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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
RULE 13e-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 13e-3 THEREUNDER)
AMENDMENT NO. 1
SKYLINE CHILI, INC.
(Name of Issuer)
SKYLINE CHILI, INC. JEFFRY W. SHELTON
SKYLINE ACQUISITION CORP. THOMAS L. ALLEN
KEVIN R. MCDONNELL PHILLIP M. LEWIS, JR.
(Name of Persons Filing Statement)
COMMON STOCK
(Title of Class of Securities)
8308121104
(CUSIP Number of Class of Securities)
Kevin R. McDonnell
Skyline Chili, Inc.
4180 Thunderbird Lane
Fairfield, Ohio 45014
(513) 874-1188
WITH COPIES TO:
Mark J. Zummo, Esq. Richard G. Small, Esq.
Kohnen & Patton, LLP Edwards & Angell
1400 Carew Tower 2700 Hospital Trust Tower
Cincinnati, Ohio 45202 Providence, RI 02903
(513) 381-0656 (401) 274-9200
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications on Behalf of Persons
Filing Statement)
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This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement subject to
Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
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Check the following box if the soliciting materials referred to in
checking box (a) are preliminary copies. [X]
Calculation of Filing Fee
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Transaction Valuation* Amount of Filing Fee
$23,633,951 $4,726.79
[X] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $4,726.79 Filing Party: Skyline Chili, Inc.
Form or Registration No.: Preliminary Proxy Statement Date Filed: December 5, 1997
Schedule 14A
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* For purposes of calculating the fee only. This transaction applies to
an aggregate of 3,389,173 outstanding shares (the "Cash Out Shares") of
Common Stock of Skyline Chili, Inc. (the "Company") computed as
follows: (i) 3,397,773 outstanding shares of the Company's Common
Stock, less (ii) 8,600 shares (the "Management Shares") held by certain
members of management which will be exchanged for shares of common
stock of the surviving corporation in the transaction, as described in
the Proxy Statement submitted as Exhibit (d)(7) hereto.
The cash consideration being offered to shareholders of the Company for
each share of Common Stock is $6.75 per share (other than with respect
to the Management Shares).
The proposed maximum aggregate value of the transaction is $23,633,951
(the sum of (i) the product of the Cash Out Shares and $6.75, and (ii)
cash consideration of $757,033 to be paid for options being surrendered
in connection with the transaction.) The total fee of $4,726.79 was
paid by wire transfer on December 4, 1997 to the Federal lock box
depository account at Mellon Bank. The amount of the filing fee,
calculated in accordance with Rule 0-11 promulgated under the
Securities Exchange Act of 1934, as amended, equals 1/50 of one percent
of the maximum aggregate value of the transaction.
This Transaction Statement (the "Statement") is being filed with the
Securities and Exchange Commission jointly by the Company, Kevin R. McDonnell,
Jeffry W. Shelton, Thomas L. Allen and Phillip M. Lewis, Jr. (collectively, the
"Management Group"), and Skyline Acquisition Corp., an Ohio corporation, in
connection with the filing of a Proxy Statement by the Company under the
Securities Exchange Act of 1934, as amended.
This Statement relates to a proposal to adopt an Agreement and Plan of
Merger (the "Merger Agreement") among the Company, certain consenting
shareholders of the Company and Skyline Acquisition Corp. dated November 26,
1997, as amended, pursuant to which Skyline Acquisition Corp. will be merged
with and into
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the Company (the "Merger"). Upon the consummation of the Merger, each
outstanding share of Common Stock (other than the Management Shares and an as
yet unknown number of shares held by shareholders who may perfect their
dissenters' rights), will be converted into the right to receive $6.75 in cash
for each share of Common Stock.
Pursuant to General Instruction F to Schedule 13E-3, the information
identified below as contained in the Proxy Statement is hereby incorporated by
reference in answer to the items of this Schedule. Where substantially identical
information required by Schedule 13E-3 is included under more than one caption,
reference may be made to only one caption of the Proxy Statement.
CROSS REFERENCE SHEET
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Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a)..........................."SUMMARY - Date, Time and Place of Special Meeting";
"SUMMARY - Parties to the Merger"
(b)..........................."SUMMARY - Purpose of the Special Meeting"; "SUMMARY - Record
Date and Quorum"; "SUMMARY - Market Prices of Common Stock and
Dividends"; "MARKET PRICES OF COMMON STOCK AND DIVIDENDS"
(c) - (d)....................."SUMMARY - Market Prices of Common Stock and Dividends";
"MARKET PRICES OF COMMON STOCK AND DIVIDENDS"
(e)...........................Not applicable
(f)..........................."SPECIAL FACTORS - Conflicts of Interest"
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ITEM 2. IDENTITY AND BACKGROUND.
This Schedule 13E-3 is being filed by Skyline Chili, Inc., the issuer of the
class of equity securities which is the subject of this Rule 13e-3 transaction,
Kevin R. McDonnell, Jeffry W. Shelton, Thomas L. Allen and Phillip M. Lewis,
Jr., and Skyline Acquisition Corp.
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(a) - (d)....................."SUMMARY - Parties to the Merger" ;"CERTAIN INFORMATION
CONCERNING THE COMPANY, THE MANAGEMENT GROUP
AND ACQUISITION CO."
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Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
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(e) - (f).....................During the past five years, none of the persons listed in the Proxy
Statement under the caption "CERTAIN INFORMATION CONCERNING THE COMPANY,
THE MANAGEMENT GROUP AND ACQUISITION CO." has been or was, except to the extent
described under such caption, (i) convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) a party to a
civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining further violation of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such laws.
(g)..........................."CERTAIN INFORMATION CONCERNING THE COMPANY, THE MANAGEMENT GROUP AND ACQUISITION CO."
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a)(1)........................Not applicable
(a)(2)........................"SPECIAL FACTORS - Background of Merger"; "SPECIAL FACTORS
- Conflicts of Interest"
(b)..........................."SPECIAL FACTORS - Background of Merger"; "SPECIAL FACTORS
- Conflicts of Interest"
ITEM 4. TERMS OF THE TRANSACTION
(a)..........................."SPECIAL FACTORS - Conflicts of Interest"; "THE MERGER"
(b)..........................."SPECIAL FACTORS - Background of the Merger"; "SPECIAL
FACTORS - Conflicts of Interest"; "SPECIAL FACTORS - Certain Effects of
the Merger"; "THE MERGER"
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) - (g)....................."SPECIAL FACTORS - Conflicts of Interest"; "SPECIAL FACTORS -
Certain Effects of the Merger"; "SPECIAL FACTORS - Conduct of the
Company's Business After the Merger"; "THE MERGER - Financing"
ITEM 6. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) - (d)....................."SPECIAL FACTORS - Purpose and Reasons of the Management Group
and Fleet"; "SPECIAL FACTORS - Conflicts of Interest"; "THE
MERGER - Financing"; "PROXY SOLICITATION"
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Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
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ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS
(a) - (c)....................."SPECIAL FACTORS - Background of the Merger"; "SPECIAL
FACTORS - The Special Committee's and Board's Recommendation";
"SPECIAL FACTORS - Purpose and Reasons of the Management Group
and Fleet"; "SPECIAL FACTORS - Position of the Management Group
as to Fairness of the Merger"
(d)..........................."SPECIAL FACTORS - The Special Committee's and Board's
Recommendation"; "SPECIAL FACTORS - Conflicts of Interest";
"SPECIAL FACTORS - Certain Effects of the Merger"; "FEDERAL
INCOME TAX CONSEQUENCES"
ITEM 8. FAIRNESS OF THE TRANSACTION
(a) - (f)....................."SPECIAL FACTORS - Background of Merger"; "SPECIAL
FACTORS - The Special Committee's and Board's Recommendation";
"SPECIAL FACTORS - Opinion of Equitable"; "SPECIAL FACTORS -
Position of the Management Group as to Fairness of Merger";
"APPROVAL OF THE MERGER AND DISSENTERS' RIGHTS -
Required Shareholder Votes"
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) - (c)....................."SPECIAL FACTORS - Background of Merger";
"SPECIAL FACTORS - Opinion of Equitable"; "APPENDIX B"
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a)..........................."SPECIAL FACTORS - Conflicts of Interest"; "PRINCIPAL
SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT"
(b)...........................Not applicable
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES
"SPECIAL FACTORS - Background of
Merger"; "SPECIAL FACTORS-
Conflicts of Interest"; "THE MERGER -
Financing"; "APPROVAL OF THE MERGER
AND DISSENTERS' RIGHTS - Required
Shareholder Votes"
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Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
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ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTIONS
(a) - (b)....................."SPECIAL FACTORS - The Special Committee's and Board's
Recommendation"; "SPECIAL FACTORS - Position of the Management
Group as to Fairness of the Merger"; "SPECIAL FACTORS - Conflicts
of Interest"; "APPROVAL OF THE MERGER AND DISSENTERS'
RIGHTS"
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a)..........................."APPROVAL OF THE MERGER AND DISSENTERS' RIGHTS";
"APPENDIX C"
(b) - (c).....................Not applicable
ITEM 14. FINANCIAL INFORMATION
(a)..........................."SELECTED CONSOLIDATED FINANCIAL DATA";
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS"; Company's
Financial Statements (as set forth in the "FS" pages) accompanying the
Proxy Statement
(b)...........................Not applicable
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) - (b)....................."PROXY SOLICITATION"; "THE MERGER - Financing"; "SPECIAL
FACTORS - Conflicts of Interest"
ITEM 16. ADDITIONAL INFORMATION
The Proxy Statement and the Financial Statements and Appendices attached thereto.
ITEM 17. MATERIALS TO BE FILED AS EXHIBITS.
(a)...........................(1) Letter dated November 11, 1997 from The Provident Bank to
Fleet Venture Resources, Inc. and Skyline Chili, Inc. (2)
(b)...........................(2) Opinion of Equitable Securities Corporation dated November 20,
1997 (included as Appendix B to the Definitive Proxy Statement
of Skyline Chili, Inc. filed January [30], 1998) (3)
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Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
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(3) Presentation materials to the Special Committee of the Board of
Directors of Skyline Chili, Inc. prepared by Equitable Securities
Corporation dated November 20, 1997 (2)
(c)...........................(4) Agreement and Plan of Merger dated November 26, 1997
between the Company, certain consenting shareholders of the
Company, and Skyline Acquisition Corp., as amended by a First
Amendment to Agreement and Plan of Merger dated January 9, 1998
(included as Appendix A to the Definitive Proxy Statement of
Skyline Chili, Inc. filed January [30], 1998) (3)
(5) Investment Agreement dated November 26, 1997 between
Skyline Acquisition Corp., Fleet Venture Resources Inc. and
certain affiliated entities, the Management Group and certain
other key employees of the Company (2)
(6) Form of Stockholders' Agreement to be entered into
between the Company, Fleet Venture Resources, Inc. and
certain affiliated entities, the Management Group and
certain other key employees of the Company. (1)
(d)...........................(7) Chairman's Letter to Shareholders, Notice of Special Meeting of
Shareholders and Definitive Proxy Statement of Skyline Chili,
Inc. filed January [30], 1998 (3)
(e)...........................(8) Sections 1701.84 and 1701.85 of the Ohio Revised Code included
as Appendix C to the Definitive Proxy Statement of Skyline Chili,
Inc. filed January [30], 1998, and the Section of that Proxy Statement
entitled "APPROVAL OF THE MERGER AND DISSENTERS' RIGHTS" (3)
(f)...........................Not Applicable
(1) Filed herewith.
(2) Incorporated herein by reference from the preliminary Schedule 13E-3
filed by Skyline Chili, Inc. on December 5, 1997, File No. 5-40057
(3) Incorporated herein by reference from the Definitive Proxy Materials of
Skyline Chili, Inc. filed January [30], 1998.
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
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SKYLINE CHILI, INC. Date of Execution
By: /s/ Kevin R. McDonnell January 20, 1998
----------------------
Kevin R. McDonnell, President and Chief
Executive Officer
SKYLINE ACQUISITION CORP.
By: * January 20, 1998
----------------------------
BERNARD V. BUONANNO, III,
President
/s/ Kevin R. McDonnell January 20, 1998
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KEVIN R. MCDONNELL
/s/ Jeffry W. Shelton January 20, 1998
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JEFFRY W. SHELTON
/s/ Thomas L. Allen January 20, 1998
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THOMAS L. ALLEN
/s/ Phillip M. Lewis, Jr. January 20, 1998
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PHILLIP M. LEWIS, JR.
By /s/ Kevin R. McDonnell January 20, 1998
----------------------
Kevin R. McDonnell
Attorney-In-Fact
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Exhibit 17(a)(1)
[PROVIDENT BANK LETTERHEAD}
November 10, 1997
Mr. Bernard V. Buonanno, III Mr. Kevin R. McDonnell
Vice President President and CEO
Fleet Venture Resources, Inc. Skyline Chili, Inc.
Mail Stop: RI MO F12C 4180 Thunderbird Lane
50 Kennedy Plaza Fairfield, OH 45014
Providence, RI 02903
Dear Messrs. McDonnell and Buonanno:
The Provident Bank is pleased to outline below the committed terms and
conditions of a bank credit facility for Skyline Chili, Inc. and its
subsidiaries. If you are in agreement with these terms and conditions, please
indicate your acceptance by signing in the space provided below and returning
the original copy to my attention.
Borrower: Skyline Chili, Inc. and its subsidiaries (collectively
"Skyline" or the "Company").
Amount: $22,200,000 senior secured credit facility consisting of the
following:
Facility A: $6,000,000 six year Revolver
Facility B: $10,000,000 six year Term Loan
Facility C: $6,200,000 Reducing Irrevocable
Letter of Credit in favor of Industrial
Revenue Bond Trustee
Purpose: To refinance existing indebtedness, provide capital for the
acquisition of Skyline, general working capital corporate
purposes, and pay related transaction costs.
Interest Margins: The Prime Rate and LIBOR margin for Facilities A
and B shall be the percentage set forth in the pricing
matrix below for the applicable debt ratio level (defined as
Net Debt (defined as total debt less cash and cash
equivalents) divided by EBITDA less CapEx) calculated over
the preceding four fiscal quarters.
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Messrs. McDonnell and Buonanno
November 10, 1997
Page 2
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Prime Libor
Debt Ratio Margin Margin
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Greater than or equal to 3.0x, but less than 4.5x 0.50% 2.50%
Greater than or equal to 2.0x, but less than 3.0x 0.25% 2.25%
Less than 2.0x 0.00% 2.00%
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Interest shall be due and payable monthly in arrears,
calculated on the basis of the actual number of days elapsed
over an assumed year consisting of three hundred sixty (360)
days.
Fees: Closing: 1.00% of the Committed Amount
Unused: 0.50%
L/C: 1.75% per annum
Optional
Prepayments: Year 1 3.0% premium
No premium shall be assessed in the event the loans are
prepaid as the result of the sale of the Company, an initial
public offering, or from mandatory prepayments from excess
cash flow recapture.
Bank Services: All primary deposit accounts, including without
exception all operating and cash management accounts of the
Borrower, shall be maintained at Provident during the term
of the credit facilities.
Expenses: Borrower to reimburse Provident in an amount up to $75,000
for all reasonable out-of-pocket expenses including, without
limitation, legal fees, recording fees, filing fees and
other related expenses whether or not this transaction is
consummated.
Final Maturity: Six years from closing
Revolver
Availability: Advances under Facility A shall be limited by
a multiple of total debt to cash flow. The multiple of debt
to cash flow used during the first year would be 4.5 and
subsequent years to be mutually determined and agreed upon.
Cash flow to be measured on a quarterly basis. Field audits
of not more than twice per year to be performed by Provident
with all out-of-pocket expenses to be borne by the Borrower.
Expenses not to exceed $1,000 per audit.
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Messrs. McDonnell and Buonanno
November 10, 1997
Page 3
Amortization: Facility B shall amortize quarterly according to the
following schedule:
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Year Facility B
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1 $1,000,000
2 1,250,000
3 1,500,000
4 1,750,000
5 1,750,000
6 2,750,000
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Total $10,000,000
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Mandatory
Prepayments: Mandatory prepayments shall be made from 100%
of the net proceeds from i) permitted asset sales (other
than a mutually agreeable sale/leaseback program); ii)
condemnation awards; iii) casualty loss insurance recoveries
to the extent the affected assets are not replaced in
accordance with the terms of the credit agreement; iv) post
closing purchase price adjustments; and, v) from 50% of
Excess Cash Flow (defined as Net Income, plus Depreciation,
plus Amortization, plus/minus normal changes in working
capital, less permitted loan amortization actually paid,
minus permitted capital expenditures paid in cash).
Mandatory prepayments to be applied against Facility B in
the inverse order of maturity.
Security: The credit facility shall be secured by a first priority,
senior security interest in and lien upon substantially all
of Borrower's assets, tangible and otherwise, whether now
owned or hereafter acquired and wherever located, including
a negative pledge of 100% of the common stock of Borrower.
Life Insurance: Life insurance to be purchased on key management
personnel and assigned to Provident in an amount
to-be-determined.
Syndication
Assistance: If requested, Borrower agrees to assist Provident in forming
a syndicate of lenders which shall include, but not be
limited to, supplying additional information and making
appropriate officers of the Borrower available to
participate in informational meetings with potential
syndicate members.
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Messrs. McDonnell and Buonanno
November 10, 1997
Page 4
Conditions
Precedent: Conditions precedent shall be usual and customary for
similar transactions including without limitation:
1. Satisfactory documentation of the facility as outlined;
2. Evidence of satisfactory insurance coverage;
3. Receipt of valid security interests as contemplated
hereby;
4. Evidence of the repayment of all of Borrower's existing
debt, other than its IRB debt;
5. Satisfactory opinions of counsel on all legal and tax
issues deemed appropriate by Provident and its counsel;
6. No material adverse change in the condition (financial
or other) of the operations, assets, liabilities and
prospects of the Borrower, its subsidiaries or the
acquisition targets; and
7. Contribution of $10,000,000 net new cash common equity
from Fleet Equity Partners and $750,000 cashless
rollover of stock options and $200,000 in new cash and
stock contribution from management.
Documents/Covenants:Loan Agreement to include standard representations and
warranties for going private transactions, events of
default, and conditions precedent. Loan covenants shall be
usual and customary for similar transactions including
maximum debt to cash flow; minimum interest and fixed charge
coverage; minimum EBITDA; limitation on capital
expenditures; and limitations on payment of dividends, stock
repurchase, management fees, redemptions or other
distributions to shareholders or affiliates. Other covenants
and provisions of the loan agreement to include, without
limitation, the following:
1. Financial reporting to include monthly financial
statements certified by the Borrower's Chief Financial
Officer, quarterly covenant compliance reporting, and
annual audited financial statements including an
auditor's management letter;
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Messrs. McDonnell and Buonanno
November 10, 1997
Page 5
2. Limitation on disposition of assets (other than
mutually agreeable sale/leaseback and Company owned to
franchisee conversion programs), acquisitions, change
of business, and change of control;
3. No dividends to be declared or paid on Borrower's
equity;
4. Limitation on management fees;
5. Limitation on closing fees and expenses estimated at
$1.5 million; and
6. Limitation against additional debt.
Closing Date: By February 15, 1998.
Expiration: This commitment shall expire unless accepted by November 11,
1997, 5:00 pm EST.
Governing Law: State of Ohio.
If you are in agreement with these terms and conditions, please execute in the
space provided below and return the original to my attention.
I look forward to working with you on this transaction.
Sincerely,
/s/ Eric Jeffries
Eric Jeffries
Vice President
AGREED AND ACCEPTED THIS 11TH DAY OF NOVEMBER, 1997.
By: /s/ Bernard V. Buonanno, III By: /s/ Kevin R. McDonnell
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Exhibit 17(b)(3)
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VALUATION MATERIALS PREPARED FOR:
SKYLINE CHILI, INC.
NOVEMBER 20, 1997
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THE FOLLOWING INFORMATION IS CONFIDENTIAL AND PROPRIETARY TO EQUITABLE
SECURITIES CORPORATION. THE INFORMATION HAS BEEN PREPARED SOLELY FOR THE BENEFIT
OF SKYLINE CHILI, INC. AND IS PROVIDED UPON THE UNDERSTANDING THAT ANY PERSON
ACCEPTING IT WILL NOT, WITHOUT THE PRIOR PERMISSION OF EQUITABLE SECURITIES,
UTILIZE THE INFORMATION FOR ANY PURPOSE OTHER THAN AS DESCRIBED HEREIN.
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TABLE OF CONTENTS
TAB PAGE
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1. EXECUTIVE SUMMARY
TRANSACTION DESCRIPTION........................................................................................1
SCOPE OF ENGAGEMENT............................................................................................4
VALUATION CONSIDERATIONS.......................................................................................7
2. PROFILE OF SKYLINE CHILI, INC.
HISTORY OF THE COMPANY........................................................................................11
DESCRIPTION OF THE COMPANY....................................................................................12
HISTORICAL FINANCIAL STATEMENTS...............................................................................13
3. VALUATION ANALYSIS
TRANSACTION PRICING MATRIX....................................................................................18
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES..............................................................19
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY....................................33
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY............................37
DISCOUNTED CASH FLOW ANALYSIS.................................................................................40
LEVERAGED BUYOUT ANALYSIS ....................................................................................41
LEVERAGED RECAPITALIZATION ANALYSIS...........................................................................43
VALUATION SUMMARY AND CONCLUSION..............................................................................44
EXHIBITS
A. COMPANY STOCK PERFORMANCE CHARTS
B. COMPANY'S RELATIVE STOCK PRICE PERFORMANCE
C. WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS
D. DETAILED LEVERAGED BUYOUT ANALYSIS
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\ EXECUTIVE SUMMARY
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PROJECT TRI VIA CONFIDENTIAL
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EXECUTIVE SUMMARY
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TRANSACTION DESCRIPTION
- - Equitable Securities Corporation ("Equitable") was retained by Skyline
Chili, Inc. ("Skyline" or the "Company") to serve as financial advisor
to the Special Committee of the Board of Directors of the Company (the
"Special Committee") with regard to (i) a proposed offer by Meritage
Hospitality Group Inc. ("Meritage") to purchase some or all of the
outstanding common stock of Skyline, (ii) a review of other potential
strategic alternatives, and (iii) negotiation, structuring and
implementation of any transaction endorsed by the Special Committee.
- - On February 28, 1997, the Company publicly announced that it had hired
Equitable to advise the Board of Directors regarding the Meritage offer
and to evaluate alternatives and financing opportunities. After review
of the transactions proposed by Meritage and consideration of other
strategic alternatives, Equitable was directed by the Special Committee
to pursue a sale of the Company to potential strategic and financial
buyers (the "Controlled Auction").
- - In connection with the Controlled Auction, Equitable contacted a broad
range of strategic and financial buyers, domestically and
internationally. Approximately, forty-two percent of the potential
buyers signed a confidentiality agreement and received a confidential
memorandum, prepared by Equitable, describing the Company and its
business.
- - Based on preliminary non-binding indications of interest, the Special
Committee authorized approximately one half-dozen potential buyers to
visit the Company and to conduct preliminary due diligence.
- - Through subsequent discussions with potential buyers and following
deliberations of the Special Committee and the entire Board of
Directors, various buyers were eliminated and the field narrowed to
several bidders who submitted proposals following extensive due
diligence.
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PAGE 1 EQUITABLE SECURITIES CORPORATION
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PROJECT TRI VIA CONFIDENTIAL
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EXECUTIVE SUMMARY
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TRANSACTION DESCRIPTION (CONTINUED)
- - On September 26, 1997, the Company announced that an investor group
which includes Fleet Equity Partners ("Fleet") and members of
management (collectively, the "Affiliated Shareholders"), which
together control 5.6% of the total fully-diluted shares outstanding,
has offered to pay $6.75 in cash for each share of Skyline that it does
not already own (the "Proposed Transaction").
- - We have been informed that a newly-formed company to be known as
Skyline Acquisition Corporation ("SAC" or "Newco") will acquire all of
the outstanding capital stock of the Company for cash through a reverse
merger of SAC with and into the Company with Skyline emerging as the
surviving entity.
- - Based upon the discussions with Fleet and other potential strategic and
financial acquirors, we are doubtful Fleet or other potential acquirors
could have agreed to the Proposed Transaction without management's
willingness to participate with a potential buyer.
- - Since the announcement of the Proposed Transaction, we have not
received any other inquiries or alternative proposals to acquire the
Company. Based on the broad audience included in the Controlled
Auction, the public disclosure in February of the Company's intent to
review strategic alternatives and public announcement of the Proposed
Transaction in September, we are doubtful there are other potential
acquirors who are currently willing to offer a similar or better
transaction than the Proposed Transaction.
- - As part of its broader engagement, Equitable has been requested by the
Company to render an opinion as investment bankers (the "Opinion") as
to the fairness, from a financial point of view, of the consideration
to be paid to the Company's shareholders other than those shareholders
affiliated with the acquiring entity (the "Non-Affiliated
Shareholders") under the terms of the Proposed Transaction.
- - For purposes of our analysis, we have assumed, with guidance from
Company management and the Company's auditors that the transaction will
be accounted for under the purchase method of accounting for business
combinations and that the transaction will be taxable to the selling
shareholders.
- --------------------------------------------------------------------------------
================================================================================
PAGE 2 EQUITABLE SECURITIES CORPORATION
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
TRANSACTION DESCRIPTION (CONTINUED)
- - Furthermore, we understand that the Affiliated Shareholders and certain
other stockholders, including Lambert N. Lambrinides, Christie N.
Lambrinides and William N. Lambrinides (collectively, the "Consenting
Shareholders"), have expressed their intention to vote their shares in
favor of the Proposed Transaction only if the holders of a majority of
the shares held by the Non-Affiliated Shareholders that are voted at
the special stockholder's meeting, vote to approve the Proposed
Transaction. The Affiliated Shareholders and Consenting Shareholders
collectively own approximately 54.4% of the total fully-diluted shares
outstanding.
TERMS AND CONDITIONS
<TABLE>
<CAPTION>
- ---------------------------------- ---------------------------------------------------------------------------------
<S> <C>
Proposal - Newco will acquire, through a cash merger, all of the issued
and outstanding shares of Skyline that it does not already own
in a taxable transaction which will be accounted for under the
purchase method of accounting for business combinations
- ---------------------------------- ---------------------------------------------------------------------------------
Conditions to Closing - Negotiation of a definitive merger agreement
- Approval of the Proposed Transaction or the expiration of
waiting periods under the Hart-Scott-Rodino Antitrust
- Improvements Act of 1976
- Receipt of financing proceeds by Newco
- Receipt of shareholder approvals
- The holders of not more than 3% of Skyline's common shares
exercise their dissenters' rights with respect to the Proposed
Transaction
- ---------------------------------- ---------------------------------------------------------------------------------
Date of Closing - To be determined, although anticipated January 1998
- ---------------------------------- ---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 3 EQUITABLE SECURITIES CORPORATION
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
SCOPE OF ENGAGEMENT
- - In connection with our Opinion, Equitable has reviewed, among other
things:
- Draft of the Agreement and Plan of Merger between Skyline
Acquisition Corporation, Skyline Chili, Inc. and certain
stockholders of the Company;
- Certain audited historical financial data for the Company for
the fiscal years ended October 27, 1996; October 29, 1995;
October 30, 1994 and October 31, 1993;
- Certain unaudited historical financial data for the Company
for the fiscal year ended October 26, 1997 and various interim
periods;
- Certain historical budgets of the Company and its operating
divisions;
- Certain projected financial information for the Company for
the fiscal years 1998 through 2005;
- The Franchise Offering Circular of the Company;
- Certain historical stock price and volume trading information
on the Company's shares.
- --------------------------------------------------------------------------------
================================================================================
PAGE 4 EQUITABLE SECURITIES CORPORATION
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
SCOPE OF ENGAGEMENT (CONTINUED)
- - We held discussions with senior management of the Company and its
various divisions concerning the historical and current operations of
the business, its financial condition and prospects, as well as the
present strategic and operating issues facing the Company.
- - We conducted on-site visits to select facilities of the Company to
inspect the physical characteristics of the properties, to assess the
quality and range of the products and services offered at these
properties and to meet with on-site management of the facilities.
- - We have assumed (i) the accuracy of the Company's audited historical
financial statements as prepared by Skyline's management and subject to
audit by Ernst & Young LLP, (ii) the accuracy of the Company's
unaudited historical financial statements as prepared by Skyline's
management and (iii) the financial forecasts which we examined were
reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of Skyline.
- - We have also assumed that:
- All material liabilities (contingent or otherwise) of the
Company are as set forth in the financial statements of the
Company or as otherwise disclosed by Skyline.
- As audited financial results have not yet been released for
the most recent fiscal year, the Opinion is based upon
unaudited financial statements for the fiscal year ended
October 26, 1997.
- --------------------------------------------------------------------------------
================================================================================
PAGE 5 EQUITABLE SECURITIES CORPORATION
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
SCOPE OF ENGAGEMENT (CONTINUED)
- - Based upon our review of the Company's historical and projected
operating performance and certain other qualitative factors associated
with the Company, we utilized a broad variety of valuation techniques
to determine a range of fair value for the common equity interest in
the Company.
