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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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GENERAL HOST CORPORATION
(Name of Subject Company)
GENERAL HOST CORPORATION
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
370064107
(CUSIP Number of Class of Securities)
HARRIS J. ASHTON
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
GENERAL HOST CORPORATION
METRO CENTER
ONE STATION PLACE
P.O. BOX 10045
STAMFORD, CONNECTICUT 06904
(203) 357-9900
J. THEODORE EVERINGHAM, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
GENERAL HOST CORPORATION
6501 EAST NEVADA
DETROIT, MICHIGAN 48234
(313) 366-8400
(Name, address and telephone number of person authorized to receive
notice and communication on behalf of the person(s) filing statement)
WITH A COPY TO:
JOSEPH A. COCO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-3897
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is General Host Corporation, a New York
corporation (the "Company"), and the address of the principal executive offices
of the Company is Metro Center, One Station Place, P.O. Box 10045, Stamford,
Connecticut 06904. The title of the class of equity securities to which this
statement relates is the common stock, par value $1.00 per share (the "Company
Common Stock" or the "Shares"), of the Company (including the related Common
Stock Purchase Rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of March 7, 1990, between the Company and ChaseMellon Shareholder
Services, L.L.C., as successor to Chemical Bank, as rights agent, as amended
(the "Rights Agreement")).
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to the tender offer by Cyrus Acquisition Corp., a New
York corporation (the "Purchaser"), formed by The Cypress Group L.L.C. ("Cypress
L.L.C."; together with its affiliates, "Cypress"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated November 25, 1997 (the "Schedule 14D-1"), to
purchase all of the issued and outstanding Shares, at a price of $5.50 per
Share, net to the seller in cash (the "Offer Price"), upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated November 25, 1997
(the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with the Offer to Purchase, constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 22, 1997 (the "Merger Agreement"), between the Purchaser and the
Company. The Merger Agreement provides, among other things, that as soon as
practicable after the satisfaction or waiver of the conditions set forth in the
Merger Agreement, the Purchaser will be merged with and into the Company (the
"Merger"), and the Company will continue as the surviving corporation (the
"Surviving Corporation"). A copy of the Merger Agreement is filed herewith as
Exhibit 6 and is incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of the
Purchaser are located at c/o The Cypress Group L.L.C., 65 East 55th Street, 19th
Floor, New York, New York 10022.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
there are no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company's executive officers, directors or affiliates or
(ii) Cypress or the Purchaser or their respective executive officers, directors
or affiliates.
ARRANGEMENTS WITH THE PURCHASER OR ITS AFFILIATES
The information contained under the captions "Introduction", "Certain
Information Concerning Purchaser and Cypress" and "The Merger Agreement; The
Support Agreement" of the Offer to Purchase is incorporated herein by reference.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
EMPLOYMENT CONTRACT
HARRIS J. ASHTON. The Company entered into an employment contract, as
amended, with Mr. Ashton, commencing January 1, 1992 and continuing until
December 31, 2000, pursuant to which Mr. Ashton would be employed as Chairman,
Chief Executive Officer and President of the Company.
The employment contract provides that Mr. Ashton receive a minimum annual
base salary of $917,573 for calendar year 1997, which minimum annual base salary
increases by 5% for each of
calendar years 1998, 1999 and 2000. If Mr. Ashton becomes permanently disabled,
dies or his employment is terminated by the Company during the term of the
contract, the Company shall pay him or his estate his annual base salary through
the date of termination or, in the event of death or disability, through the end
of the month in which the death or disability occurs. He also will receive a
lump sum payment in cash equal to the discounted present value of 50% (100% in
the event of termination without cause) of the base salary he would have
received through the end of the contract, or if greater, for the twenty-four
months following his termination, death or disability (in which case Mr.
Ashton's final annual base salary under the contract would be continued for any
part of the twenty-four month period occurring after December 31, 2000). Under
the employment contract, Mr. Ashton may elect to deem his employment terminated
without cause in the event of a change in control of the Company (including the
Offer) or a change in any of the material terms and conditions of his
employment. A change in control under Mr. Ashton's employment contract would
occur upon, among other things, any person becoming a direct or indirect
beneficial owner of 20% or more of the voting securities of the Company.
Under the terms of his employment contract, Mr. Ashton is entitled to a
retirement benefit as of January 1, 1998, or, if earlier, upon his termination
of employment with the Company for any reason (except certain voluntary
terminations prior to a change in control of the Company) in an amount equal to
(i) the then-discounted present value, determined by using a discount rate of 6%
per year and the 1971 Group Annuity Table, of a monthly benefit (payable for
life) equal to 3% of his average monthly cash salary during the last 36 months
of his employment multiplied by the number of years of his service to the
Company, less (ii) $3,442,302, representing amounts previously paid to Mr.
Ashton on account of such retirement benefit, plus imputed after-tax earnings
thereon.
Under the employment contract, Mr. Ashton is entitled to participate in the
Company's incentive compensation plans and programs generally available to the
Company's senior executives, and upon execution of the employment contract was
granted an option to purchase 300,000 shares of the Company's Common Stock. Mr.
Ashton is also entitled to receive a stock gain award determined at the end of
each calendar year based on the excess of the average of the weekly closing
prices for the Company's Common Stock for the year over the greater of (i) $7.50
(representing the average of the weekly closing price for 1991) increased by 4%
each year and (ii) the average of the weekly closing prices for the last year
for which a stock gain award was paid. The excess, if any, is then multiplied by
the product of 2% and the average number of shares outstanding for the
applicable year.
During the term of the employment contract, Mr. Ashton is entitled to
participate in all employee benefit programs and shall be reimbursed for any
medical or dental expenses incurred by him or any members of his immediate
family under the age of 26 or living at home, to the extent not otherwise paid
under Company-sponsored plans or programs. Mr. Ashton and his wife are also
entitled to fully paid medical benefits, consistent with those paid under the
contract, for the rest of their lives.
Mr. Ashton is entitled under the employment contract to indemnification
consistent with Section 26 of the By-Laws as in effect on January 1, 1992.
If any payments to be made to Mr. Ashton under the employment contract are
subject to an excise tax under Section 4999 of the Internal Revenue Code, the
Company shall pay Mr. Ashton an additional amount which, after income and
further excise taxes, equals such excise tax.
Under the terms of the employment contract and the Merger Agreement,
consummation of the Offer would constitute a change in control as defined in the
employment agreement. Upon consummation of the Offer, Mr. Ashton may elect to
deem his employment terminated without cause and would be entitled to severance,
retirement and other benefits in an amount equal to approximately $7.1 million,
excluding on-going benefits and tax gross-ups. The Company expects that Mr.
Ashton will terminate his employment with the Company shortly after consummation
of the Offer.
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SEVERANCE ARRANGEMENTS
The Company has severance arrangements with each of the following four
executives of the Company and its primary operating subsidiary, Frank's Nursery
& Crafts, Inc. ("Frank's"): Robert M. Lovejoy, James R. Simpson, J. Theodore
Everingham and Ernest W. Townsend. Severance benefits are payable to each of the
four executives only in the event of a termination by the Company without cause
or a termination by the executive with good reason and only if such termination
occurs between the date of the execution of the Merger Agreement and the first
anniversary of the Effective Time. Within five days following any such
qualifying termination of an executive's employment, the Company will pay the
executive a lump sum, based on the higher of the executive's annual base salary
immediately prior to the execution of the Merger Agreement or the annual base
salary immediately prior to the executive's termination of employment. In the
case of Mr. Lovejoy, the lump sum will equal 100% of such annual base salary. In
the case of Messrs. Simpson, Everingham and Townsend, the lump sum will equal
50% of such annual base salary. In addition to the severance payment, the
Company will also pay all COBRA premiums for and provide to each executive who
has such a qualifying termination of employment continuing medical insurance
benefits which are substantially similar to the benefits provided him
immediately prior to the date of execution of the Merger Agreement (including
any coverage for spouse and dependents) for a period of one year from the date
of termination. In the event Messrs. Lovejoy's, Simpson's, Everingham's or
Townsend's employment is terminated on or before the first anniversary of the
Effective Time by the Company without cause or by such executive for good
reason, the Company would be obligated to pay each of Messrs. Lovejoy, Simpson,
Everingham and Townsend, $183,000, $83,500, $67,500 and $200,000, respectively
(calculated using current annual base salaries) and to provide medical benefits
for one year (as described above). The obligation of the Surviving Corporation
to honor these arrangements is acknowledged by the Purchaser under the Merger
Agreement.
OTHER ARRANGEMENTS
In November, 1989, the Company and a trust established for the benefit of
Mr. and Mrs. Ashton's beneficiaries entered into an agreement pursuant to which
the Company will pay the premiums for two survivorship life insurance policies
on the lives of Mr. and Mrs. Ashton. Benefits become payable when both have
died, and the Company will have an interest in the death benefits equal to the
amount it has paid for these policy premiums. Under the agreement, the Company's
obligation to make annual premium payments continues until the earliest of: (1)
the deaths of both Mr. and Mrs. Ashton; (2) the Company shall have made 12
payments of the full annual cash premiums; (3) the Company shall have paid an
aggregate of $1,500,000 for premiums; or (4) the premium payment next due after
the year in which premiums may be paid in full from the sum available from
dividends or other sums generated by the policies. The payment for these
policies for fiscal 1996 was $116,814.
The Company and Frank's have loaned money to certain key employees of the
Company for the purpose of enabling them to purchase shares of the Company's
Common Stock or, in certain cases, debentures. These loans, approved by the
Compensation Committee of the Company's Board of Directors (the "Company
Board"), are evidenced by interest-only promissory notes payable in lump sum
payments five years from the dates made and bearing interest at the rate of 6%
per annum. The executive officers, other than Mr. Ashton, who is discussed
below, had such loans outstanding as of November 25, 1997 in the following
principal amounts: Robert M. Lovejoy, Jr., $151,614; James R. Simpson, $90,351;
and William C. Boyd, $44,744. The amounts outstanding on November 25, 1997 were
the largest aggregate principal amounts outstanding during fiscal 1997 to date.
