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. 2)
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 Rule 14a-11(c) or Rule 14(a)-12
The Western Transmedia Company, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than Registrant)
Payment of filing fee (check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(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):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
<PAGE>
/ / 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:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
-2-
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC.
475 SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94111
--------------------
December 6, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of The Western Transmedia Company, Inc. (the "Company"), which will
be held on December 27, 1996, at the offices of Olshan Grundman Frome &
Rosenzweig LLP, 505 Park Avenue, New York, New York at 10:00 A.M. Eastern
Standard Time (the "Meeting").
At the Meeting, you will be asked to consider and vote upon a
proposal to approve the proposed sale of substantially all of the Company's
assets (the "Sale of Assets") to the Company's corporate franchisor, Transmedia
Network Inc. (the "Buyer"), pursuant to the Asset Purchase Agreement dated as of
November 15, 1996.
The purchase price payable by Buyer for the Sale of Assets is
expected to be approximately $7.2 million, including $4.75 million for the
Transmedia Network franchise and approximately $2.4 million for the Company's
Rights to Receive. In voting upon the Sale of Assets, you will also be approving
an amendment to the Company's Certificate of Incorporation to change its name to
The Western Systems Corp.
You will also be asked at the Meeting to vote on the approval of
amendments to the Company's 1992 Stock Option Plan.
The accompanying Proxy Statement provides detailed information
concerning the Sale of Assets and certain additional information. You are urged
to read and carefully consider this information.
THE BOARD OF DIRECTORS BELIEVES THAT THE SALE OF ASSETS AND THE
ASSET PURCHASE AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ASSET PURCHASE AGREEMENT AND
THE AMENDMENTS TO THE 1992 PLAN, AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE SALE OF ASSETS AND THE AMENDMENTS TO THE 1992 PLAN.
All stockholders are invited to attend the Meeting in person.
Approval of the Sale of Assets requires the affirmative vote of a majority of
the outstanding shares of the Company's Common Stock. Approval of the amendments
to the 1992 Stock Option Plan requires the affirmative vote of a majority of the
votes cast by all stockholders represented and entitled to vote thereon.
A copy of the Asset Purchase Agreement is attached as Exhibit A to
the accompanying Proxy Statement and is incorporated herein by reference.
The Board of Directors has fixed the close of business on November
1, 1996 as the record date for the Meeting. Only stockholders of record on the
stock transfer books of the Company at the close of business on that date are
entitled to notice of, and to vote at, the Meeting.
In order that your shares may be represented at the Meeting, you are
urged to complete, sign, date and return promptly the accompanying Proxy in the
enclosed envelope, whether or not you plan to attend the Meeting. If you attend
<PAGE>
the Meeting in person, you may, if you wish, vote personally on all matters
brought before the Meeting even if you have previously returned your Proxy.
YOUR VOTE IS IMPORTANT
To ensure your representation at the Meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. To revoke a Proxy, you must
submit to the Secretary of the Company prior to voting, either a signed
instrument of revocation or a duly executed Proxy bearing a date or time later
than the Proxy being revoked. If you attend the Meeting, you may vote in person
even if you previously returned a Proxy.
BY ORDER OF THE BOARD OF DIRECTORS
William J. Barrett
Secretary
San Francisco, California
December 6, 1996
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC.
475 SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94111
--------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on December 27, 1996
--------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of The
Western Transmedia Company Inc., a Delaware corporation (the "Company"), will be
held on December 27, 1996, at the offices of Olshan Grundman Frome & Rosenzweig
LLP, 505 Park Avenue, New York, New York at 10:00 A.M., Eastern Standard Time
(the "Meeting"), for the following purposes:
1. To consider and to vote on a proposal to approve the sale of
substantially all of the Company's assets (the "Sale of Assets") pursuant to the
Asset Purchase Agreement dated as of November 15, 1996 (the "Asset Purchase
Agreement") between the Company and its corporate franchisor, Transmedia Network
Inc. (the "Buyer"), a copy of which is attached to the accompanying Proxy
Statement as Exhibit A. In voting upon the Sale of Assets, stockholders will
also be approving an amendment to the Company's Certificate of Incorporation to
change its name to The Western Systems Corp.
2. To approve the amendments to the Company's 1992 Stock Option Plan
(the "1992 Plan").
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
Only stockholders of record at the close of business on November 1,
1996 are entitled to notice of, and to vote at, the Meeting and any adjournments
thereof.
All stockholders are invited to attend the Meeting in person.
Approval of the Sale of Assets requires the affirmative vote of a majority of
the outstanding shares of the Company's Common Stock. The amendments to the 1992
Plan require the affirmative vote of a majority of the votes cast by all
stockholders represented and entitled to vote thereon.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS
VOTE TO APPROVE PROPOSALS BOTH FOR THE SALE OF ASSETS AND THE AMENDMENTS TO THE
1992 PLAN PRESENTED AT THE MEETING.
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC.
475 SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94111
--------------------
PROXY STATEMENT
THE WESTERN TRANSMEDIA COMPANY, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 27, 1996
--------------------
INTRODUCTION
This Proxy Statement and the accompanying form of proxy are being
furnished in connection with the solicitation of proxies by the Board of
Directors of The Western Transmedia Company, Inc., a Delaware corporation (the
"Company"), to be used at a Special Meeting of Stockholders of the Company to be
held on December 27, 1996 at 10:00 A.M., Eastern Standard Time at the offices of
Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York (the
"Meeting"). This Proxy Statement, the accompanying form of proxy, the Annual
Report on Form 10-K for the year ended December 31, 1995 and the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 are first being
mailed to stockholders of the Company on or about December 6, 1996.
At the Meeting, the stockholders will consider and vote on Proposal
No. I -- The Sale of Assets (the "Sale of Assets") to approve and adopt the
Asset Purchase Agreement, dated as of November 15, 1996 (the "Asset Purchase
Agreement"), between the Company and its corporate franchisor, Transmedia
Network Inc. (the "Buyer"). The purchase price payable by Buyer for the Sale of
Assets (the "Purchase Price") is expected to be approximately $7.2 million,
including $4.75 million for the Transmedia Network franchise and approximately
$2.4 million for the Company's Rights to Receive. The Company will retain the
cash and cash equivalents held by it which, at the record date for the Meeting,
aggregated approximately $2.5 million. In voting upon the Sale of Assets,
stockholders will also be approving an amendment to the Company's Certificate of
Incorporation to change its name to The Western Systems Corp. The stockholders
will also vote on Proposal No. II -- The Amendments to the Company's 1992 Stock
Option Plan (the "1992 Plan").
The Sale of Assets may impact the rights of holders of the Company's
Common Stock. Although the Company will endeavor to deploy its net assets after
the closing of the Sale of Assets to seek suitable investments and business
combinations, there are no investments and/or business combinations currently
under consideration that the Board of Directors considers probable of
consummation. The Company's stockholders may not have the opportunity to vote on
acquisitions and/or business combinations of the Company that may hereafter be
consummated. See "Unascertainable Risks and Broad Range of Potential Target
Businesses; Uncertain Structure of Business Combination; Selection of Target
Business by the Board of Directors."
STOCKHOLDERS OF THE COMPANY SHOULD CAREFULLY CONSIDER THIS PROXY
STATEMENT IN ITS ENTIRETY, PARTICULARLY THE FACTORS DISCUSSED UNDER THE
HEADING "RISK FACTORS" AT PAGE 20.
--------------------
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "SEC"). Reports and other information filed by the
Company can be inspected and copied at the public reference facilities at the
SEC's office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at the SEC's Regional Office at Seven World Trade Center, Suite 1300, New York,
New York 10048 and at the SEC's Regional Office at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material and
other information concerning the Company can also be inspected and copied at the
offices of The National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006. Such material may also be accessed electronically
by means of the SEC's home page on the Internet at http://www.sec.gov.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on November 1,
1996, the record date (the "Record Date") for the Meeting, will be entitled to
notice of, and to vote at, the Meeting and any adjournment(s) thereof. As of the
close of business on the Record Date, there were outstanding 7,903,421 shares of
the Company's common stock, $.60 par value (the "Common Stock"). Each
outstanding share of Common Stock is entitled to one vote. A majority of the
outstanding shares of Common Stock present in person or by Proxy is required for
a quorum.
VOTING OF PROXIES
Shares of Common Stock represented by Proxies that are properly
executed, duly returned and not revoked will be voted in accordance with the
instructions contained therein. If no specification is indicated on the Proxy,
the shares of Common Stock represented thereby will be voted (i) for the
approval of the Sale of Assets and all transactions contemplated thereby; and
(ii) for the approval of the amendments to the 1992 Plan. The execution of a
Proxy will in no way affect a stockholder's right to attend the Meeting and vote
in person. Any Proxy executed and returned by a stockholder may be revoked at
any time thereafter by written notice of revocation given to the Secretary of
the Company, by execution of a subsequent Proxy that is presented at the
Meeting, or by voting in person at the Meeting, in any such case, except as to
any matter or matters upon which a vote shall have been cast pursuant to the
authority conferred by such Proxy prior to such revocation. Broker "non-votes"
and the shares as to which a stockholder abstains are included for purposes of
determining whether a quorum of shares is present at a meeting. A broker
"non-vote" occurs when a nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power with respect to that item and has not received instructions from
the beneficial owner. Broker "non-votes" are not included in the tabulation of
the voting results of issues requiring approval of a majority of the votes cast
and, therefore, do not have the effect of votes in favor or in opposition in
such tabulations. The amendments to the 1992 Plan require the affirmative vote
of a majority of the votes cast by all stockholders represented and entitled to
vote thereon. Therefore, abstentions and broker "non-votes" will be excluded
entirely from the tabulation of the voting results and will have no effect in
favor of or in opposition to such proposal. However, broker non-votes and
abstaining votes will not be counted in favor of the Sale of Assets. As the Sale
of Assets Proposal requires the affirmative vote of a majority of the Company's
outstanding Common Shares, abstentions and broker non-votes will have the same
effect as votes
-2-
<PAGE>
against such proposal. Approval of the Sale of Assets requires the affirmative
vote of a majority of the outstanding shares of the Company's Common Stock.
The cost of solicitation of the Proxies being solicited on behalf of
the Board of Directors will be borne by the Company. In addition to the use of
the mails, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company and its transfer
agent, American Stock Transfer & Trust Company (which will receive a nominal fee
in connection with any such efforts). The Company will, upon request, reimburse
brokerage houses and persons holding Common Stock in the names of their nominees
for their reasonable expenses in sending soliciting material to their
principals.
ABSENCE OF DISSENTERS' APPRAISAL RIGHTS
Under the applicable provisions of Delaware law and the Company's
Certificate of Incorporation, the Company's stockholders are not entitled to
dissenters' rights of appraisal with respect to either of the proposals.
SECURITY OWNERSHIP
The following table sets forth information concerning ownership of
the Company's Common Stock, as of the Record Date, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, each director, and for each executive officer and by all directors and
executive officers of the Company as a group. Unless otherwise indicated, the
address of each person or entity listed below is the Company's principal
executive office.
Name and Address Shares Percentage
of Beneficial Owner(1) Beneficially Owned(2) of Class
- ---------------------- --------------------- --------
Stuart M. Pellman 454,657(3) 5.5%
Herbert M. Gardner 426,254(4) 5.4%
c/o Janney Montgomery Scott Inc.
26 Broadway
New York, NY 10004
William J. Barrett 556,501(5) 7.0%
c/o Janney Montgomery Scott Inc.
26 Broadway
New York, NY 10004
Special Situations Fund III, L.P.(6) 305,000 3.9%
625 Madison Avenue
New York, NY 10022
Special Situations Cayman Fund L.P.(7) 406,251(8) 5.0%
625 Madison Avenue
New York, NY 10022
MassMutual Corporate Investors 698,707(9) 8.6%
1295 State Street
Springfield, MA 01111
C. Scott Bartlett, Jr. 56,281(10) *
Howard Grafman(11) 144,762(12) 1.8%
Richard O. Starbird 110,997(13) 1.3%
Paulette W. Grafman(11) 29,705(14) *
-3-
<PAGE>
Name and Address Shares Percentage
of Beneficial Owner(1) Beneficially Owned(2) of Class
- ---------------------- --------------------- --------
All Directors and Executive Officers
as a Group (7 persons) 1,779,157(15) 20.6%
- -------------------
* Less than 1%
(1) All of such persons and entities have sole investment and voting power
over the shares listed as being beneficially owned by them.
(2) All persons identified below as holding common stock purchase warrants
("Warrants") or options granted pursuant to the 1992 Plan are deemed to be
beneficial owners of shares underlying such Warrants or subject to such
options by reason of their right to acquire such shares within 60 days
after November 1, 1996 through the exercise of such Warrants or options.
(3) Includes (i) 212,500 shares subject to options and (ii) 132,646 shares
owned by an individual retirement account as to which Mr. Pellman is the
beneficiary (including 8,823 shares underlying Warrants). Mr. Pellman
disclaims beneficial ownership of the shares beneficially owned by the
members of his family. These calculations do not give effect to the
approval of Proposal No. 2 and the acceleration of the vesting of options
under the 1992 Plan. If Proposal No. 2 is approved, Mr. Pellman will
beneficially own 529,657 shares.
(4) Includes (i) 42,421 shares beneficially owned by Mr. Gardner's spouse
(including 7,352 shares underlying Warrants), (ii) 8,333 shares owned by
an individual retirement account as to which Mr. Gardner is the
beneficiary, and (iii) 241,298 shares owned by Mr. Gardner's qualified
plan (including 22,058 shares underlying Warrants). Mr. Gardner disclaims
beneficial ownership of the shares beneficially owned by the members of
his family.
(5) Includes (i) 14,705 shares underlying Warrants, (ii) 117,860 shares
beneficially owned by Mr. Barrett's spouse (including 17,646 shares
underlying Warrants), and (iii) 315,090 shares owned by Mr. Barrett's
qualified plan (including 44,117 shares underlying Warrants). Mr. Barrett
disclaims beneficial ownership of the shares beneficially owned by the
members of his family.
(6) Based upon a Statement on Schedule 13G dated January 10, 1996 filed with
the Securities and Exchange Commission by Special Situations Fund III,
L.P. (the "Fund"), MGP Advisers Limited Partnership ("MGP"), AWM
Investment Company, Inc. ("AWM") and Austin W. Marxe. Such Schedule 13G
discloses that (i) AWM is the sole general partner of MGP, a registered
investment adviser under the Investment Advisers Act of 1940, as amended,
(ii) MGP is a general partner of and investment adviser to the Fund, (iii)
AWM is a registered investment adviser under said Act and also serves as
the general partner of, and investment adviser to, Special Situations
Cayman Fund, L.P. and (iv) Austin W. Marxe is the principal owner and
President of AWM.
(7) Based upon information contained in the Schedule 13G referred to in (6)
above.
(8) Includes 200,000 shares underlying Warrants.
-4-
<PAGE>
(9) Based upon Amendment No. 1 dated June 5, 1995 to a Statement on Schedule
13G filed with the Securities and Exchange Commission by MassMutual
Corporate Investors, MassMutual Participation Partners and MassMutual
Corporate Value Partners in which the three entities indicate that they
may be regarded as a group. MassMutual Corporate Investors, MassMutual
Participation Partners and MassMutual Corporate Value Partners own
405,590, 54,000 and 56,000 shares of Common Stock respectively. MassMutual
Corporate Investors also owns warrants to purchase 183,117 shares of
Common Stock. The Boards of Directors of each of MassMutual Corporate
Investors, MassMutual Participation Partners and MassMutual Corporate
Value Partners have sole investment and voting power over the respective
securities of the Company held by each such entity. MassMutual Corporate
Investors and MassMutual Participation Partners are each closed-end mutual
funds whose shares are traded on the New York Stock Exchange.
(10) Includes (i) 8,399 shares held jointly with Mr. Bartlett's spouse, (ii)
36,000 shares subject to options and (iii) 5,882 shares underlying
Warrants held jointly with Mr. Bartlett's spouse.
(11) Howard Grafman and Paulette W. Grafman are spouses.
(12) Includes (i) 6,000 shares subject to options and (ii) 17,205 shares
underlying Warrants and (iv) 5,000 shares held by Radio First
International, Inc., of which Mr. Grafman is a principal stockholder. Does
not include shares reported as beneficially owned by Paulette W.
Grafman.
(13) Includes (i) 16,000 shares subject to options and (ii) 14,705 shares
underlying Warrants.
(14) Includes 4,705 shares underlying Warrants. Does not include shares
reported as beneficially owned by Howard Grafman.
(15) Includes an aggregate of 251,332 shares subject to options and 379,254
shares underlying Warrants.
-5-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") of the Company. The table also sets forth, for the fiscal year ended
December 31, 1995, all compensation awarded to, earned by or paid to the
executive vice president of the Company who was the only executive officer of
the Company other than the CEO whose salary and bonus exceeded $100,000 with
respect to the fiscal year ended December 31, 1995. There was no executive
officer of the Company, other than the CEO, whose salary and bonus exceeded
$100,000 with respect to the fiscal years ended December 31, 1994 or 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------ -----------------------
Other Annual All Other
Compensation Number of Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($)(1) Options ($)(2)
- --------------------------- ----- -------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stuart M. Pellman, 1995 175,000 25,580 4,680 150,000 --
President and Chief 1994 145,000 -- 4,680 -- --
Executive Officer 1993 135,250 12,300 -- 62,500 --
Paulette W. Grafman, 1995 115,000 15,290 -- 105,000(4) --
Executive Vice President 1994 75,000 -- -- -- --
(3) 1993 23,333 37,500 -- -- --
</TABLE>
(1) Perquisites and other personal benefits, securities or property delivered
to Mr. Pellman and Ms. Grafman did not exceed the lesser of $50,000 or 10%
of their respective total annual salaries and bonuses.
(2) Mr. Pellman's employment agreement provides that, in the event of the sale
of all or substantially all of the assets of the Company or upon the sale
of a controlling interest in the Company's stock, Mr. Pellman will be
entitled under certain circumstances to resign and collect a lump sum
payment of $300,000. The employment agreement also requires the Company to
pay the premiums (not exceeding $4,800 per annum) on term life insurance
in the face amount of $1,000,000 on the life of Mr. Pellman under policies
owned by Mr. Pellman. See "Management----Employment Agreements."
(3) Ms. Grafman resigned her position with the Company on January 10, 1996.
(4) These options expired unexercised three months after the date of Ms.
Grafman's resignation.
OPTION GRANTS
The following table sets out certain information with respect to
options granted to each of Mr. Pellman and Ms. Grafman under the 1992 Plan
during the fiscal year ended December 31, 1995:
-6-
<PAGE>
OPTION GRANTS TABLE
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Percent of
Total
Options Market
Options Granted to Price
Granted Employees Exercise (2) Date
(Shares) in Fiscal Price of Expiration
Name (1) Year ($/Sh) Option Date
---- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
Stuart M. Pellman 25,000 8% $3.75 $3.75 4/18/2000
125,000 39% $2.8125 $3.75 4/18/2000
Paulette W. Grafman 40,000 13% $3.75 $3.75 4/18/2000
65,000 20% $2.8125 $3.75 4/18/2000
</TABLE>
- --------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM (5)
--------------------------
Name 5% 10%
---- -- ---
Stuart M. Pellman $272,596 $460,599
Paulette W. Grafman(1) $169,723 $301,326
- -----------------
(1) The options may not be exercised until December 31, 1995 and become fully
vested on December 31, 1996. The options to the extent not previously
exercised, expire on April 18, 2000. Ms. Grafman terminated her employment
with the consent of the Company on January 10, 1996. In accordance with
the terms of the Company's 1992 Stock Option Plan, her options expired
unexercised three months after such date.