- - Our methodologies included:
- A review and comparison of trading multiples for comparable
publicly-traded companies including restaurant operators, food
manufacturers and integrated companies with both food
manufacturing and restaurant operations;
- A review of recently completed and announced precedent
transaction multiples for control acquisitions in the
restaurant industry (i.e., multiples of revenues, book value,
EBITDA, EBIT, net income and prices paid per store);
- A review of recently completed and announced precedent
transaction multiples for control acquisitions in the food
manufacturing industry (i.e., multiples of revenues, book
value, EBITDA, EBIT and net income);
- Performing a discounted cash flow analysis of the Company
including sensitivity analyses utilizing a range of
assumptions;
- Performing a stand-alone leveraged buyout analysis of the
Company, utilizing operating projections provided by
management of the Company and capitalization assumptions
consistent with the Proposed Transaction and financing terms
available under current financial market conditions;
- Performing a leveraged recapitalization analysis of the
Company, including an assessment of the likely tax
implications of such a transaction; and Assessing the
likelihood that an unaffiliated third party would offer a
superior transaction to the Unaffiliated Shareholders.
- --------------------------------------------------------------------------------
================================================================================
PAGE 6 EQUITABLE SECURITIES CORPORATION
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
VALUATION CONSIDERATIONS
BUSINESS ISSUES
- ---------------
<TABLE>
<CAPTION>
<S> <C>
STRENGTHS RISKS
- --------------------------------------------------------------- ---------------------------------------------------------------
Platform for future growth Increasingly severe competition and pricing pressure
Relatively predictable cash flow characteristics/ Increasing labor costs due to federal minimum wage
unlevered balance sheet legislation and labor scarcity
Substantial operating leverage in commissary Recent negative publicity regarding the safety and
cleanliness of QSR food
Attractiveness of unique concept and simple execution to
franchisees Uncertain price behavior for beef, paper and other essential
commodities
Attractive demographics in core market
Unproven ability to attract large area franchisees
Success of new prototype units
Core market is nearly fully-developed
Continued positive consumer perception of food / service
offering Unproven ability to transport concept beyond core market
Positioned as premium brand Increased difficulty of identifying cost effective real
estate locations
Seasoned management team and sound operating infrastructure
Concentration of grocery sales through limited number of
retailers
</TABLE>
- --------------------------------------------------------------------------------
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PAGE 7 EQUITABLE SECURITIES CORPORATION
<PAGE> 11
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
VALUATION CONSIDERATIONS (CONTINUED)
TRADING ISSUES
- ---------------
Skyline's stock price performance has historically exceeded, but has
recently lagged behind, the returns posted by the broader indices:
<TABLE>
<CAPTION>
CUMULATIVE RETURN
--------------------------------------------------------
1 YEAR (1) 2 YEARS (1) 3 YEARS (1)
----------------- ---------------- -------------------
<S> <C> <C> <C>
SKYLINE CHILI, INC. 12.8% 82.8% 112.0%
S&P 500 Index 37.7% 59.5% 105.6%
Dow Jones Industrials 34.9% 62.7% 106.8%
Food Manufacturer Index(2) 37.6% 17.8% 22.6%
Integrated Restaurant Index(2) 37.2% 4.9% (7.1%)
Restaurant Index(2) (8.2%) 3.5% (4.7%)
-------------------------------------------
<FN>
SOURCE: ILX SYSTEMS
(1) Closing price of Skyline Common shares one day prior to announcement
of the Proposed Transaction.
(2) Indexes are comprised of comparable publicly-traded companies as
described herein.
</TABLE>
The indicated deal price exceeds the average trading price of the
Company's common shares since 1993:
<TABLE>
<CAPTION>
HIGH LOW AVERAGE
------------ ------------ ------------
<S> <C> <C> <C>
1993 $3.13 $2.13 $2.74
1994 3.50 2.88 3.17
1995 4.38 3.13 3.69
1996 6.56 3.50 4.57
1997 YTD 9.13 5.50 6.62
</TABLE>
- --------------------------------------------------------------------------------
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PAGE 8 EQUITABLE SECURITIES CORPORATION
<PAGE> 12
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
VALUATION CONSIDERATIONS (CONTINUED)
TRADING ISSUES (CONTINUED)
- --------------------------
- - The recent disappointing trading performance of Skyline's shares is
likely attributable to a variety of factors including:
- Absence of equity research coverage;
- Limited float due to heavily concentrated insider ownership;
- Liquidity concerns and low trading volume; and
- Limited geographic diversification of operations.
- - The relatively low trading volume of Skyline and the resulting
perceived illiquidity has severely reduced potential institutional
interest in the shares of the Company.
<TABLE>
<CAPTION>
Float as a % of Average Daily Average Daily Trading Volume
Shares Outstanding Trading Volume as a % of Total Shares Outstanding
----------------------------- ------------------------- ------------------------------------
<S> <C> <C> <C>
SKYLINE CHILI 32.7% 1,296 0.04%
Armanino Foods of Distinction 82.9% 31,538 0.07%
Bridgford Foods 34.3% 8,097 0.07%
J & J Snack Foods 66.2% 21,665 0.66%
Bob Evans 93.6% 132,880 0.31%
Uno Restaurant 50.1% 12,711 0.12%
WSMP 52.3% 13,748 0.42%
Blimpie International 39.2% 27,502 0.29%
Luby's Cafeterias 95.4% 64,835 0.28%
Max & Erma's 58.6% 7,016 0.17%
Perkins Family Restaurant. 41.7% 21,726 0.21%
Sbarro 63.1% 31,985 0.16%
----------------------------- ------------------------- ------------------------------------
Average 59.2% 31,250 0.23%
- --------------------------------------
<FN>
1 Source - Bloomberg L.P. - Data sampled over one year time
period.
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 9 EQUITABLE SECURITIES CORPORATION
<PAGE> 13
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- --------------------------------------------------------------------------------
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
================================================================================
VALUATION CONSIDERATIONS (CONTINUED)
TRADING ISSUES (CONTINUED)
- --------------------------
- - These factors have in turn contributed to a lack of published equity
research on the stock and generally poor visibility for the issue:
<TABLE>
<CAPTION>
Number of Equity
Analysts Covering Reports Published
the Stock in 1997
----------------------------- ---------------------------
SKYLINE CHILI 0 0
<S> <C> <C>
Armanino Foods of Distinction 2 6
Bridgford Foods 0 0
J & J Snack Foods 4 0
Bob Evans 13 17
Uno Restaurant 1 0
WSMP 2 2
Blimpie International 0 0
Luby's Cafeterias 12 10
Max & Erma's 3 8
Perkins Family Restaurant. 0 0
Sbarro 4 9
----------------------------- ---------------------------
AVERAGE 4 5
- ----------------------------------------------------------
<FN>
Source - Bloomberg L.P.
</TABLE>
- - Given these Company-specific issues and the market dynamics for trading
in Skyline's stock, we believe it is unlikely that all shareholders who
sought liquidity could sell their Skyline common stock into the open
market for a price equal to the consideration offered in the Proposed
Transaction.
- --------------------------------------------------------------------------------
================================================================================
PAGE 10 EQUITABLE SECURITIES CORPORATION
<PAGE> 14
- --------------------------------------------------------------------------------
================================================================================
--------------------------------------------------------------------
PROFILE OF SKYLINE CHILI, INC.
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 15
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
PROFILE OF SKYLINE CHILI, INC.
- --------------------------------------------------------------------------------
================================================================================
HISTORY OF THE COMPANY
- - In 1949, Nicholas Lambrinides opened the first Skyline Chili restaurant
in Cincinnati, Ohio.
- - By 1956, the Lambrinides brothers initiated the sales of their
restaurant products through supermarkets as frozen entrees. Through the
mid-eighties and early nineties the products experienced rapid growth
until they became and remain the leading frozen entrees sold in grocery
stores in the Cincinnati, Ohio marketing area.
- - In 1957, Lambert, William and Christie Lambrinides, sons of the
founder, saw the potential for developing the chain through franchising
with high quality owner-operators. Their first franchised operation
opened that year in downtown Cincinnati.
- - Skyline Chili completed its initial public offering of common stock in
1986. The Company sought access to public capital in order to fund
further development.
- - In 1991, the Company built a new commissary to replace its old facility
which it had outgrown and which had become inefficient with respect to
contemporary manufacturing techniques and equipment. The Company
developed the new facility with substantial extra capacity as a
commitment to long-term growth.
- - In 1993, the Company acquired the trademarked Cincinnati Recipe brand
of chili spice mixes and canned chili to complement its frozen product
lines. Skyline upgraded packaging and promotional activity and the
brand maintains a leadership position within its categories despite
aggressive competition.
- - In 1994, the Lambrinides brothers officially stepped down from their
day-to-day duties. They remain majority shareholders and continue to be
active as consultants to the Company as well as serving on the
Company's Board of Directors.
- --------------------------------------------------------------------------------
================================================================================
PAGE 11 EQUITABLE SECURITIES CORPORATION
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- --------------------------------------------------------------------------------
================================================================================
PROFILE OF SKYLINE CHILI, INC.
- --------------------------------------------------------------------------------
================================================================================
DESCRIPTION OF THE COMPANY
- - Skyline Chili, Inc. manufactures and sells high-quality
"Cincinnati-style" chili and chili-related food products. The Company
has three distribution channels for its chili products, (i)
Company-owned restaurants, (ii) franchised restaurants, and (iii)
retail outlets such as supermarkets and grocery store chains. As of
October 26, 1997, there were 101 Skyline restaurants in operation in 4
states, 36 owned and operated by the Company and 65 owned and operated
by the Company's franchisees. Historically, the Company's restaurant
and grocery sales have been concentrated in greater Cincinnati, Ohio
and Northern Kentucky. Other areas of Skyline development include (i)
other Ohio areas such as Columbus, Cleveland and Dayton, (ii)
Indianapolis and other areas in Indiana, and (iii) selected areas of
franchisee development in Florida.
- - The Company produces its secret recipe chili at its Fairfield, Ohio
commissary. The secret recipe chili is sold to the Company's
franchisees and is served exclusively in all franchised and
Company-owned Skyline Chili restaurants. In addition, the Company
manufactures and sells frozen grocery and canned products under its
"Skyline" trademark, which it distributes through retail outlets such
as supermarkets and grocery store chains. The Company sells additional
grocery products manufactured by third parties under its "Cincinnati
Recipe" trademarks through the same retail outlets. The Company also
licenses the use of its "Skyline" trademark on branded products, such
as oyster crackers, which are manufactured and sold by third parties.
- --------------------------------------------------------------------------------
================================================================================
PAGE 12 EQUITABLE SECURITIES CORPORATION
<PAGE> 17
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- --------------------------------------------------------------------------------
================================================================================
HISTORICAL FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
================================================================================
INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Commissary sales $9,809 $10,817 $10,331 $12,341 $14,096
Restaurant sales 10,646 12,507 14,231 15,471 17,433
Franchise fees & royalties 1,171 1,172 1,210 1,411 1,539
------------- ------------- ------------- -------------- -------------
Total revenues 21,626 24,496 25,772 29,223 33,068
OPERATING EXPENSES:
Cost of sales - commissary 7,610 8,211 7,497 8,634 9,467
Restaurant operating costs:
Cost of food & paper 3,220 3,569 3,945 4,355 4,736
Payroll costs 2,942 3,629 4,266 4,693 5,249
Occupancy and other exp. 2,292 2,690 3,078 3,229 3,693
Selling, general and admin. 4,371 5,051 5,000 5,727 6,861
------------- ------------- ------------- -------------- -------------
Total operating expenses 20,435 23,150 23,786 26,638 30,006
------------- ------------- ------------- -------------- -------------
INCOME FROM OPERATIONS 1,191 1,346 1,986 2,585 3,062
OTHER INCOME (EXPENSE):
Interest income 96 93 92 76 85
Interest expense (607) (583) (541) (367) (357)
Other expense 21 (24) (7) (6) (8)
------------- ------------- ------------- -------------- -------------
INCOME BEFORE INCOME TAXES 701 832 1,530 2,288 2,782
PROVISION FOR INCOME TAXES 270 300 550 873 1,087
------------- ------------- ------------- -------------- -------------
NET INCOME $431 $532 $980 $1,415 $1,695
============= ============= ============= ============== =============
</TABLE>
- --------------------------------------------------------------------------------
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PAGE 13 EQUITABLE SECURITIES CORPORATION
<PAGE> 18
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- --------------------------------------------------------------------------------
================================================================================
HISTORICAL FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
================================================================================
BALANCE SHEET -- ASSETS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $1,048 $2,709 $1,910 $1,140 $2,150
Accounts receivable 1,129 726 1,074 1,692 1,873
Inventories 539 1,043 1,224 1,804 1,412
Prepaid expenses 254 213 121 129 145
Deferred income taxes 205 198 206 253 222
------------- ------------- ------------- ------------- -------------
Total current assets 3,175 4,889 4,535 5,018 5,802
NET PROPERTY AND EQUIPMENT 13,056 12,876 13,825 15,540 16,340
NET INTANGIBLE ASSETS 269 534 501 455 571
OTHER ASSETS 402 124 152 149 181
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $16,902 $18,423 $19,013 $21,162 $22,894
============= ============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
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PAGE 14 EQUITABLE SECURITIES CORPORATION
<PAGE> 19
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- --------------------------------------------------------------------------------
================================================================================
HISTORICAL FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
================================================================================
BALANCE SHEET -- LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $870 $1,406 $1,505 $1,787 $1,495
Accrued liabilities 1,005 1,547 1,109 1,531 2,049
Income taxes - - 101 146 209
Current portion of LT debt 315 340 360 385 410
------------- ------------- ------------- ------------- -------------
Total current liabilities 2,190 3,293 3,075 3,849 4,164
DEFERRED INCOME TAXES 271 387 469 689 680
OTHER LIABILITIES - - 105 117 292
LONG-TERM DEBT 6,799 6,459 6,100 5,715 5,305
SHAREHOLDERS' EQUITY:
Common stock 5,176 5,286 5,286 5,399 5,433
Retained earnings 2,466 2,998 3,978 5,393 7,020
------------- ------------- ------------- ------------- -------------
Total stockholders' equity 7,642 8,284 9,264 10,792 12,453
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $16,902 $18,423 $19,013 $21,162 $22,894
============= ============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
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PAGE 15 EQUITABLE SECURITIES CORPORATION
<PAGE> 20
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- --------------------------------------------------------------------------------
================================================================================
HISTORICAL FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
================================================================================
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $431 $532 $980 $1,415 $1,695
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,399 1,373 1,553 1,705 1,994
Deferred income taxes 52 101 74 173 22
Amortization of stock award compensation 84 - - - -
Decrease (increase) in:
Accounts receivable 11 403 (348) (618) (181)
Inventories 3 (504) (181) (580) 392
Prepaid expenses (37) 41 92 (8) (16)
Increase (decrease) in:
Accounts payable 99 536 99 282 (292)
Income taxes payable - - 101 45 63
Accrued liabilities 40 542 (333) 422 620
Other-net (1) (66) (27) 24 54
------------- ------------- ------------- -------------- -------------
Net cash provided by operating activities $2,081 $2,958 $2,010 $2,860 $4,351
</TABLE>
- --------------------------------------------------------------------------------
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PAGE 16 EQUITABLE SECURITIES CORPORATION
<PAGE> 21
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- --------------------------------------------------------------------------------
================================================================================
HISTORICAL FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
================================================================================
CASH FLOW STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------------------------------
OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- -------------- -------------
INVESTING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Capital expenditures ($1,845) ($1,537) ($2,484) ($3,987) ($2,758)
Payments for businesses acquired (295) (301) - - -
Proceeds from sale of property and equip. 3 903 54 609 2
Decrease in unexpended bond proceeds 173 - - - -
Additions to intangible assets (19) (47) (39) (5) (166)
------------- ------------- ------------- -------------- -------------
Net cash used by investing activities (1,983) (982) (2,469) (3,383) (2,922)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options - - - 113 34
Repayments of debt (300) (315) (340) (360) (385)
Cash dividends paid - - - - (68)
------------- ------------- ------------- -------------- -------------
Net cash used by financing activities (300) (315) (340) (247) (419)
Net increase (decrease) in cash (202) 1,661 (799) (770) 1,010
Cash at beginning of year 1,250 1,048 2,709 1,910 1,140
------------- ------------- ------------- -------------- -------------
Cash at end of year $1,048 $2,709 $1,910 $1,140 $2,150
============= ============= ============= ============== =============
</TABLE>
- --------------------------------------------------------------------------------
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PAGE 17 EQUITABLE SECURITIES CORPORATION
<PAGE> 22
- --------------------------------------------------------------------------------
================================================================================
--------------------------------------------------------------------
VALUATION ANALYSIS
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 23
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- --------------------------------------------------------------------------------
================================================================================
TRANSACTION PRICING MATRIX
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRICE PER SHARE $4.75 $5.25 $5.75 $6.25 $6.75
- -----------------------------------------------------------------------------------------------------------------------------------
(000S) EXCEPT PER SHARE DATA
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES OUTSTANDING 3,397.773 $16,139 $17,838 $19,537 $21,236 $22,935
WARRANTS - $0 $0 $0 $0 $0
OPTIONS 472.017 $595 $831 $1,067 $1,303 $1,539
AVERAGE EXERCISE PRICE $3.488
EQUITY PURCHASE PRICE $16,735 $18,670 $20,605 $22,540 $24,474
DEBT ASSUMED
LT Debt $5,715 $5,715 $5,715 $5,715 $5,715
- -----------------------------------------------------------------------------------------------------------------------------------
IMPLIED FIRM VALUE $22,450 $24,385 $26,320 $28,255 $30,189
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRM VALUE : EBITDA
1996 $4,290 5.2 x 5.7 x 6.1 x 6.6 x 7.0 x
1997 (1) $5,056 4.4 4.8 5.2 5.6 6.0
Projected 1998 (2) $5,793 3.9 4.2 4.5 4.9 5.2
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE : EBIT
1996 $2,585 8.7 x 9.4 x 10.2 x 10.9 x 11.7 x
1997 (1) $3,062 7.3 8.0 8.6 9.2 9.9
Projected 1998 (2) $3,474 6.5 7.0 7.6 8.1 8.7
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE : REVENUES
1996 $29,224 0.8 x 0.8 x 0.9 x 1.0 x 1.0 x
1997 (1) $33,067 0.7 0.7 0.8 0.9 0.9
Projected 1998 (2) $35,948 0.6 0.7 0.7 0.8 0.8
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE : COMPANY STORES
1996 33 $680.3 $738.9 $797.6 $856.2 $914.8
1997 36 623.6 677.4 731.1 784.8 838.6
Projected 1998 (2) 40 561.2 609.6 658.0 706.4 754.7
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY PRICE : EPS / NET INCOME
1996 $0.41 / $1,417 11.6 x 12.8 x 14.0 x 15.2 x 16.5 x
1997 (1) (3) $0.47 / $1,695 10.1 11.2 12.2 13.3 14.4
Projected 1998 (2) (3) $0.54 / $1,989 8.7 9.7 10.6 11.5 12.4
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE : BOOK EQUITY
1996 $10,792 1.6 x 1.7 x 1.9 x 2.1 x 2.3 x
1997 (1) $12,453 1.3 1.5 1.7 1.8 2.0
Projected 1998 (2) N/A N/A N/A N/A N/A N/A
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRICE PER SHARE $7.25 $7.75 $8.25 $8.75
- --------------------------------------------------------------------------------------------
SHARES OUTSTANDING $24,634 $26,333 $28,032 $29,731
WARRANTS $0 $0 $0 $0
OPTIONS $1,776 $2,012 $2,248 $2,484
EQUITY PURCHASE PRICE $26,409 $28,344 $30,279 $32,214
DEBT ASSUMED
$5,715 $5,715 $5,715 $5,715
- --------------------------------------------------------------------------------------------
IMPLIED FIRM VALUE $32,124 $34,059 $35,994 $37,929
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
FIRM VALUE : EBITDA
1996 7.5 x 7.9 x 8.4 x 8.8 x
1997 (1) 6.4 6.7 7.1 7.5
Projected 1998 (2) 5.5 5.9 6.2 6.5
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
FIRM VALUE : EBIT
1996 12.4 x 13.2 x 13.9 x 14.7 x
1997 (1) 10.5 11.1 11.8 12.4
Projected 1998 (2) 9.2 9.8 10.4 10.9
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
FIRM VALUE : REVENUES
1996 1.1 x 1.2 x 1.2 x 1.3 x
1997 (1) 1.0 1.0 1.1 1.1
Projected 1998 (2) 0.9 0.9 1.0 1.1
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
FIRM VALUE : COMPANY STORES
1996 $973.5 $1,032.1 $1,090.7 $1,149.4
1997 892.3 946.1 999.8 1,053.6
Projected 1998 (2) 803.1 851.5 899.9 948.2
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
EQUITY PRICE : EPS / NET INCOME
1996 17.7 x 18.9 x 20.1 x 21.3 x
1997 (1) (3) 15.4 16.5 17.6 18.6
Projected 1998 (2) (3) 13.3 14.3 15.2 16.1
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
EQUITY VALUE : BOOK EQUITY
1996 2.4 x 2.6 x 2.8 x 3.0 x
1997 (1) 2.1 2.3 2.4 2.6
Projected 1998 (2) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Equity purchase price calculated as: Shares outstanding times the offered price
+ Options outstanding times the offered price net of the average exercise cost.
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) 1997 financials reflect unaudited results.
(2) Projection Source: Company projections.
(3) Estimated based upon weighted average common and common equivalent shares
outstanding of 3,658,000.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 18 EQUITABLE SECURITIES CORPORATION
<PAGE> 24
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- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
DESCRIPTION OF COMPARABLE PUBLICLY-TRADED COMPANIES
FOOD MANUFACTURING COMPANIES
ARMANINO FOODS OF DISTINCTION, INC. - produces and markets specialty food
products. The Company's products include primarily frozen pesto and other
Italian-style frozen sauces, frozen stuffed and flat pasta products, frozen
focaccia and frozen meatballs. Armanino markets its food to retail, foodservice,
club stores and institutional food industries.
BRIDGFORD FOODS CORP. - manufactures and/or distributes refrigerated, frozen and
snack food products. Bridgford markets its products through its own sales force,
brokers, cooperatives, wholesalers and independent distributors to retail and
wholesale outlets, restaurants and institutions throughout the United States.
J & J SNACK FOODS CORP. - manufactures soft pretzels, frozen carbonated
beverages, juice treats and desserts, churros, baked goods and health foods. The
Company distributes to food service and retail supermarket industries through
snackbars and food stands in chain and department stores. Brand names include
Tio Pepe, Superpretzel, Icee, Superchurros and Funnel Cake Factory.
INTEGRATED RESTAURANT COMPANIES
BOB EVANS FARMS - owns and operates 399 restaurants principally in the
midwestern, mid-Atlantic and southeastern United States, as well as Texas. The
Company also produces a variety of pork sausage products under the brand names
of "Bob Evans" and "Owens Country Sausage". Bob Evans Farms other operations
include "Mrs. Gile's Country Kitchens" and "Hickory Specialties".
UNO RESTAURANT CORPORATION - currently operates 93 "Pizzeria Uno" and "Chicago
Bar & Grill" casual dining, full-service restaurants primarily from New England
to Virginia, as well as Florida, Chicago and Denver. The company also franchises
66 units in 19 states, the District of Columbia, Puerto Rico and Seoul, Korea.
The company also operates a consumer food division which supplies American
Airlines, movie theaters, hotels and supermarkets in the Northeast with frozen
Pizzeria Uno brand products.
WSMP INC. - operates through two food processing divisions and a restaurant
division. The Company's restaurant operations include 33 company-owned
restaurants in six states and 53 franchised restaurants in eight states
including "Western Steer", "Prime Sirloin", "Mom `n' Pop's" and "Bennett's".
WSMP also has a ham curing division and a bakery division.
- --------------------------------------------------------------------------------
================================================================================
PAGE 19 EQUITABLE SECURITIES CORPORATION
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PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
DESCRIPTION OF COMPARABLE PUBLICLY-TRADED COMPANIES (CONTINUED)
RESTAURANT COMPANIES
BLIMPIE INC. - franchises, subfranchises and master licenses over 1,600
non-cooking, quick service sandwich outlets known as "Blimpie" outlets. The main
products sold in a Blimpie outlet are submarine sandwiches and salads. The
Company has outlets across the United States, Spain, Sweden, Argentina, the
United Kingdom and Canada.
LUBY'S CAFETERIAS INC. - owns and operates over 229 cafeterias in Texas,
Arizona, Oklahoma, Tennessee, Florida, New Mexico, Arkansas, Missouri,
Louisiana, Mississippi and Kansas. The restaurants, located primarily in
shopping malls, are open for lunch and dinner and cater to shoppers, office
worker and families.
MAX & ERMA'S RESTAURANTS, INC. - owns and operates 44 restaurants under the name
"Max & Erma's Neighborhood Gathering Place". The restaurants are located in
Ohio, Pennsylvania, Indiana, Michigan, Illinois, North Carolina and Kentucky and
offer popular American food and alcoholic and non-alcoholic beverages.
PERKINS FAMILY RESTAURANTS - owns and franchises family-style restaurants which
serve a wide variety of high quality, moderately-priced breakfast, lunch and
dinner entrees. Perkins Family Restaurants provide table service and many are
open 24 hours a day. The company has over 466 operations in 32 states and
Canada.
SBARRO INC. - develops and operates a chain of family-style, cafeteria-type
Italian restaurants under the "Sbarro" and "Sbarro The Italian Eatery" names.
The Company currently owns 820 and franchises 214 restaurants in the United
States and abroad.
