, if then
applicable). The parties to the Merger Agreement have agreed upon certain
specific actions and transactions the Company may undertake prior to
consummation of the Offer and the Board Reorganization upon consultation but
without the prior consent of Parent, and certain other actions and
transactions requiring the prior written consent of Parent.
As used in the Merger Agreement with respect to the Company and its
subsidiaries, "Material Adverse Effect" means any change, effect or
circumstance that has had or could reasonably be expected to have a material
adverse effect on (i) the business, results of operations, financial condition
or prospects of the Company and its subsidiaries taken as a whole, or (ii) the
ability of the Company to perform its material obligations under the Merger
Agreement. In determining whether any change, effect or circumstance is or
constitutes a Material Adverse Effect, effect will be given to any reserves
set forth on the financial statements contained in the Company Quarterly
Report on Form 10-Q for the quarter ending December 31, 1995 that specifically
relates to the change, effect or circumstance in question. When used with
respect to Parent or the Purchaser, however, the term "Material Adverse
Effect" means any change, effect or circumstance that has had or could
reasonably be expected to have a material adverse effect on (i) the business,
results of operations, financial condition or prospects of Parent and its
subsidiaries taken as a whole, or (ii) the ability of Parent or the Purchaser
to perform its material obligations under the Merger Agreement.
Acquisition Proposals. In the Merger Agreement, the Company has agreed that
it and its officers, directors, employees, representatives and agents will
immediately cease any existing discussions or negotiations with any parties
conducted prior to the date of the Merger Agreement (subject to exceptions
described below) with respect to any Acquisition Proposal (as defined below).
The Company and its subsidiaries may not, and will use their best efforts to
cause their respective officers, directors, employees and investment bankers,
attorneys, accountants or other agents retained by the Company or any of its
subsidiaries not to, (i) solicit, directly or through an intermediary, any
inquiries with respect to, or the making of, any Acquisition Proposal, or (ii)
except as permitted below, engage in negotiations or discussions with, or
furnish any confidential information relating to the Company or its
subsidiaries to any Third Party (as defined below) relating to an Acquisition
Proposal (other than the transactions contemplated by the Merger Agreement).
Notwithstanding anything to the contrary contained in the Merger Agreement,
the Company (and any person referred to above) may furnish information to, and
participate in discussions or negotiations with, any Third Party which submits
an unsolicited written Acquisition Proposal to the Company if the Board by a
majority vote determines, based as to legal matters upon the advice of legal
counsel, that furnishing such information or participating in such discussions
or negotiations is required by applicable law (including fiduciary principles
thereof); provided, that nothing in the Merger Agreement shall prevent the
Board from taking, and disclosing to the Company's shareholders, a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") with regard to any
tender offer; and provided further, that the Company shall not enter into a
written agreement with respect to a Third Party Proposal (as defined below)
except concurrently with or after the termination of the Merger Agreement
(except with respect to confidentiality agreements to the extent expressly
provided therein). The Company shall promptly provide Parent with a reasonable
description of any Acquisition Proposal received (including a summary of all
material terms of such Acquisition Proposal and, unless it is prohibited from
disclosing the same, the identity of the person making such Acquisition
Proposal). The Company shall promptly inform Parent of the status and content
of any discussions regarding any Acquisition Proposal with a Third Party. In
no event shall the Company provide material, non-public information to any
Third Party making an Acquisition Proposal unless such party enters into a
confidentiality or similar agreement containing provisions believed by the
Company to reasonably protect the confidentiality of such information.
Promptly after entering into any confidentiality or similar agreement with any
person on or after February 6, 1996, the Company shall notify Parent of such
event and identify the person with whom the agreement was executed.
5
"Acquisition Proposal" means any proposal, whether in writing or otherwise,
made by a Third Party to enter into a Third Party Transaction. "Third Party
Transaction" means the acquisition of beneficial ownership of all or a
material portion of the assets of, or a majority equity interest in, the
Company pursuant to a merger, consolidation or other business combination,
sale of shares of capital stock, sale of assets, tender offer or exchange
offer or other business acquisition or combination transaction involving the
Company and its subsidiaries, including any single or multi-step transaction
or series of related transactions which is structured to permit such Third
Party to acquire beneficial ownership of any material portion of the assets
of, or a majority of the equity interest in, the Company (other than the
transactions contemplated by the Merger Agreement). "Third Party" means any
person other than Parent, the Purchaser or any affiliate thereof.
Notwithstanding any provision to the contrary in the foregoing, none of the
Company, its subsidiaries and their respective officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents
shall engage in negotiations or discussions with, or furnish any information
to, either (x) any person (each such person, together with its affiliates, a
"Pre-February 6 Party") (i) with whom the Company or any representatives or
agents entered into a confidentiality agreement, (ii) with whom the Company or
any of its representatives or agents have held substantive discussions
regarding a Third Party Transaction or (iii) to whom the Company or its
representatives or agents furnished non-public information, in any such case,
prior to February 6, 1996, or (y) any person who first expressed an interest
in making an Acquisition Proposal or first requested confidential information
regarding the Company and its Subsidiaries after the twentieth business day
after the Offer is actually commenced. With respect to persons (other than
Pre-February 6 Parties) who first expressed interest in making an Acquisition
Proposal or first requested confidential information regarding the Company and
its subsidiaries prior to the twentieth business day after the Offer is
actually commenced, none of the Company, its subsidiaries and their respective
officers, directors, employees, representatives, investment bankers,
attorneys, accountants or other agents shall engage in negotiations or
discussions with, or furnish any information to, such persons after the
twentieth business day after the Offer was actually commenced.
Board Representation. The Merger Agreement provides that in the event that
the Purchaser acquires at least a majority of the Shares outstanding on a
Fully Diluted Basis pursuant to the Offer, Parent will be entitled to
designate for appointment or election to the Board, upon written notice to the
Company, such number of persons (each, a "Designated Director") so that such
designees of Parent constitute the same percentage (but in no event less than
a majority) of the Board (rounded up to the next whole number) as the
percentage of Shares acquired in connection with the Offer. Prior to the
consummation of the Offer, the Company will use reasonable best efforts to
increase the size of the Board or to obtain the resignation of such number of
directors as is necessary to enable such number of Parent designees to be so
elected. In connection therewith, the Company will mail to the shareholders of
the Company the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 thereunder unless such information has previously been provided to
such shareholders in the Company's Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9"). Parent and the Purchaser will provide
to the Company in writing, and be solely responsible for, any information with
respect to such companies and their nominees, officers, directors and
affiliates required by such Section and Rule. Notwithstanding the foregoing,
the parties to the Merger Agreement will use their respective reasonable best
efforts to ensure that at least three of the members of the Board will, at all
times prior to the Effective Time, be Continuing Directors (as defined below).
See Schedule I.
"Continuing Director" means (a) any member of the Board as of the date of
the Merger Agreement, (b) any member of the Board who is unaffiliated with,
and not a Designated Director or other nominee of, Parent or the Purchaser or
their respective subsidiaries, and (c) any successor of a Continuing Director
who is (i) unaffiliated with, and not a Designated Director or other nominee
of, Parent or the Purchaser or their respective Subsidiaries and (ii)
recommended to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board.
6
Miscellaneous Agreements. Pursuant to the Merger Agreement, if required under
applicable law in order to consummate the Merger, the Company, acting through
its Board, will, in accordance with applicable law, its amended and restated
articles of incorporation and its by-laws: (a) duly call, give notice of,
convene and hold a special meeting of its shareholders as soon as practicable
following the consummation of the Offer for the purpose of considering and
taking action on the Merger Agreement (the "Shareholders' Meeting"); (b)
subject to its fiduciary duties under applicable laws as advised as to legal
matters by counsel, include in the proxy statement or information statement
prepared by the Company for distribution to shareholders of the Company in
advance of the Shareholders' Meeting in accordance with Regulation 14A or
Regulation 14C promulgated under the Exchange Act (the "Proxy Statement") the
recommendation of its Board referred to above; and (c) use its reasonable
efforts to (i) obtain and furnish the information required to be included by it
in the Proxy Statement and, after consultation with Parent, respond promptly to
any comments made by the Securities and Exchange Commission (the "Commission")
with respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its shareholders following the
consummation of the Offer and (ii) obtain the necessary approvals of the Merger
Agreement by its shareholders. Parent will provide the Company with the
information concerning Parent and the Purchaser required to be included in the
Proxy Statement and will vote, or cause to be voted, all Shares owned by it or
its subsidiaries in favor of approval and adoption of the Merger Agreement.
Indemnification. In the Merger Agreement, Parent has agreed that, for six
years after the Effective Time, Parent will cause the Surviving Corporation to
indemnify, defend and hold harmless the present and former officers, directors,
employees, agents and representatives of the Company and its subsidiaries
(including financial and legal advisors to the Company in respect of the Merger
Agreement and the transactions contemplated thereby), and each person that is
an affiliate of the foregoing and has or may have liability in respect of any
of the foregoing under respondeat superior, agency, controlling person or any
other theory of liability for actions or failure to take action by another such
person (the foregoing persons and entities, collectively, "Indemnified
Parties"), against all losses, claims, damages or liabilities arising out of
(i) any action, suit or proceeding based in whole or in part on the Merger
Agreement or the transactions contemplated thereby and (ii) without limiting
the generality or effect of the foregoing, any actions or omissions occurring
on or prior to the Effective Time to the full extent permitted or required
under Indiana law, the Articles of Incorporation and By-Laws of the Company in
effect at the date of the Merger Agreement and under all agreements to which
the Company is a party as of the date of the Merger Agreement set forth in
Schedule 6.10 to the Merger Agreement, including provisions relating to
advances of expenses incurred in the defense of any action or suit (including
attorneys' fees of counsel selected by the Indemnified Party); provided that
(x) no Indemnified Party shall be entitled to indemnification for acts or
omissions that constitute gross negligence, bad faith or willful misconduct,
and (y) any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under Indiana
law, the Articles of Incorporation or By-Laws of the Company or under the
Merger Agreement will be made by independent counsel selected by the
Indemnified Party and reasonably satisfactory to the Surviving Corporation.
Nothing in the Merger Agreement will diminish or impair the rights of any
Indemnified Party under the Articles of Incorporation or By-Laws of the Company
or any agreement set forth on Schedule 6.10 to the Merger Agreement. The
Surviving Corporation will maintain the Company's existing officers' and
directors' liability insurance ("D&O Insurance") in full force and effect
without reduction of coverage for a period of three years after the Effective
Time; provided that the Surviving Corporation will not be required to pay an
annual premium therefor in excess of 150% of the last annual premium paid prior
to the date of the Merger Agreement (the "Current Premium"); and, provided,
further, that if the existing D&O Insurance expires, is terminated or cancelled
during the 3-year period, the Surviving Corporation will use reasonable efforts
to obtain as much D&O Insurance as can be obtained for the remainder of such
period for a premium on an annualized basis not in excess of 150% of the
Current Premium.
Reasonable Efforts; Consents and Certain Arrangements. Subject to the terms
and conditions of the Merger Agreement, each of the parties thereto has agreed
to use all reasonable efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement (including (i) cooperating in
the preparation and filing of the Schedule 14D-1, the Schedule 14D-9,
7
the Proxy Statement and any amendments to any thereof; (ii) cooperating in
making available information and personnel in connection with presentations,
whether in writing or otherwise, to prospective lenders to Parent and the
Purchaser that may be asked to provide financing for the transactions
contemplated by the Merger Agreement; (iii) taking all action reasonably
necessary, proper or advisable to secure any necessary consents or waivers
under existing debt obligations of the Company and its subsidiaries or amend
the notes, indentures or agreements relating thereto to the extent required by
such notes, indentures or agreements or redeem or repurchase such debt
obligations; (iv) contesting any pending legal proceeding relating to the
Offer or the Merger; and (v) executing any additional instruments necessary to
consummate the transactions contemplated by the Merger Agreement). In case at
any time after the Effective Time any further action is necessary to carry out
the purposes of the Merger Agreement, the proper officers and directors of
each party thereto shall use all reasonable efforts to take all such necessary
action. Each of the Company, Parent and the Purchaser shall cooperate and use
their respective reasonable efforts to make all filings and obtain all
consents and approvals of governmental authorities and other third parties
necessary to consummate the transactions contemplated by the Merger Agreement.