(2) Market price represents the estimated fair market value for the securities
granted under option giving effect to the fact such securities are
unregistered and otherwise restricted as to sale or transfer.
(3) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the options following termination of
employment, non-transferability or differences in vesting periods.
Regardless of the theoretical value of an option, its ultimate value will
depend on the market value of the Common Stock at a future date, and that
value will depend on a variety of factors, including the overall condition
of the stock market and the Company's result of operations and financial
condition. There can be no assurances that the values reflected in this
table will be achieved.
-7-
<PAGE>
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning
unexercised options held as of December 31, 1995 by Mr. Pellman and Ms. Grafman.
No stock options were exercised by Mr. Pellman or Ms. Grafman during the fiscal
year ended on such date.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised in-
Options at the-Money Options at
December 31, 1995(#) December 31, 1995 ($)(1)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ----------------------- --------------------------
Stuart M. Pellman 198,332/89,168 $46,125/0
Paulette W. Grafman(2) 177,500/52,500 $0/0
- -----------------
(1) Based on the closing price of a share of Common Stock ($1.625 as reported
by NASDAQ on December 29, 1995).
(2) Ms. Grafman terminated her employment with the consent of the Company on
January 10, 1996. In accordance with the terms of the Company's 1992 Stock
Option Plan, her options expired unexercised three months after such date.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
For the fiscal year ended December 31, 1995, there were two meetings
of the Board of Directors. In addition, members of the Board of Directors
consulted regularly with each other and from time to time acted by unanimous
written consent pursuant to the laws of the State of Delaware. The Board of
Directors does not presently have a standing audit or nominating committee, the
customary functions of such committees being performed by the entire Board of
Directors.
See "Compensation Committee Report on Executive Compensation" for
information in respect of the Compensation and Stock Option Committee (the
"Compensation Committee") of the Board of Directors.
DIRECTOR COMPENSATION
Directors who are not officers or employees of the Company receive
such compensation for their services as the Board of Directors may from time to
time determine. Currently, directors who are not employees of the Company
receive a fee of $100 for each Board of Directors or committee meeting attended,
plus reasonable out-of-pocket expenses. Directors who are officers or employees
of the Company are not entitled to any compensation for their service as a
director.
-8-
<PAGE>
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or defined benefit
pension plans.
EMPLOYMENT AGREEMENTS
Mr. Pellman serves as President and Chief Executive Officer of the
Company pursuant to an employment agreement that commenced as of January 1, 1995
and will terminate on December 31, 1996. Mr. Pellman received a base annual
salary of $175,000 from January 1, 1995 through December 31, 1995 and will
receive $200,000 per annum from January 1, 1996 through December 31, 1996. As
additional compensation, the Company is to pay Mr. Pellman an annual bonus equal
to 5% of the Company's pre-tax income up to $2,000,000 plus 6-1/2% of the
Company's pre-tax income, if any, over $2,000,000, for each fiscal year of the
Company (or portion thereof) commencing with the fiscal year ending December 31,
1995. Mr. Pellman received $580 pursuant to this clause at the end of December
31, 1995. Mr. Pellman will not be entitled to receive any bonus payment as a
result of the consummation of the Sale of Assets. In addition, Mr. Pellman
received the sum of $25,000 in consideration of his agreement to enter into the
employment agreement. The employment agreement also provides for such other
salary increases and bonuses as the Board of Directors of the Company shall
determine and contains a covenant not to compete that extends for a period of
two years after termination for cause or termination by Mr. Pellman otherwise
than for employer breach. In the event of the sale of all or substantially all
of the assets of the Company and its subsidiaries, the merger or consolidation
of the Company with any other entity or the sale of a controlling interest in
the Company's stock, and Mr. Pellman's duties are significantly altered, he
ceases to serve as a member of the Board of Directors of the Company, employer
breach occurs under his employment agreement or the location at which he
performs his principal duties is outside the San Francisco, California
metropolitan area, Mr. Pellman shall have the right either to continue his
employment with the Company under the terms of the employment agreement or to
elect to resign and receive, along with other benefits, a lump sum payment of
$300,000. Mr. Pellman's employment agreement requires the Company to pay the
premium (not exceeding $4,800 per annum) on term life insurance in the face
amount of $1,000,000 on the life of Mr. Pellman under policies owned by Mr.
Pellman. Upon consummation of the Sale of Assets, the employment agreement will
terminate.
Paulette W. Grafman served as Executive Vice President of the
Company and managed its Los Angeles office under an employment agreement that
commenced as of January 1, 1995 and would have terminated on December 31, 1996.
Ms. Grafman resigned her position with the Company on January 10, 1996. She
received a base salary of $115,000 per annum from January 1, 1995 through
January 10, 1996. As additional compensation, the Company was to pay Ms. Grafman
an annual bonus equal to 2-1/2% of the Company's pre-tax income up to $2,000,000
plus 4% of the Company's pre-tax income, if any, over $2,000,000, for each
fiscal year of the Company (or portion thereof) commencing with the fiscal year
ending December 31, 1995. Ms. Grafman received $290 under this arrangement for
the fiscal year ended December 31, 1995. In addition, Ms. Grafman received the
sum of $15,000 in consideration of her agreement to enter into the employment
agreement. The employment agreement also contains a covenant not to compete that
extends for a period of two years after termination for cause or termination by
Ms. Grafman otherwise than for employer breach.
-9-
<PAGE>
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation and Stock Option Committee was established by the
Board of Directors in September 1993 to make recommendations to the Board of
Directors regarding compensation of executive officers and administration of the
Company's 1992 Stock Option Plan. It acted three times by unanimous written
consent during 1995. Messrs. Barrett, Bartlett and Starbird currently serve as
members of the Compensation and Stock Option Committee.
COMPENSATION PHILOSOPHY
The Compensation and Stock Option Committee's executive compensation
philosophy is (and the Board of Directors was) to base management's pay, in
part, on the achievement of the Company's annual and long-term performance
goals, to provide competitive levels of compensation, to recognize individual
initiative, achievement and length of service to the Company, and to assist the
Company in attracting and retaining qualified management. The Compensation
Committee also believes that the potential for equity ownership by management is
beneficial in aligning management's and stockholders' interests in the
enhancement of stockholder value.
SALARIES
Base salaries for the Company's executive officers are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual and by reference to the competitive marketplace for
management talent, including a comparison of base salaries for comparable
positions at comparable companies. Annual salary adjustments are determined by
evaluating the competitive marketplace, the performance of the Company, the
performance of the executive particularly with respect to the ability to manage
growth of the Company, the length of the executive's service to the Company and
any increased responsibilities assumed by the executive.
BONUSES
The Company from time to time will consider the payment of bonuses
to its executive officers, although no formal plan currently exists, except as
provided in individual employment agreements. Bonuses would be determined based,
first, upon the level of achievement by the Company of its strategic and
operating goals and, second, upon the level of personal achievement by
participants. The achievement of goals by the Company includes, among other
things, the performance of the Company as measured by return on assets. The
achievement of personal goals includes the actual performance of the Company for
which the executive officer has responsibility as compared to the planned
performance thereof, the level of cost savings achieved by such executive
officer, other individual contributions, the ability to manage and motivate
reporting employees and the achievement of assigned projects. In view of the
early stage of development of the Company's business, except as provided for in
individual employment agreements, no executive officer received a bonus for the
1994 fiscal year.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Pellman's base salary of $175,000 was based upon the factors
described in the "Salaries" paragraph above.
-10-
<PAGE>
STOCK OPTION PLAN
It is the philosophy of the Compensation Committee that stock
options should be awarded only to key employees of the Company to promote
long-term interests between such employees and the Company's stockholders and to
assist in the retention of such employees. The Stock Option Committee awarded
stock options to Mr. Pellman and Ms. Grafman in April 1995 for services
performed in 1994. The size of these awards to each of Mr. Pellman and Ms.
Grafman was based generally on the factors described in "-- Salaries" above and
specifically on each of their performances. In addition, the Stock Option
Committee considered the extensive nature and the significant services rendered
by Mr. Pellman and Ms. Grafman, their seasoned managerial skills and the fact
that their base salaries are below the average of similar positions in
comparable companies.
COMPENSATION AND STOCK OPTION COMMITTEE: William J. Barrett,
C. Scott Bartlett, Jr.
Richard O. Starbird
COMMON STOCK PERFORMANCE
The following graph compares, for the periods indicated, the
percentage change in the Company's cumulative total stockholder return on its
Common Stock with the cumulative total return of (a) the NASDAQ Market Index, a
broad equity market index (the "Broad Market"), and (b) an index consisting of
the following publicly traded Miscellaneous Business Credit Institutions with
the same Standard Industrial Classification Code (6159) as the Company: Allied
Capital Lending Corp., Ampal-American Israel Corporation, Banca Quadrum S.A. de
C.V. (ADR), Covered Financial Corp., Financial Federal Corp., Financing for
Science, HPSC Inc., Oxford Resources Corp. - Class A, PDS Financial Corp.,
Rockford Industries Inc., Student Loan Corp., Student Loan Marketing
Association, Walnut Financial Service Inc. and Winfield Capital Corp. (the
"Industry Index").
[GRAPH OMITTED]
-11-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal
July Year Year Year Year
18,1992 Ending Ending Ending Ending
Company ($) 1992($) 1993($) 1994($) 1995($)
------- --- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
The Company 100.00 700.00 1400.00 1652.00 652.00
Industry Index 100.00 101.06 73.73 56.71 109.99
Broad Market 100.00 108.21 129.80 136.28 176.76
</TABLE>
-12-
<PAGE>
PROPOSAL I - SALE OF ASSETS
INTRODUCTION
On July 15, 1996, the Company reached an agreement in principle with
Buyer, under which Buyer will purchase from the Company its franchise covering
California, Oregon, Washington and parts of Nevada and substantially all of the
Company's assets related to the business presently conducted by it, other than
its cash and cash equivalents.
As of November 15, 1996, the Company and Buyer entered into a
definitive asset purchase agreement (the "Asset Purchase Agreement") under which
the Company proposes to sell to Buyer substantially all of its assets related to
the business presently conducted by it (the "Assets") for the Purchase Price,
which is expected to be approximately $7.2 million, payable in full in cash at
Closing, including $4.75 million for the Transmedia Network franchise and
approximately $2.4 million for the Company's Rights to Receive, subject to
adjustment. Those funds would be payable to the Company, not stockholders. The
Company will retain the cash and cash equivalents held by it which, at the
Record Date, aggregated approximately $2.5 million.
The approval of the Sale of Assets will also constitute the approval
of the proposed amendment to the Company's Certificate of Incorporation to
change its name to The Western Systems Corp.
The Company's officers and directors, who collectively own in excess
of 20% of the Company's Common Stock, and Buyer, which owns approximately 3.1%
of the Company's Common Stock, have indicated their intention to vote their
shares in favor of the Sale of Assets.
Buyer's obligations under the Asset Purchase Agreement are
conditioned upon, among other things, approval by the Company's stockholders of
the Asset Purchase Agreement on or before January 31, 1997. If such approval is
not obtained, Buyer has the right to terminate the Asset Purchase Agreement. The
Company anticipates the Closing to occur during the first week of January 1996
(the "Closing Date").
Subsequent to the closing of the Asset Purchase Agreement (the
"Closing"), after giving effect to its provisions, the anticipated results of
operations and payment of the Company's liabilities in the ordinary course of
business (including taxes relating to the Sale of Assets), the Company is
expected to have net assets of approximately $8.8 million consisting almost
exclusively of cash and cash equivalents. After the Closing, the Company will
endeavor to deploy these assets by seeking suitable investments and business
combinations. Although the Company has had discussions since mid-1996 concerning
possible investments and/or business combinations and in connection therewith
has conducted due diligence activities, at the present time, no agreements,
arrangements, or understandings exist with respect to any such transaction. The
Board of Directors does not believe that any of such possible investments and/or
business combinations is likely to be consummated. The Company will seek to
acquire, merge, consolidate, invest in transactions or otherwise combine with
one or more other operating businesses. The Company's efforts have not been and
will not be directed to any one industry or type of business. Although the
Company will endeavor to deploy its net assets after the closing of the Sale of
Assets to seek suitable investments and business combinations, there are no
other investments and/or business combinations currently under consideration
that the Board of Directors considers probable of consummation. See
"Unascertainable Risks and Broad Range of Potential Target Businesses; Uncertain
Structure of Business Combination; Selection of Target Business by the Board of
Directors" for a discussion of attendant risks and uncertainties because the
Company has not yet identified a probable acquisition and/or business
combination.
-13-
<PAGE>
OVERVIEW OF THE COMPANY'S BUSINESS; RELATIONSHIP WITH BUYER
The Company currently operates as the West Coast dining franchisee
of Buyer. On December 9, 1991, the Company entered into a Franchise Agreement
(the "Franchise Agreement") with Buyer, which granted to the Company the
exclusive right to operate a franchise (the "Franchise") in the State of
California. The Franchise features the Transmedia Card, a private charge card
developed, marketed and issued by Buyer, which entitles cardholders to a savings
of up to 25% on the regular menu prices of food and beverages when dining at
participating restaurants (the "Participating Restaurants"). The Franchise
Agreement would expire by its terms on December 8, 2001. However, the Company
has the option to extend the Franchise Agreement for a term of 10 years after
the initial expiration date.
The Company's franchise business activities under the Franchise
Agreement, which the Company commenced in August 1992, are (i) to provide cash
payments to Participating Restaurants that it recruits in its Franchise
Territory to join the Transmedia Network in exchange for food and beverage
credits, known as "Rights to Receive," and (ii) to obtain additional holders of
the Transmedia Card in its Franchise Territory. The Company generally purchases
its inventory of Rights to Receive directly from a Participating Restaurant
through cash payments to the Participating Restaurant in an amount equal to
approximately 50% of the dollar value of the Rights to Receive being purchased.
The Company derives substantially all of its revenues from operations by
purchasing Rights to Receive from Participating Restaurants in its Franchise
Territory and the sale of such Rights to Receive to holders of the Transmedia
Card.
Under the original terms of the Franchise Agreement, the Company was
required to pay Buyer the following fees and charges: (i) $250,000 as an initial
franchise fee; (ii) approximately $100,000 as an initial contribution to Buyer's
advertising and development fund; and (iii) 150,000 shares of the Common Stock
of the Company, valued at $21,000, which have been issued.
In September 1993, the Company and Buyer agreed that the Company
would pay for substantially all of its advertising in California and entered
into an agreement providing, effective as of September 30, 1993, for (i) a
refund to the Company of the remaining unused balance (approximately $55,000) of
the $145,000 theretofore contributed to Buyer's advertising and development fund
(which amount includes the Company's initial and subsequent periodic
contributions), and (ii) the termination of the Company's obligation to pay the
remaining monthly installments of such obligation (approximately $105,000).
Since 1994, Buyer has reimbursed the Company for substantially all expenses
incurred in obtaining California cardholders.
In addition, the Company is obligated to pay to Buyer continuing
service charges as follows: (i) a general service charge equal to 7.5%, and an
advertising fee of 2.5%, of the total dollar amount of Rights to Receive meal
credits used by Cardholders at Participating Restaurants within the Franchise
Territory; (ii) a monthly restaurant service charge of $1.00 per Participating
Restaurant located in the preceding month within the Franchise Territory; and
(iii) a processing charge equal to $.20 per Cardholder transaction slip
forwarded to Buyer by Participating Restaurants in the Franchise Territory. Such
charges are to be deducted by Buyer from funds to be paid to the Company. Buyer
has agreed that the general service charge and the advertising fee shall not
aggregate more than 11% during the first 10 year extension, if any, of the
Franchise Agreement and shall not aggregate more than 12% for the second such
extension, if any. For the fiscal years ended December 31, 1995 and 1994, the
Company incurred an aggregate of $1,586,781 and $1,212,262, respectively, in
service charges payable to Buyer. The Company has incurred $1,020,104 in service
charges payable to Buyer for the nine month period ended September 30, 1996.
-14-
<PAGE>
Under the Franchise Agreement, the Company acquired options to
obtain Transmedia franchises for the States of Oregon and/or Washington for
initial total franchise and advertising fees of $200,000 and $300,000,
respectively. In December 1993, the Company exercised its option for the State
of Washington and in June 1995, the Company exercised its option for the State
of Oregon. In connection with the exercise of such option and the Company's
assumption of certain advertising costs described above, the Company also agreed
with Buyer to provide for (i) a reduction in the Company's exercise price for
the Transmedia Network franchises in the States of Oregon and/or Washington to
$100,000 and $150,000, respectively, to reflect the Company's assumption of such
advertising obligations; (ii) the exercise of the Washington option by issuance
to Buyer of 50,000 shares of Common Stock (in lieu of the $150,000 exercise
price) and the exercise of the Oregon option by issuance to the Buyer of 35,000
shares of Common Stock (in lieu of the $100,000 exercise price); and (iii) the
acquisition of the right to operate the Transmedia Network franchise in limited
areas of Nevada by issuance to Buyer of 10,000 shares of Common Stock. The
Company's rights under the Franchise Agreement relate only to Participating
Restaurants in the Company's Franchise Territory. The Company does not have any
rights to participate in or derive any income from any other products or
services offered to cardholders.
The Company commenced its franchise operations in the San Francisco
Bay Area in August 1992, in the Los Angeles metropolitan area in October 1993,
in Orange County in January 1995, and in the Lake Tahoe, Nevada area in October
1995. Under the terms of the Franchise Agreement, the Company is required to
commence Franchise operations in the State of Washington prior to 1996 year-end
and in Oregon prior to May 1997. However, in view of the Company's agreement in
principle to sell the Franchise to Buyer and with Buyer's acquiescence, the
Company has not undertaken the activities that would be required to commence
operations in Washington and Oregon.
The Company had 227 Participating Restaurants and 12,000 Cardholders
at December 31, 1993 and net sales of $926,852 for the year 1993. At December
31, 1994, the Company had 519 Participating Restaurants and 62,000 Cardholders
and it had net sales of $8,698,738 for the year 1994. At December 31, 1995, the
Company had 553 Participating Restaurants and 82,000 Cardholders and it had net
sales of $11,368,903 for the year 1995. At September 30, 1996, the Company had
541 Participating Restaurants and 146,000 Cardholders and it had net sales of
$7,378,409 for the nine months ended September 30, 1996.
The Company's principal executive offices are located at 475 Sansome
Street, San Francisco, California 94111; its telephone number is (415) 397-3001.
Buyer's operations consist of a network of more than 6,600
Participating Restaurants. Buyer markets and issues the Transmedia Card, a
charge card held by nearly one million cardholders that entitles them to savings
on restaurant dining costs and other quality products and services. Buyer
maintains and updates a directory of all dining establishments that accept The
Transmedia Card. Directories are provided to all cardholders approximately every
eight weeks. The Transmedia Card may also be used to charge other services,
including hotel rooms, recreational, telephone and other miscellaneous services.