- --------------------------------------------------------------------------------
================================================================================
PAGE 20 EQUITABLE SECURITIES CORPORATION
<PAGE> 26
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
SUMMARY OF FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
TOTAL FIRM VALUE AS A 1998 P/E
MULTIPLE OF TR12: EQUITY VALUE AS A MULTIPLE OF: AS A % OF
---------------------------------- ----------------------------------------- -----------
NET TR12 CY1997 CY1998 BOOK 1997 EPS
COMPANY NAME REVENUES EBITDA EBIT P/E P/E P/E VALUE GROWTH
- -------------------------------------- ---------- ---------- ---------- --------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SKYLINE CHILI 0.8 X 5.5 X 9.1 X 13.8 X 13.5 X 11.7 X 1.8 X 68.9%
FOOD MANUFACTURING COMPANIES 0.9 X 7.6 X 12.5 X 18.6 X 13.5 X 13.7 X 1.6 X 99.4%
INTEGRATED RESTAURANT COMPANIES 0.9 X 7.7 X 12.7 X 18.6 X 16.8 X 15.4 X 1.9 X 76.3%
RESTAURANT COMPANIES 1.0 X 6.1 X 9.7 X 13.0 X 12.4 X 11.7 X 2.1 X 76.6%
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.9 X 6.7 X 11.0 X 16.0 X 14.0 X 13.1 X 1.8 X 80.3%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.9 X 6.9 X 11.1 X 16.2 X 13.5 X 12.7 X 1.8 X 76.4%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 21 EQUITABLE SECURITIES CORPORATION
<PAGE> 27
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE FOOD MANUFACTURING COMPANIES
SUMMARY OF FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
TOTAL FIRM VALUE AS A MULTIPLE OF TR12:
11/14/97 TOTAL EQUITY ---------------------------------------
CLOSING FIRM MARKET NET
COMPANY NAME PRICE VALUE VALUE REVENUES EBITDA EBIT
- ------------------------- ------------ ------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SKYLINE CHILI $6.50 $27,802 $22,087 $33,068 $5,056 $3,062
0.8 X 5.5 X 9.1 X
ARMANINO FOODS 1.25 14,153 14,094 15,494 1,531 1,098
0.9 X 9.2 X 12.9 X
BRIDGFORD FOODS 13.00 122,160 122,160 124,246 12,770 10,108
1.0 X 9.6 X 12.1 X
J & J SNACK FOODS CORP. 16.88 154,944 147,930 194,923 25,637 7,711
0.8 X 6.0 X 20.1 X
- ----------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.9 X 7.6 X 13.5 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.9 X 7.6 X 12.5 X
- ----------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A MULTIPLE OF: 1998 P/E
---------------------------------------------- AS A % OF
TR12 CY1997 CY1998 BOOK TRENDLINE
COMPANY NAME P/E P/E P/E VALUE GROWTH
- ----------------------------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
SKYLINE CHILI $0.47 $0.48 $0.56 12,453 17.0%
13.8 X 3.5 X 11.7 X 1.8 X 68.9%
ARMANINO FOODS 0.07 0.14 N/M 10,478 N/M
17.9 X 8.9 X N/M 1.3 X N/A
BRIDGFORD FOODS 0.67 N/M N/M 42,971 N/M
19.4 X N/A N/A 2.8 X N/A
J & J SNACK FOODS CORP. 0.60 0.92 1.08 97,943 12.0%
28.1 X 8.4 X 15.6 X 1.5 X 130.0%
- --------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 19.8 X 3.6 X 13.7 X 1.9 X 99.4%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 18.6 X 3.5 X 13.7 X 1.6 X 99.4%
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 22 EQUITABLE SECURITIES CORPORATION
<PAGE> 28
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE INTEGRATED RESTAURANT COMPANIES
SUMMARY OF FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
TOTAL FIRM VALUE AS A
MULTIPLE OF TR12:
14-11-97 TOTAL EQUITY ---------------------------------
CLOSING FIRM MARKET NET
COMPANY NAME PRICE VALUE VALUE REVENUES EBITDA EBIT
- -------------------------------------------- ------------- ------------ ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SKYLINE CHILI $6.50 $27,802 $22,087 $33,068 $5,056 $3,062
0.8 X 5.5 X 9.1 X
BOB EVANS 19.44 899,545 828,778 831,140 90,927 60,686
1.1 X 9.9 X 14.8 X
UNO RESTAURANT CORP. 6.88 114,331 75,377 176,862 23,661 10,905
0.6 X 4.8 X 10.5 X
WSMP 22.31 89,214 72,985 100,789 5,362 2,504
0.9 X 16.6 X 35.6 X
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.9 X 9.2 X 17.5 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.9 X 7.7 X 12.7 X
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A MULTIPLE OF: 1998 P/E
------------------------------------------- AS A % OF
TR12 CY1997 CY1998 BOOK TRENDLINE
COMPANY NAME P/E P/E P/E VALUE GROWTH
- ----------------------------------------- ------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
SKYLINE CHILI $0.47 $0.48 $0.56 $12,453 17.0%
13.8 X 13.5 X 11.7 X 1.8 X 68.9%
BOB EVANS 0.90 0.99 1.27 429,629 11.1%
21.6 X 19.7 X 15.4 X 1.9 X 138.7%
UNO RESTAURANT CORP. 0.44 0.50 N/A 77,697 15.0%
15.6 X 13.8 X N/A 1.0 X N/A
WSMP 0.39 0.52 0.72 22,194 40.5%
57.2 X 43.3 X 30.8 X 3.3 X 76.3%
- ------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 27.1 X 22.6 X 19.3 X 2.0 X 94.6%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 18.6 X 16.8 X 15.4 X 1.9 X 76.3%
- ------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 23 EQUITABLE SECURITIES CORPORATION
<PAGE> 29
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE RESTAURANT COMPANIES
SUMMARY OF FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
TOTAL FIRM VALUE AS A MULTIPLE OF TR12:
14-11-97 TOTAL EQUITY ---------------------------------------------------
CLOSING FIRM MARKET NET
COMPANY NAME PRICE VALUE VALUE REVENUES EBITDA EBIT
- -------------------------- ------------ ---------- ------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SKYLINE CHILI $6.50 $27,801 $22,086 $33,068 $5,056 $3,062
0.8 X 5.5 X 9.1 X
BLIMPIE INTERNATIONAL 4.50 46,452 42,939 38,127 4,844 4,403
1.2 X 9.6 X 10.5 X
LUBY'S CAFETERIAS 19.31 539,332 449,332 484,571 76,884 57,485
1.1 X 7.0 X 9.4 X
MAX & ERMA'S 6.00 61,352 24,967 88,961 11,645 5,981
0.7 X 5.3 X 10.3 X
PERKINS FAMILY RESTAURANTS 13.69 192,621 143,541 262,759 35,229 19,331
0.7 X 5.5 X 10.0 X
SBARRO 26.13 534,006 534,006 340,968 85,191 61,778
1.6 X 6.3 X 8.6 X
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 1.0 X 6.5 X 9.6 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 1.0 X 6.1 X 9.7 X
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A MULTIPLE OF: 1998 P/E
---------------------------------------------------------------------------- AS A % OF
TR12 CY1997 CY1998 BOOK TRENDLINE
COMPANY NAME P/E P/E P/E VALUE GROWTH
- -------------------------- ------------------ ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
SKYLINE CHILI $0.47 $0.48 $0.56 $12,453 15.3%
13.8 X 13.5 X 11.7 X 1.8 X 76.6%
BLIMPIE INTERNATIONAL $0.34 N/M N/M 18,865 N/M
13.2 X N/M N/M 2.3 X N/M
LUBY'S CAFETERIAS $1.72 1.68 1.66 221,199 N/M
11.2 X 11.5 X 11.7 X 2.0 X N/M
MAX & ERMA'S $0.54 0.59 0.69 19,158 15.3%
11.1 X 10.2 X 8.7 X 1.3 X 57.1%
PERKINS FAMILY RESTAURANTS $0.86 N/M N/M 63,542 N/M
15.9 X N/A N/A 2.3 X N/M
SBARRO $1.89 1.97 2.17 209,866 12.8%
13.8 X 13.3 X 12.0 X 2.5 X 94.4%
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 13.2 X 12.1 X 11.0 X 2.0 X 76.0%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 13.0 X 12.4 X 11.7 X 2.1 X 76.6%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 24 EQUITABLE SECURITIES CORPORATION
<PAGE> 30
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE FOOD MANUFACTURING COMPANIES
SUMMARY OPERATIONAL RESULTS
<TABLE>
<CAPTION>
NET REVENUES EBITDA NET INCOME EBITDA MARGINS
-------------------------- ---------------------------- ------------------------ -------------------------
TR12 CAGR (1) TR12 CAGR (1) TR12 CAGR (1) TR12 AVG.(2)
------------- ----------- ------------ -------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Skyline Chili $33,068 13.3% $5,056 19.5% $1,695 31.5% 15.3% 14.7%
Armanino Foods 15,494 21.0% 1,531 46.9% 775 49.8% 9.9% 11.4%
Bridgford Foods 124,246 4.2% 12,770 (0.7%) 6,267 (4.1%) 10.3% 10.5%
J & J Snack Foods Corp. 194,923 3.3% 25,637 (4.5%) 5,408 (17.2%) 13.2% 13.6%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE $91,933 10.4% $11,248 15.3% $3,536 15.0% 12.1% 12.6%
- -----------------------------------------------------------------------------------------------------------------------------------
NET MARGINS EBIT/INTEREST COVERAGE DEBT TO RETURN ON AVG. EQUITY
------------------------- ------------------------ TOTAL BOOK -----------------------
TR12 AVG. (2) TR12 AVG. (2) CAPITALIZATION TR12 AVG. (2)
------------ ---------- ---------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Skyline Chili 5.1% 5.1% 11.3 x 10.5 x 31.5% 13.6% 14.1%
Armanino Foods 5.0% 6.9% 0.1 x 0.2 x 0.6% 7.3% 10.7%
Bridgford Foods 5.0% 5.4% N/M N/M 0.0% 15.1% 16.2%
J & J Snack Foods Corp. 2.8% 3.5% 19.8 x 21.7 x 6.7% 5.6% 5.9%
- ------------------------------------------------------------------------------------------------------------------------
AVERAGE 4.5% 5.2% 10.4 X 10.8 X 9.7% 10.4% 11.7%
- ------------------------------------------------------------------------------------------------------------------------
- -------------------------------
<FN>
(1) Computed from the three most recent fiscal years.
(2) Average for trailing twelve months and three most recent fiscal years.
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 25 EQUITABLE SECURITIES CORPORATION
<PAGE> 31
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE INTEGRATED RESTAURANT COMPANIES
SUMMARY OPERATIONAL RESULTS
<TABLE>
<CAPTION>
NET REVENUES EBITDA NET INCOME EBITDA MARGINS
---------------------------- ------------------------ --------------------- --------------------
TR12 CAGR (1) TR12 CAGR (1) TR12 CAGR (1) TR12 AVG. (2)
----------- ------------- ---------- ----------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Skyline Chili $33,068 13.3% $5,056 19.5% $1,695 31.5% 15.3% 14.7%
Bob Evans 831,140 3.5% 90,927 (12.3%) 37,536 (17.9%) 10.9% 12.1%
Uno Restaurant Corp. 176,862 17.8% 23,661 0.0% 5,543 (16.1%) 13.4% 14.0%
WSMP 100,789 (3.4%) 5,362 (8.9%) 1,355 (19.8%) 5.3% 4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE $285,465 7.8% $31,251 (0.4%) $11,532 (5.6%) 11.2% 11.3%
- -----------------------------------------------------------------------------------------------------------------------------------
NET MARGINS EBIT/INTEREST COVERAGE DEBT TO RETURN ON AVG. EQUITY
------------------------ ------------------------ TOTAL BOOK ----------------------
TR12 AVG. (2) TR12 AVG. (2) CAPITALIZATION TR12 AVG. (2)
----------- --------- ---------- ----------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Skyline Chili 5.1% 5.1% 11.3 x 10.5 x 31.5% 13.6% 14.1%
Bob Evans 4.5% 5.4% 41.5 x 56.5 x 14.1% 8.8% 9.3%
Uno Restaurant Corp. 3.1% 4.0% 4.9 x 6.2 x 33.4% 7.2% 7.5%
WSMP 1.3% 0.5% 1.4 x 0.8 x 42.2% 6.7% 0.7%
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE 3.5% 3.7% 14.8 X 18.5 X 30.3% 9.1% 7.9%
- -----------------------------------------------------------------------------------------------------------------------------
- -------------------------------
<FN>
(1) Computed from the three most recent fiscal years.
(2) Average for trailing twelve months and three most recent fiscal years.
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 26 EQUITABLE SECURITIES CORPORATION
<PAGE> 32
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE RESTAURANT COMPANIES
SUMMARY OPERATIONAL RESULTS
<TABLE>
<CAPTION>
NET REVENUES EBITDA NET INCOME EBITDA MARGINS
------------------------- ---------------------- ---------------------- -----------------------
TR12 CAGR (1) TR12 CAGR (1) TR12 CAGR (1) TR12 AVG. (2)
----------- ----------- --------- ---------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Skyline Chili $33,068 13.3% $5,056 19.5% $1,695 31.5% 15.3% 14.7%
Blimpie 38,127 20.2% 4,844 17.8% 3,278 18.4% 12.7% 13.8%
International
Luby's Cafeterias 484,571 7.3% 76,884 3.9% 36,510 1.9% 15.9% 17.7%
Max & Erma's 88,961 19.3% 11,645 21.5% 2,273 3.9% 13.1% 13.3%
Perkins Family 262,759 6.7% 35,229 8.3% 8,876 (1.3%) 13.4% 13.0%
Restaurants
Sbarro 340,968 5.5% 85,191 5.4% 38,391 6.4% 25.0% 24.7%
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE $208,076 12.1% $36,475 12.7% $15,170 10.1% 15.9% 16.2%
- --------------------------------------------------------------------------------------------------------------------------
DEBT TO
NET MARGINS EBIT/INTEREST COVERAGE TOTAL BOOK RETURN ON AVG. EQUITY
------------------------ --------------------- -------------------------------
TR12 AVG. (2) TR12 AVG. (2) CAPITALIZATION TR12 AVG. (2)
--------- ------------ ------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Skyline Chili 5.1% 5.1% 11.3 x 10.5 x 31.5% 13.6% 14.1%
Blimpie 8.6% 9.4% N/M N/M 15.7% 17.4% 20.7%
International
Luby's Cafeterias 7.5% 8.7% 18.2 x 27.1 x 28.9% 16.3% 18.1%
Max & Erma's 2.6% 3.0% 2.3 x 3.2 x 65.4% 12.3% 13.0%
Perkins Family 3.4% 3.3% 4.0 x 4.0 x 0.0% 14.2% 13.1%
Restaurants
Sbarro 11.3% 10.9% N/M N/M 0.0% 18.5% 18.1%
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE 6.4% 6.7% 9.0 X 11.2 X 23.6% 15.4% 16.2%
- -----------------------------------------------------------------------------------------------------------------------
- ------------------------------------
<FN>
(1) Computed from the three most recent fiscal years.
(2) Average for trailing twelve months and three most recent fiscal years.
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 27 EQUITABLE SECURITIES CORPORATION
<PAGE> 33
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
HISTORICAL STOCK PRICE PERFORMANCE
<TABLE>
<CAPTION>
CLOSING STOCK PRICE
--------------------------------- AVERAGE DAILY DOLLAR PERCENTAGE
COMPANY TICKER 11-14-96 11-14-97 VOLUME VARIANCE VARIANCE
- ------------------------------ ----------------- ---------------- -------------- ------------- --------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
SKYLINE CHILI SKC/AMEX $5.13 $6.50 1,296 $1.38 26.8%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------
FOOD MANUFACTURERS
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
ARMANINO FOODS ARMF/Nasdaq 1.50 1.25 31,538 (0.25) (16.7%)
BRIDGFORD FOODS BRID/Nasdaq 8.13 13.00 8,097 4.88 60.0%
J & J SNACK FOODS CORP. JJSF/Nasdaq 11.00 16.88 21,665 5.88 53.4%
- ------------------------------
INTEGRATED RESTAURANTS
- ------------------------------
BOB EVANS BOBE/Nasdaq 13.19 19.44 132,880 6.25 47.4%
UNO RESTAURANT CORP. UNO/NYSE 7.00 6.88 12,711 (0.13) (1.8%)
WSMP WSMP/Nasdaq 6.50 22.31 13,748 15.81 243.3%
- ------------------------------
RESTAURANTS
- ------------------------------
BLIMPIE INTERNATIONAL BMPE/Nasdaq 10.75 4.50 27,502 (6.25) (58.1%)
LUBY'S CAFETERIAS LUB/NYSE 22.25 19.31 64,835 (2.94) (13.2%)
MAX & ERMA'S MAXE/Nasdaq 6.75 6.00 7,016 (0.75) (11.1%)
PERKINS FAMILY RESTAURANTS PFR/NYSE 12.88 13.69 21,726 0.81 6.3%
SBARRO SBA/NYSE 26.88 26.13 31,985 (0.75) (2.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
MINIMUM - GREATEST DECREASE 1,296 (58.1%)
AVERAGE 31,250 27.8%
MAXIMUM - GREATEST INCREASE 132,880 243.3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 28 EQUITABLE SECURITIES CORPORATION
<PAGE> 34
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
- --------------------------------------------------------------------------------
================================================================================
HISTORICAL MARKET VALUE
<TABLE>
<CAPTION>
MARKET VALUE (000'S)
CLOSING STOCK PRICE ------------------------------------------------
--------------------------- DOLLAR PERCENTAGE
COMPANY TICKER 11-14-96 11-14-97 11-14-96 11-14-97 VARIANCE VARIANCE
- ---------------------------- -------------- --------------- ----------- ---------- ---------- ----------- ----------
- ---------------------------------------------------------------------------------------------------------------------------------
SKYLINE CHILI SKC/AMEX $5.13 $6.50 $17,353 $22,087 $4,734 27.3%
- ---------------------------------------------------------------------------------------------------------------------------------
- ----------------------------
FOOD MANUFACTURERS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARMANINO FOODS ARMF/Nasdaq 1.50 1.25 17,925 14,094 (3,831) (21.4%)
BRIDGFORD FOODS BRID/Nasdaq 8.13 13.00 76,350 122,160 45,810 60.0%
J & J SNACK FOODS CORP. JJSF/Nasdaq 11.00 16.88 97,119 147,930 50,812 52.3%
- ----------------------------
INTEGRATED RESTAURANTS
- ----------------------------
BOB EVANS BOBE/Nasdaq 13.19 19.44 562,290 828,778 266,488 47.4%
UNO RESTAURANT CORP. UNO/NYSE 7.00 6.88 86,631 75,377 (11,255) (13.0%)
WSMP WSMP/Nasdaq 6.50 22.31 17,942 72,985 55,043 306.8%
- ----------------------------
RESTAURANTS
- ----------------------------
BLIMPIE INTERNATIONAL BMPE/Nasdaq 10.75 4.50 102,360 42,939 (59,422) (58.1%)
LUBY'S CAFETERIAS LUB/NYSE 22.25 19.31 517,793 449,332 (68,461) (13.2%)
MAX & ERMA'S MAXE/Nasdaq 6.75 6.00 27,958 24,967 (2,991) (10.7%)
PERKINS FAMILY RESTAURANTS PFR/NYSE 12.88 13.69 132,471 143,541 11,070 8.4%
SBARRO SBA/NYSE 26.88 26.13 548,042 534,006 (14,036) (2.6%)
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE 198,807 223,283 24,475 32.4%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
PAGE 29 EQUITABLE SECURITIES CORPORATION
<PAGE> 35
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
================================================================================
FOOD MANUFACTURING COMPANIES
- ---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 0.9x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $33,067 $23,289 $6.85
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 12.5x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $3,062 $32,516 $9.57
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 7.6x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $5,056 $32,938 $9.69
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 18.6x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $1,695 $31,578 $9.29
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 1.6x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $12,453 $20,448 $6.02
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $8.29
- ---------------------------------------------------------------
- -------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
- -------------------------------------------------------------------------------
GENERAL COMMENTS
- -------------------------------------------------------------------------------
Skyline has historically traded at a significant discount to the food
manufacturing comparables for a variety of reasons, including the absence of a
"pure play" premium and its significant geographic concentration.
In addition, Skyline suffers from a lack of liquidity and limited
research coverage that limits its trading in the marketplace. Based on
historical trading data, the Company has traded at a discount ranging from 15.4%
to 17.3% to the food manufacturing comparables.
- -------------------------------------------------------------------------------
- -----------------------------------
IMPLIED VALUATION RANGE
- -----------------------------------
$6.75 - $7.00
per share
- -----------------------------------
===============================================================================
PAGE 30 EQUITABLE SECURITIES CORPORATION
<PAGE> 36
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
================================================================================
INTEGRATED RESTAURANT COMPANIES
- ---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 0.9x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $33,067 $22,820 $6.72
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 12.7x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $3,062 $33,030 $9.72
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 7.7x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $5,056 $33,196 $9.77
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 18.6x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $1,695 $31,546 $9.28
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 1.9x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $12,453 $23,055 $6.79
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $8.46
- ---------------------------------------------------------------
- -------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
- -------------------------------------------------------------------------------
GENERAL COMMENTS
- -------------------------------------------------------------------------------
Skyline has also traded at a significant discount to the integrated restaurant
comparables. In comparison to the reference group, the Company has limited
geographical scope and a heavy saturation of its core market relative to other
concepts. Relative illiquidity and limited equity coverage are also a
significant factor. Based on historical trading data, the Company has traded at
a discount ranging from 17.9% to 19.6% versus integrated restaurant comparables.
- -------------------------------------------------------------------------------
- -----------------------------------
IMPLIED VALUATION RANGE
- -----------------------------------
- -----------------------------------
$6.75 - $7.00
per share
- -----------------------------------
===============================================================================
PAGE 31 EQUITABLE SECURITIES CORPORATION
<PAGE> 37
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
================================================================================
FOOD MANUFACTURING COMPANIES
- ---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 1.0x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $33,067 $26,568 $7.82
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 9.7x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $3,062 $23,897 $7.03
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 6.1x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $5,056 $24,936 $7.34
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 13.0x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $1,695 $22,084 $6.50
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 2.1x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $12,453 $25,964 $7.64
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $7.27
- ---------------------------------------------------------------
- -------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
- -------------------------------------------------------------------------------
GENERAL COMMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Skyline has historically traded at a discount to the restaurant comparables
group. Nonetheless, we believe that the operations and financial performance of
the restaurant comparables most closely resemble the business and financial
characteristics of Skyline and therefore this category serves as the most useful
reference group of comparable companies. While Skyline has outperformed the
group on many operating measures, its low visibility, limited liquidity and
regional concentration have prevented the shares from trading at a premium to
the group. Based on historical trading data, the Company has traded at a
discount ranging from 7.6% to 9.7% to the restaurant comparables.
- -------------------------------------------------------------------------------
- -----------------------------------
IMPLIED VALUATION RANGE
$6.50 - $6.75
per share
-----------------------------------
===============================================================================
PAGE 32 EQUITABLE SECURITIES CORPORATION
<PAGE> 38
<TABLE>
<CAPTION>
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
===================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
-------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME ($ in millions) VALUE INCOME
- ----------- --------- ------------------------------- ------------------------------ ------------- --------- --------
<S> <C> <C> <C>
4/27/94 6/17/94 * Canteen Corp. (TW Services Inc.) Compass Group PLC $450.0 N/A N/A
Synopsis: Compass Group acquired Canteen, a unit of the
Flagstar subsidiary of Gollust Tierney & Oliver, for
$450 million. In January 1994, Flagstar announced it was
seeking a buyer for 270 restaurants as part of the
company's restructuring.
8/23/94 (1)Ground Round Restaurants Citicorp Venture Capital 157.0 N/A 27.3 x
Synopsis: An investor group led by 399 Ventures, Citicorp
Venture Capital subsidiary, and management, terminated
its definitive agreement to acquire Ground Round for
$157.02 million in a leveraged buyout due to financing
difficulties.
9/26/94 Southern Hospitality DavCo Restaurants 25.3 N/A N/A
Synopsis: DavCo purchased the tock of Southern for
approximately $16.0 mil, which included $2.0 mil in
employment contracts. Southern was a 33 unit Wendy's
franchisee based in Nashville, TN.
8/1/95 * WestSphere Capital Chase Manhattan 32.5 N/A N/A
Synopsis: A company formed by Chase Manhattan and management
purchased the stock of Southern California Food Services
from WestSphere for $32.5 mil. Southern was a 62 unit
Wendy's franchisee based in Knoxville, TN.
4/21/95 4/2/96 * Denwest Restaurant Corp. American Family Restaurants 114.5 N/A N/M
Synopsis: American Family merged with Denwest in a reverse
stock swap valued at $52.0 mil. The consideration consisted
of 6.9 mil common shares in the new company, DenAmerica,
valued at $27.8 mil and $24.3 mil in notes and warrants.
9/5/95 9/9/96 (1)TPI Enterprises Inc. Shoney's Inc. 160.1 1.6 x N/A
Synopsis: Shoney's acquired TPI in a stock swap valued at
$160.1 mil, which included the assumption of $95.0 mil
in liabilities. TPI common shareholders received .28 SH
common share and .32 SH warrant for each TPI share held.
11/6/95 (1)NPC International Inc. Investor Group, CEO Gene 166.3 2.6 x N/A
Bicknell
Synopsis: A management led investor group, including CEO
Gene Bicknell, withdrew its offer to acquire the
remaining 38% interest, or 9.12 mil common shares which
it did not already own in a leveraged buyout
transaction.
7/10/96 11/22/96(1)Volunteer Capital Corp. Wendy's International Inc. 30.8 N/A N/A
Synopsis: Volunteer sold its Wendy's franchised restaurant
division to Wendy's Int'l for approximately $30.8 mil. The
division included 52 units in four states.
FIRM
<CAPTION>
FIRM VALUE AS A MULTIPLE OF: VALUE
----------------------------
DATE DATE PER STORES
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME SALES EBIT EBITDA ($ IN 000'S)
- ----------- --------- ------------------------------- ------------------------------ ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
4/27/94 6/17/94 * Canteen Corp. (TW Services Inc.) Compass Group PLC 0.4 x 11.8 x N/A $281.3
Synopsis: Compass Group acquired Canteen, a unit of the
Flagstar subsidiary of Gollust Tierney & Oliver, for
$450 million. In January 1994, Flagstar announced it was
seeking a buyer for 270 restaurants as part of the
company's restructuring.
8/23/94 (1)Ground Round Restaurants Citicorp Venture Capital 0.7 x 12.7 x 6.3 x 776.7
Synopsis: An investor group led by 399 Ventures, Citicorp
Venture Capital subsidiary, and management, terminated
its definitive agreement to acquire Ground Round for
$157.02 million in a leveraged buyout due to financing
difficulties.
9/26/94 Southern Hospitality DavCo Restaurants 0.8 x N/A 5.7 x 766.7
Synopsis: DavCo purchased the stock of Southern for
approximately $16.0 mil, which included $2.0 mil in
employment contracts. Southern was a 33 unit Wendy's
franchisee based in Nashville, TN.
8/1/95 * WestSphere Capital Chase Manhattan 0.5 x 5.7 x N/A 524.0
Synopsis: A company formed by Chase Manhattan and management
purchased the stock of Southern California Food Services
from WestSphere for $32.5 mil. Southern was a 62 unit
Wendy's franchisee based in Knoxville, TN.
4/21/95 4/2/96 * Denwest Restaurant Corp. American Family Restaurants 1.8 x 15.4 x 11.5 x 638.8
Synopsis: American Family merged with Denwest in a reverse
stock swap valued at $52.0 mil. The consideration consisted
of 6.9 mil common shares in the new company, DenAmerica,
valued at $27.8 mil and $24.3 mil in notes and warrants.
9/5/95 9/9/96 (1)TPI Enterprises Inc. Shoney's Inc. 0.6 x N/M 7.5 x 423.7
Synopsis: Shoney's acquired TPI in a stock swap valued at
$160.1 mil, which included the assumption of $95.0 mil
in liabilities. TPI common shareholders received .28 SH
common share and .32 SH warrant for each TPI share held.
11/6/95 (1)NPC International Inc. Investor Group, CEO Gene 0.5 x 4.7 x 3.1 x 336.0
Bicknell
Synopsis: A management led investor group, including CEO
Gene Bicknell, withdrew its offer to acquire the
remaining 38% interest, or 9.12 mil common shares which
it did not already own in a leveraged buyout
transaction.
7/10/96 11/22/96(1)Volunteer Capital Corp. Wendy's International Inc. 0.6 x 4.3 x 3.7 x 592.0
Synopsis: Volunteer sold its Wendy's franchised restaurant
division to Wendy's Int'l for approximately $30.8 mil. The
division included 52 units in four states.
</TABLE>
- --------------------------
*SOURCE: SECURITIES DATA CORP.
(1) Transaction values have been adjusted to reflect assumption of debt
including capitalized leases where applicable.
================================================================================
PAGE 33 EQUITABLE SECURITIES CORPORATION
<PAGE> 39
<TABLE>
<CAPTION>
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
===================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
-------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME ($ in millions) VALUE INCOME
- ----------- --------- ------------------------------- ------------------------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
8/28/96 10/2/96 * Casa Bonita CKE Restaurants Inc. $42.0 N/A N/A
Synopsis: CKE acquired Casa Bonita, a unit of Unigate, for
$42.0 mil in cash. The transaction included CB's 109 Taco
Bueno restaurants, 2 CB theme restaurants and 3 Crystal's
pizzerias.
2/13/97 5/16/97 * Arby's Inc. Restaurants RTM Restaurant Group 71.0 N/A N/A
Synopsis: RTM acquired 355 restaurants of Arby's, a unit of
Triarc, for approximately $71.0 mil. The consideration
included the assumption of liabilities and an option for
Triarc to acquire a 20% stake in RTM.
3/25/97 (1)Rally's Hamburgers Inc. Checker's Drive-In Restaurants 178.5 6.0 x N/M
Synopsis: Checker's terminated its signed letter of intent
to merge with Rally's in a stock swap transaction. RH
shareholders were to receive 3 CKD shares for each RH share
held.
4/27/97 7/15/97 (1)Hardees Food Systems, Inc. CKE Restaurants Inc. 327.0 1.0 x N/M
Synopsis: CKE Restaurants completed the acquisition of
Hardees Food Systems, Inc from Imasco Holdings, Inc. in July
1997 for $327.0 in cash.
7/3/97 9/29/97 (1)Krystal Company (2) Port Royal Holdings Inc. 145.4 2.4 x N/M
Synopsis: Port Royal Holdings agreed to acquire all the
outstanding common stock of Krystal for $14.50 in
cash per share, or a total value of $145.4 mil,
including the assumption of $37.0 mil in liabilities.
8/4/97 (1)Perkins Family Restaurants LP Restaurant Company 130.9 2.2 x 9.7 x
Synopsis: Restaurant Company offered to acquire the
remaining 52% interest, or 5.4 mil common shares that
it did not already own, for $13.00 per share.
9/23/97 * 30 Burger King Restaurants AmeriKing Corp. 25.0 N/A N/A
Synopsis: AmeriKing announced the acquisition of 30 Burger
King restaurants in the Charlotte, NC market for $25.0 mil in
cash.
9/23/97 (1)El Chico Restaurants Inc. Investor Group 65.0 1.7 x 16.3 x
Synopsis: An investor group led by Cracken Harkey & Company,
agreed to acquire all the outstanding common stock of
El Chico for $12.75 per share, or a total value of
$47.3 mil.
<CAPTION>
FIRM
FIRM VALUE AS A MULTIPLE OF: VALUE
----------------------------
DATE DATE PER STORES
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME SALES EBIT EBITDA ($ IN 000'S)
- ----------- --------- ------------------------------- ------------------------------ -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
8/28/96 10/2/96 * Casa Bonita CKE Restaurants Inc. 0.5 x N/A N/A $568.8
Synopsis: CKE acquired Casa Bonita, a unit of Unigate, for
$42.0 mil in cash. The transaction included CB's 109 Taco
Bueno restaurants, 2 CB theme restaurants and 3 Crystal's
pizzerias.
2/13/97 5/16/97 * Arby's Inc. Restaurants RTM Restaurant Group 0.3 x N/A N/A 200.0
Synopsis: RTM acquired 355 restaurants of Arby's, a unit of
Triarc, for approximately $71.0 mil. The consideration
included the assumption of liabilities and an option for
Triarc to acquire a 20% stake in RTM.
3/25/97 (1)Rally's Hamburgers Inc. Checker's Drive-In Restaurants 1.2 x N/M 9.3 x 373.4
Synopsis: Checker's terminated its signed letter of intent
to merge with Rally's in a stock swap transaction. RH
shareholders were to receive 3 CKD shares for each RH share
held.