Each of the parties thereto will furnish to the other party such necessary
information and reasonable assistance as such other persons may reasonably
request in connection with the foregoing. As soon as practicable after the
date of the Merger Agreement, Parent, the Purchaser and the Company will cause
a motion to be filed with the United States Bankruptcy Court for the Southern
District of Indiana, Indianapolis Division (the "Bankruptcy Court"),
requesting, and thereafter use their reasonable efforts to obtain, the
issuance of an order relating to the Company's Third Amended and Restated
Joint Plan of Reorganization, dated January 17, 1992, as amended (the "Plan of
Reorganization") that, among other things, requires the Company to replace
Shares presently reserved for certain disputed claims with a cash reserve to
be held in a segregated account, with the amount of the initial reserve to be
equal to (i) the number of Shares to which holders of the remaining disputed
claims would have been permitted under the Plan of Reorganization if the
claims had been allowed in full, multiplied by (ii) the Merger Price. Further,
the Company will, upon the specific request of the Purchaser, use reasonable
efforts to (i) exempt the Company, the Offer and the Merger from the
requirements of any state takeover law by action of its Board and (ii) assist
in any challenge by the Purchaser to the validity or applicability to the
Offer or the Merger of any state takeover law.
In addition to and without limiting the agreements of Parent and the
Purchaser described in the preceding paragraph, Parent, the Purchaser and the
Company will (i) take promptly all actions necessary to make the filings
required of Parent, the Purchaser or any of their affiliates under the
applicable Antitrust Laws, (ii) comply at the earliest practicable date with
any request for additional information or documentary material received by
Parent, the Purchaser or any of their affiliates from the Federal Trade
Commission ("FTC") or the Antitrust Division of the Department of Justice
("Antitrust Division") pursuant to the Antitrust Laws, and (iii) cooperate
with the Company in connection with any filing of the Company under applicable
Antitrust Laws and in connection with resolving any investigation or other
inquiry concerning the transactions contemplated by the Merger Agreement or
any ancillary agreements commenced by any of the FTC, the Antitrust Division
or any state attorney general.
In furtherance and not in limitation of the covenants of Parent and the
Purchaser described above, Parent, the Purchaser and the Company shall each
use all reasonable efforts to resolve such objections, if any, as may be
asserted with respect to the Offer or the Merger under any Antitrust Law. If
any administrative, judicial or legislative action or proceeding is instituted
(or threatened to be instituted) challenging the Offer or the Merger as
violative of any Antitrust Law, Parent, the Purchaser and the Company shall
each cooperate and use reasonable efforts to contest and resist any such
action or proceeding, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary or
permanent) (any such decree, judgment, injunction or other order is hereafter
referred to as an "Order") that is in effect and that restricts, prevents or
prohibits consummation of the Offer or the Merger, including by pursuing all
reasonable avenues of administrative and judicial appeal. The entry by a court
of an Order permitting the Offer or the Merger, but requiring that any of the
businesses, product lines or assets of the Company be held separate
thereafter, or an offer of settlement substantially to the foregoing effect in
any actual or threatened action, suit or proceeding, will not be deemed a
failure of the Condition requiring that the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") shall have expired or
8
been terminated, so long as such action is, in the good faith judgment of
Parent, unlikely to have a material impact on the benefits Parent anticipates
from the transactions contemplated by the Merger Agreement.
Each of the Company, Parent and the Purchaser shall promptly inform the
other party of any material communication received by such party from the FTC,
the Antitrust Division, the Commission or any other governmental or regulatory
authority regarding any of the transactions contemplated by the Merger
Agreement. Parent and/or the Purchaser will promptly advise the Company with
respect to any understanding, undertaking or agreement (whether oral or
written) which it proposes to make or enter into with any of the foregoing
parties with regard to any of the transactions contemplated by the Merger
Agreement.
"Antitrust Law" means the Sherman Act, as amended, the Clayton Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal and state statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines, and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade.
Employee Benefits; Employees. Until December 31, 1996, Parent has agreed to
cause the Surviving Corporation to continue in all material respects the (i)
employee benefit plans (including all employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended), practices and policies which provide employee benefits to
employees of the Company or any of its subsidiaries ("Company Employees") and
(ii) compensation arrangements, programs and plans providing employee or
executive compensation or benefits, to Company Employees; provided that no
individual plan or plans must be maintained by the Surviving Corporation so
long as, in the aggregate, a substantially equivalent level of compensation or
benefits is maintained.
Parent has also agreed that the Company will honor and, on and after the
Effective Time, Parent will cause the Surviving Corporation to honor, without
offset, deduction, counterclaims, interruptions or deferment (other than
withholdings under applicable law), all employment, severance, termination,
consulting and retirement agreements to which the Company or any of its
subsidiaries is presently a party ("Benefit Agreements"), subject in all
respects to the right of the Company to amend or otherwise modify the terms
and provisions of any such Benefit Agreements in accordance with the terms
thereof. The parties have agreed that the Company will take certain actions
with respect to severance and other employment-related matters.
Representations and Warranties. The Merger Agreement contains certain
representations and warranties of the parties including representations by the
Company as to organization, capitalization, authority relative to the Merger
Agreement, consents and approvals, absence of certain changes concerning the
Company's business, undisclosed liabilities, reports, offer documents,
defaults, litigation and compliance with law, employee benefit plans, assets,
real property and intellectual property, certain contracts and arrangements,
taxes, labor matters, licenses and permits and certain fees.
Conditions to Merger. Pursuant to the Merger Agreement, the respective
obligations of each of Parent, the Purchaser and the Company to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of
the following conditions: (a) the Merger Agreement shall have been adopted by
the affirmative vote of the shareholders of the Company by the requisite vote
in accordance with applicable law, if required by applicable law; (b) no
statute, rule, regulation, order, decree, ruling or injunction shall have been
enacted, entered, promulgated, enforced or deemed applicable by any court or
governmental authority which prohibits the consummation of the Merger; (c) any
waiting period applicable to the Merger under the HSR Act shall have
terminated or expired; and (d) the Offer shall not have been terminated or
expired in accordance with its terms and the terms of the Merger Agreement
prior to the purchase of any Shares.
Except if the Purchaser has accepted for payment and paid for Shares validly
tendered pursuant to the Offer, or fails to accept for payment any Shares
pursuant to the Offer in violation of the terms thereof, the obligations
9
of the Company to effect the Merger are further subject to the satisfaction at
or prior to the Effective Time of the following conditions: (a) the
representations and warranties of Parent and the Purchaser contained in the
Merger Agreement shall be true and correct in all material respects at and as
of the Effective Time as if made at and as of such time; and (b) each of
Parent and the Purchaser shall have performed in all material respects its
obligations under the Merger Agreement required to be performed by it at or
prior to the Effective Time pursuant to the terms thereof.
Except if the Purchaser has accepted for payment and paid for Shares validly
tendered pursuant to the Offer, or fails to accept for payment any Shares
pursuant to the Offer in violation of the terms thereof, the obligations of
Parent and the Purchaser to effect the Merger are further subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) the representations and warranties of the Company contained in the Merger
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as such time; and (b) the Company shall have
performed in all material respects each of its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Time
pursuant to the terms thereof.
Termination. The Merger Agreement may be terminated and the Offer and the
Merger may be abandoned at any time (notwithstanding approval of the Merger by
the shareholders of the Company) prior to the Effective Time: (a) by mutual
written consent of Parent, the Purchaser and the Company; (b) by Parent, the
Purchaser or the Company if any court of competent jurisdiction in the United
States or other United States governmental body shall have issued a final
order, decree or ruling or taken any other final action restraining, enjoining
or otherwise prohibiting the consummation of the Offer or the Merger and such
order, decree, ruling or other action is or shall have become nonappealable;
(c) by Parent and the Purchaser if due to an occurrence or circumstance which
would result in a failure to satisfy any of the Conditions, but subject to the
terms of the Merger Agreement, the Purchaser shall have (i) failed to commence
the Offer within the time required by Regulation 14D under the Exchange Act,
(ii) terminated the Offer or (iii) failed to pay for Shares pursuant to the
Offer on or prior to July 15, 1996; (d) by the Company if (i) there shall not
have been a material breach of any representation, warranty, covenant or
agreement on the part of the Company and the Purchaser shall have (A) failed
to commence the Offer within the time required by Regulation 14D under the
Exchange Act, (B) terminated the Offer or (C) failed to pay for Shares
pursuant to the Offer on or prior to July 15, 1996 or (ii) prior to the
twentieth business day after the Offer was actually commenced, a Third Party
other than a Pre-February 6 Party shall have made an offer that the Board
determines, based as to legal matters on the advice of legal counsel, it is
required to accept by applicable law (including fiduciary principles thereof),
provided, that any such termination of the Merger Agreement in accordance with
clause (d) (ii) of this paragraph shall not be effective until payment of the
fees and expenses required by the immediately succeeding two paragraphs; (e)
by Parent or the Purchaser prior to the purchase of Shares pursuant to the
Offer, if (i) there shall have been a breach of any representation or warranty
on the part of the Company under the Merger Agreement having a Material
Adverse Effect, (ii) there shall have been a breach of any covenant or
agreement on the part of the Company under the Merger Agreement resulting in a
Material Adverse Effect or materially adversely affecting the consummation of
the Offer, which shall not have been cured prior to 20 days following notice
of such breach, (iii) the Board (A) shall have withdrawn its approval or
recommendation of the Offer, the Merger or the Merger Agreement, (B) shall
have modified (including by amendment of Schedule 14D-9) in a manner adverse
to the Purchaser its approval or recommendation of the Offer, the Merger or
the Merger Agreement, (C) shall have recommended to the Company's shareholders
another offer, or (D) shall have adopted any resolution to effect any of the
foregoing; provided that a change in the reasons for any such recommendation
will not be deemed to be adverse to the Purchaser so long as the Board
continues to recommend that shareholders tender their Shares pursuant to the
Offer, or (iv) there shall not have been validly tendered and not withdrawn
prior to the expiration of the Offer at least two-thirds of the Shares,
determined on a Fully Diluted Basis, and on or prior to such date a person or
group (other than Parent or the Purchaser) shall have made and not withdrawn a
proposal with respect to a Third Party Transaction; (f) by the Company if (i)
there shall have been a breach of any representation or warranty in the Merger
Agreement on the part of Parent or the Purchaser which materially adversely
affects the consummation of the Offer or (ii) there shall have been a material
breach of any covenant or agreement in the Merger Agreement on the part of
Parent or the Purchaser which materially adversely affects the consummation
10
of the Offer which shall not have been cured prior to 20 days following notice
of such breach; or (g) by Parent, Purchaser or the Company if the consummation
of the Offer shall not have occurred on or prior to July 15, 1996. Pursuant to
the Merger Agreement, in the event of the termination and abandonment of the
Merger Agreement in accordance with its terms, the Merger Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party thereto or its affiliates, directors, officers or shareholders,
other than the provisions of the Merger Agreement relating to fees and
expenses, governing law and dispute resolution, brokerage fees and
commissions, indemnification and confidentiality of information.
Notwithstanding the foregoing, no party will be relieved from liability that
it may have for any breach of the Merger Agreement.
