<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1998
Registration Statement No. 333-_____
- -------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under the
SECURITIES ACT OF 1933
---------------------------------
GB FOODS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0403086
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1200 NORTH HARBOR BLVD.
ANAHEIM, CALIFORNIA 92803
(Address of principal executive offices)
--------------------------
Copies to:
M'Liss Jones Kane, Esq. John A. Niemoeller, Esq.
Vice President-Secretary The Stolar Partnership
GB Foods Corporation 911 Washington Avenue, 7th Fl.
1200 North Harbor Blvd. St. Louis, Missouri 63101
Anaheim, California 92803
(Name and address of agent for service)
Michael W. Schley, Esq.
Larkin, Hoffman,
Daly & Lindgren, Ltd.
1500 Norwest Financial Center
(714) 491-6400 7900 Xerxes Avenue South
(Telephone number of agent for service) Bloomington, MN 55431
Approximate date of commencement of proposed sale to the public: July 31, 1998.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Proposed Proposed
maximum maximum
Title of each Amount offering aggregate Amount of
class of securities to be price offering registration
to be registered Registered(1) per share(2) price(2) fee(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.08 Par Value 3,779,177
Per Share shares(1) $6.01562483(2) $22,734,111(2) $6,707(3)
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 2
(1) Based on the number of shares of the registrant which may be issued in
the Merger described herein upon conversion (at the unadjusted Exchange Ratio of
0.8000 shares of registrant stock per share of Timber Lodge Steakhouse, Inc.
("Timber Lodge") stock) of a total of 4,723,971 Timber Lodge shares. The Timber
Lodge shares consist of the following: (a) the number of shares of Timber Lodge
which are presently outstanding, plus (b) the number of shares of Timber Lodge
which are expected to be issued prior to closing the Merger when Timber Lodge
acquires a private company called JB Parent Corp. which owns 16 restaurants, as
described herein, plus (c) the number of shares of Timber Lodge which are
covered by outstanding stock options and warrants, which will be converted into
options and warrants denominated in the registrant's stock. This registration
statement also covers such greater number of shares as may be required to be
issued in connection with the Merger described herein if the Exchange Ratio
referred to herein exceeds 0.8000 because of an election which the registrant
may make in the event that the average market price of the registrant's common
stock during the ten trading days ending two trading days prior to the effective
time of the Merger is less than $7.50 per share.
(2) The proposed maximum aggregate offering price is estimated to be
$22,734,111 solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1); that estimate is the product of (a) $4.8125,
which is the average high and low prices per share for Timber Lodge's common
stock on July 7, 1998, as quoted on the Nasdaq Small Cap Market, in accordance
with Rule 457(c), and (b) 4,723,971, which is the number of Timber Lodge
shares which may be converted or cancelled in the merger, as described in note
(1) above. The proposed maximum offering price per share is determined by
dividing the proposed maximum aggregate offering price by the amount of
registrant shares to be registered.
(3) In accordance with Rule 457(b), the filing fee of $7,652 paid pursuant
to Rule 14a-6(i)(1) and Rule 0-11(c)(1)(i) at the time of the filing by the
registrant of the preliminary Joint Proxy Statement/Prospectus contained in this
registration statement has been credited to offset the $6,707 registration fee
that otherwise would be payable at this time. No remittance accompanies this
filing because the filing fee that accompanied the preliminary Joint Proxy
Statement/Prospectus was in excess of the fee for this filing.
<PAGE> 3
PART I
<PAGE> 4
JOINT PROXY STATEMENT/PROSPECTUS FOR A PROPOSAL TO MERGE
The Boards of Directors of GB Foods Corporation and Timber Lodge Steakhouse,
Inc. have agreed to combine our two companies. We believe the terms of the
proposed merger will provide business diversification and cost savings to our
collective shareholders which is unavailable to either company separately.
Saving costs, however, is not the primary reason for the proposed merger. The
merger and the other transactions discussed in this booklet are GB Foods' first
steps to becoming a consolidator in the restaurant industry.
If the merger is completed, Timber Lodge will become a wholly-owned
subsidiary of GB Foods. Each share of Timber Lodge common stock will be
converted into 0.8000 shares of GB Foods common stock. The 0.8000 exchange ratio
may be adjusted if the average market price of GB Foods stock shortly before
closing is above $14.00 (in which case the ratio will decrease) or below $7.50.
If the average price is below $7.50, GB Foods may increase the ratio according
to a pre-agreed formula, leave it unchanged, or abandon the merger. If GB Foods
leaves it unchanged, Timber Lodge may accept that action or abandon the merger
itself. The closing price of GB Foods stock on July 8, 1998 was $5.94, and has
closed lower than $7.50 on 50 days from April 1 to July 8, 1998. A table which
sets out how changes in GB Foods' share price affects the exchange ratio appears
on page 8 of this booklet; if GB Foods' average share price is below $7.50, the
table illustrates how GB Foods' election to adjust or not adjust the exchange
ratio would affect the exchange ratio and the number of GB Foods' shares to be
issued in the merger. Neither GB Foods nor Timber Lodge has determined at this
time what it intends to do if GB Foods' average stock price is below $7.50 at
closing. If the shareholders of both our companies approve the merger and GB
Foods' average stock price is below $7.50 at closing, the Boards of both
companies will determine whether to (1) adjust the exchange ratio, (2) not
adjust the exchange ratio, or (3) abandon the merger, as outlined above and
described in this booklet; any of those actions will be taken without seeking
the further approval of shareholders. Except for the resulting dilution, stock
owned by GB Foods' shareholders will be unaffected by the merger. GB Foods'
stock is quoted on the Nasdaq Small Cap Market under the symbol GBFC.
The merger cannot be completed unless the shareholders of both companies
approve the merger at their respective shareholder meetings. Other transactions
related to the merger also must occur as conditions to the merger's completion.
One necessary transaction involves increasing the number of Timber Lodge
Steakhouse restaurants, expanding the geographic territory that brand serves.
These transactions and other conditions to completing the merger are described
in the main body of this booklet.
We believe the merger and the related transactions will benefit both
companies and our collective shareholders, as described in this booklet.
However, those benefits may not materialize, and other risks of owning GB stock
exist as well.
THESE RISKS ARE BRIEFLY SUMMARIZED IN THIS BOOKLET BEGINNING ON PAGE 27 UNDER
THE CAPTION "RISK FACTORS."
The dates, times, and places of the shareholder meetings are:
<TABLE>
<S> <C>
GB FOODS MEETING: TIMBER LODGE MEETING:
Tuesday, September 1, 1998, 10:00 a.m. Friday, August 28, 1998, 10:00 a.m.
Four Seasons Biltmore Hotel Timber Lodge Steakhouse
1260 Channel Drive 5500 Excelsior Blvd.
Santa Barbara, California 93108 St. Louis Park, Minnesota 55416
</TABLE>
At the GB Foods meeting, GB Foods' shareholders will also elect six
directors to one-year terms and consider the following additional matters
discussed in this booklet:
- GB Foods' acquisition of JB's Family Restaurants, Inc. in exchange for
1,000,000 shares of GB Foods common stock (subject to possible
adjustment);
- Amendment of an existing stock option plan and ratification of some of
the grants made under it;
- Approval of a new stock option plan; and
- Approval of a name change from GB Foods Corporation to Santa Barbara
Restaurant Group, Inc.
You are being asked to mark, sign and return the enclosed proxy form at this
time, whether or not you expect to attend your company's meeting in person. Your
vote is very important.
This booklet provides you with detailed information about the proposed
merger and the other proposals mentioned above. We encourage you to read this
entire booklet carefully.
[/s/ ANDREW F. PUZDER] [/s/ DERMOT F. ROWLAND]
<TABLE>
<S> <C>
Andrew F. Puzder Dermot F. Rowland
Chief Executive Officer Chief Executive Officer
GB Foods Corporation Timber Lodge Steakhouse, Inc.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATORS HAVE APPROVED THE MERGER OR THE GB FOODS COMMON
STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER, NOR HAVE ANY OF THEM
DETERMINED WHETHER THIS JOINT PROXY STATEMENT/PROSPECTUS BOOKLET IS
ACCURATE OR ADEQUATE. FURTHERMORE, NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE REGULATORS HAVE DETERMINED THE FAIRNESS OR MERITS
OF THE MERGER. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated July 10, 1998,
and first was mailed to shareholders on or about July 31, 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................... ii
Notice of Annual Meeting (GB Foods)......... iii
Notice of Special Meeting (Timber Lodge).... iv
Questions and Answers about the Timber Lodge
Merger.................................... v
Where to Get Answers to Additional
Questions................................. viii
Summary..................................... 1
Tabular Collar Analysis................... 8
Tabular Goodwill Analysis................. 9
Selected Consolidated Historical Financial
Data Regarding GB Foods................. 10
Selected Historical Financial Data
Regarding Timber Lodge.................. 11
Selected Combined Historical Financial
Data Regarding JBRI..................... 12
Selected Financial Information Relating to
JBRI.................................... 13
Comparative Per Share Data................ 14
Unaudited Pro Forma Combined Condensed
Financial Information................... 15
Diagrams Related to Ownership Structure... 22
Risk Factors................................ 27
Risks Associated with the Merger and JBRI
Acquisition............................. 27
Risks Associated with Business
Operations.............................. 31
Forward-Looking Statements................ 35
The Shareholder Meetings.................... 36
Times and Places; Purposes................ 36
Record Dates.............................. 37
Voting Rights; Votes Required for
Approval................................ 37
Voting Procedures......................... 38
Solicitation of Proxies................... 38
Other Business............................ 38
Proposal No. 1 -- The Merger................ 39
Overview.................................. 39
Background of the Merger.................. 39
Relationship of GB Foods and Timber
Lodge................................... 41
Reasons for the Merger and Board
Recommendations......................... 42
Reasons for Seeking Shareholder
Approval................................ 42
Opinions of Financial Advisors............ 43
Information Supplied to Financial
Advisors................................ 52
Form of the Merger........................ 52
Effective Time............................ 52
Exchange Ratio............................ 52
Conversion and Exchange of Shares......... 53
Effect on Timber Lodge Employee Stock
Options................................. 54
Effect on Timber Lodge Stock Purchase
Warrants................................ 54
Effect on Timber Lodge Stock Held in
401(k) Plan............................. 54
Accounting Treatment...................... 54
Federal Income Tax Matters................ 55
Dissenters' Rights of Appraisal........... 55
Regulatory Matters and Third Party
Approvals............................... 57
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Litigation................................ 57
Delisting of Timber Lodge Common Stock.... 58
Restrictions on Resales of GB Foods Common
Stock................................... 58
The Timber Lodge/JB's Purchase.............. 58
The Fidelity Warrants Exercise.............. 60
Certain Provisions of the Merger
Agreement................................. 60
Certain Covenants......................... 61
Indemnification........................... 62
Conditions to the Merger.................. 62
Termination............................... 63
Fees and Expenses......................... 63
Break-Up of the Merger.................... 63
Amendment................................. 64
GB Foods Corporation........................ 65
Description of Business................... 65
Financial Information..................... 65
Recent Developments....................... 65
Timber Lodge Steakhouse, Inc................ 67
Description of Business................... 67
Annual and Quarterly Reports.............. 67
Where You Can Find More Information......... 67
Comparative Market Price and Dividend
Information............................... 69
GB Foods.................................. 69
Timber Lodge.............................. 69
Management After The Merger................. 71
Principal Stockholders and Security
Ownership of GB Foods..................... 71
GB Foods Stock Beneficially Owned By
Management................................ 72
Principal Shareholders and Security
Ownership of Timber Lodge................. 72
Description of GB Foods Capital Stock....... 73
Market for Stock.......................... 73
Transfer Agent............................ 73
Differences In Shareholder Rights........... 74
Amendments to the Charter................. 74
Amendments to the Bylaws.................. 74
Cumulative Voting for Directors........... 74
Removal of Directors...................... 74
Shareholder Meetings...................... 75
Actions Without Meeting................... 75
Shareholder Proposals..................... 75
Record Inspection Right................... 75
Indemnification........................... 75
Greenmail and Takeover Provisions......... 76
Stock Splits and Reverse Stock Splits..... 77
Dissolution............................... 77
Legal Distributions....................... 77
Issuance of Unissued Stock; Effect of Par
Value................................... 77
Directors' Terms.......................... 77
Potential for State Court-Ordered
Reorganization.......................... 77
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal Income Tax Consequences............. 78
Tax Consequences to Timber Lodge
Shareholders Receiving GB Foods common
stock................................... 78
Tax Consequences to Timber Lodge
Shareholders Receiving Cash............. 78
Certain Transactions and Interests of
Certain Persons in the Merger............. 79
GB Foods Board.......................... 79
Employment Agreements................... 79
Conversion Arrangements................. 80
Timber Lodge Ground Lease............... 80
Proposal No. 2 to GB Foods Meeting --
Approval of JBRI Acquisition.............. 80
Overview of Transaction................. 80
JBRI History and Overview............... 81
Background of the JBRI Acquisition...... 82
Reasons for the JBRI Acquisition and
Board Recommendation.................. 83
Reasons for Seeking Shareholder
Approval.............................. 83
JBRI Financial Information.............. 83
JBRI Acquisition Agreement.............. 84
Opinion of Financial Advisor............ 86
Accounting Treatment.................... 90
Federal Income Tax Matters.............. 90
Regulatory Matters and Third Party
Approvals............................. 90
Litigation.............................. 90
Certain Transactions and Interests of
Certain Persons in JBRI Acquisition... 90
JB's Family Restaurants, Inc................ 91
Description of Business................... 91
Recent Developments....................... 94
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 95
Index to Financial Statements............. 102
Proposal No. 3 to GB Foods
Meeting -- Election of Directors.......... 123
Information Concerning Nominees........... 123
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Committees and Meetings of the Board of
Directors............................... 124
Compensation of Directors................. 124
Executive Compensation...................... 125
Compensation Committee Report............. 125
Stockholder Performance................... 127
Summary of Compensation................... 127
Stock Options............................. 128
Compensation Committee Interlocks and
Insider Participation................... 128
Section 16(a) Beneficial Ownership Reporting
Compliance................................ 128
Proposal No. 4 to GB Foods' Meeting --
Amendments to GB Foods Corporation 1989
Non-Qualified Stock Option Plan and
Ratification of Prior Grants.............. 129
Plan Amendments......................... 129
Grants to be Ratified................... 129
Proposal No. 5 to GB Foods Meeting --
Approval of GB Foods Corporation 1998
Stock Option Plan......................... 130
General Nature and Purposes............... 130
Administration............................ 130
Amendment and Terminations of the Plan.... 131
Eligibility............................... 131
Terms and Conditions of Options and
Restricted Shares....................... 131
Adjustments Upon Changes of Capitalization
and Reorganizations..................... 133
Summary of Federal Income Tax
Consequences............................ 134
Proposal No. 6 to GB Foods Meeting --
Approval of Name Change to Santa Barbara
Restaurant Group, Inc..................... 136
Independent Auditors........................ 136
Stockholders' Proposals for 1999 Annual
Meeting................................... 137
Annual and Quarterly Reports................ 137
Legal Matters............................... 137
Experts..................................... 137
Definitions of Terms Used in This Booklet... 138
Annexes..................................... 139
</TABLE>
AVAILABLE INFORMATION
The Securities and Exchange Commission ("SEC") allows us to "incorporate by
reference" information into this booklet; that information is contained in other
documents filed separately with the SEC which are not included in this booklet.
See "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 56 of this booklet
for details. You can obtain any of such documents from us without charge by
requesting them in writing or by telephone at the following addresses: (1) GB
Foods Corporation, 1200 North Harbor Blvd., Anaheim, California 92803, (714)
491-6400, Attn: M'Liss Jones Kane; and (2) Timber Lodge Steakhouse, Inc., 4021
Vernon Avenue South, St. Louis Park, Minnesota 55416, (612) 929-9353, Attn:
Dermot F. Rowland. TO ENSURE TIMELY DELIVERY, ANY REQUEST FOR SUCH DOCUMENTS
MUST BE RECEIVED BY AUGUST 25, 1998 IF YOU ARE A GB FOODS SHAREHOLDER AND AUGUST
21, 1998 IF YOU ARE A TIMBER LODGE SHAREHOLDER.
ii
<PAGE> 7
GB FOODS CORPORATION
NOTICE OF ANNUAL MEETING
July 31, 1998
TO THE STOCKHOLDERS OF GB FOODS CORPORATION:
The Annual Meeting of Stockholders of GB Foods Corporation will be held at
the Four Seasons Biltmore Hotel, 1260 Channel Drive, Santa Barbara, California
93108 on Tuesday, September 1, 1998, at 10:00 a.m. local time, for the following
purposes:
At the meeting, we will ask you to elect six persons to the GB Foods Board
of Directors, each for a one-year term, and to approve:
- adopting a merger agreement and issuing GB Foods common stock to
Timber Lodge Steakhouse, Inc. shareholders so that Timber Lodge can
become a wholly-owned subsidiary of GB Foods;
- issuing GB Foods common stock to CKE Restaurants, Inc. so that GB
Foods can acquire JB's Family Restaurants, Inc. from CKE;
- an increase in the number of shares authorized under the GB Foods'
1989 Non-Qualified Stock Option Plan and a grant of specific
options already issued under that plan;
- the adoption of the GB Foods Corporation 1998 Stock Option Plan;
and
- the name change of GB Foods Corporation to Santa Barbara Restaurant
Group, Inc.
- We will also ask you to consider and vote on any other business
that may properly arise at the meeting or on any adjournments or
postponements of the meeting.
GB Foods' Board of Directors has fixed the close of business on July 31,
1998, as the record date for the GB Foods Annual Meeting. Only persons who hold
GB Foods common stock on the record date may vote at the meeting, or at any
adjournments or postponements of the meeting.
THE BOARD OF DIRECTORS OF GB FOODS HAS DETERMINED THAT THE MERGER IS FAIR
AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF GB FOODS. THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER WITH TIMBER LODGE AND THE ACQUISITION OF JB'S
FAMILY RESTAURANTS, INC. AND THE AGREEMENTS GOVERNING THEM, AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THOSE TRANSACTIONS. THE BOARD ALSO RECOMMENDS THAT
YOU VOTE FOR THE OTHER MATTERS DISCUSSED IN THIS BOOKLET AND ELECT THE SIX
NOMINEES FOR DIRECTOR.
This Joint Proxy Statement/Prospectus booklet contains detailed information
concerning the matters mentioned above. You are advised to read this booklet
carefully.
By Order of the Board of Directors
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY FORM
EVEN IF YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND, YOU MAY ALLOW
YOUR PROXY FORM TO STAND, OR YOU MAY REVOKE YOUR PROXY FORM AT THE
MEETING AND VOTE IN PERSON.
iii
<PAGE> 8
TIMBER LODGE STEAKHOUSE, INC.
NOTICE OF SPECIAL MEETING
July 31, 1998
TO THE SHAREHOLDERS OF TIMBER LODGE STEAKHOUSE, INC.:
A Special Meeting of Shareholders of Timber Lodge Steakhouse, Inc. will be
held at the Timber Lodge Steakhouse at 5500 Excelsior Blvd., St. Louis Park,
Minnesota 55416 on Friday, August 28, 1998, at 10:00 a.m. local time, for the
following purposes:
At the meeting, we will ask you to approve:
- adopting the merger agreement and exchanging your Timber Lodge
Steakhouse, Inc. common stock for GB Foods common stock so that
Timber Lodge can become a wholly-owned subsidiary of GB Foods
Corporation;
- We will also ask you to consider and vote on any other business
that may properly arise at the meeting or on any adjournments or
postponements of the meeting.
Timber Lodge's Board of Directors has fixed the close of business on July
20, 1998, as the record date for the Timber Lodge Special Meeting. Only persons
who hold Timber Lodge common stock on the record date may vote at the meeting,
or at any adjournments or postponements of the special meeting.
