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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
MORRISON MANAGEMENT SPECIALISTS, INC.
(Name of Subject Company)
MORRISON MANAGEMENT SPECIALISTS, INC.
(Name of Person Filing Statement)
COMMON STOCK, $0.01 PAR VALUE
RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
(Title of Class of Securities)
618459101
(CUSIP Number of Class of Securities)
JOHN E. FOUNTAIN, ESQ.
MORRISON MANAGEMENT SPECIALISTS, INC.
1955 LAKE PARK DRIVE, S.E., SUITE 400
SMYRNA, GEORGIA 30080-8855
(Name, Address and Telephone Number of
Person Authorized to Receive Notice and Communications
on Behalf of the Person Filing Statement)
COPY TO:
GABRIEL DUMITRESCU, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E., 16TH FLOOR
ATLANTA, GEORGIA 30303
(404) 572-6600
[ ] CHECK THE BOX IF THE FILING RELATES SOLELY TO PRELIMINARY COMMUNICATIONS
MADE BEFORE THE COMMENCEMENT OF A TENDER OFFER
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ITEM 1. SUBJECT COMPANY INFORMATION
The name of the subject company is Morrison Management Specialists, Inc., a
Georgia corporation (the "Company" or "Morrison"). The address of the principal
executive offices of the Company is 1955 Lake Park Drive, S.E., Suite 400,
Smyrna, Georgia 30080-8855. The telephone number of the Company at its principal
executive offices is (770) 437-3300.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (together with any
Exhibits or Annexes hereto, this "Statement") relates is the common stock, par
value $0.01 per share, of the Company and the associated rights to purchase
Series A Junior Participating Preferred Stock (together, the "Common Stock"). As
of December 31, 2000, there were 12,783,834 shares of Common Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
The filing person is the subject company. The Company's name, business
address and business telephone number are set forth in Item 1 above.
This Statement relates to the tender offer by Yorkmont One, Inc. (the
"Purchaser"), a Georgia corporation and a wholly-owned indirect subsidiary of
Compass Group PLC, a public limited company organized under the laws of England
and Wales ("Compass"), to purchase all of the outstanding shares of Common Stock
(the "Shares"), at a purchase price of $40.00 per Share, net to the seller in
cash, without interest (the "Offer Price"), upon the terms and subject to the
conditions set forth in the Purchaser's Offer to Purchase, dated February 16,
2001, and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer"). The
Offer is described in a Tender Offer Statement on Schedule TO (as amended or
supplemented from time to time, the "Schedule TO"), filed by the Purchaser with
the Securities and Exchange Commission on February 16, 2001. The Offer is being
made in accordance with the Agreement and Plan of Merger, dated as of February
6, 2001, among Compass, the Purchaser and the Company (as amended on February
15, 2001, the "Merger Agreement"). The Merger Agreement provides that, subject
to the satisfaction or waiver of certain conditions, following completion of the
Offer, and in accordance with the Georgia Business Corporation Code (the
"GBCC"), the Purchaser will be merged with and into the Company (the "Merger").
Following the consummation of the Merger, the Company will continue as the
surviving corporation and will be a wholly-owned indirect subsidiary of Compass.
At the effective time of the Merger (the "Effective Time"), each issued and
outstanding Share (other than Shares owned by Compass, the Purchaser, any of
their respective subsidiaries, the Company or any of its subsidiaries, and
Shares held by shareholders who did not vote in favor of the Merger Agreement
and who comply with all of the relevant provisions of the GBCC relating to
dissenters' rights) will be converted into the right to receive the same amount
in cash per Share that is paid pursuant to the Offer (the "Merger
Consideration").
The Schedule TO states that the principal office of Compass is located at
Cowley House, Guildford Street, Chertsey, Surrey, England KT169BA and the
principal office of the Purchaser is located at 2400 Yorkmont Road, Charlotte,
North Carolina 28217.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Certain contacts, agreements, arrangement or understandings between us and
certain of our directors and executive officers are, except as noted below,
described in the information statement (the "Information Statement") pursuant to
Rule 14f-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that is attached as Annex A to this Statement and is incorporated by
reference herein. Except as described in this Statement (including in the
Exhibits and Annexes hereto) or incorporated by reference
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herein, to our knowledge, as of the date of this Statement there exists no
material agreement, arrangement or understanding or any actual or potential
conflicts of interest between us and:
- Our executive officers, directors or affiliates;
- Compass and Compass' executive officers, directors or affiliates; or
- Purchaser and Purchaser's executive officers, directors or affiliates.
(a) The Merger Agreement.
The summary of the Merger Agreement and the description of the conditions
to the Offer contained in Sections 12 and 14, respectively, of the Offer to
Purchase are incorporated herein by reference. Such summary and description are
qualified in their entirety by reference to the Merger Agreement which is
attached as Exhibits 3 and 4 hereto and is incorporated by reference herein.
(b) Agreements between the Company and its Executive Officers.
Certain members of our management and the Board have interests in
transactions contemplated by the Merger Agreement that are in addition to their
interests as Company shareholders generally. The Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
(i) Indemnification Agreements.
We have previously entered into indemnification agreements
(collectively, the "Indemnification Agreements") with all of our executive
officers and directors (Glenn A. Davenport, K. Wyatt Engwall, John E.
Fountain, Jerry D. Underhill, Gary L. Gaddy, Richard C. Roberson, George T.
Levins, John B. McKinnon, Claire L. Arnold, E. Eugene Bishop, Fred L.
Brown, Michael Corbett, A. Robert Outlaw, Jr. and Dr. Benjamin F. Payton).
The form of Indemnification Agreement is filed as Exhibit 3 hereto and is
incorporated by reference herein. Each Indemnification Agreement provides
that we will indemnify and hold harmless the director or officer party to
it (an "Indemnitee") to the fullest extent permitted by our Articles of
Incorporation, Bylaws and the GBCC, against all expenses, liability and
loss (collectively, "Indemnifiable Expenses") actually and reasonably
incurred or suffered by Indemnitee in connection with any threatened,
pending or contemplated investigation or claim ("Indemnifiable
Litigation"):
- To which Indemnitee is or was a party or is threatened to be made a
party by reason of any action or inaction in Indemnitee's capacity as
a director or officer of the Company; or
- With respect to which Indemnitee is otherwise involved by reason of
the fact that Indemnitee is or was serving as a director, officer,
employee or agent of the Company;
provided, however that no subsequent change in our Articles of
Incorporation or Bylaws or the GBCC will have the effect of limiting or
eliminating the indemnification available under the Indemnification
Agreement as to any act or, omission for which the Indemnification
Agreement provides indemnification at the time of the act or omission. If
any change after the date of the Indemnification Agreement in any
applicable law narrows the right of us to indemnify an Indemnitee, such
change, to the extent otherwise required by law, to be applied to the
Indemnification Agreement, shall have no effect on the Indemnification
Agreement or the parties' rights or obligations thereunder. Notwithstanding
the foregoing, unless our Board of Directors consents, an Indemnitee shall
not be indemnified and held harmless in any Indemnifiable Litigation:
- Initiated by the Indemnitee; or
- Pending on or before the date of Indemnitee's Indemnification
Agreement.
In the event of payment under an Indemnification Agreement, we shall
be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable us effectively to bring
suit to enforce such rights.
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We are not obligated under the Indemnification Agreements to make any
payment in connection with any claim made against the Indemnitee:
- For which payment is actually made to the Indemnitee under a valid and
collectible insurance policy, except in respect of any excess beyond
the amount of payment under such insurance;
- For which the Indemnitee is entitled to indemnity and/or payment by
reason of having given notice of any circumstance which might give
rise to a claim under any policy of insurance, the terms of which have
expired prior to the effective date of the applicable Indemnification
Agreement;
- For which the Indemnitee is indemnified by us otherwise than pursuant
to the applicable Indemnification Agreement;
- Based upon or attributable to the Indemnitee gaining in fact any
personal profit or advantage to which he was not legally entitled;
- For an accounting of profits made from the purchase or sale by the
Indemnitee of our securities within the meaning of Section 16(b) of
the Exchange Act, or similar provisions of any state statutory law; or
- Brought about or contributed to by the dishonesty of the Indemnitee
seeking payment hereunder.
Notwithstanding the foregoing, the Indemnitee shall be protected under the
appropriate Indemnification Agreement as to any claims upon which suit may
be brought against him or her by reason of any alleged dishonesty on his or
her part, unless a judgment or other final adjudication thereof adverse to
Indemnitee shall establish that he or she committed acts of active and
deliberate dishonesty with actual dishonest purpose and intent, which acts
were material to the cause of action so adjudicated.
In addition, pursuant to the Indemnification Agreements, we will pay
Indemnifiable Expenses incurred by an Indemnitee in connection with any
Indemnifiable Litigation in advance of its final disposition, provided that
we have received an undertaking from the Indemnitee to repay the amounts
advanced to the extent that it is ultimately determined that Indemnitee is
not entitled to be indemnified by us under the Indemnification Agreement or
otherwise.
In connection with the execution of the Merger Agreement, each of our
executive officers and directors that are parties to the Indemnification
Agreements has delivered to Parent a waiver the form of which is attached
as Exhibit 10 hereto and is incorporated by reference herein, pursuant to
which he or she has agreed to waive his or her right:
- To select the independent counsel that under the Indemnification
Agreement would make the determination he or she met the applicable
standard of conduct in connection with any Indemnifiable Litigation
following a Business Combination (as defined in the Indemnification
Agreement);
- To have a majority of Continuing Directors (as defined in the
Indemnification Agreement) interpret certain provisions of the
Indemnification Agreement in the event of certain Business
Combinations; and
- To require us to create a trust for the benefit of him or her in the
event of a Potential Business Combination (as defined in the
Indemnification Agreement).
(ii) Indemnification Provisions in Merger Agreement.
Compass and the Purchaser have agreed in the Merger Agreement that all
rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time existing at February
6, 2001, in favor of the then current or former directors or officers of
the Company and its subsidiaries as provided in their respective articles
of incorporation or by-laws (or similar organizational documents) shall be
assumed and continued by the surviving corporation in the Merger, without
further
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action, at the Effective Time and shall survive the Merger and shall
continue in full force and effect in accordance with their terms.
In the event that the surviving corporation in the Merger or any of its
successors or assigns:
- Consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or
merger; or
- Transfers or conveys all or substantially all its properties and
assets to any person;
then, and in each such case, proper provision shall be made so that the
successors and assigns of the surviving corporation assume such
obligations. In the event that the surviving corporation is financially
incapable of satisfying such obligations described, Compass shall
satisfy such obligations.
In the Merger Agreement, Compass has agreed that for six years after
the Effective Time, the surviving corporation shall maintain in effect the
Company's current directors' and officers' liability insurance covering
each person currently covered by the Company's directors' and officers'
liability insurance policy for acts or omissions occurring prior to the
Effective Time on terms with respect to such coverage and amounts no less
favorable in any material respect to such directors and officers than those
of such policy as in effect on the date of the Merger Agreement; provided
that:
- Compass may substitute therefor policies of a reputable insurance
company the material terms of which, including coverage and amount,
are no less favorable in any material respect to such directors and
officers than the insurance coverage otherwise required by such
provision of the Merger Agreement; and
- In no event shall Compass be required to pay aggregate premiums for
insurance described in this paragraph in excess of 200% of the amount
of the aggregate premiums paid by the Company for 2000 for such
purpose;
provided further that Compass shall nevertheless be obligated to
provide such coverage as may be obtained for such 200% amount. The Company
shall, to the fullest extent permitted under applicable law and regardless
of whether the Merger becomes effective, indemnify and hold harmless, and,
after the Effective Time, the surviving corporation shall, to the fullest
extent permitted under applicable law, indemnify and hold harmless each
present and former director and officer of the Company and each subsidiary
of the Company (the "Indemnified Parties") against all costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in
their capacity as a director or officer occurring before the Effective
Time. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time):
- The Company or the surviving corporation, as the case may be, shall
pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to
the Company or the surviving corporation, promptly after statements
therefor are received; and
- The Company or the surviving corporation, as the case may be, shall
cooperate in the defense of any such matter; provided, however, that
the Company or the surviving corporation shall not be liable for any
settlement effected without its written consent (which consent shall
not be unreasonably withheld); and provided further that neither the
Company nor the surviving corporation shall be obligated pursuant to
the obligations described in this paragraph to pay the fees and
expenses of more than one counsel (and one local counsel) for all
Indemnified Parties in any single action except to the extent that two
or more of such Indemnified Parties shall have conflicting interests
in the outcome of such action.
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(iii) Change of Control Agreements.
We have previously entered into change of control agreements (the
"Change of Control Agreements") with each of our executive officers (Glenn
A. Davenport, K. Wyatt Engwall, John E. Fountain, Jerry D. Underhill, Gary
L. Gaddy, Richard C. Roberson and George T. Levins). The form of Change of
Control Agreement is attached as Exhibit 6 hereto and is incorporated by
reference herein. The Change of Control Agreements are designed to diminish
the distraction of executives by virtue of the personal uncertainties and
risks created by a threatened or pending Change of Control (as defined in
the Change of Control Agreements and set forth below) and to encourage
their full attention and dedication to us currently and in the event of any
pending or threatened Change of Control.
Under the Change of Control Agreement, a "Change of Control" is
defined as either:
- Certain developments that result in changes in the composition of more
than 20 percent of the Board of Directors; or
- With certain exceptions, any "Business Combination" (as defined in the
Change of Control Agreement) that has not been approved by the holders
of 80 percent or more of our outstanding voting stock.
Events that do not constitute a Change of Control include:
- Any Business Combination approved by at least 80 percent of the
Continuing Directors (as defined in the Change of Control Agreement);
- Any Business Combination transaction that satisfies certain price and
procedural requirements specified in our Articles of Incorporation;
and
- Any acquisition by us, any of our subsidiaries, or any employee
benefit plan of ours or any of our subsidiaries.
Prior to the first date on which a Change of Control occurs (the
"Effective Date"), each covered executive remains an at-will employee,
except as may be provided in any other agreement, and any termination of
his employment will terminate his rights under his Change of Control
Agreement. If and when the Effective Date occurs, we have agreed to
continue the employment of the executive, and the executive has agreed to
remain in the employ of the Company, for a three-year period (the
"Employment Period") commencing on the Effective Date. During the
Employment Period, the executive:
- Shall receive an annual base salary no less than that received prior
to the Effective Date and an annual bonus no less than the average of
the last three annual bonuses received prior to the Effective Date;
and
- Generally shall be entitled to continuation of retirement, savings and
welfare benefit plan participation and practices, expense
reimbursements and other fringe benefits on a basis at least
comparable to that obtaining prior to the Effective Date.
If during the Employment Period we terminate the executive's
employment other than for cause, death or disability, or if the executive
terminates his employment for "good reason" (as defined in the Change of
Control Agreements), or if the executive terminates his employment for any
reason during the 30-day period immediately following the first anniversary
of the Effective Date, the executive becomes entitled to receive:
- Any unpaid portion of his accrued annual base salary plus a pro rata
portion of his highest annual bonus paid or payable for the three
fiscal years immediately preceding his date of termination;
- An amount equal to either three, two or one times the sum of his
annual base salary and his highest annual bonus, depending upon the
particular multiplier stipulated in his Change of Control Agreement;
- Any other accrued obligations;
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- Accelerated vesting of any outstanding stock options granted to him
prior to his date of termination or a cash amount equal to the
difference between the option price and the then value of Company
stock for which any such option was granted; and
- Certain employee benefits consisting of retirement, savings and
various health and welfare insurance benefits.