Fees and Expenses. Pursuant to the Merger Agreement, if (i) Parent or
Purchaser terminates the Merger Agreement pursuant to clause (e)(ii) or
(e)(iv) of the immediately preceding paragraph and within 12 months thereafter
the Company enters into a definitive agreement providing for a Third Party
Transaction involving any person (or any affiliate thereof) (A) with whom the
Company (or its representatives or agents) have had substantive discussions
regarding a Third Party Transaction, (B) to whom the Company (or its
representatives or agents) furnished non-public information with a view to a
Third Party Transaction or (C) who had submitted a proposal or expressed an
interest in a Third Party Transaction, in the case of each of clauses (A), (B)
and (C) after the date hereof and prior to such termination; provided that a
sale of assets by the Company will constitute a Third Party Transaction for
purposes of this clause (i) only if a majority of the assets of the Company
are involved; or (ii) Parent or the Purchaser terminates the Merger Agreement
pursuant to clause (e)(iii) of the immediately preceding paragraph; or (iii)
the Company terminates the Merger Agreement pursuant to clause (d)(ii) of the
immediately preceding paragraph; then, in each case, the Company shall pay to
Parent, within one business day following the execution and delivery of such
agreement or such occurrence, as the case may be, a fee, in cash, of $14
million; provided, that the Company in no event shall be obligated to pay more
than one such $14 million fee with respect to all such agreements and
occurrences and such termination.
If Parent is entitled to receive the $14 million fee as described in the
preceding paragraph, then the Company shall reimburse Parent, the Purchaser
and their affiliates (not later than one business day after submission of
statements therefor) for up to $1 million of actual documented out-of-pocket
fees and expenses actually incurred by any of them or on their behalf in
connection with the Offer and the proposed Merger (including fees payable to
consultants, outside contractors, counsel to any of the foregoing and their
accountants), whether incurred prior to or after the date of the Merger
Agreement. The Company shall in any event pay the amount requested within one
business day of such request, subject to the Company's right to demand a
return of any portion as to which invoices are not received in due course.
Except as specifically provided in the Merger Agreement, each party shall
bear its own respective expenses incurred in connection with the Merger
Agreement, the Offer and the Merger, including the preparation, execution and
performance of the Merger Agreement and the transactions contemplated thereby,
and all fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants.
Non-Solicitation. For a period of one year from any termination of the
Merger Agreement, (i) the Company and its subsidiaries will not solicit for
hire any of the employees of Parent or its subsidiaries with whom the Company
and its subsidiaries and their representatives and agents have had contact
during the investigation and negotiation of the Merger Agreement or otherwise
prior to the termination of the Merger Agreement and (ii) Parent and its
subsidiaries will not solicit for hire any of the employees of the Company or
its subsidiaries with whom the Parent and its subsidiaries and their
representatives and agents have had contact during the investigation and
negotiation of the Merger Agreement or otherwise prior to the termination of
the Merger Agreement.
Amendment. The Merger Agreement may be amended by action taken by the
Company, Parent and the Purchaser at any time before or after adoption of the
Merger by the shareholders of the Company, if any; provided that (a) in the
event that any Designated Directors constitute in their entirety a majority of
the Board, no amendment shall be made which decreases the cash price per Share
or which adversely affects the rights of the Company's shareholders hereunder
without the approval of a majority of the Continuing Directors if at the
11
time there shall be any Continuing Directors and (b) after the date of
adoption of the Merger Agreement by the shareholders of the Company (if
shareholder approval of the Merger is required by applicable law), no
amendment shall be made which decreases the cash price per Share or which
adversely affects the rights of the Company's shareholders hereunder without
the approval of such shareholders. The Merger Agreement may not be amended
except by an instrument in writing signed on behalf of the parties.
(b)(3) Shareholder Agreements. The following is a summary of certain
provisions of the Shareholder Agreements (as defined below), copies of which
are filed as Exhibits 9, 10 and 11 hereto and incorporated herein by this
reference. The following summary is qualified in its entirety by reference to
the Shareholder Agreements.
The Purchaser and Parent have also entered into an agreement (each a
"Shareholder Agreement") with each of Forum Holdings, L.P. ("Forum Holdings"),
Apollo FG Partners, L.P. ("Apollo") and Forum/Classic, L.P. (collectively, the
"Principal Shareholders"). Each Shareholder Agreement contains, among other
representations and warranties, a representation and warranty by the Principal
Shareholder as to its beneficial ownership of a specified number of Shares and
Shares issuable upon exercise of warrants.
Tender of Shares; Exercise of Warrants. Pursuant to the applicable
Shareholder Agreement, each Principal Shareholder has agreed to tender and not
withdraw all Shares beneficially owned by it (or to cause the record owner
thereof to tender and not withdraw such Shares), pursuant to and in accordance
with the terms of the Offer. The parties have agreed that the Principal
Shareholder will, for all Shares tendered by the Principal Shareholder in the
Offer and accepted for payment and paid for by the Purchaser, receive the same
per Share consideration paid to other holders of Shares who have tendered into
the Offer.
The Principal Shareholders holding warrants have further agreed, prior to
the expiration of the Offer, to exercise all such warrants that are currently
exercisable for Shares and agreed that, prior to the purchase of Shares
pursuant to the Offer, all other warrants shall be cancelled and extinguished
for no additional consideration. Upon exercise of the warrants, and the
purchase of Shares in accordance with the terms thereof, the Principal
Shareholders receiving such Shares have agreed to tender (and not withdraw)
such Shares pursuant to the Offer.
Restrictions on Transfer and Proxies; No Solicitation. Each Principal
Shareholder has agreed that it shall not directly or indirectly, except as
expressly provided in the Shareholder Agreement, (i) transfer (including the
transfer of any securities of an affiliate which is the record holder of
Shares if, as the result of such transfer, such person would cease to be an
affiliate of the Principal Shareholder) to any person any or all Shares; (ii)
grant any proxies or powers of attorney, deposit any Shares into a voting
trust or enter into a voting agreement, understanding or arrangement with
respect to such Shares; or (iii) take any action that would make any
representation or warranty of the Principal Shareholder contained in the
Shareholder Agreement untrue or incorrect or would result in a breach by the
Principal Shareholder of its obligations under the Shareholder Agreement.
Each Principal Shareholder shall, and shall cause its affiliates, and its
and their officers, directors, employees, representatives and agents (the
"Covered Persons") to, immediately cease any existing discussions or
negotiations with any parties conducted prior to execution of the Shareholder
Agreement with respect to any Acquisition Proposal. Each Principal Shareholder
will not, and will cause its Covered Persons not to, (i) solicit, directly or
through an intermediary, any inquiries with respect to, or the making of, any
Acquisition Proposal, or (ii) engage in negotiations or discussions with, or
furnish any confidential information relating to the Company or its
subsidiaries to, any Third Party relating to an Acquisition Proposal;
provided, that nothing in the Shareholder Agreement shall prohibit a Principal
Shareholder or any Covered Person in their capacities as officers, directors,
employees, representatives and agents of the Company from taking or omitting
to take any action permitted to be taken or omitted to be taken by the Company
under Section 6.2 of the Merger Agreement.
Termination. Each Shareholder Agreement shall terminate on the earliest of
(i) the purchase by Purchaser pursuant to the Offer of the Shares beneficially
owned by the Principal Shareholder, (ii) termination of the Merger Agreement
pursuant to and in conformity with Article VIII of the Merger Agreement
(except that the
12
Shareholder Agreement shall not terminate based upon a termination of the
Merger Agreement by the Company following (a) a breach of a representation or
warranty in the Merger Agreement on the part of Parent or Purchaser which
materially adversely affects the consummation of the Offer or (b) a material
breach of any covenant or agreement in the Merger Agreement on the part of
Parent or Purchaser which materially adversely affects the consummation of the
Offer which shall not have been cured prior to 20 days following notice of
such breach, in each case if Parent and Purchaser are challenging the ability
of the Company to terminate the Merger Agreement pursuant to such
provision(s)), and (iii) July 16, 1996.
Voting of Owned Shares; Irrevocable Proxy. Each of Forum Holdings and Apollo
(but not Forum/Classic, L.P.) further agreed, in the Shareholder Agreement to
which it is a party, upon the request of Parent, to deliver to the Purchaser
an irrevocable proxy in the form attached to its Shareholder Agreement (each,
an "Irrevocable Proxy"). At the request of Parent, such Irrevocable Proxies
were delivered to Parent by Forum Holdings and Apollo on February 20 and 21,
1996, respectively. Each Irrevocable Proxy grants to representatives of the
Purchaser the right to vote all Shares held by the person providing such proxy
under specified conditions.
Each Irrevocable Proxy provides, among other things, that, so long as the
Merger Price is at least $13.00 in cash (net to the seller), at any meeting of
the Company's shareholders, the named proxies are authorized to vote all
Shares covered by the Irrevocable Proxy in favor of the Merger, the execution
and delivery by the Company of the Merger Agreement and the approval and
adoption of the Merger Agreement and the terms thereof and each of the other
actions contemplated by the Merger Agreement and the Shareholder Agreement and
any actions required in furtherance thereof and against any actions that are
adverse thereto.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Board Recommendation. On February 15, 1996, the Board, by unanimous vote
(i) determined that the Offer and Merger were fair to and in the best interest
of the Company and the shareholders of the Company, (ii) approved the
Shareholder Agreements, the Merger Agreement, the Offer and the Merger, and
(iii) subject to the fiduciary duties of the Board, resolved to recommend
acceptance of the Offer and adoption of the Merger Agreement by holders of the
Shares. Accordingly, the Board, subject to its fiduciary duties, unanimously
recommends that all shareholders accept the Offer and tender their Shares
pursuant to the Offer.
(b) Background of and Reasons for the Board Recommendation. From time to
time, the Company has received inquiries from various parties regarding the
Company's interest in pursuing a possible business combination transaction.
The Company's position with respect to such inquiries has been that, while the
Company was not for sale, the Company was prepared to consider inquiries from
qualified potential acquirors and furnish information related thereto, subject
to entering into appropriate confidentiality agreements.
In September 1995, a representative of the Company contacted a
representative of Parent to arrange a meeting. During the meeting, the
Company's representative stated that the Company was considering an equity
offering of its common stock in order to raise capital and to give greater
liquidity to its existing shareholders. The Company's representative told
Parent's representatives that the Company wanted to explore other available
options before proceeding with the public sale of equity in the Company,
including the possibility of combining the operations of Marriott's Senior
Living Services Division with those of the Company.
Following this meeting, Parent indicated it was interested in pursuing a
possible acquisition of the Company and the parties agreed to continue
discussions. In October 1995, the Company provided information to Parent
relating to the Company's business and operations. Thereafter, representatives
of Parent conducted due diligence reviews of the Company, and, on December 22,
1995, Parent and the Company signed a non-disclosure agreement concerning the
materials being provided to Parent by the Company and an agreement limiting
the ability of Parent to acquire securities of the Company. Representatives of
the Company and Parent continued to discuss the terms of a possible
transaction after the non-disclosure agreement was executed.
13
While Parent's due diligence review of the Company's business and operations
continued, representatives of Parent and the Company met to discuss the details
of a possible acquisition of the Company by Parent. No agreement as to the
terms of a possible transaction was reached during these meetings, either as to
the price Parent was willing to pay or whether all assets of the Company would
be acquired by Parent.
Throughout January and early February of 1996, Parent and its representatives
continued their due diligence review of the Company. Representatives of Parent
and the Company had several telephone conversations about the terms and
conditions of a possible transaction during this period, but again no agreement
was reached.
On February 7, 1996, the Company publicly announced that it was exploring
possible alternatives to maximize value to shareholders.
In addition to discussions with Parent, the Company engaged in discussions
with other possible merger partners. Following the Company's February 7, 1996
public announcement that it was exploring possible alternatives to maximize
shareholder value, the Company received various indications of interest in
respect of a possible business combination transaction involving the Company.
However, neither such discussions nor any such indications of interest was at a
price at or in excess of $13.00 per Share.
On February 8 and 9, 1996, representatives of Parent, the Company and the two
principal shareholders of the Company met at the headquarters of Parent to
determine whether they could reach agreement on the terms of a possible
transaction. During the next several days, negotiations about the terms of a
possible acquisition of the Company continued. Representatives of Parent and
the Company ultimately agreed to recommend to their Boards of Directors the
terms of an acquisition of the Company by Parent, subject to satisfactory
conclusion of due diligence and negotiation of documentation acceptable to
Parent and the Company.
The Board met on February 7, 14 and 15, 1996 in respect of the indications of
interest expressed to the Company and the alternatives available to the Company
with respect thereto. At the meeting of the Board on February 15, 1996, the
Board, by unanimous vote, took the actions described in Item 4(a) above. On
February 15, 1996, the Shareholder Agreements and the Merger Agreement were
entered into by the respective parties.