4/27/97 7/15/97 (1)Hardees Food Systems, Inc. CKE Restaurants Inc. 0.4 x N/M 11.4 x 103.7
Synopsis: CKE Restaurants completed the acquisition of
Hardees Food Systems, Inc from Imasco Holdings, Inc. in July
1997 for $327.0 in cash.
7/3/97 9/29/97 (1)Krystal Company (2) Port Royal Holdings Inc. 0.6 x N/M 5.2 x 582.3
Synopsis: Port Royal Holdings agreed to acquire all the
outstanding common stock of Krystal for $14.50 in
cash per share, or a total value of $145.4 mil,
including the assumption of $37.0 mil in liabilities.
8/4/97 (1)Perkins Family Restaurants LP Restaurant Company 0.5 x 6.9 x 3.7 x 151.7
Synopsis: Restaurant Company offered to acquire the
remaining 52% interest, or 5.4 mil common shares that
it did not already own, for $13.00 per share.
9/23/97 * 30 Burger King Restaurants AmeriKing Corp. 0.7 x N/A N/A 833.3
Synopsis: AmeriKing announced the acquisition of 30 Burger
King restaurants in the Charlotte, NC market for $25.0 mil in
cash.
9/23/97 (1)El Chico Restaurants Inc. Investor Group 0.6 x 13.9 x 6.7 x 677.1
Synopsis: An investor group led by Cracken Harkey & Company,
agreed to acquire all the outstanding common stock of
El Chico for $12.75 per share, or a total value of
$47.3 mil.
- ------------------------
SOURCE: SECURITIES DATA CORP.
(1) Transaction values have been adjusted to reflect the assumption of debt
including capitalized leases where applicable.
(2) Adjusted for non-recurring items as well as excess cash, pension surplus
and certain other adjustments for liquid assets.
===================================================================================================================================
PAGE 34 EQUITABLE SECURITIES CORPORATION
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
===================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
-------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME ($ in millions) VALUE INCOME
- ----------- --------- ------------------------------- ------------------------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
9/26/97 (1)Sagebrush, Inc. WSMP, Inc $43.7 2.9 x 15.4
Synopsis: WSMP signed a letter of intent to acquire
Sagebrush for $43.7 mil in a stock swap.
9/26/97 (1)Skyline Chili Inc. Fleet Equity Partners 30.2 2.0 x 14.4 x
Synopsis: Skyline reached an agreement with Fleet
Equity Partners to be acquired for $6.75 per share,
for a total value of $30.2 mil.
9/5/97 (1)DavCo Restaurants Management led Investor
Group 195.9 2.9 x 19.2 x
Synopsis: A management led investor group plans to
acquire all the remaining shares that it does not
already own for $20.00 in a leveraged buyout
transaction.
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 2.5 X 17.0 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 2.3 16.3
- ----------------------------------------------------------------------------------------------------------------------------------
FIRM
<CAPTION>
FIRM VALUE AS A MULTIPLE OF: VALUE
----------------------------
DATE DATE PER STORES
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME SALES EBIT EBITDA ($ IN 000'S)
- ----------- --------- ------------------------------- ------------------------------ -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
9/26/97 (1)Sagebrush, Inc. WSMP, Inc
Synopsis: WSMP signed a letter of intent to acquire 0.9 x 9.9 x 7.0 x 1,280.0
Sagebrush for $43.7 mil in a stock swap.
9/26/97 (1)Skyline Chili Inc. Fleet Equity Partners 0.9 x 9.9 x 6.0 x $838.6
Synopsis: Skyline reached an agreement with Fleet
Equity Partners to be acquired for $6.75 per share,
for a total value of $30.2 mil.
9/5/97 (1)DavCo Restaurants Management led Investor
Group 0.9 x 11.2 x 7.4 x 744.8
Synopsis: A management led investor group plans to
acquire all the remaining shares that it does not
already own for $20.00 in a leveraged buyout
transaction.
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.7 X 9.7 X 6.8 X $607.1
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.7 9.6 6.7 586.7
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
SOURCE: SECURITIES DATA CORP.
(1) Transaction values have been adjusted to reflect the assumption of debt
including capitalized leases where applicable.
================================================================================
PAGE 35 EQUITABLE SECURITIES COPORATION
<PAGE> 41
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
================================================================================
PRECEDENT TRANSACTIONS FOR THE RESTAURANT INDUSTRY
- ---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 0.7x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value (2)
- -------------------------
1997 $33,067 $16,236 $4.20
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 9.6x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value (2)
- -------------------------
1997 $3,062 $23,782 $6.15
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 6.7x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value (2)
- -------------------------
1997 $5,056 $27,956 $7.22
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 16.3x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $1,695 $27,671 $7.15
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 2.3x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $12,453 $28,639 $7.40
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE VALUE PER SHARE Value
- -------------------------------- -----
Industry Average $586.7
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
Stores
------
1997 36 $21,122 $5.46
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE IMPLIED VALUE $6.26
- ---------------------------------------------------------------
AVERAGE WITHOUT STORE VALUE $6.42
- ---------------------------------------------------------------
- -------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
- -------------------------------------------------------------------------------
GENERAL COMMENTS
- -------------------------------------------------------------------------------
The multiples offered in the Proposed Transaction largely fall within the range
of multiples observed in the marketplace. The valuation measures offered in the
Proposed Transaction expressed as a multiple of sales, EBIT and price per store,
exceed those observed in precedent restaurant transactions. The valuation
measures expressed as a multiple of book value, net income and EBITDA fall below
those observed in precedent restaurant transactions. We believe any discount to
precedent transactions is attributable to Skyline's uncertain ability to grow
outside of its saturated core market. In addition, due to the extensive
Controlled Auction process, we believe that multiples offered in the Proposed
Transaction reflect the full realizable value of the Company which could be
achieved in a competitive marketplace for private transactions.
- -------------------------------------------------------------------------------
- -----------------------------------
IMPLIED VALUATION RANGE
- -----------------------------------
$4.25 - $7.50
per share
- --------------------------------
================================================================================
PAGE 36 EQUITABLE SECURITIES CORPORATION
<PAGE> 42
<TABLE>
<CAPTION>
PROJECT TRI VIA CONFIDENTIAL
- --------------------------------------------------------------------------------------------------------------------------------
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY
================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ ($ IN MILLIONS) VALUE INCOME
- -------------- ------------- -------------------------------- ----------------------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1/24/94 WLR Foods Inc. Tyson Foods, Inc. $328.3 2.3 x 23.1 x
Synopsis: Tyson Foods terminated its hostile tender offer to
acquire all the outstanding shares of WLR Foods
for $30 per share in cash, or a total value of
$328.3 million. Tyson terminated the offer due
to WLR's agreement to acquire the turkey
processing and production assets of Cuddy Farms
in exchange for cash and common shares.
4/20/94 11/30/94 Arden International Kitchens Schreiber Foods Inc. 11.8 2.8 x 17.6 x
Synopsis: Schreiber Foods (SF) acquired Arden International
Kitchens (AIK) for an amended $11.8 million in
cash, or $3.90 per common share. SF had
originally agreed to acquire AIK for $4 per
share, or a total value of $12.1 million.
8/29/94 11/29/94 Marine Harvest International Booker PLC 120.4 2.2 x 12.2 x
Synopsis: Booker (BK) merged with Marine Harvest
International (MH) for $10.20 in cash per share,
or a total of $120. million. Earlier, BK
completed its cash tender offer for all the
outstanding common stock of MH for $10.20 per
share, by accepting 11,256,076 shares . The
offer had been conditioned upon a majority of
MH's shares being tendered.
1/6/95 7/12/95 American Maize-Products Co. Eridania Beghin-Say 434.0 1.9 x 21.7 x
Synopsis: Erindania Beghin-Say (EBS), a subsidiary of
Ferruzzi Agricola's Montedison unit, acquired
all the outstanding shares of American
Maize-Products (AMP), including GIH's 13% stake
and 47% stake in Class A and B shares
respectively, for $40 per share, or a total
value of $434.0 million. Earlier, EBS bid $37
per share, amended from an initial offer of $32
per share.
10/17/95 KPR Holdings Foodbrands America Inc. 93.0 N/A 6.9x
Synopsis: Foodbrands acquired the closely held KPR for $75
million in cash and the assumption of $18
million in debt. In addition, KPR shareholders
may receive a contingent purchase price based
upon the achievement of earnings over 3 years.
11/27/95 TNT Crust Foodbrands America Inc. 55.1 N/A 15.9x
Synopsis: Foodbrands acquired TNT, a privately held
manufacturer of pizza crust, for $33.4 million in cash and
the assumption of $21.7 million in debt.
7/29/96 (1)Target Strategic Acquiror 14.5 N/A N/A
Synopsis: A strategic acquiror purchased the pie
manufacturing division of a public company for
$14.5 million in cash. In addition, the parties
entered a long-term supply agreement.
<CAPTION>
FIRM VALUE AS A
MULTIPLE OF:
--------------------------
DATE DATE CASH
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ SALES EBIT FLOW
- -------------- ------------- -------------------------------- ----------------------------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1/24/94 WLR Foods Inc. Tyson Foods, Inc. 0.5 x 12.6 x 7.2 x
Synopsis: Tyson Foods terminated its hostile tender offer to
acquire all the outstanding shares of WLR Foods
for $30 per share in cash, or a total value of
$328.3 million. Tyson terminated the offer due
to WLR's agreement to acquire the turkey
processing and production assets of Cuddy Farms
in exchange for cash and common shares.
4/20/94 11/30/94 Arden International Kitchens Schreiber Foods Inc. 0.6 x 10.7 x 5.7 x
Synopsis: Schreiber Foods (SF) acquired Arden International
Kitchens (AIK) for an amended $11.8 million in
cash, or $3.90 per common share. SF had
originally agreed to acquire AIK for $4 per
share, or a total value of $12.1 million.
8/29/94 11/29/94 Marine Harvest International Booker PLC 0.1 x 7.3 x 5.8 x
Synopsis: Booker (BK) merged with Marine Harvest
International (MH) for $10.20 in cash per share,
or a total of $120. million. Earlier, BK
completed its cash tender offer for all the
outstanding common stock of MH for $10.20 per
share, by accepting 11,256,076 shares . The
offer had been conditioned upon a majority of
MH's shares being tendered.
1/6/95 7/12/95 American Maize-Products Co. Eridania Beghin-Say 0.7 x 9.6 x 5.6 x
Synopsis: Erindania Beghin-Say (EBS), a subsidiary of
Ferruzzi Agricola's Montedison unit, acquired
all the outstanding shares of American
Maize-Products (AMP), including GIH's 13% stake
and 47% stake in Class A and B shares
respectively, for $40 per share, or a total
value of $434.0 million. Earlier, EBS bid $37
per share, amended from an initial offer of $32
per share.
10/17/95 KPR Holdings Foodbrands America Inc. 0.9x 7.4x 6.5x
Synopsis: Foodbrands acquired the closely held KPR for $75
million in cash and the assumption of $18
million in debt. In addition, KPR shareholders
may receive a contingent purchase price based
upon the achievement of earnings over 3 years.
11/27/95 TNT Crust Foodbrands America Inc. 2.2x 11.1x 7.4x
Synopsis: Foodbrands acquired TNT, a privately held
manufacturer of pizza crust, for $33.4 million in cash and
the assumption of $21.7 million in debt.
7/29/96 (1)Target Strategic Acquiror 1.1x 8.1x 6.6x
Synopsis: A strategic acquiror purchased the pie
manufacturing division of a public company for
$14.5 million in cash. In addition, the parties
entered a long-term supply agreement.
</TABLE>
- -----------------------------
SOURCE: SECURITIES DATA CORP.
(1) Equitable has executed a confidentiality agreement restricting it from
disseminating information regarding the Target.
================================================================================
PAGE 37 EQUITABLE SECURITIES CORPORATION
<PAGE> 43
<TABLE>
<CAPTION>
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ ($ IN MILLIONS) VALUE INCOME
- -------------- ------------- -------------------------------- ----------------------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
9/30/96 (1)Target Investor Group $55.0 2.9x N/A
Synopsis: A private investor group purchased the captive food
processing unit of a public company in a
controlled auction for $55.0 million in cash. In
addition, the parent signed a long-term
agreement to continue purchasing products.
3/25/97 5/7/97 Foodbrands America Inc. IBC Inc. 657.5 6.0 x 19.1 x
Synopsis: IBP merged with Foodbrands America (FA) for $23.40
in cash per share, or a total of $657.5 million, including
the assumption of approximately $350 million in liabilities.
Earlier, IBP completed its tender offer by accepting 11.582
million shares, or 83.5% of FA's fully diluted shares.
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 3.0 X 16.6 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 2.5 X 17.3 X
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FIRM VALUE AS A
MULTIPLE OF:
--------------------------
DATE DATE CASH
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ SALES EBIT FLOW
- -------------- ------------- -------------------------------- ----------------------------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
9/30/96 (1)Target Investor Group 0.5x 4.4x 3.9x
Synopsis: A private investor group purchased the captive food
processing unit of a public company in a
controlled auction for $55.0 million in cash. In
addition, the parent signed a long-term
agreement to continue purchasing products.
3/25/97 5/7/97 Foodbrands America Inc. IBC Inc. 0.8 x 14.4 x 9.4 x
Synopsis: IBP merged with Foodbrands America (FA) for $23.40
in cash per share, or a total of $657.5 million, including
the assumption of approximately $350 million in liabilities.
Earlier, IBP completed its tender offer by accepting 11.582
million shares, or 83.5% of FA's fully diluted shares.
-
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.8 X 9.5 X 6.5 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.7 X 9.5 X 6.4 X
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
SOURCE: SECURITIES DATA CORP.
(1) Equitable has executed a confidentiality agreement restricting it from
disseminating information regarding the Target.
================================================================================
PAGE 38 EQUITABLE SECURITIES CORPORATION
<PAGE> 44
<TABLE>
<CAPTION>
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY
===============================================================================
PRECEDENT TRANSACTIONS FOR THE FOOD MANUFACTURING INDUSTRY
- ---------------------------------------------------------------
Net Revenues Value
------------ -----
<S> <C> <C>
Industry Multiples 0.7x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $33,067 $18,849 $4.87
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 9.5x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $3,062 $23,505 $6.07
- ---------------------------------------------------------------
- ---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 6.4x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
- -------------------------
1997 $5,056 $26,660 $6.89
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 17.3x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $1,695 $29,301 $7.57
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 2.5x
- ---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
- -------------------------
1997 $12,453 $31,652 $8.18
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $6.72
- ---------------------------------------------------------------
</TABLE>
- -------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
- -------------------------------------------------------------------------------
GENERAL COMMENTS
- --------------------------------------------------------------------------------
The multiples in the Proposed Transaction are also a small discount to the
multiples observed in acquisitions in the food manufacturing industry for
reasons including: the absence of a "pure play" pricing premium, the regional
dependence of Skyline's operations and its undemonstrated ability to grow
outside of its core market.
- -------------------------------------------------------------------------------
- -----------------------------------
IMPLIED VALUATION RANGE
- ----------------------------------
$5.00 - $7.75
per share
- -----------------------------------
===============================================================================
PAGE 39 EQUITABLE SECURITIES CORPORATION
<PAGE> 45
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
DISCOUNTED CASH FLOW ANALYSIS
===============================================================================
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
----------- ------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings Before Taxes $ 3,100 $ 4,020 $ 4,994 $ 5,882 $ 7,345
Income Tax Effect 39.0% 39.0% 39.0% 39.0% 39.0%
----------- ------------------------- ------------ ------------
Net Income 1,891 2,452 3,046 3,588 4,480
Plus Depreciation/Amortization 2,282 2,003 1,996 2,172 1,828
----------- ------------------------- ------------ ------------
Cash Flow From Operations 4,173 4,455 5,042 5,760 6,308
Change in Net Working Capital (1,119) (109) (105) (211) (171)
Capital Expenditures (1,111) (1,146) (1,335) (1,374) (1,413)
Repayments of Debt (410) (435) (465) (495) (525)
----------- ------------------------- ------------ ------------
Free Cash Flow $ 1,533 $ 2,765 $ 3,137 $ 3,680 $ 4,199
=========== ========================= ============ =============
</TABLE>
<TABLE>
<CAPTION>
TERMINAL VALUE AS A MULTIPLE OF EBITDA (1)
--------------------------------------
<S> <C> <C> <C> <C> <C>
4.0 X 4.5 X 5.0 X 5.5 X 6.0 X
-------------- ----------------- -------------- --------------- --------------
$ 31,454 $ 35,386 $ 39,318 $ 43,249 $ 47,181
Outstanding Obligations (2) $ 3,385
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
PRESENT VALUE OF EQUITY (3)
-----------------------
DISCOUNT TERMINAL VALUE MULTIPLE
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATE 4.0 X 4.5 X 5.0 X 5.5 X 6.0 X
----------- ----------------------------------------------------------------
15.0% $5.86 $6.33 $6.81 $7.28 $7.75
16.0% 5.64 6.09 6.54 6.99 7.44
17.0% 5.43 5.86 6.28 6.71 7.14
18.0% 5.23 5.63 6.04 6.45 6.86
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
EXAMPLE OF DCF CALCULATION
----------------------------------------------------------------
FREE CASH FLOW
--------------
<S> <C> <C>
1998 $ 1,533
1999 2,765
2000 3,137
2001 3,680
2002 4,199
Terminal Value (4) (5.5 x) 39,864
Discount Rate (3) 16.0%
DISCOUNTED VALUE $27,041
===============
FULLY-DILUTED SHARES O/S 3,870
NET VALUE PER SHARE $ 6.99
===============
</TABLE>
- -----------------------------------------
(1) Based on multiples of EBITDA observed in restaurant transactions with
financial buyers. Range of multiples was 3.1 x to 7.4 x, with an average of
5.5 x. All EBITDA values are net of capital expenditures in the terminal
year (2002) of $1,413 and estimated transaction costs of 2%.
(2) Includes estimated long-term debt from year 2002.
(3) See detailed Weighted Average Cost of Capital Analysis.
(4) Net of outstanding obligations.
==============================================================================
PAGE 40 EQUITABLE SECURITIES CORPORATION
<PAGE> 46
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
LEVERAGED BUYOUT ANALYSIS
===============================================================================
LBO MODEL ASSUMPTIONS AND OUTCOMES
- - The Leveraged Buyout Model is based on Skyline's projections combined with
the capital assumptions and management incentive option plan of the
Proposed Transaction.
- - Equity returns are consistent with the returns a third-party financial
buyer expects to earn in a competitive environment. The projections
contemplate an exit in years three through six with equity returns in the
following ranges based upon the allocation of the eligible employee
incentive option plan of the Proposed Transaction.
Equity Investors Pre-tax IRR 25% to 44%, with an expected
return of 29-34%
- - The anticipated exit in year five meets the following conditions:
Exit Year: 2002
Exit EBITDA Multiple: 5.5x
Exit P/E: 13.7x
Exit Book Multiple: 2.5x
- - It is our conclusion that the pricing of the transaction and financing
structure appear reasonable as they result in adequate coverage ratios and
sufficient cash generation for anticipated capital expenditures and debt
amortization.
==============================================================================
PAGE 41 EQUITABLE SECURITIES CORPORATION
<PAGE> 47
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
LEVERAGED BUYOUT ANALYSIS
==============================================================================
ESTIMATED INTERNAL RATES OF RETURN
- - Estimated internal rates of return for equity investors net of options
granted to employees under an incentive plan in the Proposed Transaction.
- ----------------------------------------------------------------------------
Equity
Investors EBITDA Multiple 2000 2001 2002 2003
============================================================================
4.5 x 25.0% 27.3% 27.6% 27.1%
5.0 x 30.0% 30.6% 30.0% 29.2%
5.5 x 34.5% 33.4% 32.3% 30.6%
6.0 x 39.9% 36.7% 34.0% 32.4%
6.5 x 43.6% 40.0% 36.2% 33.4%
- -----------------------------------------------------------------------------
==============================================================================
PAGE 42 EQUITABLE SECURITIES CORPORATION
<PAGE> 48
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
LEVERAGED RECAPITALIZATION ANALYSIS
===============================================================================
- - Equitable has modeled a variety of potential leveraged recapitalization
analyses using various assumptions.
- - In general, these analyses show that Skyline is capable of sustaining
leverage sufficient to pay out a dividend to all shareholders of up to
$3.50 to $4.50 per share.
- - However, a portion of this payment would likely be taxed at marginal,
ordinary income rates of approximately 40%.
- - In addition, the stub equity shares would be expected to trade in the $2.00
to $3.00 per share range or lower, reflecting the Company's heavy debt
burden and limited earnings capability.
- - Given the negative tax implications of the leveraged recapitalization,
Equitable does not believe that this alternative transaction delivers
superior value for shareholders relative to the Proposed Transaction.
- - Additionally, the estimated trading range of the shares would likely
further reduce the stock's liquidity and visibility.
- - For these reasons, Equitable has chosen not to focus on a leveraged
recapitalization as a viable means for delivering value to shareholders.
==============================================================================
PAGE 43 EQUITABLE SECURITIES CORPORATION
<PAGE> 49
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
VALUATION SUMMARY AND CONCLUSION
==============================================================================
SKYLINE CHILI, INC.
The following valuation ranges were derived from the data that was studied in
connection with the Proposed Transaction.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
METHODOLOGY EMPLOYED VALUATION RANGES
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
Food Manufacturing Companies $6.75 to $7.00
Integrated Restaurant Companies $6.75 to $7.00
Restaurant Companies $6.50 to $6.75
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY $4.25 to $7.50
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY $5.00 to $7.75
DISCOUNTED CASH FLOW ANALYSIS $6.25 to $7.00
LEVERAGED BUYOUT ANALYSIS $6.00 to $7.00
LEVERAGED RECAPITALIZATION ANALYSIS Not Applicable
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
REFERENCE VALUE RANGE $5.50 - $7.25
------------------------------------------------------------------------------------------------------------
==============================================================================
PAGE 43 EQUITABLE SECURITIES CORPORATION
</TABLE>
<PAGE> 1
Exhibit 17(c)(5)
INVESTMENT AGREEMENT
AMONG
SKYLINE ACQUISITION CORP.,
FLEET ENTITIES, LISTED ON SCHEDULE A HERETO
AND
MANAGEMENT GROUP, LISTED ON SCHEDULE A HERETO
DATED AS OF NOVEMBER 26, 1997
<PAGE> 2
INVESTMENT AGREEMENT
--------------------
November 26, 1997
Management Group,
listed on Schedule A hereto
c/o Skyline Chili, Inc.
4180 Thunderbird Lane
Fairfield, Ohio 45014
Fleet Entities,
listed on Schedule A hereto
c/o Fleet Equity Partners
50 Kennedy Plaza, Suite 1200
Providence, RI 02903
Ladies and Gentlemen:
The undersigned, Skyline Acquisition Corp., a Delaware corporation (the
"Company"), hereby agrees with you as follows:
ARTICLE I.
DEFINITIONS
-----------
For all purposes of this Agreement the following terms shall have the
meanings set forth in this Article I:
CLOSING. The term "Closing" shall have the meaning specified in SECTION
3.1 of this Agreement.
CLOSING DATE. The term "Closing Date" shall have the meaning specified
in SECTION 3.1 of this Agreement.
COMPANY. The term "Company" shall have the meaning specified in the
introduction to this Agreement; provided that following the consummation of the
Merger, the term "Company" shall mean the Surviving Corporation, as
successor-in-interest to the Company.
CONSENT OF FLEET ENTITIES. The term "Consent of Fleet Entities" shall
mean the written consent of each of the Fleet Entities.
CONSOLIDATED OR CONSOLIDATED. The term "Consolidated" or "consolidated"
shall mean, with reference to any term defined herein, that term as applied to
the accounts of the Company, if any, consolidated in accordance with generally
accepted accounting principles.
<PAGE> 3
EFFECTIVE TIME. The term "Effective Time" shall have the meaning
ascribed thereto in the Merger Agreement.
EXCHANGE VALUE. The term "Exchange Value" shall mean (a) with respect
to Skyline Shares, an amount equal to the number of such Skyline Shares
MULTIPLIED BY $6.75 per share, and (b) with respect to a Skyline Option, an
amount equal to (i) $6.75 per share, MULTIPLIED BY (ii) the number of Skyline
Shares issuable upon exercise of such Skyline Option as are currently listed as
Class A Common Options on Schedule A.
FINANCING COMMITMENT. The term "Financing Commitment" shall have the
meaning ascribed thereto in the Merger Agreement.
FLEET ENTITIES. The term "Fleet Entities" shall mean the persons
designated on Schedule A hereto as the Fleet Entities.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES OR GAAP. The term "generally
accepted accounting principles" or "GAAP" shall mean accounting principles which
are (a) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect from time to time,
(b) applied on a basis consistent with prior periods, and (c) such that a
certified public accountant would, insofar as the use of accounting principles
is pertinent, be in a position to deliver an unqualified opinion as to financial
statements in which such principles have been properly applied.
INDEBTEDNESS. The term "Indebtedness" shall mean all obligations,
contingent and otherwise, which in accordance with generally accepted accounting
principles should be classified on the obligor's balance sheet as liabilities,
or to which reference should be made by footnotes thereto, including without
limitation, in any event and whether or not so classified: (i) all debt and
similar monetary obligations, whether direct or indirect; (ii) all liabilities
secured by any mortgage, pledge, security interest, lien, charge or other
encumbrance existing on property owned or acquired subject thereto, whether or
not the liability secured thereby shall have been assumed; (iii) all guaranties,
endorsements and other contingent obligations whether direct or indirect in
respect of Indebtedness or performance of others, including any obligation to
supply funds to or in any manner to invest in, directly or indirectly, the
debtor, to purchase Indebtedness, or to assure the owner of Indebtedness against
loss, through an agreement to purchase goods, supplies, or services for the
purpose of enabling the debtor to make payment of the Indebtedness held by such
owner or otherwise; and (iv) obligations to reimburse issuers of any letters of
credit.
MANAGEMENT GROUP. The term "Management Group" shall mean the persons
designated on Schedule A hereto as the Management Group.
MATERIAL ADVERSE EFFECT. The term "Material Adverse Effect" shall have
the meaning ascribed to such term in the Merger Agreement.
2
<PAGE> 4
MERGER. The term "Merger" shall have the meaning ascribed to such term
in the Merger Agreement.
MERGER AGREEMENT. The term "Merger Agreement" shall mean THAT CERTAIN
AGREEMENT AND PLAN OF AGREEMENT, DATED AS OF THE DATE HEREOF, BY AND AMONG THE
COMPANY, SKYLINE CHILI AND CERTAIN STOCKHOLDERS OF SKYLINE CHILI, AS THE SAME
MAY BE AMENDED, SUPPLEMENTED, RESTATED, REPLACED OR OTHERWISE MODIFIED, IN EACH
CASE FROM TIME TO TIME AND WHETHER IN WHOLE OR IN PART.
OPTION RETENTION AGREEMENT. The term "Option Retention Agreement" shall
have the meaning ascribed to such term in the Merger Agreement.
PERSON. The term "Person" shall mean an individual, partnership,
corporation, limited liability company, association, trust, joint venture,
unincorporated organization, and any government, governmental department or
agency or political subdivision thereof.
PROPERTIES. The term "Properties" shall mean the properties leased
and/or operated by the Company and its Subsidiaries.
PURCHASE PRICE. The term "Purchase Price" with respect to any Purchaser
shall mean the aggregate purchase price payable by such Purchaser for the
Purchased Shares to be purchased by such Purchaser pursuant hereto.
PURCHASED SECURITIES. The term "Purchased Securities" shall have the
meaning ascribed thereto in SECTION 2.1 of this Agreement and shall include any
shares of Capital Stock of the Company into which the Purchased Securities may
be converted.
PURCHASERS. The term "Purchasers" shall have the meaning ascribed
thereto in SECTION 2.1 of this Agreement.
REGULATORY VIOLATION. The term "Regulatory Violation" means (a) a
diversion of the proceeds of the sale of the Purchased Securities from the
reported use thereof described on the use of proceeds statement delivered by the
Company at the Closing, if such diversion was effected without obtaining the
prior written consent of each SBIC Holder (which consent may be withheld in such
SBIC Holder's sole discretion) or (b) a change in the principal business
activity of the Company to an ineligible business activity (within the meaning
of the Small Business Investment Act of 1958, as amended, or the SBIC
Regulations), if such change occurs within one year after the date of the
initial purchase of the Purchased Securities hereunder.
RELATED AGREEMENTS. The term "Related Agreements" shall have the
meaning ascribed thereto in the Merger Agreement.
RETAINED OPTIONS. The term "Retained Options" shall have the meaning
ascribed thereto in the Merger Agreement.
3
<PAGE> 5
SBA. The term "SBA" means the United States Small Business
Administration, and any successor agency performing the functions thereof.
SBIC. The term "SBIC" means a Small Business Investment Company
licensed by the SBA under the Small Business Investment Act of 1958, as amended.
SBIC HOLDER. The term "SBIC Holder" means , individually or
collectively, as the context may require, and any successor holder of the
Purchased Securities that is an SBIC.
SBIC REGULATIONS. The term "SBIC Regulations" has the meaning ascribed
to it in Section 5.03 of this Agreement.
