<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or
section 240.14a-12
MORRISON RESTAURANTS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value (including the associated preferred stock
purchase rights)
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
9,236,440
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$5.00 per share of common stock (including the associated preferred
stock purchase rights)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$47,244,740
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(5) Total fee paid:
$9,449
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$9,449
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 14D-1
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(3) Filing Party:
Piccadilly Cafeterias, Inc., Piccadilly Acquisition Corporation
- --------------------------------------------------------------------------------
(4) Date Filed:
April 29, 1998, May 22, 1998 and May 29, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
MORRISON RESTAURANTS INC.
3300 HIGHLANDS PARKWAY, SUITE 130
ATLANTA, GEORGIA 30082
[JULY 10], 1998
To our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Morrison Restaurants Inc. ("Morrison") to be held at the general offices of
Piccadilly Cafeterias, Inc., 3232 Sherwood Forest Blvd., Baton Rouge, Louisiana
70816, on [FRIDAY JULY 31], 1998, at 10:00 a.m. local time.
At the meeting, you will be asked to adopt a Plan and Agreement of Merger
(the "Merger Agreement") pursuant to which Morrison would be acquired by
Piccadilly Cafeterias, Inc. ("Piccadilly"). Pursuant to the Merger Agreement, on
April 29, 1998, Piccadilly and its wholly owned subsidiary, Piccadilly
Acquisition Corporation ("Sub"), commenced a tender offer (the "Offer") to
purchase all outstanding shares of common stock, $.01 par value per share (the
"Shares"), of Morrison. Pursuant to the Offer, which expired on May 27, 1998,
Sub purchased 8,249,228 Shares, or approximately 89% of the Shares outstanding
on [JULY 6], 1998, the record date for the Special Meeting. The Merger Agreement
provides that, upon consummation of the merger, each issued and outstanding
Share (other than Shares owned by Morrison, Piccadilly or Sub, or by
shareholders who are entitled to and who properly exercise dissenters' rights
under the Georgia Business Corporation Code) will be converted into the right to
receive $5.00 in cash, without interest thereon, and Morrison will become a
wholly owned subsidiary of Piccadilly.
The attached Notice of Special Meeting and Proxy Statement contains a
description of the formal business to be conducted at the meeting. During the
meeting, Morrison management and Piccadilly representatives will be available to
respond to questions.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT, WHICH WAS
APPROVED UNANIMOUSLY BY THE BOARD, IS IN THE BEST INTERESTS OF MORRISON AND ITS
SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT. BECAUSE THE APPROVAL OF A MAJORITY OF THE SHARES OUTSTANDING IS
SUFFICIENT TO ADOPT THE MERGER AGREEMENT, SUB, WHICH OWNS 89% OF THE OUTSTANDING
SHARES, CAN CAUSE THE MERGER TO OCCUR WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER
SHAREHOLDER. PICCADILLY AND SUB HAVE AGREED PURSUANT TO THE MERGER AGREEMENT TO
VOTE ALL OF THEIR SHARES IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT.
You are urged to read carefully the Proxy Statement in its entirety for a
complete description of the proposed merger. Please sign, date and return the
enclosed proxy card promptly. It is important for you to vote. If you fail to
vote, the effect of such failure will be as if you voted your shares AGAINST the
merger. If you attend the meeting, which we hope you will do, you may vote in
person even if you have previously mailed a proxy card. We look forward to
meeting with you at the Special Meeting of Shareholders.
Sincerely,
DOLPH W. VON ARX
Chairman of the Board
RONNIE L. TATUM
Chief Executive Officer
<PAGE> 3
MORRISON RESTAURANTS INC.
3300 HIGHLANDS PARKWAY, SUITE 130
ATLANTA, GEORGIA 30082
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
[FRIDAY, JULY 31], 1998
To the Shareholders:
A Special Meeting of Shareholders (the "Special Meeting") of Morrison
Restaurants Inc. ("Morrison") will be held at the general offices of Piccadilly
Cafeterias, Inc., 3232 Sherwood Forest Blvd, Baton Rouge Louisiana 70816, on
[FRIDAY, JULY 31], 1998, at 10:00 a.m., local time, to consider and vote upon a
proposal to adopt a Plan and Agreement of Merger (the "Merger Agreement") among
Morrison, on the one hand, and Piccadilly Cafeterias, Inc. ("Piccadilly") and
Piccadilly Acquisition Corporation, a wholly owned subsidiary of Piccadilly
("Sub"), on the other hand, a copy of which is attached as Appendix A to the
Proxy Statement, pursuant to which, among other things (a) Sub will merge with
and into Morrison (the "Merger"), (b) Morrison will become a wholly owned
subsidiary of Piccadilly, and (c) each issued and outstanding share of common
stock, $.01 par value per share (the "Shares") of Morrison (other than Shares
owned by Morrison, Piccadilly or Sub, or by shareholders who are entitled to and
who properly exercise dissenters' rights under the Georgia Business Corporation
Code) will be converted into the right to receive $5.00 in cash, without
interest thereon.
The close of business on [JULY 6], 1998 is the record date (the "Record
Date") for the determination of shareholders entitled to receive notice of and
to vote at the Special Meeting or any adjournment(s) thereof. The affirmative
vote of the holders of not less than a majority of the Shares outstanding is
required to adopt the Merger Agreement. Sub owned 8,249,228 Shares, or
approximately 89% of all Shares outstanding as of the Record Date and therefore
can cause the Merger to occur without the affirmative vote of any other
shareholder. Piccadilly and Sub have agreed pursuant to the Merger Agreement to
vote all of their Shares in favor of adoption of the Merger Agreement.
IF THE MERGER IS CONSUMMATED, SHAREHOLDERS WHO DO NOT VOTE IN FAVOR OF
ADOPTION OF THE MERGER AGREEMENT AND WHO OTHERWISE COMPLY WITH THE NOTICE AND
OTHER REQUIREMENTS OF ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION CODE WILL
BE ENTITLED TO RECEIVE SUCH CONSIDERATION AS MAY BE DETERMINED TO BE DUE UNDER
SUCH PROVISIONS.
You are cordially invited to attend the Special Meeting. YOUR VOTE IS
IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING, WE ASK THAT YOU MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED PRE-ADDRESSED, POSTAGE
PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE ITS EXERCISE BY
VOTING IN PERSON AT THE SPECIAL MEETING OR BY DELIVERING A WRITTEN REVOCATION OR
LATER DATED PROXY TO THE SECRETARY AT OR BEFORE THE MEETING.
SHAREHOLDERS SHOULD NOT DELIVER ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
BY ORDER OF THE BOARD OF DIRECTORS,
MITCHELL S. BLOCK
Vice President, General Counsel and
Secretary
Atlanta, Georgia
[JULY 10], 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 3
The Special Meeting....................................... 3
Purpose of the Special Meeting............................ 3
Quorum; Vote Required..................................... 3
Structure of the Merger and Merger Consideration.......... 3
The Companies............................................. 3
Effective Time; Effective Date of the Merger.............. 4
Exchange of Certificates.................................. 4
Reasons for the Merger.................................... 4
Board Recommendation...................................... 5
Opinion of Investment Banking Firm........................ 5
Other Terms and Conditions of the Merger.................. 5
Dissenters' Rights........................................ 7
THE SPECIAL MEETING......................................... 8
Solicitation, Voting and Revocability of Proxies; Date and
Place of the Special Meeting............................ 8
Purpose of the Special Meeting............................ 8
Record Date; Shareholders Entitled to Vote................ 8
Quorum; Vote Required..................................... 9
THE MERGER.................................................. 9
The Merger Agreement...................................... 9
Structure and Terms of the Merger......................... 9
Background of the Merger.................................. 10
Reasons for the Merger.................................... 13
Recommendation of the Morrison Board...................... 13
Opinion of Investment Banking Firm........................ 13
Effective Time of the Merger.............................. 18
Hart-Scott-Rodino Clearance............................... 18
Other Conditions to the Merger............................ 18
Interests of Certain Persons in the Merger................ 19
Exchange of Certificates.................................. 21
Conduct of Business by Morrison Pending the Merger........ 21
Amendment; Waiver; Termination............................ 22
Fees and Expenses......................................... 23
Rights Agreement and Georgia Takeover Statutes............ 23
Certain Federal Income Tax Consequences................... 24
Accounting Treatment...................................... 24
Dissenters' Rights........................................ 24
Source and Amount of Funds................................ 26
BUSINESS OF MORRISON........................................ 26
BUSINESS OF PICCADILLY...................................... 26
MORRISON SELECTED FINANCIAL DATA............................ 27
CERTAIN PROJECTIONS......................................... 28
MARKET PRICE INFORMATION.................................... 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............. 30
INDEPENDENT AUDITORS........................................ 30
OTHER MATTERS............................................... 30
AVAILABLE INFORMATION....................................... 30
APPENDIX A: PLAN AND AGREEMENT OF MERGER.................... A-1
APPENDIX B: FAIRNESS OPINION................................ B-1
APPENDIX C: ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION
CODE...................................................... C-1
APPENDIX D: ANNUAL REPORT ON FORM 10-K OF MORRISON.......... D-1
APPENDIX E: QUARTERLY REPORT ON FORM 10-Q OF MORRISON....... E-1
</TABLE>
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SUMMARY
The following summary is necessarily incomplete and is qualified in its
entirety by reference to the more detailed information and financial statements,
including the notes thereto, contained in this Proxy Statement and the
Appendices hereto. Shareholders are urged to read carefully all of such
material. Unless otherwise defined herein, capitalized terms used in this Proxy
Statement have the meanings ascribed in this Summary.
THE SPECIAL MEETING
A special meeting of Morrison Restaurants Inc., a Georgia corporation
("Morrison"), will be held on [FRIDAY, JULY 31], 1998, at 10:00 a.m. local time
at the general offices of Piccadilly Cafeterias, Inc., 3232 Sherwood Forest
Blvd., Baton Rouge, Louisiana 70816 (the "Special Meeting"). Only holders of
record of shares of Morrison's common stock, $.01 par value per share (the
"Shares") and the associated preferred stock purchase rights (the "Rights"), at
the close of business on [JULY 6], 1998 (the "Record Date") are entitled to
notice of and to vote at the Special Meeting. On the Record Date, there were
9,236,440 Shares outstanding, with each Share entitled to cast one vote with
respect to each matter properly presented at the Special Meeting. See "The
Special Meeting."
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of Shares will be asked to adopt the Plan
and Agreement of Merger dated April 22, 1998 (the "Merger Agreement") among
Morrison, Piccadilly Cafeterias, Inc., a Louisiana corporation ("Piccadilly"),
and Piccadilly Acquisition Corporation, a Georgia corporation and a wholly owned
subsidiary of Piccadilly ("Sub"), pursuant to which, among other things, Sub
will be merged with and into Morrison (the "Merger") and Morrison will become a
wholly owned subsidiary of Piccadilly. See "The Special Meeting -- Purpose of
the Special Meeting" and "The Merger."
QUORUM; VOTE REQUIRED
The holders of a majority of the issued and outstanding Shares must be
present at the Special Meeting in person or by proxy in order for a quorum to be
properly constituted.
The affirmative vote of holders of not less than a majority of the total
number of issued and outstanding Shares is required to adopt the Merger
Agreement. See "The Special Meeting -- Quorum; Vote Required."
As of the Record Date, Sub owned an aggregate of 8,249,228 Shares,
representing approximately 89% of all Shares outstanding, and therefore can
cause the Merger to occur without the affirmative vote of any other shareholder.
Piccadilly and Sub have agreed pursuant to the Merger Agreement to vote all of
their Shares in favor of adoption of the Merger Agreement.
STRUCTURE OF THE MERGER AND MERGER CONSIDERATION
Pursuant to the Merger Agreement, on April 29, 1998, Piccadilly and Sub
commenced a tender offer (the "Offer") to purchase all outstanding Shares.
Pursuant to the Offer, which expired on May 27, 1998, Sub purchased 8,249,228
Shares, or approximately 89% of all Shares outstanding on the Record Date. Upon
consummation of the Merger, Sub will merge into Morrison and each Share that is
issued and outstanding at the Effective Time (as defined below) other than
shares held by Morrison, Piccadilly or Sub, or by shareholders who are entitled
to and who properly exercise dissenters' rights under the Georgia Business
Corporation Code (the "GBCC"), will be converted into the right to receive $5.00
in cash, without interest thereon (the "Merger Consideration"), and Morrison
will become a wholly owned subsidiary of Piccadilly. Upon completion of the
Merger, the separate corporate existence of Sub will cease and Morrison will
continue as the surviving corporation (the "Surviving Corporation").
THE COMPANIES
Morrison. Morrison owns and operates cafeterias, a buffet and mall food
court locations in the southeastern and mid-Atlantic regions of the United
States. Prior to March 1996, Morrison comprised the
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family dining business of Morrison Restaurants Inc. ("MRI"). On March 7, 1996,
the shareholders of MRI approved, among other things, the distribution of
Morrison's common stock to the shareholders of MRI (the "Distribution"). The
effective date of the Distribution was March 9, 1996, and, pursuant to the
Distribution, the shareholders of MRI received one Share of Morrison's common
stock for every four shares of MRI held. Morrison was formed in 1995 as a
Georgia corporation and has its principal executive offices at 3300 Highlands
Parkway, Suite 130, Atlanta, Georgia 30082. Its telephone number is (770)
308-3700.
Piccadilly. Piccadilly is a Louisiana corporation that was incorporated in
1965 and is the successor to various predecessor corporations and partnerships
that operated "Piccadilly" cafeterias beginning with the acquisition of the
first unit in 1944. Piccadilly operates 131 cafeterias in 15 states, four
Piccadilly Express in Associated Grocer Supermarkets and seven Ralph & Kacoo's
seafood restaurants in three states. All units are owned by Piccadilly.
Piccadilly's principal executive offices are located at 3232 Sherwood Forest
Blvd., Baton Rouge, Louisiana 70816. Its telephone number is (504) 293-9440.
Sub. Sub is a newly-formed Georgia corporation that is a subsidiary of
Piccadilly that was organized in connection with the Offer and the Merger. Sub
has the same address and telephone number as Piccadilly.
EFFECTIVE TIME; EFFECTIVE DATE OF THE MERGER
The Merger will become effective at the time (the "Effective Time") and on
the date (the "Effective Date") that the Certificate of Merger is filed with the
Secretary of State of Georgia. Unless Piccadilly and Morrison otherwise agree,
the Merger will be consummated as soon as practicable following receipt of
Morrison shareholder approval and satisfaction or waiver of the other conditions
to the Merger. Piccadilly and Morrison anticipate that the Merger will be
consummated as soon as practicable following the Special Meeting. See "The
Merger -- Other Conditions to the Merger."
EXCHANGE OF CERTIFICATES
Promptly following consummation of the Merger, each person who is a holder
of record of Shares at the Effective Time will be provided with a letter of
transmittal containing written instructions setting forth the manner by which
certificates representing Shares will be exchanged for the Merger Consideration.
SHAREHOLDERS ARE REQUESTED NOT TO MAIL OR DELIVER THEIR SHARE CERTIFICATES UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL. See "The Merger -- Exchange of
Certificates."
REASONS FOR THE MERGER
Morrison's business has been negatively affected during the last four
fiscal years by declining customer counts, caused primarily by over-building and
increased competition in the restaurant industry and by a general decline in
mall traffic, where Morrison operates a majority of its units. Commencing in the
latter part of the first quarter of fiscal 1998, Morrison's management
implemented a number of measures designed to achieve growth under these
difficult industry conditions, focusing primarily on increasing sales from
existing locations and reducing costs. However, customer trends during the first
and second quarters of fiscal 1998 continued to be negative and to adversely
affect Morrison's results of operations. Faced with continuing negative
operating trends and the prospect of potential acquirors contacting Morrison,
the Board of Directors determined that it would be advisable for Morrison to
retain an investment banking firm to assist it in reviewing its strategic
alternatives, which it did on December 5, 1997.
Following a controlled bidding process, during which 27 potential strategic
and financial purchasers were contacted and four submitted preliminary
proposals, the Board of Directors determined to accept Piccadilly's proposal and
unanimously approved and adopted the Merger Agreement. The Board's decision to
enter into the Merger Agreement was based upon its evaluation of a number of
factors discussed in detail below, including the form and amount of
consideration proposed to be paid by Piccadilly, the structure of the
transaction as a cash tender offer and the opinion of its financial advisor,
discussed below, to the effect that the consideration to be received by
Morrison's shareholders pursuant to the Offer and the Merger is fair from a
financial point of view to such shareholders. See "The Merger -- Background of
the Merger" and "-- Reasons for the Merger."
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BOARD RECOMMENDATION
THE MORRISON BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT. SEE
"THE MERGER -- RECOMMENDATION OF THE MORRISON BOARD."
OPINION OF INVESTMENT BANKING FIRM
The investment banking firm of Wheat First Securities, Inc. ("Wheat First
Union") acted as financial advisor to Morrison in connection with the Offer and
proposed Merger and has delivered a letter to the Morrison Board stating that,
in its opinion, the Merger Consideration to be paid by Piccadilly is fair to
Morrison and the holders of Shares from a financial point of view. Morrison has
paid Wheat First Union for its services in assisting the Morrison Board in
analyzing the proposed Merger and in rendering the foregoing opinion (i) a
nonrefundable financial advisory fee of $100,000 (the "Advisory Fee"), (ii) a
transaction fee of approximately $700,000 representing one percent of any
consideration paid up to $50 million, plus three percent of any consideration,
including debt assumed, in excess of $50 million ("Transaction Fee"), and (iii)
a fee of $150,000 upon delivery of its opinion ("Opinion Fee"); provided that
the Opinion Fee and the Advisory Fee were credited against the Transaction Fee
upon consummation of the Offer. The Advisory Fee was payable upon engagement,
the Opinion Fee was payable upon delivery of the opinion and the Transaction Fee
was payable upon consummation of the Offer. In addition, Morrison has agreed to
reimburse Wheat First Union for its out-of-pocket expenses and to indemnify
Wheat First Union against certain liabilities that may be incurred in connection
with providing such services. The full text of the Wheat First Union letter is
attached to this Proxy Statement as Appendix B. See "The Merger -- Opinion of
Investment Banking Firm."
OTHER TERMS AND CONDITIONS OF THE MERGER
In addition to the foregoing matters, the Merger Agreement contains certain
other terms and conditions, including:
Hart-Scott-Rodino Clearance. The obligations of Morrison and Piccadilly to
consummate the Merger were subject to the expiration or earlier termination of
the requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). Morrison and Piccadilly each made their
required initial filings under the HSR Act, and on May 15, 1998, Morrison and
Piccadilly were notified that early termination of the waiting period under the
HSR Act had been granted. Therefore, Morrison does not believe that this or any
other material regulatory approvals are required for consummation of the Merger.
See "The Merger -- Hart-Scott-Rodino Clearance."
Other Conditions to the Merger. In addition to Morrison shareholder
approval, the consummation of the Merger is conditioned upon the satisfaction of
certain conditions set forth in the Merger Agreement, including the receipt by
each party of customary legal opinions, certificates, consents, resolutions and
reports from the other and from third parties. Piccadilly and Morrison intend to
consummate the Merger as soon as practicable following satisfaction or waiver of
the conditions thereto. See "The Merger -- Other Conditions to the Merger."
Company Board Representation. Pursuant to the Merger Agreement, following
Sub's acquisition of Shares pursuant to the Offer, Sub designated four
individuals to serve as directors of Morrison along with three of Morrison's
existing directors. At the request of Sub, certain directors of Morrison
resigned and the remaining members of the Board of Directors appointed Sub's
designees to serve as directors of Morrison. The persons designated by Sub were
Messrs. Ronald A. LaBorde, Paul W. Murrill, J. Fred Johnson and Joseph S.
Polito, all of whom are directors and/or officers of Piccadilly. The Merger
Agreement provides that, until the Effective Time, there will be at least three
directors on the Board of Directors who were directors of Morrison as of the
date of the Merger Agreement and who are neither designees, officers, directors,
full-time employees or affiliates of Piccadilly or Sub nor full-time employees
of Morrison (the "Independent Directors"); provided, however, that if the number
of Independent Directors is reduced below three for any reason, the Board of
Directors will, subject to the approval of the remaining Independent Directors,
if any, designate a person or persons to fill the vacancy or vacancies who were
directors of Morrison on the date of the Merger
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Agreement and not an officer, director, full-time employee or affiliate of
Piccadilly or Sub nor a full-time employee of Morrison, and such persons will be
deemed to be Independent Directors for purposes of the Merger Agreement. The
Independent Directors who continue to serve on Morrison's Board of Directors are
Ms. J. Veronica Biggins, Mr. Dolph W. von Arx and Dr. Donald Ratajczak.
Certain Employee Matters. Pursuant to the Merger Agreement, Piccadilly has
agreed to retain all persons who are Morrison employees at the Effective Time as
employees-at-will (except to the extent that such employees are parties to
contracts providing for other employment terms, in which case such employees
shall be retained in accordance with the terms of such contracts) and to provide
such employees with the same employee benefits as Piccadilly provides to its
existing employees. Piccadilly has also agreed to cause the Surviving
Corporation to honor certain bonus arrangements of Morrison in effect at the
date of the Merger Agreement. In addition, Piccadilly has agreed to give
Morrison employees credit for their respective periods of employment with
Morrison prior to the Effective Time for purposes of determining their
eligibility for vesting, level of participation and benefit accrual (but not for
benefit accrual under any defined benefit pension plan), in any employee benefit
program, plan or arrangement that the Surviving Corporation adopts, maintains or
contributes to following the Effective Time.
Pursuant to the Merger Agreement, holders of stock options granted under
Morrison incentive plans, whether or not then exercisable, which were
outstanding on the date of the Merger Agreement, and which have not been
exercised prior to the acquisition of Shares pursuant to the Offer, are entitled
to receive, in cancellation and settlement of such options, a cash payment per
Share equal to the excess, if any, of the Merger Consideration over the
respective exercise prices payable upon option exercise for such Shares.
Morrison has agreed to take actions available under the incentive plans to
effect the cancellation of such options.
Indemnification Covenants. Under the Merger Agreement, Morrison, and from
and after the Effective Time Piccadilly and the Surviving Corporation, will
indemnify, defend and hold harmless the present and former officers and
directors of Morrison (collectively, the "Indemnified Parties") against (i) all
losses, claims, damages, costs, expenses, liabilities, judgments or amounts that
are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of, or in connection with, any
claim, action, suit, proceeding or investigation based in whole or in part on,
or arising in whole or in part out of, the fact that such person is or was a
director or officer of Morrison pertaining to any matter existing or occurring
at or prior to the Effective Time ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to, the Merger, the Merger Agreement or any other
transactions contemplated thereby, in each case to the same extent as such
Indemnified Parties were entitled to be indemnified under Morrison's restated
articles of incorporation or by-laws as in effect on December 31, 1997 (and
Piccadilly and the Surviving Corporation, as the case may be, will pay expenses,
including through advancement, to the full extent provided in Morrison's
restated articles of incorporation and by-laws as in effect on December 31,
1997). With certain exceptions, the aggregate amount of indemnification payments
required to be made by Piccadilly to such persons is $10 million. Piccadilly has
also agreed to pay the insurance premiums required for any extension of
Morrison's directors' and officers' insurance policy following the Effective
Date for a period of six years or to provide comparable coverage under a
Piccadilly policy. See "The Merger -- Interests of Certain Persons in the
Merger."
Amendment, Waiver and Termination. Morrison and Piccadilly may mutually
agree to amend the Merger Agreement at any time before or after Morrison
shareholder approval, provided that no amendment is permissible following
Morrison shareholder approval if the amendment would by law require further
shareholder approval, unless such further shareholder approval is obtained.
Either party may waive compliance with any of the agreements or conditions
contained in the Merger Agreement other than the satisfaction of all
requirements prescribed by law for consummation of the Merger.
The Merger Agreement may be terminated at any time before the Effective
Time (i) by the mutual written consent of Morrison and Piccadilly or (ii) by
either party if (a) the required approval by Morrison's shareholders is not
obtained at the Special Meeting, (b) there has been a material breach by the
other party of any representation, warranty or covenant in the Merger Agreement
which is not cured within 30 days after
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notice of such breach is given to the breaching party, (c) all conditions to
closing have not been met by, or the Merger has not been consummated on or
before, October 31, 1998 unless the party seeking to terminate the Merger
Agreement, at such time, is in willful and material violation of its
representations, warranties or covenants under the Merger Agreement, (d) any
court or governmental entity shall have issued an order, decree, or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable, (e) either party gives the other notice of
termination as a non-notifying party pursuant to the terms of the Merger
Agreement, or (f) all of the mutual conditions to the obligations of both
parties to effect the Merger shall have been satisfied and any condition to the
obligation of either party to effect the Merger is not capable of being
satisfied prior to October 31, 1998. See "The Merger -- Amendment; Waiver;
Termination."
DISSENTERS' RIGHTS
Under Georgia law, holders of Shares are entitled to dissenters' rights in
connection with the Merger. Any record holder of Shares who objects to the
Merger may elect to have his, her or its Shares appraised under the procedures
set forth in Article 13 of the GBCC and to be paid the appraised value of his,
her or its Shares, which, pursuant to Article 13 of the GBCC, will be the
Shares' fair value immediately before the consummation of the Merger, excluding
any appreciation or depreciation in anticipation of the Merger. An appraisal
proceeding may result in a determination of fair value less than or greater than
the value of the Merger Consideration that would have been payable in respect of
such Shares had the shareholder not elected to perfect his, her or its
dissenters' rights. The full text of Article 13 of the GBCC is attached as
Appendix C. See "The Merger -- Dissenters' Rights"
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THE SPECIAL MEETING
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES; DATE AND PLACE OF THE SPECIAL
MEETING
This Proxy Statement is being furnished to holders of common stock, $.01
par value per share (the "Shares") and the associated preferred stock purchase
rights (the "Rights") of Morrison Restaurants Inc., a Georgia corporation
("Morrison"), in connection with the solicitation of proxies by and on behalf of
the Board of Directors of Morrison for use at a special meeting of shareholders
to be held at the general offices of Piccadilly Cafeterias, Inc., 3232 Sherwood
Forest Blvd., Baton Rouge, Louisiana 70816 on [FRIDAY, JULY 31], 1998, at 10:00
a.m., local time (the "Special Meeting"). In addition to solicitation by mail,
proxies may be solicited by directors, officers and employees of Morrison in
person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not receive any compensation in addition
to their regular salary, but may be reimbursed for reasonable out-of-pocket
expenses in connection with the solicitation. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding proxy solicitation
materials to beneficial owners of Shares held of record by such custodians,
nominees and fiduciaries, all of whom will be reimbursed for reasonable expenses
incurred in connection therewith.
This Proxy Statement and the accompanying proxy card were first mailed to
shareholders of record as of the Record Date (as defined below) on or about
[JULY 10], 1998.
All Shares that are represented at the Special Meeting by duly executed
proxies will be voted in accordance with the instructions indicated thereon. If
a duly executed proxy is submitted and no voting instructions are indicated
thereon, such proxy will be voted "FOR" adoption of the Plan and Agreement of
Merger dated April 22, 1998 (the "Merger Agreement") among Morrison, Piccadilly
Cafeterias, Inc., a Louisiana corporation ("Piccadilly"), and Piccadilly
Acquisition Corporation, a Georgia corporation and a wholly owned subsidiary of
Piccadilly ("Sub").
The Board knows of no other matter to be presented at the Special Meeting,
but if any other matter is properly presented for consideration at the Special
Meeting (or any adjournments or postponements thereof), the persons named in the
enclosed form of proxy will have discretion to vote on such matters in
accordance with their best judgment.
A holder of Shares may revoke a previously submitted proxy at any time
prior to its exercise at the Special Meeting by: (i) filing with the Corporate
Secretary of Morrison at or prior to the Special Meeting a written revocation
bearing a later date or a duly executed later-dated proxy relating to the same
Shares; or (ii) attending the Special Meeting and voting in person. Attendance
at the Special Meeting will not in and of itself constitute a revocation of a
proxy. Any written revocation or later-dated proxy should be delivered at the
Special Meeting to the Corporate Secretary of Morrison or before the Special
Meeting to Morrison at 3300 Highlands Parkway, Suite 130, Atlanta, Georgia
30082, Attention: Corporate Secretary.
Holders of Shares are requested to mark, date and sign the enclosed proxy
and return it promptly to Morrison in the enclosed stamped, pre-addressed
envelope. Shareholders may vote in person at the Special Meeting even if they
have previously mailed a proxy. SHAREHOLDERS SHOULD NOT SEND ANY MORRISON STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the holders of Shares will consider and vote upon a
proposal to adopt the Merger Agreement and to transact such other business as
may properly come before the Special Meeting or any adjournments or
postponements thereof.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE
The Morrison Board has fixed [JULY 6], 1998 as the record date for the
determination of the shareholders of Morrison entitled to notice of and to vote
at the Special Meeting (the "Record Date"). Only holders of record of Shares at
the close of business on the Record Date will be entitled to notice of and to
vote at the Special Meeting. As of the Record Date, there were 9,236,440 Shares
outstanding and entitled to vote. Each
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record holder of Shares on the Record Date is entitled to cast one vote per
share, exercisable in person or by properly executed proxy, on the proposal to
adopt the Merger Agreement and on each other matter properly submitted to a vote
of the shareholders at the Special Meeting.
QUORUM; VOTE REQUIRED
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding Shares as of the Record Date is necessary to
constitute a quorum. The affirmative vote of the holders of not less than a
majority of the Shares outstanding as of the Record Date is required to adopt
the Merger Agreement. Abstentions and broker nonvotes will be counted for
purposes of establishing a quorum but will be deemed to be a vote "AGAINST"
adoption of the Merger Agreement. A shareholder who wishes to exercise
dissenters' rights under the Georgia Business Corporation Code (the "GBCC") must
not vote his or her Shares in favor of adoption of the Merger Agreement;
however, an absention or broker nonvote will not constitute a waiver of a
shareholder's dissenters' rights.
Pursuant to the Offer, Sub acquired 8,249,228 Shares, or approximately 89%
of the Shares outstanding and, therefore, Sub can cause the Merger to occur
without the affirmative vote of any other shareholder. Piccadilly and Sub have
agreed pursuant to the Merger Agreement to vote all of their Shares in favor of
adoption of the Merger Agreement. In connection with the execution of the Merger
Agreement, Morrison entered into agreements with each of its directors, pursuant
to which the directors agreed not to exercise any appraisal rights that the
directors may have under the GBCC with respect to any Shares owned by them in
connection with the Merger. This agreement, however, did not obligate any such
director to tender Shares owned by him or her pursuant to the Offer or to vote
such Shares in favor of the Merger Agreement.
THE MERGER
THE MERGER AGREEMENT
The Merger is to be effected in accordance with the terms and conditions
set forth in the Merger Agreement, a copy of which is attached hereto as
Appendix A. The following brief description is necessarily incomplete and is
qualified in its entirety by reference to the Merger Agreement.
STRUCTURE AND TERMS OF THE MERGER
On April 22, 1998, the Merger Agreement was executed by and among
Piccadilly and Sub, on the one hand, and Morrison, on the other hand. Pursuant
to the Merger Agreement, on April 29, 1998, Piccadilly and Sub commenced a
tender offer (the "Offer") to purchase all outstanding Shares. Pursuant to the
Offer, which expired on May 27, 1998, Sub purchased 8,249,228 Shares, or
approximately 89% of all Shares outstanding on the Record Date. The terms of the
Merger Agreement provide that, Sub will merge into Morrison (the "Merger"),
Morrison will become a wholly owned subsidiary of Piccadilly, and each Share
that is then outstanding (other than Shares owned by Piccadilly or Sub, or held
in the treasury of Morrison, which shall be canceled, and other than Shares, if
any, held by shareholders ("Dissenting Shareholders") who have properly
exercised and perfected dissenters' rights under Part 2 of Article 13 of the
GBCC) will be converted into the right to receive $5.00 per Share in cash,
without interest thereon (the "Merger Consideration"). Upon completion of the
Merger, the separate existence of Sub will cease and Morrison will continue as
the surviving corporation (the "Surviving Corporation").
Shares that are issued and outstanding immediately prior to the
consummation of the Merger that are held by a shareholder who has demanded and
perfected the right, if any, for appraisal of such Shares in accordance with
Section 14-2-1321 of the GBCC will not be converted into or represent the right
to receive the Merger Consideration, but will only be entitled to such rights as
are granted by the GBCC; provided however, that if such holder shall effectively
withdraw or lose (through failure to perfect or otherwise) the right to
appraisal under the GBCC, then each Share of such holder will thereupon be
deemed to have been
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converted into and to represent, as of the Effective Time, only the right to
receive the Merger Consideration, without any interest thereon, as described
above.
BACKGROUND OF THE MERGER
Morrison's business has been negatively affected during the last four
fiscal years by declining customer counts. Morrison believes that this trend was
largely caused by over-building and increased competition in the restaurant
industry and by a general decline in mall traffic, where Morrison operates a
majority of its units. In addition, beginning in fiscal 1997, Morrison's
business was further negatively affected by increased food costs and the
implementation of a new federal minimum wage in October 1996 and September 1997.
As of March 1, 1997, Morrison was not in compliance with certain covenants
contained in its then existing credit facility. Morrison and the lender amended
the credit facility, and all covenant violations were waived by the lender. In
June 1997, Morrison replaced that facility with Morrison's current credit
facility.
Commencing in the latter part of the first quarter of fiscal year 1998,
Morrison's management implemented a number of measures designed to achieve
growth under these difficult industry conditions. Given the industry's unit
saturation, management focused its efforts primarily on increasing sales from
existing locations rather than opening new units. Morrison intensified its
marketing at the local restaurant level, stressing involvement in community life
and activities and targeted additional sales opportunities through church, civic
and educational institutions. Additionally, Morrison eliminated the use of
costly and ineffective electronic media in its advertising efforts. For
developing new and replacement restaurants, Morrison used a new store model,
which required a lower investment and was substantially more cost-effective to
operate than a traditional restaurant. Morrison also implemented price increases
in an attempt to pass increased costs along to customers and to reduce the
same-store sales impact of decreasing customer counts. In addition, Morrison
took numerous other cost-containment measures, including improvements in the
food control system, elimination of a layer of supervisory restaurant management
and corporate staff reductions.
The effects of these measures, however, were not evident in Morrison's
financial results for the first and second quarters of fiscal year 1998.
Customer trends during the first and second quarters of fiscal 1998 continued to
be negative and to adversely affect Morrison's results of operation, and
earnings for the quarters were lower than anticipated. As a result, on September
22, 1997, Morrison retained Ernst & Young Financial Services Group ("E&Y FSG")
to advise Morrison in connection with its relationship with its principal
lender.
At the regularly scheduled meeting of the Board of Directors which was held
in conjunction with the Annual Meeting of Shareholders on September 24, 1997,
management advised the Board of Directors of the probability that, based on
trends existing at that time, and Morrison's historical dividend policy, one or
more of the financial covenants contained in Morrison's credit facility would be
violated at the end of the second quarter of fiscal 1998. Given Morrison's
financial performance in previous quarters and its prospects for the near
future, the Board of Directors suspended the payment of cash dividends beginning
with the cash dividend with respect to the first quarter of fiscal 1998.
At the same meeting, Dolph W. von Arx, the Chairman of the Board of
Directors, reported on informal discussions between Morrison's management and
two investors who had expressed an interest in a transaction involving Morrison.
In addition, Mr. von Arx reported that Ronald A. LaBorde, the Chief Executive
Officer of Piccadilly, had also contacted Ronnie L. Tatum, Chief Executive
Officer of Morrison, and indicated that he would be interested in pursuing
discussions about a possible relationship between Piccadilly and Morrison. The
Board of Directors determined that it would be premature to pursue a transaction
with any third party at that time. The Board of Directors felt that it needed a
more clear and definite understanding of Morrison's performance and financial
condition before taking steps to pursue strategic alternatives.
Messrs. LaBorde and Tatum met in October 1997 and discussed the possibility
of a business combination between the two companies.
The Board of Directors held a special meeting on November 5, 1997 to
receive a presentation from E&Y FSG. During this presentation, E&Y FSG reviewed
the history of the credit facility, the potential covenant violations, the
restaurant industry and Morrison's position therein, operational alternatives
that Morrison
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should consider and possible strategic solutions involving third parties. E&Y
FSG also reviewed with the Board of Directors the terms of a proposed credit
facility restructuring which included interest rate increases, collateralization
of the indebtedness and modification of covenants. Though Morrison had not
engaged E&Y FSG to assist Morrison in an assessment of its strategic
alternatives, E&Y FSG identified certain strategic weaknesses that would have to
be addressed in connection with a restructuring of the credit facility. In
particular, the E&Y FSG analysis suggested that, given the existing trends in
Morrison's cafeteria business, Morrison would require significant additional
capital to effect a turnaround in its operations by changing the location of its
cafeteria units from mall to freestanding, closing unprofitable units and
building new, smaller and potentially more profitable restaurants.
Faced with the prospect of continuing negative operating trends and the
prospect of potential acquirors contacting Morrison, the Board of Directors
determined that it would be advisable for Morrison to retain an investment
banking firm to assist Morrison in reviewing its strategic alternatives. The
Board of Directors appointed a committee consisting of E. Eugene Bishop and
Dolph W. von Arx to interview various investment banking firms and to select a
financial advisor to Morrison. The committee interviewed three investment
banking firms and selected Wheat First Securities, Inc. ("Wheat First Union") as
financial advisor to Morrison to advise it with respect to strategic
alternatives. Morrison retained Wheat First Union by engagement letter dated
December 5, 1997.
At a special meeting of the Board of Directors held on December 15, 1997,
Wheat First Union reported on its initial preliminary review of Morrison's
business and its prospects. Wheat First Union's assessment largely confirmed the
preliminary indications given by E&Y FSG that Morrison would require significant
capital expenditures to effect a return to significant profitability. While some
of the measures that Morrison had implemented beginning in the latter part of
the first quarter of fiscal 1998 had some positive impact, overall operating
trends continued to be negative and, in particular, Morrison's cash flows were
trending down. Wheat First Union also reviewed with the Board of Directors on a
preliminary basis the strategic alternatives available to Morrison. These
alternatives included: remaining independent; the sale of Morrison either to a
financial buyer or a strategic buyer; and the possibility of selling some of the
geographic divisions of Morrison as separate units with the remaining business
to be operated by current management as a public company or sold in a buy-out
with management participation. Wheat First Union indicated that it believed
that, although shareholder value could be maximized through a sale of geographic
divisions to a number of purchasers, given the complexity of multiple
transactions, a sale of Morrison to a strategic purchaser would be the more
likely alternative for Morrison.
Following this presentation and subsequent discussion, the Board of
Directors authorized Wheat First Union to contact a broad range of potential
purchasers, both financial and strategic, to determine the available level of
interest such parties might have in a transaction with Morrison. The Board of
Directors also authorized Wheat First Union to prepare a confidential memorandum
containing information about Morrison and its business and provide such
information to those parties that indicated an interest in pursuing a
transaction involving Morrison or any of its geographic divisions.
At its regularly scheduled meeting on January 13, 1998, the Board of
Directors again reviewed with Wheat First Union Morrison's strategic
alternatives and determined to continue the process authorized at the previous
meeting, and Morrison publicly announced Wheat First Union's engagement in its
quarterly earnings release on the following day.
As authorized by the Board of Directors, Wheat First Union contacted 27
potential strategic and financial purchasers, including investors and other
persons that had previously expressed an interest in pursuing a transaction with
or involving Morrison. Morrison entered into confidentiality agreements with 16
of these potential purchasers, including Piccadilly, pursuant to which Wheat
First Union provided to them copies of the confidential memorandum. Of the
parties that received the information package, four submitted preliminary
proposals indicating an interest in pursuing a possible acquisition of, or
merger with, Morrison.