THE BOARD OF DIRECTORS OF TIMBER LODGE HAS DETERMINED THAT THE MERGER IS
FAIR AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF TIMBER LODGE. THE BOARD
HAS UNANIMOUSLY APPROVED THE MERGER, THE AGREEMENT GOVERNING IT, and the other
transactions described in this booklet. The Board unanimously recommends that
you vote to adopt the merger agreement.
This Joint Proxy Statement/Prospectus booklet contains detailed information
concerning the merger and the agreement governing the merger, as well as the
other transactions related to the merger. You are advised to read this booklet
carefully.
By Order of the Board of Directors
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY FORM
EVEN IF YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND, YOU MAY ALLOW YOUR
PROXY FORM TO STAND, OR YOU MAY REVOKE YOUR PROXY FORM AT THE MEETING AND VOTE
IN PERSON.
iv
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE TIMBER LODGE MERGER
Q: HOW WILL THE MERGER BENEFIT THE COMPANIES AND ME?
A: We believe that the combination of our two companies will provide several
benefits: the merger should diversify both companies' geographic presence
and the market segments which each serves at present; the warrant exercise
and purchase of the 16 restaurants will allow the Timber Lodge
Steakhouse(TM) business to expand rapidly into new western markets and at
the same time will enhance GB Foods' financial position. The combination
with Timber Lodge will also complement GB Foods' proposed acquisition of the
stock of JB's Family Restaurants, Inc., a separate transaction to be
considered at the GB Foods' meeting. Finally, both business lines are
expected to benefit from cost savings under common management, particularly
in the areas of reduced overhead and reduced costs of sales, due to improved
purchasing power. If realized, those benefits should, in time, result in
improved financial results and shareholder value for shareholders of both
companies. Of course, the hoped-for benefits may not materialize, and other
risks of owning GB Foods stock are present as well.
Q: WHAT BASIC THINGS WILL HAPPEN TO TIMBER LODGE AND GB FOODS IF THE MERGER
TRANSACTION CLOSES?
A: Timber Lodge will become a wholly-owned subsidiary of GB Foods by merging
with a wholly-owned subsidiary of GB Foods. In the merger, all outstanding
Timber Lodge common stock will be converted into GB Foods common stock.
Timber Lodge will have no public shareholders, and its stock no longer will
be quoted or traded on Nasdaq. GB Foods will survive the merger as a
publicly-held company; its common stock will continue to be quoted and
traded on Nasdaq.
Q: WHAT WILL I RECEIVE IN THE MERGER IF I AM A TIMBER LODGE SHAREHOLDER?
A: If you are a Timber Lodge shareholder, each share of your Timber Lodge common
stock will be converted into 0.8000 shares of GB Foods common stock. The
0.8000 exchange ratio is subject to adjustment if the price of GB Foods
stock is above or below certain limits near the time of the closing, as
explained in the next question and answer.
Q: WHAT WOULD CAUSE THE EXCHANGE RATIO TO BE ADJUSTED?
A: The adjustment provisions are complex, but are designed to ensure that, if
the merger closes, the value of the GB Foods common stock received by Timber
Lodge shareholders will be not less than $6.00 and not more than $11.20 per
Timber Lodge share, based on the average market value of GB Foods stock over
a ten trading day period ending two trading days before closing. It is
possible for the merger to close and for Timber Lodge shareholders to
receive less in value than $6.00, but only if the Timber Lodge Board
determines at that time that proceeding with the merger using the 0.8000
exchange ratio is better for Timber Lodge and its shareholders than
abandoning the merger. If shareholders approve the merger and the average
market value of GB Foods' stock is below $7.50 at the specified time prior
to closing, the Board of GB Foods must decide whether to (1) adjust the
exchange ratio, (2) not adjust the exchange ratio, or (3) abandon the
merger. If GB Foods elects not to adjust the exchange ratio, the Board of
Timber Lodge must decide whether to accept the unadjusted exchange ratio or
abandon the merger. All of those decisions would be made without seeking the
further approval of shareholders of either company.
Q: WHAT WILL I RECEIVE IN THE MERGER IF I AM A GB FOODS STOCKHOLDER?
A: If you are a GB Foods shareholder, your shares will not change. Your GB Foods
shares will remain outstanding, and will represent a smaller percentage
ownership interest in a larger company.
v
<PAGE> 10
Q: WHAT DO I NEED TO DO NOW?
A: You need to vote at your company's shareholder meeting, or at both meetings,
if you own common stock in both companies. You can vote in person at the
meeting, or you can vote by using the proxy form enclosed with this booklet.
To use the form, mark how you want to vote, sign and date the form, and mail
it in the enclosed return envelope as soon as possible. If you do, your
shares will be represented at your company's meeting and will be voted as
you wish, whether or not you attend in person. If you sign the form and mail
it without marking your vote, your shares will be voted in favor of the
merger and in favor of any other proposals made by your company's board of
directors.
You may also attend your company's shareholder meeting in person and vote in
person. If you attend in person after mailing in your proxy form, you may
allow your proxy vote to stand, or you may revoke your proxy and vote in
person. You may also revoke your proxy before the meeting by submitting a
completed proxy form bearing a later date.
THE BOARDS OF DIRECTORS OF BOTH GB FOODS AND TIMBER LODGE UNANIMOUSLY RECOMMEND
VOTING IN FAVOR OF THE MERGER PROPOSAL.
Q: IF MY SHARES ARE HELD BY MY BROKER IN "STREET NAME" HOW WILL I VOTE MY
SHARES?
A: Generally, your broker will not vote your shares unless you provide specific
voting directions. Your broker should provide you with instructions telling
you how to direct your broker to vote. If you do not direct your broker,
your shares will not be voted. If you are a Timber Lodge shareholder,
failure to vote has the same practical effect as voting against the merger.
Q: WHAT DO I DO WITH MY STOCK CERTIFICATES?
A: If you are a Timber Lodge shareholder, you should do nothing now with your
stock certificates. Later, if the merger closes, you will be sent
instructions and paperwork for delivering your Timber Lodge stock
certificates for exchange.
If you are a GB Foods stockholder, you need do nothing with your
certificates. Your GB Foods shares will not be converted or exchanged.
Q: WILL CASH BE PAID TO TIMBER LODGE SHAREHOLDERS IN THE MERGER?
A: Only for fractional shares, because no fractional GB Foods shares will be
issued. Any Timber Lodge shareholder entitled to receive a fraction of a GB
Foods share instead will receive cash representing the value of that
fractional share, based on the average market price of GB Foods common stock
over the ten trading days ending two business days before the closing date
of the merger.
Q: WHAT DIVIDENDS WILL BE PAID TO GB FOODS COMMON STOCKHOLDERS AFTER THE MERGER?
A: GB Foods has paid no dividends to its common stockholders. GB Foods does not
anticipate paying dividends to common stockholders in the foreseeable
future.
vi
<PAGE> 11
Q: ARE THERE ANY CONDITIONS TO THE MERGER?
A: Yes, there are several. The merger must be approved by both the shareholders
of GB Foods and the shareholders of Timber Lodge.
In addition, Timber Lodge plans to purchase 16 restaurants from JB Parent
Corp., a subsidiary of CKE Restaurants, Inc., in exchange for 687,890 shares
of Timber Lodge common stock. The Timber Lodge shares will be converted into
GB Foods' shares in the merger. Timber Lodge plans to convert the 16
restaurants to the Timber Lodge Steakhouse(TM)restaurant format and brand
name. Also, Fidelity National Financial, Inc., GB Foods' largest
stockholder, will exercise warrants to purchase shares of GB Foods common
stock for at least $5 million in cash. GB Foods plans to use the cash from
the warrant exercise primarily to renovate and convert the 16 restaurants.
If Timber Lodge does not purchase the 16 restaurants or Fidelity National
Financial, Inc. does not exercise the warrants, the merger could be
abandoned. However, if shareholders approve the merger and one or both of
the other conditions do not occur, the merger may close anyway if GB Foods
or Timber Lodge waives their right to abandon the merger.
Q: WHEN DO THE COMPANIES EXPECT THE MERGER TO BE COMPLETED?
A: The Boards of both companies have attempted to time the shareholder meetings
so that most conditions will have been satisfied at the time of the
meetings, and it is anticipated that the merger will close within a short
time afterwards.
Q: AFTER THE MERGER AND ITS RELATED TRANSACTIONS, WHAT PERCENTAGE OF GB FOODS
WILL THE PRESENT SHAREHOLDERS OF EACH COMPANY OWN?
A: If the conditions to the merger occur and GB Foods and Timber Lodge have the
same number of shares outstanding before the merger as they do now, and if
the exchange ratio for the merger and the purchase prices for the other
transactions discussed in this booklet are not adjusted, all Timber Lodge
common stock outstanding just before the merger closes, taken together, will
be converted into approximately 31.3% of the GB Foods' common stock which
will be outstanding immediately after the merger. Of the GB Foods shares
expected to be issued in the merger, 550,312 will be owned by CKE
Restaurants, Inc. These shares will derive from shares Timber Lodge issued
shortly before the merger to acquire ownership of 16 restaurants. All GB
Foods common stock outstanding just before closing will constitute
approximately 59.6% of the GB Foods' common stock outstanding immediately
after the merger. In addition, immediately after the merger, stock options
and warrants to acquire approximately 4.7 million GB Foods shares at various
prices will be outstanding, of which about 5.8% will represent former Timber
Lodge stock options and warrants.
Q: WHAT WILL HAPPEN TO THE TIMBER LODGE AND GREEN BURRITO BRAND NAMES?
A: Both companies presently intend to continue using the Timber Lodge Steakhouse
name at substantially all current Timber Lodge Steakhouse(TM) restaurant
locations and, after renovation and format conversion, at the 16 restaurants
which Timber Lodge expects to acquire shortly before the merger closes.
Similarly, the Green Burrito name is expected to continue to be used at
substantially all current Green Burrito restaurant locations. The
restaurants owned by JB's Family Restaurants, Inc., which GB Foods proposes
to acquire, are not expected to be converted to the Green Burrito or Timber
Lodge Steakhouse names or restaurant formats.
vii
<PAGE> 12
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME AS A SHAREHOLDER?
A: GB Foods. There will be no tax consequences to you as a GB Foods stockholder.
Timber Lodge. The receipt of GB Foods shares in exchange for your Timber
Lodge shares will not be taxable to you as a Timber Lodge shareholder for
federal income tax purposes and the total tax basis in your Timber Lodge
shares will become the total tax basis in your GB Foods shares. A Timber
Lodge shareholder who receives cash in lieu of a fractional share will
recognize capital gain or loss.
Q: DO I HAVE ANY RIGHTS TO DISSENT FROM THE MERGER AND RECEIVE THE FAIR VALUE OF
MY SHARES IN CASH?
A: You have the right to vote for or against the merger at your company's
meeting, regardless of the company in which you own stock. However, you have
the right to obtain a judicial appraisal and receive the fair value of your
shares in cash only if you are a Timber Lodge shareholder and only if you
follow exactly the procedures for exercising your legal rights under
Minnesota law. Those rights are called "dissenters' rights."
WHERE TO GET ANSWERS TO ADDITIONAL QUESTIONS
The questions and answers on the previous pages, and the summary section in the
following pages, provide only summary information. For more detailed
information, please read the main portion of this Joint Proxy
Statement/Prospectus booklet along with the Annexes. If you
still have questions about the merger, or about any of
the other matters to be considered at the
shareholder meetings, you should contact:
GB Foods Stockholders:
M'Liss Jones Kane
GB Foods Corporation
1200 No. Harbor Blvd.
Anaheim, California 92803
ph. (714) 491-6400 fax (714) 491-6425
Timber Lodge Shareholders:
Dermot F. Rowland
Timber Lodge Steakhouse, Inc.
4021 Vernon Avenue South
St. Louis Park, Minnesota 55416
ph. (612) 929-9353 fax (612) 929-5658
viii
<PAGE> 13
SUMMARY
The following summary highlights selected information from the main body of
this booklet and does not contain all of the information that is important to
you. To understand the merger and other transactions more fully and for a more
complete description of the legal terms of those transactions, you should read
carefully this entire Joint Proxy Statement/Prospectus booklet, which includes
the Annexes at the back of this booklet as well as the documents which have been
incorporated into this booklet by reference. We have included parenthetical page
references to direct you to more detailed information on the topics presented in
this Summary.
GB FOODS (p. 65)
GB Foods Corporation is incorporated in Delaware and headquartered at 1200
North Harbor Blvd., Anaheim, California 92803 (714/491-6400). GB Foods operates
a limited number of Mexican quick-service restaurants under the trade name "The
Green Burrito" in Southern California, and sells and supervises Green Burrito
franchises.
TIMBER LODGE (p. 67)
Timber Lodge Steakhouse, Inc. is incorporated in Minnesota and
headquartered at 4021 Vernon Avenue South, St. Louis Park, Minnesota 55416
(612/929-9353). Timber Lodge owns and operates 17 Timber Lodge Steakhouse(TM)
restaurants in Minnesota, Wisconsin, South Dakota, upstate New York, and
northern Illinois.
MARKET PRICE INFORMATION (p. 69)
The closing market price of GB Foods common stock on December 11, 1997, the
business day before the merger was publicly announced, was $10.125 per share, as
reported on the Nasdaq Small Cap Market. The closing market price of Timber
Lodge common stock on December 11, 1997 was $4.8125 per share as reported on the
Nasdaq Small Cap Market. The closing price of GB Foods' stock in 1998 (through
July 8) has ranged from a low of $5.94 to a high of $10.94; from April 1 through
July 8, the range has been 5.94 to $8.13.
THE MERGER (p. 39)
Under the merger agreement, subject to certain conditions, Timber Lodge
will merge with TLS Acquisition Corp., which is a wholly-owned subsidiary of GB
Foods set up specially to participate in the Merger.
Timber Lodge shareholders will receive 0.8000 shares of GB Foods common
stock for each share of Timber Lodge common stock. The 0.8000 exchange ratio is
subject to possible adjustment if the market price of GB Foods stock, averaged
over a ten-day period ending two days before closing, is less than $7.50 or more
than $14.00 per share. Two tables on pages 8 and 9 provide detailed information
regarding how changes in GB Foods' average stock price would affect the
shareholders of both companies. If GB Foods' average price were below $7.50, GB
Foods may increase the ratio according to a pre-agreed formula, leave it
unchanged, or abandon the merger. If GB Foods leaves it unchanged, Timber Lodge
may accept that action or abandon the merger itself. The closing price of GB
Foods stock on July 8, 1998 was $5.94, and has closed lower than $7.50 on 50
days from April 1 to July 8, 1998. Neither GB Foods nor Timber Lodge has
determined at this time what it intends to do if GB Foods' average stock price
is below $7.50 at closing. Any such determination would have to be made in
accordance with the fiduciary duties each Board owes under Delaware and
Minnesota corporate law to each company's respective shareholders. Under
Delaware law, the GB Foods' directors' fiduciary duty is to critically assess
all relevant and available data before making a determination, and to act in the
best interests of all GB Foods stockholders. Under Minnesota law, the Timber
Lodge directors' fiduciary duty is to make a determination in good faith in a
manner the directors reasonably believe to be in the best interests of Timber
Lodge, with the care that an ordinarily prudent person in a similar position
would exercise in similar circumstances. Each Board would consider all of the
circumstances at that time, including: recent share price trends for GB Foods,
the restaurant industry, and overall in the market; recent trends or
developments in the restaurant industry; recent trends or developments in the
businesses or outlook of GB Foods, Timber Lodge, or JB's Family Restaurants,
Inc.; and, the prospects for any alternative strategic courses of action which
might include approaching other acquirors and/or target companies. In addition,
GB Foods' Board would consider the dilutive effects of an increase in the
exchange ratio. If the shareholders of both our companies approve the merger,
that approval will authorize the Boards of both companies to adjust, to elect
not to adjust, or to elect to abandon the merger, as
1
<PAGE> 14
outlined above and described in this booklet; any of those actions could be
taken without seeking your supplemental approval.
As an example of how the adjustment provisions work, assume that the ten
day average closing price of GB Foods common stock is $5.9375 per share (that
price was the actual closing price on July 8, 1998). In that case, since the ten
day average price is below $7.50, GB Foods' Board of Directors would be required
to choose to: (1) increase the exchange ratio to 1.2632 GB Foods shares for each
Timber Lodge share; (2) allow the exchange ratio to remain at 0.8000 GB Foods
shares for each Timber Lodge share; or (3) abandon the merger. If GB Foods'
Board chose (1), Timber Lodge would be required to complete the merger. If GB
Foods' Board chose (2), Timber Lodge's Board would be required to choose to
accept the unadjusted exchange ratio, or it could elect to abandon the merger.
Both the GB Foods' Board and the Timber Lodge Board, in choosing option (1),
(2), or (3), will be required to exercise their best judgment in accordance with
their fiduciary obligations and will not seek shareholder approval of their
decision. This is just an example; the actual ten day average closing price is
likely to differ from the assumed one, and any such difference would affect how
the exchange ratio would be adjusted, if GB Foods' Board chose to adjust it. A
table illustrating the effects of these alternatives appears on page 8.
There will be no cash payments to Timber Lodge shareholders other than for
fractional shares. The merger and merger agreement are described in more detail
later in this booklet. Also, a conformed copy of the merger agreement as
restated, excluding schedules, is attached as Annex A. We urge you to read the
merger agreement; it is the legal document which governs the merger.
TIMBER LODGE'S PURCHASE OF SIXTEEN RESTAURANTS
(p. 58)
Before GB Foods has to complete the merger, Timber Lodge must acquire JB
Parent Corp., a subsidiary of CKE whose only assets at the time of purchase will
be sixteen restaurants. Timber Lodge intends to convert the sixteen restaurants
to the Timber Lodge Steakhouse(TM) restaurant format and brand name. Timber
Lodge will issue 687,890 shares of its common stock to pay for those
restaurants. Those shares will be converted into 550,312 shares of GB Foods'
stock in the merger if the exchange ratio in the merger remains 0.8000. If the
merger with GB Foods is not approved by the Timber Lodge shareholders, Timber
Lodge could refuse to purchase the sixteen restaurants. In that situation,
because Timber Lodge would not have available the use of the $5 million which GB
Foods would have received from Fidelity National Financial, Inc.'s exercise of
certain stock warrants it holds, Timber Lodge presently expects it would not
purchase the sixteen restaurants.
THE FIDELITY WARRANTS EXERCISE (p. 60)
Before GB Foods and Timber Lodge complete the merger, Fidelity National
Financial, Inc., (GB Foods' largest stockholder) must exercise warrants to
purchase shares of GB Foods' common stock for at least $5 million in cash. The
cash is expected to be used primarily to renovate and convert the sixteen
restaurants to the Timber Lodge Steakhouse(TM) brand name and format.
Although Fidelity owns and could exercise a total of 3,470,000 warrants
priced variously at $5.00, $7.00, and $7.50 per share, it is assumed throughout
this booklet that Fidelity will exercise $5.00 warrants for 1,000,000 GB Foods
shares. The exercise of those warrants will have the following dilutive effects
on other GB Foods stockholders:
STOCK OWNERSHIP DILUTION* UPON
EXERCISE OF WARRANTS FOR 1,000,000 SHARES
<TABLE>
<CAPTION>
ALL OTHER
GB
FIDELITY STOCKHOLDERS**
-------- --------------
<S> <C> <C>
Current Ownership..... 15.8% 84.2%
Ownership if Warrants
Exercised........... 26.9% 73.1%
Ownership if Warrants
Exercised and Merger
Closed.............. 19.8% 81.2%
Ownership if Warrants
Exercised, Merger
Closed, and JB's
Family Restaurants,
Inc. Acquired....... 18.1% 81.9%
</TABLE>
* Based on 6,576,485 GB Foods shares outstanding at March 31, 1998 and
3,634,415 Timber Lodge shares outstanding at March 31, 1998, and assuming the
merger exchange ratio remains 0.8000 and the purchase price of 1,000,000 GB
Foods shares
2
<PAGE> 15
for JB's Family Restaurants, Inc. remains unchanged. All percentages ignore
Fidelity's unexercised warrants.