During fiscal 1997, the Compensation Committee extended by five years a loan to
each of Mr. Lovejoy and Mr. Simpson in the principal amount of $49,851 and
$21,394 respectively, which are included in the amount outstanding on November
25, 1997. In June 1997, the Compensation Committee approved the forgiveness of
the principal amount of, and all accrued and unpaid interest on, the outstanding
loans to each of Messrs. Lovejoy, Simpson and Boyd from the Company and to
defray the Company's tax withholding
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obligations with respect thereto in the event of a change in control of the
Company, provided such executive is then employed by the Company. As of November
25, 1997, the outstanding principal amounts on Messrs. Lovejoy's, Simpson's and
Boyd's loans were $151,614, $90,351, and $44,744, respectively, each of which
will be forgiven upon consummation of the Offer.
On August 22, 1990, Mr. Ashton had outstanding deferred payments on options
totaling $831,250, which were then due the Company. On that date, Frank's made a
loan to Mr. Ashton in the amount of $831,250, the proceeds of which were used to
pay the outstanding deferred payments due the Company. The loan from Frank's was
evidenced by a promissory note bearing interest at the rate of 6% and payable in
full on August 22, 1995 (the "Old Note"). Mr. Ashton elected to prepay $177,294
of the Old Note in March, 1991 and $25,000 in February, 1992. On August 22,
1995, Frank's authorized the cancellation of the Old Note and the issuance of a
new loan to Mr. Ashton due August 22, 2000 in the principal amount of $628,956,
bearing interest at 6% per annum, subject to Mr. Ashton's payment of interest on
the Old Note in the amount of $8,479.
On March 7, 1991, Mr. Ashton elected to defer the payment of the purchase
price from the exercise of options for 225,000 shares of Common Stock in the
amount of $1,381,253, which was due March 6, 1996. Mr. Ashton elected to prepay
$25,000 of this loan in March, 1993. On March 6, 1996, Frank's made a loan to
Mr. Ashton in the amount of $1,356,253, the proceeds of which were used to pay
the outstanding deferred payments due the Company. The loan from Frank's was
evidenced by a promissory note bearing interest at the rate of 6% and payable in
full on March 6, 2001.
On December 30, 1992, Mr. Ashton elected to defer the payment of the
purchase price from the exercise of options for 60,000 shares of Common Stock in
the amount of $495,000 which would be due on December 29, 1997.
The Compensation Committee approved, effective June 2, 1997, a reduction in
the $2,480,208.50 aggregate principal amount of the promissory notes given by
Mr. Ashton to the Company to $1,231,341. The outstanding principal amount on
such promissory note was thereby reduced to the amount equal to the aggregate
fair market value on June 2, 1997 of the Shares purchased with the proceeds of
the original promissory notes. As of November 25, 1997, the Company held a
promissory note from Mr. Ashton in the principal amount of $1,231,341.
DIRECTORS
During fiscal year 1992, Mr. Alden, a Director, exercised an option for
15,000 shares and elected to defer the purchase price of the option, as provided
by the terms of the Company's Directors' Stock Option Plan then in effect. Mr.
Alden executed a promissory note in the amount of $109,650 due five years from
the date of execution with interest at the rate of 6% per annum. Mr. Alden also
elected to borrow from the Company, on the same terms as noted above, an amount
equal to his tax liability as a result of the exercise, as provided by such
plan. As of November 25, 1997, the amount of indebtedness outstanding under Mr.
Alden's notes was $123,650.
Mr. Alden serves as trustee of a pension trust maintained by the Company and
one of its subsidiaries. Mr. Alden received a total of $27,000 in 1996 in
compensation from this trust for serving in this capacity.
Upon reaching age seventy-five or after ten years of service as a Director,
provided either event has occurred prior to consummation of the Offer, each
non-employee Director of the Company Board becomes eligible to retire from the
Company Board and, upon retirement, continues to receive an annual retainer fee
(which, as of November 25, 1997, would not exceed $30,000 per year) for a number
of years equal to the number of years served as a Director. The Company has
agreed that until all Directors serving on the Company Board as of November 25,
1997 (the "Current Directors") have terminated their service as Directors, the
Company shall take all commercially reasonable steps to continue to make
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third-party life insurance company coverage available to each Current Director
who continues to serve as a Director on a basis no less favorable (including,
without limitation, face amount of coverage and allocation of cost) than the
current basis, and that the Company shall use its best efforts to maintain the
feature of its group life insurance policy which enables a Director whose
service is terminated to obtain continuing life insurance in the same face
amount as his coverage immediately prior to termination without a physical
examination, at the insurer's normal individual rates and at the expense of the
Director. Under the Merger Agreement, the Purchaser has acknowledged the
obligation of the Surviving Corporation to honor these arrangements.
EMPLOYEE AND DIRECTOR STOCK OPTIONS
The Company maintains the General Host Corporation 1986 Stock Incentive
Plan, General Host Corporation 1996 Stock Incentive Plan, General Host
Corporation Directors' Stock Option Plan, and the 1994 General Host Corporation
Non-Employee Directors Stock Option Plan (collectively, the "Plans"). The Plans
provide for the grants of stock options to purchase Shares to certain employees
and non-employee directors of the Company ("Options"). In the event of a change
in control of the Company (as defined in the applicable plans), unless otherwise
directed by resolution of the Company Board, within 30 days after such event,
all of the outstanding Options and SARs under the Plans shall become exercisable
and any restrictions on outstanding shares of restricted stock under the Plans
shall lapse. As of November 25, 1997 there were no outstanding shares of
restricted stock or SARs.
Under the Merger Agreement, the Company has agreed to take all action
necessary to cause any outstanding Options which are exercised after the
Effective Time, to be exercisable solely for a payment in cash from the Company
upon exercise equal to the product of (x) the total number of Shares subject to
such Option and (y) the excess (if any) of the per share consideration received
by shareholders in the Merger over the exercise price per Share for such Option.
Based on the number of Options held by the directors and executive officers of
the Company as of November 25, 1997, the exercise price per Share of such Option
and Offer consideration of $5.50, each of Messrs. Ashton, Alden, Forster,
Fortunato, Harley, Hoornstra, Johnson, and Townsend and Ms. Sant Albano would be
entitled to $1,249,314, $39,249, $39,249, $39,249, $39,249, $39,249, $39,249,
$741,570, and $30,363 respectively, on the exercise of their Options following
the Effective Time.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE COMPANY BOARD
The Company Board has unanimously approved the Merger Agreement, the Offer,
the Merger and the other transactions contemplated by the Merger Agreement and
has determined that the Offer and the Merger are fair to and in the best
interests of the Company's shareholders, and unanimously recommends that the
Company's shareholders accept the Offer and tender their Shares in the Offer.
A letter to the Company's shareholders communicating the Company Board's
recommendation and a press release announcing the execution of the Merger
Agreement are filed herewith as Exhibits 3 and 4, respectively, and are
incorporated herein by reference.
(B) BACKGROUND; REASONS FOR THE COMPANY BOARD'S RECOMMENDATION
BACKGROUND
In early February 1997, Cypress requested a meeting with Harris J. Ashton,
the Company's Chairman, Chief Executive Officer and President, to discuss a
possible transaction with the Company. On February 26, 1997, representatives of
Cypress met with Mr. Ashton and expressed a preliminary interest in exploring a
possible transaction. On March 25, Cypress entered into a confidentiality
agreement with the Company and was thereafter provided certain financial and
operating information by the Company.
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On April 10, 1997, Mr. Ashton met with representatives of Cypress at which
meeting Cypress reconfirmed its interest in engaging in a potential transaction
involving the acquisition of the Company. Mr. Ashton indicated that after the
Company's release of first-quarter results in mid-June he would be willing to
discuss a possible transaction depending on Cypress' valuation of the Company.
Following the April 10 meeting, the Company and Cypress had intermittent
contacts regarding a possible transaction.
In April 1997, a second party approached the Company expressing an interest
in engaging in a possible transaction and entered into a confidentiality
agreement with the Company. In connection with such preliminary interest, the
Company provided certain financial and operating information to the second
party. After concluding a limited amount of due diligence, the party advised the
Company that it was not in a position to further pursue discussions concerning a
proposed transaction.
On July 2, 1997, after having conducted preliminary discussions with and
reviewing information regarding the Company, Cypress expressed an interest in
acquiring all or a controlling interest of the Company's main operating
subsidiary, Frank's. No firm proposal was made by Cypress at that time. The
Company subsequently informed Cypress that it had determined a transaction
involving Frank's would have significant adverse tax consequences.
On July 11, 1997, the Company engaged Credit Suisse First Boston Corporation
("Credit Suisse First Boston") as its exclusive financial advisor with respect
to the Company's continuing review of strategic and financial planning matters,
including the possible sale of the Company or Frank's.
Over the next several months, Cypress conducted additional due diligence on
the business, operations and financial performance of the Company, which
included meetings with the Company's management in Detroit, Michigan and other
locations.
In September 1997, a third party approached the Company and expressed a
preliminary interest in pursuing a stock-for-stock transaction with the Company.
Management engaged in several discussions with the third party in connection
with a possible transaction, but after the third party refused to enter into a
confidentiality agreement, the Company declined to provide the third party with
confidential information regarding the Company and its businesses.
In late September, before having completed due diligence, Cypress indicated
to representatives of the Company that based on information it had received and
reviewed to date, it would be interested in discussing a potential transaction
involving the acquisition of the Company for a per share price of at least
$5.00. After considering such expression of interest, the Company responded that
it believed a higher price was justified but that it would continue to discuss a
potential transaction with Cypress.
In October and early November of 1997, the Company and Cypress continued
discussions regarding a possible transaction, including a meeting at the
Company's headquarters in Stamford, Connecticut between Mr. Ashton and James A.
Stern, Chairman of Cypress L.L.C., David Spalding, Vice Chairman of Cypress
L.L.C., and Bahram Shirazi, a principal of Cypress L.L.C., and at which Cypress
proposed a cash acquisition at $5.00 per share. After the October 27 meeting,
the parties began to discuss the possibility of Cypress permitting shareholders
who elected to do so to retain a minority equity interest in the Company
following a transaction.