If the package of compensation and benefits paid under the Change in
Control Agreement constitutes "excess parachute payments" as defined under
the Internal Revenue Code, the Company will pay an additional amount
sufficient to reimburse the executive for all taxes payable by the
executive with respect to the parachute payments.
(iv) Employment Agreements.
In connection with the execution of the Merger Agreement, the Company
entered into an employment agreement dated as of February 5, 2001 with
Glenn A. Davenport substantially in the form of Exhibit 6 hereto (the
"Davenport Agreement"), which is incorporated by reference herein. The
Davenport Agreement provides that Mr. Davenport will, among other things:
- Be employed as the Chief Executive Officer of the Company;
- Receive an annual base salary of $450,000;
- Be entitled to an annual bonus of up to 125% of annual base salary;
- Receive benefits pursuant to the Company's Executive Supplemental
Pension Plan (the "ESP");
- Be entitled to receive all other benefits available to senior
executives of the Company;
- Receive one year's annual salary and accrued bonus if terminated due
to death;
- Receive two times annual base salary if terminated due to Termination
Without Cause or Resignation by the Employee for Good Reason (as such
terms are defined in the Davenport Agreement); and
- Not solicit employees or compete with the Company for two years
following termination of employment.
Additionally, Mr. Davenport, the Company and Compass Group USA, Inc.,
a wholly-owned indirect subsidiary of Compass ("Compass Group"), entered
into an addendum to the Davenport Agreement which provides that certain
provisions will become effective in the event that the Offer and the Merger
are completed within 120 days following February 5, 2001. Once effective,
such provisions provide that Mr. Davenport will, among other things:
- Be an officer of Compass and have responsibility for substantially all
of the healthcare and senior dining foodservice business in the United
States of Compass Group and its subsidiaries;
- Participate in Compass Group's Long Term Incentive Plan;
- Receive an initial grant of options to purchase 175,000 shares of
common stock of Compass in accordance with Compass' Executive Share
Option Plan;
- Beginning in October 2001 and continuing so long as Mr. Davenport
remains employed with the Company under the provisions of the
Davenport Agreement, receive an annual grant of options to purchase
not less than 60,000 shares of common stock of Compass;
- Receive medical and dental benefits, including vision care, for the
benefit of himself, his spouse and his eligible dependents;
- Be eligible to participate in a nonqualified deferred compensation
plan which will allow Mr. Davenport, during employment with the
Company under the provisions of the Davenport Agreement, to defer up
to 100% of his annual base salary and 100% of his annual bonus and
receive from the Company or Compass Group a matching credit equal to
$0.35 on each dollar deferred up to 6% of the sum of his annual base
salary and annual bonus;
- Be eligible for continued participation in the Company's Nonqualified
Deferred Compensation Plan;
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- In the event the Company changes its name while Mr. Davenport remains
employed with the Company under the provisions of the Davenport
Agreement and such name change is not mutually agreed by Compass and
Mr. Davenport, receive a sum of annual base salary and annual bonus
which, for each of the three full years following any such name
change, is not less than the annual average of the sum of annual base
salary and annual bonus paid in the two full years before such change;
- Receive all other incidental benefits provided to executive officers
of Compass;
- Be eligible to participate in the Company's Executive Life Insurance
Plan both during and after employment with the Company pursuant to the
Davenport Agreement; and
- Be eligible to participate in Compass' 1999 Stock Bonus Plan in the
same manner as other Compass employees in the United States are
eligible to participate.
Furthermore, once effective, the addendum provides that the Change of
Control Agreement and Sections 13 and 14 of the Indemnification Agreement
executed by Mr. Davenport and the Company shall terminate.
Also in connection with the Merger Agreement, the Company has offered
similar employment agreements to the executives listed below. The
employment agreements include substantially the same terms as the Davenport
Agreement for such positions and at such salaries and bonus targets as set
forth opposite such executive's name.
MAXIMUM
NAME TITLE SALARY BONUS TARGET
- ---- ----- -------- ------------
K. Wyatt Engwall........ Chief Financial Officer $222,000 100%
Gary L. Gaddy........... Executive Vice President, Sales $212,000 100%
Jerry D. Underhill...... President, Morrison Hospital Food $225,000 100%
Services
George T. Levins........ Executive Vice President, $157,500 75%
Operations
Richard C. Roberson..... Executive Vice President, $161,000 75%
Operations
John E. Fountain........ General Counsel $155,000 60%
The employment agreements for such persons also provide that such
persons:
- Receive benefits pursuant to the Company's ESP;
- Be entitled to receive all other benefits available to senior
executives of the Company;
- Receive one year's annual salary and accrued bonus if terminated due
to death;
- Receive one and one-half times annual base salary if terminated due to
Termination Without Cause or Resignation by the Employee for Good
Reason (as such terms are defined in each respective employment
agreement); and
- Not solicit employees or compete with the Company for 18 months
following termination of employment.
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Additionally, in connection with the employment agreements offered to
the above listed individuals, the Company and Compass Group offered certain
benefits to such persons. Such benefits will become effective in the event
that the Offer and the Merger are completed within 120 days following
February 5, 2001. These benefits are substantially similar to those
provided to Mr. Davenport except with respect to the following items:
INITIAL/SUBSEQUENT
ONE-TIME GRANT GUARANTEED DEFERRAL FOR NONQUALIFIED
OF COMPASS EXECUTIVE LIFE COMPENSATION AFTER DEFERRED COMPENSATION
NAME OPTIONS INSURANCE POLICY NAME CHANGE PLAN
- ---- ------------------ ---------------- ------------------ ---------------------------
K. Wyatt Engwall..... 50,000/30,000 Yes Yes 100% salary; 100% bonus
Gary L. Gaddy........ 50,000/30,000 No No 20% salary; 100% bonus
Jerry D. Underhill... 50,000/30,000 Yes No 20% salary; 100% bonus
George T. Levins..... 15,000/15,000 No No 20% salary; 100% bonus
Richard C.
Roberson........... 15,000/15,000 No No 20% salary; 100% bonus
John E. Fountain..... 15,000/10,000 No No 20% salary; 100% bonus
In addition to these employment agreements, the Company and Compass
Group offered certain benefits to supplement the existing employment
agreement between the Company and Eugene D. Dolloff. Such benefits will
become effective in the event that the Offer and the Merger are completed
within 120 days following February 5, 2001. These benefits are
substantially similar to those provided to Mr. Davenport except with
respect to the following items:
INITIAL SUBSEQUENT GUARANTEED
ONE-TIME GRANT COMPENSATION DEFERRAL FOR NONQUALIFIED
OF COMPASS EXECUTIVE LIFE AFTER NAME DEFERRED COMPENSATION
NAME OPTIONS INSURANCE POLICY CHANGE PLAN
- ---- ------------------ ---------------- ------------ --------------------------
Eugene D. Dolloff.... 50,000/30,000 No No 20% salary; 100% bonus
To date, Mr. Engwall and Mr. Gaddy have accepted the Company's offer
of employment, pursuant to the employment agreements attached hereto as
Exhibits 7 and 8, respectively, which are incorporated herein by reference.
The offers to the other officers of the Company described above are still
outstanding.
(v) Stock Options and Restricted Stock.
Pursuant to the Merger Agreement, upon payment by the Purchaser for
Shares pursuant to the Offer, the Board (or the Compensation Committee of
the Board) will take or cause to be taken such actions as are required to
provide that each stock option outstanding immediately prior to the
acceptance for payment of Shares pursuant to the Offer will be cancelled,
with the holder thereof becoming entitled to receive, in cancellation and
full settlement of options held by such holder, an amount equal to the
product of (x) the number of shares of Common Stock subject to the option
held and (y) the excess, if any, of the price per Share paid pursuant to
the Offer over the exercise price per share of Common Stock subject to the
option (the "Option Consideration").
As soon as practicable following payment by the Purchaser for Shares
pursuant to the Offer, but no later than the Effective Time, the Company
will pay the Option Consideration in cash to each holder to whom Option
Consideration is payable.
In addition, pursuant to the Merger Agreement, all restrictions on
shares of restricted stock granted under any of the Company's stock
incentive plans shall lapse at the time the Purchaser accepts shares for
purchase in the Offer, and the holder of such restricted stock shall be
entitled to tender such shares in the Offer or receive for each share of
restricted stock, in cancellation and full settlement of such share, the
Merger Consideration.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Background.
The Company and Compass have operations in the contract food services
industry. Glenn A. Davenport, Chairman of the Board, President and Chief
Executive Officer of the Company and Michael J. Bailey, Chief Executive Officer
of Compass, have known each other for years and have had various contacts at
industry-related meetings or events. Messrs. Davenport and Bailey discussed from
time to time business opportunities involving both companies but neither of them
made any specific proposal for a transaction between the two companies.
On January 5, 2000, at the suggestion of Mr. Davenport, Mr. Bailey and Gary
R. Green, Chief Executive Officer of the Compass Group, North America Division,
met in New York with Mr. Davenport and John B. McKinnon, a director of the
Company, to discuss the Company's interest in acquiring Compass' senior living
food service business which Compass operates in the United States under the name
"Bateman." This meeting concluded without either party making a proposal with
respect to the Bateman business. However, during this meeting, Mr. Bailey
mentioned that, rather than selling the Bateman business to the Company, Compass
may want to explore the possibility of acquiring the Company. Mr. Bailey did not
make any specific proposal concerning a possible business combination involving
the Company at this meeting.
Following this meeting, Mr. Davenport and Mr. Bailey had a number of
telephone conversations in which they discussed the possibility of a transaction
between Compass and the Company. During these conversations, Messrs. Bailey and
Davenport discussed generally the possibility of a proposal by Compass and the
possible structure and timing of a business combination. They did not reach an
understanding with respect to the price at which a proposal may be made.
Following these telephone conversations, on January 24, 2000, Mr. Bailey
sent a letter to Mr. Davenport in which he expressed Compass' interest in
acquiring the Company subject to due diligence, execution of a mutually
agreeable purchase agreement and final Compass Group Board approval, at a price
of $30.91 per share ($34.00 adjusted for the Company's subsequent 10% stock
dividend) for the debt free Company business in a stock for stock transaction.
On February 7, 2000, the Board of Directors of the Company held a
telephonic special meeting at which Mr. Davenport reported on the receipt and
background of the January 24, 2000 letter from Compass. The Board of Directors
instructed Mr. Davenport to inform Mr. Bailey that the Board would hold a
special meeting to consider Compass' proposal in greater detail but that the
Board's initial reaction was unfavorable.
As instructed by the Board, Mr. Davenport contacted Mr. Bailey and on
February 19, 2000 communicated the Board's message. During this conversation,
Mr. Bailey indicated to Mr. Davenport that Compass would not be in a position to
improve on its January 24, 2000 proposal and Messrs. Davenport and Bailey
reached an understanding that all discussions on the subject were to be
terminated.
On February 23, 2000, the Board of Directors of the Company held a special
meeting that had been previously scheduled to review the Compass proposal. At
this meeting, representatives of Powell, Goldstein, Frazer & Murphy LLP, the
Company's outside counsel ("Powell Goldstein"), reviewed with the directors
their fiduciary duties and responsibilities in considering and acting upon any
acquisition proposal. In addition, at this meeting, representatives of Bear,
Stearns & Co. Inc. ("Bear Stearns") made a presentation outlining Bear Stearns'
views of the financial aspects of Compass' proposal. The Board of Directors
reviewed the Compass proposal and determined that it was not acceptable.
On February 25, 2000, Mr. Davenport confirmed in writing the parties'
understanding that all discussions with respect to Compass' interest in
acquiring the Company were terminated.
During September and October 2000, Company and Compass executives renewed their
contacts primarily to discuss the possibility of the Company acquiring the
Bateman business. During these discussions,
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Mr. Davenport suggested to Mr. Bailey that they meet to discuss further possible
transactions involving the two companies.
On November 20, 2000, Mr. Bailey and Mr. Green met in New York with Mr.
Davenport and K. Wyatt Engwall, Chief Financial Officer of the Company. While no
specific proposals with respect to any transaction between the two companies
were made at this meeting, the parties agreed that Compass would consider the
possibility of acquiring the Company. As a follow-up to this meeting, on
November 28, 2000, Mr. Green informed Mr. Davenport by telephone that Compass
would be interested in acquiring the Company at a price in the range of $40.00
per Share in cash and assumed debt. Following this conversation, Messrs.
Davenport and Green agreed that the Company and Compass should proceed towards a
possible business combination.
On December 4, 2000, the Company and Compass entered into a confidentiality
agreement (the "Confidentiality Agreement"). During December 2000 and early
January 2001, representatives of the Company and Compass continued their
discussions concerning a possible business combination between the two
companies, the timing of a transaction and the scope of the due diligence
investigation Compass would perform on the Company and its business.
The Board of Directors held a telephonic special meeting on December 14,
2000 at which senior management reported on the recent discussions with Compass
representatives concerning a possible business combination. The Board of
Directors appointed a special negotiating committee (the "Negotiating
Committee") composed of Messrs. Davenport and McKinnon and Ms. Claire L. Arnold
and authorized it to negotiate the terms of a merger agreement between the
Company and Compass, subject to approval of such terms by the full Board.
The Company formally retained Bear Stearns as its financial advisor in
connection with the Compass acquisition proposal pursuant to an engagement
letter dated as of January 5, 2001.
On January 9, 2001, the Board of Directors held a regularly scheduled
meeting. At this meeting, the management reported on developments related to a
possible business combination with Compass.
On January 15, 2001, representatives of Compass and its advisors met in
Atlanta with Company representatives and advisors to discuss the proposed
timetable for a transaction and to commence the formal due diligence
investigation of the Company and its business.
On January 17, 2001, Compass' counsel furnished the Company and its counsel
the first draft of a proposed merger agreement. Beginning on January 23, 2001
and through and including February 5, 2001, representatives of the Company and
Compass negotiated the proposed merger agreement.
The Negotiating Committee held telephonic meetings on January 24, 2001,
January 26, 2001 and January 31, 2001 to receive reports from and provide
guidance to the Company's management and its legal and financial advisors with
respect to open issues and the proposed terms of the merger agreement.
Representatives of the Company and Compass reached an agreement with
respect to the terms and conditions of the proposed merger agreement on the
morning of February 5, 2001. The merger agreement as negotiated by the
representatives of the Company and Compass and as provided to the Board of
Directors for consideration constitutes the "Merger Agreement" as defined in
this Statement.
On February 5, 2001, the Board of Directors held a special meeting to
review and discuss with the Company's management and legal and financial
advisors the terms of the proposed transaction and the Merger Agreement. At this
meeting, Powell Goldstein reviewed again with the directors their fiduciary
duties and responsibilities in evaluating and acting on an acquisition proposal.