At a special meeting held on February 24, 1998, the Board of Directors
appointed a special negotiating committee (the "Special Committee"), comprised
of Dolph W. von Arx, Dr. Donald Ratajczak and J. Veronica Biggins, to negotiate
with potential bidders, consider alternatives and otherwise manage the
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strategic process and present to the full Board of Directors one or more
proposals as it deemed appropriate. The Board of Directors reviewed with Wheat
First Union the preliminary indications of interest received, and instructed
Wheat First Union to arrange for further due diligence by these parties and to
request revised proposals by March 31, 1998. Three of these parties submitted
final proposals to Morrison as described below.
After consulting with the Special Committee, Wheat First Union negotiated
further with the potential purchasers and, following these negotiations, by
letter dated March 27, 1998, Piccadilly submitted to Wheat First Union a revised
proposal for the acquisition of Morrison's outstanding Shares for an aggregate
consideration of $42,000,000 in cash, subject to the execution of a mutually
acceptable definitive agreement. In its proposal Piccadilly expressed a
preference for an all-cash merger, with a friendly cash tender offer for the
Shares to be commenced shortly after the execution of the definitive agreement
and with the tender offer being supported by the Board of Directors of Morrison.
In addition, by letter dated March 31, 1998, a publicly held company in the
restaurant industry ("Company A") also submitted to Wheat First Union its
revised preliminary non-binding indication of interest to acquire all of the
outstanding Shares of Morrison at a purchase price of $4.50 per Share payable in
Company A's stock. Company A's indication of interest was based upon certain
assumptions and subject to material additional due diligence and the negotiation
and execution of a definitive agreement. The third proposal was made by a
potential financial purchaser and contemplated the acquisition of assets of
Morrison and assumption of related working capital liabilities with Morrison
retaining retirement and certain other assets and liabilities. The estimated net
purchase price under this proposal was $3.66 per Share. The Board of Directors
did not believe that this third proposal constituted a viable alternative for
Morrison and this third party did not subsequently offer to materially improve
the terms of its proposal.
Counsel to the Company sent initial drafts of acquisition agreements to
Piccadilly and Company A on March 31, 1998 and April 9, 1998, respectively, and
commenced negotiations of the agreement with Piccadilly's counsel. During the
discussions that followed, Piccadilly indicated that it would increase the
proposed consideration to $5.00 per Share in cash and Company A indicated that
it would consider additional revisions to its proposal, including an increase in
the proposed consideration and a change in the structure of the proposed
transaction.
On April 10, 1998, the Special Committee and Wheat First Union met to
discuss the existing proposals and the status of negotiations with potential
purchasers. At its regularly scheduled meeting that followed, the Board of
Directors considered the three final acquisition proposals submitted to
Morrison. The Board of Directors' view was that Piccadilly's proposal was
superior, even taking into account the potential revisions to its proposal being
considered by Company A. The Board of Directors noted that the transaction
proposed by Piccadilly, because of its structure as a cash merger with a first
step tender offer and because Piccadilly was further along in its due diligence
investigation of Morrison, was likely to be consummated sooner than the
transaction proposed by Company A. This was considered important given the then
current trend in Morrison's financial performance. The Board of Directors also
took into account the fact that Piccadilly operated in the same industry as
Morrison, Piccadilly's strong financial condition and the greater likelihood
that a transaction with Piccadilly as opposed to one with Company A would be
consummated. Given the uncertainties inherent in pursuing a number of proposals
at the same time and the risk that as a result of such course of action Morrison
might fail to secure the best available offer, the Board of Directors determined
that, unless Company A were to increase its proposed price quickly and
significantly, acceding to Piccadilly's request for exclusive negotiations for a
short period of time would be in the best interest of Morrison and its
shareholders. Following this meeting, Wheat First Union informed Piccadilly that
Morrison would pursue negotiations exclusively with Piccadilly for a week to
enable Piccadilly to complete its due diligence and to negotiate the terms of a
definitive agreement. Company A was also informed that Morrison would negotiate
exclusively with Piccadilly. Counsel for Morrison and Piccadilly continued
negotiations with respect to the proposed agreement between Piccadilly and
Morrison, and Piccadilly continued its due diligence investigation of Morrison.
On April 21, 1998, the Board of Directors met again to consider the revised
proposals from Piccadilly and Company A and determined that Piccadilly's
proposal was superior to Company A's proposal because, among other things,
Piccadilly proposed to acquire Morrison for cash as opposed to stock in a
transaction that, due to
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its structure, would close earlier and would have a greater likelihood of
consummation than the transaction proposed by Company A. The Board of Directors
reviewed the terms of the draft agreement and plan of merger with legal counsel
and received and considered the verbal opinion of Wheat First Union with respect
to the fairness of Piccadilly's proposal from a financial point of view. The
Wheat First Union opinion was later confirmed in writing and a copy thereof is
attached as Appendix B hereto. The Board of Directors then determined to accept
Piccadilly's proposal and unanimously (i) approved and adopted the proposed plan
and agreement of merger in substantially the form presented to the Board of
Directors subject to the satisfactory negotiation of certain provisions (other
than the $5.00 per Share price to be paid in the Offer or the Merger) by or
under the direction of the Chairman of the Board of Directors, (ii) determined
that the Offer and the Merger, considered as a whole, are fair to and in the
best interests of Morrison and its shareholders, and (iii) recommended that
Morrison's shareholders tender their Shares in the Offer and vote to approve and
adopt the Merger Agreement and the Merger at any meeting of the shareholders
held to consider the Merger.
Representatives of Morrison and Piccadilly negotiated the remaining issues
on April 22, 1998. The final plan and agreement of merger was executed by the
parties after the close of business on April 22, 1998 and a joint announcement
of the execution of the plan and agreement of merger was made by Piccadilly and
Morrison on the morning of April 23, 1998. The plan and agreement of merger as
executed and delivered by the parties thereto constitutes the "Merger Agreement"
as defined earlier herein.
REASONS FOR THE MERGER
In reaching its conclusion and making its determinations as outlined above,
the Board of Directors considered a number of factors, including, without
limitation, the following:
(i) the consideration proposed to be paid by Piccadilly pursuant to
the Offer and the Merger relative to (A) Morrison's historical revenue,
income and book value, (B) Morrison's internal expectations covering
customer counts, same-store sales, revenues, income and book value, and (C)
recent and historical market prices of the Shares;
(ii) the familiarity of the Board of Directors with the business,
financial condition and prospects of Morrison, the nature of Morrison's
industry and markets, including the belief of the Board of Directors that
in order to be competitive and achieve growth in its industry, Morrison
would require substantial additional capital;
(iii) the fact that the form and amount of consideration proposed to
be paid by Piccadilly pursuant to the Offer and the Merger were superior to
the consideration proposed to be paid by Company A;
(iv) the fact that Piccadilly's proposal involved a cash tender offer
which would give Morrison's shareholders the opportunity to receive the
transaction consideration sooner than a stock transaction;
(v) Piccadilly's knowledge of the cafeteria business and experience in
the restaurant industry; and
(vi) the opinion of Wheat First Union (described below) to the effect
that the consideration to be received by Morrison's shareholders pursuant
to the Offer and the Merger is fair, from a financial point of view, to
such shareholders.
RECOMMENDATION OF THE MORRISON BOARD
AFTER CAREFUL CONSIDERATION, THE MORRISON BOARD HAS DETERMINED THAT THE
MERGER IS ADVISABLE AND IN THE BEST INTEREST OF ITS SHAREHOLDERS, HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT
HOLDERS OF SHARES VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
OPINION OF INVESTMENT BANKING FIRM
Pursuant to an engagement letter dated December 5, 1997 (the "Engagement
Letter"), Morrison retained Wheat First Union to act as its financial advisor in
considering Morrison's strategic and financial alternatives for maximizing
shareholder value, including the possible sale of all or a portion of Morrison.
After Wheat First Union reported to the Board about its preliminary conclusions
on Morrison's strategic alternatives, the Board directed Wheat First Union to
conduct a controlled auction of Morrison and to help in the drafting and
preparation of a confidential offering memorandum to be circulated to potential
buyers.
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Wheat First Union is a nationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Morrison selected Wheat First Union as its financial advisor on the
basis of Wheat First Union's experience and expertise in transactions similar to
the Offer and the Merger, and its reputation in the restaurant and investment
industries.
In connection with the consideration by the Board of the merits of the
Offer and the Merger, Wheat First Union was asked under the terms of the
Engagement Letter to perform various financial analyses and deliver to the Board
its opinion based on such analyses.
THE OPINION OF WHEAT FIRST UNION WAS DIRECTED TO THE BOARD FOR ITS
CONSIDERATION IN CONNECTION WITH THE PROPOSED OFFER AND MERGER, AND IS NOT A
RECOMMENDATION TO ANY HOLDER OF MORRISON COMMON STOCK AS TO WHETHER THE OFFER OR
THE MERGER IS IN SUCH HOLDER'S BEST INTERESTS OR AS TO WHETHER HOLDERS OF
MORRISON COMMON STOCK SHOULD TENDER THEIR SHARES OR VOTE FOR OR AGAINST THE
MERGER. THE FULL TEXT OF SUCH WRITTEN OPINION OF WHEAT FIRST UNION DATED APRIL
22, 1998, IS ATTACHED HERETO AS APPENDIX B AND SETS FORTH CERTAIN IMPORTANT
QUALIFICATIONS, ASSUMPTIONS MADE, MATTERS CONSIDERED, AREAS OF RELIANCE ON
OTHERS, AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH
OPINION. THE SUMMARY DESCRIPTION OF SUCH OPINION SET FORTH BELOW IS QUALIFIED IN
ITS ENTIRETY BY THE FULL TEXT OF THE OPINION ATTACHED HERETO AS APPENDIX B AND
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT.
In arriving at its opinion, Wheat First Union among other things (i)
reviewed certain publicly available business and financial information relating
to Morrison; (ii) reviewed certain other information, including financial
forecasts, provided to Wheat First Union by Morrison, and met with Morrison's
management to discuss the business and prospects of Morrison; (iii) considered
certain financial data of Morrison and compared that data with similar data for
publicly held companies in businesses similar to those of Morrison; (iv)
considered the financial terms of certain other business combinations and other
transactions which had recently been effected; (v) reviewed the financial terms
and conditions of the Merger Agreement; and (vi) considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which Wheat First Union deemed relevant.
Based upon and subject to its review of the foregoing, its work described
below, its experience as investment bankers and other factors it deemed
relevant, but subject to the limitations set forth below and in reliance upon
the assumptions set forth below, Wheat First Union provided the Board with its
opinion as investment bankers that as of the date of its opinion (and as of
April 21, 1998, which was the date that Wheat First Union presented its
financial analyses to the Board), the aggregate consideration to be received by
the holders of Shares pursuant to the Offer and the Merger was fair to such
holders from a financial point of view. No limitations were imposed by Morrison
on Wheat First Union with respect to the investigations made or procedures
followed in rendering its opinion.
In connection with its review, Wheat First Union did not assume any
obligation for independent verification of financial and other information
reviewed by it and relied on such information being accurate and complete in all
material respects. With respect to the financial forecasts for Morrison provided
to Wheat First Union by Morrison's management, Wheat First Union assumed that
the forecasts had been reasonably prepared on bases reflecting the best
available estimates and judgments of Morrison's management as to the future
financial performance of Morrison and that such projections provided a
reasonable basis upon which Wheat First Union could form its opinion. Wheat
First Union also assumed that there had been no material changes in Morrison's
assets, financial condition, results of operations, business or prospects since
the dates of the last financial statements made available to Wheat First Union.
Wheat First Union relied on advice of the counsel and the independent
accountants to Morrison as to all legal and financial reporting matters with
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respect to Morrison, the Offer, the Merger and the Merger Agreement. Wheat First
Union assumed that the Offer and the Merger will be consummated in a manner that
complies in all respects with the applicable provisions of the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and all other applicable federal and state statutes, rules and
regulations. In addition, Wheat First Union did not assume responsibility for
making an independent evaluation, appraisal or physical inspection of any of the
assets or liabilities (contingent or otherwise) of Morrison, nor was Wheat First
Union furnished with any such appraisals. Finally, Wheat First Union's opinion
was based on economic, monetary, market and other conditions as in effect on,
and the information made available to Wheat First Union as of, the date of the
opinion (April 22, 1998). Accordingly, although subsequent developments may
affect its opinion, Wheat First Union did not assume and does not have any
obligation to update, revise or reaffirm its opinion.
Wheat First Union also assumed that the Offer and the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Morrison of any of
the conditions to its obligations thereunder. The Merger Agreement is attached
as Appendix A hereto and the terms of the Merger Agreement and the conditions to
Morrison's obligations thereunder should be reviewed and understood by holders
of Shares in connection with their consideration of the Merger.
Set forth below is a brief summary of selected analyses presented by Wheat
First Union to the Board on April 21, 1998 in connection with its April 22, 1998
opinion described above.
Market Test
Wheat First Union conducted a market test by contacting 27 potential
acquirors of Morrison and circulating a confidential memorandum to 16 of these
entities. From those entities contacted, Morrison received four preliminary
bids. Such bids ranged in price from $3.80 to $5.00 per share with two bidders
proposing all cash consideration and the others proposing a combination of cash
and stock of the bidder. After the preliminary bidders were given access to
Morrison's management team and internal data, Morrison received three final bids
to acquire Morrison ranging in value from $3.68 to $4.55 per share. One bid was
structured as an asset purchase and the other two bids were structured as an
acquisition of Morrison's stock. One of these two bids was an all-cash bid,
while the other bid was for the stock of the bidder. The Board directed Wheat
First Union to continue to negotiate with the two highest bidders, which
resulted in Piccadilly making a final all cash bid of $5.00 per share.
Piccadilly's bid was selected as the best bid based on total consideration to
shareholders and structure of the proposed transaction. The second highest
bidder proposed an offer of cash and stock that would have required the approval
of that bidder's shareholders and would have resulted in a longer time period to
close.
Comparable Company Analysis
Using public and other available information, Wheat First Union calculated
Morrison's imputed per Share value based on the multiples of latest twelve
months' ("LTM") earnings before interest, taxes, depreciation and amortization
("EBITDA") of selected publicly traded family dining restaurant companies
("selected comparable companies"). The group of selected comparable companies
was Buffet's Inc., Cracker Barrel Old Country Store, Inc., Furr's/Bishop's Inc.,
Luby's Cafeterias Inc., Piccadilly Cafeterias, Inc., Ryan's Family Steak Houses,
Inc., and Star Buffet, Inc. In comparing Morrison's financial performance to
that of the selected comparable companies, Wheat First Union made the following
observations, among others: (i) Morrison's sales declined by 7.9% over the last
two fiscal years while compared to a median increase of 8.1% and a mean increase
of 5.5% for the selected comparable companies; (ii) Morrison had a LTM EBITDA
margin of 2.7% compared to a median of 11.2% and a mean of 11.0% for the
selected comparable companies; (iii) Morrison had a LTM earnings (loss) before
interest and taxes ("EBIT") margin of (1.4%) compared to a median of 7.5% and a
mean of 7.8% for the selected comparable companies and (iv) Morrison had a LTM
net income (loss) margin of (1.0%) compared to a median of 4.9% and a mean of
4.7% for the selected comparable companies.
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Wheat First Union applied the mean and median multiples of LTM EBITDA for
the group of comparable companies to the LTM EBITDA of Morrison. This analysis
indicated an imputed aggregate value (defined as equity value plus net debt) of
Morrison of between $50.6 million and $55.2 million, or an equity value of
between $4.06 and $4.55 per share.
Comparable Transactions Analysis
Wheat First Union also reviewed the consideration paid in selected merger
and acquisition transactions in the restaurant industry announced since January
1995. Wheat First Union analyzed the consideration paid in such transactions as
a multiple of the target companies' LTM EBITDA and then applied the mean and the
median of the multiples from those transactions to Morrison's LTM EBITDA. This
analysis indicated an imputed aggregate value of Morrison of between $48.8
million and $52.0 million, or an equity value of between $3.86 and $4.21 per
share.
Premiums Paid Analysis
Wheat First Union reviewed the consideration paid in comparable U.S.
acquisitions announced since January 1, 1996, in which the target company had an
equity value of between $10 million and $200 million and in which the acquiror
was seeking to purchase at least 90% of the target company's outstanding shares
of common stock. Wheat First Union calculated the premiums paid in those
transactions over the applicable stock prices of the target companies one day,
one week and four weeks prior to the announcement of the acquisition offer, and
then calculated the mean and median of those premiums (the mean premiums were
27.6%, 33.2% and 39.1%, while the median premiums were 20.5%, 28.0% and 31.8%,
respectively). Wheat First Union then applied the mean and median premiums so
derived to Morrison's closing share prices on April 9, 1998 ($3.81), April 2,
1998 ($3.25) and March 12, 1998 ($3.13). The share price of Morrison as of April
9, 1998, was selected as the price one day prior to announcement for this
analysis because on the following day (April 10) Morrison filed a press release
which, in addition to reporting the results of Morrison's Fiscal 1997 third
quarter, acknowledged that Morrison was in discussions with several unidentified
potential acquirors. This analysis indicated an imputed aggregate value of
Morrison of between $53.1 million and $58.1 million, or an equity value of
between $4.33 and $4.86 per share.
No other company or transaction used in the comparable company analysis,
the comparable transactions analysis or the premiums paid analysis as a
comparison is identical to Morrison or the Offer and the Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which Morrison and the
Offer and the Merger are being compared.
Morrison Financial Performance Trends
Wheat First Union analyzed Morrison's publicly reported financial
performance during the first three fiscal quarters of 1998 and compared
Morrison's results for the twelve month period ended May 31, 1997, to Morrison's
results for the twelve month period ended February 28, 1998. Wheat First Union
observed the following trends, among other things: (i) Morrison's LTM sales
declined from $249.6 million to $241.3 million; (ii) Morrison's LTM EBITDA
declined from $14.4 million to $6.6 million; (iii) Morrison's LTM EBIT declined
from $4.5 million to ($3.4) million and (iv) Morrison's LTM net income declined
from $2.7 million to ($2.3) million.
Discounted Cash Flow Analysis
Wheat First Union applied a discounted cash flow analysis to Morrison's
financial forecasts for 1998 through 2000. Morrison did not provide Wheat First
Union with any financial forecasts for periods beyond 2000.
In conducting its discounted cash flow analysis, Wheat First Union
calculated the estimated future streams of free cash flows that Morrison would
produce through 2000 (using management's financial forecasts
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for 1998 through 2000), as well as the estimated value of Morrison at the end of
the forecasting period ("terminal value"). The terminal value was computed by
multiplying Morrison's estimated year 2000 EBITDA by a range of multiples
between 4.0x and 8.0x, chosen to reflect Morrison's potential acquisition
multiple at the end of year 2000. Such free cash flow streams and terminal
values were discounted to present values using a range of discount rates of
between 12% and 16%, chosen to reflect assumptions regarding Morrison's cost of
capital. This analysis indicated an imputed aggregate value of Morrison of
between $16.4 million and $62.6 million respectively, or an equity value of
between $1.77 and $5.35 per share.
While the foregoing summary describes all analyses and examinations that
Wheat First Union deemed material to the preparation of its opinion to the
Board, it does not purport to be a comprehensive description of all analyses and
examinations actually conducted by Wheat First Union. The preparation of a
fairness opinion necessarily is not susceptible to partial analysis or summary
description; and selecting portions of the analyses and of the factors
considered by Wheat First Union, without considering all analyses and factors,
would create an incomplete view of the process underlying the analyses set forth
in the presentation of Wheat First Union to the Board on April 21, 1998. In
addition, Wheat First Union may have given some analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions. Accordingly, the ranges of valuations resulting
from any particular analysis described above should not be taken to be Wheat
First Union's view of the actual value of Morrison or the Shares. To the
contrary, Wheat First Union expressed no opinion on the actual value of Morrison
or the Shares, and its opinion that is addressed and limited to the Board
extends only to the belief expressed by Wheat First Union that the immediate
value to holders of Shares, from a financial point of view under the Offer and
the Merger, is within the range of values that might fairly be ascribed to the
Shares as of the date of the opinion of Wheat First Union (April 22, 1998), and
as of the date of the Board's consideration of the Offer and the Merger (April
21, 1998). At the time of the delivery of its oral opinion, Wheat First Union
provided a draft form of opinion that was the same in all material respects as
the executed opinion later provided to the Board.
In performing its analyses, Wheat First Union made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Morrison. The
analyses performed by Wheat First Union are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of Wheat First Union's analysis for the Board of the fairness of
the Offer and the Merger to the holders of Shares from a financial point of
view, and were provided solely to the Board in connection with the Board's
consideration of the Offer and the Merger. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at any time in the future. Wheat
First Union used in its analyses various projections of future performance
prepared by the management of Morrison. The projections are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain or accurate as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
As described above, the opinion of Wheat First Union and the presentation
to the Special Committee and the Board summarized above were among the many
factors taken into consideration by the Board in making its determination to
approve, and to recommend that its shareholders approve, the Merger. Wheat First
Union, however, does not make any recommendation to holders of Shares (or to any
other person or entity) as to whether such shareholders should tender their
Shares pursuant to the Offer or vote for or against the Merger.
Pursuant to the Engagement Letter, Morrison agreed to pay Wheat First Union
a financial advisory fee of $100,000 and a fee equal to $150,000 upon the
delivery of the written opinion to the Board that is described above. This
$150,000 fee was not conditioned on the outcome of Wheat First Union's opinion
or whether such opinion was deemed favorable or unfavorable by Morrison or its
Board. In addition, if the Offer and the Merger are effected on the terms set
forth in the Merger Agreement, the Engagement Letter provides for Morrison to
pay Wheat First Union a fee equal to approximately $700,000 (the "Transaction
Fee"). The $100,000 financial advisory fee and the $150,000 opinion fee
described above were credited against the Transaction Fee which became payable
to Wheat First Union upon consummation of the Offer. Accordingly, the payment of
a substantial majority of Wheat First Union's total fee was subject to the
consummation of the
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Offer and the Merger. The Engagement Letter also calls for Morrison to reimburse
Wheat First Union for its reasonable out-of-pocket expenses and for Morrison to
indemnify Wheat First Union, its affiliates, and their respective directors,
agents, employees and controlling persons against certain liabilities, including
liabilities under the federal securities laws, relating to or arising out of
Wheat First Union's engagement. Wheat First Union and its affiliates may
maintain business relationships with Morrison, Piccadilly, the other bidders and
their affiliates.
In the ordinary course of business, Wheat First Union or its affiliates may
actively trade the debt and equity securities of Morrison, Piccadilly, the other
bidders or their respective affiliates for its or any such affiliate's own
account or for the account of customers and, accordingly, may hold a long or
short position in such securities. In addition, Wheat First Union and its
affiliates in the past may have provided investment and commercial banking
products and services for Morrison, Piccadilly, the other bidders, their
affiliates and other related persons. Wheat First Union is not affiliated with
Morrison or Piccadilly.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time (the "Effective Time") and on
the date (the "Effective Date") the Certificate of Merger is filed with the
Secretary of State of Georgia. Unless Piccadilly and Morrison otherwise agree,
the Merger will be consummated as soon as practicable after shareholder approval
has been obtained and the other conditions to the Merger have been satisfied or
waived. It is currently expected that the Merger will become effective as soon
as practicable following the Special Meeting. See "-- Hart-Scott-Rodino
Clearance" and "-- Other Conditions to the Merger."
HART-SCOTT-RODINO CLEARANCE
The obligations of Morrison and Piccadilly to consummate of the Merger were
subject to the expiration or termination of the requisite waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Under the HSR Act and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger would not be able to be consummated
until notifications had been given and certain information had been furnished to
the FTC and the Antitrust Division of the Department of Justice (the "DOJ") and
specific waiting period requirements had been satisfied. Piccadilly and Morrison
each made the required initial filings under the HSR Act regarding the Merger
and on May 15, 1998 both parties were notified that early termination of the
waiting period under the HSR Act had been granted. Therefore, Morrison does not
believe that this or any other material regulatory approvals are required for
consummation of the Merger.
The DOJ and the FTC, as well as state antitrust enforcement agencies,
frequently scrutinize the legality under the antitrust laws of transactions such
as the Merger. The termination of the HSR Act waiting period does not preclude
the DOJ, the FTC or state antitrust enforcement agencies from challenging the
Merger on antitrust grounds. Accordingly, at any time before or after the
Effective Time, either of the DOJ, the FTC or the attorney general of one or
more states could take such action under the antitrust laws as it deems
necessary or desirable in the public interest.
OTHER CONDITIONS TO THE MERGER
In addition to Morrison shareholder approval, the Merger Agreement provides
that the respective obligations of each party to effect the Merger is subject to
the fulfillment, at or prior to the Effective Date, of each of the following
conditions: (i) no party or any of its subsidiaries shall be subject to any
order, decree or injunction by a court of competent jurisdiction which (a)
prevents or materially delays the consummation of the Merger or (b) would impose
any material limitation on the ability of Piccadilly effectively to exercise
full right of ownership of the common stock of the Surviving Corporation or any
material portion of the assets or business of Morrison, and (ii) no statute,
rule or regulation shall have been enacted by the government (or any
governmental agency) of the United States or any state, municipality or other
political subdivision thereof that makes the consummation of the Merger or any
other transaction contemplated by the Merger Agreement illegal.
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The Merger Agreement also provides that the obligations of Piccadilly and
Sub to consummate the Merger and the other transactions contemplated by the
Merger Agreement are subject to the satisfaction, at or prior to the Effective
Date, of the following conditions: (i) each of the agreements of Morrison to be
performed at or prior to the Effective Date pursuant to the Merger Agreement
shall have been duly performed in all material respects, and Morrison shall have
performed, in all material respects, all of the acts required to be performed by
it at or prior to the Effective Date by the terms of the Merger Agreement; (ii)
the representations and warranties of Morrison set forth in the Merger Agreement
that are qualified as to materiality shall be true and correct and those that
are not so qualified shall be true and correct in all material respects, as of
the date of the Merger Agreement and as of the Effective Date as though made at
and as of such time; and (iii) the receipt by Piccadilly of an opinion of
counsel to Morrison with respect to certain legal matters.
The Merger Agreement further provides that the obligation of Morrison to
consummate the Merger and the other transactions contemplated by the Merger
Agreement shall be subject to the satisfaction, at or prior to the Effective
Date, of the following conditions: (i) each of the agreements of Piccadilly and
Sub to be performed at or prior to the Effective Date pursuant to the terms of
the Merger Agreement shall have been duly performed, in all material respects,
and Piccadilly and Sub shall have performed, in all material respects, all of
the acts required to be performed by them at or prior to the Effective Date by
the terms of the Merger Agreement; (ii) the representations and warranties of
Piccadilly set forth in the Merger Agreement that are qualified as to
materiality shall be true and correct, and those that are not so qualified shall
be true and correct in all material respects, as of the date of the Merger
Agreement and as of the Effective Date as though made at and as of such time;
and (iii) the receipt by Morrison of an opinion of counsel to Piccadilly with
respect to certain legal matters.
No assurance can be given as to when all of the conditions to the Merger
can or will be satisfied or waived by the party permitted to do so, but
Piccadilly and Morrison anticipate that such conditions will be satisfied as
soon as practicable following the Special Meeting.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Company Board Representation. Pursuant to the Merger Agreement, following
Sub's acquisition of Shares pursuant to the Offer, Sub designated four
individuals to serve as directors of Morrison along with three of Morrison's
existing directors. At the request of Sub, certain directors of Morrison
resigned and the remaining members of the Board of Directors appointed Sub's
designees to serve as directors of Morrison. The persons designated by Sub were
Messrs. Ronald A. LaBorde, Paul W. Murrill, J. Fred Johnson and Joseph S.
Polito, all of whom are directors and/or officers of Piccadilly. The Merger
Agreement provides that, until the Effective Time, there will be at least three
directors on the Board of Directors who were directors of Morrison as of the
date of the Merger Agreement and who are neither designees, officers, directors,
full-time employees or affiliates of Piccadilly or Sub nor full-time employees
of Morrison (the "Independent Directors"); provided, however, that if the number
of Independent Directors is reduced below three for any reason, the Board of
Directors will, subject to the approval of the remaining Independent Directors,
if any, designate a person or persons to fill the vacancy or vacancies who were
directors of Morrison on the date of the Merger Agreement and not an officer,
director, full-time employee or affiliate of Piccadilly or Sub nor a full-time
employee of Morrison, and such persons will be deemed to be Independent
Directors for purposes of the Merger Agreement. The Independent Directors who
continue to serve on Morrison's Board of Directors are Ms. J. Veronica Biggins,
Mr. Dolph W. von Arx and Dr. Donald Ratajczak.
The Merger Agreement provides that following the election or appointment of
Sub's designees pursuant to the provisions described in the immediately
preceding paragraph and until the Effective Time, any amendment of the Merger
Agreement or the amended and restated articles of incorporation or by-laws of
Morrison, any termination of the Merger Agreement by Morrison, any extension by
Morrison of the time for the performance of any of the obligations or other acts
of Piccadilly or Sub, any waiver of any of Morrison's rights thereunder, or any
transaction between Piccadilly (or any affiliate or associate thereof) and
Morrison will require the concurrence of a majority of the Independent
Directors. The Independent Directors will have the authority to retain such
counsel and other advisors at the expense of Morrison as are reasonably
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appropriate to assist them in the exercise of their duties in connection with
Merger Agreement. In addition, the Independent Directors will have the authority
to institute any action on behalf of Morrison to enforce performance of the
Merger Agreement.
Treatment of Morrison Stock Options. Pursuant to the Merger Agreement,
holders of stock options granted under Morrison incentive plans, whether or not
then exercisable, which were outstanding on the date of the Merger Agreement,
and which have not been exercised prior to the acquisition of Shares pursuant to
the Offer, are entitled to receive, in cancellation and settlement of such
options, a cash payment per Share equal to the excess, if any, of the Merger
Consideration over the respective exercise prices payable upon option exercise
for such Shares. Morrison has agreed to take actions available under the
incentive plans to effect the cancellation of such options.
Employee Matters. Pursuant to the Merger Agreement, Piccadilly has agreed
to retain all persons who are Morrison employees at the Effective Time as
employees-at-will (except to the extent that such employees are parties to
contracts providing for other employment terms, in which case such employees
shall be retained in accordance with the terms of such contracts) and shall
provide such employees with the same customary employee benefits as Piccadilly
provides to its existing employees. Piccadilly has also agreed to cause the
Surviving Corporation to honor certain bonus arrangements of Morrison in effect
at the date of the Merger Agreement. In addition, Piccadilly has agreed to give
employees of Morrison credit for their respective periods of employment with
Morrison prior to the Effective Time for purposes of determining their
eligibility for vesting, level of participation and benefit accrual (but not for
benefit accrual under any defined benefit pension plan), in any employee benefit
program, plan or arrangement which the Surviving Corporation adopts, maintains
or contributes to following the Effective Time.
Certain Indemnification Covenants. The Merger Agreement provides that
Morrison, and from and after the Effective Time, Piccadilly and the Surviving
Corporation, will indemnify, defend and hold harmless the present and former
officers and directors of Morrison (collectively, "Indemnified Parties") against
(i) all losses, claims, damages, costs, expenses, liabilities, judgments or
amounts that are paid in settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) of, or in connection with,
any claim, action, suit, proceeding or investigation based in whole or in part
on, or arising in whole or in part out of, the fact that such person is or was a
director or officer of Morrison pertaining to any matter existing or occurring
at or prior to the Effective Time ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to, the Merger, the Merger Agreement or any other
transactions contemplated thereby, in each case to the same extent as such
Indemnified Parties were entitled to be indemnified under Morrison's restated
articles of incorporation or by-laws as in effect on December 31, 1997 (and
Piccadilly and the Surviving Corporation, as the case may be, will pay expenses,
including through advancement, to the full extent provided in Morrison's
restated articles of incorporation or by-laws as in effect on December 31,
1997).
The Merger Agreement further provides that Piccadilly will pay the
insurance premiums required for any extension of Morrison's directors' and
officers' insurance policy following the Effective Date for a "discovery" period
elected under such insurance policy covering the officers and directors of
Morrison for a period of six years or shall provide comparable coverage for the
same period under its own director and officer insurance policy for all
directors and officers of Morrison covered by Morrison's policy.
The rights to indemnification under the Merger Agreement are subject to,
among others, the following limitations: (i) the total aggregate indemnification
to be provided by Piccadilly and/or the Surviving Corporation (exclusive of
insurance coverage available), as to all Indemnified Parties as a group, will
not exceed the sum of $10 million, and Piccadilly shall have no responsibility
to any Indemnified Party for the manner in which such sum is allocated among
that group and (ii) amounts otherwise required to be paid by Piccadilly to an
Indemnified Party shall be reduced by any amounts that such Indemnified Party
has recovered by virtue of the claim for which indemnification is sought and
Piccadilly shall be reimbursed for any amounts paid by Piccadilly that such
Indemnified Party subsequently recovers by virtue of such claim.
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EXCHANGE OF CERTIFICATES
At the Effective Time, each Morrison shareholder will cease to have any
rights as a shareholder of Morrison and his or her sole rights will pertain to
the Merger Consideration into which such holder's Shares shall have been
converted pursuant to the Merger.
Upon consummation of the Merger, a letter of transmittal, including
instructions for the exchange of certificates representing Shares for Merger
Consideration will be mailed to each person who was a shareholder of record of
Morrison at the Effective Time. SHAREHOLDERS ARE REQUESTED NOT TO SEND IN THEIR
SHARE CERTIFICATES UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL AND FURTHER
WRITTEN INSTRUCTIONS. Immediately following receipt from a holder of Shares of
the letter of transmittal completed in accordance with its instructions,
together with the certificates representing Shares, Piccadilly will deliver a
check in payment of the Merger Consideration into which such holder's Shares
have been converted pursuant to the Merger.
After the Effective Time and until surrendered, certificates representing
Shares will be deemed for all purposes to represent the Merger Consideration
into which such Shares have been converted.
Morrison shareholders who cannot locate their certificates are urged to
contact promptly the SunTrust Bank, N.A. Customer Service Dept., telephone
number (800) 568-3476. Payment of the Merger Consideration for Shares
represented by lost certificate(s) will be made only upon execution by the
shareholder of an affidavit certifying that his or her certificate(s) cannot be
located and an agreement to indemnify Morrison and Piccadilly and their transfer
agents and registrars against any claim that may be made against Morrison or
Piccadilly by the owner of the certificate(s) alleged to have been lost or
destroyed. Morrison or Piccadilly may also require the shareholder to post a
bond in such sum as is sufficient to support the shareholder's agreement to
indemnify Morrison and Piccadilly.
CONDUCT OF BUSINESS BY MORRISON PENDING THE MERGER
Pursuant to the Merger Agreement, Morrison agreed to use reasonable
commercial efforts to preserve its business organization intact, keep available
to Piccadilly and the Surviving Corporation the services of Morrison's present
employees, and to preserve for Piccadilly and the Surviving Corporation the
goodwill of Morrison's suppliers, customers and others with whom it has business
relations. In addition, Morrison has agreed that, prior to the Effective Time,
unless expressly contemplated by the Merger Agreement, it will not, without
first obtaining the written consent of Piccadilly and the consent of a majority
of the Independent Directors:
(a) encumber any asset or enter into any transaction or make any
contract or commitment relating to the properties, assets and business of
Morrison, other than in the ordinary course of business; (b) enter into any
employment contract that is not terminable upon notice of 30 days or less,
at will, and without penalty to Morrison; (c) make any capital expenditure
or commitment therefor or enter into any contract or agreement (i) which
cannot be performed within three months or less or (ii) which involves the
expenditure of over $250,000; (d) issue or sell, or agree to issue or sell,
any shares of capital stock or other securities of Morrison, other than
pursuant to stock options outstanding as of the date of the Merger
Agreement; (e) make any contribution, payment or distribution to the
trustee under any bonus, pension, profit-sharing or retirement plan or
incur any obligation to make any such payment or contribution which is not
in accordance with Morrison's usual past practice, or establish or enter
into any new plan or contract or arrangement or make any change in any
existing plan, contract or arrangement providing for bonuses, executive
incentive compensation, pensions, deferred compensation, retirement
payments, profit-sharing or the like, or terminate any plan; (f) increase
indebtedness for borrowed money or extend a material amount of credit to
anyone, except in the ordinary course of business consistent with prior
practices; (g) guarantee the material obligation of any person, firm or
corporation, except in the ordinary course of business consistent with
prior practices; (h) amend its articles of incorporation or by-laws; (i)
enter into any option to purchase or purchase agreement or buy any real
property, or enter into any
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new leases or renewals of existing leases for real property or open any new
restaurant locations; or (j) do any of the following:
(A) discharge or satisfy any material lien or encumbrance, or pay
or satisfy any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected
on Morrison's balance sheet as of February 28, 1998 or (ii) liabilities
incurred since the date of Morrison's last filing with the Securities
and Exchange Commission (the "Commission") in the ordinary course of
business, which discharge or satisfaction would have a material adverse
effect on Morrison;
(B) increase or establish any reserve for taxes or any other
liability on Morrison's books or otherwise provided therefor which would
have a material adverse effect on Morrison, except as may have been
required due to consolidated income or operations of Morrison since the
date of Morrison's last filing with the Commission;
(C) make any material change affecting any banking, safe deposit or
power of attorney arrangements;
(D) make any change in any method of accounting or auditing
practice;
(E) mortgage, pledge or subject to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which are
material to the consolidated business or financial condition of
Morrison;
(F) sell or transfer any of the assets material to the consolidated
business of Morrison, cancel any material debts or claims or waive any
material rights, except in the ordinary course of business;
(G) grant any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become
payable by Morrison to any officer or employee, consultant or agent
(other than normal merit increases), or by means of any bonus or pension
plan, contract or other commitment, increase in a material respect the
compensation of any officer, employee, consultant or agent;
(H) except for the Merger Agreement and any other agreement
executed and delivered pursuant to the Merger Agreement, merge or
consolidate with another entity or acquire or agree to acquire any
business or corporation, partnership or other business organization, or
enter into any material transaction other than in the ordinary course of
business or permitted under the provisions of the Merger Agreement; or
(I) declare or pay any dividend or make any distribution with
respect to any of Morrison's equity interests, or redeem, purchase or
otherwise acquire any of its equity interests, or issue any stock, bonds
or other securities, or any option, warrant or other right to purchase
or acquire any such interest, other than stock options granted to
employees, directors or consultants of Morrison, which are disclosed on
Morrison's disclosure schedule to the Merger Agreement.
AMENDMENT; WAIVER; TERMINATION
The Merger Agreement may be amended at any time before or after its
approval by the shareholders of Morrison by written agreement of Piccadilly and
Morrison, except that no amendment may be made after Morrison shareholder
approval that by law would require further shareholder approval unless such
further shareholder approval is obtained.
The Merger Agreement provides that either party may (i) extend the time for
the performance of any of the obligations or other acts of the other parties,
(ii) waive any inaccuracies in the representations and warranties contained in
the Merger Agreement or in any document delivered pursuant to the Merger
Agreement or (iii) waive compliance with any of the agreements or conditions
contained in the Merger Agreement other than the satisfaction of all
requirements prescribed by law for consummation of the Merger.