On November 5, 1997, Cypress submitted a written proposal to acquire the
Company in a tender offer for all of the outstanding shares of the Company at
$5.50 per share in cash to be followed by a merger pursuant to which
shareholders would be given the election to retain up to 10% of the outstanding
shares. Cypress' proposal was subject to certain conditions, including, among
other things, a successful tender offer and consent solicitation for a majority
of the outstanding principal amount of the Company's 11 1/2% Senior Notes due
2002. Cypress' proposal outlined, among other things, the structure and timing
of a proposed transaction, the form of consideration to be received by
shareholders and
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Cypress' financing commitments necessary to finance the Offer and the Merger and
included a commitment letter with respect to the senior bank financing which
would be used to finance the debt tender offer and refinance the Company's other
existing debt.
On November 6, 1997, the Company Board met in executive session to discuss
the progress of discussions with Cypress. Mr. Ashton provided an update of the
negotiations with Cypress, the form of consideration being proposed to be
received by shareholders and the price range Cypress had indicated it was
willing to pay in a proposed transaction. The Company Board indicated to Mr.
Ashton that he should continue to explore the feasibility of a transaction to
determine whether it would be in the best interests of shareholders.
Beginning on November 7, 1997, the Company's legal and financial advisors
commenced negotiations with Cypress and its legal advisors with respect to the
terms of a possible merger agreement. On November 8, Cypress' legal counsel
distributed draft documentation to the Company's legal counsel.
Discussions continued during the week of November 9.
On November 14, 1997, Cypress informed the Company and Credit Suisse First
Boston that it needed time to evaluate any further proposal in light of
preliminary information Cypress had requested and received from the Company that
day regarding results for the Company's third fiscal quarter (see Section 7 of
the Offer to Purchase). That night, the Company Board met at dinner in New York
City and discussed the progress of the negotiations with Cypress as well as the
economic and market conditions affecting the Company, including the Company's
current financial condition and prospects.
On November 15, 1997, the Company Board held a special meeting to discuss
the proposed transaction with Cypress. At the special meeting and with the
advice and assistance of the Company's financial and legal advisors, the Company
Board discussed, among other things, certain strategic, financial and legal
considerations concerning a possible transaction with Cypress, the terms of
Cypress' most recent indication of interest, the potential impact on the
Company's shareholders of a transaction with Cypress at the prices being
suggested by Cypress, and the terms and conditions of the most recent draft of a
proposed merger agreement. The Company Board also considered the reputation of
Cypress in the financial community, the transactions Cypress has completed in
the past and its ability to consummate a transaction. No decision was reached by
the Company Board at the meeting, but it was the consensus of the directors that
the Company's management and the Company's legal and financial advisors should
continue to hold discussions with Cypress and report back to the Company Board
once a firm proposal had been made by Cypress and the open issues discussed at
the meeting were resolved.
During the week of November 16, 1997, representatives of the Company and the
Company's legal and financial advisors continued negotiations with
representatives of Cypress and Cypress' legal advisors concerning the terms and
conditions of a proposed merger agreement.
On November 19, Cypress informed the Company and Credit Suisse First Boston
that, in light of the preliminary third-quarter information (see Section 7 of
the Offer to Purchase), it would be interested in making a proposal to acquire
all outstanding shares of the Company for $5.25 cash per share. On November 20,
after further discussions, Cypress agreed to increase its proposal to $5.50 per
share.
On November 21, 1997, the Company Board held a special meeting to review,
with the advice and assistance of the Company's financial and legal advisors,
the proposed terms and conditions of the proposed Merger Agreement. At such
meeting, Credit Suisse First Boston provided an oral opinion (which was
subsequently confirmed in writing) that, as of such date and based upon and
subject to the matters discussed with the Company Board, the cash consideration
to be received by the holders of the Company Common Stock in the Offer and the
Merger was fair from a financial point of view to such holders, and the
Company's legal counsel advised the Company Board of the recent changes made to
the proposed merger agreement. Following the Company Board's review of the terms
of the Offer and
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the Merger, the Company Board unanimously determined that the Merger Agreement
and the transactions contemplated thereby, including the Offer and the Merger,
are fair to and in the best interests of the Company's shareholders, approved
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, authorized the execution and delivery of the Merger
Agreement, recommended that the Company's shareholders accept the Offer and
tender their Shares pursuant to the Offer, and recommended that the Company's
shareholders approve and adopt the Merger Agreement. The Company Board also
approved postponing the Distribution Date (as defined in the Rights Agreement)
until December 31, 1997 and to amend the Rights Agreement to make the Rights
Agreement inapplicable to the transactions contemplated by the Merger Agreement.
On November 22, 1997, the Company and Purchaser executed the Merger
Agreement. On November 24, 1997, the Company and Cypress issued a press release
announcing the execution of the Merger Agreement.
REASONS FOR THE TRANSACTION; FACTORS CONSIDERED BY THE COMPANY BOARD
In approving the Offer, the Merger, the Merger Agreement and the other
transactions contemplated thereby and recommending that all holders of Shares
accept the Offer and tender their Shares pursuant to the Offer, the Company
Board considered a number of factors including:
1. The terms and conditions of the Merger Agreement, including the
amount and form of consideration offered to shareholders in the Offer and
the Merger and the likelihood that the proposed Offer and Merger would be
consummated;
2. The historical market prices and the recent trading activity of the
Shares, including the fact that the Offer Price represents a premium of
approximately 60% over the reported closing price of the Shares on the NYSE
on the last full trading day preceding the public announcement of the
execution of the Merger Agreement;
3. The Company Board's knowledge regarding, among other things: (a) the
financial condition, results of operations, cash flows, business and
prospects of the Company, including the prospects of the Company if it
remains independent; and (b) the strategic alternatives available to the
Company;
4. The presentations of Credit Suisse First Boston at the meetings of
the Company Board held on November 15, 1997 and November 21, 1997 and the
opinion of Credit Suisse First Boston expressed orally at the November 21,
1997 meeting (and subsequently confirmed in writing), that, as of such date
and based upon and subject to the matters discussed with the Company Board,
the cash consideration to be received by the holders of Company Common Stock
in the Offer and the Merger was fair from a financial point of view to such
holders. THE FULL TEXT OF THE OPINION OF CREDIT SUISSE FIRST BOSTON, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS EXHIBIT 5 AND IS INCORPORATED
HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN
ITS ENTIRETY;
5. The extensive arms-length negotiations between the Company and
Cypress leading to the belief of the Company Board that $5.50 per Share
represented the highest price per Share that could reasonably be obtained
with Cypress or otherwise;
6. That the Offer and the Merger provides for a prompt cash tender
offer for all Shares, thereby enabling the Company's shareholders to obtain
the benefits of the transaction in exchange for their Shares at the earliest
possible time, to be followed by a merger in which shareholders will receive
the same consideration as received in the tender offer;
8
7. The business reputation and capabilities of Cypress and its
management, and Cypress' financial strength and commitments, including its
ability to finance the Offer;
8. The fact that pursuant to the Merger Agreement the Company is not
prohibited from responding to any unsolicited Acquisition Proposal (as
defined in the Merger Agreement) to acquire the Company, to the extent that
the Company Board determines in good faith, based upon the advice of its
outside legal counsel, that the failure to participate in such discussions
or negotiations or to furnish such information or to approve such an
Acquisition Proposal would reasonably be expected to violate the Company
Board's fiduciary duties; and
9. The Company Board's belief that the termination provisions,
including all termination fees, in the Merger Agreement would not represent
an obstacle to an Acquisition Proposal.
10. The terms of the Support Agreement, including the commitment of Mr.
Ashton to tender approximately 6.3% of the outstanding Shares in the Offer
and the fact that the Support Agreement terminates upon termination of the
Merger Agreement.
The Company Board recognized that consummation of the Offer and the Merger
will deprive current shareholders of the Company the opportunity to participate
in the future growth prospects of the Company and therefore in reaching its
conclusion to approve the Offer and the Merger, determined that the historical
results of operations and future prospects of the Company are adequately
reflected in the $5.50 per Share.
The foregoing discussion of information and factors considered and given
weight by the Company Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Offer and
the Merger, including the factors described above, the Company Board did not
find it necessary or practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determinations and recommendations. In addition, individual members of the
Company Board may have given different weights to different factors.
It is expected that if Shares are not accepted for payment by the Purchaser
in the Offer and if the Merger is not consummated, the Company's current
management, under the general direction of the Company Board, will continue to
manage the Company as an on-going business.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to the terms of a letter agreement dated as of July 11, 1997 (the
"Letter Agreement"), the Company retained Credit Suisse First Boston as its
exclusive financial advisor with respect to the Company's continuing review of
strategic and financial planning matters, including the possible sale of the
Company or Frank's.
Pursuant to the Letter Agreement, the Company agreed to pay Credit Suisse
First Boston, upon execution thereof, a financial advisory fee of $100,000,
which would be fully creditable against any transaction fee thereafter paid. The
Company also agreed to pay Credit Suisse First Boston, upon the first closing of
any Sale (which was defined in the Letter Agreement to include the Offer and the
Merger), a transaction fee in an amount equal to 1% of the total fair market
value at the time of closing of all consideration (including cash, securities,
property, all debt remaining on the financial statements of the Company and
other indebtedness assumed by an acquiror and any other form of consideration)
paid or payable or otherwise distributed to the Company or its stockholders in a
Sale.
The Company also agreed to reimburse Credit Suisse First Boston for all
out-of-pocket expenses incurred by Credit Suisse First Boston (including the
fees and expenses of its legal counsel) resulting from or arising out of the
engagement, and to indemnify Credit Suisse First Boston and its affiliates (and
their respective officers, directors, partners, employees, controlling persons
and agents) against certain
9
liabilities arising out of or in connection with Credit Suisse First Boston's
engagement, including any such liabilities under the federal securities laws.
Credit Suisse First Boston will act as co-dealer manager for the debt tender
offer for the Company's 11 1/2% Senior Notes due 2002. In the ordinary course of
their business, Credit Suisse First Boston and its affiliates may actively trade
the debt and equity securities of the Company for Credit Suisse First Boston's
and such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Except as disclosed herein, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to the Company's shareholders with respect to the Offer or the
Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, all of its executive officers,
directors, affiliates and subsidiaries currently intend to tender pursuant to
the Offer all Shares held of record or beneficially owned by them other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Company Board other
than at a meeting of the Company's shareholders.