In making the determination and recommendations described in Item 4(a) above,
the Board considered a number of factors, including without limitation the
matters referred to above in this Item 4(b) and the following:
(i) The Company's existing competitive and market position and future
prospects, including the Company's projected future results of operations.
(ii) The alternatives available to the Company in light of the
consideration proposed to be received for the Shares pursuant to the Offer
and the Merger.
(iii) The $13.00 per Share price to be received by holders of Shares in
the Offer and the Merger compared to (a) historical and recent market
prices for the Shares, (b) market prices for other companies believed to be
comparable to the Company, and (c) prices paid in other acquisition
transactions believed to be comparable to Parent's proposed acquisition
transaction.
(iv) The oral opinion of Smith Barney Inc. ("Smith Barney") rendered to
the Board on February 15, 1996 (subsequently confirmed in writing by
delivery of a written opinion dated such date) to the effect that, as of
such date and based upon and subject to certain matters stated in such
opinion, the $13.00 per Share price to be received by holders of Shares
(other than Parent and its affiliates) in the Offer and the Merger was
fair, from a financial point of view, to such holders. The full text of
Smith Barney's written opinion, which sets forth the assumptions made,
matters considered and limitations on the review undertaken by
14
Smith Barney, is filed as Exhibit 12 hereto and is incorporated herein by
this reference. Smith Barney's opinion is directed only to the fairness,
from a financial point of view, of the $13.00 per Share price to be
received in the Offer and the Merger by holders of Shares (other than
Parent and its affiliates) and is not intended to constitute, and does not
constitute, a recommendation as to whether any holder should tender Shares
pursuant to the Offer. HOLDERS OF SHARES ARE URGED TO READ SUCH OPINION
CAREFULLY IN ITS ENTIRETY.
(v) The provisions of the Merger Agreement, including the no-shop
covenant and provisions which permit the Company to terminate the Merger
Agreement, upon payment to Parent of a break-up fee of $14 million,
together with expenses not to exceed $1.0 million, in the event that the
Board determines to withdraw its recommendation that shareholders accept
the Offer based upon the Board's determination that such action is
necessary to comply with its duties under applicable law.
(vi) The failure of any other potential bidder to submit a proposal
having terms more favorable than the terms proposed by Parent.
(vii) The Board's view regarding the likelihood of a superior
transaction.
(viii) The willingness of the Principal Shareholders to enter into the
Shareholder Agreements, pursuant to which, among other things, the
Principal Shareholders agreed to tender and not withdraw the Shares owned
by them for purchase by the Purchaser pursuant to the Offer.
(ix) The fact that Parent's and Purchaser's obligations under the Offer
were not subject to any financing condition.
(x) Parent's financial condition and ability to meet its obligations
under the Merger Agreement.
(xi) The provisions of the Merger Agreement and other matters described
in Item 3(b)(2) above.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the Offer and the
Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained Smith Barney as its financial advisor with respect
to the Offer and the Merger. Pursuant to the terms of Smith Barney's
engagement, the Company has agreed to pay Smith Barney for its services an
aggregate fee of $750,000 payable in connection with Smith Barney's delivery
of an opinion. The Company also has agreed to reimburse Smith Barney for
reasonable travel and other out-of-pocket expenses, including legal fees and
expenses, and to indemnify Smith Barney and certain related parties against
certain liabilities, including liabilities under the federal securities laws,
arising out of Smith Barney's engagement. In the ordinary course of business,
Smith Barney and its affiliates may actively trade the securities of the
Company and Parent for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Neither the Company nor any person acting on its behalf has employed,
retained or compensated any person to make solicitations or recommendations to
the Company's shareholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Share Transaction in Last 60 Days. Except as described in Item 3 hereof
and except for purchases of Shares in the open market by the Company's
Employee Stock Purchase Plan in accordance with past practice, there have been
no transactions in Shares which were effected during the last 60 days by the
Company, or to the knowledge of the Company, any executive officer, director,
affiliate or subsidiary of the Company.
15
(b) Intent to Tender. To the knowledge of the Company, (i) each of its
executive officers and directors and the Principal Shareholders presently
intends to tender Shares to Purchaser pursuant to the Offer and (ii) none of
such persons presently intends otherwise to sell any Shares which are owned
beneficially or held of record by such persons. The foregoing does not include
any Shares over which, or with respect to which, any such person acts in a
fiduciary or representative capacity or is subject to instructions from a
third party, as to which Shares, to the Company's knowledge, no determination
has been made.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Certain Negotiations. Except as referred to in Item 3(b) or Item 4
hereof, as of the date hereof, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization
involving the Company or any subsidiary of the Company, (ii) a purchase, sale,
or transfer of a material amount of assets by the Company or any subsidiary of
the Company, (iii) a tender offer for or other acquisition of securities by or
of the Company, or (iv) any material change in the present capitalization or
dividend policy of the Company. Pursuant to the Merger Agreement, however, and
as described under "Acquisition Proposals" in Item 3(b)(2) hereof, the Company
may, subject to certain limitations, take certain actions in respect of
proposed transactions necessary for the directors of the Company to discharge
their fiduciary obligations under applicable law.
(b) Antitrust. Under the HSR Act, and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division and
the FTC and certain waiting period requirements have been satisfied. The
acquisition of Shares by Purchaser pursuant to the Offer is subject to such
requirements. Pursuant to the requirements of the HSR Act, Parent and the
Company have filed the required Notification and Report Forms (the "Forms")
with the Antitrust Division and the FTC. The statutory waiting period
applicable to the purchase of Shares pursuant to the Offer is to expire at
11:59 P.M., New York City time, on the fifteenth day after Purchaser has filed
its Form. However, prior to such date, the Antitrust Division or the FTC may
extend the waiting periods by requesting additional information or documentary
material relevant to the acquisition. If such a request is made, the waiting
period will be extended until 11:59 P.M., New York City time, on the tenth day
after substantial compliance by Purchaser with such request. Thereafter, such
waiting periods can be extended only by court order. A request is being made
pursuant to the HSR Act for early termination of the applicable waiting
period. There can be no assurance, however, that the waiting period will be
terminated early.
The Antitrust Division and the FTC frequently scrutinize the legality of
transactions under the antitrust laws. At any time before or after the
consummation of any such transactions, the Antitrust Division or the FTC
could, notwithstanding termination of the waiting period, 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
substantial assets of Purchaser or the Company. Private parties may also bring
legal actions under the antitrust laws. 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.
16
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 Agreement and Plan of Merger, dated as of February 15, 1996, by
and among Marriott International, Inc., FG Acquisition Corp. and
Forum Group, Inc.
Exhibit 2 Press Release issued jointly by Marriott International, Inc. and
Forum Group, Inc. published on February 16, 1996
Exhibit 3 Information under the captions "Director Compensation,"
"Compensation of Executive Officers," "Compensation Committee
Report on Executive Compensation," "Certain Relationships and
Transactions," and "Security Ownership of Certain Beneficial
Owners and Management" as set forth in the Company's Proxy
Statement, dated August 4, 1995, for its 1995 Annual Meeting of
Shareholders
Exhibit 4 Employment Agreement dated as of August 7, 1994, by and between
Forum Group, Inc. and Mark L. Pacala (incorporated by reference to
Exhibit 10(21) to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995)
Exhibit 5 Letter Agreement, dated as of May 5, 1995, by and between Forum
Group, Inc. and Dennis L. Lehman
Exhibit 6 Severance Plan
Exhibit 7 Letter Agreement dated as of October 3, 1995, by and between Forum
Group, Inc. and Investors GenPar, Inc.
Exhibit 8 Letter Agreement dated as of October 3, 1995, by and between Forum
Group, Inc. and Apollo Investment Fund
Exhibit 9 Agreement and Irrevocable Proxy dated as of February 15, 1996, by
and among Marriott International, Inc., FG Acquisition Corp.,
Apollo FG Partners, L.P. and Forum Group, Inc.
Exhibit 10 Agreement and Irrevocable Proxy dated as of February 15, 1996, by
and among Marriott International, Inc., FG Acquisition Corp.,
Forum Holdings, L.P. and Forum Group, Inc.
Exhibit 11 Agreement dated as of February 15, 1996, by and among Marriott
International, Inc., FG Acquisition Corp, and Forum/Classic, L.P.
Exhibit 12* Opinion of Smith Barney Inc., dated February 15, 1996
Exhibit 13* Letter to Shareholders of the Company, dated February 23, 1996
- --------
* Included in materials sent to shareholders of the Company.
17
SIGNATURE
After reasonable 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.
Forum Group, Inc.
/s/ Mark L. Pacala
By: _________________________________
Chairman and Chief Executive
Officer
Dated: February 23, 1996
18
SCHEDULE I
FORUM GROUP, INC.
11320 RANDOM HILLS ROAD, SUITE 400
FAIRFAX, VIRGINIA 22030
----------------
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 THE COMPANY'S SHAREHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
----------------
This Information Statement is being mailed on or about February 23, 1996 as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of shares of the Common Stock, without
par value (the "Shares"), of Forum Group, Inc., an Indiana corporation (the
"Company"). Capitalized terms used and not otherwise defined herein shall have
the meanings set forth in the Schedule 14D-9. This Information Statement is
being furnished in connection with the designation by Marriott International,
Inc., a Delaware corporation ("Parent"), and FG Acquisition Corp., an Indiana
corporation and wholly owned indirect subsidiary of Parent ("Purchaser"), of
persons (the "Designated Directors") to the Board of Directors of the Company
(the "Board"). Such designation is to be made pursuant to an Agreement and
Plan of Merger dated as of February 15, 1996 (the "Merger Agreement") among
the Company, Parent and Purchaser.
NO ACTION IS REQUIRED BY THE SHAREHOLDERS OF THE COMPANY IN CONNECTION WITH
THE ELECTION OF THE DESIGNATED DIRECTORS TO THE BOARD. However, Section 14(f)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires the mailing to the Company's shareholders of the information set
forth in this Information Statement prior to a change in a majority of the
Company's directors otherwise than at a meeting of the Company's shareholders.
The Merger Agreement provides that in the event that Purchaser acquires at
least a majority of the Shares outstanding on a fully diluted basis pursuant
to the Offer, Parent will be entitled to designate for appointment or election
to the Board, upon written notice to the Company, a number of Designated
Directors such that Designated Directors constitute the same percentage (but
in no event less than a majority) of the Board (rounded up to the next whole
number) as the percentage of Shares acquired pursuant to the Offer. Prior to
the consummation of the Offer, the Company will use reasonable best efforts to
increase the size of the Board or to obtain the resignation of such number of
directors as is necessary to enable such number of Parent designees to be so
elected. Notwithstanding the foregoing, the parties to the Merger Agreement
will use their respective reasonable best efforts to ensure that at least
three of the members of the Board will, at all times prior to the Effective
Time, be Continuing Directors. The term "Continuing Director" means (a) any
member of the Board as of the date of the Merger Agreement, (b) any member of
the Board who is unaffiliated with, and not a Designated Director, or other
nominee of, Parent or Purchaser or their respective subsidiaries and (c) any
successor of a Continuing Director who is (i) unaffiliated with, and not a
Designated Director or other nominee of, Parent or Purchaser or their
respective subsidiaries and (ii) recommended to succeed a Continuing Director
by a majority of the Continuing Directors then on the Board.
The Merger Agreement may be amended by action taken by the Company, Parent
and Purchaser at any time before or after adoption of the Merger by the
shareholders of the Company, if any; provided that (a) in the event that any
Designated Directors constitute in their entirety a majority of the Board, no
amendment shall be made which decreases the cash price per Share or which
adversely affects the rights of the Company's shareholders thereunder without
the approval of a majority of the Continuing Directors if at the time there
shall be any Continuing Directors and (b) after the date of adoption of the
Merger Agreement by the shareholders of the Company (if shareholder approval
of the Merger is required by applicable law), no amendment shall be made which
decreases the cash price per Share or which adversely affects the rights of
the Company's shareholders thereunder without the approval of such
shareholders.