SECURITIES ACT. The term "Securities Act" shall mean the Securities Act
of 1933, as amended, or any successor federal statute, and the rules and
regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the time.
SKYLINE CHILI. The term "Skyline Chili" shall mean Skyline Chili, Inc.,
an Ohio corporation.
SKYLINE OPTION. The term "Skyline Option" shall mean the Retained
Options held by the members of the Management Group.
SKYLINE SHARES. The term "Skyline Shares" shall mean the shares of the
Common Stock, no par value, Skyline Chili.
SUBSIDIARY. "Subsidiary" shall mean any Person of which the Company or
other specified Person now or hereafter shall, at the time, own directly or
indirectly through a Subsidiary at least a majority of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally.
SURVIVING CORPORATION. The term "Surviving Corporation" shall have the
meaning ascribed thereto in the Merger Agreement.
ARTICLE II
SALE AND PURCHASE OF PURCHASED SECURITIES;
------------------------------------------
RETAINED OPTIONS
----------------
SECTION 2.1. SALE AND PURCHASE OF PURCHASED SECURITIES. Subject to all
of the terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein and/or in the Related Agreements, the
Company agrees to sell to the Fleet Entities and the Management Group
(collectively, the "Purchasers"), and each of the Purchasers, severally but not
jointly, agrees to purchase from the Company, the shares of the Class A Voting
Common Stock, no par value, and Class B Nonvoting Common Stock, no par value, in
the amounts allocated to such Purchaser as more particularly described on
SCHEDULE A hereto (the "Purchased Securities").
4
<PAGE> 6
SECTION 2.2. PURCHASE PRICE.
SECTION 2.2.1. The purchase price per share for the Purchased
Securities shall be $6.75 per share. The aggregate purchase price payable by
each Purchaser for the Purchased Securities to be purchased hereunder is set
forth on SCHEDULE A hereto.
SECTION 2.2.2. Each of the Fleet Entities shall pay the Purchase
Price to be paid by it by wire transfer of immediately available funds to the
Company.
SECTION 2.2.3. Each member of the Management Group shall pay the
Purchase Price to be paid by him or her by delivery to the Company of the
following:
(a) the number of Skyline Shares (together with appropriate executed
stock powers) specified in SCHEDULE A; and
(b) cash in the amount specified in SCHEDULE A in the form of
immediately available funds by wire transfer.
All or a part of the Skyline Shares and cash to be delivered by any member of
the Management Group may be provided by the trustee of such member's IRA or
non-qualified deferred compensation plan account. At the direction of any such
member of the Management Group, the Purchased Securities acquired with such
Skyline Shares or cash shall be registered in the name of such trustee.
SECTION 2.3. RETAINED OPTIONS. Each member of the Management Group
shall execute and deliver at the Closing an Option Retention Agreement with
respect to the Skyline Options specified in SCHEDULE A; provided that the
aggregate Exchange Value of the Skyline Shares delivered by each member of the
Management Group pursuant to SECTION 2.2.3 and the Skyline Options subject to an
Option Retention Agreement executed and delivered by such member pursuant to
this SECTION 2.3 PLUS the amount wire transferred by such member pursuant to
SECTION 2.2.3, shall at least equal the Purchase Price payable by such member of
the Management Group.
ARTICLE III
CLOSING
-------
SECTION 3.1. CLOSING. The purchase and sale of the Purchased Securities
(the "Closing") will take place at the offices of Edwards & Angell, 2700
Hospital Trust Tower, Providence, Rhode Island 02903 on the same date as the
consummation of the transactions under the Merger Agreement (the "Closing
Date").
SECTION 3.2. CONDITIONS TO CLOSING BY FLEET ENTITIES. The obligation of
the Fleet Entities to purchase the Purchased Securities allocable to them is
subject to the satisfaction, at or before the Closing Date, of all the
conditions set out below:
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SECTION 3.2.1. All actions by Skyline Chili, the Management Group,
the Company and each other Person (other than the Fleet Entities) with respect
to the transactions contemplated hereby and by the Related Agreements and all
agreements and documents related thereto shall be satisfactory in form and
substance to the Fleet Entities and their counsel.
SECTION 3.2.2. The consummation of the transactions contemplated
hereby and by the other Related Agreements, on or prior to such time.
SECTION 3.2.3. The consummation of the transactions contemplated by
the Financing Commitment, including without limitation the receipt of the loan
proceeds described therein.
SECTION 3.3. CONDITIONS TO CLOSING BY MANAGEMENT GROUP. The obligation
of each member of the Management Group to purchase the Purchased Securities
allocable to him or her is subject to the satisfaction, at or before the
Closing, of all the conditions set out below:
SECTION 3.3.1. All actions by Skyline Chili, the Fleet Entities, the
Company and each other Person (other than the Management Group) with respect to
the transactions contemplated hereby and by the Related Agreements and all
agreements and documents related thereto shall be satisfactory in form and
substance to the Management Group and their counsel.
SECTION 3.3.2. The consummation of the transactions contemplated
hereby and by the other Related Agreements, on or prior to such time.
SECTION 3.4. ACTIONS PRIOR TO THE CLOSING. All actions to be taken by
the Company in respect of this Agreement and the Other Related Agreements shall
be taken solely with (a) the written consent of the stockholders and directors
of the Company existing on the date hereof or otherwise so designated hereafter
with the consent of the Fleet Entities, and (b) the Consent of the Fleet
Entities. In addition, no party other than the stockholder of the Company
existing on the date hereof shall have any equity interest whatsoever in the
Company prior to the Closing.
ARTICLE IV
USE OF PROCEEDS; REPORTS
------------------------
The proceeds from the sale of the Purchased Securities hereunder will
be used solely to effect the transactions contemplated hereunder and under the
other Related Agreements. The Company does not presently engage in, nor shall
hereafter engage in, any activities, nor shall the Company use the proceeds of
the sale of the Purchased Securities directly or indirectly for any purpose, for
which an SBIC is prohibited from providing funds by the SBIC Regulations
(including 13 CFR 107.720). The Company covenants and agrees to provide the
Fleet Entities with such information as they may reasonably request to verify
the use of the proceeds from the sale of the Purchased Securities.
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<PAGE> 8
At Closing, the Company shall deliver to each SBIC Holder a written
statement certified by the Company's chief executive officer or president
describing in reasonable detail the use of the proceeds of the sale of the
Purchased Securities hereunder by the Company. In addition to any other rights
granted hereunder, the Company shall grant such SBIC Holder and the SBA access
to the Company's records for the purpose of verifying the use of such proceeds.
The Company shall deliver to each SBIC Holder at the Closing:
(i) duly completed and executed SBA Forms 480, 652 and Part A
of 1031,
(ii) a business plan showing the Company's financial
projections (including balance sheets and income and cash flow
statements) through 1998,
(iii) a written statement from the Company regarding its
intended use of the proceeds of the sale of the Purchased Securities,
and
(iv) a list, after giving effect to the transactions
contemplated by this Agreement, of (a) the name of each of the
Company's officers, (b) the name and title of each of the Company's
directors, and (c) the name of each of the Company's shareholders
setting forth the number and class of shares of Capital Stock of the
Company held.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
In order to induce the Purchasers to enter into this Agreement, the
Company hereby represents and warrants that:
SECTION 5.01. AUTHORIZATION. The execution, delivery and performance by
the Company of this Agreement and of each Related Agreement to which it is a
party (a) are within the Company's power and authority, (b) have been duly
authorized by all requisite corporate action, and (c) do not conflict with or
result in any breach of any provision of, or the creation of any lien upon any
of the property of the Company pursuant to any of its organizational documents
or any law, regulation, order, judgment, writ, injunction, license, permit,
agreement or instrument to which it is a party or subject, the non-compliance
with which would a Material Adverse Effect on the Company or the Surviving
Corporation.
SECTION 5.02. ENFORCEABILITY. The execution and delivery by the Company
of this Agreement and of each of the Related Agreements to which it is a party
will result in legally binding obligations of the Company enforceable against
the Company in accordance with the respective terms and provisions hereof and
thereof, except to the extent (a) such enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and (b) that the availability of
the remedy
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<PAGE> 9
of specific performance or injunctive or other equitable relief is subject to
the discretion of the court before which any proceeding therefor may be brought.
SECTION 5.03. SMALL BUSINESS CONCERN. The Company, together with its
"affiliates" (as defined in 13 CFR 121.401), qualifies (and, following the
consummation of the Merger, will qualify) as a "small business concern" within
the meaning of the Small Business Investment Act of 1958, as amended, and as a
"small concern" within the meaning of the rules and regulations thereunder
pertaining to financing by small business investment companies (the "SBIC
Regulations"). The Company will conduct its business in all respects and
maintain its properties and facilities in such a manner that the financing and
financial assistance provided by the SBIC Holders will comply with the SBIC
Regulations. The Company has executed and delivered (or will execute and deliver
at the Closing) to the Fleet Entities all documents required in connection with
the acquisition of the Purchased Securities and required by the rules and
regulations applicable to each of the SBIC Holders by virtue of its status as a
"small business investment company", and the information regarding the Company
and its affiliates contained in such documents will be accurate and complete.
ARTICLE VI
COVENANTS APPLICABLE TO THE COMPANY
-----------------------------------
The Company covenants to the Purchasers that the Company will comply,
and will cause each of its Subsidiaries to comply, with the following
provisions. Any noncompliance or waiver of the following provisions shall
require the Consent of Fleet Entities. For purposes of this Article VI, the term
"Company" shall mean and include the Company and each of its Subsidiaries, now
existing or which shall hereafter be acquired.
SECTION 6.01. RECORDS AND ACCOUNTS. The Company will keep true and
accurate records and books of account in which full, true and correct entries
will be made in accordance with generally accepted accounting principles and
maintain adequate accounts and reserves for all taxes, all depreciation,
depletion, obsolescence and amortization of its Properties, all contingencies,
and all other reserves in accordance with GAAP.
SECTION 6.02. EXISTENCE; MAINTENANCE OF PROPERTIES. The Company will
preserve and keep in full force and effect its rights, franchises and existence
as a corporation. The Company will maintain all of its Properties used or useful
in the conduct of its business in good condition, repair and working order
(normal wear and tear excepted) and cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
SECTION 6.03. INSURANCE. The Company will maintain with financially
sound and reputable insurance companies, funds or underwriters insurance
(including directors and officers liability insurance so-called) of the kinds,
covering the risks and in the relative proportionate amounts
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usually carried by reasonable and prudent companies conducting businesses
similar to that of the Company.
SECTION 6.04. TAXES. The Company will pay and discharge, or cause to be
paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges imposed upon it and its Properties,
sales and activities, or any part thereof, or upon the income or profits
therefrom, as well as all claims for labor, materials, or supplies, which if
unpaid might by law become a lien or charge upon any of their Properties;
PROVIDED, HOWEVER, that any such tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith in a timely fashion by appropriate proceedings and if the Company shall
have set aside on its books adequate reserves with respect thereto; and
PROVIDED, FURTHER, that the Company will in any event pay or cause to be paid
all such taxes, assessments, charges, levies or claims forthwith upon the entry
of a judgment of foreclosure on any lien which may have attached as security
therefor.
SECTION 6.05. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS.
The Company will comply with (a) all applicable laws and regulations wherever
its business is conducted, the non-compliance with which would have a materially
adverse impact on the business of the Company, (b) the provisions of this
Agreement, (c) all agreements and instruments by which it or any of its
Properties may be bound (including, without limitation, the Related Agreements),
(d) all applicable decrees, orders, and judgments by which it or any of its
Properties may be bound, and (e) all required authorizations, consents,
approvals, permits and licenses. If at any time any authorization, consent,
approval, permit or license from any officer, agency or instrumentality of any
government shall become necessary or required in order that the Company may
fulfill any of its obligations hereunder, the Company will immediately take or
cause to be taken all reasonable steps within its power to obtain such
authorization, consent, approval, permit or license and furnish the Fleet
Entities with evidence thereof.
SECTION 6.06. FURTHER ASSURANCES. The Company will cooperate with the
Fleet Entities and the Management Group and execute such further instruments and
documents as they shall reasonably request to carry out to their satisfaction
the transactions contemplated by this Agreement.
SECTION 6.07. NOTICES. The Company will promptly notify the Fleet
Entities in writing if any Person shall give any notice or take any other action
in respect of a claimed default under this Agreement or any of the Related
Agreements or any other default with respect to a material agreement to which
the Company is a party.
SECTION 6.08. CREDIT AGREEMENT COVENANTS. The Company shall comply with
all of the covenants and provisions contained in the credit, loan or other
agreement (the "Credit Agreement") to be entered into with The Provident Bank,
pursuant to which the senior secured credit facility described in the Financing
Commitment will be provided, as if the Fleet Entities were named as a lender or
agent therein and as if such covenants were incorporated herein by reference.
Unless waived by the Fleet Entities, such obligation shall not be affected by
any
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termination of the Credit Agreement or by any approval, consent, opinion or
waiver given pursuant thereto.
SECTION 6.09. ANNUAL STATEMENTS. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company commencing
with the fiscal year ending on October 25, 1998, the Company will deliver to the
Fleet Entities audited consolidated, and if applicable, consolidating, balance
sheets and statements of income and retained earnings and of cash flows of the
Company, certified by the Company's chief executive officer and chief financial
officer and audited by Ernst & Young LLP (or another "big five" accounting firm
approved by the Fleet Entities. The Company shall not change such independent
public accounting firm unless consented to by the Fleet Entities. Each of the
financial statements delivered hereunder shall be certified without
qualification by such accounting firm to have been prepared in accordance with
generally accepted accounting principles consistently applied. The financial
statements shall be sufficient to permit the Fleet Entities to verify the
financial condition of the Company and to value their investment in the
Purchased Securities as required by 13 CFR 107.700. The Company shall also
deliver to the Fleet Entities at the time of delivery of such annual financial
statements a copy of the management letter issued in connection with such annual
financial statements.
SECTION 6.10. QUARTERLY STATEMENTS. As soon as available and in any
event within 45 days after the end of each fiscal quarter, commencing with the
fiscal quarter ending after the Effective Time, the Company will deliver to the
Fleet Entities consolidated and if applicable, consolidating, unaudited balance
sheets and statements of income and retained earnings and of cash flows of the
Company as of the end of each such fiscal quarter and on a year-to-date basis,
certified by the chief executive officer and chief financial officer of the
Company to be true and correct in all material respects and to have been
prepared in accordance with generally accepted accounting principles
consistently applied, subject to normal year-end adjustments.
SECTION 6.11. MONTHLY STATEMENTS. Within 30 days after the end of each
four week accounting period ending after the Effective Time, the Company will
deliver to the Fleet Entities consolidated and, if applicable, consolidating
internal, unaudited balance sheets and statements of income and retained
earnings and cash flows of the Company as of the end of each such month and on a
year-to-date basis, certified by the chief executive officer and chief financial
officer of the Company to be true and correct and to have been prepared in
accordance with generally accepted accounting principles consistently applied,
subject to normal year-end adjustments.
SECTION 6.12. NOTICE OF LITIGATION, DEFAULTS ETC. The Company will
promptly give notice to each Fleet Entity of any litigation or any
administrative proceeding to which the Company may hereafter become a party
which, after giving effect to applicable insurance, may result in any Material
Adverse Effect. Forthwith upon any officer of the Company obtaining knowledge of
any material default or event of default under any Related Agreement or any
agreement relating to any Indebtedness, the Company will furnish a notice to
each of the Fleet Entities specifying the nature and period of existence thereof
and what action the Company has taken, is taking or proposes to take with
respect thereto. Promptly after the receipt thereof, the Company will provide
copies to each of the Fleet Entities of any reports as to adequacies in
accounting controls submitted by independent accountants with respect to the
Company.
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SECTION 6.13. OTHER INFORMATION. The Company will deliver to the Fleet
Entities copies of all documents and other written information distributed from
time to time to the Board of Directors or shareholders of the Company at such
time as such documents and other written information are so distributed to them.
In addition, from time to time upon the request of the Fleet Entities, the
Company will furnish such information regarding the business, affairs, prospects
and financial condition of the Company as the Fleet Entities may reasonably
request. The Fleet Entities shall have the right during normal business hours to
examine the books and records of the Company, to make copies, notes and
abstracts therefrom, and to make an independent examination of the books and
records of the Company.
SECTION 6.14. SBIC REGULATORY PROVISIONS.
(a) ECONOMIC IMPACT INFORMATION. Promptly after the end of each fiscal
year (but in any event prior to February 28 of each year) the Company shall
deliver to each SBIC Holder a written assessment of the economic impact of each
SBIC Holder's investment in the Company, specifying the full-time equivalent
jobs created or retained in connection with the investment, the impact of the
investment on the businesses of the Company in terms of expanded revenue and
taxes, and other economic benefits resulting from the investment, including but
not limited to, technology development or commercialization, minority business
development, urban or rural business development, or expansion of exports.
(b) NUMBER OF STOCKHOLDERS. As long as any SBIC Holder holds any
Purchased Securities, or Capital Stock of the Company, the Company shall notify
such SBIC Holder (a) at least 15 days prior to taking any action after which the
number of stockholders of the Company would be increased to 50 or more, and (b)
of any other action or occurrence after which the number of stockholders was
increased (or would increase) to 50 or more, as soon as practicable after the
Company becomes aware that such other action or occurrence has occurred or is
proposed to occur.
ARTICLE VII
DEFAULTS
--------
SECTION 7.1. EVENTS OF DEFAULT. The Fleet Entities will be entitled to
exercise the remedies provided by SECTION 7.2 hereof in accordance with the
terms thereof if any one or more of the following events shall occur:
(a) the Company or any Subsidiary shall fail to perform or
observe any of the covenants, agreements or provisions to be performed
or observed by any of them under this Agreement or any of the Related
Agreements; or
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(b) any representation or warranty made by the Company in
connection with this Agreement or any Related Agreement or any
amendment thereto shall prove to have been materially false on the date
as of which it was made; or
(c) upon the occurrence of any Regulatory Violation.
Upon the occurrence of any of the events of default set forth above,
the Fleet Entities shall notify the Company in writing and, except in the event
that any such notice and cure period would materially prejudice the Fleet
Entities or the Company, as the case may be, shall have a reasonable
opportunity, not to exceed twenty (20) business days from such written notice,
and in the case of a monetary or payment default five (5) days from such
non-payment, to cure such default. During such cure period, the parties shall
exercise reasonable good faith efforts to agree on a cure or other resolution of
such event of default acceptable to the Fleet Entities.
SECTION 7.2. REMEDIES. If any such event of default described in
Section 7.1 hereof is not cured or otherwise resolved to the satisfaction of the
Fleet Entities by the end of the cure period described in Section 7.1 hereof (to
the extent applicable) in each and every such case, the Fleet Entities may
proceed to protect and enforce their rights by suit in equity, action at law
and/or other appropriate proceedings either for specific performance of any
covenant, provision or condition contained or incorporated by reference in this
Agreement or in aid of the exercise of any power granted in this Agreement. The
Company agrees not to contest the Fleet Entities' right to specific performance
in any court or otherwise. The remedies specifically provided for in this
Agreement to Fleet Entities are intended to be cumulative and shall not be
deemed to exclude any other right or remedy that the Fleet Entities may have at
law or in equity.
SECTION 7.3. WAIVERS. The Company hereby waives, to the extent not
prohibited by applicable law, (a) all presentments, demands for performance and
notices of nonperformance (except to the extent specifically required by the
provisions hereof), (b) any requirement of diligence or promptness on the part
of any holder of Purchased Securities in the enforcement of its rights under the
provisions of this Agreement or any Related Agreement, and (c) any and all
notices of every kind and description which may be required to be given by any
statute or rule of law.
SECTION 7.4. COURSE OF DEALING. No course of dealing between the
Company on the one hand, and the holder of any Purchased Securities, shall
operate as a waiver of any of the Fleet Entities or any subsequent holder's
rights under this Agreement or any Related Agreement. No delay or omission in
exercising any right under this Agreement or any Related Agreement shall operate
as a waiver of such right or any other right. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right or remedy on any other
occasion.
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ARTICLE VIII
SUBSEQUENT HOLDERS OF PURCHASED SECURITIES
------------------------------------------
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement that are for the benefit of the Purchasers as
the holders of any Purchased Securities are also for the benefit of, and
enforceable by, all subsequent holders of the Purchased Securities, and the
provisions of this Agreement that subject the Purchasers to obligations as the
holder of any Purchased Securities also subject all subsequent holders of
Purchased Securities thereto (including all restrictions upon resale pursuant to
applicable federal and state securities laws).
ARTICLE IX
EXPENSES
--------
SECTION 9.1. EXPENSES. Subject to the provisions of the Merger
Agreement, from and after the Closing of the transactions contemplated hereunder
and under the Related Agreements, the Company or one of its Subsidiaries shall
pay on demand all reasonable fees, costs and expenses, incurred by the Fleet
Entities in connection with such transactions hereunder and thereunder and in
connection with any amendments or waivers hereof or thereof and all reasonable
expenses incurred by the Fleet Entities in connection with the enforcement of
any rights hereunder or with respect to any Purchased Security, including
without limitation (i) the cost and expenses of preparing and duplicating this
Agreement, each Related Agreement and the Purchased Securities; (ii) the fees,
expenses and disbursements of the Fleet Entities' counsel in connection with
their due diligence investigation of the Company and with the preparation,
review, administration or interpretation of this Agreement and the Related
Agreements and other instruments mentioned herein or therein, the Closing, any
amendments, modifications, approvals, consents or waivers hereto, thereto,
hereunder or thereunder; (iii) the fees, expenses and disbursements of the
Fleet's accountants, environmental consultants, and other consultants, in
connection with their due diligence investigation of the Company; (iv) all taxes
(other than taxes determined with respect to income and taxes relating to any
transfer of the Purchased Securities other than to the Company), including any
recording fees and filing fees and documentary stamp and similar taxes at any
time payable in respect of this Agreement, or the issuance of any of the
Purchased Securities; and (v) all out-of-pocket expenses (including without
limitation reasonable attorney's fees and costs, all costs associated with any
rights of board attendance, observation or inspection and travel and lodging
expenses related thereto, and reasonable consulting, accounting, appraisal,
investment banking and similar professional fees and charges) incurred by any
Fleet Entity in connection with the enforcement of or preservation of rights
under this Agreement, any of the Related Agreements or any other instruments
mentioned herein or therein or any amendments, modifications, approvals,
consents or waivers hereto or thereto against the Company or the administration
thereof, including, without limitation, out-of-pocket expenses incurred by the
Fleet Entities prior to the Closing in connection with the Fleet Entities'
purchase of the Purchased Securities. The Company shall pay to the Fleet
Entities on the Closing Date a
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fee of $300,000 in consideration of services provided by the Fleet Entities in
structuring the transactions contemplated by the Related Agreements and
arranging the Financing Commitment.
SECTION 9.2. SURVIVAL OF OBLIGATIONS. The obligations of the Company
under this ARTICLE IX shall survive payment or transfer of the Purchased
Securities and the termination of this Agreement.
ARTICLE X
NOTICES
-------
Any notice or other communication in connection with this Agreement,
any Related Agreement or the Purchased Securities shall be deemed to be
delivered if in writing (or in the form of a telecopy) addressed as provided
below (a) when actually delivered or telecopied to said address or (b) in the
case of a letter, 5 business days shall have elapsed after the same shall have
been deposited in the United States mails, postage prepaid and registered or
certified:
(i) If to the Company, then to its address set forth on page 1
hereof, to the attention of the President or at such other address as
such person shall have specified by notice actually received by the,
addressor.
(ii) If to any Fleet Entity, then to its address set forth on
page 1 hereof, or at such other address as such Fleet Entity shall have
specified by notice actually received by the addressor, with copies to
Richard G. Small, Esq., Edwards & Angell, 2700 Hospital Trust Tower,
Providence, RI 02903.
(iii) If to any member of the Management Group, then to his or
her address set forth on page 1 hereof, or at such other address as
such Fleet Entity shall have specified by notice actually received by
the addressor, with copies to Mark J. Zummo, Esq., Kohnen & Patton,
LLP, 1400 Carew Tower, Cincinnati, Ohio 45202.
ARTICLE XI
SURVIVAL AND TERMINATION OF COVENANTS, AGREEMENTS
-------------------------------------------------
REPRESENTATIONS AND WARRANTIES
------------------------------
All covenants, agreements, representations and warranties made herein
shall be deemed to have been relied on by each Purchaser, notwithstanding any
investigation made by such Purchaser or on any such Purchaser's behalf, and
shall survive the execution and delivery to each Purchaser hereof and the
issuance and purchase of the Purchased Securities hereunder.
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ARTICLE XII
AMENDMENTS AND WAIVERS
----------------------
Except as otherwise expressly provided herein, any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of (a) each of the Fleet Entities,
(b) the Company, and (c) holders of a majority of the Purchased Securities held
by the Management Group.
ARTICLE XIII
ENTIRE AGREEMENT; COUNTERPARTS, SECTION HEADINGS; PRONOUNS
----------------------------------------------------------
This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby and supersede any
prior written or oral understandings with respect thereto. This Agreement may be
executed simultaneously in one or more counterparts thereof, each of which shall
be deemed as original but all of which together shall constitute one and the
same instrument. The headings in this Agreement are for convenience of reference
only and shall not alter or otherwise affect the meaning hereof. Feminine or
neuter pronouns shall be substituted for those of the masculine gender, the
plural for the singular and the singular for the plural, in any place in this
Agreement where the context may require such substitution.
ARTICLE XIV
GOVERNING LAW; SUCCESSORS AND ASSIGNS
-------------------------------------
This agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of Ohio, until the
Company shall be reincorporated following the Merger in the State of Delaware,
after which this agreement shall be governed and construed in accordance with
the domestic substantive laws of the State of Delaware without giving effect to
any choice or conflict of law provision or rule that would cause the application
of the domestic substantive laws of any other state or jurisdiction, and shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns. Each party irrevocably agrees that any legal action or
proceedings against with respect to this Agreement may be brought in the courts
of the State of Delaware, or in any United States District Court of Delaware,
and, by its execution and delivery of this Agreement, each party hereby
irrevocably submits to each such jurisdiction and hereby irrevocably waives any
and all objections which it may have as to venue in any of the above courts.
Each party further consents and agrees that any process or notice of motion or
other application to either of said Courts or any judge thereof, or any notice
in connection with any proceedings hereunder, may be served inside or outside
the State of Delaware by registered or certified mail, return receipt requested,
postage prepaid, and be effective as of the receipt thereof, or in such other
manner as may be permissible under the rules of said Courts. Each party hereby
waives trial by jury in any action or proceeding in connection with this
Agreement.
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ARTICLE XV
SEVERABILITY
------------
If any term or provision of this Agreement, or the application thereof
to any person or circumstance, shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement or the Related Agreements, as the
case may be, or its application to other persons or circumstances, shall not be
affected thereby and each term and provision hereof shall be enforced to the
fullest extent permitted by law.
ARTICLE XVI
INVESTMENT REPRESENTATIONS
--------------------------
SECTION 16.1. Each of the Fleet Entities represents and warrants to the
Company (and its officers, directors, controlling persons and agents) that it
(i) is an "accredited investor" as defined in Regulation D of the Securities
Act, and has such knowledge and experience in business and financial affairs in
general and in the Company's industry in particular, as to be able to evaluate,
alone or with his, her, or its advisers, the merits and risks of an investment
in the Company, (ii) is acquiring the Purchased Securities for investment and
not with a view to the distribution thereof; PROVIDED, HOWEVER, that the
disposition thereof shall at all times be and remain in each Fleet Entity's
control, (iii) has access to such information about the Company as is necessary
to evaluate the merits and risks of an investment therein, (iv) understands that
the Purchased Securities are not registered under the 1933 Act or any applicable
state securities laws and that any sale, transfer or other disposition of the
Purchased Securities must be made only pursuant to an effective registration
under applicable federal and state securities laws or any available exemption
therefrom, and (v) the Purchased Securities to be acquired were not offered to
the Fleet Entities by, and the Fleet Entities are not otherwise aware of, any
general advertising or general solicitation in connection with the sale of the
Purchased Securities.
SECTION 16.2. Each of member of the Management group represents and
warrants to the Company (and its officers, directors, controlling persons and
agents) that it, he or she (i) has such knowledge and experience in business and
financial affairs in general and in the Company's industry in particular, as to
be able to evaluate, alone or with his, her, or its advisers, the merits and
risks of an investment in the Company, (ii) is acquiring the Purchased
Securities for investment and not with a view to the distribution thereof;
PROVIDED, HOWEVER, that the disposition thereof shall at all times be and remain
in such member's control, (iii) has access to such information about the Company
as is necessary to evaluate the merits and risks of an investment therein, (iv)
understands that the Purchased Securities are not registered under the 1933 Act
or any applicable state securities laws and that any sale, transfer or other
disposition of the Purchased Securities must be made only pursuant to an
effective registration under applicable federal and state securities laws or any
available exemption therefrom, and (v) the Purchased Securities to be acquired
were not offered to the such member by, and such member is not
16
<PAGE> 18
otherwise aware of, any general advertising or general solicitation in
connection with the sale of the Purchased Securities.
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below and return one counterpart of the same to the Company and the Fleet
Entities, at the address first listed above.
Very truly yours,
SKYLINE ACQUISITION CORP.