References are hereby made to the Offer to Purchase and the related Letter
of Transmittal, copies of which are filed herewith as Exhibits 1 and 2,
respectively, and are incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Offer to Purchase.+
Exhibit 2 Letter of Transmittal.+
Exhibit 3 Letter to Shareholders.*+
10
Exhibit 4 Press Release issued by General Host Corporation and the Cypress Group L.L.C. on
November 24, 1997 (incorporated by reference to the Company's Current Report on
Form 8-K filed on November 25, 1997).
Exhibit 5 Opinion of Credit Suisse First Boston Corporation dated November 21, 1997.*+
Exhibit 6 Agreement and Plan of Merger, dated as of November 22, 1997, by and among
General Host Corporation and Cyrus Acquisition Corp. (incorporated by reference
to the Company's Current Report on Form 8-K filed on November 25, 1997).
Exhibit 7 Support Agreement, dated as of November 22, 1997, by and among Cyrus Acquisition
Corp. and Harris J. Ashton (incorporated by reference to the Company's Current
Report on Form 8-K filed on November 25, 1997).
Exhibit 8 Employment Agreement between General Host Corporation and Harris J. Ashton dated
as of January 1, 1992 (the "Employment Agreement") (incorporated by reference to
the Company's 1992 Form 10-K, Exhibit 10(a), File No. 1-1066) as amended by the
First Amendment, dated as of June 30, 1997, to the Employment Agreement
(incorporated by reference to the Company's Form 10-Q for the quarter ended
August 10, 1997 Exhibit 10).
Exhibit 9 Summary of severance arrangements between General Host Corporation and certain
executive officers.+
Exhibit General Host Corporation Amended and Restated 1986 Stock Incentive Plan
10 (incorporated by reference to the Company's 1992 Proxy Statement, dated April
16, 1992, Exhibit A).
Exhibit General Host Corporation 1996 Stock Incentive Plan (incorporated by reference to
11 the Company's Proxy Statement for its fiscal year ended January 28, 1996,
Exhibit A).
Exhibit General Host Corporation Director's Stock Option Plan (incorporated by reference
12 to the 1991 Form 10-K, Exhibit 10(e), File No. 1-1066).
Exhibit General Host Corporation 1994 Non-Employee Directors Stock Option Plan
13 (incorporated by reference to the 1995 Form 10-K Exhibit 10.05(a), File 1-1066).
- ------------------------
* Included in copies of Schedule 14D-9 mailed to shareholders.
+ Filed herewith.
11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: November 25, 1997
GENERAL HOST CORPORATION
By: /s/ HARRIS J. ASHTON
-----------------------------------------
Name:Harris J. Ashton
Title:
Chairman of the Board,
President and Chief Executive
Officer
12
SCHEDULE I
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about November 25, 1997 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of General Host Corporation, a New York corporation (the
"Company"), to the holders of record of shares of common stock, par value $1.00
per share, of the Company (the "Common Stock" or the "Shares"). You are
receiving this Information Statement in connection with the possible election of
persons designated by Purchaser (as defined below) to a majority or more of the
seats on the Board of Directors of the Company (the "Company Board").
On November 22, 1997, the Company and Cyrus Acquisition Corp., a New York
corporation ("Purchaser") formed by the Cypress Group L.L.C. ("Cypress L.L.C.";
together with its affiliates, "Cypress"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which (i) Purchaser will commence a
tender offer (the "Offer") for all outstanding Shares at a price of $5.50 per
Share, net to the seller in cash, and (ii) the Purchaser will be merged with and
into the Company (the "Merger"). As a result of the Offer and the Merger,
Cypress will own all outstanding capital stock of the Company.
The Merger Agreement provides that, promptly after the purchase of
two-thirds of the outstanding Shares pursuant to the Offer, Purchaser shall be
entitled to designate directors (the "Purchaser Designees") on the Company Board
as will give Purchaser representation proportionate to its ownership interest.
The Merger Agreement requires the Company to take such action as Purchaser may
request to cause the Purchaser Designees to be elected to the Company Board
under the circumstances described therein. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with this Information
Statement. Capitalized terms used herein and not otherwise defined shall have
the meaning set forth in the Schedule 14D-9.
The information contained in this Information Statement concerning the
Purchaser has been furnished to the Company by the Purchaser. The Company
assumes no responsibility for the accuracy or completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
The Merger Agreement provides that, subject to applicable law, immediately
upon the purchase of Shares by the Purchaser pursuant to the Offer, Purchaser
will be entitled to designate such number of directors, rounded up to the next
whole number, on the Company Board as is equal to the product of the total
number of directors on the Company Board multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser and any of its
affiliates bears to the total number of Shares then outstanding. Following
consummation of the Offer the Company has agreed to take all action to cause the
Purchaser Designees to be so elected, including, if necessary, seeking the
resignations of one or more existing directors. The Company has also agreed,
subject to applicable law, to use its reasonable best efforts to cause persons
designated by Purchaser to constitute the same percentage as is on the board of
(i) each committee of the Company Board, and (ii) each board of directors of
each subsidiary of the Company. Notwithstanding the foregoing, until the
Effective Time of the Merger, the
I-1
Company Board will use its best efforts to have at least one director on the
Company Board who is a director and who is not an employee of the Company on the
date of execution of the Merger Agreement.
The Purchaser Designees will be selected by Purchaser from among the
individuals listed below. Each of the following individuals has consented to
serve as a director of the Company if appointed or elected. None of the
following individuals owns any Shares. In addition, none of the following
individuals is a director of, or holds any position with, the Company. The name,
age, present principal occupation or employment and five-year employment history
of each of the following individuals are set forth below.
Although, depending on the number of Shares tendered in the Offer, Purchaser
may initially have the right to designate more Purchaser Designees than the
number listed below, it has informed the Company that, without limiting its
rights under the Merger Agreement in any way, it does not currently intend to do
so.
Joseph R. Baczko (age 52) has been a private investor since 1993. From 1991
to 1992, Mr. Baczko served as President, Chief Operating Officer and director of
Blockbuster Entertainment Corp. Prior to joining Blockbuster, he was President
of the International Division of Toys "R" Us, Inc. from 1983 to 1990.
James A. Stern (age 47) has been Chairman of Cypress L.L.C. since its
formation in April 1994. Prior to joining Cypress, Mr. Stern spent his entire
career with Lehman Brothers Inc., most recently as head of the Merchant Banking
Group. He served as head of Lehman's High Yield and Primary Capital Markets
Groups, and was co-head of Investment Banking. In addition, Mr. Stern was a
member of Lehman's Operating Committee. Mr. Stern is a director of Amtrol Inc.,
Cinemark USA, Inc., Lear Corporation, Noel Group, Inc., R.P. Scherer Corporation
and Genesis ElderCare Corp.
Jeffrey P. Hughes (age 57) has been a Vice Chairman of Cypress L.L.C. since
its formation in April 1994. Prior to joining Cypress, he was a Managing
Director at Lehman Brothers Inc. since 1976, most recently in the Merchant
Banking Group from 1989 to 1994.
James L. Singleton (age 41) has been a Vice Chairman of Cypress L.L.C. since
its formation in April 1994. Prior to joining Cypress, he was a Managing
Director in the Merchant Banking Group of Lehman Brothers Inc. Mr. Singleton is
a director of Cinemark USA, Inc., L.P., Williams Scotsman, Inc. and Genesis
ElderCare Corp.
David P. Spalding (age 43) has been a Vice Chairman of Cypress L.L.C. since
its formation in April 1994. Prior to joining Cypress, he was a Managing
Director in the Merchant Banking Group at Lehman Brothers Inc. from February
1991 to April 1994. Mr. Spalding is a director of Lear Corporation, Amtrol Inc.
and Williams Scotsman, Inc.
Bahram Shirazi (age 33) has been a Principal of Cypress L.L.C. since its
formation in April 1994. Prior to joining Cypress, he was a Vice President in
the Merchant Banking Group at Lehman Brothers Inc. from 1992 to 1994.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The members of the Board of Directors of the Company are classified into
three classes, one of which is elected at each Annual Meeting of Shareholders to
hold office for a three-year term and until successors of such class have been
elected and qualified. The following table and text set forth, as of November
25, 1997, as to each director, his or her age, principal occupation and business
experience
I-2
and the period during which each has served as a director of the Company. See
"Board Committees and Meetings" below for information concerning the composition
of Board committees.
SERVED AS
NAME DIRECTOR SINCE AGE
- -------------------------------------------------------------------- ------------------------------------ ---------
DIRECTORS -- TERM EXPIRING 2000
Edward H. Hoornstra................................................. June 1970 76
Charles B. Johnson.................................................. September 1969 64
Kelly Ashton Sant Albano............................................ December 1994 33
DIRECTORS -- TERM EXPIRING 1998
C. Whitcomb Alden, Jr............................................... May 1965 82
Philip B. Harley.................................................... March 1973 79
Richard W. Haskel................................................... February 1981 64
DIRECTORS -- TERM EXPIRING 1999
Harris J. Ashton.................................................... May 1965 65
Christopher A. Forster.............................................. March 1974 65
S. Joseph Fortunato................................................. April 1993 65
Mr. Ashton has been principally employed for more than the past five years
as Chairman of the Board, President and Chief Executive Officer of the Company.
Mr. Ashton is a director or trustee of numerous Franklin/Templeton mutual funds.
He is also a director of RBC Holdings (USA) Inc., a wholly-owned subsidiary of
The Royal Bank of Canada. Mr. Ashton is the father of Ms. Sant Albano.
Mr. Alden has been principally engaged for more than the past five years as
a financial consultant and private investor.
Mr. Forster retired as a Managing Director of Marsh & McLennan,
Incorporated, an insurance broker, on July 1, 1993, a position he had held for
more than five years before that date.
Mr. Fortunato has been a partner of the law firm of Pitney, Hardin, Kipp &
Szuch for more than the past five years. He is also a director or trustee of
numerous Franklin/Templeton mutual funds.
Mr. Harley, a private investor, retired from the boards of numerous mutual
funds of the Keystone Group, Inc. on December 31, 1994, positions he had held
for more than five years before that date.
Mr. Haskel has been President of Haskel Enterprises, Inc. (d/b/a the Delphos
Group), a consulting company involved in management consulting and acquisitions,
for more than the past five years. Prior to June 1, 1995, Mr. Haskel had been
affiliated with the business brokerage firm of Country Business, Inc. for more
than five years.