** CKE Restaurants, Inc. currently owns no GB Foods shares or warrants, but will
acquire a significant number of shares if either the merger or the JB's
acquisition closes. The effects of this on other GB stockholders is
illustrated in the diagrams appearing on pages 22-25.
OUR REASONS FOR THE MERGER (p. 42)
We believe that the merger, Timber Lodge's purchase of the sixteen
restaurants, and Fidelity's warrant exercise will provide several important
benefits. The merger should diversify both companies geographically and in terms
of the market segment which each served. Fidelity's warrants exercise and Timber
Lodge's sixteen restaurant purchase will allow Timber Lodge to expand rapidly
into new southwestern and western markets and will add financial strength to GB
Foods' balance sheets. The combination with Timber Lodge will also complement GB
Foods' proposed acquisition of the stock of JB's Family Restaurants, Inc.
discussed below. Finally, both GB Foods and Timber Lodge are expected to benefit
from cost savings under common management, particularly in the areas of reduced
overhead and costs of sales due to improved purchasing power.
GB FOODS' ACQUISITION OF JB'S FAMILY RESTAURANTS, INC. (p. 80)
GB Foods has agreed to issue 1,000,000 shares of GB Foods' common stock
(subject to possible adjustment) in exchange for all of the outstanding capital
stock of JB's Family Restaurants, Inc., an indirect wholly-owned subsidiary of
CKE Restaurants, Inc. If the shareholders' equity of JB's Family Restaurants,
Inc. is less than $5,000,000 on the day the acquisition is to be completed, the
companies may agree to adjust the number of GB Foods' common stock to be issued.
CKE Restaurants, Inc. has informed GB Foods that it intends to take actions
necessary to avoid any adjustment. If for any reason the 1,000,000 share
purchase price were materially adjusted after the GB Foods meeting, the GB
Foods' Board of Directors would re-solicit GB Foods' stockholders for approval
of the new price.
GB Foods believes that the acquisition of JB's Family Restaurants, Inc.
will significantly increase GB Foods' asset and capital base, diversify GB Foods
in terms of market segment and geography, and result in cost savings from
reduced overhead and purchasing economies resulting from the increased size of
the combined entity. The acquisition also will complement GB Foods' acquisition
of Timber Lodge.
DIAGRAMS (pp. 22-26)
To help you understand how these proposed transactions will affect the
ownership structure of GB Foods and Timber Lodge, we urge you to review the
diagrams on pages 22-26. We have also provided the diagrams to illustrate how
JB's Family Restaurants, Inc. has been changed since the end of its last fiscal
year, and how the proposed transactions will further affect it.
RISK FACTORS (p. 27)
If realized, the benefits mentioned above should, eventually, result in
improved financial results and shareholder value for shareholders of both GB
Foods and Timber Lodge. Of course, the benefits may not materialize, and other
risks are present as well. All shareholders should read carefully the discussion
of risk factors in the main body of this booklet.
RELATIONSHIPS AMONG GB FOODS, CKE, FIDELITY, WILLIAM P. FOLEY, II, STAR BUFFET,
INC., JB'S FAMILY RESTAURANTS, INC.,
AND TIMBER LODGE
Certain members of the GB Foods' board of directors serve as directors or
officers of CKE Restaurants, Inc. These individuals include Andrew F. Puzder,
William P. Foley, II, and Frank P. Willey. Mr. Foley is the chairman of the
board and chief executive officer of CKE and Fidelity. He is also chairman of
the board of GB Foods and Star Buffet, Inc.
CKE owns no stock of GB Foods, but is its single largest franchisee. Mr.
Foley is a director of the corporate general partner of CKE's largest
shareholder, and (as of July 2, 1998) for purposes of SEC Rule 13d-3 he
beneficially owned approximately 10% of CKE's outstanding shares (inclusive of
exercisable employee stock options owned by Mr. Foley and inclusive of shares
owned by CKE's largest shareholder).
Fidelity owned (as of July 2, 1998) approximately 1.8% of CKE's outstanding
common stock. In addition to being chairman of the board and chief executive
officer of Fidelity, Mr. Foley beneficially owned (as of July 2, 1998)
approximately 16% of Fidelity's outstanding common stock (inclusive of certain
employee stock options owned by Mr. Foley) and is Fidelity's largest
shareholder.
3
<PAGE> 16
Fidelity owns 175,800 shares of Timber Lodge common stock (approximately
4.8% of its outstanding shares as of June 1, 1998). Fidelity acquired its Timber
Lodge shares in September 1997, before GB Foods began negotiations with Timber
Lodge. Mr. Foley personally owns 46,700 shares of Timber Lodge common stock
(approximately 1.3% of its outstanding shares as of June 1, 1998). He acquired
his shares in the open market after the original merger agreement between GB
Foods and Timber Lodge was executed and publicly announced in January, 1998.
CKE indirectly owns JB's Family Restaurants, Inc., which GB Foods proposes
to acquire, and also owns JB Parent Corp., which Timber Lodge proposes to
acquire. The historical financial statements of JB's Family Restaurants, Inc.
are included in this booklet beginning at page 102; however, since the end of
its most recent fiscal year, JB's Family Restaurants, Inc. has undergone several
significant structural changes. The financial effect of those changes are
described in Note 16 to those statements beginning at page 117. To help you
better understand those changes, we have provided diagrams of the past, present,
and proposed ownership structures of JB's Family Restaurants, Inc. and its
assets on pages 22-26.
One of those restructuring changes, which occurred in February, 1998, is
the sale of 12 restaurants to Star Buffet, Inc. CKE received the cash proceeds
from this sale. CKE owns approximately 36.7% of Star Buffet's outstanding stock.
Another was the transfer of 16 restaurants to JB Parent Corp. As a result, JB's
Family Restaurants, Inc. has been divided into 3 pieces: the 12 restaurants sold
to Star Buffet; the 16 restaurants transferred to JB Parent Corp.; and, the 52
restaurants retained by JB's Family Restaurants, Inc. During the 52 weeks ended
January 26, 1998, these three pieces generated operating income (losses) of:
$806,000 by the 12 restaurants sold to Star Buffet; ($491,000) by the 16
restaurants transferred to JB Parent Corp.; and, $107,000 by the 52 restaurants
retained by JB's Family Restaurants, Inc. As a group, the 12-restaurant piece
sold to Star Buffet was more profitable in the last fiscal year than the 16-
restaurant piece transferred to JB Parent Corp. or the 52-restaurant piece
retained by JB's Family Restaurants, Inc.
The fact that three of GB Foods' directors were closely affiliated with CKE
created a conflict of interest under Delaware corporate law with respect to the
purchase of JB's Family Restaurants, Inc. Under those circumstances, Delaware
law requires that any one of the following occur: (1) the conflict is disclosed
or known to the disinterested directors (Messrs. Haglund and Anthony) and both
disinterested directors approve the transaction; (2) the conflict is disclosed
or known to the GB Foods shareholders and the transaction is approved by the
shareholders; or (3) the transaction is fair to GB Foods as of the time the
transaction is approved by the board or shareholders. In the case of (2), the
transaction also must be fair (in other words, shareholder approval alone is not
sufficient). Here, the conflict was known to GB Foods' disinterested directors
and was approved by them both. Supplemental to that, GB Foods' board obtained an
opinion of a financial advisor that the consideration to be paid in the
acquisition is fair to GB Foods from a financial point of view, and is
soliciting the approval of shareholders after full disclosure in this booklet of
the conflict of interest. If the JB's transaction later were challenged under
Delaware law, the financial advisor's opinion would not control a court's
determination as to whether the transaction was fair. The GB Foods' board could
use shareholder approval as part of its defense under (2), but alternatively
could use the approval of the disinterested directors as a defense.
OUR RECOMMENDATIONS TO SHAREHOLDERS
(pp 42, 83, 124, 130, 136)
To GB Foods' Stockholders. GB Foods' Board of Directors believes that the
merger and the acquisition of JB's Family Restaurants, Inc. is fair to you and
in your best interests. The Board unanimously recommends that you vote FOR the
merger and the acquisition. The GB Foods Board also unanimously recommends that
you vote FOR each of the six nominees for director named in this booklet, and
FOR each of the other proposals for the GB Foods Meeting: the amendment to the
1989 Non-Qualified Stock Option Plan and the approval of specific grants under
that plan; the adoption of the 1998 Stock Option Plan; and the change of GB
Foods' name to Santa Barbara Restaurant Group, Inc.
To Timber Lodge Shareholders. The Timber Lodge Board of Directors believes
that the merger is fair to you and in your best interests. The Board unanimously
recommends that you vote FOR the merger.
SHAREHOLDER VOTE REQUIRED (p. 37)
GB Foods' stockholders must approve the merger, the JB's Family
Restaurants, Inc. acquisition, amendments to the 1989 Non-Qualified Stock Option
Plan and the 1998 Stock Option Plan by a majority of the total shares of GB
4
<PAGE> 17
Foods' common stock which are voted. Timber Lodge shareholders must approve the
merger by a majority of the outstanding shares of Timber Lodge common stock on
the record date for the Timber Lodge Meeting. Directors of GB Foods are elected
by GB Foods' stockholders by a legal procedure called cumulative voting.
Cumulative voting permits a GB Foods' stockholder to multiply the shares he or
she may vote by the number of directors to be elected, and to allocate those
votes among the nominees in any amount. For this election, the number of
directors, or the multiplier, is six. The name change (proposal 6 at the GB
Foods Meeting) must be approved by the holders of at least 51% of GB Foods'
common stock outstanding on the record date for the GB Foods Meeting.
DISSENTERS' RIGHTS OF APPRAISAL (p. 55)
GB Foods' stockholders will have no right to dissent or seek appraisal of,
or cash payment for, their shares of common stock.
Timber Lodge shareholders who do not vote in favor of the merger and who
follow all of the procedures required under Sections 302A.471 and 302A.473 of
the Minnesota Business Corporation Act have a statutory right to seek a judicial
appraisal of the value of their shares of Timber Lodge stock and to receive a
cash payment for them from GB Foods.
TAX CONSEQUENCES OF THE MERGER TO TIMBER LODGE SHAREHOLDERS (p. 78)
We are not getting a ruling from the IRS regarding the tax effects of the
merger. However, tax counsel to Timber Lodge, Larkin, Hoffman, Daly & Lindgren,
Ltd. has opined that a Timber Lodge shareholder (other than CKE Restaurants,
Inc.) receiving GB Foods' common stock in the merger will not recognize any gain
or loss for federal income tax purposes. However, a Timber Lodge shareholder
(other than CKE Restaurants, Inc.) who receives cash for a fractional share or
upon exercise of dissenters' rights will recognize capital gain or loss relating
to such receipt of cash. The aggregate basis of the GB Foods common stock
received will be the same as the aggregate basis of the Timber Lodge common
stock surrendered. The holding period of the GB Foods common stock received will
include the holding period of the Timber Lodge common stock surrendered.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS (pp. 43, 48, 86)
We have each engaged a financial advisor. GB Foods received an opinion from
Piper Jaffray Inc. dated April 14, 1998, to the effect that the 0.8000 exchange
ratio was fair to GB Foods from a financial point of view, and Timber Lodge
received an opinion from Pauli & Company Incorporated dated March 26, 1998 to
the effect that the consideration to be received in the merger is fair to the
shareholders of Timber Lodge from a financial point of view. These opinions are
included in this booklet as Annex C and Annex D.
By supplemental letter dated June 30, 1998, Piper Jaffray advised the GB
Foods Board of Directors that, based on a review of the internal analyses of
Piper Jaffray and other facts and circumstances as they existed on April 14,
1998, but giving retroactive effect solely to a more current price of GB Foods'
stock ($6 3/8 closing price on June 29, 1998) and an assumed election by GB
Foods to adjust the exchange ratio to 0.9412 in accordance with the Merger
Agreement, it would have been the opinion of Piper Jaffray, as of April 14,
1998, that such increased exchange ratio was fair from a financial point of view
to GB Foods. The supplemental letter is included in this booklet beginning at
page C-5 of Annex C.
The Piper Jaffray opinion was rendered on April 14, 1998 and was based on
information available to Piper Jaffray at that time. Since that time, among
other things, the market price of GB Foods' stock has fallen below $7.50 per
share. If the ten-day average price of GB Foods' stock shortly before closing
(as required by the merger agreement) is below $7.50, GB Foods could elect to
adjust the exchange ratio to a figure higher than 0.8000, or elect to leave the
ratio unadjusted, or elect to abandon the Merger. GB Foods' Board of Directors
would have to make that election in accordance with its fiduciary duties under
Delaware law to the GB Foods shareholders. The Board would be required to
consider, among other things, Piper Jaffray's opinion and supplemental letter
regarding the merger. However, the supplemental letter contemplates only an
exchange ratio of 0.9412 based on GB Foods' stock price on June 29, 1998 of
$6 3/8; it does not contemplate, and Piper Jaffray has expressed no opinion
regarding, any other exchange ratio or stock price and, if the ten-day average
closing price were lower than $6 3/8, the GB Foods Board would have to make an
election concerning the exchange ratio in the absence of
5
<PAGE> 18
an opinion from Piper Jaffray which addresses the exchange ratio to which the
merger agreement would adjust at GB Foods' election.
Pauli & Company Incorporated's opinion to the Timber Lodge Board of
Directors was rendered on March 26, 1998 and was based on information available
to Pauli at that time. Since that time, among other things, the market price of
GB Foods' stock has fallen below $7.50 per share. Pauli's opinion did
contemplate the possibility that if the ten-day average price of GB Foods' stock
shortly before closing is below $7.50, GB Foods could elect to adjust the
exchange ratio upwards in accordance with the merger agreement. Pauli's opinion
did not contemplate, and Pauli has not been asked to express an opinion
regarding, the possibility that if the ten-day average price of GB Foods' stock
shortly before closing is below $7.50, GB Foods could elect to leave the
exchange ratio unadjusted at 0.8000; in that case, Timber Lodge could elect
either to accept the unadjusted ratio and close the merger, or to abandon the
merger. In that event, Timber Lodge's Board of Directors would have to make that
election in accordance with its fiduciary duties under Minnesota law to the
Timber Lodge shareholders, and would have to make that election without an
opinion from Pauli which addresses that situation. (On the other hand, if GB
Foods elected to adjust the exchange ratio in accordance with the merger
agreement, Timber Lodge could not abandon the merger and so would have no
election to make.)
GB Foods also engaged Piper Jaffray Inc. to opine whether the consideration
to be paid in the acquisition of JB's Family Restaurants, Inc. is fair to GB
Foods from a financial point of view. GB Foods received an opinion from Piper
Jaffray Inc. dated April 14, 1998, to such effect. This opinion is included in
Annex H.
Each fairness opinion has been addressed to the applicable Board of
Directors, does not constitute a recommendation to any shareholder as to how
such shareholder should vote and has significant limitations and qualifications
which are specified in them. You are encouraged to read the opinions carefully
with those limitations and qualifications in mind.
CONDITIONS TO CLOSING THE MERGER;
TERMINATION (p. 63)
Completion and closing of the merger is subject to the satisfaction of
certain conditions. Unless those conditions are satisfied or waived, GB Foods,
Timber Lodge, or either have the right to abandon the merger, depending upon the
condition. These conditions include: approval of the merger by the shareholders
of both companies; exercise by Fidelity of warrants to purchase shares of GB
Foods' common stock for at least $5 million in cash (which it has agreed to do);
purchase by Timber Lodge of sixteen restaurants from CKE in exchange for 687,890
shares of Timber Lodge common stock; and, satisfaction of various technical and
legal requirements.
In addition, GB Foods or Timber Lodge has the right to abandon the merger
if one or more specified events occur. The merger could be abandoned if: the
merger does not close by July 31, 1998 or, Timber Lodge's Board of Directors
determines, under specified conditions in the Merger Agreement, to accept
another offer to acquire Timber Lodge.
Generally GB Foods and Timber Lodge each is to pay its own expenses if the
merger agreement terminates or is abandoned, except if either party commits a
willful breach of the agreement or if the options, discussed below, are issued
in connection with a break-up.
BREAK-UP OF THE MERGER (p. 63)
Timber Lodge is required to issue to GB Foods options to acquire 19.9% of
Timber Lodge's common stock priced at $4.65 per share if the following events
occur: (1) before the merger closes any person acquires a majority of Timber
Lodge's outstanding shares; and (2) any of the following events also occur: (a)
Timber Lodge's shareholders do not approve the merger, or (b) Timber Lodge's
Board of Directors changes its favorable recommendation regarding the merger, or
(c) GB Foods abandons the merger due to certain breaches of the merger agreement
by Timber Lodge, or (d) Timber Lodge abandons the merger in favor of another
offer to acquire Timber Lodge.
CONDITIONS TO CLOSING THE JBRI ACQUISITION (p. 85)
Completion and closing of the acquisition of JB's Family Restaurants, Inc.
is subject to the satisfaction of certain conditions which are summarized in the
main body of this booklet.
MANAGEMENT AFTER THE MERGER (p. 71)
After the merger, assuming all six of the nominees identified in this
booklet are elected, GB Foods' Board of Directors will consist of seven members:
William P. Foley, II; Andrew F.
6
<PAGE> 19
Puzder; T. Anthony Gregory; Bruce H. Haglund; Dermot F. Rowland; C. Thomas
Thompson and Frank P. Willey.
After the Merger, the officers of GB Foods are expected to be: William F.
Foley, II, Chairman of the Board; Andrew F. Puzder, Chief Executive Officer;
Nicolas J. Caddeo, Chief Operating Officer; Carl A. Strunk, Executive Vice
President-Finance; Ted Abajian, Executive Vice President, Chief Financial
Officer and Chief Accounting Officer, Gary R. Nelson, Treasurer, and M'Liss
Jones Kane, Senior Vice President and Secretary.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (p. 79)
Two Timber Lodge directors and officers, Messrs. Rowland and Bedzyk, have
interests in the merger and related transactions that are different from yours
as a Timber Lodge shareholder because they are being offered employment
agreements.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION OF JB'S FAMILY RESTAURANTS, INC.
(p. 90)
Three of GB Foods' directors, Messrs. Foley, Puzder, and Willey, also are
directors or executive officers of CKE Restaurants, Inc. (which owns JB's Family
Restaurants, Inc.). However, the remaining two directors, Messrs. Haglund and
Gregory, are not affiliated with CKE Restaurants, Inc. All five of GB Foods'
directors approved the acquisition of JB's Family Restaurants, Inc. and all five
recommend that you vote in favor of that acquisition. The GB Foods Board
believes it has fairly and objectively evaluated and reviewed this acquisition
(as discussed in this booklet) and acted in the best interests of GB Foods and
all of its stockholders.
ACCOUNTING TREATMENT (pp. 54, 90)
We expect to use the purchase method of accounting for the Merger, GB
Foods' acquisition of JB's Family Restaurants, Inc., and Timber Lodge's
acquisition of the sixteen restaurants. This means that GB Foods will treat
Timber Lodge and JB's Family Restaurants, Inc., and Timber Lodge will treat the
sixteen restaurants, as assets that were purchased for financial accounting and
reporting purposes. As a result, after the merger, GB Foods will recognize
goodwill which is expected to be spread over 40 years. The approximate expected
annual amounts are: $342,775 (merger); $91,175 (acquisition of JB's Family
Restaurants, Inc.); and $56,375 (sixteen restaurants).