Powell Goldstein representatives also gave a report with respect to various
legal aspects of the proposed transaction and reviewed with the Board the
principal terms of the Merger Agreement. In addition, Bear Stearns reviewed with
the Board its financial analyses of the consideration payable in the Offer and
the Merger and rendered to the Board an oral opinion (later confirmed in
writing) to the effect that, as of the date of the opinion and based upon and
subject to certain matters stated in such opinion, the $40.00 per Share cash
consideration to be received in the Offer and the Merger by the Company's
shareholders was fair, from a financial point of view, to such holders. At the
conclusion of the meeting, the Board of Directors unanimously approved the entry
of the Company into the
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Merger Agreement and the consummation by the Company of the transactions
contemplated thereby. The Board determined that the Offer and the Merger,
considered as a whole, are fair to and in the best interests of the Company and
its shareholders and unanimously recommended that the Company shareholders
accept the Offer and tender their shares in the Offer.
The Merger Agreement was executed in the morning of February 6, 2001 and
immediately thereafter the Company and Compass issued a joint press release
announcing the execution of the Merger Agreement.
On February 15, 2001, Compass, the Purchaser and the Company executed an
amendment to the Merger Agreement to correct certain editing errors in the
original Merger Agreement.
On February 16, 2001, the Purchaser commenced the Offer.
(b) Recommendation of the Board of Directors.
The Board of Directors, at a special meeting held on February 5, 2001,
determined that the Offer and the Merger, considered as a whole, are fair to and
in the best interests of the Company and the shareholders of the Company. At
this meeting, the Board unanimously approved and adopted the Merger Agreement,
and approved the entry of the Company into the Merger Agreement and the
consummation by the Company of the transactions contemplated thereby, for all
purposes, including for purposes of Section 14-2-1132 of the GBCC. YOUR BOARD
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES IN THE OFFER.
(c) Reasons for the Board's Recommendation.
In making the determinations and recommendations set forth in paragraph (b)
above, the Board of Directors considered a number of factors including, without
limitation, the following:
- The Board's knowledge of the Company's business, operations, prospects,
projected financial performance and competitive position in the health
care and senior living segments of the food, nutrition and senior dining
market;
- The fact that the $40.00 per Share to be received by the Company's
shareholders in the Offer and the Merger represents (i) a substantial
premium over the historical trading prices for the Shares (a 21% premium
over the closing price of $33.14 per Share on February 2, 2001, the last
trading day prior to the Board's approval of the Merger Agreement, and a
46% premium over the average price of $27.36 per Share for the 12 months
prior to the Board's approval of the Merger Agreement), and (ii) a
price/earnings ratio significantly higher than the Company's historic
price/earnings ratio (30.7 times estimated calendar year 2000 earnings
compared to a ratio of 23.8 times estimated calendar year 2000 earnings
based on the price per share on February 2, 2001);
- The fact that other acquisitions by Compass in the Company's industry
could diminish the Company's attractiveness as an acquisition candidate
for Compass;
- The Board's understanding that the Company could face additional
operating challenges in the future due to the potential for increasing
pricing pressure from larger players in its industry, including Compass;
and the fact that the Company's relatively small size would limit its
ability to realize expense and purchasing efficiencies to generate higher
margins;
- The fact that the Offer and the Merger were not conditioned on financing
which, given Compass' financial condition and its reputation, increased
the likelihood that the Offer and the Merger would be consummated;
- The other terms and conditions of the Merger Agreement, which were the
product of arm's length negotiations, including the parties'
representations, warranties, covenants and conditions to their respective
obligations;
- The fact that the Company may, under certain circumstances, terminate the
Merger Agreement in order to approve a tender offer or other proposed
business combination from a third party on terms more favorable to the
Company's shareholders than the Offer and the Merger, upon the payment to
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Compass of a $18 million termination fee plus actual and documented
out-of-pocket expenses up to $3 million;
- The interest of the Company's executive officers, including the Chairman
of the Board, President and Chief Executive Officer, in the transactions
contemplated by the Merger Agreement as described in Item 3 above; and
- The financial presentation by Bear Stearns, including its opinion that as
of the date of the opinion and based upon and subject to certain matters
stated in such opinion, the $40.00 per Share consideration to be received
by the Company's shareholders in the Offer and the Merger was fair, from
a financial point of view, to the Company's shareholders (the full text
of Bear Stearns' written opinion dated February 6, 2001 is attached as
Annex B hereto and is incorporated by reference herein).
The foregoing discussion is not intended to be an exhaustive description of
all of the factors considered by the Board of Directors of the Company in its
deliberations. The Board of Directors did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weight to any of the
factors it considered and did not determine that any factor was of any
particular importance. Rather, the Board of Directors made its determinations
and recommendations based on the totality of the information and factors
considered by it in its deliberations. In addition, it is possible that in
reaching their individual judgments or decisions, individual directors may have
been influenced differently by various of the factors described above.
(d) Opinion of Financial Advisor.
Bear Stearns has acted as exclusive financial advisor to our Board of
Directors in connection with the Offer and the Merger. Bear Stearns is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the Offer and the Merger. Bear Stearns, as
part of its investment banking business, is continuously engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
transactions. We retained Bear Stearns based on its qualifications, expertise
and reputation in providing advice to companies with respect to transactions
similar to the Offer and the Merger and because it is familiar with our
business.
In connection with Bear Stearns' engagement as financial advisor, the
Company's Board of Directors requested that Bear Stearns evaluate the fairness,
from a financial point of view, to our shareholders of the $40.00 per share
Offer Price. On February 5, 2001, Bear Stearns delivered its oral opinion to our
Board of Directors that, as of such date, the consideration to be received in
the Offer and the Merger was fair, from a financial point of view, to the
shareholders of the Company. Bear Stearns subsequently confirmed its oral
opinion by delivery of its written opinion dated February 6, 2001. A copy of
such opinion is attached as Annex B hereto and is incorporated by reference
herein.
In the course of performing its review and analyses for rendering this
opinion, Bear Stearns has:
- Reviewed a draft of the Merger Agreement in substantially final form;
- Reviewed the Company's Annual Reports to Shareholders and Annual Reports
on Form 10-K for the fiscal years ended May 31, 1998 through 2000, its
Quarterly Report on Form 10-Q for the periods ended August 31, 2000 and
November 30, 2000 and its Reports on Form 8-K for the three years ended
February 2, 2000;
- Reviewed certain operating and financial information, including
projections, provided by the Company management relating to the Company's
business and prospects;
- Met with certain members of the Company's senior management to discuss
the Company's business, operations, historical and projected financial
results and future prospects;
- Reviewed the historical prices, trading multiples and trading volume of
our Common Stock;
- Reviewed publicly available financial data, stock market performance data
and trading multiples of companies which Bear Stearns deemed generally
comparable to the Company;
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- Reviewed the terms of recent mergers and acquisitions involving companies
which Bear Stearns deemed generally comparable to the Company;
- Performed discounted cash flow analyses based on the projections provided
by our management; and
- Conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
The opinion is intended for the benefit and use of our Board of Directors
in considering the transaction, does not constitute a recommendation to our
Board of Directors as to how to vote in connection with the transaction, and
does not constitute a recommendation to any holders of our Common Stock as to
whether to tender their shares in the Offer or how to vote, if applicable, in
connection with the Merger. The opinion does not address our underlying business
decision to pursue the transaction, the relative merits of the transaction as
compared to any alternative business strategies that might exist for the Company
or the effects of any other transaction in which the Company might engage. The
opinion is subject to the assumptions, conditions and limitations contained
therein and is necessarily based on economic, market and other conditions, and
the information made available to Bear Stearns. Bear Stearns assumes no
responsibility for updating or revising its opinion based on circumstances or
events occurring after the date thereof.
The following is a summary of the financial analyses used by Bear Stearns
in connection with providing its oral opinion to our Board of Directors on
February 5, 2001 and providing the written opinion dated February 6, 2001. The
following summaries of financial analyses include information presented in
tabular format. You should read these tables together with the text of each
summary.
STOCK TRADING HISTORY
The $40.00 per share Offer Price was compared to the historical closing
prices of the Common Stock for the following periods (using February 2, 2001 as
the base date in each case):
- One month prior;
- The average of the 20 preceding trading days;
- The average share price over the preceding three months;
- The average share price over the preceding six months;
- The average share price over the preceding year;
- The high stock price for the preceding year; and
- The low stock price for the preceding year.
The following table summarizes the results of this comparison:
Offer Price................................................. $40.00
Premium to:
Morrison Price on February 2, 2001........................ 20.7%
One month prior price..................................... 20.2%
20 prior day trading average.............................. 22.0%
Three month average price................................. 26.6%
Six month average price................................... 34.4%
One year average price.................................... 46.1%
52-week high.............................................. 14.1%
52-week low............................................... 105.2%
COMPARABLE COMPANY ANALYSIS
Using publicly available information, Bear Stearns reviewed and compared
certain financial information, ratios and percentages for the Company with
corresponding financial information, ratios and percentages for
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publicly traded comparable companies. The particular comparable companies were
chosen because they have operations that, for purposes of this analysis, were
considered by Bear Stearns to be similar, in varying degrees, to our operations.
Since there are few public companies that are focused exclusively on contract
foodservice, Bear Stearns included providers of other outsourced services on a
contractual basis to hospitals and other institutions in the peer group.
For each of the selected companies, Bear Stearns reviewed certain publicly
available financial data, valuation statistics, financial ratios, research
reports, published earnings estimates for calendar years 2000 and 2001, and
stock market information, and calculated ratios and multiples based on such
information, which data was adjusted, where applicable, for certain
extraordinary and non-recurring items. Bear Stearns compared enterprise values,
calculated as equity value plus debt, preferred stock and minority interest less
cash and cash equivalents, of the selected companies and the Company as
multiples of their respective latest 12 months ("LTM") revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA") and earnings before
interest and taxes ("EBIT"), and estimated calendar year ("CY") 2001 revenue,
EBITDA and EBIT. Bear Stearns also compared stock prices of the selected
companies and the Company as multiples of estimated calendar years 2000 and 2001
earnings per share, commonly referred to as the P/E ratio.
All multiples were based on the closing stock prices for the Company and
each of the selected companies on February 2, 2001 (with the exception of one
comparable company, whose stock price reflects the latest closing price prior to
receiving a recent acquisition proposal), the most recent publicly available
information, and in certain cases, estimates provided by First Call for earnings
per share and selected Wall Street research for revenue, EBITDA and EBIT.
The results of such analysis are summarized below:
ENTERPRISE VALUE/ SHARE PRICE/
------------------------------------------------------------ ------------------------
REVENUE EBITDA EBIT EARNINGS PER SHARE
------------------ ------------------ ------------------ ------------------------
LTM(1) CY 2001 LTM(1) CY 2001 LTM(1) CY 2001 CY 2000(1) CY 2001
------ --------- ------ --------- ------ --------- ------------ ---------
Harmonic Mean of Comparable
Companies(2).................... 0.44x 1.03x 7.4x 9.8x 10.8x 13.0x 13.5x 10.5x
Morrison -- At current price(3)... 1.02x 0.91x 14.4x 10.8x 17.4x 13.2x 25.4x 19.7x
Morrison -- At $40.00/share(3).... 1.23x 1.09x 17.3x 12.9x 20.9x 15.9x 30.7x 23.8x
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(1) Excludes any non-recurring gains or losses.
(2) "Harmonic Mean" represents the reciprocal of the arithmetic mean of the
reciprocals of a set of data points.
(3) Morrison multiples are based on projections provided by Morrison management.
COMPARABLE ACQUISITION ANALYSIS
Based on publicly available historical information, Bear Stearns calculated
historical multiples of enterprise value (calculated as the amount proposed to
be paid, at the time of announcement, in each transaction for the equity of the
target company, plus debt, preferred stock and minority interests, less cash and
cash equivalents) to LTM revenue, EBITDA and EBIT, as well as multiples of
equity value to LTM net income paid by acquirors of certain publicly traded
companies. The particular precedent transactions used were chosen because the
targets in those transactions had operations that, for purposes of this
analysis, were considered by Bear Stearns to be similar, in varying degrees, to
our business. Adjustments were made, where
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applicable, for certain extraordinary and non-recurring items. The resulting
multiples were then compared to the multiples implied by the Offer Price. The
results of this analysis are summarized below:
HARMONIC MORRISON
HIGH LOW MEAN(1) @ $40.00
----- ----- -------- ---------
Enterprise Value:
LTM Revenue(2).................................... 1.37x 0.35x 0.56x 1.23x
LTM EBITDA(2)..................................... 12.2x 7.2x 8.9x 17.3x
LTM EBIT(2)....................................... 23.4x 10.0x 14.4x 20.9x
Equity Value:
LTM Net Income(2)................................. 39.3x 18.1x 23.8x 35.0x
- ---------------
(1) "Harmonic Mean" represents the reciprocal of the arithmetic mean of the
reciprocals of a set of data points.
(2) Excludes any extraordinary or non-recurring gains or losses.
DISCOUNTED CASH FLOW ANALYSIS
Bear Stearns performed a discounted cash flow analysis to determine an
indicative range of present values per share of the Common Stock, assuming the
Company continued to operate as a stand-alone entity in a manner consistent with
its projections. In order to calculate this range, Bear Stearns first determined
the Company's implied enterprise value by adding:
- The present value of the estimated future unlevered free cash flows that
the Company would generate over the five-year period through fiscal year
2006 if it operated in a manner consistent with its projections; and
- The present value of the Company's "terminal value" at the end of fiscal
year 2006.
Bear Stearns then subtracted net debt and preferred stock from this implied
enterprise value in order to calculate total equity value and the resulting per
share price. The Company terminal value at the end of the period was determined
by applying a range of multiples of enterprise values to an estimated fiscal
year 2006 EBITDA. Bear Stearns used an enterprise value to EBITDA multiple range
of 8.0x to 10.0x when calculating the terminal value. The present value of the
sum of the projected unlevered free cash flows and the terminal value was
calculated using a range of discount rates of 10.5% to 12.5%. This discount rate
range was determined based on an estimate of the Company's weighted average cost
of capital. Based on this analysis, the indicative per share value range for the
Common Stock was approximately $32 to $42 per share.
Based on all of the foregoing analyses, Bear Stearns concluded that the
Offer Price adequately reflected the Company's fair value under traditional
valuation methodologies.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of those methods to the
particular circumstances involved. Bear Stearns' opinion is therefore not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Bear Stearns made qualitative judgments as to the significance
and relevance of each analysis and factor considered by it and did not attribute
particular weight to any one analysis or factor. Bear Stearns did not form an
opinion as to whether any individual analysis or factor, positive or negative,
considered in isolation, supported or failed to support its opinion.
Accordingly, Bear Stearns believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors or of the summary
described above or focusing on information presented in tabular format, without
considering all analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
Bear Stearns' opinion and financial analyses were only one of many factors
considered by our Board of Directors in their evaluation of the Offer and
Merger, and should not be viewed as determinative of the views of our Board of
Directors or our management with respect to decision to recommend the Offer.
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Bear Stearns relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including,
without limitation, the projections provided by our management for purposes of
preparing its analysis. With respect to our management projections, Bear Stearns
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior management of the
Company as to the expected future performance of the Company. Bear Stearns has
not independently verified any such financial information or the projections
provided by the Company, and Bear Stearns has further relied upon the assurances
of the senior management of the Company that they are unaware of any facts that
would make the information and projections provided to Bear Stearns incomplete
or misleading.