Under the Franchise Agreement, Buyer is obligated at its own expense to provide
to the Company a variety of assistance, including conducting all monitoring and
tracking functions of Participating Restaurant accounts and Transmedia Network
franchise credit transactions, forwarding sales tax and tip refunds and monthly
statements of cardholder usage and Rights to Receive credit balances directly to
Participating Restaurants, and undertaking all cardholder fulfillment and
processing services and activities, including providing Transmedia Card charge
slips and restaurant contracts. Buyer is also responsible for any bad debt
expenses resulting from cardholders' failure to pay their food and beverage
bills and for compiling and mailing restaurant directories and other cardholder
support materials.
-15-
<PAGE>
Buyer's principal executive offices are located at 11900 Biscayne
Boulevard, Miami, Florida 33181, its telephone number is (305) 892-3300.
Buyer is currently the beneficial owner of 245,000 shares of Common
Stock. Other than as described herein and the fact that Herbert M. Gardner is a
director of both entities, there are no other relationships between the Company
and Buyer. (See "Interest of Company Management in the Sale of Assets.")
HISTORY OF AND REASONS FOR THE TRANSACTION
From time to time during the past two years, representatives of
Buyer and the Company have discussed the potential acquisition of the Franchise
by Buyer. In early 1995, Melvin Chasen, President and CEO of Buyer, and William
J. Barrett, a Director of the Company, held several informal meetings and
telephone discussions (in New York City and Miami, Florida) to discuss the
possibility of combining the businesses of the Buyer and Company. The
discussions contemplated the acquisition of the Company for shares of Buyer's
Common Stock. Buyer's investment banking firm reviewed the proposed transaction.
However, no agreement in principle was reached by the parties and discussions
were concluded in mid-1995. The Company believes that no agreement was
consummated because the parties could not agree upon a ratio of Buyer's common
stock to be exchanged for the Company's Common Stock due to the declining market
prices of both Buyer's and the Company's Common Stock and the dilutive nature of
the contemplated transaction to Buyer.
In early May 1996, Messrs. Chasen and Barrett initiated new
discussions to effect a business combination. In the interim, Buyer acquired the
Transmedia franchise for Chicago in July 1995 and Buyer publicly announced its
intention not to sell additional franchises in the United States, but to operate
all new territories on a company-owned basis. In addition, in January 1996,
Buyer initiated two new programs -- a new 20% saving card with no annual fee and
national programs to increase the number of cardholders in the United States and
California. Although the Company was able to add a significant number of
California cardholders due to these new programs, the average amount expended by
cardholders declined during the first six months of 1996 and competition in the
discount dining industry continued. Accordingly, the Company's revenues and
gross profits decreased and the Company incurred a net loss during the first six
months of 1996. The discussions between the parties were based for the first
time on the purchase of the Company's franchise and franchise-related assets on
a cash basis together with the issuance of warrants to purchase Buyer's common
stock. As described below, such warrants were later excluded from the purchase
price after further negotiations. The Company believed that a purchase price
payable in cash rather than stock was preferable because the receipt of Buyer's
common stock rather than cash would not permit the Company to seek out and
acquire other businesses. In addition, the Company believed that in light of its
experience in 1995, it would have been difficult for the Company and Buyer to
agree upon a ratio of Buyer's common stock to be exchanged for the Company's
Common Stock. Negotiations continued through June, 1996. The talks culminated in
the announcement of an agreement in principle on July 15, 1996 and the execution
of the Asset Purchase Agreement dated as of November 15, 1996. Pending the
consummation of the Sale of Assets, management will continue to conduct business
in the ordinary course, but has ceased expenditures for geographic expansion.
All management and other employees of the Company have continued in its employ.
At the time that the agreement in principle was announced, it was
contemplated that (i) Buyer would have the option of paying the purchase price
for the Franchise in 14 monthly installments commencing two months after the
Closing and (ii) the Company would receive a warrant to purchase 800,000 shares
of Common Stock of the Buyer at $15.00 per share and that such warrant would be
distributed to the stockholders of the Company on a pro rata basis during 1998.
-16-
<PAGE>
During negotiations subsequent to the agreement in principle, the parties were
unable to agree on the final terms of the proposed warrants, including attendant
registration costs and rights and listing arrangements. In addition, in view of
the decline in the Company's revenues and the net loss during the third quarter
of 1996, the parties re-negotiated the transaction to eliminate the warrants and
to decrease the purchase price for the Franchise from $5.0 million to $4.75
million in exchange for Buyer's agreement to pay the purchase price for the
Franchise in full in cash at Closing in lieu of the option of paying the
purchase price in installments. The Buyer will continue to pay at Closing
approximately $2.4 million in cash for the Rights to Receive.
There are several reasons for the Company proposing to sell its
Assets to Buyer at this time: (i) Buyer's interest in expanding its ownership of
operations within the United States and the size and importance of the territory
covered by the Franchise; (ii) the decline in the Company's revenues and gross
profit and the incurrence of net losses in 1996 due primarily to a continuing
decline in average cardholder usage and competition in the discount dining
industry in California, (iii) the inability of the Company under the Franchise
Agreement to expand its activities other than at Participating Restaurants; and
(iv) the sale to Buyer represents a significant pre-tax profit to the Company of
approximately $4.2 million.
The Board of Directors has determined that the sale to Buyer would
enable the Company to utilize the proceeds of the sale together with its
existing cash to enhance stockholder value by acquisitions or investments. While
the Board of Directors considered various alternatives including (i) liquidating
the Company and distributing the proceeds of the sale to its stockholders or
(ii) continuing its efforts to improve operating results, the Board of Directors
believes that stockholder value can best be enhanced by potential acquisitions
or investments. The Company's directors' own approximately 20% of the Company's
Common Stock.
The Company believes that Buyer's interest in acquiring the Assets
is based on a number of factors: (i) the announcement in 1995 by Buyer that it
would no longer grant franchises in the United States, and would thereafter seek
to own its new territories evidenced by a transaction in which Buyer acquired a
franchise in another location in July, 1995; (ii) the fact that the Company's
Franchise covers geographically desirable locations, the significant population
of California and the benefits of operating on a company-owned basis in the
major metropolitan areas of Los Angeles, San Francisco, San Diego and Seattle,
(iii) the Company's franchise represents the largest revenue generator among
Buyer's current franchisees; and (iv) the acquisition of the Franchise will
permit Buyer to offer in the Franchise Territory services other than those at
Participating Restaurants utilizing the Company's existing sales and marketing
personnel.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE CONSUMMATION
OF THE ASSET PURCHASE AGREEMENT IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY
VOTE FOR ITS APPROVAL. Each of Mr. Pellman, who will be employed by Buyer upon
consummation of the transaction, and Mr. Gardner, who is a director of Buyer,
abstained from voting on the transaction. Mr. Gardner had no involvement and Mr.
Pellman insubstantial involvement in the negotiation of the terms of the
transaction. (See "Interest of Company Management in the Sale of Assets") . The
Board of Directors believes that the Purchase Price for the Assets is fair and
equitable to the Company and its stockholders. Prior to considering the Sale of
Assets, the Board of Directors had not established a range of values for the
Assets. In recommending that stockholders approve the Asset Purchase Agreement,
the Board of Directors considered:
-17-
<PAGE>
(a) ARMS-LENGTH NEGOTIATIONS; GAIN. Buyer was desirous of
obtaining the Assets and the parties engaged in give-and-take
negotiations over the price and terms for the transaction.
Accordingly, the Board of Directors believes its negotiations were
at arms length and produced an appropriate and equitable price. The
Sale of Assets will result in a net gain for the Company of
approximately $4.2 million, all taxes on which will be the sole
responsibility of the Company. The Company is expected to receive
approximately $7.2 million in cash at Closing, including $4.75
million for the Transmedia Network franchise and approximately $2.4
million for the Company's Rights to Receive for a business
originally purchased for (i) $250,000 as an initial franchise fee;
(ii) approximately $100,000 as an initial contribution to Buyer's
advertising and development fund; and (iii) 150,000 shares of the
Common Stock of the Company valued at $21,000. The Company will
retain cash and cash equivalents held by it which, at the Record
Date, aggregated approximately $2.5 million. As of September 30,
1996, the book value of the Assets was approximately $2.9 million.
(b) RECENT OPERATING RESULTS AND LIMITED PROSPECTS FOR
PROFITABLE OPERATIONS. For the fiscal year ended December 31, 1995,
the Company reported net income of approximately $11,000; for the
nine months ended September 30, 1996, the Company reported a net
loss of $183,000, including approximately $56,000 for legal and due
diligence activities in connection with the sale to Buyer and
reviewing possible acquisitions. The Company attributes its
operating losses in the latter half of 1995 and in 1996 to a
continuing decline in average Cardholder usage, the increase of
competition in the discount dining industry in California, and in
1995 a general weakness in the California economy. The Company
anticipates that for the foreseeable future, were it to continue to
operate the Franchise, it would incur net losses or operate on a
break-even basis. As a result, the Board of Directors believes that
the Sale of Assets is in the Company's best interest.
(c) LACK OF ALTERNATIVES. While Buyer does not have a right of
first refusal to purchase the business of the Company or any shares
of the Company's equity, Buyer's consent (which may not be
unreasonably withheld) is required in connection with the sale of
the Company's business. To date, the Company has not received any
other offers for its Assets. This includes the period subsequent to
July 15, 1996, when the agreement in principle with Buyer was
publicly announced. Given the terms of the proposed transaction, the
decline of the Company's revenues and the incurrence of net losses
in 1996 and the fact that the Sale of Assets to Buyer could be
consummated quickly and with relatively little uncertainty (given
Buyer's intimate knowledge of the Company's business), the Board of
Directors did not feel that stockholders' interests would be better
served by seeking other offers. The Company's confidence in Buyer is
based on the ability of Buyer to pay the full purchase price in cash
at Closing.
No solicitation of offers was conducted by the Board of
Directors other than in connection with the discussions with Buyer.
Although in mid-1995, management had one contact with
representatives of another public company concerning the possible
sale of the Company, and preliminary discussions with Buyer's
European franchisee, those conversations did not result in
negotiations or in an offer for the Company. The Board of Directors
did not solicit any offers after the Buyer's offer in July 1996 due
to the decline in the Company's revenues and the incurrence of
losses and its belief that the Franchise was worth significantly
-18-
<PAGE>
more to Buyer than to a third party purchaser. The Company believes
that the decline in its operating results cannot be satisfactorily
resolved by it in the next 12-18 months, but can be addressed by
Buyer subsequent to the Sale of Assets. See "History of and Reasons
for the Transactions" for a detailed discussion of the unanticipated
change in results of operations.
(d) EXISTENCE OF CASH ASSETS. The Board of Directors believed
that the cash consideration to be received in connection with the
Sale of Assets along with the existing cash and cash equivalents of
the Company would enhance the Company's ability to enter into
acquisitions or investments which could enhance stockholder value.
While the Board of Directors did not set any minimum level for such
acquisitions or investments, it was desirous of having a sufficient
amount of cash to be able to pursue one or more acquisition
opportunities. For a description of the manner in which the Company
is searching for acquisitions and the expected costs relating to
such search, see "Operations of the Company after Closing."
(e) LACK OF FAIRNESS OPINION. The Board of Directors did not
feel an investment banker's opinion was beneficial or necessary
given the Board of Directors' knowledge of the Company and its
business, nor did the Board of Directors believe that obtaining such
an opinion would be an appropriate use of corporate funds. The Board
of Directors estimates the cost of such an opinion to be
approximately $100,000. The Board of Directors determined that such
expenditure was unnecessary because members of the Board of
Directors have considerable experience in valuing businesses.
Messrs. Barrett and Gardner are each Senior Vice Presidents of
Janney Montgomery Scott Inc., an investment banking firm, with over
25 years' experience in corporate finance matters. Mr. Bartlett was
employed as a commercial banking officer for over 25 years. Each of
Messrs. Barrett, Gardner, Bartlett and Starbird serve on the boards
of directors of other publicly held companies. Based on the
Company's current operating performance and prospects, including the
decline in such performance, and the Buyer's strong interest in
acquiring the Assets, the Board of Directors felt that a
significantly better price could not be obtained in the foreseeable
future.
During the course of its deliberations, the Board of Directors gave
equal consideration to: (i) the terms and conditions of the Asset Purchase
Agreement and related documentation and (ii) the historical and prospective
operations of the Company, including, among other things, the current financial
condition and future prospects of the Company. The Board of Directors believes
that the current financial condition and future prospects of the Company are
negatively impacted by (i) a decline in overall usage of the Transmedia Card at
Participating Restaurants in California and (ii) continuing significant
competition in the discount dining industry in California. In its deliberations,
the Board of Directors also considered, to a lesser extent, the Company's
efforts in trying to locate other suitable businesses.
The foregoing discussion of the information and factors considered
by the Board of Directors is not intended to be exhaustive, but is believed to
include all material factors considered by the Board of Directors.
INTEREST OF COMPANY MANAGEMENT IN THE SALE OF ASSETS
Stuart M. Pellman will resign as President and Chief Executive
Officer of the Company on the Closing Date, and his employment agreement will
also be terminated as of that date. However, he will remain a Director of the
-19-
<PAGE>
Company and will continue to hold options previously granted to him under the
1992 Plan.
Buyer specifically requested that Mr. Pellman continue in the
Transmedia business. Mr. Pellman's employment agreement was due to expire on
December 31, 1996. Mr. Pellman will become an executive officer of Buyer, and
Transmedia Restaurant Company, Inc., a wholly-owned subsidiary. His new
employment arrangements, which will be for a term of two years, will include an
annual base salary of $200,000, an annual bonus under Buyer's bonus plan for
senior management, and stock options for 10,000 shares of Buyer's Common Stock.
Herbert M. Gardner is a director and stockholder of the Company (see
"Security Ownership"). Mr. Gardner is also a director of Buyer and the
beneficial owner of 286,724 shares of Buyer's Common Stock (exclusive of shares
held by Mr. Gardner's spouse individually or as custodian, as to which shares
Mr. Gardner disclaims beneficial ownership).
Members of the Board of Directors and their affiliates will not
receive any fees in connection with the Sale of Assets. However, in connection
with any future acquisition or business combination, fees may be paid to
advisors to the Company including, but not limited to, investment bankers, which
could include Janney Montgomery Scott Inc., of which Messrs. Gardner and Barrett
are Senior Vice Presidents.
MISCELLANEOUS
The Sale of Assets may impact the rights of holders of the Company's
Common Stock. Although the Company will endeavor to deploy its net assets after
the closing of the Sale of Assets to seek suitable investments and business
combinations, there are no other investments and/or business combinations
currently under consideration that the Board of Directors considers probable of
consummation. The Company's stockholders may not have the opportunity to vote on
acquisitions and/or business combinations of the Company that may hereafter be
consummated. See "Unascertainable Risks and Broad Range of Potential Target
Businesses; Uncertain Structure of Business Combination; Selection of Target
Business by the Board of Directors."
RISK FACTORS
There are certain risks associated with the proposed transaction.
Among the significant risks are the following:
1. POSSIBLE DELISTING FROM NASDAQ.
The Company's Common Stock and Warrants are currently listed for
trading on the NASDAQ Small-Cap Market. Under the rules for continued listing in
the NASDAQ System, a company is required to be engaged in an active business, to
maintain at least $2,000,000 in total assets, two marketmakers, a public float
of at least $200,000 and a minimum bid price of $1.00 per share, or if the share
price criterion cannot be met, $2,000,000 in capital and surplus and a public
float of $1,000,000. Once the Company sells substantially all of its assets, it
may no longer meet the active business requirement. Upon notice of a deficiency
in one or more of the maintenance requirements, the Company would be given 90
days (30 days in the case of the number of marketmakers) to comply with the
maintenance standards. Failure of the Company to meet the maintenance
requirements of NASDAQ could result in the Company's securities being delisted
from NASDAQ with the result that the Company's securities would trade on the OTC
Bulletin Board or in the "pink sheets" maintained by the National Quotation
Bureau, Inc., which are generally considered to be less efficient markets.
-20-
<PAGE>
The Commission has also adopted regulations that define a "penny
stock" to be any equity security that has a market price (as defined in such
regulations) of less than $5.00 per share, subject to certain exceptions. Such
exceptions include the equity security of a company that has (1) net tangible
assets in excess of $2,000,000 if the company has been in continuous operations
for at least three years or (2) average revenues of at least $6,000,000 for the
last three years. The Company believes that it falls within at least one of the
exceptions. However, unless either of such exceptions is available, the
regulations would require the delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market.
In addition, if the Company's securities are deemed to be a penny
stock, they would be subject to Rule 15g-9 promulgated under the Securities
Exchange Act of 1934, as amended, which imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those persons which
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse).
2. LACK OF INDEPENDENT APPRAISAL BY INVESTMENT BANKER ENGAGED BY THE COMPANY.
The Company has not engaged an investment banker to evaluate the
fairness of the terms of the Asset Purchase Agreement. Accordingly, the Company
is relying solely upon the judgment of the Board of Directors in assessing the
fairness of the Asset Purchase Agreement. Although the members of the Board of
Directors have substantial experience in evaluating transactions, the Board of
Directors could be mistaken in its judgment. Each stockholder must evaluate all
of the information contained herein concerning the transactions relating to the
Asset Purchase Agreement based upon his/her individual investment objectives and
concerns. Accordingly, each stockholder should consult with his/her own
investment advisors and consultants in deciding whether to approve the Sale of
Assets.
3. UNASCERTAINABLE RISKS AND BROAD RANGE OF POTENTIAL TARGET BUSINESSES;
UNCERTAIN STRUCTURE OF BUSINESS COMBINATION; SELECTION OF TARGET BUSINESS
BY THE BOARD OF DIRECTORS
As the Company has not yet identified a prospective business (a
"Target Business") with which it is likely to effectuate a merger, exchange of
capital stock, stock or asset acquisition or other similar type of transaction
(a "Business Combination"), stockholders have no basis on which to evaluate the
possible merits or risks of a Target Business's operations. Although management
of the Company will endeavor to evaluate the risks inherent in any particular
Target Business, there can be no assurance that the Company will properly
ascertain all such risks. See "Operation of the Company After Closing" for a
detailed discussion of how the Board of Directors intends to select Target
Businesses. Management of the Company will have virtually unrestricted
flexibility in identifying and selecting a prospective acquisition candidate. In
many cases, stockholder approval will not be required to effect such a Business
Combination. The fair market value of the Target Business will be determined by
the Board of Directors of the Company. Therefore, the Board of Directors has
significant discretion in determining whether a Target Business is suitable for
a proposed Business Combination. Furthermore, the structure of a Business
Combination with a Target Business, which may take the form of a merger,
exchange of capital stock or stock or asset acquisition, cannot be determined
because, at the present time, no agreements, arrangements or understandings
exist with respect to any such proposed Business Combination.