FORWARD-LOOKING STATEMENTS
MAY PROVE INACCURATE (p. 35)
We have each made forward-looking statements in this booklet, and in
documents that are incorporated by reference, that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of GB Foods or Timber Lodge.
Also, when we use words such as "will," "believes," "expects," "anticipates" or
use similar expressions, we are making forward-looking statements. Shareholders
should note that many factors, some of which are discussed elsewhere in this
document and in the documents which we incorporate by reference, could affect
the future financial results of GB Foods or Timber Lodge and could cause those
results to differ materially from those expressed in our forward-looking
statements contained or incorporated by reference in this booklet. These factors
include the following:
- operating, legal and regulatory risks;
- economic, social, and competitive forces affecting our core business in
our geographic markets; and
- the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
7
<PAGE> 20
TABULAR COLLAR ANALYSIS
As mentioned previously, the exchange ratio for the merger and other
matters are affected by changes in GB Foods' average stock price shortly before
closing. The following table shows the effects on the exchange ratio, the
equivalent value of one Timber Lodge share, and the number of GB Foods shares
which would be issued in the merger, over a range of GB Foods average stock
prices. This table does not predict GB Foods' stock price; the high and low
limits of the table were determined arbitrarily to illustrate the effects of GB
Foods' average stock price from $2.00 below the lower adjustment point of the
exchange ratio to $2.00 above it.
MERGER COLLAR ANALYSIS
<TABLE>
<CAPTION>
AVERAGE MERGER EQUIVALENT NUMBER OF
GB FOODS EXCHANGE TIMBER LODGE GB FOODS
DESCRIPTION SHARE PRICE RATIO SHARE VALUE SHARES ISSUED(B)
- --------------------------------------------- ----------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
ABOVE $14.00: $ 16.00 0.7000 $11.20 3,025,614
the exchange ratio adjusts automatically $ 15.50 0.7226 $11.20 3,123,214
to maintain an equivalent share value $ 15.00 0.7467 $11.20 3,227,321
of $11.20 per Timber Lodge share $ 14.50 0.7724 $11.20 3,338,608
- --------------------------------------------------------------------------------------------------------------------
FROM $7.50 THROUGH $14.00: $ 14.00 0.8000 $11.20 3,457,844
the exchange ratio is fixed at $ 13.50 0.8000 $10.80 3,457,844
0.8000 and the equivalent $ 13.00 0.8000 $10.40 3,457,844
share value varies from $ 12.50 0.8000 $10.00 3,457,844
$6.00 to $11.20 $ 12.00 0.8000 $ 9.60 3,457,844
$ 11.50 0.8000 $ 9.20 3,457,844
$ 11.00 0.8000 $ 8.80 3,457,844
$ 10.50 0.8000 $ 8.40 3,457,844
$ 10.00 0.8000 $ 8.00 3,457,844
$ 9.50 0.8000 $ 7.60 3,457,844
$ 9.00 0.8000 $ 7.20 3,457,844
$ 8.50 0.8000 $ 6.80 3,457,844
$ 8.00 0.8000 $ 6.40 3,457,844
$ 7.50 0.8000 $ 6.00 3,457,844
- --------------------------------------------------------------------------------------------------------------------
BELOW $7.50: $ 7.00 0.8571 $ 6.00 3,704,833
(1) GB Foods may elect $ 6.50 0.9231 $ 6.00 3,989,820
to adjust the exchange ratio $ 6.00 1.0000 $ 6.00 4,322,305
to maintain an equivalent $ 5.50 1.0909 $ 6.00 4,715,242
share value of $6.00(a); or
....................................................................................................................
(2) GB Foods may elect $ 7.00 0.8000 $ 5.60 3,457,844
to keep the exchange ratio $ 6.50 0.8000 $ 5.20 3,457,844
at 0.8000, which would cause $ 6.00 0.8000 $ 4.80 3,457,844
the equivalent share value $ 5.50 0.8000 $ 4.40 3,457,844
to fall below $6.00; or
....................................................................................................................
(3) GB Foods may elect to abandon Merger would be abandoned
the merger. Also, if GB Foods
elects to keep the exchange
ratio at 0.8000, Timber Lodge
may elect to abandon the merger.
</TABLE>
Note (a): If GB Foods elects to adjust the exchange ratio, it would be
multiplied by a fraction; the numerator of that fraction is $7.50 and
the denominator is the average 10 day closing price.
Note (b): Outstanding shares of Timber Lodge to be converted consist of 687,890
shares to be issued to CKE Restaurants, Inc. for sixteen restaurants
plus 3,634,415 currently outstanding Timber Lodge shares, or a total
of 4,322,305 shares. This analysis does not include the 296,166
currently outstanding Timber Lodge options and 120,000 warrants which
would be converted into GB Foods options and warrants in the merger.
8
<PAGE> 21
TABULAR GOODWILL ANALYSIS
The merger and other transactions discussed in this booklet will result in
"goodwill." Goodwill represents the excess of the fair value of the
consideration paid over the net assets acquired and is required by accounting
rules to be amortized over its expected life. Net income of GB Foods will be
reduced each year by the amount amortized. The Goodwill impact on earnings per
share depicted below assumes the completion of all transactions and total shares
to be issued and outstanding of 12,034,000 as reflected in scenario 3 footnote
(r) page 21 of this booklet. See "ACCOUNTING TREATMENT" beginning at pages 54
and 90 for additional information regarding goodwill. Like the exchange ratio
and the number of GB Foods shares to be issued in the merger, the goodwill which
GB Foods will be required to amortize will rise and fall with GB Foods' stock
price at closing. The table below illustrates these effects.
GOODWILL ANALYSIS
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
COMBINED
GB FOODS GB FOODS TOTAL ACQUISITION COMBINED FAIR VALUE ANNUAL PRO FORMA GOODWILL
STOCK PRICE SHARES TO MERGER VALUE PRO FORMA OF NET COMBINED GOODWILL GB FOODS IMPACT ON
AT CLOSING BE ISSUED CLOSING JBRI(2) CLOSING ASSETS GOODWILL AMORTIZATION SHARES(5) EARNINGS
(RANGE) MERGER(1) VALUE (52 UNITS) VALUE ACQUIRED(3) (4) (40) YEARS OUTSTANDING PER SHARE
- --------------- --------- ------- ----------- --------- ----------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$16.00 3,026 $48,410 $8,500 $56,910 $18,279 $38,631 $966 11,602 $0.08
$15.50 3,123 $48,410 $8,500 $56,910 $18,279 $38,631 $966 11,700 $0.08
$15.00 3,227 $48,410 $8,500 $56,910 $18,279 $38,631 $966 11,804 $0.08
$14.50 3,339 $48,410 $8,500 $56,910 $18,279 $38,631 $966 11,915 $0.08
- ---------------------------------------------------------------------------------------------------------------------------------
$14.00-$7.50 3,458 $29,392(6) $8,500 $37,892 $18,279 $19,613 $490 12,034 $0.04
- ---------------------------------------------------------------------------------------------------------------------------------
$ 7.00 3,705 $25,934 $8,500 $34,434 $18,279 $16,155 $404 12,281 $0.03
$ 6.50 3,990 $25,934 $8,500 $34,434 $18,279 $16,155 $404 12,566 $0.03
$ 6.00 4,322 $25,934 $8,500 $34,434 $18,279 $16,155 $404 12,899 $0.03
$ 5.50 4,715 $25,934 $8,500 $34,434 $18,279 $16,155 $404 13,292 $0.03
</TABLE>
- ---------------
Goodwill Analysis Notes:
(1) Timber Lodge shares outstanding at March 31, 1998 of 3,634,415 plus 687,890
additional shares issued to CKE for the acquisition of the Sixteen
Restaurants or a total of 4,322,305 Timber Lodge shares multiplied by the
merger Exchange Ratio of .80 (if within the Collar) or 3,457,844 GB Foods
Shares. If the GB Foods Closing Stock Price is below the Collar, then the
Exchange Ratio may be increased and additional shares could be issued. If
the Closing Stock price is above the Collar, then the Exchange Ratio will be
decreased and fewer shares will be issued. See Tabular Collar Analysis on
page 8 of this booklet for additional information concerning the number of
shares to be issued if the GB Foods Closing Stock Price is above or below
the Collar.
(2) The acquisition value of JBRI (52 units) was valued at $8.50 per share
(share price of GB Foods stock when terms of the acquisition were agreed to
and announced) multiplied by the one million shares to be exchanged or total
value of $8,500,000.
(3) The Combined Fair Value of Net Assets Acquired includes: Timber Lodge of
$11,303,000, Sixteen Restaurants of $2,423,000, JBRI (52 units) of
$5,053,000, see notes (c), (a), and (g), respectively at page 20 of this
booklet, less the estimated costs to complete all the transactions of
$500,000 or $18,279,000.
(4) The Combined Goodwill is expected to be approximately $19.6 million if the
Exchange Ratio is unadjusted, (price within the Collar), $16.2 million if
the Exchange Ratio increases and $38.7 million if the Exchange Ratio
decreases. The Exchange Ratio could increase if GB Foods' Closing Stock
Price is below $7.50 per share, and would decrease if the Closing Stock
Price is above $14.00 per share, see Tabular Collar Analysis on page 8 of
this booklet.
(5) The Pro Forma GB Foods Shares used in determining the goodwill impact on
earnings per share was calculated using the March 31, 1998 shares
outstanding of 6,576,485 plus 1,000,000 shares to be issued for the
acquisition of the JBRI (52 units), plus the 1,000,000 shares to be issued
to Fidelity for the exercise of warrants, and the issuance of shares for the
acquisition of Timber Lodge. If the Closing Stock Price is within the Collar
($14.00 to $7.50 per share) then the shares to be issued in the Timber Lodge
Merger would be approximately 3,458,000 shares or total Pro Forma shares
outstanding of 12,034,000. If the Closing Stock Price is above the Collar,
then fewer shares will be issued. if the Closing Stock Price is below the
Collar, then more shares could be issued. See Tabular Collar Analysis on
page 8 of this booklet for additional information concerning the number of
shares to be issued if the GB Foods Closing Stock Price is above or below
the Collar.
(6) The Merger Closing Value, within the Collar, was calculated using a GB Foods
per share price of $8.50 per share, which was the share price of GB Foods
stock when the terms of the deal were agreed to and announced.
9
<PAGE> 22
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
REGARDING GB FOODS
The selected consolidated historical financial data of GB Foods presented
for the three months ended March 31, 1998 and 1997 and as of March 31, 1998 and
1997 and for the years ended December 31, 1997, 1996 and 1995 and as of December
31, 1997 and 1996 were derived from, and should be read in conjunction with, the
financial statements and related notes of GB Foods included in this Prospectus
as part of Annex E. The financial data for the years ended December 31, 1994 and
1993 and as of December 31, 1995, 1994, and 1993 were derived from audited
financial statements which are not in this Prospectus. See GB Foods, first
quarter report on Form 10-Q and annual report on Form 10-K/A (Annex E) for
further financial information concerning GB Foods.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION RELATING TO GB FOODS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------- ---------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Company-operated.......................... $ 699 $ 737 $3,019 $2,988 $ 4,819 $ 4,817 $ 4,194
Franchise fees and royalties.............. 400 335 1,638 1,459 1,167 845 990
Other..................................... 193 139 723 547 613 950 285
------ ------ ------ ------ ------- ------- -------
Total revenues..................... 1,292 1,211 5,380 4,994 6,599 6,612 5,469
Restaurant operating costs.................. 720 681 2,844 2,904 4,828 5,333 3,992
General and administrative costs............ 255 345 1,370 1,777 2,434 2,599 1,953
Litigation costs............................ 0 0 0 0 805 2,869 4,195
Depreciation and amortization............... 62 78 297 346 438 336 310
------ ------ ------ ------ ------- ------- -------
Total operating costs.............. 1,037 1,104 4,511 5,027 8,505 11,137 10,450
Income (loss) before minority interest in
consolidated partnership.................. 255 107 869 (33) (1,906) (4,525) (4,981)
------ ------ ------ ------ ------- ------- -------
Minority interest in consolidated
partnership............................... (2) (8) (15) (15) (16) (19) (9)
------ ------ ------ ------ ------- ------- -------
Net income (loss).................. $ 253 $ 99 $ 854 $ (48) $(1,922) $(4,544) $(4,990)
====== ====== ====== ====== ======= ======= =======
PER SHARE DATA
Basic net income (loss) per share........... 0.04 0.02 0.14 (0.01) (0.32) (0.90) (1.05)
Diluted net income (loss) per share......... 0.03 0.01 0.11 (0.01) (0.32) (0.90) (1.05)
Shares outstanding (period end)............. 6,576 6,440 6,571 6,440 6,285 5,672 4,956
Basic weighted shares outstanding........... 6,396 6,262 6,293 6,178 5,983 5,029 4,763
Diluted weighted shares outstanding......... 7,813 7,195 7,752 6,178 5,983 5,029 4,763
BALANCE SHEET DATA
Total assets................................ 5,228 3,501 $4,802 $3,462 $ 3,277 $ 4,267 $ 5,007
Long-term debt.............................. -- 0 15 25 8 11
Stockholders' equity........................ $4,599 $2,994 $4,318 $2,895 $ 2,429 $ 3,285 $ 3,456
RESTAURANTS OPEN
Company owned and operated.................. 7 7 7 7 8 13 9
Franchised.................................. 40 43 40 43 47 45 52
Franchise dual-branded...................... 150 89 134 84 41 5 4
------ ------ ------ ------ ------- ------- -------
Total owned and franchised
restaurants...................... 197 139 181 134 96 63 65
====== ====== ====== ====== ======= ======= =======
</TABLE>
10
<PAGE> 23
SELECTED HISTORICAL FINANCIAL DATA
REGARDING TIMBER LODGE
The selected historical financial data of Timber Lodge presented for the
twelve weeks ended March 25, 1998 and March 26, 1997 and as of March 25, 1998
and March 26, 1997 and for its three most recent fiscal years and as of the last
day of fiscal 1997 and 1996 were derived from, and should be read in conjunction
with, the financial statements and related notes of Timber Lodge included in
this booklet as part of Annex F. The financial data for fiscal years 1994, and
1993 and as of the last day of fiscal 1995, 1994, and 1993 were derived from
audited financial statements which are not included in this booklet. See Timber
Lodge's first quarter report on Form 10-Q and annual report of Form 10-KSB/A-2
(Annex F) for further financial information concerning Timber Lodge.
SELECTED FINANCIAL INFORMATION RELATING TO TIMBER LODGE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED FISCAL YEAR(1)
MARCH 25, MARCH 26, -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues....................... $ 7,399 $ 5,214 $26,536 $20,637 $17,041 $12,545 $ 5,794
------- ------- ------- ------- ------- ------- -------
General & administrative
costs........................ 392 340 1,618 1,445 1,556 900 465
------- ------- ------- ------- ------- ------- -------
Depreciation & amortization.... 404 315 1,454 1,243 1,176 760 367
------- ------- ------- ------- ------- ------- -------
Income tax provision
(benefit).................... 91 87 412 278 (8) 156 0
------- ------- ------- ------- ------- ------- -------
Net income (loss).............. 211 202 982 983 (88) 923 292
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA
Basic net income (loss) per
share........................ $ 0.06 $ 0.06 $ 0.27 $ 0.28 $ (0.02) $ 0.26 $ 0.14
Diluted net income (loss) per
share........................ 0.06 0.06 0.27 0.27 (0.02) 0.25 0.13
Shares outstanding (period
end)......................... 3,634 3,599 3,626 3,567 3,576 3,618 3,618
Basic weighted shares
outstanding.................. 3,633 3,585 3,605 3,571 3,607 3,618 2,095
Diluted weighted shares
outstanding.................. 3,740 3,659 3,676 3,660 3,607 3,650 2,245
BALANCE SHEET DATA
Total assets................... $14,901 $14,365 15,218 13,697 11,584 11,976 9,439
Long-term liability............ 1,177 1,133 1,063 1,248 855 826 547
Shareholders' equity........... 11,303 10,213 11,066 9,994 9,042 9,265 8,342
RESTAURANTS OPEN AT PERIOD END
Company owned and operated..... 17 12 16 12 9 9 4
</TABLE>
- ---------------
(1) Timber Lodge uses a 52/53 week fiscal year ending on the Wednesday nearest
the end of the calendar year.
11
<PAGE> 24
SELECTED COMBINED HISTORICAL FINANCIAL DATA
REGARDING JBRI
The table on the next page presents selected combined historical financial
data of JB's Family Restaurants, Inc. ("JBRI"). The business and operations of
JBRI have undergone several changes in ownership in the past two years. On July
15, 1996 Summit Family Restaurants, Inc. ("Summit") was acquired by CKE. Summit
was the parent corporation of HTB Restaurants, Inc. ("HTB") which operated 16
HomeTown Buffet restaurants as a franchisee of HomeTown Buffet, Inc. On
September 22, 1997, Summit transferred selected assets and liabilities which
included its JB's Restaurant system and Galaxy Diner restaurants to JBRI, which
was then a newly formed subsidiary of CKE. Concurrent with this transfer, CKE
contributed all of the issued and outstanding shares of capital stock of Summit
in exchange for 2,600,000 shares of common stock of Star Buffet, Inc. ("Star")
and thereby transferred all of the net assets of HTB to Star at its book value.
Star was incorporated on July 28, 1997, and was a wholly owned subsidiary of CKE
from July 28, 1997 until the stock offering of Star was completed on September
29, 1997. The transfer of assets to Star was made at net book value which
management believes approximates fair market value. The transactions represented
the reorganization of entities under common control. Prior to July 15, 1996,
Summit operated independently and was not under common control or management of
CKE. Accordingly, the data may not be comparable to or indicative of
post-combination results.
Because of these changes in ownership, JBRI is referred to on this page and
in the section of this booklet captioned "JB's FAMILY RESTAURANTS, INC."
beginning on page 91 as follows:
"Summit predecessor" means Summit for all periods prior to July 16,
1996.
"CKE predecessor" means Summit (as a subsidiary of CKE) for the period
July 16, 1996 through September 22, 1997.
"Successor" means JBRI (as a subsidiary of CKE) for all periods from
and after September 23, 1997.
Management believes that a combined presentation of financial information
is most meaningful to investors' understanding of the results of operations,
financial condition and cash flows of Successor. Successor and CKE predecessor
have adopted a fiscal year ending on the last Monday in January. Summit
historically operated on different fiscal year end dates.
The Selected Financial Data for the 18 weeks ended January 26, 1998 for
Successor, the 34 weeks ended September 22, 1997 and the 28 weeks ended January
27, 1997 (CKE predecessor), and the 42 weeks ended July 15, 1996 and the 52
weeks ended September 25, 1995 (Summit predecessor) have been derived from
financial statements which appear elsewhere in this booklet and have been
audited by KPMG Peat Marwick LLP, independent auditors. The Selected Financial
Data for the twelve weeks ended January 26, 1998 (Successor) and the fourteen
weeks ended January 27, 1997 (CKE predecessor) have been derived from unaudited
combined financial statements of Successor and CKE predecessor. The Selected
Financial Data for the fiscal years ended September 26, 1994 and September 27,
1993 have been derived from unaudited combined financial statements of Summit
predecessor not included elsewhere in this booklet. The unaudited financial
statements have been prepared on the same basis as the audited combined
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the combined financial position and combined results of operations for the
periods presented. The following data should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and the historical financial statements and unaudited pro forma
combined condensed financial statements, and the notes thereto, included in the
section of this booklet captioned "JB's FAMILY RESTAURANTS, INC." beginning on
page 91.