By: /s/ Bernard V. Buonanno, III
----------------------------
Name: Bernard V. Buonanno, III
Title: President
Accepted and agreed to
as of the date first abovewritten:
FLEET VENTURE RESOURCES, INC.
By: /s/ Bernard V. Buonanno, III
----------------------------
Bernard V. Buonanno, III
Vice President
FLEET EQUITY PARTNERS VI, L.P.
By: Fleet Growth Resources, II, Inc.,
a General Partner
By: /s/ Bernard V. Buonanno, III
----------------------------
Bernard V. Buonanno, III
Vice President
KENNEDY PLAZA PARTNERS
17
<PAGE> 19
By: /s/ Bernard V. Buonanno, III
------------------------------
Bernard V. Buonanno, III
Authorized Partner
CHISHOLM PARTNERS III, L.P.
By: Silverado III, L.P., a General Partner
By: Silverado III, Corp., a General Partner
By: /s/ Bernard V. Buonanno, III
------------------------------
Bernard V. Buonanno, III
Vice President
MANAGEMENT GROUP
/s/ Kevin R. McDonnell
------------------------------
(Kevin R. McDonnell) IRA
and individually
/s/ Thomas L. Allen
------------------------------
(Thomas L. Allen)
/s/ Phillip M. Lewis, Jr.
------------------------------
(Phillip M. Lewis, Jr.)
/s/ Jeffry W. Shelton
------------------------------
(Jeffry W. Shelton)
/s/ Deborah L. Chitwood
------------------------------
(Deborah L. Chitwood)
18
<PAGE> 20
/s/ Kenneth Davis
----------------------------
(Kenneth Davis)
/s/ Charles Harnist
----------------------------
(Charles Harnist)
SKYLINE NON-QUALIFIED DEFERRED COMPENSATION PLAN TRUST
By EQUITABLE TRUST COMPANY, AS TRUSTEE
By M. Kirk Scobey, Jr.
----------------------------
Name: M. Kirk Scobey, Jr.
Title: Executive Vice President
19
<PAGE> 21
<TABLE>
<CAPTION>
Schedule A
Purchasers and Purchasers Securities (Page 1 of 2)
--------------------------------------------------
Skyline Chili, Inc. Capitalization
- ---------------------------------- % of Total % of
Class A Total A Class A A Total A
Common Common Common Shares & Shares &
Shares Shares Options Options Options
------ ------- ------- ------- -------
Key Management
- --------------
<S> <C> <C> <C> <C> <C>
Kevin R. McDonnell 3,600 3.3% 58,516 62,116 27.7%
Kevin R. McDonnell - IRA (a) 14,370 13.3% 0 14,370 6.4%
Skyline Deferred Compensation Plan and Trust (b) 45,926 42.5% 0 45,926 20.5%
Thomas L. Allen 0 0.0% 20,741 20,741 9.3%
Phillip M. Lewis, Jr 1,000 0.0% 5,559 6,559 2.9%
Jeffry W. Shelton 0 0.0% 12,244 12,244 5.5%
Kenneth Davis 0 0.0% 9,704 9,704 4.3%
Deborah L. Chitwood 0 0.0% 2,685 2,685 1.2%
Charles Harnist 0 0.0% 6,418 6,418 2.9%
Other Employees 0 0.0% 0 0 0.0%
Reserved 0 0.0% 0 0 0.0%
----------------------------------------------------
Sub-Total 64,896 60.0% 115,867 180,763 80.7%
Fleet Entities (c) 43,264 40.0% 0 43,264 19.3%
Total 108,160 100.0% 115,867 224,027 100.0%
Skyline Deferred Compensation Plan and Trust
Kevin R. McDonnell 19,259 17.8% 0 19,259 8.6%
Thomas L. Allen 8,889 8.2% 0 8,889 4.0%
Phillip M. Lewis, Jr. 8,889 8.2% 0 8,889 4.0%
Jeffrey W. Shelton 8,889 8.2% 0 8,889 4.0%
----------------------------------------------------
Sub-Total 45,926 42.5% 0 45,926 20.5%
Fleet Entities
Kennedy Plaza Partners 636 0.6% 0 636 0.3%
Fleet Equity Partners VI 10,192 9.4% 0 10,192 4.5%
Fleet Venture Resources, Inc. 23,782 22.0% 0 23,782 10.6%
Chisholm Partners, III 8,653 8.0% 0 8,653 3.9%
----------------------------------------------------
Total 43,264 40.0% 0 43,264 19.3%
% of
Total Total
A Shares A Shares
Class B & Options & Options
Common and B and B
Shares Shares Shares
Key Management ------ ------ ------
- --------------
<S> <C> <C> <C>
Kevin R. McDonnell 0 62,116 3.7%
Kevin R. McDonnell-IRA (a) 0 14,370 0.9%
Skyline Deferred Compensation Plan and Trust (b) 0 45,926 2.8%
Thomas L. Allen 0 20,741 1.2%
Phillip M. Lewis, Jr 0 6,559 0.4%
Jeffrey W. Shelton 0 12,244 0.7%
Kenneth Davis 0 9,704 0.6%
Deborah L. Chitwood 0 2,685 0.2%
Charles Harnist 0 6,418 0.4%
Other Employees 0 0 0.0%
Reserved 0 0 0.0%
--------------------------------
Sub-Total (0) 180,763 10.9%
Fleet Entities(c) 1,438,217 1,481,481 89.1%
Total 1,438,217 1,662,224 100.0%
Skyline Deferred Compensation Plan and Trust
Kevin R. McDonnell 0 19,259 1.2%
Thomas L. Allen 0 8,889 0.5%
Phillip M. Lewis Jr 0 8,889 0.5%
Jeffrey W. Shelton 0 8,889 0.5%
--------------------------------
Sub-Total 0 46,926 2.8%
Fleet Entities
Kennedy Plaza Partners 21,155 21,792 1.3%
Fleet Equity Partners VI 338,826 349,018 21.0%
Fleet Venture Resources, Inc. 790,593 814,375 49.0%
Chisholm Partners, III 287,643 296,296 17.8%
--------------------------------
Total 1,438,217 1,481,481 89.1%
- -------------------------------------------------------------------------------------------------------------------
<FN>
NOTES:
- ------
(a) Registration for Equitable IRA
-------------------------------
Equitable Securities Corporation Cust.
FBO Kevin R. McDonnell, IRA
830 Nashville City Center, TN 37212
Nashville, TN 37212
TIN:62-0871146
(b) Registration for Equitable Deferred Compensation
------------------------------------------------
Skyline Non-Qualified Deferred Compensation Plan Trust, Equitable Trust Company
Trustee: M. Kirk Scobey
(c) See Above
(d) Class B performance options exercise price equal to $6.75 per share and subject to Fleet minimum IRR targets and other
conditions as detailed in the Incentive Option Plan
(e) Class B shares are convertible into Class A shares at any time by the Holder.
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Schedule A
Purchasers and Purchasers Securities (Page 2 of 2)
--------------------------------------------------
Aggregate
Purchase
Purchase Price of Aggregate Average
Skyline Chili, Inc. Capitalization Price per Class A&B Exercise Excerise
Class A& B Common Price of Price/Share Class B
Common Stock & Class A Of Class A Performance
Share Options Options Options Options (b)
----- ------- ------- ------- -----------
Key Management
- --------------
<S> <C> <C> <C> <C> <C>
Kevin R. McDonnell $ 6.75 $ 419,280 $ 163,855 $ 2.80 $ 51,862
Kevin R. McDonnell-IRA (a) $ 6.75 $ 97,000 $ 0 NA 0
Skyline Deferred Compensation Plan and Trust (b) $ 6.75 $ 310,000 $ 0 NA 0
Thomas L. Allen $ 6.75 $ 140,000 $ 57,037 $ 2.75 25,931
Phillip M. Lewis, Jr $ 6.75 $ 44,275 $ 23,618 $ 4.25 42,480
Jeffrey W. Shelton $ 6.75 $ 82,650 $ 42,170 $ 3.44 35,846
Kenneth Davis $ 6.75 $ 65,500 $ 28,112 $ 2.90 8,644
Deborah L. Chitwood $ 6.75 $ 18,125 $ 8,391 $ 3.13 8,644
Charles Harnist $ 6.75 $ 43,320 $ 20,152 $ 3.14 8,644
Other Employees $ 6.75 $ 0 $ 0 NA 5,280
Reserved $ 6.75 $ 0 $ 0 NA 50,134
-------------------------------------------------------------------
Sub-Total $ 6.75 $ 1,220,150 $ 343,335 237,463
Fleet Entities(c) $ 6.75 $10,000,000 NA NA 0
Total $ 6.75 $11,220,150 NA NA 237,463
Skyline Deferred Compensation Plan and Trust
Kevin R. McDonnell $ 6.75 $ 130,000 0
Thomas L. Allen $ 6.75 $ 60,000 0
Phillip M. Lewis Jr $ 6.75 $ 60,000 0
Jeffrey W. Shelton $ 6.75 $ 60,000 0
----------------------- --------------
Sub-Total $ 6.75 $ 310,000 0
Fleet Entities
Kennedy Plaza Partners $ 6.75 $ 147,095 0
Fleet Equity Partners VI $ 6.75 $ 2,355,871 0
Fleet Venture Resources, Inc. $ 6.75 $ 5,497,033 0
Chisholm Partners, III $ 6.75 $ 2,000,000 0
----------------------- --------------
Total $ 6.75 $10,000,000 0
Total % of
Class B Total A & B A and B
Shares & Shares & Shares &
Options Options Options
Key Management ------- ------- -------
- --------------
<S> <C> <C> <C>
Kevin R. McDonnell 51,862 $ 113,978 6.0%
Kevin R. McDonnell-IRA (a) 0 14,370 0.8%
Skyline Deferred Compensation Plan and Trust (b) 0 45,926 2.4%
Thomas L. Allen 25,931 46,672 2.5%
Phillip M. Lewis, Jr 42,480 49,039 2.6%
Jeffrey W. Shelton 35,846 48,090 2.5%
Kenneth Davis 8,644 18,347 1.0%
Deborah L. Chitwood 8,644 11,329 0.6%
Charles Harnist 8,644 15,062 0.8%
Other Employees 5,280 5,280 0.3%
Reserved 50,134 50,134 2.6%
----------------------------------------
Sub-Total 237,463 418,226 22.0%
Fleet Entities(c) 1,438,217 1,481,481 78.0%
Total 1,675,681 1,899,708 100.0%
Skyline Deferred Compensation Plan and Trust
Kevin R. McDonnell 0 19,259 1.0%
Thomas L. Allen 0 8,889 0.5%
Phillip M. Lewis Jr 0 8,889 0.5%
Jeffrey W. Shelton 0 8,889 0.5%
----------------------------------------
Sub-Total 0 45,926 2.4%
Fleet Entities
Kennedy Plaza Partners 21,155 21,792 1.1%
Fleet Equity Partners VI 338,826 349,018 18.4%
Fleet Venture Resources, Inc. 790,593 814,375 42.9%
Chisholm Partners, III 287,643 296,296 15.6%
----------------------------------------
Total 1,438,217 1,481,481 78.0%
- -------------------------------------------------------------------------------------------------------------------
<FN>
NOTES:
- ------
(a) Registration for Equitable IRA
------------------------------
Equitable Securities Corporation Cust.
FBO Kevin R. McDonnell, IRA
800 Nashville City Center, TN 37212
Nashville, TN 37212
TIN:62-0871146
(b) Registration for Equitable Deferred Compensation
------------------------------------------------
Skyline Non-Qualified Deferred Compensation Plan Trust, Equitable Trust Company
Trustee: M. Kirk Scobey
(c) See Above
(d) Class B performance options exercise price equal to $6.75 per share and subject to Fleet minimum IRR targets
and other conditions as detailed in the Incentive Option Plan
(e) Class B shares are convertible into Class A shares at any time by the Holder.
</TABLE>
<PAGE> 1
Exhibit 17 (c)(6)
SKYLINE ACQUISITION CORP.,
AN OHIO CORPORATION
STOCKHOLDERS' AGREEMENT
DATED AS OF [ ], 1998
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS
1.1 Definitions
1.2 Construction
ARTICLE II - AFFIRMATIVE COVENANTS OF THE COMPANY
AND THE STOCKHOLDERS
2.1 Board Representation and Voting Agreement
of the Shares
2.2 Specified Actions
2.3 Financial Covenants
2.4 Sale of the Company
2.5 Supplementary Bonus Program
ARTICLE III - PREEMPTIVE RIGHTS
3.1 Right to Purchase
3.2 Closing
ARTICLE IV PURCHASE OF MANAGEMENT
STOCKHOLDERS' SHARES
4.1 Purchase of Management Stockholder's Shares
4.2 Put of Management Stockholder's Shares
4.3 Repurchase Closings
4.4 Determination of Market Value
4.5 Required Consents
ARTICLE V - TAKE-ALONG AND TAG-ALONG
5.1 Take-Along and Tag-Along
ARTICLE VI - RESTRICTIONS ON TRANSFER
6.1 Transfer Restrictions
6.2 Regulatory Compliance Cooperation
6.3 Termination
<PAGE> 3
ARTICLE VII - MISCELLANEOUS
7.1 Reincorporation
7.2 Waivers and Amendments
7.3 Governing Law
7.4 Successors and Assigns
7.5 Entire Agreement
7.6 Notices
7.7 Severability
7.8 Counterparts
7.9 Descriptive Headings
7.10 Consent to Jurisdiction
ii
<PAGE> 4
STOCKHOLDERS' AGREEMENT
-----------------------
This Stockholders' Agreement is entered into as of [ ], 1998, by and
among SKYLINE ACQUISITION CORP., an Ohio corporation (the "Company"), and the
Persons named in SCHEDULE A attached hereto and made a part hereof (collectively
the "Stockholders").
RECITALS
WHEREAS, the Company has authorized capital stock consisting of
2,000,000 shares of Class A Voting Common Stock, no par value per share (the
"Class A Common Stock"), and 2,000,000 shares of Class B Nonvoting Common Stock,
no par value per share (the "Class B Common Stock", and together with the Class
A Common Stock, the "Shares");
WHEREAS, each Fleet Entity has a substantial investment in the Company
by reason of such Person's ownership of the Shares shown on Schedule A;
WHEREAS, each member of the Management Group has a substantial
investment in the Company by reason of such Person's ownership of the Shares
shown on Schedule A and/or has the right to acquire Class A Common Stock upon
exercise of the Retained Options and/or has the right to acquire Class B Common
Stock upon exercise of the Performance Options held by such Person; and
WHEREAS, the parties believe that it is in the best interest of the
Company and the Stockholders to make provision for (a) the future disposition of
certain Shares of the Company, and (b) other matters relating to the governance
of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the following meanings:
"AFFILIATE" shall mean as applied to any specified Person, any
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such specified Person and shall also include (a)
any Person who is an officer, director, manager or beneficial owner of at least
5% of the then outstanding equity securities of such specified Person and Family
Members and officers, directors or managers of any such Person, (b) any Person
in which such specified Person or an Affiliate (as defined in clause (a) above)
of such specified Person shall, directly or indirectly, either beneficially own
at least 10% of the then outstanding
<PAGE> 5
equity securities or constitute at least a 10% equity participant, and (c) in
the case of a specified Person who is an individual, any Family Member of such
Person.
"AGREEMENT" shall mean this Stockholders' Agreement, as the
same may be amended, supplemented, restated, replaced or otherwise modified, in
each case from time to time and whether in whole or in part.
"BOARD" has the meaning given such term in SECTION 2.1.
"BOARD CHANGE DATE" has the meaning given such term in SECTION
2.1.
"BOOK VALUE" shall mean as of any date:
(a) with respect to any number of Management Shares (other
than Retained Option Shares), (i)(A) the common stockholders' equity of the
Company as of the end of the Company's most recently ended four week accounting
period of the Company determined in accordance with GAAP, DIVIDED BY (B) the sum
of the number of then outstanding Shares and the number of Shares issuable upon
exercise of Company Options, which as of such date are vested and exercisable,
MULTIPLIED BY (ii) such number of Management Shares;
(b) with respect to any number of Retained Option Shares (i)
the "Book Value" of an equal number of Management Shares, as determined in
subparagraph (a) above, PLUS (ii) the aggregate exercise price paid upon
acquisition of such Retained Option Shares;
(c) with respect to a Retained Option, the number of
Management Shares issuable upon exercise of such Retained Option, MULTIPLIED by
the "Book Value" of one Management Share, as determined in subparagraph (a)
above; and
(d) with respect to a Performance Option, the number of
Management Shares issuable upon exercise of such Performance Option, MULTIPLIED
by the "Book Value" of one Management Share, as determined in subparagraph (a)
above, LESS the aggregate exercise price of such Performance Option.
"BUSINESS" shall have the meaning given such term in the
Merger Agreement.
"BUSINESS DAY" shall mean any day other than a day on which
banks in the States of Ohio are required or permitted by law to remain closed.
"CAPITALIZED LEASE OBLIGATION" shall mean with respect to any
Person any lease to which such Person or any of its Subsidiaries is party as
lessee under which it leases any property (real, personal or mixed) from any
lessor, and which is required to be capitalized in accordance with GAAP,
consistently applied.
"CAUSE" shall mean with respect to the termination of any
Person by the Company for "cause" or "Cause" (a) an act of fraud, embezzlement,
deliberate dishonesty,
2
<PAGE> 6
misappropriation or intentional and willful breach of fiduciary duty against the
Company or any of its Subsidiaries by such Person, as determined by the Board of
the Company in its reasonable discretion (provided that if such Person is also a
member of the Board, he or she shall be automatically recused from any Board
vote related to such act or breach), (b) any intentional action by such Person
on or prior to the date hereof which causes the material breach of a
representation or warranty by Skyline Chili or any stockholder of Skyline Chili
under the Merger Agreement, (c) conviction of such Person of any felony or crime
involving moral turpitude, whether or not committed in the course of performing
services to the Company, (d) the habitual drug addiction or intoxication of such
Person, (e) the breach by such Person of any terms of any Related Agreement to
which such Person is a party (including, without limitation, the breach of any
non-competition, non-disclosure, or other restrictive covenants or the willful
failure or refusal of such Person to follow the reasonable instructions of the
Board of the Company), which breach or act continues uncured to the satisfaction
of the Company (i) for a period of thirty (30) days after written notice thereof
is given by the Company to such Person as to beaches under this Agreement and
(ii) for the applicable cure period for breaches under a Related Agreement; (f)
the commission by such Person of an act undertaken with deliberate intent to
cause material loss, damage or injury to the Company or any of its Subsidiaries;
or (g) the commission by such Person of an act undertaken in reckless disregard
of the best interests of the Company, which act has a material adverse effect on
the Business or the reputation, goodwill or image of the Company or any of its
Subsidiaries.
"CHISHOLM" shall mean Chisholm Partners III, L.P., a Delaware
limited partnership and its successors and assigns.
"CLASS A COMMON STOCK" has the meaning given such term in the
RECITALS.
"CLASS B COMMON STOCK" has the meaning given such term in the
RECITALS.
"COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"COMPANY" shall have the meaning given such term in the
PREAMBLE; provided that, on and after the effective date of the Merger, the term
"Company" shall refer to the Surviving Corporation, as successor-in-interest to
the Company pursuant to the Merger Agreement.
"COMPANY CALL EXPIRATION NOTICE" shall have the meaning given
such term in SECTION 4.3.
"COMPANY OPTIONS" shall mean the Retained Options and the
Performance Options.
"CONSENT OF FLEET ENTITIES" shall mean, at any time of
determination thereof, the written consent of each of the Fleet Entities.
3
<PAGE> 7
"CONVERTIBLE SECURITIES" shall mean, with respect to any
Equity Securities, (a) any warrants, options or other rights to subscribe for or
to acquire, directly or indirectly, such Equity Securities, and (b) any shares
of stock, partnership interests, other ownership or beneficial interests, bonds,
notes, debentures or other securities convertible into, exchangeable for, or
otherwise entitling the holder thereof to, directly or indirectly, such Equity
Securities, in each case outstanding at any time.
"DELAWARE GENERAL CORPORATION LAW" shall have the meaning
given such term in the Merger Agreement.
A Person shall be deemed to have a "DISABILITY" if an
independent medical doctor selected by the Company's health or disability
insurer (or, if after written request by the Company, such insurer shall have
failed to select such a doctor willing to examine such Person, by the Board of
the Company) certifies that such Person has for ninety (90) consecutive days in
any twelve (12) month period been unable to perform the essential functions of
his or her then current position with the Company due to physical or mental
illness, injury or other medical disability. Any refusal by such Person to
submit to a medical examination for the purpose of certifying disability within
fifteen (15) days of the Company's written request shall be deemed to constitute
conclusive evidence of such Person's disability.
"DISINTERESTED DIRECTORS" shall have the meaning given such
term in SECTION 4.4 below.
"EFFECTIVE TIME" shall have the meaning given such term in the
Merger Agreement.
"EQUITY SECURITIES" shall mean, with respect to any Person,
any shares of stock of, or partnership or membership interest or other ownership
or beneficial interest in, such Person, in each case outstanding at any time.
"EXERCISE NOTICE" shall have the meaning given such term in
SECTION 4.3.
"FAMILY MEMBER" shall mean, as applied to any Person who is an
individual, a spouse, parent, sibling, child, grandchild, cousin or other lineal
descendent thereof and a trust created for the exclusive benefit of one or more
of such Persons.
"FFG" shall mean Fleet Financial Group, Inc., a Rhode Island
corporation.
"FINANCING AGREEMENT" shall mean that certain [ ] Agreement of
even date herewith by and between the Surviving Corporation and the Senior
Lender, or any credit agreement evidencing a senior debt facility that replaces
the facility evidenced by such Agreement with the Consent of Fleet Entities.
4
<PAGE> 8
"FLEET ENTITIES" shall mean the Persons designated as "Fleet
Entities" on SCHEDULE A hereto and shall also mean the successors and assigns of
each "Fleet Entity" hereunder.
"FUNDED DEBT" shall mean with respect to any Person as of any
date the aggregate indebtedness for money borrowed and Capitalized Lease
Obligations of such Person as of such date.
"GAAP" shall mean United States generally accepted accounting
principles as in effect from time to time.
"GOOD REASON" shall mean the termination by a Management
Stockholder of his or her employment with the Company or any of its Subsidiaries
by reason of (a) any intentional or knowing action by the Company on or prior to
the date hereof which causes the material breach of a representation or warranty
by the Company under the Merger Agreement which continues uncured to the
satisfaction of the Management Stockholder for a period of thirty (30) days, (b)
the material breach by the Company, any Fleet entity or the Surviving
Corporation of any terms of any Related Agreement to which such Person is a
party, which breach or act continues uncured to the satisfaction of the
Management Stockholder (i) for a period of thirty (30) days after written notice
thereof is given by the Management Stockholder to such Person, or (ii) for the
applicable cure period for breaches under a Related Agreement, (c) a permanent
relocation of the Management Stockholder's place or location of employment to an
area outside the 100-mile area measured from the nearest point of the city
limits of Cincinnati, Ohio, (d) a material reduction by the Company in the
Management Stockholder's functions, duties or responsibilities, to the detriment
of the Management Stockholder, (e) a material reduction in the Management
Stockholder's base salary, (f) a material change in the Management Stockholder's
terms of employment by the Company to the detriment of the Management
Stockholder, or (g) the normal retirement of such Management Stockholder on or
after his or her 65th birthday.
"INITIAL APPRAISAL" shall have the meaning given such term in
SECTION 4.4 below.
"INITIAL PUBLIC OFFERING" shall mean the first Public Offering
occurring following the Effective Time; provided that in connection with such
Public Offering the Shares or other Equity Securities offered pursuant thereto
are listed for trading on the New York Stock Exchange or the American Stock
Exchange or quoted for trading on the NASDAQ, National Market or SmallCap
Systems.
"LIQUIDITY EVENT" shall mean (i) a Sale of the Company, (ii) a
Transfer of all or substantially all of the assets and property of the Company
and its Subsidiaries taken as a whole, or (iii) an Initial Public Offering.
"MANAGEMENT APPRAISAL" shall have the meaning given such term
in SECTION 4.4 below.
5
<PAGE> 9
"MANAGEMENT GROUP" shall mean Kevin R. McDonnell, Thomas L.
Allen, Phillip M. Lewis, Jr., Jeffry W. Shelton, Deborah L. Chitwood, Kenneth E.
Davis, Charles L. Harnist and Skyline Trust and shall also mean the successors
and assigns of each member of the "Management Group" hereunder and each Person
who shall subsequently agree in writing to become bound hereunder as a member of
the "Management Group".
"MANAGEMENT INCENTIVE OPTIONS" shall mean Performance Options
granted or to be granted to Persons (other than members of the Management Group)
that in the aggregate shall not entitle such Persons to acquire more than the
number of Shares designated on Schedule A for "Other Employees" or "Reserved"
under the column "Class B Performance Options".
"MANAGEMENT OPTION PLAN" shall have the meaning given such
term in the Merger Agreement.
"MANAGEMENT SHARES" shall mean, with respect to a Management
Stockholder, all of the Shares (i) acquired by such Management Stockholder as of
the date hereof, (ii) subsequently acquired by such Management Stockholder or
the Management Successor of such Management Stockholder, (iii) held by the
Skyline Trust of which such Management Stockholder is a beneficiary, or (iv)
held by the IRA of which such Management Stockholder is the beneficiary.
"MANAGEMENT SUCCESSOR" shall have the meaning given such term
in SECTION 4.1.
"MANAGEMENT STOCKHOLDER" shall mean the Management Group and
any Option Holder who acquires Shares upon exercise of any Company Option who
shall subsequently agree in writing to become bound hereunder as a member of the
Management Group.
"MARKET VALUE" shall mean:
(a) with respect to Management Shares (other than Retained
Option Shares), the fair market value of such Management Shares determined
pursuant to SECTION 4.4;
(b) with respect to Retained Option Shares, the "Market Value"
of an equal number of Management Shares, PLUS the aggregate exercise price paid
pursuant to the applicable Retained Option to acquire such Retained Option
Shares,
(c) with respect to a Retained Option, the "Market Value" of
the Management Shares that may be acquired upon exercise of such Retained
Option, without any reduction or allowance for the exercise price of such
Retained Option; and
(d) with respect to a Performance Option, the "Market Value"
of the Management Shares that may be acquired upon exercise of such Performance
Option, LESS the aggregate exercise price of such Performance Option.
"MERGER" shall have the meaning ascribed thereto in the Merger
Agreement.
6
<PAGE> 10
"MERGER AGREEMENT" shall mean that certain Agreement and Plan
of Agreement, dated as of November 26, 1997, by and among the Company, Skyline
Chili and certain stockholders of Skyline Chili, as the same may be amended,
supplemented, restated, replaced or otherwise modified, in each case from time
to time and whether in whole or in part.
"NEW SHARES" shall mean any Equity Securities or Convertible
Securities of the Company, whether now authorized or not, and any rights,
options or warrants to purchase said Equity Securities or Convertible
Securities, including, without limitation, any Shares; provided, however, that
"New Shares" do not include (i) securities offered pursuant to a Public
Offering; (ii) Shares issued with the consent of the Fleet Entities in an
arms-length offering solely to one or more Persons who are not Affiliates of the
Fleet Entities; (iii) Shares issued to the Company's Stockholders in connection
with any stock split or stock dividend; (iv) Shares issued to a Fleet Entity or
a Management Stockholder upon conversion of the Class B Common Stock, (v) the
grant of Performance Options; and (vi) the issuance of Shares upon the exercise
of Company Options.
"NON-EXERCISE NOTICE" shall have the meaning ascribed thereto
in SECTION 4.3(a).
"NOTICE OF PROPOSED ISSUANCE" shall have the meaning ascribed
thereto in SECTION 3.1(a).
"OHIO CORPORATION LAW" means the Ohio General Corporation Law,
as amended.
"OFFERED NEW SHARES" shall have the meaning ascribed thereto
in SECTION 3.1(a).
"OPTION HOLDERS" shall mean the Persons designated on Schedule
A hereto who hold "Options" and shall also mean the successors and assigns of
each such Person and each Person granted Performance Options hereafter.
"ORDINARY COURSE OF BUSINESS" shall have the meaning given
such term in the Merger Agreement.
"ORIGINAL COST" shall mean:
(a) with respect to a specified number of Management Shares
(other than Retained Option Shares or Performance Option Shares) an amount equal
to (i) the number of such Management Shares, MULTIPLIED BY (ii) the Purchase
Price Per Share,
(b) with respect to Retained Option Shares, an amount equal to
the "Original Cost" of an equal number of Management Shares, as determined in
subparagraph (a) above, PLUS the aggregate exercise price paid pursuant to the
applicable Retained Option to acquire such Retained Option Shares,
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(c) with respect to Performance Option Shares, an amount equal
to the aggregate exercise price paid pursuant to the applicable Performance
Option to acquire such Performance Option Shares,
(d) with respect to a Retained Option, an amount of $6.75 for
each Share issuable upon exercise of such Retained Option, and
(e) with respect to a Performance Option, an amount equal to
$0, in each case appropriately adjusted to reflect any stock splits, stock
dividends or recapitalizations affecting the Class A Common Stock or Class B
Common Stock.