-21-
<PAGE>
4. INVESTMENT COMPANY ACT CONSIDERATIONS
The regulatory scope of the Investment Company Act of 1940
("Investment Company Act"), which was enacted principally for the purpose of
regulating vehicles for pooled investments in securities, extends generally to
companies engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities. The Investment Company Act may, however, also
be deemed to be applicable to a company which does not intend to be
characterized as an investment company but which, nevertheless, engages in
activities which may be deemed to be within the definitional scope of certain
provisions of the Investment Company Act. The Company believes that its
anticipated principal activities following the Sale of Assets will involve
acquiring control of an operating company and, therefore, will not subject the
Company to regulation under the Investment Company Act. Nevertheless, there can
be no assurance that the Company will not be deemed to be an investment company,
particularly during the period prior to a Business Combination. In the event the
Company is deemed to be an investment company, the Company may become subject to
certain restrictions relating to the Company's activities, including
restrictions on the nature of its investments and the issuance of securities. In
addition, the Investment Company Act imposes certain requirements on companies
deemed to be within its regulatory scope, including registration as an
investment company, adoption of a specific form of corporate structure and
compliance with certain burdensome reporting, recordkeeping, voting, proxy,
disclosure and other rules and regulations. In the event of characterization of
the Company as an investment company, the failure by the Company to satisfy
regulatory requirements, whether on a timely basis or at all, could have a
material adverse effect on the Company.
5. POSSIBLE NEED FOR ADDITIONAL FINANCING
Although the Company believes that the net proceeds of the Sale of
Assets, along with its current cash and cash equivalents, will be sufficient to
allow it to consummate a Business Combination, the Company cannot ascertain the
capital requirements for any particular transaction. In the event that the
Company's capital resources prove to be insufficient, either because of the size
of the Business Combination or the depletion of the available proceeds in search
of a Target Business, the Company will be required to seek additional financing.
There can be no assurance that such financing would be available on acceptable
terms, if at all. To the extent that additional financing proves to be
unavailable when needed to consummate a particular Business Combination, the
Company would be compelled to restructure the transaction or abandon that
particular Business Combination and seek an alternative Target Business
candidate. In addition, in the event of the consummation of a Business
Combination, the Company may require additional financing to fund the operations
or growth of the Target Business. The failure by the Company to secure such
additional financing could have a material adverse effect on the continued
development or growth of the Target Business. None of the Company's officers,
directors or stockholders is required to provide any financing to the Company in
connection with or after a Business Combination.
SUMMARY OF THE ASSET PURCHASE AGREEMENT
The following summary of the terms of the Asset Purchase Agreement
does not purport to be complete and is qualified in its entirety by reference to
the Asset Purchase Agreement attached hereto as Exhibit A (excluding schedules
and exhibits).
PURCHASE PRICE
The purchase price for the Assets is expected to be approximately
$7.2 million, including (i) $4.75 million for the Transmedia Network franchise,
-22-
<PAGE>
payable at Closing in cash; (ii) the net book value of the Company's Rights to
Receive inventory purchased from the restaurants in the Company's Franchise
Territory, which had a book value (net of reserves for bad debt) of
approximately $2.4 million as of September 30, 1996, payable at Closing in cash;
and (iii) the Company's furniture, fixtures, office equipment and certain other
assets, having a book value of approximately $117,000, for $46,000.
ASSETS AND LIABILITIES TRANSFERRED
The Company is selling the Franchise and its Rights to Receive (net
of reserves and accounts payable relating to the Rights to Receive). The Company
will also sell to Buyer its fixed assets, security deposits and certain other
assets. Buyer will assume Company's accounts payable relating to the Rights to
Receive and other outstanding liabilities relating to the Company's Rights to
Receive, as well as its leases. The Company will retain cash and cash
equivalents held by it which, at the Record Date, aggregated approximately $2.5
million. As of September 30, 1996, the Company's outstanding accounts payable
relating to the Rights to Receive were approximately $349,000 and its capital
leases were approximately $16,000. The Company will retain responsibility for
any costs associated with terminating those employees who are not offered
positions by Buyer. The Company believes that such severance costs will not be
material.
REPRESENTATIONS AND WARRANTIES
The Asset Purchase Agreement contains representations and warranties
by the Company, including, without limitation, those relating to: (i) the
absence of any material violation of law in connection with the Company's
operations; (ii) the absence of undisclosed material litigation; and (iii) the
ownership, transferability and condition of the Assets, including the Company's
Rights to Receive.
CERTAIN COVENANTS PRIOR TO CLOSING
The Company has agreed, prior to Closing, (i) to conduct its
business in the ordinary course, including preserving the Assets; (ii) to comply
promptly with legal requirements that may be imposed upon it in connection with
its Sale of Assets; and (iii) to afford Buyer and its representatives access at
all reasonable times to its businesses and properties for the purposes of
investigation of the Company's business and the Assets.
CLOSING
The Closing is scheduled to occur not later than the fifth business
day after the Company's stockholders have approved the Asset Purchase Agreement,
or at such other time as the parties may agree. The Asset Purchase Agreement may
be terminated and abandoned by Buyer upon the happening of certain events
including (i) a breach of any representation, warranty, covenant or agreement o
the part of the Company set forth in the Asset Purchase Agreement; (ii) if the
Company's stockholders do not approve the Asset Purchase Agreement; and (iii) if
the Closing shall not have occurred on or before January 31, 1997.
NAME CHANGE
Promptly after the Closing, the Company's name will change to The
Western Systems Corp. The change is required to eliminate the word "Transmedia"
from the Company's corporate name, as the Company will no longer be a Transmedia
Network franchisee.
-23-
<PAGE>
CONDITIONS TO CLOSING
The obligations of the Company and the Buyer to cause the Asset
Purchase Agreement to be consummated are subject to satisfaction of the
following conditions, among others: (i) each of the parties' representations and
warranties contained in the Asset Purchase Agreement shall be true and correct
in all material respects; (ii) the parties shall have performed or complied in
all material respects with all agreements and covenants required by the Asset
Purchase Agreement to be performed or complied with by them on or prior to the
Closing; (iii) the Sale of Assets shall have been approved by the Company's
stockholders; (iv) no government action or injunction that would render the
transactions contemplated by the Asset Purchase Agreement illegal or otherwise
materially restrict consummation of such transactions; and (v) all required
governmental consents, if any, shall have been obtained.
INDEMNIFICATION; LIMITATIONS ON LIABILITY
The Company has agreed to indemnify Buyer against any and all
liabilities, losses, costs and expenses (including legal expenses) resulting
from or relating to (a) any misrepresentation or breach of any representation or
warranty of the Company contained in the Asset Purchase Agreement or any other
document delivered by or on behalf of the Company pursuant to the Asset Purchase
Agreement; (b) any breach of any covenant, agreement or obligation of the
Company contained in the Asset Purchase Agreement; (c) any debt, liability or
obligation of the Company or any of its affiliates other than the liabilities
assumed by Buyer; (d) the conduct of the business of the Company and its
affiliates, and the ownership, use and operation of the Assets, on or prior to
the Closing Date; and (e) any failure of the Company to comply with the
provisions of the Uniform Commercial Code pertaining to bulk sales; and any and
all actions, suits, demands, assessments or judgments with respect to any claim
arising out of or relating to the subject matter of the indemnification. The
debts, liabilities or obligations of the Company referred to in (c) above will
consist substantially of the accrued liabilities for operating expenses incurred
in the ordinary course of business as recorded on the books of the Company as of
the Closing Date and anticipated ongoing general and administrative expenses of
approximately $20,000 per month. The Company's accrued liabilities were $138,276
and $96,681 as of the periods ended September 30, 1996 and December 31, 1995,
respectively. Generally, the representations and warranties will survive Closing
for six months except that representations and warranties relating to
substantially all of the Rights to Receive will not survive the Closing.
However, the Company will be obligated to reimburse Buyer the purchase price of
the Rights to Receive relating to one group of participating restaurants if
during the one-year period subsequent to Closing, such Rights to Receive are
reasonably determined to be uncollectible or unrealizable. The purchase price of
such Rights to Receive would have aggregated approximately $134,000 had the Sale
of Assets been consummated on November 1, 1996 and is expected to decline in
amount prior to Closing.
REGULATORY REQUIREMENTS
To the best knowledge of the Company, there are no federal or state
regulatory requirements which must be complied with, nor are there any such
governmental consents or approvals that must be obtained in connection with the
transactions contemplated by the Asset Purchase Agreement.
ACCOUNTING TREATMENT
The transactions contemplated by the Asset Purchase Agreement will
be accounted for as a sale of certain assets and a transfer of certain
liabilities.
-24-
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
TO STOCKHOLDERS
In the opinion of the Company's tax counsel, Olshan Grundman Frome &
Rosenzweig LLP, the Sale of Assets is not expected to have any Federal income
tax consequences to the Company's stockholders.
Except as discussed above, a Company stockholder will retain his
cost or other basis in his Company shares, and a subsequent sale or other
disposition of such shares, including a disposition of such shares in connection
with any future acquisition or merger transaction by the Company (see "Operation
of the Company After Closing"), could result in capital gain or loss to the
stockholder if such transaction were to be a taxable event and not deemed to
generate ordinary income, or might have no Federal income tax consequences to a
stockholder if such subsequent transaction were to occur in the form of a
tax-free reorganization. However, there is no such merger or acquisition
transaction pending or proposed and no assurance whatsoever that any such
transaction will occur in the future and, accordingly, the specific Federal
income tax consequences of any such future transaction will be dependent on the
circumstances of any such possible transaction and on future tax laws and
regulations applicable thereto.
If the Company is liquidated and distributes its net assets, such
distribution would be a taxable transaction to the stockholder, and gain or loss
would be realized by each stockholder equal to the difference between the assets
received and the basis of the stock owned by each stockholder. The Company does
not presently intend to liquidate and distribute its net assets. (See "Operation
of the Company After the Closing.")
The Federal income tax discussion set forth above is included for
general information only. The tax consequences to stockholders may vary
depending on the actions of the Company following consummation of the Sale of
Assets. No information is provided herein as to state, local and foreign tax
consequences to them of the Sale of Assets or as to subsequent actions of the
Company.
TO THE COMPANY
The Sale of Assets will result in a taxable gain of approximately
$4.2 million to the Company. The Company will utilize available net operating
loss carry-forwards for Federal and state purposes of approximately $1.7 million
and $620,000, respectively, as of December 31, 1995. The Company will also
receive the tax benefits of any losses incurred from continuing operations and
public company overhead expenses and from any legal and accounting expenses in
connection with the investigation of possible business combinations. The Company
has reflected the resulting taxes due, which aggregate approximately $900,000,
in the pro forma balance sheet.
SELECTED FINANCIAL DATA
Set forth below is Selected Financial Data for the Company. The
Selected Financial Data is derived from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, a copy of which is included with
the Proxy Statement. The pro forma selected financial data has been derived from
the pro forma financial statements included herein. The following tables should
be read in conjunction with such reports.
-25-
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL: For the Nine For the Years Ended December 31,
- ----------- Months Ended -------------------------------------------------------
September 30, 1996
------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
SELECTED INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C>
Net Sales.............. $7,378,409 $11,368,903 $8,698,738 $926,852 $14,023 $ 0
Interest Income........ 102,759 146,342 38,941 44,709 16,924 826
Net Income (Loss)...... (182,847) 10,942 (280,994) (924,733) (741,882) (52,187)
Net Income (Loss)
Per Common Share*.... $(.02) $0.0 $(.04) $(.16) $(.24) $(.16)
SELECTED BALANCE SHEET DATA:
Total Assets.............. $6,044,010 $6,203,976 $6,615,697 $4,017,551 $1,493,718 $145,250
Long Term Obligations..... 12,997 15,602 4,108 1,702 64,862 0
NET BOOK VALUE PER SHARE:
Total Shareholders'
Equity............... $5,540,051 $5,722,898 $5,611,956 $3,723,920 $1,324,810 $79,375
Weighted Average Number
of Common Shares
Outstanding.......... 7,949,505 8,030,685 7,072,754 5,804,297 3,123,659 326,159
Net Book Value Per Share $0.70 $0.71 $0.79 $0.64 $0.42 $0.24
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA: For the Nine Months For the Year Ended
- ---------- Ended September 30, 1996 December 31, 1995
------------------------ -----------------
<S> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net Sales......................... $ 0 $ 0
Interest Income................... 102,759 146,342
Net Income (Loss)................. (22,241) (53,658)
Net Income (Loss) Per Common Share* $ - $ (.01)
NET BOOK VALUE PER SHARE:
Total Shareholders' Equity........ $8,896,479
Weighted Average Number of Common Shares
Outstanding..................... 7,949,505
Net Book Value Per Share.......... $1.12
SELECTED BALANCE SHEET DATA: At September 30, 1996
---------------------
Total Assets...................... $9,925,755
Long Term Obligations............. --
</TABLE>
- -----------------
*Based on a weighted average number of shares of Common Stock (as restated,
see Note 8(a) of Notes to Financial Statements) outstanding: 8,030,685,
7,072,754, 5,804,297, 3,123,659, and 326,159 shares, respectively, at December
31, 1995, 1994, 1993, 1992 and 1991.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Reference is made to Exhibit B of this Proxy Statement, which
presents pro forma financial information regarding the Company.
OPERATION OF THE COMPANY AFTER CLOSING
Upon the Closing, after giving effect to the Company's operating
losses since January 1, 1996, collection of receivables and payment or
reservation for its liabilities (including taxes), the Company will have net
assets of approximately $8.8 million consisting almost exclusively of cash and
cash equivalents, and will have no operating business. The Company anticipates
ongoing general and administrative expenses of approximately $20,000 per month
until it consummates a Business Combination and will also incur legal and
accounting expenses in connection with any possible Business Combination.
The Company's Board of Directors currently intends to seek to
acquire, merge, consolidate, invest in transactions or otherwise combine with an
-26-
<PAGE>
operating business. The Company intends to enter into transactions which will
use substantially all of the Company's available cash in one or two transactions
and structure such transactions so that the current management of the target
business will remain in place. There can be no assurance that the Company will
be able to acquire or combine with or invest in any business, or that such
business will be profitable. The Company will be relying on the Board of
Directors to identify potential candidates. Messrs. Barrett and Gardner are each
Senior Vice Presidents of Janney Montgomery Scott Inc., an investment banking
firm, with over 25 years' experience in corporate finance matters. In such
capacity they are exposed to companies which are interested in pursuing possible
transactions with other entities. Mr. Bartlett was employed as a commercial
banking officer for over 25 years. As of this time, no decision has been made to
hire an investment banker to assist the Board of Directors. In addition, it is
possible that members of the Board of Directors or their affiliates may receive
fees in connection with any acquisition or business combination. Such fees, if
any, will be on terms no less favorable to the Company than are paid to
investment bankers generally.
Pending an acquisition or business combination, the Company's cash
will be invested as management of the Company deems prudent, which may include,
but will not be limited to, certificates of deposit, mutual funds, money-market
accounts, stocks, bonds or United States Government or municipal securities,
provided, however, that the Company will attempt to invest the net proceeds in
any manner which will not result in the Company being deemed to be an investment
company under the Investment Company Act of 1940. In this regard, while the
foregoing investments are intended to be temporary (i.e., for the period during
which the Company is determining its future course of action), any such
investments deemed by the Securities and Exchange Commission not to be
temporary, may result in the Company being required to register as an investment
company.
While the Board of Directors currently believes that pursuing an
acquisition or business combination is in the stockholders' best interest, it
may subsequently decide to pursue other options available to the Company, such
as investing the Company's cash in marketable securities or liquidating the
Company. Such other options will only be considered if the Board of Directors
determines that it cannot successfully invest in, acquire, merge, consolidate or
otherwise combine with an operating business.
In the event that the Company proposes to engage primarily in the
business of investing or trading in securities, or otherwise its cash in
investment securities having a value in excess of 40% of its total assets
(exclusive of Government Securities, certificates of deposit and other cash
items), the Company may be deemed an investment company and therefore may be
required to register under and become subject to the Investment Company Act of
1940.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Lazar, Levine & Company LLP were the Company's independent auditors
for the year ended December 31, 1995 and are the Company's independent auditors
for the current fiscal year. The appointment of auditors is approved annually by
the Board of Directors.
Representatives of Lazar, Levine & Company LLP will be present at
the Meeting and will be given an opportunity to respond to appropriate questions
from stockholders.
-27-
<PAGE>
STOCK PRICE
The Company's Common Stock was traded in the over-the-counter market
in what is commonly referred to as the "pink sheets" or on the "OTC Bulletin
Board" of the National Association of Securities Dealers, Inc. under the symbol
"WTSM" from July 16, 1992 to December 22, 1993.
The Company's Common Stock has been traded on NASDAQ under the
symbol "WTSM" since December 23, 1993. The Company's Warrants are traded on
NASDAQ under the symbol ("WTSMW").
The following table sets forth the high and low bid prices on the
OTC Bulletin Board and the high and low closing bid prices as reported on NASDAQ
for the Company's Common Stock during the quarters indicated. The prices
reported reflect inter-dealer quotations and may not represent actual
transactions and do not include retail mark-ups, mark-downs or commissions.
Quarter Ended High Low
- ------------- ---- ---
September 30, 1994.................................... 4.25 3.25
December 31, 1994..................................... 3.875 3.00
March 31, 1995........................................ 3.875 3.25
June 30, 1995......................................... 3.75 2.75
September 30, 1995.................................... 2.75 1.375
December 31, 1995..................................... 2.50 1.00
March 31, 1996........................................ 2.50 1.0
June 30, 1996......................................... 2.625 1.5
September 30, 1996.................................... 2.185 1.125
October 1, 1996 through November 29, 1996............. 1.375 .875
On July 12, 1996, the last trading day prior to the public
announcement of the Sale of Assets, the last sale price for the Company's Common
Stock was $1.875. On December 2, 1996, the last sale price for the Company's
Common Stock was $1.00.
At the record date, there were 397 record holders of the Company's
Common Stock. The Company has not paid any cash dividends since it became
publicly traded.
-28-
<PAGE>
PROPOSAL II - THE AMENDMENTS TO THE 1992 PLAN
The Board of Directors proposes that the stockholders approve the
amendments to the 1992 Plan that would provide that in the event of a sale of
all or substantially all of the Company's assets, each option outstanding
thereunder would become exercisable in whole or in part, without regard to any
vesting provisions or employment conditions that may be contained in the 1992
Plan or in any agreement with the optionee.
Pursuant to the 1992 Plan, both incentive and non-qualified options
were granted to key employees of the Company. As of the Record Date, options to
purchase an aggregate of 664,000 shares of the Company's Common Stock were
outstanding under the 1992 Plan, options to purchase 19,166 shares of Common
Stock had been exercised and 86,000 shares were available for the grant of
options under the 1992 Plan.
Under the 1992 Plan as it presently exists, an optionee who leaves
the Company's employ for reasons other than death or cause must exercise (or
otherwise forfeit) outstanding options within three months after termination of
employment. The Company does not intend to continue the employment of its
present employees for any substantial period of time subsequent to Closing. The
Board of Directors believes that the present employees of the Company have
rendered substantially all of the services to the Company for which outstanding
options were granted. It believes that in the context of the involuntary
termination of employment occasioned by the Sale of Assets, it would be
equitable to modify the terms of the 1992 Plan in the manner contemplated.
Of the outstanding options to purchase 664,000 shares of the
Company's Common Stock under the 1992 Plan as of the Record Date, options to
purchase 429,828 shares are presently exercisable. Mr. Pellman holds presently
exercisable options to purchase 187,499 of such shares.