In arriving at its opinion, Bear Stearns has not performed or obtained any
independent appraisal of the assets or liabilities (contingent or otherwise) of
the Company, and was not furnished with any such appraisals. Bear Stearns
assumed that the transaction will be consummated in a timely manner and in
accordance with the terms of the Merger Agreement without any regulatory
limitations, restrictions, conditions, amendments or modifications that
collectively would have a material effect on the Company.
Bear Stearns acted as a financial advisor to the Company in connection with
the Offer and the Merger and will receive a customary fee for such services as
set forth in Item 5 below, a substantial portion of which is contingent on
successful consummation of the transaction. In the ordinary course of business,
Bear Stearns may actively trade the equity and debt securities of the Company
and/or Compass for our own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
(e) Intent to Tender. To the Company's knowledge after reasonable inquiry,
each of the Company's directors and executive officers currently intends to
tender all Shares owned by him or her pursuant to the Offer. The foregoing does
not include Shares over which, or with respect to which, any such director or
executive officer acts in a fiduciary or representative capacity or is subject
to the instructions of a third party with respect to such tender.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED
Pursuant to a letter agreement dated January 5, 2001, we formally retained
Bear Stearns to act as its financial advisor in connection with the proposed
sale of the Company. Pursuant to the Bear Stearns engagement letter, we agreed
to pay Bear Stearns a fee of $600,000 upon delivery of an opinion with respect
to a transaction, such fees to be creditable against a transaction fee of 0.75%
of the aggregate transaction value, including cash, securities, partnership or
joint venture interests, property, debt remaining on our financial statements at
closing and Company debt assumed or discharged in the transaction and any
Company securities retained by their holders, payable in the transaction. We
have also agreed to reimburse Bear Stearns for reasonable out-of-pocket expenses
as incurred. In addition, we have agreed to indemnify Bear Stearns, and its
affiliated entities, directors, officers, agents and employees, legal counsel
and controlling persons (within the meaning of the federal securities laws)
against certain liabilities and expenses, including certain liabilities under
the Federal securities laws, arising out of Bear Stearns' engagement.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any person to make
solicitations or recommendations to shareholders on its behalf concerning the
Offer or the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
Neither the Company nor, to our knowledge, any executive officer, director,
affiliate or subsidiary of the Company has effected any transactions in the
Shares during the past 60 days except for routine transactions pursuant to our
Salary Deferral Plan and our Deferred Compensation Plan, and except that: (i)
Mr. Outlaw made a gift of 580 Shares to his minor daughter on December 19, 2000,
(ii) Mr. McKinnon made a gift of 4,000 shares to charitable organizations on
February 13, 2001, and (iii) Dr. Payton exercised an option to purchase 330
Shares at an exercise price of $15.64 per Share and sold such Shares in the open
market on February 14, 2001 at a price of $39.67.
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ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to:
- A tender offer for or other acquisition of our securities by us, any of
our subsidiaries or any other person;
- An extraordinary transaction, such as a merger, reorganization or
liquidation, involving us or any of our subsidiaries;
- A purchase, sale or transfer of a material amount of assets of us or any
of our subsidiaries; or
- Any material change in our present dividend rate or policy, or
indebtedness or capitalization.
Except as set forth in this Statement, there are no transactions,
resolutions of the Board of Directors, agreements in principle, or signed
contracts in response to the Offer that relate to one or more of the events
referred to in the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION
(a) Georgia Business Corporation Code.
As a Georgia corporation, we are subject to Section 14-2-1131 of the GBCC.
In general, Section 14-2-1131 would prevent an "interested shareholder"
(generally defined as a person beneficially owning 10% or more of a
corporation's voting stock) from engaging in a "business combination" (as
defined in Section 14-2-1131) with a Georgia corporation for five years
following the date such person became an interested shareholder unless:
- Before such person became an interested shareholder, the board of
directors of the corporation approved the business combination or
transaction in which the interested shareholder became an interested
shareholder;
- Upon consummation of the transaction which resulted in the interested
shareholder becoming an interested shareholder, the interested
shareholder owned at least 90% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes
of determining the number of shares of outstanding stock held by persons
who are directors or officers, their affiliates or associates,
subsidiaries of the Company, any employee stock option plan under which
participants do not have the right to determine confidentially the extent
to which shares held under such plan will be tendered in a tender or
exchange offer); or
- Following the transaction in which such person became an interested
shareholder, the shareholder acquired additional shares resulting in the
interested shareholder being the beneficial owner of at least 90% of the
outstanding voting stock of the Company (as calculated above) and the
business combination was approved at an annual or special meeting of
shareholders by the holders of a majority of the voting stock entitled to
vote thereon, excluding the voting stock beneficially owned by the
interested shareholder (and those listed in the parenthetical above).
In accordance with the provisions of Section 14-2-1131, our Board of Directors
has approved the Merger Agreement, as described in Item 4 above and, therefore,
the restrictions of Section 14-2-1131 are inapplicable to the Merger and the
transactions contemplated thereby.
(b) Regulatory Approvals.
United States Antitrust Compliance.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the FTC and
certain waiting
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period requirements have been satisfied. The purchase of Shares pursuant to the
Offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, the Purchaser has advised the
Company that it has filed a Notification and Report Form with respect to the
Offer and Merger with the Antitrust Division and the FTC on February 13, 2001.
The waiting period applicable to the purchase of Shares pursuant to the Offer
would be scheduled to expire at 11:59 p.m., New York City time, 15 days after
such filing. However, prior to such time, the Antitrust Division or the FTC may
extend the waiting period by requesting additional information or documentary
material relevant to the Offer from the Purchaser. 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 the Purchaser with such request.
Thereafter, such waiting period can be extended only by court order or by
agreement of the parties.
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the acquisition of Shares by the
Purchaser pursuant to the Offer. At any time before or after the consummation of
any such transactions, the Antitrust Division or the FTC could take such action
under the antitrust laws of the United States 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 Compass or the Company. Private parties
(including individual States) may also bring legal actions under the antitrust
laws of the United States. The Company does not, and the Purchaser has advised
the Company that it does not, believe that the consummation of the Offer will
result in a violation of any applicable antitrust laws. However, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made,
or if such a challenge is made, what the result will be. See Item 3.
Exon-Florio.
The provisions of the Exon-Florio amendment to the Omnibus Trade and
Competitiveness Act of 1988 authorize the President to investigate and, if he
deems it necessary, to suspend or prohibit any "merger, acquisition or takeover"
of a U.S. company that would result in foreign control of the company, where
such control would "threaten to impair the national security." The President has
delegated his authority to receive notices of transactions and to conduct
investigations to the Committee on Foreign Investment in the United States, an
interagency committee chaired by the Secretary of the Treasury.
A party or parties to a transaction may, but are not required to, submit to
the Committee on Foreign Investment in the United States a voluntary notice of
the transaction. In general, if the parties submit such a notice, the Committee
on Foreign Investment in the United States has 30 days in which to make an
initial determination whether to conduct an investigation. If the Committee on
Foreign Investment in the United States decides that an investigation is
warranted, it typically has 45 days in which to complete the investigation and
make a recommendation to the President, including whether to take action to
prohibit the merger. If the Committee on Foreign Investment in the United States
declines to initiate a 45-day investigation, the review process concludes and
the transaction is, in effect, approved.
The Company and Compass intend to submit a joint voluntary notice of
acquisition to the Committee on Foreign Investment in the United States. The
filing of this notice is not a condition to the Offer. Although we do not
anticipate that the Committee on Foreign Investment in the United States will
recommend that the President suspend or prohibit the merger, such a
recommendation could be made.
(c) The Purchaser's Designation of Persons to be Elected to the Board of
Directors.
The Information Statement attached as Annex A to this Statement is being
furnished in connection with the possible designation by Compass, pursuant to
the terms of the Merger Agreement, of certain persons to be elected to the Board
of Directors other than at a meeting of our shareholders.
18
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1 -- Offer to Purchase of Yorkmont One, Inc., dated as of
February 16, 2001. [Incorporated by reference to Exhibit
(a)(1)(A) to Schedule TO of Purchaser filed on February 16,
2001.]
2 -- Form of Letter of Transmittal. [Incorporated by reference to
Exhibit (a)(1)(B) to Schedule TO of Purchaser filed on
February 16, 2001.]
3 -- Agreement and Plan of Merger by and among Compass Group PLC,
Yorkmont One, Inc., and the Company dated as of February 6,
2001, as amended. [Incorporated by reference to Exhibit
(d)(1) to the Schedule TO of Purchaser filed on February 16,
2001.]
4 -- Form of Indemnification Agreement between the Company and
each of its directors and executive officers. [Incorporated
by reference to Exhibit 16 of the Company's Registration
Statement on Form 10 filed with the Commission on February
8, 1996.]
5 -- Form of Change of Control Agreement between the Company and
each of its executive officers. [Incorporated by reference
to Exhibit 17 of the Company's amendment to Registration
Statement on Form 10/A filed with the Commission on February
29, 1996.]
6 -- Employment Agreement and Addendum, each dated as of February
5, 2001, by and between the Company and Glenn A. Davenport.
[Incorporated by reference to Exhibit (d)(3) to Schedule TO
of Purchaser filed on February 16, 2001.]
7 -- Employment Agreement and Addendum, each dated as of February
5, 2001, by and between the Company and K. Wyatt Engwall.
[Incorporated by reference to Exhibit (d)(4) to Schedule TO
of Purchaser filed on February 16, 2001.]
8 -- Employment Agreement and Addendum, each dated as of February
5, 2001, by and between the Company and Gary L. Gaddy.
[Incorporated by reference to Exhibit (d)(5) to Schedule TO
of Purchaser filed on February 16, 2001.]
9 -- Form of Amendment to Rights Agreement, dated as of February
5, between the Company and SunTrust Bank, Atlanta, as Rights
Agent.
10 -- Form of Waiver between the Company and each of its directors
and executive officers.
11 -- Joint press release issued by the Company and Compass Group
PLC, on February 6, 2001. [Incorporated by reference to
Exhibit 99.2 of the Company's Current Report on Form 8-K
filed with the Commission on February 6, 2001.]
12 -- Letter to shareholders of the Company dated February 16,
2001.
13 -- Composite Bylaws of the Company.
14 -- Opinion of Bear, Stearns & Co. Inc. dated February 6, 2001
(included as Annex B hereto).
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
MORRISON MANAGEMENT SPECIALISTS, INC.
By: /s/ K. WYATT ENGWALL
---------------------------------------
Name: K. Wyatt Engwall
Title: Chief Financial Officer
Dated: February 16, 2001
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22
ANNEX A
MORRISON MANAGEMENT SPECIALISTS, INC.
1955 LAKE PARK DRIVE, S.E.
SUITE 400
SMYRNA, GEORGIA 30080
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND
RULE 14F-1 THEREUNDER
February 16, 2001
This information statement (the "Information Statement") is being furnished
by Morrison Management Specialists, Inc., a Georgia corporation (the "Company"),
to its shareholders in connection with the possible designation by Yorkmont One,
Inc., a Georgia corporation (the "Purchaser") and a wholly-owned indirect
subsidiary of Compass Group PLC, a public limited company incorporated in
England and Wales ("Compass"), pursuant to the Agreement and Plan of Merger
dated as of February 6, 2001 (the "Merger Agreement") among the Company, Compass
and the Purchaser, of persons to be elected to the Board of Directors of the
Company other than at a meeting of the Company's shareholders.
Pursuant to the Merger Agreement, the Purchaser commenced a tender offer
(the "Offer") disclosed in the Tender Offer Statement on Schedule TO dated
February 16, 2001. The terms and conditions of the Offer are set forth in the
Offer to Purchase dated February 16, 2001 (the "Offer to Purchase") and related
Letter of Transmittal, which are being mailed by the Purchaser to the Company's
shareholders concurrently herewith. The Merger Agreement also provides, among
other things, for the merger (the "Merger") of the Purchaser into the Company,
with the Company surviving as a wholly-owned subsidiary of Compass, as more
fully described in the Offer to Purchase and in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
being mailed to the Company's shareholders concurrently herewith.
The Company had 12,783,834 shares of common stock, $.01 par value per share
("Common Stock"), outstanding as of December 31, 2000.
BOARD OF DIRECTORS OF THE COMPANY
GENERAL
Our Articles of Incorporation provide for three classes of directors with
staggered, three-year terms of office and provide that upon the expiration of
the term of office for a class of directors, the nominees for that class will be
elected for a term of three years to serve until the election and qualification
of their successors or until their earlier resignation, death or removal from
office. Our Articles of Incorporation and its Bylaws provide that the Board of
Directors shall consist of not less than three nor more than 12 directors and
authorize the exact number to be fixed from time to time by resolution of a
majority of the Board of Directors or by the affirmative vote of the holders of
at least 80% of all outstanding shares entitled to be voted in the election of
directors voting together as a single class. The Board of Directors has fixed
the exact number of members of the Board of Directors at eight.
The Merger Agreement provides that, promptly upon acceptance for payment by
the Purchaser of shares of Common Stock pursuant to the Offer, the Purchaser
will be entitled to designate such number of directors, rounded up to the next
whole number, as will give the Purchaser representation on the Board of
Directors equal to at least that number of directors equal to the product of (a)
the total number of directors on the Board of Directors multiplied by (b) the
percentage that the number of shares of Common Stock so accepted for payment
bears to the number of shares of Common Stock outstanding, and we will, at such
time, at the election of the Purchaser either increase the size of the Board of
Directors or use its best efforts to cause the
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appropriate number of directors who are members of the Board of Directors as of
the date of the Merger Agreement to resign and the Purchaser designees to be
appointed or elected to fill the vacancies thereby created in conformity with
the Georgia Business Corporation Code (the "GBCC"), our Articles of
Incorporation and the Bylaws and other applicable law. In addition, until the
effective time of the Merger (the "Effective Time"), there will be a sufficient
number of directors (as required by the New York Stock Exchange, Inc. ("NYSE"))
on the Board of Directors who are directors as of the date of the Merger
Agreement and who are neither designees nor officers, directors, full-time
employees or affiliates of Compass or the Purchaser nor full-time employees of
the Company (the "Independent Directors"); provided, however, that if the number
of Independent Directors is reduced below the number required by the NYSE for
any reason, the Board of Directors will, subject to the approval of the
remaining Independent Directors, if any, designate a person or persons to fill
the vacancy or vacancies who are directors on the date of the Merger Agreement
and not an officer, director, full-time employee or affiliate of Compass or the
Purchaser nor a full-time employee of the Company, and such persons will be
deemed to be Independent Directors for purposes of the Merger Agreement.
The Purchaser has informed us that in the event the Purchaser accepts for
payment a majority of the outstanding shares of Common Stock on a fully-diluted
basis, the Purchaser will request the Company to use its best efforts to cause
five of the existing members of the Board of Directors to resign and to cause
four nominees of the Purchaser to be appointed to the Board of Directors. We
currently intend to request John B. McKinnon, A. Robert Outlaw, Jr. and Claire
L. Arnold to serve as Independent Directors. In addition, the Purchaser has
informed us that it intends to ask Glenn A. Davenport to continue to serve on
the Board of Directors following the consummation of the Offer.