The information contained in this Information Statement concerning Parent,
Purchaser and the Designated Directors has been furnished to the Company by
such persons, and the Company assumes no responsibility for the accuracy or
completeness of such information.
The Parent has advised the Company that it currently intends to designate one
or more of the persons listed in Schedule A attached hereto and incorporated
herein by reference to serve as directors of the Company. The Parent has
advised the Company that all of such persons have consented to act as directors
of the Company, if so designated.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
GENERAL
The outstanding voting securities of the Company as of February 15, 1996
consisted of (a) 22,539,831 Shares that were validly issued and outstanding,
(b) 1,671,750 Shares that were reserved for issuance pursuant to outstanding
stock options (rights to stock options exercisable into 230,500 Shares had
vested as of February 15, 1996), (c) 700,144 Shares that were reserved for
issuance pursuant to warrants, (d) 262,793 Shares that were reserved for
issuance upon exercise of rights pursuant to the Company's Third Amended and
Restated Joint Plan of Reorganization, dated January 17, 1992, as amended (the
"Plan of Reorganization"), and (e) 6,000 Shares that were reserved for issuance
under certain circumstances to persons who are investors in the "Hearthside"
joint venture with the Company (the "Hearthside Shares"). Each issued and
outstanding Share is entitled to one vote on each matter.
It is a condition to the Offer that an order of the Bankruptcy Court (the
"Bankruptcy Order") be obtained that, among other things, terminates rights of
persons to receive Shares under the Plan of Reorganization after the date of
the Bankruptcy Order. Also, pursuant to their respective Shareholder Agreements
described below (see "Shareholder Agreements"), Forum Holdings, L.P. ("Forum
Holdings") and Apollo FG Partners, L.P. ("AFG") have agreed with Purchaser and
Parent to exercise warrants resulting in the issuance, in the aggregate, of
700,144 Shares, and that all other warrants held by them will be cancelled.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to the beneficial ownership of
Shares by each person known to the Company, as of February 15, 1996, to own
more than 5% of the Shares.
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) CLASS (2)
- ------------------------------------ --------------------------- ----------
Apollo FG Partners, L.P. 9,429,640(3) 40.6%
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite
1900
Los Angeles, California 90067
Forum/Classic, L.P. 2,550,544(4) 11.0%
200 West Madison Street
39th Floor
Chicago, Illinois 60606
Forum Holdings, L.P. 9,429,640(5) 40.6%
4200 Texas Commerce Tower West
2200 Ross Avenue
Dallas, Texas 75201
- --------
(1) The amounts shown represent Shares with respect to which the named person
has sole dispositive power. As a result of the provisions of the
shareholders' agreement described below, each of AFG and Forum Holdings
(collectively, the "Investors") may be deemed to have shared voting power
with respect to, and thus to beneficially own, all of the 18,859,280 Shares
beneficially owned by such persons in the aggregate (constituting 81.2% of
Shares treated as outstanding as described in Note 2 below).
2
(2) The percentages shown are based on 23,239,975 Shares outstanding. This
number includes (i) 149,607 Shares presently issuable at a nominal purchase
price upon the exercise of certain warrants ("Special Warrants") issued
pursuant to the Warrant Agreement, dated June 10, 1993 (the "Warrant
Agreement"), between the Company and Citicorp USA, Inc. and (ii) 550,537
Shares presently issuable at a purchase price equal to $3.9766 per Share
(subject to adjustment) upon the exercise of certain other warrants
("Warrants") issued pursuant to the Warrant Agreement.
(3) According to Amendment No. 8 to a Schedule 13D dated January 10, 1995 and
filed with the Securities and Exchange Commission (the "SEC") by AFG, the
number of Shares listed includes (i) 74,804 Shares purchasable by AFG upon
exercise of Special Warrants and (ii) 275,268 Shares purchasable by AFG
upon exercise of Warrants. The general partner of AFG is Apollo Investment
Fund, L.P. ("AIF"), the managing general partner of AIF is Apollo Advisors,
L.P. ("Apollo Advisors") and the general partner of Apollo Advisors is
Apollo Capital Management, Inc. ("ACM"). By reason of various relationships
among Messrs. Berg, Copses and Ressler and AFG and its affiliates, Messrs.
Berg, Copses and Ressler may be deemed to beneficially own the Shares owned
by AFG. Each of Messrs. Berg, Copses and Ressler disclaims beneficial
ownership of such Shares. See "Security Ownership of Management" below.
(4) According to Amendment No. 1 to a Schedule 13D dated January 18, 1995 and
filed with the SEC by Forum/Classic, L.P.
(5) According to Amendment No. 13 to a Schedule 13D dated January 10, 1995 (the
"Forum Holdings 13D") and filed with the SEC by Forum Holdings and certain
related entities (collectively, the "Forum Holdings Reporting Persons"),
the number of Shares listed includes (i) 74,803 Shares purchasable by Forum
Holdings upon exercise of Special Warrants and (ii) 275,269 Shares
purchasable by Forum Holdings upon exercise of Warrants. According to the
Forum Holdings 13D, each of the Forum Holdings Reporting Persons may, by
reason of certain control relationships, be deemed to beneficially own all
of the Shares owned directly by Forum Holdings. By reason of various
relationships among Messrs. Decker, Read and Whitman and the Forum Holdings
Reporting Persons, Messrs. Decker, Read and Whitman may be deemed to
beneficially own the Shares owned by the Forum Holdings Reporting Persons.
Each of Messrs. Decker, Read and Whitman disclaims beneficial ownership of
such Shares. See "Security Ownership of Management" below.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of February 15, 1996 with
respect to Shares beneficially owned by (i) each director, (ii) each Named
Executive (as defined below), and (iii) all directors and executive officers of
the Company as a group.
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
------------------------ --------------------------- ----------------
Laurence M. Berg (2)........ -0- -0-%
Peter P. Copses (2)......... -0- -0-
Daniel A. Decker (3)........ -0- -0-
James E. Eden............... -0- -0-
James R. Foulger............ 15,000(4) *
Mark L. Pacala.............. 160,000(5) *
Kurt C. Read (3)............ -0- -0-
Antony P. Ressler (2)....... -0- -0-
Robert A. Whitman (3)....... -0- -0-
Margaret A. Wylde........... -0- -0-
Paul A. Shively............. 10,074(6) *
Brian C. Swinton............ 44,950(7) *
Richard A. Huber............ 11,500(8) *
All directors and executive
officers as a group........ 231,450(6) 1.0
- --------
* Represents less than 1% of the total number of Shares outstanding.
(1) Excludes the 18,859,280 Shares beneficially owned by the Investors.
3
(2) By reason of various relationships between Messrs. Berg, Copses and
Ressler and AFG and its affiliates, Messrs. Berg, Copses and Ressler may
be deemed to beneficially own the Shares owned by AFG. Each of Messrs.
Berg, Copses and Ressler disclaims beneficial ownership of such Shares.
(3) By reason of various relationships between Messrs. Decker, Read and
Whitman and the Forum Holdings Reporting Persons, Messrs. Decker, Read and
Whitman may be deemed to beneficially own the Shares owned by the Forum
Holdings Reporting Persons. Each of Messrs. Decker, Read and Whitman
disclaims beneficial ownership of such Shares.
(4) Consists of 15,000 Shares purchasable upon the exercise of Mr. Foulger's
option within 60 days after February 15, 1996. Mr. Foulger became Senior
Vice President--Acquisitions of the Company in May 1995. Mr. Foulger is
not a Named Executive for purposes of this Information Statement because
he became an executive officer subsequent to the end of the Company's last
full fiscal year.
(5) Consists of 160,000 Shares purchasable upon the exercise of Mr. Pacala's
option within 60 days after February 15, 1996.
(6) Mr. Shively resigned all of his positions with the Company effective as of
June 30, 1995. As a result, Mr. Shively's 10,074 Shares have been excluded
from the aggregate Shares shown as held by all directors and executive
officers as a group. However, Mr. Shively is a Named Executive for
purposes of this Information Statement because his resignation occurred
subsequent to the end of the Company's last full fiscal year.
(7) Includes 20,000 Shares purchasable upon the exercise of Mr. Swinton's
option within 60 days after February 15, 1996.
(8) Includes 11,000 Shares purchasable upon the exercise of Mr. Huber's option
within 60 days after February 15, 1996.
SHAREHOLDER AGREEMENTS
Each of Forum Holdings and AFG has agreed to take all actions necessary to
terminate, immediately prior to the consummation of the Offer, the
Shareholders' Agreement, dated June 14, 1993, and amended and restated as of
July 28, 1995, between Forum Holdings and AFG (the "Amended and Restated
Shareholders' Agreement"). Pursuant to the Amended and Restated Shareholders'
Agreement, the Investors had agreed that the right to nominate a majority of
the Company's directors would be allocated between the Investors in proportion
to their relative percentages of share ownership and that the remaining
directors would consist of the Chief Executive Officer of the Company and
other persons acceptable to each of the Investors. Pursuant to the Amended and
Restated Shareholders' Agreement, AFG had nominated Messrs. Berg, Copses and
Ressler and Forum Holdings had nominated Messrs. Decker, Read and Whitman for
election as directors at the 1995 annual meeting of shareholders.
The Purchaser and Parent have entered into an agreement (each, a
"Shareholder Agreement") with each of Forum Holdings, AFG and Forum/Classic,
L.P. (collectively, the "Principal Shareholders"). Each Shareholder Agreement
contains, among other representations and warranties, a representation and
warranty by the Principal Shareholder as to its beneficial ownership of a
specified number of Shares and Shares issuable upon exercise of warrants.
Tender of Shares; Exercise of Warrants. Pursuant to the applicable
Shareholder Agreement, each Principal Shareholder has agreed to tender and not
withdraw all Shares beneficially owned by it (or to cause the record owner
thereof to tender and not withdraw such Shares), pursuant to and in accordance
with the terms of the Offer. The parties have agreed that the Principal
Shareholder will, for all Shares tendered by the Principal Shareholder in the
Offer and accepted for payment and paid for by the Purchaser, receive the same
per Share consideration paid to other holders of Shares who have tendered into
the Offer.
The Principal Shareholders holding warrants have further agreed, prior to
the expiration of the Offer, to exercise all such warrants that are currently
exercisable for Shares and agreed that, prior to the purchase of Shares
pursuant to the Offer, all other warrants shall be cancelled and extinguished
for no additional consideration. Upon exercise of the warrants, and the
purchase of Shares in accordance with the terms thereof, the Principal
Shareholders receiving such Shares have agreed to tender (and not withdraw)
such Shares pursuant to the Offer.
4
Restrictions on Transfer and Proxies; No Solicitation. Each Principal
Shareholder has agreed that it shall not directly or indirectly, except as
expressly provided in the Shareholder Agreement, (i) transfer (including the
transfer of any securities of an affiliate which is the record holder of
Shares if, as the result of such transfer, such person would cease to be an
affiliate of the Principal Shareholder) to any person any or all Shares; (ii)
grant any proxies or powers of attorney, deposit any Shares into a voting
trust or enter into a voting agreement, understanding or arrangement with
respect to such Shares; or (iii) take any action that would make any
representation or warranty of the Principal Shareholder contained in the
Shareholder Agreement untrue or incorrect or would result in a breach by the
Principal Shareholder of its obligations under the Shareholder Agreement.
Each Principal Shareholder shall, and shall cause its affiliates, and its
and their officers, directors, employees, representatives and agents (the
"Covered Persons") to, immediately cease any existing discussions or
negotiations with any parties conducted prior to execution of the Shareholder
Agreement with respect to any Acquisition Proposal. Each Principal Shareholder
will not, and will cause its Covered Persons not to, (i) solicit, directly or
through an intermediary, any inquiries with respect to, or the making of, any
Acquisition Proposal, or (ii) engage in negotiations or discussions with, or
furnish any confidential information relating to the Company or its
subsidiaries to, any Third Party relating to an Acquisition Proposal;
provided, that nothing in the Shareholder Agreement shall prohibit a Principal
Shareholder or any Covered Person in their capacities as officers, directors,
employees, representatives and agents of the Company from taking or omitting
to take any action permitted to be taken or omitted to be taken by the Company
under Section 6.2 of the Merger Agreement.