If approved by the stockholders, the second sentence of Section 6(d)
shall be amended to read as follows: "Except as otherwise provided in Section
6(k), if a holder of an option shall voluntarily retire or quit his employment
with the written consent of the Company or a Subsidiary, or if the employment of
such holder shall have been terminated by the Company or a Subsidiary for
reasons other than cause, such holder may (unless his option shall have
previously expired pursuant to the provisions hereof) exercise his option at any
time prior to the first to occur of the expiration of the original option period
or three months after the termination of employment, to the extent of the number
of Shares subject to such option that were purchasable by him on the date of
termination of his employment." Also, a new Section 6(k) shall be added to the
1992 Plan to read as follows: "In the event of a sale of all or substantially
all of the Company's assets, each outstanding option shall become exercisable in
whole or in part, without regard to any vesting provisions or employment
conditions that may be contained in this Plan or in any agreement with the
optionee, and shall remain exercisable, in whole or in part, until it expires by
its terms." In connection with such change, the last two sentences of Section 7
of the 1992 Plan will be deleted. A summation of the 1992 Plan is attached
hereto as Exhibit C and is incorporated herein by reference.
Under proposed regulations published by the Internal Revenue
Service, the amendments to the 1992 Plan, insofar as it would extend the period
during which a previously-granted incentive stock option may be exercised, would
create a "modification" of such option, which term is defined as any change in
the terms of the option that gives the employee additional benefits under the
option. The effect of such a change is that a new option is deemed to have been
granted, which in this case would result in the recharacterization of the
previously-granted incentive stock options, following the effective date of the
proposal, as nonqualified stock options.
-29-
<PAGE>
No taxable income would be recognized by an optionee as a
consequence of such recharacterization. However, upon exercise of either any
previously-granted nonqualified options or any options recharacterized as
nonqualified options (as discussed above), the optionee would include in his
taxable income for Federal income tax purposes the excess in value of the shares
acquired upon such exercise over the exercise price. Thereafter, upon any
subsequent sale or other taxable disposition of such shares, the holder will
incur short-term or long-term gain or loss depending upon the holder's holding
period for the shares and upon the subsequent appreciation or depreciation in
their value. The Company will generally be entitled to a corresponding deduction
at the same time that the optionee is required to include the value of the
shares in his income.
Prior to the effective date of the above-discussed modification of
the previously-granted incentive stock options, in general, no taxable income
for Federal income tax purposes will be recognized by an optionee upon exercise
of an incentive stock option and the Company will not then be entitled to any
tax deduction. Assuming that the optionee does not dispose of the option shares
before the expiration of the longer of (i) two years after the date of grant or
(ii) one year after the exercise of the incentive option, upon disposition, the
optionee will recognize capital gain equal to the difference between the sale
price on disposition and the exercise price.
If, however, the optionee disposes of the shares acquired upon the
exercise of the incentive stock option prior to the expiration of the required
holding period, the optionee will recognize ordinary income for Federal income
tax purposes in the year of disposition equal to the lesser of (i) the
difference between the fair market value of the shares at the date of exercise
and the exercise price or (ii) the difference between the sale price upon
disposition and the exercise price. Any additional gain on such disqualifying
disposition will be treated as capital gain. In addition, if such a
disqualifying disposition is made by the option holder, the Company will be
entitled to a deduction equal to the amount of ordinary income recognized by the
holder.
The amount by which the fair market value of the shares acquired
upon the exercise of an Incentive Option at the time of exercise exceeds the
exercise price of an incentive stock option will be a tax preference item for
purposes of the alternative maximum tax, which, in general, imposes a 26% tax
rate on the initial $175,000 (and a 28% rate in excess of $175,000) of the
excess of (i) an individual's taxable income plus certain tax preference items
over (ii) $33,750 ($45,000 for joint returns) reduced by $.25 for each $1.00 by
which the alternative minimum tax income exceeds $112,500 ($150,000 for joint
returns). An individual will be liable for the alternative minimum tax only to
the extent that the amount of such tax exceeds the liability for regular Federal
income tax.
The foregoing outline is no more than a summary of the Federal
income tax provisions relating to the options under the 1992 Plan and the sale
of shares acquired thereunder. The Federal income tax laws and regulations are
constantly being amended, and each optionee should rely upon his own tax counsel
for advice concerning the applicable Federal income tax provisions.
Upon approval of both Proposals I and II and the consummation of the
Sale of Assets, any outstanding incentive stock option will automatically be
converted, by operation of law, to a non-qualified option. If the Proposal to
amend the 1992 plan is not approved, the outstanding options under the 1992 Plan
will expire 90 days after the end of each optionee's employment. The Board of
Directors will then issue non-qualified options outside of the 1992 Plan which
are comparable to those issued under the 1992 Plan to all optionees holding
outstanding options under the 1992 Plan.
-30-
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE
PROPOSAL TO AMEND THE 1992 PLAN.
------------------------
-31-
<PAGE>
STOCKHOLDER PROPOSALS
- ---------------------
Stockholder proposals in respect of matters to be acted upon at the
Company's 1997 Annual Meeting of Stockholders should be received by the Company
on or before January 10, 1997 in order that they may be considered for inclusion
in the Company's proxy materials.
BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM J. BARRETT, Secretary
San Francisco, California
December 6, 1996
-32-
<PAGE>
EXHIBIT A
ASSET PURCHASE AGREEMENT
<PAGE>
PURCHASE AGREEMENT
by and between
THE WESTERN TRANSMEDIA COMPANY, INC.
AND
TRANSMEDIA NETWORK INC.
------------------------------------
Dated as of November 15, 1996
------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE TRANSACTIONS...............................................2
1.1 The Transactions...............................................2
1.2 The Consideration..............................................3
1.3 Closing........................................................5
1.4 Further Assurances............................................10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER..................12
2.1 Organization; Power; Capital Stock, Etc.......................12
2.2 No Conflict; Required Filings and Consents....................13
2.3 Permits; Compliance...........................................14
2.4 Title to Assets; Absence of Liens and Encumbrances; Defaults..15
2.5 Absence of Litigation.........................................16
2.6 Contracts; No Default; Etc....................................17
2.7 Intellectual Property Rights..................................19
2.8 Brokers.......................................................19
2.9 No Material Misstatements or Misleading Statements............19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...............19
3.1 Organization; Power; Etc......................................19
3.2 No Conflict; Required Filings and Consents....................20
3.3 Absence of Litigation.........................................21
3.4 Brokers.......................................................21
3.5 No Material Misstatements or Misleading Statements............21
ARTICLE IV AGREEMENTS OF THE PARTIES.....................................22
4.1 Ordinary Course of Business...................................22
4.2 Purchaser's Actions...........................................23
ARTICLE V ADDITIONAL AGREEMENTS.........................................24
5.1 Preparation of the Proxy Statement...........................24
5.2 Change of Seller's Name.......................................24
5.3 Meeting.......................................................24
5.4 Legal Conditions to Transaction...............................24
5.5 Taxes.........................................................25
5.6 Confidentiality...............................................25
5.7 Access to Information.........................................26
ARTICLE VI CONDITIONS TO CLOSING.........................................27
6.1 Conditions to the Obligations of the Purchaser................27
- i -
<PAGE>
6.2 Conditions to the Obligations of the Seller...................29
ARTICLE VII TERMINATION...................................................31
7.1 Termination...................................................31
7.2 Effect of Termination.........................................31
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION...............................................32
8.1 Survival of Representations and Warranties....................32
8.2 Seller's Indemnification Obligations..........................32
8.3 Purchaser's Indemnification Obligations.......................34
8.4 Claims for Indemnification; Defense of Indemnified Claims;
Limitations on Indemnification................................34
8.5 Payments; Non-Exclusivity.....................................36
8.6 Set-Off.......................................................36
ARTICLE IX MISCELLANEOUS; GENERAL........................................36
9.1 Fees and Expenses.............................................36
9.2 Modification or Amendment.....................................36
9.3 Waiver of Conditions..........................................37
9.4 Counterparts..................................................37
9.5 Governing Law; Forum; Consent to Jurisdiction.................37
9.6 Notices.......................................................38
9.7 Disclosure Letter and Exhibits; Entire Agreement..............39
9.8 Assignment....................................................39
9.9 Definition of "Affiliate".....................................40
9.10 Titles and Captions...........................................40
9.11 Severability..................................................40
9.12 Publicity.....................................................41
9.13 No Third Party Beneficiaries..................................41
- ii -
<PAGE>
EXHIBIT A Assumed Leases
EXHIBIT B Prepaid Expenses
EXHIBIT C Assumed Liabilities re: Rights to Receive
EXHIBIT D Form of General Assignment and Bill of Sale and Agreement of
Assumption
EXHIBIT E Form of FIRPTA Affidavit
EXHIBIT F Form of Franchise Termination Agreement
EXHIBIT G Form of Olshan Grundman Frome & Rosenzweig LLP Legal Opinion
- iii -
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT dated as of November 15, 1996, between The
Western Transmedia Company, Inc., a Delaware corporation (the "Seller") and
Transmedia Network Inc., a Delaware corporation (the "Purchaser").
R E C I T A L S
WHEREAS, Seller wishes to sell certain of its assets to the
Purchaser and the Purchaser wishes to purchase such assets from the Seller all
upon the terms set forth herein; and
WHEREAS, the Seller has entered into a franchise agreement
with the Purchaser (the "Franchise Agreement") pursuant to which the Seller has
the exclusive right (the "Franchise") to acquire "Rights to Receive" from
participating restaurants and other establishments located in the States of
California, Oregon, Washington and parts of Nevada that accept The Transmedia
Card and to sell such "Rights to Receive" to holders of The Transmedia Card, and
the Seller and the Purchaser wish to terminate the Franchise and the Franchise
Agreement upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants, agreements and conditions herein
contained, the parties agree as follows:
<PAGE>
ARTICLE I
THE TRANSACTIONS
1.1 THE TRANSACTIONS. On the terms and conditions set forth
in this Agreement, at the Closing (as hereinafter defined):
(a) the Purchaser shall purchase from the Seller, and the
Seller shall sell, assign, transfer and convey to the Purchaser, the following
assets, properties and rights existing on the Closing Date, as hereinafter
defined (collectively, the "Assets"):
(i) all of the Seller's "Rights to Receive"
consisting of the food and beverage credits of the Seller and its affiliates at,
and any loans or advances of the Seller and its affiliates to, restaurants and
other establishments that participate in the network of such establishments that
accept The Transmedia Card and any and all agreements, contracts, guarantees,
instruments, security agreements and other documents evidencing or securing, and
any collateral and security interests securing, such credits, loans and advances
(collectively, the "Rights to Receive");
(ii) all of the Seller's furniture, fixtures and
equipment (the "Furniture, Fixtures and Equipment"), including, without
limitation, all POS terminals purchased from the Purchaser and all computer and
automatic machinery software and programs and disks, program documentation,
tapes, manuals and other related materials;
(iii) leases for the real estate and equipment listed
on Exhibit A hereto, including all security deposits deposited by or on behalf
of the Seller as lessee or sublessee, or held by or on behalf of the Seller as
lessor or sublessor, under such leases (the "Assumed Leases");
- 2 -
<PAGE>
(iv) the Seller's prepaid expenses and items listed
in Exhibit B hereto (the "Prepaid Expenses"); and
(v) all rights of the Seller and its affiliates in
any intellectual property (the "Intellectual Property") relating to the business
conducted by the Seller and its affiliates pursuant to the Franchise Agreement,
including any patents, trademarks, service marks, trade names, slogans, trade
secrets, advertising and promotional materials, and copyrights (and any
applications to register and licenses to use any of the foregoing); and
(b) the Seller and the Purchaser shall terminate the
Franchise Agreement, the Franchise and any associated rights and licenses with
immediate effect.
1.2 THE CONSIDERATION.
(a) At the Closing, the Purchaser shall pay to the
Seller, by certified check or wire transfer of immediately available funds to an
account at such bank in the United States as the Seller shall specify in writing
to the Purchaser at least two business days prior to the Closing Date, as
consideration:
(i) for the Rights to Receive, an amount equal to
the excess of the gross amount of the Rights to Receive (as specified on
Schedule 1.2(i) of the Seller Disclosure Letter (as hereinafter defined)), over
the amount equal to the sum of (1) the Rights to Receive which the Seller has
determined are uncollectible or unrealizable (as specified on Schedule 1.2(ii)
of the Seller Disclosure Letter); (2) $70,000, which is the amount currently
reserved by the Seller in its accounting records for uncollectible or
unrealizable Rights to Receive (the "Reserve Amount"); and (3) any accounts
payable in respect of the Rights to
- 3 -
<PAGE>
Receive being assumed by the Purchaser (as specified on Schedule 1.2(iii) of the
Seller Disclosure Letter);
(ii) for the Franchise Agreement, the Franchise and
the Intellectual Property (if any), the sum of $4,750,000;
(iii) for the Furniture, Fixtures and Equipment,
(including the POS terminals) the sum of $28,500;
(iv) for the Prepaid Expenses, the amount shown on
Exhibit B; and
(v) $8,865 (which is the amount of the security
deposits under the Assumed Leases for the real property).
(b) As further consideration for the Assets, the
Purchaser shall assume and perform the following contractual liabilities and
obligations (the "Assumed Liabilities") of the Seller: (i) the Seller's
liabilities and obligations under the Assumed Leases to the extent such
obligations arise and are to be performed after the Closing Date (but not any
liability or obligation for any breach or default (by the Seller), or penalty
arising out of the use or occupancy of the subject premises or equipment, or any
rent, additional rent, tax or expense due with respect to any period ending on
or prior to the Closing Date) and (ii) the Seller's liabilities and obligations,
disclosed in Exhibit C hereto, arising under any of the agreements, contracts,
guarantees, instruments, security agreements and other documents evidencing or
securing the Rights to Receive, including agreements obligating participating
restaurants in the Franchise territory to sell Rights to Receive to the Seller
(but not any liability or obligation for any breach or default (by the Seller)
or penalty under such agreement, contract, guaranty, instrument or
- 4 -
<PAGE>
security agreement). The Purchaser is not assuming and shall not be obligated to
pay, perform or discharge, and the Seller shall indemnify the Purchaser and its
affiliates against, any other liability or obligation of the Seller or any of
its affiliates arising out of the conduct of their business, the ownership or
use of the Assets and the occupancy or use of the premises and equipment subject
to the Assumed Leases on or prior to the Closing Date. The Purchaser has not
agreed to hire or extend any offer of employment to any employee of the Seller
or any of its affiliates other than Stuart M. Pellman.
(c) FORM 8594. The Purchaser and the Seller shall agree
upon the allocation of consideration to the Assets for tax purposes. The
Purchaser and the Seller shall each file the Asset Acquisition Statement on IRS
Form 8594 by the due date of their respective income tax returns for the taxable
year that includes the Closing Date and otherwise report the sale and purchase
of the Assets for all tax purposes in accordance with such allocation and
consistent with one another.
1.3 CLOSING.
(a) DATE AND PLACE. The closing of the transactions
contemplated hereby (the "Closing") shall take place at the offices of Morgan,
Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178, commencing at
10:00 a.m. local time, on the fifth business day following the date on which the
last of the conditions set forth herein in Article VI hereof shall be fulfilled
or waived in accordance with this Agreement, or at such other place and time as
the parties may agree in writing. The "Closing Date" shall be the date on which
the Closing occurs.
- 5 -
<PAGE>
(b) TRANSFER, ASSUMPTION AND PURCHASE.
(i) On the Closing Date, the Seller will convey,
transfer, assign and deliver to the Purchaser (or its designees), and put the
Purchaser (or its designees) in full possession and quiet enjoyment of the
Assets. In furtherance thereof, the Seller shall deliver to the Purchaser (or
its designees):
(1) a general assignment and bill of sale in the
form of Exhibit D hereto;
(2) such other specific assignments, bills of
sale and forms of transfer to such of the Assets, and in such form, as the
Purchaser may reasonably request;
(3) an assignment of each of the Assumed Leases
and of any other agreement, contract or arrangement to be assumed by the
Purchaser (or its designees), in form and substance satisfactory to the
Purchaser and indemnifying, defending and holding harmless the Purchaser from
and against all claims, actions, proceedings, losses, liabilities and expenses
(including, without limitation, reasonable attorneys' fees) imposed upon or
incurred by the Purchaser by reason of the Seller's failure to perform the
obligations under the Assumed Leases or such other agreements, contracts or
arrangements prior to the Closing, with any necessary or appropriate executed
consents of lessors or other persons attached and any related transfer tax
forms;
(4) a FIRPTA affidavit in the form of Exhibit E
hereto; and
(5) such other assignments, financing statements,
instruments or other documents as the Purchaser may reasonably request. In
addition, the Seller shall use its best efforts to obtain an estoppel
certificate from each of the landlords under the
- 6 -
<PAGE>
Assumed Leases in form and substance satisfactory to the Purchaser, dated not
more than ten (10) days prior to the Closing Date, but the receipt of such
certificate shall not be a condition of Closing.
(ii) On the Closing Date, the Purchaser shall execute
and deliver to the Seller an assumption agreement substantially in the form of
Exhibit D hereto whereby the Purchaser shall agree to assume the Assumed
Liabilities.
(iii) From and after the Closing Date, except as
provided in Section 1.3(e), the Purchaser, in the name of the Seller but on
behalf of and for the benefit of the Purchaser, may at its own cost or expense
collect, assert or enforce any claim, right or title of any kind in, with
respect to or to any of the Assets (including, without limitation, instituting
and prosecuting any proceedings in connection therewith), or defend or
compromise any and all claims, actions, suits or proceedings in respect of any
of the Assets, and otherwise to do all such acts and things in relation to the
Assets as the Purchaser shall deem advisable (including, without limitation,
asserting any rights under any Assets or performing or accepting performance
under any agreements), and the Purchaser shall retain for its own account any
amounts collected pursuant to the foregoing, including any sums payable as
interest in respect thereof.
(c) REAL PROPERTY. At the Closing, the Purchaser and the
Seller will apportion the amount of any fixed and additional rent, real estate
taxes, and utility expenses, including, without limitation, expenses for gas,
electricity, telephone and water, with respect to the real property subject to
the Assumed Leases for the month or other relevant period during which the
Closing occurs.
- 7 -
<PAGE>
(d) POST-CLOSING ADJUSTMENT. As soon as practicable, but
in any event within 60 days after the Closing Date, the Purchaser shall cause to
be prepared, without audit, as of the Closing Date a statement of the Prepaid
Expenses (the "Final Statement of Prepaid Expenses") and a statement of the
Rights to Receive (the "Final Statement of the Rights to Receive", and together
with the Final Statement of Prepaid Expenses, the "Final Statements").
The Final Statement of Prepaid Expenses shall set
forth as of the Closing Date the amount of the Prepaid Expenses.