Mr. Hoornstra has been President of Del-Tem Investment Corporation, a
closely-held investment and real estate management company, for more than the
past five years. Mr. Hoornstra was Vice Chairman of the Board of the Company and
President of its Specialty Retailing Group for more than five years prior to his
retirement in December 1986.
Mr. Johnson has been President and a director of Franklin Resources, Inc., a
financial holding company, and President of Franklin Distributors, Inc., a
mutual fund management company, for more than the past five years. He is also
President and a trustee of Franklin Tax-Free Trust, and a director or trustee of
numerous Franklin/Templeton mutual funds.
Ms. Sant Albano received a B.A. degree from Yale University and an M.B.A.
degree from Harvard Business School. She completed the Macy's executive training
program and worked in both store-line and management positions at Macy's prior
to 1990 and at Bloomingdale's from June 1992 to June 1993. Since 1993, Ms. Sant
Albano has been a private investor.
I-3
BOARD COMMITTEES AND MEETINGS
Executive Committee -- This Committee, which exercises, to the extent
permitted by New York law, all of the powers of the Board during the intervals
between Board meetings, consists of Harris J. Ashton (Chair), Richard W. Haskel
and Charles B. Johnson. During fiscal year 1996, the Executive Committee held no
meetings.
Audit Committee -- This Committee, which monitors the activities of the
Company's auditors and reports on such activities to the Board, consists of
Charles B. Johnson (Chair), Richard W. Haskel and Kelly Ashton Sant Albano.
During fiscal year 1996, the Audit Committee held two meetings.
Compensation Committee -- This Committee, which evaluates and approves the
compensation of executive officers and members of management of the Company and
has overall responsibility for the Company's compensation policies, consists of
Philip B. Harley (Chair), C. Whitcomb Alden, Jr. and Christopher A. Forster.
During fiscal year 1996, the Compensation Committee (the "Committee") held two
meetings.
The Company's Board of Directors (the "Company Board") has no nominating
committee.
The Company Board held six meetings during fiscal year 1996. Each director
attended at least 75% of the aggregate number of meetings of the Company Board
and the committees of the Company Board on which the director served. Each
director attended at least 75% of the aggregate number of meetings of the
Company Board and the committees of the Company Board on which the director
served.
COMPENSATION OF DIRECTORS
Each of the non-management directors of the Company receives fees of $30,000
per annum and $750 for each Company Board and committee meeting attended. During
fiscal year 1996, there were six meetings of the Company Board and a total of
four meetings of its committees. The directors also participate in certain
benefit programs generally available to Company employees.
Upon reaching age seventy-five or after ten years of service as a director,
provided either event has occurred prior to consummation of the Offer (as
hereinafter defined), each non-employee director of the Company becomes eligible
to retire from the Board and, upon retirement, continues to receive an annual
retainer fee (which, as of November 25, 1997, would not exceed $30,000 per year)
for a number of years equal to the number of years served as a director. The
Company has agreed that until all directors serving on the Company Board as of
November 25, 1997 (the "Current Directors") have terminated their service as
Directors, the Company shall take all commercially reasonable steps to continue
to make third-party life insurance company coverage available to each Current
Director who continues to serve as a director on a basis no less favorable
(including, without limitation, face amount of coverage and allocation of cost)
than the current basis, and that the Company shall use its best efforts to
maintain the feature of its group life insurance policy which enables a director
whose service is terminated to obtain continuing life insurance in the same face
amount as his coverage immediately prior to termination without a physical
examination, at the insurer's normal individual rates and at the expense of the
Director. Under the Merger Agreement, the Purchaser has acknowledged the
obligation of the Surviving Corporation to honor these arrangements.
Under the Company's 1994 Non-Employee Directors Stock Option Plan (the
"Directors Plan"), adopted in 1994 and approved by the shareholders in 1995, the
Company granted an option to each of the non-employee directors to purchase
25,000 shares of Common Stock, subject to certain adjustments contemplated under
the Directors Plan. Upon initial appointment or election to the Board, each
non-employee director is granted an option to purchase 25,000 such shares, 20%
of which will be exercisable on the date of grant and an additional 20% of which
will become exercisable on each grant anniversary date. The Directors Plan
contemplates a single grant to each non-employee director. No options were
granted under the Directors Plan in fiscal year 1996.
I-4
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE POLICY
The Company maintains $17.5 million of insurance providing payment either to
the Company for indemnification given its directors or officers, or directly to
its directors and officers, for certain liabilities which the Company's
directors and officers may incur in their respective capacities. The insurance
policy which expired on April 1, 1997 was issued by National Union Fire
Insurance Company. The premium paid under that policy in fiscal year 1996 was
$275,000. The insurance policy extending from April 1, 1997 to April 1, 1998 was
issued by National Union Fire Insurance Company and covers all directors and
officers of the Company and its subsidiaries. The premium for the 1997 policy
year is $230,000. No claims have been paid under either policy.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the best knowledge of the Company,
certain information as to the beneficial ownership of the Company's Common Stock
as of November 24, 1997 by (i) owners of more than 5% of the outstanding Common
Stock of the Company; (ii) each director of the Company; (iii) the executive
officers (other than directors) of the Company; and (iv) all directors and
executive officers, as a group. Except as indicated by footnote, the persons
named in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
SHARES OF
GENERAL HOST
COMMON STOCK
--------------------------
AMOUNT PERCENT
BENEFICIALLY OF
BENEFICIAL OWNERS OWNED(1)(2) CLASS(%)
- ---------------------------------------------------------------------------------- ------------- -----------
Holders Other Than Directors
Gabelli Funds, Inc.
One Corporate Center
Rye, NY 10580-1434............................................................ 2,474,964(3) 10.14
Basil P. Regan &
Regan Partners, L.P.
6 East 43rd Street
New York, NY 10017............................................................ 2,190,430(4) 8.97
Directors
Harris J. Ashton
One Station Place
P.O. Box 10045
Stamford, CT 06904........................................................ 2,304,415(5) 9.21
C. Whitcomb Alden, Jr........................................................... 471,284(6) 1.93
Christopher A. Forster.......................................................... 36,042 *
S. Joseph Fortunato............................................................. 49,609 *
Philip B. Harley................................................................ 176,531 *
Richard W. Haskel............................................................... 31,995 *
Edward H. Hoornstra............................................................. 345,992(7) 1.42
Charles B. Johnson.............................................................. 164,332(8) *
Kelly Ashton Sant Albano........................................................ 104,670(9) *
I-5
SHARES OF
GENERAL HOST
COMMON STOCK
--------------------------
AMOUNT PERCENT
BENEFICIALLY OF
BENEFICIAL OWNERS OWNED(1)(2) CLASS(%)
- ---------------------------------------------------------------------------------- ------------- -----------
Executive Officers Other Than Directors
Robert M. Lovejoy, Jr. ......................................................... 59,496 *
James R. Simpson................................................................ 44,855 *
J. Theodore Everingham.......................................................... 3,000 *
Ernest W. Townsend.............................................................. 300,000 1.21
Scott A. Hessler................................................................ 32,105(10) *
William C. Boyd................................................................. 33,204 *
All Directors and Executive Officers as a Group (14 persons)(11).................. 4,125,425 16.15
- ------------------------
* Represents holdings of less than one percent.
(1) Includes the following numbers of shares of Common Stock held as of November
24, 1997 by the trustee of the General Host Profit Sharing and Savings Plan
for the benefit of the following persons: Mr. Ashton, 46,593; Mr. Lovejoy,
4,059; Mr. Simpson, 2,043; Mr. Boyd, 4,050; and all directors and executive
officers as a group, 56,745.
(2) Includes the following shares of Common Stock subject to options outstanding
and exercisable on or within 60 days after November 24, 1997: Mr. Ashton,
540,000; Mr. Alden, 11,026; Mr. Forster, 11,026; Mr. Fortunato, 27,564; Mr.
Harley, 11,026; Mr. Haskel, 11,026; Mr. Hoornstra, 11,026; Mr. Johnson,
11,026; Ms. Sant Albano, 11,026; Mr. Lovejoy, 32,700; Mr. Simpson, 20,700;
Mr. Everingham, 2,000; Mr. Townsend, 300,000; Mr. Boyd, 22,000; and all
directors and executive officers as a group, 1,022,146.
(3) Number of shares based on Amendment No. 16 to the Schedule 13D dated July
22, 1997, filed with the Commission by Gabelli Funds, Inc. and GAMCO
Investors, Inc. Of these shares, 1,033,879 are receivable by the holders
upon conversion of the Company's convertible debentures held by them.
(4) Number of shares based on Amendment No. 2 to Schedule 13D dated April 8,
1997, filed with the Commission by Regan Partners, L.P. and Basil P. Regan.
According to Amendment No. 2, Regan Partners, L.P., owns 1,669,330 of such
shares, with respect to which it shares voting and dispositive power with
Mr. Regan, the general partner of Regan Partners, L.P., and Mr. Regan owns
521,000 of such shares, with respect to which he has sole voting and
dispositive power.
(5) Includes 24,802 shares of Common Stock directly owned and 11,710 shares
beneficially owned by Mr. Ashton's wife and 68,344 shares of Common Stock
owned by a foundation of which Mr. Ashton is an officer. With respect to the
foregoing, Mr. Ashton disclaims any beneficial ownership. Also includes
44,497 shares receivable upon conversion of the Company's convertible
debentures.
(6) Includes 427,325 shares of Common Stock, as of January 31, 1997, owned by a
pension trust of which Mr. Alden is trustee, which is maintained by the
Company and one of its subsidiaries.
(7) Includes 330,242 shares held under an Intervivos Trust Agreement dated March
29, 1995, pursuant to which Mr. Hoornstra is grantor and trustee with the
sole right to revoke the trust.
(8) Includes 11,710 shares receivable upon conversion of the Company's
convertible debentures.
(9) Includes 11,710 shares receivable upon conversion of the Company's
convertible debentures and 4,167 shares held as custodian for her son.
I-6
(10) This number is as of April 1, 1997, excludes 58,000 options which were
exercisable as of such date but subsequently expired and includes 1,116
shares receivable upon conversion of the Company's convertible debentures.