Termination. Each Shareholder Agreement shall terminate on the earliest of
(i) the purchase by Purchaser pursuant to the Offer of the Shares beneficially
owned by the Principal Shareholder, (ii) termination of the Merger Agreement
pursuant to and in conformity with Article VIII of the Merger Agreement
(except that the Shareholder Agreement shall not terminate based upon a
termination of the Merger Agreement by the Company following (a) a breach of a
representation or warranty in the Merger Agreement on the part of Parent or
Purchaser which materially adversely affects the consummation of the Offer or
(b) a material breach of any covenant or agreement in the Merger Agreement on
the part of Parent or Purchaser which materially adversely affects the
consummation of the Offer which shall not have been cured prior to 20 days
following notice of such breach, in each case if Parent and Purchaser are
challenging the ability of the Company to terminate the Merger Agreement
pursuant to such provision(s)), and (iii) July 16, 1996.
Voting of Owned Shares; Irrevocable Proxy. Each of Forum Holdings and AFG
(but not Forum/Classic, L.P.) further agreed, in the Shareholder Agreement to
which it is a party, upon the request of Parent, to deliver to the Purchaser
an irrevocable proxy in the form attached to its Shareholder Agreement (each,
an "Irrevocable Proxy"). At the request of Parent, such Irrevocable Proxies
were delivered to Parent by Forum Holdings and AFG on February 20 and 21,
1996, respectively. Each Irrevocable Proxy grants to representatives of the
Purchaser the right to vote all Shares held by the person providing such proxy
under specified conditions.
Each Irrevocable Proxy provides, among other things, that, so long as the
Merger Price is at least $13.00 in cash (net to the seller), at any meeting of
the Company's shareholders, the named proxies are authorized to vote all
Shares covered by the Irrevocable Proxy in favor of the Merger, the execution
and delivery by the Company of the Merger Agreement and the approval and
adoption of the Merger Agreement and the terms thereof and each of the other
actions contemplated by the Merger Agreement and the Shareholder Agreement and
any actions required in furtherance thereof and against any actions that are
adverse thereto.
THE BOARD OF DIRECTORS
PARENT DESIGNEES
Parent has informed the Company that the Designated Directors will consist
of, or be selected from among, the six individuals identified on Schedule A
annexed hereto. If the number of directors that the Parent may appoint is less
than six, then the individuals identified on such Schedule A will be selected
as Designated Directors in descending order. None of the potential Designated
Directors or their associates is a director of, or holds any position with,
the Company. To the best knowledge of the Company, none of the potential
Designated Directors or their associates
5
(a) beneficially owns any equity securities of the Company, (b) has been
involved in any transactions with the Company or any of its directors or
executive officers or (c) has been involved in any legal proceedings or other
matters that, in each case, are required to be disclosed pursuant to the rules
and regulations of the SEC.
CURRENT DIRECTORS
The Board is currently comprised of nine directors: Laurence M. Berg, Peter
P. Copses, Daniel A. Decker, James E. Eden, Mark L. Pacala, Kurt C. Read,
Anthony P. Ressler, Robert A. Whitman and Margaret A. Wylde, Ph.D. The
information set forth below is correct as of February 20, 1996.
The Company's Articles of Incorporation and By-Laws provide that the
directors of the Company shall be elected at the annual meeting of
shareholders to serve until the next annual meeting of shareholders and until
their respective successors shall have been elected and qualified.
NAME, PRINCIPAL OCCUPATION SERVED AS A
AND BUSINESS EXPERIENCE DIRECTOR SINCE AGE
-------------------------- -------------- ---
LAURENCE M. BERG 1994 29
An associate of Apollo Capital Management, Inc. ("ACM") and
Lion Capital Management, Inc. ("LCM"), each a general
partner of Apollo Advisors, L.P. ("Apollo Advisors"), which
acts as managing general partner of Apollo Investment Fund,
L.P. ("AIF") and AIF II, L.P., securities investment funds,
and Lion Advisors, L.P. ("Lion Advisors"), which serves as
financial advisor and representative for certain
institutional investors with respect to securities
investments, since 1992; theretofore employed by Drexel
Burnham Lambert Incorporated ("DBL"), an investment firm;
director of CWT Specialty Stores, Inc., a company owning and
operating women's specialty clothing stores.
PETER P. COPSES 1993 37
An officer of ACM and LCM since 1990; theretofore employed
by Donaldson, Lufkin and Jenrette Securities Corporation, an
investment firm, and by DBL; director of Family Restaurants,
Inc. ("Family Restaurants"), a company engaged in the
restaurant industry; Food 4 Less Holdings, Inc., a Southern
California based supermarket operator; Dominick's Finer
Foods, Inc., a Chicago based supermarket operator; and Zale
Corporation, a company owning and operating jewelry stores.
DANIEL A. DECKER 1993 43
Partner of The Hampstead Group, L.L.C. ("Hampstead"), a
privately held investment company, since 1990; theretofore a
partner in the law firm of Decker, Hardt, Munsch and Dinan,
P.C.; director of Bristol Hotel Company ("Bristol Hotels"),
an owner and operator of 38 hotels in the Southwest and
Southeast.
JAMES E. EDEN 1993 58
Owner of James E. Eden & Associates, a consulting firm
specializing in the senior living and long-term care
industry, President of Eden & Associates, Inc., a company
engaged in the senior living and long-term care industry,
and Chairman and Chief Executive Officer of Oakwood Living
Centers, Inc., a company which owns and operates nursing
homes and rehabilitation centers, since 1992; theretofore
employed by Marriott Corporation ("Marriott")(/1/), a
company which owns and operates, among other properties,
senior living facilities, in various capacities including
Executive Vice President and Vice President and General
Manager, Senior Living Services Division; director of Omega
Healthcare Investors, Inc., a real estate investment trust
which owns long-term healthcare facilities.
- --------
(/1/Prior)to October 8, 1993, Parent was a wholly-owned subsidiary of Marriott
Corporation. Marriott Corporation separated Parent's businesses from its
other businesses through a distribution to the holders of outstanding
shares of Marriott Corporation common stock, on a share-for-share basis,
of all the outstanding shares of Company common stock. Upon the
consummation of the distribution, Parent became a separate, publicly held
company and Marriott Corporation changed its name to Host Marriott
Corporation.
6
NAME, PRINCIPAL OCCUPATION SERVED AS A
AND BUSINESS EXPERIENCE DIRECTOR SINCE AGE
-------------------------- -------------- ---
MARK L. PACALA 1994 40
Chief Executive Officer of the Company since 1994 and
Chairman of the Board since 1995; theretofore Senior Vice
President of The Walt Disney Company, a company which, among
other things, owns and operates theme parks and resorts.
KURT C. READ 1995 33
Vice President of Hampstead since 1990; theretofore an
officer of Columbia Realty Group, a real estate investment
advisory firm.
ANTONY P. RESSLER 1993 35
One of the founding principals of Apollo Advisors and Lion
Advisors and an officer of ACM and LCM since 1990;
theretofore Senior Vice President of DBL; director of Family
Restaurants; Gillett Holdings, Inc., a company which owns
the Vail and Beaver Creek ski resorts and a meat packing
business; PRI Holdings, Inc., a company engaged in the
manufacture of packaging materials; Dominick's Finer Foods,
Inc., a Chicago based supermarket operator; and United
International Holdings, Inc., a company engaged in the cable
television industry.
ROBERT A. WHITMAN 1993 42
Chairman of the Board of the Company from 1993 through
September 1995 and interim President and Chief Executive
Officer of the Company from 1993 through 1994; President and
Co-Chief Executive Officer of Hampstead since 1991;
theretofore Managing Partner and Chief Executive Officer of
Trammell Crow Ventures, the real estate investment, banking
and investment management unit of Trammell Crow Company;
director of Bristol Hotels, an owner and operator of 38
hotels in the Southwest and Southeast; director of The Covey
Leadership Center, Inc., a training and publishing firm; and
director of Wyndham Hotel Company, Ltd., an owner and
operator of hotels and resorts.
MARGARET A. WYLDE, PH.D. 1995 45
President of ProMatura Group, a division of the Institute of
Technology Development which provides market research,
planning, product development and product testing services
to businesses serving seniors, and Chairman of the Board of
Directors of LifeSpec Cabinet Systems, Inc. ("LifeSpec"), a
manufacturer of cabinetry designed for use in senior
housing; director of LifeSpec and of the National
Association of Senior Living Industries, the American
Society on Aging and the Business Forum on Aging.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The management of the Company is under the direction of the Board. The Board
held five meetings during the Company's fiscal year ended March 31, 1995
("Fiscal Year 1995"). Each director attended at least 75% of the meetings of
the Board held while he or she was a director, and each director appointed to
serve on one or more committees of the Board attended at least 75% of the
meetings of such committee or committees held while he or she was a member
thereof.
BOARD COMMITTEES
The Board has established an Executive Committee, which has the authority,
subject to applicable legal restrictions, to exercise all of the powers of the
Board in the oversight of the management of the business and affairs of the
Company. During Fiscal Year 1995, the Executive Committee met approximately 24
times. Messrs. Copses, Pacala and Whitman presently serve on the Executive
Committee. The Board has authorized the Executive Committee to perform the
functions of a nominating committee. Accordingly, the Executive Committee is
also responsible for considering and making recommendations to the Board
regarding nominees for election to the Board and Board committee assignments.
The Executive Committee will consider recommendations for nominees for election
to the Board which may be submitted by shareholders to the Secretary of the
Company.
7
The Board has established a Compensation Committee, which reviews executive
salaries, administers the bonus, incentive compensation and stock option plans
of the Company and approves salaries and other benefits of the executive
officers of the Company. In addition, the Compensation Committee consults with
the Company's management regarding pension and other benefit plans and
compensation policies and practices of the Company. During Fiscal Year 1995,
the Compensation Committee met two times. Messrs. Copses and Decker and Ms.
Wylde presently serve on the Compensation Committee.
The Board has established an Audit Review Committee, which reviews the
professional services provided by the Company's independent auditors and the
independence of such auditors from management of the Company. This Committee
also reviews the scope of the audit by the Company's independent accountants,
the annual financial statements of the Company, the Company's system of
internal accounting controls and such other matters with respect to the
accounting, auditing and financial reporting practices and procedures of the
Company as it finds appropriate or as are brought to its attention, and meets
from time to time with management. During Fiscal Year 1995, the Audit Review
Committee met two times. Messrs. Berg, Eden and Read presently serve on the
Audit Review Committee.
DIRECTOR COMPENSATION
The Company pays each director who is not also a full-time employee of the
Company an annual retainer of $15,000, payable quarterly, for his or her
services as a director of the Company. In addition, each such director
generally receives $500 for each meeting of any Board committee attended by
such director. All directors are reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attendance at meetings of, and other
activities relating to serving on, the Board and any Board committee. No
compensation has been paid for attendance at meetings of the Executive
Committee.
EXECUTIVE OFFICERS
The names of the executive officers of the Company (other than Mr. Pacala,
the Chief Executive Officer of the Company, who is also a member of the Board
(see "The Board of Directors" above)), their positions and offices, business
experience, terms of office and ages are as follows:
SERVED AS AN
NAME, POSITIONS AND OFFICES, EXECUTIVE OFFICER
AND BUSINESS EXPERIENCE SINCE AGE
---------------------------- ----------------- ---
JAMES R. FOULGER 1995 52
Senior Vice President--Acquisitions of the Company since
1995; theretofore President of Autumn America Retirement,
Ltd. ("Autumn America"), a company which provides
acquisition and management services to owners of senior
living facilities. Mr. Foulger has responsibility for the
Company's acquisition program.
DENNIS L. LEHMAN 1995 40
Senior Vice President and Chief Financial Officer since
1995; theretofore Senior Vice President-Finance and Chief
Financial Officer of Continental Medical Systems, Inc., a
company which provides medical rehabilitation services.