"PERFORMANCE OPTIONS" shall mean those certain options for the
right to purchase Shares of Class B Common Stock issued to key employees of the
Surviving Corporation pursuant to the Management Option Plan.
"PERFORMANCE OPTION SHARES" shall mean Shares of Class B
Common Stock acquired upon exercise of a Performance Option.
"PERMITTED TRANSFERS" shall mean:
(a) in the case of a Fleet Entity, (i) any Transfer
of Shares to any Affiliate of such Fleet Entity or any other Fleet
Entity, (ii) any Transfer of Shares to a successor corporation or other
successor entity as a result of a merger or consolidation with, or a
sale of all or substantially all of the assets of, such Fleet Entity or
a transfer to one or more of its partners, or a distribution to such
partners, (iii) any Transfer of Shares to the extent required by
governmental rule, law or regulation, or any directive or order of any
governmental authority, (iv) any Transfer of Shares pursuant to a
Public Offering, (v) any Transfer of Shares to an Unaffiliated
Director; provided that the aggregate number of Shares Transferred to
Unaffiliated Directors shall not exceed 30,000 Shares; and (vi) any
other Transfer of Shares so long as such Fleet Entity shall have
performed its obligations under ARTICLE V hereof; or
(b) in the case of a Management Stockholder, (i) any
Transfer of Shares to a Family Member of such Management Stockholder,
or (ii) a Transfer of Shares permitted or effected pursuant to ARTICLES
IV or V hereof.
"PERSON" shall have the meaning ascribed thereto in the Merger
Agreement.
"PERSONAL REPRESENTATIVE" shall mean the successor or legal
representative (including without limitation, a guardian, executor,
administrator or conservator) of a deceased or incompetent Management
Stockholder.
"PROPOSED BUYER" shall have the meaning ascribed thereto in
SECTION 3.1(a).
"PROPORTIONATE SHARE" shall have the meaning ascribed thereto
in SECTION 3.1(c).
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"PUBLIC OFFERING" shall mean the sale or distribution of
Shares or other Equity Securities of the Company pursuant to an underwritten
public offering registered under the Securities Act.
"PURCHASE PRICE PER SHARE" shall mean $6.75 per Share.
"PUT EXERCISE PERIOD" shall have the meaning given such term
in SECTION 4.2.
"PUT NOTICE" shall have the meaning given such term in SECTION
4.2.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
"REGULATORY PROBLEM" shall have the meaning given such term in
SECTION 6.2.
"RELATED AGREEMENTS" shall have the meaning given such term in
the Merger Agreement.
"RETAINED OPTIONS" shall have the meaning given such term in
the Merger Agreement.
"RETAINED OPTION SHARES" shall mean Shares acquired upon
exercise of a Retained Option with respect to which the exercise price thereof
has been paid in full to the Company.
"SALE OF THE COMPANY" shall mean a Transfer by the Fleet
Entities of the requisite percentage of Shares pursuant to SECTION 5.1(b),
whether pursuant to a Transfer thereof or a recapitalization, merger,
consolidation, combination, exchange or similar transaction.
"SBIC HOLDER" shall have the meaning given such term in
SECTION 6.2.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, each as in effect from time to time.
"SENIOR LENDER" shall mean The Provident Bank or any other
lender providing senior financing to the Company.
"SKYLINE NON-QUALIFIED DEFERRED COMPENSATION PLAN TRUST,
EQUITABLE TRUST COMPANY, TRUSTEE" or "SKYLINE TRUST" shall have the meaning
given thereto in the Merger Agreement.
"SHARES" shall have the meaning given such term in the
RECITALS.
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"STOCKHOLDERS" shall have the meaning ascribed thereto in the
Preamble to this Agreement and shall also mean the successors and assigns of
each Person who shall be a "Stockholder" hereunder; provided that the terms
"Stockholder" or "Stockholders" as used herein shall include any future holder
of any Shares or Company Options who is or becomes a party to this Agreement.
"SUBSIDIARY" shall have the meaning ascribed thereto in the
Merger Agreement.
"SUPPLEMENTARY BONUS" shall have the meaning ascribed thereto
in SECTION 2.5.
"SURVIVING CORPORATION" shall have the meaning ascribed
thereto in the Merger Agreement.
"SKYLINE CHILI" means Skyline Chili, Inc., an Ohio
corporation.
"TAKE-ALONG NOTICE" shall have the meaning given such term in
SECTION 5.1.
"TERMINATION DATE" means the date on which (i) any Management
Stockholder's employment with the Company or, if such Management Stockholder is
employed by any of its Subsidiaries, with such Subsidiary, is terminated, or
(ii) any Management Stockholder is determined to have a Disability.
"THIRD APPRAISAL" shall have the meaning given such term in
SECTION 4.4 below.
"TRANSFER" shall mean, with respect to any Share, property,
asset or other right or interest, when used as a verb, to sell, assign,
transfer, exchange, distribute, devise, gift, grant a lien on, encumber or
otherwise dispose of such Share, property, asset or other right or interest, in
whole or in part, or, when used as a noun, the sale, assignment, transfer,
exchange, distribution, devise, gift, granting of a lien, encumbrance or other
disposition of such Share, property, asset or other right or interest, in whole
or in part, in either case, whether pursuant to a sale, merger, combination,
consolidation, reclassification or otherwise, except for pledges and assignments
made pursuant to the Financing Agreement or collateral documents executed in
connection therewith.
"TRANSFERRING FLEET ENTITY" shall have the meaning given such
term in SECTION 5.1.
"UNAFFILIATED DIRECTOR" shall mean a Person designated by the
Chief Executive Officer of the Company pursuant to SECTIONS 2.1(a)(ii) and
(iii), who (1) shall be reasonably acceptable to the Fleet Entities, and (2)
shall not be an Affiliate or employee of the Company, the Surviving Corporation,
a Management Stockholder or a Family Member of such Affiliate or employee or of
a Management Stockholder.
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"VOTING SECURITIES" shall mean Equity Securities of a Person
having the right to vote generally in the election of the directors, managers or
general or managing partners of such Person.
1.2 CONSTRUCTION. Unless the context of this Agreement clearly requires
otherwise (i) references to the plural include the singular and to the singular
include the plural, (ii) the term "including" is not limiting, and (iii) the
term "or" has the inclusive meaning represented by the term "and/or". The terms
"hereof", "herein", "hereby", "hereunder" and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Article, Section, clause, Schedule and Exhibit references are to
Articles, Sections, clauses, Schedules and Exhibits (as each such Schedule or
Exhibit may be amended, modified or supplemented from time to time) of this
Agreement unless otherwise specified.
ARTICLE II
AFFIRMATIVE COVENANTS OF THE COMPANY
AND THE STOCKHOLDERS
2.1 BOARD REPRESENTATION AND VOTING AGREEMENT OF THE SHARES.
--------------------------------------------------------
(a) From and after the date hereof and until the provisions of
this Section cease to be effective, each Stockholder shall vote all of the
voting securities of the Company (including without limitation the Shares) over
which such Person has voting control and shall take all other necessary or
desirable actions within his, her or its control (whether in his, her or its
capacity as a stockholder, director, member of a board committee or officer of
the Company or otherwise, and including, without limitation, attendance at
meetings in person or by proxy for purposes of obtaining a quorum and execution
of written consents in lieu of meetings), and the Company shall take all
necessary or desirable actions within its control (including, without
limitation, calling special board and stockholders' meetings) so that:
(i) the authorized number of directors of the Board
of Directors of the Company and each of its Subsidiaries (each a
"Board") shall be established at five (5) directors;
(ii) until such time as the Fleet Entities shall own
a majority of the Shares of Class A Common Stock, the following Persons
shall be elected to each Board at each election of directors during the
term of this Agreement:
(A) three (3) representatives designated by
the Chief Executive Officer of the Company, one of whom shall
be such Chief Executive Officer and the other two of whom
shall be Unaffiliated Directors;
(B) one (1) representative designated by
Chisholm; and
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(C) one (1) representative designated by the
Fleet Entities;
(iii) on and after the date that the Fleet Entities
shall own a majority of the Shares of Class A Common Stock (the "BOARD
CHANGE DATE"), the following Persons shall be elected to each Board at
each election of directors during the term of this Agreement:
(A) two (2) representatives designated by
the Chief Executive Officer of the Company, one of whom shall
be such Chief Executive Officer and the other of whom shall be
an Unaffiliated Director;
(B) one (1) representative designated by
Chisholm; and
(C) two (2) representatives designated by
the Fleet Entities;
(iv) the following directors shall be removed upon
the occurrence of the events indicated:
(A) one of the Unaffiliated Directors
designated by the Chief Executive Officer of the Company
pursuant to SECTION 2.1(a)(ii), on or after the Board Change
Date upon written notice by the Fleet Entities;
(B) the Person designated as Chief Executive
Officer of the Company on or after the date such Person shall
cease to serve as Chief Executive Officer upon written notice
by any Stockholder; or
(C) a Person who is an Unaffiliated Director
designated by the Chief Executive Officer pursuant to SECTION
2.1(a)(ii), on or after the date that such Person shall no
longer be deemed an Unaffiliated Director pursuant to the
definition of such term;
(v) the Fleet Entities shall have the right to (A)
designate at least one (1) representative to each committee
established by each Board, and (B) have an observer, selected by the
Fleet Entities in their sole discretion, attend each meeting of each
Board and each meeting of any committee of a Board; provided the
Compensation and the Audit Committees, if any, of each Board shall
consist of at least two (2) members, one of whom shall be a director
designated by Chisholm, the other of whom shall be a director
designated by the Fleet Entities, and the majority of which shall be
directors designated by the Fleet Entities;
(vi) subject to SECTION 2.1(a)(iv), any director
designated hereunder shall be removed from a Board (and thereupon from
all committees of such Board) (with or without cause) at the written
request of the Person or Persons which have the right to designate such
director hereunder; and, subject to SECTION 2.1(a)(iv), a director so
designated hereunder shall not be removed from such Board by any Person
other than the
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Person or Persons which have the right to designate such director,
except if such director has engaged in conduct constituting "cause"
under the Ohio Corporation Law or, following the reincorporation of the
Company in Delaware, the Delaware General Corporation Law, in which
case such director may be removed in accordance with the Ohio
Corporation Law or the Delaware General Corporation Law, as applicable,
and such vacancy shall be filled by the Person or Persons who appointed
the removed director;
(vii) in the event that any representative designated
hereunder for any reason ceases to serve as a member of a Board or any
committee thereof during such representative's term of office, the
resulting vacancy on such Board or committee shall be filled by a
representative designated by a Person or Persons which have the right
to designate such representative hereunder;
(viii) after the date hereof, each Board shall hold
quarterly meetings, unless the Fleet Entities shall request otherwise
provided, however, that the Chief Executive officer or the Fleet
Entities may call Board meetings in addition to such quarterly
meetings;
(ix) the respective bylaws, codes of regulations,
certificates of incorporation and other organizational documents of the
Company and its Subsidiaries shall not be amended, restated,
supplemented, revised, modified or repealed, in whole or in part
without the Consent of Fleet Entities;
(x) the Company and its Subsidiaries shall perform
their obligations under and otherwise comply with the provisions of the
Related Agreements applicable to them; and
(xi) upon request of the Fleet Entities, the Company
shall reincorporate in Delaware, as more fully set forth in SECTION 7.1
hereof.
(b) Each and every transferee or assignee of Shares from any
Stockholder shall be bound by and subject to all the terms and conditions of
this SECTION 2.1. So long as the provisions of this SECTION 2.1 are in effect,
the Company shall require, as a condition precedent to the Transfer of any
Shares subject to this SECTION 2.1, that the applicable transferee agrees in
writing to be bound by, and subject to, the terms and conditions of this Section
2.1 and to ensure that such transferee's transferees of Shares shall be likewise
bound.
(c) The Company and the Stockholders agree that, so long as
the provisions of this SECTION 2.1 or ARTICLES III, IV, V or VI are in effect,
all Shares now or hereafter held by each Stockholder will be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AGREEMENTS,
COVENANTS AND RESTRICTIONS IN REGARD TO THE VOTING OF SUCH SHARES AND THEIR
TRANSFER, AS PROVIDED IN THE PROVISIONS OF A
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STOCKHOLDERS' AGREEMENT, DATED AS OF_____________, 1998, BY AND AMONG SKYLINE
ACQUISITION CORP., AN OHIO CORPORATION, PREDECESSOR BY MERGER TO SKYLINE CHILI,
INC., [AN OHIO/A DELAWARE] CORPORATION (THE "COMPANY") AND ALL OF THE COMPANY'S
SHAREHOLDERS ON THAT DATE AND AS NAMED THEREIN. THE STOCKHOLDERS' AGREEMENT IS
AN OHIO CLOSE CORPORATION AGREEMENT. THE COMPANY WILL MAIL A COPY OF THE
STOCKHOLDERS' AGREEMENT TO ANY SHAREHOLDER OF THE COMPANY WITHOUT CHARGE WITHIN
FIVE DAYS AFTER RECEIPT OF WRITTEN REQUEST THEREFOR.
(d) Each of the parties acknowledge that all other parties
hereto will be irreparably damaged in the event that the provisions of this
Section are not specifically enforced. Accordingly, should any dispute arise
pursuant to SECTION 2.1, the parties agree that a decree of specific performance
shall be an appropriate remedy. Such remedy shall be cumulative and shall be in
addition to any other remedies which any party may have at law or in equity.
(e) The Company shall reimburse each director for reasonable
out-of-pocket travel, lodging and other related expenses incurred in connection
with attendance at meetings and shall pay to each director elected pursuant to
Section 2.1 who is not a Management Stockholder, an Affiliate or Family Member
of a Management Stockholder or an employee of the Company or any of its
Subsidiaries an annual director's fee of between $15,000 and $30,000 or such
other amount, as shall be reasonably necessary to attract qualified directors
and shall be reasonably acceptable to the Fleet Entities,.
2.2 SPECIFIED ACTIONS. Notwithstanding anything to the contrary
contained in this Agreement or in any other Related Agreement, and except as
specifically provided in the following subsections, no Stockholder shall permit
the Company, the Company shall not, nor shall the Company permit any of its
Subsidiaries to, take any of the following actions without the prior written
Consent of Fleet Entities:
(a) the issuance of Equity Securities of the Company or any of
its Subsidiary, or any Convertible Securities with respect thereto, except as
expressly permitted by this Agreement or any other Related Agreement or pursuant
to the exercise of a Company Option; provided that, notwithstanding the receipt
of any Consent of Fleet Entities, any Person granted a Company Option (other
than a Management Incentive Option) on or after the date hereof shall agree in
writing to become bound hereby as a member of the Management Group.
(b) except as provided in the applicable Budget adopted
pursuant to SECTION 2.3(a), the incurrence by the Company or any of its
Subsidiaries of Funded Debt, other than pursuant to the Financing Agreement, if
after giving effect thereto, the consolidated Funded Debt of the Company, other
than pursuant to the Financing Agreement, shall exceed $50,000;
(c) the amendment, restatement, replacement, supplement or
other modification of the Financing Agreement (or the terms of any other Funded
Debt of $50,000 or more) or the waiver of any material right or remedy
thereunder (or with respect thereto), which in
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either case would have a material adverse effect upon the operations of the
Company or any of its Subsidiaries, if it were determined as of the date of such
modification or waiver;
(d) the amendment, restatement, replacement, supplement or
other modification of this Agreement, any other Related Agreement, the
Certificate of Incorporation, Code of Regulations or By-Laws of the Company or
the Surviving Corporation, or the waiver of any material right or remedy
thereunder; or
(e) except as provided in the applicable Budget adopted
pursuant to SECTION 2.3(a), the purchase or other acquisition of any assets or
businesses, or the merger, consolidation, combination with any other Person or
business, whether in a single transaction or a series of related transactions,
if the aggregate consideration payable in connection with such purchase or other
acquisition or merger, consolidation or combination, when aggregated with the
consideration payable in connection with all other such purchases or other
acquisitions or mergers, consolidations or combinations during the preceding
twelve (12) months for which a Consent of Fleet Entities has not been obtained,
is greater than $50,000;
(f) except pursuant to the Financing Agreement, the sale,
assignment, transfer, exchange, grant of a Lien or encumbrance or other
disposition, or the engaging in any merger, consolidation or combination having
a similar effect, or agreement with any Person (other than the Fleet Entities)
to do or not to do any of the foregoing, whether in a single transaction or a
series of related transactions, of, in or on any of the (i) any Equity
Securities of any Subsidiary of the Company; or (ii) other than in the Ordinary
Course of Business, assets of the Company or any of its Subsidiaries;
(g) the declaration, payment, disbursement or making of any
dividends, distributions, stock repurchase or redemption or other payments with
respect to the Shares;
(h) except in the Ordinary Course of Business, the making of
any loan or cash advance to any Stockholder (other than the Fleet Entities) or
any Affiliate or Family Member thereof, or the engaging in any transaction
therewith;
(i) the dissolution, liquidation or winding up of the Company
or any of its Subsidiaries;
(j) the commencement of a voluntary proceeding with respect to
the Company or any of its Subsidiaries under state or federal bankruptcy,
insolvency, reorganization, rearrangement or similar laws;
(k) the appointment of an accounting firm other than a "big
five" firm as the accountants for the Company and its Subsidiaries;
(l) the agreement (other than under the terms and provisions
of the Financing Agreement) with any Person, which by its terms prohibits,
materially restricts or materially limits
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the performance by the Company or any of its Subsidiaries of any of its
obligations under any Related Agreement; or
(m) conduct the Business other than in the Ordinary Course of
Business;
(n) engage in any business other than the Business;
(o) except for Persons employed by the Company or Skyline
Chili as of the date hereof, employ, retain or otherwise obtain the services of
any Person at annual rate of compensation equal to or exceeding $150,000;
(p) increase the rate of compensation of any Person employed
or retained or whose services have otherwise been obtained by the Company, whose
annual rate of compensation equals or exceeds $100,000 or, after giving effect
to such increase would equal or exceed $100,000;
(q) declare, pay or set aside any amount for and in respect of
incentive, performance or other bonuses; or
(r) remove, replace or accept the resignation of the Chief
Executive Officer of the Company, who initially shall be Kevin R. McDonnell.
2.3 FINANCIAL COVENANTS. The Company agrees that 30 days prior to the
end of each fiscal year to deliver to the Fleet Entities a budget for the
following fiscal year; provided that the Company shall not adopt any such budget
without the Consent of Fleet Entities.
2.4 SALE OF THE COMPANY.
--------------------
(a) In the event a Sale of the Company is proposed by the
Fleet Entities, each of the Management Stockholders hereby waives, to the extent
permitted by applicable law, all rights to object to or dissent from such Sale
of the Company and hereby agrees that each will raise no objections against such
Sale of the Company. Each of the Management Stockholders agrees to vote his or
her respective Shares to approve the terms of any such Sale of the Company and
any matters ancillary thereto (including any conversion or exchange of Shares
for Equity Securities or indebtedness of any acquiring Person or an Affiliate
thereof) as may be necessary in the judgment of the Fleet Entities, to effect
such Sale of the Company; provided that, (i) no Management Stockholder, solely
in his capacity as a director and not in his capacity as a Stockholder, of the
Company shall be required to vote in any manner which would require a breach of
his fiduciary duties to the Company; and (ii) the consideration per Share to be
received by such Management Stockholder pursuant to such Sale of the Company
shall be at least equal to, and otherwise on terms and conditions at least as
favorable to such Management Stockholder, as the consideration per share and the
terms and conditions to be received by the Fleet Entities pursuant thereto.
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(b) The Company and the Management Stockholders hereby agree
to cooperate fully in any Sale of the Company and not to take any action
prejudicial to or inconsistent with such Sale of the Company. Without limiting
the generality of the foregoing, the Management Stockholders will, upon request,
deliver an executed instrument of transfer with respect to their Shares in
escrow (pending receipt of the purchase price therefor) to counsel for the
Company.
(c) The Company shall cause its officers, employees, agents,
contractors and others under its control to cooperate in any proposed Sale of
the Company and not to take any action which might impede any such Sale of the
Company. Any resignation or threat thereof after the date of the applicable
Take-Along Notice but prior to closing of such Sale of the Company by any
Management Stockholder employed or retained by or otherwise providing services
to, the Company shall be regarded as a breach of this provision. Pending the
completion of any proposed Sale of the Company, the Company shall use reasonable
efforts to operate only in the Ordinary Course of Business and to maintain all
existing business relationships in good standing. In connection with any Sale of
the Company, each Management Stockholder, who is so employed or retained by or
otherwise providing services, agrees to enter into an employment agreement on
reasonable terms and conditions with the Company or any Person that is a party
to such Sale of the Company for a term of employment of at least one year
following the consummation of such Sale of the Company; provided that under such
employment agreement such Management Stockholder will receive compensation
substantially equivalent to or exceeding his or her then current compensation
and will have responsibilities with the Company or such acquiring Person
following such Sale of the Company substantially equivalent to or exceeding his
then current responsibilities with the Company.
2.5 SUPPLEMENTARY BONUS PROGRAM.
----------------------------
(a) In the event of the Sale of the Company or any other
Liquidity Event, the Management Stockholders, who either (i) exercise Retained
Options and Transfer the Shares acquired by such exercise pursuant to such Sale
of the Company or Liquidity Event, or (ii) Transfer such Retained Options to a
buyer in connection with such Sale of the Company or Liquidity Event at a price
no greater than the difference between (A) the purchase price payable pursuant
to such Sale of the Company or other Liquidity Event for the number of Shares
that may be acquired upon exercise of such Retained Options, LESS (B) the
aggregate exercise price of such Retained Options, shall be entitled to receive
a bonus from the Company, payable in cash in the amount set forth on Schedule B
hereto (the "SUPPLEMENTARY BONUS"); provided that, if not all of the Shares of a
Management Holder acquired upon exercise of Retained Options and all of the
Retained Options of a Management Stockholder are Transferred in the manner
described above, such Management Stockholder shall receive a portion of the
applicable Supplementary Bonus proportional to the percentage of such Shares and
Retained Options of such Management Stockholder that shall have been
Transferred.
(b) In the event of the Transfer of any Retained Option Shares
by a Management Stockholder pursuant to the "tag-along" right described in and
in accordance with SECTION 5.1(c), such Management Stockholder shall be entitled
to receive a portion of the applicable
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Supplementary Bonus proportional to the percentage of all Retained Option Shares
and Retained Options of such Management Stockholder that shall have been so
Transferred.
(c) Following the Initial Public Offering, in the event of the
Transfer of any Retained Option Shares by a Management Stockholder pursuant to a
"public sale" through a registered broker/dealer, whether under Rule 144
promulgated under the Securities Act or otherwise, such Management Stockholder
shall be entitled to receive a portion of the applicable Supplementary Bonus
proportional to the percentage of all Retained Option Shares and Retained
Options of such Management Stockholder that shall have been so Transferred
(d) Notwithstanding anything to the contrary contained herein,
no Management Stockholder shall be entitled to receive any proposed payment with
respect to the Supplementary Bonus under this Section 2.5 to the extent the
aggregate amount of prior payments to such Management Stockholder with respect
to such Supplementary Bonus exceeds an amount equal to (i) the applicable
Supplementary Bonus MULTIPLIED BY (ii) one (1) MINUS a fraction, (A) the
numerator of which is equal to the number of Retained Option Shares PLUS the
number of shares acquirable upon exercise of Retained Options, in either case
Transferred by such Management Stockholder pursuant to SECTION 4.1 or 4.2 prior
to the date of the proposed payment, and (B) the denominator of which is equal
to the number of Shares acquirable upon exercise of Retained Options held by
such Management Stockholder as of the date hereof, subject to appropriate
adjustments to reflect any stock splits, stock dividends or recapitalizations
affecting the Class A Common Stock or Class B Common Stock.
ARTICLE III
PREEMPTIVE RIGHTS
3.1 RIGHT TO PURCHASE. Subject to the provisions of SECTION 2.2(A), the
Company shall only issue New Shares in accordance with the following terms:
(a) In the event the Company desires to issue any New Shares,
it shall first deliver to each Stockholder a written notice (each such notice, a
"NOTICE OF PROPOSED ISSUANCE") specifying the name and address of the proposed
purchaser of the New Shares (each such purchaser, a "PROPOSED BUYER"), the type
and total number of such New Shares which the Company then desires to issue to
such Proposed Buyer (such New Shares, the "OFFERED NEW SHARES"), all of the
terms, including the price, upon which the Company proposes to issue such
Offered New Shares to such Proposed Buyer, and stating that the Stockholders
shall have the right to purchase such Offered New Shares in the manner specified
in this SECTION 3.1 at the price and in accordance with the terms and provisions
specified in such Notice of Proposed Issuance.
(b) During the ninety (90) consecutive day period commencing
on the date on which the Stockholders receive the Notice of Proposed Issuance,
each Stockholder shall have the option to purchase the Offered New Shares
subject to such Notice of Proposed Issuance at the price and terms specified in
such Notice of Proposed Issuance and in the amount specified in
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SECTION 3.1(c). A Stockholder shall give written notice of his, her or its
election to purchase Offered Shares to the Company on or before the last day of
such ninety (90) day period and, if a Stockholder has not given such written
notice within such period, such Stockholder shall be deemed to have rejected
his, her or its right to purchase the Offered New Shares. A Stockholder shall
have the right to condition his, her or its purchase of the Offered New Shares
upon the closing of the sale of the balance of such Offered New Shares to the
Proposed Buyer. A Fleet Entity shall have the right to assign its purchase
option and oversubscription right under this SECTION 3.1 to another Fleet Entity
or a Subsidiary of FFG.
(c) Each Stockholder shall have the right to purchase that
number of the Offered New Shares as shall be equal to the number of such Offered
New Shares multiplied by a fraction, (i) the numerator of which shall be the
number of Shares then owned by such Stockholder, and (ii) the denominator of
which shall be the aggregate number of Shares then issued and outstanding. The
amount of such Offered New Shares that a Stockholder is entitled to purchase
under this SECTION 3.1(c) shall be referred to as its "PROPORTIONATE SHARE".
(d) Each Stockholder shall have a right of oversubscription
such that if any Stockholder fails to elect to purchase its full Proportionate
Share of the Offered New Shares, the remaining Stockholders shall, among them,
have the right to purchase up to the balance of such Offered New Shares not so
purchased. A Stockholder may exercise such right of oversubscription by electing
to purchase more than its Proportionate Share of the Offered New Shares. If, as
a result thereof, such oversubscriptions exceed the total number of the Offered
New Shares available in respect to such oversubscription privilege, the
oversubscribing Stockholders shall be cut back with respect to oversubscriptions
on a PRO RATA basis in accordance with their respective Proportionate Shares or
as they may otherwise agree among themselves.
(e) The Company shall have the right, until the expiration of
ninety (90) consecutive days commencing on the first day immediately following
the expiration of the ninety (90) day period specified in SECTION 3.1(b), to
issue the Offered New Shares, which the Stockholders shall not have elected to
purchase, to the applicable Proposed Buyer at the price and terms specified in
the applicable Notice of Proposed Issuance. If for any reason the remaining
Offered New Shares are not issued to such Proposed Buyer within such period and
at such stated price and on such stated terms, the right to issue in accordance
with such Notice of Proposed Issuance shall expire and the provisions of this
Agreement shall continue to be applicable to such Offered New Shares.
(f) The Company shall not issue any shares in the name of such
Proposed Buyer unless and until such Proposed Buyer shall have agreed in writing
to become bound by the terms hereof as a Management Stockholder.
(g) The purchase price for any Offered New Shares to be paid
by a Stockholder or the applicable Proposed Buyer shall be the price set forth
in the Notice of Proposed Issuance relating to such Offered New Shares.
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<PAGE> 23
(h) The Fleet Entity purchasing the greatest percentage of any
Offered New Shares shall set the place, time and date for the closing of the
purchase of the Offered New Shares, which closing shall not be later than the
date of the closing of the sale of any Offered New Shares to the Proposed Buyer.
In the event that none or only a portion of the consideration to be paid by a
Proposed Buyer with respect to any Offered New Shares is in cash, the purchase
price therefor shall be the fair value of the consideration to be paid by such
Proposed Buyer. In the event the Fleet Entities and the Company cannot agree,
acting reasonably, upon the fair value of the consideration to be paid for such
Offered New Shares, such parties shall immediately submit the issue of
determining such fair value to binding arbitration which shall be held in
Providence, Rhode Island, in accordance with the rules and procedures of the
American Arbitration Association applicable to commercial transactions.
The closing of the sale of the Offered New Shares to the Purchasers and
the Proposed Buyer shall be delayed until at least ten (10) days following the
final determination of such fair value.
3.2 CLOSING. At the closing of the purchase of any Offered New Shares,
the purchasing Stockholders and the applicable Proposed Buyer shall deliver the
consideration required by SECTION 3.1, and the Company shall deliver
certificates representing the Offered New Shares.