The Final Statement of Rights to Receive shall set
forth as of the Closing Date the value of the Rights to Receive determined as
follows: the gross amount of the Rights to Receive as of the Closing Date, less
the sum of (i) the amount of specifically identified unrealizable or
uncollectible accounts set forth in Schedule 1.2(ii) as of the date of this
Agreement, (ii) the Reserve Amount, (iii) any accounts payable in respect of the
Rights to Receive being assumed by the Purchaser and (iv) the amount of any
Rights to Receive (not reflected on Schedule 1.2(ii)) which prior to the Closing
Date became unrealizable or uncollectible (but excluding any Right to Receive in
excess of $10,000 that is acquired by the Seller after the date hereof and prior
to the Closing Date with the consent of the Purchaser). The Final Statement of
the Rights to Receive shall specifically identify the value of each of the
Rights to Receive designated on Schedule 1.3(e) of the Seller's Disclosure
Letter (which shall be the amount paid for such Rights to Receive for purposes
of Section 1.3(e)). In the event any of such Rights to Receive designated on
Schedule 1.3(e) become unrealizable or uncollectible between the date hereof and
the Closing Date, the provisions of Section 1.3(e) shall apply with respect
thereto.
- 8 -
<PAGE>
The Purchaser shall furnish the Final Statements to
the Seller. Upon receipt by the Seller of the Final Statements, the Seller shall
be permitted during the ten (10) day period following such receipt (the "Review
Period") to review the Prepaid Expenses and the Rights to Receive and deliver a
written statement to the Purchaser of any objection it has to the Final
Statements. If no such statement of objection is delivered to the Purchaser by
the Seller within the Review Period, the Prepaid Expenses and the Rights to
Receive shall be that set forth in the Final Statement. If, however, the Seller
delivers such a statement of objection to the Purchaser, then the Seller and the
Purchaser shall attempt to resolve the objections contained therein. Failing
their agreement, such objections shall be resolved by a firm of independent
certified public accountants, mutually acceptable to the Seller and Purchaser,
whose determination as to each of the Final Statements shall be conclusive and
binding upon the parties. The fees and expenses of such independent certified
public accountants shall be borne equally by the Seller and Purchaser. The
Seller and the Purchaser each agree that the San Francisco office of the
accounting firms of Ernst & Young LLP and Deloitte & Touche LLP are mutually
acceptable independent certified public accountants to resolve any objections
hereunder.
If the aggregate value of the Prepaid Expenses and
the Rights to Receive as of the Closing Date as determined in accordance with
this Section 1.3(d) is (i) greater than the amounts paid the Seller by the
Purchaser pursuant to Sections 1.2(a)(i) and 1.2(a)(iv), then the Purchaser
shall pay the Seller the amount of the difference, or (ii) less than the amount
paid the Seller by the Purchaser pursuant to Sections 1.2(a)(i) and 1.2(a)(iv),
then the Seller shall promptly pay the Purchaser the amount of the difference.
Any such payment shall be made
- 9 -
<PAGE>
within five (5) business days after the determination of the value of the
Prepaid Expenses and the Rights to Receive from the Final Statements.
(e) OTHER ADJUSTMENTS. If any of the Rights to Receive
which are designated on Schedule 1.3(e) of the Seller's Disclosure Letter become
uncollectible or unrealizable within twelve (12) months after the Closing Date,
the Seller shall refund to the Purchaser the full amount paid for such Rights to
Receive at the Closing less the amount, if any, the Purchaser has collected on
such Rights to Receive, and such Rights to Receive shall be reassigned to the
Seller.
(f) DETERMINATION OF UNCOLLECTIBLE OR UNREALIZABLE RIGHTS
TO RECEIVE. For purposes of Sections 1.2(a)(i), 1.3(d) and 1.3(e) hereof, Rights
to Receive shall be deemed to be uncollectible or unrealizable if (i) the
counterparty thereto does not accept The Transmedia Card, (ii) the counterparty
thereto ceases business operations or (iii) the counterparty thereto seeks to
take advantage of, or any involuntary action is taken with respect to it under,
any bankruptcy, insolvency or other law for the relief of debtors. In addition,
for purposes of Section 1.3(e) only, Rights to Receive shall also be deemed to
be uncollectible or unrealizable if the value of Rights to Receive previously
purchased from the counterparty thereto and in any 60-day period sold to holders
of The Transmedia Card is less than 50% of the product of (x) the value of such
Rights to Receive sold to holders of The Transmedia Card during the one-year
period immediately preceding the Closing Date and (y) .164383561.
1.4 FURTHER ASSURANCES.
(a) On the Closing Date and from time to time thereafter,
the Seller shall take all actions that may be required to put the Purchaser in
the position to take actual
- 10 -
<PAGE>
possession and control of all of the Assets. The Seller and its affiliates shall
on the Closing Date and thereafter from time to time execute and deliver at the
request of the Purchaser all such further assignments, instruments, financing
statements, licenses, applications and any other documents which the Purchaser
may reasonably request, in form and substance reasonably satisfactory to the
Purchaser and its counsel, in order to effectuate the sale and transfer of the
Assets to the Purchaser as contemplated by this Agreement and to terminate the
Franchise and the Franchise Agreement.
(b) From the date hereof, the Seller agrees to use its
best efforts to obtain any required or appropriate consent of any third party to
the transactions contemplated hereby. To the extent that the full benefit of any
of the Assumed Leases or any of the other Assets to be assigned, sold and
conveyed to the Purchaser (or its designees) or any of the Assumed Liabilities
to be assumed by the Purchaser (or its designees) hereunder, cannot be obtained
for the Purchaser or its designees without the consent of a third party or
without giving rise to an event of default or a right of cancellation or
acceleration in favor of a third party, and despite the best efforts of the
Seller to obtain such consent of the other party or parties on or before the
Closing Date, such consent is not obtained by such date, any such Assets,
Assumed Leases or Assumed Liabilities shall be deemed to be excluded from the
Assets, the Assumed Leases or the Assumed Liabilities, as the case may be,
hereunder and the Seller agrees to cooperate with the Purchaser or its designees
in any reasonable arrangements, at the Seller's expense (other than filing fees
for the Financing Statements, as hereinafter defined, which shall be borne by
the Purchaser up to the first $5,000, and shared equally by the Purchaser and
the Seller to the extent they exceed the first $5,000), designed to obtain such
consent and to provide
- 11 -
<PAGE>
for the Purchaser or its designees the benefits under any such Assets, Assumed
Leases or Assumed Liabilities, including enforcement for the account of the
Purchaser or its designees after the Closing Date of any and all rights of the
Seller against the other party thereto arising out of the breach, cancellation
or acceleration thereof by such other party or otherwise.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents, warrants and covenants to the
Purchaser that, except as disclosed in a letter (the "Seller Disclosure Letter")
delivered by the Seller to the Purchaser at the date of this Agreement
containing schedules (the "Schedules") specifically referencing the particular
representations and warranties to which such Schedules relate:
2.1 ORGANIZATION; POWER; CAPITAL STOCK, ETC.
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. The Seller has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Seller and the consummation by it of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Seller and no other corporate proceedings, other than the approval of the
transactions contemplated by this Agreement and of the Charter Amendment (as
hereinafter defined) by the holders of a majority of the outstanding common
stock of the Seller (the "Stockholder Approval"), are necessary to authorize
this Agreement or the consummation of the transactions contemplated by this
- 12 -
<PAGE>
Agreement. This Agreement has been duly executed and delivered by the Seller
and, assuming the due authorization, execution and delivery by the Purchaser,
constitutes the legal, valid and binding obligation of the Seller, enforceable
against it in accordance with its terms.
(b) As of the record date of the meeting of the Seller's
stockholders to be held pursuant to Section 5.3 hereof, the authorized and
outstanding capital stock of the Seller consists of 25,000,000 shares of Common
Stock, par value $.60 per share, of which 7,903,421 shares are outstanding, and
2,000,000 shares of Preferred Stock, par value $.10 per share, none of which are
outstanding; and a total of 2,783,821 shares of Common Stock are reserved for
issuance upon outstanding options, warrants, conversion and other rights.
2.2 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance of this
Agreement by the Seller do not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws of the Seller; (ii) conflict with or violate any
federal, state, local or foreign laws, rules, ordinances, regulations, licenses,
judgments, orders or decrees (collectively "Laws") applicable to the Seller or
the Assets or by which the Seller or any of its properties is bound or affected;
or (iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to any
other persons any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the properties
or assets of the Seller (including the Assets) pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, mortgage, license, permit,
franchise or other instrument or obligation to which the Seller is a party or by
which the Seller or any of its properties is bound or affected,
- 13 -
<PAGE>
the result of which conflict, breach or default would be material and adverse to
the business, properties, condition (financial or otherwise) or results of
operations of the Seller, or to any of the Assets, the Assumed Leases or the
Assumed Liabilities (a "Material Adverse Effect") or any thereof.
(b) The execution, delivery and performance of this
Agreement by the Seller and the consummation by it of the transactions
contemplated hereby do not require the Seller or any of its affiliates to
receive any consent, approval, authorization or permit from, or make any filing
with or notification to, any governmental authority or court or any other
person, except for the filing with the Securities and Exchange Commission (the
"SEC") of a proxy statement in definitive form relating to the meeting of the
Seller's stockholders to be held in connection with the transactions
contemplated hereby and the Charter Amendment (the "Proxy Statement").
2.3 PERMITS; COMPLIANCE. The Seller and its affiliates are in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary for it to own the Assets or to carry on its business pursuant to the
Franchise Agreement as it is now being conducted (the "Seller Permits"), except
for those Seller Permits the failure of which to obtain or maintain would not
result in a Material Adverse Effect, and no suspension, revocation or
cancellation of any such Seller Permits is pending, or to the knowledge of the
Seller, threatened. All such Seller Permits are listed on Schedule 2.3 of the
Seller's Disclosure Letter. The Seller and its affiliates have not operated such
business in conflict with, or in default or violation of, (i) any Law applicable
to it or by which it or any of its properties is bound or affected or (ii) any
of the Seller Permits (except
- 14 -
<PAGE>
in either case for any such conflicts, defaults or violations which would not
have a Material Adverse Effect), and the Seller has not received any notice to
that effect. Anything in the foregoing representation and warranty to the
contrary notwithstanding, no representation or warranty is made as to compliance
by the Seller with laws relating to the extension of credit, the protection of
consumers or the billing or reporting of transactions under The Transmedia Card,
or the possession by the Seller of franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders that may be required with respect thereto.
2.4 TITLE TO ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES;
DEFAULTS. The Seller has good, valid and marketable title to, and full right to
sell, assign and convey, all of the Assets, and at the Closing will convey the
Assets to the Purchaser, free and clear of any liens, charges and encumbrances
of any kind whatsoever, including any rights of first refusal, set-off,
reduction and counterclaim, but excluding (i) liens for taxes, fees, levies,
imposts, duties or governmental charges of any kind which are not yet delinquent
or are being contested in good faith by appropriate proceedings which suspend
the collection thereof and which are not material in amount individually or in
the aggregate; (ii) liens for mechanics, materialmen, laborers, employees,
suppliers or others which are not yet delinquent or are being contested in good
faith by appropriate proceedings and which are not material in amount
individually or in the aggregate; (iii) liens created in the ordinary course of
business in connection with the leasing or financing of office, computer and
related equipment and supplies; (iv) easements and similar encumbrances
ordinarily created for fuller utilization and enjoyment of property; and (v)
liens or defects in title or leasehold rights that either individually or in the
aggregate do not and will not
- 15 -
<PAGE>
have a Material Adverse Effect. The Assumed Leases and the Assumed Liabilities
are in full force and effect and are valid, binding and enforceable in
accordance with their respective terms and there exists no material default on
the part of the Seller in the performance of its covenants and obligations under
any of the Assumed Leases or the Assumed Liabilities. No party to any Assumed
Lease or any Assumed Liability has given written notice of or made a written
claim with respect to, and the Seller is not otherwise aware of, any breach or
default or any event which with notice or lapse of time or both would constitute
a breach or default by any party under any of the Assumed Leases or the Assumed
Liabilities. To the knowledge of the Seller, none of the properties covered by
any Assumed Lease is subject to any sublease, license or other agreement
granting to any person (other than the Seller) any right to use, occupy or enjoy
such property or any portion thereof. Correct and complete copies of the Assumed
Leases, together with any letters or agreements amendatory thereto, have
heretofore been provided to the Purchaser by the Seller. Each item of personal
property to be included among the Assets (with a book value of $1,000 or more)
is in good and useable condition, ordinary wear and tear excepted.
2.5 ABSENCE OF LITIGATION.
(a) There is no claim, action, suit, litigation,
proceeding, arbitration or investigation of any kind involving the Seller (or
any affiliate of the Seller) and any of the Assets, the Franchise, the Franchise
Agreement or the business conducted by the Seller pursuant to the Franchise
Agreement, at law or in equity (including actions or proceedings seeking
injunctive relief), which are pending or, to the knowledge of the Seller, are
threatened. There is no action pending, or to the knowledge of the Seller,
threatened, seeking to enjoin or restrain or
- 16 -
<PAGE>
otherwise make it imprudent to consummate any of the transactions contemplated
by this Agreement.
(b) Neither the Seller nor any of its affiliates is
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement, or, to the knowledge of the Seller, continuing
investigation by, any governmental authority, or any judgment, order, writ,
injunction, decree or award of any governmental authority, or any arbitrator,
including, without limitation, cease-and-desist or other orders, which relates
to any of the Assets, the Franchise, the Franchise Agreement or the business
conducted by the Seller and its affiliates pursuant to the Franchise Agreement.
2.6 CONTRACTS; NO DEFAULT; ETC.
(a) Schedule 2.6(a) of the Seller's Disclosure Letter
sets forth a list of each agreement, contract, guarantee, instrument, security
agreement or other document included among the Assets (collectively the "Seller
Contracts") and any and all financing statements and filings made by or on
behalf of the Seller to perfect any security interest or liens securing any
Rights to Receive or loans or advances or any of the other Assets by the Seller
(the "Financing Statements"). Correct and complete copies of all written Seller
Contracts, together with all amendments, supplements and side letters thereto,
have been delivered to the Purchaser or made available to the Purchaser for its
review and the material terms of all oral Seller Contracts, if any, have been
disclosed to the Purchaser.
(b) Each Seller Contract and any liens or security
interests securing any Rights to Receive or loans or advances, are valid,
subsisting and enforceable, save only that such enforceability may be affected
by bankruptcy, insolvency, fraudulent conveyance,
- 17 -
<PAGE>
moratorium and similar laws affecting the rights of creditors generally and by
general principles of equity (whether considered in a proceeding at law or in
equity). There is no material default (or any event known to the Seller which,
with the giving of notice or lapse of time or both, would be a material default)
by the Seller or, to the knowledge of the Seller, any other party, in the timely
performance of any obligation to be performed or paid under any Seller Contract,
which default would reasonably be anticipated to have a Material Adverse Effect.
The Seller has not received any written notice of a filing or proposed filing
under any bankruptcy, insolvency or other law for the relief of debtors by any
restaurant or other establishment whose Rights to Receive or loans or advances
are included among the Assets. The Seller has not agreed to modify, extend,
impair, reduce, compromise or cancel any such Rights to Receive, loans or
advances.
(c) No restaurant or other establishment from which the
Seller or any of its affiliates has purchased any Rights to Receive or to which
the Seller or any of its affiliates has loaned or advanced moneys, has notified
the Seller in writing that it has canceled, not renewed or otherwise terminated,
or will cancel, not renew or otherwise terminate, its relationship with the
Seller or its agreement to accept The Transmedia Card.
(d) The Reserve Amount, which is the reserve for
unrealizable or uncollectible Rights to Receive recorded in the accounting
records of the Seller, is fairly estimated and is calculated on a basis
consistent with that used in the preparation of the audited financial statements
of the Seller included in the Seller's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
- 18 -
<PAGE>
2.7 INTELLECTUAL PROPERTY RIGHTS. Except for the rights
granted to the Seller under the Franchise Agreement, neither the Seller nor any
of its affiliates owns, licenses or uses any Intellectual Property. Schedule 2.7
of the Seller Disclosure Letter lists each assumed name and trade name under
which the Seller has done business pursuant to the Franchise Agreement.
2.8 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Seller or any of its affiliates.
2.9 NO MATERIAL MISSTATEMENTS OR MISLEADING STATEMENTS. No
representation or warranty by the Seller contained in or made pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller
that:
3.1 ORGANIZATION; POWER; ETC. The Purchaser is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite corporate
power and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by the Purchaser and the consummation
- 19 -
<PAGE>
by it of the transactions contemplated hereby have been duly authorized by the
Board of Directors of the Purchaser and no other corporate proceedings on the
part of the Purchaser are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and, assuming the due authorization, execution and
delivery by the Seller, constitutes the legal, valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms.
3.2 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the
Purchaser does not, and the performance hereof by it will not, (i) conflict with
or violate the Certificate of Incorporation or By-Laws of the Purchaser, (ii)
conflict with or violate any Laws applicable to the Purchaser or by which it or
any of its properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of the Purchaser pursuant to
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Purchaser is a
party or by which the Purchaser or any of its properties is bound or affected,
the result of which conflict, breach or default would be material or adverse to
the business, properties, condition (financial or otherwise) or results of
operations of the Purchaser.
(b) The execution, delivery and performance of this
Agreement by the Purchaser and the consummation by it of the transactions
contemplated hereby do not require
- 20 -
<PAGE>
the Purchaser to receive any consent, approval, authorization or permit from, or
make filing with or notification to, any governmental authority or any other
person.
3.3 ABSENCE OF LITIGATION.
(a) There is no action pending, or to the knowledge of
the Purchaser, threatened, seeking to enjoin or restrain or otherwise make it
imprudent to consummate any of the transactions contemplated by this Agreement.
(b) Neither the Purchaser nor any of its affiliates is
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement, or, to the knowledge of the Purchaser,
continuing investigation by, any governmental authority, or any judgment, order,
writ, injunction, decree or award of any governmental authority, or any
arbitrator, including, without limitation, cease-and-desist or other orders,
which relates to the acquisition of the Assets by the Purchaser.
3.4 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser or any of its affiliates.
3.5 NO MATERIAL MISSTATEMENTS OR MISLEADING STATEMENTS. No
representation or warranty by the Purchaser contained in or made pursuant to
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading.