12
<PAGE> 25
SELECTED FINANCIAL INFORMATION RELATING TO JBRI
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CKE
JBRI PREDECESSOR JBRI CKE PREDECESSOR SUMMIT PREDECESSOR
--------- ----------- ----------- --------------------------- ------------------------
16 WEEKS 16 WEEKS 18 WEEKS 34 WEEKS 28 WEEKS 42 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 18, MAY 19, JANUARY 26, SEPTEMBER 22, JANUARY 27, JULY 15, SEPTEMBER 25,
1998 1997 1998 1997 1997 1996 1995
--------- ----------- ----------- ------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Company operated.... $20,077 $35,515 $23,241 $73,715 $57,319 $92,802 $119,169
Franchise fees...... 427 350 373 797 781 1,262 1,930
------- ------- ------- ------- ------- ------- --------
Total
revenues...... 20,504 35,865 23,614 74,512 58,100 94,064 121,099
Restaurant operating
costs................. 18,379 32,194 22,484 67,738 54,251 86,129 112,686
Franchised
restaurants........... 184 217 234 452 479 1,115 1,062
Advertising expenses... 591 610 -- 1,118 711 1,571 3,311
General and
administrative
expenses.............. 981 1,226 1,077 2,983 2,464 9,323 9,091
------- ------- ------- ------- ------- ------- --------
Total operating
costs and
expenses...... 20,135 34,247 23,795 72,291 57,905 98,138 126,150
------- ------- ------- ------- ------- ------- --------
Operating income
(loss)................ 369 1,618 (181) 2,221 195 (4,074) (5,051)
Interest expense....... (182) (262) (236) (748) (491) (993) (1,535)
Other income, net...... 81 101 102 216 321 4,283 490
------- ------- ------- ------- ------- ------- --------
Income (loss) before
income taxes.......... 268 1,457 (315) 1,689 25 (784) (6,096)
Income tax expense
(benefit)............. 104 583 (122) 618 10 899 (1,052)
------- ------- ------- ------- ------- ------- --------
Net income (loss)
before extraordinary
item.................. 164 874 (193) 1,071 15 (1,683) (5,044)
Extraordinary loss
resulting from
extinguishment of
debt.................. -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- --------
Net income (loss)...... $ 164 $ 874 $ (193) $ 1,071 $ 15 $(1,683) $ (5,044)
======= ======= ======= ======= ======= ======= ========
BALANCE SHEET DATA
Total assets........... $31,283 $55,643 $35,761 $38,709 $57,897 $60,125 $ 70,884
------- ------- ------- ------- ------- ------- --------
Long-term debt(1)...... $ 8,692 $11,841 $ 9,794 $10,685 $15,193 $ 9,968 $ 10,150
------- ------- ------- ------- ------- ------- --------
Stockholders' equity... $12,477 $28,210 $16,987 $17,272 $27,336 $35,805 $ 40,127
------- ------- ------- ------- ------- ------- --------
RESTAURANTS OPEN
(UNAUDITED)(2)
Company owned and
operated.............. 68 80 80 81 79 83 85
Franchised............. 20 21 20 20 22 24 25
------- ------- ------- ------- ------- ------- --------
Total owned and
franchised
restaurants... 88 101 100 101 101 107 110
======= ======= ======= ======= ======= ======= ========
<CAPTION>
SUMMIT PREDECESSOR
-----------------------------
52 WEEKS 52 WEEKS
ENDED ENDED
SEPTEMBER 26, SEPTEMBER 27,
1994 1993
------------- -------------
<S> <C> <C>
Revenues:
Company operated.... $114,052 $114,147
Franchise fees...... 1,315 621
-------- --------
Total
revenues...... 115,367 114,768
Restaurant operating
costs................. 105,674 105,358
Franchised
restaurants........... 734 295
Advertising expenses... 6,443 6,280
General and
administrative
expenses.............. 8,157 7,486
-------- --------
Total operating
costs and
expenses...... 121,008 119,419
-------- --------
Operating income
(loss)................ (5,641) (4,651)
Interest expense....... (1,967) (2,486)
Other income, net...... 14,434 3,340
-------- --------
Income (loss) before
income taxes.......... 6,826 (3,797)
Income tax expense
(benefit)............. 2,720 (1,483)
-------- --------
Net income (loss)
before extraordinary
item.................. 4,106 (2,314)
Extraordinary loss
resulting from
extinguishment of
debt.................. (350) --
-------- --------
Net income (loss)...... $ 3,756 $ (2,314)
======== ========
BALANCE SHEET DATA
Total assets........... $ 76,608 $ 67,716
-------- --------
Long-term debt(1)...... $ 13,093 $ 19,243
-------- --------
Stockholders' equity... $ 44,336 $ 32,598
-------- --------
RESTAURANTS OPEN
(UNAUDITED)(2)
Company owned and
operated.............. 90 103
Franchised............. 19 14
-------- --------
Total owned and
franchised
restaurants... 109 117
======== ========
</TABLE>
- ---------------
(1) Includes long-term portion of capital lease obligation and other long term
liabilities.
(2) Excludes HomeTown Buffet restaurants and Sbarro restaurants.
13
<PAGE> 26
COMPARATIVE PER SHARE DATA
The following table sets forth for GB Foods and Timber Lodge certain
historical and pro forma combined per share financial information for the first
quarter fiscal 1998 and for the fiscal year 1997. No dividends were paid during
the respective periods presented. The pro forma information is presented based
on three scenarios which are discussed at page 15. The following information
should be read in conjunction with and is qualified in its entirety by the
financial statements and accompanying notes of GB Foods, Timber Lodge, and JBRI
which are included in the financial statements and accompanying notes included
elsewhere in this booklet and the Unaudited Pro Forma Combined Condensed
Financial Statements and accompanying discussion and notes set forth under
"Unaudited Pro Forma Combined Condensed Financial Statements." No comparative
per share data has been included for JBRI because it is a wholly owned division
of CKE.
<TABLE>
<CAPTION>
PER SHARE DATA
QUARTER ENDED PER SHARE DATA
MARCH 31, 1998 FISCAL YEAR 1997
------------------------ -----------------------
BOOK BOOK
BASIC DILUTED VALUE BASIC DILUTED VALUE
------ ------- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
GB FOODS COMMON STOCK
Income per common share:
Historical............................................. $ 0.04 $ 0.03 $0.70 $0.14 $0.11 $0.66
Scenario No. 1 -- Pro forma combined with Timber Lodge
which includes the Sixteen Restaurants
and warrant exercise..................... $ 0.04 $ 0.04 $3.53 $0.10 $0.10 $3.56
Scenario No. 2 -- Pro forma combined with JBRI............. $ 0.07 $ 0.06 $1.73 $0.05 $0.04 $1.84
Scenario No. 3 -- Pro forma combined with Timber Lodge
which includes the Sixteen Restaurants,
JBRI and Warrant Exercise................ $ 0.06 $ 0.05 $3.95 $0.05 $0.05 $4.06
TIMBER LODGE COMMON STOCK
Income per common share:
Historical............................................. $ 0.06 $ 0.06 $3.11 $0.27 $0.27 $3.05
Scenario No. 1 -- Income per common equivalent share:(1)
Pro forma combined with the Sixteen Restaurants and GB
Foods before the acquisition of JBRI................. $ 0.03 $ 0.03 $2.82 $0.08 $0.08 $2.85
Scenario No. 3 -- Income per common equivalent share:(1)
Pro forma combined with the Sixteen Restaurants and GB
Foods which includes the acquisition of JBRI and
Warrant Exercise..................................... $ 0.05 $ 0.04 $3.16 $0.04 $0.04 $3.25
</TABLE>
- ---------------
(1) The pro forma equivalent per share amounts were calculated by multiplying
the GB Foods pro forma combined with Timber Lodge, which includes the
Sixteen Restaurants, and JBRI, amounts by the exchange ratio in the Timber
Lodge Merger Agreement. The calculations are based on an Exchange ratio of
.8000 for each share of outstanding Timber Lodge common stock.
14
<PAGE> 27
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited pro forma combined condensed financial information is
provided to depict the pro forma balance sheets at March 31, 1998 and statements
of operations for the quarter ended March 31, 1998 and the year ended December
31, 1997 for each of the following scenarios described below related to
Proposals No. 1 and No. 2 (the Merger and the JBRI Acquisition, respectively).
SCENARIO NO. 1 Only Proposal No. 1 is approved. In this scenario the
Merger of GB Foods with Timber Lodge would occur, along with the acquisition by
Timber Lodge of the Sixteen Restaurants from CKE and the exercise of 1,000,000
Fidelity Warrants at $5.00 per share, but the JBRI Acquisition would not occur.
Under this scenario, two transactions must occur prior to the closing of the
merger. The first of the required conditions is the purchase by Timber Lodge of
the Sixteen Restaurants currently owned by CKE in exchange for 687,890 shares of
Timber Lodge common stock. The second part of the required transactions is the
exercise by Fidelity of warrants for a total cash infusion of at least $5
million. GB Foods expects to use the cash proceeds after the merger to renovate
and convert the restaurants to the Timber Lodge Steakhouse concept.
Under the merger agreement, each outstanding share of Timber Lodge common
stock will be converted into .8000 shares of GB Foods common stock. The .8000
exchange ratio is subject to possible adjustment if the market price of GB Foods
stock, averaged over a ten-day period ending two days before closing is less
than $7.50 or more than $14.00 per share. Based upon trading prices of the GB
Foods stock at the time the terms of the purchase was agreed to and announced,
the Pro Forma combined condensed financial statements have been prepared using
an $8.50 per share value for the GB Foods Stock. Based upon the $8.50 per share
assumed value and the .8000 conversion rate, a total of approximately 3,458,000
GB Foods shares would be issued to effect the merger with Timber Lodge, which
results in a purchase price of approximately $29.4 million. Goodwill of
approximately $16 million in the aggregate would be generated from Timber
Lodge's acquisition of the Sixteen Restaurants and GB Foods' subsequent merger
with Timber Lodge. If the average closing market price of GB Foods stock over a
ten-day period ending two days before the Closing is less than $7.50 per share
or more than $14.00 per share then either additional or fewer shares could be
issued to provide for the respective minimum or maximum purchase price of $25.9
million and $48.4 million. If additional or fewer shares are issued the pro
forma combined financial information will be affected. (See Tabular Collar
Analysis and Tabular Goodwill Analysis on pages 8 and 9 of this booklet.) Both
the purchase of the Sixteen Restaurants by Timber Lodge and the merger of Timber
Lodge with GB Foods are expected to be accounted for as a purchase.
Several of the Directors and officers of GB Foods and Fidelity are also
Directors and or officers of CKE, with whom GB Foods has entered into the
agreement to acquire JBRI and with whom GB Foods has a significant number of
dual-concept franchise agreements.
SCENARIO NO. 2 Only Proposal No. 2 is approved. In this scenario the
Merger of GB Foods with Timber Lodge would not occur but GB Foods would acquire
JBRI. Under this scenario Fidelity would not be required to exercise the
Fidelity Warrants. Under this scenario GB Foods would issue 1,000,000 shares to
CKE in exchange for all the outstanding shares of capital stock of JBRI. JBRI
would become a wholly owned subsidiary of GB Foods. This transaction will be
accounted for as a purchase. Based upon the trading prices of GB Foods common
stock at the time the terms of the purchase was agreed to and announced, the
Company estimated the total purchase price to acquire JBRI to be $8,500,000 and
would result in goodwill of approximately $3.6 million.
SCENARIO NO. 3 Both Proposal No. 1 and Proposal No. 2 are approved. In
this scenario the merger of GB Foods Corporation with Timber Lodge would occur,
along with the acquisition by Timber Lodge of the Sixteen Restaurants and the
exercise of the Fidelity Warrants, and GB Foods would acquire JBRI.
The unaudited pro forma combined condensed balance sheet depicted in each
of the Scenarios assume all transactions had occurred on March 31, 1998 and were
prepared based upon the consolidated balance sheets of GB Foods and Timber Lodge
as of March 25, 1998 and the balance sheet of JBRI as of May 18, 1998. Amounts
depicted for JBRI in the pro forma condensed financial statements do not
necessarily agree to the amounts in the historical balance sheet and statement
of operations for JBRI as depicted elsewhere in this
15
<PAGE> 28
Joint Proxy Statement/Prospectus. The amounts depicted in the pro forma
condensed financial statements represent the balance sheet and statement of
operations of only the restaurants being acquired by GB Foods and Timber Lodge.
Note 16 of the JBRI financial statements presents a table which depicts a
combining schedule which reconciles to the historical balance sheet and
statement of operations of JBRI the results of operations and balance sheet
information related to the Sixteen Restaurants being acquired by Timber Lodge,
the 52 units retained by JBRI and thus being acquired indirectly by GB Foods,
and the remaining 12 JBRI restaurants which were sold in February, 1998 to Star
Buffet, Inc.
The unaudited pro forma combined condensed statements of operations for
both the quarter ended March 31, 1998 and the fiscal year ended December 31,
1997 depicted in each of the Scenarios gives effect to the transactions as if
the applicable transactions had been completed on January 1 of each of the
respective periods. The unaudited pro forma combined condensed statements of
operations for the quarter ended March 31, 1998 were prepared based upon the
consolidated statements of operations of GB Foods for the three month period
ended March 31, 1998, the statements of operations of Timber Lodge for the
twelve weeks ended March 25, 1998 and amounts derived from the statements of
operations of JBRI for the sixteen week period ended May 18, 1998. The unaudited
combined condensed statements of operations for the fiscal year ended December
31, 1997 were prepared based upon the consolidated statements of operations of
GB Foods for the fiscal year ended December 31, 1997, the statements of
operations of Timber Lodge for the year ended December 31, 1997 and amounts
derived from the statements of operations of JBRI for the 34 weeks ended
September 22, 1997 and the 18 weeks ended January 26, 1998.
None of the unaudited pro forma combined condensed financial statements
take into account the possible effects of any event which has occurred or which
may occur after May 18, 1998, except for those transactions specified for each
Scenario described above. Specifically, such financial statements do not take
account of any possible store closures or reductions in JBRI's franchise royalty
rate. Those matters are discussed in more detail beginning at page 94 under the
caption "RECENT DEVELOPMENTS."
The unaudited pro forma combined condensed financial information is
provided for comparative purposes only and is not necessarily indicative of the
results of operations or financial position of the combined companies that would
have occurred had the Merger occurred at the beginning of the periods presented
or on the date indicated, nor is it necessarily indicative of future operating
results or financial position. The unaudited pro forma adjustments are based
upon currently available information and upon certain assumptions that
management of GB Foods believes are reasonable under the circumstances. The
unaudited pro forma combined condensed financial information and the related
notes thereto should be read in conjunction with the GB Foods consolidated
financial statements, the financial statements of Timber Lodge and the financial
statements of JBRI and the related notes, which are included elsewhere in this
Joint Proxy Statement/Prospectus. In addition, the unaudited pro forma combined
condensed financial information does not reflect certain cost savings that
management believes may be realized following both the Merger with Timber Lodge
and GB Foods' acquisition of JBRI. These savings are expected to be realized
primarily through the rationalization of operations and implementation of GB
Foods management practices. Additionally, the GB Foods believes the Merger will
enable it to continue to achieve economies of scale, such as enhanced purchasing
power.
The Merger and the acquisition of JBRI will be accounted for using the
purchase method of accounting. Accordingly, GB Foods' cost to acquire Timber
Lodge and JBRI will be allocated to the assets acquired and liabilities assumed
according to their estimated fair values as of the date of the Merger. The
allocation is dependent upon certain valuations and other studies that have not
progressed to a stage where there is sufficient information to make a definite
allocation. Accordingly, the purchase allocation adjustments made in connection
with the preparation of the unaudited pro forma combined condensed financial
information are preliminary, and have been made solely for the purpose of
preparing such unaudited pro forma combined condensed financial information;
however, no material effect on the statements of operations is anticipated.