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The Merger Agreement provides that it may be terminated at any time prior
to the Effective Time, whether before or after approval by the shareholders of
Morrison of matters presented in connection with the Merger:
(a) by mutual written consent of Morrison and Piccadilly; or
(b) by either Piccadilly or Morrison: (i) if, upon a vote at a duly
held meeting of the shareholders of Morrison or any adjournment thereof,
any required approval of the shareholders of Morrison shall not have been
obtained, (ii) if the Merger shall not have been consummated on or before
October 31, 1998, unless the failure to consummate the Merger is the result
of a willful and material breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement; provided, however, that the
passage of such period shall be tolled for any part thereof (but not
exceeding 60 days in the aggregate) during which any party shall be subject
to a nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or
holding of a meeting of Morrison's shareholders, (iii) if any court of
competent jurisdiction or other governmental or regulatory authority shall
have issued an Order (as defined in the Merger Agreement) or taken any
other action permanently enjoining, restraining or otherwise prohibiting
the Merger and such Order or other action shall have become final and
nonappealable, (iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in the
Merger Agreement which (A) would give rise to the failure of any condition
described in the second two paragraphs under "Other Conditions to the
Merger" above, as applicable, and (B) cannot be or has not been cured
within 30 days after the giving of notice to the breaching party of such
breach, (v) if either Piccadilly or Morrison gives the other notice of
termination as a non-notifying party pursuant to the terms of the Merger
Agreement (relating to notices of material changes to information provided
in such party's disclosure schedule to the Merger Agreement), or (vi) if
(A) all of the conditions to the obligations of such party to effect the
Merger under the first paragraph under "Other Conditions to the Merger"
above shall have been satisfied and (B) any condition to the obligation of
such party to effect the Merger described in the second two paragraphs
under "Other Conditions to the Merger" above is not capable of being
satisfied prior to October 31, 1998, as such date may be extended pursuant
to the terms of the Merger Agreement.
The Merger Agreement provides that in the event of a termination by either
Morrison or Piccadilly and Sub pursuant to the terms of the Merger Agreement,
the Merger Agreement will then become void and have no further effect, without
liability or obligation on that part of any party, subject to certain
exceptions.
FEES AND EXPENSES
The Merger Agreement provides that whether or not the Merger is
consummated, all fees and expenses incurred in connection with the Merger shall
be paid by the party incurring them.
RIGHTS AGREEMENT AND GEORGIA TAKEOVER STATUTES
The Rights were issued pursuant to a Rights Agreement, dated March 2, 1996,
as amended, between Morrison and SunTrust Bank, N.A., as Rights Agent, and are
intended to cause substantial dilution to a person or group that attempts to
acquire Morrison on terms not approved by its Board of Directors. On April 22,
1998, the Rights Agreement was amended to provide that no Stock Acquisition Date
or Distribution Date (as defined therein) would occur as a result of the Offer
or the Merger and that neither the Offer nor the Merger would be precluded by
the terms of the Rights Agreement and to provide for the termination of the
Rights Agreement and the expiration of all Rights upon consummation of the
Merger.
Moreover, Sections 14-2-1111 and 14-2-1132 of the GBCC (Georgia's takeover
statutes) are inapplicable to the Offer, the Merger and the Merger Agreement
because Morrison's by-laws do not incorporate such sections.
23
<PAGE> 26
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The summary of tax consequences set forth below is for general information
only and is based on the law as currently in effect. The tax treatment of each
shareholder will depend in part upon such shareholder's particular situation.
Special tax consequences not described herein may be applicable to particular
classes of taxpayers, such as financial institutions, broker-dealers, persons
who are not citizens or residents of the United States, shareholders who
acquired their Shares through the exercise of an employee stock option or
otherwise as compensation, and persons who receive payments in respect of
options to acquire Shares. ALL SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING
THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL
OR FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS.
The receipt of cash pursuant to the Merger will be a taxable transaction
for Federal income tax purposes under the Internal Revenue Code of 1986, as
amended, and may also be a taxable transaction under applicable state, local,
foreign income or other tax laws. Generally, for Federal income tax purposes, a
shareholder will recognize gain or loss in an amount equal to the difference
between the cash received by the shareholder pursuant to the Merger and the
shareholder's adjusted tax basis in the Shares and the associated Rights
purchased pursuant to the Merger. For Federal income tax purposes, such gain or
loss will be a capital gain or loss if the Shares are a capital asset in the
hands of the shareholder, and a long-term capital gain or loss if the
shareholder's holding period is more than one year as of the Effective Date of
the Merger. There are limitations on the deductibility of capital losses.
Long-term capital gains of individuals are eligible for reduced rates of
taxation, with additional rate reductions applicable to gains from capital
assets held for more than 18 months. INDIVIDUALS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE TAX TREATMENT OF CAPITAL GAINS AND LOSSES.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase transaction under generally
accepted accounting principles, whereby the purchase price will be allocated
based on fair values of assets acquired and liabilities assumed.
DISSENTERS' RIGHTS
Under Georgia law, holders of Shares are entitled to dissenters' rights in
connection with the Merger. Any record holder of Shares who objects to the
Merger may elect to have his, her or its Shares appraised under the procedures
set forth in Article 13 of the GBCC and to be paid the appraised value of his,
her or its Shares, which, pursuant to Article 13 of the GBCC, will be the
Shares' fair value immediately before the consummation of the Merger, excluding
any appreciation or depreciation in anticipation of the Merger. An appraisal
proceeding may result in a determination of fair value less than or greater than
the value of the Merger Consideration that would have been payable in respect of
such Shares had the shareholder not elected to perfect his, her or its
dissenters' rights.
Any record holder of Shares contemplating the exercise of dissenters'
rights is urged to review carefully the provisions of Article 13 of the GBCC,
particularly with respect to the procedural steps required to perfect the right
of appraisal. The right to dissent may be lost if the procedural requirements of
Article 13 of the GBCC are not followed exactly. Set forth below, to be read in
conjunction with the full text of Article 13 of the GBCC attached as Appendix C
hereto, is a summary of the procedures relating to exercise of the right to
appraisal.
According to Section 14-2-1320 of Article 13 of the GBCC, Morrison, in its
Notice of the Special Meeting at which the Merger Agreement will be voted on,
must state that holders of Shares are or may be entitled to dissenters' rights
under Article 13 of the GBCC and include in such notice a copy of Article 13 of
the GBCC. This Proxy Statement constitutes such notice to the holders of Shares.
A shareholder electing to exercise his, her or its rights under Article 13
of the GBCC must deliver to Morrison, before a vote is taken with respect to the
approval of the Merger Agreement, a written notice of the
24
<PAGE> 27
Dissenting Shareholder's intent to demand payment for his, her or its shares if
the proposed Merger is effectuated, and the Dissenting Shareholder must not vote
his, her or its shares in favor of the Merger Agreement. A vote against approval
of the Merger Agreement will not, by itself, constitute a valid written demand
for dissenters' rights. Such demands should be mailed or delivered to the
Corporate Secretary, Morrison Restaurants Inc., 3300 Highlands Parkway, Suite
130, Atlanta, Georgia 30082. If the Merger Agreement is approved at the Special
Meeting, Morrison will deliver a written notice (a "Dissenters' Notice") to each
Dissenting Shareholder within 10 days after approval of the Merger Agreement.
The Dissenters' Notice must (i) state where the payment demand must be sent and
where and when certificates for certificated Shares must be deposited; (ii)
inform holders of uncertificated Shares to what extent transfer of the Shares
will be restricted after the payment demand is received; (iii) set a date by
which Morrison must receive the payment demand, which date may not be fewer than
30 nor more than 60 days after the date the Dissenters' Notice is delivered; and
(iv) be accompanied by a copy of Article 13 of the GBCC. Each Dissenting
Shareholder sent a Dissenters' Notice has a duty to demand payment and deposit
his, her or its certificates in accordance with Article 13 of the GBCC; however,
such Dissenting Shareholder retains all other rights of a shareholder until
these rights are canceled or modified by the effectuation of the Merger. If the
Merger is not consummated within 60 days after the date set for demanding
payment and depositing Share certificates, Morrison must return the deposited
certificates.
Within 10 days after the receipt of the demand for payment or within 10
days after the Merger, whichever is later, Morrison must make a written offer to
each Dissenting Shareholder who has filed a demand for payment to pay an amount
estimated to be the "fair value" of his, her or its Shares, plus accrued
interest. The offer of payment must be accompanied by: (i) Morrison's balance
sheet as of the end of a fiscal year ending not more than 16 months before the
date of payment, an income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim financial
statements, if any; (ii) a statement of Morrison's estimate of the fair value of
the Shares; (iii) an explanation of how the interest was calculated; (iv) a
statement of the right of Dissenting Shareholders to demand payment under
Section 14-2-1327 of Article 13 of the GBCC; and (v) a copy of Article 13 of the
GBCC. If the Dissenting Shareholder accepts Morrison's offer by written notice
to Morrison within 30 days of Morrison's offer or is deemed to have accepted
Morrison's offer by failure to respond within 30 days, Morrison must make
payment within 60 days after it made the offer or the closing of the Merger,
whichever occurs later.
A Dissenting Shareholder may notify Morrison in writing, of his, her or its
own estimate of the "fair value" of his, her or its' Shares and the amount of
interest due and demand payment, if (i) the Dissenting Shareholder believes that
the amount offered by Morrison is less than the fair value of his, her or its
Shares or that the interest due is incorrectly calculated; or (ii) Morrison
fails to consummate the Merger and does not return the deposited certificates
within 60 days after the date set for demanding payment. In any event, a
Dissenting Shareholder waives his, her or its rights to demand payment under
Article 13 and is deemed to have accepted Morrison's offer unless he, she or it
notifies Morrison of his, her or its demand within 30 days after Morrison's
offered payment for the Shares. In addition, if Morrison does not offer payment
within the time period set forth in the preceding paragraph, a Dissenting
Shareholder may demand delivery of certain Morrison financial information (which
Morrison must provide within 10 days after receipt of such demand) and may, at
any time within three years of the consummation of the Merger, notify Morrison
of such holder's own estimate of the fair value of the Shares and demand
payment.
If a demand for payment remains unsettled, then Morrison, within 60 days
after receipt of the demand for payment, must file a proceeding in the Superior
Court of Fulton County, Georgia, to determine the "fair value" of the Shares,
together with accrued interest. Morrison must make all Dissenting Shareholders,
whether or not residents of Georgia, whose demands remain unsettled parties to
the proceeding. Each Dissenting Shareholder made a party to the proceeding is
entitled to judgment for the amount which the court finds to be the fair value
of his, her or its Shares, plus interest to the date of judgement. If Morrison
fails to bring such action within the 60-day period, Morrison will be required
to pay each Dissenting Shareholder whose demand remains unsettled, the amount
demanded by such Dissenting Shareholder.
The costs and expenses of any such action will be determined by the court
and shall be assessed against Morrison, except that the court may assess the
costs against all or some of the Dissenting Shareholders in
25
<PAGE> 28
amounts the court finds equitable, to the extent the court finds that such
Dissenting Shareholders acted arbitrarily, vexatiously, or not in good faith in
demanding payment.
In connection with the execution of the Merger Agreement, Morrison entered
into agreements with each of its directors, pursuant to which the directors
agreed not to exercise any dissenters' rights that the directors may have under
the GBCC with respect to any Shares owned by them in connection with the Merger.
This agreement, however, did not obligate such directors to tender Shares owned
by them pursuant to the Offer or to vote such Shares in favor of the Merger
Agreement.
SOURCE AND AMOUNT OF FUNDS
Upon consummation of the Offer, which expired on May 27, 1998, Piccadilly
acquired approximately 89% of the outstanding Shares. The consummation of the
Offer constituted a "change of control" of Morrison. The total amount of funds
needed to purchase the Shares pursuant to the Offer and to consummate the Merger
and to pay related fees and expenses is estimated by Piccadilly to be
approximately $48.3 million, of which approximately $41.3 million was used to
fund the aggregate purchase price for the 8,249,228 Shares accepted for payment
pursuant to the Offer. To acquire the Shares pursuant to the Offer, Piccadilly
utilized borrowings under two revolving master promissory notes, one in the
amount of $75 million payable to Hibernia National Bank, and the other in the
amount of $50 million payable to Wachovia Bank, N.A.
The amounts borrowed under these promissory notes have been refinanced
pursuant to a syndicated revolving credit facility in the amount of $125 million
co-arranged and co-agented by Hibernia National Bank and Wachovia Bank, N.A. In
addition to refinancing amounts borrowed to acquire the Shares, additional
amounts were borrowed under the syndicated revolving credit facility to
refinance all of the outstanding indebtedness of Morrison to AmSouth Bank. This
credit facility is unsecured, has a three year maturity, is guaranteed by
Morrison and Piccadilly, has a Eurodollar based interest rate with a margin tied
to the ratio of consolidated total funded debt to a rolling four quarter EBITDA
measured quarterly and has certain financial covenants (fixed charge coverage,
funded debt to EBITDA and funded debt to total capital) and other covenants
limiting dividends, stock redemptions, capital expenditures, secured and
unsecured indebtedness, acquisitions and liens.
BUSINESS OF THE COMPANIES
BUSINESS OF MORRISON
Morrison owns and operates cafeterias, a buffet and mall food court
locations in the southeastern and mid-Atlantic regions of the United States.
Prior to March 1996, Morrison comprised the family dining business of Morrison
Restaurants Inc. ("MRI"). On March 7, 1996, the shareholders of MRI approved,
among other things, the distribution of Morrison's common stock to the
shareholders of MRI (the "Distribution"). The effective date of the Distribution
was March 9, 1996, and, pursuant to the Distribution, the shareholders of MRI
received one Share of Morrison's common stock for every four shares of MRI held.
Morrison was formed in 1995 as a Georgia corporation and has its principal
executive offices at 3300 Highlands Parkway, Suite 130, Atlanta, Georgia 30082.
Its telephone number is (770) 308-3700.
BUSINESS OF PICCADILLY
Piccadilly is a Louisiana corporation that was incorporated in 1965 and is
the successor to various predecessor corporations and partnerships that operated
"Piccadilly" cafeterias beginning with the acquisition of the first unit in
1944. Piccadilly operates 131 cafeterias in 15 states, four Piccadilly Express
in Associated Grocer Supermarkets and seven Ralph & Kacoo's seafood restaurants
in three states. All units are owned by Piccadilly. Piccadilly's principal
executive offices are located at 3232 Sherwood Forest Blvd., Baton Rouge,
Louisiana 70816. Its telephone number is (504) 293-9440.
26
<PAGE> 29
MORRISON SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------------------------------
MAY 31, JUNE 1, JUNE 3, JUNE 4, JUNE 5,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $249,637 $267,638 $294,587 $292,493 $291,032
Operating costs and expenses............ 245,288 283,226 275,479 275,769 277,922
-------- -------- -------- -------- --------
Income (loss) before income taxes....... 4,349 (15,588) 19,108 16,724 13,110
Provision for (benefit from) federal and
state income taxes.................... 1,617 (5,694) 7,734 6,646 4,898
-------- -------- -------- -------- --------
Net income (loss)....................... $ 2,732 $ (9,894) $ 11,374 $ 10,078 $ 7,700
======== ======== ======== ======== ========
Earnings (loss) per common share and
common equivalent share............... $ 0.30 $ (1.10) $ 1.27 $ 1.08 $ 0.81
======== ======== ======== ======== ========
Dividends per common share.............. $ 0.36 $ 0.09 $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
----------------------------------------------------
MAY 31, JUNE 1, JUNE 3, JUNE 4, JUNE 5,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficit................. $(16,983) $(13,754) $(14,916) $(20,667) $(18,131)
Total assets............................ 84,028 83,539 90,122 77,461 82,077
Shareholders' equity.................... 39,944 39,844 47,465 29,303 32,623
</TABLE>
<TABLE>
<CAPTION>
FOR THE THIRTY-NINE
WEEKS ENDED
---------------------------
FEBRUARY 28, MARCH 1,
1998 1997
------------ ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $179,670 $188,056
Operating costs and expenses................................ 184,269 184,582
-------- --------
Income (loss) before income taxes........................... (4,599) 3,474
Provision for (benefit from) federal and state income
taxes..................................................... (1,709) 1,288
-------- --------
Net income (loss)........................................... $ (2,890) $ 2,186
======== ========
Basic earnings (loss) per share............................. $ (0.32) $ 0.24
======== ========
Diluted earnings (loss) per share........................... $ (0.32) $ 0.24
======== ========
Dividends per common share.................................. $ -- $ 0.27
======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28,
1998
------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital deficit................................................. $(23,322)
Total assets............................................................ 83,365
Shareholders' equity.................................................... 36,862
</TABLE>
27
<PAGE> 30
CERTAIN PROJECTIONS
In connection with Piccadilly's and Sub's due diligence review of Morrison,
Morrison made available to Piccadilly certain non-public information, including
a business plan and quarterly financial projections (income statement, balance
sheet and cash flows) for the fiscal years ended May 1998, 1999 and 2000. Two
scenarios were presented -- Scenario A and Scenario B, with Scenario A
reflecting results that Morrison's management believed were achievable under its
business plan, and Scenario B presenting more conservative potential results.
The projections provided by Morrison to Piccadilly and Sub were prepared in
connection with Morrison's negotiations with its lender with respect to the
restructuring of its credit facility and not with respect to any effort to sell
Morrison. While presented with numerical specificity, the projections are based
upon a variety of assumptions relating to the business of Morrison, industry
performance, general business and economic conditions and other matters and are
subject to significant uncertainties and contingencies, many of which are beyond
Piccadilly's, Sub's or Morrison's control. All such assumptions were developed
by Morrison's management without the approval or involvement by Piccadilly or
Sub. Such projections are inherently imprecise, and there can be no assurances
that any such projections would be realized or that actual results would not
differ significantly from those set forth below. Neither Piccadilly nor its
directors or financial advisors accept any responsibility for such projections
or the bases or assumptions on which they were prepared. Such projections were
not intended to be a forecast of financial results of Morrison, were not
prepared with a view to public disclosure or compliance with the published
guidelines of the Commission or the guidelines established by the American
Institute of Certified Public Accountants regarding projections and forecasts,
and were not reviewed by Morrison's independent auditors.
Such projections for Morrison's fiscal years 1998, 1999 and 2000 are being
summarized below solely because they were made available to Piccadilly and Sub
during the course of its due diligence review. Neither Piccadilly nor Sub relied
on such projections in evaluating a transaction with Morrison, and none of
Piccadilly, Sub, or any of their financial advisors assumes any responsibility
for the validity, reasonableness, accuracy or completeness of the projections.
None of Piccadilly, Sub, Morrison or any of their financial advisors has made,
or makes, any representation to any person regarding the information contained
in the projections and none of them intends to update or publicly revise the
projections to reflect circumstances existing or occurring after the date when
made or to reflect the occurrence of future events even if any or all of the
assumptions underlying the projections prove to be in error.
The principal assumptions (which were the same for Scenario A and Scenario
B, except for customer count trends) underlying the projections are as follows:
(i) improvements in customer count trends, with Scenario A assuming a
faster rate of improvement in customer counts than Scenario B (Scenario A
assumes that customer counts will decline 6%, 2.5% and remain flat for the
remaining seven months of fiscal 1998, fiscal 1999 and fiscal 2000,
respectively, and Scenario B assumes declines of 7.5%, 4% and 2.5% for
those same periods, respectively);
(ii) increases in average check sales per customer of approximately 3%
per year, basically to offset projected increases in food costs;
(iii) The opening of 6 new small cafeterias in 1999, and 6 additional
small cafeterias in 2000, partially offset by the anticipated closure of a
total of 6 cafeterias during the same period;
(iv) increase of food prices of 2.5%, due to general inflation;
(v) annual increase in overall wages of 2.1% for each of 1999 and
2000; and
(vi) capital expenditures of $11.5 million in 1999 and $5.1 million in
2000 to remodel existing stores, open new stores and purchase equipment and
technology.
28
<PAGE> 31
Because of the inherent difficulty in predicting future quarterly results,
projections for each full fiscal year have been included.
MORRISON SELECTED FINANCIAL PROJECTIONS
(IN THOUSANDS)
SCENARIO A
<TABLE>
<CAPTION>
FY 1998 E FY 1999 E FY 2000 E
--------- --------- ---------
<S> <C> <C> <C>
Net Sales................................................... $245,701 $252,381 $263,374
Gross margin................................................ 177,656 185,869 194,124
EBITDA...................................................... 6,407 9,620 10,533
Depreciation................................................ 9,909 9,645 8,257
EBT......................................................... $ (4,448) $ (1,166) $ 1,254
</TABLE>
SCENARIO B
<TABLE>
<CAPTION>
FY 1998 E FY 1999 E FY 2000 E
--------- --------- ---------
<S> <C> <C> <C>
Net Sales................................................... $243,608 $247,045 $252,365
Gross Margin................................................ 176,153 181,975 186,074
EBITDA...................................................... 4,964 5,892 3,031
Depreciation................................................ 9,909 9,645 8,250
EBT......................................................... $ (5,924) $ (5,156) $ (7,000)
</TABLE>
MARKET PRICE INFORMATION
The Shares are listed and traded on the New York Stock Exchange under the
symbol "MRN." The following table sets forth, for the quarters indicated, the
high and low sales prices per Share as reported by the New York Stock Exchange
and the amount of cash dividends per Share paid during such periods.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
Fiscal Year Ended May 31, 1997:
First Quarter............................................. $ 7.38 $ 4.25 $0.09
Second Quarter............................................ $ 5.88 $ 4.63 $0.09
Third Quarter............................................. $ 5.38 $ 4.50 $0.09
Fourth Quarter............................................ $ 5.38 $ 4.50 $0.09
Fiscal Year Ended June 6, 1998:
First Quarter............................................. $ 5.25 $ 4.38 $0.09
Second Quarter............................................ $ 4.81 $ 3.00 $ --
Third Quarter............................................. $ 3.50 $ 2.25 $ --
Fourth Quarter............................................ $ [] $ [] $ --
</TABLE>
On April 22, 1998, the last full trading day prior to the public
announcement of the execution of the Merger Agreement by Morrison, Piccadilly
and Sub, the last reported sales price per Share on the New York Stock Exchange
was $4.38. On April 28, 1998, the last full trading day prior to Piccadilly's
commencement of the Offer, the last reported sales price per Share on the New
York Stock Exchange was $4.82. On July 6, 1998, the last reported sale price per
Share on the New York Stock Exchange was $ . SHAREHOLDERS ARE URGED TO
OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
The Shares are currently registered under the Exchange Act and are listed
on the NYSE. Such registration may be terminated upon application by Morrison to
the Commission if the Shares are neither listed on the NYSE nor held by 300 or
more holders of record. Following the Merger, Morrison will become the wholly
owned subsidiary of Piccadilly and there will be no public trading of the
Shares. Accordingly, the Shares will be suspended from trading on the NYSE and
the registration of the Shares under the Exchange Act will be terminated.
29
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
According to information available to Morrison as of the Record Date and as
reported in Amendment No. 2 to the Schedule 14D-1 filed by Piccadilly and Sub on
May 29, 1998, Piccadilly and Sub beneficially owned approximately 8,249,228, or
approximately 89% of the Shares outstanding on the Record Date. According to
information available to Morrison as of the Record Date, no other person
beneficially owns 5% or more of the outstanding Shares, and all current
executive officers and directors of Morrison tendered any Shares owned by them
in the Offer, except for Ms. Biggins and Dr. Ratajczak, who owned 466 and 165
Shares, respectively, or less than 1% of the outstanding Shares, as of the
Record Date.
INDEPENDENT AUDITORS
The consolidated financial statements of Morrison as of May 31, 1997 and
for each of the three years in the period ended May 31, 1997, accompanying this
Proxy Statement, have been audited by Ernst & Young LLP, independent auditors,
as stated in their report included with the consolidated financial statements
accompanying this Proxy Statement. Representatives of Ernst & Young LLP are not
expected to be present at the Special Meeting.
OTHER MATTERS
The Morrison Board knows of no business, other than that described above,
that will be presented at the Special Meeting but if any other matters properly
arise before the Special Meeting, the persons named in the enclosed proxies will
vote the proxies in accordance with their best judgment.
Morrison does not intend to hold a 1998 Annual Meeting prior to the
scheduled consummation of the Merger. In the event that Merger is not
consummated and Morrison does hold a 1998 Annual Meeting, Morrison will so
notify its shareholders of such meeting, including the date by which shareholder
proposals must be received at Morrison's executive offices in order to be
considered for inclusion in the proxy materials related to such meeting.
AVAILABLE INFORMATION
This Proxy Statement is accompanied by copies of (i) Morrison's Annual
Report on Form 10-K for the fiscal year ended May 31, 1997 and (ii) Morrison's
Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1998,
which are included herein as Appendix D and E, respectively.
Piccadilly and Morrison are each subject to the informational requirements
of the Exchange Act, and in accordance therewith file reports, proxy statements
and other information with the Commission. The Tender Offer Statement on
Schedule 14D-1, as amended, filed by Piccadilly and Sub in connection with the
Offer, and the Solicitation/Recommendation Statement on Schedule 14D-9, as
amended, filed by Morrison in connection with the Offer, as well as such
reports, proxy statements and other information filed by Piccadilly and Morrison
with the Commission may be inspected and copied at the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
Seven World Trade Center, 13th Floor, New York, New York 10048. Such reports,
proxy statements and other information may also be obtained at the Web site that
the Commission maintains at http://www.sec.gov. Copies of such material may also
be obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, Piccadilly's common stock is and the Shares are listed on
the New York Stock Exchange ("NYSE"). Copies of reports, proxy statements and
other information filed by Piccadilly and Morrison with the NYSE may be
inspected at the offices of the NYSE, 20 Broad Street, New York, NY 10005.
30
<PAGE> 33
APPENDIX A
PLAN AND AGREEMENT OF MERGER
BY AND AMONG
PICCADILLY CAFETERIAS, INC.,
PICCADILLY ACQUISITION CORPORATION
AND
MORRISON RESTAURANTS INC.
APRIL 22, 1998
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 THE TENDER OFFER................................. A-1
1.1 The Offer......................................... A-1
1.2 Target Action..................................... A-2
1.3 Shareholder Lists................................. A-2
1.4 Funding of Tender Offer........................... A-2
1.5 Directors......................................... A-2
SECTION 2 THE MERGER....................................... A-3
2.1 Merger............................................ A-3
2.2 Shareholders Meeting of Target.................... A-4
2.3 Consummation of the Merger........................ A-4
2.4 Dissenters' Rights................................ A-4
2.5 Payment for Shares................................ A-5
2.6 Closing of Target's Transfer Books................ A-5
2.7 Corporate Acts of Subsidiary...................... A-6
SECTION 3 REPRESENTATIONS AND WARRANTIES OF TARGET......... A-6
3.1 Organization and Qualification.................... A-6
3.2 Target Capital Stock.............................. A-6
3.3 Subsidiaries and Affiliated Partnerships.......... A-6
3.4 Power and Authority............................... A-7
3.5 Non-Contravention; Approvals and Consents......... A-7
3.6 Target Public Information......................... A-7
3.7 Legal Proceedings................................. A-8
3.8 Contracts, Etc.................................... A-8
3.9 Subsequent Events................................. A-8
3.10 Taxes.............................................. A-9
3.11 Commissions and Fees............................... A-11
3.12 ERISA and Related Matters.......................... A-11
3.13 Employment Matters................................. A-12
3.14 Environmental Matters.............................. A-13
3.15 Compliance with Laws in General.................... A-14
3.16 Licenses, Accreditation and Regulatory Approvals... A-14
3.17 Real Property...................................... A-14
3.18 Vote Required...................................... A-15
3.19 Opinion of Financial Advisor....................... A-15
3.20 Takeover Statutes.................................. A-15
3.21 Rights Agreement................................... A-15
3.22 No Untrue Representations; Information Supplied.... A-16
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY AND
ACQUIRER.................................................. A-16
4.1 Organization, Existence and Capital Stock......... A-16
4.2 Power and Authority............................... A-16
SECTION 5 REPRESENTATIONS AND WARRANTIES OF ACQUIRER....... A-17
5.1 Organization, Existence and Good Standing......... A-17
5.2 Power and Authority............................... A-17
5.3 Subsidiary Common Stock........................... A-17
5.4 Solvency.......................................... A-17
5.5 Financing......................................... A-17
5.6 No Violations..................................... A-18
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.7 No Untrue Representation; Information Supplied.... A-18
5.8 Commencement of Tender............................ A-18
SECTION 6 ACCESS TO INFORMATION AND DOCUMENTS.............. A-18
6.1 Access to Information............................. A-18
6.2 Return of Records................................. A-19
6.3 Effect of Access.................................. A-19
SECTION 7 COVENANTS........................................ A-19
7.1 Preservation of Business.......................... A-19
7.2 Material Transactions............................. A-19
7.3 Meeting of Target Shareholders.................... A-20
7.4 Exemption from State Takeover Laws................ A-20
7.5 HSR Act Compliance................................ A-21
7.6 Public Disclosures................................ A-21
7.7 Resignation of Target Directors................... A-21
7.8 Notice of Subsequent Events....................... A-21
7.9 No Solicitation................................... A-21
7.10 Other Actions...................................... A-22
7.11 Cooperation........................................ A-22
7.12 Target Employees................................... A-23
7.13 Indemnification.................................... A-23
7.14 Termination of Plans............................... A-24
SECTION 8 TERMINATION, AMENDMENT AND WAIVER................ A-24
8.1 Termination....................................... A-24
8.2 Effect of Termination............................. A-25
8.3 Amendment......................................... A-26
8.4 Extension; Waiver................................. A-26
8.5 Procedure for Termination, Amendment, Extension or
Waiver............................................ A-26
8.6 Expenses; Break-up Fees........................... A-26
SECTION 9 CONDITIONS TO CLOSING............................ A-27
9.1 Mutual Conditions................................. A-27
9.2 Conditions to Obligations of Acquirer and
Subsidiary........................................ A-28
9.3 Conditions to Obligations of Target............... A-28
SECTION 10 MISCELLANEOUS................................... A-29
10.1 Nonsurvival of Representations and Warranties...... A-29
10.2 Notices............................................ A-29
10.3 Further Assurances................................. A-29
10.4 Governing Law...................................... A-30
10.5 Definitions........................................ A-30
10.6 Captions........................................... A-30
10.7 Integration of Exhibits............................ A-30
10.8 Entire Agreement................................... A-30
10.9 Counterparts....................................... A-30
10.10 Binding Effect..................................... A-31
10.11 No Rule of Construction............................ A-31
</TABLE>
ii
<PAGE> 36
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (the "Plan of Merger"), made and entered into
as of the 22nd day of April, 1998, by and among PICCADILLY CAFETERIAS, INC., a
Louisiana corporation ("Acquirer"), PICCADILLY ACQUISITION CORPORATION, a
Georgia corporation (the "Subsidiary"), and MORRISON RESTAURANTS INC., a Georgia
corporation ("Target") (Subsidiary and Target being sometimes collectively
referred to herein as the "Constituent Corporations").
WITNESSETH:
WHEREAS, the Boards of Directors of Acquirer, Subsidiary and Target each
have approved the acquisition of Target by Subsidiary and, in furtherance of the
acquisition, Subsidiary proposes to make a tender offer for all outstanding
shares of Common Stock, par value $.01 per share, including the associated
rights to purchase shares of Series A Junior Participated Preferred Stock, $.01
par value per share of Target pursuant to Target's Rights Plan (the "Shares" or
"Target Common Stock"), and the Board of Directors of Target has approved the
Offer and recommends that it be accepted by the shareholders of Target; and
WHEREAS, each of Acquirer, Subsidiary and Target desires to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
SECTION 1
THE TENDER OFFER
1.1 THE OFFER.
Provided that none of the events set forth in Annex A hereto shall have
occurred or be existing, Subsidiary, as promptly as practicable, but in any
event within five business days of the public announcement of this Plan of
Merger, shall commence a tender offer (the "Offer") for all outstanding Shares
at a price of $5.00 per Share, net to the seller in cash. Assuming the prior
satisfaction or waiver of the conditions to the Offer set forth in Annex A
hereto, Subsidiary will accept for payment all Shares validly tendered pursuant
to the Offer, and not withdrawn, as soon as legally permissible and shall pay
for all such Shares as soon as practicable thereafter. The Offer initially shall
expire on the twentieth business day after its commencement; provided, however,
that Subsidiary may, without the consent of Target, (i) extend the Offer (on one
or more occasions) beyond the scheduled expiration date if at any such date any
of the conditions to Subsidiary's obligation to purchase Shares shall not be
satisfied or waived, until such time as such conditions are satisfied or waived,
or (ii) extend the Offer to the extent required by any rule or regulation of the
Securities and Exchange Commission (the "Commission"); provided further that,
notwithstanding anything in the foregoing proviso to the contrary, Subsidiary
may not, without Target's prior written consent, (A) extend the expiration date
of the Offer if the failure to meet any condition to the Offer was directly or
indirectly caused by an act or omission of Acquirer or Subsidiary or (B) effect
any individual extension under clause (i) in excess of the amount of time
reasonably believed by Acquirer to be necessary to satisfy such condition, which
shall in no event exceed 10 business days; provided further that if Subsidiary
does not consummate the Offer on the initial expiration date, or any extension
thereof, due to the failure of one or more conditions in any of paragraphs (a),
(b), (c) or (e) of Annex A to be satisfied, Acquirer shall cause Subsidiary to,
and Subsidiary shall, unless Target shall have materially breached this Plan of
Merger and failed to cure such breach within 15 days of being notified thereof
in writing, extend the Offer one or more times until the earlier of (i) 11:59
p.m. New York City time on the 60th calendar day after the date of this Plan of
Merger or (ii) 2 business days after such time as such condition or conditions
are satisfied or waived; provided further that Subsidiary shall not be obligated
to extend the Offer pursuant to the foregoing proviso if the condition that has
not been satisfied is not reasonably capable of being cured or satisfied at or
prior to the 60th calendar day after the date of this Plan of Merger. Without
the prior written consent of Target, Subsidiary will not
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<PAGE> 37
decrease the price per Share, decrease the number of Shares being sought in the
Offer, change the form of consideration payable in the Offer (other than by
adding consideration), add additional conditions to the Offer, or, subject to
the rights to extend the Offer as set forth above, make any other change in the
terms of the Offer which is adverse to the holders of Shares. It is agreed that
the Offer will be subject only to the conditions set forth in Annex A hereto,
which are for the benefit of Subsidiary and may be asserted or waived by
Subsidiary in whole or in part at any time and from time to time, in its sole
discretion; provided, however, that Subsidiary may not waive the Minimum
Condition (as defined in Annex A hereto) so as to acquire less than a majority
of the outstanding Shares without the prior written consent of Target. As soon
as practicable on the date of commencement of the Offer, Acquirer and Subsidiary
shall file with the Commission a Tender Offer Statement on Schedule 14D-1 with
respect to the Offer (the "Schedule 14D-1"), which will contain the offer to
purchase and form of the related letter of transmittal. Acquirer and Subsidiary
shall give Target and its counsel the opportunity to review the Schedule 14D-1
and any amendments or supplements thereto prior to their being filed with the
Commission. Subsidiary may, at any time, transfer or assign to one or more
corporations directly or indirectly wholly owned by Acquirer the right to
purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment shall not relieve Subsidiary of its obligations
under the Offer or prejudice the rights of tendering shareholders to receive
payment for Shares properly tendered and accepted for payment.
1.2 TARGET ACTION.
Target hereby consents to the Offer. Promptly after the commencement of the
Offer, Target shall file with the Commission and mail to the holders of Shares a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9").
The Schedule 14D-9 will set forth, and Target hereby represents, that the Board
of Directors of Target has (a) determined that the Offer and the Merger (as
defined in Section 2.1) considered as a whole are fair to and in the best
interests of Target and its shareholders, and (b) resolved to recommend
acceptance of the Offer and approval and adoption of the Merger and this Plan of
Merger by the holders of Shares. Target shall give the Acquirer and its counsel
an opportunity to review the Schedule 14D-9 and any amendments or supplements
thereto prior to its being filed with the Commission. Target hereby consents to
the inclusion in the Tender Offer Material (as defined in Rule 14d-2(b)(5)
adopted pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of the recommendation referred to in this Section 1.2.
1.3 SHAREHOLDER LISTS.
Target shall promptly furnish Subsidiary with a list of the holders of
Shares and mailing labels containing the names and addresses of all record
holders of Shares and lists of securities positions of Shares held in stock
depositors, each as of a recent date, and shall promptly furnish Subsidiary with
such additional information, including updated lists of shareholders of Target,
mailing labels and lists of securities positions, and such other assistance, as
Subsidiary or its agents may reasonably request in connection with communicating
the Offer to the record and beneficial holders of the Shares.
1.4 FUNDING OF TENDER OFFER.
Acquirer shall make available to Subsidiary on a timely basis funds as
necessary to pay for the Shares that Subsidiary becomes obligated to accept for
payment and pay for pursuant to the Offer.
1.5 DIRECTORS.
(a) Promptly upon acceptance for payment by Subsidiary of Shares tendered
pursuant to the Offer, Subsidiary shall be entitled to designate such number of
directors, rounded up to the next whole number, as will give Subsidiary
representation on the Board equal to at least that number of directors equal to
the product of (i) the total number of directors on the Board and (ii) the
percentage that the number of Shares so accepted for payment bears to the number
of Shares outstanding, and Target shall, at such time, at the election of
Subsidiary either increase the size of the Board or use its best efforts to
cause the appropriate number of directors who are members of the Board as of the
date hereof to resign and Subsidiary's designees
A-2
<PAGE> 38
to be appointed or elected to fill the vacancies thereby created in conformity
with the Georgia Business Corporation Code (the "GBCC"), Target's amended and
restated articles of incorporation and bylaws and other applicable law. In
addition, until the Effective Time (defined in Section 2.4), there shall be at
least three directors on the Board who are directors on the date hereof and who
are not designees nor officers, directors, full-time employees or affiliates of
Acquirer or Subsidiary nor full-time employees of Target (the "Independent
Directors"); provided, however, that if the number of Independent Directors
shall be reduced below three for any reason, the Board shall, subject to the
approval of the remaining Independent Directors, if any, designate a person or
persons to fill the vacancy or vacancies who are directors on the date hereof
and not an officer, director, full-time employee or affiliate of Acquirer or
Subsidiary nor a full-time employee of Target, and such persons shall be deemed
to be Independent Directors for purposes of this Plan of Merger.
(b) Target's obligations to appoint Subsidiary's designees to the Board
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder.
Acquirer and Subsidiary shall supply and shall be solely responsible for all
information with respect to themselves, their officers, directors and
affiliates, and Subsidiary's designees required by Section 14(f) and Rule 14f-1.
Target shall promptly take all actions required pursuant to Section 14(f) and
Rule 14f-1 in order to fulfill its obligations under this Section 1.5, and shall
include in the Schedule 14D-9 such information with respect to Target and its
officers and directors as is required under Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of Subsidiary's designees
pursuant to this Section 1.5 and until the Effective Time, any amendment of this
Plan of Merger or the amended and restated articles of incorporation or bylaws
of Target, any termination of this Plan of Merger by Target, any extension by
Target of the time for the performance of any of the obligations or other acts
of Acquirer or Subsidiary, any waiver of any of Target's rights hereunder, or
any transaction between Acquirer (or any affiliate or associate thereof) and
Target shall require the concurrence of a majority of the Independent Directors.
The Independent Directors shall have the authority to retain such counsel and
other advisors at the expense of Target as are reasonably appropriate to assist
them in the exercise of their duties in connection with this Plan of Merger. In
addition, the Independent Directors shall have the authority to institute any
action on behalf of Target to enforce performance of this Plan of Merger.
SECTION 2
THE MERGER
2.1 MERGER.
(a) Merger. Upon the terms and subject to the conditions of this Plan of
Merger, Subsidiary will be merged with and into Target (the "Merger"), in
accordance with Section 14-2-1101 of the GBCC, as soon as practicable following
the expiration or termination of the Offer. Target shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue its existence under the laws of the State of
Georgia. The separate existence of Subsidiary shall cease. The name of the
Surviving Corporation shall be "Morrison Restaurants Inc."