(11) This row does not include shares held by Mr. Hessler who resigned as
President and Chief Operating Officer of Frank's on January 13, 1997.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal years ended January 29, 1995 (fiscal year 1994), January 28, 1996 (fiscal
year 1995) and January 26, 1997 (fiscal year 1996) for (a) those persons who
were, at January 26, 1997, (i) the Chief Executive Officer ("CEO") and (ii) the
other four most highly compensated executive officers of the Company and (b)
Scott A. Hessler, who would have been included as one of the four most highly
compensated officers but for the fact that he was no longer serving as an
executive officer on that date. The CEO, the four most highly compensated
officers and Mr. Hessler will be referred to collectively as the "Named
Officers".
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL -------------------------------------------------
COMPENSATION
-------------------------------------- AWARDS
OTHER ----------------------------------
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPEN- STOCK UNDERLYING COMPENSA-
PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($)(1) SATION($) AWARDS($)(2) OPTIONS/SARS(#) TION($)(3)(4)
- ---------------------------- ----------- ----------- ------------ ----------- --------------- ----------------- -------------
Harris J. Ashton 1996 839,400 -0- -- -0- 300,000 102,599(5)
Chairman of the Board 1995 824,787 -0- -- -0- 540,000 109,218
President and CEO 1994 754,890 260,000 -- -0- -0- 97,403
Robert M. Lovejoy, Jr. 1996 180,331 -0- -- -0- -0- 576
Vice President and 1995 182,774 -0- -- -0- 3,000 423
Treasurer 1994 182,774 50,000 -- 6,375 -0- 1,933
James R. Simpson 1996 164,331 -0- -- -0- -0- 523
Vice President and 1995 166,774 -0- -- -0- 3,000 384
Controller 1994 166,774 50,000 -- 6,375 -0- 1,899
J. Theodore Everingham (6) 1996 125,000 -0- -- -0- -0- 416
Vice President, General 1995 77,778 -0- -- -0- 2,000 228
Counsel and Secretary
Scott A. Hessler (7) 1996 307,514 -0- -- -0- -0- 1,002
President and COO 1995 310,014 -0- -- -0- 10,000 734
Frank's Nursery & Crafts, 1994 211,933 80,000 160,187(8) -0- 100,000 459
Inc.
William C. Boyd 1996 163,000 -0- -- -0- -0- 543
Executive Vice President 1995 163,000 -0- -- -0- -0- 399
Frank's Nursery & Crafts, 1994 163,000 10,000 -- 6,375 -0- 1,906
Inc.
- ------------------------------
(1) Amounts earned under the Executive Compensation Plan of the Company or
Frank's Nursery & Crafts, Inc., the wholly-owned subsidiary of the Company
("Frank's"), for services rendered in the respective fiscal years.
(2) The shares awarded vested on January 28, 1996.
I-7
(3) Includes the Company's contribution for fiscal year 1994 of 215 shares of
Common Stock to each of Mr. Ashton, Mr. Lovejoy, Mr. Simpson and Mr. Boyd
under the General Host Profit Sharing and Savings Plan with an approximate
value of $1,461.
(4) Includes the portion of the insurance premiums paid by the Company on behalf
of the Named Officers for term life insurance in the following amounts in
fiscal years 1996, 1995 and 1994, respectively: Mr. Ashton, $11,204,
$16,585, $2,061; Mr. Lovejoy, $576, $423, $472; Mr. Simpson, $523, $384,
$438; Mr. Everingham, $416 (1996), $228 (1995); Mr. Hessler, $1,002, $734,
$459; and Mr. Boyd, $543, $399, $445.
(5) Of this amount, $4,077 represents the portion of the premiums paid by the
Company during fiscal year 1996 on the life insurance policies and $87,318
represents the value of the benefit to Mr. Ashton, projected on an actuarial
basis based on the life expectancy of Mr. and Mrs. Ashton, of the remainder
of such premiums.
(6) Mr. Everingham became Vice President, General Counsel and Secretary on July
12, 1995.
(7) Mr. Hessler became President and Chief Operating Officer of Frank's on May
23, 1994, and resigned on January 13, 1997. He received certain transition
services at Frank's expense and received his salary and certain other
benefits through July 13, 1997.
(8) Of this amount, $160,090 represents relocation expenses paid to or on behalf
of Mr. Hessler.
OPTION GRANTS
The table below sets forth certain information regarding grants of stock
options pursuant to the Company's Amended and Restated 1986 Stock Incentive Plan
(the "1986 Plan") or its 1996 Stock Incentive Plan (the "1996 Plan") during the
fiscal year ended January 26, 1997 to the Named Officers.
OPTION/SAR GRANTS IN FISCAL YEAR 1996
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
- ------------------------------------------------------------------------------------------------------ STOCK PRICE
% OF TOTAL OPTIONS/ APPRECIATION FOR
NUMBER OF SECURITIES SARS GRANTED TO OPTION TERM($)(4)
UNDERLYING OPTIONS/ EMPLOYEES IN FISCAL EXERCISE OR BASE EXPIRATION --------------------
NAME SARS GRANTED(#)(1) 1996(%)(2) PRICE ($/SH)(3) DATE 5% 10%
- ---------------------- --------------------- --------------------- ------------------- ----------- --------- ---------
Harris J. Ashton...... 300,000 49.75 3.1875 01/13/02 264,194 583,800
Robert M. Lovejoy,
Jr................... 0 -- -- -- -- --
James R. Simpson...... 0 -- -- -- -- --
J. Theodore
Everingham........... 0 -- -- -- -- --
Scott A. Hessler...... 0 -- -- -- -- --
William C. Boyd....... 0 -- -- -- -- --
- ------------------------
(1) The relevant Stock Option Agreement provides that shares may be paid for by
delivery of a promissory note bearing interest at a rate determined by the
Committee and repayable on such terms as the Committee may from time to time
determine. Upon receipt of notice of exercise of an option, the Committee
may, in lieu of delivering shares, make an appreciation distribution in cash
equal to the difference between the option price and the fair market value
of the stock on the date notice of exercise is received multiplied by the
number of shares for which the option is exercised. The Committee may
authorize a tax loan in an amount equal to the federal, state and local
taxes that may be due as a result of the option or SAR exercise. If a change
of control (as defined in the 1996 Plan) occurs prior to the date the option
becomes exercisable, the option becomes exercisable thirty days after such
event unless otherwise directed by a majority of the Board.
I-8
(2) The Company granted options representing a total of 603,000 shares to
employees in fiscal year 1996.
(3) The option was granted at an option price per share equal to the mean
between the high and low sales prices of the Company's Common Stock on the
New York Stock Exchange -- Composite Transactions Index on the date of
grant, was immediately exercisable for 100% of the shares and has a
five-year term.
(4) The dollar amounts are the result of calculations at the 5% and 10% rates
set by the Securities and Exchange Commission and are not intended to
forecast any possible future appreciation, if any, of the Company's stock
price.
OPTION EXERCISES/YEAR-END VALUES
The following table sets forth information with respect to the unexercised
options and/or SARs to purchase the Company's Common Stock granted in fiscal
year 1996 and prior years to the Named Officers and held by them as of January
26, 1997.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1996 AND
1996 FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS/ SARS
SHARES ACQUIRED ON AT FISCAL
NAME EXERCISE(#) VALUE REALIZED($) YEAR- END($)
- ----------------------------- ------------------- ----------------- -------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS/
SARS AT FISCAL YEAR END(#)
-----------------------------------
UNEXERCISABLE
EXERCISABLE (1) -----------------
----------------
Harris J. Ashton............. 0 0 540,000 0 $ 56,250(2)
Robert M. Lovejoy, Jr. ...... 0 0 32,700 1,800 0(3)
James R. Simpson............. 0 0 20,700 1,800 0(3)
J. Theodore Everingham....... 0 0 2,000 3,000 0(3)
Scott A. Hessler............. 0 0 58,000 42,000 0(3)
William C. Boyd.............. 0 0 22,000 0 0(3)
- ------------------------
(1) All of these options are deemed exercisable. However, they include options
held by Messrs. Lovejoy and Simpson for 7,500 shares each and by Mr. Boyd
for 10,000 shares, which cannot be exercised until the closing price of the
Company's Common Stock reaches $12.635 per share, as adjusted for the 1994,
1995 and 1996 stock dividends, and remains at or above $12.635 per share for
ten consecutive business days.
(2) Represents the value of an unexercised option to purchase 300,000 shares at
$3.1875 per share, based on the average of the high and low prices of the
Company's Common Stock on the New York Stock Exchange -- Composite
Transactions Index on January 24, 1997 ($3.375 per share). The exercise
price of the unexercised option to purchase the other 240,000 shares was
greater than such average price.
(3) The average of the high and low prices on the New York Stock Exchange --
Composite Transactions Index of the Company's Common Stock on January 24,
1997 ($3.375 per share) did not exceed the exercise prices of the options
and SARs.
I-9
COMPENSATION POLICIES
The Committee, which is comprised of three non-employee directors, is
responsible for guiding the Company and Frank's Nursery & Crafts, Inc., the
Company's wholly-owned operating subsidiary ("Frank's"), in the development and
implementation of the Company's compensation policies, plans and programs. The
Company's policies, plans and programs are designed to align levels of
compensation with the Company's performance, reward achievement of individual
goals, and attract, motivate and retain high performing executives.
In connection with its responsibility to guide the Company's policies, plans
and programs, the Committee approves the annual compensation of the Company's
executive officers and other members of management, which consists primarily of
base salary, bonus, stock options, restricted stock grants and SARs. The
Committee also approves, on an annual basis, the terms of the General Host
Executive Compensation Program (the "Program") and the terms of the Frank's
Executive Compensation Program (the "Frank's Program").
The Committee also has the authority to award stock options, restricted
stock and SARs to certain officers and key employees of the Company and Frank's
pursuant to the terms of the 1996 Plan and had such authority under the 1986
Plan, which expired by its terms on March 19, 1996 (the 1986 Plan and the 1996
Plan together are referred to herein as the "Plan").
The intended purposes of the Program, the Frank's Program and the Plan are
to: (a) promote the interests of the Company and its shareholders by attracting
and retaining officers and other key employees of exceptional ability; (b)
maximize the Company's long-term success and investment return to shareholders;
(c) provide officers and key employees important to the Company's sustained
growth with a proprietary interest and greater incentive to contribute to the
success of the Company through ownership of Company shares; and (d) provide
long-term incentive opportunities for officers and other key employees which are
competitive with those offered by other corporations in the business and
geographic areas the Company operates.