ARTICLE IV
PURCHASE OF MANAGEMENT STOCKHOLDERS' SHARES
4.1 PURCHASE OF MANAGEMENT STOCKHOLDER'S SHARES.
--------------------------------------------
(a) Subject to and in accordance with the other provisions of
this SECTION 4.1, if the employment or other engagement by the Company of any
Management Stockholder is terminated for Cause by the Company at any time or is
voluntarily terminated by such Management Stockholder (other than for Good
Reason) at any time after the date hereof and on or prior to the fifth
anniversary of Closing Date, the Company may, but shall not be obligated to,
repurchase from such Management Stockholder, and/or any Person to which such
Management Stockholder shall have Transferred any Shares (a "MANAGEMENT
SUCCESSOR"), and, if the Company so elects, such Management Stockholder and
Management Successor shall be obligated to sell to the Company, all or any
portion of the Management Shares, the Retained Options and the Performance
Options, which are not terminated as a result of such employment termination,
held or owned beneficially by such Management Stockholder or the Management
Successor of such Management Stockholder at a purchase price equal to the lesser
of (i) the Original Cost, (ii) the Book Value, or (iii) Market Value of such
Management Shares and Company Options. The purchase price payable in such events
shall be paid in accordance with the provisions of SECTION 4.3 hereof.
(b) Subject to and in accordance with the other provisions of
this SECTION 4.1, at any time after the date hereof in the event of (i) the
termination by the Company of the employment or engagement of such Management
Stockholder (other than for Cause), (ii) the
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<PAGE> 24
voluntary termination by such Management Stockholder for Good Reason of his or
her employment or engagement by the Company, (iii) the voluntary termination by
such Management Stockholder of his or her employment or engagement by the
Company for any reason after the fifth anniversary of the Closing Date; or (iv)
the death or Disability of such Management Stockholder, the Company may, but
shall not be obligated to, repurchase from such Management Stockholder (or his
Personal Representative) and/or any Management Successor of such Management
Stockholder and, if the Company so elects, the Management Stockholder (or his
Personal Representative) and/or any such Management Successor shall be obligated
to sell to the Company, all or any portion of the Management Shares, the
Retained Options and the Performance Options, which are not terminated as a
result of such employment termination, death or disability, held or owned
beneficially by such Management Stockholder and Management Successor at a
purchase price equal to the Market Value of such Management Shares, such
Retained Options and such Performance Options; provided that, if such Management
Stockholder or Management Successor shall have the right pursuant to SECTION 4.2
to require the Company to repurchase any Retained Options included in such
Company Options or any Shares acquired upon exercise of Retained Options
included in such Management Shares, the purchase price under this SECTION 4.1(b)
for such Retained Options or such Shares acquired upon exercise of Retained
Options shall not be less than the Original Cost thereof and the purchase price
paid with respect thereto shall be applied against the limits specified in
SECTION 4.2(c). The purchase price payable in such events shall be paid in
accordance with the provisions of SECTION 4.3 hereof.
4.2 PUT OF MANAGEMENT STOCKHOLDER'S SHARES.
---------------------------------------
(a) Subject to and in accordance with the other provisions of
this SECTION 4.2, any prior exercise by the Company of its rights pursuant to
SECTION 4.1 and the terms and provisions of the Financing Agreement, if the
employment or other engagement by the Company of any Management Stockholder is
terminated by the Company for any reason (other than Cause) or by such
Management Stockholder for Good Reason at any time after the date hereof, such
Management Stockholder or any Management Successor of such Management
Stockholder may by written notice to the Company (the "PUT NOTICE") require the
Company to repurchase from such Management Stockholder and any such Management
Successor the Retained Options and Shares acquired upon exercise of Retained
Options held or owned beneficially by such Management Stockholder and Management
Successor at a purchase price equal to the Original Cost of such Retained
Options and Shares. The Management Stockholder shall have no right to put the
Performance Options. The purchase price payable in such events shall be paid in
accordance with the provisions of SECTION 4.3 hereof.
(b) The Put Notice shall be delivered within sixty (60) days
of the termination of the applicable Management Stockholder (such period being
herein called the "PUT EXERCISE PERIOD").
(c) Notwithstanding anything to the contrary contained herein,
the aggregate amount of the purchase price payable by the Company pursuant to
this SECTION 4.2 (including any amounts applied against the limits specified
herein pursuant to SECTION 4.1(b)) from and after
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<PAGE> 25
the date hereof for Management Shares and Company Options held or beneficially
owned by (i) Thomas L. Allen, Phillip W. Lewis, Jeffry W. Shelton or their
interests under the Skyline Trust shall not exceed $266,925, (ii) Kevin R.
McDonnell, his Personal Representative or his Management Successors shall not
exceed $225,000, and (iii) Deborah L. Chitwood, Kenneth Davis or Charles Harnist
shall not exceed $126,945, and, following payment of the specified aggregate
amount, the Company shall have no further obligations under this SECTION 4.2 to
the applicable Persons indicated in subparagraphs (i), (ii) and (iii) above.
4.3. REPURCHASE CLOSINGS.
--------------------
(a)(i) In the event that the Company elects to exercise its
purchase rights with respect to a Management Stockholder pursuant to SECTION
4.1, the Company shall deliver written notice to such Management Stockholder or
such Management Stockholder's Personal Representative, as applicable (the
"EXERCISE NOTICE"), specifying the number of Shares and Company Options to be
repurchased within one hundred and eighty (180) days following the later of the
appointment of any such Personal Representative or the applicable Termination
Date or the period provided in SECTION 4.3(a)(iv) below.
(ii) The purchase of Shares and Company Options pursuant to
SECTION 4.1 shall be completed at the Company's principal office within sixty
(60) days after the delivery of the Exercise Notice, or if the purchase price
therefor shall be based on the Market Value thereof, thirty (30) days following
the determination of the applicable Market Value.
(iii) The purchase of Shares and Company Options pursuant to a
Put Notice given under SECTION 4.2 shall be completed within sixty (60) days
after the later of delivery of such Put Notice.
(iv) In the event the Company fails to deliver an Exercise
Notice within the period specified above, (x) the purchase rights of the Company
with respect to the applicable Shares and Company Options shall terminate;
provided that the applicable Management Stockholder or Management Successor
shall have given the Fleet Entities written notice of such non-delivery of an
Exercise Notice (a "NON-EXERCISE NOTICE") and the Company shall not have
delivered an Exercise Notice within fifteen (15) days of delivery of such
Non-Exercise Notice, (y) if a Management Stockholder or Management Successor
shall fail to deliver a timely Non- Exercise Notice, the Company shall deliver
written notice of the termination of the Company's purchase rights under
SECTION 4.1 (the "COMPANY CALL EXPIRATION NOTICE") to each Stockholder
(other than the Stockholder holding such Shares or Company Options), and (z)
each of such other Stockholders may elect, by delivery of written notice to the
Company within fifteen (15) days after delivery of the Company Call Expiration
Notice, to purchase all or any portion of such Shares at the same price as the
Company would have paid for such Shares had the Company exercised its purchase
rights with respect thereto pursuant to SECTION 4.1. The purchase price payable
in such event shall be paid in accordance with the provisions of this SECTION
4.3.
(v) In the event that the aggregate number of Shares which the
Stockholders elect to purchase pursuant to SECTION 4.3(a)(iv) exceeds the total
of number of Shares that are subject
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<PAGE> 26
to the Stockholders' purchase rights pursuant to SECTION 4.3(a)(iv), each
electing Stockholder will be entitled to purchase a pro rata portion of such
Shares based upon the respective percentage of such Shares which each such
Stockholder had elected to purchase.
(vi) The purchase of Shares pursuant to SECTIONS 4.3(a)(iv) or
(v) by one or more Stockholders shall be completed at the Company's principal
office within thirty (30) days after the delivery of the Company Call Expiration
Notice, or if the purchase price therefor shall be based on the Market Value
thereof, thirty (30) days following the determination of the applicable Market
Value.
(vii) In the event that any Stockholder fails to provide
timely notice to the Company of its election to purchase Shares that are subject
to purchase under SECTIONS 4.3(a)(iv) or (v) or to tender cash or a note in
payment of the purchase price for such Shares at the Company's principal office
within the specified time period, the purchase rights of such Stockholder under
SECTIONS 4.3(a)(iv) and (v) with respect to such Shares shall lapse.
(viii) In the event a Management Stockholder or the Management
Successor of such Management Stockholder fails to deliver a Put Notice during
the Put Exercise Period, the rights of such Management Stockholder and
Management Successor to cause the Company to repurchase the Management Shares of
such Management Stockholder shall terminate.
(ix) At any closing of any purchase of Shares pursuant to this
ARTICLE IV, the selling Management Stockholder, Management Successor and/or, if
applicable, a Management Stockholder's Personal Representative shall deliver to
the Company, or the purchasing Stockholders, as applicable, fully executed
assignments for the Shares being repurchased by the Company, or the purchasing
Stockholders, as applicable, against receipt of the purchase price therefor,
subject to the provisions of SECTION 4.3(b) below.
(b) The Company or a Stockholder shall be entitled to complete
the purchase of Shares pursuant to this ARTICLE IV by delivering to the selling
Management Stockholder (or his Personal Representative, if any) or a Management
Successor of such Management Stockholder either cash or a promissory note for
the purchase price, at the sole discretion of the Company or such Stockholder.
Each such promissory note shall, subject to the terms and provisions of the
Financing Agreement, (w) accrue interest at the rate paid by the Surviving
Corporation on the [Revolving Loan] (as defined in the Financing Agreement) to
the Senior Lender pursuant to the Financing Agreement payable annually, and (x)
provide for the payment of the principal evidenced thereby (together with
accrued and compounded interest thereon) in thirty-six (36) equal monthly
installments of principal beginning on the first day of the first month
following the purchase of such Shares, and (y) be secured solely by a pledge of
Shares which have been purchased.
4.4 DETERMINATION OF MARKET VALUE. For purposes hereof, the "Market
Value" of any Management Shares to be purchased by the Company shall be the fair
market value of such Management Shares, determined as of the applicable
Termination Date as follows:
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(a) (i) The Board of the Company, by affirmative vote of at
least a majority of such Board (excluding, the Chief Executive Officer and any
director designated by the Chief Executive Officer of the Company [the directors
other than any such excluded directors being herein referred to as the
"DISINTERESTED DIRECTORS"]) and with the Consent of Fleet Entities, shall make a
good faith determination of the fair market value of the Management Shares
proposed to be purchased and by written notice to the applicable Management
Shareholder offer to purchase such Management Shares for such fair market price.
(ii) Within fifteen (15) days after the delivery of the offer
described in (a)(i), the Management Stockholder, whose Management Shares are
being purchased, may object to the such Board determination of the fair market
value of such Management Shares by delivery of written notice of such objection
to the Company. If such Management Stockholder does not so object, then the fair
market value of such Management Shares shall be equal to the fair market so
determined by the Board.
(b)(i) If the Management Stockholder, whose shares are being
purchased, pursuant to (a)(ii) above objects to a determination of fair market
value, within thirty (30) days of such objection, the Board of the Company, by
affirmative vote of at least a majority of the Disinterested Directors and with
the Consent of Fleet Entities, shall select a qualified, nationally recognized
appraiser to make a good faith determination of the fair market value of the
Management Shares proposed to be purchased pursuant to a written report (the
"INITIAL APPRAISAL"). Following receipt of the Initial Appraisal, if after
review thereof, the Board of the Company elects to exercise the Company's
purchase rights with respect to such Management Shares at the fair market value
specified in the Initial Appraisal, the Company shall offer to purchase such
Management Shares for the fair market value specified in the Initial Appraisal
and shall deliver a copy of such Initial Appraisal to the applicable Management
Stockholder. For purposes of the exercise by any Stockholder of such
Stockholder's rights to acquire Management Shares pursuant to this Article, the
Board of the Company shall select the appraiser to perform the Initial Appraisal
but any offer or notice given or decision to accept or reject a fair market
value pursuant to this Article shall be made by such Stockholder rather than the
Board of the Company.
(ii) Within fifteen (15) days after the delivery of the offer
described in (b)(i), the Management Stockholder, whose Management Shares are
being purchased, may object to the Initial Appraisal by delivery of written
notice of such objection to the Company. If such Management Stockholder does not
so object, then the fair market value of such Management Shares shall be equal
to the fair market value set forth in the Initial Appraisal.
(c) In the event a Management Stockholder delivers a timely
notice of objection pursuant to (b)(ii), then such Management Stockholder shall,
at his or her own cost and expense, select a qualified, nationally recognized
appraiser to make a good faith determination of the fair market value of the
Management Shares being purchased pursuant to a written report (the "MANAGEMENT
APPRAISAL"). A copy of such Management Appraisal shall be delivered by the
Management Stockholder to the Company and each Fleet Entity within fifteen (15)
days after the date such notice of objection was delivered. In the event such
Management Appraisal is not
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delivered by such date, the fair market value of such Management Shares shall be
equal to the fair market value set forth in the Initial Appraisal.
(d) Within fifteen (15) days of the delivery of the Management
Appraisal, a majority of the Disinterested Directors (with the Consent of Fleet
Entities) may object to the Management Appraisal by delivery of written notice
thereof to the applicable Management Stockholder. If no timely notice of
objection is so delivered within twenty-five (25) days of the delivery of the
Management Appraisal, then the Fleet Entities may object to the Management
Appraisal by delivery of written notice thereof to the applicable Management
Stockholder. In the event no timely notice of objection to the Management
Appraisal is delivered to the applicable Management Stockholder, then the fair
market value of the Management Shares being purchased shall be equal to the
amount set forth in the Management Appraisal.
(e) In the event the Disinterested Directors or the Fleet
Entities deliver a timely notice of objection pursuant to (d), within fifteen
(15) days after the delivery of such notice, the Company and the applicable
Management Stockholder shall cause the appraisers selected by each of them to
mutually agree to and select a third qualified, nationally recognized
independent appraiser to determine the fair market value of such Management
Shares (the "THIRD APPRAISAL"). The Company and the applicable Management
Stockholder shall equally share the cost and expense of such Third Appraisal.
(f) Copies of the written report of the Third Appraisal shall
be delivered by such third appraiser to the Company and the applicable
Management Stockholder within thirty (30) days of selection of such third
appraiser.
(g) Upon delivery of the Third Appraisal, the fair market
value of the Management Shares to be purchased shall equal the average of the
two closest fair market values of such Management Shares set forth in (i) the
Initial Appraisal, (ii) Management Appraisal, and (iii) the Third Appraisal;
provided that following final determination of the Market Value pursuant hereto,
the Company or any Stockholder, as applicable, may elect not to exercise its
purchase rights pursuant to SECTION 4.1.
4.5 REQUIRED CONSENTS. Any purchase of Management Shares and Company
Options pursuant to Section 4.1 shall require the Consent of the Fleet Entities
and the written consent of the Senior Lender. Any purchase of Management Shares
and Company Options pursuant to Section 4.2 shall require the written consent of
the Senior Lender to the Company, which consent the Company shall seek to
obtain.
ARTICLE V
TAKE-ALONG AND TAG-ALONG
5.1 TAKE-ALONG AND TAG-ALONG.
-------------------------
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(a) Except for any Permitted Transfers, in the event that any
transferring Fleet Entity (a "TRANSFERRING FLEET ENTITY") wishes to accept a
bona fide third party offer for the purchase of all or any of the Shares held by
it, such Transferring Fleet Entity shall give written notice thereof to each
other Stockholder, which notice shall describe the material terms and conditions
of such offer.
(b) Transferring Fleet Entities, which shall propose to sell
pursuant to such a bona fide third party offer at least fifty-one percent (51%)
of the Shares held by the Fleet Entities pursuant to a proposed Sale of the
Company, may by written notice (a "TAKE-ALONG NOTICE") to each other Stockholder
require each other Stockholder to sell the same proportionate percentage of the
outstanding Shares which such Stockholder owns, as the Transferring Fleet
Entities propose to sell, for the same consideration per Share and otherwise on
the same terms and conditions obtained by the Transferring Fleet Entity.
(c) TAG-ALONG. If the Transferring Fleet Entities shall not
have delivered a Take-Along Notice with respect to a proposed sale of Shares by
such Transferring Fleet Entities, any Stockholder, at his, her or its option,
may by written notice to such Transferring Fleet Entities given within fifteen
(15) days of receipt of notice of such bona fide third party offer, require such
Transferring Fleet Entities to cause such third party to acquire the same
proportionate percentage of the outstanding Shares which such Stockholder owns,
as the Transferring Fleet Entity proposes to sell, for the same consideration
per Share and otherwise on the same terms and conditions obtained by the
Transferring Fleet Entity. The Transferring Fleet Entities shall not consummate
any sale of Shares by them unless the acquiring Person shall acquire any Shares
of the Management Stockholders required to be acquired under this SECTION
5.1(c).
(d) Stockholders participating in a sale pursuant to this
ARTICLE V shall bear their PRO RATA share of transaction costs incurred in
connection with such sale to the extent such costs would otherwise be borne by
the Transferring Fleet Entity.
ARTICLE VI
RESTRICTIONS ON TRANSFER
6.1 TRANSFER RESTRICTIONS. Except as provided in Section 6.2 hereof, no
Stockholder other than a Fleet Entity shall Transfer any Shares of the Company
except as specifically permitted by this Agreement or pursuant to a Permitted
Transfer.
6.2 REGULATORY COMPLIANCE COOPERATION.
----------------------------------
(a) In the event that any Fleet Entity that is a Small
Business Investment Company within the meaning of the Small Business Investment
Act of 1958, as amended (an "SBIC HOLDER") determines that it has a Regulatory
Problem (as defined below), such SBIC Holder shall have the right to transfer
its Shares without regard to any restriction on transfer set forth in this
Agreement other than applicable federal or state securities laws (provided that
the
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transferee agrees to become a party to this Agreement and executes an Instrument
of Accession), and the Company shall take all such actions as are reasonably
requested by such SBIC Holder in order to (a) effectuate and facilitate any
transfer by such SBIC Holder of any securities of the Company then held by such
SBIC Holder to any Person designated by such SBIC Holder, (b) permit such SBIC
Holder (or any Affiliate thereof) to exchange all or any number of Shares of any
Class A Common Stock for an equal number of Shares of Class B Common Stock, and
(c) amend this and any related agreements and instruments to effectuate and
reflect the foregoing. The parties to this Agreement agree to vote their Shares
in favor of such amendments and actions.
(b) For purposes of this Agreement, a "REGULATORY PROBLEM"
means any set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or any SBIC Holder believes that there is a
substantial risk of such assertion) that such SBIC Holder is not entitled to
hold, or exercise any significant right with respect to, the Shares.
.
6.3 TERMINATION. The provisions of this ARTICLE VI shall terminate upon
the consummation of an initial Public Offering.
ARTICLE VII
MISCELLANEOUS
7.1 REINCORPORATION; AMENDMENT OF ARTICLES OF INCORPORATION AND CODE OF
REGULATIONS.
(a) Following the Effective Time, the Fleet Entities may elect
to cause the reincorporation of the Surviving Corporation as a Delaware
corporation by giving written notice of such election to the Company or the
Surviving Corporation. In any such event, the Company and the Management
Stockholders shall take all necessary steps, including without limitation the
voting by the Management Stockholders of their Shares in favor of any required
action of the stockholders of the Surviving Corporation with respect thereto, at
the expense of the Company to effect such reincorporation within 60 days of such
notice including the ratification of all of the Related Agreements.
(b) As of the Effective Time, immediately following the
consummation of the Merger, the Articles of Incorporation and the Code of
Regulations of the Surviving Corporation shall be amended as set forth on
SCHEDULE C attached hereto. The Company and each of the Stockholders shall take
all necessary steps at the expense of the Company to effect such amendments,
including without limitation, as of the Effective Time, the voting by the
Stockholders of their Shares in favor of such amendments.
7.2 WAIVERS AND AMENDMENTS. Until the Company is reincorporated as a
Delaware corporation, the rights and obligations of the Company and the rights
and obligations of the Stockholders under this Agreement may not be waived
(either generally or in a particular
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instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely) or amended without the written consent of the
Company each Fleet Entity and Persons holding 80% of the number of outstanding
shares of Class A Common Stock and 80% of the number of outstanding shares of
Class B Common Stock. After the Company has been reincorporated in Delaware, the
rights and obligations of the Company and the rights and obligations of the
Stockholders under this Agreement may not be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely) or amended without the written consent
of the Company, each Fleet Entity and Persons holding a majority of the
Management Shares.
7.3 GOVERNING LAW. Until the Company is reincorporated as a Delaware
corporation, this Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio, without giving effect to any choice or
conflict of law provisions or rule that would cause the application of the
domestic substantive laws of any other state, and this Agreement shall be an
Ohio Close Corporation Agreement and shall be governed by the provisions of Ohio
Revised Code Section 1701.591, as amended from time to time. After the Company
is reincorporated as a Delaware corporation, this Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
giving effect to any choice or conflict of law provisions or rule that would
cause the application of the domestic substantive laws of any other state.
7.4 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
7.5 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
7.6 NOTICES. Unless otherwise specifically provided herein, any notice,
consent, waiver or other communication required or permitted to be given
hereunder shall be in writing addressed to the applicable party as set forth
below and may be personally served, telecopied or sent by nationally recognized
overnight courier service or United States certified mail, postage prepaid and
return receipt requested, and shall be deemed to have been given: (i) if
delivered in person, when delivered; (ii) if delivered by telecopy, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. (Providence,
Rhode Island time) or, if not, on the next succeeding Business Day; (iii) if
delivered by overnight courier, one Business Day after delivery to such courier,
properly addressed; or (iv) if by U.S. Mail, four (4) Business Days after
depositing in the United States mail. Notices shall be addressed as follows:
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If to the Company:
c/o Fleet Venture Resources, Inc.
50 Kennedy Plaza
Providence, RI 02903
Telecopy No.: (401) 278-6387
Telephone No.: (401) 278-6770
Attention: Bernard V. Buonanno, III, Vice President
with a copy to:
Richard G. Small, Esq.
Edwards & Angell
2700 Hospital Trust Plaza
Providence, RI 02903
Telecopy No.: (401) 276-6611
Telephone No.: (401) 276-6582
If to any Fleet Entity:
c/o Fleet Venture Resources, Inc.
50 Kennedy Plaza, Suite 1200
Providence, Rhode Island 02903
Telecopy No.: (401) 278-6387
Telephone No.: (401) 278-6770
Attention: Bernard V. Buonanno, III, Vice President
and to:
Chisholm Partners III, L.P.
50 Kennedy Plaza, Suite 1200
Providence, Rhode Island 02903
Telecopy No.: (401) 278-6387
Telephone No.: (401) 278-6770
Attention: Bernard V. Buonanno, III
with a copy to:
Richard G. Small, Esq.
Edwards & Angell
2700 Hospital Trust Plaza
Providence, RI 02903
Telecopy No.: (401) 276-6611
Telephone No.: (401) 276-6582
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If to any Management Stockholder to the residence address of
such Management Stockholder reflected on the books of the Company.
7.7 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto on separate counterparts and each
counterpart, when so executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same instrument.
7.9 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
7.10 CONSENT TO JURISDICTION. UNTIL THE COMPANY IS REINCORPORATED AS A
DELAWARE CORPORATION, THE PARTIES HERETO HEREBY AGREE TO SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS IN AND OF THE STATE OF OHIO AND TO
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE [ ] DISTRICT OF OHIO
AND TO THE COURTS TO WHICH AN APPEAL OF THE DECISIONS OF SUCH COURTS MAY BE
TAKEN, AND CONSENTS THAT SERVICE OF PROCESS WITH RESPECT TO ALL COURTS IN AND OF
THE STATE OF OHIO AND THE UNITED STATES DISTRICT COURT FOR THE [ ] DISTRICT OF
OHIO MAY BE MADE BY REGISTERED MAIL TO IT AT SUCH PARTY'S ADDRESS SET FORTH IN
SECTION 7.6.
ON AND AFTER THE DATE THAT THE COMPANY IS REINCORPORATED AS A DELAWARE
CORPORATION, THE PARTIES HERETO HEREBY AGREE TO SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS IN AND OF THE STATE OF DELAWARE AND TO JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE AND TO THE
COURTS TO WHICH AN APPEAL OF THE DECISIONS OF SUCH COURTS MAY BE TAKEN, AND
CONSENTS THAT SERVICE OF PROCESS WITH RESPECT TO ALL COURTS IN AND OF THE STATE
OF DELAWARE AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
MAY BE MADE BY REGISTERED MAIL TO IT AT SUCH PARTY'S ADDRESS SET FORTH IN
SECTION 7.6.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SKYLINE ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
FLEET VENTURE RESOURCES, INC.
By:
---------------------------------
Bernard V. Buonanno, III
Vice President
FLEET EQUITY PARTNERS VI, L.P.
By: Fleet Growth Resources, II, Inc.,
a General Partner
By:
---------------------------------
Bernard V. Buonanno, III
Vice President
KENNEDY PLAZA PARTNERS
By:
---------------------------------
Bernard V. Buonanno, III
Authorized Partner
<PAGE> 35
CHISHOLM PARTNERS III, L.P.
By: Silverado III, L.P., a General Partner
By: Silverado III, Corp., a General Partner
By:
---------------------------------
Bernard V. Buonanno, III
Vice President
---------------------------------
(Kevin R. McDonnell)
---------------------------------
(Thomas L. Allen)
---------------------------------
(Phillip M. Lewis, Jr.)
---------------------------------
(Jeffrey W. Shelton)
---------------------------------
(Deborah L. Chitwood)
---------------------------------
(Kenneth E. Davis)
---------------------------------
(Charles L. Harnist)
<PAGE> 36
SKYLINE NON-QUALIFIED DEFERRED
COMPENSATION PLAN TRUST
By Equitable Trust Company, as trustee
By
--------------------------------------
M. Kirk Scobey
Executive Vice President
<PAGE> 37
SCHEDULE C
AMENDMENTS
TO
ARTICLES OF INCORPORATION
AND
CODE OF REGULATIONS
OF THE
SURVIVING CORPORATION
I. AMENDMENTS TO ARTICLES OF INCORPORATION. As of the Effective Time,
the following amendments shall be deemed made to the Amended Articles of
Incorporation of the Company (the "Amended Articles"):
A. ARTICLE NINTH. Article Ninth of the Amended Articles shall
be amended by deleting therefrom subsections (c), (d), (e), (f) and (g).
B. ARTICLE TENTH. Article Tenth of the Amended Articles shall
be amended by deleting therefrom subsections (a), (b), (c), (d), (f) and (g) and
by redesignation of subsection (e) thereof as subsection (a).
II. AMENDMENTS TO CODE OF REGULATIONS. As of the Effective Time, the
following amendments shall be deemed made to the Code of Regulations of the
Company (the "Code of Regulations"):
A. SHAREHOLDERS. Section II of the Code of Regulations shall
be amended as follows:
1. SPECIAL MEETINGS. Subsection (b) of Section II of the Code
of Regulations shall be amended by deleting the phrase "fifty percent (50%)"
therefrom and substituting therefor the phrase "ten percent (10%)".
2. NOTICE OF MEETING. Subsection (d) of Section II of the Code
of Regulations shall be amended by deleting the last paragraph thereof and
adding a sentence to the first paragraph thereof as follows:
Such notice shall include a brief description of the business desired to be
brought before the meeting.
3. WAIVER OF NOTICE. Section II of the Code of Regulations
shall be amended by deleting therefrom subsection (h) entitled "PROCEDURE FOR
BRINGING BUSINESS BEFORE MEETING" and inserting in place thereof the following:
<PAGE> 38
(h) Waiver of Notice
----------------
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
B. DIRECTORS. Section III of the Code of Regulations shall be
amended as follows:
1. NUMBER OF DIRECTORS. Subsection (a) of Section III of the
Code of Regulations shall be amended as follows:
(a) the phrase "three (3)" shall be deleted from the first
sentence thereof and the phrase "five (5)" substituted therefor; and
(b) the last two sentences shall be deleted therefrom.
2. NOMINATION AND ELECTION OF DIRECTORS. Subsection (b) of
Section III of the Code of Regulations shall be amended as follows:
(a) the second sentence of the second paragraph thereof shall
be deleted; and
(b) the third paragraph thereof shall be deleted.
3. REGULAR MEETINGS. Subsection (e) of Section III of the Code
of Regulations shall be amended by adding the following proviso to the end
thereof:
; provided that the Board of Directors shall meet at least once per calendar
quarter.
4. SPECIAL MEETINGS. Subsection (f) of Section III of the Code
of Regulations shall be amended by deleting the phrase "three (3)" therefrom and
substituting the phrase "two (2)" therefor.
5. COMMITTEES. Section III of the Code of Regulations shall be
amended as follows:
(a) the second paragraph of subsection (j) thereof shall be
designated as subsection (k), entitled "COMMITTEES";
(b) the first sentence of newly designated subsection (k)
thereof shall be amended by adding at the end thereof the following proviso:
2
<PAGE> 39
; provided that notwithstanding anything to the contrary contained herein the
consent of a majority of the outstanding shares entitled to vote for Directors
shall be required to the appointment to the Audit or Compensation Committees of
any Directors, none of whom shall be an employee or officer of the Corporation,
and the Directors may not establish an Executive Committee without the consent
of sixty-one percent (61%) of the outstanding shares entitled to vote for
Directors.
6. SALE AND LEASEBACK. Section III of the Code of Regulations
shall be amended by inserting at the end thereof new subsection (l) as follows:
(l) SALE AND LEASEBACK. Except pursuant to a vote of a
majority of the Directors, the Corporation shall not engage in any
transaction involving the sale and leaseback of any franchised
restaurant or location.
3