- 21 -
<PAGE>
ARTICLE IV
AGREEMENTS OF THE PARTIES
4.1 ORDINARY COURSE OF BUSINESS. Prior to the Closing Date,
and except as otherwise expressly contemplated by this Agreement, or approved in
writing by the Purchaser, the Seller covenants and agrees that:
(a) The Seller and its affiliates will carry on their
business pursuant to the Franchise Agreement in the ordinary course
substantially in the manner carried on as of the date hereof, and will not
engage in any activity or transaction or enter into any agreement or commitment
other than in the ordinary course of its business as heretofore conducted;
provided, however, that the Purchaser acknowledges that with its acquiescence,
the Seller has ceased the activities required of it in order to expand its
operations into Washington, Oregon and Nevada;
(b) The Seller and its affiliates will use their
reasonable best efforts to preserve their business organization intact, to keep
available the services of their employees and to preserve for the Purchaser the
Seller's relationships with restaurants and other establishments that accept The
Transmedia Card, with holders of The Transmedia Card and with others having
business relationships with the Seller and its affiliates; provided, however,
that the Seller (i) makes no representation that any of its employees will
become an employee of the Purchaser; and (ii) shall not be obligated to make any
material capital or out of the normal course expenditures prior to the Closing
to comply with this covenant;
(c) The Seller shall not, without the consent of the
Purchaser, acquire any Rights to Receive from any one counterparty or group of
affiliated counterparties in excess of $10,000;
- 22 -
<PAGE>
(d) Neither the Seller nor any of its affiliates will
modify, impair, reduce, compromise or cancel any material Asset or any material
amount of the Assets or, without the Purchaser's prior written consent, amend,
modify, terminate or extend any of the Assumed Leases or the Assumed
Liabilities;
(e) Without limiting the foregoing, the Seller will
consult with the Purchaser regarding all material developments, transactions and
proposals relating to the business of the Seller and its affiliates conducted
pursuant to the Franchise Agreement and the Assets;
(f) Neither the Seller nor any of its affiliates will
sell, assign, transfer, or otherwise dispose of any material Asset or material
amount of the Assets, or subject any material Asset or material amount of the
Assets to any liens, pledges, restrictions, encumbrances or claims;
(g) The Seller will maintain all the tangible Assets in
their current condition, ordinary wear and tear excepted, and make all ordinary
and necessary repairs to the Assets; and
(h) The Seller will not take, or agree to commit to take,
or permit any of its affiliates to take, any action that would make any
representation or warranty of the Seller contained herein inaccurate in any
material respect.
4.2 PURCHASER'S ACTIONS. The Purchaser will not take, or
agree to commit to take, or permit any of its affiliates to take, any action
that would make any representation or warranty of the Purchaser contained herein
inaccurate in any respect.
- 23 -
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF THE PROXY STATEMENT. The Seller shall
promptly prepare and submit to the SEC the Proxy Statement in preliminary form,
a copy of which will be furnished to counsel to the Purchaser, and promptly
respond to any SEC comments received in respect of such Proxy Statement.
5.2 CHANGE OF SELLER'S NAME. Subject to the approval of its
stockholders, the Seller shall promptly prepare and file a Certificate of
Amendment of its Certificate of Incorporation (the "Charter Amendment") for the
purpose of changing its corporate name to a name not containing the word
"Transmedia" or any derivative of "Transmedia," or any other trademark, service
mark, trade name or slogan of the Purchaser.
5.3 MEETING. The Seller shall call a meeting of its
stockholders to be held as promptly as practicable consistent with the
requirements of the Securities Laws and the Delaware General Corporation Law for
the purpose of voting upon the transactions contemplated in this Agreement and
the Charter Amendment. The Seller will, through its Board of Directors, subject
to their fiduciary duties to the stockholders of the Seller under applicable
law, recommend to the stockholders of the Seller approval of such transactions
and the Charter Amendment.
5.4 LEGAL CONDITIONS TO TRANSACTION. Each of the parties will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the transactions
contemplated hereby and in connection with required approvals of or filings with
any other governmental authorities and will promptly
- 24 -
<PAGE>
cooperate with and furnish information to each other in connection with any such
requirements imposed upon any of them or any of their respective affiliates. The
Seller will take all reasonable actions necessary to obtain (and the Purchaser
will cooperate with the Seller in obtaining) any consent, authorization, order
or approval of, or any exemption by, any governmental authority or other public
or private third party required to be obtained or made by the Seller in
connection with the transactions contemplated by this Agreement. By the Closing
Date, the Seller shall use its best efforts to obtain and deliver to the
Purchaser: (i) all necessary consents to the assignment to the Purchaser of the
Assets and the assumption of the Assumed Leases, and any other agreements,
contracts and arrangements to be assumed by the Purchaser or its designees, and
(ii) any other consents that the Purchaser may reasonably require. All such
consents shall be in form and substance reasonably satisfactory to the Purchaser
and its counsel.
5.5 TAXES. The Seller shall pay all sales and other transfer
taxes arising as a result of the transfer of the Assets pursuant to this
Agreement. The Purchaser shall pay the costs of amending the Financing
Statements and assigning the security interests evidenced thereby up to the
first $5,000, and the Purchaser and the Seller shall share such costs to the
extent they exceed the first $5,000.
5.6 CONFIDENTIALITY.
(a) The Seller and its affiliates will hold and keep
confidential and will not disclose or use (i) any information provided to them
or any of their representatives by or on behalf of the Purchaser or any of its
affiliates in connection with the transactions contemplated hereby; and (ii)
after the Closing, any confidential or proprietary information regarding any of
the Assets, the Franchise, the Franchise Agreement, the business conducted
- 25 -
<PAGE>
pursuant to the Franchise Agreement or the Assumed Liabilities or the Assumed
Leases or any confidential or proprietary information relating to the business
of the Purchaser; provided, that this Section 5.6 shall not apply to (1)
information which is publicly available at the time of disclosure (through no
act of the Seller or any of its affiliates); or (2) disclosures which are
required to be made by the Seller or any of its affiliates under legal process
or by applicable laws or regulations, or which are requested by the Purchaser or
any of its affiliates.
(b) The Seller agrees that damages may be an inadequate
remedy for any breach of the terms or provisions of this Section 5.6 and that
the Purchaser shall, whether or not it is pursuing any potential remedies at
law, be entitled to equitable relief in the form of preliminary and permanent
injunctions, without having to post any bond or other security, upon any breach
or threatened breach of any of such term or provision.
(c) The parties agree that nothing in this Agreement
shall be construed to limit or negate the common law of torts or trade secrets
where it provides the Purchaser or any of its affiliates with any broader,
further or other remedy or protection than that provided herein.
5.7 ACCESS TO INFORMATION. Upon reasonable notice provided
that there is no unreasonable interference with the business of the Seller, the
Seller shall (and shall cause its affiliates to) afford to the officers,
employees, accountants, counsel and other representatives of the Purchaser,
access, during normal business hours during the period prior to the Closing
Date, to all of its properties, books, contracts, commitments and records
relating to the Assets and the Assumed Liabilities and, during such period, the
Seller shall (and shall cause its affiliates to) furnish promptly to the
Purchaser (a) a copy of each report, schedule, registration statement and
- 26 -
<PAGE>
other document filed or received by it during such period pursuant to the
requirements of federal securities laws and (b) all other information concerning
its business, the Assets and the Assumed Liabilities as the Purchaser may
reasonably request. Unless otherwise required by law, the Purchaser will hold
any such information which is nonpublic in confidence until such time as such
information otherwise becomes publicly available through no wrongful act of
either party, and in the event of termination of this Agreement for any reason
the Purchaser shall promptly return all nonpublic documents obtained from the
Seller or its affiliates, and any copies made of such documents, to the Seller.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The
obligations of the Purchaser to consummate the transactions contemplated hereby
is subject to the fulfillment at or prior to the Closing of the following
conditions, any or all of which may be waived in whole or in part by the
Purchaser to the extent permitted by applicable law:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
representations and warranties of the Seller set forth in this Agreement or in
any certificate or document delivered pursuant hereto shall be true and correct
in all material respects when made and on and as of the Closing Date, as if made
on such date, and the Seller shall have duly performed and complied in all
material respects with all of its agreements, covenants, conditions and
obligations contained in this Agreement. The Purchaser shall have received a
certificate dated the Closing Date signed by the Chief Executive Officer or the
Chief Financial Officer of
- 27 -
<PAGE>
the Seller to the effect that the conditions of this paragraph have been
satisfied. (The parties recognize and agree that the Seller makes no
representation, warranty or agreement as to its results of operations and,
accordingly, the incurrence of operating losses by the Seller prior to the
Closing shall not, in and of itself, constitute the breach of any
representation, warrant or covenant herein or the failure of any condition
herein).
(b) STOCKHOLDER APPROVAL. The Stockholder Approval shall
have been obtained.
(c) OTHER CONSENTS AND FILINGS. All material approvals
and consents of or filings with governmental authorities, and all material
approvals and consents of any other persons, required to permit the consummation
of all of the transactions contemplated hereby shall have been obtained or made
to the reasonable satisfaction of the Purchaser.
(d) DOCUMENTS OF TRANSFER. All bills of sale, instruments
of transfer and assignment and other statements, instruments and documents
contemplated by Article I hereof shall have been duly executed and delivered by
the Seller, and the Seller shall have furnished the Purchaser with copies of all
such items, and such other certificates and documents as the Purchaser and its
counsel may reasonably request, in sufficient time prior to the Closing Date to
permit review and evaluation thereof and the making of preliminary arrangements
for any necessary recording and filing thereof on the Closing Date.
(e) FRANCHISE AGREEMENT. An instrument (the "Franchise
Termination") in the form of Exhibit F hereto terminating the Franchise
Agreement, the Franchise and any associated rights and licenses and providing
for a mutual release between the parties shall have been duly executed and
delivered by the Seller.
- 28 -
<PAGE>
(f) OPINION OF COUNSEL. Olshan Grundman Frome &
Rosenzweig LLP, counsel to the Seller, shall have delivered a legal opinion to
the Purchaser, in the form of Exhibit G hereto, to the effect that the
provisions of section 9(c) of the Warrant Agreement, dated as of June 25, 1993,
between the Seller and the American Stock Transfer & Trust Company, as amended
(the "Warrant Agreement") are not applicable to the transactions contemplated by
this Agreement and no holder of any warrants issued thereunder has any rights to
require the Purchaser to assume any obligations of the Seller thereunder or to
receive any securities or property from the Purchaser.
(g) ABSENCE OF LITIGATION. No action shall be pending
seeking to enjoin or restrain or otherwise make it imprudent to consummate any
of the transactions contemplated by this Agreement.
6.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER. The
obligations of the Seller to consummate the transactions contemplated hereby is
subject to the fulfillment at or prior to the Closing of the following
conditions, any or all of which may be waived in whole or in part by the Seller
to the extent permitted by applicable law:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS; The
representations and warranties of the Purchaser set forth in this Agreement or
in any certificate or document delivered pursuant hereto shall be true and
correct in all material respects when made and on and as of the Closing Date, as
if made on such date, and the Purchaser shall have duly performed and complied
in all material respects with all of its agreements, covenants, conditions and
obligations contained in this Agreement. The Seller shall have received a
certificate dated
- 29 -
<PAGE>
the Closing Date signed by the Chief Executive Officer or the Chief Financial
Officer of the Purchaser to the effect that the conditions of this paragraph
have been satisfied.
(b) STOCKHOLDER APPROVAL. The Stockholder Approval shall
have been obtained.
(c) OTHER CONSENTS AND FILINGS. All material approvals
and consents of or filings with governmental authorities, and all material
approvals and consents of any other persons, required to permit the consummation
of all of the transactions contemplated hereby shall have been obtained or made
to the reasonable satisfaction of the Seller.
(d) DOCUMENTS OF ASSUMPTION. The assumption agreement
contemplated by Article I hereof shall have been duly executed and delivered by
the Purchaser, and the Purchaser shall have furnished the Seller with a copy of
such agreement in sufficient time prior to the Closing Date to permit review and
evaluation thereof by the Seller and its counsel.
(e) FRANCHISE AGREEMENT. The Franchise Termination shall
have been duly executed and delivered by the Purchaser.
(f) OTHER CONSIDERATION. At the Closing, the Purchaser
shall have delivered to the Seller (i) a certified check or wire transfer of
immediately available funds for an amount equal to the sum of the amounts listed
in paragraphs (i), through (v) of Section 1.2(a).
(g) ABSENCE OF LITIGATION. No action shall be pending
seeking to enjoin or restrain or otherwise make it imprudent to consummate any
of the transactions contemplated by this Agreement.
- 30 -
<PAGE>
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, before or after the approval by the stockholders of
the Seller:
(a) by the mutual consent of the Seller and the
Purchaser, by action of their respective Boards of Directors;
(b) by either the Purchaser or the Seller if there has
been a material breach of any representation, warranty, covenant or agreement on
the part of the other set forth in this Agreement which breach has not been
cured within five business days following receipt by the breaching party of
notice of such breach, or if any permanent injunction or other order of a court
or other competent authority preventing the consummation of the transactions
contemplated hereby shall have become final and non-appealable;
(c) by either the Purchaser or the Seller if the
transactions contemplated hereby shall not have been consummated before January
31, 1997, provided that the party seeking to terminate this Agreement are not
otherwise in breach in any material respect of any of its obligations hereunder;
or
(d) by either the Purchaser or the Seller if the
Stockholder Approval shall not have been obtained by reason of the failure to
obtain the required affirmative vote at a duly held meeting of its stockholders
or at any adjournment thereof.
7.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either the Purchaser or the Seller as provided in Section 7.1,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of the Purchaser or the
- 31 -
<PAGE>
Seller, or their respective officers or directors, except (y) with respect to
Sections 5.5, Article VIII (with respect to any claim for breach of the
representation in Sections 2.8 or 3.4) and 9.1 and (z) to the extent that such
termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement, any schedule and any
certificate, written statement, or other document delivered at the Closing
pursuant to this Agreement by or on behalf of the Seller or the Purchaser shall
be deemed to have been relied upon notwithstanding any investigation heretofore
or hereafter made or omitted by any party hereto and shall survive for a period
of six (6) months after the Closing Date, except for all such representations
and warranties relating to (i) the Rights to Receive specified on Schedule
1.3(e) which shall survive for a period of one year after the Closing Date and
(ii) the Rights to Receive other than those specified on Schedule 1.3(e) which
shall not survive the Closing Date.
8.2 SELLER'S INDEMNIFICATION OBLIGATIONS. Subject to the
terms and conditions of this Article 8, the Seller agrees to defend, indemnify
and hold the Purchaser and the officers, directors, agents, attorneys,
employees, representatives and other affiliates of the Purchaser harmless
against any and all liabilities, losses, costs and expenses including, without
limitation, legal and other expenses (collectively "Damages"), resulting from or
relating to:
- 32 -
<PAGE>
(a) any misrepresentation or breach of any representation
or warranty of the Seller contained in this Agreement or in any Schedule of the
Seller Disclosure Letter or any certificate, written statement or other document
delivered by or on behalf of the Seller pursuant to this Agreement;
(b) any breach of any covenant, agreement or obligation
of the Seller contained in this Agreement;
(c) any debt, liability or obligation of the Seller or
any of its affiliates other than the Assumed Liabilities;
(d) the conduct of the business of the Seller and its
affiliates, and the ownership, use and operation of the Assets, on or prior to
the Closing Date;
(e) any failure of the Seller to comply with the
provisions of the Uniform Commercial Code pertaining to bulk sales; and
(f) any obligation, liability or expense imposed upon or
affecting the Purchaser under the Warrant Agreement;
and any and all actions, suits, demands, assessments or judgments with respect
to any claim arising out of or relating to the subject matter of the
indemnification; provided, however, that the sole remedy of the Purchaser for
any breach of any representation or warranty as to the validity or
enforceability of (i) any Right to Receive specified on Schedule 1.3(e) shall be
limited to the remedy set forth in Section 1.3(e) of this Agreement and (ii) any
Right to Receive other than those specified on Schedule 1.2(ii) or Schedule
1.3(e) shall be limited to the remedy set forth in Section 1.3(d) of this
Agreement.
- 33 -
<PAGE>
8.3 PURCHASER'S INDEMNIFICATION OBLIGATIONS. Subject to the
terms and conditions of this Article 8, the Purchaser agrees to defend,
indemnify and hold the Seller and the officers, directors, agents, attorneys,
employees, representatives and other affiliates of the Seller harmless against
any and all Damages resulting from or relating to:
(a) any misrepresentation or breach of any representation
or warranty of the Purchaser contained in this Agreement or in any certificate,
written statement or other document delivered by or on behalf of the Purchaser
pursuant to this Agreement;
(b) any breach of any covenant, agreement or obligation
of the Purchaser contained in this Agreement; and
(c) any Assumed Liabilities;
and any and all actions, suits, demands, assessments or judgments with respect
to any claim arising out of or relating to the subject matter of the
indemnification.
8.4 CLAIMS FOR INDEMNIFICATION; DEFENSE OF INDEMNIFIED
CLAIMS; LIMITATIONS ON INDEMNIFICATION.
(a) For purposes of this Section, the party entitled to
indemnification shall be known as the Indemnified Party and the party required
to indemnify shall be known as the Indemnifying Party. In the event that the
Indemnifying Party shall be obligated to the Indemnified Party pursuant to this
Article VIII or in the event that a suit, action, investigation, claim or
proceeding is begun, made or instituted as a result of which the Indemnifying
Party may become obligated to the Indemnified Party hereunder, the Indemnified
Party shall give prompt written notice to the Indemnifying Party of the
occurrence of such event; provided, however, that the failure to give such
notice shall not constitute a waiver of the right to
- 34 -
<PAGE>
indemnification hereunder unless the Indemnifying Party is prejudiced in a
material respect thereby. The Indemnifying Party agrees to defend, contest or
otherwise protect against any such suit, action, investigation, claim or
proceeding at the Indemnifying Party's own cost and expense with counsel of its
own choice, who shall be, however, reasonably acceptable to the Indemnified
Party. The Indemnifying Party may make any compromise or settlement (subject to
the written consent of the Indemnified Party, which will not be unreasonably
withheld). The Indemnified Party shall have the right but not the obligation to
participate at its own expense in the defense thereof by counsel of its own
choice. In the event that the Indemnifying Party fails timely to defend, contest
or otherwise protect itself against any such suit, action, investigation, claim
or proceeding, the Indemnified Party shall have the right to defend, contest or
otherwise protect the Indemnified Party against the same and may make any
compromise or settlement thereof and recover the entire cost thereof from the
Indemnifying Party including without limitation, reasonable attorneys' fees,
disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or compromise or settlement thereof.
(b) For purposes of this Article VIII, all Damages shall
be computed net of any insurance coverage (from the amount of which coverage
there shall be deducted all costs and expenses, including attorneys' fees, of
the Indemnified Party not reimbursed by such coverage) and tax benefits with
respect thereto which reduces the Damages that would otherwise be sustained;
provided, however, that in all cases, the timing of the receipt or realization
of insurance proceeds or tax benefits shall be taken into account in determining
the amount of reduction of Damages.
- 35 -
<PAGE>
8.5 PAYMENTS; NON-EXCLUSIVITY. Any amounts due an Indemnified
Party under the aforesaid indemnities shall be due and payable by the
Indemnifying Party within fifteen (15) days after written demand therefor. The
remedies conferred in this Article VIII are intended to be without prejudice to
any other rights or remedies available at law or equity to the Indemnified
Parties, now or hereafter.
8.6 SET-OFF. If from time to time and at any time the
Purchaser shall be entitled to be paid any amount under the provisions of this
Agreement, including this Article VIII, the Purchaser shall be entitled, if it
so elects, to set-off such amount against any other amounts due to the Seller
from the Purchaser or any of its affiliates. Such right of set-off shall be in
addition to and not in substitution of any other rights the Purchaser shall be
entitled to under the provisions of this Article VIII or otherwise.
ARTICLE IX
MISCELLANEOUS; GENERAL
9.1 FEES AND EXPENSES. Whether or not the transactions
contemplated hereby shall be consummated, each party hereto shall pay its own
expenses incident to preparing for, entering into or carrying out this Agreement
and the consummation of the transactions contemplated hereby.