Information concerning the Purchaser's director designees is set forth in
Attachment I hereto. Such information was provided by Compass and we assume no
responsibility for the accuracy or completeness thereof.
The Merger Agreement provides that following the election or appointment of
the Purchaser's designees pursuant to the provisions described above and until
the Effective Time, any amendment of the Merger Agreement or the Articles of
Incorporation or Bylaws of the Company, any termination of the Merger Agreement
by us, any extension by us of the time for the performance of any of the
obligation or other acts of Compass or the Purchaser, any waiver of any of the
Company's rights thereunder, or any transaction between Compass (or any
affiliate or associate thereof) and the Company will require the concurrence of
a majority of the Independent Directors. The Independent Directors will have the
authority to retain such counsel and other advisors at the expense of the
Company as are reasonably appropriate to assist them in the exercise of their
duties in connection with Merger Agreement. In addition, the Independent
Directors will have the authority to institute any action on behalf of the
Company to enforce performance of the Merger Agreement.
CURRENT DIRECTORS
Class II -- Term Expiring 2003
Our current Class II directors, with terms expiring in 2003, are:
CLAIRE L. ARNOLD, 54, Director since 1996
- Chairman and Chief Executive officer of Leapfrog Services, Inc., a
privately-held technical outsourcing company, 1998-present
- President and Chief Executive Officer of Nicotiana Enterprises, Inc.,
1979-1995
- Chief Executive Officer of NCC L.P., 1992-1994
- Chairman, Chief Executive Officer and President of NCC L.P., 1979-1992
- Director of Morrison Restaurants Inc., 1994-1996
- Member of the Board of:
- Schweitzer-Mauduit International, Inc.
- Ruby Tuesday, Inc.
- International Multifoods, Inc.
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24
GLENN A. DAVENPORT, 47, Director since 1996
- Chairman of the Board, President and Chief Executive officer of the
Company, July 1999-present
- President, Chief Executive officer and Director of the Company, 1996-July
1999
- President of the Health Care Division of Morrison Restaurants Inc.'s
Morrison Group, 1993-1996
- Senior Vice President of Morrison Restaurants Inc.'s Hospitality Group,
1990-1993
- Member of the Board of foodbuy.com
Class I -- Term Expiring 2002
Our current Class I directors, with terms expiring in 2002, are:
E. EUGENE BISHOP, 70, Director since 1996
- Retired since 1995
- Chairman of the Board of Morrison Restaurants Inc., 1986-1995
- Chief Executive officer of Morrison Restaurants Inc., 1980-1992
- Director of Morrison Restaurants Inc., 1963-1996
A. ROBERT OUTLAW, JR., 46, Director since 1996
- Chairman of the Board and Chief Executive Officer of Marshall Biscuit
Company, 1985-present
- Founder of Marshall Biscuit Company, 1985
- Cafeteria management and finance for Morrison Restaurants Inc., 1978-1985
FRED L. BROWN, 60, Director since 1996
- Immediate past Chairman of the American Hospital Association
- Vice Chairman of St. Louis-based BJC Health System since January 1999
- Founding President and Chief Executive Officer of BJC Health System,
1993-December 1998
- Member of President Clinton's Council on Year 2000 (Y2K) Conversion since
January 1999
- Visiting professor, George Washington University, Washington, D.C.
- Member of the Board of:
- Citation Computers, Inc.
- Commerce Bancshares, Inc.
- American Hospital Association
- Curon Medical, Inc.
- Xcare.net
Class III -- Term Expiring 2001
Our current Class III directors, with terms expiring in 2001, are:
JOHN B. MCKINNON, 66, Director since 1996
- Investor and Business Advisor since 1995
- Chairman of the Board of the Company, 1996-July 1999
- Director of Morrison Restaurants Inc., 1989-1996
- Dean of Babcock Graduate School of Management at Wake Forest University,
1989-1995
- President of Sara Lee Food Service, 1988-1989
- President of Sara Lee Corporation, 1986-1988
- Member of the Board of:
- Premark International, Inc.
- Ruby Tuesday, Inc.
DR. BENJAMIN F. PAYTON, 68, Director since 1996
- President of Tuskegee University, 1981-present
- Member of the Board of:
- AmSouth Bancorporation
- AmSouth Bank, N.A.
- The Liberty Corporation
A-3
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- Praxair, Inc.
- Ruby Tuesday, Inc.
MICHAEL F. CORBETT, 49, Director since 1998
- President of Michael F. Corbett & Associates, LTD. since 1996
- Chairman and Executive Director of The Outsourcing Research Council since
1997
- Chairman of The Corbett Group since 1998
- Member of the Advisory Board of Human Capital Services, Inc. since 1998
- Member of the Editorial Board of InfoServices since 1998
- Member of the Editorial Board of The Outsource Report since 1997
- Co-founder and Director of The Outsourcing Institute, 1993-1996
- Assistant Director of The Graduate Center for Public Policy &
Administration, Marist College, 1992-1995
- Member of the Board of:
- Janus Associates, Inc.
- Providyn LLP
BENEFICIAL OWNERSHIP OF COMMON STOCK
This table shows how much of our Common Stock is owned by Directors, Named
Executives (as defined below) and owners of more than 5% of our outstanding
Common Stock as of December 31, 2000. An asterisk indicates beneficial ownership
of less than one percent of the outstanding shares.
BENEFICIAL OWNERSHIP TABLE
SHARES RIGHT TO
NAME OF BENEFICIAL OWNER OWNED(1) ACQUIRE(2) PERCENT OF CLASS
- ------------------------ --------- ---------- ----------------
GeoCapital, LLC(3)......................................... 1,386,528 0 10.8%
A. R. Outlaw, Jr.(4)....................................... 794,442 2,200 6.2%
E. E. Bishop(5)............................................ 239,607 11,425 1.9%
G. A. Davenport(6)......................................... 41,164 77,256 *
R. C. Roberson............................................. 23,054 0 *
J. D. Underhill............................................ 25,286 0 *
K. W. Engwall.............................................. 18,209 25,320 *
J. B. McKinnon............................................. 11,998 13,947 *
F. L. Brown................................................ 10,087 13,472 *
C. L. Arnold............................................... 7,435 12,211 *
B. F. Payton............................................... 6,268 9,002 *
G. L. Gaddy................................................ 10,908 27,500 *
M. F. Corbett.............................................. 1,441 9,462 *
Directors and executive officers as a group (15 people).... 1,226,731 210,844 9.6%
- ---------------
(1) These amounts include shares for which the named person has sole or shared
voting and investment power.
(2) These amounts reflect shares that could be purchased by the exercise of
stock options which are currently exercisable or which are exercisable
within 60 days of December 31, 2000.
(3) The address of GeoCapital, LLC is 45th Floor, 767 Fifth Avenue, New York,
New York 10153-4590. The information presented is based on Schedule 13G, as
amended, filed by GeoCapital, LLC reporting beneficial ownership as of
December 31, 2000.
(4) Mr. Outlaw's address is c/o Marshall Biscuit Company, Inc., 100 Jacinto Port
Blvd., Saraland, Alabama 36571. The information presented includes 7,590
shares owned by Mr. Outlaw's spouse.
(5) Includes 2,258 shares owned by Mr. Bishop's spouse.
(6) Includes 1,100 shares owned by Mr. Davenport's spouse.
A-4
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COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors and greater than 10% shareholders ("Reporting Persons") to
file certain reports with the Securities and Exchange Commission (the "SEC") and
the New York Stock Exchange ("Section 16 Reports") with respect to beneficial
ownership of our Common Stock. Directors, executive officers and greater than 10
percent shareholders are required by SEC regulations to furnish us with copies
of all Section 16(a) forms they file. Based solely on review of the Section 16
Reports furnished to the Company by its Reporting Persons and, where applicable,
any written representation by any of them that no other reports were required,
we believe that during fiscal year 2000, all of our directors, executive
officers and greater than ten percent beneficial owners complied with these
requirements.
DIRECTORS' FEES AND ATTENDANCE
The Board of Directors met eight times during fiscal year 2000. Each
director other than Mr. Corbett attended more than 75% of the meetings of the
board and of committees of which they were members. Mr. Corbett missed the
February 7, February 23 and April 12 special meetings of the Board of Directors
due to prior business commitments.
Each director who is not an employee of the Company receives $20,000
annually. In addition, effective June 1, 2000 each director may receive a stock
option grant of up to 3,000 options under the Directors' Plan based upon the
Company reaching established strategic objectives. Directors who are also
employees of the Company are not separately compensated for their services as
directors.
Our Stock Incentive and Deferred Compensation Plan for Directors (the
"Directors' Plan") permits non-employee directors to defer all or a portion (in
25 percent increments) of their retainer (other than any portion of the retainer
allocated to Stock Awards, as described below) and/or any additional meeting and
committee fees to a deferred compensation account. Deferred compensation
accounts are credited as of the last day of each fiscal quarter with an assumed
rate of interest equal to 90-day U.S. Treasury Bills, based on the weighted
average balance of that account during that fiscal quarter. A director who
defers compensation will not receive it until:
- the date of the director's 70th birthday; or
- the date the director ceases to be a member of the Board of Directors.
Under our Directors' Plan, non-employee directors who do not attain the
"Target Ownership Level," as defined below, are deemed to have elected to direct
that 60 percent of their retainer be allocated to the purchase of Common Stock
on their behalf. Non-employee directors who have attained the Target Ownership
Level may elect that up to 100 percent of their retainer be allocated to the
purchase of Common Stock on their behalf (collectively, the "Stock Awards"). A
director will be treated as having attained the Target Ownership Level if he or
she owns, on the first day of that fiscal quarter, at least a number of shares
of Common Stock with a fair market value equal to 10 multiplied by that
director's annual retainer.
Each director who has a discretionary or deemed election in effect for a
fiscal quarter to purchase Stock Awards will be issued the number of shares of
Common Stock equal to the amount of the retainer so allocated, multiplied by
1.15 and divided by the fair market value of a share of Common Stock as of the
issue date. Common Stock so purchased may not be transferred within three years
of the date of purchase, except in the event of death, disability, retirement on
or after age 70 or unless the committee administering the Directors' Plan waives
this restriction.
Our Directors' Plan provides that each non-employee director who receives a
Stock Award for a fiscal quarter will be awarded an option as of the first day
of that fiscal quarter to purchase shares of Common Stock equal to three times
the number of shares issued pursuant to the discretionary election or deemed
election, as the case may be.
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Under our Directors' Plan, each non-employee director receives a one-time
option award of 5,000 shares of Common Stock as of the date he or she is first
elected to the Board of Directors. Each non-employee director who is re-elected
to the Board of Directors receives an option award of 2,000 shares of Common
Stock as of the date he or she is re-elected.
Options issued under our Directors' Plan:
- Will become fully exercisable six months following the date of grant;
- Will be exercisable at the fair market value of our Common Stock as of
the date of the option grant; and
- Will generally expire upon the fifth anniversary of the date on which it
was granted.
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COMMITTEES OF THE BOARD
The Board of Directors is responsible for the overall affairs of the
Company. To assist the Board of Directors in carrying out this responsibility,
the Board has delegated certain authority to three committees.
NAME OF FUNCTIONS NUMBER OF
COMMITTEE OF THE MEETINGS IN FISCAL
AND MEMBERS COMMITTEE YEAR 2000
AUDIT COMMITTEE:
E. Eugene Bishop, Chairman - Maintains communications with the
Claire L. Arnold Company's independent auditors as
Fred L. Brown to the nature of the auditors' 3
Michael F. Corbett services, fees and other
John B. McKinnon significant matters.
A. Robert Outlaw, Jr. - Reviews the Company's internal
Dr. Benjamin F. Payton control procedures.
- Makes recommendations to the
Board with respect to the Company's
internal control procedures.
COMPENSATION AND STOCK OPTION
COMMITTEE:
Claire L. Arnold, Chairman - Reviews and recommends
E. Eugene Bishop compensation of officers.
Fred L. Brown - Reviews and recommends the 5
Michael F. Corbett granting of stock options.
John B. McKinnon
A. Robert Outlaw, Jr.
Dr. Benjamin F. Payton
NOMINATING COMMITTEE:
Fred L. Brown, Chairman - Reviews the structure of the
Claire L. Arnold Board to assure proper skills and
E. Eugene Bishop experience are represented on the 0
Michael F. Corbett Board.
John B. McKinnon - Proposes nominees for Board
A. Robert Outlaw, Jr. membership to the full Board
Dr. Benjamin F. Payton based upon recommendations of the
Chairman, and other Board
members, in consultation with the
Chief Executive officer.
- Reviews potential conflicts of
prospective Board members.
- Periodically reviews and
recommends to the full Board the
size of the Board.
- Recommends membership of the
committees to the Board.
A non-employee director serving on a Committee (other than the Chairman of
such Committees) receives an annual retainer of $2,500 for each committee
membership. Non-employee Committee members also receive $200 an hour for
services performed on special assignments. Each Committee Chairman receives an
annual retainer of $3,500.
All of the members of the Audit Committee are independent, and the Board of
Directors has adopted a written charter for the Company's Audit Committee, which
is attached hereto as Attachment II, and is incorporated by reference herein.
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The Nominating Committee does not solicit director nominations but will
consider recommendations from securityholders that are submitted to our
Secretary in writing, indicating the nominee's qualifications and other relevant
biographical information and providing confirmation of the nominee's consent to
serve as a director.
EXECUTIVE OFFICERS OF THE COMPANY
Executive officers of the Company are appointed by and serve at the
discretion of the Company's Board of Directors. Information regarding the
Company, executive officers as of February 1, 2001 is provided below.
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
G. A. Davenport............................ 47 President, Chief Executive Officer and Chairman
of the Board of Directors
K. W. Engwall.............................. 53 Chief Financial Officer and Assistant Secretary
J. E. Fountain............................. 50 Vice President, General Counsel and Secretary
J. D. Underhill............................ 55 President, Morrison Healthcare Food Services
E. D. Dolloff.............................. 55 President, Morrison Senior Dining
G. L. Gaddy................................ 47 Executive Vice President, Sales and Marketing
R. C. Roberson............................. 57 Division vice President, Morrison Healthcare
Food Services
G. T. Levins............................... 38 Division Vice President, Morrison Healthcare
Food Services
GLENN A. DAVENPORT has been President and Chief Executive Officer of the
Company since the Distribution in March 1996. He was President of the Health
Care Division of MRI's Morrison Group from November 1993 until the distribution
of the Company Common Stock to shareholders of Ruby Tuesday, Inc. in March 1996
(the "Distribution"). Prior thereto, he served as Senior Vice President,
Hospitality Group of MRI from February 1990 through November 1993 and in various
other capacities since joining MRI in November 1973.
K. WYATT ENGWALL has been Chief Financial Officer and Assistant Secretary
of the Company since the Distribution in March 1996. Prior thereto, he was Vice
President, Controller of MRI's Ruby Tuesday Group from January 1994 until March
1996. He served as Vice President of Financial Planning of MRI from January 1993
through January 1994, Vice President and Controller of MRI's Contract Dining
Division from October 1991 through January 1993 and as Controller of MRI's
former Morrison's Management Services (Contract Dining) Division from October
1986 through October 1991. Mr. Engwall joined MRI in 1983 as a Financial Systems
Analyst.