Mr. Lehman is the Company's principal financial officer.
BRIAN C. SWINTON 1994 51
Senior Vice President--Product Development, Research and
Marketing of the Company since 1994; theretofore Vice
President, Senior Living Services Division of Parent. Mr.
Swinton is the Company's principal marketing executive.
RICHARD A. HUBER 1993 35
Vice President-Operations Finance of the Company since
1993; theretofore Director-Operations Accounting and
Analysis, Senior Living Services Division of Marriott.
Mr. Huber is the Company's principal accounting officer
and has also served as the Secretary of the Company since
1995.
8
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION SUMMARY
The following table summarizes the compensation of the persons who served as
Chief Executive Officer of the Company during Fiscal Year 1995 and each of the
other four most highly compensated executive officers of the Company who were
serving as such at the end of Fiscal Year 1995 (collectively, the "Named
Executives") for the Company's last three fiscal years for services rendered
in all capacities to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION
NAME AND FISCAL YEAR -------------------- SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION ENDED MARCH 31, SALARY($) BONUS($) OPTION AWARDS (#) COMPENSATION($)
------------------ --------------- ---------- --------- --------------------- ---------------
Mark L. Pacala, 1995(1) $ 190,385 $ 100,000 800,000 $14,130(2)
Chairman of the Board 1994 -- -- -- --
and Chief Executive 1993 -- -- -- --
Officer
Robert A. Whitman, 1995 -0- -0- -0- -0-
Interim President and 1994 -0- -0- -0- -0-
Chief Executive 1993 -- -- -- --
Officer(3)
Paul A. Shively, 1995 230,000 -0- -0- 5,319(4)
Senior Vice President, 1994 230,000 82,500 -0- 3,049
Chief Financial Officer 1993 169,583 -0- -0- 208,057
and Treasurer(5)
Brian C. Swinton 1995 153,635 91,000 100,000 74,372(6)
Senior Vice President-- 1994(7) 25,961 39,063 -0- 500
- 1993 -- -- -- --
Product Development,
Research and Marketing
Richard A. Huber 1995 87,077 65,000 55,000 822(8)
Vice President-- 1994(9) 49,039 36,095 -0- 39,788
Operations Finance and 1993 -- -- -- --
Secretary
- --------
(1) Mr. Pacala became Chief Executive Officer of the Company on October 24,
1994. Prior to that time, he was not an officer or employee of the
Company.
(2) The amount shown represents payments made to Mr. Pacala in reimbursement
of temporary living and relocation expenses incurred by him in connection
with the commencement of his employment with the Company.
(3) While concurrently serving as President and Co-Chief Executive Officer of
Hampstead, Mr. Whitman served as interim President and Chief Executive
Officer of the Company from July 19, 1993 until Mr. Pacala commenced his
employment with the Company on October 24, 1994. Prior to July 19, 1993,
Mr. Whitman was not an officer of the Company. Mr. Whitman received no
compensation from the Company for services rendered by him as interim
President and Chief Executive Officer of the Company. See "The Board of
Directors and its Committees--Director Compensation" with respect to
compensation paid to members of the Board, including Mr. Whitman, and
"Certain Relationships and Transactions--General and Administrative
Services" for a discussion of a payment made in June 1994 by the Company
to Forum Holdings in respect of various general and administrative
services provided to the Company by Forum Holdings and its
representatives, including, among others, Mr. Whitman's services as
interim President and Chief Executive Officer of the Company.
9
(4) The amount shown represents employer contributions of $2,494 and $2,825
made to the Company's 401(k) Savings Plan and Employee Stock Purchase
Plan, respectively, on behalf of Mr. Shively.
(5) Mr. Shively resigned all positions held by him with the Company and its
subsidiaries and affiliates effective as of June 30, 1995 and received a
severance payment of $254,200. Mr. Shively, however, has agreed to serve
as a consultant to the Company on matters pertaining to the conduct of the
business and operations of the Company and its affiliates.
(6) The amount shown represents payments made to Mr. Swinton in reimbursement
of relocation expenses incurred by him in connection with the commencement
of his employment with the Company.
(7) Mr. Swinton became Senior Vice President--Product Development, Research
and Marketing of the Company on January 24, 1994. Prior to that time, he
was not an officer or employee of the Company.
(8) The amount shown represents (i) payments of $416 made to Mr. Huber in
reimbursement of relocation expenses incurred by him in connection with
the commencement of his employment with the Company and (ii) employer
contributions of $406 made to the Company's 401(k) Savings Plan on behalf
of Mr. Huber.
(9) Mr. Huber became Vice President--Operations Finance of the Company on
November 10, 1993. Prior to that time, he was not an officer or employee
of the Company.
FISCAL YEAR 1995 STOCK OPTION GRANTS
The following table sets forth certain information regarding grants of stock
options made during Fiscal Year 1995 to the Named Executives pursuant to the
Company's Equity Incentive Plan (the "Incentive Plan"). No grants of stock
appreciation rights were made during Fiscal Year 1995 to any of the Named
Executives.
STOCK OPTION GRANTS IN FISCAL YEAR 1995
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------------ --------------------------------
% OF TOTAL
SECURITIES OPTIONS MARKET
UNDERLYING GRANTED TO PRICE ON
OPTIONS EMPLOYEES EXERCISE GRANT
GRANTED IN FISCAL PRICE DATE EXPIRATION
NAME (#) YEAR 1995 ($/SH) ($/SH)(1) DATE 0% ($) 5% ($) 10% ($)
---- ---------- ---------- -------- --------- ---------- -------------------- -----------
Mark L. Pacala.......... 800,000(2) 60.9% $5.875 $5.875 8/7/2004 $ -0- $ 2,955,805 $ 7,490,590
Robert A. Whitman....... N/A N/A N/A N/A N/A N/A N/A N/A
Paul A. Shively......... N/A N/A N/A N/A N/A N/A N/A N/A
Brian C. Swinton........ 100,000(3) 7.6% 4.00 7.00 10/24/2004 300,000 740,226 1,415,620
Richard A. Huber........ 55,000(3) 4.2% 4.00 7.00 10/24/2004 165,000 407,124 778,591
- --------
(1) The "market price" shown is the average of the closing bid and asked
prices for Shares as reported on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") on the grant date or,
if such date was not a trading day, the trading day immediately preceding
such date.
(2) The option vests in five equal annual installments commencing August 7,
1995.
(3) The option vests in five equal annual installments commencing October 24,
1995.
10
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the total
number of stock options held by each of the Named Executives, and the
aggregate value of such stock options, on March 31, 1995. None of such stock
options was exercisable as of such date.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES
UNDERLYING
SHARES UNEXERCISED VALUE OF IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT UNEXERCISED OPTIONS AT
NAME EXERCISE (#) REALIZED ($) FISCAL YEAR-END FISCAL YEAR-END ($)(1)
---- ------------ ------------ --------------- ----------------------
Mark L. Pacala.......... 0 0 800,000 $750,000
Robert A. Whitman....... 0 0 N/A N/A
Paul A. Shively......... 0 0 N/A N/A
Brian C. Swinton........ 0 0 100,000 281,250
Richard A. Huber........ 0 0 55,000 154,688
- --------
(1) In-the-money options are options having a per Share exercise price below
$6.8125, the average of the closing bid and asked prices for Shares as
reported on NASDAQ on March 31, 1995. The dollar amounts shown represent
the amount by which the product of $6.8125 and the number of Shares
purchasable upon the exercise of such in-the-money options exceeds the
aggregate exercise price payable upon such exercise.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company is presently a party to an employment agreement with Mark L.
Pacala, Chairman and Chief Executive Officer of the Company, a copy of which
is filed as Exhibit 4 to the Schedule 14D-9. Mr. Pacala's employment agreement
provides for his employment as Chief Executive Officer of the Company for a
term expiring on October 24, 1998. The agreement provides for a base salary of
not less than $450,000 per year, plus an annual performance bonus in an amount
up to 60% of his then-current annual base salary, such bonus to be determined
by the Board or the Compensation Committee based upon performance objectives
established by the Board or the Compensation Committee after consultation with
Mr. Pacala. However, Mr. Pacala did not receive a bonus in respect of Fiscal
Year 1995. Rather, he received a bonus in the amount of $270,000 on October
24, 1995, and any bonus otherwise payable to Mr. Pacala following the
Company's fiscal year ending March 31, 1996 will be reduced by approximately
$152,000. Pursuant to his employment agreement, Mr. Pacala was paid, in
connection with the commencement of his employment with the Company, a one-
time payment of $100,000 in order to induce him to forego the payment of an
equivalent amount that would have been paid to him by his previous employer
had he continued in his former employment and was granted an option to
purchase 800,000 Shares at $5.875 per Share, the average of the closing bid
and asked prices for Shares on NASDAQ on the trading day immediately preceding
the date of grant, which option becomes exercisable in five equal annual
installments commencing on August 7, 1995. The agreement also provides Mr.
Pacala certain welfare benefits.
If Mr. Pacala's employment is terminated by the Company other than for cause
or as a result of death, disability or a change in control, the Company will
for two years following such termination pay Mr. Pacala his then-current base
salary (subject to offset for compensation received by Mr. Pacala from other
parties) and provide him the welfare benefits that he was receiving
immediately prior to his termination (subject to termination in the event that
Mr. Pacala receives comparable benefits from a subsequent employer). If Mr.
Pacala's employment is terminated by the Company (other than as a result of
death or disability or for cause) or by Mr. Pacala (for any reason) within 12
months following a change in control, the Company will pay to Mr. Pacala a
lump sum severance payment equal to two times his then-current base salary and
will provide him the welfare benefits that he was receiving immediately prior
to such termination. In those circumstances, in the event
11
that the change in control occurs prior to April 24, 1996, Mr. Pacala would
also have the right to cause the Company to repurchase the then-unexercised
portion of his stock options at a price of $0.625 per Share then underlying
such options.
The Company is also presently a party to a letter agreement with Dennis L.
Lehman, Senior Vice President and Chief Financial Officer of the Company, a
copy of which is filed as Exhibit 5 to the Schedule 14D-9. Such agreement
provides for the payment of certain severance benefits in the event Mr.
Lehman's employment is terminated for any reason other than for cause.
The consummation of the Offer and/or Merger constitutes a change in control
under these agreements. The Company estimates that the maximum amount payable
to Messrs. Pacala and Lehman pursuant to such agreements is approximately $1.2
million. The Merger Agreement provides that the Company will honor and, on and
after the Effective Time, Parent will cause the Surviving Corporation to honor,
all employment, severance, termination, consulting and retirement agreements to
which the Company or any of its subsidiaries is a party on the date of the
Merger Agreement, subject to the right of the Surviving Corporation to amend or
otherwise modify the terms and provisions of any such agreements in accordance
with the terms thereof. The Company believes that the foregoing covenant would
apply to the agreements between the Company and each of Messrs. Pacala and
Lehman.
SEVERANCE PLAN
Pursuant to the Merger Agreement, Parent has agreed to adopt the following
severance plan immediately following the Effective Time, which will supersede
the existing severance pay policy of the Company. Employees at the corporate
offices of the Company and its subsidiaries ("Forum") immediately before the
earlier of the acquisition of the Shares pursuant to the Offer or the Effective
Time (the "Acquisition Date") shall be subject to an Employee Protection Plan
for Employees of Forum's Corporate Offices (the "Plan") following the
Acquisition Date and subsequent integration of Forum into Marriott Senior
Living Services, Inc. ("MSLS"). An "employee" for purposes of this Plan shall
consist of all administrative and clerical staff, managers, directors, vice
presidents and senior vice presidents of Forum who are employed at Forum's
corporate offices immediately before the Effective Time, but shall not include
the chief financial officer or chief executive officer of the Company.
It is the intention of MSLS that Forum employees should continue to perform
their normal job functions following the Acquisition Date, while MSLS
undertakes an assessment of Forum's operations. Following such assessment
period, MSLS will notify each Forum employee as to his or her eligibility for
employment in a comparable position with MSLS. The date on which the employee
receives notice of his or her eligibility for employment with MSLS shall be the
"Employee's Notification Date."