16
<PAGE> 29
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
FIRST QUARTER ENDED FISCAL 1998 (000'S)
SCENARIO NO. 1 -- PRO FORMA COMBINED GB FOODS, TIMBER LODGE AND SIXTEEN
RESTAURANTS, AND WARRANT EXERCISE
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL SIXTEEN
GB FOODS TIMBER LODGE RESTAURANTS PRO FORMA TOTAL
MARCH 31, MARCH 25, MAY 18, COMBINED PRO FORMA
1998 1998 1998 ADJUSTMENTS COMBINED(V)
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 229 $ 125 $ 591 $ 4,700(b) $ 5,645
Short term investments............................ 3,713 0 0 0 3,713
Other current assets.............................. 508 1,426 178 0 2,112
------ ------- ------ ------- -------
Total current assets.............................. 4,450 1,551 769 4,700 11,470
Costs in excess of assets acquired................ -- -- 734 15,232(a)(c)(t) 15,966
Other non-current assets.......................... 778 13,350 4,585 0 18,713
------ ------- ------ ------- -------
Total assets...................................... $5,228 $14,901 $6,088 $19,932 $46,149
====== ======= ====== ======= =======
Accounts payable.................................. $ 463 $ 1,070 $ 199 $ 0 $ 1,732
Other current liabilities......................... 109 1,351 1,305 0 2,765
------ ------- ------ ------- -------
Total current liabilities......................... 572 2,421 1,504 0 4,497
Long-term debt, including capital lease
obligations...................................... -- -- 1,427 0 1,427
Other non-current liabilities..................... 57 1,177 0 0 1,234
------ ------- ------ ------- -------
Total liabilities................................. 629 3,598 2,931 0 7,158
Stockholders' equity.............................. 4,599 11,303 3,157 19,932(d) 38,991
------ ------- ------ ------- -------
Total liabilities and stockholders' equity........ $5,228 $14,901 $6,088 $19,932 $46,149
====== ======= ====== ======= =======
</TABLE>
SCENARIO NO. 2 -- PRO FORMA COMBINED GB FOODS AND JBRI
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA TOTAL
GB FOODS JBRI (52 UNITS) COMBINED PRO FORMA
MARCH 31, 1998 MAY 18, 1998 ADJUSTMENTS COMBINED
----------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................. $ 229 $ 1,922 $ (528)(f) $ 1,623
Short term investments.................................... 3,713 0 0 3,713
Other current assets...................................... 508 2,159 0 2,667
------ ------- ------- -------
Total current assets...................................... 4,450 4,081 (528) 8,003
Costs in excess of assets acquired........................ -- 2,683 964(g)(u) 3,647
Other non-current assets.................................. 778 18,250 (1,144)(h) 17,884
------ ------- ------- -------
Total assets.............................................. $5,228 $25,014 $ (708) $29,534
====== ======= ======= =======
Accounts payable.......................................... $ 463 $ 3,403 $ 0 $ 3,866
Other current liabilities................................. 109 5,138 0 5,247
------ ------- ------- -------
Total current liabilities................................. 572 8,541 0 9,113
Long-term debt, including capital lease obligations....... -- 5,356 0 5,356
Other non-current liabilities............................. 57 1,909 0 1,966
------ ------- ------- -------
Total liabilities......................................... 629 15,806 0 16,435
Stockholders' equity...................................... 4,599 9,208 (708)(i) 13,099
------ ------- ------- -------
Total liabilities and stockholders' equity................ $5,228 $25,014 $ (708) $29,534
====== ======= ======= =======
</TABLE>
SCENARIO NO. 3 -- PRO FORMA COMBINED GB FOODS, TIMBER LODGE AND SIXTEEN
RESTAURANTS, JBRI, AND
WARRANT EXERCISE
<TABLE>
<CAPTION>
PRO FORMA COMBINED
GB FOODS, PRO FORMA TOTAL
TIMBER LODGE, AND JBRI (52 UNITS)(E) COMBINED PRO FORMA
SIXTEEN RESTAURANTS MAY 18, 1998 ADJUSTMENTS COMBINED(V)
------------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............................. $ 5,645 $ 1,922 $ (528)(f) $ 7,039
Short term investments................................ 3,713 0 0 3,713
Other current assets.................................. 2,112 2,159 0 4,271
------- ------- ------- -------
Total current assets.................................. 11,470 4,081 (528) 15,023
Costs in excess of assets acquired.................... 15,966 2,683 964 (g)(u 19,613
Other non-current assets.............................. 18,713 18,250 (1,144)(h) 35,819
------- ------- ------- -------
Total assets.......................................... $46,149 $25,014 $ (708) $70,455
======= ======= ======= =======
Accounts payable...................................... $ 1,732 $ 3,403 $ 0 $ 5,135
Other current liabilities............................. 2,765 5,138 0 7,903
------- ------- ------- -------
Total current liabilities............................. 4,497 8,541 0 13,038
Long-term debt, including capital lease obligations... 1,427 5,356 0 6,783
Other non-current liabilities......................... 1,234 1,909 0 3,143
------- ------- ------- -------
Total liabilities..................................... 7,158 15,806 0 22,964
Stockholders' equity.................................. 38,991 9,208 (708)(i) 47,491
------- ------- ------- -------
Total liabilities and stockholders' equity............ $46,149 $25,014 $ (708) $70,455
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
17
<PAGE> 30
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FIRST QUARTER ENDED FISCAL 1998 (000'S)
SCENARIO NO. 1 -- PRO FORMA COMBINED GB FOODS, TIMBER LODGE AND SIXTEEN
RESTAURANTS, AND WARRANT EXERCISE
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL SIXTEEN
GB FOODS TIMBER LODGE RESTAURANTS PRO FORMA TOTAL
MARCH 31, MARCH 31, MAY 18, COMBINED PRO FORMA
1998 1998 1998 ADJUSTMENTS COMBINED(V)
---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues........................................ $ 1,230 $ 7,399 $ 4,815 $ 0 $13,444
Operating Expenses:
Food and packaging................................... 286 2,809 1,580 0 4,675
Payroll and other employee benefits.................. 223 2,164 1,757 0 4,144
Occupancy and other expense(o)....................... 212 1,622 1,114 0 2,948
General and administrative expenses(p)............... 316 516 348 100(j)(k) 1,280
------- ------- ------- ----- -------
Total operating expense........................ 1,037 7,111 4,799 100 13,047
Operating income...................................... 193 288 16 (100) 397
Interest income (expense)............................. 62 (5) (37) 0 20
Other income and (expense)............................ (2) 19 5 0 22
------- ------- ------- ----- -------
Income before income taxes............................ 253 302 (16) (100) 439
Provision (benefit) for income taxes.................. -- 91 (6) (66)(l) 19
------- ------- ------- ----- -------
Net income............................................ $ 253 $ 211 $ (10) $ (34) $ 420
======= ======= ======= ===== =======
Basic earnings per share.............................. $ 0.04 $ 0.06 -- -- $ 0.04
Diluted earnings per share............................ $ 0.03 $ 0.06 -- -- $ 0.04
Basic weighted average shares......................... 6,396 3,633 -- -- 10,854(q)
Diluted weighted average shares....................... 7,813 3,740 -- -- 11,865(q)
Shares outstanding.................................... 6,576 3,634 -- -- 11,034(q)
Book value per share.................................. $ 0.70 $ 3.11 -- -- $ 3.53
</TABLE>
SCENARIO NO. 2 -- PRO FORMA COMBINED GB FOODS AND JBRI
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA TOTAL
GB FOODS JBRI (52 UNITS) COMBINED PRO FORMA
MARCH 31, 1998 MAY 18, 1998(S) ADJUSTMENTS COMBINED
-------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C>
Total Revenues............................................ $1,230 $14,839 $ 0 $16,069
Operating Expenses:
Food and packaging....................................... 286 4,669 0 4,955
Payroll and other employee benefits...................... 223 5,305 0 5,528
Occupancy and other expense(o)........................... 212 3,362 0 3,574
General and administrative expenses(p)................... 316 1,159 23(m) 1,498
------ ------- ----- -------
Total operating expense............................ 1,037 14,495 23 15,555
Operating income.......................................... 193 344 (23) 514
Interest income (expense)................................. 62 (143) 0 (81)
Other income and (expense)................................ (2) 75 0 73
------ ------- ----- -------
Income before income taxes................................ 253 276 (23) 506
Provision (benefit) for income taxes...................... 0 107 (107)(n) 0
------ ------- ----- -------
Net income................................................ $ 253 $ 169 $ 84 $ 506
====== ======= ===== =======
Basic earnings per share.................................. $ 0.04 -- -- $ 0.07
Diluted earnings per share................................ $ 0.03 -- -- $ 0.06
Basic weighted average shares............................. 6,396 -- -- 7,396(r)
Diluted weighted average shares........................... 7,813 -- -- 8,813(r)
Shares outstanding........................................ 6,576 -- -- 7,576(r)
Book value per share...................................... $ 0.70 -- -- $ 1.73
</TABLE>
SCENARIO NO. 3 -- PRO FORMA COMBINED GB FOODS, TIMBER LODGE, SIXTEEN
RESTAURANTS, JBRI, AND WARRANT EXERCISE
<TABLE>
<CAPTION>
PRO FORMA COMBINED
GB FOODS, PRO FORMA TOTAL
TIMBER LODGE, AND JBRI (52 UNITS) COMBINED PRO FORMA
SIXTEEN RESTAURANTS MAY 18, 1998(S) ADJUSTMENTS COMBINED(V)
------------------- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues....................................... $13,444 $14,839 $ 0 $28,283
Operating Expenses:
Food and packaging.................................. 4,675 4,669 0 9,344
Payroll and other employee benefits................. 4,144 5,305 0 9,449
Occupancy and other expense(o)...................... 2,948 3,362 0 6,310
General and administrative expenses(p).............. 1,280 1,159 23(m) 2,462
------- ------- ----- -------
Total operating expense....................... 13,047 14,495 23 27,565
Operating income..................................... 397 344 (23) 718
Interest income (expense)............................ 20 (143) 0 (123)
Other income and (expense)........................... 22 75 0 97
------- ------- ----- -------
Income before income taxes........................... 439 276 (23) 692
Provision (benefit) for income taxes................. 19 107 (107)(n) 19
------- ------- ----- -------
Net income........................................... $ 420 $ 169 $ 84 $ 673
======= ======= ===== =======
Basic earnings per share............................. $ 0.04 -- -- $ 0.06
Diluted earnings per share........................... $ 0.04 -- -- $ 0.05
Basic weighted average shares........................ 10,854(q) -- -- 11,854(r)
Diluted weighted average shares...................... 11,865(q) -- -- 12,865(r)
Shares outstanding................................... 11,034(q) -- -- 12,034(r)
Book value per share................................. $ 3.53 -- -- $ 3.95
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
18
<PAGE> 31
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED 1997 (000'S)
SCENARIO NO. 1 -- PRO FORMA COMBINED GB FOODS, TIMBER LODGE AND SIXTEEN
RESTAURANTS, AND WARRANT EXERCISE
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL SIXTEEN
GB FOODS TIMBER LODGE RESTAURANTS PRO FORMA TOTAL
DECEMBER 31, DECEMBER 31, JANUARY 26, COMBINED PRO FORMA
1997 1997 1998 ADJUSTMENTS COMBINED(V)
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues...................................... $ 5,237 $26,536 $13,970 $ 0 $45,743
Operating Expenses:
Food and packaging................................. 1,152 9,944 4,524 0 15,620
Payroll and other employee benefits................ 870 7,600 5,460 0 13,930
Occupancy and other expense(o)..................... 822 5,607 3,727 0 10,156
General and administrative expenses(p)............. 1,667 1,971 771 399(j)(k) 4,808
------- ------- ------- ----- -------
Total operating expense...................... 4,511 25,122 14,482 399 44,514
Operating income.................................... 726 1,414 (512) (399) 1,229
Interest income (expense)........................... 143 (89) (197) 0 (143)
Other income and (expense).......................... (15) 69 67 0 121
------- ------- ------- ----- -------
Income before income taxes.......................... 854 1,394 (642) (399) 1,207
Provision (benefit) for income taxes................ 412 (249) (77)(l) 86
------- ------- ------- ----- -------
Net income.......................................... $ 854 $ 982 $ (393) $(322) $ 1,121
======= ======= ======= ===== =======
Basic earnings per share............................ $ 0.14 $ 0.27 -- -- $ 0.10
Diluted earnings per share.......................... $ 0.11 $ 0.27 -- -- $ 0.10
Basic weighted average shares....................... 6,293 3,605 -- -- 10,751(q)
Diluted weighted average shares..................... 7,752 3,676 -- -- 11,796(q)
Shares outstanding.................................. 6,571 3,626 -- -- 11,029(q)
Book value per share................................ $ 0.66 $ 3.05 -- -- $ 3.56
</TABLE>
SCENARIO NO. 2 -- PRO FORMA COMBINED GB FOODS AND JBRI
<TABLE>
<CAPTION>
HISTORICAL
GB FOODS JBRI (52 UNITS) PRO FORMA TOTAL
DECEMBER 31, JANUARY 26, COMBINED PRO FORMA
1997 1998(S) ADJUSTMENTS COMBINED
------------ --------------- ----------- ---------
<S> <C> <C> <C> <C>
Total Revenues.............................................. $5,237 $45,431 $ 0 $50,668
Operating Expenses:
Food and packaging......................................... 1,152 14,232 0 15,384
Payroll and other employee benefits........................ 870 17,301 0 18,171
Occupancy and other expense(o)............................. 822 11,318 0 12,140
General and administrative expenses(p)..................... 1,667 2,550 91(m) 4,308
------ ------- ----- -------
Total operating expense.............................. 4,511 45,401 91 50,003
Operating income............................................ 726 30 (91) 665
Interest income (expense)................................... 143 (619) 0 (476)
Other income and (expense).................................. (15) 201 0 186
------ ------- ----- -------
Income before income taxes.................................. 854 (388) (91) 375
Provision (benefit) for income taxes........................ 0 (150) 150(n) 0
------ ------- ----- -------
Net income.................................................. $ 854 $ (238) $(241) $ 375
====== ======= ===== =======
Basic earnings per share.................................... $ 0.14 -- -- $ 0.05
Diluted earnings per share.................................. $ 0.11 -- -- $ 0.04
Basic weighted average shares............................... 6,293 -- -- 7,293(r)
Diluted weighted average shares............................. 7,752 -- -- 8,752(r)
Shares outstanding.......................................... 6,571 -- -- 7,571(r)
Book value per share........................................ $ 0.66 -- -- $ 1.85
</TABLE>
SCENARIO NO. 3 -- PRO FORMA COMBINED GB FOODS, TIMBER LODGE AND SIXTEEN
RESTAURANTS, JBRI, AND
WARRANT EXERCISE
<TABLE>
<CAPTION>
PRO FORMA COMBINED
GB FOODS, JBRI (52 UNITS) PRO FORMA TOTAL
TIMBER LODGE, AND JANUARY 26, COMBINED PRO FORMA
SIXTEEN RESTAURANTS 1998(S) ADJUSTMENTS COMBINED(V)
------------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues........................................... $45,743 $45,431 $ 0 $91,174
Operating Expenses:
Food and packaging...................................... 15,620 14,232 0 29,852
Payroll and other employee benefits..................... 13,930 17,301 0 31,231
Occupancy and other expense(o).......................... 10,156 11,318 0 21,474
General and administrative expenses(p).................. 4,808 2,550 91(m) 7,449
------- ------- ----- -------
Total operating expense........................... 44,514 45,401 91 90,006
Operating income......................................... 1,229 30 (91) 1,168
Interest income (expense)................................ (143) (619) 0 (762)
Other income and (expense)............................... 121 201 0 322
------- ------- ----- -------
Income before income taxes............................... 1,207 (388) (91) 728
Provision (benefit) for income taxes..................... 86 (150) 150(n) 86
------- ------- ----- -------
Net income............................................... $ 1,121 $ (238) $(241) $ 642
======= ======= ===== =======
Basic earnings per share................................. $ 0.10 -- -- $ 0.05
Diluted earnings per share............................... $ 0.10 -- -- $ 0.05
Basic weighted average shares............................ $10,751(q) -- -- 11,751(r)
Diluted weighted average shares.......................... $11,796(q) -- -- 12,796(r)
Shares outstanding....................................... $11,029(q) -- -- 12,029(r)
Book value per share..................................... $ 3.56 -- -- $ 4.07
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
19
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(A) To record the excess consideration paid by Timber Lodge over the preliminary
estimate of the fair value of net assets of the Sixteen Restaurants. The
excess consideration amounts to $2,255,000. These excess costs are assumed
to be amortized over 40 years. Timber Lodge is assumed to issue 687,890 new
shares to CKE valued at $6.80 per share or a total value of approximately
$4,678,000.
<TABLE>
<S> <C>
Total consideration (687,890 shares at $6.80/Share)......... $4,678,000
Historical stockholders' equity as reflected on pro forma
balance sheet............................................. 3,157,000
Less the elimination of pre-existing unamortized costs in
excess of net assets acquired............................. (734,000)
----------
Estimated Fair Value of new assets acquired................. 2,423,000
----------
Excess consideration over fair value........................ $2,255,000
==========
</TABLE>
(B) To record the exercise of 1,000,000 common stock purchase warrants by
Fidelity for $5 million and the payment of the estimated $300,000 of
acquisition costs to be incurred to complete the Merger.
(C) To record the excess consideration paid over the estimated fair value of net
Timber Lodge assets acquired, plus the acquisition costs incurred to
complete the Merger. GB Foods is assumed to issue approximately 3,458,000
new shares valued at $8.50 per share. The excess consideration would be
$13,711,000. These excess costs are assumed to be amortized over 40 years.
<TABLE>
<S> <C>
Total Consideration (3,458,000 shares at $8.50 per share)... $29,392,000
Estimated Fair Value of net assets acquired:
Timber Lodge Shareholders' Equity........................... 11,303,000
Total Consideration paid by Timber Lodge for the Sixteen
Restaurants (note (a)).................................... 4,678,000
-----------
Estimated Fair Value of Timber Lodge assets after the
acquisition of Sixteen Restaurants........................ 15,981,000
-----------
Excess consideration over fair value........................ 13,411,000
Additional acquisition and registration costs............... 300,000
-----------
$13,711,000
===========
</TABLE>
(D) The net increase in pro forma stockholders' equity of GB Foods consists of
the following:
<TABLE>
<S> <C>
Issued common stock for the acquisition of Timber Lodge
(3,458,000 shares at $8.50 per share)..................... $29,392,000
Issued common stock for the Exercise of Fidelity Warrants
(1,000,000 shares at $5.00 per share)..................... 5,000,000
Less the elimination of the historical stockholders' equity
of Timber Lodge........................................... (11,303,000)
Less the elimination of the historical stockholders' equity
of Sixteen Restaurants.................................... (3,157,000)
-----------
$19,932,000
===========
</TABLE>
(E) The JBRI restaurant system consists of 48 company operated JB's Restaurants,
4 company operated Galaxy Diners, and 20 franchisee operated restaurants.
(F) To record the elimination of $328,000 of cash which will not be transferred
to GB Foods in accordance with the acquisition agreement to purchase JBRI
from CKE and the payment of the estimated $200,000 of acquisition costs.
(G) To record the excess consideration paid over the estimated fair value of net
JBRI assets acquired. The consideration paid by GB Foods is assumed to be
one million shares of GB Foods common stock valued at $8.50 per share. The
excess consideration would be $3,647,000 and is assumed to be amortized over
40 years.
<TABLE>
<S> <C>
Total consideration (1,000,000 shares at $8.50 per share)... $ 8,500,000
Summary of adjustments to historical stockholders' equity of
JBRI:
Historical stockholders' equity as reflected on pro forma
balance sheet............................................. 9,208,000
Less cash which will not be transferred to GB Foods (note
(f))...................................................... (328,000)
Less franchisee notes receivables which will not be
transferred to GB Foods (note (h))........................ (1,144,000)
Less the elimination of pre-existing unamortized costs in
excess of net assets acquired)............................ (2,683,000)
-----------
Estimated fair value of net assets acquired................. 5,053,000
-----------
Excess consideration over fair value........................ $ 3,447,000
Additional acquisition costs................................ 200,000
-----------
$ 3,647,000
===========
</TABLE>
(H) To record the elimination of $1,144,000 of franchisee notes receivables
which will not be transferred to GB Foods in accordance with the terms of
the acquisition agreement to purchase JBRI from CKE.
20
<PAGE> 33
(I) The net decrease in the pro forma stockholders' equity of GB Foods consists
of the following:
<TABLE>
<S> <C>
Issued common stock for the acquisition of JBRI (1,000,000
shares at $8.50 per share)................................ $ 8,500,000
Less the elimination of the historical stockholders' equity
of JBRI................................................... (9,208,000)
-----------
$ (708,000)
===========
</TABLE>
(J) To record the amortization of the excess consideration paid over the
estimated fair value of net Sixteen Restaurants assets acquired as described
in Note (a). Amortization for the quarter and fiscal year was calculated at
$14,094 and $56,375 respectively.
(K) To record the amortization of the excess consideration paid over the
estimated fair value of net Timber Lodge assets acquired as described in
Note (c). Amortization for the quarter and fiscal year was calculated at
$85,694 and $342,775 respectively.
(L) To adjust the tax provisions to reflect the state taxes due for Timber
Lodge. All Federal and California income taxes have been offset against the
GB Foods net operating loss carryforwards utilizing $539,000 and $1,607,000
of the carryforwards in the first quarter of fiscal 1998 and in the fiscal
year ended 1997, respectively.
(M) To record the amortization of the excess consideration paid over the
estimated fair value of net JBRI assets acquired as described in Note (g).
Amortization for the quarter and fiscal year was calculated at $22,794 and
$91,175 respectively.
(N) To record the elimination of the allocated tax benefit because GB Foods has
already recorded a valuation allowance relating to its net operating loss
carry forwards.
(O) Occupancy and other operating expenses include franchise and licensing
expense and depreciation and amortization.
(P) General and administrative expenses include advertising and litigation
settlement and related costs.
(Q) The following adjustments were made to the GB Foods' historical shares
outstanding for Scenario No. 1:
<TABLE>
<CAPTION>
FIRST QUARTER ENDED FISCAL 1998 HISTORICAL TBRL ACQUISITION FIDELITY WARRANT PRO FORMA SHARES
------------------------------- ---------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Basic weighted average shares 6,396,000 3,458,000 1,000,000 10,854,000
Diluted weighted average shares 7,813,000 3,458,000 594,000(1) 11,865,000
Shares outstanding 6,576,000 3,458,000 1,000,000 11,034,000
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 1997 HISTORICAL TBRL ACQUISITION FIDELITY WARRANT PRO FORMA SHARES
---------------------- ---------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Basic weighted average shares 6,293,000 3,458,000 1,000,000 10,751,000
Diluted weighted average shares 7,752,000 3,458,000 586,000(1) 11,796,000
Shares outstanding 6,571,000 3,458,000 1,000,000 11,029,000
</TABLE>
Note 1. The diluted weighted average share adjustment for the issuance of the
Fidelity Warrant has been adjusted to take into account the warrant
shares already included in the historical weighted average share amounts
using the treasury stock method of 406,000 and 414,000 for the first
quarter of fiscal 1998 and for fiscal 1997, respectively.
(R) Amounts depicted as pro forma shares in (q) are adjusted for issuance of
1,000,000 shares of GB Foods common stock to CKE for the acquisition of
JBRI.
(S) Certain disagreements exist between JBRI and its franchisees which are more
fully described under the captions "Recent Developments -- Negotiations With
Franchisees" and "Impact of Possible Reduction to Royalty Rate" on pages 94
and 99 respectively. Management of JBRI has estimated that in the event that
JBRI reduces its royalty rate for franchises from the current 4% to 3.25%
there could be an annual reduction to revenues and operating income of
$135,000. Such potential reduction in revenues and operating income are not
reflected in these pro forma statements.