In order to further align the interests of the Company's officers with the
interests of the Company's other shareholders, the Committee adopted and
implemented the General Host Executive Stock Ownership Policy in January, 1994.
The policy requires officers of the Company and Frank's who serve in the
capacity of Vice President or above to achieve a minimum ownership target of the
Company's Common Stock within five years from the date of initial participation.
The target for the CEO is three times salary. The target for Mr. Hessler, who
left the Company on January 13, 1997, was three times salary. Mr. Hessler was
succeeded as Chief Operating Officer of Frank's on that date by Ernest W.
Townsend, who also was elected Executive Vice President of the Company. Mr.
Townsend's target is three times salary. Mr. Boyd's target is two times salary,
and the target for the others is one times salary.
ELEMENTS OF EXECUTIVE OFFICER COMPENSATION
BASE SALARIES
The Company maintains salary grades and ranges for its executive officers
based on the practices of other companies with revenues and operating
characteristics similar to those of the Company and Frank's, geographic criteria
and responsibility level. Using the salary grades and ranges as a guideline, the
Company establishes salaries at levels necessary to attract and retain talented
executive officers and other key employees.
The Committee's approval of salary increases for executive officers depends
on the Company's performance in the prior fiscal year, achievement of
individual, non-financial objectives, overall personal performance and placement
in the salary grade. The Committee gives no predetermined weight to the
achievement of the non-financial objectives established by the executive
officers annually, as discussed below, when considering salary increases.
I-10
BONUSES
The Program provides that the executive officers of the Company are eligible
to receive bonus payments based on the achievement of corporate profit
objectives and specific individual objectives. The profit objectives contained
in the Program are based on net income per share of the Company for the fiscal
year, as established by the Committee at the beginning of each fiscal year. The
individual, non-financial objectives consist of four or five major goals that
are individually tailored to each function performed by the executive officers
and incorporate the contribution of that individual's department into the
overall objectives of the Company. In addition, if the Company achieves a
certain "corporate target result" established by the CEO and approved by the
Committee in the beginning of each fiscal year, bonuses otherwise earned are
increased. At the discretion of the Company, bonuses paid under the Program may
be paid in shares of Common Stock of the Company.
The total bonus payment for Mr. Townsend, as President of Frank's, may not
exceed 60% of his base salary, while the total bonus payments for each of the
other executive officers may not exceed 48% of their base salaries. Certain
restrictions on payments of bonuses exist if the Company does not pay dividends
(cash or stock) on its Common Stock or if the Company would report a loss for
the applicable fiscal year due to the payment of a bonus. If profit targets are
not attained, a reasonable and appropriate bonus may be awarded by the Committee
to an individual whose performance was otherwise outstanding.
Pursuant to the terms of the Frank's Program, certain executive officers of
Frank's and other selected management of Frank's are eligible to receive bonuses
ranging from 3% to 48% of their base salaries based on the achievement of
predetermined levels of operating income and on specific individual objectives
as predetermined by the individual's immediate superior and approved by the CEO.
The Committee approves the Frank's Program and the levels of operating income at
the beginning of each fiscal year. The Frank's Program contains the same general
restrictions and features as the Program. Furthermore, at the discretion of the
Company, bonuses paid under the Frank's Program may be paid in shares of Common
Stock of the Company.
Although the Committee has the authority to waive performance or
profitability criteria under the Program and Frank's Program when awarding
salary increases or when granting bonuses, it did not do so, and the executive
officers earned no bonuses for services rendered in fiscal year 1996.
OPTIONS AND RESTRICTED STOCK
The Committee grants options under the Plan to executive officers of the
Company and Frank's based on the following considerations: (a) the position and
responsibilities of the person being considered; (b) the nature of the services
and the accomplishments of the individual; (c) the value to the Company of the
services; (d) the individual's present and potential contributions to the
success of the Company; and (e) such other factors as the Committee deems
relevant to accomplishing the purposes of the Plan, including the value of
options currently held by the individual. The purchase price of the Common Stock
underlying an option shall not be less than the fair market value of the Common
Stock on the day the option is granted. Options granted under the Plan vest in
varying percentages over five years from the date of grant. Payment for option
shares may be made in (a) cash; (b) Common Stock; (c) a combination of both; or
(d) at the discretion of the Committee, on a case by case basis, by promissory
notes. In fiscal year 1996, the Committee awarded non-qualified stock options to
each of Messrs. Ashton and Townsend to purchase 300,000 shares of the Company's
Common Stock.
CEO COMPENSATION
Mr. Ashton, the CEO, is subject to an employment contract commencing January
1, 1992 and expiring on December 31, 2000. The terms of the employment contract
are set forth under "Employment Contract, Severance Arrangements and Other
Arrangements" of this Schedule 14F-1.
I-11
In 1995, upon the elimination of the salary freeze in 1994, the base salary
of Mr. Ashton was automatically increased to the 1995 base salary established by
the terms of his employment contract. Notwithstanding the fact that his contract
provided for a salary increase effective January 1, 1996, Mr. Ashton agreed to
freeze his salary in 1996, except for purposes of computing his retirement
benefit. Effective January 1, 1997, Mr. Ashton's salary was increased to the
1997 base salary established by the terms of his employment contract. Under his
employment contract, Mr. Ashton's base salary is to increase by 5% for each of
1998, 1999 and 2000.
In January of each year for the following fiscal year, the Committee
develops and measures the CEO's non-financial objectives under the Program to
determine his eligibility for bonus payments. The CEO is eligible to receive a
bonus payment not to exceed 60% of salary based on the combination of Company
and individual objectives described above relative to the Program. The CEO was
not awarded a bonus under the Program for services rendered in fiscal year 1996.
Under the terms of his employment contract, the CEO is entitled to receive a
stock gain award as an additional incentive to the CEO to concentrate on taking
all necessary measures to enhance shareholder value. The CEO did not receive a
stock gain award for 1996.
The retirement benefit was granted to Mr. Ashton by the Company in
recognition of what will be, at the expiration of his current employment
contract, over 30 years in senior management of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the Company's 1996 fiscal year, Mr. Harley (Chair), Mr. Alden and Mr.
Forster were the members of the Committee.
During fiscal year 1992, Mr. Alden exercised an option for 15,000 shares and
elected to defer the purchase price of the option, as provided by the terms of
the Company's Directors' Stock Option Plan then in effect. Mr. Alden executed a
promissory note in the amount of $109,650 due five years from the date of
execution with interest at the rate of 6% per annum. Mr. Alden also elected to
borrow from the Company, on the same terms as noted above, an amount equal to
his tax liability as a result of the exercise, as provided by such plan. The
largest aggregate amount outstanding with regard to Mr. Alden's indebtedness to
the Company during fiscal year 1996 was $123,650. As of April 1, 1997, the
amount of indebtedness outstanding under Mr. Alden's notes was $123,650.
During fiscal year 1996, Mr. Alden served as trustee of a pension trust
maintained by the Company and one of its subsidiaries. Mr. Alden received a
total of $27,000 in 1996 in compensation from this trust for serving in this
capacity.
EMPLOYMENT CONTRACT, SEVERANCE AND OTHER ARRANGEMENTS
CEO EMPLOYMENT CONTRACT
The Company entered into an employment contract, as amended, with Mr.
Ashton, commencing January 1, 1992 and continuing until December 31, 2000,
pursuant to which Mr. Ashton would be employed as Chairman and Chief Executive
Officer of the Company.
The employment contract provides that Mr. Ashton receive a minimum annual
base salary of $917,573 for calendar year 1997, which minimum annual base salary
increases by 5% for each of calendar years 1998, 1999 and 2000. If Mr. Ashton
becomes permanently disabled, dies or his employment is terminated by the
Company during the term of the contract, the Company shall pay him or his estate
his annual base salary through the date of termination or, in the event of death
or disability, through the end of the month in which the death or disability
occurs. He also will receive a lump sum payment in cash equal to the discounted
present value of 50% (100% in the event of termination without cause) of the
annual base salary he would have received through the end of the contract, or if
greater, for
I-12
the twenty-four months following his termination, death or disability (in which
case Mr. Ashton's final annual base salary under the contract would be continued
for any part of the twenty-four month period occurring after December 31, 2000).
Under the employment contract, Mr. Ashton may elect to deem his employment
terminated without cause in the event of a change in control of the Company
(including the Offer as defined hereinafter) or a change in any of the material
terms and conditions of his employment. A change in control under Mr. Ashton's
employment contract would occur upon, among other things, any person becoming a
direct or indirect beneficial owner of 20% or more of the voting securities of
the Company.
Under the terms of his employment contract, Mr. Ashton is entitled to a
retirement benefit as of January 1, 1998, or, if earlier, upon his termination
of employment with the Company for any reason (except certain voluntary
terminations prior to a change in control of the Company) in an amount equal to
(i) the then-discounted present value, determined by using a discount rate of 6%
per year and the 1971 Group Annuity Table, of a monthly benefit (payable for
life) equal to 3% of his average monthly cash salary during the last 36 months
of his employment multiplied by the number of years of his service to the
Company, less (ii) $3,442,302, representing amounts previously paid to Mr.
Ashton on account of such retirement benefit, plus imputed after-tax earnings
thereon.
Under the employment contract, Mr. Ashton is entitled to participate in the
Company's incentive compensation plans and programs generally available to the
Company's senior executives, and upon execution of the employment contract was
granted an option to purchase 300,000 shares of the Company's Common Stock. Mr.
Ashton is also entitled to receive a stock gain award determined at the end of
each calendar year based on the excess of the average of the weekly closing
prices for the Company's Common Stock for the year over the greater of (i) $7.50
(representing the average of the weekly closing price for 1991) increased by 4%
each year and (ii) the average of the weekly closing prices for the last year
for which a stock gain award was paid. The excess, if any, is then multiplied by
the product of 2% and the average number of shares outstanding for the
applicable year.
During the term of the employment contract, Mr. Ashton is entitled to
participate in all employee benefit programs and shall be reimbursed for any
medical or dental expenses incurred by him or any members of his immediate
family under the age of 26 or living at home, to the extent not otherwise paid
under Company-sponsored plans or programs. Mr. Ashton and his wife are also
entitled to fully paid medical benefits, consistent with those paid under the
contract, for the rest of their lives.