If MSLS offers a Forum employee a position with MSLS, and the employee
accepts such offer, the employee shall be eligible to participate in the
Parent's employee benefits plan and shall be subject to the policies and
procedures applicable to all other MSLS employees. For purposes of any benefits
program for which continuous length of service is a factor (including, but not
limited to, insurance program effective dates, pre-existing condition waiting
periods, retirement program entry dates and vesting, vacation, sick pay and
other paid leave benefits, service awards and any other similar program), MSLS
and Parent shall recognize service with Forum and its predecessors as
employment with MSLS or any other Marriott division.
If MSLS offers a Forum employee a position with MSLS, but the employee
rejects such offer, the employee shall receive the following "Marriott
International Income Extension Plan" benefits: (a) if MSLS shall provide the
employee with at least thirty (30) days' notice as to his or her final date of
employment (the "Job Elimination Date"), (b) as of the Job Elimination Date,
the employee shall receive payment representing, (i) severance pay equal to one
week's salary for each full year of service with Forum; provided, however, that
no employee shall receive a severance payment of less than two (2) weeks' pay
and (ii) payment for unused vested and unvested vacation leave, up to a maximum
of thirty (30) days' leave.
If MSLS does not offer the Forum employee a position with MSLS, the employee
shall be eligible for the following: (a) the employee shall receive notice as
to his or her Job Elimination Date, which date shall in no event be less than
forty-five (45) days from the Employee Notification Date, and (b) throughout
the period
12
preceding the employee's Job Elimination Date, MSLS will provide general
assistance to the employee in identifying vacant positions in other divisions
of Parent for which the employee may be qualified. Reasonable accommodation
will be made to allow an employee to look for another job during the
notification period. If the employee is successful in obtaining employment in
another division of Parent, the employee shall be eligible to participate in
the Parent's employee benefit plans and shall be subject to the policies and
procedures applicable to other employees of that Marriott division. The
employee shall receive credit for prior service with Forum, as described
above.
If the employee has not obtained other employment with Parent as of the Job
Elimination Date, the employee shall receive payment consisting of the
following: (a) payment for unused vested vacation leave, up to a maximum of
twenty (20) days leave and (b) a final severance payment which will include
credit for unvested vacation leave, up to a maximum of fifteen (15) days'
leave. The final severance payment will be determined based on the employee's
position with Forum and shall be equal to the employee's base salary for a
certain number of months (in the case of administrative/clerical staff, three
(3) months; in the case of managers, four (4) months; in the case of
directors, five (5) months; and in the case of vice presidents and senior vice
presidents, six (6) months) reduced by the amount of regular pay the employee
received for time worked from the Employee's Notification Date through the Job
Elimination Date.
If a Forum employee resigns or is terminated for cause before the Employee's
Notification Date or the employee's Job Elimination Date, the employee shall
not be eligible for benefits under the Employee Protection Plan. The employee
will, however, be eligible for any benefits applicable to the employee under
group health plans maintained for former Forum employees as may be required
under Section 601 of the Employee Retirement Income Security Act of 1974, as
amended.
In the event an employee is terminated by MSLS or Parent on or before March
31, 1997, other than for cause, such employee shall be eligible to receive the
benefits described above as if such employee had not been offered a position
with MSLS.
OPTIONS
Pursuant to the Merger Agreement, all options and other rights to acquire
Shares ("Stock Options") granted to employees under any stock option plan,
program or similar arrangement of the Company or any subsidiary of the Company
(each as amended, an "Option Plan"), whether or not then exercisable, will be
cancelled by the Company immediately prior to the earlier of (x) the
consummation of the Offer and (y) the Effective Time, and the holders thereof
will be entitled to receive from the Company, for each Share subject to such
Stock Option, an amount in cash equal to the difference between the Merger
Price (as defined in the Merger Agreement) and the exercise price per share of
such Stock Option, which amount will be paid at the time the Stock Option is
cancelled. All applicable withholding taxes attributable to such payments will
be deducted from the amounts payable and all such taxes attributable to the
exercise of Stock Options will be withheld from the proceeds received in
respect of Shares issuable on such exercise. Except as provided in the Merger
Agreement or as otherwise agreed to by the parties and to the extent permitted
by the Option Plans, the Option Plans will terminate as of the Effective Time
and the provisions in any other plan providing for the issuance or grant by
the Company of any interest in respect of the capital stock of the Company
will be deleted as of the Effective Time.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
SETTLEMENT OF CERTAIN LITIGATION
Pursuant to a court-approved settlement agreement, during Fiscal Year 1995,
the Company settled certain claims asserted by Forum/Classic, L.P., an entity
affiliated with the Pritzker family, and others against the Company, the
Investors and certain other persons (including persons who comprised the Board
immediately prior to the recapitalization of the Company in 1993 (the "1993
Recapitalization")) in a suit filed in connection with the 1993
Recapitalization. In connection with the settlement, the Company reimbursed
the plaintiffs for $500,000 of the expenses incurred by them in that
litigation.
13
CERTAIN CONSULTING SERVICES
The Company and Mr. Eden have entered into an agreement, effective as of
March 31, 1995, pursuant to which Mr. Eden will render to the Company such
consulting and advisory services as the Company's Chief Executive Officer may
from time to time request regarding the Company and the retirement industry.
In connection with the execution of the agreement, the Company paid to Mr.
Eden $137,500 in respect of certain consulting services provided by him to the
Company prior to such time, including services provided during Fiscal Year
1995. Under the agreement, which terminates on December 31, 1996, the Company
will pay to Mr. Eden an annual retainer of $31,250 and certain additional
amounts in certain circumstances.
GENERAL AND ADMINISTRATIVE SERVICES
In July 1994, the Company paid $750,000 to Forum Holdings in respect of
various general and administrative services provided to the Company by Forum
Holdings prior to such date. Such services include, among others, arranging
for and negotiating the Company's debt refinancing which was completed in
February 1994 and negotiating the co-investment agreement which was entered
into by the Company and National Guest Homes, LLC in July 1994. Services
covered by such payment also include Mr. Whitman's services as interim
President and Chief Executive Officer of the Company.
CERTAIN ACQUISITIONS
In May 1995, the Company acquired from Autumn America, an affiliate of Forum
Holdings, for $1.3 million, Autumn America's rights as the manager of five
retirement communities and entered into new management contacts with the
owners of such facilities (two of which are affiliates of Forum Holdings).
Under each such management contract, the Company will receive in respect of
management services to be provided by it thereunder a monthly management fee
equal to 5% of gross collections. In connection with such acquisition, the
Company also paid to Autumn America for disbursement to its management
personnel $250,000 in cash in lieu of granting certain rights with respect to
future acquisitions by the Company. Of such amount, $150,000 was disbursed to
James R. Foulger, formerly the President of Autumn America, who, upon the
consummation of such acquisition, became Senior Vice President--Acquisitions
of the Company.
In May 1995, the Company acquired for $1.7 million an 80% interest in the
retirement community now known as The Forum at the Woodlands (the "Woodlands
Property"). The remaining 20% interest in the Woodlands Property is owned by
an unaffiliated co-investor. In connection with such acquisition, an affiliate
of Forum Holdings (the "Holdings Affiliate") was granted a carried interest in
the Woodlands Property in exchange for assigning its rights to purchase such
property to the Company and its 20% co-investor. Commencing May 1996, the
Holdings Affiliate may require the Company to purchase, and the Company may
require the Holdings Affiliate to sell to the Company, such carried interest
for a price between $0.8 million and $1.7 million, depending on the
performance of the Woodlands Property and sales of related tax-exempt bonds.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires directors and executive officers
of the Company, and persons who own more than 10% of the issued and
outstanding Shares, to file reports of ownership and changes in ownership with
the SEC. Directors, executive officers and greater than 10% shareholders are
required by SEC regulation to furnish the Company copies of all Section 16(a)
forms they file. Except as described below, to the Company's knowledge, based
solely on review of those copies and written representations that no Forms 5
were required, the Company's directors, executive officers and greater than
10% shareholders complied with all applicable Section 16(a) filing
requirements during Fiscal Year 1995. Mr. Swinton has failed to file the
required forms with the SEC in connection with three transactions resulting in
changes in his beneficial ownership that occurred during Fiscal Year 1995 and
two such transactions that occurred during the Company's current fiscal year.
14
SCHEDULE A
The following table sets forth the name, age, present principal occupation or
employment and material occupation, positions, offices or employment for the
past five years of each of Parent's potential designees to the Company's Board.
The business address for each potential designee is c/o Marriott International,
Inc., 10400 Fernwood Road, Bethesda, Maryland 20817. Each potential designee is
a citizen of the United States.
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
---- --- ----------------------------
William J. Shaw 50 Mr. Shaw is President and a Director of
President of Purchaser; Purchaser. Mr. Shaw was elected President
Executive Vice President and of the Marriott Service Group in February
President--Marriott Service 1992, which now comprises Parent's Contract
Group of Parent Services Group. He joined Marriott
Corporation in 1974, was Corporate
Controller in 1979 and a Vice President in
1982. In 1985, he assumed responsibility
for Marriott Corporation's tax department
and risk management department and was
elected Senior Vice President--Finance. 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.
Paul E. Johnson, Jr. 48 Mr. Johnson is Vice President and a
Vice President and Director of Director of Purchaser, and Executive Vice
Purchaser; Executive Vice President and General Manager of the Senior
President and General Manager Living Services Division of Parent. Mr.
of Senior Living Services Johnson joined Marriott Corporation in 1983
Division of Parent in Corporate Financial Planning & Analysis.
In 1987, he was promoted to group vice
president of finance and development for
the Marriott Service Group and later
assumed responsibility for real estate
development for Marriott Senior Living
Services. During 1989, he served as vice
president and general manager of Marriott's
Travel Plazas division. Mr. Johnson
subsequently served as vice president and
general manager of Marriott Family
Restaurants from December 1989 through
1991. In October 1991, he was appointed to
his present position as executive vice
president and general manager of Marriott
Senior Living Services.
Terrence P. Morrow 48 Mr. Morrow is Treasurer and a Director of
Treasurer and Director of Purchaser. Mr. Morrow is Vice President of
Purchaser; Vice President-- Finance for Marriott Senior Living Services
Finance, Senior Living Services with responsibility for the Accounting,
Division of Parent Finance and Information Systems functions
of the business. Mr. Morrow has worked for
Marriott since 1970 and has been in his
current job since 1990. Previously, he was
Vice President of Marriott Suites and Vice
President of Internal Audit for Marriott
Corporation. Mr. Morrow also spent 17 years
in the Hotel Division where he held
positions as a Hotel Controller, Regional
Controller and Vice President Area
Controller.
Lawrence B. Murphy 38 Mr. Murphy is a Vice President of the
Vice President of Purchaser; Purchaser. Mr. Murphy joined Parent in 1983
Vice President--Operations of and served in various capacities in its
the Senior Living Services Lodging Division, including Vice President
Division of Parent of Rooms Operations, Vice President of
Service Development and General Manager,
until March 1995 when he joined the Senior
Living Services Division as Vice President
for Operations.
15
OR EMPLOYMENT AND
FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
---- --- ----------------------------
Edward L. Bednarz 53 Mr. Bednarz is a Vice President of the Purchaser. Mr. Bednarz joined the Law Department
Vice President of Purchaser; of Parent in 1973 and has served as the principal attorney for the Senior Living Services
Associate General Counsel of Division since 1992.
Parent
G. Cope Stewart III 54 Mr. Stewart is a Vice President of the Purchaser. Mr. Stewart has served as Associate
Vice President of Purchaser; General Counsel, Corporate Affairs Department, of Parent since February 1994. From 1986
Associate General Counsel of to 1994, Mr. Stewart was a partner in the Washington, D.C. law firm of Arent Fox Kintner
Parent Plotkin & Kahn. Prior to 1986, Mr. Stewart was engaged in the private practice of law in
Washington, D.C.
16