JOHN E. FOUNTAIN has been Vice President, General Counsel and Secretary of
the Company since the Distribution in March 1996. He was Vice President, Legal
of MRI's Morrison Group from August 1994 until March 1996. He served as Senior
Attorney of MRI from December 1991 through August 1994. Prior thereto, he served
as Staff Attorney of MRI from October 1978 through December 1991.
JERRY D. UNDERHILL has been President of the Morrison Healthcare Food
Service Division since its inception in June 1999. He was Senior Vice President,
Operations of the Company from the Distribution in March 1996 to June 1999. From
September 1995 until March 1996 he was Senior Vice President, Retail Development
of the Health Care Division of MRI's Morrison Group. Prior thereto, he was
Senior Vice President, Development of the Family Dining Division of MRI's
Morrison Group from March 1993 to September 1995. Mr. Underhill was President of
Mid-Continent Restaurants (currently known as Bravo Restaurants) from July 1988
to March 1993.
EUGENE D. DOLLOFF has been President of the Morrison senior Dining Division
since is its inception in March 1999. He was co-founder and President of
Culinary Service Network, Inc., a senior dining contract
A-8
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management company, from April 1982 to September 1998. Prior thereto he served
in various operational capacities with Stouffer's Management Food Service from
January 1976 to February 1982.
GARY L. GADDY has been Executive Vice President, Sales and Marketing of the
Company since June 2000. He was Senior Vice President, Sales and Marketing of
the Company from March 1998 to June 2000. Prior thereto, he was Vice President,
Health Systems for the Company from July 1997 to March 1998. Mr. Gaddy was Vice
President of Sales and Marketing for EmCare, Inc., an emergency medicine
contract management company from January 1995 to July 1997. He was Vice
President/General Manager of Business Development for HMSS Management, Inc., a
home infusion company, from August 1990 to December 1994. Mr. Gaddy has over 20
years of sales and marketing experience in the healthcare industry.
RICHARD C. ROBERSON has been a Division Vice President of the Company since
October 1997. He was a Regional Vice President of the Company since the
Distribution in March 1996. Prior thereto, he served MRI's Health Care Division
in various capacities, including as a Regional Vice President, District Manager
and Food Service Director.
GEORGE T. LEVINS has been a Division Vice President of the Company since
June 1999. He was a Regional Vice President of the Company from January 1998 to
June 1999. Prior thereto, he was a Regional Director of Operations from January
1997 to June 1999 and a director of Food and Nutrition Services from June 1996
to January 1997. He served in various operational capacities with Baxter
Healthcare from June 1989 to June 1996, including Account Manager, Region
Manager and Sales Manager. Mr. Levins served in the Marine Corps from June 1985
to May 1989.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned in fiscal year 2000,
1999 and 1998 by our Chairman of the Board, President and Chief Executive
Officer and the four other most highly compensated executive officers in fiscal
year 2000 ("Named Executives"):
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------------------- ---------------------------
OTHER ANNUAL RESTRICTED AWARDS ALL OTHER
FISCAL SALARY BONUS COMPENSATION STOCK OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($) AWARDS ($)(2) SARS(3) ($)(4)
- --------------------------- --------- ------- ------- --------------- --------------- --------- --------------
G.A. Davenport................. 2000 393,000 225,000 8,325 240,560 58,888 7,193
Chairman and Chief 1999 339,846 172,000 11,127 303,135 97,239 4,049
Executive Officer 1998 287,908 145,000 8,145 173,391 69,706 6,121
G.L. Gaddy..................... 2000 185,985 56,452 7,654 109,631 39,213 0
Executive Vice President, 1999 173,077 70,000 12,021 125,990 39,735 0
Sales and Marketing 1998 135,577 85,673 76,440(5) 75,675 29,532 0
K.W. Engwall................... 2000 199,238 80,000 7,509 91,526 20,938 9,001
Chief Financial Officer 1999 188,461 76,400 0 137,523 46,436 4,731
and Assistant Secretary 1998 158,000 63,200 20,000(5) 75,578 30,382 3,653
J.D. Underhill................. 2000 196,923 80,000 7,200 91,526 48,433 4,340
President, Morrison 1999 178,077 72,000 6,518 129,602 44,009 3,184
Healthcare Food Services 1998 154,182 62,000 0 91,790 32,897 2,000
R.C. Roberson.................. 2000 156,175 46,800 6,538 50,421 23,217 8,069
Division Vice President, 1999 141,538 37,900 3,432 80,999 26,668 6,132
Morrison Healthcare Food 1998 119,857 35,500 4,384 47,933 20,264 5,473
Services
- ---------------
(1) Does not include "bonus shares" and bonuses paid in restricted stock (see
footnote (2) below).
(2) Under our Management Stock Option Program, any bonus payable to the Named
Executives under our annual incentive bonus program in excess of the target
level of performance is paid in restricted stock valued at the fair market
value of our Common Stock on the first day of the subsequent fiscal year.
For each share paid in lieu of bonus, the executive receives an additional
.15 of a share of restricted stock.
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Additionally, the executive receives an option to purchase three times the
aggregate number of shares of restricted stock received. Stock options
granted in connection with bonus paid in restricted stock are included in
the "Awards Options/SARs" column. The executive will forfeit the restricted
stock and the related options if his employment is terminated within 18
months following the date of the award unless the termination was due to
death, retirement or disability. For fiscal year 2000, the Company allowed
Named Executives to subject previously owned, freely tradable shares to
restrictions and forfeitability provisions in lieu of receiving newly issued
restricted shares in payment of bonus in excess of target level of
performance. However, for purposes of the table, these restricted shares
have been treated the same as newly issued restricted shares. Holders of
restricted stock are paid the same dividends as holders of non-restricted
stock. The amounts in this column include the value of the restricted stock,
including the bonus shares, received as described above. Under our
Management Stock Option Program, eligible employees may purchase shares of
Common Stock up to established annual limits if pre-established corporate,
region, or account goals, as the case may be, are achieved. For each share
purchased under the Management Stock Option Program, the participant
receives .15 of a "bonus share" and an option to purchase three times the
number of shares purchased and the related bonus shares. Stock options
granted in connection with purchases of stock are included in the Awards
Options/SARs column. The shares purchased and the related bonus shares are
subject to a two-year or three-year restriction on resale. The amounts in
this column include the value of the bonus shares, if any, received in
connection with the purchase of shares of Common Stock under the Management
Stock Option Program.
(3) Includes stock options granted under the Management Stock Option Program in
connection with shares purchased or restricted stock issued to the Named
Executives as described in footnote (2) above.
(4) "All other compensation" consists of:
- Company contributions to the Deferred Compensation Plan;
- Executive group life and accidental death and dismemberment insurance
premiums paid for by the Company;
- Split-dollar life insurance premiums paid for by the Company; and
- Company contributions to our 401(k) plan.
The following table shows the amount of each category of "all other
compensation" received by each of the named individuals in fiscal year 2000:
ALL OTHER COMPENSATION
DEFERRED COMPENSATION EXECUTIVE GROUP LIFE SPLIT-DOLLAR LIFE 401(K) MATCHING
NAME PLAN INSURANCE PREMIUMS INSURANCE PREMIUMS CONTRIBUTION
- ---- --------------------- -------------------- ------------------ ---------------
G.A. Davenport............. $3,469 $158 $1,378 $2,188
G.L. Gaddy................. 0 0 0 0
K.W. Engwall............... 6,756 196 997 1,052
J.D. Underhill............. 462 366 435 3,077
R.C. Roberson.............. 6,303 280 1,112 374
- ---------------
(5) Represents relocation-related expenses.
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OPTION GRANTS IN FISCAL YEAR 2000
% OF TOTAL
OPTIONS/
SARS
NUMBER OF GRANTED
OPTIONS/ TO EXERCISE
SARS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
(#)(1) YEAR(%) ($/SH) DATE
--------- ---------- -------- ----------
G.A. Davenport............ 36,221 5.4351 18.7500 01/06/05
21,095 3.1654 27.0000 06/01/10
1,572 0.2359 27.0000 06/01/05
G.L. Gaddy................ 17,200 2.5809 18.7500 01/06/05
7,013 1.0523 27.0000 06/01/10
1,800 0.2701 27.0000 06/01/05
K.W. Engwall.............. 12,880 1.9327 18.7500 01/06/05
7,500 1.1254 27.0000 06/01/10
5,109 0.7666 27.0000 06/01/05
558 0.0837 27.0000 06/01/05
J.D. Underhill............ 27,500 4.1265 22.7273 06/30/09
12,880 1.9327 18.7500 01/06/05
7,500 1.1254 27.0000 06/01/10
5,109 0.7666 27.0000 06/01/05
558 0.0837 27.0000 06/01/05
R.C. Roberson............. 6,815 1.0226 18.7500 01/06/05
4,922 0.7386 27.0000 06/01/10
2,985 0.4479 27.0000 06/01/05
11,000 1.6506 17.8409 06/04/09
480 0.0720 27.0000 06/01/05
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATE OF
STOCK PRICE APPRECIATION FOR OPTION TERM(2)
---------------------------------------------------------------
5%($) 10%($)
------------------------------ ------------------------------
MARKET PRICE MARKET PRICE
REQUIRED TO REQUIRED TO
DOLLAR GAINS REALIZE DOLLAR DOLLAR GAINS REALIZE DOLLAR
($) GAINS ($/SHARE) ($) GAINS($/SHARE)
------------ --------------- ------------ ---------------
G.A. Davenport............ 187,635 23.9303 414,624 30.1971
358,196 43.9802 907,740 70.0310
11,726 34.4596 25,912 43.4838
G.L. Gaddy................ 89,101 23.9303 196,889 30.1971
119,082 43.9802 301,777 70.0310
13,427 34.4596 29,671 43.4838
K.W. Engwall.............. 66,722 23.9303 147,438 30.1971
127,351 43.9802 322,733 70.0310
38,111 34.4596 84,216 43.4838
4,162 34.4596 9,198 43.4838
J.D. Underhill............ 393,060 37.0204 996,090 58.9488
66,722 23.9303 147,438 30,1971
127,351 43.9802 322,733 70.0310
38,111 34.4596 84,216 43.4838
4,162 34.4596 9,198 43.4838
R.C. Roberson............. 35,304 23.9303 78,012 30.1971
83,576 43.9802 211,799 70.0310
22,267 34.4596 48,204 43.4838
123,421 29.0609 312,772 46.2747
3,581 34.4596 7,912 43.4838
- ---------------
(1) The options were granted under the Stock Incentive Plan. They expire in five
or ten years and become exercisable in two or three years after the date of
the grant. In the event of certain changes of control of the Company, the
options will vest fully unless the Compensation and Stock Option Committee
elects to cash-out the options.
(2) The potential realizable values are:
- Calculated using the following formula: [Market Price at Grant Date X (1
+ Stock Price Appreciation Rate)-Exercise Price X Number of Underlying
Shares];
- Based on 5% or 10% annualized compound rates of increase over the option
term.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR END (#) FISCAL YEAR END ($)(2)
ACQUIRED ON VALUE REALIZED ------------------------- -------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ -------------- ------------------------- -------------------------
G.A. Davenport.............. 65,305 389,021 339,774/219,861 4,370,205/2,237,969
G.L. Gaddy.................. 12,522 0 0/148,395 0/1,551,903
K.W. Engwall................ 68,618 703,487 35,585/97,380 522,283/992,827
J.D. Underhill.............. 11,277 0 92,558/124,977 1,202,100/1,122,233
R.C. Roberson............... 31,290 352,279 0/71,641 0/725,063
- ---------------
(1) Value realized is calculated as follows: [(Per Share Closing Price on date
of exercise)-(Per Share Exercise Price)] X Number of Shares for which the
option was exercised.
(2) Value of Unexercised, In-the-Money Options at Fiscal Year End is calculated
as follows: [(Per Share Closing Sale Price on May 31, 2000)-(Per Share
Exercise Price)] X Number of Shares Subject to
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Unexercised Options. The per share closing sale price on May 31, 2000, the
last trading day of fiscal year 2000, was $27.1875.
BENEFIT PLANS
Our executive officers are entitled to participate in all benefit plans
which are generally available to our employees. In addition, our executive
officers are entitled to participate in the following benefit plans, subject to
the individual terms of each plan, as described below:
RETIREMENT PLAN
Following the distribution of our stock and the stock of Morrison Fresh
Cooking, Inc. (which was subsequently acquired by Piccadilly Cafeterias, Inc.
through a merger in May 1998) by our predecessor, Morrison Restaurants Inc.
("MRII"), to its shareowners on March 9, 1996 (the "Distribution"), we became a
co-sponsor of the Morrison Restaurants Inc. Retirement Plan (the "Retirement
Plan"). Under the Retirement Plan, participants are entitled to receive benefits
based upon salary and length of service. The Retirement Plan was frozen as of
December 31, 1987, so that no additional benefits have accrued, and no new
participants have been permitted since that date. The Retirement Plan is a
tax-qualified, funded, defined benefit plan, which covers employees who had
attained age 21 and had completed at least one year of full-time service with
MRI by July 1, 1987. A participant's accrued annual benefit is determined
generally by adding the following, as applicable:
- percent of pay up to that year's Social Security Wage Base, plus 1 1/4
percent of pay over the Social Security Wage Base for each credited year
of service (as defined in the Retirement Plan) commencing on or after
January 1, 1986; and
- percent of average pay for the highest consecutive five years from 1976
through 1985 up to $14,400, plus 1 1/4 percent of such pay in excess of
$14,400, both multiplied by the number of credited years of service with
MRI up to January 1, 1986.
Normal retirement for purposes of the Retirement Plan is age 65, although a
participant with at least five years of service may retire with a reduced
benefit as early as age 55. Generally, benefits are paid in the form of a single
life annuity if the participant is unmarried or a joint and survivor annuity if
the participant is married, unless an alternative form of benefit payment is
selected by the participant from among a range of options made available under
the Retirement Plan. A participant's accrued benefit becomes vested upon
completion of five years of service after age 18.
Benefits payable under the Retirement Plan reduce the amount of benefits
payable to a participant in the Executive Supplemental Pension Plan or the
Management Retirement Plan, described below.
EXECUTIVE SUPPLEMENTAL PENSION PLAN
Eligible Named Executives participate in our Executive Supplemental Pension
Plan ("ESPP") adopted in March, 1996. The ESPP is a nonqualified, unfunded,
defined benefit retirement plan for selected employees. Our employees who
previously participated in the MRI Executive Supplemental Pension Plan prior to
the Distribution are eligible to participate and receive full credit for benefit
accrual purposes for their service with MRI prior to the Distribution, provided
such employees have released Ruby Tuesday, Inc., the successor to MRI, from
liability for benefits accrued prior to the Distribution under the MRI Executive
Supplemental Pension Plan. (However, both Ruby Tuesday, Inc. and Morrison Fresh
Cooking, Inc. agreed to be secondarily liable for certain benefits accrued under
the ESPP to the extent of the amounts these employees had earned under the MRI
Executive Supplemental Pension Plan as of the Distribution.) As a condition of
entry to the ESPP, future participants must complete five years of consecutive
service in one or more qualifying job positions and must have achieved a minimum
salary threshold, as described in the ESPP.