Mr. Ashton is entitled under the employment contract to indemnification
consistent with Section 26 of the By-Laws as in effect on January 1, 1992.
If any payments to be made to Mr. Ashton under the employment contract are
subject to an excise tax under Section 4999 of the Internal Revenue Code, the
Company shall pay Mr. Ashton an additional amount which, after income and
further excise taxes, equals such excise tax.
Under the terms of the employment contract and the Agreement and Plan of
Merger between Cyrus Acquisition Corp. ("Cyrus") and the Company dated as of
November 22, 1997 (the "Merger Agreement"), providing for a tender offer for all
of the outstanding shares of the Company's Common Stock for $5.50 (the "Offer")
consummation of the Offer would constitute a change in control as defined in the
employment agreement. Upon consummation of the Offer, Mr. Ashton may elect to
deem his employment terminated without cause and would be entitled to severance,
retirement and other benefits in an amount equal to approximately $7.1 million,
excluding on-going benefits and tax gross-ups. The Company expects that Mr.
Ashton will terminate his employment shortly after consummation of the Offer.
SEVERANCE AND OTHER ARRANGEMENTS
The Company has severance arrangements with each of the following four
executives of the Company and its subsidiary, Frank's: Robert M. Lovejoy, James
R. Simpson, J. Theodore Everingham
I-13
and Ernest W. Townsend. Severance benefits are payable to each of the four
executives only in the event of a termination by the Company without cause or a
termination by the executive with good reason and only if such termination
occurs between the date of the execution of the Merger Agreement and the first
anniversary of the effective time of the Merger. Within five days following any
such qualifying termination of an executive's employment, the Company will pay
the executive a lump sum, based on the higher of the executive's annual base
salary immediately prior to the execution of the Merger Agreement or the annual
base salary immediately prior to the executive's termination of employment. In
the case of Mr. Lovejoy, the lump sum will be equal to 100% of such annual base
salary. In the case of Messrs. Simpson, Everingham and Townsend, the lump sum
will be equal to 50% of such annual base salary. In addition to the severance
payment, the Company will also pay all COBRA premiums for and provide to each
executive who has such a qualifying termination of employment continuing medical
insurance benefits which are substantially similar to the benefits provided him
immediately prior to the date of execution of the Merger Agreement (including
any coverage for spouse and dependents) for a period of one year. In the event
Messrs. Lovejoy's, Simpson's, Everingham's or Townsend's employment is
terminated on or before the first anniversary of the effective time of the
Merger by the Company without cause or by such executive for good reason, the
Company would be obligated to pay each of Messrs. Lovejoy, Simpson, Everingham
and Townsend, $183,000, $83,500, $67,500 and $200,000, respectively (calculated
using current annual base salaries) and to provide medical benefits for one year
(as described above). The obligation of the Surviving Corporation to honor these
arrangements is acknowledged by the Purchaser.
In November, 1989, the Company and a trust established for the benefit of
Mr. and Mrs. Ashton's beneficiaries entered into an agreement pursuant to which
the Company will pay the premiums for two survivorship life insurance policies
on the lives of Mr. and Mrs. Ashton. Benefits become payable when both have
died, and the Company will have an interest in the death benefits equal to the
amount it has paid for these policy premiums. Under the agreement, the Company's
obligation to make annual premium payments continues until the earliest of: (1)
the deaths of both Mr. and Mrs. Ashton; (2) the Company shall have made 12
payments of the full annual cash premiums; (3) the Company shall have paid an
aggregate of $1,500,000 for premiums; or (4) the premium payment next due after
the year in which premiums may be paid in full from the sum available from
dividends or other sums generated by the policies. The payment for these
policies for fiscal 1996 was $116,814.
CERTAIN RELATED TRANSACTIONS
The Company and Frank's have loaned money to certain key employees of the
Company for the purpose of enabling them to purchase shares of the Company's
Common Stock or, in certain cases, debentures. These loans, approved by the
Committee of the Company Board, are evidenced by interest-only promissory notes
payable in lump sum payments five years from the dates made and bearing interest
at the rate of 6% per annum. The executive officers, other than Mr. Ashton, who
is discussed below, had such loans outstanding as of November 25, 1997 in the
following principal amounts: Robert M. Lovejoy, Jr., $151,614; James R. Simpson,
$90,351; and William C. Boyd, $44,744. The amounts outstanding on November 25,
1997 were the largest aggregate principal amounts outstanding during fiscal year
1997 to date. During fiscal year 1997, the Committee extended by five years a
loan to each of Mr. Lovejoy and Mr. Simpson in the principal amount of $49,851
and $21,394 respectively, which are included in the amount outstanding on
November 25, 1997. In June 1997, the Committee approved the forgiveness of the
principal amount of, and all accrued and unpaid interest on, the outstanding
loans to each of Messrs. Lovejoy, Simpson and Boyd from the Company and to
defray the Company's withholding obligations with respect thereto in the event
of a change in control of the Company, provided such executive is then employed
by the Company. As of November 25, 1997, the outstanding principal amounts on
Messrs. Lovejoy's, Simpson's and Boyd's loans were $151,614, $90,351, and
$44,744, respectively, each of which will be forgiven upon consummation of the
Offer.
I-14
On August 22, 1990, Mr. Ashton had outstanding deferred payments on options
totaling $831,250, which were then due the Company. On that date, Frank's made a
loan to Mr. Ashton in the amount of $831,250, the proceeds of which were used to
pay the outstanding deferred payments due the Company. The loan from Frank's was
evidenced by a promissory note bearing interest at the rate of 6% and payable in
full on August 22, 1995 (the "Old Note"). Mr. Ashton elected to prepay $177,294
of the Old Note in March, 1991 and $25,000 in February, 1992. On August 22,
1995, Frank's authorized the cancellation of the Old Note and the issuance of a
new loan to Mr. Ashton due August 22, 2000 in the principal amount of $628,956,
bearing interest at 6% per annum, subject to Mr. Ashton's payment of interest on
the Old Note in the amount of $8,479.
On March 7, 1991, Mr. Ashton elected to defer the payment of the purchase
price from the exercise of options for 225,000 shares of Common Stock in the
amount of $1,381,253, which was due March 6, 1996. Mr. Ashton elected to prepay
$25,000 of this loan in March, 1993. On March 6, 1996, Frank's made a loan to
Mr. Ashton in the amount of $1,356,253, the proceeds of which were used to pay
the outstanding deferred payments due the Company. The loan from Frank's was
evidenced by a promissory note bearing interest at the rate of 6% and payable in
full on March 6, 2001.
On December 30, 1992, Mr. Ashton elected to defer the payment of the
purchase price from the exercise of options for 60,000 shares of Common Stock in
the amount of $495,000 which would be due on December 29, 1997.
The Committee approved, effective June 2, 1997, a reduction in the
$2,480,208.50 aggregate principal amount of the promissory notes given by Mr.
Ashton to the Company to $1,231,341. The outstanding principal amount on such
promissory note was thereby reduced to the amount equal to the aggregate fair
market value on June 2, 1997 of the Shares purchased with the proceeds of the
original promissory notes. As of November 25, 1997, the Company held a
promissory note from Mr. Ashton in the principal amount of $1,231,341.
For certain other related transactions see "Compensation Committee
Interlocks and Insider Participation" in this Schedule 14F-1.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the issued and
outstanding Shares, to file with the SEC and the New York Stock Exchange initial
reports of ownership and reports of changes in beneficial ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
officers, directors and greater than ten percent beneficial owners were complied
with during 1996.
I-15
[LOGO] EXHIBIT 5
November 21, 1997
Board of Directors
General Host Corporation
One Station Place
Stamford, CT 06902
Members of the Board:
You have asked us to advise you with respect to the fairness from a financial
point of view to the stockholders of General Host Corporation (the "Company") of
the consideration to be received by such stockholders pursuant to the terms of a
proposed agreement and plan of merger (the "Merger Agreement") between Cyrus
Acquisition Corp. (the "Purchaser"), a company organized by The Cypress Group
L.L.C., and the Company. Pursuant to the Merger Agreement, the Purchaser will
commence a tender offer (the "Offer") for all of the issued and outstanding
shares of common stock, par value $1.00 per share, of the Company (the "Company
Common Stock") at $5.50 per share in cash. Following the Offer, the Purchaser
will be merged with and into the Company (the "Merger") and, in connection
therewith, each share of Company Common Stock other than shares owned by the
Purchaser and Dissenting Shares (as defined in the Merger Agreement) will be
converted into the right to receive $5.50 per share in cash or any higher price
that may be paid pursuant to the Offer. The Merger Agreement requires the
Company to commence a tender offer as soon as practicable for its 11 1/2% senior
notes due 2002 (the "Debt Offer").
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to the Company, as well as a draft dated
November 20, 1997 of the Merger Agreement. We have also reviewed certain other
information, including financial forecasts, provided to us by the Company and
have met with the Company's management to discuss the business and prospects of
the Company.
We have also considered certain financial and stock market data of the Company,
and we have compared those data with similar data for other publicly held
companies in businesses similar to the Company and we have considered the
financial terms of certain other business combinations and other transactions
that have recently been effected. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not been requested to make, and have not made, an independent
evaluation or appraisal of the assets or liabilities
[LOGO] Board of Directors
November 21, 1997
Page 2
(contingent or otherwise) of the Company, nor have we been furnished with any
such evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist and can be evaluated on the
date hereof. We were not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
We have acted as financial advisor to the Company in connection with the Offer
and the Merger and will receive a fee for our services, a significant portion of
which is contingent upon the consummation of the Offer. We also will act as
co-dealer manager for the Debt Offer. In the ordinary course of our business, we
and our affiliates may actively trade the debt and equity securities of the
Company for our and such affiliates' own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Offer and
the Merger, does not constitute a recommendation to any holder of Company Common
Stock as to whether or not such holder should tender shares pursuant to the
Offer or how such holder should vote on the Merger, and is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus or
proxy statement, or in any other document used in connection with the offering
or sale of securities, nor shall this letter be used for any other purposes,
without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the cash consideration to be received by the holders of Company Common
Stock in the Offer and the Merger is fair from a financial point of view to such
holders.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION