As filed with the Securities and Exchange Commission on December 7, 2001
Registration No. 333-65226
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 8
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
ARAMARK WORLDWIDE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 5812 23-3086414
(Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
(215) 238-3000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(302) 658-7581
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C> <C>
Vincent Pagano, Esq. Bart J. Colli, Esq. John W. White, Esq.
Arthur D. Robinson,
Esq. ARAMARK Corporation Cravath, Swaine & Moore
Simpson Thacher &
Bartlett ARAMARK Tower Worldwide Plaza
425 Lexington Avenue 1101 Market Street 825 Eighth Avenue
New York, New York
10017 Philadelphia, Pennsylvania 19107 New York, New York 10019
(212) 455-2000 (215) 238-3000 (212) 474-1000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [_]
---------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until this registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 7, 2001
PROSPECTUS
30,000,000 Shares
[LOGO OF ARAMARK]
ARAMARK CORPORATION
Class B Common Stock
-----------
We are offering 30,000,000 shares of Class B common stock.
No public market currently exists for the Class B common stock. We anticipate
that the public offering price will be between $20.00 and $23.00 per share. Our
Class B common stock has been approved for listing on the New York Stock
Exchange under the symbol "RMK."
Investing in our Class B common stock involves risks. See "Risk Factors"
beginning on page 12.
-----------
Neither the Securities and Exchange Commission nor any other securities
regulator has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price......................................... % $
Underwriting discount......................................... % $
Proceeds, before expenses..................................... % $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an additional
4,500,000 shares from us at the public offering price less the underwriting
discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares of Class B common stock against
payment in New York, New York on , 2001.
Goldman, Sachs & Co. JPMorgan
Morgan Stanley
Salomon Smith Barney Wachovia Securities
, 2001
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 12
Special Note about Forward-Looking Statements............................ 23
Use of Proceeds.......................................................... 24
Dividends................................................................ 25
Capitalization........................................................... 26
Selected Consolidated Financial Data..................................... 29
Unaudited Pro Forma Financial Information................................ 31
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 35
Business................................................................. 45
Recent Development....................................................... 69
Management............................................................... 71
Principal Stockholders................................................... 85
Certain Relationships and Related Transactions........................... 87
The Merger and the Stock Buyback......................................... 89
Description of Capital Stock, Certificate of Incorporation and Bylaws.... 91
Transactions in Our Old Common Stock..................................... 101
Description of Indebtedness.............................................. 103
Certain Income Tax Consequences to Non-U.S. Holders...................... 105
Shares Eligible for Future Sale.......................................... 108
Underwriting............................................................. 112
Legal Matters............................................................ 115
Experts.................................................................. 116
Where You Can Find More Information...................................... 117
Index to Financial Statements............................................ F-1
</TABLE>
In this prospectus, we use the terms ARAMARK, we, us and our to refer to
ARAMARK Corporation prior to our merger with and into our wholly owned
subsidiary, ARAMARK Worldwide Corporation, and we also use such references to
mean ARAMARK Worldwide Corporation after the merger. Upon completion of the
merger, ARAMARK Worldwide Corporation will change its name to ARAMARK
Corporation. We are filing a Registration Statement on Form S-4 in connection
with the merger. We use the term Class A common stock to refer to our Class A-
1, Class A-2 and Class A-3 common stock. Our certificate of incorporation
provides for a conversion of Class A-1, Class A-2 and Class A-3 common stock
into Class B-1, Class B-2 and Class B-3 common stock if an employee leaves our
company. In addition, our new certificate of incorporation will permit holders
of shares of Class A-1, Class A-2 and Class A-3 common stock to convert such
shares into shares of Class B-1, Class B-2 and Class B-3 common stock,
respectively, at any time. Unless the distinction is relevant, we use the term
Class B common stock to refer to our unrestricted Class B common stock and our
Class B-1, Class B-2 and Class B-3 common stock.
We file reports and other information with the SEC, but our common stock,
which is subject to various restrictions, is not publicly traded. You should
rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from the
information contained in this prospectus. We are offering to sell, and seeking
offers to buy, the unrestricted Class B common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date on the front cover of this
prospectus, regardless of when this prospectus is delivered or when any sale of
our unrestricted Class B common stock occurs.
All information in this offering assumes that the merger described in The
Merger and the Stock Buyback is completed before the commencement of this
offering. Completion of the merger is a condition to the consummation of this
offering.
Prospectus Summary
This summary highlights information contained elsewhere in this prospectus
and may not include all of the information that you should consider before
deciding to invest in our unrestricted Class B common stock. Our fiscal year
ends on the Friday nearest September 30 in each year and is subject to change
by resolution of the board of directors. When we refer to fiscal years, we say
fiscal and the year number as in fiscal 2001. In this prospectus, references to
leading and largest or references related to a position in a market are based
on fiscal 2000 sales. We urge you to read the entire prospectus carefully,
including Risk Factors, and the financial statements and the notes to those
financial statements included in this prospectus.
ARAMARK Corporation
We are a leading provider of a broad range of outsourced services to
business, educational, healthcare and governmental institutions and sports,
entertainment and recreational facilities. We have leadership positions in food
and support services, uniform and career apparel services and childcare and
early education. We seek to continue to capitalize on favorable outsourcing
trends by offering a large and diverse client base an expanding portfolio of
services to meet their outsourcing needs. In fiscal 2001, we reported sales of
approximately $7.8 billion and net income of approximately $176.5 million. Over
the past five years, primarily by expanding our food and support service
offerings, maintaining our diverse base of existing client relationships,
maintaining high retention rates and increasing our uniform capabilities, we
have achieved compound annual sales growth of 7.6% and compound annual
operating income growth of 9.6%, adjusted to exclude two divested non-core
business lines. We believe we will continue to rapidly grow our business by
capitalizing on the continuing growth of the outsourcing market, our market
leadership positions and the added access to capital that this offering will
provide us.
The following diagram provides a brief overview of our business:
[GRAPH]
ARAMARK
Business Food and Uniform and Educational
Groups: Support Services Career Apparel Resources
Operating Direct Educational
Segments: United States International Rental Marketing Resources
Fiscal
2000(a):
Sales: $4,782.1 $1,109.3 $995.2 $438.8 $463.3
Operating
Income: $264.7 $39.4 $119.7 $15.6 $25.4
Services: Food, Food, Rental, Direct Infant,
refreshment, refreshemnt, sale, marketing toddler,
support support cleaning, of person- pre-
services, services, mainten- alized school
facility facility ance and uniforms, and
maintenance maintenance delivery career school age
and house- and house- of apparel learning
keeping keeping personal- and programs
ized public
uniform safety
and career equipment
apparel and
other items
----------
(a) Dollars in millions. Operating income excludes $26.7 million of corporate
and other expenses.
1
We are the second largest food service company in the United States. In most
of the other countries in which we operate we are among the top three. Our
uniform and career apparel business is the second largest in the United States
and provides both rental and direct marketing services. Our childcare and early
education business is the second largest in the United States, serving more
than 100,000 children. Through our expansive service offerings and geographic
presence, our approximately 200,000 employees serve millions of clients and
customers around the world, providing services that are key to the successful
operations of our clients.
Our Strengths
Our principal strengths include:
. Leadership in the Growing Outsourced Services Market. Allows us to
capitalize on the growth of outsourcing worldwide, which is outpacing
overall economic growth.
. Broad Portfolio of Services. Enables us to meet a wide variety of our
clients' outsourcing needs and provides us with numerous opportunities
for continued growth.
. Diverse Client Base and Strong Client Retention. Provides us with a
large, multifaceted source of sales, earnings and cash flow.
. Significant Scale and Strong Operating Infrastructure. Enables us to
efficiently deploy our large and flexible workforce and realize
economies of scale.
. Entrepreneurial Culture and High Level of Employee Ownership. Focuses
our people on the creation of shareholder value and effectively aligns
their interests with those of our company and our other stockholders.
Our Strategies
Building on these strengths, we will continue our growth through the
following strategies:
. Capitalize on Favorable Outsourcing Trends. Our markets continue to grow
as more organizations decide to outsource non-core support services, and
we believe we are well positioned to capitalize on this trend. Our
strategy includes identifying and educating existing and potential
clients in current and new sectors on the benefits of outsourcing non-
core activities.
. Increase Base Sales Through Expanded Client Partnerships. A key element
of our growth strategy is to increase sales at our existing client
locations by:
-- increasing the participation in our service offerings by our clients'
employees, students, patients and customers and increasing the per
capita spending by consumers of our services primarily through
innovative marketing and merchandising programs directed at the
ultimate consumers of our services; and
-- providing additional services to our clients by expanding their use
of our broad array of services.
. Expand Margins by Realizing Additional Operating Efficiencies. Our scale
and infrastructure allow us to effectively manage our labor, food and
uniform costs. We believe we can continue to expand margins through the
increasingly efficient use of our workforce, the application of
information systems, expanded purchasing and inventory management
programs and increased in-house uniform manufacturing.
2
. Increase Penetration of International Markets. We believe that the
significant size and low penetration rates of international markets
present a substantial growth opportunity. We intend to increase our
presence in those places in which we currently operate and to expand
into additional countries.
. Pursue and Integrate Strategic Acquisitions. We intend to continue to
strengthen our existing business through additional acquisitions and
strategic investments in the United States and other countries, such as
our recent acquisition of ServiceMaster Management Services and related
entities. We believe this offering will better position us to take
advantage of strategic opportunities by providing a publicly traded
equity security and by increasing our financial flexibility.
Risks Relating to Our Business and to this Offering
As part of your evaluation of us, you should take into account the risks we
face in our business and not solely our competitive strengths and business
strategies. Our operations may be affected by prevailing economic conditions,
including the ramifications of the September 11th terrorist attacks, our
business depends on our ability to hire qualified personnel, our growth
strategy involves risks, our future performance depends on our ability to
integrate and derive the expected benefits from our acquisition of
ServiceMaster Management Services and we are subject to government regulation.
Each of our three business groups is subject to additional risks. You should
also be aware that there are various risks involved in investing in our common
stock, including risks relating to, among other things, future sales of a
substantial amount of Class B common stock, dilution to our investors,
potential volatility of our future stock price and continuing voting control by
existing stockholders. For more information about these and other risks, see
"Risk Factors" beginning on page 12. You should carefully consider these risk
factors together with all of the other information included in this prospectus.
3
The Offering
Unrestricted Class B common stock 30,000,000 shares
offered.............................
Common stock estimated to be
outstanding immediately after this
offering and before the stock
buyback:
Class A common stock............ 167,333,570 shares
Class B common stock............ 30,000,000 shares
Total........................ 197,333,570 shares
_____________
_____________
Assuming that the stock buyback as
described below is fully subscribed
and completed at the public
offering price, the shares of
common stock estimated to be
outstanding immediately thereafter
are:
Class A common stock............ 150,600,213 shares
Class B common stock............ 30,000,000 shares
Total........................ 180,600,213 shares
_____________
_____________
Voting rights:
Class A common stock............ Ten votes per share
Class B common stock............ One vote per share
Immediately after this offering and
before the stock buyback, the holders
of our Class A common stock will have
approximately 98% of the aggregate
voting power of our common stock, and
the holders of our Class B common stock
will have approximately 2% of the
aggregate voting power of our common
stock.
Assuming that the stock buyback is
fully subscribed and completed at the
public offering price, immediately
thereafter the holders of our Class A
common stock will have approximately
98% of the aggregate voting power of
our common stock, and the holders of
our Class B common stock will have
approximately 2% of the aggregate
voting power of our common stock.
Use of proceeds from this Net proceeds from this offering will be
offering............................ approximately $603.3 million, based on
an assumed public offering price of
$21.50 per share. We intend to use
approximately 56% of the gross proceeds
of this offering to fund the stock
buyback (a "synthetic secondary
offering") through a cash tender offer
for a portion of our outstanding shares
of Class A common stock and a
repurchase of shares of Class A common
stock from our Retirement Savings Plan
and our Uniform and Career Apparel
Group
4
Retirement Savings Plan, which we
collectively refer to as the 401(k)
Plans. The 401(k) Plans will not
participate in the tender offer. We
intend to use the remaining net
proceeds from this offering to repay
part of the new bridge financing
facility we entered into to partly
finance the acquisition of the
management services division of The
ServiceMaster Company as described
under "--Recent Development". Pending
those uses, we intend to repay
indebtedness under our senior revolving
credit facility and other bank debt.
The merger.......................... Prior to this offering, ARAMARK
Corporation will merge with and into
ARAMARK Worldwide Corporation, its
wholly owned subsidiary. The Class A
common stock and Class B common stock
referred to in this offering will
constitute our capital structure after
the merger.
Dividends........................... We have not distributed any cash
dividends on our common stock during
the last five fiscal years and
currently have no plans to do so. The
declaration of future dividends is,
however, subject to the discretion of
our board of directors in light of all
relevant factors, including earnings,
general business conditions and
liquidity requirements.
"RMK"
New York Stock Exchange symbol......
Unless we specifically state otherwise, the information in this prospectus
does not take into account:
. our issuance of up to 4,500,000 shares of unrestricted Class B common
stock that the underwriters have the option to purchase from us solely
to cover over-allotments;
. 32,001,658 shares of Class A common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $6.61 per
share; of these shares, 1,414,584 are subject to currently vested
options at a weighted average price of $3.39 per share;
. 3,451,152 shares of Class A common stock issuable upon conversion of
outstanding deferred stock units; and
. 38,000,000 additional shares of Class A common stock authorized and
reserved for issuance under our various stock plans, consisting of:
--30,000,000 shares available for future options to be granted under the
2001 Equity Incentive Plan; and
--8,000,000 shares available for future deferred stock units to be
issued under the 2001 Stock Unit Retirement Plan.
5
Upon completion of this offering, we will amend the 2001 Stock Ownership
Plan, the Combined Stock Ownership Plan for Employees, the Stock Unit
Retirement Plan and the 1996 Directors' Stock Ownership Plan, each of which
existed prior to this offering, so that no additional options or deferred stock
units can be issued under those plans. Those plans will continue to govern the
terms of options and deferred stock units currently outstanding.
If the underwriters exercise their over-allotment option in full, 34,500,000
shares of Class B common stock will be outstanding after this offering.
6
The Stock Buyback
After this offering, we intend to use approximately 56% of the gross
proceeds of this offering (assuming the stock buyback is completed at the
public offering price) to fund two transactions which are referred to together
as the stock buyback. One is a cash tender offer for a portion of our shares of
Class A common stock outstanding after the merger which we currently intend to
launch as soon as practicable after the close of the public offering, and the
second is a repurchase of shares of our Class A common stock from the 401(k)
Plans. We intend to purchase up to 10% in the aggregate of the outstanding
shares of our Class A common stock in the stock buyback, and the aggregate
funds to be used in the stock buyback will not exceed 75% of the gross proceeds
from this offering.
We will determine the tender offer price, which may be at or above the
public offering price and at, above or below the market price at the time of
the tender offer. In the tender offer, each Class A stockholder will be
permitted to tender up to 13% of his or her shares of Class A common stock. If
the tender offer is fully subscribed by all Class A stockholders, we will
accept no more than 10% of each Class A stockholder's shares. In this manner,
tenders of up to 10% of a stockholder's shares will be accepted, and to the
extent some stockholders tender less than 10% of their shares of Class A common
stock, then this shortfall will be allocated to the stockholders that have
tendered more than the 10% amount (but no more than 13%) on a pro rata basis.
The amount tendered by a Class A stockholder in the tender offer may consist of
no more than one-third of Class A-2 common stock and no more than one-third of
Class A-3 common stock; however, a holder may tender stock that consists
entirely of Class A-1 common stock. We cannot assure you that this tender offer
will occur or that it will occur on the terms described in this prospectus. The
Class B common stock sold in this offering cannot be tendered in the tender
offer.
In the repurchase from the 401(k) Plans, we currently intend to agree, on
the date we execute the underwriting agreement relating to this offering, to
acquire up to 10% of the Class A common stock held by the 401(k) Plans. In
exchange for entering into this contract, the trustee for the 401(k) Plans will
agree not to tender in the tender offer. We anticipate that the price per share
under the contract with the 401(k) Plans will equal the public offering price.
However, if we tender for shares of Class A common stock in the tender offer at
a price higher than the public offering price, we will either make an
additional payment to the trustee for the difference on the date the tender
offer closes or we will return a portion of the shares sold to us by the 401(k)
Plans so that the effective price per share we pay under the contract equals
the tender offer price. Since the repurchase of shares under the contract with
the 401(k) Plans will close prior to the commencement of the tender offer, we
will complete the repurchase of shares from the 401(k) Plans, even in the
unlikely event we elect not to proceed with the tender offer.
If the price per share in the stock buyback exceeds the public offering
price per share of our unrestricted Class B common stock by an amount such that
the aggregate consideration for all shares purchased in the stock buyback would
exceed 75% of the gross proceeds from this offering, we will reduce the maximum
number of shares of our Class A common stock that may be tendered in the tender
offer and return shares of Class A common stock to the 401(k) Plans to limit
the aggregate consideration for all shares purchased in the stock buyback to
75% of the gross proceeds from this offering.
7
Recent Development
ServiceMaster Management Services
On November 30, 2001, we acquired the management services division of The
ServiceMaster Company, referred to herein as ServiceMaster Management Services.
Upon closing we paid $790.6 million in cash, subject to post-closing
adjustments.
ServiceMaster Management Services is a leader in the provision of facility
management services in the United States, providing a complete range of
facility management services to the healthcare, education and business and
industry client sectors. The facility management services provided nationwide
include custodial services, plant operations and management, groundskeeping,
technical support and food services. ServiceMaster Management Services also has
operations in Canada and maintains licensing arrangements with local service
providers in approximately 25 other countries.
We believe that our acquisition of ServiceMaster Management Services will
further enhance our position as a leading provider of outsourced services. We
believe the acquisition will enable us to strengthen our portfolio of services
by broadening our facility services base in the United States and
internationally. In addition we believe the acquisition will provide ARAMARK
with additional strategic benefits, including opportunities to cross-sell
facility management services to our existing clients, and opportunities to
cross-sell food and support services and other outsourced services to
ServiceMaster Management Services' existing clients.
We financed our acquisition of ServiceMaster Management Services and related
expenses by borrowing approximately an additional $200 million under our senior
revolving credit facility and $600 million under a new bridge financing
facility with a group of banks arranged by J.P. Morgan Securities Inc. We
expect to repay a portion of the bridge financing with a portion of the
proceeds from this offering, as described under "Use of Proceeds."
On a pro forma basis to give effect to the ServiceMaster Management Services
acquisition, this offering and the stock buyback, fiscal 2001 sales, net income
and diluted earnings per share would have been $8.8 billion, $182.2 million and
$0.91, respectively, had the transactions occurred at the beginning of fiscal
2001. See Unaudited Pro Forma Financial Information.
Our Corporate Information
Our principal executive offices are located at ARAMARK Tower, 1101 Market
Street, Philadelphia, Pennsylvania 19107, and our telephone number is (215)
238-3000. Our principal internet address is www.aramark.com. www.aramark.com is
a textual reference only, meaning that the information contained on the website
is not part of this prospectus and is not incorporated in this prospectus by
reference.
8
Summary Consolidated Financial Data
The following table presents our summary consolidated financial data.
Throughout this prospectus, our fiscal years ended on October 3, 1997, October
2, 1998, October 1, 1999, September 29, 2000 and September 28, 2001 are
referred to as fiscal 1997, fiscal 1998, fiscal 1999, fiscal 2000 and fiscal
2001, respectively. The historical data for each of the fiscal years in the
five year period ended September 28, 2001 are derived from our consolidated
financial statements which have been audited by Arthur Andersen LLP,
independent public accountants. The historical earnings per share information
does not reflect the merger which will occur immediately prior to this offering
and have the effect of a two-for-one stock split. Such effect will be
retroactively reflected upon consummation of the merger. The pro forma earnings
per share information reflects the effect of the merger as described in
footnote (5) below. The following data should be read in conjunction with the
consolidated financial statements and the related notes thereto, Management's
Discussion and Analysis of Results of Operations and Financial Condition and
Unaudited Pro Forma Financial Information, each included elsewhere in this
prospectus. Pro forma information has been compiled from historical financial
and other information, but does not purport to represent what our financial
position or results of operations actually would have been had the transactions
occurred on the dates indicated, or to project our financial performance for
any future period.
<TABLE>
<CAPTION>
Fiscal 2001
------------------------------------------------ Pro Forma
1997(1) 1998 1999 2000 2001 ServiceMaster(8)
-------- -------- -------- -------- -------- ----------------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales................... $6,576.1 $6,638.9 $6,742.3 $7,262.9 $7,788.7 $8,768.9
Operating income (2).... 331.9 333.1 375.2 419.6 439.5 486.8
Interest and other
financing costs, net... 116.0 117.3 135.8 147.8 153.3 190.6
Income before
extraordinary
item (3)............... 146.1 133.7 150.2 168.0 176.5
Net income.............. 146.1 129.2 150.2 168.0 176.5
Pro forma (as adjusted)
net income: (4)........ 185.1 182.2
Earnings per share:
Historical: (3)
Basic.................. $1.16 $1.14 $1.59 $1.88 $2.06
Diluted................ 1.10 1.06 1.48 1.77 1.95
Pro forma: (5)
Basic.................. $0.58 $0.57 $0.80 $0.94 $1.03
Diluted................ 0.55 0.53 0.74 0.88 0.97
Pro forma (as
adjusted): (4)
Basic.................. $1.00 $0.99
Diluted................ 0.93 0.91
<CAPTION>
September 28,
Fiscal September 28, 2001
------------------------------------------------ 2001 Pro Forma
1997 1998 1999 2000 2001 Pro Forma(4) ServiceMaster(8)
-------- -------- -------- -------- -------- ------------- ----------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
(at period end):
Total assets............ $2,753.6 $2,741.3 $2,870.5 $3,199.4 $3,216.4 $3,216.4 $4,174.4
Long-term borrowings:
Senior................. 1,084.9 1,678.3 1,583.0 1,777.7 1,635.9 1,392.2 2,198.2
Subordinated........... 129.0 26.7 26.7 -- -- -- --
Shareholders' equity
(deficit) (6).......... 370.0 (78.9) 126.6 111.5 246.9 510.6 510.6
<CAPTION>
Fiscal 2001
------------------------------------------------ Pro Forma
1997(1) 1998 1999 2000 2001 ServiceMaster(8)
-------- -------- -------- -------- -------- ----------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Financial Data:
EBITDA (7).............. $523.6 $528.9 $568.9 $640.4 $679.7 $776.5
Net cash provided by
operating activities... 230.1 276.7 293.2 407.1 496.9 584.3
Net cash used in
investing activities... (59.7) (189.6) (216.2) (483.6) (279.2) (292.1)
Net cash provided
by/(used in) financing
activities............. (168.3) (93.8) (69.9) 73.4 (217.5) (292.0)
</TABLE>
9
--------
(1) Fiscal 1997 is a fifty-three week period.
(2) Operating income is net of goodwill amortization of $22.2 million in
fiscal 1997, $22.1 million in fiscal 1998, $21.3 million in fiscal 1999,
$22.2 million in fiscal 2000 and $25.4 million in fiscal 2001. Diluted net
income per share, excluding goodwill amortization, is $1.26 in fiscal
1997, $1.23 in fiscal 1998, $1.67 in fiscal 1999, $1.98 in fiscal 2000 and
$2.19 in fiscal 2001.
(3) During fiscal 1998, we redeemed or replaced certain of our indebtedness,
resulting in extraordinary charges, net of taxes, of $4.5 million. Basic
and diluted earnings per share before extraordinary item were $1.17 and
$1.10, respectively.
(4) The pro forma (as adjusted) net income and earnings per share information
for fiscal 2001 assumes the completion of the merger as discussed in
footnote (5) and that $359.6 million of the net offering proceeds are used
to fund a cash tender offer for 13.4 million shares of Class A common
stock at a price of $21.50 per share and a repurchase from the 401(k)
Plans of 3.3 million shares of Class A common stock at a price of $21.50
per share, with the remaining net offering proceeds of approximately
$243.7 million used to repay borrowings under our senior revolving credit
facility. The pro forma (as adjusted) net income and earnings per share
information assumes the offering and the stock buyback were completed at
the beginning of fiscal 2001. Pro forma (as adjusted) net income assumes a
reduction of interest expense net of tax of approximately $8.6 million for
fiscal 2001. The weighted average shares outstanding used to compute pro
forma (as adjusted) diluted earnings per share were 199.7 million for
fiscal 2001. The pro forma balance sheet information assumes the offering
and the stock buyback were completed on September 28, 2001. The pro forma
balance sheet information also assumes the termination of the
stockholders' agreement, which would terminate our obligation to purchase
common stock under the agreement, eliminating the reclassification of the
purchase obligation from shareholders' equity (see "Capitalization").
(5) Pro forma earnings per share amounts reflect the merger exchange ratios,
which will have the effect of a two-for-one stock split. The weighted
average shares outstanding used to compute diluted earnings per share were
264.9 million in fiscal 1997, 243.9 million in fiscal 1998, 203.0 million
in fiscal 1999, 190.2 million in fiscal 2000 and 181.3 million in fiscal
2001.
(6) Fiscal 1998 shareholders' equity (deficit) reflects the repurchase of
approximately $530 million of our old Class A common stock pursuant to a
cash tender offer in June 1998.
(7) EBITDA represents net income before interest, taxes, depreciation and
amortization, a measurement used by management to measure operating
performance. EBITDA is not a recognized term under generally accepted
accounting principles and does not purport to be an alternative to
operating income as an indicator of operating performance or to cash flows
from operating activities as a measure of liquidity. Because not all
companies calculate EBITDA identically, this presentation of EBITDA may
not be comparable to other similarly titled measures of other companies.
Additionally, EBITDA is not intended to be a measure of free cash flow for
management's discretionary use, as it does not consider certain cash
requirements such as interest payments, tax payments and debt service
requirements.
(8) Pro Forma ServiceMaster refers to financial data giving effect to the
ServiceMaster Management Services acquisition. 2001 Pro Forma
ServiceMaster income statement and balance sheet information assumes the
completion of the merger, the offering, the stock buyback and the
ServiceMaster Management Services acquisition as described more fully in
Unaudited Pro Forma Financial Information beginning on page 31 of this
prospectus.
10
Summary Segment Data
The following tables summarize our sales and operating income attributable
to each operating segment for fiscal 1997, 1998, 1999, 2000 and 2001.
<TABLE>
<CAPTION>
Fiscal
------------------------------------------------
Sales 1997(1) 1998 1999 2000 2001
----- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
Food and Support Services--
United States.............. $3,469.6 $3,653.0 $3,993.5 $4,396.3 $4,782.1
Food and Support Services--
International.............. 915.6 938.0 975.2 1,001.9 1,109.3
Uniform and Career Apparel--
Rental..................... 831.6 863.5 911.9 969.6 995.2
Uniform and Career Apparel--
Direct Marketing........... 432.5 457.8 462.0 455.7 438.8
Educational Resources....... 332.1 360.8 399.7 439.4 463.3
Corporate and other......... 594.7 365.8 -- -- --
-------- -------- -------- -------- --------
$6,576.1 $6,638.9 $6,742.3 $7,262.9 $7,788.7
======== ======== ======== ======== ========
<CAPTION>
Fiscal
------------------------------------------------
Operating Income 1997(1) 1998 1999 2000 2001
---------------- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
Food and Support Services--
United States.............. $173.3 $195.1 $222.3 $244.5 $264.7
Food and Support Services--
International.............. 25.6 32.4 32.0 40.2 39.4
Uniform and Career Apparel--
Rental..................... 96.4 100.9 106.9 118.5 119.7
Uniform and Career Apparel--
Direct Marketing........... 24.7 10.1 3.9 10.8 15.6
Educational Resources....... 26.9 31.2 34.7 32.3 25.4
-------- -------- -------- -------- --------
346.9 369.7 399.8 446.3 464.8
Corporate and other......... (26.7) (31.6) (24.6) (26.7) (25.3)
Other income/(expense)...... 11.7 (5.0) -- -- --
-------- -------- -------- -------- --------
$331.9 $333.1 $375.2 $419.6 $439.5
======== ======== ======== ======== ========
</TABLE>
--------
(1) Fiscal 1997 is a fifty-three week period.
11
RISK FACTORS
Before investing in our unrestricted Class B common stock, you should
carefully consider the risks described below and the other information included
in this prospectus.
Risk Factors Relating to Our Business
General
Unfavorable economic conditions and increased operating costs adversely
affect our results of operations and financial condition.
Recently, our food and support services and uniform and career apparel
segments have been adversely affected by weaker economic conditions in the
United States, particularly with respect to manufacturing and technology
clients. Production cutbacks in the manufacturing industry have adversely
affected our results of operations for fiscal 2001. Layoffs and business
downturns have increased among our business clients, which has negatively
affected our sales. We estimate that these unfavorable economic conditions have
reduced our consolidated sales for fiscal 2001 by approximately 2% from the
level of sales we would have expected absent such conditions. A national or
international economic downturn reduces demand for our services in each of our
operating segments, which has resulted, and may in the future result, in the
loss of business or increased pressure to contract for business on less
favorable terms than our generally preferred terms. Although the near term
economic outlook is uncertain, we believe that it is likely that first quarter
fiscal 2002 consolidated operating income will be approximately 5% below the
amount reported in the comparable prior year period.
Our profitability could be adversely affected if we were faced with cost
increases for food, fuel, utilities, wages, piece goods, clothing and
equipment, especially to the extent we were unable to recover such increased
costs through increases in the prices for our services, due to general economic
conditions, competitive conditions, or both. For example, substantial increases
in the cost of fuel and utilities have resulted in substantial cost increases
in our uniform services business, and to a lesser extent in our food and
support services segment, which have not been fully recoverable due to general
economic conditions, competitive conditions, or both. In particular, our
business segments that operate in California have been negatively impacted by
significant increases in electricity, natural gas and fuel costs. We estimate
that our costs have increased in the range of $6 million to $8 million in
fiscal 2001 as a result of these factors. Increases in energy costs
particularly impact our uniform and career apparel business.
Our business may suffer if we are unable to hire and retain sufficient
qualified personnel or if labor costs continue to increase.
Over the past several years, the United States has experienced reduced
levels of unemployment. This has created a shortage of qualified workers at all
levels. Given that our workforce requires large numbers of entry level and
skilled workers and managers, continuation of low levels of unemployment could
compromise our ability in certain of our businesses to continue to provide
quality service or compete for new business. From time to time, we have had
difficulty in hiring and maintaining qualified management personnel,
particularly at the entry management level. We will continue to have
significant requirements to hire such personnel. Our success depends to a
substantial extent on the ability, experience and performance of our
management, particularly our Chairman and Chief Executive Officer, Joseph
Neubauer. After this offering, we may experience more employees leaving our
employ, as employees will now have the ability to leave our employ with their
ARAMARK common stock, which they could not previously do, and with potentially
more financial resources. We also regularly hire a large number of part-time
workers, particularly in our food and support services segments. Any difficulty
we may encounter in hiring such workers could result in significant increases
in labor costs which could have a material adverse effect on our business,
financial condition and results of operations. Competition for labor has
resulted in wage increases that in some recent periods have had the effect of
substantially increasing our labor costs. We estimate that such competition for
labor has increased our wage costs for certain of our businesses in the range
of 3% to 5% from what such costs would have been absent such conditions. Due to
the labor intensive nature of our businesses, a continued shortage of labor or
increases in wage levels in excess of normal levels could have a material
adverse effect on our results of operations.
12
Our expansion strategy involves risks.
We may seek to acquire companies or enter into joint ventures that
complement our business, and our inability to complete acquisitions, integrate
acquired companies successfully or enter into joint ventures may render us less
competitive. We may be evaluating acquisitions or engage in acquisition
negotiations at any given time. We cannot assure you that we will be able to
identify acquisition candidates or joint venture partners on commercially
reasonable terms or at all. If we make additional acquisitions, we also cannot
be sure that any benefits anticipated from the acquisitions will actually be
realized. Likewise, we cannot be sure that we will be able to obtain additional
financing for acquisitions. Such additional financing could be restricted by
the terms of our debt agreements or it could be more expensive than our current
debt. In addition, our ability to control the planning and operations of our
joint ventures may be subject to numerous restrictions imposed by the joint
venture agreements. Our joint venture partners may also have interests which
differ from ours.
The process of integrating acquired operations into our existing operations
may result in unforeseen operating difficulties and may require significant
financial, operational and managerial resources that would otherwise be
available for the ongoing development or expansion of our existing operations.
To the extent that we have miscalculated our ability to integrate and operate
the business to be acquired, we may have difficulty in achieving our operating
and strategic objectives. The diversion of management attention, particularly
in a difficult operating environment, may affect our sales. Possible future
acquisitions could result in the incurrence of additional debt and related
interest expense, contingent liabilities and amortization expenses related to
intangible assets, all of which could have a materially adverse effect on our
financial condition, operating results and/or cash flow. After this offering,
we may finance acquisitions through the issuance of additional shares of our
common stock.
If we are unable to successfully integrate ServiceMaster Management Services
or derive the benefits we expect, our operating results, sales and profits may
be materially adversely affected.
Our future results of operations and cash flow may depend in part upon our
ability to integrate ServiceMaster Management Services and achieve the
strategic operating objectives we anticipate from this acquisition. We have not
previously undertaken an integration process as large as the integration plans
required by this acquisition. In order to succeed, we will need to:
. capitalize on the opportunities afforded by ARAMARK's and ServiceMaster's
combined services offerings;
. maintain strong relationships with clients, which as a result of the
ServiceMaster acquisition will increase the number of our facilities
management clients by approximately 1,550 to approximately 1,800;
. combine and manage our employee base, which as a result of the
ServiceMaster acquisition will increase the number of our employees by
approximately 18,000 to a total of approximately 218,000; and
. integrate operating and financial systems.
ServiceMaster's business is based upon contractual relationships with
customers. Some or all of those customers may choose not to continue their
contractual relationship with us at the time of contract renewal. In addition,
the acquisition of ServiceMaster Management Services increased our debt levels
by approximately $800 million, significantly exceeding historical levels, and
our interest expense in fiscal 2001 on a pro forma basis giving effect to this
acquisition would have increased by approximately $53 million. As a result, we
will need to manage effectively our cash position and working capital levels.
13
The recent terrorist attacks on the United States have directly and
indirectly negatively affected our operating results, sales and profits.
The September 11, 2001 terrorist attacks on New York City and Washington,
D.C. have adversely affected our operating results in the fourth fiscal quarter
of 2001. Had the terrorist attacks not occurred, management estimates that
operating income would have been approximately 2% higher in fiscal 2001. Our
retail and food service operations in the World Trade Center and our childcare
and food service operations at the Pentagon were directly affected by the
attacks. Certain of our other businesses were indirectly affected as described
below. To the extent the events of September 11th result in a further economic
slowdown and disruptions in the United States and Europe, the negative effects
on our business could be prolonged and pervasive, however, it is not possible
to estimate such effects at this time. The national and global response to
these terrorist attacks, many of which are still being formulated, including
recent military, diplomatic and financial responses and any possible reprisals
as a consequence of allied actions, may materially adversely affect us in ways
we cannot predict at this time.
Our business has been, and will continue to be affected in various ways
including, but not limited to:
. the loss of property such as operating equipment and merchandise
inventory;
. costs incurred in providing assistance to the victim relief efforts;
. direct costs of restoring our operations including cleanup,
relocation, data re-creation;
. impairment of intangible assets;
. lost sales and profits from closed and curtailed operations in the
affected areas;
. the lost opportunity to generate sales and profits as a result of
sporting and other recreational event cancellations/postponements
and reduced attendance at such events, reduced employment levels,
particularly in the airline and related industries, reduced
visitation at parks and resorts, and reduced attendance at
conventions; and
. increased cost of property and liability insurance and possible
increased retentions due to uncertainty in the worldwide insurance
and reinsurance markets.
The impact of the above was significant to our fiscal fourth quarter 2001
operating results as stated above. Although the near term economic outlook is
uncertain, we believe it is likely that first quarter fiscal 2002 consolidated
operating income will be approximately 5% below the amount reported in the
comparable prior year period.
We anticipate a substantial portion of our direct costs and other losses
will be covered by insurance. We maintain workers compensation, general
liability, property damage and business interruption coverages. The process of
quantifying and compiling insurance claims and arranging settlements with
multiple insurance carriers is continuing and will be ongoing for an extended
time period.
Requirements imposed by governmental regulations or interpretation of
governmental regulations may change and require us to incur substantial
expenditures to comply.
We are subject to governmental regulation at the federal, state, provincial
and local level in many areas of our business, such as food safety and
sanitation, the sale of alcoholic beverages, environmental issues, childcare
and the services we provide in connection with governmentally funded
entitlement programs. While we endeavor to attain and maintain compliance with
all applicable laws and regulations, governmental units may make changes in the
regulatory frameworks within which we operate that may require either the
corporation as a whole or individual businesses to incur substantial increases
in costs in order to comply with such laws and regulations. While we attempt to
comply with all applicable laws and regulations, we cannot assure you that we
are in full compliance with all applicable laws and regulations or
interpretations thereof at all times or that we will be able to comply with any
future laws, regulations or interpretations thereof. If we fail to comply with
14
applicable laws and regulations, we may be subject to criminal sanctions or
civil remedies, including fines or injunctions. The cost of compliance or the
consequences of non-compliance could have a material adverse effect on our
business and results of operations.
Changes in or new interpretations of the governmental regulatory framework
may affect our contract terms and may reduce our sales or profits.
A portion of our sales, estimated to be approximately 15% in fiscal 2001, is
derived from contracts with U.S. federal, state and local governments and
agencies. Changes or new interpretations in the regulatory framework applicable
to services provided under governmental contracts or bidding procedures,
particularly by our food and support services businesses, could result in
modifications to the methods we apply to price government contracts and in
contract terms of shorter duration than we have historically experienced, each
of which could result in sales or profits lower than we have historically
achieved, which could have an adverse effect on our results of operations.
Our international business results are influenced by currency fluctuations
and other factors that are different than in the U.S. market.
A significant portion of our sales is derived from international markets.
During fiscal 2001, approximately 14% of our sales were generated outside the
United States. The operating results of our international subsidiaries are
translated into U.S. dollars and such results are affected by movements in
foreign currencies relative to the U.S. dollar. Sales of our Food and Support
Services--International segment were unfavorably affected by currency
translation by approximately 7% for fiscal 2001.
Our international operations are also subject to other risks, including
national and local regulatory requirements; potential difficulties in staffing
and labor disputes; managing and obtaining support and distribution for local
operations; credit risk or financial condition of local customers; potential
imposition of restrictions on investments; potentially adverse tax
consequences, including imposition or increase of withholding and other taxes
on remittances and other payments by subsidiaries; foreign exchange
restrictions; and local political and social conditions. There can be no
assurance that the foregoing factors will not have a material adverse effect on
our international operations or on our consolidated financial condition and
results of operations.
Our operations are seasonal.
In the first and second fiscal quarters, within the Food and Support
Services--United States segment, there is a lower level of sales at the
historically higher margin sports, entertainment and recreational food service
operations which is partly offset by increased activity in the educational
sector. In the third and fourth fiscal quarters, there has historically been a
significant increase in sales at sports, entertainment and recreational
accounts, which is partially offset by the effect of summer recess in the
educational sector. The sales of WearGuard(R), one of our direct marketing
companies, generally increase during the first quarter of the fiscal year
because of the onset of colder weather in the northern tier of the United
States as well as the gift giving holidays. For these reasons, a quarter to
quarter comparison is not a good indication of our performance or how we will
perform in the future.
Our indebtedness may restrict certain growth opportunities.
As of September 28, 2001, on a pro forma basis, we would have had
approximately $2.2 billion of outstanding indebtedness, including $806 million
of indebtedness to be incurred to finance the acquisition of ServiceMaster
Management Services and related expenses. The size of our indebtedness may
restrict the pursuit of certain new business opportunities. We will also have
to use a portion of our cash flow to service our debt, which may prevent us
from pursuing certain new business opportunities and certain acquisitions.
Failure to maintain certain financial ratios could cause us to violate the
terms of our credit facility agreements and thereby result in acceleration of
our indebtedness, impair our liquidity and limit our ability to raise
additional capital. Our failure to make required debt payments could result in
an acceleration of our indebtedness, in which case
15
the lenders thereunder would be entitled to exercise their remedies. We may
incur additional indebtedness in the future.
Food and Support Services
Competition in our industry could adversely affect our results of
operations.
There is significant competition in the food and support services business
from local, regional, national and international companies, of varying sizes,
many of which have substantial financial resources. Our ability to successfully
compete depends on our ability to provide quality services at a reasonable
price and to provide value to our customers. Certain of our competitors may be
willing to underbid us or accept a lower profit margin or expend more capital
in order to obtain or retain business. In addition, existing or potential
clients may elect to self operate their food service, eliminating the
opportunity for us to serve them or compete for the account. While we have a
significant international presence, should business sector clients require
multi-national bidding, we may be placed at a competitive disadvantage because
we may not be able to offer services in as many countries as some of our
competitors.
Sales of sports, entertainment and recreational services would be adversely
affected by a decline in attendance at client facilities or by a reduction or
cessation of events.
The portion of our food and support services business which provides
services in public facilities such as stadiums, arenas, amphitheaters,
convention centers and tourist and recreational attractions is sensitive to an
economic downturn, as expenditures to attend sporting events or concerts, take
vacations, or hold or attend conventions is funded to a partial or total extent
by discretionary income. A decrease in such discretionary income on the part of
potential attendees at events in our clients' facilities could result in a
reduction in our sales.
Further, because our exposure to the ultimate consumer of what we provide is
limited by our dependence on our clients to attract customers to their
facilities and events, our ability to respond to such a reduction in
attendance, and therefore our sales, is limited. For example, we have recently
experienced an increase in event cancellation at convention centers which we
believe is attributable to the current economic slowdown. As a result of such
cancellations, we estimate our consolidated sales for fiscal 2001 were reduced
by less than 1% from the level of sales we would have expected absent such
cancellations. We believe the impact of the terrorist attacks resulted in
additional event cancellations in our fourth fiscal quarter, as well as in the
first quarter of fiscal 2002. We estimate that had the terrorist attacks not
occurred, consolidated sales and operating income in fiscal 2001 would have
been approximately 1% and 2% higher, respectively, than reported results. There
are other occurrences which could reduce events in a facility or attendance at
an event including labor disruptions involving sports leagues, poor performance
by the teams playing in a facility and inclement weather, which would adversely
affect sales and profits. Our sales and results of operations were adversely
affected by the labor stoppage that disrupted the 1994 and 1995 Major League
Baseball seasons. We estimated, at the time, that our consolidated operating
income would have been approximately 5% higher in fiscal 1995 and approximately
3% higher in fiscal 1994 had the Major League Baseball and other labor
disruptions not occurred. The Major League Baseball Collective Bargaining
Agreement expired after the 2001 season. A shortened or cancelled 2002 season
could result in a substantial loss of sales and reduced profits at Major League
Baseball stadiums. In addition, many professional sports teams, including some
of our clients, are currently either planning to move to a new facility or are
considering doing so. Generally our sports facility contracts do not entitle us
to move to a new facility when the sports team tenant of the present facility
moves.
The pricing and cancellation terms of our food and support services
contracts may constrain our ability to recover costs and to make a profit on
our contracts.
The amount of risk that we bear and our profit potential vary depending on
the type of contract under which we provide food and support services. We may
be unable to fully recover costs on contracts that limit
16
our ability to increase prices. In addition, we provide many of our services
under short term, open ended cancelable contracts. Some of our profit and loss
contracts contain minimum guaranteed remittances to our client regardless of
our sales or profit at the facility involved. If sales do not exceed costs
under a contract which contains minimum guaranteed commissions, we will be
liable for bearing any losses which are incurred, as well as the guaranteed
commission. Generally, our contracts limit our ability to raise prices on the
food, beverages and merchandise we sell within a particular facility without
the client's consent. In addition, some of our contracts exclude certain events
or products from the scope of the contract, or give the client the right to
modify the terms under which we may operate at certain events. The refusal by
individual clients to permit the sale of some products at their venues, or the
imposition by clients of limits on prices which are not economically feasible
for us, could adversely affect our sales and results of operations.
Claims of illness or injury associated with the service of food and beverage
to the public could adversely affect us.
Claims of illness or injury relating to food quality or food handling are
common in the food service industry, and a number of these claims may exist at
any given time. As a result, we could be adversely affected by negative
publicity resulting from food quality or handling claims at one or more of the
facilities that we serve. In addition to decreasing our sales and profitability
at our facilities, adverse publicity could negatively impact our service
reputation, hindering our ability to renew contracts on favorable terms or to
obtain new business. In addition, broader trends in food consumption, such as
the recent concern about beef consumption in Europe, may from time to time
disrupt our business.
One distributor provides approximately 55% of our U.S. food and non-food
products (approximately 37% of our consolidated purchases of food and non-food
products), and if our relationship or their business were to be disrupted, we
could experience short term disruptions to our operations and cost structure.
If our relationship with, or the business of, our main U.S. distributor of
our food and non-food products were to be disrupted, we would have to arrange
alternative distributors and our operations and cost structure could be
adversely affected in the short-term.
Governmental regulations may subject us to significant liability.
Our operations are subject to various governmental regulations, including
those governing:
. the service of food and alcoholic beverages;
. minimum wage and employment;
. governmentally funded entitlement programs;
. environmental protection; and
. human health and safety.
The regulations relating to each of our food and support service sectors are
many and complex. For example, while there are a variety of regulations at
various governmental levels relating to the handling, preparation and serving
of food (including in some cases requirements relating to the temperature of
food), and the cleanliness of food production facilities and the hygiene of
food-handling personnel, these regulations are enforced primarily at the local
public health department level. While we attempt to fully comply with all
applicable laws and regulations, we cannot assure you that we are in full
compliance with all applicable laws and regulations at all times or that we
will be able to comply with any future laws and regulations. Furthermore,
additional or amended regulations in this area may significantly increase the
cost of compliance. We are currently negotiating a settlement with the U.S.
government of certain matters related to public school food service programs,
and we do not believe such settlement will have a material adverse effect on
our financial condition or results of operations. It is possible, however, that
future claims could be asserted related
17
to such public school programs, and while management believes its
interpretation of the applicable government regulations is correct, no
assurance can be given as to the outcome of such claims, if asserted.
We serve alcoholic beverages at many facilities, and must comply with
applicable licensing laws, as well as state and local service laws, commonly
called dram shop statutes. Dram shop statutes generally prohibit serving
alcoholic beverages to certain persons such as an individual who is intoxicated
or a minor. If we violate dram shop laws, we may be liable to third parties for
the acts of the patron. Although we sponsor regular training programs to
minimize the likelihood of such a situation, we cannot guarantee that
intoxicated or minor patrons will not be served or that liability for their
acts will not be imposed on us. There can be no assurance that additional
regulation in this area would not limit our activities in the future or
significantly increase the cost of regulatory compliance. We must also obtain
and comply with the terms of licenses in order to sell alcoholic beverages in
the states in which we serve alcoholic beverages. Some of our contracts require
us to pay liquidated damages during any period in which our liquor license for
the facility is suspended, and most contracts are subject to termination if we
lose our liquor license for the facility.
Uniform and Career Apparel
Competition in the uniform rental industry could adversely affect our
results of operations.
We have a number of major national competitors with significant financial
resources. In addition there are strong regional and local uniform suppliers,
whom we believe may have strong customer loyalty. While most customers focus
primarily on quality of service, uniform rental is a price-sensitive service
and if existing or future competitors seek to gain or retain market share by
reducing prices, we may be required to lower prices, which would reduce our
sales and profits. The uniform rental business requires investment capital for
growth. Failure to maintain capital investment in this segment would put us at
a competitive disadvantage.
Environmental regulations may subject us to significant liability and limit
our ability to grow.
Our uniform rental segment is subject to various federal, state and local
laws and regulations governing, among other things, the generation, handling,
storage, transportation, treatment and disposal of water wastes and other
substances. In particular, industrial laundries use and must dispose of
detergent wastewater and other residues through publicly operated treatment
works or similar government facilities and are subject to volume and chemical
discharge limits and penalties and fines for non-compliance. In the past, we
have settled, or contributed to the settlement of, actions or claims brought
against us relating to the disposal of hazardous materials. Although past
settlements and contributions have not been material, there can be no assurance
that we will not have to expend material amounts to rectify the consequences of
any such disposal in the future. Further, under environmental laws, an owner or
lessee of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in or emanating from such
property, as well as related costs of investigation and property damage. Such
laws often impose liability without regard to whether the owner or lessee knew
of or was responsible for the presence of such hazardous or toxic substances.
While we conduct diligence investigations on acquired properties and attempt to
fully comply with all applicable laws and regulations, there can be no
assurances that acquired or leased locations have been operated in compliance
with environmental laws and regulations or that future uses or conditions will
not result in the imposition of liability upon us under such laws or expose us
to third party actions such as tort suits. In addition, such regulations may
limit our ability to identify suitable sites for new or expanded plants.
Educational Resources
Competition in the childcare and early education industry is extensive and
competitors may price their offerings below ours, which could cause a reduction
in our sales and profits.
Local nursery schools, childcare centers and in-home providers generally
charge less for their services than we do. Many church-affiliated and other
non-profit childcare centers have lower operating expenses than we do
18
and may receive donations and/or other funding to subsidize operating expenses.
Consequently, operators of such centers often charge tuition rates that are
less than our rates. In addition, fees for home-based care are normally
substantially lower than fees for center-based care because providers of home-
based care are not always required to satisfy the same health, safety,
insurance or operational regulations as our centers. Our competition also
includes other large, geographically broad-based, for-profit early education
and childcare companies. In addition, a number of states and local governments
are operating or considering operating public preschools. In recent periods,
reduced enrollment at mature centers and competitive pricing pressures have
reduced our sales and profits.
Adverse publicity and litigation concerning incidents at childcare centers
could adversely affect our business and results of operations.
Parent trust and referrals by other parents are very significant in the
maintenance and growth of our business, and any decrease in trust or referrals
can adversely affect our business. This trust is directly related to our
reputation and favorable brand identity. However, like many other childcare
providers, we are periodically subject to litigation alleging negligent hiring,
training or supervision, inappropriate contact with children or other acts
arising out of alleged incidents at our centers. Any adverse publicity
concerning such incidents at one of our childcare centers, or childcare centers
generally, could damage our reputation and could have an adverse effect on
enrollment at our centers. Claims in the past have been covered by insurance.
We believe our current claims will be covered by insurance. However, our
insurance premiums may increase substantially in the future as a consequence of
conditions in the insurance business generally, or our situation in particular,
and continuing publicity with respect to alleged instances of child abuse in
our industry could result in our inability to obtain insurance without a
substantial increase in cost. Furthermore, our current or future insurance
coverage may not protect us against all such claims.
The childcare industry is heavily regulated and our failure to comply with
those regulations could subject us to substantial liability or inhibit our
ability to operate.
Childcare centers are subject to numerous state, local and federal
regulations and licensing requirements which generally cover the fitness and
adequacy of buildings and equipment, the ratio of staff to enrolled children,
staff training, record keeping, the dietary program, the curriculum and
compliance with health and safety standards, and if we fail to comply with
these, we may be prohibited from operating one or more of our childcare
centers. Some changes, such as increasing the ratio of staff to enrolled
children, can result in significantly increased costs to operate our business.
If one of our centers fails to comply with applicable regulations, that center
could be subject to state sanctions. These sanctions may include fines,
corrective orders, probation or, in more serious cases, suspension or
revocation of the center's license to operate. Changes in the regulatory
frameworks within which we operate may cause us to incur substantial increases
in costs in order to comply. While we attempt to fully comply with all
applicable laws and regulations, we cannot assure you that we are in full
compliance with all applicable laws and regulations at all times or that we
will be able to comply with any future laws and regulations. If we fail to
comply with applicable laws and regulations, civil remedies, including fines,
could be imposed on us. The cost of compliance or the consequences of non-
compliance could have a material adverse effect on our business and results of
operations.
Risks Relating to the Public Offering
There may be future sales of a substantial amount of Class B common stock,
including sales by current stockholders who own a large amount of Class A
common stock, that may depress the price of Class B common stock.
As described below, up to 1.5 million shares of Class A common stock that
are anticipated to be held by foundations and charities may be eligible to be
freely sold in the public market immediately after the offering and up to 1.0
million additional shares held by charities will be eligible to be freely sold
in the public markets on the 91st day after pricing of this offering. In
addition, as the restricted periods on Class A common stock expire, those
shares will be eligible to be sold in the public market, and upon sale will be
automatically
19
converted into unrestricted Class B common stock. Excluding shares held by the
401(k) Plans, shares subject to the resale limitations of Rule 144 and the up
to 2.5 million shares of Class A common stock that may be freely sold earlier,
after 180 days after pricing of this offering, approximately 37,967,187 shares
of Class A-1 common stock will become freely transferable; after 360 days after
pricing of this offering, approximately an additional 23,025,427 shares of
Class A-2 common stock will become freely transferable; and after 540 days
after pricing of this offering, approximately an additional 23,025,427 shares
of Class A-3 common stock will become freely transferable. An additional
32,767,000 shares of Class A-1 common stock are held by the 401(k) Plans. After
180 days after pricing of this offering, these shares may be transferred to an
employee or sold to provide cash distributions to that employee only upon or
after that employee's termination of employment. Under the terms of the 401(k)
Plans, the trustee is otherwise required to hold these shares, subject only to
the requirements of federal law. Excluding 1.5 million shares that Mr. Neubauer
may transfer to foundations and charities, shares subject to the resale
limitations of Rule 144 include 16,016,176 shares of Class A-1 common stock,
16,016,176 shares of Class A-2 common stock and 16,016,176 shares of Class A-3
common stock. Of these Rule 144 shares, Joseph Neubauer, our chief executive
officer, and certain related parties own approximately 9,078,464 shares of
Class A-1 common stock, 9,078,464 shares of Class A-2 common stock and
9,078,464 shares of Class A-3 common stock. In addition, after the expiration
of the 180 day lockup period, our board of directors will have the ability to
authorize limited transfers that result in shares of Class A common stock
converting into shares of unrestricted Class B common stock. All of the
foregoing share amounts exclude the impact of the stock buyback.
Mr. Neubauer and certain related parties may exercise registration rights
with respect to their shares of common stock for which restricted periods have
expired or do not apply, at any time after 360 days after pricing of this
offering and with respect to all of their shares at any time after 540 days
after pricing of this offering or, subject to the prior consent of Goldman,
Sachs & Co. and J.P. Morgan Securities Inc., at any time after 180 days and
before 360 days after pricing of this offering. In addition, Mr. Neubauer's
estate may exercise demand registration rights with respect to his shares of
common stock in certain limited circumstances at any time after 180 days and
before 360 days after pricing of this offering. Mr. Neubauer and those related
parties also have unlimited piggyback registration rights with respect to their
shares of common stock for which restricted periods have expired or do not
apply, that commence on the 181st day after pricing of this offering. Upon
registration and sale, these shares will convert into shares of unrestricted
Class B common stock and will become freely transferable.
Under the terms of our charter, charitable organizations will be permitted
to sell up to 1.0 million shares of our common stock donated to them prior to
May 25, 2001, beginning on the 91st day after pricing of this offering, and
such shares will be freely transferable. In addition, our board of directors
has approved a conversion transfer in which Mr. Neubauer will transfer up to
1.5 million shares of his Class A common stock to charitable organizations, and
upon such transfer such shares may be freely transferable shares of
unrestricted Class B common stock. With respect to the shares that Mr. Neubauer
intends to transfer to those prospective donees, such prospective donees
advised us that they have no current intention or need to dispose of such
shares during the 180 day period after pricing of this offering.
Substantial numbers of our shares are held by management employees and their
permitted transferees. These holders have owned their shares for many years and
have not had access to a public market in which to sell their shares. We cannot
assure you that these significant stockholders will not take advantage of a
public market to sell significant amounts of their stock. Substantial sales
could adversely affect the market value of unrestricted Class B common stock.
In addition, 32,001,658 shares of Class A common stock are issuable upon
exercise of outstanding options, only 1,414,584 of which are currently vested,
and 3,451,152 shares of Class A common stock are issuable upon conversion of
outstanding deferred stock units. We will also have the ability to grant
substantial amounts of additional options.
20
You will be immediately and substantially diluted by $22.48 per share if you
purchase unrestricted Class B common stock in this offering because the assumed
$21.50 per share price of unrestricted Class B common stock in this offering is
substantially higher than the negative tangible net book value per share of our
common stock.
If you purchase unrestricted Class B common stock in this offering, you will
experience an immediate and substantial dilution of $22.48 per share, because
the per share price of unrestricted Class B common stock in this offering is
substantially higher than the negative tangible net book value per share of the
outstanding common stock immediately after this offering. The amount of
dilution has been calculated assuming the exercise of all outstanding stock
options, vested and unvested, at an average exercise price per share of $6.61.
We have also assumed completion of the stock buyback in which we will purchase
16.7 million of our outstanding shares of Class A common stock at an assumed
price per share equal to the public offering price per share of unrestricted
Class B common stock with proceeds equal to approximately 56% of the gross
proceeds of this offering. You may experience substantial additional dilution
if the stock buyback price per share is greater than the public offering price
of unrestricted Class B common stock. You will also experience dilution even if
the stock buyback is not completed or the maximum amount of shares is not
tendered in the tender offer. In addition, if the tender offer price is higher
than the market price of the unrestricted Class B common stock, you will suffer
economic dilution.
Prior to this offering, there has not been a public market for unrestricted
Class B common stock. The price of unrestricted Class B common stock may
fluctuate substantially, which could negatively affect our stockholders.
Our unrestricted Class B common stock has no public market history. There
can be no assurance that future market prices for these shares will equal or
exceed the public offering price per share set forth on the cover page of this
prospectus. The price at which our unrestricted Class B common stock will trade
will depend upon a number of factors, some of which are beyond our control
including, but not limited to:
. our historical and anticipated operating results;
. quarterly fluctuations in our financial and operating results;
. announcements by us or others and developments affecting us, our clients
or our operating segments generally;
. changes in earnings estimates by financial analysts;
. our failure to meet financial analysts' performance expectations;
. changes in market valuations of other companies that operate in our
business segments in our industry;
. the expiration of the restricted periods on Class A common stock; and
. general market and economic conditions.
Our stock price may fluctuate substantially due to the relatively small
percentage of our stock available publicly, fluctuations in the price of the
stock of companies in our industries and general volatility in the stock
market. Approximately 15% of our market capitalization, without giving effect
to the stock buyback, will be traded publicly, which can result in a high
degree of volatility in our stock price. Fluctuations such as these may
negatively affect the market price of our unrestricted Class B common stock. In
addition, many of the risks described elsewhere in this Risk Factors section
could materially and adversely affect our stock price.
Class B stockholders will not be able to control any of our management
policies or business decisions because they will have substantially less voting
power than holders of Class A common stock.
Our common stock is divided into shares of Class A and Class B common stock.
The holders of Class A common stock have 10 votes per share on all matters
submitted to a general meeting of stockholders, and holders of Class B common
stock have one vote per share. Upon completion of this offering and without
giving
21
effect to the stock buyback and assuming no Class A-1, Class A-2 or Class A-3
shareholders convert their shares to Class B-1, Class B-2 or Class B-3 shares,
Class A common stock will constitute about 85% of our total outstanding common
stock and about 98% of our total voting power and thus will be able to exercise
a controlling influence over our business. Upon completion of this offering and
without giving effect to the stock buyback, Class B common stock will
constitute about 15% of our total outstanding common stock and about 2% of our
total voting power. As a result, holders of Class B common stock will not for
the foreseeable future be able to influence any of our management policies or
business decisions or prevent any business decision from being made. Our
management employees and their permitted transferees and our employee benefit
plans will, upon completion of this offering and without giving effect to the
stock buyback, collectively hold approximately 90% of the shares of Class A
common stock and will have the power to elect all, or at least a majority of,
our directors and will determine the outcome of matters submitted to the
general meeting of stockholders, even if their collective economic ownership of
us at any time falls below 50%. The interests of management and the employee
benefit plans may not coincide with the interests of holders of Class B common
stock.
Our certificate of incorporation and bylaw provisions, and several other
factors, could limit another party's ability to acquire us without approval by
our board of directors and deprive you of the opportunity to obtain a takeover
premium for your shares.
A number of provisions that are in our certificate of incorporation and
bylaws will make it difficult for another company to acquire us and for you to
receive any related takeover premium for your shares. For example, our
certificate of incorporation provides that stockholders may not act by written
consent and may not call a special meeting.
Our certificate of incorporation provides for a classified board of
directors and authorizes the issuance of preferred stock without stockholder
approval and upon such terms as the board of directors may determine. These
provisions could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring or making a
proposal to acquire, a majority of our outstanding stock and could adversely
affect the prevailing market price of the Class B common stock. The rights of
the holders of Class B common stock will be subject to, and may be adversely
affected by, the rights of holders of preferred stock that may be issued in the
future. Under our rights agreement, each share of our common stock has
associated with it one preferred stock purchase right. Each of these rights
entitles its holder to purchase, at a purchase price of $110, subject to
adjustment, one one-thousandth of a share of Series C junior participating
preferred stock under circumstances provided for in the rights agreement. If
any person other than our employee benefit plans or Mr. Neubauer acquires more
than 15% of our Class B common stock (or if Mr. Neubauer acquires more than 25%
of our Class B common stock assuming the conversion of all shares of Class A
common stock, excluding, after the implementation of our rights agreement,
shares acquired pursuant to our employee benefit plans or otherwise received as
compensation from us), each holder of a right, other than the acquiring person,
will be entitled to purchase, at the purchase price, a number of our shares of
common stock having a market value two times the purchase price.
In addition, our capital structure may deter a potential change in control
because our voting power will be concentrated in Class A common stock. These
shares will be held by our current stockholders and, upon any valid transfer to
someone who is not a permitted transferee, will automatically convert into
Class B common stock. This automatic dilution of voting power in the hands of a
potential acquiror has the effect of preventing that potential acquiror from
obtaining voting control despite acquiring a majority of the Class A common
stock and therefore may be a deterrent to a potential acquisition transaction.
We anticipate that in the future we will issue Class A common stock to our
managers and employees, which may include managers and employees of companies
we acquire. Our managers and employees may be less inclined to accept a
takeover offer for their shares than other stockholders.
22
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
from civil litigation for forward-looking statements that reflect our current
views as to future events and financial performance with respect to our
operations. These statements can be identified by the fact that they do not
relate strictly to historical or current facts. They use words such as "aim,"
"anticipate," "estimate," "expect," "will be," "will continue," "will likely
result," "project," "intend," "plan," "believe" and other words and terms of
similar meaning in conjunction with a discussion of future operating or
financial performance.
These statements are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed or implied in the
forward-looking statements. Factors that might cause such a difference include:
unfavorable economic conditions, including ramifications of the September 11th
terrorist attacks, increased operating costs, shortages of qualified personnel,
costly compliance with governmental regulations, currency risks and other risks
associated with international markets, risks associated with acquisitions, our
ability to integrate and derive the expected benefits from our acquisition of
ServiceMaster Management Services, competition, decline in attendance at client
facilities, unpredictability of sales and expenses due to contract terms, high
leverage, claims relating to the provision of food services, liability
associated with non-compliance with governmental regulations, including
regulations pertaining to food services, the environment and childcare service,
seasonality and adverse publicity concerning incidents at childcare centers.
In this prospectus and particularly in "Risk Factors", we have estimated the
impact that unfavorable economic conditions, including ramifications of the
September 11th terrorist attacks, competition for labor, the labor stoppage
that disrupted the 1994 and 1995 Major League Baseball seasons, and the effect
of event cancellations, have had on our expected sales and results of
operations. The actual impact of such estimates may vary from those stated in
this prospectus.
Forward-looking statements speak only as of the date made. We undertake no
obligation to update any forward-looking statements to reflect the events or
circumstances arising after the date as of which they are made. As a result of
these risks and uncertainties, readers are cautioned not to place undue
reliance on the forward-looking statements included in this prospectus or that
may be made elsewhere from time to time by, or on behalf of, us.
23
USE OF PROCEEDS
We will receive net proceeds from this offering of approximately $603.3
million, after deducting the underwriting discount and estimated offering
expenses, or $694.8 million if the underwriters exercise their overallotment
option in full. For purposes of this calculation, we have assumed a public
offering price of $21.50 per share.
We intend to use approximately 56% of the gross proceeds of this offering
(assuming the stock buyback is completed at the public offering price) to fund
the stock buyback, and we intend to purchase up to 10% in the aggregate of the
outstanding shares of our Class A common stock in the stock buyback and the
aggregate funds to be used in the stock buyback will not exceed 75% of the
gross proceeds from this offering.
We will determine the tender offer price, which may be at or above the
public offering price and at, above or below the market price at the time of
the tender offer. In the tender offer, each Class A stockholder will be
permitted to tender up to 13% of his or her shares of Class A common stock. If
the tender offer is fully subscribed by all Class A stockholders, we will
accept no more than 10% of each Class A stockholder's shares. In this manner,
tenders of up to 10% of a stockholder's shares will be accepted and to the
extent some stockholders tender less than 10% of their shares of Class A common
stock, then this shortfall will be allocated to the stockholders that have
tendered more than the 10% amount (but no more than 13%) on a pro rata basis.
The maximum aggregate number of shares of our Class A common stock that we may
purchase in the tender offer will vary depending on the tender offer price per
share. We currently intend to launch the tender offer as soon as practicable
after the completion of this offering.
In the repurchase from the 401(k) Plans, we currently intend to agree, on
the date we execute the underwriting agreement relating to this offering, to
acquire up to 10% of the Class A common stock held by the 401(k) Plans. In
exchange for entering into this contract, the trustee for the 401(k) Plans will
agree not to tender in the tender offer. We anticipate that the price per share
under the contract with the 401(k) Plans will equal the public offering price.
However, if we tender for shares of Class A common stock in the tender offer at
a price higher than the public offering price, we will either make an
additional payment to the trustee for the difference on the date the tender
offer closes or we will return a portion of the shares sold to us by the 401(k)
Plans so that the effective price per share we pay under the contract equals
the tender offer price. Since the repurchase of shares under the contract with
the 401(k) Plans will close prior to the commencement of the tender offer, we
will complete the repurchase of shares from the 401(k) Plans even in the
unlikely event we elect not to proceed with the tender offer.
If the price per share in the stock buyback exceeds the public offering
price per share of our unrestricted Class B common stock by an amount such that
the aggregate consideration for all shares purchased in the stock buyback would
exceed 75% of the gross proceeds from this offering, we will reduce the maximum
number of shares of our Class A common stock that may be tendered in the tender
offer and return shares of Class A common stock to the 401(k) Plans to limit
the aggregate consideration for all shares purchased in the stock buyback to
75% of the gross proceeds from this offering.
We intend to use the remaining net proceeds from this offering to repay part
of the new bridge financing facility we entered into to partly finance the
acquisition of ServiceMaster Management Services.
Pending these uses, we intend to use all of the net proceeds to repay
indebtedness under our senior revolving credit facility and other bank debt.
Repayments of borrowings under our senior revolving credit facility will not
reduce the amount of commitments under this facility.
24
Since we cannot specify with certainty the precise manner in which the net
proceeds will be allocated, we will have broad discretion in the application of
the net proceeds. We may use all or a greater portion of the net proceeds than
anticipated for general corporate purposes if fewer shares are tendered in the
proposed tender offer than anticipated.
We had $420 million of borrowings outstanding as of September 28, 2001 under
the senior revolving credit facility. These loans mature in March 2005 and bear
interest at variable rates that reflect, at our option, LIBOR plus a spread
ranging from 0.18% to 0.70% per annum, the certificate of deposit rate plus a
spread ranging from 0.28% to 0.80% per annum or the higher of the prime rate or
0.50% per annum over the federal funds rate. In addition, the senior revolving
credit facility provides for a fee on the total amount of the facility, ranging
from 0.10% to 0.30% per annum. The spreads and fees are based on certain
financial ratios. The weighted average interest rate, including the commitment
fee, under the senior revolving credit facility was 4.05% on September 28,
2001.
We had $75 million of borrowings outstanding as of September 28, 2001 under
our credit agreement with Sumitomo Mitsui Banking Corporation and The Bank of
Nova Scotia. These loans mature in May 2005 and bear interest at variable rates
that reflect either LIBOR plus a spread ranging from 0.65% to 1.50% per annum
or the higher of the prime rate or 0.50% per annum over the federal funds rate.
The weighted average interest rate under this loan was 4.40% on September 28,
2001.
We had $50 million of borrowings outstanding as of September 28, 2001 under
our credit agreement with KBC Bank. These loans mature in May 2005 and bear
interest at variable rates that reflect either LIBOR plus a spread ranging from
0.90% to 1.30% per annum or the higher of the prime rate or 0.50% per annum
over the federal funds rate. The spread is based on certain financial ratios.
The weighted average interest rate under this loan was 4.45% on September 28,
2001. We had $45 million of borrowings outstanding as of September 28, 2001
under our credit agreement with BNP Paribas. These loans mature in July 2003
and bear interest at variable rates that reflect LIBOR plus a spread of 0.85%
per annum. The weighted average interest rate under this loan was 4.68% on
September 28, 2001.
In connection with our merger, the holders of the old Class A common stock
will be entitled to exercise appraisal rights, although a condition of the
merger is that holders of not more than 5% of our old Class A common stock
exercise appraisal rights. To the extent appraisal rights are exercised, a
portion of the proceeds of this offering may be used to satisfy our resulting
obligations.
DIVIDENDS
We have not distributed any cash dividends on our common stock during the
fiscal years 1997 through 2001. We have no current plans to distribute cash
dividends. Future dividends on our common stock, if any, will be at the
discretion of our board of directors and will depend on, among other things,
our results of operations, cash requirements, financial condition, contractual
restrictions and other factors that our board of directors may deem relevant.
25
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 28, 2001:
. actual, without giving effect to any adjustments resulting from the
merger, this offering, the stock buyback or the acquisition of the
ServiceMaster Management Services business;
. as adjusted for the merger and this offering, assuming 30.0 million
shares offered, an offering price of $21.50 per share and gross proceeds
of $645.0 million;
. as adjusted, pro forma for the stock buyback, assuming the use of
approximately 56% of the gross proceeds from this offering in the stock
buyback at a price per share equal to the public offering price per
share of our unrestricted Class B common stock, which would result in
the purchase of up to 16.7 million shares of Class A common stock, which
represents 10% of our total Class A common stock prior to the stock
buyback. Shares purchased in the stock buyback are reflected as treasury
stock in the table below. We will determine the tender offer price,
which may be at or above the public offering price or at, above or below
the market price at the time of the tender offer. We anticipate that the
price per share under the contract with the 401(k) Plans will equal the
public offering price. In exchange for entering into the share purchase
contract, the trustee for the 401(k) Plans will agree not to tender in
the tender offer. The repurchase from the 401(k) Plans will close on the
same day as this offering, which will be prior to the commencement of
the tender offer. If we tender for shares of Class A common stock in the
tender offer at a price higher than the public offering price, we will
either make an additional payment to the trustee for the difference on
the date the tender offer closes or we will return a portion of the
shares of Class A common stock sold to us by the 401(k) Plans so that
the effective price per share paid by us under the contract equals the
tender offer price. Using the same approximately 56% of the gross
proceeds from this offering in the stock buyback and a stock buyback
price of $25.00 per share, as compared to a stock buyback price per
share equal to the public offering price per share of our unrestricted
Class B common stock, would result in there being about 2.3 million
fewer shares of our Class A common stock purchased in the stock buyback.
This analysis assumes that we return shares to the trustee of the 401(k)
Plans to increase the effective price per share paid by us to the 401(k)
Plans to equal the tender offer price. We cannot assure you that the
tender offer will occur or that it will occur on the terms described in
this prospectus; and
. pro forma ServiceMaster for the acquisition of the ServiceMaster
Management Services business and related expenses for approximately
$806 million in cash.
26
The net proceeds from this offering not used in the stock buyback are
assumed for purposes of this table to be used to repay borrowings under our
senior revolving credit facility. This table does not reflect the exercise by
Class A stockholders of appraisal rights in connection with the merger. You
should read this table in conjunction with the consolidated financial
statements and the notes to those statements which are included elsewhere in
this prospectus, Selected Consolidated Financial Data, Management's Discussion
and Analysis of Results of Operations and Financial Condition and Unaudited Pro
Forma Financial Information.
<TABLE>
<CAPTION>
September 28, 2001
--------------------------------------------
As
As Adjusted Pro Forma
Actual Adjusted Pro Forma ServiceMaster
-------- -------- --------- -------------
(in millions, except share data)
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 24.8 $ 24.8 $ 24.8 $ 24.8
======== ======== ======== ========
Debt:
Current maturities of long-term
debt............................ $ 34.7 $ 34.7 $ 34.7 $ 34.7
Long-term debt (1)(6)............ 1,635.9 1,032.6 1,392.2 2,198.2
-------- -------- -------- --------
Total debt..................... 1,670.6 1,067.3 1,426.9 2,232.9
Common stock subject to potential
repurchase (2).................... 20.0 -- -- --
Shareholders' Equity:
Common stock (3)................. 0.6 -- -- --
Class A common stock: $0.01 par
value; no shares authorized and
no shares outstanding (actual);
600,000,000 shares authorized
(as adjusted and as adjusted pro
forma) and 167,239,554 shares
issued (as adjusted, as adjusted
pro forma and Pro Forma
ServiceMaster) (4).............. -- 1.7 1.7 1.7
Class B common stock: $0.01 par
value; no shares authorized and
no shares outstanding (actual);
1,600,000,000 shares authorized
(as adjusted and as adjusted pro
forma) and 30,000,000 shares
issued (as adjusted) and
30,000,000 shares issued (as
adjusted pro forma and Pro Forma
ServiceMaster) (5).............. -- 0.3 0.3 0.3
Earnings retained for use in the
business........................ 284.2 284.2 284.2 284.2
Treasury stock at cost; no shares
(actual and as adjusted) and
16,723,955 shares (as adjusted
pro forma and Pro Forma
ServiceMaster).................. -- -- (359.6) (359.6)
Capital surplus.................. 1.1 603.0 603.0 603.0
Accumulated other comprehensive
loss............................ (19.0) (19.0) (19.0) (19.0)
Impact of potential repurchase
feature of common stock (2)..... (20.0) -- -- --
-------- -------- -------- --------
Total shareholders' equity..... 246.9 870.2 510.6 510.6
-------- -------- -------- --------
Total capitalization......... $1,937.5 $1,937.5 $1,937.5 $2,743.5
======== ======== ======== ========
</TABLE>
--------
(1) The reduction in long-term debt in the as adjusted and as adjusted pro
forma columns is due to the repayment of our senior revolving credit
facility. That repayment will not reduce the commitments under that
facility.
(2) Excludes shares subject to purchase in the stock buyback. Reflects shares
of our common stock that may have to be repurchased under our stockholders'
agreement, subject to a limit on such repurchases in our senior revolving
credit facility. In connection with the stockholder vote on the merger, we
are seeking the termination of the stockholders' agreement.
(3) Common stock at September 28, 2001 consisted of our old Class A common
stock, par value $0.01, with 25,000,000 shares authorized and 2,385,438
shares outstanding and our old Class B common stock, par value $0.01, with
150,000,000 shares authorized and 59,765,397 shares outstanding.
27
(4) Class A common stock includes Class A-1, Class A-2 and Class A-3 common
stock.
(5) Class B common stock includes unrestricted Class B common stock and
restricted Class B-1, Class B-2 and Class B-3 common stock.
(6) The increase in long-term debt in the pro forma ServiceMaster column is
due to the borrowings under a one-year bridge financing facility provided
by a group of banks ($600 million) and borrowings under our senior
revolving credit facility ($206 million) which are assumed to fund the
acquisition of the ServiceMaster Management Services business for a total
purchase cost (including related expenses) of $806 million in cash. We
expect to repay a portion of the bridge financing with a portion of the
proceeds from this offering. In addition, we expect to replace the
remaining portion of the bridge financing within one year of closing the
acquisition. We may consider several different types of financing
arrangements to replace the remainder of the borrowings under the bridge
financing prior to its expiration date. These arrangements may include a
publicly or privately offered debt financing and accounts receivable sale.
Unless we specifically state otherwise, the information in this prospectus
does not take into account:
. our issuance of up to 4,500,000 shares of unrestricted Class B common
stock that the underwriters have the option to purchase from us solely
to cover over-allotments;
. 32,001,658 shares of Class A common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $6.61 per
share; of these shares, 1,414,584 are subject to currently vested
options at a weighted average price of $3.39 per share;
. 3,451,152 shares of Class A common stock issuable upon conversion of
deferred stock units; and
. 38,000,000 additional shares of Class A common stock authorized and
reserved for issuance under our various stock plans, consisting of:
--30,000,000 shares available for future options to be granted under
the 2001 Equity Incentive Plan; and
--8,000,000 shares available for future deferred stock units to be
issued under the 2001 Stock Unit Retirement Plan.
Upon completion of this offering, we will amend the 2001 Stock Ownership
Plan, the Combined Stock Ownership Plan for employees, the Stock Unit
Retirement Plan and the 1996 Directors' Stock Ownership Plan, each of which
existed prior to this offering, so that no additional options or deferred
stock units can be issued under those plans. Those plans will continue to
govern the terms of options and deferred stock units currently outstanding.
If the underwriters exercise their over-allotment option in full,
34,500,000 shares of unrestricted Class B common stock will be outstanding
after this offering.
28
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents our selected consolidated financial data.
Throughout this prospectus, our fiscal years ended on October 3, 1997, October
2, 1998, October 1, 1999, September 29, 2000 and September 28, 2001 are
referred to as fiscal 1997, fiscal 1998, fiscal 1999, fiscal 2000 and fiscal
2001, respectively. The data for each of the fiscal years in the five year
period ended September 28, 2001 are derived from our consolidated financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants. The following data should be read in conjunction with the
consolidated financial statements and the related notes thereto and
Management's Discussion and Analysis of Results of Operations and Financial
Condition, each included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Fiscal
------------------------------------------------
1997(1) 1998 1999 2000 2001
-------- -------- -------- -------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales................... $6,576.1 $6,638.9 $6,742.3 $7,262.9 $7,788.7
Costs and expenses:
Cost of services
provided.............. 5,981.1 6,022.3 6,087.4 6,531.0 7,002.7
Depreciation and
amortization.......... 191.7 195.8 193.7 220.8 240.2
Selling and general
corporate expense..... 83.1 82.7 86.0 91.5 106.2
Other expense
(income).............. (11.7) 5.0 -- -- --
-------- -------- -------- -------- --------
Operating income (2).... 331.9 333.1 375.2 419.6 439.5
Interest and other
financing costs........ 116.0 117.3 135.8 147.8 153.3
-------- -------- -------- -------- --------
Income before income
taxes.................. 215.9 215.8 239.4 271.8 286.2
Provision for income
taxes.................. 69.8 82.1 89.2 103.8 109.7
-------- -------- -------- -------- --------
Income before
extraordinary item
(3).................... $146.1 $133.7 $150.2 $168.0 $176.5
-------- -------- -------- -------- --------
Net income.............. $146.1 $129.2 $150.2 $168.0 $176.5
======== ======== ======== ======== ========
Earnings per share:
Income before
extraordinary item:
Basic.................. $1.16 $1.17 $1.59 $1.88 $2.06
Diluted................ 1.10 1.10 1.48 1.77 1.95
Net Income:
Basic.................. $1.16 $1.14 $1.59 $1.88 $2.06
Diluted................ 1.10 1.06 1.48 1.77 1.95
Balance Sheet Data (at
period end):
Total assets............ $2,753.6 $2,741.3 $2,870.5 $3,199.4 $3,216.4
Long-term borrowings:
Senior................. 1,084.9 1,678.3 1,583.0 1,777.7 1,635.9
Subordinated........... 129.0 26.7 26.7 -- --
Common stock subject to
potential repurchase
(4).................... 23.3 20.0 20.0 20.0 20.0
Shareholders' equity
(deficit) (5).......... 370.0 (78.9) 126.6 111.5 246.9
Other Financial Data:
EBITDA (6).............. $523.6 $528.9 $568.9 $640.4 $679.7
Net cash provided by
operating activities... 230.1 276.7 293.2 407.1 496.9
Net cash used in
investing activities... (59.7) (189.6) (216.2) (483.6) (279.2)
Net cash provided
by/(used in) financing
activities............. (168.3) (93.8) (69.9) 73.4 (217.5)
</TABLE>
--------
(1) Fiscal 1997 is a fifty-three week period.
(2) Operating income is net of goodwill amortization of $22.2 million in fiscal
1997, $22.1 million in fiscal 1998, $21.3 million in fiscal 1999, $22.2
million in fiscal 2000 and $25.4 million in fiscal 2001.
(3) During fiscal 1998, we redeemed or replaced certain of our indebtedness,
resulting in extraordinary charges, net of taxes, of $4.5 million.
(4) Excludes shares subject to purchase in the stock buyback. Reflects shares
of our common stock that may have to be repurchased under our stockholders'
agreement, subject to a limit on such repurchases in our senior revolving
credit facility. In connection with the stockholder vote on the merger, we
are seeking the termination of the stockholders' agreement.
(5) Fiscal 1998 shareholders' equity (deficit) reflects the repurchase of
approximately $530 million of our old Class A common stock pursuant to a
cash tender offer in June 1998.
(6) EBITDA represents net income before interest, taxes, depreciation and
amortization, a measurement used by management to measure operating
performance. EBITDA is not a recognized term under generally accepted
accounting principles and does not purport to be an alternative to
operating income as an
29
indicator of operating performance or to cash flows from operating
activities as a measure of liquidity. Because not all companies calculate
EBITDA identically, this presentation of EBITDA may not be comparable to
other similarly titled measures of other companies. Additionally, EBITDA is
not intended to be a measure of free cash flow for management's
discretionary use, as it does not consider certain cash requirements such
as interest payments, tax payments and debt service requirements.
Selected Segment Data
The following tables summarize our sales and operating income attributable
to each operating segment for fiscal 1997, 1998, 1999, 2000 and 2001.
<TABLE>
<CAPTION>
Fiscal
------------------------------------------------
Sales 1997(1) 1998 1999 2000 2001
----- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Food and Support
Services--United
States................. $3,469.6 $3,653.0 $3,993.5 $4,396.3 $4,782.1
Food and Support
Services--
International.......... 915.6 938.0 975.2 1,001.9 1,109.3
Uniform and Career
Apparel--Rental........ 831.6 863.5 911.9 969.6 995.2
Uniform and Career
Apparel--Direct
Marketing.............. 432.5 457.8 462.0 455.7 438.8
Educational Resources... 332.1 360.8 399.7 439.4 463.3
Corporate and other..... 594.7 365.8 -- -- --
-------- -------- -------- -------- --------
$6,576.1 $6,638.9 $6,742.3 $7,262.9 $7,788.7
======== ======== ======== ======== ========
<CAPTION>
Fiscal
------------------------------------------------
Operating Income 1997(1) 1998 1999 2000 2001
---------------- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Food and Support
Services--United
States................. $173.3 $195.1 $222.3 $244.5 $264.7
Food and Support
Services--
International.......... 25.6 32.4 32.0 40.2 39.4
Uniform and Career
Apparel--Rental........ 96.4 100.9 106.9 118.5 119.7
Uniform and Career
Apparel--Direct
Marketing.............. 24.7 10.1 3.9 10.8 15.6
Educational Resources... 26.9 31.2 34.7 32.3 25.4
-------- -------- -------- -------- --------
346.9 369.7 399.8 446.3 464.8
Corporate and other..... (26.7) (31.6) (24.6) (26.7) (25.3)
Other income/(expense).. 11.7 (5.0) -- -- --
-------- -------- -------- -------- --------
$331.9 $333.1 $375.2 $419.6 $439.5
======== ======== ======== ======== ========
</TABLE>
--------
(1) Fiscal 1997 is a fifty-three week period.
30
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information presented below should be read
in conjunction with our "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and our consolidated financial statements
and related notes included elsewhere in the prospectus, as well as the
discussion of the ServiceMaster acquisition on page 69, this offering,
described on page 4 and the merger and stock buyback described on page 89 of
the prospectus.
The unaudited pro forma consolidated balance sheet was prepared as if the
acquisition, merger, offering and buyback occurred as of September 28, 2001.
The unaudited pro forma consolidated statement of income was prepared as if the
acquisition, merger, offering and buyback occurred as of the beginning of our
2001 fiscal year.
The pro forma financial statements give pro forma effect to:
. The acquisition by ARAMARK of the ServiceMaster Management Services
business for approximately $800 million in cash.
. The merger and this offering, assuming 30.0 million shares offered, an
offering price of $21.50 per share and gross proceeds of $645.0 million.
. The stock buyback assuming the use of approximately 56% of the gross
proceeds from the offering and a price of $21.50 per share.
The pro forma adjustments are based upon available information and
assumptions that we believe are reasonable. Since the acquisition has not been
consummated, the pro forma adjustment to reflect the allocation of the purchase
price is based upon the preliminary information currently available, which may
be revised, as additional information becomes available after the transaction
is closed. The notes to the unaudited pro forma financial statements provide a
more detailed discussion of how such adjustments were derived and presented in
the pro forma financial statements. Such financial statements have been
compiled from historical financial statements and other information, but do not
purport to represent what our financial position or results of operations
actually would have been had the transactions occurred on the dates indicated,
or to project our financial performance for any future period. The pro forma
statement of income does not reflect any synergies or other operating benefits
that may be realized as we integrate the ServiceMaster business with our
existing operations.
31
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 28, 2001
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
ServiceMaster Pro Forma Adjustments
Management Adjustments Pro Forma for the Merger,
ARAMARK Services for the for the Offering and Pro Forma
Historical Historical (a) Acquisition Acquisition Buyback as Adjusted
---------- ------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 24,799 $ -- $ -- $ 24,799 $ -- $ 24,799
Receivables, net....... 503,291 96,195 -- 599,486 -- 599,486
Inventories............ 415,798 9,937 -- 425,735 -- 425,735
Prepayments and other
current assets........ 76,310 22,198 -- 98,508 -- 98,508
---------- -------- -------- ---------- --------- ----------
Total current assets... 1,020,198 128,330 -- 1,148,528 -- 1,148,528
---------- -------- -------- ---------- --------- ----------
Property and Equipment,
net.................... 1,087,833 58,588 10,000(b) 1,156,421 -- 1,156,421
Goodwill................ 705,016 38,231 436,047(b) 1,179,294 -- 1,179,294
Other Assets............ 403,347 6,831 280,000(b) 690,178 -- 690,178
---------- -------- -------- ---------- --------- ----------
$3,216,394 $231,980 $726,047 $4,174,421 $ -- $4,174,421
========== ======== ======== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of
long-term borrowings.. $ 34,710 $ -- $ -- $ 34,710 $ -- $ 34,710
Accounts payable....... 459,249 29,288 -- 488,537 -- 488,537
Accrued expenses and
other liabilities..... 590,192 95,919 -- 686,111 -- 686,111
---------- -------- -------- ---------- --------- ----------
Total current
liabilities........... 1,084,151 125,207 -- 1,209,358 -- 1,209,358
---------- -------- -------- ---------- --------- ----------
Long-Term Borrowings.... 1,635,867 -- 806,000(b) 2,441,867 (243,688)(g) 2,198,179
Deferred Income Taxes
and Other Noncurrent
Liabilities............ 229,484 26,820 -- 256,304 -- 256,304
Common Stock Subject to
Potential Repurchase
Under Provisions of
Shareholders'
Agreement.............. 20,000 -- -- 20,000 (20,000)(f) --
Shareholders' Equity
Excluding Common Stock
Subject to Repurchase.. 79,953 (79,953)(b) -- --
Old Class A common
stock................. 24 -- -- 24 (24)(f) --
Old Class B common
stock................. 597 -- -- 597 (597)(f) --
New Class A common
stock................. -- 1,672(f) 1,672
New Class B common
stock................. -- 300(g) 300
Capital surplus 1,057 -- -- 1,057 (1,051)(f) 602,959
602,953(g)
Earnings retained for
use in the business... 284,184 -- -- 284,184 -- 284,184
Treasury Stock......... -- (359,565)(g) (359,565)
Accumulated other
comprehensive income
(loss)................ (18,970) -- -- (18,970) -- (18,970)
Impact of potential
repurchase feature of
common stock.......... (20,000) -- -- (20,000) 20,000(f) --
---------- -------- -------- ---------- --------- ----------
246,892 79,953 (79,953) 246,892 263,688 510,580
---------- -------- -------- ---------- --------- ----------
$3,216,394 $231,980 $726,047 $4,174,421 $ -- $4,174,421
========== ======== ======== ========== ========= ==========
</TABLE>
32
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 2001
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
ServiceMaster Pro Forma Adjustments
Management Adjustments Pro Forma for the Merger,
ARAMARK Services for the for the Offering and Pro Forma
Historical Historical (a) Acquisition Acquisition Buyback as Adjusted
---------- ------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $7,788,690 $980,248 $ -- $8,768,938 $ -- $8,768,938
Costs and Expenses:
Cost of services
provided.............. 7,002,730 788,793 -- 7,791,523 -- 7,791,523
Depreciation and
amortization 240,243 19,484 29,950(d) 289,677 -- 289,677
Selling and general
corporate expenses.... 106,210 94,712 -- 200,922 -- 200,922
---------- -------- -------- ---------- -------- ----------
7,349,183 902,989 29,950 8,282,122 -- 8,282,122
---------- -------- -------- ---------- -------- ----------
Operating income....... 439,507 77,259 (29,950) 486,816 -- 486,816
Interest and other
financing costs, net 153,292 -- 53,069(c) 206,361 (15,794)(h) 190,567
---------- -------- -------- ---------- -------- ----------
Income before income
taxes................. 286,215 77,259 (83,019) 280,455 15,794 296,249
Provision for Income
Taxes 109,719 30,517 (32,377)(e) 107,859 6,160(i) 114,019
---------- -------- -------- ---------- -------- ----------
Net income............. $ 176,496 $ 46,742 $(50,642) $ 172,596 $ 9,634 $ 182,230
========== ======== ======== ========== ======== ==========
Earnings Per Share
Basic.................. $ 2.06 $ 2.01 $ 0.99(j)
Diluted................ $ 1.95 $ 1.90 $ 0.91(j)
</TABLE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Represents the unaudited historical financial statements of the
ServiceMaster business being acquired as of and for the twelve months ended
September 30, 2001, including the trade accounts receivable balance and
accounts related to the ServiceMaster corporate campus which are also being
acquired. Sales and Cost of Services Provided have been adjusted to exclude
client employee payroll costs of $914 million consistent with ARAMARK'S
accounting practice.
(b) To reflect the acquisition of ServiceMaster Management Services by
ARAMARK for a total purchase cost of $806 million (including direct
acquisition costs) in cash. The purchase is assumed to have been funded
with proceeds from a one-year bridge financing facility provided by a group
of banks ($600 million) and borrowings under our senior revolving credit
facility ($206 million). We expect to repay a portion of the bridge
financing with a portion of the proceeds from this offering. In addition,
we expect to replace the remaining portion of the bridge financing within
one year of closing the acquisition. We may consider several different
types of financing arrangements to replace the remainder of the borrowings
under the bridge financing prior to its expiration date. These arrangements
may include a publicly or privately offered debt financing and accounts
receivable sale. We expect to refinance the bridge financing on a long-term
basis within one year of closing the acquisition.
The excess ($726.0 million) of purchase cost over the carrying amount of
the net assets to be acquired has been allocated as follows:
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Property and equipment...................................... $ 10
Service mark rights......................................... 10
Non compete agreement....................................... 5
Customer contract rights.................................... 265
Goodwill.................................................... 436
----
$726
====
</TABLE>
33
(c) To reflect additional interest expense resulting from the
acquisition related borrowings. The interest rate on the bridge financing
is based on LIBOR plus-1 3/8% or 6.7% (including the syndication fee) for
the full year. The average interest rate on our senior revolving credit
facility was 5.8% for the year.
(d) To reflect additional depreciation and amortization related to the
tangible and intangible assets acquired, based upon the following
depreciation / amortization periods:
<TABLE>
<S> <C>
Property and equipment........................................... 30 Years
Service mark rights.............................................. 3 Years
Non compete agreement............................................ 4 Years
Customer contract rights......................................... 10 Years
</TABLE>
In accordance with the recently issued Statement of Financial Accounting
Standard No. 142, goodwill resulting from the acquisition is not amortized.
(e) To reflect the income tax effect resulting form the pro forma
adjustments using an effective tax rate of 39%.
(f) To reflect the merger of ARAMARK Corporation and ARAMARK Worldwide
Corporation resulting in the issuance of 167.2 million shares of new Class
A common stock of ARAMARK Worldwide Corporation in exchange for all of the
outstanding shares of old Class A and old Class B common stock of ARAMARK
Corporation, and to reflect the elimination of our obligation under the
Stockholders' Agreement to purchase common stock upon termination of such
Agreement at the time of the merger.
(g) To reflect the issuance of 30.0 million shares of new Class B
common stock at a price of $21.50 per share resulting in gross proceeds of
$645.0 million, and the application of the gross proceeds to (1) pay costs
of the offering of $41.7 million, including the underwriting discount, (2)
fund the stock buyback of approximately 16.7 million shares of Class A
common stock, which represents 10% of our total Class A common stock prior
to the stock buyback, at a price of $21.50 per share, and (3) repay long
term borrowings of $243.7 million. Shares purchased in the buyback are
reflected as treasury shares.
(h) To reflect the reduction in interest expense resulting from the
$243.7 million repayment of long term borrowings with proceeds from the
offering of new Class B common stock. The weighted average interest rate on
borrowing assumed to have been repaid was 6.48%.
(i) To reflect the income tax effect resulting from the interest
expense reduction using an effective tax rate of 39%.
(j) Pro forma as adjusted earnings per share amounts reflect the merger
exchange ratios which will have the effect of a two-for-one stock split.
The weighted average shares outstanding for purposes of computing earnings
per share are 184.8 million for basic earnings per share and 199.7 million
for diluted earnings per share.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of our results of operations and
financial condition for the fiscal years ended October 1, 1999, September 29,
2000 and September 28, 2001 should be read in conjunction with Selected
Consolidated Financial Data and our audited consolidated financial statements
and the notes to those statements that are included elsewhere in this
prospectus. Our discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of
events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
the Risk Factors, Special Note About Forward-Looking Statements and Business
sections and elsewhere in this prospectus.
Overview
We provide or manage services in three strategic areas: Food and Support
Services, Uniform and Career Apparel and Educational Resources. We manage and
report our business activities through the following five operating segments:
Food and Support Services--United States--Provides food, refreshment and
support services, including facility maintenance and housekeeping, to business,
educational, governmental and healthcare institutions and in sports,
entertainment, recreational and other facilities serving the general public.
Food and support services are provided at client locations under various
contractual arrangements, which can include profit and loss, profit sharing or
management fee based agreements.
Food and Support Services--International--Provides food, refreshment and
support services, including facility maintenance and housekeeping, to business,
educational, governmental and healthcare institutions and in sports,
entertainment, recreational and other facilities serving the general public.
Operations are conducted primarily in Belgium, Canada, the Czech Republic,
Germany, Hungary, Mexico, Spain and the United Kingdom. Food and support
services are provided at client locations under various contractual
arrangements, which can include profit and loss, profit sharing or management
fee based agreements.
Uniform and Career Apparel--Rental--Provides uniform rental, cleaning,
maintenance and delivery services on a contract basis. Also provided are walk-
off mats, cleaning cloths, disposable towels and other environmental control
items and the direct sale of certain uniform and related products.
Uniform and Career Apparel--Direct Marketing--Sells personalized uniforms
and career apparel, public safety equipment and accessories directly to
businesses, public institutions and individuals.
Educational Resources--Provides infant, toddler, pre-school and school-age
learning programs through community-based childcare centers, before and after
school programs, employer on-site childcare centers and private elementary
schools. Sales are derived primarily from weekly or monthly payments received
directly from individual families under short-term agreements.
Most of our business activities require substantial labor resources and, as
a result, labor costs and availability, as well as labor related costs such as
medical insurance and other benefits, have a significant effect on operating
results. Payroll, employee benefit and other related employment costs comprise
approximately 42% of total operating costs. Hiring and retaining qualified
employees is critical to our ability to provide services. Low unemployment
levels tend to increase overall labor costs, including training costs, and
recent double digit percentage increases in medical costs have also impacted
operating results. Other major operating costs include purchased food and food-
related products and uniform and related items.
Our ability to pass along cost increases to our clients and customers is
dependent upon a number of factors, including competitive conditions and our
contractual relationships with our clients. Management fee
35
contracts and cost reimbursement type arrangements generally permit the pass
through of cost increases. Cost increase recovery under profit and loss
arrangements is dependent upon individual contract terms and competitive
conditions.
We have periodically made strategic acquisitions and investments to
complement our organic growth strategy. In addition to our acquisition of the
ServiceMaster Management Services business, since the beginning of fiscal 1995,
we have spent an aggregate of approximately $800 million on strategic
acquisitions and investments, including the following:
. Food and Support Services segments--Campbell Bewley Group (fiscal 2001),
Correctional Foodservice Management, a division of The Wackenhut
Corporation (fiscal 2001), Ogden Entertainment, Inc. (fiscal 2000),
Restaura, Inc. (fiscal 1999), Facilities Resource Management Company
(fiscal 1999) and Harry M. Stevens Holding Corp. (fiscal 1995).
. Uniform and Career Apparel segments--Dyna Corporation (fiscal 1999),
Crest Uniform Company (fiscal 1996), Galls, Inc. (fiscal 1995) and Todd
Uniform, Inc. (fiscal 1995).
Results of Operations
The following tables present our sales and operating income and related
percentages attributable to each operating segment for fiscal years 1999, 2000
and 2001.
<TABLE>
<CAPTION>
Fiscal
-------------------------------------------
1999 2000 2001
------------- ------------- -------------
Sales $ % $ % $ %
----- -------- --- -------- --- -------- ---
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Food and Support Services--United
States.......................... $3,993.5 59% $4,396.3 61% $4,782.1 61%
Food and Support Services--
International................... 975.2 14 1,001.9 14 1,109.3 14
Uniform and Career Apparel--
Rental.......................... 911.9 14 969.6 13 995.2 13
Uniform and Career Apparel--
Direct Marketing................ 462.0 7 455.7 6 438.8 6
Educational Resources............ 399.7 6 439.4 6 463.3 6
-------- --- -------- --- -------- ---
$6,742.3 100% $7,262.9 100% $7,788.7 100%
======== === ======== === ======== ===
<CAPTION>
Fiscal
-------------------------------------------
1999 2000 2001
------------- ------------- -------------
Operating Income $ % $ % $ %
---------------- -------- --- -------- --- -------- ---
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Food and Support Services--United
States.......................... $222.3 59% $244.5 58% $264.7 60%
Food and Support Services--
International................... 32.0 9 40.2 10 39.4 9
Uniform and Career Apparel--
Rental.......................... 106.9 29 118.5 28 119.7 27
Uniform and Career Apparel--
Direct Marketing................ 3.9 1 10.8 2 15.6 4
Educational Resources............ 34.7 9 32.3 8 25.4 6
-------- --- -------- --- -------- ---
399.8 446.3 464.8
Corporate and other.............. (24.6) (7) (26.7) (6) (25.3) (6)
-------- --- -------- --- -------- ---
$375.2 100% $419.6 100% $439.5 100%
======== === ======== === ======== ===
</TABLE>
Fiscal 2001 Compared to Fiscal 2000
Consolidated Overview
Sales for fiscal 2001 were $7.8 billion, an increase of 7% over fiscal 2000.
Sales increases in the Food and Support Services segments, the Uniform and
Career Apparel--Rental segment, and the Educational Resources segment were
partially offset by a decline in sales in the Uniform and Career Apparel--
Direct Marketing segment. Excluding the impact of acquisitions, primarily in
the Food and Support Services segments, and the unfavorable impact of foreign
currency translation, sales for fiscal 2001 increased 4% over the prior year.
Further excluding the estimated effect on sales of the September 11th terrorist
attacks, the increase would have
36
been approximately 5%. Operating income of $439.5 million increased $19.9
million or 5% over the prior year. Excluding the impact of acquisitions and
foreign currency translation, operating income increased 3%. Higher
unemployment levels in the United States manufacturing and automotive sectors,
along with increased energy costs, the general economic slowdown in the United
States, a litigation related charge, and the terrorist attacks of September 11,
2001, have adversely impacted the fiscal 2001 results. As discussed below, the
Company was directly and indirectly impacted by the terrorist attacks on
September 11th (primarily in the Food and Support Services--United States
segment). Had the terrorist attacks not occurred, management estimates that
operating income, net income and diluted earnings per share would have been
approximately 2%, 3% and 3% higher in fiscal 2001, respectively.
Interest and other financing costs, net for fiscal 2001 increased 4%
compared to the prior year due to increased borrowing levels to fund
acquisitions, stock repurchases and working capital requirements, partially
offset by the impact of lower interest rates.
Segment Results
<TABLE>
<CAPTION>
Fiscal Change
----------------- ------------
2000 2001 $ %
-------- -------- ------ ----
(dollars in millions)
<S> <C> <C> <C> <C>
Sales by Segment
Food and Support Services--United States....... $4,396.3 $4,782.1 $385.8 8.8%
Food and Support Services--International....... 1,001.9 1,109.3 107.4 10.7
Uniform and Career Apparel--Rental............. 969.6 995.2 25.6 2.6
Uniform and Career Apparel--Direct Marketing... 455.7 438.8 (16.9) (3.7)
Educational Resources.......................... 439.4 463.3 23.9 5.4
-------- -------- ------ ----
Consolidated Sales............................. $7,262.9 $7,788.7 $525.8 7.2%
======== ======== ====== ====
</TABLE>
Food and Support Services--United States segment sales increased 9% over the
prior year due to acquisitions, primarily the Ogden Entertainment, Inc.
acquisition in the third quarter of fiscal 2000 (approximately 5%), net new
accounts (approximately 2%) and increased volume (approximately 2%). Softness
in employment levels, particularly in the manufacturing and automotive sectors,
slowed growth in the business services and vending sectors, while sales growth
was strong in the correctional and healthcare sectors. Sales in the sports and
entertainment sector were also adversely impacted by the general economic
slowdown and the terrorist attacks of September 11th. As a result of the events
of September 11th, customer locations in and around the World Trade Center were
either destroyed or closed and Major League Baseball and National Football
League games scheduled for September were postponed until fiscal 2002. Had the
terrorists attacks not occurred, management estimates that segment sales would
have been approximately 1% higher. Sales in the Food and Support Services--
International segment increased 11% over the prior year period. Excluding the
unfavorable impact of foreign currency translation, sales increased 18% due to
net new accounts (approximately 8%), increased volume (approximately 5%) and
the impact of the Campbell Bewley acquisition (approximately 5%), with double-
digit growth in the United Kingdom and European markets. Sales in the Uniform
and Career Apparel--Rental segment increased 3% due to increased volume
(approximately 2%) and pricing (approximately 1%). Sales growth in this sector
has been constrained by softness in the manufacturing, automotive and airline
sectors. Uniform and Career Apparel--Direct Marketing segment sales decreased
4% compared to the prior year due primarily to lower volume. The general
softening of the economy and a decrease in business spending have adversely
impacted 2001 sales in this segment. In fiscal 2000, sales to the safety
equipment and accessories market were adversely impacted by the startup of a
distribution facility. Educational Resources segment sales increased 5% over
the prior year due primarily to pricing (approximately 3%) and new locations
(approximately 6%), partially offset by lower enrollment at existing locations
(approximately 4%).
37
<TABLE>
<CAPTION>
Fiscal Change
-------------- -------------
2000 2001 $ %
------ ------ ----- ------
<S> <C> <C> <C> <C>
<CAPTION>
(dollars in millions)
<S> <C> <C> <C> <C>
Operating Income by Segment
Food and Support Services--United States......... $244.5 $264.7 $20.2 8.3%
Food and Support Services--International......... 40.2 39.4 (0.8) (2.0)
Uniform and Career Apparel--Rental............... 118.5 119.7 1.2 1.0
Uniform and Career Apparel--Direct Marketing..... 10.8 15.6 4.8 44.4
Educational Resources............................ 32.3 25.4 (6.9) (21.4)
Corporate and other.............................. (26.7) (25.3) 1.4 5.2
------ ------ ----- ------
Consolidated Operating Income.................... $419.6 $439.5 $19.9 4.7%
====== ====== ===== ======
</TABLE>
Food and Support Services--United States segment operating income increased
8%. Excluding the impact of acquisitions, operating income increased 4% due to
the sales increases noted above, partially offset by the impact of the
September 11th events, a litigation related charge and startup costs on a large
correctional services contract in the fourth quarter of fiscal 2001. Excluding
the litigation charge and startup costs, reported segment operating income
increased 12%. Additionally, had the terrorist attacks not occurred, management
estimates that 2001 segment operating income would have been approximately 3%
higher than reported. Reduced employment levels and generally soft economic
conditions (including the September 11th impact) constrained profit growth,
particularly in the second half of fiscal 2001. Operating income in the Food
and Support Services--International segment decreased 2%. Excluding the
unfavorable impact of foreign currency translation, acquisitions, and an asset
sale gain in the prior year, segment operating income increased 14% over the
prior year due to the sales increases noted above, partially offset by
increased infrastructure and acquisition integration costs in the U.K. and
increased food costs in Germany as a result of previous bovine spongiform
encephalopathy (BSE), or so-called "mad cow disease," and foot and mouth
disease outbreaks in Europe. Uniform and Career Apparel--Rental segment
operating income increased 1% over the prior year due to the sales increases
noted above and the absence of garment manufacturing startup costs incurred in
the prior year, partially offset by increased fuel, energy and other operating
costs. The slowdown in the United States economy has constrained both volume
and pricing growth, negatively impacting operating income, particularly in the
last half of fiscal 2001. Operating income in the Uniform and Career Apparel--
Direct Marketing segment increased 44% over the prior year due to reduced
catalog, distribution and administrative expenses, partially offset by the
impact of lower sales. Additionally, operating results in the segment were
adversely impacted in the prior year by start up costs related to a
distribution facility. Educational Resources segment operating income decreased
21%. Operating results in this segment continue to be adversely affected by
reduced enrollment at mature centers and continuing high labor and employee
medical costs.
Near Term Outlook
As discussed above, the events of September 11th, together with the
continuing economic slowdown in the United States have negatively affected
recent operating results, and we anticipate such conditions will continue into
the first quarter of fiscal 2002. While many of our businesses are likely to be
affected to some degree, we anticipate the effects to be more pronounced in our
U.S. food and support services operations, particularly those serving business
customers and tourist and convention center customers; in our uniform rental
operations and in our childcare business. Although the near term economic
outlook is uncertain, we believe it is likely that first quarter 2002
consolidated operating income will be approximately 5% below the amount
reported in the comparable prior year period. When economic conditions return
to more normal levels, we anticipate that our operating results will improve.
38
Fiscal 2000 Compared to Fiscal 1999
Consolidated Overview
Sales for the fiscal year ended September 29, 2000 were $7.3 billion, an
increase of 8% over fiscal 1999. Sales increased in the Food and Support
Services, Uniform Career and Apparel--Rental and Educational Resources segments
and decreased slightly in the Uniform and Career Apparel--Direct Marketing
segment. Excluding the impact of acquisitions, primarily in the Food and
Support Services--United States segment, sales increased approximately 5% over
fiscal 1999. Operating income of $419.6 million increased $44.4 million or 12%
over the prior year due to double-digit earnings increases in the Food and
Support Services and Uniform and Career Apparel segments, partially offset by
decreased earnings in the Educational Resources segment. Excluding the impact
of acquisitions, operating income increased approximately 8% over the prior
year period. Our operating income margin increased to 5.8% from 5.6% due
primarily to the leveraging of fixed costs and effective cost controls in the
Uniform and Career Apparel segments. Throughout fiscal 2000 the operating
results of several business segments have been affected by the trend of rising
labor, medical insurance and fuel costs. Various cost containment and price
increase programs have been initiated, and such efforts continued into fiscal
2001.
Interest expense increased $12.0 million or 9% over the prior year due to
increased debt levels, primarily to fund acquisitions and stock repurchases,
and increased interest rates.
Segment Results
<TABLE>
<CAPTION>
Fiscal Change
----------------- -------------------
1999 2000 $ %
-------- -------- -------- ---------
(dollars in millions)
<S> <C> <C> <C> <C>
Sales by Segment
Food and Support Services--United
States................................ $3,993.5 $4,396.3 $ 402.8 10.1%
Food and Support Services--
International......................... 975.2 1,001.9 26.7 2.7
Uniform and Career Apparel--Rental..... 911.9 969.6 57.7 6.3
Uniform and Career Apparel--Direct
Marketing............................. 462.0 455.7 (6.3) (1.4)
Educational Resources.................. 399.7 439.4 39.7 9.9
-------- -------- -------- ---------
Consolidated Sales..................... $6,742.3 $7,262.9 $ 520.6 7.7%
======== ======== ======== =========
</TABLE>
Food and Support Services--United States segment sales increased 10% over
the prior year due to acquisitions (approximately 5%) and increased volume
(approximately 5%) including new accounts. Sales in the Food and Support
Services--International segment increased 3% compared to fiscal 1999. Excluding
the unfavorable impact of foreign currency translation, sales in this segment
increased 9% due to new accounts (approximately 5%) and increased volume
(approximately 5%), partially offset by the impact of a divestiture in fiscal
1999 (approximately 1%). Sales in the Uniform and Career Apparel--Rental
segment increased 6% over the prior year period due to pricing (approximately
2%) and increased volume (approximately 4%). Uniform and Career Apparel--Direct
Marketing segment sales decreased 1% from fiscal 1999. Segment sales
performance reflects a decrease in direct uniform sales (approximately 4%),
primarily as a result of a planned reduction in catalog circulation, which was
partially offset by increased sales in the safety equipment and accessories
market (approximately 3%) due to increased volume and the acquisition of Dyna
Corporation in the second quarter of fiscal 1999. Educational Resources segment
sales increased 10% over the prior year due to pricing (approximately 5%) and
new locations (approximately 7%), partially offset by lower enrollment at
existing locations (approximately 2%).
39
<TABLE>
<CAPTION>
Fiscal Change
------------------ -------------------
1999 2000 $ %
-------- -------- -------- ---------
(dollars in millions)
<S> <C> <C> <C> <C>
Operating Income by Segment
Food and Support Services--United
States.............................. $222.3 $244.5 $22.2 10.0%
Food and Support Services--
International....................... 32.0 40.2 8.2 25.6
Uniform and Career Apparel--Rental... 106.9 118.5 11.6 10.9
Uniform and Career Apparel--Direct
Marketing........................... 3.9 10.8 6.9 176.9
Educational Resources................ 34.7 32.3 (2.4) (6.9)
Corporate and other.................. (24.6) (26.7) (2.1) (8.5)
-------- -------- -------- ---------
Consolidated Operating Income........ $375.2 $419.6 $44.4 11.8%
======== ======== ======== =========
</TABLE>
Food and Support Services--United States segment operating income increased
10%. Excluding the impact of acquisitions, operating income increased 3% over
fiscal 1999 due to the sales increases noted above, partially offset by
increased employee healthcare and other operating costs, including a provision
in the first quarter for a receivable from a customer that filed for
bankruptcy. Food and Support Services--International segment operating income
increased 26% over the prior year. Excluding the impact of asset sale gains
from both years ($3.8 million and $1.1 million, respectively), foreign currency
translation and fiscal 1999 operating losses at a Mexican subsidiary, operating
income increased 1% over the prior year due to the sales increases noted above,
partially offset by increased operating and business expansion costs. Uniform
and Career Apparel--Rental segment operating income increased 11% over the
prior year period due to the sales increases noted above and leveraging of
fixed costs, partially offset by costs related to the startup of certain
garment manufacturing operations. Operating income in the Uniform and Career
Apparel--Direct Marketing segment increased to $10.8 million in fiscal 2000
from $3.9 million in fiscal 1999 due to increased margins and reduced catalog
and other costs, partially offset by the impact of lower sales and increased
costs related to a new distribution center. Educational Resources segment
operating income decreased 7%. Operating results have been adversely impacted
by the limited supply and increased cost of labor resulting from the very
competitive labor markets, as well as increased employee medical costs.
Competition for scarce labor resources continued to affect results in this
segment during fiscal 2001.
40
Quarterly Results
The following tables summarize certain unaudited historical financial data
for each of the quarters in fiscal 1999, fiscal 2000 and fiscal 2001. This
quarterly information has been prepared on a basis consistent with our audited
financial statements and, we believe, reflects all normal recurring adjustments
necessary for a fair presentation of the information shown.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 2000
------------------------------------------- -------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales........... $1,656.2 $1,664.6 $1,712.7 $1,708.8 $1,767.6 $1,746.4 $1,835.6 $1,913.3 $1,947.3
Cost of services
provided....... 1,506.1 1,526.8 1,544.8 1,509.7 1,598.5 1,597.7 1,651.7 1,683.1 1,752.0
Operating
income......... 84.8 66.2 98.6 125.6 94.9 74.2 108.0 142.5 111.9
Net income...... 30.1 19.4 41.9 58.8 37.3 22.8 43.4 64.5 43.4
Diluted earnings
per share(1)... $0.30 $0.19 $0.41 $0.58 $0.38 $0.24 $0.46 $0.70 $0.48
EBITDA(2)....... $130.6 $114.9 $147.6 $175.8 $146.6 $126.9 $162.9 $204.0 $170.5
Percentage of
Total Year:
Sales........... 25% 25% 25% 25% 25% 24% 25% 26% 25%
Cost of services
provided....... 25 25 25 25 25 24 25 26 25
Operating
income......... 23 18 26 33 22 18 26 34 26
Net income...... 20 13 28 39 22 14 26 38 25
Diluted earnings
per share(1)... 20 13 28 39 21 14 26 39 25
Percentage of
Sales:
Operating
income......... 5.1% 4.0% 5.8% 7.4% 5.4% 4.2% 5.9% 7.5% 5.7%
EBITDA(2)....... 7.9% 6.9% 8.6% 10.3% 8.3% 7.3% 8.9% 10.7% 8.8%
<CAPTION>
Fiscal 2001
-------------------------------
Q2 Q3 Q4(3)
---------- ---------- ---------
<S> <C> <C> <C>
Sales........... $1,881.0 $1,980.9 $1,979.5
Cost of services
provided....... 1,717.0 1,777.1 1,756.6
Operating
income......... 79.1 115.6 132.9
Net income...... 23.8 48.1 61.3
Diluted earnings
per share(1)... $0.26 $0.53 $0.68
EBITDA(2)....... $139.6 $176.1 $193.6
Percentage of
Total Year:
Sales........... 24% 26% 25%
Cost of services
provided....... 25 25 25
Operating
income......... 18 26 30
Net income...... 13 27 35
Diluted earnings
per share(1)... 13 27 35
Percentage of
Sales:
Operating
income......... 4.2% 5.8% 6.7%
EBITDA(2)....... 7.4% 8.9% 9.8%
</TABLE>
--------
(1) Per share amounts have not been restated to reflect the impact of the
merger exchange ratios.
(2) EBITDA represents net income before interest, taxes, depreciation and
amortization, a measurement used by management to measure operating
performance. EBITDA is not a recognized term under generally accepted
accounting principles and does not purport to represent cash flow from
operating activities. Because not all companies calculate EBITDA
identically, this presentation of EBITDA may not be comparable to other
similarly entitled measures of other companies.
(3) During the fourth quarter of fiscal 2001, operating results were
negatively affected by the September 11th terrorist attacks, a litigation
related charge and start up costs incurred in connection with a new
correctional services contract.
In the first and second fiscal quarters, within the Food and Support
Services--United States segment, there is a lower level of activity at the
higher margin sports, entertainment and recreational food service operations
which is partly offset by increased activity in the educational sector.
However, in the third and fourth fiscal quarters, there is a significant
increase at sports, entertainment and recreational accounts which is partially
offset by the effect of summer recess in the educational sector. In addition,
there is a seasonal increase in volume of directly marketed work clothing
during the first quarter.
Financial Condition and Liquidity
Reference to the consolidated statements of cash flows will facilitate
understanding of the discussion that follows:
Fiscal 2001
Cash provided by operating activities was $497 million in fiscal 2001 and
$407 million in fiscal 2000. Excluding the impact of the accounts receivable
sale transaction described below, cash provided by operating
41
activities for fiscal 2001 was $356 million, reflecting a reduction in current
liabilities due to the timing of certain payments such as taxes, commissions,
retirement benefits and stock repurchase obligations. Debt decreased by $167
million, primarily due to the accounts receivable sale transaction noted above.
During fiscal 2001, we repurchased $91 million of our old Class A and B
common stock, issuing $36 million in installment notes as partial
consideration. Additionally, we received approximately $32 million (including
proceeds from the sale of deferred payment obligations) related to the issuance
of old Class B common stock through the exercise of installment stock purchase
opportunities.
During fiscal 2001, we terminated the $125 million Educational Resources
credit facility, reduced borrowing capacity under the Canadian credit facility
from C$80 million to C$70 million, and established a $200 million accounts
receivable sale facility. During the second quarter of fiscal 2001, we entered
into an agreement, which we refer to as the receivables facility, with several
financial institutions whereby we sell on a continuous basis an undivided
interest in all eligible trade accounts receivable, as defined. Pursuant to the
receivables facility, we formed ARAMARK Receivables, LLC, a wholly-owned,
special purpose, bankruptcy-remote subsidiary. Under the receivables facility,
certain of our subsidiaries transfer without recourse all of their trade
accounts receivable to ARAMARK Receivables, LLC. ARAMARK Receivables LLC, in
turn, has sold and, subject to certain conditions, may from time to time sell
an undivided interest in these receivables up to $200 million. We have retained
collection and administrative responsibility for the participating interests
sold. The agreement expires in March 2004. We have approximately $525 million
of unused committed credit availability under our senior revolving credit
facility. Additionally, we have shelf registration statements on file with the
SEC for the issuance of up to $500 million of debt securities. The debt
securities can be issued under an indenture dated July 15, 1991, which permits
us to issue unsecured debt obligations with interest rates and terms to be
established at the time of issuance based on prevailing market conditions. As
of September 28, 2001, we have capital commitments of approximately $108
million in connection with several long-term concession contracts. We currently
expect to fund most acquisitions, capital expenditures and other liquidity
needs from cash provided from operating activities, normal disposals of
property and equipment and borrowings available under our credit facilities or
note issuances. As of September 28, 2001, we had approximately $86 million
outstanding in foreign currency borrowings.
On November 30, 2001, we acquired the management services division of The
ServiceMaster Company, which we refer to as ServiceMaster Management Services.
Upon closing we paid $790.6 million in cash, subject to post-closing
adjustments.
We financed the acquisition of ServiceMaster Management Services by
borrowing approximately an additional $200 million under the senior revolving
credit facility and $600 million under a new bridge financing facility with a
group of banks arranged by J.P. Morgan Securities, Inc. We expect to repay a
portion of the bridge financing with a portion of the proceeds from this
offering.
Fiscal 2000
Cash provided by operating activities in fiscal 2000 was $407 million, an
increase of $114 million over fiscal 1999, reflecting the growth in operations
and rigorous working capital management. Debt increased by $203 million, as
cash required to fund acquisitions, capital expenditures and stock repurchases
exceeded cash provided by operating activities.
During the third quarter of fiscal 2000, we entered into two variable rate
term loan agreements totaling $125 million, which mature in May 2005. During
the fourth quarter, we entered into a $45 million variable rate term loan
agreement which matures in July 2003. Proceeds from the term loans were used to
repay borrowings under our revolving credit facility. Additionally, during the
third quarter, we entered into interest rate swap agreements totaling $300
million (notional amount) which fix the interest rate on a like amount of
variable rate borrowings at an average effective rate of 8.1%. The interest
rate swaps have terms of one to three years.
42
During fiscal 2000, we repurchased $53 million of our old Class A common
stock and $190 million of our old Class B common stock for $155 million in cash
plus installment notes. Additionally, we received approximately $31 million
related to the issuance of old Class B common stock to eligible employees,
primarily through the exercise of installment stock purchase opportunities.
New Accounting Pronouncements
On June 30, 2001, the Financial Accounting Standards Board (FASB) finalized
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets. With the adoption of SFAS No. 142, goodwill is no longer subject to
amortization, rather it will be subject to at least an annual assessment or
impairment by applying a fair value based test. We are required to adopt the
provisions of this pronouncement no later than the beginning of fiscal 2003.
However, goodwill and other intangible assets acquired after June 30, 2001, are
subject immediately to the nonamortization and amortization provisions of this
statement. We will adopt the nonamortization and amortization provisions of
SFAS No. 142 beginning in the first quarter of fiscal 2002. During fiscal 1999,
2000 and 2001, goodwill amortization (pre-tax) was $21.3 million, $22.2 million
and $25.4 million, respectively. We are currently evaluating the impact of the
transitional goodwill impairment test required by SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. We are required to adopt the provisions
of this pronouncement no later than the beginning of fiscal 2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. We are
required to adopt the provisions of this pronouncement no later than the
beginning of fiscal 2003.
We are currently evaluating the impact of both SFAS No's. 143 and 144.
43
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to the impact of interest rate changes and manage this
exposure through the use of variable-rate and fixed-rate debt and by utilizing
interest rate swaps. We do not enter into contracts for trading purposes and do
not use leveraged instruments. The information below summarizes our market
risks associated with debt obligations and other significant financial
instruments as of September 29, 2000 and September 28, 2001. Fair values were
computed using market quotes, if available, or based on discounted cash flows
using market interest rates as of the end of the respective periods. For debt
obligations, the table presents principal cash flows and related interest rates
by expected fiscal year of maturity. Variable interest rates disclosed
represent the weighted-average rates of the portfolio at September 29, 2000 and
September 28, 2001. For interest rate swaps, the table presents the notional
amounts and related weighted-average interest rates by fiscal year of maturity.
The variable rates presented are the average forward rates for the term of each
contract.
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
-----------------------------------------------------------
Fair
As of September 29, 2000 2001 2002 2003 2004 2005 Thereafter Total Value
------------------------ ---- ---- ---- ---- ---- ---------- ----- -----
(US$ equivalent in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt:
Fixed rate................ $25 $25 $25 $300(a) $150 $467(a) $992 $951
Average interest rate..... 6.8% 6.8% 6.8% 6.8% 8.2% 7.1% 7.2%
Variable rate............. $60 $45 $4 $736 $845 $845
Average interest rate..... 5.8% 8.0% 6.6% 7.6% 7.5%
Interest Rate Swaps:
Receive variable/pay
fixed.................... $150 $100 $100 $(4)
Average pay rate.......... 7.0% 7.6% 7.7%
Average receive rate...... 6.8% 6.7% 6.7%
<CAPTION>
Expected Fiscal Year of Maturity
-----------------------------------------------------------
Fair
As of September 28, 2001 2002 2003 2004 2005 2006 Thereafter Total Value
------------------------ ---- ---- ---- ---- ---- ---------- ----- -----
(US$ equivalent in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt:
Fixed rate................ $31 $25 $300(a) $150 $300(a) $172 $978 $997
Average interest rate..... 6.6% 6.8% 6.8% 8.2% 7.0% 7.2% 7.1%
Variable rate............. $35 $50 $55 $550 $3 -- $693 $693
Average interest rate.......6.2% 4.9% 4.2% 4.1% 6.4% 4.3%
Interest Rate Swaps:
Receive variable/pay
fixed.................... $100 $100 $(11)
Average pay rate.......... 7.6% 7.7%
Average receive rate...... 3.6% 3.5%
</TABLE>
--------
(a) Each balance includes $300 million of senior notes callable by us at any
time.
44
BUSINESS
Overview
We are a leading provider of a broad range of outsourced services to
business, educational, healthcare and governmental institutions and sports,
entertainment and recreational facilities. We have leadership positions in food
and support services, uniform and career apparel services and childcare and
early education. Our strong presence in food service allows us to serve clients
in many of the key industrial countries, whose economies represent over 60% of
world GDP and which continue to experience substantial growth in the
outsourcing services we provide. We plan to continue our growth by capitalizing
on this worldwide outsourcing trend, providing our clients with innovative and
high quality services and by pursuing acquisitions.
Our objective is to be a world leader in managed services by exceeding our
customers' expectations, continuing to grow our business and providing an
environment where exceptional people want to work. In the United States, we are
the second largest food service company, and in most of the other countries in
which we operate, we are among the top three. Our uniform and career apparel
business is the second largest in the United States and provides both rental
and direct marketing services. Our education business is the second largest in
the United States, providing childcare and early education to over 100,000
children. Through our expansive service offerings and geographic presence, our
approximately 200,000 employees serve millions of clients and customers in
17 countries around the world, providing services that are key to the
successful operations of our clients.
For the fiscal year ended September 28, 2001, we reported sales of
approximately $7.8 billion and net income of approximately $176.5 million. Over
the past five years, by expanding our food and support service offerings,
maintaining a diverse base of existing client relationships and high retention
rates, and increasing our uniform capabilities, we have achieved compound
annual sales growth of 7.6% and compound annual operating income growth of
9.6%, adjusted to exclude two divested non-core business lines.
45
The following diagram provides a brief overview of our business:
[GRAPH]
ARAMARK
Business Food and Uniform and
Groups: Support Services Career Apparel
Operating United States International Rental
Segments:
Fiscal
2000(a):
Sales: $4,782.1 $1,109.3 $995.2
Operating
Income: $264.7 $39.4 $119.7
Services: Food, refreshment, Food, refreshment, Rental, sale cleaning,
support services, support services, maintenance and delivery
facility maintenance facility maintenance of personalized
and housekeeping and housekeeping uniform and career
apparel and other items
Sectors: Business, educational, Principally business Business, manufacturing
governmental and operations are con- transportation and
healthcare institu- ducted in 14 service industries
tions, sports and countries, including
entertainment fac- the U.K., Germany,
ilities and recre- Canada, Spain, Mexico,
ational and other Japan, Ireland and
facilities Korea(b)
Educational
Resources
Direct Educational
Marketing Resources
$438.8 $463.3
$15.6 $25.4
Services: Direct marketing of Infant, toddler,
personalized uniforms, preschool and
career apparel and school age learning
public safety equipment programs
Sectors: Business, public Community based
safety institutions and childcare centers,
individuals programs in public
elementary schools,
employer on site
child care centers
and private elementary
schools
___________
(a) Dollars in millions. Operating income excludes $26.7 million of
corporate and other expenses
(b) Minority investments in Japan, Ireland and Korea.
History
Our business traces its history back to the 1930's, when we began providing
vending services to plant employees in the aviation industry in Southern
California. In 1959, our founders, Davre J. Davidson and William S. Fishman
combined their two businesses to form our predecessor company, which became
public in 1960. In the ensuing years, we broadened our service offerings and
expanded our client base while retaining our entrepreneurial character. These
increased service offerings included our uniform services business, acquired in
1977, and education services, acquired in 1980. Our present ownership structure
resulted from a 1984 management buyout. Since 1984, our management and
employees have continued to increase their ownership of the company and,
directly and through our employee benefit plans, currently own approximately
90% of our equity capital.
46
Business Strengths
Leading Provider to Growing Outsourced Services Market
We are a leading provider of a broad range of outsourced services to
business, educational, healthcare, governmental, sports, entertainment and
recreational clients. As a leading provider, we believe we are well positioned
to capitalize on the growth of outsourcing worldwide, which we believe has
outpaced and will continue to outpace overall economic growth. As many
organizations focus on their core activities, they are increasingly outsourcing
support functions to improve the quality and consistency of service, provide
service innovation and increase cost-effectiveness through the economies of
scale achieved by a large service provider. Given the large percentage of these
functions that remain self-operated worldwide, we believe this trend represents
a substantial growth opportunity for us.
We have a top three market position in food and support services in key
developed countries, including the United States, Canada, United Kingdom,
Germany, Spain, Mexico and Korea and, in Japan and Ireland, through ownership
of minority interests in large food service providers. We believe our
capabilities as one of the world's leading providers of outsourced food and
support services and our recognized brand name allow us to:
. creatively and effectively meet the needs of our clients at either
single or multiple client locations, contributing to high client
retention rates;
. expand our existing client relationships by providing additional
services; and
. successfully compete for new accounts, including large regional or
multi-regional accounts and for special events, such as the Olympic
Games, that draw on our international experience.
We are the second largest U.S. provider of uniforms and career apparel
services and one of only a small number of uniform providers able to provide a
full range of uniform services to our clients across product lines and across
the United States. We offer this coast-to-coast service through a network of
pick-up and delivery routes, cleaning facilities, distribution centers, as well
as through a direct sales force, catalog mailings and telemarketing.
Our Educational Resources business, which accounts for 6% of our sales, is
the second largest provider of childcare services in the United States, serving
children and their families in 28 states and the District of Columbia.
Broad Portfolio of Services
We believe that the breadth and creativity of our service capabilities,
including customized, client specific solutions, position us to meet the needs
of clients who increasingly seek a single provider of multiple services. Our
food and support services business offers not only food and refreshment
services, but, for many clients, also provides a number of other services which
enhance the efficient use and maintenance of their facilities. For example, we
provide:
. food, dormitory, convenience store and entertainment services to many
offshore drilling rigs in the North Sea and the Gulf of Mexico;
. lodging and recreational activities such as tours and boating at many
U.S. National Parks, state parks and other recreational locations,
including Glen Canyon National Recreation Area at Lake Powell and Denali
National Park and Preserve; and
. merchandise and housekeeping services at sports and entertainment
facilities such as Fenway Park and Turner Field.
47
The consumers of our services are primarily employees, students, patients or
patrons at our client locations. We match these consumers' diverse preferences
with a variety of internally developed and third party brands.
We believe our uniform and career apparel business provides one of the
broadest arrays of such products and services available in the United States,
serving mechanics for American Airlines, route drivers for Coca-Cola bottling
companies, customer service workers at McDonald's and Pizza Hut, nurses, police
officers, firefighters and many others. Our comprehensive selection of services
enables us to meet the spectrum of our clients' uniform needs, from protecting
workers to promoting corporate image. We are well positioned to capitalize on
the growing trend of service companies to use personalized employee uniforms to
convey a desired company image. Our capabilities include:
. a nationwide pick-up, cleaning and delivery network for rented uniforms
and ancillary items consisting of a fleet of vehicles serving
approximately 2,700 routes which operate from over 200 laundry and
distribution facilities throughout the United States;
. a broad range of career apparel available for purchase, which is sold
via catalog, outbound telemarketing, a direct sales force and across the
Internet; and
. the ability to design customized uniform programs, manufacture uniforms
and personalize our products through direct embroidery of company logos
and employee names.
Diverse Client Base and Strong Client Retention
Our large client base, high retention rates and broad array of customers
provide us with a diversified source of sales, earnings and cash flow. We have
increased operating income in all but one of the last 15 years (in fiscal 1994
operating income declined less than 1%). This performance is due in part to:
. our large client base, which currently includes over two million clients
in 17 countries. In fiscal 2001, no individual client represented more
than 2% of our sales;
. the diversity of our clients' activities, which include operations in
business and industry, education, government, healthcare, sports,
entertainment, recreation and corrections; and
. high client retention rates, which are approximately 95% for our food
and support service clients and 92% for our uniform rental customers.
Although many contracts are cancelable upon short notice, we believe most
clients remain loyal due to our high quality service, and numerous clients have
used our services for many years. Clients may also be reluctant to change due
to the effort involved, the potential disruption of services provided to their
employees and, in some cases, the costs associated with a change in service
provider.
Significant Scale and Strong Operating Infrastructure
Our ability to improve operating performance is derived in part from our
ability to create economies of scale. Each year we purchase over $1.8 billion
of food and related items and purchase or self-manufacture over $400 million of
uniform and career apparel. Our size and resulting importance to vendors,
manufacturers and distributors allow us to obtain high quality products and
services at attractive prices. In our food and support services business, our
operating performance benefits from our flexible cost structure and low overall
capital needs.
We have developed sophisticated operating systems and procedures, including
labor scheduling, route dispatch, computerized menu management and inventory
control systems, as well as internal communication and administrative systems.
This operating and logistical infrastructure enables us to:
. efficiently manage labor, one of the main components of our cost
structure, by providing just-in-time labor deployment to our many
locations to meet day-to-day, seasonal and event-specific demands;
48
. provide efficient administrative support to our managers in the field so
they may concentrate on serving clients' needs and identifying and
capturing opportunities to expand our service relationships;
. provide facility design services to our clients to improve the customer
appeal and effectiveness of their food service facilities; and
. reduce delivery costs in uniform rental and refreshment services by
designing efficient route structures.
In addition, our technology infrastructure and centralized administration
allow us to efficiently add and integrate new customer locations. For example,
following our purchase of Ogden Entertainment in June 2000, during the height
of the summer baseball and concert season, we deployed our systems in over 80
sites in a period of four months, transitioned 10,000 employees to our payroll
and took over the management of the operations of the business without
disruption.
Our uniform services business includes approximately 2,700 pick-up and
delivery routes supported by 73 laundry plants and 132 satellite plants and
depots in a hub-and-spoke configuration covering all of the top 50 metropolitan
statistical areas in the United States. This extensive network allows us to
easily and rapidly add clients at low marginal delivery cost.
Entrepreneurial Management Culture and Significant Employee Ownership
Our entrepreneurial culture is fostered by our distinctive management and
employee ownership programs, which began over 15 years ago.
. Over 3,500 managers collectively own over 70% of our equity.
. Over 15,000 of our managers and employees collectively own approximately
90% of our equity, directly and through their participation in our
benefit plans.
Following this offering and assuming we purchase 10% of our outstanding
shares of Class A common stock in the anticipated stock buyback, management and
employees will continue, directly and through their participation in our
benefit plans, to own approximately 76% of our common stock. Since our December
1984 going private transaction, our employee ownership program has been a
critical component of our entrepreneurial culture. Importantly, this high level
of ownership has developed in large part through voluntary employee stock
purchases. We believe that the high level of continuing ownership effectively
aligns our management's and employees' interests with those of our company and
its other stockholders. Together with our philosophy of placing profit and loss
responsibility at the local manager level and linking managers' compensation to
operating performance, this alignment has contributed significantly to our
success by focusing our people on the creation of shareholder value through the
efficient growth of the business.
Business Strategy
Building on these strengths, we will continue our growth through the
following strategies, while maintaining our focus on meeting and exceeding our
customers' requirements.
Capitalize on Favorable Outsourcing Trends
Worldwide demand for outsourced food and support services is estimated to
exceed $350 billion annually. Notwithstanding this significant demand, a
substantial majority of these services worldwide remain self-operated. Our
markets continue to grow as more organizations decide to outsource non-core
support services, and we believe we are well positioned to capitalize on this
trend. Our strategy includes identifying and educating existing and potential
clients in current and new sectors on the benefits of outsourcing non-core
activities.
The increasing demand for outsourcing services is supported by several
factors, led by the increasing strategic desire of business, healthcare,
educational, governmental and other organizations to focus on their core
49
activities. Most of our services are provided directly to key constituencies of
our clients such as their employees in the case of business and governmental
organizations, students in the case of universities, colleges and schools,
patients, staff and visitors in the case of healthcare institutions, and fans
and patrons in the case of stadiums, arenas, amphitheaters, convention centers
and national and state parks. As these consumers' demands have become more
sophisticated and as the responsiveness of our clients to these demands has
increased, our clients have increasingly turned to outside service providers to
meet these needs. Outsourcing support functions allows our clients to:
. improve the quality and consistency of support services through
professional management;
. increase satisfaction of their key constituencies such as employees,
students, patients and customers;
. benefit from current, innovative trends in the quality, variety and
delivery of these services; and
. improve cost effectiveness through the economies of scale and
efficiencies achieved by a leading service provider.
In certain of our sectors, large organizations are increasingly deciding to
outsource, having previously provided such services themselves. Some recent
examples of our success in capitalizing on new or expanded outsourcing
opportunities include the following:
. The Department of Corrections for the State of Florida decided to
outsource to us a virtually statewide foodservice contract, increasing
the number of facilities we serve from less than ten to 129. We believe
this is a significantly underpenetrated sector, as only a few states and
the District of Columbia fully outsource their statewide correctional
food service.
. In the last three years, we have been awarded national uniform contracts
by Boeing, Safeway, Wal-Mart and ConAgra Foods. To our knowledge, there
are few national contracts of similar size and scale and, as other
companies recognize the benefits of a single source provider, we are
well positioned to serve them.
Increase Base Sales Through Expanded Client Partnerships
A key element of our growth strategy is to increase our sales at our
existing client locations by:
. increasing the participation in our service offerings by our clients'
employees, students, patients, patrons and customers;
. increasing the per capita spending of these consumers; and
. providing additional services to our clients.
We seek to increase consumer participation and per capita spending primarily
through innovative marketing and merchandising programs directed at the
ultimate consumers of our services. These programs include the extensive use of
both internally developed and third party brands. Internally developed brands
include PanGeos(R), Bene Pizza(R), One World CafeSM and Euro BaguettesSM. These
brands are implemented across multiple client locations using proprietary
menus, signage and merchandising programs. At our client locations, we also
serve established third party branded products from Pizza Hut(R), Taco Bell(R),
Subway(R), Dunkin' Donuts(R) and from other well recognized national, regional
and local brands.
An example of our product enhancement capability and ability to increase per
capita spending is the strategic use of nationally recognized specialty coffee
brands such as Starbucks(R), Seattle's Best(R) and Java City(TM), which
satisfies the demand by clients' employees and other constituents for popular
brand name products and provides us higher pricing and margin opportunities at
our client locations. We believe that by using this strategy, we will continue
to increase sales to our existing clients, improve our high retention rates and
expand our client base.
We provide a broad array of services and products and plan to expand our
sales to existing clients through the provision of additional services. In the
food and support services business, our leadership position and
50
quality reputation position us to provide our clients with facilities, related
support services, such as facility operations and maintenance, energy
management, housekeeping, custodial, and groundskeeping, among other services
we offer.
Our success in continuing to add new services to existing clients is
illustrated by the development of our relationship with a prestigious
northeastern U.S. university:
. 1987--we began managing the conference center of the university's
business school;
. 2000--we added a broad range of food and facilities management services
to the university's affiliated healthcare system, serving several
hospitals throughout the network; and
. 2001--we contracted to provide food and concession services at the
university's athletic fields.
Primarily because of these additional activities, annual sales from this
client have grown to more than $30 million. We believe we have many similar
opportunities to provide additional services to many of our clients.
Expand Margins by Realizing Additional Operating Efficiencies
From fiscal 1997 through fiscal 2001, we increased our operating income
margin by more than 75 basis points. We plan to continue to expand our margins
by capitalizing on our increasing scale and further improving our strong
operating infrastructure. Our scale and infrastructure allow us to manage
effectively our key costs of labor, food and uniforms, which together
represented approximately 73% of our operating costs in fiscal 2001. We believe
we can continue to expand margins through:
. Labor: Many of our operating initiatives are designed to more
efficiently use our work force such as better use of labor scheduling
practices, cross training employees to engage in multiple tasks and
using technology to simplify food preparation and automate laundry
plants.
. Technology: We have implemented food service systems allowing managers
at client locations to manage inventory, labor, menu planning and
financial reporting more efficiently, so that they may concentrate their
efforts on client-related activities. In the uniform businesses, as we
expand and upgrade our operations, we are automating our plants to
reduce handling, enhance energy efficiency, and simplify processes and
procedures. We have also upgraded, and are continuing to invest in, many
of the systems we rely on for our centrally administered services such
as payroll, billing, receivables management and vendor management.
. Purchasing and inventory management: Through expanded use of centrally
negotiated contracts with food manufacturers and distributors, we expect
to continue to control quality and consistency in food preparation and
simplify operations in order to reduce food costs. In the uniform direct
marketing business, we have standardized styles, colors, and sizes
available, and regularly review our offerings in order to simplify our
operations, improve customer fulfillment and reduce costs.
. Self-manufacturing: As we have developed and expanded our garment
manufacturing capability during the last few years, we have reduced the
cost of garments. We continue to increase the percentage of garments
manufactured and should continue to realize related cost reductions.
Increase Penetration of International Markets
We believe that the size of international markets and their relatively low
rates of outsourcing present a substantial growth opportunity. This opportunity
has three key elements:
. further penetration in the countries and sectors in which we currently
operate, many of which have relatively low penetration rates;
. expansion into additional countries through acquisitions and
investments; and
. expansion of our service offerings to include services we provide in the
United States.
51
We plan to expand our presence and penetration in each of the 16 countries
outside the United States in which we operate. For example, in Germany, we
believe there is substantial opportunity to grow our services in the business
sector, where the penetration by outside service providers continues to be
relatively low. In addition, we have recently entered both the healthcare and
sports, entertainment and recreation sectors in Germany which also have low
outsourcing rates. In Japan, through our ownership of a minority interest in
the country's second largest food service company, we believe we are well
positioned to participate in the considerable future opportunities as
outsourcing continues to develop. We expect that the ability to service our
clients in multiple countries may grow in importance, and accordingly, our
international presence will assist us in meeting these needs.
We believe that acquisitions, strategic alliances and joint ventures are
effective in facilitating our entry into new countries. We seek partners based
on their existing services, customer relationships, expertise and market
prominence. One recent example of this strategy is our entry in fiscal 2001
into a partnership with Dublin-based Campbell Bewley Group, facilitating our
entrance into Ireland and expanding our presence in the United Kingdom. We
believe that additional opportunities exist for us to make minority investments
in independent service providers in markets we seek to penetrate. Our strategy
provides us with the benefit of having the continued involvement of an
established local partner and may allow us the opportunity to purchase the
entire business at an appropriate time. In addition, larger acquisitions are
also likely to continue to be a part of our strategy for future growth.
Pursue and Integrate Strategic Acquisitions
We anticipate that a continued consolidation in the worldwide food and
support services business and the uniform and career apparel business will
create opportunities for us to acquire businesses with complementary geographic
and product profiles. We intend to continue to strengthen our existing business
through disciplined, selective acquisitions and strategic investments in both
the United States and other countries. We have a history of successful
acquisitions, including six in the last three years, which we have integrated
into our existing operations, while achieving targeted synergies with minimal
client losses. We believe our acquisition strategy differentiates us from some
of our key competitors who typically do not fully integrate acquisitions, which
we believe allows us to achieve efficiencies and deliver high quality services.
Historically, our lack of a publicly traded equity security, our need for
funds to repurchase stock from our employee stockholders and our leverage have
limited our ability to make some acquisitions. While we will continue to
critically evaluate acquisitions subject to strict financial criteria, we
believe that this offering will better position us to take advantage of
strategic opportunities by providing a publicly traded security and by
increasing our financial flexibility.
Food and Support Services
Our food and support services group manages a growing number of interrelated
services--including food, refreshment, facility and other support services--for
businesses, healthcare facilities, school districts, colleges and universities,
conference and convention centers, national and state parks, sports,
entertainment and recreational venues and correctional institutions. In fiscal
2001, our Food and Support Services--United States segment generated $4.8
billion in sales, or 61% of our total sales. In fiscal 2001, our Food and
Support Services--International segment generated $1.1 billion in sales or 14%
of our total sales. Serving tens of thousands client locations, we believe we
are a leader in size, capability, quality and innovation in the contract food
and support services industry.
We are the exclusive provider of food and beverage management services at
most of the facilities we serve and are responsible for hiring, training and
supervising substantially all of the food service personnel in addition to
ordering, receiving, preparing and serving food and beverage items sold at
those facilities. In governmental, business, educational and healthcare
facilities (for example, offices and industrial plants, schools and
universities and hospitals), our client generally provides us access to
customers in the form of employees,
52
students and patients. At sports, entertainment and recreational facilities,
which include convention centers, our clients are responsible for attracting
patrons on an event-specific basis. We focus strongly on new business
development, client retention and sales growth at existing locations through
marketing efforts directed toward customers and potential customers at the
client locations we serve. We focus our marketing on increasing customer
traffic flow and therefore sales at facilities that we serve.
Industry Overview
The food and support service industry consists of the supply of food and
beverage services and facilities services management to a range of clients,
including businesses, educational, governmental, correctional and healthcare
institutions, and operators of sports, entertainment and recreational
facilities in a variety of formats, service levels and price points. We
believe that the worldwide food and support service market represents over
$350 billion in potential annual sales, the substantial majority of which is
currently self-operated.
Although the markets in which we operate are highly fragmented, in recent
years the contract food service industry has experienced consolidation and
multi-national expansion. We believe that other recent market dynamics in the
food and support services industry include:
. continued growth in the outsourcing of food service and facilities
management as a result of:
-- clients focusing on their core competencies and outsourcing their non-
core activities and services;
-- clients addressing the need to satisfy demanding customers; and
-- clients facing increasing cost pressures and looking for cost-
effective alternatives to self-administered food and support
activities;
. increasing market penetration by large, well-capitalized participants
due to their ability to:
-- offer a broader range of modern, innovative services than local and
regional competitors can;
-- provide multi-regional coverage to clients who have a multi-regional
or multi-national presence;
-- make infrastructure investments in client locations as necessary; and
-- provide cost-effective services as a result of economies of scale;
. an increase in the retail orientation of food service management due to
the proliferation of alternative retail outlets, including quick serve
restaurants; and
. a trend toward a single source alternative for all facilities-related
outsourcing needs, including food service and facilities support
management.
53
Customers and Services--United States Segment
Our Food and Support Services--United States segment serves a number of
customer sectors, distinguished by the types of customers they serve and types
of services they offer. No individual client represents more than 2% of our
sales, other than, collectively, a number of U.S. government agencies.
<TABLE>
<CAPTION>
Fiscal
2001 % of
Sales Fiscal 2001 Types of Types of Sample
Client Sectors ($ millions) Segment Sales Services Clients Clients
-------------- ------------ ------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Business $1,595 33% On-site restaurants Business/industry The Boeing Company
Catering Electronic Data
Executive dining Systems
rooms Corporation (EDS)
Conference center Eli Lilly and
management Company
Vending and coffee Sears, Roebuck & Co
services
Retail operations
Education 1,276 27 Student and faculty Colleges Boston University
dining Universities Baylor University
Retail operations Preparatory schools Duval County School
School districts Board
(Jacksonville, FL)
Houston Independent
School District
Sports & 1,092 23 Food and beverage Sports and Atlanta
Entertainment concessions entertainment Braves/Turner Field
Premium and banquet facilities Denali National
catering Convention centers Park and Preserve
Retail sales National and state Gund Arena
National park parks Las Vegas
concessions Convention and
Visitors Authority
Other 819 17
Healthcare: Patient and staff Medical centers Atlantic Health
dining Hospitals System, Inc. (NJ)
Environmental Regional healthcare Johns Hopkins
services systems Bayview Medical
Patient transport Center, Inc.
Retail gift shops St. Vincent's
Hospital and
Medical Center
(NY)
Correctional: Food services States and counties Arlington County,
Commissary services Municipalities Virginia
Laundry services Monmouth County,
New Jersey
State of Kansas
Department of
Corrections
Facilities Facilities Businesses The American Museum
Services: management Colleges and of Natural History
Plant operations schools Baylor University
Energy management Healthcare Seattle
Capital program institutions Mariners/Safeco
management Sports and Field
entertainment
venues
------ ----
Total $4,782 100%
====== ====
</TABLE>
Business. We satisfy the business dining needs of several million people
annually at over 1,200 locations, delivering customized solutions to over 500
clients in business and industry. We provide a range of services which includes
on-site restaurants, catering, convenience stores, executive dining rooms and
conference center management. In addition, we provide many of our food service
clients with facilities management services.
We are a leader in vending and coffee services providing over one billion
cups of coffee, 140 million cold beverage servings and 100 million snacks a
year for business and industry clients at tens of thousands of locations in the
United States. We have expanded our service and product offerings to include
gourmet coffee and beverage offerings, "grab and go' food operations,
convenience stores, home meal replacement programs and a proprietary drinking
water filtration system.
54
We believe that food services to business and industrial organizations,
including vending services but excluding support services, represent at least
$30 billion of potential sales annually in the United States. While this sector
is well developed relative to others in which we participate, approximately 40%
is not yet outsourced.
Sports & Entertainment. We serve the concessions, premium banquet and
catering, retail, merchandise and novelty sales, recreational and lodging needs
of millions of people annually at approximately 165 sports, entertainment and
recreational facilities. We serve over 35 professional sports arenas and
stadiums, 28 convention centers, 14 national and state parks, plus numerous
concert venues, entertainment complexes, resorts and other popular tourist
attractions across the United States. We are the leading provider to major
league sports, serving 44 teams in Major League Baseball, the National
Basketball Association, the National Football League and the National Hockey
League. We have provided services at many of the highest visibility sporting
events in the United States, including the World Series, the Major League
Baseball All-Star Game, the Stanley Cup Finals, the NBA All-Star Game and the
National Basketball Association Championship Series. We also provide services
at highly visible special events, including serving food to the athletes at ten
Olympic Games since 1968, including most recently in Sydney, Australia.
We believe that concessions services in the sports and entertainment sector
in the United States represent approximately $17 billion of potential sales
annually, of which more than 50% are not yet outsourced. A significant source
of growth in the sports facilities category has been the increased level of per
capita spending on food, beverages and merchandise by attendees of events held
at newly constructed or refurbished sports facilities. We estimate that 24 new
stadiums and arenas are currently under development or being planned, which
does not include existing stadiums and arenas which may be undergoing
refurbishment. Management believes that the sports facilities category of the
industry will continue to benefit from the construction of new, and the
refurbishment of existing, sports facilities.
We own 50% of SMG, a leader in providing outsourced management of public
assembly facilities including arenas, stadiums and theaters, as well as
convention, exhibition and trade centers. SMG offers services such as event
booking and management, cash management, maintenance services and risk
management while seeking to maximize the number of events and attendance at
such facilities. The approximately 133 facilities managed by SMG are located
throughout the United States and also include facilities in Europe, the United
Kingdom and Canada.
Education. We are a leading provider to colleges, universities and
preparatory schools, serving over 200 million meals annually to students,
faculty and visitors at over 350 institutions. The campus dining marketplace,
which was historically focused on residential board plans, has expanded to
include more diverse and convenience-oriented retail operations that operate as
gourmet coffee outlets and other new points of service offering traditional
convenience store items, health and beauty items, snacks and beverages. We
believe campus administrators increasingly recognize students as paying
customers with sophisticated tastes and preferences who demand greater quality,
more menu choices and greater flexibility. Based on these trends, we seek to
create an appealing, healthy and attractive dining experience that is designed
to enhance the school's reputation while integrating our services into the
school's structure and campus life.
We are a leading provider of food services to school districts. We serve
more than 325 school systems and districts. We offer our clients solutions to
their goal of increasing student participation in school lunch programs,
improving service, increasing student satisfaction and achieving cost
reductions. Our One World CafeSM has been established in more than 100 school
districts offering student-friendly merchandising, branded concepts and
promotional programs. We believe this is an underpenetrated market and that a
large number of school districts do not currently outsource their food service.
Following the successful outsourcing of food services at school systems in
several major cities, such as Chicago, Atlanta and Houston, increasingly large
metropolitan school systems are considering outsourcing their food services,
and we believe this is a substantial growth opportunity. As an example, the
Detroit school district in 2001 made the decision to outsource its food service
needs and we were successful in winning this business.
We believe that food and support services to educational institutions
represent approximately $18 billion of potential sales annually, and
approximately 70% are not yet outsourced.
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Healthcare. We are a leader in providing innovative non-clinical support
services solutions to hospitals, long-term care facilities and regional
healthcare systems. We believe that major healthcare systems will increasingly
look to a single supplier for their three primary non-clinical service needs:
food service, environmental services and laundry and linen distribution. We
estimate that U.S. food and support services to healthcare institutions, not
including other non-clinical support services, represent approximately $12
billion of sales annually, with approximately 75% not yet outsourced.
Facilities Services. We are a leader in providing facilities management
services that support our business, educational, correctional, healthcare and
recreational clients. We work closely with our clients to efficiently maintain
and operate their facilities, lower their operating costs and provide quality
support services which permits our clients to focus on managing their core
activities rather than on managing their environment. Our services include
physical plant management and janitorial services, as well as design and
consulting services, including capital management consulting services, to
enhance the operation of client facilities at the most economical cost. The
market is significantly underpenetrated as only a limited number of existing
clients outsource these services.
Correctional. We are a leader in correctional food services, providing
state, county and municipal clients with improved quality and lower operating
costs at more than 325 correctional facilities in 38 states and serving over
325,000 inmates. We believe that food and support services to correctional
facilities represent over $2 billion annually, with approximately 70% not yet
outsourced. Public demands for increased public sector cost efficiency is
prompting many correctional facilities to outsource many of their needs. The
size of inmate populations, the number of correctional facilities in the United
States and the low outsourcing penetration rates have made this segment one of
the fastest growing of the outsourced food service industry. In addition, we
believe this is an underpenetrated sector as only a few states currently
outsource their statewide correctional systems' food services. We have
increased our presence in this sector by recently acquiring certain assets of
Correctional Foodservice Management, the food service division of The Wackenhut
Corporation.
Customers and Services--International Segment
Our Food and Support Services--International segment provides substantially
the same range of customized, high quality managed services provided to our
United States clients, but primarily to business and industry clients. In
addition, in the international segment, we also provide lodging, food service,
commissary and facilities management in remote sites, such as offshore drilling
platforms and mining camps. Our international services are provided in three
geographical areas: Europe, North America and Asia. Our largest international
operations are in Canada, the U.K. and Germany, where we are among the top
three largest food service providers. The clients served in each country are
typically similar to those served in the United States and vary by country
depending upon local market dynamics and conditions. Our sales in this segment
were approximately $1.1 billion in fiscal 2001. Not included in our segment
sales are the sales of AIM Services, our 27% affiliate and one of the largest
food service providers in Japan, the sales of Campbell Catering, our 45%
affiliate in Ireland, and the sales of ARAKOR, our South Korean subsidiary,
which had been a 49% affiliate until we acquired the remaining 51% in August
2001. We believe that the international market for food and support services is
approximately double the size of the United States market, with substantially
lower current outsourcing penetration rates.
Purchasing
We negotiate the pricing and other terms for the majority of our purchases
of food and related products directly with national manufacturers. We purchase
these and other items through SYSCO Corporation pursuant to a national master
distribution agreement, as well as from other distributors. SYSCO is
responsible for tracking our orders and delivering products to our specific
locations. This relationship provides our location managers with the ability to
order high quality food and non-food products at competitive prices while
relieving our managers of many of the details of purchasing and distribution
activities. We receive volume discounts from SYSCO, based on the overall volume
of purchases we make from SYSCO, including SYSCO-based products. Our location
managers also purchase a number of items, including bread, dairy products and
alcoholic beverages from local suppliers, and we purchase certain items
directly from manufacturers.
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Our distribution agreements with our suppliers are generally for an
indefinite term, subject to termination by either party after a notice period,
which is generally 120 days. The pricing and other financial terms of these
agreements are renegotiated periodically. We have had distribution agreements
with SYSCO for more than 10 years. Our current agreement with SYSCO is
terminable by either party with 120 days notice.
Our relationship with SYSCO is important to our operations. In fiscal 2001,
SYSCO distributed approximately 55% of our food and non-food products in the
United States (approximately 37% of our consolidated purchases of food and non-
food products), and we believe that we are one of SYSCO's largest customers.
However, we believe that the products acquired through SYSCO can, in all
significant cases, be purchased through other sources and that termination of
our relationship with SYSCO or any disruption of SYSCO's business would cause
only short-term disruptions to our operations.
Sales and Marketing
We maintain sales organizations focused on each specific client or service
sector that are responsible for: identifying and pursuing potential new
business opportunities, analyzing and evaluating such opportunities together
with our operational and financial management and developing specific contract
proposals. In addition to our professionals dedicated exclusively to sales
efforts, our food and support field management shares responsibility for
identifying and pursuing new sales opportunities, both with the clients for
which they are directly responsible and for potential clients in their
geographic area of responsibility. In addition, in several of our markets we
also have dedicated sales retention teams.
Our marketing efforts are directed primarily toward increasing our business
with existing clients as well as obtaining business from new clients. We
regularly develop and offer innovations in products and services for our
clients that allow us to grow sales at existing locations while enhancing value
to those clients and their customers or employees by tailoring new offerings to
their needs.
Types of Contracts
We use three general contract types in our food and support services
segments: profit and loss contracts, profit sharing contracts and management
fee contracts. These contracts differ in their provision for the amount of risk
that we bear and potential compensation, profits or fees we may receive. Many
of our contracts contain characteristics of more than one of the three general
types of contracts described below. Commission rates and management fees, if
any, may vary significantly among contracts based upon various factors,
including the type of facility involved, the term of the contract and the
services we provide and the amount of capital we invest. Generally, our
contracts require that the client's consent be obtained in order to raise
prices on the food, beverages and merchandise we sell within a particular
facility.
Profit and Loss Contracts. Under profit and loss contracts, we receive all
of the revenue from and bear all of the expenses of the provision of our
services at a client location. Under this type of contract, we assume the
downside risk of the operation while benefiting from any potential upside
benefit. Expenses under profit and loss contracts sometimes include commissions
paid to the client, typically calculated as a percentage of various categories
of sales, and, in some cases, require minimum guaranteed commissions. While we
often benefit from greater upside potential with a profit and loss contract, we
are responsible for the operating costs and consequently bear greater risk than
with a management fee or profit sharing contract. The majority of our contracts
fall into this category.
Profit Sharing Contracts. Under profit sharing contracts or limited profit
and loss contracts, we may receive either a percentage of any profits earned
from the provision of our services at the facility or a fixed fee after
deducting expenses, and we generally receive no payments if there are losses.
Approximately half of our business service clients partially subsidize our food
service operations for the benefit of their employees.
Management Fee Contracts. Under management fee contracts, we receive a
management fee, typically calculated as a fixed dollar amount or a fixed or
variable percentage of various categories of sales. Some management fee
contracts entitle us to receive incentive fees based upon our performance under
the contract, as measured by factors such as sales or operating costs. We are
reimbursed for substantially all of our costs and charges under these
contracts. Both our upside potential and downside risk are reduced.
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The length of contracts that we enter into with clients varies. Business,
campus and healthcare support services are generally provided under contracts
of indefinite duration, which may be subject to termination on short notice by
either party without cause. Contracts in other businesses generally are for
fixed terms, some of which may be well in excess of one year. Client contracts
for sports, entertainment and recreational services typically require capital
investments, but have correspondingly longer and fixed terms, usually from five
to 15 years.
When we enter into new contracts, or extend or renew existing contracts,
particularly those for stadiums, arenas, convention centers and other sports,
entertainment and recreational facilities, we are sometimes contractually
required to make some form of up-front or future capital investment to help
finance facility improvement construction or renovation. Contractually required
capital expenditures typically take the form of investment in leasehold
improvements, food service equipment and/or grants to clients. At the end of
the contract term or its earlier termination, assets such as equipment and
leasehold improvements typically become the property of the client, but
generally the client must reimburse us for any undepreciated or unamortized
capital expenditures.
Contracts within the food and support services group are generally obtained
and renewed either through a competitive process or on a negotiated basis. We
selectively bid on contracts to provide services at facilities within the
private and public sectors with contracts in the public sector frequently being
awarded on a competitive bid basis under the requirements of applicable law.
Contracts for food services with school districts and correctional clients are
typically awarded through a formal bid process. Contracts in the private sector
may be entered into on a less formal basis, but we and other companies will
compete in the process leading up to the contract.
Competition
There is significant competition in the food and support services business
from local, regional, national and international companies, as well as from
businesses, healthcare institutions, colleges and universities, correctional
facilities, school districts and public assembly facilities. These institutions
may decide to operate their own services following the expiration or
termination of contracts with us or with our competitors. In our U.S. Food and
Support Services business, our major external competitors include other multi-
regional food service providers, such as Compass Group plc, Delaware North
Companies Inc., Fine Host Corporation, Sodexho Alliance SA and Volume Services
America, Inc. Internationally, our major food service and support service
competitors in the outsourced market include Compass Group plc, Elior SA,
International Service System A/S, Pedus Service and Sodexho Alliance SA. We
also face competition from many regional and many local service providers, some
of which are well-established within a specific region or country.
While the markets in which we operate continue to be highly fragmented, in
recent years the contract food service industry has experienced consolidation
and multi-national expansion. Recently, Sodexho Alliance has completed
significant acquisitions in the United States and France and recently completed
a tender offer to acquire the majority position of Sodexho Marriott Services
Inc., which it did not already own. Likewise, Compass Group recently completed
several transactions in the United Kingdom and the United States.
We believe that the principal competitive factors in our business include:
. quality and breadth of services and management talent;
. service innovation;
. reputation within the industry;
. pricing; and
. the ability to make capital investments.
We believe that the breadth and creativity of our food and support services
capabilities are competitive strengths, enabling us to meet the needs of
clients seeking a single provider of multiple services. We also
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believe that our entrepreneurial stockholder/managers enhance these strengths
by driving service innovations to improve the quality and consistency of our
services. These factors lead to a level of customer satisfaction that fosters a
reputation for excellence in the industry. We further believe that our scale
and strong operating infrastructure are competitive strengths.
Seasonality
Our sales and operating results have varied, and are expected to continue to
vary, from quarter to quarter as a result of different factors. Within our
United States Food and Support Services segment, there is a lower level of
activity during the first and second fiscal quarters in the generally higher
margin sports, entertainment and recreational services. This lower level of
activity is partially offset during our first and second fiscal quarters by the
increased provision of campus and school support services. Conversely, there is
a significant increase in the provision of sports, entertainment and
recreational services during the third and fourth fiscal quarters, which is
partially offset by the effect of summer recess at colleges, universities and
schools. Similar, but less pronounced seasonal factors, affect our
international Food and Support Services segment.
Uniform and Career Apparel
Overview
Our Uniform and Career Apparel Group provides uniforms, career and image
apparel, equipment, work clothes and accessories to meet the needs of clients
in a wide range of industries in the United States, including manufacturing,
transportation, construction, restaurants and hotels, public safety and
healthcare industries and many others. We supply garments, other textile and
paper products, public safety equipment and other accessories through rental,
purchase and direct mail programs to approximately two million individuals and
businesses each year. The combined rental and direct sales market in the United
States totals approximately $18 billion, including garments and other textile
products but not including an additional $6 to $7 billion of uniforms sold to
individuals through retail channels.
Customers use our uniforms to meet a variety of needs, including:
. establishing corporate identity and brand awareness--uniforms help
identify employees working for a particular company or department and
promote a company's brand identity. Uniformed employees are perceived as
trained, competent and dependable, and uniforms provide a professional
image of employees by enhancing the public appearance of those employees
and their company;
. protecting workers--uniforms help protect workers from difficult
environments such as heavy soils, heat, flame or chemicals;
. protecting products--uniforms help protect products against
contamination in the food, pharmaceutical, electronics and health care
industries; and
. retaining employees--uniforms enhance worker morale and help promote
teamwork.
Uniform and Career Apparel--Rental Segment
Our Uniform and Career Apparel--Rental segment provides a full service
employee uniform solution, including design, sourcing and manufacturing,
delivery, cleaning and maintenance. We rent or lease uniforms, career and image
apparel, work clothing, outerwear, particulate-free garments and additional
textile and related products to businesses in a wide range of industries
throughout the United States. Our uniform products include shirts, pants,
jackets, coveralls, jumpsuits, smocks, aprons and specialized protective wear.
We also offer non-garment items and related services, including industrial
towels, floor mats, mops, linen products, as well as paper products and safety
products. Our uniform business is the second largest in the United States,
generating $995 million in sales, or 13% of our total fiscal 2001 sales. In
addition to our United States operations, we own a minority interest in ARATEX
Corporation, which provides uniform rental services in Japan.
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The outsourcing of career apparel needs through a uniform rental program
offers customers advantages over ownership. Renting eliminates investment in
uniforms and the related costs associated with employee turnover, offers
flexibility in styles, colors and quantities as customer requirements change,
assures consistent professional cleaning, finishing, repair and replacement of
items in use and decreases expense and management time necessary to administer
a uniform program. Centralized services, specialized equipment and economies of
scale generally allow us to be more cost effective in providing garments and
garment services than customers could be by themselves. We believe that of the
approximately 140 million person U.S. civilian workforce, approximately 30
million workers wear some type of uniform, and of these only 20% currently use
a rental service for their uniforms.
Customers and Services
Our Uniform and Career Apparel--Rental segment serves businesses of all
sizes in many different industries. We have a diverse customer base, serving
more than 300,000 customer locations in 39 states from over 200 service
locations and distribution centers nationwide. Our customers include companies
such as American Airlines, Inc., Safeway, Inc. and Wal-Mart Stores, Inc. We
offer a range of garment rental service options, from full-service rental
programs in which we clean and service garments and replace uniforms as needed,
to lease programs in which garments are cleaned and maintained by individual
employees. We also clean and service customer-owned uniforms.
As part of our full service rental business, we design and choose fabrics,
styles and colors specific to a customer's needs. We stock a broad product line
of uniforms and career apparel. We typically visit our customers' sites weekly,
delivering clean, finished uniforms and, at the same time, removing the soiled
uniforms or other items for cleaning, repair or replacement as necessary. Under
our leasing program, we provide the customer with rental garments which are
cleaned either by the customer or individual employees. This program is ideal
for customers operating in low soil environments. This program also benefits
clients by reducing their capital investment in garments. We administer and
manage the program, and repair and replace garments as necessary.
Our cleanroom service offers advanced static dissipative garments, barrier
apparel, sterile garments and cleanroom application accessories for customers
with contamination-free operations in the technology, food, healthcare and
pharmaceutical industries. We provide reusable and disposable garment programs
and were the first national cleanroom garment provider to have ISO-9002
certification at all of our cleanrooms. We believe we are a recognized leader
in the highly specialized and exacting cleanroom garment industry.
Operations
We operate our uniform rental business as a hub-and-spoke network of plants
and depots in strategic locations. This network is comprised of 73 laundry
plants and 132 satellite plants and depots supporting approximately 2,700 pick-
up and delivery routes. We lease and operate a fleet of approximately 4,300
service vehicles that pick up and deliver uniforms for cleaning and
maintenance.
We operate a fabric cutting facility in Georgia and sewing plants in Puerto
Rico and Mexico, which satisfy a substantial amount of our standard uniform
inventory needs. We also purchase additional uniform and textile products as
well as equipment and supplies from several domestic suppliers and, to some
extent, from non-domestic suppliers. The loss of any one vendor would not have
a significant impact on us.
We have undertaken several initiatives in the last several years to improve
operating efficiency and cut costs in our uniform rental business. For example,
in fiscal 2000 we opened new manufacturing facilities to source more of our
garments in-house and reduce garment costs. Further, we have invested, and
continue to invest, in automated equipment and processes in our laundry
facilities, which we believe will improve throughput and reduce labor costs.
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Sales and Marketing
We locate our plants and depots in areas characterized by expanding
industries and economic growth. We employ more than 300 trained sales
representatives whose sole function is to sell our services to potential
customers and develop new accounts through the use of an extensive, proprietary
database of pre-screened and qualified business prospects. However, our more
than 3,000 customer service representatives and approximately 500 district
managers are active salespersons as well. We build our brand identity through
local advertising, promotional initiatives and through our distinctive service
vehicles. Our customers frequently come to us through client referrals, either
from our uniform rental business or from our other service sectors. Our
customer service representatives generally interact on a weekly basis with
their clients, while our support personnel are charged with expeditiously
handling customer requirements regarding the outfitting of new customer
employees and other customer service needs.
In connection with the provision of our services, we have developed or
acquired long-standing brand name recognition through our ApparelOne(R),
WearGuard and Crest(R) uniform programs. Our ApparelOne program assists
customers in meeting their specific needs by offering quality and brand name
products through a combination of rental, lease or purchase options. We
customize the program on an individual client basis to offer a single catalog
and/or website specifically tailored to the client's needs.
Types of Contracts
We typically serve our rental customers pursuant to written service
contracts for an initial term of three to five years. While customers are not
required to make an up-front investment for their uniforms, in the case of non-
standard uniforms and certain specialty products or programs, customers do
agree to reimburse us for our costs if they terminate their agreement before
completion of the current service term.
Competition
Although there is a continuing trend towards consolidation in the United
States, the rental markets we serve are highly fragmented, and competition
varies from location to location. Much of the competition consists of smaller
local and regional firms, however, our major competitors include Cintas
Corporation, G&K Services, Inc. and Unifirst Corporation. We believe that the
primary competitive factors that affect our operations, in order of importance,
are quality, service, design consistency of product, garment cost and
distribution capability, particularly for large multi-location customers, and
price. We believe that our ability to compete effectively is enhanced by the
quality and breadth of our product line.
Uniform and Career Apparel--Direct Marketing Segment
Our Uniform and Career Apparel--Direct Marketing segment designs, sells and
distributes personalized uniforms, rugged work clothing, outerwear, business
casual apparel, and footwear, public safety equipment and accessories through
mail order catalogs, websites, telemarketing and field sales representatives.
In fiscal 2001, this segment generated $439 million in sales, or 6% of our
total company sales, substantially all in the United States. Teamed with our
rental business, our direct marketing enables us to provide a total uniform
solution to our clients.
After experiencing declines in operating results in fiscal 1998 and 1999, we
have recently repositioned our direct marketing businesses. At WearGuard, we
reduced the number of our catalog mailings while increasing our telemarketing
efforts to shift our emphasis to business-to-business sales. In our Galls
business we recently completed the integration of a new warehouse into our
distribution network and, after a year of operating difficulties, we have
increased the efficiency of this unit. We also have recently completed the
integration of WearGuard with Crest. Our operating performance in our direct
marketing business improved in fiscal 2000 and fiscal 2001.
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Customers and Services
WearGuard-Crest. We are a leading national distributor of distinctive image
apparel, which include uniforms and work clothing, to workers in a wide variety
of industries including construction, utilities, repair and maintenance
services, restaurant and hospitality and healthcare. The combination of these
two operations allows us to deliver expanded services to customers through
catalog, web and telemarketing sectors.
. WearGuard. With its recognized brand name, WearGuard is America's
largest direct mail and telemarketing retailer of work clothes, serving
personalized work clothing needs for almost 50 years. WearGuard designs
and embroiders personalized uniforms and logos for customers through an
extensive computer assisted design center and distributes work clothing,
outerwear, business casual apparel and footwear throughout the United
States. Our customer service function is further supported by our
management information systems, which provide our personnel with access
to information on the status of customers' orders, inventory
availability and shipping information, as well as information regarding
customers' individual employees, including names, sizes, uniform styles
and colors.
. Crest. Crest is a leading designer and distributor of uniform apparel
programs to the restaurant, hotel and healthcare industries. Crest is a
leading supplier to the quick service restaurant industry and is the
largest domestic supplier of uniforms to McDonald's Corporation.
Galls. Galls is the country's largest mail order supplier of uniforms and
equipment to public safety professionals and is currently celebrating its 30th
year of service. This business caters to the special needs of people involved
in public safety, fire fighting, correctional, and emergency medical services.
Galls markets uniforms, equipment and accessories under the Galls(R), DynaMed
and other well-known brand names to over one million individuals and public
safety departments and private safety agencies.
Operations
We conduct our direct marketing activities principally from our facilities
in Norwell, Massachusetts, Roanoke, Virginia and Lexington, Kentucky. Customer
orders are filled by our warehouse personnel and generally shipped directly to
customers within one business day. None of our customers represents
individually a material portion of our sales. We manufacture a significant
portion of our uniform requirements and offer a variety of customized
personalization options such as embroidery and logos. We also purchase uniforms
and other products from a number of domestic and international suppliers.
In the last few years, we have undertaken several initiatives to reduce
operating costs in our direct marketing operations and provide better service
to our clients. By reducing the number of WearGuard catalogs in circulation and
increasing our business telemarketing sales force, we shifted our sales focus
from the less profitable individual consumer to the business purchaser. We have
also sourced more of our garments from our own manufacturing facilities to
reduce the cost of garments and simplify operations. We have integrated and
streamlined our WearGuard and Crest operations, consolidating operating
personnel and distribution at one location. As part of this process, we
reviewed our product offering and reduced the number of items offered by
eliminating redundant and low-volume items.
Sales and Marketing
Our direct marketing operations distribute approximately 25 million catalogs
annually to approximately ten million existing and prospective customers.
Catalog distribution is based on the selection of recipients in accordance with
predetermined criteria from customer lists developed by WearGuard and Galls as
well as those purchased or rented from other organizations. Our substantial in-
bound and out-bound telemarketing operations are staffed by approximately 580
trained professionals. We also sell across the Internet at www.wearguard.com
and www.galls.com.
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Types of Contracts
Because the bulk of our customers purchase on a recurring basis, our backlog
of orders at any given time consists principally of orders in the process of
being filled. With the exception of certain governmental bid business, most of
our direct marketing business is conducted under invoice arrangement with
repeat customers.
Competition
The direct sales markets we serve are highly fragmented. We believe that the
primary competitive factors that affect our direct marketing operations are
quality, service, design consistency of products, distribution and price. There
are other companies in the uniform, work clothing or public safety direct
marketing business that have financial resources comparable to ours. Much of
the competition consists of smaller local and regional companies and numerous
retailers, including some large chain apparel retailers, as well as numerous
catalog sales sources.
Seasonality
Due to a number of factors, primarily related to the weather in the northern
tier of the United States and the Thanksgiving-Christmas holiday period, there
is a seasonal increase in the sales of directly marketed work clothing during
our first fiscal quarter.
Educational Resources
We are the second largest provider of for-profit childcare services in the
United States, operating community-based and employer on-site childcare centers
and elementary schools and before and after school programs on the premises of
elementary schools. Since 1969 we have served the childcare and early education
markets, providing education to children between the ages of six weeks and 12
years. We operate the highest percentage of childcare centers accredited by the
National Association for the Education of Young Children (NAEYC) among the
major community childcare providers. Our Educational Resources segment employs
approximately 17,000 individuals across 28 states and the District of Columbia,
serving more than 100,000 children at more than 1,200 locations. In fiscal
2001, our Educational Resources segment generated $463 million in sales, or 6%
of our total sales.
Customers and Services
Our Educational Resources segment provides parents with a comprehensive set
of educational choices: early care and education, work/life partnerships and
school partnerships. We also operate eight private elementary schools in seven
states under the Meritor Academy and Warren Walker brand names.
Early Care and Education. Branded under the name Children's World, our early
care and education business serves approximately 75,000 children from 50,000
households at 613 centers. Our largest presence is in Minneapolis (43 centers),
Denver/Boulder (48 centers), Chicago (46 centers) and Dallas/Fort Worth (40
centers). We seek to differentiate ourselves from our competitors by focusing
on enriched educational content, particularly when compared with the standard
childcare option offered by local providers.
Our typical Children's World center is configured for 100 to 180 children,
contains five to seven classrooms and a full-service kitchen and outdoor play
area. We are pursuing a strategy to build or acquire new centers in newer
upper-middle to upper income suburban areas with high concentrations of dual-
income families. Generally, our customers have had a previous childcare
experience and choose center-based care within a two-to-five mile radius of
their homes in order to provide their children with educational preparation,
socialization and safety.
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We believe that a significant percentage of new business is the result of
direct referrals from existing customers. In addition to marketing directly to
families, we also seek to enter into preferred customer agreements with
particular employers, which provide a discount for their employees.
Work/Life Partnerships. Our work/life partnerships business offers a variety
of childcare services to employers at 30 employer-based sites, and corporate
relationships are offered at our community locations under the brand name
ARAMARK Work/Life Partnerships.
School Partnerships. Our school partnerships business provides before and
after-school enrichment programs, pre-school programs, such as pre-math, pre-
reading and early science, kindergarten enrichment and summer camps at 575
sites under the brand name Medallion. These services are usually provided on-
site at elementary schools.
Competition
The childcare and early educational services market is highly fragmented and
competitive. We believe the significant competitive factors for educational
services include quality of care, reputation, location, physical appearance at
facilities, types of programs offered and price. We face significant
competition from local nursery schools and childcare centers, including church-
affiliated and other non-profit centers, such as the YMCA; other for-profit,
center-based childcare providers; providers of childcare services operating out
of homes; in-home care provided primarily by nannies and relatives; and
preschool, kindergarten and before and after school programs provided by public
schools, as well as state or locally operated preschools. There are also
several national, such as KinderCare Learning Centers and La Petite Academy, or
regional for-profit companies with sizeable numbers of centers and similar
economies of scale in curriculum development, marketing and site development.
Seasonality
Operations of our Educational Resources segment typically follow a seasonal
cycle linked to the elementary school calendar and holiday periods. New
enrollments are highest in the mid-August to mid-September period, coinciding
with the start of the school year. Enrollment typically builds throughout the
school year, reaching a peak in April or May. Enrollment in the summer months
is generally lower as parents choose from a greater number of summer camp and
other childcare options.
Employees of ARAMARK
As of September 28, 2001, we had a total of approximately 200,000 employees,
consisting of approximately 124,000 full-time and approximately 76,000 part-
time employees in our five business segments. The number of part-time employees
varies significantly from time to time during the year due to seasonal and
other operating requirements. We generally experience our highest level of
employment during the fourth quarter. The approximate number of employees by
segment is as follows: Food and Support Services--United States: 133,000; Food
and Support Services--International: 35,000; Uniform and Career Apparel--
Rental: 13,000, Uniform and Career Apparel--Direct Marketing: 2,200; and
Educational Resources: 16,500. In addition, the ARAMARK corporate staff is
approximately 115 employees. Approximately 33,000 employees in the United
States are covered by collective bargaining agreements. We have not experienced
any material interruptions of operations due to disputes with our employees and
consider our relations with our employees to be satisfactory.
Governmental Regulation
We are subject to various governmental regulations, such as environmental,
employment and health and safety. In addition, our facilities and products are
subject to periodic inspection by federal, state, and local authorities. We
have installed various internal controls and procedures designed to maintain a
high level of compliance with these regulations. The cost of our compliance
programs is not material, but is subject to additions to or changes in federal
or state legislation, or changes in regulatory implementation or interpretation
of government regulations. If we fail to comply with applicable laws, we could
be subject to civil remedies, including fines and injunctions, as well as
potential criminal sanctions.
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Food and Support Services Segments
Our operations are subject to various governmental regulations, such as
those governing:
. the service of food and alcoholic beverages;
. minimum wage and employment;
. governmentally funded entitlement programs;
. environmental protection; and
. human health and safety.
While there are a variety of regulations at various governmental levels
relating to the handling, preparation and serving of food, including in some
cases requirements relating to the temperature of food, and the cleanliness of
the kitchen and the hygiene of its personnel, these regulations are enforced
primarily at the local public health department level. We cannot assure you
that we are in full compliance at all times with all applicable laws and
regulations. Furthermore, additional or amended regulations in this area may
significantly increase the cost of compliance.
In addition, various federal and state agencies impose nutritional
guidelines and other requirements on us at certain of the education and
corrections facilities we serve. There can be no assurance that federal or
state legislation, or changes in regulatory implementation or interpretation of
government regulations, would not limit our activities in the future or
significantly increase the cost of regulatory compliance.
Since we serve alcoholic beverages at many sports, entertainment and
recreational facilities, including convention centers, we also hold liquor
licenses incidental to our contract food service business and are subject to
the liquor license requirements of the states in which we hold a liquor
license. As of September 28, 2001, we and our subsidiaries held liquor licenses
in 40 states.
Typically, liquor licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of our operations, including minimum age of patrons and
employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, and storage and dispensing of alcoholic beverages. We
have not encountered any material problems relating to alcoholic beverage
licenses to date. The failure to receive or retain a liquor license in a
particular location could adversely affect our ability to obtain such a license
elsewhere. A few of our contracts require us to pay liquidated damages during
any period in which our liquor license for the relevant facility is suspended
and most contracts are subject to termination in the event that we lose our
liquor license for the relevant facility.
Our service of alcoholic beverages must also comply with applicable state,
provincial and local service laws, commonly called dram shop statutes. Dram
shop statutes generally prohibit serving alcoholic beverages to certain persons
such as one who is intoxicated or a minor. If we violate dram shop laws, we may
be liable to third parties for the acts of the patron. We sponsor regular
training programs to minimize the likelihood of such a situation although we
cannot guarantee that intoxicated or minor patrons will not be served or that
liability for their acts will not be imposed on us.
Uniform and Career Apparel Segments
Our uniform rental segment is subject to various federal, state and local
laws and regulations governing, among other things, the generation, handling,
storage, transportation, treatment and disposal of hazardous wastes and other
substances. In particular, industrial laundries use and must dispose of
detergent wastewater and other residues through publicly operated treatment
works or similar government bodies and are subject to volume and chemical
discharge limits and penalties and fines for non-compliance. We are attentive
to the environmental concerns surrounding the disposal of these materials and
have through the years taken measures
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to avoid their improper disposal. In the past, we have settled, or contributed
to the settlement of, actions or claims brought against us relating to the
disposal of hazardous materials and there can be no assurance that we will not
have to expend material amounts to rectify the consequences of any such
disposal in the future. Further, under environmental laws, an owner or lessee
of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in or emanating from such property,
as well as related costs of investigation and property damage. Such laws often
impose liability without regard to whether the owner or lessee knew of or was
responsible for the presence of such hazardous or toxic substances. There can
be no assurances that acquired or leased locations have been operated in
compliance with environmental laws and regulations or that future uses or
conditions will not result in the imposition of liability upon us under such
laws or expose us to third party actions such as tort suits.
We do not anticipate any material capital expenditures for environmental
remediation that would have a material effect on our financial condition, and
we are not aware of any material non-compliance with environmental laws.
Educational Resources Segment
Center Licensing Requirements. Our childcare centers are subject to numerous
state and local regulations and licensing requirements which generally cover
the fitness and adequacy of buildings and equipment, the ratio of staff
personnel to enrolled children, staff training, record keeping, the dietary
program, the curriculum and compliance with health and safety standards. Some
changes, such as increasing the ratio of staff to enrolled children, can result
in significantly increased costs to operate our business. If one of our centers
fails to comply with applicable regulations, that center could be subject to
state sanctions. These sanctions may include fines, corrective orders,
placement on probation or, in more serious cases, suspension or revocation of
the center's license to operate or all of our centers' licenses to operate in
that state. Changes in the regulatory frameworks within which we operate may
cause us to incur substantial costs in order to comply.
Childcare Tax Incentives. Tax incentives for childcare programs potentially
can benefit us. Section 21 of the Internal Revenue Code of 1986 provides a
federal income tax credit ranging from 20% to 30% of specified childcare
expenses. For eligible taxpayers with one child, a credit can be claimed on a
maximum of $2,400 of eligible expenses. For eligible taxpayers with two or more
children, a credit can be claimed on a maximum of $4,800 of eligible expenses.
The fees paid to us by eligible taxpayers for childcare services qualify for
these tax credits, subject to the limitations of Section 21 of the Code.
However, these tax incentives are subject to change.
Childcare Assistance Programs. During fiscal 2001, approximately 15% of this
segment's net sales were generated from federal and state childcare assistance
programs, primarily the Childcare and Development Block Grant and Social
Services Block Grant. These programs are designed to assist low-income families
with childcare expenses and are administered through various state agencies.
Although additional funding for childcare may be available for low-income
families as part of welfare reform, there is no assurance that we will benefit
from any such additional funding.
Intellectual Property
We have the patents, trademarks, trade names and licenses that are necessary
for the operation of our business as we currently conduct it. Other than the
ARAMARK name, we do not consider our patents, trademarks, trade names and
licenses to be material to the operation of our business.
Information Systems
We believe the timely and accurate measurement and reporting of client
activity is important to our success and, therefore, technology is a key part
of our infrastructure. Information about customer preferences is
66
used primarily to customize our service offerings to the needs of our clients.
Each of our segments operates separate, and in some cases numerous, systems
tailored to meet the specific service needs of their client base.
Our various business groups have worked to develop specific applications for
their and their clients' particular requirements. Examples include labor
scheduling, food production and inventory management, cashless payments, point
of sale, suite catering, childcare center management and uniform rental route
accounting systems. In addition to our general management information systems,
we utilize Hyperion financial tools to aggregate financial data across our
business segments. This data is used to develop and analyze our consolidated
financial results, as well as for control, budgeting and planning.
During 1999 and 2000, our Food and Support Services--United States segment
invested more than $65 million to completely upgrade its information technology
infrastructure. In addition, our Uniform and Career Apparel--Rental segment is
currently upgrading its systems, and this project is scheduled for completion
within the next 12 months at an estimated cost of $8 million.
Properties
Our principal executive offices are located at ARAMARK Tower, 1101 Market
Street, Philadelphia, Pennsylvania 19107. Our principal real estate is
comprised primarily of educational and childcare facilities, of which a
significant number are held under long-term operating leases. As of September
28, 2001, we operated approximately 652 facilities in our educational resources
segment. Of these, 493 are leased, 136 are owned and 23 are managed for third
parties. Some leases provide for contingent rent if the center's operating
revenue exceeds a specified base level. Generally, the leases provide for
renewal options under the same terms and conditions. We believe that if we were
unable to renew the lease on any of these facilities, other suitable facilities
would be available to meet our needs. As of September 28, 2001, we operated
approximately 200 facilities in our uniform and career apparel segments. Of
these, approximately half are leased and approximately half are owned. We also
maintain other real estate and leasehold improvements, which we use in the
uniform and career apparel and food and support services segments. No
individual parcel of real estate owned or leased is of material significance to
our total assets.
Legal Proceedings
We are presently engaged in discussions with the U.S government towards a
civil settlement and resolution of a grand jury investigation in Illinois
involving our school support services business. The investigation has been
conducted by the United States Attorneys' Offices in the Southern District of
Illinois, with assistance from the United States Department of Agriculture's
Office of Inspector General. The investigation relates to whether certain
pricing practices in connection with the management services provided by us to
public school food service programs are consistent with United States
Department of Agriculture regulations. A grand jury subpoena was also issued
out of the Eastern District of Missouri. As of November 1, 2001, we are
currently negotiating a settlement of certain of the matters raised in the
Illinois investigation and we do not believe that the settlement currently
being discussed will have a material adverse effect on us. During these
negotiations, all investigative activities have been stayed. With respect to
any matters that will not be resolved by the settlement, we believe that our
interpretation of the applicable government regulations is correct and if any
claims were to be pursued, we would vigorously pursue our defenses. However, we
can give no assurance that the outcome of any such claim would not have a
material adverse effect on us. Recently, a civil complaint alleging breach of
contract, common law fraud and common law civil conspiracy has been filed on
behalf of the East St. Louis School District seeking the certification of a
class action for the restitution to all school districts served by us of the
value of federally donated commodities and discovery has just recently
commenced. We intend to vigorously defend ourselves against these claims.
However, we can give no assurance that the outcome of any such claim would not
have a material adverse effect on us.
67
Our uniform rental segment is subject to various federal, state and local
laws and regulations governing, among other things, the generation, handling,
storage, transportation, treatment and disposal of water wastes and other
substances. A subsidiary of ARAMARK, as a result of activities of acquired
businesses prior to their acquisition by us, has been identified as a
potentially responsible party, along with numerous other parties, for cleanup
of a Superfund site in Monterrey, California. In September 2001, the subsidiary
entered into a consent decree in which it agreed to pay $1.2 million to fully
settle the matter. We engage in informal settlement discussions with federal,
state and local authorities regarding allegations of violations of
environmental laws at operations relating to our uniform rental segment or to
businesses conducted by our predecessors, the aggregate amount of which and
related remediation costs would not have a material adverse effect on our
financial condition or results of operations.
From time to time, we are a party to various legal actions involving claims
incidental to the normal conduct of our business, including actions by clients,
customers and employees, but we do not believe that any such actions are likely
to be, individually or in the aggregate, material to our business, financial
condition, results of operations or cash flows.
68
RECENT DEVELOPMENT
The ServiceMaster Acquisition
On November 30, 2001, we acquired ServiceMaster Management Services. Upon
closing we paid $790.6 million in cash, subject to post-closing adjustments.
We believe that the ServiceMaster Management Services acquisition is a
significant strategic acquisition for us. We believe the acquisition will
further enhance our leadership position in outsourced services by making us a
more effective competitor for facility management services accounts. We believe
the acquisition will provide us with strategic benefits including:
. opportunities to cross-sell: facility management services to our
existing clients, clinical equipment maintenance services to our
existing healthcare clients, and food and support services and other
outsourced services to ServiceMaster Management Services' existing
clients;
. cost synergies including selling, general and administrative synergies,
and synergies resulting from sharing of best practices, such as our
purchasing practices; and
. infusing our entrepreneurial culture and our business-to-business focus
to improve service quality and client retention at ServiceMaster
Management Services.
Business of ServiceMaster Management Services. ServiceMaster Management
Services and its related entities provide a variety of facility management
services to the healthcare, education and business and industry client sectors.
These services are provided nationwide and include the management of
housekeeping, plant operations and maintenance, laundry and linen, grounds
keeping and landscaping, clinical equipment maintenance, food service,
engineering consulting services relating to building operations, materials
management and total facility management. ServiceMaster Management Services
also has operations in Canada and maintains licensing arrangements with local
service providers in approximately 25 other countries.
ServiceMaster Management Services generally provides management services to
supervise clients' labor forces under fixed price or similar contracts. In a
portion of the contracts, it shares with the client the benefit from cost
savings and efficiencies it realizes over the agreed budget but bears the risk
of costs incurred in excess of the agreed budget.
Healthcare. ServiceMaster Management Services is a leading provider of
supportive management services, including the management of housekeeping,
clinical equipment maintenance, food services, plant operations and
maintenance, laundry and linen, grounds and landscaping and the provision of
total facility management to hospitals, healthcare systems, long term care
communities and other healthcare organizations. ServiceMaster Management
Services also provides consulting services to healthcare clients, including
assessments of supply chain, equipment, food service and other hospital-based
services. ServiceMaster Management Services serves approximately 850 clients in
the healthcare sector. Significant clients in the healthcare sector include Mt.
Sinai Hospital in New York and University of Virginia Medical Center.
Education. ServiceMaster Management Services is a leading provider of plant
operations and maintenance, custodial and grounds management and landscape
services to primary schools, secondary schools and school districts, private
specialty schools and colleges and universities. ServiceMaster Management
Services serves approximately 300 educational clients. Significant clients in
the education sector include Princeton University and Houston Independent
School District.
Business and Industry. ServiceMaster Management Services is a leading
provider of plant operations and maintenance and custodial and grounds
management services to business and industry clients, serving approximately 400
clients.
69
Services provided include facility operations and maintenance,
groundskeeping and landscaping, housekeeping, production equipment maintenance
and cleanroom services to corporate headquarters, manufacturing plants and
distribution centers. Services provided to the business and industry client
sector also include housekeeping, facility maintenance, contract staffing, pest
management and grounds care, as well as other specialized services, to clients
in the food processing industry. In addition, ServiceMaster Management Services
provides certain airport auxiliary services, transportation related services
and temporary placement services.
Financings. We financed our acquisition of ServiceMaster Management Services
and related expenses by borrowing approximately an additional $200 million
under our existing senior revolving credit facility and $600 million under a
new bridge financing facility with a group of banks arranged by JP Morgan Chase
Bank. The bridge financing facility is unsecured and has a one-year term,
beginning on November 30, 2001. ARAMARK Services, Inc., our wholly owned
subsidiary, is the borrower under the bridge financing facility and we and
certain other subsidiaries guaranty the obligations in the same manner as our
senior revolving credit facility. Interest under the bridge financing facility
is based on, at our option, LIBOR plus a spread ranging from 1.125% to 1.875%
per annum and an initial spread of 1.375% (with the spread increasing by 0.25%
after six months and by an additional 0.25% after nine months) or the higher of
the prime rate or 0.5% per annum over the federal funds rate. The bridge
financing facility has restrictive covenants, financial covenants and events of
default substantially similar to those included in our senior revolving credit
facility.
We expect to repay a portion of the bridge financing with a portion of the
proceeds from this offering, as described under "Use of Proceeds." In addition,
we may consider several different types of financing arrangements to replace
the remainder of the borrowings under the bridge financing prior to its
expiration date. These arrangements may include a publicly or privately offered
debt financing and accounts receivable sale.
70
MANAGEMENT
Directors
The following table presents the names and positions of the persons who will
be our directors upon closing of this offering, their ages as of September 28,
2001 and the length of time they have been directors:
<TABLE>
<CAPTION>
Name Age Position Since
---- --- -------- -----
<S> <C> <C> <C>
Joseph Neubauer.............. 59 Chairman and Chief Executive Officer 1979
and Director (2)(3)
Lawrence T. Babbio, Jr. ..... 56 Director (3)(4) 1999
Patricia C. Barron........... 58 Director (1) 1997
Robert J. Callander.......... 70 Director (2)(3)(4)(5) 1986
Leonard S. Coleman, Jr. ..... 52 Director (1) 2000
Ronald R. Davenport.......... 65 Director (1)(4)(5) 1980
Edward G. Jordan............. 71 Director (1)(2)(3) 1980
Thomas H. Kean............... 66 Director (3)(4) 1994
James E. Ksansnak............ 61 Director (3) 1997
James E. Preston............. 68 Director (2)(3)(4) 1993
Karl M. von der Heyden....... 65 Director 2001
</TABLE>
--------
The numbers following the positions held by the directors indicate membership
in the following board committees at September 28, 2001:
(1) Audit and Corporate Practices
(2) Executive
(3) Finance
(4) Human Resources, Compensation and Public Affairs
(5) Stock
Joseph Neubauer has been our chief executive officer since February 1983 and
the chairman since April 1984; he was our president from February 1983 to May
1997. He is a director of Verizon Communications Inc., formerly Bell Atlantic
Corporation, CIGNA Corporation, Federated Department Stores, Inc. and Wachovia
Corporation.
Lawrence T. Babbio, Jr. has been vice-chairman and president of Verizon
Communications Inc., formerly Bell Atlantic Corporation, since July 2000. He
was president and chief operating officer of Verizon from December 1998 until
July 2000. He was president and chief executive officer of Verizon's Network
Group and chairman of Verizon's Global Wireless Group from August 1997 until
December 1998. From January 1995 to August 1997 he was vice chairman of Verizon
Communications and prior to that was executive vice president and chief
operating officer of Verizon. He is a director of Compaq Computer Corporation.
Patricia C. Barron has been clinical associate professor at the Leonard N.
Stern School of Business of New York University since September 1999 and prior
to that was an executive-in-residence and senior fellow. She was vice president
of Business Operations Support of Xerox Corporation from April 1997 to July
1998. From 1995 to 1997, she was president of Engineering Systems of Xerox
Corporation and from 1992 to 1994, was president of Office Document Products of
Xerox Corporation. She is a director of Quaker Chemical Corporation, Teleflex
Corporation, Ultralife Batteries, Inc. and United Services Automobile
Association.
Robert J. Callander was executive-in-residence at the Business School of
Columbia University from 1992 to June 2000. He was president of Chemical Bank
and Chemical Banking Corporation from August 1990 to June 1992. He is a
director of Omnicom Group, Inc., Scudder Global High Income Fund Inc., Scudder
New Asia Fund Inc., The Korea Fund Inc., The Brazil Fund Inc. and The Argentina
Fund Inc.
Leonard S. Coleman, Jr. has been the chairman of Arena Co. since September
2001 and Senior Advisor, Major League Baseball since November 1999. He was
President, The National League of Professional Baseball Clubs from 1994 to
1999. He is a director of Cendant Corporation, Churchill Downs Incorporated,
Electronic
71
Arts Inc. H.J. Heinz Company, New Jersey Resources Corporation, Omnicom Group,
Inc., Owens Corning and Radio Unica Communications Corp.
Ronald R. Davenport has been the chairman of Sheridan Broadcasting
Corporation since 1972. He is a director of Mellon Private Asset Management.
Edward G. Jordan was the chairman and chief executive officer of
Consolidated Rail Corporation from 1975 to 1981 and served as the president of
The American College from 1982 until 1987.
Former Governor Thomas H. Kean was the Governor of the State of New Jersey
from 1982 until 1990. He has been the president of Drew University since 1990.
He is a director of Amerada Hess Corporation, Fiduciary Trust Company
International, The Pepsi Bottling Group, Inc. and United HealthCare
Corporation.
James E. Ksansnak was our vice chairman from May 1997 until February 2001.
From February 1991 to May 1997, he was our executive vice president; from May
1986 to February 1991, he was our senior vice president; and from May 1986 to
May 1997, he was our chief financial officer. He is a director of Advanta Corp.
and CSS Industries, Inc. He also serves as a consultant to one of our
businesses.
James E. Preston was the chairman of Avon Products, Inc. from 1989 to 1999
and president and chief executive officer from September 1988 until June 1998.
He is a director of Reader's Digest Association and Venator Group, Inc.
Karl M. von der Heyden was the vice chairman of PepsiCo, Inc. from February
1998 until February 2001 and vice chairman and chief financial officer from
September 1996 to February 1998. Between December 1993 and August 1994 he was
president and chief executive officer of Metallgesellschaft Corp. In May 1993,
he retired as co-chairman and chief executive officer of RJR Nabisco Inc. He is
a director of AstraZeneca PLC and Federated Departments Stores, Inc.
Our certificate of incorporation provides for a board of directors that is
divided into three classes, one of which will be elected each year at the
annual meeting of stockholders for terms of office expiring after three years.
Class I directors initially have terms expiring at the annual meeting to be
held in calendar year 2002, Class II directors initially have terms expiring at
the annual meeting to be held in calendar year 2003 and Class III directors
initially have terms expiring at the annual meeting to be held in calendar year
2004. Messrs. Coleman, Kean, Ksansnak and Preston are members of Class I, Ms.
Barron, Messrs. Callander, Davenport and Jordan are members of Class II and
Messrs. Neubauer, Babbio and von der Heyden are members of Class III. Each
director serves until the expiration of his term and thereafter until his
successor is duly elected and qualified.
72
Executive Officers
The following table presents the names and positions of the persons who will
be our executive officers upon closing of this offering, their ages as of
September 28, 2001 and the length of time they have been officers:
<TABLE>
<CAPTION>
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Joseph Neubauer......... 59 Chairman and Chief Executive Officer and Director 1979
William Leonard......... 53 President and Chief Operating Officer 1992
Bart J. Colli........... 53 Executive Vice President, General Counsel and 2000
Secretary
Brian G. Mulvaney....... 45 Executive Vice President, Human Resources and 1993
Public Affairs
L. Frederick 49 Executive Vice President and Chief Financial 1983
Sutherland............. Officer
John J. Zillmer......... 46 Executive Vice President 2000
Barbara A. Austell...... 48 Senior Vice President and Treasurer 1996
John M. Lafferty........ 57 Senior Vice President, Controller and Chief 2000
Accounting Officer
Dean E. Hill............ 50 Vice President, Investor Relations 1993
Donald S. Morton........ 53 Vice President, Assistant Secretary and 1984
Associate General Counsel
Michael R. Murphy....... 44 Vice President 1995
Richard M. Thon......... 46 Assistant Treasurer 1994
</TABLE>
Except as set forth below, the principal occupation of each executive
officer throughout the past five years has been the performance of the
functions of the corporate offices shown above.
William Leonard has been our president and chief operating officer since May
1997. He was our executive vice president from May 1992 until May 1997.
Bart J. Colli joined us in February 2000 as general counsel and was elected
as our executive vice president and secretary in March 2000. Prior to joining
us, he was a partner with McCarter & English LLP since 1985.
Brian G. Mulvaney was elected our executive vice president in August 1996.
He was our senior vice president from February 1995 to August 1996 and our vice
president from February 1993 to February 1995.
L. Frederick Sutherland became our chief financial officer in May 1997. He
has served as our executive vice president since May 1993.
John J. Zillmer was elected as our executive vice president in May 2000. He
was president of our Business Services division from May 1995 to August 1999
when be became president of our Food and Support Services International
division. He became president of our Food and Support Services division in May
2000.
John M. Lafferty joined us and was elected as our senior vice president and
appointed controller and chief accounting officer in August 2000. Prior to
joining us, he retired as a partner with Arthur Andersen LLP, where he had been
a partner since 1977.
Barbara A. Austell was elected as our senior vice president and treasurer in
August 1996. Prior to joining us in July 1996, she was a managing director of
J.P. Morgan & Co.
Donald S. Morton was elected as our vice president in August 2000. He has
been assistant secretary since 1984.
Michael R. Murphy was elected as our vice president in February 2000. Prior
to that he was director of audit and controls since September 1995.
Our executive officers are elected annually by the board of directors and
serve at their discretion or until their successors are duly elected and
qualified.
73
Executive Compensation
The following table sets forth information with respect to the compensation
of the named executive officers for services in all capacities for us in the
years indicated:
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------------------------- ------------
Fiscal Other Annual Options Other
Year Salary Bonus Compensation(1) Granted(2) Compensation(3)
Name and Current Principal Position ------ ---------- ---------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Neubauer.......... 2001 $1,000,000 $1,300,000 $11,000 -- $67,500
Chairman and Chief 2000 1,000,000 1,200,000 -- 1,200,000 47,500
Executive Officer 1999 999,000 1,100,000 -- 0 37,000
William Leonard.......... 2001 629,000 600,000 -- -- 6,500
President and 2000 586,500 575,000 -- 400,000 6,500
Chief Operating Officer 1999 549,000 550,000 -- 0 6,500
L. Frederick Sutherland.. 2001 443,500 300,000 -- -- 6,500
Executive Vice President 2000 415,500 265,000 -- 200,000 6,500
and Chief Financial Of-
ficer 1999 390,000 275,000 -- 0 6,500
Brian G. Mulvaney........ 2001 389,000 280,000 -- -- 6,500
Executive Vice
President, 2000 350,500 265,000 -- 300,000 6,500
Human Resources and 1999 325,000 275,000 -- 0 6,500
Public Affairs
John J. Zillmer.......... 2001 386,500 280,000 -- 150,000 6,500
Executive Vice President 2000 330,500 220,000 -- 190,000 6,500
and President, Food and 1999 267,500 150,000 -- 0 6,500
Support Services
Bart J. Colli............ 2001 368,500 300,000 -- 60,000 6,500
Executive Vice
President, 2000 202,000 246,000 -- 700,000 0
General Counsel and
Secretary
</TABLE>
--------
(1) This is above market interest received or accrued on deferred
compensation.
(2) Adjusted to reflect the merger.
(3) Other compensation includes employer contributions to the Stock Unit
Retirement Plan ($6,500 per individual annually), plus, with respect to
Mr. Neubauer, the value of interest foregone and not recaptured by us
relating to payment of premiums for split dollar life insurance ($61,000
for fiscal 2001, $41,000 for fiscal 2000 and $30,000 for fiscal 1999).
74
Stock Purchase Opportunities
Option Grants
The following table sets forth information with respect to the named
executive officers concerning individual grants of stock purchase opportunities
made in fiscal 2001.
Options Granted in Fiscal 2001 (Stock Purchase Opportunities)
<TABLE>
<CAPTION>
Potential
Realizable Value
at
Assumed Annual
Rates of
Stock Price
Appreciation
for Option
Individual Grants Term (3)
----------------------------------------------- -----------------
Percentage of
Total Options Exercise or
Options Granted to All Base Price
Granted Employees in ($ per share) Expiration
Name (1)(2) Fiscal 2001 (1)(2) Date (2) 5% 10%
---- ------- -------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph Neubauer......... 0 0.0% -- $ 0 $ 0
William Leonard......... 0 0.0% -- 0 0
L. Frederick
Sutherland............. 0 0.0% -- 0 0
Brian G. Mulvaney....... 0 0.0% -- 0 0
John J. Zillmer......... 150,000 1.4% $8.75 2006 378,593 840,849
Bart J. Colli........... 30,000 0.3% 8.75 2006 42,961 92,472
Bart J. Colli........... 30,000 0.3% 8.75 2006 75,719 168,170
</TABLE>
--------
(1) Adjusted to reflect the merger.
(2) See "--The ARAMARK Ownership Program." The exercise prices of all option
grants reflected in the table are equal to the appraisal prices of the
shares at the respective times of grant. Mr. Zillmer was granted 150,000
cumulative installment stock purchase opportunities (CISPOs); these CISPOs
expire on January 15, 2006. Mr. Colli was granted 30,000 CISPOs and 30,000
installment stock purchase opportunities (ISPOs); these CISPOs expire on
January 15, 2006 and the ISPOs expire on varying dates through January 15,
2006.
(3) Realizable value refers to the assumed value (which was calculated using
the appraisal price then in existence) of the underlying shares at the time
such purchase opportunity expires minus the exercise price.
Options Exercised and Unexercised
The following table sets forth information with respect to the named
executive officers concerning the exercise of options in fiscal 2001 and the
unexercised options held as of September 28, 2001.
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
(Stock Purchase Opportunities)
<TABLE>
<CAPTION>
Number of Options Current Value of Options
Held (1)(3)(4) Held (1)(3)(4)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise (1) Realized (2) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Neubauer......... 90,000 $ 202,500 0 1,050,000 0 $7,350,000
William Leonard......... 234,000 1,467,180 0 446,000 0 3,507,920
L. Frederick
Sutherland............. 75,000 432,750 0 235,000 0 1,909,000
Brian G. Mulvaney....... 99,000 480,825 0 856,500 0 7,840,800
John J. Zillmer......... 138,498 797,696 0 504,502 0 3,655,958
Bart J. Colli........... 48,000 80,550 0 682,000 0 4,367,450
</TABLE>
75
--------
(1) Adjusted to reflect the merger.
(2) Value realized refers to the appraisal price of the underlying shares at
the time the option was exercised minus the exercise price of the option.
(3) Options currently exercisable and current values of options are determined
as of September 28, 2001. Current value of an option refers to the
appraisal price of the underlying shares minus the exercise price of the
option.
(4) CISPOs that have vested but are not exercisable at September 28, 2001 are
categorized as unexercisable.
Compensation of Directors
Beginning in 2002, each non-employee director will receive an annual cash
retainer of $50,000, payable in quarterly installments of $12,500, plus non-
qualified stock options to purchase shares of our class A common stock, awarded
quarterly. The number of shares subject to the quarterly option awards will be
calculated by dividing $31,000 by the closing price of a share of our class B
common stock on the grant date. Options will have a 10-year term and will be
immediately 100% vested on the date of grant. Non-employee directors may elect
to receive the annual retainer in the form of deferred shares and deferred
cash. Under this deferral arrangement, the non-employee director will be
credited at the end of each quarter, under a notional deferral account, with
$12,500 cash or with a number of shares of our class A common stock calculated
by dividing $12,500 by the closing price of a share of our class B common stock
on the computation date. Deferred shares and deferred cash will be issued or
paid to the director 3 years after the date credited to the director's account,
unless the director elects to defer issuance or payment to a later date.
Deferred cash will accrue interest at a rate determined annually by us.
In fiscal year 2001, directors who were not our employees received an annual
retainer of $30,000 for serving on the board, $3,000 for services as chairman
of a board committee and $1,000 for otherwise serving on a committee. They also
received meeting fees of $1,000 per day for attendance at meetings of the board
and for each committee meeting. Directors who were not our employees also were
eligible for grants of non-qualified stock options.
Employment Agreements and Change of Control Arrangements
General. We have employment agreements or arrangements with all of our
officers under which they are currently being paid annual salaries ranging up
to $1,000,000. Generally, these contracts are for indeterminate periods
terminable by either party, in most cases subject to advance notice and post-
employment severance and benefit obligations.
Agreement with Mr. Neubauer. Mr. Neubauer's agreement provides for his
services as chief executive officer at a current annual base salary of
$1,000,000 plus a bonus under the applicable bonus plan. The agreement's term
generally ends upon either party giving two years' advance notice, but may be
terminated earlier subject to certain severance obligations. In general, upon
Mr. Neubauer's termination of employment by us without cause or by Mr.
Neubauer's resignation with good reason (which terms are defined in the
agreement), including a resignation by Mr. Neubauer within 12 months following
a change of control (as defined in the agreement), he will receive the
following payments or benefits:
. a lump sum payment equal to the sum of four times his base salary plus
two times his average bonus over the three immediately preceding years,
except that if the termination is by us without cause and occurs
following two years' advance notice, Mr. Neubauer instead will receive a
pro rata bonus for the year of termination based on his average bonus
over the three immediately preceding years;
. full vesting of all outstanding stock purchase opportunities; and
. continuation of certain welfare benefits for a period of three years.
76
In addition, following any termination of Mr. Neubauer's employment, we will
pay him a supplemental retirement benefit for the rest of his life generally
equal to one-half of his base salary plus his average bonus over the three
immediately preceding years, with one-half of those payments continuing after
his death to his surviving spouse for her lifetime.
If Mr. Neubauer's employment is terminated by us without cause or by his
resignation with good reason, in either case upon two year's advance notice,
Mr. Neubauer will provide consulting services to us for a period of two years,
but not more than 20 hours in any month. For such consulting services, he will
continue to receive the same base salary that he had been receiving upon his
termination of employment, plus continued coverage under certain benefits
arrangements.
Mr. Neubauer is subject to a non-competition covenant for a period of two
years following his termination of employment or consulting period.
We have agreed to use our best efforts to cause Mr. Neubauer to be a member
of our board during the term of Mr. Neubauer's employment agreement. In
addition, if any payment or benefit payable to Mr. Neubauer after a change in
ownership or control of the company would be considered a parachute payment
subject to a federal excise tax, then we will pay Mr. Neubauer an additional
payment or benefit to gross-up the amount of the excise tax.
We have a split dollar life insurance agreement with Mr. Neubauer. The
agreement relates to life insurance policies owned by a trust created by Mr.
Neubauer. Pursuant to the agreement, we pay a substantial portion of the
premiums on the policies, such amounts to be repaid from the proceeds of the
policies upon their termination. At September 28, 2001, the amount outstanding
was $2,260,123. We do not charge interest in each fiscal year on this amount.
However, we capture at least some of the foregone interest because we reduce
the amount of the interest that would otherwise accrue on Mr. Neubauer's
deferred compensation. We hold a security interest in the policies to secure
the repayment of the premium amount paid by us. This arrangement terminates
upon the termination of Mr. Neubauer's employment (other than by reason of his
retirement).
Agreements with Messrs. Leonard, Sutherland, Mulvaney, Zillmer and
Colli. Beginning in 2002, Messrs. Leonard, Sutherland, Mulvaney, Zillmer and
Colli will have annual base salaries of $675,000, $475,000, $425,000, $425,000
and $415,000, respectively.
Severance pay policy. We currently have a severance pay policy, pursuant to
which severance payments are made to executive officers and certain other key
employees on the basis of continuous service, generally equal to between 6 and
18 months of pay if their employment is terminated for reasons other than cause
plus the continuation of certain other benefits during the period of such
payment.
Change in Control Agreements. We are entering into agreements with Messrs.
Leonard, Sutherland, Mulvaney, Zillmer and Colli that provide severance
benefits if the executive's employment is terminated under certain
circumstances in connection with a change in control of the company. In
general, if the executive's employment is terminated by us without cause or if
the executive resigns with good reason (as defined in the agreement), following
a change in control, the executive is entitled to cash severance benefits based
on a multiple of two times the executive's base salary and target bonus (or the
prior year's actual bonus, if higher), a pro rata portion of the target bonus
for the fiscal year of termination, plus cash severance benefits of up to 18
months of pay based on the executive's length of service with the company. The
executive is also entitled to continuation of certain welfare benefits for a
period of 24 months and certain outplacement benefits. Under certain
circumstances, the severance benefits payable under these agreements might
constitute parachute payments subject to federal excise tax, in which case the
executive will receive a gross-up payment to compensate the executive for the
excise taxes.
77
Compensation Committee Interlocks and Insider Participation
Mr. Neubauer serves as a director of Verizon Communications Inc. Mr. Babbio,
who is vice chairman and president of Verizon, is our director and serves on
the Human Resources, Compensation and Public Affairs Committee. The members of
the Human Resources, Compensation and Public Affairs Committee at October 26,
2001 were Messrs. Babbio, Callander, Davenport, Kean and Preston.
The ARAMARK Ownership Program
General. We have designed our ARAMARK Ownership Program to provide an
opportunity for some of our management employees to acquire an ownership
interest in our company and thus give them a more direct continuing interest in
the future success of our business. Under the ARAMARK Ownership Program, direct
ownership in our company has increased from 62 original management investors in
December 1984 to more than 3,500 management investors directly owning
approximately 70% of the equity. At October 26, 2001, management employees and
directors held stock purchase opportunities and options to acquire
approximately 32.0 million shares of our Class A common stock, as adjusted to
reflect the merger.
We have granted management employees an opportunity to invest in, or to
increase their investment in, our company through stock purchase opportunities.
Our senior management is carefully examining our ARAMARK Ownership Program and
is considering possible revisions to the program that would be appropriate for
a publicly held company. Any such revisions would be subject to review and the
approval of our board of directors or our Human Resources, Compensation and
Public Affairs Committee, and depending upon the proposal, could also be
subject to the approval of our stockholders. Any such revised terms of the
program could differ materially from the description contained herein.
Purchase Price. The purchase price for shares subject to stock purchase
opportunities is currently the appraisal price of the shares (based upon the
most recent available independent appraisal) on the date of the grant. When we
issue shares through an exercise of purchase opportunities, these shares are
subject to the stockholders' agreement. Generally, purchase opportunities are
not transferable, and only the employee to whom each purchase opportunity is
granted may exercise it. In connection with the stockholder vote on the merger,
we are seeking the termination of the stockholders' agreement.
Installment Stock Purchase Opportunity. Each installment stock purchase
opportunity (ISPO) that we grant has an installment schedule that limits the
number of shares of common stock that may be purchased during each annual
installment period. Unless the employee exercises the first installment before
its expiration date by purchasing a minimum number of shares, the entire
installment purchase opportunity is canceled. If the employee does exercise the
first installment, subsequent annual installments may be exercised, as long as
the employee exercises for a certain minimum number of shares, for up to the
maximum number of shares specified in the installment certificate. If the
employee does not exercise a portion of his or her annual installment by the
appropriate expiration date, the installment is canceled. Each installment
stock purchase opportunity is exercisable only while the holder is an employee
or director of our company or a subsidiary.
Cumulative Installment Stock Purchase Opportunity. We also grant cumulative
ISPOs, which are similar to regular ISPOs except that if a portion of an annual
installment is not exercised during the corresponding exercise period, then it
becomes vested and is not canceled, and may be exercised during any subsequent
exercise period. Other stock purchase opportunities, similar to cumulative
ISPOs, provide that once vested, the entire opportunity or a portion (in 100
share increments) may be exercised during any of the specified annual exercise
periods. Upon termination of employment, an employee can exercise his or her
stock purchase opportunity if it is vested, within three months after
termination (but not beyond its expiration date). If it is not vested at such
time, the purchase opportunity is canceled.
Deferred Payment Program. In connection with the exercise of ISPOs and non-
qualified stock options, we have adopted a deferred payment program whereby an
employee may choose to defer a portion of the
78
purchase price for certain installments for approximately three years. We have
in the past renewed these loans. We have sold to a financial institution most
of the outstanding deferred payment obligations previously received. The
deferred payment obligation is a full recourse obligation of the employee,
accrues interest, and is secured by a pledge of shares of common stock. The
interest rate for deferred payment obligations received in the most recent
exercise period was set at 8.5%. Approximately 750 employees (including
executive officers) are currently participating in the program. At September
28, 2001, the amount of the deferred payment obligations of Messrs. Neubauer,
Leonard, Sutherland, Mulvaney, Zillmer and Colli were $8,495,733, $3,767,918,
$3,501,861, $2,669,679, $1,151,885 and $40,622, respectively. At September 28,
2001, all deferred payment obligations had been sold to financial institutions.
In connection with this offering, our board of directors has adopted a new
2001 Equity Incentive Plan and a 2001 Stock Unit Retirement Plan. From time to
time after completion of this offering, we intend to issue new options and
other equity incentives under these plans, and not to issue additional options
or deferred stock units under plans that were in effect prior to this merger.
The 2001 Equity Incentive Plan
Our Board of Directors has adopted the ARAMARK 2001 Equity Incentive Plan.
The 2001 Equity Incentive Plan will form a part of the ARAMARK Ownership
Program described above, and will be the source of new equity-based awards
following this offering. The 2001 Equity Incentive Plan will permit us to grant
to our key employees, directors and consultants incentive stock options, non-
qualified stock options, reload stock options, stock appreciation rights,
restricted stock, performance-based awards and other awards based on our Class
A and Class B common stock.
Administration. Our Human Resources, Compensation and Public Affairs
Committee will administer the 2001 Equity Incentive Plan. The committee may
delegate its authority under the 2001 Equity Incentive Plan in whole or in part
as it determines, including to a subcommittee consisting solely of at least two
outside directors within the meaning of Section 162(m) of the Internal Revenue
Code. The committee will determine who will receive awards under the 2001
Equity Incentive Plan, as well as the form of the awards, the number of shares
underlying the awards, and the terms and conditions of the award consistent
with the terms of the plan.
Shares Reserved for Awards and Limits on Awards. The total number of shares
of our Class A and Class B common stock available under the 2001 Equity
Incentive Plan initially will be 30 million, with an additional 3% of our
common stock outstanding as of the end of the prior calendar year becoming
available under the plan on each January 1 following the adoption of the plan.
Awards may be issued in respect of Class B common stock, in lieu of Class A
common stock.
Under the 2001 Equity Incentive Plan, no participant may receive an award
that relates to more than 3 million shares of our Class A or Class B common
stock in any calendar year; the maximum amount of a performance-based award is
limited to $10 million in any calendar year; and the maximum number of shares
that may be used to award incentive stock options under the 2001 Equity
Incentive Plan is 30 million shares in the aggregate.
The number of shares of our Class A or Class B common stock issued or
reserved pursuant to the 2001 Equity Incentive Plan, the maximum individual
award and the number of shares issuable pursuant to outstanding awards, are
subject to adjustment on account of stock splits, stock dividends and other
dilutive changes in the relevant class of common stock. Class A common stock
and Class B common stock covered by awards that terminate, lapse, or are
cancelled will again be available for the grant of awards under the 2001 Equity
Incentive Plan.
Stock Options. The 2001 Equity Incentive Plan will permit the committee to
grant key employees incentive stock options, which qualify for special tax
treatment in the U.S., and to key employees, directors and consultants
nonqualified stock options. The committee will establish the duration of each
option at the time it is
79
granted. The maximum duration of an incentive stock option is ten years after
the date of grant. The exercise price of an incentive stock option may not be
less than the fair market value of the underlying common stock on the date of
grant. The committee may establish vesting and performance requirements that
must be met prior to the exercise of options.
Stock option grants may include provisions that permit the option holder to
exercise all or part of the holder's vested options, or to satisfy withholding
tax liabilities, by tendering shares of our Class A common stock or Class B
common stock, as applicable, already owned by the option holder for at least
six months (or another period consistent with the applicable accounting rules).
Stock option grants also may include provisions that permit the option holder
to exercise all or part of the holder's vested options through a cashless
exercise procedure, which requires the delivery of irrevocable instructions to
a broker to sell the shares obtained upon exercise of the option and deliver
promptly to us the proceeds of the sale equal to the exercise price of the
common stock being purchased plus any required tax withholding.
Stock Appreciation Rights. The committee also may grant stock appreciation
rights, either singly or in tandem with underlying stock options. Stock
appreciation rights entitle the holder upon exercise to receive an amount in
any combination of cash or shares of our Class A or Class B common stock (as
determined by the committee) equal in value to the excess of the fair market
value of the shares over the grant price.
Performance Standards and Section 162(m). Performance criteria for
performance-based awards under the 2001 Equity Incentive Plan may relate to any
combination of the total corporation, a subsidiary, and/or any business unit.
Performance targets may be set at a specific level or may be expressed relative
to measures at comparison companies or a defined index. The committee can
establish specific targets for recipients.
In general, Section 162(m) of the Internal Revenue Code prevents the
deductibility of compensation in excess of one million dollars paid in any
taxable year to an individual who on the last day of that year is the company's
chief executive officer or is among its four other most highly compensated
executive officers, except that a deduction may be taken for compensation that
qualifies as performance-based compensation under Section 162(m). Options
granted at fair market value ordinarily satisfy the performance-based
requirements of Section 162(m), if shareholder disclosure and approval
requirements are met. If restricted stock or performance-based awards are
intended to satisfy Section 162(m) deductibility requirements, payments under
such awards must be conditioned on attainment of pre-established objective
performance measures that have been established and certified by a committee of
outside directors and approved by shareholders. The performance criteria that
may be utilized under the 2001 Equity Incentive Plan are: earnings before
interest and taxes, income, net income, earnings per share, book value per
share, total shareholder return, return on shareholder's equity, expense
management, return on investment, improvements in capital structure,
profitability, profit margins, stock price, market share, sales, cost, cash
flow, operating cash flow, free cash flow, working capital, return on assets,
total business return and return on gross investment.
Reload Options. The committee may grant a reload option that permits the
option holder to purchase a number of shares of our Class A common stock or
Class B common stock, as applicable, equal to the number of shares of common
stock delivered by the option holder to exercise the underlying option.
Other Stock-Based Awards. The 2001 Equity Incentive Plan also will permit
the committee to grant awards that are valued by reference to, or otherwise
based on the fair market value of, our Class A common stock and/or Class B
common stock. These awards will be in such form and subject to such conditions,
as the committee may determine, including the satisfaction of performance
goals, the completion of periods of service or the occurrence of events.
Change-in-Control Provisions. The committee may provide that, in the event
of a change in control, any outstanding awards that are unexercisable or
otherwise unvested will become fully vested and immediately exercisable, and
may, in its sole discretion, provide for the termination of an award upon the
consummation of the change of control and the payment of a cash amount in
exchange for the cancellation of an award, and/or
80
the issuance of substitute awards that will substantially preserve the
otherwise applicable terms of any affected award.
Amendment. Our board of directors may amend the 2001 Equity Incentive Plan
at any time, provided that no amendment will be made that (i) would increase
the number of shares available for awards under the Plan or (ii) diminishes the
rights of the holder of any award, and except that the committee may amend the
plan in such manner as it deems necessary to permit awards to meet the
requirements of the Internal Revenue Code or other applicable laws.
Director Awards. Non-employee directors are eligible to receive awards under
the 2001 Equity Incentive Plan, including awards of non-qualified stock options
and, beginning in 2002, awards in the form of deferred stock instead of an
immediate cash retainer. See "--Compensation of Directors" for a description of
the options and deferred stock awards we anticipate awarding to non-employee
directors in fiscal 2002. Our board of directors has the ability to modify the
terms of options and deferred stock awards described in that paragraph.
United States Federal Income Tax Consequences of the Exercise of Options and
Stock Appreciation Rights under the 2001 Equity Incentive Plan. The following
discussion of the United States federal income tax consequences relating to the
2001 Equity Incentive Plan is based on present United States federal tax laws
and regulations and does not purport to be a complete description of the United
States federal tax laws. Participants may also be subject to certain U.S. state
and local taxes and non-U.S. taxes, which are not described below.
When a nonqualified stock option is granted, there are no income tax
consequences for the option holder or us. When a nonqualified stock option is
exercised, in general, the option holder recognizes compensation equal to the
excess, if any, of the fair market value of the underlying class of common
stock on the date of exercise over the exercise price. We are entitled to a
deduction equal to the compensation recognized by the option holder.
When an incentive stock option is granted, there are no income tax
consequences for the option holder or us. When an incentive stock option is
exercised, the option holder does not recognize income and we do not receive a
deduction. The option holder, however, must treat the excess, if any, of the
fair market value of the underlying class of common stock on the date of
exercise over the exercise price as an item of adjustment for purposes of the
alternative minimum tax. If the option holder disposes of the shares after the
option holder has held them for at least two years after the incentive stock
option was granted and one year after the incentive stock option was exercised,
the amount the option holder receives upon the disposition over the exercise
price is treated as long-term capital gain to the option holder. We are not
entitled to a deduction. If the option holder makes a "disqualifying
disposition" of the stock by disposing of the stock before the stock has been
held for the holding period described above, the option holder generally
recognizes compensation income equal to the excess, if any, of (1) the fair
market value of the stock on the date of exercise, or, if less, the amount
received on the disposition, over (2) the exercise price. We are generally
entitled to a deduction equal to the compensation recognized by the option
holder.
When a stock appreciation right is granted, there are no income tax
consequences for the participant or us. When a stock appreciation right is
exercised, in general, the participant recognizes compensation equal to the
cash and/or the fair market value of the stock received on exercise. We are
entitled to a deduction equal to the compensation recognized by the
participant.
In general, other types of awards that may be issued under the 2001 Equity
Incentive Plan are taxable to the individual upon receipt, except that awards
of restricted stock are taxable to the individual on the date the shares vest,
or on the date of receipt if the individual makes an election under Section
83(b) of the Internal Revenue Code.
Retirement Savings Plans
General. Our Retirement Savings Plan (RSP) and Uniform and Career Apparel
Group Retirement Savings (AUCA) Plan are defined contribution plans intended to
qualify under Section 401(a) of the Internal
81
Revenue Code. These plans also are collectively referred to as the 401(k)
Plans. Substantially all of our U.S., non-union, full-time salaried employees
are eligible to participate in one of these plans, except that highly
compensated salaried employees no longer are eligible to participate in our
RSP, but may be eligible to participate in our Stock Unit Retirement Plan, as
described below.
Contributions. Employees participating in the RSP or the AUCA Plan may make
elective pre-tax salary contributions of up to 15% of their eligible earnings,
subject to statutory prescribed annual limits. We make annual matching
contributions to the RSP based on the first 6% of a participating employee's
earnings, ranging from 25% to 75% of the employee's contributions. We also make
matching contributions to the AUCA Plan each quarter in an amount equal to 100%
of the first 2% of a participating employee's earnings, and 25% of the next 4%
of the employee's earnings. At the end of each plan year under the AUCA Plan,
we also may make an additional matching contribution to participating employees
who contributed at least 2% of their earnings. This contribution could range up
to 50% of the participating employee's contributions, up to 6% of the
employee's earnings. Company matching contributions have historically been made
in shares of our Class A common stock. We anticipate that, after completion of
this offering, our matching contributions under the RSP and AUCA Plan will be
made in shares of Class A common stock and Class B common stock. All of our
matching contributions are subject to prescribed annual limits.
Vesting. Employee contributions to the RSP and the AUCA Plan are always
immediately 100% vested. Our matching contributions under the RSP vest fully
after two years of plan participation or five years of service with us,
whichever occurs first. Our matching contributions under the AUCA Plan vest
annually over a six year period of service with us.
Investments, Voting and Trust. Each employee's contributions, our matching
contributions and any investment earnings, are generally not taxable to
participating employees until withdrawn. All contributions under the RSP and
the AUCA Plan are held in trust as required by law. U.S. Trust Company, N.A. is
the independent trustee of the company stock fund portion of the RSP and the
AUCA Plan. Participating employees may direct the investment of their employee
contributions among authorized investment alternatives under the relevant plan.
Participating employees also may instruct the trustee how to vote the shares of
our common stock held on their behalf under the RSP or AUCA Plan with respect
to major corporate transactions. For example, the plan participants will
instruct the trustee how to vote in the merger that will occur immediately
prior to this offering.
Other Plans. In addition to the RSP and the AUCA Plan, we sponsor or
contribute to a number of other tax-qualified savings and pension plans, none
of which currently holds any shares of our common stock. These plans include
our Money Purchase Retirement Plan for Non-Salaried Employees, our Capital
Accumulation Plan, our Pension Plan for Non-Salaried Employees, and our Uniform
Retirement (Pension) Plan.
Stock Unit Retirement Plan
Our Stock Unit Retirement Plan, or SURP, is a non-qualified retirement plan
for highly compensated employees who are not eligible to participate in any
company-sponsored qualified retirement plan. The SURP is intended to provide to
participants benefits similar to those provided to participating employees in
our RSP. Participants in the SURP may defer up to 15% of their earnings, with
interest deemed to accrue on those deferrals. We credit each participant's
account with a matching contribution annually, equal to between 25% and 75% of
the participant's first 6% of compensation deferred in that year and limited to
the same maximum as our RSP. Our matching contributions historically have been
made in deferred stock units, which are substantially equivalent to an
investment in our Class A common stock, as adjusted to reflect the merger.
Deferred compensation, deemed interest and shares of stock are distributed to
the participant at the time of the participant's termination of employment,
unless deferred by the participant. Employee deferrals are immediately 100%
vested. Matching contributions generally vest following two years of
participation or five years of service. Distributed shares have historically
been subject to a stockholders' agreement, and our policy prior to this
offering has been to repurchase such shares shortly after their distribution at
their then-current appraisal price. In connection with the stockholder vote on
the merger, we are seeking the termination of the stockholders' agreement.
82
The SURP, unlike the Retirement Savings Plan, is an unfunded plan. The
amounts payable as benefits are not set aside, but rather are carried on our
books as unsecured liabilities. Similarly, the deferred stock units are not
outstanding shares, but rather are obligations to issue shares in the future.
In connection with this offering, the SURP will be frozen for new deferrals
and contributions. Upon completion of this offering, future deferrals (and any
matching contributions on those deferrals) will be made under the new 2001
Stock Unit Retirement Plan described below.
2001 SURP
Our board of directors has adopted the 2001 Stock Unit Retirement Plan, or
2001 SURP. The 2001 SURP is a non-qualified retirement plan for highly
compensated employees who are not eligible to participate in any company-
sponsored qualified retirement plan. The 2001 SURP is intended to provide
participants with benefits similar to those provided under the RSP. Upon
completion of the offering, participants will be allowed to defer up to 15% of
their earnings, with interest deemed to accrue on those deferrals. It is
anticipated that we will match contributions in deferred stock units, which
will be substantially equivalent to an investment in our Class B common stock.
It also is anticipated that matching contributions will equal between 25% and
75% of the participant's first 6% of compensation deferred in a plan year,
limited by the same maximum as our RSP. Deferred compensation, deemed interest
and shares of stock will be distributed to the participant at the time of the
participant's termination of employment, unless deferred by the participant.
Employee deferrals are immediately 100% vested. Matching contributions
generally vest following two years of participation or five years of service.
Upon a change in control of ARAMARK, existing account balances under the 2001
SURP become fully vested. The 2001 SURP is an unfunded plan. The amounts
payable as benefits will not be set aside, but rather will be carried on our
books as unsecured liabilities. Similarly, the deferred stock units will not be
outstanding shares, but will be obligations to issue shares in the future.
Senior Executive Annual Performance Bonus Arrangement
General. The Senior Executive Annual Performance Bonus Arrangement, or bonus
arrangement, provides for an annual performance bonus for the chief executive
officer (CEO) and any other of our designated executive officers upon the
attainment of pre-established performance goals, which annual performance bonus
is intended to be excludable from the computation of compensation for purposes
of the U.S. income tax deductibility limitation on executive officer
compensation.
Background. Current U.S. income tax laws deny a deduction for certain
compensation in excess of one million dollars per year paid to a company's
chief executive officer and its four other most highly compensated executive
officers. Certain compensation, including compensation based on the achievement
of pre-established performance goals (performance-based compensation), is not
subject to this deduction limit. For compensation to qualify for the
performance-based compensation exclusion, the material terms pursuant to which
the performance-based compensation is to be paid, including the performance
goals, must be disclosed to, and approved by, the stockholders prior to the
payment.
The bonus arrangement is designed to qualify as performance-based
compensation under current U.S. income tax laws. Participants in the bonus
arrangement for any fiscal year may not also participate in our management
incentive bonus plan (described below) for the same fiscal year. However, the
bonus arrangement does not limit the ability of the board of directors to adopt
any additional bonus plan or to pay any other compensation, including any
additional bonus, to any executive officer or other employee. Any such
additional bonus would not be considered performance-based compensation unless
it complied with the stockholder approval and other requirements of U.S. income
tax laws.
Description of the Bonus Arrangement. The Human Resources, Compensation and
Public Affairs Committee has been designated by the board of directors to
administer the provisions of the bonus arrangement. The board of directors
retains the authority to designate a different committee to administer the
bonus arrangement. In any event, only members of the committee who are
independent directors may vote on
83
matters relating to the bonus arrangement. The committee is required generally
to designate participants and, for each participant, to set one or more
performance goals for a fiscal year not later than 90 days after the beginning
of such fiscal year.
The committee may designate as participants for any fiscal year any of our
executive officers. This designation may vary from year to year, and it is
anticipated that it will be based primarily on the committee's judgment as to
which executive officers are likely to be named in our proxy statement and are
expected to have compensation in excess of $1 million. For fiscal 2001, the
committee has designated Mr. Leonard as a participant, in addition to Mr.
Neubauer.
Under the bonus arrangement, the annual performance goals, which may differ
for each participant, must be based on attainment of target levels of, or a
targeted percentage increase in, one or more of the following company or
business group criteria: earnings before interest and taxes (EBIT), return on
net assets (RONA), net income, after tax return on investment (ATROI), sales,
revenues, earnings per share, total shareholder return, return on equity (ROE),
return on investment (ROI), total business return, return on gross investment
(ROGI), operating cash flow or free cash flow. The maximum annual performance
bonus payable to any participant in respect of any fiscal year under the bonus
arrangement is three million dollars, or such lesser amount as may be set by
the committee for such participant at the time it establishes the annual
performance goals. The committee may increase the attainment of performance
goals to offset (a) a change in accounting standards, (b) a significant
acquisition or divestiture, (c) a significant capital transaction, or (d) any
other unusual, nonrecurring items that are separately identified and quantified
in our audited financial statements, so long as such accounting change is
required or such transaction or nonrecurring item occurs after the goals for
the fiscal year are established. The committee in its sole discretion may
reduce, but may not increase, the amount of the annual performance bonus that
would be otherwise payable under the bonus arrangement. In making this
determination, the committee may take into consideration any and all factors
relating to our performance and the participant's performance for such fiscal
year.
The committee may, without further action by the stockholders, amend the
bonus arrangement from time to time as it deems desirable, provided that no
such amendment may increase the employees who may be designated as participants
under the bonus arrangement, change the permitted performance measures,
increase the maximum bonus payable under the bonus arrangement, or make any
other change requiring further approval under U.S. income tax laws. The bonus
arrangement, unless earlier terminated, is effective for each of the five
fiscal years 1999 through 2003. The board may, in its discretion, terminate the
bonus arrangement at any time.
Management Incentive Bonus Plan
Certain of our senior executive officers participate in a management
incentive bonus program. Bonuses under this program are awarded annually based,
in part, upon the attainment of predetermined financial goals and, in part,
upon the attainment of individual objectives. Generally, non-financial
objectives represent 30% of the bonus potential and are established by the
supervisor of the executive. Financial goals generally represent 70% of the
bonus potential. An executive's bonus under the management incentive bonus
program potential generally varies as a percentage of total cash compensation,
dependent upon the level of responsibility of the employee's position. The
measures of financial performance used are for the business unit that is either
under the managerial direction of the participant or, if a staff executive, is
the unit on which the participant impacts most frequently and significantly. In
the case of Messrs. Neubauer and Leonard, the committee awards bonuses pursuant
to our Senior Executive Annual Performance Bonus Arrangement (described above)
rather than the management incentive bonus program.
84
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of November 14, 2001, and as adjusted to
reflect the merger, by:
. each person known to us to be the beneficial owner of more than 5% of
either class of the common stock;
. each of our named executive officers;
. each director; and
. all current directors and executive officers as a group.
Please note that after this offering and subject to the applicable
restricted periods, the shares of Class A common stock will convert into shares
of Class B common stock on a one-for-one basis upon their transfer to entities
that are not permitted transferees.
In presenting the information below, we do not give effect to the stock
buyback and we have assumed that the underwriters will not exercise their right
to purchase additional shares of common stock from us.
<TABLE>
<CAPTION>
Shares Beneficially Owned
After this Offering
---------------------------
Class B
Class A Common
Common Stock Stock
---------------- ----------
Name of Beneficial Owner Shares (1) % Shares %
------------------------ ----------- ---- ------ ---
<S> <C> <C> <C> <C>
Trustee for the RSP and the AUCA Plan(2).......... 32,767,000 19.6 -- --
Blum RMK, L.P.(3)................................. 6,757,980 4.0 -- --
Joseph Neubauer(4)................................ 28,825,392 17.3 -- --
Lawrence T. Babbio, Jr. .......................... 140,000 * -- --
Patricia C. Barron................................ 248,100 * -- --
Robert J. Callander............................... 544,576 * -- --
Leonard S. Coleman, Jr............................ 64,000 * -- --
Ronald R. Davenport............................... 204,000 * -- --
Edward G. Jordan.................................. 630,000 * -- --
Thomas H. Kean.................................... 786,000 * -- --
James E. Ksansnak................................. 4,361,654 2.6 -- --
James E. Preston.................................. 900,000 * -- --
Karl M. von der Heyden............................ 0 * -- --
William Leonard................................... 4,301,062 2.6 -- --
L. Frederick Sutherland........................... 3,665,172 2.2 -- --
Brian G. Mulvaney................................. 2,097,644 1.3 -- --
John J. Zillmer................................... 955,126 * -- --
Bart J. Colli..................................... 127,500 * -- --
All directors and executive officers as a group
(22 persons)..................................... 50,801,522 30.2 -- --
All employees, directors and employee benefit
plans as a group(5).............................. 159,729,280 90.4 -- --
</TABLE>
--------
(1) The share amounts for each of the beneficial owners listed include shares
issuable upon the exercise of stock purchase opportunities and options
that are exercisable within 60 days of November 14, 2001 in the following
amounts, as adjusted for the merger: 90,000 shares by Mr. Neubauer, 60,000
shares by Mr. Babbio, 141,894 shares by Ms. Barron, no shares by Mr.
Callander, 24,000 shares by Mr. Coleman, no
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shares by Mr. Davenport, no shares by Mr. Jordan, no shares by Mr. Kean,
no shares by Mr. Ksansnak, no shares by Mr. Preston, no shares by Mr. von
der Heyden, 126,000 shares by Mr. Leonard, 75,000 shares by Mr.
Sutherland, 446,500 shares by Mr. Mulvaney, 90,500 shares by Mr. Zillmer,
49,500 shares by Mr. Colli, 1,252,994 shares by all directors and
executive officers as a group, and 9,742,416 shares by all employees,
directors and employee benefit plan as a group.
(2) The independent trustee of the company stock fund portion of the RSP and
the AUCA Plan is U.S. Trust Company, N.A. The independent trustee's
address is 14 West 47th Street, New York, NY 10036. With respect to
matters relating to certain significant corporate events, the vote is
passed through by the independent trustee to the participant in the
relevant plan. For example, the participants will vote in the merger.
Approximately 6,968 participants of the RSP are eligible to vote on the
merger, and approximately 5,828 participants of the AUCA Plan are eligible
to vote on the merger.
(3) The address of this stockholder is 909 Montgomery Street, Suite 400, San
Francisco, CA 94133. These shares are held of record by MetLife/Blum RMK
Holdings, LLC.
(4) The address of this stockholder is ARAMARK Corporation, ARAMARK Tower,
1101 Market Street, Philadelphia, PA 19107. This number of shares includes
26,361,960 shares held by Mr. Neubauer in his individual capacity and
2,373,432 shares held by The Neubauer Family Foundation of which Mr.
Neubauer is the sole trustee and has sole power to vote and dispose or
direct a disposition of such shares. This number of shares does not
include shares held by certain trusts for the benefit of family members
with respect to which Mr. Neubauer has no voting or dispositive power and
disclaims beneficial ownership.
(5) Includes permitted transferees (primarily children and other transferees
for estate planning purposes).
* Less than 1%.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following are descriptions of the terms of agreements to which we or
certain related persons are a party. We also refer you to the actual
agreements, copies of which have either been filed with the SEC as exhibits to
the registration statement of which this prospectus is a part or are available
from us.
Stockholders' Agreement
Pursuant to the stockholders' agreement whereby we have certain call rights
upon termination of employment and certain rights of first refusal, during
fiscal 2001, we repurchased from 8 current and/or former executive officers and
directors and/or their permitted transferees 303,408 shares of our new Class A
common stock at an average price per share of $9.48, each, as adjusted to
reflect the merger. We anticipate that, after this offering, we may not
continue to repurchase shares held by officers and directors following their
termination of employment or cessation as a director. In addition, the
stockholders' agreement also grants certain of our stockholders party thereto
the right to put a portion of their shares to us upon certain events. In
connection with the stockholder vote on the merger, we are seeking the
termination of the stockholders' agreement.
Registration Rights Agreement
Prior to this offering, we and certain of our old Class A stockholders
(collectively, the outside investors) were parties to a registration rights
agreement. The registration rights agreement provided, subject to a number of
conditions and limitations, demand registration rights to our outside
investors. In accordance with these demand registration rights, a certain
aggregate percentage of the outside investors may have required us to file a
registration statement under the Securities Act to register the sale of shares
of our old Class A common stock held by them. The registration rights agreement
also provided, subject to a number of conditions and limitations, the outside
investors with unlimited piggy-back registration rights, which allowed them to
participate in registered offerings of shares of our common stock initiated by
us.
Under the registration rights agreement, we were required to pay all
expenses in connection with any registered offering covered by the agreement.
In addition, we were required to indemnify the outside investors, and they in
turn were required to indemnify us, against certain liabilities in respect of
any registration statement or offering covered by the registration rights
agreement.
Although by its terms the registration rights agreement terminates upon the
consummation of the merger, in anticipation of this offering and to ensure that
no ambiguities exist with respect to the termination of the piggy-back
registration rights, we solicited and have obtained waivers of these
registration rights and confirmation of the termination of the agreement upon
consummation of the merger.
Neubauer Registration Rights Agreement
In exchange for Mr. Neubauer's agreement to relinquish the right under his
employment agreement to the benefits of the provisions of the stockholders'
agreement as in effect on the date hereof even upon their modification or
termination, we will enter into a registration rights agreement with Mr.
Neubauer, the Neubauer Family Foundation and certain trusts of which Mr.
Neubauer is the settlor. Under the registration rights agreement, we have
granted Mr. Neubauer and those related parties three demand rights and
unlimited piggyback registration rights. Mr. Neubauer and those related parties
may exercise demand registration rights with respect to their shares of common
stock for which restricted periods have expired or do not apply, at any time
after 360 days after pricing of this offering and with respect to all of their
shares at any time after 540 days after pricing of this offering or, subject to
the prior consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc., at
any time after 180 days and before 360 days after pricing of this offering. In
addition, Mr. Neubauer's estate may exercise demand registration rights with
respect to his shares of common stock in certain limited circumstances at any
time after 180 days and before 360 days after pricing of this offering.
Mr. Neubauer and those related parties also have unlimited piggyback
registration rights with respect to their
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shares of common stock for which restricted periods have expired or do not
apply, that commence on the 181st day after pricing of this offering. The
provisions of the registration rights agreement with Mr. Neubauer will not
override the applicable transfer restrictions in our certificate of
incorporation. Further, we anticipate that, as part of this arrangement with
Mr. Neubauer, our board of directors will approve the transfer by Mr. Neubauer
of up to 1.5 million shares of Class A common stock to charitable organizations
and the conversion of such shares into unrestricted Class B common stock. Such
transfer will be an exception to the lock-up arrangement with the underwriters.
Mr. Neubauer is making the contributions in connection with the proposed
transactions for personal tax planning purposes.
Other Transactions
In March 2000, we acquired from James E. Ksansnak, our director and former
vice chairman, approximately 80% of the capital stock of a corporation owned by
Mr. Ksansnak for nominal consideration. We terminated that corporation's 401(k)
plan and distributed 1,291,826 shares of our Class A common stock, as adjusted
to reflect the merger, held by the plan to Mr. Ksansnak, as the plan's sole
participant. Mr. Ksansnak is providing consulting services to us with respect
to our Educational Resources segment for which he has been compensated. At
September 28, 2001, Mr. Ksansnak had outstanding deferred payment obligations
of $975,605.
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THE MERGER AND THE STOCK BUYBACK
The completion of the merger described below is a condition to the
consummation of this offering.
The Merger
Prior to this offering, ARAMARK Corporation will merge with and into ARAMARK
Worldwide Corporation, its wholly owned subsidiary. In the merger:
. each share of old outstanding Class A common stock will convert into
twenty shares of Class A-1 common stock.
. each share of old outstanding Class B common stock will convert into two
shares of Class A common stock. Of each stockholder's shares of old
Class B common stock, as nearly as possible:
-- one-third will be converted into shares of Class A-1 common stock,
-- one-third will be converted into shares of Class A-2 common stock, and
-- one-third will be converted into shares of Class A-3 common stock.
. each share of Class A common stock is identical except for applicable
restricted periods, and each share of Class B common stock is identical
except for applicable restricted periods. At the conclusion of the
applicable restricted periods, the Class B-1, Class B-2 and Class B-3
shares convert into Class B shares that are freely transferable. Shares
of Class A common stock will not be transferable other than in a
permitted transfer until the applicable restricted periods expire.
Shares of Class A common stock will automatically convert into freely
transferable shares of Class B stock upon transfer, with some limited
exceptions. Pursuant to ARAMARK's new certificate of incorporation,
stockholders also will be prohibited from entering into any swap or
other arrangement (including contracting to sell, selling, transferring,
pledging, granting of any option to purchase, making any short sale or
otherwise disposing of any shares) that transfers to another, in whole
or in part, any of the economic consequences of ownership of any class
of common stock, in each case other than permitted transfers. However,
if such person holds during the entire time of the relevant transaction,
shares with respect to which restricted periods have expired or do not
apply, such transaction may involve only up to the number of such
unrestricted shares.
After this offering but without giving effect to the stock buyback and
assuming no Class A-1, Class A-2 or Class A-3 shareholders convert their shares
to Class B-1, Class B-2 or Class B-3 shares:
. shares of Class A common stock will constitute about 85% of our total
outstanding common stock and about 98% of our total voting power; and
. shares of Class B common stock will constitute about 15% of our total
outstanding common stock and about 2% of our total voting power.
We will not complete this offering unless we complete the merger. We will
complete the merger only if each of the following conditions, among others, is
satisfied or waived (if permitted):
. A majority of the total votes entitled to be cast by the holders of the
outstanding shares of old Class A common stock and old Class B common
stock, voting as a single class, are voted in favor of the adoption of
the merger agreement;
. The number of shares of our old Class A common stock that are issued and
outstanding immediately prior to the stockholder vote regarding the
merger and that are held by dissenting stockholders who have not voted
to adopt the merger agreement and who are entitled to demand and have
delivered a written demand for appraisal of such shares of our old Class
A common stock shall not exceed 5% of the issued and outstanding shares
of our old Class A common stock on such date immediately prior to the
effective date of the merger.
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The Stock Buyback
After this offering, we intend to use approximately 56% of the gross
proceeds of this offering (assuming the stock buyback is completed at the
public offering price) to fund the stock buyback, which consists of a cash
tender offer for a portion of our outstanding shares of Class A common stock
outstanding after the merger and a repurchase of shares of our Class A common
stock from the 401(k) Plans. We intend for the stock buyback to comprise the
second step of a "synthetic secondary offering," a primary offering followed by
stock purchases using the proceeds of the public offering to accomplish
substantially the same goal as allowing existing stockholders to participate in
the public offering. We intend to purchase 10% in the aggregate of the
outstanding shares of our Class A common stock in the stock buyback. We may
increase the target percentage for the stock buyback to above 10%, but the
aggregate funds to be used in the stock buyback will not exceed 75% of the
gross proceeds from this offering.
We currently intend to launch the tender offer as soon as practicable after
the close of this offering. We will determine the tender offer price, which may
be at or above the public offering price and at, above or below the market
price at the time of the tender offer. In the tender offer, each Class A
stockholder will be permitted to tender up to 13% of his or her shares of Class
A common stock. If the tender offer is fully subscribed by all Class A
stockholders, we will accept no more than 10% (the currently anticipated target
percentage) of each Class A stockholder's shares. In this manner, tenders of up
to 10% of a stockholder's shares will be accepted, and to the extent some
stockholders tender less than 10% of their shares of Class A common stock, then
this shortfall will be allocated to the stockholders that have tendered more
than the 10% amount (but no more than 13%) on a pro rata basis. The amount
tendered by a Class A stockholder in the tender offer may consist of no more
than one-third of Class A-2 common stock and no more than one-third of Class A-
3 common stock; however a holder may tender stock that consists entirely of
Class A-1 common stock. The Class B common stock sold in this offering cannot
be tendered in the tender offer.
In the repurchase from the 401(k) Plans, we currently intend to agree, on
the date we execute the underwriting agreement relating to this offering, to
acquire up to 10% of the Class A common stock held by the 401(k) Plans, but we
may increase that percentage to equal the target percentage for the tender
offer in the event that target percentage is increased to above 10%. In
exchange for entering into this contract, the trustee for the 401(k) Plans will
agree not to tender in the tender offer. We anticipate that the price per share
under the contract with the 401(k) Plans will equal the public offering price.
However, if we tender for shares of Class A common stock in the tender offer at
a price higher than the public offering price, we will either make an
additional payment to the trustee for the difference on the date the tender
offer closes or we will return a portion of the shares sold to us by the 401(k)
Plans so that the effective price per share we pay under the contract equals
the tender offer price. Since the repurchase of shares under the contract with
the 401(k) Plans will close prior to the commencement of the tender offer, we
will complete the repurchase of shares from the 401(k) Plans, even in the
unlikely event we elect not to proceed with the tender offer.
If the price per share in the stock buyback exceeds the public offering
price per share of our unrestricted Class B common stock by an amount such that
the aggregate consideration for all shares purchased in the stock buyback would
exceed 75% of the gross proceeds from this offering, we will reduce the maximum
number of shares of our Class A common stock that may be tendered in the tender
offer and return shares of Class A common stock to the 401(k) Plans to limit
the aggregate consideration for all shares purchased in the stock buyback to
75% of the gross proceeds from this offering.
We will purchase shares in the tender offer pursuant to an offer to purchase
and related materials, which we will distribute when we commence the tender
offer. We will also file a tender offer statement on Schedule TO with the SEC
in connection with the tender offer. We cannot assure you that the tender offer
will occur or that it will occur on the terms described in this prospectus.
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DESCRIPTION OF CAPITAL STOCK, CERTIFICATE OF INCORPORATION AND BYLAWS
The following is a description of the terms of our certificate of
incorporation and bylaws as each will be in effect upon closing of this
offering. We also refer you to our certificate of incorporation and bylaws,
copies of the forms of which have been filed with the SEC as exhibits to the
registration statement of which this prospectus is a part or are available
from us.
Authorized Capitalization
Our capital structure consists of
. 300,000,000 authorized shares of Class A-1 common stock;
. 150,000,000 authorized shares of Class A-2 common stock;
. 150,000,000 authorized shares of Class A-3 common stock;
. 1,000,000,000 authorized shares of unrestricted Class B common stock;
. 300,000,000 authorized shares of Class B-1 common stock;
. 150,000,000 authorized shares of Class B-2 common stock;
. 150,000,000 authorized shares of Class B-3 common stock; and
. 100,000,000 authorized preferred shares, including 600,000 authorized
shares of Series C Junior Participating Preferred Stock and 20,000
authorized shares of Series D preferred stock.
After this offering but prior to the stock buyback, there will be
approximately 87,583,697 Class A-1, 39,874,937 Class A-2, 39,874,937 Class A-
3, 30,000,000 unrestricted Class B common stock, no Class B-1, no Class B-2,
no Class B-3 and no preferred shares outstanding. This assumes that the
underwriters do not exercise their over-allotment option in connection with
this offering. Class A common stock that are converted to Class B common stock
will resume the status of authorized but unissued Class A common stock.
After this offering, there will be outstanding stock purchase
opportunities, options and deferred stock units for about 35,452,810 Class A
common stock and deferred stock units for about 2,163 shares of Series D
preferred stock.
After the expiration of the periods during which transfer restrictions
apply to the Class A-1, Class A-2, Class A-3, Class B-1, Class B-2 and Class
B-3 common stock, our certificate of incorporation will be amended to combine
the unrestricted classes of Class A common stock into one class and to combine
the unrestricted classes of Class B common stock into one class. After this
amendment, our authorized common stock will consist of 600,000,000 authorized
shares of Class A common stock and 1,000,000,000 authorized shares of Class B
common stock. ARAMARK Corporation, as sole stockholder of ARAMARK Worldwide
Corporation, has already executed a written consent to this amendment and,
therefore, no further stockholder action is required.
Description of Our Certificate of Incorporation
This section describes other key provisions of our certificate of
incorporation.
. No Stockholder Action by Written Consent. Our certificate of
incorporation prohibits stockholder action by written consent.
. No Stockholder Ability to Call a Special Meeting. Our certificate of
incorporation provides that special meetings of our stockholders may be
called only by our board of directors or the chairman of our board of
directors.
. Limitation of Director Liability. Our certificate of incorporation
provides that our directors are not liable to our stockholders for
monetary damages for breach of fiduciary duty, except for liability:
--for breach of duty of loyalty;
--for acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law;
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--under Section 174 of the Delaware General Corporation Law (unlawful
dividends); and
--for transactions from which the director derived improper personal
benefit.
. Indemnification of Directors and Officers. Our certificate of
incorporation provides for indemnification of our directors and officers
to the fullest extent authorized by the Delaware General Corporation
Law.
. Classified Board of Directors. Our certificate of incorporation provides
for a classified board of directors.
Comparison of Our Class A Common Stock and Class B Common Stock
The following table compares our Class A common stock and Class B common
stock.
Public Market
Class A, Class B-1,
Class B-2 and Class
B-3 Common Stock:
. None.
Unrestricted Class B
Common Stock:
. Will be listed on the New York Stock
Exchange, subject to official notice of
issuance.
Voting Rights
Class A, Class B-1,
Class B-2 and Class
B-3 Common Stock:
. Ten votes per share on all matters voted
upon by our stockholders (except for Class
B-1, Class B-2 and Class B-3 common stock
which will have only one vote per share).
No cumulative voting in the election of
our directors.
Unrestricted Class B
Common Stock:
. One vote per share on all matters voted
upon by our stockholders. No cumulative
voting in the election of our directors.
Transfer Restrictions
Class A, Class B-1,
Class B-2 and Class
B-3 Common Stock:
Except for permitted transfers:
. Class A-1 common stock may not be
transferred until 180 days after pricing
of this offering;
. Class A-2 common stock may not be
transferred until 360 days after pricing
of this offering; and
. Class A-3 common stock may not be
transferred until 540 days after pricing
of this offering.
Permitted transfers include:
. Conversion transfers, which have the
effect of allowing the shares to convert
into shares of unrestricted Class B common
stock;
. Non-conversion transfers, which have the
effect of retaining both the applicable
restricted periods and the multiple voting
rights; and
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. Charity transfers, which have the effect
of retaining the applicable restricted
periods but not the multiple voting
rights.
In a conversion transfer, shares of Class A
common stock, regardless of whether they
represent shares of Class A-1, Class A-2 or Class
A-3 common stock, will be converted into shares
of unrestricted Class B common stock. Conversion
transfers include:
. with respect to no more than 1,000,000
shares of common stock donated and
transferred, prior to May 25, 2001, to
charitable organizations (including
foundations, schools, colleges,
universities, charitable remainder trusts
and charitable lead trusts), sales by such
charitable organizations following 90 days
after pricing of this offering;
. transfers to us; and
. transfers approved as conversion transfers
by our board of directors, including,
without limitation:
--transfers by Mr. Neubauer of up to 1.5
million shares to private or public
foundations and charities;
--transfers upon the death of an employee
stockholder in order to pay any estate
taxes and expenses on a date as close as
practicable to the tax payment date; or
--transfers in the case of employee
stockholder hardship (such as medical
necessity, family emergencies, etc.).
During the first 180 days after pricing of this
offering, transfers approved by our board of
directors as conversion transfers will be
restricted by the lock-up arrangements with the
underwriters. However, approved transfers by Mr.
Neubauer of up to 1.5 million shares to private or
public foundations and charities and approved
transfers to pay estate taxes and expenses will not
be restricted by the lock-up arrangements with the
underwriters.
In a non-conversion transfer, shares of Class A
common stock, regardless of whether they represent
shares of Class A-1, Class A-2 or Class A-3 common
stock, will not convert into shares of Class B
common stock. Non-conversion transfers include:
. transfers to and among family members of
Class A stockholders and entities
(including trusts, partnerships and
limited liability companies) established
for estate planning or educational
purposes;
. bona fide pledges to us, a commercial
bank, savings and loan institution or any
other lending or financial institution as
security for indebtedness of the holder of
the shares of Class A common stock being
pledged. The pledgee shall be bound by the
applicable transfer restrictions; and
. transfers approved as non-conversion
transfers by our board of directors.
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During the first 180 days after pricing of this
offering, transfers approved by our board of
directors as non-conversion transfers will be
restricted by the lock-up arrangements with the
underwriters.
In a charity transfer, shares of Class A-1, Class
A-2 or Class A-3 common stock will convert into
shares of Class B-1, Class B-2 and Class B-3 common
stock. Charity transfers include transfers to
charitable organizations (including foundations,
schools, colleges, universities, charitable
remainder trusts and charitable lead trusts).
Shares of Class B-1, Class B-2 and Class B-3 common
stock are subject to the same transfer restrictions
and have the benefit of the same exceptions for
conversion transfers, non-conversion transfers and
charity transfers, as appropriate, as shares of
Class A-1, Class A-2 and Class A-3 common stock,
respectively, but do not have multiple voting
rights. At the conclusion of the applicable
restricted periods, shares of Class B-1, Class B-2
and Class B-3 common stock convert into shares of
unrestricted Class B common stock that are freely
transferable.
Holders of restricted shares of Class A-1, Class A-
2, Class A-3, Class B-1, Class B-2 and Class B-3
common stock are also prohibited from entering into
any swap or other arrangement (including
contracting to sell, selling, transferring,
pledging, granting of any option to purchase,
making any short sale or otherwise disposing of any
shares) that transfers to another, in whole or in
part, any of the economic consequences of ownership
of any shares of any class of common stock, in each
case other than permitted transfers. However if
such person holds, during the entire time of the
relevant transaction, shares with respect to which
restricted periods have expired or do not apply,
such transaction may involve only up to the number
of such unrestricted shares.
Unrestricted Class B
Common Stock:
. Shares of our unrestricted Class B common
stock have no transfer restrictions.
Conversion
Class A, Class B-1,
Class B-2 and Class B-3
Common Stock: . Shares of Class A common stock
automatically will convert into shares of
unrestricted Class B common stock upon any
transfer, except for a non-conversion
transfer or a charity transfer.
. Shares of Class A-1, Class A-2 and Class
A-3 common stock held by an employee or a
transferee of such employee (including
transferees who acquired their shares from
employees prior to the merger) will
automatically convert into shares of Class
B-1, Class B-2 and Class B-3 common stock,
respectively, in the event of termination
of employment by such employee upon the
earlier of 180 days after the pricing of
this offering and the date the tender
offer is completed or, if termination of
employment occurs after that date, on the
date of termination of employment.
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. In addition, holders of shares of Class A-
1, Class A-2 and Class A-3 common stock
may convert such shares into shares of
Class B-1, Class B-2 and Class B-3 common
stock, respectively, at any time.
. Except as described above, Class A common
stock may not be converted into
unrestricted Class B common stock for a
period of 180 days, 360 days and 540 days,
respectively, after pricing of this
offering.
Unrestricted Class B
Common Stock:
. Not applicable.
Rights upon Merger,
Consolidation or
Reorganization
Class A, Class B-1,
Class B-2, Class B-3
Common Stock: . In the event that we reorganize, merge or
consolidate with one or more other
corporations, holders of Class A common
stock will be entitled to receive the same
kind and amount of securities or property
that is to be received by holders of Class
B common stock.
Unrestricted Class B
Common Stock:
. In the event that we reorganize, merge or
consolidate with one or more other
corporations, holders of Class B common
stock will be entitled to receive the same
kind and amount of securities or property
that is to be received by holders of Class
A common stock.
Other Rights
Class A, Class B-1,
Class B-2, Class B-3
Common Stock: . No preemptive rights or other subscription
rights.
Unrestricted Class B
Common Stock:
. No preemptive rights or other subscription
rights.
Special Circumstances Not Deemed Transfers
Our certificate of incorporation provides that the entering into of a
voting, tender or like agreement or arrangement in connection with any of our
shares or securities will not be deemed to constitute a transfer where such
agreement or arrangement;
. is entered into by a holder or holders of such shares or securities and
one or more third parties in connection with a potential business
combination involving us; and
. has been approved by our board of directors prior to the entering into
of such agreement or arrangement.
We are agreeing that, without the prior written consent of Goldman, Sachs &
Co. or J.P. Morgan Securities Inc., for a period of 180 days after pricing of
this offering, we will not take any action to enable or recognize any attempt
by our directors, executive officers and other existing shareholders to enter
into a voting, tender or like agreement or arrangement related to a business
combination approved by our board of directors.
Dividends, Subdivision and Combinations
Subject to the rights of the holders of preferred stock, holders of Class A
common stock and Class B common stock will be entitled to receive dividends and
other distributions in cash, stock of any corporation, other than our common
stock, or our property as our board of directors may declare from time to time
out of our legally available assets or funds and will share equally on a per
share basis in all such dividends and other distributions. If dividends or
other distributions are payable in our common stock, including distributions
pursuant to stock splits or divisions of our common stock, only Class A common
stock will be paid or distributed with respect to Class A common stock and only
Class B common stock will be paid or distributed
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with respect to Class B common stock. The number of Class A common stock and
Class B common stock so distributed will be equal on a per share basis.
Neither our Class A common stock nor our Class B common stock may be
reclassified, subdivided or combined, except for reclassifications after the
expirations of the applicable restricted periods to combine classes of our
Class A-1, Class A-2 and Class A-3 common stock into one class of Class A
common stock and classes of our Class B, Class B-1, Class B-2 and Class B-3
common stock into one class of Class B common stock pursuant to an amendment of
our certificate of incorporation, unless the reclassification, subdivision or
combination occurs simultaneously and in the same proportion for each class.
All the outstanding Class A common stock are validly issued, fully paid and
nonassessable. When this offering is completed, all the outstanding Class B
common stock will be validly issued, fully paid and nonassessable.
Preferred Stock
Our board of directors has the authority to issue shares of preferred stock
from time to time on terms that it may determine, to divide preferred stock
into one or more classes or series, and to fix the designations, voting powers,
preferences and relative participating, optional or other special rights of
each class or series, and the qualifications, limitations or restrictions of
each class or series, to the fullest extent permitted by Delaware law. The
issuance of preferred stock could have the effect of decreasing the market
price of our common stock, impeding or delaying a possible takeover and
adversely affecting the voting and other rights of the holders of common stock.
Each share of our common stock has associated with it the right to purchase
one share of Series C junior participating preferred stock under our rights
agreement.
Our board of directors has the authority to issue shares of Series C junior
participating preferred stock from time to time and to increase the number of
authorized shares of Series C junior participating preferred stock. The Series
C junior participating preferred stock shall rank junior to all other preferred
stock, but senior to any of our common stock. The holders of Series C junior
participating preferred stock shall vote with the holders of our common stock
as a single class, unless otherwise required by law, and are entitled to 1,000
votes per share. The board of directors may not effect any amendment to the
terms of the Series C junior participating preferred stock which would
adversely affect the rights, powers and preferences thereof without the prior
approval of the holders of two-thirds of the then outstanding Series C junior
participating preferred stock. The holders of our Series C junior participating
preferred stock shall be entitled to receive quarterly cash dividends payable
in an amount per share equal to the greater of (1) $10 or (2) 1,000 times the
aggregate per share amount of all quarterly cash dividends and 1,000 times the
cash value of the aggregate per share amount of all quarterly non-cash
dividends declared on the common stock. In the event we are subject to any
liquidation, dissolution or winding up, the holders of Series C junior
participating preferred stock shall be entitled to receive a minimum per share
payment in cash of $1,000, but will be entitled to an aggregate per share
liquidation payment of 1,000 times the payment made per share of common stock.
The Series C junior participating preferred stock may not be redeemed.
Our board of directors has the authority to issue shares of Series D
preferred stock from time to time and to increase the number of authorized
shares of Series D preferred stock. The Series D preferred stock shall rank
senior to any of our other capital stock unless the terms of our other stock
shall specifically provide that such stock shall rank senior to or on parity
with the Series D preferred stock. The holders of Series D preferred stock
shall have no right to vote at, participate in or receive notice of any meeting
of our stockholders, unless otherwise required by law. However, in the event
dividends that have been declared and that are payable upon the Series D
preferred stock shall be in arrears, the number of directors constituting the
board of directors shall be increased by two, and the holders of the Series D
preferred stock voting separately as a single series shall be entitled to elect
two directors to the board of directors. Such voting rights shall continue
until all declared and payable dividends shall have been paid in full. The
shares of Series D preferred stock shall not be transferable
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except with the consent of the board of directors. The holders of our Series D
preferred stock shall be entitled to receive, as and if declared by the board
of directors, cumulative cash dividends at a per annum rate currently of $30
per share, reset annually at a rate equal to $1,000 multiplied by 50% of the
one year U.S. treasury rate. In the event we are subject to any liquidation,
dissolution or winding up, the holders of Series D preferred stock shall be
entitled to receive payment in cash of $1,000 per share plus an amount equal to
unpaid cumulative dividends. The Series D preferred stock may be redeemed in
whole or in part at our option at any time upon notice by the payment of a
redemption price equal to $1,000 per share plus an amount equal to the accrued
and unpaid cumulative dividends thereon to the date fixed by the board of
directors as the redemption date.
Anti-Takeover Effects of Various Provisions of Delaware Law and Our Certificate
of Incorporation and Bylaws
Our certificate of incorporation and bylaws contain provisions that may have
some anti-takeover effects. Provisions of Delaware law may have similar effects
under our certificate of incorporation.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law.
Subject to specific exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
. the "business combination," or the transaction in which the stockholder
became an "interested stockholder" is approved by the board of directors
prior to the date the "interested stockholder" attained that status;
. upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding those shares owned by persons
who are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); or
. on or subsequent to the date a person became an "interested
stockholder," the "business combination" is approved by the board of
directors and authorized at an annual or special meeting of stockholders
by the affirmative vote of at least two-thirds of the outstanding voting
stock that is not owned by the "interested stockholder."
"Business combinations" include mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." Subject to
various exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or within three years did own, 15%
or more of the corporation's outstanding voting stock. These restrictions could
prohibit or delay the accomplishment of mergers or other takeover or change-in-
control attempts with respect to us and, therefore, may discourage attempts to
acquire us.
The board of directors has approved each of Joseph Neubauer, his associated
entities and the 401(k) Plans as "interested stockholders" for purposes of
Section 203 of the DGCL.
In addition, various provisions of our certificate of incorporation and
bylaws, which are summarized in the following paragraphs, may have an anti-
takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders.
No Cumulative Voting
The Delaware General Corporation Law provides that stockholders are denied
the right to cumulate votes in the election of directors unless our certificate
of incorporation provides otherwise. Our certificate of incorporation does not
expressly address cumulative voting.
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No Stockholder Action by Written Consent; Calling of Special Meetings of
Stockholders
Our certificate of incorporation prohibits stockholder action by written
consent. It also provides that special meetings of our stockholders may be
called only by the board of directors or the chief executive officer.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders must provide timely notice of their proposal in
writing to the corporate secretary. To be timely, a stockholder's notice must
be delivered or mailed and received at our principal executive offices not less
than 45 nor more than 75 days in advance of the anniversary date of our proxy
statement in connection with our previous year's annual meeting. Our bylaws
also specify requirements as to the form and content of a stockholder's notice.
These provisions may impede stockholders' ability to bring matters before an
annual meeting of stockholders or make nominations for directors at an annual
meeting of stockholders.
Limitations on Liability and Indemnification of Officers and Directors
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breaches of directors' fiduciary duties.
Our certificate of incorporation includes a provision that eliminates the
personal liability of directors for monetary damages for actions taken as a
director, except for liability:
. for breach of duty of loyalty;
. for acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law;
. under Section 174 of the Delaware General Corporation Law (unlawful
dividends); or
. for transactions from which the director derived improper personal
benefit.
Our certificate of incorporation provides that we must indemnify our
directors and officers to the fullest extent authorized by the Delaware General
Corporation Law. We are also expressly authorized to carry directors' and
officers' insurance providing indemnification for our directors, officers and
certain employees for some liabilities. We believe that these indemnification
provisions and insurance are useful to attract and retain qualified directors
and executive officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In addition, your
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers pursuant to these
indemnification provisions.
There is currently no pending material litigation or proceeding involving
any of our directors, officers or employees for which indemnification is
sought.
Authorized But Unissued Shares
Our authorized but unissued shares of common stock and preferred stock will
be available for future issuance without your approval. We may use these
additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could render more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer, merger or
otherwise.
Supermajority Provisions
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the outstanding shares entitled to vote is required to
amend a corporation's certificate of incorporation or bylaws, unless the
certificate of incorporation requires a greater percentage. Our certificate of
incorporation provides
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that the following provisions in the certificate of incorporation may be
amended only by a vote of 80% or more of all of the outstanding shares of our
stock entitled to vote:
. the prohibition on stockholder action by written consent;
. the ability to call a special meeting of stockholders being vested
solely in our board of directors and the chairman of our board;
. the limitation on the liability of our directors to us and our
shareholders; and
. the obligation to indemnify the directors and officers to the fullest
extent authorized by the Delaware General Corporation Law.
In addition, our certificate of incorporation grants our board of directors
the authority to amend and repeal our bylaws without a stockholder vote in any
manner not inconsistent with the laws of the State of Delaware or our
certificate of incorporation. Our certificate of incorporation also provides
that these provisions in our bylaws may be amended only by a vote of 80% or
more of all of the outstanding shares of our common stock entitled to vote.
Rights Agreement
Under our rights agreement, each share of our Class A and Class B common
stock has associated with it one preferred stock purchase right. Each of these
rights entitles its holder to purchase, at a purchase price of $110, subject to
adjustment, one one-thousandth of a share of Series C junior participating
preferred stock under circumstances provided for in the rights agreement.
The purpose of our rights agreement is to:
. give our board of directors the opportunity to negotiate with any
persons seeking to obtain control of us;
. deter acquisitions of voting control of us without assurance of fair and
equal treatment of all of our stockholders; and
. prevent a person from acquiring in the market a sufficient amount of
voting power over us to be in a position to block an action sought to be
taken by our stockholders.
The exercise of the rights under our rights agreement would cause
substantial dilution to a person attempting to acquire us on terms not approved
by our board of directors and therefore would significantly increase the price
that person would have to pay to complete the acquisition. Our rights agreement
may deter a potential acquisition or tender offer.
Until a "distribution date" occurs, the rights will:
. not be exercisable;
. be represented by the same certificate that represents the shares with
which the rights are associated; and
. trade together with those shares.
The rights will expire at the close of business on the ten-year anniversary
of the rights agreement, unless earlier redeemed or exchanged by us.
Following a "distribution date," the rights would become exercisable and we
would issue separate certificates representing the rights, which would trade
separately from the shares of our common stock.
A "distribution date" would occur upon the earlier of:
. ten business days after a public announcement that the person has become
an "acquiring person;" or
. ten business days after a person commences or announces its intention to
commence a tender or exchange offer that, if successful, would result in
the person becoming an "acquiring person."
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Under our rights agreement, a person becomes an "acquiring person" if the
person, alone or together with a group, acquires beneficial ownership of 15% or
more of the outstanding shares of our Class B common stock. However, an
"acquiring person" shall not include us, any of our subsidiaries, any of our
employee benefit plans or any person or entity acting pursuant to such employee
benefit plans or any person who immediately after the merger owns more than 15%
of the shares of our common stock, such as Mr. Neubauer. In addition, an
"acquiring person" shall not include Mr. Neubauer and his estate and affiliates
for so long as he or it does not beneficially own more than 25% of the shares
of our Class B common stock (assuming the conversion of all shares of Class A
common stock). Any of our equity securities acquired by Mr. Neubauer after the
implementation of our rights agreement pursuant to our employee benefit plans
or otherwise received as compensation from us will not be counted towards such
limitation. Our rights agreement also contains provisions designed to prevent
the inadvertent triggering of the rights by institutional or certain other
stockholders.
If any person becomes an acquiring person, each holder of a right, other
than the acquiring person, will be entitled to purchase, at the purchase price,
a number of our shares of common stock having a market value two times the
purchase price. If, following a public announcement that a person has become an
acquiring person:
. we merge or enter into any similar business combination transaction and
we are not the surviving corporation; or
. 50% or more of our assets, cash flow or earning power is sold or
transferred,
each holder of a right, other than the acquiring person, will be entitled to
purchase a number of shares of common stock of the surviving entity having a
market value two times the purchase price.
After a person becomes an acquiring person, but prior to such person
acquiring 50% of our outstanding shares of Class B common stock, our board of
directors may exchange the rights, other than rights owned by the acquiring
person, at an exchange ratio of one share of common stock, or one one-
thousandth of a share of Series C preferred stock, or of a share of our
preferred stock having equivalent rights, preferences and privileges, for each
right.
At any time until a person has become an acquiring person, our board of
directors may redeem all of the rights at a redemption price of $.01 per right.
On the redemption date, the rights will expire and the only entitlement of the
holders of rights will be to receive the redemption price.
A holder of rights will not, as such, have any rights as our stockholder,
including rights to vote or receive dividends.
At any time prior to the distribution date, our board of directors may amend
any provisions in the rights agreement. After the distribution date, our board
of directors may amend the provisions of our rights agreement in order to:
. cure any ambiguity;
. shorten or lengthen any time period under our rights agreement; or
. make changes that will not adversely affect the interests of the holders
of rights;
provided, that no amendment may be made when the rights are not redeemable.
The distribution of the rights will not be taxable to our stockholders or
us. Our stockholders may recognize taxable income when the rights become
exercisable for our common stock or an acquiring company.
Transfer Agent and Registrar
Mellon Investor Services LLC is the transfer agent and registrar for our
unrestricted Class B common stock. First Union National Bank is the transfer
agent and registrar for our Class A common stock and our restricted Class B
common stock.
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TRANSACTIONS IN OUR OLD COMMON STOCK
Prior to the completion of the merger, we have been a party to a
stockholders' agreement with all holders of our common stock except our 401(k)
Plans (collectively, restricted investors) whereby they, and their transferees,
were subject to certain transfer restrictions. In connection with the
stockholder vote on the merger, we are seeking termination of the stockholders'
agreement.
Under the stockholders' agreement we generally exercised our right to call
all the shares held by a former employee upon such employee's departure. In
fiscal 1999, 2000 and 2001, we made payments of $1.5 million, $157.9 million
and $65.4 million to former employees under the stockholders' agreement. From
fiscal 1998 to early fiscal 2000, we elected to delay the exercise of our right
to call shares of terminated employees until October 1999. This election
resulted in a decrease in our repurchases in fiscal 1998 and 1999 and an
increase in our repurchases in fiscal 2000.
Except for permitted transferees, we have been the sole purchaser of our
common stock pursuant to the stockholders' agreement. These repurchases have
been primarily upon termination of employment, as provided by the stockholders'
agreement. Our board of directors also authorized the repurchase of shares of
our common stock pursuant to which management stockholders were able to sell a
portion of their shares to us. These repurchases were approved by the board of
directors and have occurred during quarterly repurchase periods from December
15 to January 15, March 15 to April 15, June 15 to July 15 and September 15 to
October 15. During those periods, we repurchased shares of our common stock
from management stockholders at the quarterly appraisal price determined 15
days prior to the beginning of each repurchase period by a nationally
recognized independent appraisal firm. During fiscal 1999, 2000 and 2001, we
repurchased $2.0 million, $27.8 million and $21.6 million of shares from
current employees. We have suspended these repurchases for the June 15 to July
15 period and the September 15 to October 15 period and anticipate suspending
the December 15 to January 15 period.
From time to time, upon the occurrence of extenuating circumstances, we also
have repurchased shares from our management stockholders through an emergency
buyback program. We anticipate that we will continue the emergency buyback
program after completion of the stock buyback until the expiration of the
transfer restrictions on Class A common stock at prices and circumstances to be
determined on a case-by-case basis. Requests for these types of repurchases
have been reviewed on an individual basis. After this offering is completed, we
intend to discontinue our general practice of repurchasing shares from
management stockholders, but we may, under certain circumstances, repurchase
our stock from time to time.
Our practice has been to have our common stock appraised quarterly at
December 1, March 1, June 1 and September 1. For the purpose of determining the
appropriate price for the repurchase of our common stock from former employees
and restricted investors, our appraiser has considered a variety of factors,
including the history and nature of our business, financial data from audited
and interim financial statements, long-term financial forecasts, our operating
segments, industry and capital market information deemed relevant to the
assessment of investment risk and return of the common stock and other factors
affecting our business. The appraiser determined the appropriate methodology
for its appraisal, which has been based on market capitalization approaches and
relative value in comparison to public traded companies in our business
segments and market multiples in merger and acquisition transactions in similar
businesses and on income approaches, including discounted cash flow analysis.
The appraiser also considered various qualitative considerations, including our
diverse business segments, level of indebtedness and limitations on the
marketability of the common stock, resulting in part from the transfer
restrictions imposed by the stockholders' agreement.
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The prices of common stock set forth in the table below are the historical
quarterly appraisal prices of common stock since March 1, 1999.
<TABLE>
<CAPTION>
Old Class A Old Class B
---------------------- ---------------------
After Giving After Giving
Effect to the Effect to the
Merger Merger
Date Actual Exchange Ratio Actual Exchange Ratio
---- ------- -------------- ------ --------------
<S> <C> <C> <C> <C>
December 1, 2001................... $303.00 $15.15 $28.80 $14.40
September 1, 2001.................. 297.00 14.85 28.20 14.10
June 1, 2001....................... 239.00 11.95 20.80 10.40
March 1, 2001...................... 231.00 11.55 19.90 9.95
December 1, 2000................... 220.00 11.00 18.70 9.35
September 1, 2000.................. 206.00 10.30 17.50 8.75
June 1, 2000....................... 194.00 9.70 16.50 8.25
March 1, 2000...................... 187.10 9.35 15.90 7.95
December 1, 1999................... 178.70 8.94 15.20 7.60
September 1, 1999.................. 166.80 8.34 14.20 7.10
June 1, 1999....................... 153.50 7.68 13.05 6.53
March 1, 1999...................... 146.00 7.30 12.40 6.20
</TABLE>
You should not rely on these historical quarterly appraisal prices in
determining whether to invest in our Class B common stock.
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DESCRIPTION OF INDEBTEDNESS
The following are descriptions of the terms of agreements evidencing
indebtedness to which we are a party. We also refer you to the actual
agreements, copies of which have either been filed with the SEC as exhibits to
the registration statement of which this prospectus is a part or are available
from us.
Senior Revolving Credit Facility
ARAMARK Services, Inc., our wholly owned subsidiary, is the borrower under a
non-amortizing $1.0 billion senior revolving credit facility, which matures in
March 2005, among the lenders party thereto and The Chase Manhattan Bank and
Morgan Guaranty Trust Company of New York, as agents. Interest under the senior
revolving credit facility is based on, at our option, LIBOR plus a spread
ranging from 0.18% to 0.70% per annum, the certificate of deposit rate plus a
spread ranging from 0.28% to 0.80% per annum or the higher of the prime rate or
0.50% per annum over the federal funds rate. There is a commitment fee ranging
from 0.10% to 0.30% per annum on the entire commitment under the senior
revolving credit facility. The spread and fee margins are based on certain
financial ratios. The weighted average interest rate including the commitment
fee under the senior revolving credit facility on September 28, 2001 was 4.05%.
At September 28, 2001, there was approximately $420 million borrowings
outstanding under this facility.
The senior revolving credit facility contains restrictive covenants that,
among other things, limit our ability and the ability of some of our
subsidiaries to effect changes in our businesses or our corporate existence;
create liens securing additional indebtedness; dispose of all or substantially
all of our assets; enter into some mergers and consolidations; and repurchase
our capital stock in some circumstances.
The terms of the senior revolving credit facility also require that we
maintain certain specified minimum ratios of cash flow to fixed charges and to
total borrowings and certain minimum levels of net worth.
The senior revolving credit facility also provides for general events of
default including:
. failure to pay principal of or interest on any loans under the senior
revolving credit facility;
. failure to perform or observe any covenant;
. acceleration of or failure to make payments in respect of debt in the
aggregate principal amount of $25,000,000 or more; and
. certain events of bankruptcy.
In addition, events of default include the occurrence of more than 30% of the
voting power of our voting securities being held by any person or group. If any
event of default occurs, the principal or interest on the borrowed amounts may
become or may be declared to be immediately due and payable.
Our Publicly Traded Notes
We currently have $875 million principal amount of outstanding senior notes
that mature between 2004 and 2006. The notes are issued under an indenture
dated as of July 15, 1991, among ARAMARK Services, Inc., our wholly owned
subsidiary, us, as guarantor, and The Bank of New York, as trustee. The 6.75%
Notes due 2004 and the 7.00% Notes due 2006 may be redeemed, in whole or in
part, at any time at our option at a redemption price equal to the greater of
(i) 100% of the principal amount or (ii) an amount based on the discounted
present value of scheduled principal and interest payments. The 7.10% Notes due
2006 and the 8.15% Notes due 2005 are not redeemable prior to their stated
maturity. None of the notes have the benefit of a sinking fund.
The notes are subject to certain covenants that, among other things, limit
our ability and the ability of some of our subsidiaries to incur additional
indebtedness unless the outstanding notes are secured equally and
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ratably with such additional indebtedness; enter into sale and lease-back
transactions; and enter into some mergers and acquisitions.
The notes also provide for general events of default, which, if any of them
occurs, would require the principal or interest on the notes to become or to be
declared to be immediately due and payable.
Other Facilities
ARAMARK Services, Inc., our wholly owned subsidiary, is the borrower under a
bridge financing facility with a group of banks arranged by JP Morgan Chase
Bank. The bridge financing facility is unsecured and matures in November 2002.
We and certain other subsidiaries are the guarantors of the obligations in the
same manner as our senior revolving credit facility. Interest under the bridge
financing facility is based on, at our option, LIBOR plus a spread ranging from
1.125% to 1.875% per annum and an initial spread of 1.375% (with the spread
increasing by 0.25% after six months and by an additional 0.25% after nine
months) or the higher of the prime rate or 0.5% per annum over the federal
funds rate. The bridge financing facility has restrictive covenants, financial
covenants and events of default substantially similar to those included in our
senior revolving credit facility.
ARAMARK Canada Ltd., our indirectly held, wholly owned subsidiary is the
borrower under a non-amortizing C$70 million Canadian revolving credit facility
among the lenders party thereto and Canadian Imperial Bank of Commerce, as
administrative agent, and The Bank of Nova Scotia, as documentation agent. The
credit facility provides for either U.S. dollar or Canadian dollar borrowings
and matures in March 2002. At September 28, 2001, there was approximately $34
million of borrowings outstanding under this facility.
ARAMARK Services, Inc. is the borrower under a loan agreement with
Metropolitan Life Insurance Company in an outstanding principal amount of $50
million, evidenced by a 6.79% note due January 2003. The face value of the note
is $125 million. ARAMARK Services, Inc. is also the borrower under a $75
million credit agreement provided by Sumitomo Mitsui Banking Corporation and
The Bank of Nova Scotia which matures in May 2005. Interest under the credit
agreement is based on either LIBOR plus a spread ranging from 0.65% to 1.50%
per annum or the higher of the prime rate or 0.50% per annum over the federal
funds rate. The spread is based on certain financial ratios.
ARAMARK Services, Inc. is also the borrower under a $50 million credit
agreement provided by KBC Bank which matures in May 2005. Interest under the
credit agreement is based on either LIBOR plus a spread ranging from 0.90% to
1.30% per annum or the higher of the prime rate or 0.50% per annum over the
federal funds rate. The spread is based on certain financial ratios.
ARAMARK Services, Inc. is also the borrower under a $45 million credit
agreement provided by BNP Paribas which matures in July, 2003. Interest under
the credit agreement is based on LIBOR plus a spread of 0.85% per annum.
At September 28, 2001, our subsidiaries also had approximately $122 million
indebtedness outstanding under other indentures and/or credit facilities. In
addition, our subsidiaries also have lease and other financial obligations that
are not classified as indebtedness under generally accepted accounting
principles.
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CERTAIN INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following summary describes the material United States federal income
and estate tax consequences of the ownership of Class B common stock by you if
you are a non-U.S. holder as of the date of this prospectus.
A "non U.S. holder" means a person that is not any of the following:
. a citizen or resident of the United States,
. a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof,
. an estate the income of which is subject to United States federal income
taxation regardless of its source and
. a trust (1) that is subject to the supervision of a court within the
United States and the control of one or more United States persons as
described in section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended, which we refer to as the "Code," or (2) that has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a United States person.
This discussion does not address all aspects of United States federal income
and estate taxes and does not deal with foreign, state and local consequences
that may be relevant to you in light of your personal circumstances. Special
rules may apply to certain non-U.S. holders, such as "controlled foreign
corporations", "passive foreign investment companies", "foreign personal
holding companies" and corporations that accumulate earnings to avoid U.S.
federal income tax, that are subject to special treatment under the Code. If
you are one of these entities, you should consult your own tax advisor to
determine the U.S. federal, state, local and other tax consequences that may be
relevant to you. Furthermore, the discussion below is based upon the provisions
of the Code, and regulations, rulings and judicial decisions thereunder as of
the date of this prospectus, and these authorities may be changed, perhaps
retroactively, so as to result in United States federal income tax consequences
different from those discussed below.
If a partnership holds our Class B common stock, the tax treatment of a
partner will generally depend on the status of the partner and the activities
of the partnership. If you are a partner of a partnership holding our Class B
common stock, you should consult your tax advisor.
If you are considering the purchase, ownership or disposition of our Class B
common stock you should consult your own tax advisor concerning the United
States federal income tax consequences in light of your particular situation as
well as any consequences arising under the laws of any other taxing
jurisdiction.
Dividends
Dividends paid to you on our Class B common stock generally will be subject
to withholding of United States federal income tax at a 30% rate (or lower
applicable treaty rate). However, dividends that are effectively connected with
your conduct of a trade or business within the United States and, where a tax
treaty applies, are attributable to your United States permanent establishment,
are not subject to the withholding tax, but instead are subject to United
States federal income tax on a net income basis at applicable graduated
individual or corporate rates. Certain certification and disclosure
requirements must be complied with in order for effectively connected income to
be exempt from withholding. Any such effectively connected dividends received
by you if you are a foreign corporation may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate (or lower
applicable treaty rate).
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If you wish to claim the benefit of an applicable treaty rate (and avoid
backup withholding as discussed below) for dividends, you will be required to:
. complete Internal Revenue Service, Form W-8BEN (or successor form) and
certify, under penalty of perjury, that you are not a U.S. person; or
. hold the Class B common stock through certain foreign intermediaries or
certain foreign partnerships, and satisfy the certification requirements
of applicable Treasury regulations.
Special certification requirements apply to certain non-U.S. holders that are
entities rather than individuals.
If you are eligible for a reduced rate of United States withholding tax
pursuant to an income tax treaty you may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the Internal Revenue
Service.
Gain on Disposition of Common Stock
You generally will not be subject to United States federal income tax with
respect to gain recognized on a sale or other disposition of Class B common
stock unless:
. the gain is effectively connected with your trade or business in the
United States, and, where a tax treaty applies, is attributable to your
United States permanent establishment;
. you are an individual and hold the Class B common stock as a capital
asset, you are present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other
conditions are met; or
. we are or have been a "U.S. real property holding corporation" for
United States federal income tax purposes.
If you are described in the first bullet point above you will be subject to
tax on the net gain derived from the sale under regular graduated United States
federal income tax rates. If you are described in the second bullet point above
you will be subject to a flat 30% tax on the gain derived from the sale, which
may be offset by United States source capital losses (even though you are not
considered a resident of the United States). If you are a non-U.S. holder that
is a foreign corporation and fall under the first bullet point above, you will
be subject to tax on your gain under regular graduated United States federal
income tax rates and, in addition, may be subject to the branch profits tax
equal to 30% (or lower applicable treaty rate) of your effectively connected
earnings and profits.
We believe we are not and do not presently anticipate becoming a "U.S. real
property holding corporation" for United States federal income tax purposes.
Federal Estate Tax
If you are an individual, our Class B common stock held by you at the time
of your death will be included in your gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
We must report annually to the IRS and to you the amount of dividends paid
to you and the tax withheld with respect to such dividends, regardless of
whether withholding was required. Copies of the information returns reporting
such dividends and withholding may also be made available to the tax
authorities in the country in which you reside under the provisions of an
applicable income tax treaty. You will be subject to backup withholding unless
applicable certification requirements are met.
106
Payment of the proceeds of a sale of Class B common stock within the United
States or conducted through certain U.S. related financial intermediaries is
subject to both backup withholding and information reporting unless you certify
under penalties of perjury that you are a non-U.S. holder (and the payor does
not have actual knowledge that you are a United States person) or you otherwise
establish an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.
107
SHARES ELIGIBLE FOR FUTURE SALE
The 30,000,000 unrestricted shares of Class B common stock sold in this
offering, or 34,500,000 shares if the underwriters exercise their over-
allotment option in full, will be freely tradable without restriction under the
Securities Act except for any such shares acquired by an "affiliate" of ARAMARK
as that term is defined in Rule 144 under the Securities Act, which shares will
remain subject to the resale limitations of Rule 144.
Because the shares of Class A common stock are being issued pursuant to a
registration statement on Form S-4, they will be freely tradable without
restriction under the Securities Act following the expiration of the 180 day,
360 day or 540 day transfer restriction periods, as applicable, described below
in "--Lockup of Class A Common Stock" except for any such shares acquired or
held by an affiliate, which shares, pursuant to Rule 145, will remain subject
to the resale limitations of Rule 144. Giving effect to the merger, 84,018,042
shares of our Class A common stock are not held by affiliates. In addition, as
described below, up to 1.5 million shares of Class A common stock that may be
held by foundations and charities are anticipated to be eligible to be freely
sold in the public market immediately after the offering and up to 1.0 million
additional shares held by charities will be eligible to be freely sold in the
public markets on the 91st day after pricing of this offering. Excluding shares
held by the 401(k) Plans, shares subject to the resale limitations of Rule 144
and the up to 2.5 million shares of Class A common stock that may be sold
earlier, at the end of the 180 day restricted period, 37,967,187 shares of
Class A-1 common stock will be freely transferable; at the end of the 360 day
restricted period, 23,025,427 shares of Class A-2 common stock will be freely
transferable; and at the end of the 540 day period, 23,025,427 shares of Class
A-3 common stock will be freely transferable. An additional 32,767,000 shares
of Class A-1 common stock are held by the 401(k) Plans. After 180 days after
pricing of this offering, these shares may be transferred to an employee or
sold to provide cash distributions to that employee only upon or after that
employee's termination of employment or upon that employee's reaching the age
of 55. Under the terms of the 401(k) Plans, the trustee is otherwise required
to hold these shares, subject only to the requirements of federal law.
Excluding 1.5 million shares that Mr. Neubauer may transfer to foundations and
charities, shares subject to the resale limitations of Rule 144 include
16,016,176 shares of Class A-1 common stock, 16,016,176 shares of Class A-2
common stock and 16,016,176 shares of Class A-3 common stock. Of these Rule 144
shares, Joseph Neubauer, our chief executive officer, and certain related
parties own approximately 9,078,464 shares of Class A-1 common stock, 9,078,464
shares of Class A-2 common stock and 9,078,464 shares of Class A-3 common
stock. In addition, after the expiration of the 180 day lockup period, our
board of directors will have the ability to authorize limited transfers that
result in shares of Class A common stock converting into shares of unrestricted
Class B common stock. All of the foregoing share amounts exclude the impact of
the stock buyback.
Mr. Neubauer and certain related parties may exercise registration rights
with respect to their shares of common stock for which restricted periods have
expired or do not apply, at any time after 360 days after pricing of this
offering and with respect to all of the shares at any time after 540 days after
pricing of this offering or, subject to the prior consent of Goldman, Sachs &
Co. and J.P. Morgan Securities Inc., at any time after 180 days and before 360
days after the pricing of this offering. In addition, Mr. Neubauer's estate may
exercise demand registration rights with respect to his shares of common stock
in certain limited circumstances at any time after 180 days and before 360 days
after pricing of this offering. Mr. Neubauer and those related parties also
have unlimited piggyback registration rights with respect to their shares of
common stock for which restricted periods have expired or do not apply, that
commence on the 181st day after pricing of this offering. Upon registration and
sale, these shares will convert into shares of unrestricted Class B common
stock and will become freely transferable.
Under the terms of our certificate of incorporation, charitable
organizations will be permitted to sell up to 1.0 million shares of our common
stock donated to them prior to May 25, 2001, beginning on the 91st day after
pricing of this offering, and such shares will be freely transferable. In
addition, our board of directors has approved a conversion transfer in which
Mr. Neubauer will transfer up to 1.5 million shares of his Class A common stock
to charitable organizations and upon such transfer such shares may be freely
transferable Class B common stock. Such transfer by Mr. Neubauer will be an
exception to the lock-up arrangement with the
108
underwriters. With respect to the shares that Mr. Neubauer intends to transfer
to those prospective donees, such prospective donees have advised us that they
have no current intention or need to dispose of such shares during the 180 day
period after pricing of this offering.
In addition, 32,001,658 shares of Class A common stock are issuable upon the
exercise of outstanding options, 1,414,584 of which are vested, and 3,451,152
shares of Class A common stock are issuable upon conversion of outstanding
deferred stock units.
Because the Class B-1, Class B-2 and Class B-3 common stock are being
registered pursuant to a registration statement on Form S-4, they will be
freely tradable without restriction under the Securities Act following the
expiration of the 180 day, 360 day or 540 day restriction periods, as
applicable, described below in "--Lockup of Class B Common Stock," except for
any such shares acquired by an affiliate, which shares, pursuant to Rule 145,
will remain subject to the resale limitations of Rule 144 without the holding
period.
Generally, Rule 145 provides that an affiliate whose shares are exchanged
pursuant to a merger of a corporation with respect to which there has been a
vote of stockholders will be subject to the resale limitations of Rule 144.
Generally, Rule 144 provides that an affiliate who has beneficially owned
shares for at least one year may sell on the open market in brokers'
transactions within any three month period a number of shares that does not
exceed the greater of:
. 1% of the then outstanding shares of common stock; and
. the average weekly trading volume in the common stock on the open market
during the four calendar weeks preceding the sale.
Sales under Rule 144 will also be subject to post-sale notice requirements
and the availability of current public information about us.
Shares properly sold in reliance upon Rule 144 to persons who are not
affiliates are freely tradable without restriction after the sale.
Sales of substantial amounts of our common stock in the open market, or the
availability of shares for sale, could adversely affect the price of our
unrestricted Class B common stock.
Lockup of Class A Common Stock
Transfer Restrictions. Except for permitted transfers, Class A-1 common
stock may not be transferred until 180 days after pricing of this offering,
Class A-2 common stock may not be transferred until 360 days after pricing of
this offering and Class A-3 common stock may not be transferred until 540 days
after pricing of this offering. Permitted transfers include:
. conversion transfers, which have the effect of allowing the shares to
convert into shares of unrestricted Class B common stock;
. non-conversion transfers, which have the effect of retaining both the
applicable restricted periods and the multiple voting rights; and
. charity transfers, which have the effect of retaining the applicable
restricted periods, but not the multiple voting rights.
In a conversion transfer, shares of Class A-1, Class A-2 and Class A-3
common stock will convert into shares of unrestricted Class B common stock.
Conversion transfers include:
. with respect to no more than 1,000,000 shares of common stock donated
and transferred, prior to May 25, 2001, to charitable organizations
(including foundations, schools, colleges, universities, charitable
109
remainder trusts and charitable lead trusts), sales by such charitable
organizations following 90 days after pricing of this offering;
. transfers to us; and
. transfers approved as conversion transfers by our board of directors,
including, without limitation, transfers by Mr. Neubauer of up to 1.5
million shares to private or public foundations and charities, transfers
upon the death of an employee stockholder in order to pay any estate
taxes and expenses on a date as close as practicable to the tax payment
date or transfers in the case of employee stockholder hardship (such as
medical necessity, family emergencies, etc.)
During the first 180 days after pricing of this offering, transfers approved
by our board of directors as conversion transfers will be restricted by the
lock-up arrangements with the underwriters. However, approved transfers by Mr.
Neubauer of up to 1.5 million shares of private and public foundations and
charities and approved transfers to pay estate taxes and expenses will not be
restricted by the lock-up arrangements.
In a non-conversion transfer, shares of Class A-1, Class A-2 and Class A-3
common stock will not convert into shares of Class B common stock. Non-
conversion transfers include:
. transfers to and among family members of Class A stockholders and
entities (including trusts, partnerships and limited liability
companies) established for estate planning or educational purposes;
. bona fide pledges to us, a commercial bank, savings and loan institution
or any other lending or financial institution as security for
indebtedness of the holder of the shares of Class A common stock being
pledged. The pledgee will be bound by the applicable transfer
restrictions; and
. transfers approved as non-conversion transfers by our board of
directors.
During the first 180 days after pricing of this offering, transfers approved
by our board of directors as non-conversion transfers will be restricted by the
lock-up arrangements with the underwriters.
In a charity transfer, shares of Class A-1, Class A-2 or Class A-3 common
stock will convert into shares of Class B-1, Class B-2 and Class B-3 common
stock. Charity transfers include transfers to charitable organizations
(including foundations, school, colleges, universities, charitable remainder
trusts and charitable lead trusts).
Shares of Class B-1, Class B-2 and Class B-3 common stock are subject to the
same transfer restrictions and have the benefit of the same exceptions for
conversion transfers, non-conversion transfers and charity transfers, as
appropriate, as shares of Class A-1, Class A-2 and Class A-3 common stock,
respectively, but do not have multiple voting rights. At the conclusion of the
applicable restricted periods, shares of Class B-1, Class B-2 and Class B-3
common stock shall convert into shares of unrestricted Class B common stock
that are freely transferable.
Holders of restricted shares of Class A-1, Class A-2 and Class A-3 common
stock are also prohibited by our certificate of incorporation from entering
into any swap or other arrangement (including contracting to sell, selling,
transferring, pledging, granting of any option to purchase, making any short
sale or otherwise disposing of any shares) that transfers to another, in whole
or in part, any of the economic consequences of ownership of any shares of any
class of common stock, in each case other than permitted transfers. However if
such person holds, during the entire time of the relevant transaction, shares
with respect to which restricted periods have expired or do not apply, such
transaction may involve only up to the number of such unrestricted shares. In
addition, our directors, executive officers and stockholders that own 5% or
more of our common stock (other than the 401(k) Plans) will agree with the
underwriters not to enter into any such transactions with respect to any shares
of common stock, including unrestricted shares, for a period of 180 days after
pricing of this offering.
110
Shares of Class A-1, Class A-2 and Class A-3 common stock held by an
employee or a transferee of such employee (including transferees who acquired
their shares from employees prior to the merger) will automatically convert
into Class B-1, Class B-2 and Class B-3 common stock, respectively, in the
event of termination of employment by such employee upon the earlier of 180
days after the pricing of this offering and the date the tender offer is
completed or, if termination of employment occurs after that date, on the date
of termination of employment. In addition, holders of shares of Class A-1,
Class A-2 and Class A-3 common stock may convert such shares into shares of
Class B-1, Class B-2 and Class B-3 common stock, respectively, at any time.
Except as described above, shares of Class A common stock will not be
converted into shares of unrestricted Class B common stock for a period of 180
days, 360 days and 540 days, respectively, after pricing of this offering.
Upon completion of this offering, we will have outstanding 167,333,570
shares of Class A common stock, without taking into consideration outstanding
stock purchase opportunities, options and deferred stock units for 35,452,810
Class A common stock. As the lockup periods in our certificate of incorporation
that are applicable to shares of Class A common stock and Class B-1, Class B-2
and Class B-3 common stock expire, such shares will become freely transferable,
except for shares held by our affiliates.
With respect to acquisitions that are completed within 180 days of the
closing of this offering, under the lock-up arrangements with the underwriters
we may issue up to 15% of our then total outstanding shares, which shares of
common stock will be restricted until the later of 90 days after the completion
of such acquisition or 180 days after this offering, unless the consent of
either Goldman, Sachs & Co. or J.P. Morgan Securities Inc. is obtained.
Lockup of Class B Common Stock
Transfer Restrictions. Shares of unrestricted Class B common stock have no
transfer restrictions. Class B-1 common stock may not be transferred until 180
days after pricing of this offering; Class B-2 common stock may not be
transferred until 360 days after pricing of this offering; and Class B-3 common
stock may not be transferred until 540 days after pricing of this offering,
except the exceptions applicable to shares of Class A common stock will also be
applicable to the shares of Class B-1, Class B-2 and Class B-3 shares.
Holders of restricted shares of Class B-1, Class B-2 and Class B-3 common
stock are also prohibited by our certificate of incorporation from entering
into any swap or other arrangement (including contracting to sell, selling,
transferring, pledging, granting of any option to purchase, making any short
sale or otherwise disposing of any shares) that transfers to another, in whole
or in part, any of the economic consequences of ownership of any shares of any
class of common stock, in each case other than permitted transfers. However if
such person holds, during the entire time of the relevant transaction, shares
with respect to which restricted periods have expired or do not apply, such
transaction may involve only up to the number of such unrestricted shares. In
addition, our directors, executive officers and stockholders that own 5% or
more of our common stock (other than the 401(k) Plans) will agree with the
underwriters not to enter into any such transactions with respect to any shares
of common stock, including unrestricted shares, for a period of 180 days after
pricing of this offering.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
the underwriters named below have severally agreed to purchase, and we have
agreed to sell each underwriter, the number of shares of common stock set forth
opposite their name below. Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
are the representatives of the underwriters.
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Goldman, Sachs & Co.........................................
J.P. Morgan Securities Inc..................................
Morgan Stanley & Co. Incorporated...........................
Salomon Smith Barney Inc. ..................................
First Union Securities, Inc. ...............................
------
Total.....................................................
======
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase our unrestricted Class B common stock included in this offering are
subject to the approval of the validity of the shares of unrestricted Class B
common stock by counsel and other conditions. The underwriters are obligated to
take and pay for all of the shares of unrestricted Class B common stock (other
than those covered by the overallotment option described below) if any are
taken.
The underwriters have advised us that they propose initially to offer such
shares of unrestricted Class B common stock to the public at the public
offering price set forth on the cover page of this prospectus. After the public
offering, the public offering price may be changed.
We have granted to the underwriters an option, exercisable for 30 days from
the date hereof, to purchase up to an additional 4,500,000 shares of
unrestricted Class B common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise that option solely for the purpose of
covering overallotments, if any, made in connection with this offering.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share..........................................
Total..............................................
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the public offering price set forth on the cover of this prospectus. Any shares
sold by the underwriters to securities dealers may be sold at a discount of up
to $ per share from the public offering price. Any such securities dealers
may resell any shares purchased from the underwriters to certain other brokers
or dealers at a discount of up to $ per share from the public offering price.
If all the shares are not sold at the public offering price, the
representatives may change the offering price and the other selling terms.
112
We are agreeing that, without the prior written consent of Goldman, Sachs &
Co. and J.P. Morgan Securities Inc., for a period of 180 days after the date of
the underwriting agreement,
. we will not,
. we will not take any action to enable our directors, executive officers
and other existing stockholders to, and
. we will not recognize any attempt to by our directors, executive
officers and other existing stockholders to,
directly or indirectly, offer to sell, contract to sell, sell or otherwise
dispose of, or announce the offering of any shares of common stock or
securities convertible into or exchangeable or exercisable for shares of
common stock or enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership
of the common stock (any of such actions, a transfer), except for:
. Acquisitions--our issuance of up to 15% of the then outstanding shares
of common stock in connection with acquisition of third party shares or
assets (including without limitation by way of merger or consolidation)
where the recipient agrees it will not transfer such shares of common
stock for the later of 90 days after the date of issuance of such shares
or for a period of 180 days after the date of the underwriting
agreement;
. Benefit plan distributions--our issuances of shares of common stock or
securities convertible into or exchangeable or exercisable for shares of
common stock for the benefit of our employees or directors under benefit
plans described in this prospectus; and
. Permitted transfers--transfers permitted under our certificate of
incorporation without further approval by our board of directors and
transfers that require the approval of our board of directors relating
to Mr. Neubauer's intention to transfer up to 1.5 million shares to
public and private foundations or relating to payment of estate taxes
and expenses.
We are agreeing that, without the prior written consent of Goldman, Sachs &
Co. or J.P. Morgan Securities Inc., for a period of 180 days after pricing of
this offering, we will not take any action to enable or recognize any attempt
by our directors, executive officers and other existing shareholders to enter
into a voting, tender or like agreement or arrangement related to a business
combination approved by our board of directors.
We have agreed to indemnify the underwriters against, or contribute to
payments that the underwriters may be required to make in respect of, certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
The underwriters may engage in stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Rule 104 under the Securities
Exchange Act of 1934, as amended, in connection with this offering. Stabilizing
transactions permit bids to purchase the unrestricted Class B common stock so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the unrestricted Class B common
stock in the open market following completion of this offering to cover all or
a portion of a syndicate short position created by the underwriters selling
more shares of unrestricted Class B common stock in connection with this
offering than they are committed to purchase from us. In addition, the
underwriters may impose "penalty bids" under contractual arrangements between
the underwriters and dealers participating in this offering whereby they may
reclaim from a dealer participating in this offering the selling concession
with respect to shares of unrestricted Class B common stock that are
distributed in this offering but subsequently purchased for the account of the
underwriters in the open market. Such stabilizing transactions, syndicate
covering transactions and penalty bids may result in the maintenance of the
price of the unrestricted Class B common stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required and, if any are undertaken, they may be
discontinued at any time.
113
We estimate that our share of the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $7,000,000. The
underwriters have agreed to reimburse us for a portion of the expenses related
to this offering.
We intend to use more than 10% of the gross proceeds of the sale of our
unrestricted Class B Common Stock to repay indebtedness under our existing
credit facilities owed by us to banking affiliates of J.P. Morgan Securities
Inc. and First Union Securities, Inc. J.P. Morgan Securities Inc. also acted as
our financial advisor, and Goldman, Sachs & Co. acted as financial advisor to
ServiceMaster, in connection with our acquisition of ServiceMaster Management
Services. We financed our acquisition of ServiceMaster Management Services
partly by entering into a new bridge financing facility with a group of banks
arranged by an affiliate of J.P. Morgan Securities Inc. Additionally, an
affiliate of J.P. Morgan Securities Inc. has a loan outstanding to
Mr. Neubauer, our Chief Executive Officer, of $16.6 million secured by a
portion of his shares of our common stock. Furthermore, Mr. Neubauer serves on
the board of directors of Wachovia Corporation, which is a parent of First
Union Securities, Inc., one of the underwriters. According to Rule 2720 of the
National Association of Securities Dealers Conduct Rules, this makes First
Union Securities, Inc. our affiliate, and the offering must comply with
requirements of Rule 2720 of the NASD. That rule requires that the initial
public offering price can be no higher than that recommended by a "qualified
independent underwriter", as defined by the NASD. Goldman, Sachs & Co. has
served in that capacity and performed due diligence investigations and reviewed
and participated in the preparation of the registration statement of which this
prospectus forms a part. Goldman, Sachs & Co. will receive $10,000 from us as
compensation for such role.
In the ordinary course of the underwriters' respective businesses, the
underwriters and their affiliates have engaged and may engage in commercial and
investment banking transactions with us and our affiliates for which they have
received customary fees and expenses. In the ordinary course of our business,
we have engaged in commercial transactions related to our business with the
underwriters and their affiliates for which we have paid customary fees and
expenses.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
our unrestricted Class B common stock offered by them. No sales to
discretionary accounts may be made without the prior written approval of the
customer.
We intend to list our Class B common stock on the New York Stock Exchange
under the symbol "RMK." The underwriters intend to sell shares to a minimum of
2,000 beneficial owners in lots of 100 or more so as to meet the distribution
requirements of this listing.
Prior to this offering, there has been no public market for our unrestricted
Class B common stock. The public offering price was determined by negotiations
between the representatives of the underwriters and us. Among the factors that
we and the representatives considered in determining the public offering price
were our future prospects and our industry in general, our sales, earnings and
other financial and operating information in recent periods and the price to
earnings ratio, market prices of securities and other financial and operating
information of companies engaged in activities similar to ours.
First Union Securities, Inc., a subsidiary of Wachovia Corporation, conducts
its investment banking, institutional and capital markets businesses under the
trade name of Wachovia Securities. Any references to "Wachovia Securities" in
this prospectus, however, do not include Wachovia Securities, Inc., a separate
broker-dealer subsidiary of Wachovia Corporation and affiliate of First Union
Securities, Inc. which may or may not be participating as a separate selling
dealer in the distribution of our unrestricted Class B common stock.
Each underwriter represents, warrants and agrees that: (1) it has not
offered or sold and, prior to the expiry of a period of six months from the
closing date of the offering, will not offer or sell any shares of unrestricted
Class B common stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the
114
public in the United Kingdom within the meaning of the Public Offers at
Securities Regulations 1995; (2) it has only communicated or caused to be
communicated and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity (within the meaning
of section 21 of the Financial Services and Market Act 2000 of Great Britain)
received by it in connection with the issue or sale of any shares of
unrestricted Class B common stock in circumstances in which section 21(1) of
the Financial Services Market Act 2000 does not apply to us; and (3) it has
complied and will comply with all applicable provisions of the Financial
Services and Market Act 2000 with respect to anything done by it in relation to
the shares of unrestricted Class B common stock in, from or otherwise involving
the United Kingdom.
Each underwriter has acknowledged and agreed that the shares of unrestricted
Class B common stock have not been registered under the Securities and Exchange
Law of Japan and are not being offered or sold and may not be offered or sold,
directly or indirectly, in Japan or to or for the account of any resident of
Japan, except (1) pursuant to an exemption from the registration requirements
of the Securities and Exchange Law of Japan and (ii) in compliance with any
other applicable requirements of Japanese law. As part of the offering, the
underwriters may offer securities in Japan to a list of 49 offerees in
accordance with the above provisions.
The shares of unrestricted Class B common stock may not be offered, sold,
transferred or delivered in or from The Netherlands, as part of their initial
distribution or as part of any re-offering, and neither this prospectus nor any
other document in respect of the offering may be distributed or circulated in
The Netherlands, other than to individuals or legal entities which include, but
are not limited to, banks, brokers, dealers, institutional investors and
undertakings with a treasury department, who or which trade or invest in
securities in the conduct of a business or profession.
Each underwriter has agreed that it has not and will not offer or sell any
shares of unrestricted Class B common stock or distribute any document or other
material relating to the unrestricted Class B common stock, either directly or
indirectly, to the public or any member of the public in Singapore other than
(i) to an institutional investor or other person specified in Section 106C of
the Companies Act, Chapter 50 of Singapore (the "Singapore Companies Act") or
(ii) to a sophisticated investor in accordance with the conditions specified in
Section 106D of the Singapore Companies Act or (iii) otherwise pursuant to, and
in accordance with the conditions of, any other provision of the Singapore
Companies Act.
Each underwriter offering shares of unrestricted Class B common stock has
acknowledged and agreed that (i) it has not offered or sold and will not offer
or sell in Hong Kong, by means of any document, any shares of unrestricted
Class B common stock other than to persons whose ordinary business it is to buy
or sell shares or debentures, whether as principal or agent, or in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Ordinance (Cap. 32) of Hong Kong and (ii) it has not issued or
had in its possession for the purpose of issue and will not issue or have in
its possession for the purpose of the issue any invitation or advertisement
relating to the unrestricted Class B common stock in Hong Kong (except if
permitted to do so by the securities laws of Hong Kong) other than with respect
to shares of unrestricted Class B common stock intended to be disposed of to
persons outside Hong Kong or to be disposed of only to persons whose business
involves the acquisition, disposal or holding of securities, whether as
principal or as agent.
LEGAL MATTERS
The validity of the issuance of the shares of unrestricted Class B common
stock offered hereby will be passed upon for us by Simpson Thacher & Bartlett,
New York, New York. Certain legal matters relating to the unrestricted Class B
common stock offered hereby will be passed upon for the underwriters by
Cravath, Swaine & Moore, New York, New York.
115
EXPERTS
The audited consolidated financial statements and financial statement
schedules of ARAMARK Corporation and its subsidiaries, the audited balance
sheet of ARAMARK Worldwide Corporation and the audited financial statements of
ServiceMaster Management Services Business included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
116
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934 and, under the Exchange Act, we file reports, proxy
statements and other information with the SEC. You may inspect those reports,
proxy statements and other information and the registration statement and its
exhibits and schedules, without charge, and you may make copies of them at
prescribed rates at the public reference facilities of the SEC's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 233 Broadway, New York, New York 10279. The public may obtain
information on the operation of the SEC's public reference facilities by
calling the SEC in the United States at 1-800-SEC-0330. The SEC also maintains
a web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an Exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
You may also request a copy of those materials, free of cost, by writing or
telephoning us at the following address:
Ted Hill
Vice President, Investor Relations
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
Telephone: (215) 238-3361
117
ARAMARK CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Consolidated Financial Statements
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of September 29, 2000 and September 28,
2001................................................................... F-3
Consolidated Statements of Income for the Fiscal Years Ended October 1,
1999, September 29, 2000 and September 28, 2001........................ F-4
Consolidated Statements of Cash Flows for the Fiscal Years Ended October
1, 1999, September 29, 2000 and September 28, 2001..................... F-5
Consolidated Statements of Shareholders' Equity for the Fiscal Years
Ended October 1, 1999, September 29, 2000 and September 28, 2001....... F-6
Notes to Consolidated Financial Statements.............................. F-7
ARAMARK WORLDWIDE CORPORATION
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements
Report of Independent Public Accountants................................ F-24
Balance Sheet as of September 28, 2001.................................. F-25
Notes to Balance Sheet.................................................. F-25
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements
Report of Independent Public Accountants................................ F-26
Statement of Financial Position as of December 31, 2000................. F-27
Statement of Income for the Year Ended December 31, 2000................ F-28
Statement of Cash Flows for the Year Ended December 31, 2000............ F-29
Statement of Changes in Equity for the Year Ended December 31, 2000..... F-30
Notes to the Financial Statements....................................... F-31
Unaudited Financial Statements
Statement of Financial Position as of September 30, 2001................ F-35
Statement of Income for the Nine Months Ended September 30, 2001........ F-36
Statement of Cash Flows for the Nine Months Ended September 30, 2001.... F-37
Statement of Changes in Equity for the Nine Months Ended September 30,
2001................................................................... F-38
Notes to the Financial Statements....................................... F-39
</TABLE>
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ARAMARK Corporation:
We have audited the accompanying consolidated balance sheets of ARAMARK
Corporation (a Delaware corporation) and subsidiaries as of September 29, 2000
and September 28, 2001, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended September 28, 2001. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ARAMARK Corporation and
subsidiaries as of September 29, 2000 and September 28, 2001, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended September 28, 2001, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
November 14, 2001
F-2
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 2000 AND SEPTEMBER 28, 2001
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Fiscal
----------------------
2000 2001
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 24,592 $ 24,799
Receivables (less allowances: 2000--$24,803; 2001--
$22,571)........................................... 585,630 503,291
Inventories......................................... 416,413 415,798
Prepayments and other current assets................ 72,230 76,310
---------- ----------
Total current assets.............................. 1,098,865 1,020,198
---------- ----------
Property and Equipment, at Cost:
Land, buildings and improvements.................... 688,624 786,697
Service equipment and fixtures...................... 1,409,265 1,447,861
---------- ----------
2,097,889 2,234,558
Less-Accumulated depreciation....................... 1,044,646 1,146,725
---------- ----------
1,053,243 1,087,833
---------- ----------
Goodwill.............................................. 684,940 705,016
Other Assets.......................................... 362,335 403,347
---------- ----------
$3,199,383 $3,216,394
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings.......... $ 59,736 $ 34,710
Accounts payable.................................... 431,123 459,249
Accrued payroll and related expenses................ 198,958 209,904
Other accrued expenses and current liabilities...... 377,043 380,288
---------- ----------
Total current liabilities......................... 1,066,860 1,084,151
---------- ----------
Long-Term Borrowings................................ 1,837,396 1,670,577
Less-current portion................................ 59,736 34,710
---------- ----------
Total long-term borrowings........................ 1,777,660 1,635,867
---------- ----------
Deferred Income Taxes and Other Noncurrent
Liabilities.......................................... 223,367 229,484
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement................ 20,000 20,000
Shareholders' Equity Excluding Common Stock Subject to
Repurchase:
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued:
2000--2,422,396 shares; 2001--2,385,438........... 24 24
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued:
2000--59,802,606 shares; 2001--59,765,397.......... 598 597
Capital surplus..................................... -- 1,057
Earnings retained for use in the business........... 149,771 284,184
Accumulated other comprehensive income (loss)....... (18,897) (18,970)
Impact of potential repurchase feature of common
stock.............................................. (20,000) (20,000)
---------- ----------
Total............................................. 111,496 246,892
---------- ----------
$3,199,383 $3,216,394
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999,
SEPTEMBER 29, 2000 AND SEPTEMBER 28, 2001
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal
--------------------------------
1999 2000 2001
---------- ---------- ----------
<S> <C> <C> <C>
Sales........................................ $6,742,264 $7,262,867 $7,788,690
Costs and Expenses:
Cost of services provided.................. 6,087,432 6,531,025 7,002,730
Depreciation and amortization.............. 193,703 220,794 240,243
Selling and general corporate expense...... 85,963 91,465 106,210
---------- ---------- ----------
6,367,098 6,843,284 7,349,183
---------- ---------- ----------
Operating income........................... 375,166 419,583 439,507
Interest and Other Financing Costs, net...... 135,753 147,803 153,292
---------- ---------- ----------
Income before income taxes................. 239,413 271,780 286,215
Provision For Income Taxes................... 89,222 103,820 109,719
---------- ---------- ----------
Net Income................................... $ 150,191 $ 167,960 $ 176,496
========== ========== ==========
Earnings Per Share:
Net income
Basic.................................... $1.59 $1.88 $2.06
Diluted.................................. $1.48 $1.77 $1.95
Pro Forma Earnings Per Share (Unaudited--See
Note 1):
Net Income
Basic.................................... $0.80 $0.94 $1.03
Diluted.................................. $0.74 $0.88 $0.97
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999,
SEPTEMBER 29, 2000 AND SEPTEMBER 28, 2001
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal
------------------------------
1999 2000 2001
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 150,191 $ 167,960 $176,496
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 193,703 220,794 240,243
Income taxes deferred...................... 10,845 4,851 9,333
Changes in noncash working capital:
Receivables................................ (47,599) (14,716) (47,351)
Inventories................................ (1,951) (35,992) 4,930
Prepayments................................ (1,922) 5,638 (11,006)
Accounts payable........................... (10,095) (10,548) (20,881)
Accrued expenses........................... 25,371 90,311 26,132
Net proceeds from sale of receivables........ -- -- 140,885
Changes in other noncurrent liabilities...... (3,319) (1,788) 3,128
Changes in other assets...................... (8,429) (8,063) (21,355)
Other, net................................... (13,635) (11,387) (3,665)
--------- --------- --------
Net cash provided by operating activities...... 293,160 407,060 496,889
--------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment.......... (207,223) (234,583) (240,998)
Disposals of property and equipment.......... 23,999 27,546 22,321
Sale of investments.......................... 40,722 -- 8,240
Divestiture of certain businesses............ 8,380 -- --
Acquisition of certain businesses:
Working capital other than cash acquired... (1,742) 11,896 (2,298)
Property and equipment..................... (20,325) (76,717) (5,525)
Additions to intangibles and other assets.. (40,672) (168,741) (71,748)
Other........................................ (19,318) (42,973) 10,833
--------- --------- --------
Net cash used in investing activities.......... (216,179) (483,572) (279,175)
--------- --------- --------
Cash flows from financing activities:
Proceeds from additional long-term
borrowings.................................. 4,855 357,717 27,918
Payment of long-term borrowings.............. (106,744) (159,741) (220,830)
Proceeds from issuance of common stock....... 60,731 31,185 31,509
Repurchase of common stock................... (28,563) (155,417) (55,135)
Other........................................ (184) (330) (969)
--------- --------- --------
Net cash provided by/(used in) financing
activities.................................... (69,905) 73,414 (217,507)
--------- --------- --------
Increase (decrease) in cash and cash
equivalents................................... 7,076 (3,098) 207
Cash and cash equivalents, beginning of year... 20,614 27,690 24,592
--------- --------- --------
Cash and cash equivalents, end of year......... $ 27,690 $ 24,592 $ 24,799
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999,
SEPTEMBER 29, 2000 AND SEPTEMBER 28, 2001
(dollars in thousands)
<TABLE>
<CAPTION>
Impact of
Potential
Class Class Repurchase Accumulated
A B Feature of Other
Common Common Capital Retained Common Comprehensive
Stock Stock Surplus Earnings Stock Income (Loss) Total
------ ------ --------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 2,
1998................... $25 $ 629 $ -- $ (56,815) $(20,000) $ (2,715) $ (78,876)
Net income............ 150,191 150,191
Foreign currency
translation
adjustments.......... (2,129) (2,129)
---------
Total comprehensive
income............. 148,062
---------
Issuance of Class A
common stock to
employee benefit
plans................ 1 14,506 14,507
Conversion of Class B
to Class A........... 2 (18) 16 --
Issuance of Class B
common stock......... 61 35,623 35,684
Sale of deferred
payment obligations.. 44,172 44,172
Retirement of common
stock................ (1) (16) (36,961) (36,978)
--- ----- --------- --------- -------- -------- ---------
Balance, October 1,
1999................... $27 $ 656 $ 57,356 $ 93,376 $(20,000) $ (4,844) $ 126,571
Net income............ 167,960 167,960
Foreign currency
translation
adjustments.......... (14,053) (14,053)
---------
Total comprehensive
income............. 153,907
---------
Issuance of Class A
common stock to
employee benefit
plans................ 7,139 7,139
Issuance of Class B
common stock......... 65 40,505 40,570
Sale of deferred
payment obligations.. 26,710 26,710
Retirement of common
stock................ (3) (123) (131,710) (111,565) (243,401)
--- ----- --------- --------- -------- -------- ---------
Balance, September 29,
2000................... $24 $ 598 $ -- $ 149,771 $(20,000) $(18,897) $ 111,496
Net income............ 176,496 176,496
Foreign currency
translation
adjustments.......... 6,397 6,397
Change in fair value
of cash flow hedges
(net of tax)......... (6,470) (6,470)
---------
Total comprehensive
income............. 176,423
---------
Issuance of Class B
common stock......... 46 30,747 30,793
Sale of deferred
payment obligations.. 24,027 24,027
Retirement of common
stock................ (47) (53,717) (42,083) (95,847)
--- ----- --------- --------- -------- -------- ---------
Balance, September 28,
2001................... $24 $ 597 $ 1,057 $ 284,184 $(20,000) $(18,970) $ 246,892
=== ===== ========= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
The Company's fiscal year is the fifty-two or fifty-three week period which
ends on the Friday nearest September 30th. The fiscal years ended October 1,
1999, September 29, 2000 and September 28, 2001 are each fifty-two week
periods.
Principles of Consolidation, Etc.
The consolidated financial statements include the accounts of the Company
and all its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
In fiscal 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended. See Note 3.
Additionally, in fiscal 2001, the Company adopted the Securities and
Exchange Commission's (SEC) Staff Accounting Bulletin 101 (SAB 101), which sets
forth the SEC's guidelines on revenue recognition. Adoption of SAB 101 did not
have a material impact on consolidated financial condition or results of
operations. See Note 10.
On June 30, 2001, the Financial Accounting Standards Board (FASB) finalized
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets. With the adoption of SFAS No. 142, goodwill is no longer subject to
amortization, rather it will be subject to at least an annual assessment for
impairment by applying a fair value based test. The Company is required to
adopt the provisions of this pronouncement no later than the beginning of
fiscal 2003. However, goodwill and other intangible assets acquired after June
30, 2001, are subject immediately to the nonamortization and amortization
provisions of this statement. The Company will adopt the nonamortization and
amortization provisions of SFAS No. 142 beginning in the first quarter of
fiscal 2002. During fiscal 1999, 2000 and 2001, goodwill amortization (pre-tax)
was $21.3 million, $22.2 million and $25.4 million, respectively. The Company
is currently evaluating the impact of the transitional goodwill impairment test
required by SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The Company is required to adopt the
provisions of this pronouncement no later than the beginning of fiscal 2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. The Company
is required to adopt the provisions of this pronouncement no later than the
beginning of fiscal 2003.
The Company is currently evaluating the impact of both SFAS No's. 143 and
144.
Revenue Recognition
In each of our operating segments we recognize revenue in the period in
which services are provided pursuant to the terms of our contractual
relationships with our clients. Direct marketing revenues are recognized upon
shipment.
F-7
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income
Comprehensive income includes all changes to shareholders' equity during a
period, except those resulting from investments by and distributions to
shareholders. The components of comprehensive income are shown in the
Consolidated Statements of Shareholders' Equity.
Currency Translation
Gains and losses resulting from the translation of financial statements of
non-U.S. subsidiaries are reflected as a component of comprehensive income in
shareholders' equity. Currency transaction gains and losses included in
operating results for fiscal 1999, 2000 and 2001 were not significant.
Current Assets
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories are valued at the lower of cost (principally the first-in,
first-out method) or market. The LIFO (last-in, first-out) method of
determining cost is used to value directly marketed career apparel and public
safety clothing and equipment. The stated value of inventories determined using
the LIFO method is not significantly different from replacement or current
cost. Personalized work apparel and linens in service are recorded at cost and
are amortized over their estimated useful lives, approximately two years.
The components of inventories are as follows:
<TABLE>
<CAPTION>
Fiscal
-------------
2000 2001
------ ------
<S> <C> <C>
Food........................................................... 26.2% 29.2%
Career apparel, safety equipment and linens.................... 68.7% 66.0%
Parts, supplies and novelties.................................. 5.1% 4.8%
------ ------
100.0% 100.0%
====== ======
</TABLE>
Property and Equipment
Property and equipment are stated at cost and are depreciated over their
estimated useful lives on a straight-line basis. Gains and losses on
dispositions are included in operating results. Maintenance and repairs are
charged to operations currently, and replacements and significant improvements
are capitalized. The estimated useful lives for the major categories of
property and equipment are 10 to 40 years for buildings and improvements and 3
to 10 years for service equipment and fixtures. Depreciation expense in fiscal
1999, 2000 and 2001 was $146.7 million, $162.8 million and $176.4 million,
respectively.
F-8
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill
Goodwill, which represents the excess of cost over fair value of the net
assets of acquired businesses, is being amortized on a straight-line basis
principally over 40 years. The Company develops operating income projections
for each of its lines of business and evaluates the recoverability and
amortization period of goodwill using these projections. Based upon
management's current assessment, the estimated remaining amortization period of
goodwill is appropriate and the remaining balance is fully recoverable.
Accumulated amortization at September 29, 2000 and September 28, 2001 was
$220.8 million and $245.0 million, respectively.
Other Assets
Other assets consist primarily of investments in 50% or less owned entities,
contract rights, customer lists, computer software costs, and long-term
receivables. Investments in which the Company owns more than 20% but less than
a majority are accounted for using the equity method. Investments in which the
Company owns less than 20% are accounted for under the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" or the
cost method, as applicable. Contract rights and customer lists are being
amortized on a straight-line basis over the expected period of benefit, 3 to 20
years.
As a result of the terrorist attacks of September 11, 2001, the Company
incurred asset losses of approximately $11.5 million, primarily related to the
destruction of the World Trade Center Towers. An initial property loss claim
has been filed with the insurance carrier and additional claims will be filed
as the required information is completed. A receivable in the amount of $11.5
million has been recorded for the expected insurance recovery related to this
portion of the Company's loss. The Company also maintains business interruption
insurance and is in the process of compiling claims related to locations in and
around the World Trade Center, the Pentagon and other locations. The amount of
such claims has not yet been determined but is expected to be material.
Proceeds from the business interruption coverage will be recognized in future
periods as claims are settled.
Other Liabilities
Other noncurrent liabilities consist primarily of deferred compensation,
insurance accruals, deferred gains arising from sale and leaseback transactions
and subordinated installment notes arising from repurchases of common stock.
The Company is self-insured for a limited portion of the risk retained under
its general liability and workers' compensation arrangements. Self-insurance
reserves are determined based on actuarial analyses. The self-insurance
reserves for workers' compensation insurance are accrued on a present value
basis using a discount rate which approximates a risk-free rate.
F-9
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share
Historical
Earnings per share is reported on a Common Stock, Class B equivalent basis
(which reflects Common Stock, Class A shares converted to a Class B basis, ten
for one--see Note 6). Basic earnings per share is based on the weighted average
number of common shares outstanding during the respective periods. Diluted
earnings per share is based on the weighted average number of common shares
outstanding during the respective periods, plus the common equivalent shares,
if dilutive, that would result from the exercise of stock options. Earnings
applicable to common stock and common shares utilized in the calculation of
basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
Fiscal
--------------------------
1999 2000 2001
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C> <C>
Earnings:
Earnings available to common stock......... $150,191 $167,960 $176,496
-------- -------- --------
Shares:
Weighted average number of common shares
outstanding used in basic earnings per
share calculation......................... 94,197 89,344 85,766
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan.......... 7,275 5,763 4,897
-------- -------- --------
Total common shares used in diluted
earnings per share calculation............ 101,472 95,107 90,663
======== ======== ========
Basic earnings per common share............ $1.59 $1.88 $2.06
======== ======== ========
Diluted earnings per common share.......... $1.48 $1.77 $1.95
======== ======== ========
</TABLE>
Pro Forma (unaudited)
A subsidiary of the Company has filed Form S-1 and S-4 registration
statements (as amended) with the Securities and Exchange Commission and is in
the process of becoming a publicly traded company. The Company expects to merge
with this subsidiary just prior to the completion of the public offering under
the terms of a Merger Agreement. In the merger, ARAMARK will merge with and
into its newly formed subsidiary, ARAMARK Worldwide Corporation, and each
outstanding ARAMARK old Class B and old Class A common share will become two
shares and twenty shares, respectively, of the surviving corporation's Class A
common stock. ARAMARK Worldwide Corporation's name will become ARAMARK
Corporation, and the surviving corporation will succeed to all of the assets,
liabilities, rights and obligations of ARAMARK. Upon completion of the merger,
the Amended and Restated Stockholders' Agreement, described in Note 6 will be
terminated. Unaudited Pro Forma earnings per share is calculated by dividing
net income by the pro forma weighted average number of common shares
outstanding after giving effect to the merger exchange ratios.
F-10
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Fiscal
--------------------
1999 2000 2001
------ ------ ------
(in millions)
<S> <C> <C> <C>
Interest Paid........................................... $131.4 $136.3 $151.5
Income Taxes Paid....................................... 70.5 60.4 69.8
</TABLE>
Significant noncash investing and financing activities are as follows:
. During fiscal 1999 and 2000, the Company contributed $14.5 million and
$7.1 million, respectively, of Class A Common Stock to its employee
benefit plans to fund previously accrued obligations. In addition, during
fiscal 1999, 2000 and 2001, the Company contributed $2.0 million, $2.1
million and $2.3 million, respectively, of stock units to its stock unit
retirement plan in satisfaction of its accrued obligations. See Note 4.
. During fiscal 1999, 2000 and 2001, the Company received $16.7 million,
$31.8 million and $28.6 million, respectively, of employee notes under
its Deferred Payment program as partial consideration for the issuance of
Common Stock, Class B. Also, during fiscal 1999, 2000 and 2001, the
Company issued installment notes of $6.7 million, $75.5 million and $35.6
million, respectively, as partial consideration for repurchases of Common
Stock. See Note 6.
NOTE 2. ACQUISITIONS AND DIVESTITURES:
Fiscal 2001
During the first quarter of fiscal 2001, the Company acquired the UK food
and support services business of the Campbell Bewley Group Limited, issuing
stock (8% interest) of a subsidiary as consideration. Additionally, the Company
acquired a 45% interest in the Campbell Bewley Group Limited's food and support
services business in Ireland for approximately $19 million in cash.
Additionally, during the second quarter of fiscal 2001, the Company acquired
certain assets of Correctional Foodservice Management (CFM), from The Wackenhut
Corporation for approximately $16 million in cash.
These acquisitions were accounted for as a purchase and were financed
through the Company's revolving credit facility. The Company's pro forma
results from operations for fiscal 2001 and 2000 would not have been materially
different assuming that both the Campbell Bewley and CFM acquisitions had
occurred at the beginning of the respective periods.
Fiscal 2000
During the third quarter of fiscal 2000, the Company acquired substantially
all of the food and beverage concessions and venue management businesses of
Ogden Corporation for approximately $235 million in cash and assumed debt. The
acquisition was accounted for as a purchase and was financed through the
Company's revolving credit facility. The results of the food and beverage
concessions businesses of Ogden Corporation have been included in the
accompanying consolidated financial statements since the date of acquisition.
Amounts allocated to goodwill are being amortized on a straight-line basis over
40 years.
Had the acquisition taken place at the beginning of the fiscal periods, pro
forma sales for fiscal 2000 and fiscal 1999 would have been approximately $7.5
billion and $7.1 billion, respectively. Pro forma net income and earnings per
share would not have been materially different from reported results. These pro
forma disclosures are unaudited and are based on historical results, adjusted
for the impact of certain acquisition related adjustments, such as: increased
amortization of intangibles, increased interest expense on acquisition
F-11
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
debt, and the related income tax effects. Pro forma results do not reflect any
synergies that might be achieved from combined operations and therefore, in
management's opinion, are not indicative of what actual results would have been
if the acquisition had occurred at the beginning of the respective periods. Pro
forma results are not intended to be a projection of future results.
Fiscal 1999
During the second quarter of fiscal 1999, the Company acquired Restaura,
Inc., a provider of food and support services, and Dyna Corporation, a leading
distributor of emergency medical supplies for approximately $46 million and $13
million in cash, respectively. The acquisitions were accounted for using the
purchase method of accounting. The Company's pro forma results from operations
for fiscal 1999 would not have been materially different assuming the
acquisitions had occurred at the beginning of the period.
NOTE 3. BORROWINGS:
Long-term borrowings at September 29, 2000 and September 28, 2001 are
summarized in the following table:
<TABLE>
<CAPTION>
Fiscal
---------------------
2000 2001
---------- ----------
(in thousands)
<S> <C> <C>
Credit facility borrowings............................... $ 611,100 $ 419,500
Canadian credit facility................................. 33,608 33,876
Bank term loan due July 2003............................. 45,000 45,000
Bank term loan due May 2005.............................. 50,000 50,000
Bank term loan due May 2005.............................. 75,000 75,000
United Kingdom term loan due December 2005............... -- 20,303
6.75% notes, due August 2004............................. 299,032 299,288
6.79% note, payable in installments through 2003......... 75,000 50,000
7.00% notes, due July 2006............................... 299,945 299,957
7.10% notes, due December 2006........................... 124,877 124,893
7.25% notes and debentures, due August 2007.............. 30,730 30,730
8.15% notes, due May 2005................................ 150,000 150,000
Other.................................................... 43,104 72,030
---------- ----------
1,837,396 1,670,577
---------- ----------
Less-current portion..................................... 59,736 34,710
---------- ----------
$1,777,660 $1,635,867
========== ==========
</TABLE>
The non-amortizing $1.0 billion revolving credit facility ("Credit
Agreement") is provided by a group of banks and matures in March 2005. Interest
under the Credit Agreement is based on the Prime Rate, LIBOR plus a spread of
0.18% to 0.70% (as of September 28, 2001--0.30%) or the Certificate of Deposit
Rate plus a spread of 0.28% to 0.80% (as of September 28, 2001--0.40%), at the
option of the Company. There is a fee of 0.10% to 0.30% (as of September 28,
2001--0.15%) on the entire credit facility. The spread and fee margins are
based on certain financial ratios as defined.
The non-amortizing C$70 million Canadian revolving credit facility provides
for either U.S. dollar or Canadian dollar borrowings. This credit facility
currently matures in March 2002 and contains options to extend the maturity
date. Interest on the facility is based on the Canadian Bankers Acceptance
Rate, U.S. Prime Rate plus a spread of .0% to .125% (as of September 28, 2001--
0%), Canadian Prime Rate plus a spread of .0% to .125% (as of September
28,2001--0%), or LIBOR plus a spread of .70% to 1.75% (as of September 28,
F-12
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2001--.825%). As of September 28, 2001, all borrowings under this facility are
payable in Canadian dollars, with a weighted average interest rate of 4.6%.
There is a fee of .15% to .25% (as of September 28, 2001--.175%) on the entire
credit facility.
The $170 million Bank Term Loans ("Term Loans") are comprised of three
separate Term Loans. Interest under the Term Loans is based on the higher of
(a) the Prime Rate and (b) the sum of 0.5% plus the Federal Funds Rate, or
LIBOR plus a spread, as defined in the Term Loans (approximately 0.90% for all
three loans as of September 28, 2001). The spread is based on certain financial
ratios, as defined in the respective Term Loans. $45 million of the Term Loans
mature in July 2003 and the remaining $125 million matures in May 2005.
The United Kingdom Term Loan is payable in semi-annual installments, with
final maturity in December 2005. Installment payments increase over the term,
as defined. Interest under the UK Term Loan is based on LIBOR plus a spread of
1.0% to 1.5% (1.25% as of September 28, 2001). The spread is based on certain
financial ratios as defined.
The 6.75% and 7.0% notes may be redeemed, in whole or in part, at any time
at the Company's option. The redemption price equals the greater of (i) 100% of
the principal amount or (ii) an amount based on the discounted present value of
scheduled principal and interest payments, as defined.
The 6.79% note is payable in $25 million annual installments, with a final
maturity of January 2003.
The 7.25% notes and debentures may be exchanged, in whole or in part, at the
option of the holder, for 7.10% senior notes due December 2006. The Company has
the right to redeem these notes and debentures, at par, upon being presented
with a notice of conversion or at any time after June 2004.
Debt repayments of $31.1 million, contractually due in fiscal 2002, have
been classified as non-current in the accompanying consolidated balance sheet
as the Company has the ability and intent to finance the repayments through
additional borrowings under the Credit Agreement. Accrued interest on
borrowings totaling $36.6 million at September 29, 2000 and $31.5 million at
September 28, 2001 is included in current liabilities as "Other accrued
expenses."
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities--an amendment of FASB Statement No.
133", on September 30, 2000. SFAS No. 133 requires the transition adjustment
resulting from adopting these Statements to be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle. In accordance with the transition provisions of SFAS No.
133, the Company recorded a cumulative transition adjustment to decrease Other
Comprehensive Income by approximately $2.5 million (net of tax), to recognize
the fair value of its derivative instruments as of the date of adoption.
The Company utilizes derivative financial instruments, such as interest rate
swaps and forward exchange contract agreements to manage changes in market
conditions related to debt obligations and foreign currency exposures. As of
September 29, 2000 and September 28, 2001, the Company had $350 million and
$200 million, respectively, of interest rate swap agreements fixing the rate on
a like amount of variable rate borrowings, at an average effective rate of 7.9%
and 8.3%, respectively. As of September 28, 2001, interest rate swap agreements
remain in effect for periods ranging from eight to twenty months. The
counterparties to the above derivative agreements are major international
banks. The Company continually monitors its positions and credit ratings of its
counterparties, and does not anticipate nonperformance by the counterparties.
F-13
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company recognizes all derivatives on the balance sheet at fair value at
the end of each quarter. Changes in the fair value of a derivative that is
designated as and meets all the required criteria for a cash flow hedge are
recorded in accumulated other comprehensive income and reclassified into
earnings as the underlying hedged item affects earnings. Amounts reclassified
into earnings related to interest rate swap agreements are included in interest
expense. As of September 28, 2001, approximately $6.5 million of net unrealized
losses related to interest rate swaps was included in Accumulated Other
Comprehensive Income, approximately $5.9 million of which is expected to be
reclassified into earnings during the next twelve months. The hedge
ineffectiveness of existing derivative instruments during fiscal 2001 was not
material.
The following summarizes the fair value of the Company's financial
instruments as of September 29, 2000 and September 28, 2001. The fair values
were computed using market quotes, if available, or based on discounted cash
flows using market interest rates as of the end of the respective periods.
<TABLE>
<CAPTION>
Fiscal
------------------------------------------
2000 2001
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Asset/(Liability) in millions
Long-term debt..................... $(1,837.4) $(1,796.3) $(1,670.6) $(1,689.9)
Interest rate swap agreements...... -- (4.0) (10.6) (10.6)
</TABLE>
The Credit Agreement contains restrictive covenants which provide, among
other things, limitations on liens, dispositions of material assets and
repurchases of capital stock. The terms of the Credit Agreement also require
that the Company maintain certain specified minimum ratios of cash flow to
fixed charges and to total borrowings and certain minimum levels of net worth
(as defined). At September 28, 2001, the Company was in compliance with all of
these covenants. Assets with a net book value of $2.4 million at September 28,
2001, are subject to liens under several of the Company's borrowing
arrangements.
Long-term borrowings maturing in the next five fiscal years are as follows:
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
2002.......................................................... $ 34,710
2003.......................................................... 74,796
2004.......................................................... 354,812
2005.......................................................... 731,487
2006.......................................................... 303,206
</TABLE>
The components of interest and other financing costs, net are summarized as
follows:
<TABLE>
<CAPTION>
Fiscal
(Income) Expense ----------------------------
1999 2000 2001
-------- -------- --------
<S> <C> <C> <C>
Interest expense.................................. $139,829 $149,430 $152,289
Interest income................................... (4,076) (1,627) (2,087)
Other financing costs............................. -- -- 3,090
-------- -------- --------
Total........................................... $135,753 $147,803 $153,292
======== ======== ========
</TABLE>
F-14
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4. EMPLOYEE PENSION AND PROFIT SHARING PLANS:
In the United States, the Company maintains qualified contributory and non-
contributory retirement plans for eligible employees, with Company
contributions to the plans based on earnings performance or salary level. The
Company has a non-qualified stock unit retirement plan for certain employees.
The total expense of the above plans for fiscal 1999, 2000 and 2001 was $16.2
million, $18.0 million and $17.8 million, respectively. During fiscal 1999 and
2000, the Company contributed 106,703 shares and 42,800 shares, respectively,
of Common Stock, Class A to these plans to partially fund previously accrued
obligations. In addition, during fiscal 1999, 2000 and 2001, the Company
contributed to the stock unit retirement plan 135,508 stock units, 119,984
stock units and 77,369 stock units, respectively, which are convertible into
Common Stock, Class B, in satisfaction of its accrued obligations. The value of
the stock units was credited to capital surplus. The Company participates in
various multi-employer union administered pension plans. Contributions to these
plans, which are primarily defined benefit plans, result from contractual
provisions of labor contracts and were $15.5 million, $15.8 million and $21.9
million for fiscal 1999, 2000 and 2001, respectively.
Additionally, the Company maintains several contributory and non-
contributory defined benefit pension plans, primarily in Canada and the United
Kingdom. As of September 28, 2001, the projected benefit obligation of these
plans was $67.2 million, which exceeded plan assets by $5.5 million. Pension
expense related to these plans is not material to the consolidated financial
statements.
F-15
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5. INCOME TAXES:
The Company accounts for income taxes following the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires deferred tax assets
or liabilities to be recognized for the estimated future tax effects of
temporary differences between the financial reporting and tax bases of assets
and liabilities based on the enacted tax law and statutory tax rates applicable
to the periods in which the temporary differences are expected to affect
taxable income.
The components of income before income taxes by source of income are as
follows:
<TABLE>
<CAPTION>
Fiscal
--------------------------
1999 2000 2001
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
United States........................................ $222,259 $249,093 $261,731
Non-U.S.............................................. 17,154 22,687 24,484
-------- -------- --------
$239,413 $271,780 $286,215
======== ======== ========
</TABLE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal
--------------------------
1999 2000 2001
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal........................................... $60,402 $ 74,879 $ 76,024
State and local................................... 13,016 14,627 14,631
Non-U.S........................................... 4,959 9,463 9,731
------- -------- --------
78,377 98,969 100,386
------- -------- --------
Deferred:
Federal........................................... 8,453 5,713 7,895
State and local................................... 1,624 1,042 1,440
Non-U.S........................................... 768 (1,904) (2)
------- -------- --------
10,845 4,851 9,333
------- -------- --------
$89,222 $103,820 $109,719
======= ======== ========
</TABLE>
The provision for income taxes varies from the amount determined by applying
the United States Federal statutory rate to pre-tax income as a result of the
following:
<TABLE>
<CAPTION>
Fiscal
----------------
1999 2000 2001
---- ---- ----
(% of pre-tax
income)
<S> <C> <C> <C>
United States statutory income tax rate...................... 35.0% 35.0% 35.0%
Increase (decrease) in taxes, resulting from:
State income taxes, net of Federal tax benefit............. 4.0 3.7 3.6
Foreign tax benefits....................................... (4.5) (2.2) (0.9)
Permanent book/tax differences, primarily resulting from
purchase accounting....................................... 3.6 3.2 2.9
Tax credits and other...................................... (0.8) (1.5) (2.3)
---- ---- ----
Effective income tax rate.................................... 37.3% 38.2% 38.3%
==== ==== ====
</TABLE>
F-16
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of September 29, 2000 and September 28, 2001, the components of deferred
taxes are as follows:
<TABLE>
<CAPTION>
Fiscal
-----------------
2000 2001
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Property and equipment..................................... $ 77,902 $ 80,370
Inventory.................................................. 1,840 8,607
Investments................................................ 21,386 25,555
Other...................................................... 14,096 13,175
-------- --------
Gross deferred tax liability............................. 115,224 127,707
-------- --------
Deferred tax assets:
Insurance.................................................. 9,995 9,003
Employee compensation and benefits......................... 48,018 52,429
Accruals and allowances.................................... 22,935 23,400
Other...................................................... 2,708 5,736
-------- --------
Gross deferred tax asset................................. 83,656 90,568
-------- --------
Net deferred tax liability............................... $ 31,568 $ 37,139
======== ========
</TABLE>
NOTE 6. CAPITAL STOCK:
There are two classes of common stock authorized and outstanding, Common
Stock, Class A and Common Stock, Class B. Each Class A and Class B Share is
entitled to one vote on all matters submitted to shareholders, voting together
as a single class except where otherwise required by law. Each Class A Share is
entitled to ten times the dividends and other distributions payable on each
Class B Share.
As of September 28, 2001, the Company's stock option plans provided for the
issuance of up to 84,215,777 options to purchase shares of Common Stock, Class
B. The exercise price of each option is equal to the current fair market value
at the date of grant. The Company granted installment stock purchase
opportunities under its stock ownership program in fiscal 1999, 2000 and 2001,
which provide for the purchase of shares of Common Stock, Class B. Installment
stock purchase opportunities are exercisable in six annual installments with
the exercise price of each purchase opportunity equal to the current fair
market value at the time the purchase opportunity is granted. The Company has a
program to grant non-qualified stock options to additional qualified employees
on an annual basis. Under the program, options begin to vest after three years
and may be exercised for a period of three years after vesting. The Company
also grants cumulative installment stock purchase opportunities under its
existing stock ownership program which are similar to the installment stock
purchase opportunities discussed above; however, the number of installments and
vesting schedule may vary and any purchase opportunities not exercised during
an installment period may be carried forward to subsequent installment periods.
The Company has a Deferred Payment Program which enables holders of installment
purchase opportunities to defer a portion of the total amount required to
exercise the options. Interest currently accrues on deferred payments at rates
ranging from 6.75% to 9.5% and is payable when the deferred payments are due.
At September 29, 2000 and September 28, 2001, the receivables from individuals
under the Deferred Payment Program were $2.4 million and $3.4 million,
respectively, which are reflected as a reduction of Shareholders' Equity. The
deferred payments are full recourse obligations and the Company holds as
collateral shares purchased until the deferred payment is received from the
individual by the Company. During fiscal 1999, 2000 and 2001, the Company sold
for cash, without recourse, approximately $44 million, $27 million and $38
million, respectively, of Deferred Payment Program notes receivable. The sales
price for
F-17
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
sales of Deferred Payment Program notes receivable sold during fiscal 1999 and
2000 approximated book value. The sales price of $41 million during fiscal 2001
resulted in a gain of $2 million (net of transaction costs), which is included
in "Interest and other financing costs, net." The proceeds were used to repay
borrowings under the credit facility. Status of the options under the various
ownership programs, follows:
<TABLE>
<CAPTION>
Average Option
Number of Shares(1) Price(1)
-------------------------------- --------------------
Price 1999 2000 2001 1999 2000 2001
----- ---------- ---------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 24,701,205 20,529,608 18,021,686 $ 5.78 $ 7.19 $10.31
Options granted......... 4,912,500 7,380,700 5,322,500 $11.57 $14.70 $17.74
Options exercised....... 6,125,906 6,475,146 4,596,521 $ 5.28 $ 6.20 $ 8.14
Canceled/Forfeited...... 2,958,191 3,413,476 2,649,916 $ 6.50 $ 8.56 $11.35
Outstanding at end of
year................... 20,529,608 18,021,686 16,097,749 $ 7.19 $10.31 $13.22
Exercisable at end of
year................... 2,001,697 808,247 710,892 $ 4.84 $ 5.39 $ 6.77
</TABLE>
--------
(1) Number of shares and option prices do not reflect the proposed merger
and the merger exchange ratios that have the effect of a 2 for 1 split
described in Note 1.
The exercise prices on outstanding options at September 28, 2001 range from
$5.13 to $19.90 with a weighted average remaining life of approximately three
years. The Company has reserved 17,917,598 shares of Common Stock, Class B at
September 28, 2001 for issuance of stock pursuant to its employee ownership and
benefit programs.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock option plans. Accordingly, no compensation expense has been
recognized related to the plans described above. If compensation cost for these
plans had been determined using the fair-value method prescribed by SFAS No.
123, "Accounting for Stock Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
Fiscal
--------------------------
1999 2000 2001
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Net Income
As reported........................................ $150,191 $167,960 $176,496
Pro forma.......................................... $146,501 $163,760 $173,354
Earnings per share
As reported:
Basic............................................ $1.59 $1.88 $2.06
Diluted.......................................... $1.48 $1.77 $1.95
Pro forma:
Basic............................................ $1.56 $1.83 $2.02
Diluted.......................................... $1.44 $1.72 $1.91
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to fiscal 1996, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
F-18
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average fair value of options granted in fiscal 1999, 2000 and
2001 was $1.61, $2.64 and $3.08 per option, respectively. As the Company's
stock is not publicly traded, the fair value of each option was estimated on
the grant date using the minimum value method (which excludes a volatility
assumption), with the following assumptions:
<TABLE>
<CAPTION>
Fiscal
--------------------------
1999 2000 2001
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate.............................. 4.5-4.8% 5.2-6.1% 5.9-6.4%
Expected life in years............................... 3.3 3.4 3.3
Dividend yield....................................... -- -- --
</TABLE>
The Company and its shareholders are parties to an Amended and Restated
Stockholders' Agreement. Pursuant to this agreement, holders of common stock
who are individuals, upon their death, complete disability or normal
retirement, may cause the Company to repurchase up to 30% of their shares for
cash at the then appraised value, but only to the extent such repurchase by
the Company is permitted under the Credit Agreement. Under this Credit
Agreement restriction, repurchases of capital stock cannot exceed an aggregate
limit, which amount was $20 million at September 29, 2000 and September 28,
2001. This potential repurchase obligation has been classified outside of
Shareholders' Equity in the accompanying balance sheet. Also, the
Shareholders' Agreement provides that the Company may, at its option,
repurchase shares from individuals who are no longer employees. Such
repurchased shares may be resold to others including replacement personnel at
prices equal to or greater than the repurchase price. Generally, payment for
shares repurchased can be, at the Company's option, in cash or subordinated
installment notes, which are subordinated to all other indebtedness of the
Company. Interest on these notes is payable semi-annually and principal
payments are made annually over varying periods not to exceed ten years. The
noncurrent portion of these notes ($48.3 million as of September 29, 2000 and
$34.9 million as of September 28, 2001) is included in the consolidated
balance sheets as "Other Noncurrent Liabilities" and the current portion of
these notes ($47.8 million as of September 29, 2000 and $43.8 million as of
September 28, 2001) is included in the consolidated balance sheets as
"Accounts Payable."
NOTE 7. ACCOUNTS RECEIVABLE SECURITIZATION:
During fiscal 2001, the Company entered into an agreement (the "Receivables
Facility") with several financial institutions whereby it sells on a
continuous basis an undivided interest in all eligible trade accounts
receivable, as defined. Pursuant to the Receivables Facility, the Company
formed ARAMARK Receivables, LLC a wholly-owned, special purpose, bankruptcy-
remote subsidiary. ARAMARK Receivables, LLC was formed for the sole purpose of
buying and selling receivables generated by certain subsidiaries of the
Company. Under the Receivables Facility, certain subsidiaries of the Company
transfer without recourse all of their accounts receivable to ARAMARK
Receivables, LLC. ARAMARK Receivables, LLC, in turn, has sold and, subject to
certain conditions, may from time to time sell an undivided interest in these
receivables up to $200 million. The Company has retained collection and
administrative responsibility for the participating interest sold. The
agreement expires in March 2004. This two-step transaction is accounted for as
a sale of receivables following the provisions of SFAS No. 140. At September
28, 2001, $141 million of accounts receivable were sold and removed from the
consolidated balance sheet. The loss on the sale of receivables in fiscal 2001
was $5.1 million and is included in "Interest and other financing costs, net."
The proceeds from the accounts receivable sales were used to repay
borrowings under the credit facility.
F-19
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES:
The Company has capital commitments of approximately $108.0 million at
September 28, 2001 in connection with several long-term concession contracts.
The Company has guaranteed approximately $13 million of affiliate indebtedness
at September 28, 2001.
Rental expense for all operating leases was $146.5 million, $167.4 million
and $174.8 million for fiscal 1999, 2000 and 2001, respectively. The following
is a schedule of the future minimum rental and similar commitments under all
noncancelable operating leases as of September 28, 2001:
<TABLE>
<CAPTION>
Fiscal Year (in thousands)
<S> <C>
2002........................................................... $213,287
2003........................................................... 117,601
2004........................................................... 99,184
2005........................................................... 76,741
2006........................................................... 62,671
Subsequent years............................................... 238,187
--------
Total minimum rental obligations................................. $807,671
========
</TABLE>
The Company is party to certain claims and litigation. Such items include,
among others, employment matters, compliance with various government
regulations, contractual disputes and other matters arising in the normal
course of business. The Company is vigorously defending these matters and
believes that the ultimate resolution is not likely to have a material effect
on the consolidated financial condition or results of operations. Negotiations
are currently underway toward a settlement of certain matters related to public
school food service programs, and management does not believe such settlement
will have a material effect on the consolidated financial statements. During
the fourth quarter of fiscal 2001, the liability related to these matters was
adjusted to reflect the current status of the settlement discussions. It is
possible that future claims could be asserted related to such public school
programs, however, management believes its interpretation of the applicable
government regulations is correct and will defend vigorously against any such
claims if asserted.
NOTE 9. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for fiscal 2000 and
2001:
<TABLE>
<CAPTION>
Fiscal Quarter
-------------------------------------------
2000 First Second Third Fourth Year
---- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales................... $1,767,615 $1,746,380 $1,835,543 $1,913,329 $7,262,867
Cost of services
provided............... 1,598,558 1,597,660 1,651,739 1,683,068 6,531,025
Net Income.............. 37,270 22,816 43,363 64,511 167,960
Diluted earnings per
share.................. $0.38 $0.24 $0.46 $0.70 $1.77
<CAPTION>
Fiscal Quarter
-------------------------------------------
2001 First Second Third Fourth Year
---- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales................... $1,947,278 $1,881,033 $1,980,854 $1,979,525 $7,788,690
Cost of services
provided............... 1,751,969 1,716,998 1,777,069 1,756,694 7,002,730
Net Income.............. 43,428 23,762 48,051 61,255 176,496
Diluted earnings per
share.................. $0.48 $0.26 $0.53 $0.68 $1.95
</TABLE>
F-20
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the first and second fiscal quarters, within the Food and Support
Services--United States segment, there is a lower level of activity at the
higher margin sports, entertainment and recreational food service operations
which is partly offset by increased activity in the educational market.
However, in the third and fourth fiscal quarters, there is a significant
increase at sports, entertainment and recreational accounts which is partially
offset by the effect of summer recess in the educational market. In addition,
there is a seasonal increase in volume of directly marketed work clothing
during the first quarter.
During the fourth quarter of fiscal 2001, operating results were negatively
affected by the September 11th terrorist attacks, a litigation related charge
and start up costs incurred in connection with a new correctional services
contract.
NOTE 10. BUSINESS SEGMENTS:
The Company provides or manages services in three strategic areas; Food and
Support Services, Uniform and Career Apparel and Educational Resources which
are organized and managed by the following reportable business segments:
Food and Support Services--United States--Food, refreshment, specialized
dietary and support services, including facility maintenance and housekeeping,
provided to business, educational, governmental and healthcare institutions and
in sports, entertainment, recreational and other facilities serving the general
public. As a result of the terrorist attacks of September 11th, customer
locations in and around the World Trade Center were either destroyed or closed
and Major League Baseball and National Football League games were postponed
until fiscal 2002, adversely impacting fiscal 2001 financial results in this
segment. Had the terrorist attacks not occurred, management estimates that
segment sales and operating income would have been approximately 1% and 3%,
respectively, higher than reported.
Food and Support Services--International--Food, refreshment, specialized
dietary and support services, including facility maintenance and housekeeping,
provided to business, educational, governmental and healthcare institutions and
in sports, entertainment, recreational and other facilities serving the general
public. Operations are conducted in Belgium, Canada, the Czech Republic,
Germany, Hungary, Japan, Korea, Mexico, Spain and the United Kingdom.
Uniform and Career Apparel--Rental--Rental, sale, cleaning, maintenance and
delivery of personalized uniform and career apparel and other textile items on
a contract basis. Also provided are walk-off mats, cleaning cloths, disposable
towels and other environmental control items.
Uniform and Career Apparel--Direct Marketing--Direct marketing of
personalized uniforms and career apparel, public safety equipment and
accessories to businesses, public institutions and individuals.
Educational Resources--Provider of infant, toddler, pre-school and school-
age learning programs through community-based child care centers, before and
after school programs, employer on-site child care centers and private
elementary schools.
Corporate and Other--The corporate and other segment includes general
corporate expenses not specifically allocated to an individual segment.
Included in the Corporate and Other segment during fiscal 2001 is a gain of
$6.6 million resulting from the redemption of preferred stock by an entity
which the Company divested in fiscal 1997. Also included in Corporate and Other
in fiscal 2001 are charges related to certain litigation pertaining to a
previously divested entity ($1.5 million), merger and acquisition related costs
($0.5 million), and the immaterial cumulative effect ($2.6 million) of a change
by the Educational Resources business in accounting for non-refundable
registration fees pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 101.
F-21
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sales by segment are substantially comprised of services to unaffiliated
customers and clients. Operating income reflects expenses directly related to
individual segments plus an allocation of corporate expenses applicable to more
than one segment.
Net property and equipment by geographic area is as follows:
<TABLE>
<CAPTION>
Fiscal
-----------------
2000 2001
-------- --------
(in millions)
<S> <C> <C>
United States................................................. $1,006.1 $1,026.9
International................................................. 47.1 60.9
-------- --------
Total....................................................... $1,053.2 $1,087.8
======== ========
</TABLE>
<TABLE>
<CAPTION>
Depreciation and
Sales Amortization
-------------------------- --------------------
1999 2000 2001 1999 2000 2001
-------- -------- -------- ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Food and Support Services--
United States................ $3,993.5 $4,396.3 $4,782.1 $ 93.6 $113.7 $127.3
Food and Support Services--
International................ 975.2 1,001.9 1,109.3 16.0 16.7 19.0
Uniform and Career Apparel--
Rental....................... 911.9 969.6 995.2 43.4 45.7 48.3
Uniform and Career Apparel--
Direct Marketing............. 462.0 455.7 438.8 18.7 19.8 17.9
Educational Resources......... 399.7 439.4 463.3 20.0 23.0 25.7
Corporate and Other........... -- -- -- 2.0 1.9 2.0
-------- -------- -------- ------ ------ ------
Total....................... $6,742.3 $7,262.9 $7,788.7 $193.7 $220.8 $240.2
======== ======== ======== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Operating Income
-------------------------
1999 2000 2001
------- ------- -------
(in millions)
<S> <C> <C> <C>
Food and Support Services--United States............. $ 222.3 $ 244.5 $ 264.7
Food and Support Services--International............. 32.0 40.2 39.4
Uniform and Career Apparel--Rental................... 106.9 118.5 119.7
Uniform and Career Apparel--Direct Marketing......... 3.9 10.8 15.6
Educational Resources................................ 34.7 32.3 25.4
------- ------- -------
399.8 446.3 464.8
Corporate and Other.................................. (24.6) (26.7) (25.3)
------- ------- -------
Operating Income..................................... 375.2 419.6 439.5
Interest and Other Financing Costs, net.............. (135.8) (147.8) (153.3)
------- ------- -------
Income Before Income Taxes........................... $ 239.4 $ 271.8 $ 286.2
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Capital Expenditures Identifiable Assets
-------------------- --------------------------
1999 2000 2001 1999 2000 2001
------ ------ ------ -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Food and Support Services--
United States................ $ 94.6 $160.6 $ 94.0 $1,186.9 $1,442.3 $1,344.9
Food and Support Services--
International................ 20.1 22.0 31.2 246.5 253.0 359.1
Uniform and Career Apparel--
Rental....................... 64.4 65.2 72.8 762.2 818.3 856.4
Uniform and Career Apparel--
Direct Marketing............. 8.8 7.0 7.8 311.4 301.7 272.9
Educational Resources......... 39.6 56.4 40.5 234.7 257.4 264.1
Corporate and Other........... -- 0.1 0.2 128.8 126.7 119.0
------ ------ ------ -------- -------- --------
$227.5 $311.3 $246.5 $2,870.5 $3,199.4 $3,216.4
====== ====== ====== ======== ======== ========
</TABLE>
F-22
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11. SUBSEQUENT EVENT
On October 3, 2001, the Company signed an agreement to acquire the
management services division of The ServiceMaster Company, which we refer to as
ServiceMaster Management Services. The aggregate consideration for the
transaction is approximately $800 million in cash. The transaction is subject
to customary consents, approvals, conditions and clearances. ServiceMaster
Management Services provides a complete range of facility management services
to the healthcare, education and business and industry client sectors.
The Company intends to finance the acquisition of ServiceMaster Management
Services by borrowing approximately an additional $200 million under the senior
revolving credit facility and $600 million under a new bridge financing
facility with a group of banks arranged by J.P. Morgan Securities Inc. The
Company expects to repay a portion of the bridge financing with a portion of
the proceeds from the initial public offering further described in Note 1.
F-23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ARAMARK Worldwide Corporation:
We have audited the accompanying balance sheet of ARAMARK Worldwide
Corporation as of September 28, 2001. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ARAMARK Worldwide Corporation at
September 28, 2001 in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
November 14, 2001
F-24
ARAMARK WORLDWIDE CORPORATION
BALANCE SHEET
September 28, 2001
<TABLE>
<S> <C>
ASSETS--Cash.............................................................. $100
====
SHAREHOLDER'S EQUITY--Common stock........................................ $100
====
</TABLE>
NOTES TO BALANCE SHEET
1. ORGANIZATION AND PURPOSE--ARAMARK Worldwide Corporation (the "Company")
was incorporated in Delaware on June 28, 2001, to become a wholly-owned
subsidiary of ARAMARK Corporation (ARAMARK). Subject to the approval of the
shareholders of ARAMARK, the Company will merge with ARAMARK, and all of the
outstanding common stock of ARAMARK will be exchanged for new Class A common
stock of the Company.
2. SHAREHOLDER'S EQUITY--The Company is authorized to issue 1,000 shares of
$1.00 par value common stock. ARAMARK has acquired 100 shares in exchange for
$100.
F-25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The ServiceMaster Company:
We have audited the accompanying statement of financial position of
SERVICEMASTER MANAGEMENT SERVICES BUSINESS (the "Business" as described in Note
1) as of December 31, 2000, and the related statements of income, changes in
equity, and cash flows for the year then ended. These financial statements are
the responsibility of The ServiceMaster Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed more fully in Note 2, on October 3, 2001, The ServiceMaster
Company entered into an agreement to sell the Business.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ServiceMaster Management
Services Business as of December 31, 2000, and the results of its operations,
changes in equity and cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Chicago, Illinois
November 14, 2001
F-26
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2000
(In thousands)
<TABLE>
<S> <C>
Assets
Current Assets:
Receivables, less allowance of $5,812................................. $109,167
Inventories........................................................... 11,712
Prepaid expenses and other assets..................................... 24,758
--------
Total current assets................................................ 145,637
--------
Property, Plant and Equipment, at Cost
Land and buildings.................................................... 3,285
Equipment............................................................. 120,615
--------
123,900
Less: accumulated depreciation........................................ 75,682
--------
Net property, plant and equipment..................................... 48,218
--------
Other Assets
Intangible assets, primarily goodwill................................. 42,873
Notes receivable and other assets..................................... 6,813
Deferred income taxes................................................. 22,410
--------
Total assets........................................................ $265,951
========
Liabilities and Equity
Current Liabilities:
Accounts Payable...................................................... $ 25,037
Accrued liabilities:
Payroll............................................................. 20,433
Insurance........................................................... 30,195
Other............................................................... 33,747
Deferred revenues..................................................... 13,601
--------
Total current liabilities........................................... 123,013
--------
Other Long-Term Obligations........................................... 25,478
--------
Commitments and Contingencies (see Note 6)
Equity--Net Advances from The ServiceMaster Company................... 117,460
--------
Total Liabilities and Equity.......................................... $265,951
========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of
this statement.
F-27
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(in thousands)
<TABLE>
<S> <C>
Operating Revenue................................................... $1,909,126
Operating Costs and Expenses:
Cost of services rendered and products sold......................... 1,728,695
Selling and administrative expenses................................. 111,335
----------
Total operating costs and expenses.................................. 1,840,030
----------
Operating Income.................................................... 69,096
Provision for income taxes.......................................... 27,293
----------
Net Income.......................................................... $ 41,803
==========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of
this statement.
F-28
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(In thousands)
<TABLE>
<S> <C>
Cash and Cash Equivalents at January 1................................ $ --
Cash Flows from Operations:
Net Income............................................................ 41,803
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation...................................................... 18,301
Amortization...................................................... 1,392
Deferred income taxes............................................. 719
Change in working capital:
Receivables....................................................... (9,387)
Inventories and other current assets.............................. (6,315)
Accounts payable.................................................. 7,902
Deferred revenue.................................................. 4,118
Accrued liabilities............................................... 9,638
Other, net.......................................................... (2,246)
--------
Net Cash Provided by Operations..................................... 65,925
Cash Flows from Investing Activities:
Capital expenditures, net........................................... (15,121)
Business acquisitions............................................... (3,825)
Collection of notes receivable...................................... 8,512
--------
Net Cash Used for Investing Activities.............................. (10,434)
Cash Flows from Financing Activities:
Distributions to ServiceMaster...................................... (55,491)
--------
Net Cash Used for Financing Activities.............................. (55,491)
Cash Increase (Decrease) During the Period............................ --
--------
Ending Cash and Cash Equivalents...................................... $ --
========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of this
statement.
F-29
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2000
(In thousands)
<TABLE>
<S> <C>
Equity--Net advances from The ServiceMaster Company
Beginning Balance..................................................... $131,148
Net Income............................................................ 41,803
Net Remittances to The ServiceMaster Company.......................... (55,491)
--------
Ending Balance........................................................ $117,460
========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of this
statement.
F-30
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS
Note 1--Basis of Presentation
ServiceMaster Management Services Business (the "Business") is an operating
segment of The ServiceMaster Company ("ServiceMaster", a Delaware corporation)
and provides a variety of supportive management services to healthcare,
education and commercial accounts primarily within the United States. The
Business is also engaged in developing, manufacturing and distributing
chemicals and equipment. The financial statements presented include the
operations of the Business.
As a result of the Business's relationship with ServiceMaster, the financial
position and results of operations are not necessarily indicative of what
actually would have occurred had the Business operated as a stand-alone entity.
Additionally, these financial statements are not necessarily indicative of
future financial position or results of operations.
The preparation of the financial statements requires management to make
certain estimates and assumptions required under accounting principles
generally accepted in the United States, which may differ from the actual
results. The more significant areas requiring the use of management estimates
relate to the allowance for receivables, accruals for self-insured medical,
workers compensation, auto and general liability insurance, and useful lives
for depreciation and amortization.
Note 2--Subsequent Event
On October 3, 2001, ServiceMaster entered into an agreement to sell the
Business to ARAMARK Corporation ("ARAMARK"). Significant terms of the sale
include the disposition of substantially all assets and liabilities of the
Business, with the primary exception of the majority of its site service
product line. ARAMARK is also purchasing ServiceMaster's corporate headquarters
campus. The transaction is expected to close in 2001.
Supplemental financial information with respect to the corporate
headquarters campus excluded from, and the site service product line included
in the financial statements of the Business as of and for the year ended
December 31, 2000 is set forth below (in thousands):
<TABLE>
<S> <C>
Corporate headquarters campus:
Land and buildings..................................................... $24,268
Equipment.............................................................. 6,922
-------
Total................................................................ 31,190
-------
Less--accumulated depreciation......................................... 13,179
-------
Net property, plant and equipment...................................... $18,011
=======
</TABLE>
Depreciation expense related to
this facility was $1.5 million for
the year ended December 31, 2000, of
which $660 was allocated to and
recorded as a cash transaction by
the Business.
<TABLE>
<S> <C>
Site service product line
Summary balance sheet:
Total current assets.................................................. $ 5,000
Total other assets.................................................... 9,792
Net property, plant and equipment..................................... 4,277
-------
Total assets.......................................................... $19,069
=======
Total current liabilities............................................. $ 822
Equity................................................................ 18,247
-------
Total liabilities and equity.......................................... $19,069
=======
Summary income statement:
Operating revenue..................................................... $30,222
Cost of services rendered and products sold........................... 30,794
Selling and administrative expenses................................... 3,103
-------
Total operating costs and expenses.................................. 33,897
-------
Operating loss........................................................ (3,675)
Income tax benefit.................................................... 1,452
-------
Net loss.............................................................. $(2,223)
=======
</TABLE>
F-31
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 3--Summary of Significant Accounting Policies
Revenues: Revenues are recognized as services are rendered and consist of
contract fees from facilities for which the Business provides outsourcing
services. Revenues reflect the total price of such services since the Business
acts as a principal in these transactions and assumes the risks and rewards of
the contractual arrangement. As such, contract fees for all payroll costs,
including $923 million for the facility employees whose payroll is processed by
the facilities, are recognized by the Business as revenues with a corresponding
expense included in "Cost of services rendered and products sold" in the
Statement of Income.
Inventory Valuation: Inventories are valued at the lower of cost (first-in,
first-out basis) or market. Inventory costs include material, labor, and
factory overhead and related handling costs. Raw materials represent less than
three percent of the inventory value at December 31, 2000. The remaining
inventory is finished goods to be used on the customers' premises or sold to
ServiceMaster's franchisees.
Depreciation and Amortization: Buildings and equipment used in the business
are stated at cost and depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes. The estimated useful
lives for building and improvements range from 10 to 40 years, while the
estimated useful lives for equipment range from 3 to 10 years. Long-lived
assets are periodically reviewed to determine recoverability by comparing their
carrying values to the undiscounted future cash flows expected to be realized
from their use. No recovery problems have been indicated by these comparisons.
Based on the reviews, when the undiscounted future cash flows are less than the
carrying amount of the asset, an impairment loss is recognized based on the
asset's fair value, and the carrying amount of the asset is reduced
accordingly.
Intangible assets consist primarily of goodwill ($43 million). These assets
are amortized on a straight-line basis over their estimated useful lives, which
are predominately 40 years. Goodwill is periodically reviewed to determine
recoverability utilizing a discounted cash flow methodology.
Income Taxes: Income taxes are accounted for under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This Statement
utilizes an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in an entity's financial statements or tax
returns. Deferred income taxes are provided to reflect the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements.
Note 4--Related Party Transactions
The Business primarily conducts its operations as an integrated component of
ServiceMaster. Certain expenses are shared and are charged or allocated to the
Business from ServiceMaster. Additionally, certain expenses are allocated from
the Business to ServiceMaster. Management believes that the methods of
allocating these expenses are reasonable. The majority of these expenses are as
follows (in thousands):
Allocations from ServiceMaster to the Business which are recorded in the
financial statements:
<TABLE>
<S> <C>
Campus................................................................ $2,300
Insurance............................................................. 1,760
Benefits.............................................................. 460
Other................................................................. 420
------
Total................................................................. $4,940
======
</TABLE>
F-32
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The campus allocation is based upon the square footage used by the Business
and includes both depreciation and operating costs associated with the campus.
Insurance expense included claims paid related to the umbrella, professional
liability, crime, and directors and officers insurance policies. Benefits
primarily represent the Business's portion of the company match for the
ServiceMaster Employee Share Purchase Plan.
Allocations from the Business to ServiceMaster which are recorded in the
financial statements:
<TABLE>
<S> <C>
Insurance............................................................ $ 370
Administrative services.............................................. 790
Other................................................................ 300
------
Total................................................................ $1,460
======
</TABLE>
Insurance expense included claims paid related to the health, auto, and
property insurance policies. Administrative services primarily represent
information systems support provided by the Business to ServiceMaster.
Note 5--Income Taxes
For purposes of these financial statements, the Business calculated the
current and deferred income tax provision as if it filed a separate tax return.
Income taxes are ultimately paid by, and are the responsibility of,
ServiceMaster. ServiceMaster will retain the asset/liability for all taxes of
the Business for operating activities through the date of sale.
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to the Business's effective income tax rate is as follows:
<TABLE>
<S> <C>
Tax at U.S. federal statutory rate........................................ 35.0%
State and local income taxes, net of U.S. federal benefit................. 6.6
Non-deductible amortization............................................... (3.3)
Other..................................................................... 1.2
----
Effective rate............................................................ 39.5%
====
</TABLE>
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
(In thousands)
<S> <C> <C> <C>
U.S. federal........................................ $22,061 $672 $22,733
State and local..................................... 4,513 47 4,560
------- ---- -------
$26,574 $719 $27,293
======= ==== =======
</TABLE>
The net deferred income tax asset reflects the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts for income tax purposes. Deferred
income tax expense results from changes in the net asset balance for the year.
Management believes
F-33
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
that, based upon its lengthy and consistent history of profitable operations,
it is probable that the net deferred income tax asset will be realized on
future tax returns, primarily from the generation of future taxable income.
Significant components of the Business's net deferred income tax asset are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred income tax assets (liabilities):
Current:
Prepaid expenses and other.......................................... $(1,472)
Accounts receivable allowance and other............................. 2,419
-------
Total current asset............................................... 947
-------
Long-Term:
Long-term assets...................................................... 2,603
Insurance expenses.................................................... 19,195
Other long-term obligations........................................... 612
-------
Total long term asset............................................... 22,410
-------
Net deferred income tax asset......................................... $23,357
=======
</TABLE>
Note 6--Commitments and Contingencies
The Business carries insurance policies on insurable risks which it believes
to be appropriate. The Business generally has self-insured retention limits and
has obtained fully insured layers of coverage above such self-insured retention
limits. Accruals for self insurance losses are made based on the Business's
claims experience and actuarial assumptions. Other long-term obligations
primarily represent insurance related reserves. The Business has certain
liabilities with respect to existing or potential claims, lawsuits, and other
proceedings. The Business accrues for these liabilities when it is probable
that future costs will be incurred and such costs can be reasonably estimated.
Certain litigation and the related exposure has been assumed by ServiceMaster.
Note 7--Employee Benefit Plans
Operating expenses include contributions in 2000 to qualified profit sharing
plans for $2.5 million and to the ServiceMaster Employee Share Purchase Plan
for $0.5 million.
Note 8--Leases
Future long-term noncancelable operating lease payments are $4.9 million in
2001, $2.4 million in 2002, $0.8 million in 2003, $0.3 million in 2004, and
less than $0.1 million thereafter. Rental expense for 2000 was $5.4 million.
Note 9- Equity--Net Advances from ServiceMaster
The Business participates in a centralized cash management program
administered by ServiceMaster. Cash collected from operations is remitted to
ServiceMaster and advances are made by ServiceMaster, as needed, to cover the
Business's operating expenses and capital requirements. Cash remitted between
the Business and to or from ServiceMaster decreases or increases, respectively,
the net advances from ServiceMaster.
F-34
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 2001 (UNAUDITED)
(In thousands)
<TABLE>
<S> <C>
Assets
Current Assets:
Receivables, less allowance of $1,695................................. $ 27,045
Inventories........................................................... 10,069
Prepaid expenses and other assets..................................... 25,133
--------
Total current assets................................................ 62,247
--------
Property, Plant and Equipment, at Cost
Land and buildings.................................................... 4,223
Equipment............................................................. 122,376
--------
126,599
Less: accumulated depreciation........................................ 80,719
--------
Net property, plant and equipment..................................... 45,880
--------
Other Assets
Intangible assets, primarily goodwill................................. 47,811
Notes receivable and other assets..................................... 6,831
Deferred income taxes................................................. 24,440
--------
Total assets........................................................ $187,209
========
Liabilities and Equity
Current Liabilities:
Accounts Payable...................................................... $ 29,288
Accrued liabilities:
Payroll............................................................. 16,520
Insurance........................................................... 30,332
Other............................................................... 32,505
Deferred revenues..................................................... 16,707
--------
Total current liabilities........................................... 125,352
--------
Other Long-Term Obligations........................................... 26,820
--------
Commitments and Contingencies (see Notes)
Equity--Net Advances from The ServiceMaster Company................... 35,037
--------
Total Liabilities and Equity.......................................... $187,209
========
</TABLE>
The accompanying Notes to the Financial Statements are an intergral part of
this statement.
F-35
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
(In thousands)
<TABLE>
<S> <C>
Operating Revenue................................................... $1,439,877
Operating Costs and Expenses:
Cost of services rendered and products sold......................... 1,304,084
Selling and administrative expenses................................. 88,064
----------
Total operating costs and expenses.................................. 1,392,148
----------
Operating Income.................................................... 47,729
Provision for income taxes.......................................... 18,853
----------
Net Income.......................................................... $ 28,876
==========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of this
statement.
F-36
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
(In thousands)
<TABLE>
<S> <C>
Cash and Cash Equivalents at January 1............................... $ --
Cash Flows from Operations:
Net Income........................................................... 28,876
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation..................................................... 13,568
Amortization..................................................... 1,046
Deferred income taxes............................................ 1,224
Change in working capital:
Receivables...................................................... 9,101
Sale of receivables (Note 5)..................................... 73,021
Inventories and other current assets............................. 2,074
Accounts payable................................................. 4,250
Deferred revenue................................................. 3,106
Accrued liabilities.............................................. (5,018)
Other, net......................................................... (2,428)
---------
Net Cash Provided by Operations.................................... 128,820
Cash Flows from Investing Activities:
Capital expenditures, net.......................................... (11,230)
Business acquisitions.............................................. (6,291)
---------
Net Cash Used for Investing Activities............................. (17,521)
Cash Flows from Financing Activities:
Distributions to ServiceMaster..................................... (111,299)
---------
Net Cash Used for Financing Activities............................. (111,299)
Cash Increase (Decrease) During the Period........................... --
---------
Ending Cash and Cash Equivalents..................................... $ --
=========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of this
statement.
F-37
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
(In thousands)
<TABLE>
<S> <C>
Equity--net advances from The ServiceMaster Company
Beginning Balance.................................................... $ 117,460
Net Income........................................................... 28,876
Net Remittances to The ServiceMaster Company......................... (111,299)
---------
Ending Balance....................................................... $ 35,037
=========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of this
statement.
F-38
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS
Note 1--Basis of Presentation
ServiceMaster Management Services Business (the "Business") is an operating
segment of The ServiceMaster Company ("ServiceMaster", a Delaware corporation)
and provides a variety of supportive management services to healthcare,
education and commercial accounts primarily within the United States. The
Business is also engaged in developing, manufacturing and distributing
chemicals and equipment.
The financial statements presented include the operations of the Business.
In the opinion of management, these financial statements include all
adjustments necessary to present fairly the financial position as of September
30, 2001 and results of operations and cash flows for the nine months then
ended. All adjustments made have been of a normal and recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the
United States have been condensed or omitted. The Business believes that the
disclosures included are adequate and provide a fair presentation of interim
period results.
As a result of the Business's relationship with ServiceMaster, the financial
position and results of operations are not necessarily indicative of what
actually would have occurred had the Business operated as a stand-alone entity.
Additionally, these financial statements are not necessarily indicative of
future financial position or results of operations.
The preparation of the financial statements requires management to make
certain estimates and assumptions required under accounting principles
generally accepted in the United States, which may differ from the actual
results. The more significant areas requiring the use of management estimates
relate to the allowance for receivables, accruals for self-insured medical,
workers compensation, auto and general liability insurance, and useful lives
for depreciation and amortization.
Note 2--Subsequent Event
On October 3, 2001, ServiceMaster entered into an agreement to sell the
Business to ARAMARK Corporation ("ARAMARK"). Significant terms of the sale
include the disposition of substantially all assets and liabilities of the
Business, with the exception of the majority of its site service product line.
ARAMARK is also purchasing ServiceMaster's corporate headquarters campus. The
transaction is expected to close in 2001.
Supplemental financial information with respect to the corporate
headquarters campus excluded from, and the site service product line included
in the financial statements of the Business as of and for the nine months ended
September 30, 2001 is set forth below (in thousands):
<TABLE>
<S> <C>
Corporate headquarters
campus:
Land and buildings........ $24,505
Equipment................. 7,095
-------
Total................... 31,600
-------
Less--accumulated
depreciation............. 14,367
-------
Net property, plant and
equipment................ $17,233
=======
</TABLE>
<TABLE>
<S> <C>
Site service product line
Summary balance sheet:
Total current assets........................ $ 6,796
Total other assets.......................... 9,580
Net property, plant and equipment........... 4,525
-------
Total assets................................ $20,901
=======
Total current liabilities................... $ 145
Equity...................................... 20,756
-------
Total liabilities and equity................ $20,901
=======
Summary income statement:
Operating revenue........................... $22,741
Cost of services rendered and products
sold....................................... 28,767
Selling and administrative expenses......... 1,970
-------
Total operating costs and expenses........ 30,737
-------
Operating loss.............................. (7,996)
Income tax benefit.......................... 3,158
-------
Net loss.................................... $(4,838)
=======
</TABLE>
Depreciation expense
related to this facility was
$1.2 million for the nine
months ended September 30,
2001 of which $490 was
allocated to and recorded as
a cash transaction by the
Business.
F-39
SERVICEMASTER MANAGEMENT SERVICES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 3--Summary of Significant Accounting Policies
Revenues: Revenues are recognized as services are rendered and consist of
contract fees from facilities for which the Business provides outsourcing
services. Revenues reflect the total price of such services since the Business
acts as a principal in these transactions and assumes the risks and rewards of
the contractual arrangement. As such, contract fees for all payroll costs,
including $699 million for the facility employees whose payroll is processed by
the facilities, are recognized by the Business as revenues with a corresponding
expense included in "Cost of services rendered and products sold" in the
Statement of Income.
Inventory Valuation: Inventories are valued at the lower of cost (first-in,
first-out basis) or market. Inventory costs include material, labor, and
factory overhead and related handling costs. Raw materials represent less than
three percent of the inventory value at September 30, 2001. The remaining
inventory is finished goods to be used on the customers' premises or sold to
ServiceMaster's franchisees.
Depreciation and Amortization: Buildings and equipment used in the business
are stated at cost and depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes. The estimated useful
lives for building and improvements range from 10 to 40 years, while the
estimated useful lives for equipment range from 3 to 10 years. Long-lived
assets are periodically reviewed to determine recoverability by comparing their
carrying values to the undiscounted future cash flows expected to be realized
from their use. No recovery problems have been indicated by these comparisons.
Based on the reviews, when the undiscounted future cash flows are less than the
carrying amount of the asset, an impairment loss is recognized based on the
asset's fair value, and the carrying amount of the asset is reduced
accordingly.
Intangible assets consist primarily of goodwill ($48 million). These assets
are amortized on a straight-line basis over their estimated useful lives, which
are predominately 40 years. Goodwill is periodically reviewed to determine
recoverability utilizing a discounted cash flow methodology.
Note 4--Commitments and Contingencies
The Business carries insurance policies on insurable risks which it believes
to be appropriate. The Business generally has self insured retention limits and
has obtained fully insured layers of coverage above such self insured retention
limits. Accruals for self insurance losses are made based on the Business's
claims experience and actuarial assumptions. Other long-term obligations
primarily include insurance related reserves. The Business has certain
liabilities with respect to existing or potential claims, lawsuits, and other
proceedings. The Business accrues for these liabilities when it is probable
that future costs will be incurred and such costs can be reasonably estimated.
Certain litigation and the related exposure has been assumed by ServiceMaster.
Note 5--Equity--Net Advances from ServiceMaster
The Business participates in a centralized cash management program
administered by ServiceMaster. Cash collected from operations is remitted to
ServiceMaster and advances are made by ServiceMaster, as needed, to cover the
Business's operating expenses and capital requirements. Cash remitted between
the Business and to or from ServiceMaster decreases or increases, respectively,
the net advances from ServiceMaster. In 2001, the Business participates in
ServiceMaster's accounts receivable securitization program. As such, $77.9
million of the Business's accounts receivable were sold under this program as
of September 30, 2001. Cash proceeds of $73 million from the sale of the
Business's accounts receivable are included in net remittances to
ServiceMaster.
F-40
[LOGO] ARAMARK
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the offer and sale of the securities being registered. All amounts are
estimates except the registration fee.
<TABLE>
<S> <C>
Registration fee.................................................... $ 198,375
NASD filing fee..................................................... 30,500
NYSE listing fee.................................................... 250,000
Transfer agent's fees............................................... 25,000
Printing and engraving expenses..................................... 1,500,000
Legal fees and expenses............................................. 4,000,000
Accounting fees and expenses........................................ 500,000
Miscellaneous....................................................... 496,125
----------
Total............................................................. $7,000,000
==========
</TABLE>
--------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breaches of directors' fiduciary duties.
Our certificate of incorporation includes a provision that eliminates the
personal liability of directors for monetary damages for actions taken as a
director, except for liability: for breach of duty of loyalty; for acts or
omissions not in good faith or involving intentional misconduct or knowing
violation of law; under Section 174 of the Delaware General Corporation Law
(unlawful dividends); or for transactions from which the director derived
improper personal benefit.
Our certificate of incorporation provides that we must indemnify our
directors and officers to the fullest extent authorized by the Delaware General
Corporation Law. We will also pay expenses incurred in defending any such
proceeding in advance of its final disposition upon delivery to us of an
undertaking, by or on behalf of an indemnified person, to repay all amounts so
advanced if it should be determined ultimately that such person is not entitled
to be indemnified under this section or otherwise.
The indemnification rights set forth above shall not be exclusive of any
other right which an indemnified person may have or hereafter acquire under any
statute, provision of our certificate of incorporation, our by laws, agreement,
vote of stockholders or disinterested directors or otherwise.
We maintain insurance to protect ourselves and our directors, officers and
representatives against any such expense, liability or loss, whether or not we
would have the power to indemnify him against such expense, liability or loss
under the Delaware General Corporation Law.
Item 15. Recent Sales of Unregistered Securities
Within the last three years, we have sold the following securities, which
were not registered under the Securities Act of 1933, on the date and for the
consideration indicated:
. From time to time, we have issued shares of our old Class B common stock
to our outside directors pursuant to the exercise of stock options.
II-1
In 1999 we issued 39,000 shares of our old Class B common stock for prices
ranging from $4.91 to $12.40. In 2000 we issued 100,000 shares of our old
Class B common stock for prices ranging from $4.91 to $15.20. From January
1, 2001 to April 30, 2001 we issued 185,000 shares of our old Class B
common stock for prices ranging from $4.91 to $15.20. Such issuances were
made in reliance on an exemption provided by Section 4(2) of the
Securities Act.
. From time to time, we have issued shares of old Class A common stock to
our employee benefit plans that are qualified under Section 401 of the
Internal Revenue Code in reliance on Section 3(a)(2) of the Securities
Act.
. On a regular basis, our employees defer a portion of their earnings as
part of our deferred compensation programs.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a complete list of exhibits filed as part of
this Registration Statement, which are incorporated herein:
<TABLE>
<C> <S>
1*** Form of Underwriting Agreement.
2*** Form of Merger Agreement.
3.1*** Form of Amended and Restated Certificate of Incorporation (post-
merger).
3.2*** Form of Amended and Restated Bylaws (post-merger).
4.1*** Amended and Restated Stockholders' Agreement dated as of December 14,
1994, by and among ARAMARK Corporation and the parties identified on
its books as "Management Investors" or their "Permitted Transferees"
or as "Individual Investors" or "Institutional Investors".
4.2*** Amended and Restated Registration Rights Agreement dated April 7, 1988
between ARAMARK Corporation and certain stockholders.
4.3*** Amendment and Waiver to the Amended and Restated Registration Rights
Agreement dated July 16, 2001 among ARAMARK Corporation and
Metropolitan Life Insurance Company.
4.4*** Form of Rights Agreement.
4.5 7.0% Guaranteed Notes due July 15, 2006; Indenture dated as of July
15, 1991, among ARAMARK Services, Inc., ARAMARK Corporation, as
guarantor, and The Bank of New York, as trustee, is incorporated by
reference to Exhibit (4)(b) to ARAMARK Corporation's Registration
Statement on Form S-3 filed with the SEC on June 21, 1991, pursuant to
the Securities Act (Registration No. 33-41357).
4.6 6 3/4% Guaranteed Notes due August 1, 2004; Indenture dated as of July
15, 1991, among ARAMARK Services, Inc., ARAMARK Corporation, as
guarantor, and The Bank of New York, as trustee, is incorporated by
reference to Exhibit (4)(b) to ARAMARK Corporation's Registration
Statement on Form S-3 filed with the SEC on June 21, 1991, pursuant to
the Securities Act (Registration No. 33-41357).
4.7 Indenture dated as of July 15, 1991, among ARAMARK Services, Inc.,
ARAMARK Corporation, as guarantor, and The Bank of New York, as
trustee, is incorporated by reference to Exhibit (4)(b) to ARAMARK
Corporation's Registration Statement on Form S-3 filed with the SEC on
June 21, 1991, pursuant to the Securities Act (Registration No. 33-
41357).
Long-term debt instruments authorizing debt that does not exceed 10%
of the total consolidated assets of ARAMARK are not filed herewith but
will be furnished on request of the Commission.
4.8*** Form of stock certificate for Class B common stock.
4.9*** Form of stock certificate for Class A-1, Class A-2, Class A-3, Class
B-1, Class B-2 and Class B-3 common stock.
</TABLE>
II-2
<TABLE>
<C> <S>
4.10*** Amendment and Waiver dated as of July 24, 2001 among ARAMARK
Corporation and Ameritrust Co., TTEE, George Gund 1959 Trust C-2;
Ameritrust Co., TTEE, George Gund 1959 Trust C-1; Gordon Gund/Grant
Gund Trust and Gordon Gund/Zachary Gund Trust 10/1/1978.
4.11*** Amendment and Waiver dated as of July 30, 2001 among ARAMARK
Corporation and Lee F. Driscoll, III; Phoebe P. Driscoll; Patrick
MCG. Driscoll; Helen Louise Driscoll, M.D.; and Lee F. Driscoll,
III, Trust u/a/d 12/17/98 Phoebe Fisher, TTEE f/b/o C. Driscoll.
4.12*** Agreement dated as of July 16, 2001 between ARAMARK Corporation and
Metropolitan Life Insurance Company.
4.13*** Form of Registration Rights Agreement among ARAMARK Worldwide
Corporation and Joseph Neubauer and each of the other holders listed
on Schedule 1 thereto.
5*** Form of Opinion of Simpson Thacher & Bartlett.
10.1 1999 Employment Agreement with Joseph Neubauer is incorporated by
reference to Exhibit 10.1 to ARAMARK Corporation's Annual Report on
Form 10-K filed with the SEC on November 24, 1999, pursuant to the
Exchange Act (File No. 001-08827).
10.2*** Form of Agreement relating to employment and post-employment
competition with William Leonard.
10.3*** Form of Agreement relating to employment and post-employment
competition with L. Frederick Sutherland.
10.4*** Form of Agreement relating to employment and post-employment
competition with Brian G. Mulvaney.
10.5*** Form of Agreement relating to employment and post-employment
competition with John J. Zillmer.
10.6 Credit and Guaranty Agreement dated January 7, 1998 and amendments
thereto dated May 7, 1998 and September 10, 1998 are incorporated by
reference to Exhibit 10.8 to ARAMARK Corporation's Annual Report on
Form 10-K filed with the SEC on November 25, 1998, pursuant to the
Exchange Act (File No. 001-08827).
10.7*** Form of Amendment No. 1 to Employment Agreement among ARAMARK
Corporation, ARAMARK Worldwide Corporation and Joseph Neubauer.
10.8*** Amendment No. 2 to the Credit and Guaranty Agreement dated August
13, 2001.
10.9*** Letter Agreement dated February 12, 2001 between ARAMARK Corporation
and James E. Ksansnak.
10.10***+ Composite and Conformed Master Distribution Agreement between SYSCO
Corporation and ARAMARK Food and Support Services Group, Inc.
10.11*** Purchase Agreement between the ServiceMaster Company and ARAMARK
Corporation, dated as of October 3, 2001.
10.12*** Amendment No. 3 to the Credit and Guaranty Agreement dated November
9, 2001.
10.13** Form of Agreement relating to employment and post-employment
competition with Bart J. Colli.
10.14*** Form of Stock Repurchase Agreement by ARAMARK Worldwide Corporation
and U.S. Trust Company, National Association, in its capacity as
trustee for the ARAMARK Retirement Savings Plan for Salaried
Employees and for the ARAMARK Uniform and Career Apparel Group
Retirement Savings Plan.
10.15** Bridge Loan Agreement dated November 30, 2001 among ARAMARK
Services, Inc., ARAMARK Corporation, as Parent Guarantor, the
Lenders listed therein and JPMorgan Chase Bank, as Administrative
Agent.
</TABLE>
II-3
<TABLE>
<C> <S>
21*** List of subsidiaries of ARAMARK Corporation.
23.1** Consent of Arthur Andersen LLP.
23.2** Consent of Arthur Andersen LLP.
24.1*** Powers of Attorney.
24.2*** Powers of Attorney of Messrs. Kean and von der Heyden.
</TABLE>
--------
* To be supplied by amendment.
** Filed herewith.
***Previously filed.
+ Portions omitted pursuant to a request for confidential treatment.
(b) Financial Statement Schedules
Schedule I--Condensed Financial Information of Registrant.
Schedule II--Valuation and Qualifying Accounts and Reserves.
All other schedules are omitted because they are not applicable, not
required, or the information required to be set forth therein is included in
the consolidated financial statements or in the notes thereto.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable. In the event that a
claim for indemnification by the registrant against such liabilities, other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 8 to this registration statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on
December 7, 2001.
ARAMARK Worldwide Corporation
By: /s/ L. Frederick Sutherland
__________________________________
Name: L. Frederick Sutherland
Title: Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 8 to this registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
* Chairman and Director December 7, 2001
______________________________________ (Principal Executive
Joseph Neubauer Officer)
* Executive Vice President, December 7, 2001
______________________________________ Chief Financial Officer
L. Frederick Sutherland (Principal Financial
Officer)
* Senior Vice President, December 7, 2001
______________________________________ Controller and Chief
John M. Lafferty Accounting Officer
(Principal Accounting
Officer)
* Director December 7, 2001
______________________________________
Lawrence T. Babbio, Jr.
* Director December 7, 2001
______________________________________
Patricia C. Barron
* Director December 7, 2001
______________________________________
Robert J. Callander
* Director December 7, 2001
______________________________________
Leonard S. Coleman, Jr.
* Director December 7, 2001
______________________________________
Ronald R. Davenport
* Director December 7, 2001
______________________________________
Edward G. Jordan
</TABLE>
II-5
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
* Director December 7, 2001
______________________________________
Thomas H. Kean
* Director December 7, 2001
______________________________________
James E. Ksansnak
* Director December 7, 2001
______________________________________
James E. Preston
* Director December 7, 2001
______________________________________
Karl M. von der Heyden
* By Power of Attorney
/s/ L. Frederick Sutherland Attorney-in-fact December 7, 2001
______________________________________
L. Frederick Sutherland
</TABLE>
II-6
EXHIBIT INDEX
<TABLE>
<C> <S>
1*** Form of Underwriting Agreement.
2*** Form of Merger Agreement.
3.1*** Form of Amended and Restated Certificate of Incorporation (post-
merger).
3.2*** Form of Amended and Restated Bylaws (post-merger).
4.1*** Amended and Restated Stockholders' Agreement dated as of December 14,
1994, by and among ARAMARK Corporation and the parties identified on
its books as "Management Investors" or their "Permitted Transferees"
or as "Individual Investors" or "Institutional Investors".
4.2*** Amended and Restated Registration Rights Agreement dated April 7,
1988, between ARAMARK Corporation and certain stockholders.
4.3*** Amendment and Waiver to the Amended and Restated Registration Rights
Agreement dated July 16, 2001 among ARAMARK Corporation and
Metropolitan Life Insurance Company.
4.4*** Form of Rights Agreement.
4.5 7.0% Guaranteed Notes due July 15, 2006; Indenture dated as of July
15, 1991, among ARAMARK Services, Inc., ARAMARK Corporation, as
guarantor, and The Bank of New York, as trustee, is incorporated by
reference to Exhibit (4)(b) to ARAMARK Corporation's Registration
Statement on Form S-3 filed with the SEC on June 21, 1991, pursuant
to the Securities Act (Registration No. 33-41357).
4.6 6 3/4% Guaranteed Notes due August 1, 2004; Indenture dated as of
July 15, 1991, among ARAMARK Services, Inc., ARAMARK Corporation, as
guarantor, and The Bank of New York, as trustee, is incorporated by
reference to Exhibit (4)(b) to ARAMARK Corporation's Registration
Statement on Form S-3 filed with the SEC on June 21, 1991, pursuant
to the Securities Act (Registration No. 33-41357).
4.7 Indenture dated as of July 15, 1991, among ARAMARK Services, Inc.,
ARAMARK Corporation, as guarantor, and The Bank of New York, as
trustee, is incorporated by reference to Exhibit (4)(b) to ARAMARK
Corporation's Registration Statement on Form S-3 filed with the SEC
on June 21, 1991, pursuant to the Securities Act (Registration No.
33-41357).
Long-term debt instruments authorizing debt that does not exceed 10%
of the total consolidated assets of ARAMARK are not filed herewith
but will be furnished on request of the Commission.
4.8*** Form of stock certificate for Class B common stock.
4.9*** Form of stock certificate for Class A-1, Class A-2, Class A-3, Class
B-1, Class B-2 and Class B-3 common stock.
4.10*** Amendment and Waiver dated as of July 24, 2001 among ARAMARK
Corporation and Ameritrust Co., TTEE, George Gund 1959 Trust C-2;
Ameritrust Co., TTEE, George Gund 1959 Trust C-1; Gordon Gund/Grant
Gund Trust and Gordon Gund/Zachary Gund Trust 10/1/1978.
4.11*** Amendment and Waiver dated as of July 30, 2001 among ARAMARK
Corporation and Lee F. Driscoll, III; Phoebe P. Driscoll; Patrick
MCG. Driscoll; Helen Louise Driscoll, M.D.; and Lee F. Driscoll, III,
Trust u/a/d 12/17/98 Phoebe Fisher, TTEE f/b/o C. Driscoll.
4.12*** Agreement dated as of July 16, 2001 between ARAMARK Corporation and
Metropolitan Life Insurance Company.
4.13*** Form of Registration Rights Agreement among ARAMARK Worldwide
Corporation and Joseph Neubauer and each of the other holders listed
on Schedule 1 thereto.
5*** Form of Opinion of Simpson Thacher & Bartlett.
10.1 1999 Employment Agreement with Joseph Neubauer is incorporated by
reference to Exhibit 10.1 to ARAMARK Corporation's Annual Report on
Form 10-K filed with the SEC on November 24, 1999, pursuant to the
Exchange Act (File No. 001-08827).
</TABLE>
1
<TABLE>
<C> <S>
10.2*** Form of Agreement relating to employment and post-employment
competition with William Leonard.
10.3*** Form of Agreement relating to employment and post-employment
competition with L. Frederick Sutherland.
10.4*** Form of Agreement relating to employment and post-employment
competition with Brian G. Mulvaney.
10.5*** Form of Agreement relating to employment and post-employment
competition with John J. Zillmer.
10.6 Credit and Guaranty Agreement dated January 7, 1998 and amendments
thereto dated May 7, 1998 and September 10, 1998 are incorporated by
reference to Exhibit 10.8 to ARAMARK Corporation's Annual Report on
Form 10-K filed with the SEC on November 25, 1998, pursuant to the
Exchange Act (File No. 001-08827).
10.7*** Form of Amendment No. 1 to Employment Agreement among ARAMARK
Corporation, ARAMARK Worldwide Corporation and Joseph Neubauer.
10.8*** Amendment No. 2 to the Credit and Guaranty Agreement dated August
13, 2001.
10.9*** Letter Agreement dated February 12, 2001 between ARAMARK Corporation
and James E. Ksansnak.
10.10***+ Composite and Conformed Master Distribution Agreement between SYSCO
Corporation and ARAMARK Food and Support Services Group, Inc.
10.11*** Purchase Agreement between the ServiceMaster Company and ARAMARK
Corporation, dated as of October 3, 2001.
10.12*** Amendment No. 3 to the Credit and Guarantee Agreement dated November
9, 2001.
10.13** Form of Agreement relating to employment and post-employment
competition with Bart J. Colli.
10.14*** Form of Stock Repurchase Agreement by ARAMARK Worldwide Corporation
and U.S. Trust Company, National Association, in its capacity as
trustee for the ARAMARK Retirement Savings Plan for Salaried
Employees and for the ARAMARK Uniform and Career Apparel Group
Retirement Savings Plan.
10.15** Bridge Loan Agreement dated November 30, 2001 among ARAMARK
Services, Inc., ARAMARK Corporation, as Parent Guarantor, the
Lenders listed therein and JPMorgan Chase Bank, as Administrative
Agent.
21*** List of subsidiaries of ARAMARK Corporation.
23.1** Consent of Arthur Andersen LLP.
23.2** Consent of Arthur Andersen LLP.
24.1*** Powers of Attorney.
24.2*** Powers of Attorney of Messrs. Kean and von der Heyden.
</TABLE>
--------
* To be supplied by amendment.
** Filed herewith.
*** Previously filed.
+ Portions omitted pursuant to a request for confidential treatment.
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ARAMARK Corporation:
We have audited in accordance with auditing standards generally accepted in
the United States, the financial statements of ARAMARK Corporation included in
this registration statement and have issued our report thereon dated November
14, 2001. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index on
page II-3, Schedule I-- Condensed Financial Information of Registrant and
Schedule II--Valuation and Qualifying Accounts and Reserves, are the
responsibility of the company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
November 14, 2001
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARAMARK CORPORATION
BALANCE SHEETS
SEPTEMBER 29, 2000 AND SEPTEMBER 28, 2001
(in thousands)
<TABLE>
<CAPTION>
2000 2001
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 321 $ 412
Receivables......................................... 631 855
Inventories......................................... 13 13
Prepayments......................................... 1,703 2,420
---------- ----------
Total current assets.............................. 2,668 3,700
---------- ----------
Property & Equipment, net............................. 2,095 2,263
Investment in Subsidiaries............................ 1,533,046 1,709,470
Other Assets.......................................... 2,741 3,475
---------- ----------
$1,540,550 $1,718,908
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................... $ 55,955 $ 48,596
Accrued expenses.................................... 11,555 17,685
---------- ----------
Total current liabilities......................... 67,510 66,281
---------- ----------
Other Noncurrent Liabilities.......................... 64,544 51,680
Payable to Subsidiaries............................... 1,277,000 1,334,055
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement................ 20,000 20,000
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01................ 24 24
Class B common stock, par value $.01................ 598 597
Capital Surplus..................................... -- 1,057
Earnings retained for use in the business........... 149,771 284,184
Accumulated other comprehensive income (loss)....... (18,897) (18,970)
Impact of potential repurchase feature of common
stock.............................................. (20,000) (20,000)
---------- ----------
Total............................................. 111,496 246,892
---------- ----------
$1,540,550 $1,718,908
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999, SEPTEMBER 29, 2000 AND SEPTEMBER
28, 2001
(in thousands)
<TABLE>
<CAPTION>
1999 2000 2001
-------- -------- --------
<S> <C> <C> <C>
Equity in Net Income of Subsidiaries................ $150,191 $167,960 $176,496
-------- -------- --------
Management Fee Income............................... 25,371 29,461 32,579
-------- -------- --------
General and Administrative Expenses................. 20,593 21,055 26,589
-------- -------- --------
Interest Expense, net............................... 4,778 8,406 5,990
-------- -------- --------
Income before income taxes........................ 150,191 167,960 176,496
Provision for Income Taxes.......................... -- -- --
-------- -------- --------
Net income.......................................... $150,191 $167,960 $176,496
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999, SEPTEMBER 29, 2000 AND SEPTEMBER
28, 2001
(in thousands)
<TABLE>
<CAPTION>
1999 2000 2001
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $150,191 $167,960 $ 176,496
Equity in net income of subsidiaries.......... (150,191) (167,960) (176,496)
Other, primarily noncash working capital...... (26,819) (25,666) (43,805)
-------- -------- ---------
Net cash used in operating activities........... (26,819) (25,666) (43,805)
-------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment........... (31) (28) (239)
Other......................................... (314) (323) (321)
-------- -------- ---------
Net cash used in investing activities........... (345) (351) (560)
-------- -------- ---------
Cash flows from financing activities:
Payment of long-term borrowings including
premiums..................................... -- (26,689) --
Change in intercompany payable to
subsidiaries................................. (4,804) 177,059 68,082
Proceeds from issuance of common stock........ 60,731 31,185 31,509
Repurchase of common stock.................... (28,563) (155,417) (55,135)
-------- -------- ---------
Net cash provided by financing activities....... 27,364 26,138 44,456
-------- -------- ---------
Increase in cash and cash equivalents........... $ 200 $ 121 91
Cash and cash equivalents, beginning of period.. -- 200 321
-------- -------- ---------
Cash and cash equivalents, end of period........ $ 200 $ 321 $ 412
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1.
These statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto beginning on page F-1.
Property and equipment are stated at cost and are depreciated over their
estimated useful lives on a straight-line basis.
Other noncurrent liabilities consist primarily of deferred compensation and
subordinated installment notes arising from repurchases of common stock.
Note 2.
The Company has guaranteed certain debt obligations of ARAMARK Services,
Inc., its wholly-owned subsidiary, which totaled $1.7 billion at September 28,
2001. See Note 4 to the Company's consolidated financial statements.
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999, SEPTEMBER 29, 2000AND SEPTEMBER 28,
2001
<TABLE>
<CAPTION>
Additions Reductions
------------------- ----------------------- Balance,
Balance, Acquisition Charged Divestiture Deductions End of
Beginning of of to of from Fiscal
Description Fiscal Year Businesses Income Businesses Reserves(1) Year
----------- ------------ ----------- ------- ----------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1999
Reserve for doubtful
accounts, advances &
current notes
receivable............ $24,457 $ 165 $13,413 $ 41 $15,498 $22,496
======= ===== ======= ===== ======= =======
Fiscal Year 2000
Reserve for doubtful
accounts, advances &
current notes
receivable............ $22,496 $ 647 $15,048 $ -- $13,388 $24,803
======= ===== ======= ===== ======= =======
Fiscal Year 2001
Reserve for doubtful
accounts, advances &
current notes
receivable............ $24,803 $ -- $18,039 $ -- $20,271 $22,571
======= ===== ======= ===== ======= =======
</TABLE>
--------
(1) Allowances granted and amounts determined not to be collectible.
EXHIBIT 10.13
AGREEMENT FOR PRESIDENTS' COUNCIL
ARAMARK CORPORATION
AGREEMENT RELATING TO EMPLOYMENT AND
POST-EMPLOYMENT COMPETITION
This Agreement is between the undersigned individual ("Employee") and ARAMARK
CORPORATION ("ARAMARK").
RECITALS
WHEREAS, ARAMARK is a leading provider of managed services to business
and industry, private and public institutions, and the general public, in the
following business groups: food and support services; uniform and career
apparel; and educational resources;
WHEREAS, ARAMARK has a proprietary interest in its business and
financial plans and systems, methods of operation and other secret and
confidential information, knowledge and data ("Proprietary Information") which
includes, but is not limited to, all confidential, proprietary or non-public
information, ideas and concepts; annual and strategic business plans; financial
plans, reports and systems including, profit and loss statements, sales,
accounting forms and procedures and other information regarding costs, pricing
and the financial condition of ARAMARK and its business segments and groups;
management development reviews, including information regarding the capabilities
and experience of ARAMARK employees; intellectual property, including patents,
inventions, discoveries, research and development, compounds, recipes, formulae,
reports, protocols, computer software and databases; information regarding
ARAMARK's relationships with its clients, customers, and suppliers and
prospective clients, partners, customers and suppliers; policy and procedure
manuals, information regarding materials and documents in any form or medium
(including oral,
1
written, tangible, intangible, or electronic) concerning any of the above, or
any past, current or future business activities of ARAMARK that is not publicly
available; compensation, recruiting and training, and human resource policies
and procedures; and data compilations, research, reports, structures, compounds,
techniques, methods, processes, know-how;
WHEREAS, all such Proprietary Information is developed at great
expense to ARAMARK and is considered by ARAMARK to be confidential trade
secrets;
WHEREAS, Employee, as a senior manager, will have access to ARAMARK's
Proprietary Information, directly in the course of Employee's employment, and
indirectly through interaction with and presentations by other ARAMARK senior
managers at the Executive Leadership Institute, Executive Leadership Council
meetings, Presidents' Council meetings and the like;
WHEREAS, ARAMARK will introduce Employee to ARAMARK clients,
customers, suppliers and others, and will encourage, and provide resources for,
Employee to develop personal relationships with ARAMARK's clients, customers,
suppliers and others;
WHEREAS, ARAMARK has provided and will continue to provide specialized
training and skills to Employee in connection with the performance of Employee's
duties at ARAMARK which training involves the disclosure by ARAMARK to Employee
of Proprietary Information;
WHEREAS, pursuant to the merger of ARAMARK with and into its wholly-
owned subsidiary, ARAMARK Worldwide Corporation, each share of Class B common
stock of ARAMARK held by Employee will be converted into two shares of Class A
common stock of the surviving corporation, which following the initial public
offering of the Class B common stock of the surviving corporation (collectively,
the "Transaction") and the expiration of the
2
applicable transfer restrictions set forth in the Certificate of Incorporation
of the surviving corporation will be freely tradeable (subject to restrictions
imposed by applicable securities laws) and no longer subject to the restrictions
of the Stockholders Agreement to which Employee currently is a party;
WHEREAS, ARAMARK will be vulnerable to unfair post-employment
competition by Employee because Employee will have access to and knowledge of
ARAMARK's Proprietary Information, will have a personal relationship with
ARAMARK's clients, customers, suppliers and others, and will generate good will
which Employee acknowledges belongs to ARAMARK;
NOW, THEREFORE, in consideration of the benefits received by Employee
in connection with the Transaction, the award of non-qualified stock options
under the ARAMARK 2001 Equity Incentive Plan, the severance and other post-
employment benefits provided for herein (including pursuant to Exhibit A
hereto), and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employee agrees to enter into this
Agreement with ARAMARK as a condition of employment pursuant to which ARAMARK
will limit Employee's right to compete against ARAMARK during and following
termination of employment on the terms set forth in this Agreement. Intending
to be legally bound, the parties agree as follows:
ARTICLE 1. NON-DISCLOSURE AND NON-DISPARAGEMENT: Employee shall not, during or
after termination of employment, directly or indirectly, in any manner utilize
or disclose to any person, firm, corporation, association or other entity,
except where required by law, any Proprietary Information which is not generally
known to the public, or has not otherwise
3
been disclosed or recognized as standard practice in the industries in which
ARAMARK is engaged. Employee shall, during and after termination of employment,
refrain from making any statements or comments of a defamatory or disparaging
nature to any third party regarding ARAMARK, or any of ARAMARK's officers,
directors, personnel, policies or products, other than to comply with law.
ARTICLE 2. NON-COMPETITION:
A. Subject to Article 2. B. below, Employee, during Employee's period of
employment with ARAMARK, and for a period of two years following the
voluntary or involuntary termination of employment, shall not, without
ARAMARK's written permission, which shall be granted or denied in ARAMARK's
sole discretion, directly or indirectly, associate with (including, but not
limited to, association as a sole proprietor, owner, employer, partner,
principal, investor, joint venturer, shareholder, associate, employee,
member, consultant, contractor or otherwise), or acquire or maintain
ownership interest in, any Business which is competitive with that conducted
by or developed for later implementation by ARAMARK at any time during the
term of Employee's employment (except that the terms would be deemed to
exclude any lawfirm), provided, however, if Employee's employment is (i)
involuntarily terminated by ARAMARK for any reason other than Cause (as
defined herein), or (ii) terminated by Employee for Good Reason (as defined
in Exhibit A) at any time following a Change of Control (as defined in
Exhibit A), then the term of the non-competition provision set forth herein
will be modified to be one year following such termination of employment.
For purposes of this Agreement, "Business" shall be defined as a person,
corporation, firm, LLC, partnership, joint venture or other entity (except
that the terms would be deemed to exclude any lawfirm). Nothing in the
foregoing shall prevent Employee from investing in a Business that is or
becomes publicly traded, if
4
Employee's ownership is as a passive investor of less than 1% of the
outstanding publicly traded stock of the Business.
B. The provision set forth in Article 2.A above, shall apply to (i) all fifty
states, and (ii) each foreign country, possession or territory in which
ARAMARK may be engaged in, or have plans to engage in, business (x) during
Employee's period of employment, or (y) in the case of a termination of
employment, as of the effective date of such termination or at any time
during the twenty-four month period prior thereto.
C. Employee acknowledges that these restrictions are reasonable and necessary
to protect the business interests of ARAMARK, and that enforcement of the
provisions set forth in this Article 2 will not unnecessarily or
unreasonably impair Employee's ability to obtain other employment following
the termination (voluntary or involuntary) of Employee's employment with
ARAMARK. Further, Employee acknowledges that the provisions set forth in
this Article 2 shall apply if Employee's employment is involuntarily
terminated by ARAMARK for Cause; as a result of the elimination of
employee's position; for performance-related issues; or for any other reason
or no reason at all.
ARTICLE 3. NON-SOLICITATION: During the period of Employee's employment with
ARAMARK and for a period of two years following the termination of Employee's
employment, regardless of the reason for termination, Employee shall not,
directly or indirectly: (i) induce or encourage any employee of ARAMARK to leave
the employ of ARAMARK, (ii) hire any individual who was an employee of ARAMARK
as of the date of Employee's termination of employment or within a six month
period prior to such date, or (iii) induce or encourage any customer, client,
supplier or other business relation of ARAMARK to cease or reduce doing
5
business with ARAMARK or in any way interfere with the relationship between any
such customer, client, supplier or other business relation and ARAMARK.
ARTICLE 4. DISCOVERIES AND WORKS: Employee hereby irrevocably assigns,
transfers, and conveys to ARAMARK to the maximum extent permitted by applicable
law Employee's right, title and interest now or hereinafter acquired, in and to
all Discoveries and Works (as defined below) created, invented, designed,
developed, improved or contributed to by Employee, either alone or jointly with
others, while employed by ARAMARK and within the scope of Employee's employment
and/or with the use of ARAMARK's resources. The terms "Discoveries and Works"
include all works of authorship, inventions, intellectual property, materials,
documents, or other work product (including, without limitation, Proprietary
Information, patents and patent applications, patentable inventions, research,
reports, software, code, databases, systems, applications, presentations,
textual works, graphics and audiovisual materials). Employee shall have the
burden of proving that any materials or works created, invented, designed,
developed, contributed to or improved by Employee that are implicated by or
relevant to employment by ARAMARK are not implicated by this provision.
Employee agrees to (i) keep accurate records and promptly notify, make full
disclosure to, and execute and deliver any documents and to take any further
actions requested by ARAMARK to assist it in validating, effectuating,
maintaining, protecting, enforcing, perfecting, recording, patenting or
registering any of its rights hereunder, and (ii) renounce any and all claims,
including, without limitation, claims of ownership and royalty, with respect to
all Discoveries and Works and all other property owned or licensed by ARAMARK.
Any Discoveries and Works that, within six months after the termination of
Employee's employment with ARAMARK, are made, disclosed, reduced to a tangible
or written form or description, or are reduced to practice by Employee and which
pertain
6
to the business carried on or products or services being sold or developed by
ARAMARK at the time of such termination shall, as between Employee and ARAMARK,
be presumed to have been made during such employment with ARAMARK. Employee
acknowledges that, to the fullest extent permitted by law, all Discoveries and
Works shall be deemed "works made for hire" under the Copyright Act of 1976, as
amended, 17 U.S.C. Section 101. Employee hereby grants ARAMARK a perpetual,
nonexclusive, royalty-free, worldwide, assignable, sublicensable license under
all rights and intellectual property rights (including patent, industrial
property, copyright, trademark, trade secret, unfair competition and related
laws) in any Works and Discoveries, for all purposes in connection with
ARAMARK's current and future business, that Employee has created, invented,
designed, developed, improved or contributed to prior to Employee's employment
with ARAMARK that are relevant to or implicated by such employment ("Prior
Works"). Any Prior Works are disclosed by Employee in Schedule 1.
ARTICLE 5. REMEDIES: Employee acknowledges that in the event of any violation
by Employee of the provisions set forth in Articles 1, 2, 3 or 4 above, ARAMARK
will sustain serious, irreparable and substantial harm to its business, the
extent of which will be difficult to determine and impossible to fully remedy by
an action at law for money damages. Accordingly, Employee agrees that, in the
event of such violation or threatened violation by Employee, ARAMARK shall be
entitled to an injunction before trial before any court of competent
jurisdiction as a matter of course upon the posting of not more than a nominal
bond, in addition to all such other legal and equitable remedies as may be
available to ARAMARK. If ARAMARK is required to enforce the provisions set
forth in Articles 2 and 3 above by seeking an injunction, Employee agrees that
the relevant time periods set forth in Articles 2 and 3 shall commence with the
entry of the injunction. Employee further agrees that, in the event any of the
7
provisions of this Agreement are determined by a court of competent jurisdiction
to be invalid, illegal, or for any reason unenforceable as written, such court
shall substitute a valid provision which most closely approximates the intent
and purpose of the invalid provision and which would be enforceable to the
maximum extent permitted by law.
ARTICLE 6. POST-EMPLOYMENT BENEFITS:
A. If Employee's employment is terminated by ARAMARK for any reason other than
Cause, Employee shall be entitled to the following post-employment benefits:
1. SEVERANCE PAY: (a) Employee shall receive severance payments equivalent
to Employee's monthly base salary as of the effective date of termination
for the number of months set forth on the following schedule:
YEARS OF ARAMARK MONTHS OF SEVERANCE PAY
CONTINUOUS SERVICE
COMPLETED FROM LAST HIRE
DATE
---------------------------------------------------------------
Less than 4 12
---------------------------------------------------------------
4 15
---------------------------------------------------------------
5 or more 18
---------------------------------------------------------------
Severance payments shall commence with the Employee's effective date of
termination and shall be made in accordance with ARAMARK's normal payroll
cycle. The period during which Employee receives severance payments shall
be referred to as the "Severance Pay Period."
8
(b) In addition to the severance payments provided in Article 6.A.1(a)
above, if Employee's employment is terminated involuntarily by ARAMARK
for any reason other than Cause and before Employee is vested in any
portion of the award of non-qualified stock options under the ARAMARK
2001 Equity Incentive Plan referenced in the Preamble to this Agreement,
Employee shall receive a lump sum cash severance payment equal to
$10,000, payable as soon as practicable following termination of
employment.
2. OTHER POST-EMPLOYMENT BENEFITS
(a) Basic Group medical and life insurance coverages shall continue
under then prevailing terms during the Severance Pay Period;
provided, however, that if Employee becomes employed by a new
employer during that period, continuing coverage from ARAMARK will
become secondary to any coverage afforded by the new employer.
Employee's share of the premiums will be deducted from Employee's
severance payments. Basic Group medical coverage provided during
such period shall be applied against ARAMARK's obligation to
continue group medical coverage under the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA"). Upon termination of
basic group medical and life coverages, Employee may convert such
coverages to individual policies to the extent allowable under the
terms of the plans providing such coverages.
(b) Employee's leased vehicle shall be made available to Employee
through the Severance Pay Period at which time Employee has the
option to either
9
purchase the vehicle in accordance with the Executive Leadership
Council policy then in effect or return it to ARAMARK.
(c) Employee's eligibility to participate in all other benefit and
compensation plans, including, but not limited to the Management
Incentive Bonus, Long Term Disability, Stock Unit Retirement,
Deferred Compensation and any stock option or ownership plans, shall
terminate as of the effective date of Employee's termination unless
provided otherwise under the terms of a particular plan, provided,
however, that participation in plans and programs made available
solely to Executive Leadership Council members, including, but not
limited to the Executive Leadership Council Medical Plan, shall
cease as of the effective date of termination or the date Employee's
Executive Leadership Council membership ceases, whichever occurs
first. Employee, however, shall have certain rights to continue the
Executive Leadership Council Medical Plan under COBRA.
B. Termination for "Cause" shall be defined as termination of employment due
to: (i) conviction of or entry of a plea of guilty or nolo contendere to a
felony (or any similar crime for purposes of laws outside the United
States), (ii) fraud or dishonesty, (iii) willful failure to perform assigned
duties, (iv) willful violation of ARAMARK's Business Conduct Policy, or (v)
intentionally working against the best interests of ARAMARK.
C. If Employee is terminated by ARAMARK for reasons other than Cause, Employee
will receive the severance payments and other post-employment benefits
during the Severance Pay Period even if Employee commences other employment
during such period provided such employment does not violate the terms of
Article 2.
10
D. In addition to the remedies set forth in Article 5, ARAMARK reserves the
right to terminate all severance payments and other post-employment benefits
if Employee violates the covenants set forth in Articles 1, 2, 3 or 4 above.
E. Employee's receipt of severance and other post-employment benefits under
this Agreement is contingent on (i) Employee's execution of a release in a
form reasonably acceptable to ARAMARK, except that such release shall not
include any claims by Employee to enforce Employee's rights under, or with
respect to, this Agreement (including the attached Exhibit A) or any ARAMARK
benefit plan pursuant to its terms, and (ii) the expiration of the
applicable Age Discrimination in Employment Act revocation period without
such release being revoked by Employee; provided, however, that this Article
6.E no longer shall apply following a Change of Control (as defined in the
attached Exhibit A); and provided further that this Article 6.E shall not
apply with respect to the severance payments specified in Article 6.A.1(b).
ARTICLE 7. TERM OF EMPLOYMENT: Employee acknowledges that ARAMARK has the
right to terminate Employee's employment at any time for any reason whatsoever,
provided, however, that any termination by ARAMARK for reasons other than Cause
shall result in the severance and the post-employment benefits described in
Article 6 above, to become due in accordance with the terms of this Agreement
subject to the conditions set forth in this Agreement. Employee further
acknowledges that the severance payments made and other benefits provided by
ARAMARK are in full satisfaction of any obligations ARAMARK may have resulting
from ARAMARK's exercise of its right to terminate Employee's employment, except
for those obligations which are intended to survive termination such as the
payments to be made pursuant to retirement plans, deferred compensation plans
and conversion of insurance.
11
ARTICLE 8. MISCELLANEOUS:
A. As used throughout this Agreement, ARAMARK includes ARAMARK Corporation
(which shall include ARAMARK Worldwide Corporation, as its successor in the
merger described above) and its subsidiaries and affiliates or any
corporation, joint venture, or other entity in which ARAMARK Corporation or
its subsidiaries or affiliates has an equity interest in excess of ten
percent (10%).
B. This Agreement shall supersede and substitute for any previous post-
employment or severance agreement between Employee and ARAMARK.
C. In the event of a Change of Control as defined in the attached Exhibit A,
the provisions of Exhibit A shall apply to Employee.
D. If Employee's employment with ARAMARK terminates solely by reason of a
transfer of stock or assets of, or a merger or other disposition of, a
subsidiary of ARAMARK (whether direct or indirect), such termination shall
not be deemed a termination of employment by ARAMARK for purposes of this
Agreement, provided that ARAMARK requires the subsequent employer, by
agreement, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that ARAMARK would be required to perform
it if no such transaction had taken place.
E. Employee shall not be required to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other employment or
otherwise.
F. In the event any one or more of the provisions of this Agreement shall be or
become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of this Agreement
shall not be affected thereby.
12
G. The terms of this Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, without regard to conflicts of laws principles
thereof. For purposes of any action or proceeding, Employee irrevocably
submits to the non-exclusive jurisdiction of the courts of Pennsylvania and
the courts of the United States of America located in Pennsylvania for the
purpose of any judicial proceeding arising out of or relating to this
Agreement, and acknowledges that the designated fora have a reasonable
relation to the Agreement and to the parties' relationship with one another.
Notwithstanding the provisions of this Article 8.G, ARAMARK may, in its
discretion, bring an action or special proceeding in any court of competent
jurisdiction for the purpose of seeking temporary or preliminary relief
pending resolution of a dispute.
H. Employee expressly consents to the application of Article 8.G to any
judicial action or proceeding arising out of or relating to this Agreement.
ARAMARK shall have the right to serve legal process upon Employee in any
manner permitted by law. In addition, Employee irrevocably appoints the
General Counsel of ARAMARK Corporation (or any successor) as Employee's
agent for service of legal process in connection with any such action or
proceeding and Employee agrees that service of legal process upon such
agent, who shall promptly advise Employee of any such service of legal
process at the address of Employee then in the records of ARAMARK, shall be
deemed in every respect effective service of legal process upon Employee in
any such action or proceeding.
I. Employee hereby waives, to the fullest extent permitted by applicable law,
any objection that Employee now or hereafter may have to personal
jurisdiction or to the laying of venue of any action or proceeding brought
in any court referenced in Article 8.G and hereby agrees not to plead or
claim the same.
13
J. Notwithstanding any other provision of this Agreement, ARAMARK may, to the
extent required by law, withhold applicable federal, state and local income
and other taxes from any payments due to Employee hereunder.
K. Employee and ARAMARK acknowledge that for purposes of Article 6, Employee's
last hire date with ARAMARK is [_______________].
IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto have
caused this Agreement to be signed.
Date: _________________________ ARAMARK CORPORATION
By:____________________________
By:____________________________
14
Schedule 1
Prior Works*
------------
* If no Prior Works are listed, Employee certifies that there are none.
15
EXHIBIT A
TERMINATION PROTECTION PROVISIONS
THIS is an Exhibit A to, and forms a part of, the ARAMARK Corporation
Agreement Relating to Employment and Post-Employment Competition between
_________________ (the "Executive") and ARAMARK Corporation.
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Exhibit which are
defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Exhibit shall be effective as of ___________, 2001 (the "Effective
Date") and shall remain in effect until _______________, 2004 (the "Term");
provided, however, that commencing with _________________, 2002 and on each
anniversary thereof (each an "Extension Date"), the Term shall be automatically
extended for an additional one-year period, unless the Company or Executive
provides the other party hereto written notice before the applicable Extension
Date that the Term shall not be so extended. Notwithstanding the foregoing, this
Exhibit shall, if in effect on the date of a Change of Control, remain in effect
until the later of three years following the Change of Control and the date that
all of the Company's obligations under this Exhibit have been satisfied in full.
3. Change of Control Benefits.
If Executive's employment with the Company is terminated at any time
within the three years following a Change of Control by the Company without
Cause, or by Executive for Good Reason (the effective date of either such
termination hereafter referred to as the "Termination Date"), Executive shall be
entitled to the payments and benefits provided hereafter in this Section 3 and
as set forth in this Exhibit. If Executive's employment by the Company is
terminated prior to a Change of Control by the Company (i) at the request of a
party (other than the Company) involved in the Change of Control or (ii)
otherwise in connection with or in anticipation of a Change of Control that
subsequently occurs, Executive shall be entitled to the benefits provided
hereafter in this Section 3 and as set forth in this Exhibit, and Executive's
Termination Date shall be deemed to have occurred immediately following the
Change of Control. Payment of benefits under this Exhibit shall be in addition
to, and not in lieu of, any benefits payable under the ARAMARK Corporation
Agreement Relating to Employment and Post-Employment Competition of which this
Exhibit is a part, except as provided in Section 3(b) hereof. Notice of
termination without Cause or for Good Reason shall be given in accordance with
Section 13, and shall indicate the specific termination provision hereunder
relied upon, the relevant facts and circumstances and the Termination Date.
A-2
a. Severance Payments. The Company shall pay Executive cash benefits equal to:
(1) two times Executive's Base Salary in effect on the date of the Change
of Control or the Termination Date, whichever is higher; provided that
if any reduction of the Base Salary has occurred, then the Base Salary
on either date shall be as in effect immediately prior to such
reduction, payable in regular installments at such times as would
otherwise be the Company's usual payroll practice over a period of two
years; and
(2) the higher of: (A) two times Executive's Target Bonus in effect on the
date of the Change of Control or the Termination Date, whichever is
greater; or (B) two times Executive's most recent actual annual bonus,
payable in either case ratably in regular installments at the same time
as payments are made to Executive under Section 3(a)(1) above; provided
that if any reduction of the Target Bonus has occurred, then the Target
Bonus on either date shall be as in effect immediately prior to such
reduction; and
(3) Executive's Target Bonus (as determined in (2), above) multiplied by a
fraction, the numerator of which shall equal the number of days
Executive was employed by the Company in the Company fiscal year in
which the Termination Date occurs and the denominator of which shall
equal 365, payable as a cash lump sum within forty days after the
Termination Date; and
(4) in the case of a termination of employment by Executive for Good
Reason, an amount equal to the severance pay specified in Article
6.A.1. of the attached Presidents' Council Agreement (as defined in
Section 8 hereof), payable according to the schedule set forth therein,
determined as if Executive's employment had been terminated by ARAMARK
without Cause on the Termination Date.
b. Continuation of Benefits. Until the second anniversary of the Termination
Date, the Company shall, at its expense, provide Executive and Executive's
spouse and dependents with medical, life insurance and disability coverages
at the level provided to Executive immediately prior to the Change of
Control; provided, however, that if Executive becomes employed by a new
employer, continuing coverage from the Company will become secondary to any
coverage afforded by the new employer. In the event benefits are continued
under this Section 3(b), such continued benefits shall be in lieu of those
specified in Article 6.A.2.a of the attached Presidents' Council Agreement
(as defined in Section 8 hereof).
A-3
c. Payment of Earned But Unpaid Amounts. Within forty days after the
Termination Date, the Company shall pay Executive the Base Salary
through the Termination Date, any Bonus earned but unpaid as of the
Termination Date for any previously completed fiscal year of the
Company, all compensation previously deferred by Executive but not yet
paid and reimbursement for any unreimbursed expenses properly incurred
by Executive in accordance with Company policies prior to the
Termination Date. Executive shall also receive such employee benefits,
if any, to which Executive may be entitled from time to time under the
employee benefit or fringe benefit plans, policies or programs of the
Company, other than any Company severance policy (payments and benefits
in this subsection (c), the "Accrued Benefits").
d. Outplacement Counseling. For the two-year period following the
Termination Date (or, if earlier, the date Executive first obtains full-
time employment after the Termination Date), the Company shall reimburse
all reasonable expenses incurred by Executive for professional
outplacement services by qualified consultants selected by Executive, in
an amount not to exceed 20% of the Executive's Base Salary in effect on
the date of the Change of Control or the Termination Date, whichever is
higher.
e. Vesting of Other Benefits. Executive shall be entitled to such
accelerated vesting of outstanding equity-based awards or retirement
plan benefits as is specified under the terms of the applicable plans,
agreements and arrangements.
4. Mitigation.
Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Exhibit by seeking other employment or
otherwise, and, subject to Section 3(b), compensation earned from such
employment or otherwise shall not reduce the amounts otherwise payable under
this Exhibit. No amounts payable under this Exhibit shall be subject to
reduction or offset in respect of any claims which the Company (or any other
person or entity) may have against Executive.
5. Gross-Up.
a. In the event it shall be determined that any payment, benefit or
distribution (or combination thereof) by the Company, any of its
affiliates, or one or more trusts established by the Company for the
benefit of its employees, to or for the benefit of Executive (whether
paid or payable or distributed or distributable pursuant to the terms of
this Exhibit, or otherwise) (a "Payment") is subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are
incurred by Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, hereinafter collectively
referred to as the "Excise Tax"), Executive shall be entitled to receive
an additional payment (a "Gross-Up
A-4
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and the Excise Tax
imposed upon the Gross-Up Payment, Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
b. All determinations required to be made under this Section 5, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by such nationally recognized certified
public accounting firm as may be designated by the Company (the
"Accounting Firm") which shall provide detailed supporting calculations
both to the Company and Executive within ten business days of the
receipt of notice from Executive that there has been a Payment, or such
earlier time as is requested by the Company; provided that for purposes
of determining the amount of any Gross-Up Payment, Executive shall be
deemed to pay federal income tax at the highest marginal rates
applicable to individuals in the calendar year in which any such Gross-
Up Payment is to be made and deemed to pay state and local income taxes
at the highest effective rates applicable to individuals in the state or
locality of Executive's residence or place of employment in the calendar
year in which any such Gross-Up Payment is to be made, net of the
maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account limitations
applicable to individuals subject to federal income tax at the highest
marginal rates. All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to Executive
(or to the appropriate taxing authority on Executive's behalf) when due.
If the Accounting Firm determines that no Excise Tax is payable by
Executive, it shall so indicate to Executive in writing. Any
determination by the Accounting Firm shall be binding upon the Company
and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code, it is possible that the amount of the Gross-Up
Payment determined by the Accounting Firm to be due to (or on behalf of)
Executive was lower than the amount actually due ("Underpayment"). In
the event that the Company exhausts its remedies pursuant to Section
5(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Executive.
c. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment
by the Company of any Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after
Executive is
A-5
informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. Executive shall not pay such claim prior to the expiration of the
thirty day period following the date on which it gives such notice to
the Company (or such shorter period ending on the date that any payment
of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it
desires to contest such claim, Executive shall (i) give the Company any
information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to effectively
contest such claim and (iv) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, on an after-tax basis, for
any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of
this Section 5(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may,
at its sole option, either direct Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
further, that if the Company directs Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; provided, further, that if Executive is
required to extend the statute of limitations to enable the Company to
contest such claim, Executive may limit this extension solely to such
contested amount. The Company's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
d. If, after the receipt by Executive of an amount paid or advanced by the
Company pursuant to this Section 5, Executive becomes entitled to
receive
A-6
any refund with respect to a Gross-Up Payment, Executive shall (subject
to the Company's complying with the requirements of Section 5(c))
promptly pay to the Company the amount of such refund received (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 5(c), a determination is made that
Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty days
after such determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.
6. Termination for Cause.
Nothing in this Exhibit shall be construed to prevent the Company from
terminating Executive's employment for Cause. If Executive is terminated for
Cause, the Company shall have no obligation to make any payments under this
Exhibit, except for the Accrued Benefits.
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the three year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Executive Covenants.
This is an Exhibit A to, and forms a part of, an agreement with the
Company relating to employment and post-employment competition (the "Presidents'
Council Agreement"). This Exhibit shall not diminish in any way Executive's
rights under the terms of such Presidents' Council Agreement, except that
Executive's receipt of benefits under this Exhibit is contingent upon
Executive's compliance in all material respects with all of the terms and
conditions of the Presidents' Council Agreement.
9. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection with any
legal proceeding (including arbitration), relating to the interpretation or
enforcement of any provision of this Exhibit, except that the Company shall pay
such costs and expenses, including attorneys' fees and disbursements, of
Executive if Executive prevails in such proceeding.
10. Assignment.
A-7
Except as otherwise provided herein, this Exhibit shall be binding upon,
inure to the benefit of and be enforceable by the Company and Executive and
their respective heirs, legal representatives, successors and assigns. If the
Company shall be merged into or consolidated with another entity, the provisions
of this Exhibit shall be binding upon and inure to the benefit of the entity
surviving such merger or resulting from such consolidation. The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company, by agreement, expressly to assume and agree to perform
this Exhibit in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. The provisions of
this Section 10 shall continue to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger, consolidation or transfer of
assets of such subsequent employer.
11. Withholding.
Notwithstanding any other provision of this Exhibit, the Company may,
to the extent required by law, withhold applicable federal, state and local
income and other taxes from any payments due to Executive hereunder.
12. Applicable Law.
This Exhibit shall be governed by and construed in accordance with the
laws of the State of Pennsylvania, without regard to conflicts of laws
principles thereof.
13. Notice.
For the purpose of this Exhibit, any notice and all other communication
provided for in this Exhibit shall be in writing and shall be deemed to have
been duly given when delivered by hand or overnight courier or three days after
it has been mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth below, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
If to the Company:
ARAMARK Corporation
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records
of the Company.
14. Entire Agreement; Modification.
A-8
This Exhibit constitutes the entire agreement between the parties and,
except as expressly provided herein, supersedes all other prior agreements
expressly concerning the effect of a Change of Control on the relationship
between the Company and Executive. This Exhibit is not, and nothing herein
shall be deemed to create, a contract of employment between the Company and
Executive. This Exhibit may be changed only by a written agreement executed by
the Company and Executive.
15. Severability.
In the event any one or more of the provisions of this Exhibit shall
be or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions shall not be affected
thereby.
A-9
SCHEDULE A
CERTAIN DEFINITIONS
As used in this Exhibit, and unless the context requires a different
meaning, the following terms, when capitalized, have the meaning indicated:
1. "Act" means the Securities Exchange Act of 1934, as amended.
2. "Base Salary" means Executive's annual rate of base salary in effect on
the date in question.
3. "Bonus" means the amount payable to Executive under the Company's
applicable annual bonus plan with respect to a fiscal year of the Company.
4. "Cause" means "cause" as defined in the Presidents' Council Agreement of
which this Schedule A forms a part.
5. Change of Control" means the first to occur of any of the following:
(a) any "person" or "group" (as described in the Act) (other than (i) a
person holding securities representing 10% or more of the combined
voting power of the Company's outstanding securities as of the date
that the Company completes an initial public offering of its class B
common stock (a "Pre-Existing Shareholder"), (ii) the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or (iii) any company owned, directly or
indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of shares of the Company), becomes
the beneficial owner (as defined in Rule 13d-3 of the Act), directly or
indirectly, of securities of the Company, representing (I) 20% or more
of the combined voting power of the Company's then-outstanding
securities and (II) more of the combined voting power of the Company's
then-outstanding securities than the Pre-Existing Shareholders in the
aggregate;
(b) during any period of twenty-four consecutive months (not including
any period prior to the date that the Company completes an initial
public offering of its class B common stock), individuals who at the
beginning of such period constitute the Company's Board of Directors,
and any new director (other than a director nominated by any person
(other than the Company) who publicly announces an intention to take or
to consider taking actions (including, but not limited to, an actual or
threatened proxy contest) which if consummated would constitute a
Change in Control under (a), (c) or (d) of this Section 5) whose
election by the Company's Board of Directors or nomination for election
by the Company's shareholders was approved by a vote of at least two-
thirds of the directors then still in office who either were directors
at the beginning of the
A-10
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;
(c) the consummation of any transaction or series of transactions
resulting in a merger or consolidation in which the Company is
involved, other than a merger or consolidation which would result in
the shareholders of the Company immediately prior thereto continuing to
own (either by remaining outstanding or by being converted into voting
securities of the surviving entity), in the same proportion as
immediately prior to the transaction(s), more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation;
(d) the complete liquidation of the Company or the sale or disposition
by the Company of all or substantially all of the Company's assets; or
(e) any other transaction so denominated by the Company's Board of
Directors.
6. "Code" means the Internal Revenue Code of 1986, as amended.
7. "Company" means ARAMARK Corporation and any successor or successors
thereto.
8. "Good Reason" means any of the following actions on or after a Change of
Control, without Executive's express prior written approval, other than due to
Executive's Permanent Disability or death:
(a) any decrease in Base Salary or Target Bonus;
(b) any decrease in Executive's pension benefit opportunities or any
material diminution in the aggregate employee benefits, in each
case, afforded to the Executive immediately prior to the Change
of Control, but not including any such decrease or diminution
that is inadvertent and that is cured within 30 days following
written notice of such decrease or diminution by Executive to the
Company;
(c) any diminution in Executive's title or reporting relationship, or
substantial diminution in duties or responsibilities (other than
solely as a result of a Change of Control in which the Company
immediately thereafter is no longer publicly held);
(d) any relocation of Executive's principal place of business of 35
miles or more, other than normal travel consistent with past
practice; or
(e) Executive's notice of termination of employment within the
thirty-day period following the first day of the 13th month
following the Change of Control.
A-11
Except with respect to Section 8(e) above, Executive shall have twelve
months from the time Executive first becomes aware of the existence of Good
Reason to resign for Good Reason.
9. "Permanent Disability" means "permanent disability" as defined in the
Company's long-term disability plan as in effect from time to time, or if there
shall be no plan, the inability of Executive to perform in all material respects
Executive's duties and responsibilities to the Company or any affiliate for a
period of six (6) consecutive months or for an aggregate of nine (9) months in
any twenty-four (24) consecutive month period by reason of a physical or mental
incapacity.
10. "Target Bonus" means the target Bonus established for Executive,
whether expressed as a percentage of Base Salary or a dollar amount.
EXECUTION COPY
$600,000,000
BRIDGE LOAN AGREEMENT
dated as of
November 30, 2001
among
ARAMARK SERVICES, INC.,
ARAMARK CORPORATION,
as Parent Guarantor
THE LENDERS LISTED HEREIN
and
JPMORGAN CHASE BANK,
as Administrative Agent
<TABLE>
ARTICLE 1
Definitions
<S> <C>
Section 1.01. Definitions.................................................. 1
Section 1.02. Accounting Terms and Determinations.......................... 14
ARTICLE 2
The Loans
Section 2.01. Commitments to Lend.......................................... 14
Section 2.02. Notice of Borrowing; Funding of Loans........................ 14
Section 2.03. Maturity of Loans; Mandatory Prepayments..................... 15
Section 2.04. Notes........................................................ 16
Section 2.05. Interest Rates............................................... 17
Section 2.06. Optional Prepayments......................................... 18
Section 2.07. General Provisions as to Payments............................ 18
Section 2.08. Funding Losses............................................... 19
Section 2.09. Computation of Interest and Fees............................. 19
Section 2.10. Regulation D Compensation.................................... 19
Section 2.11. Method of Electing Interest Rates............................ 20
ARTICLE 3
Conditions To Borrowing
Section 3.01. Conditions To Borrowing...................................... 21
ARTICLE 4
Representations And Warranties
Section 4.01. Corporate Existence and Power................................ 22
Section 4.02. Corporate and Governmental Authorization; No Contravention... 23
Section 4.03. Binding Effect............................................... 23
Section 4.04. Financial Information........................................ 23
Section 4.05. Litigation................................................... 23
Section 4.06. Compliance with ERISA........................................ 24
Section 4.07. Environmental Matters........................................ 24
Section 4.08. Taxes........................................................ 24
Section 4.09. Compliance with Laws......................................... 24
Section 4.10. Not an Investment Company.................................... 25
Section 4.11. Full Disclosure.............................................. 25
ARTICLE 5
Covenants
Section 5.01. Information.................................................. 25
</TABLE>
i
<TABLE>
<S> <C>
Section 5.02. Payment of Obligations....................................... 27
Section 5.03. Maintenance of Property; Insurance........................... 27
Section 5.04. Conduct of Business and Maintenance of Existence............. 28
Section 5.05. Inspection of Property, Books and Records.................... 28
Section 5.06. Maintenance of Stock of Borrower............................. 28
Section 5.07. Negative Pledge.............................................. 29
Section 5.08. Consolidations, Mergers and Sales of Assets.................. 30
Section 5.09. Fixed Charge Coverage........................................ 30
Section 5.10. Debt Coverage................................................ 30
Section 5.11. Minimum Consolidated Net Worth............................... 31
Section 5.12. Transactions with Affiliates................................. 31
Section 5.13. Use of Proceeds.............................................. 31
Section 5.14. Restricted Payments.......................................... 31
ARTICLE 6
Defaults
Section 6.01. Events of Default........................................... 32
Section 6.02. Notice of Default............................................ 34
ARTICLE 7
The Administrative Agent
Section 7.01. Appointment and Authorization................................ 34
Section 7.02. Administrative Agent and Affiliates.......................... 34
Section 7.03. Action by Administrative Agent............................... 35
Section 7.04. Consultation With Experts.................................... 35
Section 7.05. Liability of Administrative Agent............................ 35
Section 7.06. Indemnification.............................................. 35
Section 7.07. Credit Decision.............................................. 35
Section 7.08. Agency Fees.................................................. 36
Section 7.09. Successor Administrative Agent............................... 36
ARTICLE 8
Changes In Circumstances Affecting Euro-dollar Loans
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair..... 36
Section 8.02. Illegality................................................... 37
Section 8.03. Increased Cost............................................... 37
Section 8.04. Taxes........................................................ 38
Section 8.05. Base Rate Loans Substituted for Affected Loans............... 40
ARTICLE 9
Guarantee
Section 9.01. The Guarantee................................................ 40
Section 9.02. Guarantee Unconditional...................................... 41
</TABLE>
ii
<TABLE>
<S> <C>
Section 9.03. Discharge Only Upon Payment In Full; Reinstatement In
Certain Circumstances....................................... 41
Section 9.04. Waiver....................................................... 42
Section 9.05. Subrogation and Contribution................................. 42
Section 9.06. Stay of Acceleration......................................... 42
ARTICLE 10
Judicial Proceedings
Section 10.01. Consent To Jurisdiction..................................... 42
Section 10.02. Enforcement of Judgments.................................... 42
Section 10.03. Service of Process.......................................... 43
Section 10.04. No Limitation on Service or Suit............................ 43
ARTICLE 11
Miscellaneous
Section 11.01. Notices..................................................... 43
Section 11.02. No Waiver................................................... 43
Section 11.03. Expenses; Indemnification for Litigation.................... 44
Section 11.04. Amendments and Waivers...................................... 44
Section 11.05. Sharing of Set-offs......................................... 45
Section 11.06. New York Law................................................ 45
Section 11.07. Successors and Assigns...................................... 45
Section 11.08. Collateral.................................................. 47
Section 11.09. Counterparts; Effectiveness................................. 47
Section 11.10. WAIVER OF JURY TRIAL........................................ 47
</TABLE>
iii
Commitment Schedule
Pricing Schedule
Exhibit A - Note
Exhibit B - Opinion of Counsel of the
Borrower and the Parent Guarantor
Exhibit C - Opinion of Special Counsel for the Administrative Agent
Exhibit D - Subsidiary Guaranty Agreement
Exhibit E - Management Equity Note
iv
BRIDGE LOAN AGREEMENT
AGREEMENT dated as of November 30, 2001 (the "Agreement") among ARAMARK
SERVICES, INC., ARAMARK CORPORATION, as the Parent Guarantor, the LENDERS party
hereto and JPMORGAN CHASE BANK, as Administrative Agent.
ARTICLE 1
Definitions
Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Acquisition" means the acquisition by the Parent Guarantor and its Wholly
Owned Subsidiaries of the Target on substantially the terms heretofore disclosed
by the Parent Guarantor to the Lenders.
"Administrative Agent" means JPMorgan Chase Bank, in its capacity as
administrative agent for the Lenders hereunder, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Lender, an
administrative questionnaire in the form requested by the Administrative Agent
that is submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Lender.
"Affiliate" means any Person (other than the Parent Guarantor or a
Subsidiary) which controls, is controlled by or is under common control with the
Parent Guarantor. As used herein, the term "control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Applicable Lending Office" means, with respect to any Lender, (i) in the
case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Approved Fund" means any Fund that is administered or managed by (i) a
Lender, (ii) an affiliate of a Lender or (iii) an entity or an affiliate of any
entity that administers or manages a Lender.
"AWC Merger" means the merger of the Parent Guarantor with and into ARAMARK
Worldwide Corporation, a Delaware corporation and a wholly-owned subsidiary of
the Parent Guarantor, which would substantially simultaneously therewith change
its name to ARAMARK Corporation.
1
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 2 of 1% plus the Federal Funds
Rate for such day.
"Base Rate Loan" means a Loan which bears interest at the Base Rate
pursuant to the Notice of Borrowing or a Notice of Interest Rate Election or the
provisions of Article 8.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Borrower" means ARAMARK Services, Inc., a Delaware corporation, and its
successors.
"Borrowing Date" means the date designated by the Borrower in the Notice of
Borrowing as the date on which the initial Loans are to be made. The Borrowing
Date shall be no later than December 14, 2001.
"Capital Lease" means a lease that would be capitalized on a balance sheet
of the lessee prepared in accordance with generally accepted accounting
principles.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Commitment" means (i) with respect to each Lender listed on the Commitment
Schedule, the amount set forth opposite the name of such Lender on the
Commitment Schedule and (ii) with respect to any assignee, the amount of the
transferor Lender's Commitment assigned to it pursuant to Section 11.07, in each
case as such amount may be changed from time to time pursuant to Section 11.07.
"Commitment Schedule" means the Commitment Schedule attached hereto.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Parent Guarantor.
"Consolidated Cash Flow Available for Fixed Charges" means for any period
EBITDA for such period, plus the excess (if any) of (x) the aggregate amounts
deducted in determining Consolidated Net Income for such period in respect of
rental expense over (y) the aggregate amounts included in determining such
Consolidated Net Income in respect of rental income (excluding any portion of
such rental expense or rental income in respect of leases having a term of one
year or less or in respect of Capital Leases).
"Consolidated Fixed Charges" means for any period (the "Applicable Period")
the sum of, without duplication, (i) the Consolidated Interest Charges accrued
in the Applicable Period, (ii) the excess (if any) of (x) the aggregate amounts
deducted in determining Consolidated Net Income for the Applicable Period in
respect of rental
2
expense over (y) the aggregate amounts included in determining such Consolidated
Net Income in respect of rental income (excluding any portion of such rental
expense or rental income in respect of leases having a term of one year or less
or in respect of Capital Leases) and (iii) the aggregate amount of dividends
accrued in the Applicable Period in respect of Series Preferred Stock.
"Consolidated Interest Charges" means for any period the aggregate interest
expense (net of interest income) of the Parent Guarantor and its Consolidated
Subsidiaries for such period including, without limitation, (i) the portion of
any obligation under Capital Leases allocable to interest expense in accordance
with generally accepted accounting principles, and (ii) the portion of any debt
discount or premium arising at issuance of such debt that shall be amortized in
such period.
"Consolidated Net Income" means for any period the consolidated net income
of the Parent Guarantor and its Consolidated Subsidiaries for such period.
"Consolidated Net Worth" means at any date (the "Date of Determination")
without duplication (i) the consolidated shareholders' equity (exclusive of the
cumulative foreign currency translation adjustment as determined in accordance
with generally accepted accounting principles) of the Parent Guarantor and its
Consolidated Subsidiaries as of the Date of Determination plus (ii) the
principal amount of all Management Equity Notes outstanding on the Date of
Determination. For purposes of this definition, consolidated shareholders'
equity includes Common Stock subject to potential repurchase pursuant to the
Stockholders' Agreement, as reflected in the consolidated financial statements
of the Parent Guarantor and its Consolidated Subsidiaries.
"Consolidated Subsidiary" means, at any date with respect to any Person,
any Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in the consolidated financial statements of such Person as
of such date.
"Consolidated Tangible Assets" means at any date the consolidated assets of
the Parent Guarantor and its Consolidated Subsidiaries determined as of such
date less their consolidated goodwill, all determined as of such date.
"Contingent Liability" means any quantifiable obligation or liability which
is of a type required to be disclosed as a contingent liability in the
consolidated financial statements of the Parent Guarantor and its Consolidated
Subsidiaries in accordance with generally accepted accounting principles;
provided that Guarantees constitute Debt and not Contingent Liabilities.
"Credit Agreement" means the Credit and Guaranty Agreement dated as of
January 7, 1998, as heretofore or hereafter amended and/or restated, among
ARAMARK Uniform & Career Apparel Group, Inc. and ARAMARK Services, Inc., as
borrowers, ARAMARK Corporation, as guarantor, the banks from time to time party
thereto and The Chase Manhattan Bank and Morgan Guaranty Trust Company of New
York, as agents.
3
"Credit Exposure" means, with respect to any Lender at any time, (i) the
amount of its Commitment at such time or (ii) if the Commitments have
terminated, the aggregate outstanding principal amount of its Loans at such
time.
"Debt" of any Person means, without duplication, (i) all obligations of
such Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person to pay the deferred purchase price of property or services, except
trade accounts payable arising in the ordinary course of business, (iv) all
obligations of such Person as lessee under Capital Leases, (v) all obligations
of such Person to purchase securities which arise out of or in connection with
the sale of the same or substantially similar securities, (vi) all noncontingent
obligations (and, for purposes of Section 5.07, all contingent obligations) of
such Person to reimburse any other Person for amounts which have been drawn
under a letter of credit or similar instrument, (vii) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is assumed by
such Person (such Debt to have a principal amount, for purposes of
determinations under this Agreement, not exceeding the net unencumbered carrying
value of such asset under generally accepted accounting principles), and (viii)
all Debt of others Guaranteed by such Person (such Debt to have a principal
amount, for purposes of determinations under this Agreement, not exceeding the
portion of such Debt Guaranteed by such Person).
"Default" means any condition or event that constitutes an Event of Default
or that with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Disposition" means the sale, assignment, transfer or other disposition by
any Person of any asset or assets in a transaction or series of related
transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close.
"Domestic Lending Office" means, as to each Lender, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.
4
"EBITDA" means for any period Consolidated Net Income for such period,
excluding therefrom any extraordinary items of gain or loss, plus the aggregate
amounts deducted in determining Consolidated Net Income for such period in
respect of (i) income taxes, (ii) Consolidated Interest Charges and (iii)
depreciation, amortization and other similar non-cash charges. If the period
for which EBITDA is calculated includes a date on which the Parent Guarantor or
any of its Consolidated Subsidiaries made a Major Asset Acquisition or Major
Asset Sale, then EBITDA for such period shall be calculated on a pro forma basis
as if such acquisition or sale had occurred on the first day thereof.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 11.09.
"Eligible Assignee" means (i) a Lender; (ii) an affiliate of a Lender;
(iii) an Approved Fund; and (iv) any other Person (other than a natural Person)
approved by the Administrative Agent and, unless (x) such Person is taking
delivery of an assignment in connection with physical settlement of a credit
derivatives transaction to which the Borrower has previously given its consent
(not to be unreasonably withheld) or (y) an Event of Default has occurred and is
continuing, the Borrower (each such approval not to be unreasonably withheld or
delayed). If the consent of the Borrower to an assignment or to an Eligible
Assignee is required hereunder (including a consent to an assignment which does
not meet the minimum assignment thresholds specified in paragraph (b)(i) of
Section 11.07), the Borrower shall be deemed to have given its consent five
Domestic Business Days after the date notice thereof has been delivered by the
assigning Lender (through the Administrative Agent) unless such consent is
expressly refused by the Borrower prior to such fifth Domestic Business Day.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Parent Guarantor, any Subsidiary and all members of
a controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Parent Guarantor or
any Subsidiary, are treated as a single employer under Section 414 of the
Internal Revenue Code.
5
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Lender, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Lender
as it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Administrative Agent.
"Euro-Dollar Loan" means any Loan in respect of which interest is to be
computed on the basis of a Euro-Dollar Rate.
"Euro-Dollar Margin" has the meaning set forth in Section 2.05(b).
"Euro-Dollar Rate" means a rate of interest determined pursuant to Section
2.05 on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor), for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents).
"Events of Default" has the meaning set forth in Section 6.01.
"Excess Contingent Liabilities" means at any time all Contingent
Liabilities of the Parent Guarantor and its Subsidiaries other than:
(a) surety or fidelity bonds or letters of credit issued on behalf of the
Parent Guarantor or any of its Subsidiaries issued in the normal course of
business of the Parent Guarantor or such Subsidiary, as the case may be; and
(b) other Contingent Liabilities in an aggregate amount not exceeding
$100,000,000.
"Excess Secured Debt" means secured Debt other than Debt secured by Liens
permitted pursuant to clauses (a) through (g) of Section 5.07.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided
6
that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding Domestic
Business Day as so published on the next succeeding Domestic Business Day, and
(ii) if no such rate is so published on such next succeeding Domestic Business
Day, the Federal Funds Rate for such day shall be the average rate quoted to
JPMorgan Chase Bank on such day on such transactions as determined by the
Administrative Agent.
"Financing Documents" means this Agreement, the Notes and the Subsidiary
Guaranty Agreement.
"Fiscal Year" means a fiscal year of the Parent Guarantor.
"Fund" means any Person (other than a natural Person) that is (or will be)
engaged in making, purchasing, holding or otherwise investing in commercial
loans and similar extensions of credit in the ordinary course of its business.
"Group" means at any time a group of Loans consisting of (i) all Loans
which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the
same Interest Period at such time, provided that, if a Loan of any particular
Lender is converted to or made as a Base Rate Loan pursuant to Article 8, such
Loan shall be included in the same Group or Groups of Loans from time to time as
it would have been in if it had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Debt of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"Interest Period" means, with respect to each Euro-Dollar Loan, the period
commencing on the Borrowing Date or on the date specified in the applicable
Notice of Interest Rate Election and ending one, two, three or six months
thereafter, as the Borrower may elect in the applicable notice; provided that:
7
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to the further proviso below, end on the last Euro-Dollar
Business Day of a calendar month; and
(c) no Interest Period may end after the maturity date of the Loans.
"JPMorgan Chase Bank" means JPMorgan Chase Bank and its successors.
"Lender" means each financial institution listed on the signature pages
hereof, and (subject to Section 11.07) its successors and assigns, and "Lenders"
means all of the foregoing.
"Leverage Ratio" means on any date (the "Date of Determination") the ratio
of (A) EBITDA for the four most recent fiscal quarters of the Parent Guarantor
ended on or prior to the Date of Determination to (B) Total Borrowed Funds as of
the last day of the most recent fiscal quarter of the Parent Guarantor ended on
or prior to the Date of Determination.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purpose of this Agreement, the Parent Guarantor or any of its
Subsidiaries shall be deemed to own subject to a Lien any asset that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement or other title retention agreement relating to such
asset or any Capital Lease.
"Loan" means a loan made by a Bank pursuant to Section 2.01; provided that,
if any such loan or loans (or portions thereof) are combined or subdivided
pursuant to a Notice of Interest Rate Election, the term Loan shall refer to the
combined principal amount resulting from such combination or to each of the
separate principal amounts resulting from such subdivision, as the case may be.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(b).
"Major Asset Acquisition" means any acquisition for cash or other
consideration by the Parent Guarantor or any of its Subsidiaries, or any series
of such acquisitions of (a) any asset, (b) any group of related assets or (c)
any shares of capital stock or any other ownership interest in any Person;
provided that in the case of any such acquisition, or such series of
acquisitions, the aggregate of all consideration (including cash and the fair
market value (as certified by a Principal Officer of the Parent Guarantor) of
all other con-
8
sideration paid by the Parent Guarantor or any of its Subsidiaries) for or in
respect of such acquisition, or such series of acquisitions, exceeds
$25,000,000; and provided further that no such acquisition or series of
acquisitions from the Parent Guarantor or any Subsidiary of the Parent Guarantor
shall constitute a Major Asset Acquisition.
"Major Asset Sale" means any Disposition by the Parent Guarantor or any of
its Subsidiaries of a Single Asset; provided that in the case of any such
Disposition the aggregate of all cash and the fair market value (as certified by
a Principal Officer of the Parent Guarantor) of all property received by the
Parent Guarantor or any of its Subsidiaries from or in respect of such
Disposition exceeds $25,000,000; and provided further that (i) no such
Disposition by any Wholly Owned Subsidiary of the Parent Guarantor to any other
Wholly Owned Subsidiary of the Parent Guarantor shall constitute a Major Asset
Sale and (ii) no Sale and Leaseback Transaction shall constitute a Major Asset
Sale.
"Management Equity Note" means a subordinated promissory note of the Parent
Guarantor carrying an interest rate no higher than the market interest rate
payable in respect of debt with comparable terms issued by comparable issuers,
substantially in the form of Exhibit E hereto, issued to management or former
management (including directors) of the Parent Guarantor in exchange for shares
of Common Stock pursuant to the Stockholders' Agreement or in exchange for
Series Preferred Stock.
"Margin Stock" means "margin stock" as such term is defined in Regulation U
of the Board of Governors of the Federal Reserve System, as the same may be
amended, supplemented or modified from time to time.
"Material Financial Obligations" means a principal or face amount of Debt
and/or payment or collateralization obligations in respect of Derivatives
Obligations of the Parent Guarantor and/or one or more of its Subsidiaries,
arising in one or more related or unrelated transactions, exceeding in the
aggregate $25,000,000.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five-year period.
"Net Cash Proceeds" means, with respect to any event (a) the cash proceeds
received in respect of such event including any cash received in respect of any
non-cash proceeds, but only as and when received, net of (b) the sum of (i) all
reasonable fees and out-of-pocket expenses paid by the Parent Guarantor and its
Subsidiaries to third parties in connection with such event, (ii) in the case of
a sale, transfer or other disposition of an asset (including pursuant to a sale
and leaseback transaction or a casualty or a condemnation or similar
proceeding), the amount of all payments required to be made by the Parent
Guarantor and its Subsidiaries as a result of such event to repay Debt (other
than Loans) secured by such asset or otherwise subject to mandatory prepayment
as a result of such event, (iii) the amount of all taxes paid (or reasonably
estimated to be
9
payable) by the Parent Guarantor and its Subsidiaries, and the amount of any
reserves established by the Parent Guarantor and its Subsidiaries to fund
contingent liabilities reasonably estimated to be payable, in each case during
the year that such event occurred or the next succeeding year and that are
directly attributable to such event (as determined reasonably and in good faith
by the chief financial officer of the Parent Guarantor), and (iv) in the case of
a public offering by the Parent Guarantor of any Common Stock, the amount
expended by the Parent Guarantor for repurchases of Common Stock on or after the
date of pricing of the initial such public offering and on or prior to the 75th
day following the consummation of the initial such public offering (or such
earlier time as the Borrower shall designate by notice to the Administrative
Agent) and not theretofore taken into account in the calculation of Net Cash
Proceeds.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" has the meaning set forth in Section 2.02(a).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.11(a)(ii).
"Obligors" means the Borrower, the Parent Guarantor and each Subsidiary
from time to time party to the Subsidiary Guaranty Agreement.
"Parent" means, with respect to any Lender, any Person controlling such
Lender.
"Parent Guarantor" means ARAMARK Corporation, a Delaware corporation and
its successors.
"Participant" has the meaning set forth in Section 11.07(d).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title I or IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
"Prepayment Event" means:
10
(a) any sale, lease or other disposition (including any such transaction
effected by way of merger or consolidation) by the Parent Guarantor or any of
its Subsidiaries of any asset, including without limitation any sale-leaseback
transaction, whether or not involving a capital lease, but excluding (i)
dispositions of temporary cash investments, inventory and used, surplus or worn
out equipment in the ordinary course of business, (ii) dispositions to the
Parent Guarantor or a Subsidiary of the Parent Guarantor, (iii) any disposition
of assets in one or more related transactions of Target for Net Cash Proceeds
not exceeding $25,000,000 in the aggregate, and (iv) any disposition of assets
in one or more related transactions of the Parent Guarantor or a Subsidiary
(other than assets of Target) for Net Cash Proceeds not exceeding $75,000,000 in
the aggregate; or
(b) the issuance by the Parent Guarantor or any Subsidiary of any equity
securities, or the receipt by the Parent Guarantor or any Subsidiary of any
capital contribution, other than (i) any such issuance of equity securities to,
or receipt of any such capital contribution from, the Parent Guarantor or a
Subsidiary and (ii) the issuance by the Parent Guarantor of Common Stock
pursuant to employee benefit or employee stock option plans in the ordinary
course of business ; provided that in the case of a public offering by the
Parent Guarantor of its Common Stock, the related Prepayment Event shall be
deemed to occur on the date 75 days after the pricing of the initial such public
offering (or such earlier date as the Borrower may designate by notice to the
Administrative Agent); or
(c) the issuance by the Parent Guarantor or any Subsidiary of any debt
securities; or
(d) the establishment by the Parent Guarantor or any Subsidiary of any new
committed loan facility, or an increase in the amount available under any
existing committed loan facility of the Parent Guarantor or any Subsidiary
(which shall be deemed for purposes of Section 2.03 to produce gross cash
proceeds to the Parent Guarantor or such Subsidiary equal to the incremental
amount available as a consequence of such establishment or increase, whether or
not borrowed at the time).
"Pricing Schedule" means the Pricing Schedule attached hereto.
"Prime Rate" means the rate of interest publicly announced from time to
time by JPMorgan Chase Bank at its main offices in New York City as its prime
rate.
"Principal Officer" means the chief executive officer, chief operating
officer, chief financial officer, chief accounting officer, any executive vice
president, treasurer or general counsel of the Parent Guarantor or a Borrower.
"Qualification" means, with respect to any report of independent public
accountants covering financial statements of a Person, (a) an explanatory
paragraph with respect to the continued existence of such Person, as
contemplated by Statement on Auditing Standards No. 59, or (b) a qualification
to such report (such as an "except for" statement therein) (i) resulting from a
limitation on the scope of audit of such financial statements or the underlying
data, (ii) resulting from a change in accounting principles to
11
which such independent public accountants take exception or (iii) which could be
eliminated by changes in financial statements or notes thereto covered by such
report (such as, by the creation of or increase in a reserve or a decrease in
the carrying value of assets) and which if so eliminated by the making of any
such change and after giving effect thereto would occasion a Default, provided
that neither of the following shall constitute a Qualification: (x) an
explanatory paragraph relating to a change in accounting principles to which
such independent public accountants take no exception or (y) an explanatory
paragraph relating to the outcome or disposition of any uncertainty, including
but not limited to threatened litigation, pending litigation being contested in
good faith, pending or threatened claims or other contingencies, the impact of
which litigation, claims, contingencies or uncertainties cannot be determined
with sufficient certainty to permit quantification in such financial statements.
"Quarterly Date" means each March 31, June 30, September 30 and December
31.
"Reference Banks" means the principal London offices of Citibank, N.A. and
JPMorgan Chase Bank. "Reference Bank" means any one of such Reference Banks.
"Regulation U" has the meaning set forth in Section 5.13.
"Required Lenders" means at any time Lenders having at least 51% of the
aggregate amount of the Credit Exposures.
"Sale and Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Parent Guarantor or any Subsidiary of any
property that, or of any property similar to and used for substantially the same
purposes as any other property that, has been or is to be sold, assigned,
transferred or otherwise disposed of by the Parent Guarantor or any of its
Subsidiaries to such Person with the intention of entering into such a lease.
"Series Preferred Stock" means any series of Series Preferred Stock issued
by the Parent Guarantor from time to time.
"Single Asset" means, in the case of any Disposition by the Parent
Guarantor or any of its Subsidiaries, (a) any asset, (b) any group of assets
used in connection with the same line of business of the Parent Guarantor or
such Subsidiary prior to such sale, assignment, transfer or other disposition or
(c) any shares of capital stock or any other ownership interest in any Person.
"Stockholders' Agreement" means the Amended and Restated Stockholders'
Agreement dated as of December 14, 1994 among the Parent Guarantor and the
investors listed therein, as the same may be amended from time to time.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the
12
time directly or indirectly owned by such Person. As used herein, the term
"Subsidiary" shall be deemed to refer to a Subsidiary of the Parent Guarantor
unless otherwise specified.
"Subsidiary Guaranty Agreement" means the Subsidiary Guaranty Agreement
dated as of the date hereof among the Borrower, the Parent Guarantor and certain
Subsidiaries, in the form of Exhibit D hereto.
"Target" means the Management Services Division of The ServiceMaster
Company.
"Total Borrowed Funds" means at any date the sum of (i) all Debt of the
Parent Guarantor and its Consolidated Subsidiaries that would be required to be
reflected on or referred to in a consolidated balance sheet of the Parent
Guarantor and its Consolidated Subsidiaries at such date (including without
limitation all Capital Leases of and, except as set forth below, all Debt
Guaranteed by the Parent Guarantor and its Consolidated Subsidiaries but
excluding (x) Debt Guaranteed by the Parent Guarantor and its Consolidated
Subsidiaries outstanding on January 7, 1998 in an aggregate principal amount not
exceeding $10,000,000 and (y) the Management Equity Notes) and (ii) Excess
Contingent Liabilities.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Wholly Owned Domestic Material Subsidiary" means, with respect to any
Person, a Wholly Owned Subsidiary that (i) is organized under the laws of the
United States, any state thereof or any political subdivision thereof or therein
and (ii) whose total assets (or in the case of any Subsidiary which itself has
Subsidiaries, the consolidated total assets of such Subsidiary and its
Consolidated Subsidiaries) are at least 5% of the consolidated total assets of
the Parent Guarantor and its Consolidated Subsidiaries, as shown by the
financial statements then most recently delivered pursuant to Section 5.01
provided that if the Parent Guarantor determines in good faith that a Subsidiary
does not have consolidated assets of at least 5% of the consolidated total
assets of the Parent Guarantor and its Consolidated Subsidiaries as at any
fiscal year-end, such determination shall be conclusive for purposes of this
Agreement and the Subsidiary Guaranty Agreement for a period of 270 days
following such fiscal year-end.
"Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary
all of the shares of capital stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly owned by
such Person.
13
Section 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles applied on a basis consistent with the
audited consolidated financial statements of the Parent Guarantor and its
Consolidated Subsidiaries for the fiscal year ended September 29, 2000 referred
to in paragraph (a) of Section 4.04 (except for changes to which independent
public accountants for the Parent Guarantor take no exception) provided that, if
the Borrower notifies the Administrative Agent that the Borrower wishes to amend
any covenant in Article 5 to eliminate the effect of any change in generally
accepted accounting principles on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Lenders wish to
amend Article 5 for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Parent
Guarantor, the Borrower and the Required Lenders..
ARTICLE 2
The Loans
Section 2.01. Commitments to Lend. On the Borrowing Date, each Lender
severally agrees, on the terms and conditions set forth in this Agreement, to
make a single loan to the Borrower in a principal amount which shall not exceed
the amount of such Lender's Commitment. The borrowing under this Section shall
be in an aggregate principal amount of $200,000,000 or any larger multiple of
$5,000,000 and shall be made from the Lenders ratably in proportion to their
respective Commitments. The Commitments are not revolving in nature, and shall
terminate at the close of business on the earlier of the Borrowing Date and
December 14, 2001.
Section 2.02. Notice of Borrowing; Funding of Loans. The Borrower shall
give the Administrative Agent notice (the "Notice of Borrowing") of its
intention to borrow the Loans at least one Domestic Business Day prior to the
Borrowing Date, if the Loans are initially to be Base Rate Loans, or at least
three Euro-Dollar Business Days prior to the Borrowing Date, if the Loans are
initially to be Euro-Dollar Loans, in each case specifying:
(i) the proposed Borrowing Date, which shall be a Domestic Business
Day if the Loans are initially to be Base Rate Loans or a Euro-Dollar
Business Day if the Loans are initially to be Euro-Dollar Loans,
(ii) the aggregate amount of the Loans to be borrowed,
(iii) whether the Loans are initially to be Base Rate Loans or Euro-
Dollar Loans, and
14
(iv) in the case of Euro-Dollar Loans, the duration of the initial
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
(b) Upon receipt of the Notice of Borrowing, the Administrative Agent
shall promptly notify each Lender of the contents thereof and of the amount of
such Lender's Loan and the Notice of Borrowing shall not thereafter be revocable
by the Borrower.
(c) Not later than 12:00 Noon (New York City time) on the Borrowing Date,
each Lender shall make available the amount of its Loan, in Federal or other
funds immediately available in New York City, to the Administrative Agent at its
address specified in or pursuant to Section 11.01. Unless the Administrative
Agent determines that any applicable condition specified in Article 3 has not
been satisfied, the Administrative Agent will make the funds so received from
the Lenders available to the Borrower on such date at the Administrative Agent's
aforesaid address.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the Borrowing Date that such Lender will not make available to
the Administrative Agent the amount of its Loan, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative
Agent on the Borrowing Date in accordance with subsection (c) of this Section
2.02 and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have so made such amount available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand (or within one Domestic Business
Day, in the case of the Borrower) such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Administrative Agent,
at in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to Section
2.05 and in the case of such Lender, the Federal Funds Rate. If such Lender
shall repay to the Administrative Agent such corresponding amount, such amount
so repaid shall constitute such Lender's Loan for purposes of this Agreement.
Section 2.03. Maturity of Loans; Mandatory Prepayments. (a) Scheduled
Maturity. Each Loan shall mature, and the principal amount thereof shall be due
and payable, on the first anniversary of the Borrowing Date.
(b) Prepayment Events. In addition, the Loans shall be prepaid by an
amount equal to the Net Cash Proceeds that the Parent Guarantor or any of its
Subsidiaries shall at any time or from time to time after the date hereof
receive in connection with a Prepayment Event. Each such prepayment shall be
made within five Euro-Dollar Business Days of receipt by the Parent Guarantor or
any of its Subsidiaries, as the case may be, of such Net Cash Proceeds, provided
that
(i) if the Net Cash Proceeds in respect of any Prepayment Event are
less than $5,000,000, such prepayment shall be effective upon receipt of
proceeds
15
such that, together with all other such amounts not previously applied such
Net Cash Proceeds is equal to at least $5,000,000; and
(ii) if any prepayment would otherwise require prepayment of Euro-
Dollar Loans or portions thereof prior to the last day of the then current
Interest Period, then such prepayment shall, unless the Administrative
Agent otherwise notifies the Borrower upon the instructions of the Required
Lenders, be deferred to the last day of such Interest Period.
The Borrower shall give the Administrative Agent at least three Euro-Dollar
Business Days' notice of each prepayment required to be made pursuant to this
subsection (b).
(c) Applications of Prepayments.
(i) Each prepayment shall be applied ratably to the respective
Loans of all of the Lenders.
(ii) Each payment of principal of the Loans shall be made together
with interest accrued on the amount repaid to the date of payment.
(iii) Each prepayment of the Loans shall be applied to such Group or
Groups of Loans as the Borrower may designate (or, failing such
designation, as determined by the Administrative Agent).
Section 2.04. Notes. (a) The Loan(s) of each Lender shall be evidenced by
a single Note payable to the order of such Lender for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Lender's Loans.
(b) Each Lender may, by notice to a Borrower and the Administrative Agent,
request that its Loans of a particular type be evidenced by a separate Note in
an amount equal to the aggregate unpaid principal amount of such Loans. Each
such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Lender
shall be deemed to refer to and include either or both of such Notes, as the
context may require.
(c) Upon receipt of each Lender's Note pursuant to Section 3.01, the
Administrative Agent shall deliver, by hand or overnight courier, such Note to
such Lender. Each Lender shall record the date, amount and type of each Loan to
be evidenced by its Note and the date and amount of each payment of principal
made by the Borrower with respect thereto and may, if a Lender so elects in
connection with any transfer or enforcement of its Note, and is hereby
irrevocably authorized by the Borrower to, endorse on the schedules forming a
part thereof appropriate notations to evidence such information and attach to
and make a part of any Note a continuation of any such schedule as and when
required. Notwithstanding the foregoing provisions of this paragraph (c),
neither the obligations of any Obligor nor the rights of any Lender shall be
16
affected by the failure of any Lender to appropriately record such information
on any Note.
Section 2.05. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable at maturity, quarterly in
arrears on each Quarterly Date prior to maturity and, with respect to the
principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the
date of such conversion. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof and,
if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in dollars are offered to each of
the Reference Banks in the London interbank market at approximately 11:00 A.M.
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of such Reference Bank to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
(c) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to the Interest Period for
such Loan immediately before such payment was due and (ii) the sum of 2% plus
the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward,
if necessary, to the next higher 1/100 of 1%) by dividing (x) the average
(rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective
rates per annum at which one day (or, if such amount due remains unpaid more
than three Euro-Dollar Business Days, then for such other period of time not
longer than six months as the Administrative Agent may select) deposits in
dollars in an amount approximately equal to such overdue payment due to each of
the Reference Banks are offered to such Reference Bank in the London interbank
market for the applicable period determined as provided above by (y) 1.00 minus
the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause
(a) or (b) of
17
Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the
rate applicable to Base Rate Loans for such day).
(d) The Administrative Agent shall determine each interest rate applicable
to the Loans hereunder. The Administrative Agent shall give prompt notice to the
Borrower of each rate of interest so determined, and its determination thereof
shall be conclusive in the absence of manifest error.
(e) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
Section 2.06. Optional Prepayments. (a) Subject in the case of Euro-
Dollar Loans to Section 2.08, the Borrower may, upon at least one Domestic
Business Day's notice to the Administrative Agent, prepay any Group of Base Rate
Loans or upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in
whole at any time, or from time to time in part in amounts aggregating
$5,000,000 or any larger multiple of $5,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such prepayment shall be applied to prepay ratably the Loans of the several
Lenders included in such Group.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the
Administrative Agent shall promptly notify each Lender of the contents thereof
and of such Lender's ratable share of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
Section 2.07. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans, not later than
12:00 Noon (New York City time) on the date when due, in Federal or other funds
immediately available in New York City, to the Administrative Agent at its
address referred to in Section 11.01. The Administrative Agent will promptly
distribute to each Lender its ratable share of each such payment received by the
Administrative Agent for the account of the Lenders. Whenever any payment of
principal of, or interest on, the Base Rate Loans shall be due on a day which is
not a Domestic Business Day, the date for payment thereof shall be extended to
the next succeeding Domestic Business Day. Whenever any payment of principal
of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
18
(b) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due from the Borrower to the
Lenders hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment, each Lender shall
repay to the Administrative Agent forthwith on demand such amount distributed to
such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Administrative Agent, at the Federal Funds Rate.
Section 2.08. Funding Losses. If the Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the
last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.05(c), or if the Borrower fails to
borrow, prepay, convert or continue any Euro-Dollar Loans after notice has been
given to any Lender in accordance with Section 2.02, 2.06 or 2.11, the Borrower
shall reimburse each Lender on demand for any resulting loss or expense incurred
by it (or by any existing or prospective Participant in the related Loan),
including (without limitation) any loss incurred in obtaining, liquidating or
employing deposits from third parties, but excluding loss of margin for the
period after any such payment or conversion or failure to borrow, prepay,
convert or continue, provided that such Lender shall have delivered to the
Borrower a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
Section 2.09. Computation of Interest and Fees.. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest shall
be computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
Section 2.10. Regulation D Compensation. Each Lender may require the
Borrower to pay, contemporaneously with each payment of interest on the Euro-
Dollar Loans, additional interest on the related Euro-Dollar Loan of such Lender
at a rate per annum determined by such Lender up to but not exceeding the excess
of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus
the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank
Offered Rate. Any Lender wishing to require payment of such additional interest
(x) shall so notify the Borrower and the Administrative Agent, in which case
such additional interest on the Euro-Dollar Loans of such Lender shall be
payable to such Lender at the place indicated in such notice with respect to
each Interest Period commencing at least three Euro-Dollar Business Days after
the giving of such notice, and (y) shall notify the Borrower at least three
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans of the amount then due it under this Section.
19
Section 2.11. Method of Electing Interest Rates. (a) The Loans shall bear
interest initially at the type of rate specified by the Borrower in the Notice
of Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group (subject in each case to
the provisions of Article 8 and the last sentence of this subsection(a)), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect
to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business
Day; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, effective on the last
day of the then current Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of
Interest Rate Election") to the Administrative Agent not later than 11:00 A.M.
(New York City time) on the third Euro-Dollar Business Day before the conversion
or continuation selected in such notice is to be effective. A Notice of
Interest Rate Election may, if it so specifies, apply to only a portion of the
aggregate principal amount of the relevant Group; provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such Notice applies, and the remaining portion to which it does not
apply, are each $20,000,000 or any larger multiple of $5,000,000. If no such
notice is timely received prior to the end of an Interest Period, the Borrower
shall be deemed to have elected that all Loans having such Interest Period be
converted to Base Rate Loans at the end of such Interest Period.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted,
the new type of Loans and, if the Loans being converted are to be Euro-
Dollar Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for
an additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the Borrower
pursuant to subsection (a) above, the Administrative Agent shall promptly notify
each
20
Lender of the contents thereof and such notice shall not thereafter be revocable
by the Borrower.
ARTICLE 3
Conditions To Borrowing
Section 3.01. Conditions To Borrowing. The obligation of each Lender to
make a Loan on the Borrowing Date is subject to the satisfaction of such of the
following conditions as shall not have been expressly waived in writing by the
Required Lenders;
(a) receipt by the Administrative Agent of the Notice of Borrowing as
required by Section 2.02;
(b) the fact that, prior to or substantially simultaneously with the
making of the Loans, the Acquisition shall have been consummated;
(c) the fact that, immediately before and after the making of the Loans,
no Default shall have occurred and be continuing;
(d) the fact that each of the representations and warranties made by the
Obligors in or pursuant to the Financing Documents shall be true and correct in
all material respects on and as of the Borrowing Date;
(e) the fact that the making of the Loans will not violate any provision
of law or regulation applicable to any Lender (including, without limiting the
generality of the foregoing, Regulations U and X of the Board of Governors of
the Federal Reserve System) as then in effect;
(f) receipt by the Administrative Agent for the account of each Lender of
a duly executed Note dated on or before the Effective Date complying with the
provisions of Section 2.04;
(g) receipt by the Administrative Agent of counterparts of all other
Financing Documents signed by each of the parties thereto (or, in the case of
any party as to which an executed counterpart shall not have been received,
receipt by the Administrative Agent in form satisfactory to it of telegraphic,
telex or other written confirmation from such party of execution of a
counterpart thereof by such party);
(h) receipt by the Administrative Agent (i) for its own account of the
fees set forth in Section 7.08 and (ii) for the account of the Lenders, of
participation fees in the amounts heretofore mutually agreed upon;
(i) receipt by the Administrative Agent of a certificate of a Principal
Officer of the Parent Guarantor and of the Borrower that, upon the Borrowing
Date, no Default shall have occurred and be continuing and that each of the
representations and warranties made
21
by the Obligors in or pursuant to the Financing Documents are true and correct
in all material respects;
(j) receipt by the Administrative Agent of an opinion of the General
Counsel or Associate General Counsel of the Borrower and the Parent Guarantor,
substantially in the form of Exhibit B hereto and covering such additional
matters relating to the transactions contemplated hereby as the Required Lenders
may reasonably request;
(k) receipt by the Administrative Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Administrative Agent, substantially in the
form of Exhibit C hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Lenders may reasonably request;
and
(l) receipt by the Administrative Agent of all documents they may
reasonably request relating to the existence of the Borrower and the Parent
Guarantor, the corporate authority for and the validity and enforceability of
the Financing Documents, and any other matters relevant hereto, all in form and
substance satisfactory to the Administrative Agent.
ARTICLE 4
Representations And Warranties
The Parent Guarantor and the Borrower represent and warrant to the
Administrative Agent and each Lender that, as of the date hereof and as of the
Borrowing Date:
Section 4.01. Corporate Existence and Power. Each of the Parent Guarantor,
the Borrower and each of their respective Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted (except, in the case of such Subsidiaries, to
the extent that failure to comply with the foregoing statements could not, in
the aggregate, affect the business, financial position, results of operations or
prospects of the Parent Guarantor and its Consolidated Subsidiaries in a manner
material and adverse to the creditworthiness of the Borrower and the other
Obligors, considered as a whole), and each of the Parent Guarantor, the Borrower
and each of their respective Subsidiaries is duly qualified as a foreign
corporation, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers and in which the
failure so to qualify or be licensed, as the case may be, in the aggregate,
could affect the business, financial position, results of operations or
prospects of the Parent Guarantor and its Consolidated Subsidiaries in a manner
material and adverse to the creditworthiness of the Borrower and the other
Obligors, considered as a whole.
22
Section 4.02. Corporate and Governmental Authorization; No Contravention.
The execution and delivery by each Obligor of each of the Financing Documents to
which it is a party and the performance by such Obligor of its obligations
thereunder are within the corporate power of such Obligor, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the charter or by-laws of such Obligor or of any agreement or
instrument relating to Debt of the Parent Guarantor or any Subsidiary or any
other agreement, judgment, injunction, order, decree or other instrument binding
upon such Obligor material to the business of the Parent Guarantor and its
Consolidated Subsidiaries, considered as a whole, or result in the creation or
imposition of any Lien on any asset of the Parent Guarantor or any Subsidiary.
Section 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of each of the Parent Guarantor and the Borrower and the other
Financing Documents, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of each Obligor that is
a party thereto, in each case enforceable in accordance with its terms.
Section 4.04. Financial Information. (a) The consolidated balance sheet of
the Parent Guarantor and its Consolidated Subsidiaries as of September 29, 2000
and the related consolidated statements of income and cash flows for the fiscal
year then ended, reported on by Arthur Andersen LLP, a copy of which has been
delivered to each of the Lenders, fairly present, in conformity with generally
accepted accounting principles in the United States, the consolidated financial
position of the Parent Guarantor and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such fiscal
year.
(b) The unaudited condensed consolidated balance sheet of the Parent
Guarantor and its Consolidated Subsidiaries as of June 29, 2001 and the related
unaudited condensed consolidated statements of income and cash flows for the
nine months then ended included in the Company's Form 10-Q filed with the
Securities and Exchange Commission (a copy of which has been delivered to each
of the Lenders), fairly present, in accordance with generally accepted
accounting principles applied on a basis consistent with the financial
statements referred to in subsection (a) of this Section, except for the change
in accounting for non-refundable registration fees described in note 7 thereto,
the consolidated financial position of the Parent Guarantor and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such nine-month period (subject to normal year-end adjustments).
(c) Since September 29, 2000, there has been no change in the business,
financial position or results of operations of the Parent Guarantor and its
Consolidated Subsidiaries which materially and adversely affects the credit-
worthiness of the Borrower and the other Obligors, considered as a whole.
Section 4.05. Litigation. There is no action, suit or proceeding pending
against, or to the knowledge of a Principal Officer threatened against, the
Parent Guarantor, the
23
Borrower or any of their respective Subsidiaries before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
likelihood of an adverse decision which would affect the business, financial
position or results of operations of the Parent Guarantor and its Consolidated
Subsidiaries in a manner material and adverse to the credit-worthiness of the
Borrower and the other Obligors, considered as a whole, or which in any manner
questions the validity or enforceability of any Financing Document.
Section 4.06. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all material respects
with the presently applicable provisions of ERISA and the Code with respect to
each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any Plan, (ii)
failed to make any contribution or payment to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement, or made any amendment to any Plan or
Benefit Arrangement, which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security under ERISA or the Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
Section 4.07. Environmental Matters. The Parent Guarantor has reasonably
concluded that the liabilities and costs associated with the effect of
Environmental Laws on the business, operations and properties of the Parent
Guarantor and its Subsidiaries, including the costs of compliance with
Environmental Laws, are unlikely to affect the business, financial condition,
results of operations or prospects of the Parent Guarantor and its Consolidated
Subsidiaries in a manner material and adverse to the creditworthiness of the
Borrower and the other Obligors, considered as a whole.
Section 4.08. Taxes. United States Federal income tax returns of ARAMARK
Services and its Subsidiaries have been examined and closed through the fiscal
year ended on September 29, 1995. The Parent Guarantor, the Borrower and each of
their respective Subsidiaries have filed all United States Federal income tax
returns and all other material tax returns that are required to be filed by them
and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by any of them, except for any such taxes being diligently
contested in good faith and by appropriate proceedings. Adequate reserves have
been provided on the books of the Parent Guarantor and its Subsidiaries in
respect of all taxes or other governmental charges in accordance with generally
accepted accounting principles, and no tax liabilities in excess of the amount
so provided are, in the good faith determination of the Parent Guarantor,
anticipated that could affect the business, financial position, results of
operations or prospects of the Parent Guarantor and its Consolidated
Subsidiaries in a manner material and adverse to the creditworthiness of the
Borrower and the other Obligors, considered as a whole.
Section 4.09. Compliance with Laws. The Parent Guarantor, the Borrower and
each of their respective Subsidiaries are, in the good faith determination of
the Parent Guarantor, in compliance with all applicable laws, rules and
regulations (including,
24
without limitation, Environmental Laws and ERISA and the rules and regulations
thereunder), other than such laws, rules or regulations (i) the validity or
applicability of which the Parent Guarantor, a Borrower or such Subsidiary is
contesting in good faith or (ii) the failure to comply with which cannot
reasonably be expected to affect the business, financial position, results of
operations or prospects of the Parent Guarantor and its Consolidated
Subsidiaries in a manner material and adverse to the creditworthiness of the
Borrower and the other Obligors, considered as a whole.
Section 4.10. Not an Investment Company. None of the Obligors is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 4.11. Full Disclosure. All information heretofore furnished by the
Parent Guarantor or the Borrower to the Administrative Agent or any Lender for
purposes of this Agreement or any transaction contemplated hereby was, in the
good faith opinion of the Parent Guarantor at the time such information was
furnished, true and accurate in all material respects on the date as of which
such information was furnished, and such information as may have been modified
or superseded by any subsequently furnished information is true and accurate in
all material respects.
ARTICLE 5
Covenants
The Parent Guarantor and the Borrower agree that, so long as any Lender has
any Credit Exposure hereunder:
Section 5.01. Information. The Parent Guarantor will deliver to each of
the Lenders:
(a) within 90 days after the end of each fiscal year of the Parent
Guarantor, consolidated balance sheets of the Borrower and its respective
Consolidated Subsidiaries and of the Parent Guarantor and its Consolidated
Subsidiaries as of the end of such fiscal year, and the related consolidated
statements of income and cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail and, in the case of such balance sheet and related
consolidated statements of income and cash flows of the Parent Guarantor and its
Consolidated Subsidiaries, accompanied by an opinion thereon by Arthur Andersen
LLP or other independent public accountants of nationally recognized standing,
which opinion (x) shall state that such financial statements present fairly the
consolidated financial position of the companies being reported upon as of the
date of such financial statements and the consolidated results of their
operations and cash flows for the period covered by such financial statements in
conformity with generally accepted accounting principles and that the audit of
such accountants in connection with such financial statements has been conducted
in accordance with generally accepted auditing standards and (y) shall not
contain any Qualification;
25
(b) within 60 days, in the case of the Parent Guarantor, and 75 days, in
the case of the Borrower, after the end of each of the first three quarters of
each fiscal year of the Parent Guarantor, consolidated balance sheets of the
Borrower and its Consolidated Subsidiaries and of the Parent Guarantor and its
Consolidated Subsidiaries, and the related consolidated statements of income for
such quarter and for the portion of the fiscal year ended at the end of such
quarter and cash flows for the portion of the fiscal year ended at the end of
such quarter, setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the previous fiscal year,
if any, all prepared in accordance with Rule 10-01 of Regulation S-X of the
General Rules and Regulations under the Securities Act of 1933, or any successor
rule that sets forth the manner in which interim financial statements shall be
prepared, and certified (subject to normal year-end audit adjustments) as to
fairness of presentation and consistency by the chief financial officer or the
chief accounting officer of the Borrower or the Parent Guarantor, as applicable;
(c) simultaneously with the delivery of each set of financial statements
referred to in paragraphs (a) and (b) of this Section 5.01, a certificate of the
chief financial officer, Treasurer or chief accounting officer of the Parent
Guarantor setting forth in reasonable detail such calculations as are required
to establish whether the Parent Guarantor was in compliance with the
requirements of Sections 5.07 through 5.14, inclusive, on the date of such
financial statements, stating whether there exists on the date of such
certificate any Default and, if any Default then exists, setting forth the
details thereof and the action that the Parent Guarantor is taking or proposes
to take with respect thereto and stating whether, since the date of the most
recent financial statements previously delivered pursuant to paragraph (a) or
(b) of this Section 5.01, there has been a change in the generally accepted
accounting principles applied in preparing the financial statements then being
delivered from those applied in preparing the most recent financial statements
and, in the case of the Parent Guarantor, audited financial statements so
delivered which is material to the financial statements then being delivered;
(d) within five days after any officer of the Parent Guarantor obtains
knowledge of any Default, if such Default is then continuing, a certificate of
the chief financial officer, Treasurer or chief accounting officer of the Parent
Guarantor setting forth the details thereof and the action that the Parent
Guarantor is taking or proposes to take with respect thereto;
(e) promptly upon the receipt of a request therefor from the
Administrative Agent at the request of any Lender, copies of all financial
statements, reports and proxy statements that the Parent Guarantor shall have
mailed to its shareholders;
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and annual, quarterly or monthly reports that the
Parent Guarantor or any of its Consolidated Subsidiaries shall have filed with
the Securities and Exchange Commission;
(g) excluding any event which has not resulted and will not result in a
potential liability of a member of the ERISA Group under Title IV of ERISA in an
amount in
26
excess of $10,000,000, if and when any member of the ERISA Group gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which could reasonably lead to a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; receives notice of complete or partial
withdrawal liability under Title IV of ERISA in an amount greater than
$10,000,000 or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; receives notice from
the PBGC under Title IV of ERISA of an intent to terminate, impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or appoint
a trustee to administer, any Plan, a copy of such notice; applies for a waiver
of the minimum funding standard under Section 412 of the Code, a copy of such
application; gives notice of intent to terminate any Plan under Section 4041(c)
of ERISA, a copy of such notice and other information filed with the PBGC; gives
notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or fails to make any required payment or contribution to any Plan
or Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer of
the Parent Guarantor setting forth details as to such occurrence and action, if
any, which the applicable member of the ERISA Group is required or proposes to
take; and
(h) from time to time such additional information regarding the financial
position, results of operations, business or prospects of the Parent Guarantor
or any of its Subsidiaries as the Administrative Agent, at the request of any
Lender, may reasonably request.
Section 5.02. Payment of Obligations. The Parent Guarantor will, and will
cause each of its Subsidiaries to, pay and discharge, as the same shall become
due and payable, (i) all material claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons which, in any such
case, if unpaid, might by law give rise to a Lien upon any of its property or
assets, and (ii) all material taxes, assessments and governmental charges or
levies upon it or its property or assets, except where any of the items in
clause (i) or (ii) above may be contested in good faith by appropriate
proceedings, and the Parent Guarantor or such Subsidiary, as the case may be,
shall have set aside on its books, in accordance with generally accepted
accounting principles, appropriate reserves for the accrual of any such items.
Section 5.03. Maintenance of Property; Insurance. The Parent Guarantor
will keep, and will cause each of its Subsidiaries to keep, all material
property useful and necessary in its business in good working order and
condition in accordance with generally accepted industry standards applicable to
the line of business in which such property is used; will maintain and will
cause each of its Subsidiaries to maintain (either in the name of the Parent
Guarantor or in such Subsidiary's own name) with insurance companies which the
Parent Guarantor reasonably believes, at the time the relevant coverage is
placed or renewed, are financially sound and responsible, insurance on all
27
their respective properties in at least such amounts and against at least such
risks (and with such risk retentions) as are usually insured against in the same
general area by companies of established repute engaged in the same or a similar
business; and will furnish to the Lenders, upon written request from the
Administrative Agent, information presented in reasonable detail as to the
insurance so carried. Notwithstanding the foregoing, the Parent Guarantor may,
in lieu of maintaining the insurance required by the preceding sentence, self-
insure, or cause any of its Subsidiaries to self-insure, with respect to the
properties and risks referred to in the preceding sentence to the extent that
such self-insurance is customary among companies of established repute engaged
in the line of business in which such properties are used or to which such risks
pertain.
Section 5.04. Conduct of Business and Maintenance of Existence. Subject to
Section 5.08, the Parent Guarantor will continue, and will cause each of its
Subsidiaries to continue, to engage in business of the same general type as now
conducted by the Parent Guarantor and its Subsidiaries, and will preserve, renew
and keep in full force and effect, and will cause each of its Subsidiaries to
preserve, renew and keep in full force and effect, their respective corporate
existences and their respective rights, privileges and franchises necessary or
desirable in the normal conduct of business; provided that, subject to Section
5.08, nothing in this Section 5.04 shall prohibit the termination of the
corporate existence of any Subsidiary (other than the Borrower) if the Parent
Guarantor in good faith determines that such termination is in the best interest
of the Parent Guarantor and is not adverse to the interests of the Lenders;
provided further that nothing in this Section 5.04 shall prohibit the
termination of the corporate existence of the Borrower or the Parent Guarantor,
if such termination is the result of the merger of the Borrower with the Parent
Guarantor in accordance with Section 5.08 hereof; provided further that nothing
in this Section 5.04 shall prohibit the termination of corporate existence of
the Parent Guarantor, if such termination is the result of the AWC Merger.
Section 5.05. Inspection of Property, Books and Records. The Parent
Guarantor will keep, and will cause each of its Subsidiaries to keep, proper
books of record and account in which full, true and correct entries in
conformity with generally accepted accounting principles shall be made of all
dealings and transactions in relation to its business and activities. The Parent
Guarantor, upon reasonable request by any Lender to the Treasurer of the Parent
Guarantor, will permit, and will cause each of its Subsidiaries to permit,
representatives of any Lender to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all at
such reasonable times and as often as may reasonably be desired.
Section 5.06. Maintenance of Stock of Borrower. The Parent Guarantor will
at all times maintain ownership of 100% of the outstanding shares of each class
of capital stock of the Borrower, unless the Borrower and the Parent Guarantor
shall have merged in accordance with Section 5.08.
28
Section 5.07. Negative Pledge. The Parent Guarantor will not, and will not
permit any of its Subsidiaries to, create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by the Parent Guarantor or any such
Subsidiary, except:
(a) Liens existing on the date of this Agreement securing Debt outstanding
on the date of this Agreement in an aggregate principal amount not exceeding
$10,000,000;
(b) any Lien existing on any asset prior to the acquisition thereof by the
Parent Guarantor or such Subsidiary and not created in contemplation of such
acquisition;
(c) any Lien existing on any asset of any Person at the time such Person
becomes a Subsidiary and not created in contemplation of such event;
(d) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
subsections of this Section 5.07, provided that the outstanding principal amount
of such Debt is not increased and is not secured by any additional assets;
(e) any Liens arising in the ordinary course of business of the Parent
Guarantor or any of its Subsidiaries which (i) do not secure Debt or Derivatives
Obligations and (ii) do not in the aggregate materially detract from the value
of the assets of the Parent Guarantor and its Consolidated Subsidiaries,
considered as a whole, or impair the use thereof in the operation of the
business of the Parent Guarantor and its Consolidated Subsidiaries, considered
as a whole; provided that any Lien on any asset of the Parent Guarantor or any
of its Subsidiaries arising in connection with a judgment in excess of
$25,000,000 (reduced, for purposes of this proviso, by any amount in respect
thereof that is acknowledged by a reputable insurer as being payable under any
valid and enforceable insurance policy issued by such insurer), whether or not
such judgment is being contested or execution thereof has been stayed, shall be
deemed not arising in the ordinary course of business of the Parent Guarantor or
such Subsidiary;
(f) Liens on cash and cash equivalents securing Derivatives Obligations,
provided that the aggregate amount of cash and cash equivalents subject to such
Liens may at no time exceed $25,000,000;
(g) any Lien not otherwise permitted by the foregoing provisions of this
Section 5.07 securing Debt (or Derivative Obligations, as measured by the amount
of the pledged collateral in excess of that permitted under (f)) in an aggregate
principal amount not to exceed an amount equal to 10% of Consolidated Tangible
Assets (excluding any such Lien securing any individual obligation in an amount
not in excess of $5,000,000); and
(h) any Lien on any asset or assets of the Parent Guarantor or any of its
Subsidiaries securing Excess Secured Debt, the Net Cash Proceeds of which are
applied to prepayment of the Loans or to the reduction of the "Commitments"
under the Credit Agreement.
29
Section 5.08. Consolidations, Mergers and Sales of Assets. (a) Neither the
Parent Guarantor nor the Borrower shall consolidate or merge with or into any
Person, except that (i) the Parent Guarantor and the Borrower may merge with any
Person (other than each other) if the Parent Guarantor or the Borrower is the
surviving corporation and if, immediately after such merger (and giving effect
thereto), no Default shall have occurred and be continuing, (ii) the Parent
Guarantor and the Borrower may merge with each other, if (x) immediately after
such merger (and giving effect thereto), no Default shall have occurred and be
continuing and (y) the surviving corporation, whether it be the Parent Guarantor
or the Borrower, shall have signed an instrument of assumption in form and
substance satisfactory to the Required Lenders immediately prior to such merger
and (iii) the Parent Guarantor may consummate the AWC Merger so long as the
surviving corporation in the AWC Merger shall have delivered not later than the
date of consummation thereof an instrument of assumption of the obligations of
the Parent Guarantor under the Financing Documents and an opinion of counsel
with respect thereto, all in form and substance satisfactory to the
Administrative Agent (it being understood that documentation substantially
identical with that required pursuant to Amendment No. 2 to the Credit Agreement
will be satisfactory).
(b) The Parent Guarantor will not, and will not permit any of its
Subsidiaries to, sell, lease or otherwise transfer or dispose of to any Person
all or any substantial part of the assets of the Parent Guarantor and its
Subsidiaries, taken as a whole.
Section 5.09. Fixed Charge Coverage. As of the last day of each fiscal
quarter of the Parent Guarantor, the ratio of Consolidated Cash Flow Available
for Fixed Charges to Consolidated Fixed Charges, in each case for the four
fiscal quarters ending on such day, shall not be less than 2.0 to 1.0.
Section 5.10. Debt Coverage. As of the last day of each fiscal quarter of
the Parent Guarantor ending during a period set forth in the table below, the
Leverage Ratio at such day shall not be less than the ratio set forth in the
table below corresponding to the applicable period; provided that the Leverage
Ratio as of the last day of any fiscal quarter ending on or after the Equity
Issuance Date shall not be less than .300.
=================================================================
Period Leverage Ratio
-----------------------------------------------------------------
Prior to December 28, 2001 .300
-----------------------------------------------------------------
On or after December 28, 2001 and prior .270
to March 29, 2002
-----------------------------------------------------------------
On or after March 29, 2002 and prior to .280
June 28, 2002
-----------------------------------------------------------------
On or after June 28, 2002 and prior to .290
September 27, 2002
-----------------------------------------------------------------
On or after September 27, 2002 .300
=================================================================
30
For purposes of this Section 5.10, the "Equity Issuance Date" is the
first date, if any, subsequent to November 1, 2001 and prior to September
27, 2002 that is 75 days after the date on which the Parent Guarantor shall
have consummated one or more public offerings of its Common Stock; provided
that the aggregate net cash proceeds of such public offerings, reduced by
the aggregate amount expended by the Parent Guarantor for repurchases of
its Common Stock on or after the date of pricing of the initial such public
offering and on or prior to the 75th day following the consummation of the
initial such public offering, are equal to or greater than $200,000,000.
Section 5.11. Minimum Consolidated Net Worth. Consolidated Net Worth shall
at no time be less than $100,000,000 plus an amount equal to 50% of Consolidated
Net Income for each Fiscal Year ending on or after September 28, 2001 but prior
to the date of determination for which Consolidated Net Income is positive (but
with no deduction on account of negative Consolidated Net Income for any fiscal
year of the Parent Guarantor).
Section 5.12. Transactions with Affiliates. The Parent Guarantor will not,
and will not permit any of its Subsidiaries to, directly or indirectly, engage
in any material transaction with an Affiliate unless the terms of such
transaction are determined on an arm's-length basis and are substantially as
favorable to the Parent Guarantor or such Subsidiary as the terms which could
have been obtained from a Person which was not an Affiliate.
Section 5.13. Use of Proceeds. The proceeds of Loans hereunder will be
used exclusively to finance the Acquisition, including related fees and
expenses. None of such proceeds will be used in violation of any applicable law
or regulation, including without limitation Regulation T, U or X of the Board of
Governors of the Federal Reserve System, as each is in effect from time to time.
After giving effect to the making of the Loans and application of the proceeds
thereof, Margin Stock that was Margin Stock at the time it was acquired by the
Parent Guarantor or any Subsidiary will not exceed 10% of the value of the total
assets (as determined in good faith by the board of directors of the Parent
Guarantor) of the Parent Guarantor and its Consolidated Subsidiaries, taken as a
whole.
Section 5.14. Restricted Payments. The Parent Guarantor will not
repurchase shares of its capital stock pursuant to Section 5 of the
Stockholders' Agreement (Put of Shares upon Death, Complete Disability or Normal
Retirement) unless the aggregate cash amount paid with respect to such
repurchase of shares, together with the aggregate cash amount paid in respect of
all prior repurchases of shares pursuant to Section 5 of the Stockholders'
Agreement made after January 7, 1998, shall not exceed an amount equal to the
greater of (x) $20,000,000 and (y) 5% of Consolidated Net Worth, as reflected in
the most recent balance sheet of the Parent Guarantor and its Consolidated
Subsidiaries referred to in Section 4.04(a) or delivered prior to such
repurchase pursuant to Section 5.01.
31
ARTICLE 6
Defaults
Section 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing
(a) the Borrower shall fail to pay when due any principal of any Note; or
(b) the Borrower shall fail to pay any interest on any Note or any other
amount payable hereunder for a period of three Domestic Business Days after the
same shall become due; or
(c) any Obligor shall fail to observe or perform any covenant contained in
Sections 5.06 to 5.14, inclusive; or
(d) any Obligor shall fail to observe or perform any of its covenants or
agreements contained in the Financing Documents (other than those covered by
paragraph (a), (b) or (c) above) for 30 days after notice thereof has been given
to the Parent Guarantor by the Administrative Agent at the request of any
Lender; or
(e) any representation, warranty, certification or statement made or
deemed made by any Obligor in any Financing Document or in any certificate,
financial statement or other document delivered pursuant thereto shall prove to
have been incorrect in any material respect when made or deemed made; or
(f) the Parent Guarantor or any of its Subsidiaries shall fail to make any
payment in respect of any Material Financial Obligations when due or within any
applicable grace period; or
(g) any event or condition shall occur that results in the acceleration of
the maturity of Debt of the Parent Guarantor or any of its Subsidiaries
aggregating in excess of $25,000,000, or enables (or, with the giving of notice
or lapse of time or both, would enable) the holder or holders of such Debt or
any Person acting on behalf of such holder or holders to accelerate the maturity
thereof (it being understood that the prepayment by ARAMARK Services of (x) its
Senior Note (the "Senior Note") payable to Metropolitan Life Insurance Company
(the "Holder") or (y) any successor note (a "Successor Note") issued by ARAMARK
Services to the Holder in connection with the refinancing of the Debt evidenced
by the Senior Note (provided that the principal amount of any Successor Note is
not more than $150,000,000 and that such Successor Note is substantially in the
form of the Senior Note in all material respects other than principal amount,
amortization, maturity and interest rate), by reason of the refusal by the
Holder to consent to a proposed written waiver or amendment of this Agreement
insofar as the provisions hereof are incorporated by reference in the Senior
Note or the Successor Note, as the case may be, shall not constitute an event or
condition subject to this paragraph (g)); or
(h) the Parent Guarantor or any Subsidiary shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself
32
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally or admit
in writing its inability to pay its debts as they become due, or shall take
any corporate action to authorize any of the foregoing; or
(i) an involuntary case or other proceeding shall be commenced
against the Parent Guarantor or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the Parent Guarantor or any Subsidiary under the Federal bankruptcy
laws as now or hereafter in effect; or
(j) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $25,000,000 which it shall have
become liable to pay under Title IV of ERISA (other than any such liability
which is being contested in good faith by appropriate proceedings and is
not secured by any Lien); or notice of intent to terminate a Plan or Plans
having aggregate Unfunded Liabilities in excess of $25,000,000 (a "Material
Plan") shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the
PBGC shall institute proceedings under Title IV of ERISA to terminate, to
impose liability (other than for premiums under Section 4007 of ERISA) in
respect of, or to cause a trustee to be appointed to administer, any
Material Plan; or a condition shall exist by reason of which the PBGC would
be entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or there shall occur a complete or partial withdrawal from, or
a default, within the meaning of Section 4219(c)(5) of ERISA, with respect
to, one or more Multiemployer Plans which could cause one or more members
of the ERISA Group to incur a current annual payment obligation in excess
of $25,000,000 or an aggregate payment obligation in excess of $25,000,000;
or
(k) a judgment or order for the payment of money in excess of
$15,000,000 (reduced, for purposes of this paragraph (k), by any amount in
respect thereof that is acknowledged by a reputable insurer as being
payable under any valid and enforceable insurance policy issued by such
insurer) shall be rendered against the Parent Guarantor or any of its
Subsidiaries and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 days; or
(l) any Wholly Owned Domestic Material Subsidiary shall not have
entered into the Subsidiary Guaranty Agreement within 30 days after the
later of the date hereof or the date on which such Wholly Owned Domestic
Material Subsidiary shall have become a Wholly Owned Domestic Material
Subsidiary; provided that the foregoing provision of this paragraph (l)
shall not apply to any Wholly Owned Domestic Material
33
Subsidiary if such Wholly Owned Domestic Material Subsidiary is a
Subsidiary of an Obligor (other than the Parent Guarantor or the Borrower);
or
(m) more than 30 percent (40 percent, in the case of voting
securities held by a Plan) in voting power of the voting securities of the
Parent Guarantor shall be held (i) by any Person or (ii) by any two or more
Persons (other than parties to the Stockholders' Agreement) who "act as a
partnership, limited partnership, syndicate or other group for the purpose
of acquiring, holding, or disposing of securities" of the Parent Guarantor,
as the case may be, within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934;
then, and in every such event, the Administrative Agent shall (i) if
requested by the Required Lenders by notice to the Borrower terminate the
Commitments (if still in existence), and the Commitments shall thereupon
terminate, and (ii) if requested by the Required Lenders, by notice to the
Borrower declare the Notes (together with accrued interest thereon) and all
other amounts payable by the Borrower hereunder to be, and such Notes
(together with accrued interest thereon) and amounts shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower,
provided that in the case of any of the Events of Default specified in
paragraph (h) or (i) of this Section 6.01 with respect to the Parent
Guarantor or the Borrower, without any notice to any Obligor or any other
act by the Administrative Agent or any Lender, the Commitments shall
thereupon terminate and the Notes (together with accrued interest thereon)
and all other amounts payable by the Borrower hereunder shall become
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Obligors.
Section 6.02. Notice of Default. The Administrative Agent shall give
notice to the Parent Guarantor and the Borrower under Section 6.01(d)
promptly upon being requested to do so by any Lender and shall thereupon
notify all the Lenders thereof.
ARTICLE 7
The Administrative Agent
Section 7.01. Appointment and Authorization. Each Lender irrevocably
appoints and authorizes the Administrative Agent to take such action as
agent on such Lender's behalf and to exercise such powers under the
Financing Documents as are delegated to the Administrative Agent by the
terms thereof, together with all such powers as are reasonably incidental
thereto.
Section 7.02. Administrative Agent and Affiliates. JPMorgan Chase
Bank shall have the same rights and powers under this Agreement as any
other Lender and may exercise or refrain from exercising the same as though
it were not the Administrative Agent, and JPMorgan Chase Bank and its
affiliates may accept deposits from, lend money to, and generally engage in
any kind of business with the Parent Guarantor or any Subsidiary or
Affiliate of the Parent Guarantor as if it were not the Administrative
Agent.
34
Section 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent under the Financing Documents are only those expressly
set forth therein with respect to it. Without limiting the generality of
the foregoing, the Administrative Agent shall not be required to take any
action with respect to any Default, except as expressly provided in Article
6.
Section 7.04. Consultation With Experts. The Administrative Agent
may consult with legal counsel (who may be counsel for the Parent Guarantor
or a Borrower), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken
by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 7.05. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action
taken or not taken by the Administrative Agent or affiliate or any such
director, officer, agent or employee in connection herewith (i) with the
consent or at the request of the Required Lenders or (ii) in the absence of
the gross negligence or willful misconduct of the Administrative Agent,
affiliate, director, officer, agent or employee. Neither the Administrative
Agent nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i)
any statement, warranty or representation made in connection with any
Financing Document or any borrowing hereunder; (ii) the performance or
observance of any of the covenants or agreements of any Obligor under any
Financing Document; (iii) the satisfaction of any condition specified in
Article 3 except, in the case of the Administrative Agent, receipt of items
required to be delivered to the Administrative Agent; or (iv) the validity,
effectiveness or genuineness of any Financing Document or any other
instrument or writing furnished in connection therewith. The Administrative
Agent shall not incur any liability by acting in reliance upon any notice,
consent, certificate, statement, or other writing (which may be a bank
wire, telex, facsimile or similar writing) believed by it to be genuine or
to be signed by the proper party or parties.
Section 7.06. Indemnification. The Lenders shall, ratably in
accordance with their respective Credit Exposures, indemnify the
Administrative Agent (to the extent not reimbursed by any Obligor) against
any cost, expense (including counsel fees and disbursements), claim,
demand, action, loss or liability (except such as result from the
Administrative Agent's gross negligence or willful misconduct) that the
Administrative Agent may suffer or incur in connection with the Financing
Documents or any action taken or omitted by the Administrative Agent
thereunder.
Section 7.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and any other Financing Document to which it is a party. Each
Lender also acknowledges that it will, independently and without reliance
upon the Administrative Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
35
continue to make its own credit decisions in taking or not taking any
action under the Financing Documents.
Section 7.08. Agency Fees. The Borrower shall be obligated to pay
fees to the Administrative Agent in the amounts and on the dates agreed to
prior to the date hereof by the Borrower and the Administrative Agent.
Section 7.09. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving notice thereof to the Lenders and
the Obligors. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Lenders,
and shall have accepted such appointment, within 30 days after the retiring
Administrative Agent gives notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of its appointment as Administrative Agent hereunder by
a successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of
the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation hereunder as Administrative
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative
Agent.
ARTICLE 8
Changes In Circumstances Affecting Euro-dollar Loans
Section 8.01. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any
Euro-Dollar Loan:
(a) the Administrative Agent is advised by the Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to
the Reference Banks in the London Interbank market for such Interest
Period, or
(b) the Required Lenders advise the Administrative Agent that the
London Interbank Offered Rate as determined by the Administrative Agent
will not adequately and fairly reflect the cost to such Lenders of
maintaining or funding their respective Euro-Dollar Loans for such Interest
Period,
the Administrative Agent shall forthwith give notice thereof to the
Borrower (specifying in reasonable detail, in the case of an event referred
to in clause (b) above, the information relating thereto received by the
Administrative Agent from the Lenders) and the Lenders, whereupon until the
Administrative Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist (which it shall promptly do when it
determines that such circumstances have ceased to exist or, in the case of
clause
36
(b) of this Section 8.01, when the Administrative Agent is so notified by
the Required Lenders, as specified above), the obligations of the Lenders
to make Euro-Dollar Loans, or to continue or convert outstanding Loans as
or into Euro-Dollar Loans shall be suspended, and each outstanding Euro-
Dollar Loan shall be converted into a Base Rate Loan on the last day of the
then current Interest Period applicable thereto.
Section 8.02. Illegality. If, on or after the date hereof, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Euro-Dollar Lending Office)
with any request or directive (whether or not having the force of law) of
any such authority, central bank or comparable agency shall make it
unlawful or impossible for any Lender (or its Euro-Dollar Lending Office)
to make, maintain or fund any of its Euro-Dollar Loans and such Lender
shall so notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Lenders and the Borrower,
whereupon until such Lender notifies the Borrower and the Administrative
Agent that the circumstances giving rise to such suspension no longer
exist, the obligation of such Lender to make Euro-Dollar Loans, or to
convert outstanding Loans into Euro-Dollar Loans shall be suspended. Before
giving any notice to the Administrative Agent pursuant to this Section
8.02, such Lender shall designate a different Euro-Dollar Lending Office if
such designation will avoid the need for giving such notice and will not,
in the judgment of such Lender, be otherwise disadvantageous to such
Lender. If such notice is given, each Euro-Dollar Loan of such Lender then
outstanding shall be converted to a Base Rate Loan either (a) on the last
day of the then current Interest Period applicable to such Euro-Dollar Loan
if such Lender may lawfully continue to maintain and fund such Loan to such
day or (b) immediately if such Lender shall determine that it may not
lawfully continue to maintain and fund such Loan to such day.
Section 8.03. Increased Cost. (a) If on or after the date hereof,
the adoption of any applicable law, rule or regulation, or any change in
any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Applicable Lending Office)
with any request or directive (whether or not having the force of law) of
any such authority, central bank or comparable agency shall impose, modify
or deem applicable any reserve, special deposit, insurance assessment or
similar requirement (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but
excluding with respect to any Euro-Dollar Loan any such requirement with
respect to which such Lender is entitled to compensation during the
relevant Interest Period under Section 2.10) against assets of, deposits
with or for the account of, or credit extended by, any Lender (or its
Applicable Lending Office) or shall impose on any Lender (or its Applicable
Lending Office) or on the London interbank market any other condition
affecting its Loans, its Note or its obligation to make Loans; and the
result of any of the foregoing is to increase the cost to such Lender (or
its
37
Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or to
reduce the amount of any sum received or receivable by such Lender (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Lender to be material, then, within 15 days
after demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to or for the account of such Lender such additional amount
or amounts as will compensate such Lender for such increased cost or reduction
with respect to its Euro-Dollar Loans.
(b) If any Lender shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy of
general applicability, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive regarding capital adequacy of general
applicability (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the capital of such Lender (or its Parent) as a consequence of
an undrawn Commitment hereunder to a level below that which such Lender (or its
Parent) could have achieved but for such adoption, change or compliance (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, within 15 days
after demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender (or its Parent) for such reduction. The Borrower shall
not be obligated to compensate any Lender pursuant to this subsection (b) for
reduced return accruing prior to the date which is 30 days before such Lender
requests compensation; provided that if any law, rule or regulation, or
interpretation or administration thereof, or any request or directive giving
rise to reduced returns has retroactive effect, such Lender shall be entitled to
claim compensation hereunder for the period commencing on such date of
retroactive effect through the date of adoption or change or promulgation
thereof without regard to the foregoing limitation. If any Lender has demanded
compensation under this subsection (b), the Borrower shall have the right, with
the assistance of the Administrative Agent, to seek a mutually satisfactory
substitute bank or banks (which may be one or more of the Lenders) to purchase
the Note of such Lender.
(c) Each Lender will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
that will entitle such Lender to compensation pursuant to this Section 8.03 and
will designate a different Lending Office if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the
judgment of such Lender, be otherwise disadvantageous to such Lender. A
certificate of any Lender claiming compensation under this Section 8.03 and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such amount, such
Lender may use any reasonable averaging and attribution methods.
Section 8.04. Taxes. (a) For the purposes of this Section 8.04, the
following terms have the following meanings:
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"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by the Borrower
or the Parent Guarantor pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Lender and
---------
the Administrative Agent, taxes imposed on its income, and franchise or similar
taxes imposed on it, by a jurisdiction under the laws of which such Lender or
the Administrative Agent (as the case may be) is organized or in which its
principal executive office is located or, in the case of each Lender, in which
its Applicable Lending Office is located and (ii) in the case of each Lender,
any United States withholding tax imposed on such payments, but only up to the
rate (if any) at which United States withholding tax would apply to such
payments to such Lender at the time such Lender first becomes a party to this
Agreement.
"Other Taxes" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or under any Note or from the
execution or delivery of, or otherwise with respect to, this Agreement or any
Note.
(b) Any and all payments by the Borrower or the Parent Guarantor to or for
the account of any Lender or the Administrative Agent hereunder or under any
Note shall be made without deduction for any Taxes or Other Taxes; provided
--------
that, if the Borrower or the Parent Guarantor shall be required by law to deduct
any Taxes or Other Taxes from any such payments, (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) such Lender
or the Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
or the Parent Guarantor shall make such deductions, (iii) the Borrower or the
Parent Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower or the Parent Guarantor shall furnish to the Administrative Agent, at
its address referred to in Section 11.01, the original or a certified copy of a
receipt evidencing payment thereof.
(c) The Parent Guarantor agrees to indemnify each Lender and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be paid within 15 days after such Lender or the
Administrative Agent (as the case may be) makes demand therefor.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Parent
Guarantor (but only so long as such Lender remains lawfully able to do so),
shall provide the Parent Guarantor and the Administrative Agent with Internal
Revenue Service form W-8BEN or W-8ECI, as appropriate, or any
39
successor form prescribed by the Internal Revenue Service, or certifying that
the income receivable pursuant to this Agreement is effectively connected with
the conduct of a trade or business in the United States.
(e) For any period with respect to which a Lender has failed to provide
the Parent Guarantor or the Administrative Agent with the appropriate form
pursuant to Section 8.04(d) (unless such failure is due to a change in treaty,
law or regulation occurring subsequent to the date on which such form originally
was required to be provided), such Lender shall not be entitled to
indemnification under Section 8.04 (b) or (c) with respect to Taxes imposed by
the United States; provided that if a Lender, which is otherwise exempt from or
--------
subject to a reduced rate of withholding tax becomes subject to Taxes because of
its failure to deliver a form required hereunder, the Borrower and the Parent
Guarantor shall take such steps as such Lender shall reasonably request to
assist such Lender to recover such Taxes.
(f) If the Borrower or the Parent Guarantor is required to pay additional
amounts to or for the account of any Lender pursuant to this Section, then such
Lender will change the jurisdiction of its Applicable Lending Office if, in the
judgment of such Lender, such change (i) will eliminate or reduce any such
additional payment which may thereafter accrue and (ii) is not otherwise
disadvantageous to such Lender.
Section 8.05. Base Rate Loans Substituted for Affected Loans. If (i) the
obligation of any Lender to make Euro-Dollar Loans has been suspended pursuant
to Section 8.02 or (ii) any Lender has demanded compensation under Section
8.03(a) with respect to its Euro-Dollar Loans and the Borrower shall by at least
five Euro-Dollar Business Days' prior notice to such Lender through the
Administrative Agent have elected that the provisions of this Section shall
apply to such Lender, then, unless and until such Lender notifies the Borrower
that the circumstances giving rise to such suspension or demand for compensation
no longer apply all Loans which would otherwise be made by such Lender as (or
continued as or converted into) Euro-Dollar Loans, as the case may be, shall
instead be Base Rate Loans on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Lenders. If
such Lender notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a Euro-Dollar Loan on the first day of the next succeeding
Interest Period applicable to the related Euro-Dollar Loans of the other Banks.
ARTICLE 9
Guarantee
Section 9.01. The Guarantee. The Parent Guarantor hereby unconditionally
and irrevocably guarantees to the Lenders, and to each of them, the due and
punctual payment of all present and future indebtedness evidenced by or arising
out of this Agreement and the Notes, including, but not limited to, the due and
punctual payment of principal of and interest on the Notes and the due and
punctual payment of all other sums now or hereafter owed by the Borrower under
this Agreement and the Notes as and when the same shall
40
become due and payable, whether at maturity, by declaration or otherwise,
according to the terms hereof and thereof. In case of failure by the Borrower
punctually to pay the indebtedness guaranteed hereby, the Parent Guarantor
hereby unconditionally agrees to cause such payment to be made punctually as and
when the same shall become due and payable, whether at maturity or by
declaration or otherwise, and as if such payment were made by the Borrower.
Section 9.02. Guarantee Unconditional. The obligations of the Parent
Guarantor under this Article 9 shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released, discharged or
otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of any other Obligor under any Financing Document by
operation of law or otherwise;
(b) any modification or amendment of or supplement to any Financing
Document;
(c) any modification, amendment, waiver, release, non-perfection or
invalidity of any direct or indirect security, or of any guarantee or other
liability of any third party, for any obligation of any other Obligor under any
Financing Document;
(d) any change in the corporate existence, structure or ownership of any
other Obligor, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting any other Obligor or its assets or any resulting release or
discharge of any obligation of any other Obligor contained in any Financing
Document;
(e) the existence of any claim, set-off or other rights which the Parent
Guarantor may have at any time against any other Obligor, the Administrative
Agent, any Lender or any other Person, whether or not arising in connection with
any Financing Document, provided that nothing herein shall prevent the assertion
of any such claim by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against any other
Obligor for any reason of any Financing Document, or any provision of applicable
law or regulation purporting to prohibit the payment by any other Obligor of the
principal of or interest on any Note or any other amount payable by it under any
Financing Document; or
(g) any other act or omission to act or delay of any kind by any other
Obligor, the Administrative Agent, any Lender or any other Person or any other
circumstance whatsoever that might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of or defense to the obligations of
the Parent Guarantor under this Article 9.
Section 9.03. Discharge Only Upon Payment In Full; Reinstatement In
Certain Circumstances. The Parent Guarantor's obligations under this Article 9
shall remain in
41
full force and effect until the Commitments are terminated and the principal of
and interest on the Notes and all other amounts payable by the Borrower under
this Agreement shall have been paid in full. If at any time any payment of the
principal of or interest on any Note or any other amount payable by the Borrower
under this Agreement is rescinded or must be otherwise restored or returned upon
the insolvency, bankruptcy or reorganization of the Borrower or any Subsidiary
Guarantor or otherwise, the Parent Guarantor's obligations under this Article 9
with respect to such payment shall be reinstated at such time as though such
payment had become due but had not been made at such time.
Section 9.04. Waiver. The Parent Guarantor irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any time any action be taken by any Person
against any other Obligor or any other Person.
Section 9.05. Subrogation and Contribution. The Parent Guarantor
irrevocably waives any and all rights to which it may be entitled, by operation
of law or otherwise, upon making any payment hereunder (i) to be subrogated to
the rights of the payee against the Borrower with respect to such payment or
otherwise to be reimbursed, indemnified or exonerated by the Borrower in respect
thereof or (ii) to receive any payment, in the nature of contribution or for any
other reason, from any other Obligor with respect to such payment.
Section 9.06. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Borrower under this Agreement or the Notes
is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all
such amounts otherwise subject to acceleration under the terms of this Agreement
shall nonetheless be payable by the Parent Guarantor hereunder forthwith on
demand by the Administrative Agent made at the request of the Required Lenders.
ARTICLE 10
Judicial Proceedings
Section 10.01. Consent To Jurisdiction. Each Obligor hereby irrevocably
submits to the non-exclusive jurisdiction of the United States District Court
for the Southern District of New York and of any New York State court sitting in
the City of New York over any suit, action or proceeding arising out of or
relating to any Financing Document. To the fullest extent it may effectively do
so under applicable law, each Obligor irrevocably waives and agrees not to
assert, by way of motion, as a defense or otherwise, any claim that it is not
subject to the jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
Section 10.02. Enforcement of Judgments. Each Obligor agrees, to the
fullest extent it may effectively do so under applicable law, that a judgment in
any suit, action or
42
proceeding of the nature referred to in Section 10.01 brought in any such court
shall be conclusive and binding upon such Obligor and may be enforced in the
courts of the United States of America or the State of New York (or any other
courts to the jurisdiction of which such Obligor is or may be subject) by a suit
upon such judgment.
Section 10.03. Service of Process. Each Obligor consents to process being
served in any suit, action or proceeding of the nature referred to in Section
10.01 by mailing a copy thereof by registered or certified air mail, postage
prepaid, return receipt requested, to the address of such Obligor specified in
or designated pursuant to Section 11.01. Each Obligor agrees that such service
(i) shall be deemed in every respect effective service of process upon such
Obligor in any such suit, action or proceeding and (ii) shall, to the fullest
extent permitted by law, be taken and held to be valid personal service upon and
personal delivery to such Obligor.
Section 10.04. No Limitation on Service or Suit. Nothing in this Article
10 shall affect the right of the Administrative Agent or any Lender to serve
process in any manner permitted by law, or limit any right that the
Administrative Agent or any Lender may have to bring proceedings against any
Obligor in the courts of any jurisdiction or to enforce in any lawful manner a
judgment obtained in one jurisdiction in any other jurisdiction..
ARTICLE 11
Miscellaneous
Section 11.01. Notices. Unless otherwise specified herein, all notices,
requests and other communications to any party hereunder shall be in writing
(including bank wire, telex, facsimile transmission or similar writing) and
shall be given to such party (x) in the case of the Parent Guarantor, the
Borrower or the Administrative Agent, at its address or telex or facsimile
number set forth on the signature pages hereof, (y) in the case of any Lender,
at its address or telex or facsimile number set forth in its Administrative
Questionnaire, or (z) in the case of any party hereto, at such other address or
telex or facsimile number as such party may hereafter specify for the purpose by
notice to the Administrative Agent and the Parent Guarantor. Each such notice,
request or other communication shall be effective (i) if given by telex, when
such telex is transmitted to the telex number specified in this Section 11.01
and the appropriate answerback is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (iii) if given by mail, five days after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, or (iv) if given by any other means, when delivered at
the address specified in this Section 11.01, provided that notices to the
Administrative Agent under Article 2 or 8 shall not be effective until received.
Section 11.02. No Waiver. No failure or delay by the Administrative Agent
or any Lender in exercising any right, power or privilege under any Financing
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
43
The rights and remedies provided in the Financing Documents shall be cumulative
and not exclusive of any rights or remedies provided by law..
Section 11.03. Expenses; Indemnification for Litigation. (a) The Borrower
shall be obligated to pay (i) all out-of-pocket expenses of the Administrative
Agent, including fees and disbursements of the law firm acting as special
counsel for the Lenders and the Administrative Agent and such local counsel as
may be retained by the Administrative Agent on behalf of the Lenders and the
Administrative Agent, in connection with the preparation and administration of
the Financing Documents, any waiver or amendment of any provision thereof, or
any Default or alleged Default hereunder, and (ii) if any Event of Default
occurs, all out-of-pocket expenses incurred by the Administrative Agent or any
Lender, including fees and disbursements of counsel, in connection with such
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) The Parent Guarantor and the Borrower shall be jointly and severally
obligated to indemnify each Lender and hold each Lender harmless from and
against any and all liabilities, losses, damages, costs and expenses of any kind
(including, without limitation, the reasonable fees and disbursements of counsel
for any Lender in connection with any investigative, administrative or judicial
proceeding, whether or not such Lender shall be designated a party thereto)
which may be incurred by any Lender (or by the Administrative Agent in
connection with its actions as Administrative Agent hereunder), relating to or
arising out of the Financing Documents or any actual or proposed use of the
proceeds of the Loans hereunder, provided that no Lender shall have the right to
be indemnified hereunder for its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction.
Section 11.04. Amendments and Waivers. Any provision of this Agreement or
the Notes may be amended or waived if, and only if, such amendment or waiver is
in writing and is signed by the Parent Guarantor, the Borrower and the Required
Lenders (and, if the rights or duties of the Administrative Agent are affected
thereby, by the Administrative Agent), provided that no such amendment or waiver
shall, unless signed by all the Lenders, (i) increase or decrease the amount of
any Commitment (except for a ratable decrease in the Commitments of all Lenders)
or subject any Lender to any additional obligation, (ii) reduce the principal of
or rate of interest on any Loan or any fees payable hereunder, (iii) postpone
the date fixed for any payment of principal of or interest on any Loan pursuant
to Section 2.03(a) or 2.05, (iv) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Notes, or the number of Lenders,
which shall be required for the Lenders or any of them to take any action under
this Section 11.04 or any other provision of this Agreement or any other
Financing Document or (v) postpone the date fixed for termination of the
Commitments..
In the event that (i) a Lender shall have granted a participation pursuant
to Section 11.07(d); (ii) by virtue of the participation arrangement, such
Lender is required to obtain the consent of its Participant to a proposed
amendment to this Agreement or its Note; (iii) such Participant's consent is not
forthcoming; (iv) such Lender and the other Lenders are otherwise prepared to
agree to such proposed amendment; and (v) such Lender shall have
44
so certified to the Administrative Agent, then, in order to effect and in
conjunction with such amendment, the Borrower may terminate the Commitment of
such Lender (if still in existence) or, on a date otherwise permitted hereunder,
prepay the outstanding Loans of such Lender in their entirety, provided that the
Borrower shall have procured a substitute Lender (which may be such Lender)
contemporaneously to assume the Credit Exposure of such Lender and to fund, for
the balance of the respective Interest Periods applicable thereto, the Loans
prepaid pursuant to this paragraph.
Section 11.05. Sharing of Set-offs. Each Lender agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to its Loans which is greater than the proportion received by any other
Lender in respect of the aggregate amount of principal and interest due with
respect to the Loans of such other Lender, the Lender receiving such
proportionately greater payment shall purchase such participations in the Loans
of the other Lenders, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Loans of the Lenders shall be shared by the Lenders pro rata. The Borrower and
the Parent Guarantor agree, to the fullest extent they may effectively do so
under applicable law, that any holder of a participation in a Note, whether or
not acquired pursuant to the foregoing arrangements, may exercise rights of set-
off or counterclaim and other rights with respect to such participation as fully
as if such holder of a participation were a direct creditor of the Borrower or
the Parent Guarantor, as the case may be, in the amount of such participation.
Section 11.06. New York Law. This Agreement and each Note shall be
construed in accordance with and governed by the law of the State of New York.
Section 11.07. Successors and Assigns. (a) All of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that neither the Parent
Guarantor nor the Borrower may assign or transfer any of its rights or
obligations under this Agreement without the consent of all Lenders.
(b) Any Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment or the Loans at the time owing to it); provided that
(i) except in the case of an assignment of the entire remaining amount of the
assigning Lender's Credit Exposure or in the case of an assignment to a Lender
or an affiliate of a Lender or an Approved Fund with respect to a Lender, the
aggregate amount of the Credit Exposure subject to each such assignment shall
not be less than $5,000,000, unless each of the Administrative Agent and, so
long as no Event of Default has occurred and is continuing, the Borrower
otherwise consent (each such consent not to be unreasonably withheld or
delayed), (ii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement with respect to the Credit Exposure assigned, and (iii) the
parties to each assignment shall execute and deliver to the Administrative Agent
an agreement, substantially in the form of Exhibit G hereto (an "Assignment and
Assumption Agreement"), together with a processing and recordation
45
fee of $3,500, and the Eligible Assignee, if it shall not be a Lender, shall
deliver to the Administrative Agent an Administrative Questionnaire. Subject to
acceptance and recording thereof by the Administrative Agent pursuant to
paragraph (c) of this Section, from and after the effective date specified in
each Assignment and Assumption Agreement, the Eligible Assignee thereunder shall
be a party hereto and, to the extent of the interest assigned by such Assignment
and Assumption Agreement, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Assumption Agreement, be released from
its obligations under this Agreement (and, in the case of an Assignment and
Assumption Agreement covering all of the assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 8.03, 8.04 and
9.03). Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this paragraph shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (d) of this Section.
(c) The Administrative Agent, acting solely for this purpose as an agent
of the Borrower, shall maintain at one of its offices in the State of Delaware
or New York a copy of each Assignment and Assumption Agreement delivered to it
and a register for the recordation of the names and addresses of the Lenders and
the Commitments of, or the principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and the Parent Guarantor, the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Parent Guarantor, the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) Any Lender may, upon notice to, but without requirement of consent of,
the Borrower and the Administrative Agent, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and/or obligations under this Agreement (including all or a portion of
its Commitment or the Loans owing to it); provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Parent Guarantor, the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in clause (i), (ii) or (iii) of Section 11.04 that affects such
Participant. Subject to paragraph (e) of this Section, the Borrower agrees that
each
46
Participant shall be entitled to the benefits of Sections 2.08 and 2.10 and
Article 8 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 9.04 as though it were a Lender, provided such Participant agrees to be
subject to Section 9.04 as though it were a Lender.
(e) A Participant shall not be entitled to receive any greater payment
under Section 8.03 or 8.04 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant organized under the laws of a jurisdiction
outside the United States shall not be entitled to the benefits of Section 8.04
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with
Section 8.04(d) as though it were a Lender.
(f) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
Section 11.08. Collateral. Each Lender (the "Representing Lender")
represents to the Administrative Agent and each other Lender that the
Representing Lender in good faith is not relying upon any Margin Stock as
collateral in the extension or maintenance of the credit provided for in the
Financing Documents.
Section 11.09. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, and all of
which taken together shall constitute a single agreement, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when the Administrative Agent shall have
received, from each party listed on the signature page hereof, either a
counterpart hereof signed by such party or facsimile or other written
confirmation satisfactory to the Administrative Agent confirming that such party
has signed a counterpart hereof.
Section 11.10. WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE
FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
ARAMARK SERVICES, INC.
By:___________________________
Name:
Title:
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
Facsimile number: (215) 238-3284
(215) 238-3282
ARAMARK CORPORATION
By:___________________________
Name:
Title:
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
Facsimile number: (215) 238-3284
(215) 238-3282
JPMORGAN CHASE BANK,
as Administrative Agent
By:___________________________
Name:
Title:
270 Park Avenue
New York, NY 10017
Telex: 129100
Facsimile: (212) 270-7138
48
Participants
------------
JPMORGAN CHASE BANK
By:___________________________
Name:
Title:
CITIBANK, N.A.
By:___________________________
Name:
Title:
WACHOVIA BANK, N.A.
By:___________________________
Name:
Title:
BANK ONE, N.A. (MAIN OFFICE
CHICAGO)
By:___________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK
BRANCH
By:___________________________
Name:
Title:
49
FLEET NATIONAL BANK
By:___________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:___________________________
Name:
Title:
50
COMMITMENT SCHEDULE
LENDER COMMITMENT
Administrative Agent
JPMorgan Chase Bank $240,000,000
Lenders
Citibank, N.A. $120,000,000
Wachovia Bank, N.A. $120,000,000
Bank One, N.A. (Main Office Chicago) $ 30,000,000
Credit Lyonnais New York Branch $ 30,000,000
Fleet National Bank $ 30,000,000
PNC Bank, National Association $ 30,000,000
Total: $600,000,000
PRICING SCHEDULE
"Euro-Dollar Margin" means, for any day, the sum of (i) rate per annum set
forth below in the column corresponding to the Pricing Level that applies on
such day plus (ii) on any date six months or more after the Borrowing Date,
0.25% plus (iii) on any date nine months or more after the Borrowing Date, an
additional 0.25%:
Level I Level II Level III Level IV
------- -------- --------- --------
1.125% 1.375% 1.625% 1.875%
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Pricing" applies on any day on which the Parent Guarantor's long-
term debt is rated BBB or higher by S&P and Baa2 or higher by Moody's.
"Level II Pricing" applies on any day on which (i) the Parent Guarantor's
long-term debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's and
(ii) no better Pricing Level applies.
"Level III Pricing" applies on any day on which (i) the Parent Guarantor's
long-term debt is rated BB+ or higher by S&P and Ba1 or higher by Moody's and
(ii) no better Pricing Level applies.
"Level IV Pricing" applies on any day if no other Pricing Level applies on
such day.
"Pricing Level" refers to the determination of which of Level I, Level II,
Level III or Level IV Pricing applies on any day. A "better" Pricing Level is
one with a lower roman numeral.
The credit ratings to be utilized for purposes of this Schedule are those
assigned to the senior unsecured long-term debt securities of the Parent
Guarantor without third-party credit enhancement, and any rating assigned to any
other debt security of the Parent Guarantor shall be disregarded. The ratings in
effect for any day are those in effect at the close of business on such day.
EXHIBIT A
NOTE
New York, New York
November 30, 2001
For value received, ARAMARK Services, Inc., a Delaware corporation (the
"Borrower"), promises to pay to the order of __________________________ (the
"Lender"), for the account of its Applicable Lending Office, the unpaid
principal amount of each Loan provided by the Lender to the Borrower pursuant to
the Loan Agreement referred to below on November 29, 2002. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on the
dates and at the rate or rates provided for in the Loan Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of JPMorgan
Chase Bank, 52 Broadway, New York, New York.
All Loans provided by the Lender, the respective types thereof and all
repayments of the principal thereof shall be recorded by the Lender and, if the
Lender so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Lender on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Loan Agreement.
This note is one of the Notes referred to in the Bridge Loan Agreement
dated as of November 30, 2001 among the Borrower, ARAMARK Corporation, as the
Parent Guarantor, the Lenders party thereto and JPMorgan Chase Bank, as
Administrative Agent (as the same may be amended from time to time, the "Loan
Agreement"). Terms defined in the Loan Agreement are used herein with the same
meanings. Reference is made to the Loan Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
ARAMARK SERVICES, INC.
By: ________________________
Name:
Title:
54
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT TYPE AMOUNT OF NOTATION
OF OF PRINCIPAL MADE BY
DATE LOAN LOAN REPAID
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
55
EXHIBIT B
OPINION OF
GENERAL COUNSEL OR ASSOCIATE GENERAL COUNSEL
OF THE BORROWER AND THE PARENT GUARANTOR
November 30, 2001
To the Lenders and the Administrative Agent
c/o JPMorgan Chase Bank, as
Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
I am General Counsel of ARAMARK Services, Inc. ( "ARAMARK Services" or the
"Borrower"), and of ARAMARK Corporation (the "Parent Guarantor") and am familiar
with (i) the Bridge Loan Agreement (the "Loan Agreement") dated as of November
30, 2001 among the Borrower, the Parent Guarantor, the Lenders party thereto and
JPMorgan Chase Bank, as Administrative Agent, and (ii) the Subsidiary Guaranty
Agreement. Terms defined in the Loan Agreement and not otherwise defined herein
are used herein as therein defined.
I have examined originals or copies, certified or otherwise identified to
my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion. I have assumed, for purposes of this opinion, that the Lenders and the
Administrative Agent have all requisite power and authority and have taken all
necessary corporate action to enter into the Loan Agreement and to effect any
transaction contemplated thereby. This opinion is limited to the federal laws
of the United States, the laws of the States of Pennsylvania and New York and
the corporation law of the State of Delaware. As to matters pertaining to the
laws of any other State, I do not purport to practice law therein or be an
expert on the laws thereof and have relied on my general familiarity and
experience with pertinent opinions in similar transactions and relevant statutes
and case law. As to the due incorporation and good standing of the Subsidiaries
of the Parent Guarantor under the laws of any State, I have relied on
certificates of public officials of such State and have no reason to believe
that any such Subsidiary is not duly incorporated or in good standing in such
State. For purposes of this opinion, "Material Debt" means all Debt of the
Parent Guarantor, the Borrower or any of their respective Subsidiaries, other
than any such Debt having an outstanding principal amount of $1,000,000 or less
and aggregating, together with all other such Debt, not more than $10,000,000 in
outstanding principal amount.
1
Upon the basis of the foregoing, I am of the opinion that:
1. Each of the Borrower and the Parent Guarantor is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers required to carry on its business as
now conducted.
2. The execution, delivery and performance (a) of the Loan Agreement by
the Borrower and the Parent Guarantor, (b) of the Notes by the Borrower and (c)
of the Subsidiary Guaranty Agreement by the Parent Guarantor, the Borrower and
each of the Subsidiaries of the Parent Guarantor listed on the signature pages
of the Subsidiary Guaranty Agreement (the "Subsidiary Guarantors" and with the
Borrower and the Parent Guarantor, collectively, the "Obligors") are within the
respective corporate powers of the Obligors, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the charter or by-laws of any Obligor or of any agreement or instrument relating
to Material Debt or any other agreement, judgment, injunction, order, decree or
other instrument binding upon any Obligor material to the business of the Parent
Guarantor and its Subsidiaries, considered as a whole, or result in the creation
or imposition of any Lien on any asset of any Obligor or any of their respective
Subsidiaries.
3. The Loan Agreement constitutes a valid and binding agreement of the
Borrower and the Parent Guarantor, and the Notes constitute valid and binding
obligations of the Borrower, in each case enforceable in accordance with their
respective terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
4. The Subsidiary Guaranty Agreement constitutes a valid and binding
agreement of the Borrower, the Parent Guarantor and each Subsidiary of the
Parent Guarantor listed on the signature pages thereof, enforceable in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. I
have assumed for purposes of the foregoing opinion that, in light of the
limitations set forth in Section 2.03 of the Subsidiary Guaranty Agreement and
other relevant considerations, a court would conclude that a fraudulent
conveyance has not occurred.
5. To the best of my knowledge after due inquiry, there is no action,
suit or proceeding pending or threatened against the Parent Guarantor, the
Borrower or any of their respective Subsidiaries before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
likelihood of an adverse decision which would affect the business, financial
position or results of operations of the Parent
Guarantor and its Subsidiaries, considered as a whole, in a manner material and
adverse to the creditworthiness of the Obligors, considered as a whole, or which
in any manner questions the validity or enforceability of any Financing
Document.
6. Each Obligor (other than the Parent Guarantor and the Borrower) is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
7. None of the Obligors is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In giving the foregoing opinion, I express no opinion as to the effect (if
any) of any law of any jurisdiction in which any Lender is located which limits
the rate of interest that such Lender may charge or collect.
Very truly yours,
EXHIBIT C
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE ADMINISTRATIVE AGENT
[Effective Date]
To the Lenders and the Administrative Agent
c/o JPMorgan Chase Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
We have participated in the preparation of the Bridge Loan Agreement (the
"Loan Agreement") dated as of November 30, 2001 among ARAMARK Services Inc., a
Delaware corporation ("ARAMARK Services"or the "Borrower"), ARAMARK Corporation,
a Delaware corporation (the "Parent Guarantor"), the Lenders party thereto (the
"Lenders") and JPMorgan Chase Bank, as Administrative Agent (the "Administrative
Agent"), and have acted as special counsel for the Administrative Agent for the
purpose of rendering this opinion pursuant to Section 3.01(k) of the Loan
Agreement. Terms defined in the Loan Agreement are used herein as therein
defined.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion. In addition, in connection with certain questions of fact, we have
relied upon representations and certificates of officers of the Company.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower and the Parent
Guarantor of the Loan Agreement and by the Borrower of the Notes are within the
respective corporate powers of the Parent Guarantor and the Borrower and have
been duly authorized by all necessary corporate action.
2. The Loan Agreement constitutes a valid and binding agreement of the
Borrower and the Parent Guarantor, and each Note constitutes a valid and binding
obligation of the Borrower, in each case enforceable in accordance with its
terms, except as may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
1
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware. In giving the foregoing opinion, we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York) in
which any Lender is located which limits the rate of interest that such Lender
may charge or collect.
This opinion is rendered solely to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by any other person without our prior written consent.
Very truly yours,
EXHIBIT D
SUBSIDIARY GUARANTY AGREEMENT
dated as of
November 30, 2001
among
ARAMARK SERVICES, INC.,
ARAMARK CORPORATION
and
THE SUBSIDIARY GUARANTORS REFERRED TO HEREIN
2
SUBSIDIARY GUARANTY AGREEMENT
AGREEMENT dated as of November 30, 2001 among ARAMARK Services, Inc., a
Delaware corporation ("ARAMARK Services" or the "Borrower"), ARAMARK
Corporation, a Delaware corporation (the "Parent Guarantor"), and each of the
Subsidiary Guarantors listed on the signature pages hereof under the caption
"Subsidiary Guarantors" and each Person that shall, at any time after the date
hereof, become an additional "Subsidiary Guarantor" pursuant to Section 3.01
hereof (collectively, the "Subsidiary Guarantors").
WHEREAS, the Borrower and the Parent Guarantor have entered into a Bridge
Loan Agreement (as the same may be amended from time to time, the "Loan
Agreement") dated as of November 30, 2001 among the Borrower, the Parent
Guarantor, the Lenders party thereto and JPMorgan Chase Bank, as Administrative
Agent, pursuant to which the Borrower is entitled, subject to certain
conditions, to borrow up to $600,000,000 and pursuant to which the payment when
due of all principal, interest and other amounts thereunder is guaranteed by the
Parent Guarantor;
WHEREAS, as a condition to the effectiveness of the Loan Agreement, each of
the entities listed on Schedule I hereto and each Wholly Owned Domestic Material
Subsidiary of the Parent Guarantor is required to execute and deliver to the
Administrative Agent, on behalf of the Lenders, a Subsidiary Guaranty Agreement
whereby such entity or Wholly Owned Domestic Material Subsidiary shall guarantee
the payment when due of all principal, interest, and other amounts that shall be
at any time payable by the Borrower under the Loan Agreement; and
WHEREAS, in conjunction with the transactions contemplated by the Loan
Agreement and in consideration of the financial and other support that the
Borrower and the Parent Guarantor have provided, and such financial and other
support as the Borrower and the Parent Guarantor may in the future provide, to
the Subsidiary Guarantors, and in order to induce the Lenders to enter into the
Loan Agreement, the Subsidiary Guarantors are willing to guarantee the
obligations of the Borrower thereunder;
NOW, THEREFORE, the parties hereto agree as follows:
Article 1
Definitions
Section 1.01. Definitions. Terms defined in the Loan Agreement and not
otherwise defined herein are used herein as therein defined.
Article 2
Guarantees
1
Section 2.01. Guarantees. Subject to Section 2.03, the Subsidiary
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
to the Lenders, and to each of them, the due and punctual payment of all present
and future indebtedness of the Borrower evidenced by or arising out of the
Financing Documents, including, but not limited to, the due and punctual payment
of principal of and interest on the Notes, the due and punctual payment of all
other sums now or hereafter owed by the Borrower under any Financing Document as
and when the same shall become due and payable, whether at maturity, by
declaration or otherwise, according to the terms thereof. In case of failure by
the Borrower punctually to pay the indebtedness guaranteed hereby, the
Subsidiary Guarantors, subject to Section 2.03, hereby jointly, severally and
unconditionally agree to cause such payment to be made punctually as and when
the same shall become due and payable, whether at maturity or by declaration or
otherwise, and as if such payment were made by the Borrower.
Section 2.02. Guarantees Unconditional. The obligations of each
Subsidiary Guarantor under this Article 2 shall be unconditional and absolute
and, without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of any other Obligor under any Financing
Document, by operation of law or otherwise;
(b) any modification or amendment of or supplement to any Financing
Document;
(c) any modification, amendment, waiver, release, non-perfection or
invalidity of any direct or indirect security, or of any guarantee or other
liability of any third party, for any obligation of any other Obligor under
any Financing Document;
(d) any change in the corporate existence, structure or ownership of
any other Obligor, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting any other Obligor or its assets or any
resulting release or discharge of any obligation of any other Obligor
contained in any Financing Document;
(e) the existence of any claim, set-off or other rights which any
Subsidiary Guarantor may have at any time against any other Obligor, the
Administrative Agent, any Lender or any other Person, whether or not
arising in connection with the Financing Documents, provided that nothing
herein shall prevent the assertion of any such claim by separate suit or
compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against any
other Obligor for any reason of any Financing Document, or any provision of
applicable law or regulation purporting to prohibit the payment by any
other
2
Obligor of the principal of or interest on any Note or any other amount
payable by any other Obligor under the Financing Documents; or
(g) any other act or omission to act or delay of any kind by any other
Obligor, the Administrative Agent, any Lender or any other Person or any
other circumstance whatsoever that might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of or defense to the
obligations of any Subsidiary Guarantor under this Article 2.
Section 2.03. Limit of Liability. Each Subsidiary Guarantor shall be
liable under this Agreement only for amounts aggregating up to the largest
amount that would not render its obligations hereunder subject to avoidance
under Section 548 of the United States Bankruptcy Code or any comparable
provisions of any applicable state law.
Section 2.04. Discharge; Reinstatement in Certain Circumstances. (a)
Subject to Section 2.03 and paragraph (b) of this Section 2.04, each Subsidiary
Guarantor's obligations under this Article 2 shall remain in full force and
effect, except as otherwise agreed with the consent of the Required Lenders,
until the Commitments are terminated and the principal of and interest on the
Notes and all other amounts payable by the Borrower under the Financing
Documents shall have been paid in full. If at any time any payment of the
principal of or interest on any Note or any other amount payable by the Borrower
under any Financing Document is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of any other Obligor
or otherwise, each Subsidiary Guarantor's obligations under this Article 2 with
respect to such payment shall be reinstated at such time as though such payment
had become due but had not been made at such time.
(b) In the event that any capital stock of any Subsidiary Guarantor shall
be disposed of with the effect that such Subsidiary Guarantor shall cease to be
a Subsidiary of the Parent Guarantor, such Subsidiary Guarantor shall be
released and discharged from any obligation under this Agreement; provided that
no such disposition shall be made unless, immediately after such disposition,
and giving effect thereto, no Event of Default shall have occurred and be
continuing; and provided further that such Subsidiary Guarantor's obligations
under this Agreement shall be immediately reinstated if at any time after such
disposition it becomes a Subsidiary of the Parent Guarantor. The obligations
hereunder of any Subsidiary Guarantor the capital stock of which has been so
disposed of shall be unenforceable for so long as it shall be released and
discharged of its obligations pursuant to this Section 2.04(b).
Section 2.05. Waiver. Each Subsidiary Guarantor irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
Person against any other Obligor or any other Person.
Section 2.06. Subrogation and Contribution. Each Subsidiary Guarantor
irrevocably waives, until such time as all amounts under the Financing Documents
have
3
been indefeasibly paid in full, any and all rights to which it may be entitled,
by operation of law or otherwise, upon making any payment hereunder (i) to be
subrogated to the rights of the payee against the Borrower with respect to such
payment or otherwise to be reimbursed, indemnified or exonerated by the Borrower
in respect thereof or (ii) to receive any payment, in the nature of contribution
or for any other reason, from any other Obligor with respect to such payment.
Section 2.07. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Borrower under the Financing Documents is
stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all
such amounts otherwise subject to acceleration under the terms of the Financing
Documents shall nonetheless be payable by each Subsidiary Guarantor hereunder
forthwith on demand by the Administrative Agent made at the request of the
requisite number of Lenders.
Article 3
Covenant of the Company and the Parent Guarantor
Section 3.01. Additional Subsidiary Guarantors. The Parent Guarantor and
the Borrower jointly and severally agree to cause each Person that shall, at any
time after the date hereof, become a Wholly Owned Domestic Material Subsidiary
of the Parent Guarantor to enter into this Agreement not later than 30 days
after the date on which such Person shall have become a Wholly Owned Domestic
Material Subsidiary.
Article 4
Miscellaneous
Section 4.01. Additional Subsidiary Guarantors. Unless otherwise specified
herein, all notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party at its address or telex or
facsimile number set forth on the signature pages hereof (or, in the case of any
Subsidiary Guarantor as to which no such address or telex or facsimile number is
so set forth, to it at the address or telex or facsimile number of the Parent
Guarantor set forth on the signature pages hereof) or such other address or
telex or facsimile number as such party may hereafter specify for the purpose by
notice to the Administrative Agent. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the appropriate answerback is received, (ii) if given by mail,
five days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section 4.01.
Section 4.02. No Waiver. No failure or delay by the Administrative Agent
or any Lender in exercising any right, power or privilege under this Agreement
or any other Financing Document shall operate as a waiver thereof nor shall any
single or partial
4
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein and
therein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 4.03. Amendments and Waivers. Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
is signed by the Parent Guarantor, the Borrower, each Subsidiary Guarantor and
the Administrative Agent with the prior written consent of the Required Lenders.
Section 4.04. New York Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York. Each of the
Subsidiary Guarantors hereby agrees to be bound by each of Article 10 and
Section 11.10 of the Loan Agreement to the same extent as if it were a party
thereto.
Section 4.02. Successors and Assigns. All the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that no Subsidiary Guarantor may
assign or transfer any of its rights or obligations under this Agreement.
Section 4.02. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, and all of which
taken together shall constitute a single instrument, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when the Administrative Agent shall have received a
counterpart hereof signed by the Borrower, the Parent Guarantor and one or more
of the Subsidiary Guarantors. Thereafter, upon execution and delivery of this
Agreement on behalf of any other Subsidiary Guarantor, this Agreement shall
become effective with respect to such Subsidiary Guarantor as of the date of
such delivery.
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
ARAMARK SERVICES, INC.
By: __________________________
Title:
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
Facsimile number: (215) 238-3284
(215) 238-3282
ARAMARK CORPORATION
By: __________________________
Title:
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
Facsimile number: (215) 238-3284
(215) 238-3282
6
SUBSIDIARY GUARANTORS
ARAMARK EDUCATIONAL GROUP, INC.
By: ________________________
Title:
ARAMARK ORGANIZATIONAL SERVICES, INC.
By: ________________________
Title:
ARAMARK HEALTHCARE SUPPORT SERVICES, INC.
By: ________________________
Title:
ARAMARK SPORTS AND ENTERTAINMENT GROUP, INC.
By: ________________________
Title:
ARAMARK REFRESHMENT SERVICES, INC.
By: ________________________
Title:
7
ARAMARK SENIOR NOTES COMPANY
By: ________________________
Title:
ARAMARK UNIFORM & CAREER APPAREL, INC.
By: ________________________
Title:
ARAMARK UNIFORM & CAREER APPAREL GROUP, INC.
By: ________________________
Title:
8
Schedule I
SUBSIDIARY GUARANTORS
ARAMARK EDUCATIONAL GROUP, INC.
ARAMARK ORGANIZATIONAL SERVICES, INC.
ARAMARK HEALTHCARE SUPPORT SERVICES, INC.
ARAMARK SPORTS AND ENTERTAINMENT GROUP, INC.
ARAMARK REFRESHMENT SERVICES, INC.
ARAMARK SENIOR NOTES COMPANY
ARAMARK UNIFORM & CAREER APPAREL, INC.
ARAMARK UNIFORM & CAREER APPAREL GROUP, INC.
1
EXHIBIT E
MANAGEMENT EQUITY NOTE
THIS NOTE IS NOT TRANSFERABLE UNLESS AS A CONDITION
PRECEDENT TO THE EFFECTIVENESS OF ANY TRANSFER THE PAYEE HAS
OBTAINED THE WRITTEN CONSENT OF THE COMPANY AS TO
THE PROPOSED TRANSFER.
$__________
Philadelphia, Pennsylvania
_____,19
SUBORDINATED INSTALLMENT NOTE
1. For value received, ARAMARK CORPORATION (formerly The ARA Group, Inc.
and ARA Holding Company), a Delaware corporation (the "Company"), hereby
promises to pay to (the "Payee") the sum of $ in equal,
annual installments of $ and one final installment of $ on each
[April/October] 15 commencing on [April/October] 15, 19 , and to pay simple
interest at the rate of % per annum on the unpaid balance thereof, semi-annually
in arrears on each April 15 and October 15.
2. The Payee may not sell, assign or otherwise transfer or encumber any
portion of this Note or interest herein without first procuring the written
consent of the Company, which consent the Company is under no obligation to
provide. No transfer of this Note shall be effective unless such transfer is in
compliance with the foregoing, including the requirements set forth in the
legend provided for above.
3. Both the principal of this Note and interest thereon are payable in
lawful money of the United States of America at 1101 Market Street,
Philadelphia, PA 19107, or such address of any subsequent principal executive
office of the Company within the United States of America as the Company shall
designate in writing to the Payee, or at the option of the Company, by check
mailed to the Payee at such address for the Payee as is indicated on the books
of the Company.
4. This Note may be prepaid in full, or in part, any time, without
premium or penalty. All prepayments shall be applied first to accrued interest
and then to installments of principal in the order of their maturities.
5. The indebtedness evidenced by this Note and the payment of the
principal of and interest on this Note are hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, to the prior payment in full of
all Senior Indebtedness.
5.1 "Senior Indebtedness" means the principal of, premium, if any,
interest and any other amounts due on (1) all Indebtedness incurred, assumed or
guaranteed by
1
the Company, either before or after the date hereof, (excluding any debt which
by the terms of the instrument creating or evidencing the same is not superior
in right of payment to this Note), including, without limitation, (a) any amount
payable with respect to any lease, conditional sale or installment sale
agreement or other financing instrument or agreement which in accordance with
generally accepted accounting principles is, at the date hereof or at the time
the lease, conditional sale or installment sale agreement or other financing
instrument or agreement is entered into, or assumed or guaranteed by, directly
or indirectly, the Company, required to be reflected as a liability on the face
of the balance sheet of the Company, (b) any amounts payable in respect to any
interest rate exchange agreement, currency exchange agreement or similar
agreement and (c) any subordinated indebtedness of a corporation merged with or
into or acquired by the Company; and (2) any renewals or extensions or refunding
of any such Senior Indebtedness or evidences of indebtedness issued in exchange
for such Senior Indebtedness.
5.2 "Indebtedness" means (a) all items, except items of capital stock or
of surplus or of general contingency reserves or of reserves for deferred income
taxes, which in accordance with generally accepted accounting principles in
effect on the date hereof should be included in determining total liabilities as
shown on the liability side of a balance sheet of the Company as at the date of
which Indebtedness is to be determined, (b) all indebtedness secured by any
mortgage, pledge, lien or conditional sale or other title retention agreement
existing on any property or asset owned or held by the Company, whether or not
such indebtedness shall have been assumed, and (c) all indebtedness of others
which the Company has directly or indirectly guaranteed, endorsed, discounted or
agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which the Company has agreed to supply or advance
funds or otherwise to become liable directly or indirectly with respect thereto,
including, without limitation, indebtedness arising out of the sale or transfer
of accounts or notes receivable or any moneys due or to become due.
6. In the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether voluntary or involuntary and whether in
bankruptcy, insolvency or receivership proceedings, or upon an assignment for
the benefit of creditors or any readjustment of debt, arrangement or composition
among creditors or any other marshalling of the assets and liabilities of the
Company or otherwise), then holders of Senior Indebtedness shall first be paid
in full, or provision made for such payment, before any payment or distribution,
directly or indirectly (including by way of set off) is made upon the principal
of or interest on this Note, and to that end the holders of Senior Indebtedness
shall be entitled to receive in payment thereof any payment or distribution of
assets of the Company, whether in cash or property or securities, which may be
payable or deliverable in any such proceeding in respect of this Note. The Payee
irrevocably authorizes, empowers and directs all receivers, custodians, trustee,
liquidators, conservators and others having authority in the premises to effect
all such payments and deliveries. Notwithstanding any statute, including without
limitation the Federal Bankruptcy Code, any rule of law or bankruptcy procedures
to the contrary, the right of the holders of the Senior Indebtedness to have all
of the Senior Indebtedness paid
2
and satisfied in full prior to the payment of any amounts due the payee under
this Note shall include, without limitation, the right of the holders of the
Senior Indebtedness to be paid in full all interest accruing on the Senior
Indebtedness due them after the filing of any petition by or against the Company
in connection with any bankruptcy or similar proceeding or any other proceeding
referred to in paragraph 6 hereof, prior to the payment of any amounts in
respect of the Note, including, without limitation, any interest due to the
Payee accruing after such date.
7. No payment, directly or indirectly (including by way of set off),
shall be made by the Company with respect to the principal of or interest on
this Note if (i) an event of default has happened with respect to any Senior
Indebtedness, as defined therein or in the instrument under which the same is
outstanding which if occurring prior to the stated maturity of such Senior
Indebtedness, permits holders thereof upon the giving of notice or passage of
time, or both, to accelerate the maturity thereof ("Senior Indebtedness
Default") and has not been cured, (ii) a payment by the Company to or for the
benefit of Payee would, immediately after giving effect thereto, result in a
Senior Indebtedness Default, or (iii) full payment of all amounts then due for
principal of (or premium, if any), interest or any other amounts due on Senior
Indebtedness shall not then have been made or duly provided for. Upon the
occurrence of any events described in (i), (ii) or (iii) described above,
notwithstanding any event of default under this Note by the Company, the Payee
may not accelerate the maturity of all or any portion of this Note, or take any
action towards collection of all or any portion of this Note or enforcement of
any rights, powers or remedies under this Note, or applicable law until the
earlier of the date on which a Senior Indebtedness Default (or in the case of
(iii) required payments shall have been duly provided for) have been cured or
such Senior Indebtedness has been paid in full.
8. In the event that, notwithstanding the foregoing, the Company shall
make any payment prohibited by Section 6 or 7, then, except as hereinafter in
this Section otherwise provided, unless and until any such Senior Indebtedness
Default shall have been cured or waived or shall cease to exist, such payment
shall be held in trust for the benefit of and shall be paid over to the holders
of Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instrument evidencing
the Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay in full all Senior Indebtedness then due,
after giving effect to any concurrent payment to the holders of such Senior
Indebtedness.
9. Subject to the payment in full of all Senior Indebtedness at the time
outstanding, the Payee shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until this Note shall be paid in
full, and no payments or distributions to the holders of Senior Indebtedness by
or on behalf of the Company from the proceeds that would otherwise be payable to
the Payee, or by or on behalf of the Payee, shall as between the Company and the
Payee, be deemed to be a payment by the Company to or for the account of holders
of Senior Indebtedness.
3
10. No holder of Senior Indebtedness shall be prejudiced in his or her
right to enforce subordination of this Note by any act on the part of the
Company. The above provisions in regard to subordination are intended solely for
the purpose of defining the relative rights of the Payee on the one hand, and
the holders of Senior Indebtedness, on the other hand, and nothing contained in
this Note is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Indebtedness and the Payee, the obligation of
the Company, which is absolute and unconditional, to pay to the Payee, subject
to the rights of the holders of Senior Indebtedness, the principal of and
interest on this Note as and when the same shall become due and payable in
accordance with its terms, subject to the rights, if any, under the above
subordination provisions, of holders of Senior Indebtedness to receive cash,
property or securities of the Company payable in respect thereof.
11. The principal of this Note and accrued unpaid interest thereon shall
(if not already due and payable) upon written demand by the Payee become due and
payable forthwith, if there shall have been a default in the payment of any
interest on, or principal of, this Note when it becomes due and payable (but
only if such payment is not prohibited by the provisions of this Note), and such
default shall have continued for a period of 30 days after written notice of
such default shall have been given to the Company and shall be continuing at the
time of such written demand.
12. No course of dealing between the Company and the Payee or any delay on
the part of the Payee in exercising any rights under this Note shall operate as
a waiver of any rights of the Payee.
13. All notices and other communications hereunder shall be in writing and
shall be deemed to have been given when delivered, or deposited in the mails,
first-class, postage prepaid, or delivered to a telegraph office for
transmission, if to the Payee, at such address for the Payee as is indicated on
the books of the Company or if to the Company, at the address of the principal
executive offices of the Company as provided above.
14. This Note shall be governed by the laws of the State of Delaware.
ARAMARK CORPORATION
By: _______________________
Treasurer:
4
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated November 14, 2001 on the financial statements and schedules of
ARAMARK Corporation and subsidiaries and the balance sheet of ARAMARK Worldwide
Corporation and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
December 7, 2001
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated November 14, 2001 on the audited financial statements of ServiceMaster
Management Services Business as of and for the year ended December 31, 2000 and
to all references to our Firm included in or made a part of this registration
statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
December 7, 2001