(b) Effect of Merger. The amended and restated articles of incorporation of
Target in effect upon the consummation of the Merger, with such amendments as
requested by Subsidiary and approved by the Board of Directors and shareholders
of Target, shall be the articles of incorporation of the Surviving Corporation,
and the bylaws of Subsidiary in effect upon consummation of the Merger shall be
the bylaws of the Surviving Corporation. The directors of Subsidiary upon
consummation of the Merger shall be the directors of the Surviving Corporation,
and the officers of Subsidiary shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected and
qualified. The Merger shall have the effects set forth in Section 14-2-1106 of
the GBCC.
(c) Conversion of Shares. At the Effective Time (as defined in Section
2.3), by virtue of the Merger and without any action on the part of any holder
of any Shares, (i) each Share issued and outstanding immediately prior to the
Effective Time (other than Shares to be cancelled pursuant to Section 2.1(c)
(ii) and any Dissenting Shares (as defined in Section 2.4)) shall be converted
into the right to receive in cash
A-3
<PAGE> 39
an amount per Share equal to the price paid per Share pursuant to the Offer (the
"Merger Consideration"), without interest; and (ii) each Share owned by
Acquirer, Subsidiary or any other direct or indirect subsidiary of Acquirer or
held in the treasury of Target, immediately prior to the Effective Time, shall
be cancelled and extinguished, and no payment will be made with respect to those
Shares (it being understood that the Shares held in Target's Deferred
Compensation Plan and the Shares held in Target's Salary Deferral (401(k)) Plan,
whether or not allocated, shall be deemed as issued and outstanding and not held
in the treasury of Target for purposes of this Plan of Merger); and (iii) each
share of common stock, par value $.01 per share of Subsidiary then issued and
outstanding shall be converted into one share of common stock of the Surviving
Corporation, which shares thereafter will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation.
(d) Stock Options. As soon as practicable, but in any event no later than
the date payment is made for Shares tendered pursuant to the Offer, each holder
of a stock option granted under the plans or agreements set forth in Exhibit
2.1(d) of the Disclosure Schedule (as defined herein) (collectively, the "Target
Incentive Plans"), whether or not then exercisable, which is outstanding as of
the date hereof and which has not been exercised prior to the acquisition of
Shares pursuant to the Offer (each option held by such a person is referred to
as a "Target Option") shall be entitled to receive, in cancellation and
settlement of the Target Option, an amount equal to the product of (x) the
number of Shares provided in the Target Option and (y) the excess, if any, of
the Merger Consideration over the exercise price per Share provided for in the
Target Option (the "Option Consideration"). As soon as practicable following
acceptance of the Offer by the Subsidiary, the Subsidiary shall tender the
Option Consideration in cash to each holder of a Target Option to whom Option
Consideration is payable. The Target shall take such other actions available
under the Target Incentive Plans to effect the cancellation of all Target
Options. At the request of Acquirer, Target agrees to use commercially
reasonable efforts to obtain consents from the holders of such Target Options to
their cancellation to the extent Acquirer determines such consents to be
advisable.
2.2 SHAREHOLDERS MEETING OF TARGET.
Unless Subsidiary makes the election referred to in Section 2.3, Target
will take all action necessary in accordance with applicable law and its Amended
and Restated Articles of Incorporation and Bylaws to convene a special meeting
of its shareholders promptly after consummation of the Offer to consider and
vote upon the approval of the Merger and adoption of this Plan of Merger.
Subject to their fiduciary duties under applicable law (after being advised by
counsel), the Board of Directors of Target will recommend that shareholders of
Target vote in favor of the approval of the Merger and the adoption of this Plan
of Merger at any such meeting. At any such meeting, all of the Shares then owned
by Acquirer, Subsidiary or any other direct or indirect subsidiary of Acquirer
will be voted in favor of the approval of the Merger and adoption of this Plan
of Merger.
2.3 CONSUMMATION OF THE MERGER.
Upon the terms and subject to the conditions of this Plan of Merger as soon
as practicable after consummation of the Offer, and, if the vote of the
shareholders of Target is required pursuant to Section 2.2 after the vote of
such shareholders in favor of the Merger and this Plan of Merger has been
obtained, Target (or Subsidiary, if appropriate) shall execute in the manner
required by the GBCC and file with the Secretary of State of the State of
Georgia a certificate of merger, as required by the GBCC, and the parties shall
take all such other and further actions as may be required by law to make the
Merger effective. Prior to the filing referred to in this Section 2.3, a closing
will be held at the offices of Powell, Goldstein, Frazer & Murphy LLP, Atlanta,
Georgia (or such other place as the parties may agree) for the purpose of
confirming all of the foregoing. The time the Merger becomes effective in
accordance with applicable law is referred to as the "Effective Time."
2.4 DISSENTERS' RIGHTS.
Notwithstanding any provision of this Plan of Merger to the contrary, any
Shares outstanding immediately prior to the Effective Time held by a holder who
has demanded and perfected the right, if any, for
A-4
<PAGE> 40
appraisal of those Shares in accordance with the provisions of Article 13 of the
GBCC and as of the Effective Time has not withdrawn or lost such right to such
appraisal ("Dissenting Shares") shall not be converted into or represent a right
to receive a cash payment pursuant to Section 2.1(c)(i), but the holder shall
only be entitled to such rights as are granted by the GBCC. If a holder of
Shares who demands appraisal of those Shares under the GBCC shall effectively
withdraw or lose (through failure to perfect or otherwise) the right to
appraisal, then, as of the Effective Time or the occurrence of such event,
whichever last occurs, those Shares shall be converted into and represent only
the right to receive the Merger Consideration as provided in Section 2.1(c)(i),
without interest, upon the surrender of the certificate or certificates
representing those Shares. Target shall give Acquirer (i) prompt notice of any
written demands for appraisal of any Shares, attempted withdrawals of such
demands, and any other instruments served pursuant to the GBCC received by
Target relating to shareholders' rights of appraisal and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under the GBCC. Target shall not, except with the prior written
consent of Acquirer, voluntarily make any payment with respect to any such
demands for appraisals of capital stock of Target, offer to settle or settle any
such demands or approve any withdrawal of any such demands.
2.5 PAYMENT FOR SHARES.
Prior to the Effective Time, Subsidiary shall designate a commercial bank
or trust company organized under the laws of the United States or any state of
the United States with capital, surplus and undivided profits of at least
$100,000,000 to act as Paying Agent with respect to the Merger (the "Paying
Agent"). Each holder (other than Acquirer, Subsidiary or any subsidiary of
Acquirer) of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding Shares will be
entitled to receive, upon surrender to the Paying Agent of the Certificates for
cancellation, cash in an amount equal to the product of the number of Shares
previously represented by the Certificates multiplied by the Merger
Consideration, subject to any required withholding of taxes. When and as needed,
Subsidiary shall make available to the Paying Agent sufficient funds to make all
payments pursuant to the preceding sentence. No interest shall accrue or be paid
on the cash payable upon the surrender of the Certificates. If payment is to be
made to a person other than the person in whose name the Certificates
surrendered are registered, it shall be a condition of payment that the
Certificates so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting the payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificates surrendered or establish to the
satisfaction of the Surviving Corporation that the tax has been paid or is not
applicable. Following the Effective Time, until surrendered to the Paying Agent
in accordance with the provisions of this Section 2.5, each Certificate (other
than Certificates representing Dissenting Shares and Shares owned by Acquirer or
any subsidiary of Acquirer) shall represent for all purposes only the right to
receive upon surrender the Merger Consideration multiplied by the number of
Shares evidenced by the Certificate, without any interest, subject to any
required withholding of taxes. Any funds delivered or made available to the
Paying Agent pursuant to this Section 2.5 and not exchanged for Certificates
within six months after the Effective Time will be returned by the Paying Agent
to the Surviving Corporation, which thereafter will act as Paying Agent, subject
to the rights of holders of unsurrendered Certificates under this Article 2, and
any former shareholders of Target who have not previously exchanged their
Certificates will thereafter be entitled to look only to the Surviving
Corporation for payment of their claims for the consideration set forth in
Section 2.1(c)(i), without any interest, but will have no greater rights against
the Surviving Corporation than may be accorded to general creditors thereof
under applicable law. As soon as practicable after the Effective Time, the
Surviving Corporation will cause the Paying Agent to mail to each record holder
of Certificates a form of letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title of the Certificates will
pass, only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates for payment.
2.6 CLOSING OF TARGET'S TRANSFER BOOKS.
At the Effective Time, the stock transfer books of Target shall be closed
and no transfer of Shares shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they
A-5
<PAGE> 41
shall be cancelled and exchanged for cash as provided in Section 2.5, subject to
applicable law in the case of Dissenting Shares.
2.7 CORPORATE ACTS OF SUBSIDIARY.
All corporate acts, plans, policies, approvals and authorizations of
Subsidiary, its sole shareholder, its Board of Directors, committees elected or
appointed by the Board of Directors, and all officers and agents, valid
immediately prior to the Effective Time, shall be those of the Surviving
Corporation and shall be as effective and binding thereon as they were with
respect to Subsidiary. The employees and agents of Subsidiary shall become the
employees and agents of the Surviving Corporation and continue to be entitled to
the same rights and benefits which they enjoyed as employees and agents of
Subsidiary.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to Acquirer and Subsidiary as
follows:
3.1 ORGANIZATION AND QUALIFICATION.
Target is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Georgia and has all requisite corporate
power and authority to own, lease and operate its property and carry on its
business as now being conducted. Target is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except to the extent that any
failure to so qualify or be in good standing would not have a Material Adverse
Effect (as defined in Section 10.5 hereof) on Target. Target has made available
to Acquirer correct and complete copies on the amended and restated articles of
incorporation and bylaws of Target.
3.2 TARGET CAPITAL STOCK.
Target's authorized capital consists of 100,000,000 shares of Target Common
Stock, par value $.01 per share, of which 9,236,440 Shares were issued and
outstanding as of April 20, 1998, including 319,176 Shares in the Salary
Deferral Plan (70,067 of which are unallocated) and 46,914 Shares issued under
the Deferred Compensation Plan, and 200,000 shares of Preferred Stock, of which
50,000 shares are designated as Series A Junior Participating Preferred Stock;
no shares of Preferred Stock are issued or outstanding as of the date hereof.
All of the issued and outstanding shares of Target Common Stock are duly
authorized and validly issued, fully paid and nonassessable. Except as set forth
on Exhibit 3.2 to the Disclosure Schedule delivered by Target to Acquirer
simultaneously with the execution and delivery hereof (the "Disclosure
Schedule"), there are no options, warrants, or similar rights granted by Target
or any other agreements to which Target is a party providing for the issuance or
sale by it of any additional securities which would remain in effect after the
Effective Time. There is no liability for dividends declared or accumulated but
unpaid with respect to any of the shares of Target Common Stock. Except for the
Shares (including the associated Rights), there are no outstanding bonds,
debentures, notes or other indebtedness or other securities of Target having the
right to vote (or convertible into or exchangeable for, securities having the
right to vote) on any matters on which shareholders of Target may vote. There
are no agreements or arrangements to which Target is a party pursuant to which
Target is or could be required to register Shares or other securities under the
Securities Act of 1933, as amended (the "Securities Act"). Target represents
that the information set forth on Exhibit 3.2 to the Disclosure Schedule is true
and correct in all material respects.
3.3 SUBSIDIARIES AND AFFILIATED PARTNERSHIPS.
Target has no subsidiaries, and Target does not own stock in and does not
control, directly or indirectly, any other corporation, association or business
organization.
A-6
<PAGE> 42
3.4 POWER AND AUTHORITY.
Subject to the satisfaction of the conditions precedent set forth herein,
Target has the corporate power to execute, deliver and perform the Plan of
Merger and all agreements and other documents executed and delivered or to be
executed and delivered by it pursuant to the Plan of Merger, and, subject to the
satisfaction of the conditions precedent set forth herein, has taken all action
required by its Amended and Restated Articles of Incorporation, Bylaws or
otherwise, to authorize the execution, delivery and performance of the Plan of
Merger and such related documents. The execution and delivery of this Plan of
Merger has been approved by the Board of Directors of Target. This Plan of
Merger has been duly executed and delivered by Target and, assuming this Plan of
Merger constitutes a valid and binding obligation of Acquirer and Subsidiary, as
the case may be, constitutes a valid and binding obligation of Target,
enforceable against Target in accordance with its terms.
3.5 NON-CONTRAVENTION; APPROVALS AND CONSENTS.
(a) Except as disclosed in Exhibit 3.5 of the Disclosure Schedule, the
execution and delivery of this Plan of Merger by Target does not, and the
performance by Target of its obligations hereunder and the consummation of the
transactions contemplated hereby will not, conflict with, result in a violation
or breach of, constitute (with or without notice or lapse of time or both) a
default under, permit the termination of any provision of, or result in the
termination of or the acceleration of the maturity or performance of, or result
in the creation or imposition of any lien upon any of the assets or properties
of Target under, any of the terms, conditions or provisions of (i) the amended
and restated articles of incorporation or bylaws of Target, or (ii) subject to
receipt of the requisite shareholder approval with respect to the Merger, (A)
any statute, law, rule, regulation or ordinance (together, "Laws"), or any
judgment, decree, order, writ, permit or license (together, "Orders"), of any
court, tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States or any state, county, city or other
political subdivision in the United States, or of any foreign country (a
"Governmental or Regulatory Authority"), applicable to Target or any of its
assets or properties, (B) any note, bond, mortgage, security agreement,
indenture, license, franchise, contract or other instrument, obligation or
agreement of any kind (other than leases or subleases of real property)
(together, "Contracts") to which Target is a party or by which Target or any of
its assets or properties is bound, or (C) any Employee Plan or Benefit
Arrangement (defined in Section 3.12); except, with respect to the foregoing
clause (ii), those which, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect on Target.
(b) Except for (i) the premerger notification requirements of the HSR Act,
(ii) the requirements of the Exchange Act and the New York Stock Exchange and
(iii) the filing of appropriate documents relating to the Merger required by the
GBCC, no consent, approval or action of, or filing with or notice to, any
Governmental or Regulatory Authority or other person is required under any Law
or Order or any Contract to which Target is a party or by which Target or any of
its assets or properties is bound, for the execution and delivery of this Plan
of Merger by Target or the performance by Target of its obligations hereunder or
the consummation by Target of the transactions contemplated hereby, except those
as to which the failure to make or obtain, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on Target.
3.6 TARGET PUBLIC INFORMATION.
(a) Target has heretofore furnished Acquirer with a true and complete copy
of each report, schedule, registration statement and definitive proxy statement
filed by it with the Commission (as any such documents have since the time of
their original filing been amended, the "Target Documents") since March 9, 1996,
which are all the documents (other than preliminary materials) that it was
required to file with the SEC from such date through the date of this Plan of
Merger. As of their respective dates, the Target Documents did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, Target Documents complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations
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promulgated under such statutes. The financial statements contained in Target
Documents, together with the notes thereto, have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods indicated (except as may be indicated in the notes thereto, or, in
the case of the unaudited financial statements, as permitted by Form 10-Q),
reflect all known liabilities of Target required to be stated therein, including
all such known contingent liabilities as of the end of each period reflected
therein, and present fairly the financial condition of Target at said dates and
the consolidated results of operations and cash flows of Target for the periods
then ended. The consolidated balance sheet of Target at February 28, 1998
included in Target Documents is herein sometimes referred to as the "Target
Balance Sheet".
(b) Except for matters reflected or reserved against in Target Balance
Sheet or arising under this Plan of Merger, Target had not at that date, and has
not since that date, incurred any liabilities or obligations (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due) of any
nature that would be required by generally accepted accounting principles to be
reflected in a consolidated balance sheet of Target (including the notes
thereto), except liabilities or obligations that (i) were incurred in the
ordinary course of business consistent with past practices or (ii) have not had,
and could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Target.
3.7 LEGAL PROCEEDINGS.
Except as disclosed in Target Documents or on Exhibit 3.7 to the Disclosure
Schedule, there is no material litigation, governmental investigation or other
proceeding pending or, to the knowledge of Target, threatened against or
relating to Target, its properties or business, or the transaction contemplated
by the Plan of Merger and, to the knowledge of Target, no basis for any such
action exists.
3.8 CONTRACTS, ETC.
(a) All contracts, leases, agreements and arrangements to which Target is a
party are legally valid and binding in accordance with their terms and in full
force and effect, and to the knowledge of Target, no party is in default
thereunder, and no event has occurred which, but for the passage of time or the
giving of notice or both, would constitute a default thereunder, except, in each
case, where the invalidity of the lease, contract, agreement or arrangement or
the default or breach thereunder or thereof would not, individually or in the
aggregate, have a Material Adverse Effect on Target.
(b) Except as set forth on Exhibit 3.8 to the Disclosure Schedule, no
contract or agreement to which Target is a party will, by its terms, terminate
as a result of the transactions contemplated hereby or require any consent from
any obligor thereto in order to remain in full force and effect immediately
after the Effective Time, except for contracts or agreements which, if
terminated, would not have a Material Adverse Effect on Target.
(c) Except as set forth on Exhibit 3.8 to the Disclosure Schedule, Target
has not granted any right of first refusal or similar right in favor of any
third party with respect to any material portion of its properties or assets or
entered into any non-competition agreement or similar agreement restricting its
ability to engage in any business in any location.
3.9 SUBSEQUENT EVENTS.
(a) Except as disclosed in Exhibit 3.9 of the Disclosure Schedule or as
reflected in Target Documents made prior to the date of this Plan of Merger,
since the date of Target Balance Sheet (i) there has not been any change, event
or development having, or that could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Target, (ii)
Target has conducted its business, in all material respects, in the ordinary
course consistent with past practices, and, (iii) Target has not taken any
action that, if taken after the date hereof, would constitute a breach of any
provision of Section 7.2.
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(b) Except as set forth on Exhibit 3.9 to the Disclosure Schedule or
disclosed in Target Documents, Target has not, since the date of Target Balance
Sheet:
(i) Discharged or satisfied any material lien or encumbrance, or paid
or satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
Target Balance Sheet or (ii) liabilities incurred since the date of the
last-filed Target Document in the ordinary course of business, which
discharge or satisfaction would have a Material Adverse Effect on Target;
(ii) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor which would have a
Material Adverse Effect on Target, except as may have been required due to
consolidated income or operations of Target since the date of the
last-filed Target Document;
(iii) made any material change affecting any banking, safe deposit or
power of attorney arrangements;
(iv) made any change in any method of accounting or auditing practice;
(v) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of Target.
(vi) Sold or transferred any of the assets material to the
consolidated business of Target, cancelled any material debts or claims or
waived any material rights, except in the ordinary course of business.
(vii) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable
by Target to any officer or employee, consultant or agent (other than
normal merit increases), or by means of any bonus or pension plan, contract
or other commitment, increased in a material respect the compensation of
any officer, employee, consultant or agent.
(viii) Except for this Plan of Merger and any other agreement executed
and delivered pursuant to this Plan of Merger, merged or consolidated with
another entity or acquired or agreed to acquire any business or any
corporation, partnership or other business organization, or entered into
any material transaction other than in the ordinary course of business or
permitted under other Sections hereof.
(ix) Declared or paid any dividend or made any distribution with
respect to any of its equity interests, or redeemed, purchased or otherwise
acquired any of its equity interests, or issued any stock, bonds or other
securities, or any option, warrant or other right to purchase or acquire
any such interest, other than stock options granted to employees, directors
or consultants of Target, all of which are disclosed on Exhibit 3.2 to the
Disclosure Schedule.
3.10 TAXES.
(a) As used herein, "Taxes" means all taxes of any kind, including those
on, measured by or referred to as income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, value added, or property taxes, and all customs
duties and similar fees, assessments and charges of any kind whatsoever,
together with any interest thereon and any penalties, additions to tax and
additional amounts imposed with respect thereto by any Governmental or
Regulatory Authority. As used herein, "Tax Return" means any return, report,
declaration, information statement and other document with respect to Taxes
required to be filed by Target with the Internal Revenue Service or any other
Governmental or Regulatory Authority, including all accompanying schedules. For
purposes of this Section 3.10, any reference to Target shall include any
corporation that merged or was liquidated with and into Target.
(b) Except as set forth on Exhibit 3.10 to the Disclosure Schedule, Target
has (i) timely filed all federal and state income Tax Returns and all other
material Tax Returns required to be filed by it and such Tax
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Returns are correct and complete in all material respects, and (ii) has paid all
Taxes shown thereon to be due and has provided adequate reserves in its
financial statements for any Taxes that have not been paid, whether or not shown
as being due on any Tax Returns, and all other Taxes for which a notice of
assessment or demand for payment has been received by Target, except for such
Taxes as to which the failure to pay, individually or in the aggregate, would
not have a Material Adverse Effect on Target. Except as set forth on Exhibit
3.10 to the Disclosure Schedule, Target has not granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax.
(c) Except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Target or as disclosed in Exhibit
3.10 of the Disclosure Schedule: (i) no material claim for unpaid Taxes due and
payable has become a lien against the property of Target or is being asserted
against Target nor, to Target's knowledge, are there pending any material
proposed adjustments to the manner in which any Tax of Target is determined;
(ii) except as provided in Exhibit 3.10 to the Disclosure Schedule, to the
Knowledge of Target, no audit of any Tax Return of Target is pending, threatened
or being conducted by a Governmental or Regulatory Authority; (iii) Target is
not a party to any agreement or arrangement that would, individually or in the
aggregate, (A) result in the actual or deemed payment by Target of any "excess
parachute payments" within the meaning of Section 280G of the Code, or (B)
constitute compensation in excess of the limitation set forth in Section 162(m)
of the Code; (iv) no acceleration of the vesting schedule for any property that
is substantially unvested within the meaning of the regulations under Section 83
of the Code will occur in connection with the transactions contemplated by this
Plan of Merger; (v) no consent under Section 341(f) of the Code has been filed
with respect to Target; (vi) Target has not been at any time a member of any
partnership or joint venture or the holder of a beneficial interest in any trust
for any period for which the statute of limitations for any Tax has not expired;
(vii) Target has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code; (viii) Target has made all
payments of estimated Taxes required to be made under Section 6655 of the Code
and any comparable state, local or foreign Tax provision; (ix) all Taxes
required to be withheld, collected or deposited by or with respect to Target and
each of its subsidiaries have been timely withheld, collected or deposited, as
the case may be, and, to the extent required, have been paid to the relevant
taxing authority; (x) Target has not issued or assumed (A) any obligations
described in Section 279(a) of the Code, (B) any applicable high yield discount
obligations, as defined in Section 163(i) of the Code, or (C) any
registration-required obligations, within the meaning of Section 163(f)(2) of
the Code, that are not in registered form; (xi) there are no requests for
information currently outstanding that could affect the Taxes of Target; (xii)
there are no proposed reassessments of any property owned by Target or other
proposals that could increase the amount of any Tax to which Target would be
subject; and (xiii) no power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes that could materially
affect the Tax liability of Target. No claim has been made by a Governmental or
Regulatory Authority in a jurisdiction where Target does not file Tax Returns
that Target is or may be subject to taxation by that jurisdiction.
(d) Except as set forth on Exhibit 3.10 to the Disclosure Schedule, Target
has never (i) joined in or been required to join in the filing of a consolidated
or combined federal, state or local income Tax Return with respect to which
Target could be liable for the Taxes of a person other than Target or (ii) been
the subject of a Tax ruling or a closing agreement with respect to Taxes with
any Governmental or Regulatory Authority that has continuing effect. Except as
set forth on Exhibit 3.10 to the Disclosure Schedule, Target is not a party to
any tax sharing or tax allocation agreement or arrangement pursuant to which it
could be liable for Taxes of a person other than Target. Except as set forth on
Exhibit 3.10 to the Disclosure Schedule, Target has not agreed to make nor is it
required to make any adjustment under Section 481 of the Code by reason of a
change in accounting method or otherwise.
(e) Except as set forth in Exhibit 3.10, and to the Knowledge of Target,
but only to the extent such Taxes, individually or in the aggregate, would not
have a Material Adverse Effect on Target: (i) no deficiencies exist or have been
asserted (either formally or informally) or are expected to be asserted with
respect to Taxes of any group of corporations that filed a consolidated Return,
but only to the extent such deficiencies relate to such consolidated Return,
that included Target or the business operations of Target (a
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"Target Consolidated Group"); (ii) no notice (either formally or informally) has
been received by any member of the Target Consolidated Group that it has not
filed a Return or paid Taxes with respect to a Return required to be filed or
paid by such member, but only with respect to a Return of the Target
Consolidated Group; (iii) no member of the Target Consolidated Group is a party
to any pending action or proceeding for assessment or collection of Taxes, nor
has such action or proceeding with respect to Taxes been asserted or threatened
(either formally or informally) against any such member or any of its assets,
but only for those Taxes with respect to a Return of the Target Consolidated
Group; and (iv) no waiver or extension of any statute of limitations is in
effect with respect to Taxes (with respect to a Return of) or Returns of any
member of the Target Consolidated Group, but only for those Taxes or Returns of
the Target Consolidated Group.
(f) Target has not taken any action that would cause it to be liable to any
party under the Tax Allocation and Indemnification Agreement, dated March 6,
1996, among Target, Custom Management Corporation of Pennsylvania, Custom
Management Corporation, John C. Metz & Associates, Inc., Morrison International,
Inc., Ruby Tuesday, Inc., Ruby Tuesday (Georgia), Inc., Morrison Health Care,
Inc., Tias, Inc., Morrison Custom Management Corporation of Pennsylvania, and
Morrison Restaurants Inc.
3.11 COMMISSIONS AND FEES.
Except as set forth in Exhibit 3.11 to the Disclosure Schedule, there are
no valid claims for brokerage commissions or finder's or similar fees in
connection with the transactions contemplated by this Plan of Merger which may
be now or hereafter asserted against Acquirer resulting from any action taken by
Target or its shareholders, officers or Directors, or any of them.
3.12 ERISA AND RELATED MATTERS.
(a) Exhibit 3.12 of the Disclosure Schedule contains a true and complete
list of each Employee Plan and Benefit Arrangement (each as defined below).
Target has made available to Acquirer a current, accurate and complete copy of
each Employee Plan and Benefit Arrangement, including all plan amendments, trust
agreements, and written interpretations thereof together with the most recent
annual report (Form 5500) and the most recent actuarial valuation report
prepared in connection with any Employee Plan or Benefit Arrangement, and, to
the extent applicable, all related reports (actuarial or otherwise) that
materially affect the Tax liability of Target.
(b) Each Employee Plan and Benefit Arrangement has been maintained and
administered in compliance with its terms and with the requirements of
applicable Laws, including the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and the Code, except where the failure to comply could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Target. There is no litigation, administrative or arbitration
proceeding or other dispute pending or, to Target's knowledge, threatened that
involves any Employee Plan or Benefit Arrangement (defined below) that could
reasonably be expected to have a Material Adverse Effect on Target or a Material
Adverse Effect on any employee or director of Target or on any fiduciary (as
defined in ERISA Section 3(21)) of such Employee Plan or Benefit Arrangement.
(c) Except as provided in Exhibit 3.12 of the Disclosure Schedule, Target
does not maintain, has never maintained, and has never been required to
contribute to, an "employee benefit plan" as defined in Section 3 of ERISA that
is or was (i) a plan subject to Title IV of ERISA or (ii) a "multiemployer plan"
as defined in Section 3(37) of ERISA. Neither Target nor any of its current or
former affiliates (as defined under Section 414 of the Code) has or incurred, or
reasonably expects to incur prior to closing, any liability under Title IV of
ERISA arising in connection with the termination of, or a complete or partial
withdrawal from any plan covered or previously covered by title IV of ERISA or
any liability under Section 4971 of the Code that in either case could become a
liability of Target or Acquirer or any affiliate of either of them after the
Effective Date.
(d) Neither Target or any of its current or former affiliates (as defined
under Section 414 of the Code), nor, to Target's Knowledge, any of its current
or former directors, officers or employees, has engaged in any transaction with
respect to an Employee Plan that could subject Target to a tax, penalty or
liability for a
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prohibited transaction, as defined in Section 406 of ERISA or Section 4975 of
the Code, or for a "reportable event" within the meaning of Section 4043 of
ERISA, except for such taxes, penalties or liabilities that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Target.
(e) At May 31, 1997, each Employee Plan that constitutes a defined benefit
pension plan had assets exceeding its projected benefit obligations, as
reflected by the notes to Target's audited financial statements.
(f) Except as provided in Exhibit 3.12 of the Disclosure Schedule, no
independent contractor or other contract employee has participated or is
entitled to participate in any Employee Plan or Benefit Arrangement.
(g) Each Employee Plan and Benefit Arrangement that is intended to be
qualified within the meaning of Code Sections 401(a) or 501(a) is so qualified
and has received a favorable determination letter as to its qualification or has
filed a timely application with the Internal Revenue Service requesting such a
favorable determination letter. Nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification.
(h) Since January 1, 1992, Target has not received any written notice from
the Pension Benefit Guaranty Corporation ("PBGC") issued pursuant to ERISA
Section 4042 with respect to its Employee Plans.
(i) Except as disclosed on Exhibit 3.12 to the Disclosure Schedule, there
has been no amendment to, written interpretation of or announcement (whether or
not written) by Target relating to, or change in employee participation or
coverage under, any Employee Plan or Benefit Arrangement that would increase for
the current fiscal year the expense of maintaining such Employee Plan or Benefit
Arrangement above the level of the expense incurred in respect thereof for the
most recent fiscal year, except any such increase which would not have a
Material Adverse Effect on Target.
(j) As used herein:
(i) "Benefit Arrangement" means any employment, severance or similar
contract, or any other contract, plan, policy or arrangement (whether or
not written) providing for compensation, bonus, profit-sharing, stock
option or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangement), health or medical benefits, cafeteria plan
benefits, disability benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health, medical and
life insurance benefits), other than an Employee Plan, that is maintained,
administered or contributed to by Target and covers any employee or former
employee of Target; and
(ii) "Employee Plan" means a plan or arrangement as defined in Section
3(3) of ERISA that (A) is subject to any provision of ERISA, (B) is
maintained, administered or contributed to by Target or any member of
Target's control group (past or present), as defined in Code section
1563(a), and (C) covers any employee or former employee of Target.
3.13 EMPLOYMENT MATTERS.
(a) Except as described in Target Documents or set forth on Exhibit 3.13 to
the Disclosure Schedule, Target is not a party to any oral or written (i) union,
guild or collective bargaining agreement which agreement covers employees in the
United States (nor is it aware of any union organizing activity currently being
conducted in respect to any of its employees), (ii) agreement with any executive
officer or other key employee the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction of the
nature contemplated by this Plan of Merger, (iii) agreement or plan, including
any stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Plan of Merger or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Plan of Merger, or (iv) employment contracts with any
officer or employee.
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(b) Target is in compliance with all currently applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice, except where
the failure to so comply or the engagement in which would not have a Material
Adverse Effect on Target. There is no unfair labor practice complaint pending,
or to the Knowledge of Target, threatened against Target before the National
Labor Relations Board.
3.14 ENVIRONMENTAL MATTERS.
Except as disclosed in Exhibit 3.14 of the Disclosure Schedule or in Target
Documents filed prior to the date hereof:
(a) Target has obtained all material licenses, permits,
authorizations, approvals and consents ("Environmental Permits") from all
Governmental or Regulatory Authorities that are required in respect of its
business or operations under any applicable Environmental Law (defined
below), and each of such Environmental Permits is in full force and effect.
(b) Target is in compliance with the terms and conditions of all such
Environmental Permits and with all applicable Environmental Laws, except
for such failures that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on Target.
(c) (i) To the Knowledge of Target, no site or facility now or
previously owned, operated or leased by Target is listed or proposed for
listing on the National Priorities List or CERCLIS, promulgated pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and the rules and regulations thereunder or on
any similar state or local list of sites requiring investigation or
Remedial Action (defined below).
(ii) Since March 9, 1996, Target has not received any written notice
of any actual or alleged material violation of any Environmental Law with
respect to any of its facilities.
(iii) Target is not subject to any material outstanding agreements
with or Orders of any Governmental or Regulatory Authority respecting (A)
Environmental Laws, (B) Remedial Action or (C) any Release of a Hazardous
Material (defined below).
(iv) Since March 9, 1996, Target has not received any written notice
or request for information pertaining to a response or removal action (as
defined by CERCLA), with respect to any of its sites or facilities now or
previously owned, operated or leased by it.
(d) No liens have arisen under or pursuant to any Environmental Law on
any site or facility owned, operated or leased by Target, other than liens
that individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect on Target.
(e) There have been no material environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or that are in the
possession of, Target in relation to any site or facility owned, operated
or leased by Target, except those reports that have been identified on
Exhibit 3.14.
(f) Except as could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Target, since March 9,
1996, no Hazardous Material has been Released, disposed of or arranged to
be disposed of by Target at or about any site or facility now or previously
owned, operated or leased by Target, other than Releases or disposals
permitted under Orders issued by any Governmental or Regulatory
Authorities.
(g) As used herein:
(i) "Environmental Law" means any Law or Order relating to the
environment or to emissions, discharges or Releases of pollutants,
contaminants, or chemicals, or industrial, toxic or hazardous substances
or wastes, into the environment (including structures, ambient air,
soil, surface water, ground water, wetlands, land or subsurface strata),
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes;
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(ii) "Hazardous Material" means (A) any chemicals or other
materials or substances that are defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "pollutants," "contaminants," or words of similar
import under any Environmental Law, including petroleum, friable
asbestos, PCBs and CFCs; and (B) any other chemical, material or
substance, the presence of or exposure to which is prohibited, limited
or regulated by any Governmental or Regulatory Authority under any
Environmental Law;
(iii) "Release" means any actual or threatened (as defined under
CERCLA) release, spill, effluent, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
environment or any structure; and
(iv) "Remedial Action" means all actions, including any capital
expenditures, required by a Governmental or Regulatory Authority,
required under any Environmental Law or voluntarily undertaken to (A)
clean up, remediate, remove, treat or in any other way ameliorate or
address any Hazardous Materials Released into the environment; (B)
prevent the Release, or minimize the further Release of any Hazardous
Material so it does not endanger or threaten to endanger public health
or the environment; (C) perform pre-remedial studies and investigations
or post-remedial monitoring and care relating to a Release; or (D) bring
the applicable party into compliance with any Environmental Law.
3.15 COMPLIANCE WITH LAWS IN GENERAL.
Except as set forth on Exhibit 3.15 to the Disclosure Schedule or disclosed
in Target Documents, Target is not in violation or received any notices of
violations of any federal, state and local laws, regulations and ordinances
relating to its business and operations, including, without limitation, the
Occupational Safety and Health Act, the Americans with Disabilities Act, and any
Environmental Laws, except for any violation as would not, individually or in
the aggregate, have a Material Adverse Effect on Target and no notice of any
pending inspection or investigation of any such law, regulation or ordinance has
been received by Target which, if it were determined that a violation had
occurred, would have a Material Adverse Effect on Target.
3.16 LICENSES, ACCREDITATION AND REGULATORY APPROVALS.
Except as disclosed in Target Documents or set forth on Exhibit 3.16 to the
Disclosure Schedule, Target holds all licenses, permits and other regulatory
approvals which are needed or required by law with respect to its business,
operations and facilities as they are currently or presently conducted
(collectively, the "Licenses"), except where the failure to possess such
Licenses does not have a Material Adverse Effect on Target. All such Licenses
are in full force and effect, and Target is in compliance in all material
respects with all conditions and requirements of the Licenses and with all rules
and regulations relating thereto. Subject to compliance with applicable
securities laws, the Hart Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and state or local statutes, rules or regulations
requiring notice, approval, or other action upon the occurrence of a change in
control of Target, the consummation of the Merger will not violate any law or
regulation to which Target is subject which, if violated, would have a Material
Adverse Effect on Target.
3.17 REAL PROPERTY.
(a) Exhibit 3.17 of the Disclosure Schedule contains a list of all real
property owned by Target. Exhibit 3.17 of the Disclosure Schedule contains a
list of all real property or interests in real property leased by Target.
Complete and correct copies of all leases so listed, including all
modifications, amendments and supplements thereto, have heretofore been made
available to Acquirer and all such leases are in full force and effect in
accordance with their respective terms.
(b) Target has, except with respect to assets disposed of for adequate
consideration in the ordinary course of business (none of which are material to
the operations of its business), title to all real property and all other
properties and assets reflected in the Target Balance Sheet free and clear of
all pledges, liens, defects,
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leases, licenses, equities, conditional sales contracts, charges, claims,
encumbrances, security interests, chattel mortgages, mortgages or deeds of trust
(collectively, "Liens"), except for (i) Liens that secure indebtedness that is
properly reflected in the Target Balance Sheet, (ii) Liens for Taxes accrued but
not yet payable; (iii) mechanic's, worker's, materialmen's, operator's or other
Liens arising as a matter of law in the ordinary course of business with respect
to obligations incurred after the date of the Target Balance Sheet, provided
that the obligations secured by such Liens are not delinquent; and (iv) capital
leases, leases and licenses of such properties, if any, to third parties for
fair and adequate consideration. Except to the extent that the absence of such
an interest would not have a Material Adverse Effect on Target's business or its
ability to conduct its operations, Target owns, or has valid leasehold interests
in, all properties and assets used in the conduct of its business.
(c) There are no existing defaults or events that, with notice or lapse of
time or both, would constitute defaults under any such leases, except for
defaults that individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect on Target.
(d) Except as set forth on Exhibit 3.17 of the Disclosure Schedule, Target
enjoys peaceful and undisturbed possession of its leased properties. Target has
good and valid title to the leasehold estate in each property leased by it,
except for (i) mortgages and encumbrances that secure indebtedness properly
reflected on the financial statements of Target in Target Documents made prior
to the date hereof; (ii) liens for taxes accrued but not yet payable; (iii)
liens arising as a matter of Law in the ordinary course of business with respect
to obligations incurred after February 28, 1998, provided that the obligations
secured by such liens are not delinquent or are being contested in good faith;
and (iv) such imperfections of title and encumbrances, if any, as do not,
individually or in the aggregate, materially detract from the value or
materially interfere with the present use of such property or are listed in
Exhibit 3.17 of the Disclosure Schedule. Target is making no representations or
warranties as to the underlying title of the landlord or the status of any
mortgages granted by any landlord of property leased by Target.
(e) Target is not in violation of any zoning, building or safety Law or
Order applicable to the operation of its owned or leased properties that is
likely to impede the normal operation of the business of Target or to have,
individually or in the aggregate, a Material Adverse Effect on Target.
(f) Except as set forth on Exhibit 3.17 of the Disclosure Schedule, there
are no pending or, to the Knowledge of Target, threatened condemnation or
similar proceedings relating to any of the leased properties of Target.
3.18 VOTE REQUIRED.
The affirmative vote of the holders of a majority of the outstanding Shares
of Target Common Stock entitled to vote thereon is the only vote of the holders
of any class or series of Target capital stock necessary to approve this Plan of
Merger, the Merger and the transactions contemplated hereby.
3.19 OPINION OF FINANCIAL ADVISOR.
The Board of Directors of Target has received the oral opinion of Wheat
First Union to the effect that, as of the date of this Plan of Merger, the
Merger Consideration is fair to the holders of Target Common Stock from a
financial point of view, a written copy of which opinion will be delivered by
Target to Acquirer prior to the date on which the definitive tender offer
materials for the Offer are filed with the SEC.
3.20 TAKEOVER STATUTES.
Sections 14-2-1111 and 14-2-1132 of the GBCC are inapplicable to the Offer,
the Merger and this Plan of Merger, as Target's bylaws do not incorporate such
Sections.
3.21 RIGHTS AGREEMENT.
The execution and delivery of the Plan of Merger and the consummation of
the transactions contemplated hereby, including the Offer and the Merger, will
not result in the occurrence of a "Distribution Date" or
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"Stock Acquisition Date" or "Triggering Event" under the Rights Agreement and
will not result in any person becoming an "Acquiring Person" (as such terms are
defined in the Rights Agreement). All outstanding Rights will be retired or
expire at the Effective Time.
3.22 NO UNTRUE REPRESENTATIONS; INFORMATION SUPPLIED.
(a) No representation or warranty by Target in this Plan of Merger, and no
Exhibit or certificate issued by Target and furnished or to be furnished to
Acquirer pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact in
response to the disclosure requested, or omits or will omit to state a material
fact necessary to make the statements or facts contained therein in response to
the disclosure requested not misleading in light of all of the circumstances
then prevailing.
(b) The Schedule 14D-9 (and any amendment or supplement thereto) will not,
on the date of its filing with the Commission and the date it is first
published, sent or given to shareholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by Target with respect to information supplied in writing
by or on behalf of Acquirer or Subsidiary expressly for inclusion therein. The
Schedule 14D-9 will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder.
(c) The information supplied or to be supplied in writing by or on behalf
of Target for inclusion in the Schedule 14D-1 will not, on the date the Schedule
14D-1 (and any amendment or supplement thereto) is filed with the Commission or
on the date it is first published, sent or given to shareholders, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY AND ACQUIRER
Subsidiary and Acquirer, jointly and severally, hereby represent and
warrant to Target as follows:
4.1 ORGANIZATION, EXISTENCE AND CAPITAL STOCK.
Subsidiary is a corporation duly organized and validly existing and is in
good standing under the laws of the State of Georgia. Subsidiary's authorized
capital consists of 1,000 shares of Common Stock, par value $.01 per share, all
of which shares are issued and registered in the name of Acquirer.
4.2 POWER AND AUTHORITY.
Subsidiary has corporate power to execute, deliver and perform the Plan of
Merger and all agreements and other documents executed and delivered, or to be
executed and delivered, by it pursuant to the Plan of Merger, and, subject to
the satisfaction of the conditions precedent set forth herein, has taken all
actions required by law, its Articles of Incorporation, its Bylaws or otherwise,
to authorize the execution and delivery of the Plan of Merger and such related
documents. The execution and delivery of the Plan of Merger does not and,
subject to the receipt of required shareholder and regulatory approvals and any
other required third-party consents or approvals, the consummation of the Merger
contemplated hereby will not, violate any provisions of the Articles of
Incorporation or Bylaws of Subsidiary, or any agreement, instrument, order,
judgment or decree to which Subsidiary is a party or by which it is bound,
violate any restrictions of any kind to which Subsidiary is subject, or result
in the creation of any lien, charge or encumbrance upon any of the property or
assets of Subsidiary.
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SECTION 5
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Acquirer hereby represents and warrants to Target as follows:
5.1 ORGANIZATION, EXISTENCE AND GOOD STANDING.
Acquirer is a corporation duly organized and validly existing and is in
good standing under the laws of the State of Louisiana. Acquirer has all
necessary corporate power to own its properties and assets and to carry on its
business as presently conducted. Acquirer is duly qualified to do business and
is in good standing in all jurisdictions in which the character of the property
owned, leased or operated or the nature of the business transacted by it makes
qualification necessary.
5.2 POWER AND AUTHORITY.
Acquirer has corporate power to execute, deliver and perform the Plan of
Merger and all agreements and other documents executed and delivered, or to be
executed and delivered, by it pursuant to the Plan of Merger, and, subject to
the satisfaction of the conditions precedent set forth herein has taken all
actions required by law, its Certificate of Incorporation, its Bylaws or
otherwise, to authorize the execution and delivery of the Plan of Merger and
such related documents. The execution and delivery of the Plan of Merger does
not and, subject to the receipt of required shareholder and regulatory approvals
and any other required third-party consents or approvals, the consummation of
the Merger contemplated hereby will not, violate any provisions of the
Certificate of Incorporation or Bylaws of Acquirer, or any provision of, or
result in the acceleration of any obligation under, any material mortgage, lien,
lease, agreement, instrument, order, arbitration award, judgment or decree to
which Acquirer is a party or by which it is bound, or violate any restrictions
of any kind to which Acquirer is subject. The execution and delivery of this
Plan of Merger has been approved by the Board of Directors of Acquirer. This
Plan of Merger has been duly executed and delivered by Acquirer and Subsidiary
and, assuming this Plan of Merger constitutes a valid and binding obligation of
Target, constitutes a valid and binding obligation of Acquirer and Subsidiary,
enforceable against Acquirer and Subsidiary in accordance with its terms.
5.3 SUBSIDIARY COMMON STOCK.
Acquirer owns, beneficially and of record, all of the issued and
outstanding shares of Subsidiary Common Stock, which are duly authorized,
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens and encumbrances. Acquirer has the corporate power to endorse and
surrender such Subsidiary Shares for cancellation pursuant to the Plan of
Merger. At or prior to consummation of the Merger, Acquirer will have taken all
such actions as may be required in its capacity as the sole shareholder of
Subsidiary to approve the Merger.
5.4 SOLVENCY.
At the Effective Time and after giving effect to any changes in the
Surviving Corporation's assets and liabilities as a result of the Merger, the
Surviving Corporation will not (a) be insolvent (either because its financial
condition is such that the sum of its debts is greater than the fair value of
its assets or because the present fair salable value of its assets will be less
than the amount required to pay its probable liability on its debts as they
become absolute and matured), or (b) have unreasonably small capital with which
to engage in its business, or (c) have incurred or plan to incur debts beyond
its ability to pay as they become due.
5.5 FINANCING.
At or prior to the date of the scheduled commencement of the Offer,
Acquirer will have received, and will have delivered to Target a copy of, a
binding commitment from a reputable financial institution to provide financing
sufficient to fund the cash necessary to consummate the Offer and the Merger. At
or prior to completion of the Offer and the Merger, Acquirer will have, or will
have available to it pursuant to credit
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facilities, and will provide, or will cause to be provided to Subsidiary, the
funds necessary to consummate the Offer and the Merger.
5.6 NO VIOLATIONS.
Subject to compliance with applicable securities laws and the HSR Act, the
consummation of the Merger will not violate any law or restriction to which
Acquirer is subject.
5.7 NO UNTRUE REPRESENTATION; INFORMATION SUPPLIED.
(a) No representation or warranty by Acquirer in this Plan of Merger, and
no Exhibit or certificate issued by Acquirer and furnished or to be furnished to
Target pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact in
response to the disclosure requested, or omits or will omit to state a material
fact necessary to make the statement or facts contained therein in response to
the disclosure requested not misleading in light of all of the circumstances
then prevailing.
(b) The Schedule 14D-1 (and any amendments or supplements thereto) will
not, on the date filed with the Commission and first published, sent or given to
shareholders of Target, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading, except that no representation is made by Acquirer or
Subsidiary with respect to information supplied in writing by or on behalf of
Target expressly for inclusion therein and information derived from documents
filed by Target with the Commission. The Schedule 14D-1 will comply as to form
in all material respects with the requirements of the Exchange Act and the
regulations thereunder.
(c) The information supplied or to be supplied in writing by or on behalf
of Acquirer or Subsidiary for inclusion in the Schedule 14D-9 (and any
amendments or supplements thereto) will not, on the date the Schedule 14D-9 is
filed with the Commission and is first published, sent or given to shareholders
of Target, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
5.8 COMMENCEMENT OF TENDER.
Acquirer shall commence the Offer strictly in compliance with the first
sentence of Section 1.1 hereof.
SECTION 6
ACCESS TO INFORMATION AND DOCUMENTS
6.1 ACCESS TO INFORMATION.
Between the date hereof and the Closing Date, each of Target and Acquirer
will give to the other party and its counsel, accountants and other
representatives full access to all the properties, documents, contracts,
personnel files and other records of such party and shall furnish the other
party with copies of such documents and with such information with respect to
the affairs of such party as the other party may from time to time reasonably
request. Each party will disclose and make available to the other party and its
representatives all books, contracts, accounts, personnel records, letters of
intent, papers, records, communications with regulatory authorities and other
documents relating to the business and operations of such party. In addition,
Target shall make available to Acquirer all such banking, investment and
financial information as shall be necessary to allow for the efficient
integration of Target banking, investment and financial arrangements with those
of Acquirer at the Effective Time.
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6.2 RETURN OF RECORDS.
If the transactions contemplated hereby are not consummated and this Plan
of Merger terminates, each party agrees to promptly return all documents,
contracts, records or properties of the other party and all copies thereof
furnished pursuant to this Section 6 or otherwise. All information disclosed by
any party or any affiliate or representative of any party shall be deemed to be
"Confidential Information" under the terms of the Confidentiality Agreement
dated December 29, 1997, between Target and Acquirer (the "Confidentiality
Agreement").
6.3 EFFECT OF ACCESS.
(a) Nothing contained in this Section 6 shall be deemed to create any duty
or responsibility on the part of either party to investigate or evaluate the
value, validity or enforceability of any contract, lease or other asset included
in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely upon
such express representations and warranties irrespective of any investigations
made by such parties.
SECTION 7
COVENANTS
7.1 PRESERVATION OF BUSINESS.
Target will use reasonable commercial efforts to preserve the business
organization of Target intact, to keep available to Acquirer and the Surviving
Corporation the services of the present employees of Target, and to preserve for
Acquirer and the Surviving Corporation the goodwill of the suppliers, customers
and others having business relations with Target.
7.2 MATERIAL TRANSACTIONS.
Prior to the Effective Time, Target will not (other than as required
pursuant to the terms of the Plan of Merger and the related documents, and other
than with respect to transactions for which binding commitments have been
entered into prior to the date hereof which are described on Exhibit 7.2 to the
Disclosure Schedule), without first obtaining the written consent of Acquirer
and the consent of a majority of Independent Directors:
(a) Encumber any asset or enter into any transaction or make any
contract or commitment relating to the properties, assets and business of
Target, other than in the ordinary course of business or as otherwise
disclosed herein.
(b) Enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to Target except as
provided herein.
(c) Make any capital expenditure or commitment therefor or enter into
any contract or agreement (i) which cannot be performed within three months
or less, or (ii) which involves the expenditure of over $250,000.
(d) Issue or sell, or agree to issue or sell, any shares of capital
stock or other securities of Target, other than pursuant to the stock
options outstanding as of the date hereof.
(e) Make any contribution, payment or distribution to the trustee
under any bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in
accordance with Target's usual past practice, or establish or enter into
any new plan or contract or arrangement or make any change in any existing
plan, contract or arrangement providing for bonuses, executive incentive
compensation, pensions, deferred compensation, retirement payments,
profit-sharing or the like, or terminate any Plan.
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(f) Increase indebtedness for borrowed money or extend a material
amount of credit to anyone, except in the ordinary course of business
consistent with prior practices.
(g) Guarantee the material obligation of any person, firm or
corporation, except in the ordinary course of business consistent with
prior practices.
(h) Amend its Articles of Incorporation or Bylaws.
(i) Enter into any option to purchase or purchase agreement or buy any
real property, or enter into any new leases or renewals of existing leases
on real property, or open new restaurant locations (unless contractually
committed to do so).
(j) Take any action of a character described in Section 3.9(b)(i) to
3.9(b)(ix), inclusive.
7.3 MEETING OF TARGET SHAREHOLDERS.
(a) Promptly after consummation of the Offer, Target shall prepare and file
with the Commission, if required by federal securities laws, a preliminary form
of the proxy statement (the "Proxy Statement") to be mailed to the shareholders
of Target in connection with the meeting of such shareholders to consider and
vote upon the Merger (the "Special Meeting"). Target will cause the Proxy
Statement to comply as to form in all material respects with the applicable
provisions of the Exchange Act. Target will notify Acquirer of the receipt of
any comments from the Commission or its staff and of any request by the
Commission or its staff for amendments or supplements to the Proxy Statement or
for additional information and will supply Acquirer with copies of all
correspondence between Target or any of its representatives, on the one hand,
and the Commission or its staff, on the other hand, with respect to the Proxy
Statement prior to its being filed with the Commission and shall give Acquirer
and its counsel the reasonable opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for additional
information and replies to comments prior to their being filed with or sent to
the Commission. Target agrees to use its commercially reasonable best efforts,
after consultation with the other parties hereto, to respond promptly to all
such comments of and requests by the Commission. As promptly as practicable
after the Proxy Statement has been cleared by the Commission, Target shall mail
the Proxy Statement to its shareholders. If at any time prior to the approval of
this Plan of Merger by Target's shareholders there shall occur any event that
should be set forth in an amendment or supplement to the Proxy Statement, Target
will prepare and mail to its shareholders such an amendment or supplement.
(b) If necessary to consummate the Merger, Target will take all steps
necessary in accordance with its Articles of Incorporation and Bylaws to call,
give notice of, convene and hold a meeting of its shareholders (the "Special
Meeting") as soon as reasonably appropriate, for the purpose of approving this
Plan of Merger and for such other purposes as may be necessary. Unless this Plan
of Merger shall have been validly terminated as provided herein, the Board of
Directors of Target (subject to the provisions of Section 8.1(d) hereof) will
(i) recommend to Target shareholders the approval of this Plan of Merger, the
transactions contemplated hereby and any other matters to be submitted to the
shareholders in connection therewith, to the extent that such approval is
required by applicable law in order to consummate the Merger, and (ii) use
reasonable, good faith efforts to obtain the approval by Target's shareholders
of this Plan of Merger and the transactions contemplated hereby.
(c) At the Special Meeting, Acquirer and Subsidiary and its direct and
indirect subsidiaries shall vote, or cause to be voted, all Shares owned by them
in favor of the Merger.
7.4 EXEMPTION FROM STATE TAKEOVER LAWS.
Target shall take all reasonable steps necessary to exempt the Merger from
the requirements of any state takeover statute or other similar state law which
would prevent or impede the consummation of the transactions contemplated
hereby, by action of Target's Board of Directors or otherwise.
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7.5 HSR ACT COMPLIANCE.
Acquirer and Target shall promptly make their respective filings, and shall
thereafter use their reasonable, good faith efforts to promptly make any
required submissions, under the HSR Act with respect to the Merger and the
transactions contemplated hereby. Acquirer and Target will use their respective
reasonable, good faith efforts to obtain all other permits, authorizations,
consents and approvals from third parties and governmental authorities necessary
to consummate the Merger and the transactions contemplated hereby.
7.6 PUBLIC DISCLOSURES.
Acquirer and Target will consult with each other before issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Plan of Merger, and shall not issue any such
press release or make any such public statement prior to such consultation
except as may be required by applicable law or requirements of the New York
Stock Exchange. The parties shall issue a joint press release, mutually
acceptable to Acquirer and Target, promptly upon execution and delivery of this
Plan of Merger.
7.7 RESIGNATION OF TARGET DIRECTORS.
On or prior to the Closing Date, Target shall deliver to Acquirer evidence
satisfactory to Acquirer of the resignation of the Directors of Target, such
resignations to be effective on the Closing Date.
7.8 NOTICE OF SUBSEQUENT EVENTS.
Each party hereto shall notify the other parties of any changes, additions
or events which would cause any material change in or material addition to any
Exhibit to the Disclosure Schedule delivered by the notifying party under this
Plan of Merger, promptly after the occurrence of the same. If the effect of such
change or addition would, individually or in the aggregate with the effect of
changes or additions previously disclosed pursuant to this Section 7.8, cause
the conditions set forth in Section 9.2(b) or 9.3(b) not to be met, the non-
notifying party may, within ten days after receipt of such notice, elect to
terminate this Plan of Merger. If the non-notifying party does not give written
notice of such termination within such 10-day period, the non-notifying party
shall be deemed to have consented to such change or addition and shall not be
entitled to terminate this Plan of Merger by reason thereof.
7.9 NO SOLICITATION.
(a) From and after the date hereof, Target shall not, and shall not permit
any of its directors, officers, attorneys, financial advisors, agents or other
representatives to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) the making of any proposal or offer
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal (as hereinafter defined) from any person. In addition, Target shall,
and shall cause its directors, officers, attorneys, financial advisors, agents
and other representatives to, immediately cease any existing discussions or
negotiations, or other activities referred to in the immediately preceding
sentence, with any person conducted heretofore with respect to any of the
foregoing matters referred to in the immediately preceding sentence.
Notwithstanding the foregoing, Target may (i) furnish information pursuant to a
customary confidentiality agreement concerning Target and its businesses,
properties or assets to a third party who has, without solicitation by Target,
indicated that it is interested in making a Takeover Proposal after the date
hereof, (ii) engage in discussions or negotiations with such a third party who
has made an unsolicited Superior Proposal after the date hereof, and/or (iii)
following receipt of an unsolicited Superior Proposal after the date hereof,
take and disclose to its shareholders a position contemplated by Rule 14e-2 (a)
under the Exchange Act or otherwise make disclosure to its shareholders, but in
each case referred to in the foregoing clauses (i) through (iii) only to the
extent that the Board of Directors of Target shall have concluded in good faith,
after consultation with its outside counsel, that such action is a necessary
exercise of its fiduciary duties to the shareholders of Target under Georgia
law; provided that the Board of Directors of Target shall not take any of the
actions referred to in clauses (i) through (iii) above until after it has
delivered notice of such actions to Acquirer. As used in this Plan of Merger:
(i) "Takeover Proposal" means any proposal or offer, or any expression of
interest by any person relating to Target's
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willingness or ability to receive or discuss any proposal or offer (other than a
proposal or offer by Acquirer or Subsidiary), for any tender or exchange offer,
merger, consolidation, recapitalization or other business combination involving
Target or the acquisition in any manner of a substantial equity interest in (10%
or more), or a substantial portion of the assets of, Target or any other similar
transaction the consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the Offer, the purchase of
Shares pursuant to the Offer or the Merger; and (ii) "Superior Proposal" means a
bona fide written proposal or offer made by any person to acquire Target
pursuant to any tender or exchange offer, merger, consolidation,
recapitalization or other business combination or acquisition of all or
substantially all of the assets of Target on terms that the Board determines in
good faith, and in the exercise of sound and reasonable judgment (after
consultation with outside legal counsel and independent financial advisors), to
be more favorable to Target and its shareholders than the transaction
contemplated hereby (taking into account any fees or expenses payable hereunder
or thereunder and conditions to consummation) and for which any required
financing is committed or that, in the good faith judgment of the Board (after
consultation with independent financial advisors), is reasonably capable of
being financed by such person. Without limiting any other remedies available to
Target, the provisions of this paragraph (a) shall be suspended for so long as
Acquirer may be in breach of its obligations under Section 5.8 of this
Agreement.
(b) Target shall promptly advise Acquirer orally and in writing of the
receipt of any proposal it believes to be a Takeover Proposal, the material
terms and conditions thereof, and the identity of the person making any such
proposal or inquiry (the "Notice of Takeover Proposal"). Target will keep
Acquirer fully informed of the status and details of any such proposal or
inquiry. The parties understand and agree that Target shall be entitled to
disclose to its shareholders any information that is required by applicable Law
(including without limitation the Exchange Act) regarding any such proposal or
inquiry.
(c) Target agrees not to release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to which Target is a
party.
7.10 OTHER ACTIONS.
Subject to the provisions of Section 7.9 hereof, none of Target, Acquirer
and Subsidiary shall knowingly or intentionally take any action, or omit to take
any action, if such action or omission would, or reasonably might be expected
to, result in any of its representations and warranties set forth herein being
or becoming untrue in any material respect, or in any of the conditions to the
Merger set forth in this Plan of Merger not being satisfied, or (unless such
action is required by applicable law) which would materially adversely affect
the ability of Target or Acquirer to obtain any consents or approvals required
for the consummation of the Merger without imposition of a condition or
restriction which would have a Material Adverse Effect on the Surviving
Corporation or which would otherwise materially impair the ability of Target or
Acquirer to consummate the Merger in accordance with the terms of this Plan of
Merger or materially delay such consummation.
7.11 COOPERATION.
(a) Acquirer and Target shall together, or pursuant to an allocation of
responsibility agreed to between them, (i) cooperate with one another in
determining whether any filings required to be made or consents required to be
obtained in any jurisdiction prior to the Effective Time in connection with the
consummation of the transactions contemplated hereby and cooperate in making any
such filings promptly and in seeking to obtain timely any such consents, (ii)
use their respective best efforts to cause to be lifted any injunction
prohibiting the Merger, or any part thereof, or the other transactions
contemplated hereby, and (iii) furnish to one another and to one another's
counsel all such information as may be required to effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this
Plan of Merger shall have been validly terminated as provided herein, each of
Acquirer and Target shall use all reasonable efforts (i) to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party (or any subsidiaries or affiliates of such
party) with respect to the Plan of Merger and
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to consummate the transactions contemplated hereby, subject to the vote of
Target's shareholders described above, and (ii) to obtain (and to cooperate with
the other party to obtain) any consent, authorization, order or approval of, or
any exemption by, any governmental entity and/or any other public or private
third party which is required to be obtained or made by such party or any of its
subsidiaries or affiliates in connection with this Plan of Merger and the
transactions contemplated hereby. Each of Acquirer and Target will promptly
cooperate with and furnish information to the other in connection with any such
burden suffered by, or requirement imposed upon, either of them or any of their
subsidiaries or affiliates in connection with the foregoing.
7.12 TARGET EMPLOYEES.
Acquirer shall retain all employees of Target who are employed at the
Effective Time as employees-at-will (except to the extent that such employees
are parties to contracts providing for other employment terms, in which case
such employees shall be retained in accordance with the terms of such contracts)
and shall provide such employees with the same customary employee benefits as
Acquirer provides its existing employees. Acquirer shall cause Target to honor
Target stay bonus arrangements as in effect immediately prior to the date
hereof, copies of which have been provided to Acquirer. Exhibit 7.12 describes
the parties to whom such stay bonus letters have been delivered. Acquirer shall
give employees of Target credit for their respective periods of employment with
Target prior to the Effective Time for purposes of determining their eligibility
for vesting, level of participation, and benefit accrual (other than benefit
accrual under Acquirer's defined benefit pension plan) in any employee benefit
program, plan or arrangement which the Surviving Corporation adopts, maintains
or contributes to following the Effective Time.
7.13 INDEMNIFICATION.
(a) Target shall, and from and after the Effective Time, Acquirer and the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Plan of Merger an
officer or director of Target (the "Indemnified Parties") against (i) all
losses, claims, damages, costs, expenses, liabilities or judgments, or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of, or in connection with, any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director or officer of Target pertaining to any matter existing or occurring at
or prior to the Effective Time ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Plan of Merger, the Merger or any other
transactions contemplated hereby or thereby, in each case to the same extent as
such Indemnified Parties were entitled to be indemnified under the articles of
incorporation and bylaws of Target as in effect on December 31, 1997 (and
Acquirer and the Surviving Corporation, as the case may be, will pay expenses,
including through advancement to the full extent provided in Target's articles
of incorporation or bylaws as in effect on December 31, 1997. Without limiting
the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and Target (or them and Acquirer and the Surviving
Corporation after the Effective Time), (ii) Target (or after the Effective Time,
Acquirer and the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received and (iii) Target (or after the Effective Time, Acquirer
and the Surviving Corporation) will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that none of Target, Acquirer or
the Surviving Corporation shall be liable for any settlement of any claim
effected without its written consent, which consent, however, shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 7.13, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify Target, Acquirer or the Surviving
Corporation (but the failure so to notify an Indemnifying Party shall not
relieve it from any liability which it may have under this Section 7.13 except
to the extent such failure prejudices such party), and shall deliver to Target
(or after the Effective Time, Acquirer and the Surviving Corporation) the
undertaking contemplated by Section 14-2-855 of the GBCC. The Indemnified
Parties as a group may retain only one law firm to
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represent them with respect to such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(b) The provisions of this Section 7.13 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
(c) Acquirer shall pay for the insurance premiums required for any
extension of Target's D&O insurance policy following the Closing Date for a
"discovery" period elected under such insurance policy covering the officers and
directors of Target for a period of six years or shall provide comparable
coverage for the same period under Acquirer's D&O insurance policy for all
directors and officers of Target, covered by Target's policy.
(d) The rights to indemnification granted by this Section 7.13 are subject
to the following limitations: (i) the total aggregate indemnification to be
provided by Acquirer and/or Surviving Corporation (exclusive of insurance
coverage available) pursuant to this Section 7.13 will not exceed, as to all of
the Indemnified Parties described herein as a group, the sum of $10 million, and
Acquirer shall have no responsibility to any Indemnified Party for the manner in
which such sum is allocated among that group (but the Indemnified Parties may
seek reallocation among themselves); (ii) amounts otherwise required to be paid
by Acquirer to an Indemnified Party pursuant to this Section 7.13 shall be
reduced by any amounts that such Indemnified Party has recovered by virtue of
the claim for which indemnification is sought and Acquirer shall be reimbursed
for any amounts paid by Acquirer that such Indemnified Party subsequently
recovers by virtue of such claim; (iii) no Indemnified Party shall be entitled
to indemnification for any claim made or threatened prior to the Closing Date of
which such Indemnified Party or Target was aware but did not promptly disclose
to Acquirer prior to the execution of this Plan of Merger, if the claim or
threatened claim was known on or before such time, or prior to the Closing Date,
if such claim became known after execution of this Plan of Merger, provided that
all matters disclosed in the Disclosure Schedule to this Plan of Merger shall be
deemed to have been disclosed to Acquirer by all of such Indemnified Parties for
purposes of this Section 7.13(d); and (iv) any claim for indemnification
pursuant to this Section 7.13 must be submitted in writing to the Chief
Executive Officer of Acquirer promptly upon such Indemnified Party becoming
aware of such claim and, in no event, more than ten years from the Effective
Date, provided that any such failure to advise promptly has a prejudicial effect
on Acquirer.
7.14 TERMINATION OF PLANS.
(a) No further discount stock purchases shall be permitted with director
fees through the Morrison Fresh Cooking, Inc. Stock Incentive and Deferred
Compensation Plan for Directors.
(b) All changes of control agreements between Target and any officer or
director of Target shall be terminated at or prior to the Effective Date.
SECTION 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION.
This Plan of Merger may be terminated at any time prior to the Effective
Time, whether before or after approval of matters presented in connection with
the Merger by the holders of shares of Target Common Stock:
(a) by mutual written consent of Acquirer and Target;
(b) by either Acquirer or Target:
(i) if, upon a vote at a duly held meeting of shareholders or any
adjournment thereof, any required approval of the holders of shares of
Target Common Stock shall not have been obtained;
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(ii) if the Merger shall not have been consummated on or before
October 31, 1998, unless the failure to consummate the Merger is the
result of a willful and material breach of this Plan of Merger by the
party seeking to terminate this Plan of Merger; provided, however, that
the passage of such period shall be tolled for any part thereof (but not
exceeding 60 days in the aggregate) during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or the
calling or holding of a meeting of shareholders;
(iii) if any court of competent jurisdiction or other Governmental
or Regulatory Authority shall have issued an Order or taken any other
action permanently enjoining, restraining or otherwise prohibited the
Merger and such Order or other action shall have become final and
nonappealable;
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger which (A) would give rise to the failure of a condition
set forth in Section 9.2(a) or (b) or Section 9.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach (a
"Material Breach") (provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other
agreement contained in this Plan of Merger); or
(v) if either Acquirer or Target gives notice of termination as a
non-notifying party pursuant to Section 7.8;
(vi) the Offer shall be terminated or expire in accordance with its
terms without the purchase of Shares pursuant thereto; provide, however,
that neither party shall be entitled to terminate for such reason if the
cause thereof is a breach by such party of any of its obligations under
this Plan of Merger;
(vii) if (a) all of the conditions to the obligation of such party
to effect the Merger set forth in Section 9.1 shall have been satisfied
and (b) any condition to the obligation of such party to effect the
Merger set forth in Section 9.2 (in the case of Acquirer) or Section 9.3
(in the case of Target) is not capable of being satisfied prior to the
end of the period referred to in Section 8.1(b)(ii);
(c) by Target if:
(i) Target receives a Superior Proposal (defined in Section 7.9)
prior to the consummation of the Offer; provided that, prior to
terminating this Plan of Merger, (A) Target shall have provided the
Notice of Takeover Proposal in accordance with the first sentence of
Section 7.9(b), and (B) Target shall have paid to Acquirer the Fee
required pursuant to Section 8.6; or
(ii) the Offer has not been timely commenced in accordance with
Section 1.1; or
(d) by Acquirer and Subsidiary, if:
(i) the Board shall have withdrawn or modified, in any manner
adverse to Acquirer and Subsidiary, the approval or recommendation by
the Board of this Plan of Merger, the Offer or the Merger or approved or
recommended any Takeover Proposal (defined in Section 7.9), or shall
have resolved to do any of the foregoing; or
(ii) (A) a Takeover Proposal that is publicly disclosed shall have
been commenced, publicly proposed or communicated to Target and (B)
Target shall not have rejected such Takeover Proposal within 15 business
days (or 10 business days if required by the federal securities laws)
after the earlier of its receipt thereof or the date its existence first
becomes publicly disclosed.
8.2 EFFECT OF TERMINATION.
In the event of termination of this Plan of Merger as provided in Section
8.1, this Plan of Merger shall forthwith become void and have no effect, without
any liability or obligation on the part of any party, other than the provisions
of Sections 6.2, 8.2 and 8.6, and except to the extent that such termination
results from the
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willful and material breach by a party of any of its representations,
warranties, covenants or other agreements set forth in this Plan of Merger.
8.3 AMENDMENT.
This Plan of Merger may be amended by the parties at any time before or
after any required approval of matters presented in connection with the Merger
by the holders of shares of Target Common Stock; provided, however, that after
any such approval, there shall be made no amendment that requires further
approval by such shareholders without the further approval of such shareholders.
This Plan of Merger may not be amended except by an instrument in writing signed
on behalf of each of the parties.
8.4 EXTENSION; WAIVER.
At any time prior to the Effective Time of the Merger, the parties may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties, (b) waive any inaccuracies in the representations and
warranties contained in this Plan of Merger or in any document delivered
pursuant to this Plan of Merger or (c) subject to the proviso of Section 8.3,
waive compliance with any of the agreements or conditions contained in this Plan
of Merger. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Plan of Merger to assert any of its
rights under this Plan of Merger or otherwise shall not constitute a waiver of
such rights, except as otherwise provided in Section 7.8.
8.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER.
A termination of this Plan of Merger pursuant to Section 8.1, an amendment
of this Plan of Merger pursuant to Section 8.3, or an extension or waiver
pursuant to Section 8.4 shall, in order to be effective, require in the case of
Acquirer, Subsidiary or Target, action by its Board of Directors or the duly
authorized designee of the Board of Directors.
8.6 EXPENSES; BREAK-UP FEES.
(a) All costs and expenses incurred in connection with this Plan of Merger
and the transactions contemplated hereby shall be paid by the party incurring
such expense.
(b) If:
(i) this Plan of Merger is terminated by Acquirer and Subsidiary
pursuant to Section 8.1(d)(i) hereof or by Target pursuant to Section
8.1(c)(i); or
(ii) (A) this Plan of Merger is terminated (1) by Acquirer and
Subsidiary pursuant to Section 8.1(d)(ii), or 8.1(b)(iv), (v) or (vii)
hereof, or (2) by Acquirer and Subsidiary or by Target pursuant to Section
8.1(b)(iii) hereof, but only if the Order, ruling or other action by the
Governmental or Regulatory Authority giving rise thereto is issued or taken
as a result of an action, suit or proceeding in which a Third Party who has
made a Takeover Proposal or Superior Proposal is a participant or which
involves issues arising out of a Takeover Proposal or Superior Proposal,
and, --
(B) within 12 months thereafter, either (1) Target enters into an
agreement with respect to any Third Party Acquisition or (2) any Third
Party Acquisition occurs, and,
(C) after the execution and delivery of this Plan of Merger but prior
to such termination, (1) Target (or its agents) had discussions with
respect to such Third Party Acquisition, (2) Target (or its agents)
furnished information with respect to or with a view to such Third Party
Acquisition or (3) a Third Party announced an interest publicly with
respect to any Third Party Acquisition, or indicated an interest or made a
proposal with respect to any Third Party Acquisition and thereafter such
indication or proposal became public, or, with respect to any Third Party
that announced an interest publicly prior to the date hereof with respect
to any Third Party Acquisition, or indicated an interest or made a proposal
prior to the date hereof with respect to any Third Party Acquisition, such
Third Party indicated publicly
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its continued interest with respect to such Third Party Acquisition, or
indicated its continued interest or amended any previous proposal with
respect to such Third Party Acquisition and thereafter such indication or
amendment became public;
then Target shall pay to Acquirer within two business days following any such
termination under paragraph (i) above or within two business days following the
closing of a Third Party Acquisition described in paragraph (ii)(B) in the event
of any such termination under paragraph (ii) above, a fee, in cash and in
immediately available funds, of $2.6 million (inclusive of all out-of-pocket
expenses) (the "Fee"); provided, however, that Target in no event shall be
obligated to pay more than one Fee with respect to all such terminations;
provided, further, that Target shall not be obligated to pay the Fee pursuant to
this Section if Acquirer or Subsidiary shall be in material breach of its
covenants or agreements in this Plan of Merger, and, provided, further, that
Target shall reimburse Acquirer for all reasonable attorneys' fees and other
out-of-pocket expenses incurred with collecting a Fee hereunder if it is
ultimately determined that a Fee is payable by Target hereunder.
(c) For purposes of this Section:
"Third Party" means any person other than Acquirer or Subsidiary or
any affiliate thereof.
"Third Party Acquisition" means the occurrence of any of the following
events, in a single transaction or a series of related transactions: (i)
the acquisition of Target by merger, tender offer, exchange offer or
otherwise by any Third Party; (ii) the acquisition by a Third Party of 30%
or more of the assets of Target and its subsidiaries, taken as a whole,
(iii) the acquisition by a Third Party or Target of more than 30% of the
outstanding Shares; or (iv) the adoption by Target of a plan of liquidation
or the declaration or payment of an extraordinary dividend. Target
acknowledges that the provisions contained in this Section 8.6 are an
integral part of the transactions contemplated by this Plan of Merger, and
that, without these provisions, Acquirer would not enter into this Plan of
Merger.
SECTION 9
CONDITIONS TO CLOSING
9.1 MUTUAL CONDITIONS.
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction, at or prior to the Closing Date of the following
conditions (any of which may be waived in writing by Acquirer and Target):
(a) None of Acquirer, Subsidiary or Target nor any of their respective
subsidiaries shall be subject to any order, decree or injunction by a court
of competent jurisdiction which (i) prevents or materially delays the
consummation of the Merger or (ii) would impose any material limitation on
the ability of Acquirer effectively to exercise full rights of ownership of
the Common Stock of the Surviving Corporation or any material portion of
the assets or business of Target.
(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state,
municipality or other political subdivision thereof that makes the
consummation of the Merger and any other transaction contemplated hereby
illegal.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) The holders of Target Common Stock shall have approved the
adoption of this Plan of Merger and any other matters submitted to them in
accordance with the provisions of Section 7.3 hereof.
(e) Subsidiary shall have purchased all Shares validly tendered
pursuant to the Offer.
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9.2 CONDITIONS TO OBLIGATIONS OF ACQUIRER AND SUBSIDIARY.
The obligations of Acquirer and Subsidiary to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions (any of which may be
waived by Acquirer and Subsidiary):
(a) Each of the agreements of Target to be performed at or prior to
the Closing Date pursuant to the terms hereof shall have been duly
performed in all material respects, and Target shall have performed, in all
material respects, all of the acts required to be performed by it at or
prior to the Closing Date by the terms hereof.
(b) The representations and warranties of Target set forth in this
Plan of Merger that are qualified as to materiality shall be true and
correct, and those that are not so qualified shall be true and correct in
all material respects, as of the date of this Plan of Merger and as of the
Closing as though made at and as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier
date); provided, however, that Target shall not be deemed to be in breach
of any such representations or warranties by taking any action permitted
(or approved by Acquirer) under Section 7.2. Acquirer and Subsidiary shall
have been furnished with a certificate, executed by a duly authorized
officer of Target, dated the Closing Date, certifying in such detail as
Acquirer and Subsidiary may reasonably request as to the fulfillment of the
foregoing conditions.
(c) Acquirer shall have received an opinion from Powell, Goldstein,
Frazer & Murphy LLP in customary form and reasonably satisfactory to
Acquirer.
9.3 CONDITIONS TO OBLIGATIONS OF TARGET.
The obligations of Target to consummate the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction, at or
prior to the Closing Date, of the following conditions (any of which may be
waived by Target):
(a) Each of the agreements of Acquirer and Subsidiary to be performed
at or prior to the Closing Date pursuant to the terms hereof shall have
been duly performed, in all material respects, and Acquirer and Subsidiary
shall have performed, in all material respects, all of the acts required to
be performed by them at or prior to the Closing Date by the terms hereof.
(b) The representations and warranties of Acquirer set forth in this
Plan of Merger that are qualified as to materiality shall be true and
correct, and those that are not so qualified shall be true and correct in
all material respects, as of the date of this Plan of Merger and as of the
Closing as though made at and as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier
date). Target shall have been furnished with a certificate, executed by
duly authorized officers of Acquirer and Subsidiary, dated the Closing
Date, certifying in such detail as Target may reasonably request as to the
fulfillment of the foregoing conditions.
(c) Target shall have received an opinion from Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P, in customary form and
reasonably satisfactory to Target.
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SECTION 10
MISCELLANEOUS
10.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations and warranties in this Plan of Merger or in any
instrument delivered pursuant to this Plan of Merger shall survive the Effective
Time.
10.2 NOTICES.
Any communications required or desired to be given hereunder shall be
deemed to have been properly given if sent by hand delivery or by facsimile and
overnight courier to the parties hereto at the following addresses, or at such
other address as either party may advise the other in writing from time to time:
If to Acquirer:
Piccadilly Cafeterias, Inc.
3232 Sherwood Forest Boulevard
Baton Rouge, Louisiana 70816
Attention: Chairman
with a copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre
First NBC Center
51st Floor
201 St. Charles Avenue
New Orleans, Louisiana 70170-5100
Attention: Curtis R. Hearn
If to Target:
Morrison Restaurants Inc.
3300 Highlands Parkway
Suite 130
Atlanta, Georgia 30082
Attention: Chairman
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
16th Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Walter G. Moeling, IV
All such communications shall be deemed to have been delivered on the date
of hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3 FURTHER ASSURANCES.
Each party hereby agrees to perform any further acts and to execute and
deliver any documents which may be reasonably necessary to carry out the
provisions of this Plan of Merger.
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10.4 GOVERNING LAW.
This Plan of Merger shall be interpreted, construed and enforced in
accordance with the laws of the State of Georgia, applied without giving effect
to any conflicts-of-law principles.
10.5 DEFINITIONS.
"Including." The word "including", when following any general statement,
term or matter, shall not be construed to limit such statement, term or matter
to the specific terms or matters as provided immediately following the word
"including" or to similar items or matters, whether or not non-limiting language
(such as "without limitation", "but not limited to", or words of similar import)
is used with reference to the word "including" or the similar items or matters,
but rather shall be deemed to refer to all other items or matters that could
reasonably fall within the broadest possible scope of the general statement,
term or matter.
"Knowledge." "To the knowledge", "to the best knowledge, information and
belief", or any similar phrase shall be deemed to refer to the knowledge of the
Chairman of the Board, Chief Executive Officer or Chief Financial Officer of a
party and to include the assurance that such knowledge is based upon a
reasonable investigation, unless otherwise expressly provided.
"Material Adverse Change" or "Material Adverse Effect." "Material Adverse
Change" or "Material Adverse Effect" means, when used in connection with Target
or Acquirer, any change, effect, event or occurrence that has, or is reasonably
likely to have, individually or in the aggregate, a material adverse impact on
the business or financial position of such party and its subsidiaries taken as a
whole or to the ability of such party to perform its obligations hereunder or to
consummate the transactions contemplated hereby, including the Offer and the
Merger; provided, however, that "Material Adverse Change" and "Material Adverse
Effect" shall be deemed to exclude the impact of (i) changes in generally
accepted accounting principles and (ii) the public announcement of the Merger
and compliance with the provisions of this Plan of Merger, and (iii) any charges
resulting from any restructuring or other similar charges or write-offs taken by
Target with the consent of Acquirer; provided, however, that a decline in same
store customer traffic consistent with previous quarterly trends, which have
ranged between 5.4% and 10.9% (over the previous annual period) for the first
three fiscal quarters of Target, and the corresponding negative financial
results, shall not be deemed to constitute a Material Adverse Change or Material
Adverse Effect with respect to Target.
10.6 CAPTIONS.
The captions or headings in this Plan of Merger are made for convenience
and general reference only and shall not be construed to describe, define or
limit the scope or intent of the provisions of this Plan of Merger.
10.7 INTEGRATION OF EXHIBITS.
All Exhibits attached to this Plan of Merger are integral parts of this
Plan of Merger as if fully set forth herein, and all statements appearing
therein shall be deemed disclosed for all purposes and not only in connection
with the specific representation in which they are explicitly referenced.
10.8 ENTIRE AGREEMENT.
This instrument, including all Exhibits attached hereto, together with the
Confidentiality Agreement, contains the entire agreement of the parties and
supersedes any and all prior or contemporaneous agreements between the parties,
written or oral, with respect to the transactions contemplated hereby.
10.9 COUNTERPARTS.
This Plan of Merger may be executed in several counterparts, each of which,
when so executed, shall be deemed to be an original, and such counterparts
shall, together, constitute and be one and the same instrument.
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10.10 BINDING EFFECT.
This Plan of Merger shall be binding on, and shall inure to the benefit of,
the parties hereto, and their respective successors and assigns, and, except as
provided in Section 7.13, no other person shall acquire or have any right under
or by virtue of this Plan of Merger. No party may assign any right or obligation
hereunder without the prior written consent of the other parties.
10.11 NO RULE OF CONSTRUCTION.
The parties acknowledge that this Plan of Merger was initially prepared by
Acquirer, and that all parties have read and negotiated the language used in
this Plan of Merger. The parties agree that, because all parties participated in
negotiating and drafting this Plan of Merger, no rule of construction shall
apply to this Plan of Merger which construes ambiguous language in favor of or
against any party by reason of that party's role in drafting this Plan of
Merger.
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IN WITNESS WHEREOF, Acquirer, Subsidiary and Target have caused this Plan
and Agreement of Merger to be executed by their respective duly authorized
officers, and have caused their respective corporate seals to be hereunto
affixed, all as of the day and year first above written.
MORRISON RESTAURANTS INC.
By /s/ RONNIE L. TATUM
-----------------------------------
Name: Ronnie L. Tatum
Title: Chief Executive Officer
ATTEST:
/s/ MITCHELL S. BLOCK
- ------------------------------------
Secretary
[CORPORATE SEAL]
PICCADILLY CAFETERIAS, INC.
By /s/ RONALD A. LABORDE
-----------------------------------
Ronald A. LaBorde
President and Chief Executive
Officer
ATTEST:
/s/ BRIAN VON GRUBEN
- ------------------------------------
Secretary
[CORPORATE SEAL]
PICCADILLY ACQUISITION
CORPORATION
By /s/ RONALD A. LABORDE
-----------------------------------
Ronald A. LaBorde
President
ATTEST:
/s/ J. FRED JOHNSON
- ------------------------------------
Secretary
[CORPORATE SEAL]
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ANNEX A
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Subsidiary shall not be
required to accept for payment or pay for any tendered Shares, and may terminate
or amend the Offer and may postpone the acceptance for payment and payment for
tendered Shares, if (i) there are not validly tendered prior to the expiration
of the Offer (the "Expiration Date") and not withdrawn a number of Shares which
constitutes on the date of purchase at least 66 2/3% of the outstanding Shares
on a fully diluted basis (the "Minimum Condition") or (ii) at any time before
the time of payment for such Shares (whether or not Shares have been accepted
for payment or paid for pursuant to the Offer), any of the following events
(each, an "Event") shall occur:
(a) there shall have been instituted or pending any action or
proceeding by or before any court or governmental regulatory or
administrative agency, authority or tribunal, domestic or foreign, which is
reasonably likely to (i) restrain or prohibit the consummation of the Offer
or the Merger, or obtain any material damages in connection therewith, (ii)
make the purchase of or payment for some or all of the Shares pursuant to
the Offer or the Merger illegal, (iii) impose material limitations on the
ability of Acquirer or Subsidiary (or any of their affiliates) effectively
to acquire or hold, or requiring Acquirer, Subsidiary or Target or any of
their respective affiliates or subsidiaries to dispose of or hold separate,
any of the assets or the business of Acquirer or Subsidiary and their
affiliates taken as a whole or Target or otherwise have a Material Adverse
Effect on Acquirer or Target or (iv) impose material limitations on the
ability of Acquirer (or its affiliates) to exercise full rights of
ownership of the Shares purchased by it on all matters properly presented
to the shareholders of Target; or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any state, federal or
governmental authority or by any court, any statute, rule, regulation,
judgment, decree, order or injunction, that is reasonably likely, directly
or indirectly, to result in any of the consequences referred to in clauses
(i) through (iv) of subsection (a) above; or
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) the commencement of a war,
armed hostilities or other international or national calamity directly or
indirectly involving the United States, or (iv) in the case of any of the
foregoing existing at the time of the commencement of the Offer, in the
reasonable judgment of Subsidiary, a material acceleration or worsening
thereof; or
(d) the Plan of Merger shall have been terminated in accordance with
its terms; or
(e) any waiting period under the HSR Act applicable to the purchase of
Shares pursuant to the Offer shall not have expired or been terminated; or
(f) any of the representations or warranties made by Target in the
Merger Agreement shall not have been true and correct in all material
respects when made, or shall thereafter have ceased to be true and correct
in all material respects on the Expiration Date (other than (i) changes in
or disruptions of Target's business resulting from the execution of the
Plan of Merger or the announcement of the Offer and the Merger, and (ii)
representations and warranties made as of a specified date), or Target
shall not in all material respects have performed each obligation and
agreement and complied with each covenant to be performed and complied with
by it under the Plan of Merger and Target fails to cure such breach within
five days after notice thereof is given by Subsidiary, but in no event
later than the Expiration Date; or
(g) a Material Adverse Change shall have occurred with respect to
Target;
(h) Target's Board shall have withdrawn or modified, in any manner
adverse to Acquirer and Subsidiary, the approval or recommendation by the
Board of the Plan of Merger, the Offer or the Merger or approved or
recommended any Takeover Proposal or shall have resolved to do any of the
foregoing.
A-33
<PAGE> 69
which, in the reasonable discretion of Subsidiary, in any case, giving rise to
any such condition, makes it inadvisable to proceed with the Offer or with
acceptance for payment or payment for Shares.
The foregoing conditions are for the sole benefit of Acquirer and
Subsidiary and may be asserted by Acquirer or Subsidiary regardless of the
circumstances giving rise to any such condition and may be waived by Acquirer or
Subsidiary in whole or in part at any time and from time to time in their sole
discretion, except as otherwise provided in the Plan of Merger with respect to
the Minimum Condition and compliance with the HSR Act. Acquirer's or
Subsidiary's failure at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right, the waiver of any such right with
respect to particular facts and circumstances shall not be deemed a waiver with
respect to any other facts and circumstances and each such right shall be deemed
an ongoing right which may be asserted at any time and from time to time.
A-34
<PAGE> 70
APPENDIX B
[WHEAT FIRST UNION LOGO]
CONFIDENTIAL
April 22, 1998
Board of Directors
Morrison Restaurants Inc.
3300 Highlands parkway
Suite 130
Atlanta, Georgia 30082
Members of the Board:
You have asked us to advise you with respect to the fairness to the
stockholders of Morrison Restaurants Inc. ("Morrison") from a financial point of
view of the consideration to be received by such stockholders pursuant to the
terms of the Plan and Agreement of Merger, dated as of April 22, 1998 (the
"Merger Agreement"), among Morrison, Piccadilly Cafeterias, Inc. ("Acquiror"),
and a wholly-owned subsidiary of Acquiror ("Merger Sub"). The Merger Agreement
provides, among other things, for (i) Merger Sub to make a tender offer (the
"Offer") for all outstanding shares of common stock, par value $.01 per share,
of Morrison, including the associated rights to purchase shares of Series A
Junior Participating Preferred Stock (collectively, "Morrison Common Stock") at
a price of $5.00 per share in cash (the "Consideration"), and (ii) the merger
(the "Merger") of Morrison with and into Merger Sub, as soon as practicable
following the expiration or termination of the Offer, with each share of
Morrison Common Stock being converted into the right to receive the
Consideration and each outstanding option to purchase Morrison Common Stock
being cashed out simultaneously with the Merger such that no options to acquire
Morrison Common Stock would exist following the Merger.
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available business and financial
information relating to Morrison;
(ii) reviewed certain other information, including financial
forecasts, provided to us by Morrison, and have met with Morrison's
management to discuss the business and prospects of Morrison;
(iii) considered certain financial data of Morrison and compared that
data with similar data for publicly held companies in businesses similar to
those of Morrison;
(iv) considered the financial terms of certain other business
combinations and other transactions which have recently been effected;
(v) reviewed the financial terms and conditions of the Merger
Agreement; and
(vi) considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of
Morrison's management as to the future financial performance of Morrison. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Morrison, nor have we been furnished
with any such evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. In connection with our engagement, we approached
third parties to solicit indications of interest in a possible acquisition of
Morrison.
B-1
<PAGE> 71
We have acted as financial advisor to Morrison in connection with the Offer
and the Merger and will receive a fee for our services, including for rendering
this opinion, a significant portion of which is contingent upon the consummation
of the Merger. As part of our investment banking business, we are regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
In the ordinary course of business, we or our affiliates may actively trade
the debt and equity securities of Morrison and Acquiror for our or any such
affiliate's own account or for the account of customers and, accordingly, may
hold a long or short position in such securities. In addition, we and our
affiliates in the past may have provided investment and commercial banking
products and services for Morrison and Acquiror, their affiliates and other
related persons.
It is understood that this letter is for the information of the Board of
Directors of Morrison in connection with its consideration of the Offer and the
Merger and does not constitute a recommendation to any stockholder as to how
such stockholders should vote on the proposed Merger or act in respect of the
Offer. Our opinion does not address the relative merits of the transaction
contemplated by the Merger Agreement as compared to any alternative business
strategies that might exist for Morrison, nor does it address the effect of any
other business combination in which Morrison might engage. This letter is not to
be quoted or referred to, in whole or in part, in any registration statement,
prospectus or proxy statement, or in any other document used in connection with
the offering or sale of securities, nor shall this letter be used for any other
purposes, without Wheat First Securities, Inc.'s prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deem relevant, we are
of the opinion that, as of the date hereof, the Consideration is fair from a
financial point of view to holders of Morrison Common Stock.
Very truly yours,
/s/ WHEAT FIRST SECURITIES, INC.
- ------------------------------------
Wheat First Securities, Inc.
B-2
<PAGE> 72
APPENDIX C
ARTICLE 13
OF
GEORGIA BUSINESS CORPORATION CODE
SEC. 14-2-1301 DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 14-2-1302 RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale of cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
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(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provisions of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to received
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
SEC. 14-2-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
SEC. 14-2-1320 NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
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<PAGE> 74
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
SEC. 14-2-1321 NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
SEC. 14-2-1322 DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
SEC. 14-2-1323 DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice is
not entitled to payment for his shares under this article.
SEC. 14-2-1324 SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
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<PAGE> 75
SEC. 14-2-1325 OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement of that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
SEC. 14-2-1326 FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
SEC. 14-2-1327 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed or uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
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(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his share and interest due.
SEC. 14-2-1330 COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
SEC. 14-2-1331 COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation,
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the court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
SEC. 14-2-1332 LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
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APPENDIX D
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MAY 31, 1997
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________________________ TO
________________________
COMMISSION FILE NUMBER 1-14202
MORRISON FRESH COOKING, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 63-1155967
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
THE HARTSFIELD COLONNADE
4893 RIVERDALE ROAD, SUITE 260
ATLANTA, GEORGIA 30337
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (770) 991-0351
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
$0.01 par value Common Stock New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on August 8,
1997 as reported on the New York Stock Exchange, was approximately $43,353,352.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of shares of the Registrant's common stock outstanding at August
8, 1997 was 9,248,715.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended May 31, 1997 are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive proxy statement dated August 20,
1997 are incorporated by reference into Part III.
================================================================================
D-1
<PAGE> 79
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I
Item 1. Business.................................................... D-3
Item 2. Properties.................................................. D-7
Item 3. Legal Proceedings........................................... D-7
Item 4. Submission of Matters to a Vote of Security Holders......... D-7
Executive Officers of the Company........................... D-8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... D-8
Item 6. Selected Financial Data..................................... D-8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. D-8
Item 8. Financial Statements and Supplementary Data................. D-9
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. D-9
PART III
Item 10. Directors and Executive Officers of the Registrant.......... D-9
Item 11. Executive Compensation...................................... D-9
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ D-9
Item 13. Certain Relationships and Related Transactions.............. D-9
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... D-10
</TABLE>
D-2
<PAGE> 80
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Morrison Fresh Cooking, Inc. (the "Company" or "MFCI"), incorporated in
1995 in Atlanta, Georgia, owns and operates cafeterias, buffets and mall food
court locations in the southeastern and mid-Atlantic regions of the United
States. As of May 31, 1997, the Company operated a total of 154 units,
consisting of 129 traditional cafeterias, 11 small cafeterias, 11 mall food
court units and three buffets located in 13 states, making it one of the largest
cafeteria companies in the Southeast.
Prior to March 1996, the Company comprised the family dining business of
Morrison Restaurants Inc. ("MRI"). On March 7, 1996, the shareholders of MRI
approved the distribution of the common stock of MFCI to its shareholders (the
"Distribution"). The effective date of the Distribution was March 9, 1996; MRI
shareholders received one share of the Company's common stock for every four
shares of MRI common stock then held.
In connection with the Distribution, the Company filed a Registration
Statement with the SEC on Form 10 (together with subsequent amendments, the
"Form 10") under the Securities Exchange Act of 1934 with respect to the
Company's common stock. The Form 10 became effective on March 4, 1996, and the
Company stock commenced trading on the New York Stock Exchange on March 11,
1996.
BACKGROUND
MRI, the former parent company, was founded in 1920 as a unique cafeteria
concept in Mobile, Alabama. In 1928, with just eight cafeterias, the company had
its first and only public stock offering. The first cash dividend on the common
shares was declared in 1936, and dividends have been paid continuously for 61
years.
CONCEPT
The Company operates in the "home-meal replacement" (also known as
"comfort" food) segment of the restaurant industry. The Company's services
appeal to customers seeking complete meals at affordable prices, in a convenient
and home-like setting. While industry observers have labeled "home-meal
replacement" as a trend of the 1990's, Morrison Fresh Cooking, Inc. has been
operating in this market segment for 77 years.
STRATEGY
Morrison Fresh Cooking, Inc.'s business strategy is to:
- Emphasize future growth beyond existing mall-based units into convenient
free-standing locations. New units will generally be smaller, more labor
and energy efficient, and will be designed to evoke a contemporary and
comfortable environment.
- Re-engineer its cost-structure through state-of-the-art technology in
information services, cooking equipment and quality control.
- Emphasize more health-conscious and contemporary menu items without
losing focus on traditional southern menu favorites.
- Achieve operational excellence through competitive pricing, variety of
menu items and employee training.
- Focus growth in the southeast and mid-Atlantic regions to capitalize on
existing brand-equity and name-recognition.
D-3
<PAGE> 81
OPERATIONS
The Company serves in excess of 42 million meals a year to a customer base
in the southeast and mid-Atlantic regions. In the 1997 American Bus
Association's annual survey of tour operators, the Company was rated as one of
the Association's most favorite restaurant chains. In addition, the National
Motor Coach Network rated the Company second in their 1997 survey. MFCI's meals
are classic, all-American and freshly prepared, and are made from scratch
according to their time tested recipes. Each day's menu offers the customer a
wide variety of selections: fresh salads, home-style entrees, freshly prepared
vegetables, daily baked breads, and home-baked pies or other desserts.
MFCI's units offer a tremendous variety of menu items including 8-11
salads, 12 entrees, 12-15 vegetables, 6 types of breads, and 12-15 desserts.
Complete or "bundled" meals can be purchased at prices ranging from $3.99 to
$5.89 per meal. In excess of 70% of MFCI's customers select bundled meals. Menus
are rotated daily to provide a varied dining experience and are adjusted to
include seasonal favorites. This variety encourages customer loyalty and repeat
business. The Company's typical customer visits the restaurants an average of
3.8 times per month.
The traditional cafeteria, located in a shopping mall or on a free-standing
site (both convenient to shopping and business developments as well as to
residential areas), is approximately 10,000 square feet and seats approximately
250 customers. The new smaller cafeteria offers a contemporary appearance,
featuring a new serpentine serving area that creates an open, airy environment
to enhance viewing of the menu items by the customer. The small cafeterias are
built in a contemporary design ranging from 6,200 to 6,800 square feet and seat
approximately 180 guests. The dining area, accompanied by booths and wooden
tables and chairs, creates a comfortable at-home atmosphere, and is intended to
appeal to a broader, younger market. The small cafeterias are designed to
provide convenient, customer-friendly take-out services.
The mall food court units or quick service restaurants ("QSRs") are 600 to
1,200 square foot dining facilities, located primarily in the mid-Atlantic
states. They feature many traditional menu selections for which MFCI is more
commonly known, along with some new items. The QSRs offer several bundled value
meal combinations in addition to a la carte pricing for selected items.
The Company is undergoing a modernization program for its existing core
cafeterias in order to improve their appeal to a larger customer base and
increase the efficiency and customer-friendliness of the cafeterias' service
lines. MFCI intends to continue remodeling efforts by concentrating on its units
in demographic areas where this enhanced atmosphere would achieve the greatest
results.
RESEARCH AND DEVELOPMENT
The Company does not engage in any material research and development
activities. Numerous studies are made, however, on a continuing basis, to
improve menus, equipment, and methods of operations, including planning for new
food-service concepts. In addition, the Company holds regular "focus group"
discussions with existing, former and potential customers to determine ways to
exceed customer expectations and increase customer satisfaction.
RAW MATERIALS
Raw materials essential to the operation of the Company's business are
obtained principally through national food distributors. Because of the
relatively short storage life of inventories, limited storage facilities at the
restaurants themselves, MFCI's requirement for freshness and the numerous
sources of goods, a minimum amount of inventory is maintained at the units. If
necessary, all essential food, beverage and operational products are available
and can be obtained from alternative suppliers in all cities in which the
Company operates.
The Company, Morrison Health Care, Inc. ("MHCI") and Ruby Tuesday, Inc.
("RTI"), successor to MRI, have formed MRT Purchasing, LLC, a Georgia limited
liability company ("MRT"), to serve as a purchasing cooperative, to maintain the
volume purchasing bargaining position enjoyed by MRI prior to the Distribution
by pooling their collective purchasing power and coordinating the purchase of
certain food,
D-4
<PAGE> 82
equipment and services. Pursuant to MRT's Operating Agreement, MRT serves as the
purchasing agent for the three companies by arranging for the purchase of
products to be made directly between each of the three companies and suppliers.
MRT has complete discretion to select vendors and brands for certain designated
products ("core products") and to negotiate terms of purchasing arrangements for
core products, including long-term contracts. To the extent feasible, MRT
concludes purchasing arrangements under which each of the three companies has
independent rights and obligations. With respect to any arrangement where each
company's liabilities are not independent, RTI, MHCI and the Company cross
indemnify MRT and each other with respect to their allocated share of liability
for obligations to be performed and payment for goods purchased.
RTI, MHCI and the Company are obligated to purchase all core products
through MRT arrangements; non-core products may be purchased independently. The
three companies are committed to these purchasing arrangements for an initial
term of five years from the date of Distribution, which will automatically renew
for additional five year terms. RTI, MHCI or the Company may terminate its
participation in these purchasing arrangements upon six months prior notice,
provided, however, that it will continue to honor its commitments under any then
existing contract extending beyond the termination date. Approximately 92% of
the total products purchased by the Company during fiscal 1997 would have
constituted "core products" under the MRT purchasing cooperative.
Each of RTI, MHCI and the Company have an equal equity interest in MRT. It
is not intended, however, that MRT will generate income or profits. Employees
are loaned by one of the three companies and all expenses incurred in connection
with operating MRT are shared among the three companies pro rata, based on the
relative value of time spent and expenses incurred by MRT on behalf of each of
the companies.
Existing long term purchasing arrangements are managed through MRT, which
acts as agent for RTI, MHCI and the Company. In each case, purchasing
obligations are allocated among the three companies based on past practice. To
the extent feasible, MRT will seek to amend such arrangements to formalize the
allocation of responsibilities and liabilities. In particular, MRI amended its
agreement ("Supply Agreement") with PYA/Monarch, Inc. ("PYA") to allocate to the
appropriate company certain divisional obligations to purchase from PYA a
minimum percentage of produce, foodstuff and other supplies. In addition, the
aggregate annual minimum dollar amount of purchases under the Supply Agreement
has been allocated among RTI, MHCI and the Company.
TRADEMARKS OF THE COMPANY
The Company has registered trademarks and service marks with the United
States Patent and Trademark Office, including the Morrison's(R) trademark. MFCI
believes that this and other related marks are of material importance to the
Company's business. Registrations of the trademark Morrison's(R) expire in 2005,
unless renewed. In addition, approval is pending for the registration of the
trademark "Morrison's Fresh Cooking" by MFCI.
The Company, MHCI and RTI have entered into Intellectual Property License
Agreements (collectively, "IP Agreements") which provide for licensing to or
among these companies of rights under trademarks, service marks, trade secrets
and certain other intellectual property (collectively "Intellectual Property")
owned by RTI, MHCI or the Company following the Distribution. The purpose of
these IP Agreements is to provide RTI, MHCI and the Company with those
continuing rights and licenses under such Intellectual Property following the
Distribution necessary for the continued conduct of their respective businesses
in accordance with practice prior to the Distribution.
MARKETING
The Company's marketing strategy is to increase customer and potential
customers' awareness of MFCI's strengths including variety, fresh cooking,
bundled meals, speed of service, and value-based pricing. MFCI's marketing
efforts focus on active advertising in television, radio and print media and
local store promotions. In addition, the Company is committing resources to
develop marketing manuals for each of its restaurants and
D-5
<PAGE> 83
increase its community involvement to become more of a part of the neighborhoods
in which its restaurants are located.
WORKING CAPITAL PRACTICES
Cash provided by operations, along with borrowings under the Company's
revolving line of credit, are invested in new unit expansion, the renovation of
existing units and dividends.
Additional information concerning the working capital of the Company is
incorporated herein by reference to information presented within the "Liquidity
and Capital Resources" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Company's 1997 Annual
Report to Shareholders.
CUSTOMER DEPENDENCE
No material part of the business of the Company is dependent upon a single
customer, or a very few customers, the loss of any one of which would have a
material adverse effect on MFCI.
COMPETITION
The Company's activities in the restaurant industry are subject to vigorous
competition relating to restaurant location and service, as well as quality,
variety and value perception of the food products offered. The Company is in
competition with other food service operations, with locally-owned operations as
well as national and regional chains that offer the same type of services and
products as MFCI. Management believes that competition in the "home-meal
replacement" or "comfort food" market segment is based on price, food quality,
variety and convenience. The Company believes it compares favorably with its
competition in these areas.
IMPACT OF INFLATION
In the past, the Company has been able to recover inflationary cost
increases through increased menu prices. There have been, and there may be in
the future, delays in implementing such menu price increases, and competitive
pressures may limit MFCI's ability to recover such cost increases in their
entirety. Historically, the effects of inflation on the Company's net income
have not been materially adverse.
GOVERNMENT COMPLIANCE
The Company is subject to various regulations at both the state and local
levels for items such as zoning, land use, sanitation, health and fire safety,
all of which could delay the opening of a new restaurant or the operation of an
existing unit. MFCI's business is subject to various other regulations at the
federal level such as health care, minimum wage and fair labor standards.
Compliance with these regulations has not had, and is not expected to have, a
material adverse effect on the Company's operations.
There is no material portion of the Company's business that is subject to
renegotiation of profits or termination of contracts or sub-contracts at the
election of the Federal Government.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local laws and regulations which have
been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, is not
expected to have a material effect upon the capital expenditures, earnings or
competitive position of the Company.
PERSONNEL
The Company employs approximately 7,800 full-time and part-time employees.
MFCI believes that its relationship with its employees is good, that working
conditions are favorable and employee compensation is
D-6
<PAGE> 84
comparable with its competition. None of the Company's employees are subject to
a collective bargaining agreement.
SEASONALITY
The Company's business is moderately seasonal. Average restaurant sales of
MFCI are slightly higher during the winter months than during the summer months.
As MFCI has many restaurants located in shopping malls and other retail
locations, sales for these units increase over the holiday season. Overall, the
variation is not material.
ITEM 2. PROPERTIES.
Information regarding the Company's location by state and the number of
operations is shown below.
Of the 154 Company-operated restaurants, MFCI owns the building and holds
long-term land leases for 10 restaurants, owns the land and building for 13
restaurants, holds leases covering land and building for 130 restaurants and
owns the land and leases the building for one unit. These leases have terms that
expire on various dates over the next 20 years, and generally provide for
options to renew, in some cases at adjusted rentals. The leases may provide for
escalation of rent during the lease term and generally provide for additional
contingent lease payments based upon sales volume. The Company has a policy to
remodel units as needed. Facilities and equipment are repaired and maintained to
assure their adequacy, productive capacity and utilization.
The Company's corporate headquarters for its executive and administrative
personnel is located in Atlanta, Georgia in approximately 17,000 square feet of
a leased building. The lease has a term ending in 1997, and annual lease
payments are approximately $180,000. Additional administrative support is
located in Mobile, Alabama; the lease term expires in 2001.
Additional information concerning the properties of the Company and the
lease obligations of MFCI is incorporated herein by reference to Note 3 of the
Notes to Financial Statements included in the Annual Report to Shareholders for
the fiscal year ended May 31, 1997.
As of May 31, 1997, MFCI operated 154 locations in the following states:
<TABLE>
<S> <C> <C> <C>
Alabama......................... 18 Mississippi..................... 10
Florida......................... 51 North Carolina.................. 5
Georgia......................... 26 South Carolina.................. 8
Indiana......................... 1 Tennessee....................... 7
Kentucky........................ 5 Virginia........................ 16
Louisiana....................... 2 West Virginia................... 1
Maryland........................ 4
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is presently, and from time to time, subject to pending claims
and suits arising in the ordinary course of its business. In the opinion of
Management, the ultimate resolution of these pending legal proceedings will not
have a material adverse effect on MFCI's operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
D-7
<PAGE> 85
EXECUTIVE OFFICERS OF THE COMPANY
Executive officers of the Company are appointed by and serve at the
discretion of the Company's Board of Directors. Information regarding the
Company's executive officers as of August 8, 1997 is provided below.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- ---------
<S> <C> <C> <C>
Ronnie L. Tatum.......... 57 Chief Executive Officer 1996
Craig D. Nelson.......... 43 Senior Vice President, Finance and Assistant 1996
Secretary
William M. Byrd.......... 40 Senior Vice President, Operations 1996
Mitchell S. Block........ 44 Vice President, General Counsel and Secretary 1996
</TABLE>
Ronnie L. Tatum is Chief Executive Officer of the Company. He was President
of the Family Dining Division of MRI's Morrison Group from March 1994 until the
Distribution in March 1996. Mr. Tatum served as President of MRI's Family Dining
Group from March 1993 to March 1994, and Senior Vice President of MRI's Family
Dining Group from 1990 to March 1993.
Craig D. Nelson is Senior Vice President of Finance and Assistant Secretary
of the Company. He was Vice President, Controller of MRI's Morrison Group from
July 1994 to March 1996. Mr. Nelson served as Vice
President/Controller -- Family Dining Division from November 1990 to July 1994.
He joined MRI in 1976.
William M. Byrd is Senior Vice President of Operations of the Company. He
was Vice President, Operations of MRI's Family Dining Division from October 1995
to March 1996, then of the Company until September 1996. Previously, Mr. Byrd
was Regional Vice President for Daka International from July 1995 to October
1995. Prior to that he was Operations Director at the Pizza Hut Division of
Pepsico.
Mitchell S. Block is Vice President, General Counsel and Secretary of the
Company. Previously, he was Real Estate Attorney of MRI's Ruby Tuesday Group
from April 1993 to March 1996. Prior to joining the Company, Mr. Block was Vice
President, General Counsel and Secretary for Wyatt Cafeterias, Inc. in Dallas,
Texas, where he worked from March 1986 to April 1993.
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Certain information required by this item is incorporated herein by
reference to Note 13 of the Notes to Financial Statements of the Registrant's
Annual Report to Shareholders for the fiscal year ended May 31, 1997.
ITEM 6.SELECTED FINANCIAL DATA.
The information contained under the caption "Summary of Operations" of the
Registrant's Annual Report to Shareholders for the fiscal year ended May 31,
1997 is incorporated herein by reference.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Registrant's
Annual Report to Shareholders for the fiscal year ended May 31, 1997 is
incorporated herein by reference.
D-8
<PAGE> 86
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and the related report of the Company's
independent auditors contained in the Registrant's Annual Report to Shareholders
for the fiscal year ended May 31, 1997, are incorporated herein by reference:
Statements of Operations -- fiscal years ended May 31, 1997 June 1, 1996
and June 3, 1995.
Balance Sheets -- As of May 31, 1997 and June 1, 1996
Statements of Stockholders' Equity -- fiscal years ended May 31, 1997, June
1, 1996 and June 3, 1995.
Statements of Cash Flows -- fiscal years ended May 31, 1997, June 1, 1996
and June 3, 1995.
Notes to Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information regarding directors of the Company is incorporated herein
by reference to the information set forth in the table captioned "Director and
Director Nominee Information" under "Election of Directors' in the definitive
proxy statement of the Registrant dated August 20, 1997, relating to the
Registrant's annual meeting of shareholders to be held on September 24, 1997.
Pursuant to Form 10-K General Instruction G(3), the information regarding
executive officers of the Company has been included in Part I of this Report
under the caption "Executive Officers of the Company".
MFCI has established Audit, Compensation and Stock Option, and Nominating
Committees of the Board. Members of the Audit and Compensation and Stock Option
Committees are not to be employees of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated herein by
reference to the information set forth under the captions "Executive
Compensation" and "Election of Directors -- Directors' Fees and Attendance" in
the definitive proxy statement of the Registrant dated August 20, 1997 relating
to the Registrant's annual meeting of shareholders to be held on September 24,
1997.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is incorporated herein by
reference to the information set forth in the table captioned "Beneficial
Ownership of Common Stock" under "Election of Directors" in the definitive proxy
statement of the Registrant dated August 20, 1997 relating to the Registrant's
annual meeting of shareholders to be held on September 24, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated herein by
reference to the information set forth under the caption "Certain Transactions"
in the definitive proxy statement of the Registrant dated August 20, 1997
relating to the Registrant's annual meeting of shareholders to be held on
September 24, 1997.
D-9
<PAGE> 87
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are incorporated by reference into or are filed
as a part of this report:
1. Financial Statements:
The following financial statements and the independent auditors'
report thereon, included in the Registrant's Annual Report to
Shareholders for the fiscal year ended May 31, 1997, a copy of which is
contained in the exhibits to this report, are incorporated herein by
reference:
<TABLE>
<CAPTION>
PAGE REFERENCE
IN PAPER VERSION
OF ANNUAL REPORT
TO SHAREHOLDERS
----------------
<S> <C>
Statements of Operations for the fiscal years ended May 31,
1997, June 1, 1996 and June 3, 1995.......................
Balance Sheets as of May 31, 1997 and June 1, 1996..........
Statements of Stockholders' Equity for the fiscal years
ended May 31, 1997, June 1, 1996 and June 3, 1995.........
Statements of Cash Flows for the fiscal years ended May 31,
1997, June 1, 1996 and June 3, 1995.......................
Notes to Financial Statements...............................
Report of Independent Auditors..............................
</TABLE>
2. Financial statement schedules:
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
3. Exhibits
The following exhibits are filed as part of this report:
MORRISON FRESH COOKING, INC.
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(a) -- Amended and Restated Articles of Incorporation of
Morrison Fresh Cooking, Inc.(1)
3(b) -- Bylaws of Morrison Fresh Cooking, Inc.(1)
4(a) -- Specimen Common Stock Certificate.(2)
4(b) -- Amended and Restated Articles of Incorporation of
Morrison Fresh Cooking, Inc. (see Exhibit 3(a) hereto).
4(c) -- Bylaws of Morrison Fresh Cooking, Inc. (see Exhibit 3(b)
hereto).
4(d) -- Form of Rights Agreement between Morrison Fresh Cooking,
Inc. and AmSouth Bank of Alabama, as Rights Agent.(2)
4(e) -- Form of Rights Certificate (see Exhibit 4(d) hereto).(2)
10(a) -- Form of Distribution Agreement among Morrison Restaurants
Inc., Morrison Fresh Cooking, Inc. and Morrison Health
Care, Inc.(1)
</TABLE>
D-10
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(b) -- Form of Amended and Restated Tax Allocation and
Indemnification Agreement among Morrison Restaurants
Inc., Custom Management Corporation of Pennsylvania,
Custom Management Corporation, John C. Metz & Associates,
Inc., Morrison International, Inc., Morrison Custom
Management Corporation of Pennsylvania, Morrison Fresh
Cooking, Inc., Ruby Tuesday, Inc., a Delaware
corporation, Ruby Tuesday (Georgia), Inc., a Georgia
corporation, Galaxy Management, Inc., Manask Food
Service, Inc., Morrison of New Jersey, Inc., Tias, Inc.
and Morrison Health Care, Inc.(1)
10(c) -- Form of Agreement Respecting Employee Benefit Matters
among Morrison Restaurants Inc., Morrison Fresh Cooking,
Inc. and Morrison Health Care, Inc.(2)
10(d) -- Form of License Agreement between Morrison Fresh Cooking,
Inc. and Morrison Health Care, Inc.(1)
10(e) -- Form of Amended and Restated Operating Agreement of MRT
Purchasing, LLC among Morrison Restaurants Inc., Ruby
Tuesday, Inc., Morrison Fresh Cooking, Inc. and Morrison
Health Care, Inc.(1)
10(f)* -- Form of Morrison Fresh Cooking, Inc. 1996 Stock Incentive
Plan.(2)
10(g)* -- Form of Morrison Fresh Cooking, Inc. Stock Incentive and
Deferred Compensation Plan for Directors.(2)
10(h)* -- Form of 1996 Non-Executive Stock Incentive Plan.(2)
10(i)* -- Form of Morrison Fresh Cooking, Inc. Executive
Supplemental Pension Plan together with related form of
Trust Agreement.(2)
10(j)* -- Form of Morrison Fresh Cooking, Inc. Management
Retirement Plan together with related form of Trust
Agreement.(2)
10(k)* -- Form of Morrison Fresh Cooking, Inc. Salary Deferral Plan
together with related form of Trust Agreement.(2)
10(l)* -- Form of Morrison Fresh Cooking, Inc. Deferred
Compensation Plan together with related form of Trust
Agreement.(2)
10(m)* -- Form of Morrison Fresh Cooking, Inc. Executive Group Life
and Executive Accidental Death and Dismemberment Plan.(2)
10(n)* -- Form of Morrison Fresh Cooking, Inc. Executive Life
Insurance Plan.(2)
10(o) -- Form of Indemnification Agreement to be entered into with
executive officers and directors.(1)
10(p)* -- Form of Change of Control Agreement to be entered into
with executive officers.(2)
10(q) -- Non-Qualified Stock Option Agreement between Morrison
Restaurants Inc. and Eugene E. Bishop.(2)
10(r) -- Non-Qualified Stock Option Agreement between Morrison
Restaurants Inc. and Samuel E. Beall, III.(2)
10(s) -- Credit agreement dated as of June 19, 1997 between
Registrant and AmSouth Bank of Alabama.
10(t) -- Severance agreements dated April 4, 1997 between
Registrant and Christopher P. Elliott and Scears Lee,
III.
10(u) -- Form of Amendment Number 1 to Rights Agreement between
Morrison Fresh Cooking, Inc. and SunTrust Bank, Atlanta,
as successor Rights Agent to AmSouth Bank, Alabama.
</TABLE>
D-11
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(v)* -- Form of First Amendment to the Morrison Fresh Cooking,
Inc. Executive Supplemental Pension Plan.
10(w)* -- Form of First Amendment to the Morrison Fresh Cooking,
Inc. Management Retirement Plan.
10(x)* -- Form of Second Amendment to the Morrison Fresh Cooking,
Inc. Management Retirement Plan.
10(y)* -- Form of First Amendment to the Morrison Fresh Cooking,
Inc. Deferred Compensation Plan.
10(z)* -- Form of Second Amendment to the Morrison Fresh Cooking,
Inc. Deferred Compensation Plan.
10(aa)* -- Form of First Amendment to the Morrison Fresh Cooking,
Inc. Salary Deferral Plan.
10(bb)* -- Form of Second Amendment to the Morrison Fresh Cooking,
Inc. Salary Deferral Plan.
11 -- Statement regarding computation of per share earnings.
13 -- Annual Report to Shareholders for the fiscal year ended
May 31, 1997 (only portions specifically incorporated by
reference in the Form 10-K are being filed herewith).
23 -- Consent of Independent Auditors.
27 -- Financial Data Schedule.
</TABLE>
MORRISON FRESH COOKING, INC.
EXHIBIT FOOTNOTES
<TABLE>
<CAPTION>
EXHIBIT
FOOTNOTE DESCRIPTION
-------- -----------
<C> <S>
(1) Incorporated by reference to Exhibit of the same number in
the Registrant's Registration Statement on Form 10 filed
with the Commission on February 8, 1996.
(2) Incorporated by reference to Exhibit of the same number in
the Registrant's amendment to Registration Statement on Form
10/A filed with the Commission on February 29, 1996.
* This is a management contract or compensatory plan or
arrangement.
</TABLE>
4. Reports on Form 8-K:
The Company did not file any Current Reports on Form 8-K during the
quarter ended May 31, 1997.
(b) Exhibits filed with this report are attached hereto.
D-12
<PAGE> 90
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MORRISON FRESH COOKING, INC.
<TABLE>
<S> <C>
Date 08/22/97 By:/s/ CRAIG D. NELSON
-------------------------------------------------------
Craig D. Nelson
Senior Vice President, Finance
(Principal Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
Date 08/22/97 By:/s/ DOLPH W. VON ARX
-------------------------------------------------------
Dolph W. von Arx
Chairman of the Board
Date 08/22/97 By:/s/ RONNIE L. TATUM
-------------------------------------------------------
Ronnie L. Tatum
Chief Executive Officer
and Director
Date 08/22/97 By:/s/ E. EUGENE BISHOP
-------------------------------------------------------
E. Eugene Bishop
Director
Date 08/22/97 By:/s/ DONALD RATAJCZAK
-------------------------------------------------------
Dr. Donald Ratajczak
Director
Date 08/22/97 By:/s/ J. VERONICA BIGGINS
-------------------------------------------------------
J. Veronica Biggins
Director
Date 08/22/97 By:/s/ ARTHUR R. OUTLAW
-------------------------------------------------------
Arthur R. Outlaw
Vice Chairman of the Board
</TABLE>
D-13
<PAGE> 91
MORRISON FRESH COOKING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the
Company's performance during the past three fiscal years, the following
discussion should be read in conjunction with the Financial Statements and
related Notes found on pages 18 to 31.
RESULTS OF OPERATIONS
On March 9, 1996, Morrison Restaurants Inc., a Delaware corporation (MRI),
distributed to its shareholders all of the issued and outstanding shares of
common stock of the Company, which held the family dining assets and business of
MRI (the "Distribution"). As a result of the Distribution, MRI shareholders
received one share of Company common stock for every four shares of MRI common
stock held. The effective date of the Distribution for accounting purposes was
March 3, 1996, the first day of the fiscal 1996 fourth quarter of the Company.
Effects of Distribution on Results of Operations
The effect of the Distribution on the results of operations of the Company
for the fiscal years ended June 1, 1996 and June 3, 1995, are presented in the
Unaudited Pro Forma Financial Information in Note 12 of the Financial
Statements. Such pro forma financial information is presented as if the
Distribution had been effected as of the dates indicated.
The following table sets forth selected restaurant operating data as a
percentage of sales for the periods indicated. All information is derived from
the historical financial statements of the Company included elsewhere in this
Annual Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 1997 1996 1995
----------------- ----- ----- -----
<S> <C> <C> <C>
Net Sales................................................... 100.0% 100.0% 100.0%
Operating Costs and Expenses:
Cost of merchandise....................................... 28.3 28.2 26.8
Payroll and related costs................................. 36.3 38.0 35.8
Other operating costs..................................... 22.5 20.9 20.6
Selling, general and administrative....................... 7.1 6.6 6.9
Depreciation.............................................. 4.0 3.8 3.5
Interest expense (income), net............................ 0.1 0.0 (0.1)
Loss on impairment of assets.............................. 5.2
Restructure costs......................................... 3.1
----- ----- -----
Total Operating Costs and Expenses................ 98.3 105.8 93.5
----- ----- -----
Income (Loss) before Income Taxes........................... 1.7 (5.8) 6.5
Provision for (Benefit from) Income Taxes................... 0.6 (2.1) 2.6
----- ----- -----
Net Income (Loss)........................................... 1.1% (3.7)% 3.9%
===== ===== =====
</TABLE>
1997 Compared to 1996
Net sales decreased $18.0 million, or 6.7%. This decrease in sales was
primarily attributable to two fewer cafeteria units compared to the prior year
and a 2.7% decrease in same-store sales. The same-store sales decrease was
partially mitigated by an increase in check average due to a price increase
implemented in October 1996.
Cost of merchandise decreased $4.8 million, or 6.3% and was relatively
stable as a percentage of sales. The Company maintained a flat cost of sales
despite heavy to moderate inflationary food cost pressures during
D-14
<PAGE> 92
the year, primarily in the first and second quarters of fiscal 1997. The Company
experienced some food price increases as the result of product offering changes
during the latter part of fiscal 1997.
Payroll and related costs decreased $11.0 million, or 10.8%, and as a
percentage of sales, decreased 1.7 percentage points. This decrease was the
result of a reduction in store-level management labor and a decrease in average
wage rates associated with the increased use of part-time labor. The labor
reduction was offset by the federal minimum wage increase in October 1996.
Fringe benefit costs decreased from the prior year due to a decrease in the
Company's self-insurance costs for workers' compensation and medical insurance
programs as a result of improvements in claims experience.
Other operating costs decreased slightly from the prior year. Rent and
leasing expense, the largest components of this category, remained relatively
unchanged as a percentage of sales from the prior year. The increase as a
percentage of sales was primarily due to an increase in accruals associated with
the expected settlement costs of closed units, as well as increases in repairs
and utilities costs.
Selling, general and administrative expenses increased slightly over the
prior year as a percentage of sales. General and administrative costs increased
as a percentage of sales over the prior year due to increased management labor
associated with additional supervisory operations positions added to reduce the
number of restaurants supervised by each regional manager. General and
administrative costs were also negatively impacted by a $0.3 million accrual of
severance costs for two executives who resigned during the fourth quarter of
fiscal 1997. Advertising costs remained relatively flat as a percentage of sales
compared to the prior fiscal year.
Depreciation increased slightly as a percentage of sales due to equipment
upgrades and remodeling programs conducted during the fiscal year.
Net interest expense increased over the prior year due to increased
borrowing levels maintained during fiscal 1997 over fiscal 1996.
The effective income tax rate (benefit) increased to 37.2% in 1997 from
(36.5%) in 1996.
1996 Compared to 1995
Net sales decreased $26.9 million, or 9.1%. This decrease was principally
the result of 26 store closings and same-store customer count declines.
Partially offsetting these decreases was the addition of seven new stores and
higher average tray prices over the prior year.
Cost of merchandise decreased $3.5 million, or 4.5%, principally due to the
reduction in stores and lower sales volume. However, early in fiscal year 1996,
the menu was modified to offer additional higher-end products, resulting in a
higher cost per meal.
Payroll and related costs decreased $3.8 million, or 3.6%. The primary
factors in this decrease were the reduction in stores, the implementation of a
self-serve beverage counter, a kitchen labor reduction program and the use of an
enhanced labor scheduling tool. Management and hourly wage rate increases
partially offset this decrease.
Other operating costs decreased $4.4 million, or 7.3%. The principal
contributors to this decrease were reduction in stores, offset partially by the
settlement of a four-year-old claim.
Selling, general and administrative expenses decreased $2.8 million, or
13.6%. The majority of this decrease was associated with the reduction in
advertising promotions conducted by the Company during the year.
Depreciation decreased $0.2 million, or 1.9%, and was related to the
reduction in stores, offset by the addition of $14.7 million in capital
expenditures.
Net interest income decreased $0.4 million as a result of the reduction in
available funds to invest stemming from lower sales volume.
D-15
<PAGE> 93
In the third quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-lived Assets to be Disposed Of". In the third
quarter of fiscal 1996, the Company recorded a $13.8 million charge for loss on
impairment of assets, $1.5 million of which was due to the adoption of FAS 121.
Of this charge, $8.7 million related to assets to be disposed of, largely due to
15 quick service restaurants and seven traditional cafeterias that were closed
in fiscal 1996, and the remaining $5.1 million related to a write-down of
impaired assets that will continue to be carried in operations. See Note 10 of
the Financial Statements for more information on this charge.
The Company also recorded an $8.3 million restructure charge in the third
quarter of fiscal 1996. This restructure charge was largely composed of $6.1
million for costs to be incurred to settle lease obligations for the 15 quick
service restaurants and seven cafeterias that were closed. The remaining $2.2
million of the charge related to various asset write-offs and professional fees
associated with the Distribution. See Note 11 of the Financial Statements for
more information on this charge.
The effective income tax rate (benefit) decreased to (36.5%) in 1996 from
40.5% in 1995. This decrease was due to the nondeductibility of a portion of the
professional fees associated with the restructuring, which resulted in a lower
tax benefit from the pre-tax loss.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
During 1997, cash generated from operations of $8.3 million combined with
cash available from lines of credit was used to fund $14.1 million of net
capital expenditures and $3.3 million of dividends. There were $7.5 million in
short-term borrowings under the Company's line of credit as of May 31, 1997, an
increase of $7.5 million over the prior year. See the Statements of Cash Flows
on page 21 for more information.
Capital Expenditures
Property and equipment expenditures for fiscal 1997 were $14.1 million,
4.6% lower than the prior year. During 1997, three cafeteria-style restaurants
(two small cafeterias and one mall food court) were opened and four traditional
cafeterias were closed. The Company spent approximately $4.5 million on
technology upgrade programs during the fiscal year. Capital expenditures for
fiscal 1998 are expected to be $14.8 million. Expected openings for fiscal year
1998 include six small cafeterias. The Company anticipates that capital
expansion will be funded primarily by operations supplemented by incremental
borrowings from its line of credit when necessary. See "Special Note Regarding
Forward-Looking Information".
Borrowings and Credit Facilities
The Company had a committed line of credit totaling $10.0 million at May
31, 1997, which had a balance outstanding of $7.5 million as of the fiscal year
end. There was also an additional $5.0 million uncommitted portion of this same
facility which was unused during the fiscal year. Subsequent to fiscal 1997, the
Company replaced this line of credit with a $30.0 million committed line of
credit with another bank. This new line of credit is considered adequate by the
Company to provide for its financing needs over the next three fiscal years. See
"Special Note Regarding Forward-Looking Information".
Dividends
Cash dividends paid to stockholders during 1997 equaled $3.3 million ($0.36
per share).
Deferred Tax Assets
The recognition of deferred tax assets depends on the anticipated existence
of taxable income in future periods in amounts sufficient to realize the assets.
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes", specifies that deferred tax assets are to be reduced if it is
believed more likely than not that some or all of the deferred tax assets will
not be realized. Management
D-16
<PAGE> 94
believes that future taxable income should be sufficient to realize all of the
Company's deferred tax assets based on the historical earnings of the Company;
therefore, a valuation allowance has not been established. See "Special Note
Regarding Forward-Looking Information".
KNOWN EVENTS, UNCERTAINTIES AND TRENDS
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (FAS 128), "Earnings Per Share", which
is required to be adopted for financial statements issued after December 15,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating basic earnings per share, the dilutive effect
of stock options will be excluded. The change is not expected to have a material
impact on the Company's primary or fully diluted earnings per share.
Impact of Inflation
In the past, the Company has been able to recover inflationary cost
increases through increased menu prices. There have been, and there may be in
the future, delays in implementing such menu price increases, and competitive
pressures may limit the Company's ability to recover such cost increases in
their entirety. At present, the minimum wage is scheduled to increase again on
September 1, 1997 which may negatively impact the Company's payroll costs in the
short-term, but which Management feels can be negated in the long-term through
increased efficiencies in its operations. Historically, the effects of inflation
on the Company's net income have not been materially adverse.
Management's Outlook
The Company intends to grow primarily through same-store customer and sales
increases, as well as to achieve profitability growth through cost management.
To help accomplish this, the Company will make its restaurants more convenient
for the customer by locating to freestanding sites when appropriate. Incremental
new restaurant growth will be managed to a level which can be funded from
operating cash flows, supplemented by borrowings when appropriate. Management's
focus in the short term will be on improving operating margins at the restaurant
level, as well as leveraging overhead and general and administrative expenses.
Management consistently evaluates its advertising expenditures and
anticipates marketing its restaurants at a rate consistent with prior years
based on the effectiveness of its efforts. See "Special Note Regarding
Forward-Looking Information".
Special Note Regarding Forward-Looking Information
The foregoing section contains various "forward-looking statements' which
represent the Company's expectations or beliefs concerning future events,
including the following: statements regarding unit growth, future capital
expenditures and future borrowings. The Company cautions that a number of
important factors could, individually or in the aggregate, cause actual results
to differ materially from those included in the forward-looking statements
including, without limitation, the following: consumer spending trends and
habits; mall-traffic trends; increased competition in the restaurant market;
weather conditions in the regions in which the Company operates restaurants;
consumers' acceptance of the Company's development concepts; and laws and
regulations affecting labor and employee benefit costs.
D-17
<PAGE> 95
MORRISON FRESH COOKING, INC.
SUMMARY OF OPERATIONS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED_
----------------------------------------------------
MAY 31, JUNE 1, JUNE 3, JUNE 4, JUNE 5,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................... $249,637.. $267,638 $294,587 $292,493 $291,032
======== ======== ======== ======== ========
Income Before Loss on Impairment of
Assets, Restructure Costs, Income
Taxes and Cumulative Effect of
Accounting Changes.................... $ 4,349 $ 6,491 $ 19,108 $ 16,724 $ 13,110
Loss on Impairment of Assets............ 13,789
Restructure Costs....................... 8,290
-------- -------- -------- -------- --------
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting
Changes............................... 4,349... (15,588) 19,108 16,724 13,110
Provision for (Benefit from) Income
Taxes................................. 1,617... (5,694) 7,734 6,646 4,898
-------- -------- -------- -------- --------
Income (Loss) Before Cumulative Effect
of Accounting Changes................. 2,732... (9,894) 11,374 10,078 8,212
Cumulative Effect of Accounting Changes,
net:
Postretirement Benefits............... (1,921)
Income Taxes.......................... 1,409
-------- -------- -------- -------- --------
Net Income (Loss)....................... $ 2,732 $ (9,894) $ 11,374 $ 10,078 $ 7,700
======== ======== ======== ======== ========
Earnings (Loss) Per Common and Common
Equivalent Share...................... $ 0.30 $ (1.10) $ 1.27 $ 1.08 $ 0.81
======== ======== ======== ======== ========
Weighted Average Common and Common
Equivalent Shares..................... 9,100 8,954 8,981 9,342 9,520
======== ======== ======== ======== ========
All fiscal years are composed of 52 weeks.
Other Financial Data:
Total Assets.......................... $ 84,028 $ 83,539 $ 90,122 $ 77,461 $ 82,077
Short Term Borrowings................. $ 7,461 $ 0 $ 0 $ 0 $ 0
Long-Term Capital Leases.............. $ 662 $ 775 $ 848 $ 931 $ 1,008
Stockholders' Equity.................. $ 39,944 $ 39,844 $ 47,465 $ 29,303 $ 32,623
Current Ratio......................... 0.4:1 0.5:1 0.4:1 0.4:1 0.5:1
Cash Dividends Per Common Share....... $ 0.36 $ 0.09 $ 0.00 $ 0.00 $ 0.00
</TABLE>
D-18
<PAGE> 96
MORRISON FRESH COOKING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Sales................................................... $249,637 $267,638 $294,587
Operating Costs and Expenses:
Cost of merchandise....................................... 70,684 75,458 78,987
Payroll and related costs................................. 90,712 101,718 105,472
Other operating costs..................................... 56,163 56,184 60,618
Selling, general and administrative....................... 17,639 17,658 20,426
Depreciation.............................................. 9,950 10,078 10,277
Interest expense (income), net............................ 140 51 (301)
Loss on impairment of assets.............................. 13,789
Restructure costs......................................... 8,290
-------- -------- --------
245,288 283,226 275,479
-------- -------- --------
Income (Loss) Before Income Taxes........................... 4,349 (15,588) 19,108
Provision for (Benefit from) Income Taxes................... 1,617 (5,694) 7,734
-------- -------- --------
Net Income (Loss)........................................... $ 2,732 $ (9,894) $ 11,374
======== ======== ========
Earnings (Loss) Per Common and Common Equivalent Share...... $ 0.30 $ (1.10) $ 1.27
======== ======== ========
Weighted Average Common and Common Equivalent Shares........ 9,100 8,954 8,981
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
D-19
<PAGE> 97
MORRISON FRESH COOKING, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------
MAY 31, JUNE 1,
1997 1996
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments........................... $ 2,939 $ 1,561
Receivables:
Trade.................................................. 321 412
Other.................................................. 1,226 1,495
Inventories:
Merchandise............................................ 1,488 1,335
China, silver and supplies............................. 924 1,081
Prepaid expenses.......................................... 1,545 1,791
Deferred income tax benefits -- current................... 5,027 5,605
--------- --------
Total Current Assets.............................. 13,470 13,280
--------- --------
PROPERTY AND EQUIPMENT -- at cost:
Land...................................................... 6,666 6,436
Buildings................................................. 19,882 18,762
Improvements.............................................. 58,017 57,186
Restaurant equipment...................................... 56,265 53,143
Other equipment........................................... 14,277 13,232
Construction in progress.................................. 6,627 6,183
--------- --------
161,734 154,942
Less accumulated depreciation and amortization............ (100,834) (95,828)
--------- --------
60,900 59,114
Deferred income tax benefits................................ 2,615 3,325
Other assets................................................ 7,043 7,820
--------- --------
TOTAL ASSETS...................................... $ 84,028 $ 83,539
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 8,212 $ 9,579
Accrued liabilities:
Taxes, excluding income taxes.......................... 2,621 2,983
Payroll and related costs.............................. 4,889 4,082
Insurance.............................................. 4,257 5,829
Rent and other......................................... 2,910 4,484
Short term borrowings..................................... 7,461
Current portion of capital lease obligations.............. 103 77
--------- --------
Total Current Liabilities......................... 30,453 27,034
--------- --------
Capital lease obligations................................. 662 775
Employee benefit obligations.............................. 8,285 8,620
Other deferred liabilities................................ 4,684 7,266
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value (100,000 shares authorized;
9,214 shares issued -- 1997, 9,049 shares
issued -- 1996)........................................ 90 90
Capital in excess of par value............................ 41,428 40,279
Accumulated deficit....................................... (593) (70)
Treasury stock............................................ (266) (455)
Unearned ESOP shares...................................... (715)
--------- --------
Total Stockholders' Equity........................ 39,944 39,844
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 84,028 $ 83,539
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
D-20
<PAGE> 98
MORRISON FRESH COOKING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TREASURY STOCK* UNEARNED ESOP TOTAL
--------------- EXCESS OF ACCUMULATED --------------- --------------- STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT SHARES AMOUNT EQUITY
------ ------ ---------- ----------- ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 4, 1994....... 29,303 29,303
Net Income................ 11,374 11,374
Net transfers from MRI.... 6,788 6,788
----- --- -------- ------- -- ----- --- ----- -------
Balance, June 3, 1995....... 47,465 47,465
Net Income (Loss) as of
March 2, 1996........... (10,615) (10,615)
Post-distribution Net
Income.................. 721 721
Net transfers from MRI.... 1,747 1,747
Shares issued pursuant to
the Distribution........ 8,839 88 367 48 (455) 0
Shares issued under stock
bonus and stock option
plans................... 210 2 1,315 1,317
Cash Dividends of $.09 per
common share............ (791) (791)
----- --- -------- ------- -- ----- --- ----- -------
Balance, June 1, 1996....... 9,049 90 40,279 (70) 48 (455) 39,844
Net Income................ 2,732 2,732
ESOP funding.............. 734 151 (734) 0
Shares allocated under
ESOP.................... 4 1 (4) 19 20
Deferred Compensation
Plan.................... (4) 189 189
Shares issued under stock
bonus and stock option
plans................... 14 414 414
Cash Dividends of $.36 per
common share............ (3,255) (3,255)
----- --- -------- ------- -- ----- --- ----- -------
Balance, May 31, 1997....... 9,067 $90 $ 41,428 $ (593) 44 $(266) 147 $(715) $39,944
===== === ======== ======= == ===== === ===== =======
</TABLE>
- ---------------
* Treasury shares are held exclusively in an irrevocable rabbi trust for the
Morrison Fresh Cooking, Inc. Deferred Compensation Plan.
The accompanying notes are an integral part of the financial statements.
D-21
<PAGE> 99
MORRISON FRESH COOKING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------------
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net Income (Loss)........................................ $ 2,732 $ (9,894) $ 11,374
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation.......................................... 9,950 10,078 10,277
Deferred income taxes................................. 1,617 (5,694) 1,624
(Gain)/Loss on disposition and write-down of assets... (1,122) 13,789 605
Changes in operating assets and liabilities:
(Increase)/decrease in receivables.................. 360 (354) (450)
(Increase)/decrease in inventories.................. 4 819 (456)
(Increase)/decrease in prepaid and other assets..... 1,023 1,456 (311)
Increase/(decrease) in accounts payable, accrued and
other liabilities................................ (6,264) 1,117 (5,764)
-------- -------- --------
Net Cash Provided by Operating Activities........ 8,300 11,317 16,899
-------- -------- --------
Investing Activities:
Purchases of property and equipment...................... (14,068) (14,742) (19,422)
Proceeds from disposal of assets......................... 2,404 1,160 154
Other, net............................................... (4,110)
-------- -------- --------
Net Cash Used by Investing Activities............ (11,664) (13,582) (23,378)
-------- -------- --------
Financing Activities:
Principal payments on capital leases..................... (87) (79) (75)
Short-term borrowings.................................... 7,461
Proceeds from issuance of stock.......................... 414 1,317
Dividends paid........................................... (3,255) (791)
ESOP shares released..................................... 20
Decrease in treasury stock held by Deferred Compensation
Plan.................................................. 189
Net transfers from Morrison Restaurants Inc.............. 1,747 6,788
-------- -------- --------
Net Cash Provided by Financing Activities........ 4,742 2,194 6,713
-------- -------- --------
Increase/(decrease) in cash and short-term Investments..... 1,378 (71) 234
Cash and short-term investments at the beginning of the
year..................................................... 1,561 1,632 1,398
-------- -------- --------
Cash and short-term investments at the end of the year..... $ 2,939 $ 1,561 $ 1,632
======== ======== ========
Supplemental Disclosure of Cash Flow Information Cash Paid
for:
Interest (net of amount capitalized)..................... $ 153 $ 45 $ 82
Income taxes, net........................................ $ 0 $ 0 $ 8,901
</TABLE>
The accompanying notes are an integral part of the financial statements.
D-22
<PAGE> 100
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The operations of Morrison Fresh Cooking, Inc., a Georgia corporation (the
Company), consist of 154 family style restaurants in the southeastern and
mid-Atlantic regions of the United States, with the largest number in Florida,
Georgia, Virginia, Alabama and Mississippi. The Company's restaurants provide
cafeteria-style service and are located in shopping and business developments as
well as residential areas. The restaurants are generally open for lunch and
dinner service, seven days a week. All restaurants are Company-owned.
Basis of Presentation
On March 9, 1996, Morrison Restaurants Inc. (MRI) distributed to its
shareholders all of the issued and outstanding shares of common stock of the
Company, which held the family dining assets and business of MRI. For financial
reporting purposes, the Distribution is assumed to have become effective on
March 3, 1996, the first day of the fourth quarter of fiscal year 1996. The
accompanying comparative financial statements were prepared as if MRI's family
dining business had operated as a stand-alone entity for all periods presented.
Such statements include the assets, liabilities, revenues and expenses that are
directly related to the Company's operations. For periods prior to the
Distribution, they also include an allocation of certain assets, liabilities and
general corporate expenses of MRI, such as executive payroll, legal, data
processing and interest, which are related to the Company. Amounts were
allocated using a specific identification method where appropriate and on a pro
rata basis otherwise. Management believes the allocation methods used are
reasonable.
Certain 1996 balances have been reclassified between other deferred
liabilities and deferred tax assets to reflect refinements in the allocation of
liabilities at the time of Distribution.
Use of Estimates in Financial Statements
Judgement and estimation are exercised by Management in certain areas of
the preparation of financial statements. Some of the more significant areas
include reserves for self insurance of workers' compensation, general liability
and medical benefits, as well as the estimates of impairment losses,
restructuring expenses and the related reserve for unit closings. Management
believes that such estimates have been based on reasonable assumptions and that
provisions and reserves based on such estimates are adequate. Actual results
could differ from those estimates.
Fiscal Year
The Company's fiscal year ends on the first Saturday after May 30. The
fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995, were composed of
52 weeks.
Fair Value of Financial Instruments
The Company's financial instruments at May 31, 1997 and June 1, 1996
consisted of cash and short-term investments, receivables and short-term
borrowings. The fair value of these financial instruments approximated the
carrying amounts reported in the balance sheets. The Company considers
short-term marketable securities with a maturity of three months or less when
purchased to be short-term investments.
Advertising
The Company expenses the costs of all advertising in the period incurred.
D-23
<PAGE> 101
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories consist of food supplies and china and silver, and are stated
at the lower of cost (first in, first out) or market.
Property and Equipment and Depreciation
Depreciation for financial reporting purposes is computed using the
straight-line method over the estimated useful lives of the assets or, for
capital lease property, over the term of the lease, if shorter. Annual rates of
depreciation range from 3% to 5% for buildings and from 8% to 34% for restaurant
and other equipment.
As discussed in Note 10, during fiscal year 1996, the Company adopted
Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". FAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Long-lived assets and certain identifiable intangibles
to be disposed of are generally to be reported at the lower of carrying amount
or fair value, less cost to sell. In association with the Company's adoption of
FAS 121 in fiscal year 1996, a charge of $13.8 million was recorded for the
impairment of assets. Prior to fiscal year 1996, the Company recognized asset
impairment upon the decision to close a unit.
Income Taxes
Deferred income taxes are determined utilizing a liability approach. This
method gives consideration to the future tax consequences associated with
differences between financial accounting and tax bases of assets and
liabilities. For periods prior to the Distribution reflected in the accompanying
statements of operations, the income tax expense reflected includes the
Company's allocated share of MRI's tax expense. The allocated income tax expense
approximates the tax expense of the Company on a stand-alone basis.
Pre-Opening Expenses
Salaries, personnel training costs and other expenses of opening new
facilities are charged to expense as incurred.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding during the year and are adjusted for the assumed exercise of
options, after the assumed repurchase of shares with the related proceeds and
after the adjustment for any stock splits and stock dividends through May 31,
1997.
For fiscal year 1996, shares issued in the Distribution were assumed to
have been issued for the entire year. For prior years, the number of shares used
in computing earnings per share was based on the average number of MRI common
shares outstanding during the applicable fiscal year, adjusted for the 1-for-4
distribution ratio.
Stockholders' Equity
The Company's Certificate of Incorporation provides that authorized capital
stock will consist of 100,000,000 shares of common stock at $0.01 par value and
250,000 shares of preferred stock at $0.01 par value. As a result of the
Distribution, one share of Company common stock was issued for every four shares
of MRI common stock outstanding. No shares of preferred stock are issued or
outstanding.
D-24
<PAGE> 102
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Employee Compensation Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees" and related
Interpretations, in accounting for its employee stock options and adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 (FAS 123), "Accounting for Stock-Based Compensation". The Company grants
stock options for a fixed number of shares to employees with an exercise price
equal to the market value of the shares at the date of grant, and accordingly
recognizes no compensation expense for the stock option grants.
Insurance Programs
The Company is generally self-insured for costs related to workers'
compensation, health and welfare claims, business interruption resulting from
certain events, and comprehensive general, product and vehicle liability. Losses
are accrued using actuarial assumptions followed in the insurance industry,
adjusted for company-specific history and expectations. The Company uses
commercial insurance as a risk reduction strategy to minimize catastrophic
losses.
2. SHORT-TERM BORROWINGS
At May 31, 1997, the Company had $7.5 million in borrowings under a $15
million line of credit. The interest rate on this line of credit at May 31, 1997
was 8.5%. There were no borrowings under this line of credit at June 1, 1996.
In June 1997, the Company replaced this line of credit with a three-year
$30 million credit facility with another financial institution. This credit
facility consists of a $25 million revolving line of credit which allows the
Company to borrow under various interest rate options and a $5 million credit
line toward letters of credit issued with respect to the Company's
self-insurance programs. Commitment fees of 0.35% per annum are payable on the
unused portion of the $25 million revolving line of credit. This credit facility
contains certain restrictions, including, but not limited to, incurring
additional indebtedness and certain funded debt, net worth and fixed charge
coverage requirements.
3. LEASES
Various operations of the Company are conducted in leased premises. Initial
lease terms expire at various dates over the next 20 years and may provide for
escalation of rent during the lease term. Most of these leases provide for
additional contingent rents based upon sales volume and contain options to renew
(at adjusted rentals for some leases).
Assets recorded under capital leases are included in Property and Equipment
in the accompanying balance sheets.
D-25
<PAGE> 103
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At May 31, 1997, the future minimum lease payments under capital leases and
operating leases for the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 265 $10,730
1999........................................................ 140 9,517
2000........................................................ 140 8,522
2001........................................................ 140 7,156
2002........................................................ 140 6,204
Subsequent years............................................ 188 16,816
------ -------
Total minimum lease payments...................... 1,013 $58,945
=======
Less amount representing interest........................... (248)
------
Present value of minimum lease payments under capital leases
(including current maturities of $103).................... $ 765
======
</TABLE>
Rental expense pursuant to operating leases is summarized as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rent............................................ $11,706 $11,896 $12,173
Contingent rent......................................... 3,745 5,133 3,913
------- ------- -------
$15,451 $17,029 $16,086
======= ======= =======
</TABLE>
On May 30, 1997, the Company entered into a sale-leaseback transaction
resulting in a gain of $1.6 million to be deferred over the ten-year life of the
lease. The Company classifies the lease as an operating lease. Terms of the
lease require minimum lease payments plus a percentage of gross sales. The
Company is responsible for real estate taxes and flood insurance on the
property.
At May 31, 1997, the future minimum rent payments to be received on
subleases for the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
SUB
LEASES
--------------
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 237
1999........................................................ 304
2000........................................................ 238
2001........................................................ 232
2002........................................................ 232
Subsequent years............................................ 183
------
Total minimum lease payments...................... $1,426
======
</TABLE>
D-26
<PAGE> 104
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $ 0 $ 0 $5,047
State................................................... 0 0 1,063
------ ------- ------
0 0 6,110
------ ------- ------
Deferred:
Federal................................................. 1,396 (4,689) 1,445
State................................................... 221 (1,005) 179
------ ------- ------
1,617 (5,694) 1,624
------ ------- ------
$1,617 $(5,694) $7,734
====== ======= ======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
MAY 31, JUNE 1,
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets
Employee benefits......................................... $ 3,438 $ 4,102
Insurance reserves........................................ 2,234 3,052
Restaurant closing reserve................................ 444 2,155
Net operating loss........................................ 4,196 2,234
Deferred income........................................... 583 0
Other..................................................... 967 2,075
------- -------
Total deferred tax assets......................... 11,862 13,618
------- -------
Deferred Tax Liabilities
Depreciation.............................................. 1,039 1,423
Retirement plans.......................................... 801 827
Prepaid deductions........................................ 84 226
Restructuring............................................. 0 765
Intangibles and other..................................... 2,296 1,447
------- -------
Total deferred tax liabilities.................... 4,220 4,688
------- -------
Net deferred tax asset...................................... $ 7,642 $ 8,930
======= =======
</TABLE>
FAS 109 specifies that deferred tax assets are to be reduced by a valuation
allowance if it is more likely than not that some portion of the deferred tax
assets will not be realized. Management believes that future taxable income
should be sufficient to realize all of the Company's deferred tax assets based
on historical earnings of the Company; therefore, a valuation allowance has not
been established.
D-27
<PAGE> 105
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation from the statutory federal income tax expense (benefit) to
the reported income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Federal income tax (benefit).................... $1,479 $(5,456) $6,688
State income taxes, net of federal income tax benefit..... 146 (653) 807
Tax credits............................................... (33) (20) (346)
Other, net................................................ 25 435 585
------ ------- ------
$1,617 $(5,694) $7,734
====== ======= ======
</TABLE>
The effective income tax (benefit) rate was 37.2%, (36.5%), and 40.5% in
1997, 1996, and 1995, respectively.
For federal income tax purposes, the Company has a net operating loss
carryforward of $1.9 million which expires in fiscal 2011. This loss was
generated by the income tax returns filed by the Company for the short tax year
beginning March 3, 1996 and ending June 1, 1996. The net operating loss
carryforward generated by fiscal 1997 operations is estimated at $8.5 million
and will expire in fiscal 2012.
In connection with the Distribution, the Company entered into a tax
allocation agreement with Morrison Health Care, Inc., which was also spun-off to
the shareholders of MRI, and Ruby Tuesday, Inc., successor to MRI. This
agreement provides that the Company pay its share of Ruby Tuesday, Inc.'s (as
successor to MRI) consolidated tax liability for the tax years that the Company
was included in MRI's consolidated federal income tax return. The agreement also
provides for sharing, where appropriate, of state, local and foreign taxes
attributable to periods prior to the Distribution date.
5. EMPLOYEE BENEFIT PLANS
The Company maintains the following employee benefit plans.
Salary Deferral Plan -- Under the Morrison Fresh Cooking, Inc. Salary
Deferral Plan each eligible employee may elect to make pre-tax contributions to
a trust fund in amounts ranging from 2% to 10% of their annual earnings.
Employees contributing a pre-tax contribution of at least 2% may elect to make
after-tax contributions not in excess of 10% of annual earnings. The Company
contribution to the Plan is based on the employee's pre-tax contribution and
years of service. After three years of service (including service with MRI prior
to the Distribution), the Company contributes 20% of the employee's pre-tax
contribution, 30% after ten years of service and 40% after 20 years of service.
The Company's contributions and allocated contributions to the trust fund
approximated $284,000, $308,000 and $303,000 for 1997, 1996 and 1995,
respectively.
On February 28, 1997, the Company began sponsorship of an employee stock
ownership feature (ESOP) covering participants in the Salary Deferral Plan.
Under this feature, the Company issued 150,907 shares of its common stock with a
fair market value of $4.88 per share to the Salary Deferral Plan in exchange for
a ten-year note of $736,000 executed by the Plan's trustee. Repayment of the
loan is being funded by matching employer contributions to the Plan. Shares
purchased with the loan are allocated to participants' accounts over time as
loan repayments are made. There were 3,890 shares allocated to the Plan in 1997.
The market value of unallocated shares was $735,000 at May 31, 1997.
The Company adopted the provisions of AICPA Statement of Position No. 93-6
(SOP) which requires that compensation expense be measured based on the fair
value of the shares over the period the shares are earned. Compensation expense
was approximately $20,000 in 1997. Dividends paid on unallocated shares held by
the ESOP are used to make additional principal and interest payments and are not
charged to retained
D-28
<PAGE> 106
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
earnings. Shares not yet committed to be released are not considered outstanding
in the calculation of earnings per share.
Deferred Compensation Plan -- The Company maintains the Morrison Fresh
Cooking, Inc. Deferred Compensation Plan for certain selected employees. The
provisions of this Plan are similar to those of the Salary Deferral Plan. The
Company's contributions under the Plan approximated $62,000, $119,000, and
$102,000 for 1997, 1996, and 1995, respectively. Company assets earmarked to pay
benefits under the Plan are held by an irrevocable rabbi trust. Assets of the
irrevocable rabbi trust are accounted for as if they are assets of the Company
and all earnings and expenses are recorded in the Company's financial
statements. The net of the rabbi trust's earnings and losses is recorded as
additional liability to the participants and is considered to be interest
expense to the Company. Assets in the irrevocable rabbi trust approximated
$3,148,000 and include $266,000 of Company common stock which is accounted for
as treasury stock at May 31, 1997.
Retirement Plan -- The Company is a co-sponsor of the Morrison Restaurants
Inc. Retirement Plan along with Ruby Tuesday, Inc. and Morrison Health Care,
Inc. The MRI Retirement Plan was frozen on December 31, 1987. Participants
receive benefits based upon salary and length of service. No contribution was
made by the Company in 1997. Pension expense or income related to the Plan was
insignificant in 1997, 1996 and 1995. The Plan's assets include common stock,
fixed income securities, short-term investments and cash. The Company will
continue to share in future expenses of the Plan, and will make contributions to
the Plan as necessary, on behalf of its employees.
Executive Supplemental Pension Plan -- Under the Morrison Fresh Cooking,
Inc. Executive Supplemental Pension Plan, employees with an average compensation
of at least $120,000 for the immediately preceding two calendar years and who
have completed five years (including service with MRI prior to the Distribution)
in a qualifying position become eligible to earn supplemental retirement income
based upon salary and length of service (including service with MRI prior to the
Distribution) reduced by social security benefits and amounts otherwise
receivable under the Retirement Plan.
Management Retirement Plan -- Under the Morrison Fresh Cooking, Inc.
Management Retirement Plan, individuals who have 15 years of credited service
(including service with MRI prior to the Distribution) and whose average annual
compensation equaled or exceeds $40,000, become participants. Participants
receive benefits based upon salary and length of service (including service with
MRI prior to the Distribution) reduced by social security benefits and benefits
payable under the Retirement Plan and Executive Supplemental Pension Plan.
To provide a source for the payment of benefits under the Executive
Supplemental Pension Plan and the Management Retirement Plan, the Company owns
whole-life insurance contracts on some of the participants. The cash value of
these policies net of policy loans was $678,000 at May 31, 1997. The Company has
established an irrevocable rabbi trust to hold the policies and death benefits
as they are received. Expenses recorded for the Executive Supplemental Pension
Plan and the Management Retirement Plan were $534,000, $512,000 and $508,000 for
1997, 1996 and 1995, respectively.
D-29
<PAGE> 107
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table details the allocation of the components of pension
expense, as well as a comparison of assets to obligations and amounts recognized
in the Company's financial statements for the Management Retirement Plan, the
Executive Supplemental Pension Plan, and the Retirement Plan.
<TABLE>
<CAPTION>
ACCUMULATED BENEFITS EXCEED ASSET
ASSETS EXCEED ACCUMULATED EXECUTIVE SUPPLEMENTAL PENSION PLAN
BENEFITS-RETIREMENT PLAN AND MANAGEMENT RETIREMENT PLAN
----------------------------- -----------------------------------
MAY 31, JUNE 1, JUNE 3, MAY 31, JUNE 1, JUNE 3,
1997 1996 1995 1997 1996 1995
------- ------- ------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of pension expense
(income):
Service cost................. $ $ $ $ 69 $ 56 $ 66
Interest cost................ 647 660 820 295 312 250
Actual return on plan
assets.................... (1,307) (1,556) (263)
Amortization and deferral.... 623 983 (622) 170 144 111
Other........................ 81
------- ------- ------- ------- ------- -------
$ (37) $ 87 $ (65) $ 534 $ 512 $ 508
======= ======= ======= ======= ======= =======
Plan assets at fair value...... $ 9,161 $ 8,903 $10,066 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
Actuarial present value of
projected benefit
obligations:
Accumulated benefit
obligations:
Vested.................... 8,527 8,764 9,846 3,148 2,040 3,108
Nonvested................. 0 0 7
Provision for future
salary increases........ 837 852 799
------- ------- ------- ------- ------- -------
Total projected
benefit
obligations........ 8,527 8,764 9,846 3,985 2,892 3,914
------- ------- ------- ------- ------- -------
Excess (deficit) of plan assets
over projected benefit
obligations.................. 634 139 220 (3,985) (2,892) (3,914)
Unrecognized net loss (gain)... 871 1,200 1,960 (101) 81 (239)
Unrecognized prior service
cost......................... 381 450 602
Unrecognized net transition
obligation................... 641 769 1,077 981 710 899
Additional minimum liability... (923) (445) (524)
------- ------- ------- ------- ------- -------
Prepaid (accrued) pension
cost......................... $ 2,146 $ 2,108 $ 3,257 $(3,647) $(2,096) $(3,176)
======= ======= ======= ======= ======= =======
</TABLE>
The weighted-average discount rate for all three plans is 8.25%, 7.75% and
8.5% for 1997, 1996, and 1995, respectively. The rate of increase in
compensation levels for the Executive Supplemental Pension Plan and Management
Retirement Plan is 4% for 1997, 1996 and 1995. The expected long-term rate of
return on Plan assets for the Retirement Plan is 10% for all three years.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care benefits and life insurance
benefits to eligible retirees. Effective June 7, 1992, the Company amended the
plan to fix the Company's current and future contribution levels to the Benefit
Plan at the rates in place at that time. Increases in health care benefits above
such rates are borne by the participants. Measurement of the accumulated
postretirement benefit obligation was based on an assumed 8.25% discount rate
for fiscal 1997, 7.75% for fiscal 1996 and 8.5% for fiscal 1995. Benefits are
funded as medical claims and life insurance premiums are incurred. Retirees
become eligible for retirement
D-30
<PAGE> 108
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
benefits if they have met certain service and minimum age requirements at date
of retirement. The Company accrues expenses related to postretirement health
care and life insurance benefits during the years an employee provides services.