9.2 MODIFICATION OR AMENDMENT. Subject to the applicable
provisions of the Delaware General Corporation Law, at any time prior to the
Closing Date (whether before or after receipt of the Stockholder Approval), this
Agreement may be supplemented, modified or amended, or the provisions hereof may
be waived, by the mutual agreement of the Purchaser and
- 36 -
<PAGE>
the Seller, by action of their respective Boards of Directors followed by
written agreement executed and delivered by duly authorized officers of the
respective parties; provided, however, that no such supplement, modification,
amendment or waiver which materially and adversely affects the rights of the
stockholders of the Seller, shall be made without Stockholder Approval.
9.3 WAIVER OF CONDITIONS. The conditions to each party's
obligations to consummate the transactions contemplated hereby are for the sole
benefit of such party and may be waived by such party (in the manner provided
for herein) in whole or in part to the extent permitted by applicable law.
9.4 COUNTERPARTS. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
9.5 GOVERNING LAW; FORUM; Consent to Jurisdiction. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without giving effect to the principles of conflict of laws
thereof. Each of the parties to this Agreement hereby irrevocably and
unconditionally (i) consents to submit to the exclusive jurisdiction of the
federal or state courts located in the State of New York for any proceeding
arising in connection with this Agreement (and each such party agrees not to
commence any such proceeding, except in such courts), (ii) waives any objection
to the laying of venue of any such proceeding in the courts of the State of New
York, and (iii) waives, and agrees not to plead or to make, any claim that any
such proceeding brought in any federal or state court in the State of New York
has been brought in an improper or otherwise inconvenient forum. Process in any
such action may be
- 37 -
<PAGE>
served by service upon the Secretary or State (or other appropriate public
official) of the jurisdiction of incorporation of the party to whom it is
directed.
9.6 NOTICES. Any notice, request, instruction or other
document to be given hereunder by any party to the other shall be in writing and
shall be deemed to have been duly given on the day when the same is sent, if
delivered personally or sent by telecopy or overnight delivery, or five calendar
days after the same is sent, if sent by registered or certified mail, return
receipt requested, postage prepaid, as set forth below, or to such other persons
or addresses as may be designated in writing in accordance with the terms hereof
by the party to receive such notice.
If to Seller:
The Western Transmedia Company, Inc.
475 Sansome Street
San Francisco, CA 94111
Facsimile No.: (415) 397-4443
Attn.: Chief Executive Officer
With a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, NY 10022
Facsimile No.: (212) 755-1467
Attn.: David J. Adler, Esq.
- 38 -
<PAGE>
If to Purchaser:
Transmedia Network Inc.
11900 Biscayne Boulevard
North Miami, Florida 33181
Facsimile No.: (305) 892-3342
Attn.: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn.: Stephen P. Farrell, Esq.
9.7 DISCLOSURE LETTER AND EXHIBITS; ENTIRE AGREEMENT. The
Seller Disclosure Letter and all exhibits and schedules and attachments to
exhibits or schedules, or documents expressly incorporated into this Agreement,
and any other attachments to this Agreement are hereby incorporated into this
Agreement and are hereby made a part hereof as if set out in full in this
Agreement. This Agreement supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof.
9.8 ASSIGNMENT. Except as provided in the following sentence,
this Agreement and the rights and obligations of the parties hereto shall not be
assignable, by operation of law or otherwise, or delegable. The Purchaser may
assign any or all of its rights and interests and delegate any or all of its
obligations under this Agreement to any one or more
- 39 -
<PAGE>
affiliates of Purchaser, but in such event the Purchaser shall remain, and the
assignee shall be, fully liable for the performance of all such obligations in
the manner prescribed in this Agreement. Subject to the two preceding sentences,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties hereto and their respective successors and assigns.
9.9 DEFINITION OF "AFFILIATE". When a reference is made in
this Agreement to an affiliate of a party, the word "affiliate" means any
corporation or other organization, whether incorporated or unincorporated, (x)
of which such party or any other affiliate of such party is a general partner or
limited partner or (y) beneficially owns at least a majority of the securities
or interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization, or (z) beneficially owns a
majority of the securities or other interests representing the total equity in
such organization, is directly or indirectly owned or controlled by such party
or by any one or more of its affiliates, or by such party and one or more of its
affiliates.
9.10 TITLES AND CAPTIONS. The titles, captions and table of
contents contained in this Agreement are inserted herein only as a matter of
convenience and for reference and in no way affect, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
9.11 SEVERABILITY. Any provision hereof which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any
- 40 -
<PAGE>
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
may render any provision hereof prohibited or unenforceable in any respect.
9.12 PUBLICITY. During the period through the Closing Date,
the Purchaser, the Seller and their respective affiliates shall consult before
making any public announcements or public comments regarding this Agreement or
the sale contemplated hereby, except as required by applicable law, regulation
or rule.
9.13 NO THIRD PARTY BENEFICIARIES. This Agreement has been
made for the sole benefit of the Purchaser and the Seller and shall not be
construed to confer any benefit or rights upon, nor may it be enforced by, any
other person, including any officer, director, employee, stockholder or creditor
of the Purchaser or the Seller.
- 41 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first hereinabove written.
THE WESTERN TRANSMEDIA
COMPANY, INC.
By:/s/ Stuart M. Pellman
---------------------
Name: Stuart M. Pellman
Title: President
TRANSMEDIA NETWORK INC.
By:/s/ Melvin Chasen
-----------------
Melvin Chasen
Chairman and President
- 42 -
<PAGE>
The Schedules and Exhibits to the Purchase Agreement are not presented
herein or delivered herewith. Copies of the Schedules and Exhibits will be
provided by first class mail without charge to each person to whom this Proxy
Statement is delivered, upon written or oral request to Michael Salzman, The
Western Transmedia Company, Inc., 475 Sansome Street, San Francisco, California
94111.
<PAGE>
EXHIBIT B
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma financial statements have been prepared based
upon certain pro forma adjustments to the historical financial statements of The
Western Transmedia Company, Inc. and Subsidiary (collectively called "the
Company") as of September 30, 1996 and for the nine month period ended September
30, 1996 and the year ended December 31, 1995. The pro forma financial
statements should be read in conjunction with the notes thereto and with the
Company's historical financial statements which are included in its Form 10-Q
for the nine months ended September 30, 1996 and in the Company's annual report
on Form 10-K for the year ended December 31, 1995.
The accompanying pro forma balance sheet has been prepared as if the potential
asset sale mentioned below, had occurred at the balance sheet date of the
Company's most recently filed Form 10-Q, September 30, 1996. The accompanying
pro forma statements of operations have been prepared to reflect income or loss
from continuing operations before non-recurring charges or credits directly
attributable to this transaction. As a result of the potential sale, the Company
would no longer have active operations, and therefore, the year ended 1995 and
the January 1, 1996 - September 30, 1996 statements of operations transactions,
except for certain continuing expenses, have been eliminated. These pro forma
financial statements do not purport to be indicative of the results which would
actually have been obtained had the pro forma transactions been completed as of
January 1, 1995, the beginning of the earliest period presented.
The pro forma transactions (see Notes to Pro Forma Financial Statements) are as
follows:
/ / the sale of substantially all the assets, subject to certain
liabilities, of the Company to Transmedia Network Inc.
/ / the income taxes on the gain on the sale of assets to Transmedia Network
Inc.
F-1
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
- ASSETS -
<TABLE>
<CAPTION>
Pro Forma
Adjustments
---------------------------
Historical Debit Credit Pro Forma
------------ -------------- ------------ ------------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $2,575,692 $7,152,256(a) $9,727,948
Accounts receivable - net 126,734 126,734
Rights to receive 2,705,356 $2,705,356(a) -
Other current assets 79,914 8,841(a) 71,073
---------- ----------
TOTAL CURRENT ASSETS 5,487,696 9,925,755
---------- ----------
FIXED ASSETS - NET 89,032 89,032(a) -
---------- ----------
OTHER ASSETS:
Franchise agreement - net 431,700 431,700(a) -
Other 35,582 35,582(a) -
---------- ----------
467,282 -
---------- ----------
TOTAL ASSETS $6,044,010 $9,925,755
========== ==========
</TABLE>
<TABLE>
<CAPTION>
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
<S> <C> <C> <C> <C>
Accounts payable - rights to $ 349,306 $ 349,306(a) $ -
receive
Accrued liabilities 138,276 138,276
Capital lease obligations 3,380 3,380(a)
Income taxes payable - $891,000(c) 891,000
---------- ----------
TOTAL CURRENT LIABILITIES 490,962 1,029,276
---------- ----------
LONG-TERM LIABILITIES:
Capital lease obligations 12,997 12,997(a) -
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock 4,742,053 4,742,053
Additional paid-in capital 5,542,062 5,542,062
Retained earnings (deficit) (4,744,064) 891,000(c) 4,247,428(a) (1,387,636)
---------- -----------
5,540,051 8,896,479
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,044,010 $9,925,755
========== ==========
</TABLE>
F-2
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
---------------------------
Historical Debit Credit Pro Forma
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $7,378,409 $7,378,409(b) $ -
COST OF SALES 4,857,671 $4,857,671(b) -
---------- -----------
GROSS PROFIT 2,520,738 -
---------- -----------
EXPENSES AND OTHER (INCOME):
Franchise costs 1,020,104 1,020,104(b) -
Operating costs 1,783,411 1,658,411(b) 125,000
Interest expense 2,829 2,829(b) -
Interest income (102,759) (102,759)
---------- -----------
2,703,585 22,241
---------- -----------
(LOSS) BEFORE PROVISION
FOR INCOME TAXES (182,847) (22,241)
Provision for income taxes - -
---------- -----------
NET (LOSS) $ (182,847) $ (22,241)
========== ===========
EARNINGS (LOSS) PER SHARE $ (.02) $ -
========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 7,949,505 7,949,505
========== ===========
</TABLE>
F-3
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
------------------------
Historical Debit Credit Pro Forma
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $11,368,903 $11,368,903(b) $ -
COST OF SALES 7,576,314 $7,576,314(b) -
----------- ----------
GROSS PROFIT 3,792,589 -
----------- ----------
EXPENSES AND OTHER (INCOME):
Franchise costs 1,586,781 1,586,781(b) -
Operating costs 2,339,648 2,139,648(b) 200,000
Interest expense 1,560 1,560(b) -
Interest income (146,342) (146,342)
----------- ----------
3,781,647 53,658
----------- ----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 10,942 (53,658)
Provision for income taxes - -
----------- -----------
NET INCOME (LOSS) $ 10,942 $ (53,658)
=========== ===========
EARNINGS (LOSS) PER SHARE $ - $ (.01)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,030,685 8,030,685
=========== ===========
</TABLE>
F-4
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(a) The Company intends to sell, to its franchisor, Transmedia Network Inc.,
("Network") its franchise for the States of California, Washington and
Oregon, as well as parts of Nevada for a price of $4,750,000 and its
rights to receive (net of reserves and accounts payable - rights to
receive) at net book value, on the closing date. The net book value of the
Company's rights to receive (net of reserves and accounts payable - rights
to receive) as of September 30, 1996 was $2,356,050. The Company will also
sell to Network its fixed assets for $28,500, security deposits and
certain other assets and Network will assume the Company's capital lease
payments owed. As of September 30, 1996, the pro forma total proceeds
aggregate cash of $7,152,256. The Company will retain its cash and cash
equivalents.
(b) The pro forma statements of operations assume that the sale of
substantially all operating assets, except for the Company's cash and cash
equivalents, occurred on January 1, 1995, the beginning of the earliest
period presented. Therefore, the operating transactions, for the year
ended December 31, 1995 and the period January 1, 1996 through September
30, 1996 have been eliminated, except for interest income and certain
continuing public company expenses aggregating approximately $200,000 and
$125,000, respectively.
(c) The pro forma balance sheet assumes that the Company will reflect a gain
on the aforementioned asset sale of $4,247,428. The Company will utilize
available net operating loss carryforwards for both Federal and State
purposes of approximately $1,700,000 and $620,000, respectively, as of
December 31, 1995. The Company will also receive the tax benefits of any
losses incurred from continuing operations and public company overhead
expenses and from any legal and accounting expenses in connection with the
investigation of possible business acquisitions. The Company has reflected
the resulting taxes due with respect to the aforementioned sale of assets,
which aggregate approximately $891,000. The aforementioned gain has not
been considered in the pro forma statements of operations in accordance
with SEC guidelines.
(d) The Company is to be responsible for the costs of terminating any
employees not retained by Network. However the Company believes that these
costs will be immaterial.
(e) The Company will, in the normal course, expense any remaining prepaid
expenses, collect any outstanding accounts receivable and pay all
remaining accrued liabilities. The Company will incur continuing public
company overhead expenses and may incur legal and accounting expenses in
connection with any possible business acquisitions.
F-5
<PAGE>
EXHIBIT C
SUMMARY OF THE 1992 STOCK OPTION PLAN
1992 STOCK OPTION PLAN
The purpose of the 1992 Plan is to provide additional incentive to
the officers and employees of the Company who are primarily responsible for the
management and growth of the Company. Each option granted pursuant to the 1992
Plan shall be designated at the time of grant as either an "incentive stock
option" or as a "non-qualified stock option." The following description of the
1992 Plan is qualified in its entirety by reference to the 1992 Plan itself,
which was filed with the Securities and Exchange Commission on May 21, 1992 as
an exhibit to Amendment No. 2 to the Company's Registration Statement on Form
S-1 (Registration No. 33-44845).
ADMINISTRATION OF THE 1992 PLAN. The 1992 Plan currently is
administered by the Compensation and Stock Option Committee of the Board of
Directors of the Company which determines whom among those eligible will be
granted options, the time or times at which options will be granted, the number
of shares to be subject to options, the durations of options, any conditions to
the exercise of options, and the manner in and price at which options may be
exercised. In making such determinations, the Compensation and Stock Option
Committee may take into account the nature and period of service of eligible
employees, their level of compensation, their past, present and potential
contributions to the Company and such other factors as the Compensation and
Stock Option Committee in its discretion deems relevant.
The Board of Directors or the Compensation and Stock Option
Committee is authorized to amend, suspend or terminate the 1992 Plan, except
that it is not authorized without stockholder approval (except with regard to
adjustments resulting from changes in capitalization) to (i) increase the
maximum number of shares that may be issued pursuant to the exercise of options
granted under the 1992 Plan; (ii) permit the grant of an incentive stock option
under the 1992 Plan with an option price less than 100% of the fair market value
of the shares at the time such option is granted; (iii) change the eligibility
requirements for participation in the 1992 Plan; (iv) extend the term of any
option or the period during which any option may be granted under the 1992 Plan;
(v) decrease an option exercise price (although an option may be cancelled and a
new option granted at a lower exercise price).
Unless the 1992 Plan is terminated earlier by the Board of
Directors, it will terminate on April 9, 2002.
SHARES SUBJECT TO THE 1992 PLAN. The 1992 Plan provides that options
may be granted with respect to a total of 750,000 shares of Common Stock. Under
certain circumstances involving a change in the number of shares of Common Stock
without receipt by the Company of any consideration therefor, such as a stock
split, stock consolidation or payment of stock dividend, the class and aggregate
number of shares of Common Stock in respect of which options may be granted
under the 1992 Plan, the class and number of shares subject to each outstanding
option and the option price per share will be proportionately adjusted. The 1992
Plan currently provides that, in addition, if the Company is involved in a
merger, consolidation, dissolution or liquidation, the options granted under the
1992 Plan will be adjusted or, under certain conditions, will terminate, subject
to the right of the option holder to exercise his option or a comparable option
substituted at the discretion of the Company prior to such event. If any option
expires or terminates for any reason, without having been exercised in full, the
unpurchased shares subject to such option will be available again for the
purposes of the 1992 Plan.
PARTICIPATION. Any employee is eligible to receive incentive stock
options or non-qualified stock options granted under the 1992 Plan.
OPTION PRICE. The exercise price of each option will be determined
by the Compensation and Stock Option Committee, but may not be less than 100% of
the fair market value of the shares of Common Stock covered by the option on the
F-6
<PAGE>
date the option is granted, in the case of an incentive stock option, nor less
than 75% of the fair market value of the shares of Common Stock covered by the
option on the date the option is granted, in the case of a non-qualified stock
option. If an incentive stock option is to be granted to an employee who owns
over 10% of the total combined voting power of all classes of the Company's
stock, then the exercise price may not be less than 110% of the fair market
value of the Common Stock covered by the option on the date the option is
granted.
TERMS OF OPTIONS. The Compensation and Stock Option Committee shall,
in its discretion, fix the term of each option, provided that the maximum term
of each option shall be 10 years. Options granted to an employee who owns over
10% of the total combined voting power of all classes of stock of the Company
shall expire not more than five years after the date of grant. The 1992 Plan
provides for the earlier expiration of options of a participant in the event of
certain terminations of employment. The 1992 Plan currently provides that in the
event that an option holder voluntarily retires or quits his employment with the
written consent of the Company, or if the employment of such option holder is
terminated by the Company for reasons other than cause, such option holder may
(unless an option shall have previously expired pursuant to the terms thereof)
exercise an option any time prior to the first to occur of the expiration of the
original option period or three months after the termination of employment.
RESTRICTIONS ON GRANT AND EXERCISE. An option may not be transferred
other than by will or the laws of decent and distribution and, during the
lifetime of the option holder, may be exercised solely by him. The aggregate
fair market value (determined at the time of the option is granted) of the
shares as to which an employee may first exercise incentive stock options in any
one calendar year may not exceed $100,000. The Compensation and Stock Option
Committee may impose any other conditions to exercise as it deems appropriate.
F-7
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE WESTERN TRANSMEDIA COMPANY, INC.
PROXY -- SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 27, 1996
The undersigned, a stockholder of The Western Transmedia Company, Inc., a
Delaware corporation (the "Company"), does hereby appoint Stuart M. Pellman,
William J. Barrett and Herbert M. Gardner, and each of them, the true and lawful
attorneys and proxies with full power of substitution, for and in the name,
place and stead of the undersigned, to vote all of the shares of Common Stock of
the Company which the undersigned would be entitled to vote if personally
present at a Special Meeting of Stockholders of the Company to be held at the
offices of Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York,
New York, on December 27, 1996, at 10:00 A.M. Eastern Standard Time, or at any
adjournment or adjournments thereof.
The undersigned hereby revokes any proxy or proxies heretofore given and
acknowledges receipt of a copy of the Notice of Special Meeting and Proxy
Statement, both dated December 6, 1996, and a copy of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, and its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
1. To approve the sale of substantially all of the Company's assets to
its corporate franchisor, Transmedia Network Inc. In voting upon the
Sale of Assets, stockholders will also be approving an amendment to
the Company's Certificate of Incorporation to change its name to The
Western Systems Corp.
FOR ----------- AGAINST -------- ABSTAIN ------
2. To approve the amendments to the Company's 1992 Stock Option Plan.
FOR ----------- AGAINST -------- ABSTAIN ------
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREIN GIVEN. UNLESS
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO APPROVE THE SALE OF ASSETS AND
TO APPROVE THE AMENDMENTS TO THE COMPANY'S 1992 STOCK OPTION PLAN.
NOTE: Your signature should appear the same as your name appears hereon. In
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal affixed. No
postage is required if mailed in the United States.
Signature: ---------------------- Date-----------
Signature: ---------------------- Date-----------
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW: -------------
-2-