A participant's accrued benefit in the ESPP equals 2.5 percent of the
participant's highest five-year average base salary multiplied by the
participant's years and fractional years of continuous service (as defined in
the ESPP) not in excess of 20 years; plus 1 percent of the participant's highest
five-year average base salary
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multiplied by the participant's years and fractional years of continuous service
in excess of 20 years, but not in excess of 30 years of such service; less the
retirement benefit payable at the age of 65 in the form of a single life annuity
payable to the participant under the Retirement Plan; and less the participant's
primary Social Security benefits. Base salary includes commissions but excludes
bonuses and other forms of remuneration other than base salary. Benefits are
paid to a participant in the same manner as benefits may be paid under the
Retirement Plan and become vested if the participant has completed ten years of
service. If the participant is also entitled to benefits under the Retirement
Plan, benefits payable under the ESPP must be in the same form as those payable
under the Retirement Plan. Normal retirement for purposes of the ESPP is age 65,
although a participant with at least five years of service may retire with a
reduced benefit as early as age 55. Early retirement and change of control
provisions allow designated participants to receive unreduced benefits as early
as age 55 depending upon criteria specified in the ESPP. Change of control
provisions also allow eligible participants to receive credit for up to three
years of vesting service depending upon criteria specified in the ESPP. A
participant's receipt of unreduced early retirement benefits is conditioned upon
not competing with the Company for a period of two years following retirement.
Estimated annual benefits payable upon retirement to persons in specified
remuneration and years of continuous service classifications are shown in the
following table. All amounts shown are for a single life annuity and assume that
active participation in the ESPP continues until age 65. In accordance with the
ESPP, the amounts shown are subject to reduction for Social Security benefits
and benefits received under the Retirement Plan.
EXECUTIVE SUPPLEMENTAL PENSION PLAN ESTIMATED ANNUAL BENEFITS
FOR REPRESENTATIVE YEARS OF SERVICE TO AGE 65(1)
ANNUAL AVERAGE BASE SALARY 10 15 20 25 30 OR MORE
- -------------------------- -------- -------- -------- -------- ----------
$125,000.................................... $ 31,250 $ 46,875 $ 62,500 $ 68,750 $ 75,000
150,000.................................... 37,500 56,250 75,000 82,500 90,000
175,000.................................... 43,750 65,625 87,500 96,250 105,000
200,000.................................... 50,000 75,000 100,000 110,000 120,000
225,000.................................... 56,250 84,375 112,500 123,750 135,000
250,000.................................... 62,500 93,750 125,000 137,500 150,000
275,000.................................... 68,750 103,125 137,500 151,250 165,000
300,000.................................... 75,000 112,500 150,000 165,000 180,000
325,000.................................... 81,250 121,875 162,500 178,750 195,000
350,000.................................... 87,500 131,250 175,000 192,500 210,000
375,000.................................... 93,750 140,625 187,500 206,250 225,000
400,000.................................... 100,000 150,000 200,000 220,000 240,000
- ---------------
(1) Accrued benefit in the ESPP equals:
- 2.5 percent of the participant's highest five-year average base salary
multiplied by the participant's years and fractional years of continuous
service not in excess of 20 years; plus
- 1 percent of the participant's highest five-year average base salary
multiplied by the participant's years and fractional years of continuous
service in excess of 20 years, but not in excess of 30 years; minus
- Single life annuity payments payable to the participant at age 65 under
the Retirement Plan; minus
- The participant's primary Social Security benefits.
Years of continuing service, to the nearest year, and current remuneration
covered by the ESPP (base salary) for the eligible Named Executives are:
- Mr. Davenport, 26 years, $393,000;
- Mr. Engwall, 17 years, $199,238;
A-13
35
- Mr. Underhill, 7 years, $196,923; and
- Mr. Roberson, 38 years, $156,175.
MANAGEMENT RETIREMENT PLAN
Effective as of March 7, 1996, we adopted our Management Retirement Plan
("MRP") to provide for a select group of management or highly compensated
employees the security of receiving a defined level of retirement benefits. The
MRP is a nonqualified, unfunded, defined benefit retirement plan for employees
with 15 or more years of credited service (as defined in the MRP) and whose
average annual compensation over a consecutive three calendar-year period equals
or exceeds $40,000, which amount may be adjusted by us from time to time. Our
employees who participated in the MRI Management Retirement Plan prior to the
Distribution are eligible to participate and receive full credit for benefit
accrual purposes for their service with MRI prior to the Distribution, provided
such employees have released Ruby Tuesday, Inc., successor to MRI, from
liability for benefits accrued prior to the Distribution under the MRI
Management Retirement Plan. (However, Ruby Tuesday, Inc. and Morrison Fresh
Cooking, Inc. both agreed to be secondarily liable for certain benefits accrued
under the MRP to the extent of the amounts these employees had earned under the
MRI Management Retirement Plan as of the Distribution.)
A participant's single-life annuity accrued benefit in the MRP equals 1.5
percent of the participant's average compensation determined over the five-year
period immediately preceding termination of employment multiplied by the
participant's years of credited service not in excess of 20 years; plus 2
percent of the participant's average compensation determined over the five-year
period immediately preceding termination of employment multiplied by the
participant's years of credited service in excess of 20 years, but not in excess
of 30 years; minus the sum of:
- The participant's Retirement Plan benefits; plus
- The participant's Social Security benefits; plus.
- The participant's ESPP Benefit (as defined in the MRP).
For purposes of determining a participant's accrued benefit, a year's
compensation includes commissions and bonuses, but generally no form of
remuneration is counted in excess of $100,000, which amount may be adjusted by
us from time to time.
Normal retirement for purposes of the MRP is age 65, although a participant
may retire with a benefit as early as age 55. Change of control provisions also
allow eligible employees to receive service credit for up to three years for
purposes of determining eligibility for participation in the MRP. Generally,
benefits are paid in the form of a single life annuity if the participant is
unmarried or a joint and survivor annuity if the participant is married. If the
participant is also entitled to benefits under the Retirement Plan, benefits
payable under the MRP must be in the same form as those payable under the
Retirement Plan. The MRP allows payment of a participant's accrued benefit,
commencing as early as age 55, even if the participant terminated employment
prior to attainment of age 55.
Estimated annual benefits payable upon retirement to persons in specified
remuneration and years of credited service classifications are shown in the
following table. All amounts shown are for a single life annuity and assume that
active participation continues in the MRP until age 65. In accordance with the
MRP, the amounts shown are subject to reduction for Social Security benefits,
benefits received under the Retirement Plan and benefits payable under the ESPP.
A participant is ineligible for benefits under the MRP while receiving any
long-term disability benefits.
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36
MANAGEMENT RETIREMENT PLAN
ESTIMATED ANNUAL BENEFITS FOR REPRESENTATIVE YEARS OF SERVICE
TO AGE 65(1)
FINAL AVERAGE SALARY 15 20 25 30 OR MORE
- -------------------- ------- ------- ------- ----------
$ 40,000........................................ $ 9,000 $12,000 $16,000 $20,000
60,000........................................ 13,500 18,000 24,000 30,000
80,000........................................ 18,000 24,000 32,000 40,000
100,000........................................ 22,500 30,000 40,000 50,000
- ---------------
(1) Single life annuity benefits equal:
- 1.5 percent of the participant's average compensation determined over the
five-year period immediately preceding termination of employment
multiplied by the participant's years of credited service not in excess
of 20 years; plus
- 2 percent of the participant's average compensation determined over the
five-year period immediately preceding termination of employment
multiplied by the participant's years of credited service in excess of 20
years, but not in excess of 30 years; minus
- The participant's Retirement Plan benefits; minus
- The participant's Social Security benefits; minus
- The participant's ESPP Benefits.
Years of credited service and salary covered by the MRP for the eligible
Named Executives are:
- Mr. Davenport, 26 years, $100,000;
- Mr. Engwall, 17 years, $100,000; and
- Mr. Roberson, 38 years, $100,000.
CONTRACTS WITH EXECUTIVES
We have entered into a Change of Control Agreement (the "Change of Control
Agreement") with each of the Named Executives. The Change of Control Agreement
is designed to diminish the distraction of executives by virtue of the personal
uncertainties and risks created by a threatened or pending Change of Control (as
defined in the Change of Control Agreement and set forth below) and to encourage
their full attention and dedication to us currently and in the event of any
pending or threatened Change of Control.
Under the Change of Control Agreement, a "Change of Control" is defined as
either:
- Certain changes in the composition of more than 20 percent of the Board
of Directors; or
- With certain exceptions, any "Business Combination" (as defined in the
Change of Control Agreement) that has not been approved by the holders of
80 percent or more of our outstanding voting stock.
Events that do not constitute a Change of Control include:
- Any Business Combination approved by at least 80 percent of the
Continuing Directors (as defined in the Change of Control Agreement);
- Any Business Combination transaction that satisfies certain price and
procedural requirements specified in our Articles of Incorporation; and
- Any acquisition by us, any of our subsidiaries, or any employee benefit
plan of ours or any of our subsidiaries.
Prior to the first date on which a Change of Control occurs (the "Effective
Date"), each covered executive remains an at-will employee, except as may be
provided in any other agreement, and any
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37
termination of his employment will terminate his rights under the Change of
Control Agreement. If and when the Effective Date occurs, we have agreed to
continue the employment of the executive, and the executive has agreed to remain
in the employ of the Company, for a three-year period (the "Employment Period")
commencing on the Effective Date. During the Employment Period, the executive:
- Shall receive an annual base salary no less than that received prior to
the Effective Date and an annual bonus no less than the average of the
last three annual bonuses received prior to the Effective Date; and
- Generally shall be entitled to continuation of retirement, savings and
welfare benefit plan participation and practices, expense reimbursements
and other fringe benefits on a basis at least comparable to that
obtaining prior to the Effective Date.
If during the Employment Period we terminate the executive's employment
other than for cause, death or disability, or if the executive terminates his
employment for "good reason" (as defined in the Change of Control Agreement), or
if the executive terminates his employment for any reason during the 30-day
period immediately following the first anniversary of the Effective Date, the
executive becomes entitled to receive:
- Any unpaid portion of his accrued annual base salary plus a pro rata
portion of his highest annual bonus paid or payable for the three fiscal
years immediately preceding his date of termination;
- An amount equal to either three, two or one times the sum of his annual
base salary and his highest annual bonus, depending upon the particular
multiplier stipulated in his Change of Control Agreement;
- Any other accrued obligations;
- Accelerated vesting of any outstanding stock options granted to him prior
to his date of termination or a cash amount equal to the difference
between the option price and the then value of Company stock for which
any such option was granted; and
- Certain employee benefits consisting of retirement, savings and various
health and welfare insurance benefits.
If this package of compensation and benefits constitutes "excess parachute
payments" as defined under the Internal Revenue Code, the Company will pay an
additional amount sufficient to reimburse the executive for all taxes payable by
the executive with respect to the parachute payments. We estimate that the
obligations to the Named Executives as of August 22, 2000 if a Change of Control
had occurred and the employment termination provisions of the Change of Control
Agreement were to take effect immediately (excluding obligations relating to
stock options and employee benefits) would be as shown in the following table.
Other executives may be made subject to a Change of Control Agreement by the
Board of Directors.
COMPENSATION IN THE EVENT OF A CHANGE OF CONTROL(1)
G.A. Davenport.............................................. $1,958,000
G.L. Gaddy.................................................. 809,000
K.W. Engwall................................................ 876,000
J.D. Underhill.............................................. 867,000
R.C. Roberson............................................... 623,000
- ---------------
(1) Assumes a change of control had occurred and the termination provisions of
the Change of Control Agreement were to take effect immediately.
COMPENSATION COMMITTEE REPORT
Filings made by companies with the Securities and Exchange Commission
sometimes "incorporate information by reference." This means a company is
referring you to information that has been previously filed with the SEC and
that this information should be considered as part of the filing you are
reading. The
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38
Compensation Committee Report and Performance Graph in this Information
Statement are not incorporated by reference into any other filings with the
Securities and Exchange Commission.
The Compensation Committee of the Board of Directors, which is composed
solely of non-employee directors, has furnished the following report on
executive compensation:
WHAT ARE THE COMPONENTS OF EXECUTIVE COMPENSATION?
Our compensation program for executives consists of three key elements:
- Annual base salary;
- Annual incentive opportunities; and
- Equity devices.
WHAT IS THE PHILOSOPHY OF EXECUTIVE COMPENSATION?
Our executive compensation policies and programs emphasize
performance-based elements of executive compensation. Our executive compensation
programs closely align performance measures with current business strategy and
are designed to motivate executive behavior. In general, we control base
salaries and compensate outstanding performance through more highly leveraged
annual and longer-term incentive programs. As a result, the following principles
apply to executive compensation:
- Base salaries are competitive with our peer group of public companies in
the contract food services industry;
- A very significant portion of executive compensation is tied to our
success in meeting predetermined annual and long-term performance goals,
including our profitability and appreciation in our stock price; and
- Executives are required to own specified amounts of our stock, resulting
in direct linkage between executive and shareowner interests.
The overall objectives of this strategy are to attract and retain the best
possible executive talent and to motivate our executives to achieve the goals
inherent in our business strategy.
WHAT IS THE COMPANY'S APPROACH TO BASE COMPENSATION?
Our general approach for base compensation is to establish salary ranges
with midpoints which are at the 50th percentile of the competitive market in the
contract food services industry. Each salary range provides a lower and upper
limit on the value of jobs assigned to that range. However, for its executive
officers, including the Chairman of the Board, President and Chief Executive
officer and the other executives named in the Summary Compensation Table, we
have capped base salaries at the midpoint of the salary range. This reflects the
previously mentioned objective of controlling base salary costs and emphasizing
incentive compensation. Future adjustments to base salaries and salary ranges
will reflect average movement in the competitive market.
WHAT IS THE COMPANY'S APPROACH TO INCENTIVE COMPENSATION?
Our annual incentive plan directly links annual incentive payments to the
accomplishment of predetermined and board approved financial and operating
goals. Corporate and individual performance objectives are established at the
beginning of each fiscal year.
Each executive's potential incentive is tied to growth in net income as
well as certain qualitative measures. Depending upon an executive's
organizational level and responsibilities, as well as competitive market
practices, annual incentive compensation targets range from 15 percent to 50
percent of base salary if 100 percent of predetermined corporate goals are
achieved and maximums range from 75 percent to 125 percent of base salary. For
executives at the Division Vice President level and above, annual incentive
compensation in excess of the target level of performance is paid in restricted
stock valued at the fair market
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39
value of our Common Stock on the first day of the subsequent fiscal year. For
each share paid as annual incentive compensation, the executive receives an
additional .15 of a restricted share. The shares of restricted stock are
forfeitable for a period of 18 months upon termination of employment for any
reason other than death, retirement or disability. In addition, the executives
receive options to purchase three times the aggregate number of shares of
restricted stock received in lieu of annual incentive awards and related bonus
shares at an exercise price equal to the fair market value of our Common Stock
on the effective date of the grant.
Performance with respect to the measures named in the annual incentive plan
for fiscal year 2000 resulted in average annual incentive compensation
(including the value of restricted stock in lieu of bonus) of 76 percent of base
salaries for the Named Executives. Such awards represented approximately 69
percent of the total incentive awards that could have been earned by the Named
Executives. Occasionally we may establish a special incentive award for an
individual officer or other employee aimed at achieving a specified performance
goal.
DOES THE COMPANY ENCOURAGE STOCK OWNERSHIP BY ITS EMPLOYEES?
Believing that equity ownership plays a key role in aligning interests of
our personnel with our shareowners, we encourage all employees to make a
personal investment in our stock. In addition, we require management who are at
the vice president level and above to obtain stock ownership levels of one
times, two times, or three times their salary, depending on their executive
level. Upon attaining this level of management, each vice president must obtain
60% of their stock ownership level within three years and must obtain 100% of
their stock ownership level within five years. Stock ownership may be
accomplished through the exercise of stock options, other stock incentives, open
market purchases, and, at a specified date, stock held in the Salary Deferral
Plan and stock equivalent units credited under the Deferred Compensation Plan.
members of the management group must achieve target ownership levels to be
eligible to receive future awards under stock-based plans. In addition, as
discussed above, any incentive award under the annual incentive plan in excess
of the target is paid in restricted stock.
WHAT IS THE COMPANY'S APPROACH TO LONG-TERM INCENTIVE COMPENSATION?
Awards under our stock-based compensation plans directly link potential
participant rewards to increases in shareowner value. We maintain stock
incentive plans for executive officers and other employees. These plans provide
for grants of a variety of stock incentives, including stock options, restricted
stock, stock appreciation rights, stock purchase rights and performance shares
or units. The programs described below have been established under one or more
of these plans.
EXECUTIVE STOCK OPTION PROGRAM
We have an Executive Stock Option Program which provides for option grants
to key employees. The options are issued at fair market value, have a term of
three, five or ten years and generally vest one, two or three years after the
effective date of the grant. During fiscal year 2000, option grants ranging from
275 to 27,500 shares, for a total of 169,730 shares, were made under this
program.
MANAGEMENT STOCK OPTION PROGRAM
We also have a Management Stock Option Program for key employees. Based on
organization level, eligible employees may purchase shares of our stock up to
established annual limits. For each share purchased, 1.15 shares will be issued
and the participant will receive an option to purchase three times the number of
shares of our stock obtained at a per share exercise price equal to the fair
market value of a share on the effective date of the grant. There generally is a
two-year restriction on the sale of shares acquired through this program other
than through the exercise of stock options. We granted options to purchase an
aggregate of 80,877 shares to key employees under this program during fiscal
year 2000.
In addition, as discussed earlier in this report, for executives at the
Division Vice President level and above, any annual incentive in excess of the
target level of performance is paid in restricted stock and the
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executives receive options to purchase three times the number of shares of
restricted stock received in lieu of annual incentive awards. For fiscal year
2000, the Company allowed Named Executives to subject previously owned, freely
tradable shares to restrictions and forfeitability provisions in lieu of
receiving newly issued restricted shares in payment of bonus in excess of target
level of performance. We granted options to purchase 95,675 shares to executives
under this part of the Management Stock Option Program during fiscal year 2000.
We may occasionally grant restricted stock or other stock rights to ensure
retention of key executives or as a part of the compensation provided to a new
executive hired from outside the Company.
HOW IS THE CHIEF EXECUTIVE OFFICER COMPENSATED?
The base salary for Mr. Davenport, our Chief Executive Officer, for fiscal
year 2000 was determined by the Compensation Committee in accordance with
compensation practices and policies in effect. Mr. Davenport's annual base
salary was determined in the same manner described previously for other
executives.
Mr. Davenport is eligible to participate in our annual incentive plan under
which he may earn a bonus determined as a percentage of his salary if
predetermined levels of net income growth, new account sales and account
retention are achieved by us. For fiscal year 2000, the Chief Executive
Officer's bonus opportunity was 25 percent, 50 percent, 100 percent and 125
percent of his salary if we achieved or exceeded "threshold," "target,"
"maximum" and "maximum plus" growth levels, respectively, with a proportional
increase in the bonus between such performance levels.
As is the case with all other executives at the Division Vice President
level and above, any annual bonus earned by Mr. Davenport in excess of the
target level of performance is paid in restricted stock and Mr. Davenport
receives an option to purchase three times the number of shares of restricted
stock received.
Mr. Davenport is eligible to participate in the Executive Stock Option
Program described above. The Compensation Committee approved a grant of options
to purchase 58,888 shares of Common Stock to Mr. Davenport during fiscal year
2000.
WHAT ABOUT DEDUCTIBILITY LIMITATIONS ON EXECUTIVE COMPENSATION?
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the amount of individual compensation for certain executives
that may be deducted by the employer for federal tax purposes in any one fiscal
year to $1 million unless such compensation is "performance-based." The
determination of whether compensation is performance-based depends upon a number
of factors, including shareowner approval of the plan under which the
compensation is paid, the exercise price at which options or similar awards are
granted, the disclosure to and approval by the shareowners of applicable
performance standards, the composition of the Compensation Committee, and
certification by the Compensation Committee that performance standards were
satisfied. While it is possible for us to compensate or make awards under
incentive plans and otherwise that do not qualify as performance-based
compensation deductible under Section 162(m), the Compensation Committee, in
structuring compensation programs for its top executive officers, intends to
give strong consideration to the deductibility of awards.
WHO PREPARED THIS REPORT?
This report has been furnished by the members of the Compensation
Committee:
Claire L. Arnold, Chairman
E. Eugene Bishop
Fred L. Brown
Michael F. Corbett
John B. McKinnon
A. Robert Outlaw, Jr.
Dr. Benjamin F. Payton
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STOCK PERFORMANCE GRAPH
This graph and table compare the cumulative total return of our Common
Stock with the cumulative total return of the NYSE Stock Market Index, the NYSE
Eating and Drinking Places Index and the Russell 2000 Index. The graph assumes
$100 invested at the per share closing price of our Common Stock, adjusted for
the May 2000 stock dividend, and of each of the indicated indices on March 11,
1996, and reinvestment of dividends.
COMPARATIVE TOTAL RETURNS*
MORRISON MANAGEMENT SPECIALISTS, INC.
(PERFORMANCE RESULTS THROUGH 05/31/2000)
MHI NYSE PEER GROUP R2000
--- ---- ---------- -----
3/11/96 100.000 100.000 100.000 100.000
1996 79.753 104.873 97.650 112.640
1997 95.862 131.448 103.272 120.487
1998 105.701 171.731 129.941 146.082
1999 121.804 194.248 155.905 142.158
2000 187.224 202.980 134.630 156.250
* Assumes $100 invested at the close of trading on 3/11/1996. Cumulative total
return assumes reinvestment of dividends.
CHANGES IN CONTROL
The Offer, if consummated, will result in a change in control of the
Company for purposes of Section 14f of the Exchange Act and Rule 14f-1
thereunder. See the Offer to Purchase for additional information concerning the
Offer, Compass and the Purchaser.
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ATTACHMENT I
PURCHASER'S DIRECTOR DESIGNEES
The Purchaser has provided the Company with the following information
regarding those persons who it intends to designate as directors of the Company
following consummation of the Offer. The Company assumes no responsibility for
the accuracy or completeness of such information.
NAME AND CITIZENSHIP PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
(AGE AT 2/1/01) DURING PAST FIVE YEARS; OUTSIDE DIRECTORSHIPS
- -------------------- ------------------------------------------------------
Thomas G. Ondrof(1) Chief Financial Officer of Compass' North American
United States (36) Division since July 1999; Vice President -- Finance
and Strategic Planning of Compass' North American
Division from June 1998 to July 1999; Corporate
Controller of Compass' North American Division from
March 1996 to June 1998; Acquisitions and Senior
Financial Analyst for a predecessor of Compass' North
American Division from October 1991 to March 1996.
Lauren A. Stoery(1) Vice President, General Counsel and Secretary of
United States (43) Compass' North American Division since March 1998;
Senior Counsel for Whirlpool Corporation from 1993 to
1998.
Anthony J. Gagliardi(1) President -- Canteen Vending Services Division, a
United States (51) division of Compass' North American Division since
October 1995.
J. Kurt Kimball(1) Vice President -- Sales of Compass since April 1995;
United States (49) from January 1985 to April 1995, Mr. Kimball worked in
sales for Marriott Corp. in Bethesda, Maryland.
Anthony G. Shearer(1) Vice President -- Information Systems, Compass Group
United Kingdom (37) USA, Inc. since 1994.
- ---------------
(1) c/o Compass Group USA, Inc., 2400 Yorkmont Road, Charlotte, North Carolina
28217
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ATTACHMENT II
AUDIT COMMITTEE CHARTER
MORRISON MANAGEMENT SPECIALISTS, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the Audit Committee. The Committee
shall review and reassess the adequacy of the charter at least annually and
obtain the approval of the charter by the Board of Directors. The Committee
shall be appointed by the Board of Directors and shall comprise at least three
directors, each of whom are independent of management and the Company. Members
of the committee shall be considered independent if they have no relationship
that may interfere with the exercise of their independence from management and
the Company. All Committee members shall be financially literate (or shall
become financially literate within a reasonable period of time after the
appointment to the committee), as the Board of Directors shall interpret such
qualification in its business judgment, and at least one member shall have
accounting or related financial management expertise, as the Board of Directors
shall interpret such qualification in its business judgment.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling its oversight responsibility to the shareholders relating to the
Company's financial statements and the financial reporting process, the systems
of internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board. In so
doing, it is the responsibility of the Committee to maintain free and open
communication between the Committee and the Company's directors, independent
auditors, the internal auditors and management of the Company. In discharging
its oversight role, the Committee is empowered to investigate any matter brought
to its attention with full access to all books, records, facilities, and
personnel of the Company and the power to retain outside counsel, or other
experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The Committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
Committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices, and
ethical behavior.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate.
- The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Audit Committee, as representatives of
the Company's shareholders. The Board and the Committee shall have the
ultimate authority and responsibility to evaluate and, where appropriate,
replace the independent auditors. Annually, the Committee shall review
and recommend to the Board the selection of the Company's independent
auditors.
- The Committee shall require that the independent auditors submit on a
periodic basis to the Committee a formal written statement delineating
all relationships between the independent auditors and the Company and
actively engage in a dialogue with the independent auditors with respect
to any disclosed relationships or services that may impact the
objectivity and independence of the indepen-
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dent auditors and, if appropriate, recommend that the Board of Directors
take appropriate action in response to the independent auditors' report
to satisfy itself of the independent auditors' independence.
- The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits. Also, the Committee shall discuss with management, the internal
auditors, and the independent auditors the adequacy and effectiveness of
the accounting and financial controls, including the Company's system to
monitor and manage business risk, and legal and ethical compliance
programs. Further, the Committee may meet separately with the internal
auditors and the independent auditors, with and without management
present, to discuss the results of their examinations.
- The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Reports on Form 10-Q. Also, the Committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the Committee by the independent auditors
under generally accepted auditing standards. The chair of the Committee
may represent the entire Committee for the purposes of this review.
- The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Reports
on Form 10-K, including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the Committee shall discuss the results of
the annual audit and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards.
- The Committee shall review the investment fund performance and related
matters of the Company's Deferred Compensation and Salary 401(k) Plans.
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ANNEX B
FAIRNESS OPINION
(BEAR STEARNS LETTERHEAD)
February 6, 2001
The Board of Directors
Morrison Management Specialists, Inc.
1955 Lake Park Drive
Suite 400
Smyrna, Georgia 30080
Ladies and Gentlemen:
We understand that Morrison Management Specialists, Inc. ("Morrison"),
Compass Group plc ("Compass") and Yorkmont One, Inc., a wholly-owned indirect
subsidiary of Compass ("Sub"), have entered into an Agreement and Plan of Merger
dated February 6, 2001 (the "Agreement") pursuant to which Sub will make a
tender offer (the "Offer") to acquire all of the outstanding common stock of
Morrison at a purchase price per share of $40.00 in cash (the "Purchase Price").
The Offer will be followed by a merger of Sub with and into Morrison (the
"Merger"), in which the remaining Morrison shares will be purchased for the
Purchase Price (the Offer and the Merger are collectively referred to herein as
the "Transaction"). You have provided us with a copy of the proposed Agreement
in substantially final form.
You have asked us to render our opinion as to whether the Purchase Price is
fair, from a financial point of view, to the shareholders of Morrison.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed a draft of the Agreement in substantially final form;
- reviewed Morrison's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended May 31, 1998 through 2000, its
Quarterly Report on Form 10-Q for the periods ended August 31, 2000 and
November 30, 2000 and its Reports on Form 8-K for the three years ended
February 2, 2000;
- reviewed certain operating and financial information, including
projections, provided to us by management relating to Morrison's business
and prospects;
- met with certain members of Morrison's senior management to discuss
Morrison's business, operations, historical and projected financial
results and future prospects;
- reviewed the historical prices, trading multiples and trading volume of
the common shares of Morrison;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable
to Morrison;
- reviewed the terms of recent mergers and acquisitions involving companies
which we deemed generally comparable to Morrison;
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- performed discounted cash flow analyses based on the projections for
Morrison furnished to us; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections, provided to us by Morrison. With respect to
Morrison's projected financial results, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of Morrison as to the expected future
performance of Morrison. We have not assumed any responsibility for the
independent verification of any such information or of the projections provided
to us, and we have further relied upon the assurances of the senior management
of Morrison that they are unaware of any facts that would make the information
and projections provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities (contingent or otherwise) of
Morrison, nor have we been furnished with any such appraisals. We have assumed
that the Transaction will be consummated in a timely manner and in accordance
with the terms of the Agreement without any regulatory limitations,
restrictions, conditions, amendments or modifications that collectively would
have a material effect on Morrison.
We have acted as a financial advisor to Morrison in connection with the
Transaction and will receive a customary fee for such services, a substantial
portion of which is contingent on successful consummation of the Transaction. In
the ordinary course of business, Bear Stearns may actively trade the equity and
debt securities of Morrison and/or Compass for our own account and for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Morrison in considering the Transaction, does not
constitute a recommendation to the Board of Directors of Morrison as to how to
vote in connection with the Transaction, and does not constitute a
recommendation to any holders of common shares of Morrison as to whether to
tender their shares in the Offer or how to vote, if applicable, in connection
with the Merger. This opinion does not address Morrison's underlying business
decision to pursue the Transaction, the relative merits of the Transaction as
compared to any alternative business strategies that might exist for Morrison or
the effects of any other transaction in which Morrison might engage. This letter
is not to be used for any other purpose, or be reproduced, disseminated, quoted
from or referred to at any time, in whole or in part, without our prior written
consent; provided, however, that this letter may be included in its entirety in
any offer to purchase and/or any proxy statement to be distributed to the
holders of common shares of Morrison in connection with the Offer or Merger, as
the case may be. Our opinion is subject to the assumptions, conditions and
limitations contained herein and is necessarily based on economic, market and
other conditions, and the information made available to us, as of the date
hereof. We assume no responsibility for updating or revising our opinion based
on circumstances or events occurring after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Purchase Price is fair, from a financial point of view, to the
shareholders of Morrison.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ ADAM D. SOKOLOFF
------------------------------------
Managing Director
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