The actuarial present value of accumulated postretirement benefit
obligations and the amounts recognized in the Company's balance sheets are as
follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1,
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Retirees.................................................... $1,867 $2,035
Fully eligible active plan participants..................... 458 444
Other active plan participants.............................. 260 261
------ ------
Accumulated postretirement benefit obligation............... 2,585.. 2,740
Unrecognized net loss....................................... (660) (848)
Unrecognized prior service cost............................. 251 284
------ ------
Accrued postretirement benefit cost......................... $2,176 $2,176
====== ======
</TABLE>
The postretirement benefit cost is as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 8 $ 9 $ 22
Interest cost............................................... 203 223 307
Amortization of unrecognized net loss....................... 60 40 95
---- ---- ----
Postretirement benefit cost................................. $271 $272 $424
==== ==== ====
</TABLE>
7. EMPLOYEE STOCK INCENTIVE PLANS
The Company's 1996 Stock Incentive Plan provides for a committee appointed
by the Board and authorizes the committee the discretion to grant a variety of
equity-based awards to eligible persons. The plan has 595,000 shares of common
stock authorized for issuance. Options granted have a five-year term and become
fully vested and exercisable either two or three years from the grant date. The
1996 Non-Executive Stock Incentive Plan has 1,985,000 shares authorized for the
issuance of stock to non-executive management personnel. Criteria for granting
options and vesting schedules are identical to those of the 1996 Stock Incentive
Plan.
The Stock Incentive and Deferred Compensation Plan for Directors has 85,000
shares authorized for issue. The Plan requires that directors use 60% of their
retainer to purchase shares of Company stock if they have not attained a
specified level of ownership. Participants receive 15% of the purchased amount
as bonus shares and a non-qualified stock option equal to three times the total
shares received. All options are fully vested and exercisable after six months
and have a term of five years from the grant date.
Under the terms of the Distribution, employees of the Company who were
holders of MRI stock options received adjusted, substitute options which, in the
aggregate, preserved the economic value as well as the material terms, such as
option period, vesting provisions and payment terms, the optionee had in the
original MRI options prior to the Distribution. Vested and non-vested MRI
options were adjusted by granting new option rights to acquire Ruby Tuesday,
Inc. and Morrison Health Care, Inc. stock in addition to Company stock.
D-31
<PAGE> 109
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB 25 and related interpretations in accounting for
its employee stock options. In contrast to the intrinsic value based method
employed by APB 25, Statement of Financial Accounting Standards No. 123 (FAS
123) "Accounting for Stock-Based Compensation," utilizes a fair value based
method. FAS 123 requires the use of option valuation models developed for
estimating the fair value of traded options which are fully transferable and
have no vesting restrictions. Option valuation models also utilize highly
subjective assumptions such as expected stock price volatility. Changes in the
assumptions can materially impact the fair value estimate and, in Management's
opinion, do not necessarily provide a reliable single measure of the fair value
of its employee stock options. Adoption of the cost recognition requirements of
FAS 123 is optional; however, the required pro forma disclosures as if the
Standard was adopted in 1996 are presented on the following page.
All stock options are awarded at the prevailing market value on the date of
grant; therefore, under the intrinsic value method employed by APB 25, no
compensation expense is recognized. For purposes of FAS 123 disclosure, the
estimated fair value of the options is expensed over the vesting period of the
options. Fair value was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for 1997
and 1996, respectively: (i) risk-free interest rates of 6.24% and 5.64%, (ii)
dividend yield of 7.3% and 4.6%, (iii) stock price volatility factor of .27 and
.23, and (iv) expected option life of 4.3 years. Options replacing those
originally granted prior to the Distribution were valued as of the original date
of grant. If the Company had adopted FAS 123 in accounting for stock options
granted in fiscal years 1997 and 1996, its net income and earnings per share
would approximate the pro forma amounts below (in thousands except for per share
data):
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net Income (Loss).......................... $2,732 $2,567 $(9,894) $(9,951)
Earnings per Share......................... $ 0.30 $ 0.28 $ (1.10) $ (1.11)
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure may not be
indicative of future results. FAS 123 does not apply to awards made prior to
1996 and additional awards in future years are anticipated.
The following table summarizes the activity in options under all plans as
of May 31, 1997 and June 1, 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
WTD. AVG. WTD. AVG.
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................... 1,875 $6.69 0
Replacement options granted........................ 0 1,114 5.78
Granted............................................ 44 5.15 846 7.75
Exercised.......................................... (111) 3.26 (65) 4.29
Forfeited.......................................... (330) 7.73 (20) 9.18
----- -----
Balance at end of year............................. 1,478 6.68 1,875 6.69
===== ===== ===== =====
Exercisable at end of year......................... 796 5.92 778 5.46
===== ===== ===== =====
Shares available for future grant.................. 1,187 751
===== =====
Weighted average fair value of options granted
during the year.................................. $0.74 $1.27
===== =====
</TABLE>
D-32
<PAGE> 110
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding stock options outstanding at the end of the current
fiscal year are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 5/31/97 LIFE IN YRS. PRICE AT 5/31/97 PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.34 to $5.41...................... 566 2.3 $4.86 538 $4.87
$5.41 to $7.38...................... 146 4.4 $6.07 60 $5.79
$7.75 to $7.75...................... 523 3.9 $7.75 3 $7.75
$8.10 to $11.75..................... 243 1.8 $8.96 195 $8.85
$3.34 to $11.75..................... 1,478 2.9 $6.68 796 $5.92
</TABLE>
The Company's Stock Incentive and Deferred Compensation Plan for directors
also provides for a restricted stock award of 5,000 shares to newly elected
directors. Unvested shares are restricted as to disposition and are subject to
forfeiture if the participant ceases to be a member of the Board of Directors.
The participant is entitled to full dividends and voting rights with respect to
the entire award. Shares vest incrementally over a three year period, but become
fully vested on account of death, disability, or retirement. Upon issuance,
unearned compensation is recorded and then expensed ratably over the vesting
period. One such award was made during fiscal 1996. The Company recognized
compensation expense of $13,000 in fiscal 1997 and $3,000 in fiscal 1996 related
to the restricted shares.
In June 1997, the Compensation Committee approved a resolution to replace
282,000 outstanding options granted to non-executive employees immediately after
the Distribution at a price of $7.75 per share with new options priced at $4.75
per share which was the market value of the Company's stock on the date of
re-grant. The Company believes that the new options provide employees with a
greater incentive to increase their ownership in the Company.
8. PREFERRED STOCK
Under its Certificate of Incorporation, the Company is authorized to issue
preferred stock with a par value of $0.01 in an amount not to exceed 250,000
shares which may be divided into and issued in designated series, with dividend
rates, rights of conversion, redemption, liquidation prices and other terms or
conditions as determined by the Board of Directors. No preferred shares have
been issued as of May 31, 1997. The Board of Directors has designated 50,000 of
such shares as Series A Junior Participating Preferred Stock and has issued
rights to acquire such shares, upon certain events, with an exercise price of
$50.00 per one one-thousandth of a share, subject to adjustment. The rights
expire on March 1, 2006, and may be redeemed prior to ten days after the
acquisition of 20% or more of the Company's common stock.
9. COMMITMENTS AND CONTINGENCIES
At May 31, 1997, the Company was contingently liable for approximately $4.9
million in letters of credit and $4.1 million for an indemnity agreement bond,
issued primarily in connection with its workers' compensation and casualty
insurance programs.
The Company is presently, and from time to time, subject to pending claims
and lawsuits arising in the ordinary course of its business. In the opinion of
Management, the ultimate resolution of these pending legal proceedings will not
have a material adverse effect on the Company's operations or financial
position.
D-33
<PAGE> 111
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LOSS ON IMPAIRMENT OF ASSETS
In conjunction with the adoption of FAS 121 in the third quarter of fiscal
1996, the Company recorded a loss on the impairment of assets of $13.8 million.
This charge was composed of the following: a $6.8 million asset write-off of 15
quick service restaurants and seven traditional cafeterias which were approved
for closure within one year by the Board of Directors; a $5.1 million asset
write-down of impaired units which will continue to be operated, $1.5 million of
which was due solely to the adoption of FAS 121; and a $1.9 million asset
write-down of previously closed locations.
The $6.8 million charge was composed of the expected loss on the disposal
of long-lived assets of units selected for closure, net of an assumed salvage
value of $0.8 million. As of May 31, 1997, the Company had closed all seven of
the traditional cafeterias and 14 of the quick service restaurants which were
selected for closure, at a net loss on disposal of $6.6 million. The remaining
quick service restaurant is expected to be closed in fiscal 1999 when the
Company exercises its right to early termination under the terms of the lease.
Management anticipates that the remaining allowance will be adequate to record
the ultimate loss expected on the disposal of the unit's assets.
All operating units not recommended for closure were reviewed for
impairment. Such review consisted of an analysis of each unit's cash flows and
profit trends over the past year. If such review indicated impairment,
Management estimated the undiscounted future net cash flows to be generated by
these units and determined that certain of them would be unlikely to generate
net cash flows in excess of carrying value. Management then estimated the fair
value of those units using discounted net cash flow as a measure of fair value,
which resulted in a write-down in fiscal 1996 of $5.1 million, $1.5 million of
which was due to the effect of the discounting of cash flows as prescribed by
FAS 121.
In addition to those units selected for closure and impaired operating
units, the Company recorded a charge of $1.9 million in fiscal 1996 for the
write-down of long-lived assets of previously closed units. This charge was
based on Management's estimate of the eventual loss that would be incurred on
the ultimate disposal of these properties. As of May 31, 1997, the Company had
disposed of two of these properties at a net loss on disposal of $0.9 million.
Management anticipates that the allowance provided is adequate for the remaining
properties. The Company continues to systematically analyze its units for signs
of impairment, and will record a loss on impairment when impairment is
indicated. No impairment was recorded in fiscal 1997 based on Management's
analysis.
11. RESTRUCTURE COSTS
In fiscal 1996, the Company recorded restructure costs of $8.3 million
relating to the settlement of lease obligations of units selected for closure
and costs associated with the Distribution. In addition to the write-off of the
22 units selected for closure by the Board of Directors as described in Note 10,
the Company accrued charges of $6.1 million in fiscal 1996 for settlement of the
related lease obligations. As of May 31, 1997, the Company had negotiated lease
settlements on 15 of its closed units at a net cost of $2.3 million, subleased
two properties, and paid $3.3 million in rent and related payments on closed
properties. In addition to the lease obligations of its closed units, the
Company recorded charges of $0.3 million in fiscal 1996 for severance payments
of personnel employed at the closed units. Management anticipates that the
remaining accrual of $0.8 million is adequate to settle the remaining five
leases.
The Company recorded $2.0 million in 1996 in other charges incurred as a
result of the Distribution. These charges consisted of $1.8 million in estimated
professional and other fees such as stock exchange listing fees, and $0.2
million of miscellaneous other asset write-offs. As of May 31, 1997, the Company
had incurred $1.7 million in professional fees associated with the Distribution,
and had written off $0.3 million of miscellaneous assets. The Company does not
anticipate any additional costs related to the Distribution.
D-34
<PAGE> 112
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following Unaudited Pro Forma Statements of Operations were prepared to
illustrate certain estimated effects of the Distribution and related
transactions. These statements include adjustments for the effects of additional
payroll and related costs; other operating expenses; selling, general and
administrative expenses; and depreciation which might have occurred had the
Distribution been effected as of the dates indicated, as well as the estimated
tax benefit associated with these adjustments. The Pro Forma Statements of
Operations for the years ended June 1, 1996 and June 3, 1995, are prepared
assuming the distribution had occurred as of June 1, 1996 and June 3, 1995,
respectively. Such pro forma information may not necessarily be indicative of
the results that would actually have occurred had the transactions occurred on
the dates indicated or of the results that may occur in the future. The
Unaudited Pro Forma Statements of Operations should be read in conjunction with
the historical financial statements, including the notes thereto, and other
financial data of the Company included elsewhere herein.
MORRISON FRESH COOKING, INC.
PRO FORMA -- STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------
JUNE 1, JUNE 3,
1996 1995
----------- -----------
<S> <C> <C>
Net Sales................................................... $267,638 $294,587
Operating Costs and Expenses:
Cost of merchandise....................................... 75,458 78,987
Payroll and related costs................................. 101,967 105,947
Other operating costs..................................... 56,364 60,960
Selling, general and administrative....................... 18,416 20,642
Depreciation and.......................................... 10,091 10,299
-------- --------
262,296 276,835
-------- --------
Operating Income Before Loss on Impairment of Assets and
Restructure Costs......................................... 5,342 17,752
Loss on impairment of assets.............................. 13,789
Restructure costs......................................... 8,290
-------- --------
Operating Income (Loss)..................................... (16,737) 17,752
Interest expense (income), net............................ 51 (301)
-------- --------
Income (Loss) Before Income Taxes........................... (16,788) 18,053
Provision for (Benefit from) Income Taxes................... (6,165) 7,307
-------- --------
Net Income (Loss)........................................... $(10,623) $ 10,746
======== ========
Earnings (Loss) Per Common and Common Equivalent Share...... $ (1.19) $ 1.20
======== ========
Weighted Average Common and Common Equivalent Shares........ 8,954 8,981
======== ========
</TABLE>
D-35
<PAGE> 113
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial results for the years ended May 31, 1997 and June 1,
1996 are summarized below. All quarters are composed of 13 weeks.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1) TOTAL
------- ------- ------- ---------- --------
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED MAY 31, 1997:
Net Sales.................................. $63,246 $62,889 $61,921 $61,581 $249,637
======= ======= ======= ======= ========
Gross Profit*.............................. $ 8,372 $ 7,844 $ 7,554 $ 8,308 $ 32,078
======= ======= ======= ======= ========
Income Before Income Taxes................. $ 1,262 $ 1,103 $ 1,109 $ 875 $ 4,349
Provision for Income Taxes................. 467 413 408 329 1,617
------- ------- ------- ------- --------
Net Income................................. $ 795 $ 690 $ 701 $ 546 $ 2,732
======= ======= ======= ======= ========
Earnings Per Common and Common Equivalent
Share.................................... $ 0.09 $ 0.08 $ 0.08 $ 0.06 $ 0.30
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 1, 1996:
Net Sales................................. $70,129 $67,889 $ 65,260 $64,360 $267,638
======= ======= ======== ======= ========
Gross Profit*............................. $ 9,726 $ 8,503 $ 8,774 $ 7,275 $ 34,278
======= ======= ======== ======= ========
Income (Loss) Before Income Taxes......... $ 2,881 $ 1,387 $(21,057) $ 1,201 $(15,588)
Provision for (Benefit from) Income
Taxes................................... 1,216 545 (7,935) 480 (5,694)
------- ------- -------- ------- --------
Net Income (Loss)......................... $ 1,665 $ 842 $(13,122) $ 721 $ (9,894)
======= ======= ======== ======= ========
Earnings (Loss) Per Common and Common
Equivalent Share........................ $ 0.19 $ 0.10 $ (1.49) $ 0.08 $ (1.10)
======= ======= ======== ======= ========
</TABLE>
- ---------------
(1) Fourth quarter 1997 results include $0.3 million expense for severance costs
($0.02 per share, net of taxes), offset by favorable adjustments of $0.6
million for medical insurance expense ($0.04 per share, net of taxes) and
$0.7 million for workers' compensation and general liability insurance
expense ($0.05 per share, net of taxes) due to favorable claims experience
during 1997.
* The Company defines gross profit as revenues less cost of merchandise,
payroll and related costs, and other operating costs.
Due to weighted average share calculations, quarterly earnings per share
amounts may not sum to the fiscal year amount.
Morrison Fresh Cooking, Inc. common stock is publicly traded on the New
York Stock Exchange under the ticker symbol MFC. The following table sets forth
the reported high and low prices for the fiscal year
D-36
<PAGE> 114
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ended May 31, 1997, and the fiscal year ended June 1, 1996, commencing with the
first trading date following the Distribution.
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED MAY 31, 1997
- -----------------------------------------------------------------------------------------------
PER SHARE
QUARTER HIGH LOW CASH DIVIDEND
------- ----- ----- -------------
<S> <C> <C> <C>
First....................................................... $7.38 $4.25 $0.09
Second...................................................... $5.88 $4.63 $0.09
Third....................................................... $5.38 $4.50 $0.09
Fourth...................................................... $5.38 $4.50 $0.09
</TABLE>
<TABLE>
<CAPTION>
FOR THE 12 WEEKS ENDED JUNE 1, 1996
- -----------------------------------------------------------------------------------------------
PER SHARE
QUARTER HIGH LOW CASH DIVIDEND
------- ----- ----- -------------
<S> <C> <C> <C>
Fourth...................................................... $9.00 $5.50.. $0.09
</TABLE>
In June 1997 the Company's Board of Directors declared a quarterly dividend
of $0.09 per share payable July 31, 1997 to 5,884 shareholders of record on July
11, 1997.
D-37
<PAGE> 115
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Morrison Fresh Cooking, Inc.
We have audited the accompanying balance sheets of Morrison Fresh Cooking,
Inc. as of May 31, 1997 and June 1, 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended May 31, 1997. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Morrison Fresh Cooking, Inc.
at May 31, 1997 and June 1, 1996, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended May 31, 1997, in
conformity with generally accepted accounting principles.
As discussed in Note 10 to the financial statements, in fiscal year 1996,
Morrison Fresh Cooking, Inc. changed its method of accounting relative to
impairment of long-lived assets.
/s/ ERNST & YOUNG LLP
------------------------------------
Ernst & Young LLP
Atlanta, Georgia
June 20, 1997
D-38
<PAGE> 116
MORRISON FRESH COOKING, INC.
FORM 10-K
EXECUTIVE OFFICER INFORMATION
<TABLE>
<CAPTION>
AGE AT EXECUTIVE
HIRE YEARS OF MAY 31, OFFICER
EMPLOYEE DATE SERVICE DOB 1997 SINCE
- -------- --------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
RONNIE L. TATUM.................. 01-FEB-62 34 07-MAY-40 57 1996
CHRIS P. ELLIOTT................. 30-JAN-95 1 02-APR-54 43 1996
CRAIG D. NELSON.................. 00-XXX-76 20 05-JAN-54 43 1996
SCEARS LEE, III.................. 00-XXX-78.. 18 29-FEB-56 41 1996
MITCHELL S. BLOCK................ 00-XXX-93.. 3 31-MAY-53 44 1996
</TABLE>
<TABLE>
<CAPTION>
AGE AT
MAY 31,
DIRECTORS DOB 1997
- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Dolph W. von Arx......................................... 30-AUG-34 62
J. Veronica Biggins...................................... 19-OCT-46 50
E. Eugene Bishop......................................... 05-MAY-30 67
Arthur R. Outlaw......................................... 08-SEP-26 70
Dr. Donald Ratajczak..................................... 21-OCT-42 54
Ronnie L. Tatum.......................................... 07-MAY-40 57
Christopher P. Elliott................................... 02-APR-54 42
</TABLE>
D-39
<PAGE> 117
EXHIBIT 11
MORRISON FRESH COOKING, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Average common shares outstanding........................... 9,067 8,954 (1)
Average additional common shares issuable on exercise of
dilutive stock options (computed by use of the "treasury
stock method", at the average market price)............... 33*
------ ------- -------
Number of shares used in computation of primary earnings per
share..................................................... 9,100* 8,954 8,981
====== ======= =======
Net Income (Loss)........................................... $2,732 $(9,894) $11,374
====== ======= =======
Primary earnings per common and common equivalent share..... $ 0.30 $ (1.10) $ 1.27
====== ======= =======
FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Average common shares outstanding........................... 9,067 8,954 (1)
Average additional common shares issuable on exercise of
dilutive stock options (computed by use of the "treasury
stock method", at the higher of period-end or average
market price)............................................. 33*
------ ------- -------
Number of shares used in computation of fully diluted
earnings per share........................................ 9,100* 8,954 8,981
====== ======= =======
Net Income (Loss)........................................... $2,732 $(9,894) $11,374
====== ======= =======
Fully diluted earnings per common and common equivalent
share..................................................... $ 0.30 $ (1.10) $ 1.27
====== ======= =======
</TABLE>
- ---------------
* Per APB 15, due to a net loss dilutive stock options are not reported
because its effect is antidilutive.
(1) Prior to the Distribution earnings per share was calculated based on the
average number of MRI common shares outstanding adjusted for the 1-for-4
distribution ratio.
D-40
<PAGE> 118
APPENDIX E
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________________ TO
________________________
COMMISSION FILE NUMBER 1-14202
MORRISON RESTAURANTS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 63-1155967
(State of other jurisdiction of I.R.S Employer
incorporation or organization) Identification No.)
THE HARTSFIELD COLONNADE
4893 RIVERDALE ROAD, SUITE 260
ATLANTA, GA 30337
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (770)991-0351
______________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
9,233,988
(Number of shares of $0.01 par value common stock
outstanding as of March 27, 1998)
================================================================================
E-1
<PAGE> 119
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of February 28, 1998 and May 31, 1997..... 3
Statements of Income for the Thirteen Weeks and Thirty-Nine
Weeks Ended February 28, 1998 and March 1, 1997........... 4
Statements of Cash Flows for the Thirty-Nine Weeks Ended
February 28, 1998 and March 1, 1997....................... 5
Notes to Financial Statements............................... 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 7-11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................... 12
ITEM 2. CHANGES IN SECURITIES....................................... 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 12
ITEM 5. OTHER INFORMATION........................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 12-13
SIGNATURES........................................................... 14
</TABLE>
E-2
<PAGE> 120
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORRISON RESTAURANTS INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1998 1997
------------ ---------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments........................... $ 810 $ 2,939
Receivables -- accounts and notes (net)................... 1,821 1,547
Inventories............................................... 2,293 2,412
Prepaid other expenses.................................... 1,315 1,545
Current deferred income tax benefit....................... 3,303 5,027
--------- ---------
Total current assets.............................. 9,542 13,470
--------- ---------
PROPERTY AND EQUIPMENT -- at cost........................... 161,740 161,734
Less accumulated depreciation............................. (102,376) (100,834)
--------- ---------
59,364 60,900
DEFERRED INCOME TAX BENEFITS................................ 6,876 2,615
OTHER ASSETS................................................ 7,583 7,043
--------- ---------
TOTAL ASSETS...................................... $ 83,365 $ 84,028
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 6,012 $ 8,212
Accrued liabilities....................................... 14,583 14,677
Short-term borrowings..................................... 12,191 7,461
Current portion of capital lease obligations.............. 78 103
--------- ---------
Total current liabilities......................... 32,864 30,453
--------- ---------
CAPITAL LEASE OBLIGATIONS................................... 500 662
EMPLOYEE BENEFIT OBLIGATIONS................................ 8,697 8,285
OTHER DEFERRED LIABILITIES.................................. 4,442 4,684
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value (100,000 shares authorized;
9,234 shares issued -- 1998, 9,214 shares
issued -- 1997)........................................ 92 90
Capital in excess of par value............................ 41,713 41,428
Unearned ESOP shares...................................... (371) (715)
Accumulated deficit....................................... (4,300) (593)
--------- ---------
37,134 40,210
Less common stock held in treasury -- at cost
(50 shares @ 02/28/98).................................
(44 shares @ 05/31/97)................................. (272) (266)
--------- ---------
36,862 39,944
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.......... $ 83,365 $ 84,028
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
E-3
<PAGE> 121
MORRISON RESTAURANTS INC.
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, 1998 MARCH 1, 1997 FEBRUARY 28, 1998 MARCH 1, 1997
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Revenues..................................... $58,763 $61,921 $179,670 $188,056
Operating Costs and Expenses:
Cost of merchandise........................ 16,181 16,920 50,380 53,107
Payroll and related costs.................. 23,051 23,481 70,759 69,563
Other operating costs...................... 14,461 13,966 44,743 41,616
Depreciation............................... 2,409 2,508 7,415 7,348
Selling, general and administrative........ 2,695 3,860 10,675 12,841
Interest expense, net...................... 108 77 297 107
------- ------- -------- --------
58,905 60,812 184,269 184,582
------- ------- -------- --------
Income (Loss) before Income Taxes............ (142) 1,109 (4,599) 3,474
Provision for (benefit from) federal and
state income taxes......................... (52) 408 (1,709) 1,288
------- ------- -------- --------
Net Income (Loss).................. $ (90) $ 701 $ (2,890) $ 2,186
======= ======= ======== ========
Basic Earnings (Loss) per Share.............. $ (0.01) $ 0.08 $ (0.32) $ 0.24
======= ======= ======== ========
Diluted Earnings (Loss) per Share............ $ (0.01) $ 0.08 $ (0.32) $ 0.24
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
E-4
<PAGE> 122
MORRISON RESTAURANTS INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------
FEB 28, 1998 MAR 1, 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss)........................................... $(2,890) $ 2,186
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 7,415 7,348
Loss on disposition of assets............................. 147 172
Deferred income taxes..................................... (2,537) 992
Changes in operating assets and liabilities:
Increase in receivables................................ (273) (82)
(Increase) decrease in inventories..................... 118 (66)
Increase in prepaid and other assets................... (311) (51)
Decrease in accounts payable, accrued and other
liabilities........................................... (2,123) (6,417)
------- --------
Net cash provided (used) by operating activities............ (454) 4,082
------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment......................... (7,747) (10,479)
Proceeds from disposal of assets............................ 1,721 129
------- --------
Net cash used by investing activities....................... (6,026) (10,350)
------- --------
FINANCING ACTIVITIES:
Principal payments on capital leases........................ (187) (64)
Short-term borrowings....................................... 4,730 7,466
Proceeds from option exercises.............................. 270 394
Dividends paid.............................................. (817) (2,439)
ESOP shares released........................................ 361 0
(Increase) decrease in treasury stock held.................. (6) 99
------- --------
Net cash provided by financing activities................... 4,351 5,456
------- --------
Decrease in cash and short-term investments................. (2,129) (812)
Cash and short-term investments:
Beginning of period....................................... 2,939 1,561
------- --------
End of period............................................. $ 810 $ 749
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
E-5
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q, and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements should be read in conjunction
with the notes to the financial statements included in the Company's annual
report for the fiscal year ended May 31, 1997. The accompanying unaudited
financial statements reflect all adjustments for normal recurring accruals.
These adjustments are necessary, in the opinion of management, for a fair
presentation of the financial position, the results of operations and the cash
flows for the interim periods presented. The results of operations for the
interim periods reported herein are not necessarily indicative of results to be
expected for the full year.
NOTE B -- EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the period, excluding unallocated shares under
the Employee Stock Ownership Plan (ESOP). Diluted earnings per share includes
the dilutive effect of outstanding stock options computed under the treasury
stock method. In accordance with Financial Accounting Standard No. 128 (FAS
128), Earnings Per Share, which is effective for periods ending after December
15, 1997, prior period earnings per share information has been restated in
conformity with the new provisions. Adoption of FAS 128 had little or no impact
on the earnings per share amounts previously reported.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
THIRTEEN WEEKS ENDED ENDED
----------------------- -----------------------
FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1,
1998 1997 1998 1997
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Net Income (Loss) -- (A)........................... $ (90) $ 701 $(2,890) $2,186
====== ====== ======= ======
Average shares outstanding -- (B).................. 9,139 9,045 9,111 9,033
Dilutive effect of stock options................... 0 24 0 36
------ ------ ------- ------
Common stock and common stock equivalents -- (C)... 9,139 9,069 9,111 9,069
Basic Earnings (Loss) per Share -- (A/B)........... $(0.01) $ 0.08 $ (0.32) $ 0.24
====== ====== ======= ======
Diluted Earnings (Loss) per Share -- (A/C)......... $(0.01) $ 0.08 $ (0.32) $ 0.24
====== ====== ======= ======
</TABLE>
NOTE C -- CREDIT FACILITY
At February 28, 1998, the Company had $12.2 million in borrowings under its
revolving line of credit, a net increase of $4.7 million from May 31, 1997.
Subsequent to quarter-end, the Company and its lender entered into an agreement
whereby the Credit Agreement dated as of June 19, 1997, was amended and restated
in its entirety. The Amended and Restated Credit Agreement dated as of March 23,
1998, provides for a revolving credit facility of $25.0 million and a letter of
credit facility of $5.0 million. The Company granted to its lender a security
interest in substantially all of its assets as collateral for the credit
obligation. The terms of certain restrictions were also modified, including, but
not limited to, incurring additional indebtedness and certain funded debt, net
worth and fixed charge coverage requirements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company reported a net loss from operations of $(0.1) million and
$(2.9) million, respectively, for the 13-week and the 39-week periods ended
February 28, 1998, compared with net income of $0.7 and $2.2 million reported
for the corresponding periods of the prior fiscal year. The Company operated 12
fewer units at February 28, 1998, compared to the same period in the prior year.
E-6
<PAGE> 124
The following table shows year-to-date restaurant openings and closings as
well as total restaurants open at the end of the third quarter.
<TABLE>
<CAPTION>
TOTAL OPEN AT
TO-DATE TO-DATE END OF
OPENINGS CLOSINGS THIRD QUARTER
--------------- --------------- ---------------
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Traditional....................................... 0 0 10 4 119 129
Small/contemporary................................ 2 2 3 0 10 11
Buffets........................................... 0 0 0 0 3 3
QSRs.............................................. 0 1 1 0 10 11
-- -- -- -- --- ---
Total................................... 2 3 14 4 142 154
== == == == === ===
</TABLE>
The Company closed two traditional cafeterias, three small cafeterias and
one QSR in the third quarter of fiscal 1998. The Company anticipates closing two
additional locations during the remainder of fiscal 1998.
RESULTS OF OPERATIONS
The following table sets forth selected data as a percentage of sales for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE FOR THE
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1,
1998 1997 1998 1997
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Net Sales.......................................... 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of merchandise.............................. 27.6 27.3 28.0 28.2
Payroll and related costs........................ 39.2 37.9 39.4 37.0
Other operating costs............................ 24.6 22.6 24.9 22.1
Depreciation..................................... 4.1 4.1 4.1 3.9
Selling, general and administrative.............. 4.6 6.2 6.0 6.9
Interest expense, net............................ 0.2 0.1 0.2 0.1
----- ----- ----- -----
Total operating costs.................... 100.3 98.2 102.6 98.2
----- ----- ----- -----
Income (loss) from operations before income
taxes............................................ (0.3) 1.8 (2.6) 1.8
Provision for (benefit from) income taxes.......... (0.1) 0.7 (1.0) 0.6
----- ----- ----- -----
Net income (loss).................................. (0.2)% 1.1% (1.6)% 1.2%
===== ===== ===== =====
</TABLE>
Company Restaurant Sales:
Company restaurant sales decreased $3.2 million or 5.1% to $58.8 million
for the quarter and decreased $8.4 million or 4.5% to $179.7 for the 39 weeks
ended February 28, 1998. These decreases are primarily the result of a net
reduction of 12 units from the prior year. Also, same store sales were down 1.4%
for the quarter and 1.2% for the 39-week period due to a decline in customer
counts, offset in part by a 3% price increase in June 1997.
Cost of Merchandise, Payroll and Related Costs and Other Operating Costs:
As a percentage of sales, cost of merchandise increased 30 basis points for
the quarter primarily as a result of menu changes and significant increases in
holiday catering. The decrease of 20 basis points for the 39-week period is
attributable to the retail price increases in October 1996 and June 1997, and
cost containment measures implemented in September 1997.
Payroll and related costs increased as a percentage of sales from the same
periods in the prior year by 130 basis points for the quarter and 240 basis
points for the 39-week period. Federal minimum wage rates
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<PAGE> 125
increased in September 1997 resulting in an increase of $.40 per hour.
Management labor costs also increased due to full restaurant staffing. Payroll
and related costs were further impacted by increased accruals for workers'
compensation insurance to meet actuarially projected claims.
Other operating costs increased 200 basis points and 280 basis points for
the 13-week and the 39-week periods, respectively. Due to additional restaurant
closings, the Company's expenses associated with the closing of restaurants
increased by $0.7 million for the quarter and $1.8 million year-to-date as
compared to the respective periods of the prior year. Fixed expenses such as
rent were higher as a percentage of sales due to the decline in sales volume.
Depreciation expense remained flat for the quarter. On a year-to-date
basis, the slight increase of 20 basis points was primarily the result of
equipment upgrades and the Company's remodeling program.
Selling, general and administrative costs decreased 160 basis points for
the quarter and 90 basis points for the 39-week period. A decline in management
turnover resulted in a reduction in training payroll and associated costs. The
decrease was further impacted by the elimination of 23 administrative positions
as well as the Company's increased focus on local store marketing rather than
mass media advertising.
Interest Expense, net:
Borrowings under the Company's line of credit increased by $5.5 million
compared with borrowings for the same period in the prior year, primarily to
fund development of point-of-sale technology for the restaurants, the
construction of two new units, and the remodeling of old units.
Income Taxes:
The effective income tax rate on continuing operations for the 13 weeks and
the 39 weeks ended February 28, 1998 was unchanged at 37%.
Earnings per Share:
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the period, excluding unallocated ESOP shares.
Diluted earnings per share includes the dilutive effect of outstanding stock
options computed under the treasury stock method. In accordance with Financial
Accounting Standard No. 128 (FAS 128), Earnings Per Share, which is effective
for periods ending after December 15, 1997, prior period earnings per share
information has been restated in conformity with the new provisions. Adoption of
FAS 128 had little or no impact on the earnings per share amounts previously
reported.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at February 28, 1998, were $83.4 million, a $0.6 million
decrease from $84.0 million as of the prior fiscal year end. Two new cafeterias
were opened and 14 cafeterias were closed since May 31, 1997.
In accordance with Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of",
the Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. In light of the results of operations in
the first three quarters of fiscal 1998, the Company is monitoring closely the
effects of improvement plans being implemented. In the event these improvement
plans are not effective, the Company may need to write down certain assets to
their estimated fair value. Based on the results of future operations, the
Company may also implement plans to close certain underperforming restaurants
and dispose of assets. Once adopted, these plans could result in a write-down of
certain assets to estimated fair value.
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<PAGE> 126
Total liabilities at February 28, 1998, were $46.5 million, a $2.4 million
increase from $44.1 as of the end of the prior fiscal year. Current liabilities
have increased $2.4 million, due to increased short-term borrowings on the
Company's line of credit and additional provisions for the cost of closing
restaurants.
At February 28, 1998 the Company had $12.2 million in borrowings under its
revolving line of credit, a net increase of $4.7 million from May 31, 1997.
Effective March 23, 1998, an Amended and Restated Credit Agreement was entered
into by the Company and its lender as discussed in Note C to the financial
statements.
There was no cash dividend paid during the third quarter of fiscal year
1998.
On January 13, 1998, the Company announced that it had retained the
investment banking firm of Wheat, First Securities, Inc. to assist in a review
of the Company's operations, financial structure and strategic alternatives. The
Company has held preliminary discussions with several interested parties
concerning a possible business combination or sale, and is pursuing
negotiations.
KNOWN EVENTS, UNCERTAINTIES AND TRENDS
Note Regarding Forward-Looking Information
The foregoing sections contain "forward-looking" statements which represent
the Company's expectations or beliefs concerning results and growth during the
remainder of fiscal year 1998. The Company cautions that a number of important
factors could, individually or in the aggregate, cause actual results to differ
materially from such forward- looking statements including, without limitation,
the following: general economic conditions; consumer spending trends; mall
traffic trends; changes in food costs; increased competition in the restaurant
industry; the ability to obtain suitable financing, and changes in the laws and
regulations affecting labor and employee benefits.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is presently, and from time to time, subject to pending claims
and suits arising in the ordinary course of its business. In the opinion of
management, the ultimate resolution of these pending legal proceedings will not
have a material adverse effect on the Company's operations or financial
position.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
In anticipation that the Company's analysis of strategic alternatives may
result in a change of control, certain key employees of the Company, including
the Company's executive officers, were offered an incentive package based on
monthly base salary which is contingent on the employee remaining with the
Company until the completion of a possible transaction.
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<PAGE> 127
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
11 -- Computation of Basis and Diluted Earnings Per Share.
27.1 -- Financial Data Schedule for the interim period ended
February 28, 1998.
27.2 -- Financial Data Schedule for the interim period ended
March 1, 1997.
99.1 -- Amended and Restated Credit Agreement dated as of March
23, 1998, between Morrison Restaurants Inc. and AmSouth
Bank.
99.2 -- Stay bonus letters dated March 6, 1998, to the Company's
executive officers.
99.3 -- Company press release dated April 10, 1998.
</TABLE>
REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the quarter
ended February 28, 1998.
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<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORRISON RESTAURANTS INC.
(Registrant)
/s/ CRAIG D. NELSON
------------------------------------
Craig D. Nelson
Senior Vice President, Finance
(Senior Vice President and
Chief Financial Officer)
04/13/98
- ----------
DATE
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<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
11 -- Computation of Basic and Diluted Earnings Per Share.
27.1 -- Financial Data Schedule for the interim period ended
February 28, 1998.
27.2 -- Financial Data Schedule for the interim period ended
March 1, 1997.
99.1 -- Amended and Restated Credit Agreement dated as of March
23, 1998, between Morrison Restaurants Inc. and AmSouth
Bank
99.2 -- Stay bonus letters dated March 6, 1998, to the executive
officers.
99.3 -- Company press release dated April 10, 1998.
</TABLE>
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<PAGE> 130
EXHIBIT 11
MORRISON RESTAURANTS INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1,
1998 1997 1998 1997
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Average common shares outstanding................ 9,139 9,045 9,111 9,033
====== ====== ======= ======
Net Income (Loss)................................ $ (90) $ 701 $(2,890) $2,186
====== ====== ======= ======
Basic earnings (loss) per share.................. $(0.01) $ 0.08 $ (0.32) $ 0.24
====== ====== ======= ======
DILUTED EARNINGS PER SHARE
Average common shares outstanding................ 9,139 9,045 9,111 9,033
Average additional common shares issuable on
exercise of dilutive stock options (computed
by use of the "treasury stock method" at the
average market price)......................... 0 24 0 36
------ ------ ------- ------
Number of shares used in computation of diluted
earnings per share............................ 9,139 9,069 9,111 9,069
====== ====== ======= ======
Net Income (Loss)................................ $ (90) $ 701 $(2,890) $2,186
====== ====== ======= ======
Diluted earnings (loss) per share................ $(0.01) $ 0.08 $ (0.32) $ 0.24
====== ====== ======= ======
</TABLE>
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<PAGE> 131
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PROXY
MORRISON RESTAURANTS INC.
SOLICITED BY THE BOARD OF DIRECTORS
FOR USE AT THE SPECIAL MEETING OF SHAREHOLDERS, JULY 31, 1998
The undersigned hereby appoints Ronald A. LaBorde and J. Fred Johnson, and
each or any of them, and any substitute or substitutes, to be the attorneys and
proxies of the undersigned at the Special Meeting of Shareholders of Morrison
Restaurants Inc., or at any adjournment thereof, and to vote at such meeting the
shares of Common Stock entitled to vote thereat, held of record by the
undersigned on [JULY 6], 1998, on the items indicated on the reverse side hereof
as more fully described in the Proxy Statement dated [JULY 10], 1998 and in
accordance with the directions given at the Special Meeting.
This proxy, when properly executed, will be voted in the manner directed by
the undersigned shareholder. If no direction is given, the shares represented by
this proxy will be voted "FOR" Item 1.
(Continued, and to be dated and signed on the reverse side.)
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<PAGE> 132
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MORRISON RESTAURANTS INC.
3300 HIGHLANDS PARKWAY, SUITE 130
ATLANTA, GEORGIA 30082
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
Item 1. Adoption of Plan and Agreement of Merger
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Item 2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
Please mark, date and sign your name exactly as it appears on your stock
certificate and return it in the enclosed envelope. When signing as an attorney,
executor, administrator, trustee, guardian, etc., please give title as such. If
such signer is a corporation or partnership, please sign in full corporate or
partnership name by authorized officer or person. If shares are held jointly,
each joint owner should sign.
Dated:
- ----------------------------------------------------------------------------- ,
1998
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature, if held jointly
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