(T) To record the elimination of $734,000 of pre-existing unamortized costs in
excess of net assets acquired.
(U) To record the elimination of $2,683,000 of pre-existing unamortized costs in
excess of net assets acquired.
(V) The ten day average closing stock price for GB Foods common stock was
$6.3875 per share for the ten days ending June 26, 1998. Should the ten day
average closing price of GB Foods common stock remains below $7.50 per share
and, if GB Foods elects to adjust (increase) the number of shares to be
issued in the Timber Lodge Merger, then the purchase price, goodwill and the
annual amortization of goodwill would be reduced by $3,458,000, $3,458,000
and $87,000 respectively. Annual net income and diluted earnings per share
would increase by $87,000 and $0.01 per share respectively.
21
<PAGE> 34
CURRENT OWNERSHIP STRUCTURE OF
GB FOODS, TIMBER LODGE, AND JB'S RESTAURANTS
(APPROXIMATE PERCENTAGES AS OF JUNE 1, 1998, EXCLUDING OPTIONS AND WARRANTS)
The diagram below illustrates the current ownership structure of GB Foods,
Timber Lodge, and 68 restaurants owned by CKE which consist of 62 JB's
Restaurants and 6 Galaxy Diners. The diagrams on the following pages illustrate
the ownership structure immediately after closing Scenarios 1, 2, and 3, which
are described on page 15 and summarized in the bullet points preceding each
diagram. The diagrams also illustrate past, current, and possible future
ownership structures of JB's Family Restaurants, Inc., which has undergone
substantial changes since its most recent fiscal year-end. The diagrams are
important to understanding the historical financial information presented for
JB's Family Restaurants, Inc. (JBRI) beginning at page 102.
OWNERSHIP STRUCTURE CHART
- ---------------
(A) William P. Foley II owns 18,000 GB Foods shares (0.3%) and 46,700 Timber
Lodge shares (1.3%), and holds 350,000 currently unexercisable GB Foods
stock options, none of which are included in the percentages of ownership
shown for Fidelity National Financial, Inc. Mr. Foley's shares, however, are
included in the "Other GB Foods Shareholders" group. If Mr. Foley exercised
his currently unexercisable options, he would own 5.3% of GB Foods' shares;
this exercise would reduce the percentage ownership of other GB Foods'
shareholders. Mr. Foley is Fidelity's largest shareholder and is a director
of the general partner of CKE's largest shareholder. As of July 2, 1998, Mr.
Foley beneficially owned approximately 10% of CKE's outstanding shares
(inclusive of exercisable employee stock options owned by Mr. Foley and
inclusive of shares owned by CKE's largest shareholder). Mr. Foley is
Chairman of the Board, Chief Executive Officer, and a principal shareholder
of Fidelity, Chairman of the Board and Chief Executive Officer of CKE
Restaurants, Inc., and Chairman of the Board of GB Foods, but does not have
or share voting or investment power over securities held by Fidelity.
(B) Fidelity National Financial, Inc. also holds warrants to purchase a total of
3,470,000 GB Foods shares, which (if fully exercised) would increase
Fidelity's percentage ownership to 44.9% of GB Foods' outstanding shares and
correspondingly reduce the percentage ownership of Other GB Foods
Shareholders to 55.1%. Also, Fidelity owns approximately 1.8% of CKE's
outstanding common stock, which is not shown on the diagram.
22
<PAGE> 35
OWNERSHIP STRUCTURE OF
JB'S FAMILY RESTAURANTS, INC.
AS OF JANUARY 26, 1998
(APPROXIMATE PERCENTAGES AS OF JANUARY 26, 1998, EXCLUDING OPTIONS AND WARRANTS)
CURRENT OWNERSHIP STRUCTURE OF
JB'S FAMILY RESTAURANTS, INC.
(APPROXIMATE PERCENTAGES AS OF JUNE 1, 1998, EXCLUDING OPTIONS AND WARRANTS)
The following transactions occurred since January 26, 1998:
- 12 JB's Restaurants were sold to Star Buffet, Inc.
- JB Parent Corp. was organized by CKE, and all stock of JB's Family
Restaurants, Inc. (JBRI) was transferred to the new company.
- 16 JB's Restaurants were transferred to JB Parent Corp.
- ---------------
* Star Buffet, Inc. is in the process of converting these 12 restaurants to
another concept. These 12 restaurants, plus the 16 owned by JB Parent
Corp., plus the 52 retained by JBRI, constitute the 80 restaurants owned by
JBRI as of January 26, 1998.
(A) William P. Foley II is Chairman of the Board, Chief Executive Officer, and a
principal shareholder of Fidelity, Chairman of the Board and Chief Executive
Officer of CKE Restaurants, Inc., and Chairman of the Board of Star Buffet,
Inc., but does not have or share voting or investment power over securities
held by Fidelity. Mr. Foley is Fidelity's largest shareholder and is a
director of the general partner of CKE's largest shareholder. As of July 2,
1998, Mr. Foley beneficially owned approximately 10% of CKE's outstanding
shares (inclusive of exercisable employee stock options owned by Mr. Foley
and inclusive of shares owned by CKE's largest shareholder). The
relationships among Mr. Foley and these companies are described in more
detail on page 3 of this booklet.
23
<PAGE> 36
OWNERSHIP STRUCTURE OF
GB FOODS, TIMBER LODGE, AND JB'S FAMILY RESTAURANTS, INC.
ASSUMING SCENARIO 1
(APPROXIMATE PERCENTAGES AS OF JUNE 1, 1998, EXCLUDING OPTIONS AND WARRANTS)
SCENARIO 1 (SEE PAGE 15 FOR A MORE DETAILED DESCRIPTION):
- - Fidelity National Financial, Inc. exercises warrants to purchase 1,000,000
newly-issued GB Foods shares for $5 million in cash.
- - JB Parent Corp. distributes the stock of JB's Family Restaurants, Inc. (JBRI)
to CKE Restaurants, Inc.
- - Timber Lodge purchases JB Parent Corp. (which owns 16 restaurants) from CKE
Restaurants, Inc. in exchange for 687,890 newly-issued Timber Lodge shares.
- - Timber Lodge merges with TLS Acquisition Corp. at an exchange ratio of 0.8000.
The exchange ratio could be adjusted, as described under "THE MERGER" at pages
1 and 2. Any change in the exchange ratio would affect the relative percentage
ownership of GB Foods by the companies and groups illustrated in the diagram
below.
- - GB Foods does not acquire JB's Family Restaurants, Inc. (JBRI).
OWNERSHIP STRUCTURE CHART
- ---------------
* Star Buffet, Inc. is in the process of converting these 12 restaurants to
another concept.
(A) Immediately after the merger with Timber Lodge, William P. Foley II would
own 55,360 GB Foods shares (0.5%) and would hold 350,000 currently
unexercisable GB Foods stock options, none of which are included in the
percentages of ownership shown for Fidelity National Financial, Inc. Mr.
Foley's shares, however, are included in the "Other GB Foods Shareholders"
group. If Mr. Foley exercised his currently unexercisable stock options, he
would own 3.6% of GB Foods' shares; this exercise would reduce the
percentage ownership of other GB Foods' shareholders. Mr. Foley is
Fidelity's largest shareholder. As of July 2, 1998, Mr. Foley beneficially
owned approximately 10% of CKE's outstanding stock (inclusive of exercisable
employee stock options owned by Mr. Foley and inclusive of shares owned by
CKE's largest shareholder). Mr. Foley is Chairman of the Board, Chief
Executive Officer, and a principal shareholder of Fidelity, Chairman of the
Board and Chief Executive Officer of CKE Restaurants, Inc., and Chairman of
the Board of GB Foods and Star Buffet, Inc., but does not have or share
voting or investment power over securities held by Fidelity. Also, Fidelity
owns approximately 1.8% of CKE's outstanding common stock, which is not
shown on the diagram. The relationships among Mr. Foley and these companies
are described in more detail on page 3 of this booklet.
(B) Immediately after the merger, Fidelity National Financial, Inc. also would
hold warrants to purchase a total of 2,470,000 GB Foods Shares, which (if
fully exercised) would increase Fidelity's percentage ownership to 34.4% of
GB Foods' outstanding shares and correspondingly reduce the percentage
ownership of Other GB Foods Shareholders and Other Former Timber Lodge
Shareholders to 41.0% and 20.5%, respectively. Also, Fidelity owns
approximately 1.8% of CKE's outstanding common stock, which is not shown on
the diagram.
24
<PAGE> 37
OWNERSHIP STRUCTURE OF
GB FOODS, TIMBER LODGE, AND JB'S FAMILY RESTAURANTS, INC.
ASSUMING SCENARIO 2
(APPROXIMATE PERCENTAGES AS OF JUNE 1, 1998, EXCLUDING OPTIONS AND WARRANTS)
SCENARIO 2 (SEE PAGE 15 FOR A MORE DETAILED DESCRIPTION):
- - GB Foods acquires JB's Family Restaurants, Inc. (JBRI) in exchange for
1,000,000 newly-issued GB Foods shares.
- - GB Foods' proposed merger with Timber Lodge does not close.
- - Fidelity National Financial, Inc. does not exercise any GB Foods warrants.
- - Timber Lodge does not purchase JB Parent Corp.
OWNERSHIP STRUCTURE CHART
- ---------------
* Star Buffet, Inc. is in the process of converting these 12 restaurants to
another concept.
(A) Immediately after the acquisition of JB's Family Restaurants, Inc. (JBRI),
William P. Foley II would continue to own 18,000 GB Foods shares (0.2%) and
46,700 Timber Lodge shares (1.3%), and would continue to hold 350,000
currently unexercisable GB Foods stock options, none of which are included
in the percentages of ownership shown for Fidelity National Financial, Inc.
Mr. Foley's shares, however, are included in the "Other GB Foods
Shareholders" group. If Mr. Foley exercised his currently unexercisable
stock options, he would own 4.6% of GB Foods' shares; this exercise would
reduce the percentage ownership of other GB Foods' shareholders. Mr. Foley
is Fidelity's largest shareholder and is a director of the general partner
of CKE's largest shareholder. As of July 2, 1998, Mr. Foley beneficially
owned approximately 10% of CKE's outstanding shares (inclusive of
exercisable employee stock options owned by Mr. Foley and inclusive of
shares owned by CKE's largest shareholder). Mr. Foley is Chairman of the
Board, Chief Executive Officer, and a principal shareholder of Fidelity,
Chairman of the Board and Chief Executive Officer of CKE Restaurants, Inc.,
and Chairman of the Board of GB Foods and Star Buffet, Inc., but does not
have or share voting or investment power over securities held by Fidelity.
The relationships among Mr. Foley and these companies are described in more
detail on page 3 of this booklet.
(B) Immediately after the acquisition of JBRI, Fidelity National Financial, Inc.
also would continue to hold warrants to purchase a total of 3,470,000 GB
Foods shares, which (if fully exercised) would increase Fidelity's
percentage ownership to 40.8% of GB Foods' outstanding shares and
correspondingly reduce the percentage ownership of Other GB Foods
Shareholders to 50.1%. Also, Fidelity owns approximately 1.8% of CKE's
outstanding common stock, which is not shown on the diagram.
25
<PAGE> 38
OWNERSHIP STRUCTURE OF
GB FOODS, TIMBER LODGE, AND JB'S FAMILY RESTAURANTS, INC.
ASSUMING SCENARIO 3
(APPROXIMATE PERCENTAGES AS OF JUNE 1, 1998, EXCLUDING OPTIONS AND WARRANTS)
SCENARIO 3 (SEE PAGE 15 FOR A MORE DETAILED DESCRIPTION):
- - Fidelity National Financial, Inc. exercises warrants to purchase 1,000,000
newly-issued GB Foods shares for $5 million in cash.
- - Timber Lodge purchases JB parent Corp. from CKE in exchange for 687,890
newly-issued Timber Lodge shares.
- - GB Foods acquires JB's Family Restaurants, Inc. (JBRI) for 1,000,000
newly-issued GB Foods shares.
- - Timber Lodge merges with TLS Acquisition Corp. at an exchange ratio of 0.8000.
The exchange ratio could be adjusted, as described under "THE MERGER" at pages
1 and 2. Any change in the exchange ratio would affect the relative percentage
ownership of GB Foods by the companies and groups illustrated in the diagram
below.
OWNERSHIP STRUCTURE CHART
- ---------------
* Star Buffet, Inc. is in the process of converting these 12 restaurants to
another concept.
(A) Immediately after the merger with Timber Lodge and the acquisition of JB's
Family Restaurants, Inc. (JBRI), William P. Foley would own 55,360 GB Foods
shares (0.5%) and would hold 350,000 currently unexercisable GB Foods stock
options, none of which are included in the percentages of ownership shown
for Fidelity National, Inc. Mr. Foley's shares, however, are included in the
"Other GB Foods Shareholders" group. If Mr. Foley exercised his currently
unexercisable options, he would own 3.3% of GB Foods' shares; this exercise
would reduce the percentage ownership of other GB Foods' shareholders. Mr.
Foley is Fidelity's largest shareholder and is a director of the general
partner of CKE's largest shareholder. As of July 2, 1998, Mr. Foley
beneficially owned approximately 10% of CKE's outstanding shares (inclusive
of exercisable employee stock options owned by Mr. Foley and inclusive of
shares owned by CKE's largest shareholder). Mr. Foley is Chairman of the
Board, Chief Executive Officer, and a principal shareholder of Fidelity,
Chairman of the Board and Chief Executive Officer of CKE Restaurants, Inc.,
and Chairman of the Board of GB Foods and Star Buffet, Inc., but does not
have or share voting or investment power over securities held by Fidelity.
The relationships among Mr. Foley and these companies are described in more
detail on page 3 of this booklet.
(B) Immediately after the merger with Timber Lodge and the acquisition of JBRI,
Fidelity National Financial, Inc. also would hold warrants to purchase a
total of 2,470,000 GB Foods shares, which (if fully exercised) would
increase Fidelity's percentage ownership to 32.1% of GB Foods' outstanding
shares and correspondingly reduce the percentage ownership of Other GB Foods
Shareholders and Other Former Timber Lodge Shareholders to 38.2% and 19.1%,
respectively. Also, Fidelity owns approximately 1.8% of CKE's outstanding
common stock, which is not shown on the diagram.
26
<PAGE> 39
RISK FACTORS
Capitalized words and phrases used in this "Risk Factors" section are
defined at other places in this booklet. A table showing where those definitions
appear can be found at page 138.
RISKS ASSOCIATED WITH THE MERGER AND JBRI ACQUISITION
SYNERGIES MAY NOT MATERIALIZE
In determining that the Merger, and, in the case of GB Foods, the JBRI
Acquisition are in the best interests of their respective shareholders, GB
Foods' and Timber Lodge's Boards considered (i) the diversification of both
companies' geographic presence and the market segments that each company
currently serves, (ii) the expansion of the Timber Lodge business into new
southwestern and western markets, (iii) the potential growth of GB Foods through
dual concept restaurants and the JBRI Acquisition, (iv) the potential favorable
impact of the Timber Lodge expansion on GB Foods' financial position, (v) the
potential cost savings to both companies under common management, particularly
in the area of reduced overhead, and (vi) other synergies that might result from
the integration of the companies. There can be no assurance, however, that such
benefits will be accomplished successfully or as rapidly as desired.
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING COST SAVINGS
In determining that the Merger is in the best interests of its
shareholders, each of the GB Foods' Board of Directors and the Timber Lodge
Board of Directors considered the likelihood that cost savings such as reduced
corporate overhead and insurance costs, operating efficiencies such as food and
supplies purchasing economies resulting from the increased size of the combined
entity, and other synergies such as improved management practices and incentive
programs would result following consummation of the Merger. In particular, the
Board of Directors of GB Foods considered the potential for cost savings in
approving the Merger and JBRI Acquisition, although that factor was not the
primary impetus for either transaction. Management of GB Foods provided the
financial advisors engaged by GB Foods and Timber Lodge with certain
information, including an estimate of total cost savings of $127,000 for Timber
Lodge and $204,000 for JBRI, and the advisors used that information in the
course of rendering their opinions. However, those figures are estimates only,
subject to many uncertainties and to events and circumstances which GB Foods
cannot control. Those uncertainties, events and circumstances could cause actual
results to differ materially from the estimates, and there can be no assurance
that any cost savings, operating efficiencies or other synergies will be
accomplished. In addition, operations could be adversely affected if management
attention is diverted to meet problems which may arise in connection with the
integration of the businesses. The acquisition of Timber Lodge and JBRI will
significantly increase the size of GB Foods. Managing GB Foods and integrating
the acquired business operations of Timber Lodge and JBRI will continue to
present a significant challenge to GB Foods' management. GB Foods will continue
to evaluate the restaurant operations to be acquired in the Merger and various
short and long-term strategic considerations in the process of assessing the
extent to which Timber Lodge and JBRI restaurant operations will be integrated,
restructured or otherwise modified by GB Foods. JBRI, over the past five years,
has experienced same store sales declines and reduced operating margins. One of
the objectives of GB Foods' turnaround strategies for JBRI is to stem the recent
negative operating trends experienced by JBRI. GB Foods will implement various
turnaround strategies including, but not limited to, image enhancements, a
re-focused marketing strategy, improved management incentive programs and
reductions to corporate administrative costs. However, there can be no assurance
that these strategies will be successful. If GB Foods is unable to achieve
anticipated improvements in restaurant-level operating margins or reductions in
corporate overhead costs in its JBRI's operations on a timely basis, cash flows
generated from JBRI's operations may not be adequate to support GB Foods'
turnaround strategies for JBRI, some of which require significant capital
expenditures. GB Foods' success will also depend in part on JBRI's franchisees.
JBRI's franchisees are not required to participate in implementing GB Foods'
strategies and there can be no assurance that they will participate. GB Foods
has discussed many of the strategies with the franchisees and GB Foods believes
that the franchisees are very interested in working with GB Foods to improve the
business. However, GB Foods has not offered (and does not intend to offer)
specific financial or other incentives for franchisees to participate in GB
Foods' strategies. Lack of participation by JBRI's
27
<PAGE> 40
franchisees in implementing those strategies could delay or limit the success of
those strategies. Restructuring and integrating the restaurant operations of
JBRI will require the dedication of significant capital and management
resources, which may cause an interruption of, or a loss of momentum in, the
activities of GB Foods. Failure to effectively accomplish the integration of GB
Foods' operations or to improve Timber Lodge's and JBRI's results of operations
could have a material adverse effect on GB Foods' financial condition and
results of operations. See "THE MERGER -- REASONS FOR THE MERGER AND BOARD
RECOMMENDATIONS" at page 42 and "UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION" at page 15.
TIMBER LODGE STEAKHOUSE(TM) BRAND EXPANSION
If the Merger closes, Timber Lodge will acquire the Sixteen Restaurants
from CKE. (See "THE TIMBER LODGE/JB'S PURCHASE" beginning at page 58 for further
information.) Timber Lodge's ability to successfully renovate and convert those
restaurants to the Timber Lodge Steakhouse(TM) format depends on a number of
factors. These factors include whether (i) Timber Lodge is able to convert such
restaurants economically, (ii) Timber Lodge is able to stay within budget and on
schedule for the project, and (iii) whether the conversion will attract new
customers without significantly reducing existing ones. There can be no
assurance that Timber Lodge will be able to convert the Sixteen Restaurants
successfully or that, if converted, those restaurants can be operated
profitably. Until the Sixteen Restaurants are converted, or if for any reason
they cannot be converted, they will continue to be operated as JB's Restaurants
and Galaxy Diners; a significant delay could adversely affect Timber Lodge's
operations of the Sixteen Restaurants.
The factors which possibly could prevent conversion or result in a
significant delay include local zoning limitations, local construction and
health inspection and certification restrictions, state and local liquor
licensing, local parking or traffic restrictions (Timber Lodge restaurants
typically have a somewhat larger seating capacity than JB's restaurants), local
construction labor problems, and individual lease restrictions (under which a
landlord could refuse to permit renovations or conversions). Although GB Foods
does not believe these factors are likely to prevent or delay the conversions
and renovations, they are not within GB Foods' control.
A significant delay or failure to convert any of the Sixteen Restaurants
would have no effect on the consummation of the Merger. If such a delay or
failure occurred, GB Foods could (i) cause JBRI to franchise the JB's brand to
Timber Lodge with respect to those restaurants which could not be converted or
as to which the delay was substantial, or (ii) cause JBRI to exchange less
troublesome restaurant locations with Timber Lodge. However, no such contingency
arrangement presently is in place. If the Merger closes but the JBRI Acquisition
does not, a significant delay or failure to convert one or more of the Sixteen
Restaurants could have adverse effects on GB Foods unless CKE (as the owner of
JBRI) agreed to accommodate GB Foods.
In addition, Timber Lodge's existing restaurants are located in Minnesota,
Wisconsin, South Dakota, upstate New York, and northern Illinois. The newly
acquired restaurants are located primarily in Arizona, with other locations in
New Mexico, Utah, and Idaho. The results achieved to date by Timber Lodge's
relatively modest restaurant base may not be indicative of the results that
would be achieved by a larger number of restaurants in a larger and more diverse
geographic market area. Also, because Timber Lodge has a relatively modest base
of restaurants at present, unsuccessful new restaurants could have a more
significant adverse effect on Timber Lodge's results from operations than would
be the case with a larger restaurant company.
ADJUSTMENT OF EXCHANGE RATIO
The Exchange Ratio of 0.8000 shares of GB Foods common stock for each
outstanding share of Timber Lodge stock is subject to increase or decrease based
on the average market price of GB Foods common stock over a ten trading day
period ending two trading days before closing. See "THE MERGER -- EXCHANGE
RATIO" beginning on page 52 for details regarding how the Exchange Ratio may be
adjusted. Neither GB Foods nor Timber Lodge can predict what such ten-day
average price of GB Foods stock will be, and such price will not be known until
after the Special Meetings are held. In addition, if that ten-day average price
is below $7.50 per share, the Merger Agreement provides that the Exchange Ratio
may be increased according to a pre-agreed formula, or may be left unchanged.
Accordingly, fluctuations in the market price of GB Foods
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stock during such ten-day period could have significant and potentially adverse
effects on Timber Lodge shareholders, or could result in a significant increase
in the number of GB Foods shares issued to Timber Lodge shareholders, within the
limits discussed at "THE MERGER -- EXCHANGE RATIO" beginning on page 52. The
effects of such price fluctuations over a wide range, and the effects of
possible adjustments, are illustrated in tables on pages 8 and 9.
ADJUSTMENT OF JBRI ACQUISITION PRICE
GB Foods has agreed to purchase JBRI in exchange for 1,000,000 new shares
of its common stock. The purchase price is subject to adjustment if JBRI's
shareholders' equity as of the closing date is less than $5,000,000. Although
CKE has stated its intention to ensure that equity is at least that amount,
there is no guarantee to that effect. If the $5,000,000 equity condition is not
met, the parties have agreed to negotiate an adjustment at that time. If no
agreement can be reached, the JBRI Acquisition could fail to close. If a
material adjustment were negotiated, GB Foods' Board of Directors would
re-solicit the GB Foods' shareholders for their approval.
STOCK PRICE VOLATILITY
The market price of the GB Foods common stock may be significantly affected
by quarterly financial results of GB Foods or of other companies in its
industry, or by changes in general conditions in the economy, in the restaurant
industry, or in the capital markets. In addition, many stocks traded on the
Nasdaq Small Cap Market occasionally experience extreme price and volume
fluctuations, and there can be no assurance given that GB Foods' stock will not
experience such fluctuations over time. Moreover, broad market fluctuations,
even if not directly related to GB Foods' earnings or operations, may also
adversely affect the price of GB Foods' common stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Merger by the GB Foods' Board and
the Timber Lodge Board, GB Foods and Timber Lodge shareholders should be aware
that two directors of Timber Lodge, Messrs. Rowland and Bedzyk, have certain
interests in the Merger that are different from, or in addition to, the
interests of shareholders of Timber Lodge generally. Such interests, together
with other relevant factors, were considered by the GB Foods Board and the
Timber Lodge Board in making their recommendations and approving the Merger
Agreement. See "RELATIONSHIP OF GB FOODS AND TIMBER LODGE" beginning at page 41
and "CERTAIN TRANSACTIONS AND INTERESTS OF CERTAIN PERSONS IN THE MERGER"
beginning at page 79.
INTERESTS OF CERTAIN PERSONS IN THE JBRI ACQUISITION
Three of GB Foods' directors, Messrs. Foley, Puzder, and Willey, also are
directors or executive officers of CKE (which owns JBRI). However, the remaining
two directors, Messrs. Haglund and Gregory, are not affiliated with CKE. All
five of GB Foods' directors approve the acquisition of JBRI and all five
recommend that shareholders vote in favor of that acquisition. The GB Foods
Board believes it has fairly and objectively evaluated and reviewed the JBRI
Acquisition (as discussed in this booklet) and acted in the best interests of GB
Foods and all of its shareholders. The two disinterested directors were aware of
the relationship between CKE and JBRI, and of the resulting conflict of interest
involving the other three directors. The GB Foods Board would not have approved
the JBRI Acquisition if the disinterested directors had not approved it. The GB
Foods Board also (1) obtained an opinion from a financial advisor, Piper Jaffray
Inc., that the consideration to be paid in the JBRI Acquisition is fair to GB
Foods from a financial point of view, and (2) is soliciting the approval of
shareholders after full disclosure in this booklet of the conflict of interest.
See "CERTAIN TRANSACTIONS AND INTERESTS OF CERTAIN PERSONS IN JBRI TRANSACTION"
beginning at page 90. In addition to the relationship of certain GB Foods'
directors to CKE discussed above, shareholders should be aware of certain
significant structural changes JBRI has undergone since the end of its most
recent fiscal year. Diagrams illustrating the ownership structure of JBRI as of
its most recent fiscal year end, and the effects of recent structural changes,
appear on page 23; a financial description of these recent changes appears in
Note 16 to JBRI's financial statements beginning on page 117.
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SHARES ELIGIBLE FOR FUTURE ISSUANCE AND SALE
As of March 26, 1998, 6,576,485 shares of GB Foods common stock were
outstanding, and 5,398,012 shares of GB Foods common stock were reserved for
issuance in connection with the exercise of outstanding options and warrants. GB
Foods may issue up to 38,025,503 additional shares of GB Foods common stock in
the future in connection with acquisitions, corporate combinations, financing
activities, or employee compensation plans without seeking the approval of its
stockholders under Delaware corporate law. Nasdaq rules presently require a
Nasdaq-listed company (such as GB Foods) to obtain shareholder approval prior to
issuing 20% or more of its outstanding shares in a transaction (with lower
limits applicable if officers, directors, or significant shareholders are
potential recipients of significant amounts of such shares). However,
substantial blocks of shares nevertheless could be issued without obtaining
shareholder approval in transactions which were below the Nasdaq thresholds. The
issuance of substantial amounts of GB Foods common stock in the open market or
the availability of such shares for issuance could adversely affect the market
price of GB Foods common stock. See "COMPARATIVE MARKET PRICE AND DIVIDEND
INFORMATION" beginning at page 69 for additional information.
EFFECT OF GOODWILL ON FUTURE REPORTED NET INCOME
GB Foods intends to use the purchase method of accounting in connection
with the Merger and the JBRI Acquisition. One effect of using the purchase
method will be the recognition each year of goodwill amortization expense for
financial accounting purposes. Annual amortization expense has the effect of
reducing reported net income or increasing reported net loss, as applicable;
however, amortization expense is not deductible for federal income tax purposes.
The total amount of goodwill amortized each year (over a 40-year period) is
expected to be approximately $491,000; however, it would be approximately
$404,000 per year or $966,000 per year if the Exchange Ratio were adjusted up or
down, respectively. For additional information concerning goodwill, see "TABULAR
GOODWILL ANALYSIS" at page 9, "THE MERGER -- ACCOUNTING TREATMENT" beginning on
page 54 and "PROPOSAL NO. 2 TO THE GB FOODS MEETING -- APPROVAL OF JBRI
ACQUISITION -- ACCOUNTING TREATMENT" beginning on page 90.
ABILITY TO UTILIZE ACCUMULATED NET OPERATING LOSS CARRYFORWARDS
As of the end of its most recent fiscal year, GB Foods had accumulated net
operating loss carryforwards of $11,906,000 for federal income tax purposes, and
of $5,694,000 for state income tax purposes. Those carryforwards may be deducted
to the extent of GB Foods' taxable income in future tax years, subject to
significant limitations which are described in more detail at "THE
MERGER -- FEDERAL INCOME TAX MATTERS" beginning on page 55. Under current tax
laws and regulations those limitations include both an annual limit on the
dollar amount of that carryforward which GB Foods may use each year
(approximately $2.1 million per year federally), and an overall time limit
(expiring at various times from 1999 to 2012). Because of these limitations, GB
Foods faces the risks that (1) it might not earn sufficient taxable income in
future years to use up the carryforwards before they (permanently) expire, and
(2) if in some years GB Foods does earn taxable income in excess of the annual
limit, it will be forced to use the carryforwards more slowly than otherwise
would be the case. GB Foods has not recorded a deferred tax asset for the
expected future tax benefits related to accumulated net operating loss
carryforwards and will re-evaluate this position upon completion of the Merger
and JBRI Acquisition. GB Foods did not record a deferred tax asset because of
its history of operating losses; however, that position does not necessarily
mean that its accumulated net operating loss carryforwards will expire before
they can be used. GB Foods expect that, if the Merger and the JBRI Acquisition
both close, its taxable income for fiscal 1998 is likely to be less than the
amount of the annual limit on use of the carryforwards. However, GB Foods cannot
accurately predict what its annual taxable income will be after consummation of
the Merger and the JBRI Acquisition. Thus, utilization of GB Foods' net
operating losses cannot be assured.
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DISAGREEMENTS BETWEEN JBRI AND ITS FRANCHISEES
In late April, 1998, JBRI and its franchisees began discussions regarding
certain disagreements. At the heart of the disagreement is the franchisees'
assertion that their franchises have become less valuable in recent years for
several reasons, including the reduction in restaurants operated as JB's and
related reduction in advertising and promotion; as a result, the franchisees
have asked JBRI to decrease its basic royalty rate. The discussions are
described more fully under the caption "RECENT DEVELOPMENTS -- NEGOTIATIONS WITH
FRANCHISEES" beginning on page 94. In the course of those discussions, JBRI
(with GB Foods' consent) offered to reduce JBRI's basic royalty rate from 4.0%
to 3.25%, which offer has not yet been accepted. The outcome (or lack of
outcome) of those discussions will not affect whether or not the Merger or the
JBRI Acquisition close. However, if the JBRI Acquisition does close, GB Foods'
management believes it is likely that JBRI's royalty rate will be decreased in
the near future as part of a settlement with the franchisees; the projected
impact of such a decrease is described under the caption "IMPACT OF POSSIBLE
REDUCTION TO ROYALTY RATE" on page 99. Moreover, other terms of the franchise
arrangement between JBRI and its franchisees could be adversely changed, though
GB Foods' management at present does not anticipate that any such change would
be material to GB Foods' business or operations. In addition, GB Foods'
management presently believes that if a settlement with JBRI's franchisees is
not successfully negotiated, litigation could result.
Any of these events could have a significant and adverse effect on the net
income (or loss) of JBRI as an operating subsidiary of GB Foods. The effects on
JBRI's gross revenues are expected to be substantially less significant than the
effects on net income because revenues from the 52 company-owned restaurants are
not expected to be materially affected by changes in the franchise arrangements.
RISKS ASSOCIATED WITH BUSINESS OPERATIONS
COMPETITIVE ENVIRONMENT
General
The food service industry is intensely competitive. Competition exists with
respect to the quality and value of food products offered, concept, service,
price, dining experience and location. GB Foods and Timber Lodge primarily
compete with major restaurant chains, some of which dominate the quick-service
or full-service restaurant industries. Competitors also include a variety of
fast food restaurants, mid-price, full-service casual dining restaurants, health
and nutrition-oriented restaurants, delicatessens and prepared food stores, as
well as supermarkets and convenience stores. Many competitors have substantially
greater financial, marketing and other resources than we do, which may give them
certain competitive advantages. Some of the major quick-service restaurant
chains have increasingly offered selected food items and combination meals at
discounted prices. Future changes in the pricing or other marketing strategies
of one or more of our competitors could have a material adverse effect on GB
Foods and Timber Lodge's financial condition and results of operations. As
competitors expand their operations, competition can be expected to intensify.
Increased competition could have a material adverse effect on our financial
condition and results of operations.
GB Foods
GB Foods presently operates in the quick-service restaurant industry. The
industry is intensely competitive in the attraction of consumers and franchisees
and in obtaining suitable sites for new stores. Some of the key competitive
factors in the restaurant industry are the quality and value of the food
products offered, quality of service, cleanliness, name identification,
restaurant location, price and attractiveness of facilities. GB Foods and its
franchisees compete with restaurants of all types in the local market areas
surrounding individual stores for a share of the consumers' restaurant food
dollars. In particular, GB Foods competes with other quick-service restaurants
and Mexican restaurants.
The industry can be significantly affected by many factors, including
changes in local, regional or national economic conditions, changes in consumer
tastes, consumer concerns about the nutritional quality of quick-service food
and increases in the number of, and particular location of, competing
quick-services restaurants. Factors such as inflation, increases in food, labor
and energy costs, the availability and cost of suitable sites,
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fluctuating interest and insurance rates, state and local regulations and
licensing requirements and the availability of an adequate number of hourly-paid
employees can also adversely affect the fast food restaurant industry. In
addition, other fast food chains with greater financial resources than GB Foods
have similar or competing operating concepts to those of GB Foods in its
geographic markets.
Major chains, which also have substantially greater financial resources and
longer operating histories than we do, dominate the fast food restaurant
industry. GB Foods competes primarily on the basis of food quality, price and
speed of service. A significant change in pricing or other marketing strategies
by one or more of our competitors could have an adverse impact on GB Foods'
sales, earnings and growth. All of the major fast food chains have increasingly
offered selected food items and combination meals at discounted prices. While GB
Foods cannot predict the duration of this promotional activity or the extent to
which this pricing may become more or less competitive, this pricing could have
a continued adverse effect on our sales and earnings following the Merger.
GB Foods believes its primary competition in the quick-service segment of
the restaurant industry is from established national quick-service restaurant
chains offering Mexican food, hamburgers, pizza, and chicken. These chains
include Taco Bell, El Pollo Loco, Del Taco, Burger King, McDonalds, Wendy's,
Pizza Hut and KFC. They offer strong competition, have national name recognition
and greater advertising, financial, and other resources than GB Foods. These
competitors also have a far greater density of store sites and substantially
larger facilities. GB Foods also competes with local quick-service restaurant
chains and both quick-service and full-service "mom-and-pop" restaurants in
specific local markets.
GB Foods believes that its product is distinguishable from its competitors'
products because (i) its menu has more authentic Mexican items than the menus of
most Mexican quick-service restaurants; (ii) its food is prepared with
high-quality, natural ingredients resulting in food quality comparable to a
full-service restaurant; and (iii) GB Foods generally has larger portioning
standards, giving the customer a good value for the price.
Timber Lodge
The full-service restaurant industry is intensely competitive with respect
to price, service, location and food quality. There are many well-established
competitors with substantially greater financial and other resources than Timber
Lodge. In Timber Lodge's view, its principal competitors are not only other
steakhouses but also any other restaurants which offer a casual atmosphere and
moderately-priced meals within its geographic markets.
Expansion of the steakhouse concept has increased in recent years. In
addition to traditional steakhouse restaurants, Timber Lodge expects to face
competition from new entries into the steakhouse market, such as national
steakhouse chains which have greater name recognition, are more well-established
and have significantly greater resources than Timber Lodge. Competitors include
Outback Steakhouse, Inc., Lone Star Steakhouse and Saloon, and Long Horn
Steakhouse, operated by Rare Hospitality International, Inc. Other competitors
include a large number of national and regional restaurant chains, many of which
have been in existence for a substantially longer period than it has, and may be
better established in the markets where Timber Lodge restaurants are or may be
located.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, traffic
patterns, and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased food, labor and benefits costs
and lack of experienced management and hourly employees may adversely affect the
restaurant industry in general and our restaurants in particular.
CONTROL BY PRINCIPAL STOCKHOLDERS AND RELIANCE ON KEY PERSONNEL
Fidelity holds 1,039,500 shares of GB Foods common stock (15.8% of its
outstanding shares as of March 31, 1998) and has the right to acquire an
additional 3,470,000 shares upon exercise of currently exercisable warrants,
including the Fidelity Warrants. CKE does not presently own any shares of GB
Foods' common stock, but will acquire 550,312 shares of GB Foods' common stock
if the Merger with Timber Lodge closes and will acquire an additional 1,000,000
shares of GB Foods' common stock if the JBRI Acquisition
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transaction is completed. William P. Foley, II, Chairman of the Board and Chief
Executive Officer of Fidelity and CKE, and Chairman of the Board of GB Foods,
personally owns 18,000 shares of GB Foods common stock and owns an additional
350,000 GB Foods common stock options, none of which is presently exercisable.
Mr. Foley as an individual does not have or share voting or investment power
over the GB Foods stock held by Fidelity. In addition, Fidelity presently owns
175,800 shares of Timber Lodge common stock (4.8% of its outstanding shares as
of March 25, 1998). Mr. Foley personally owns 46,700 shares of Timber Lodge
common stock (1.3%). Mr. Foley does not share voting or investment power over
the Timber Lodge stock held by Fidelity. Based on certain assumptions outlined
below, if the Merger had closed and become effective on March 31, 1998 Fidelity
would have owned 2,180,140 shares of GB Foods common stock plus exercisable
warrants to purchase an additional 2,470,000 shares, CKE would have owned
1,550,312 shares of GB Foods common stock, and Mr. Foley would have owned 55,360
shares of GB Foods common stock plus unexercisable options to purchase an
additional 350,000 shares. GB Foods would have had 12,034,329 shares of common
stock outstanding immediately after the closing, of which Fidelity, CKE, and Mr.
Foley collectively would have owned 31.5% (excluding Fidelity's remaining
warrants and Mr. Foley's options); if Fidelity's remaining warrants and Mr.
Foley's stock options were fully exercised, Fidelity, CKE, and Mr. Foley
collectively would have owned 44.5%.
Consequently, after the Merger, Fidelity and CKE collectively may have the
practical ability to elect their nominees to the GB Foods Board of Directors.
See "PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF GB FOODS" beginning at
page 71 and "PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF TIMBER LODGE"
beginning at page 72.
The assumptions referred to in the preceding paragraphs are: (a) the
Exchange Ratio is not adjusted; (b) the Fidelity Warrants Exercise resulted in
Fidelity acquiring 1,000,000 shares of GB Foods common stock shortly before the
Merger closed; (c) the Timber Lodge/JB's Purchase resulted in CKE acquiring
687,890 Timber Lodge Shares shortly before the Merger closed; and (d) the JBRI
Acquisition resulted in CKE acquiring 1,000,000 shares of GB Foods common stock
shortly before the Merger closed.
The success of GB Foods and Timber Lodge after the Merger will be dependent
on their ability to attract and retain experienced successful executives to
their management teams. The loss of one or more members of senior management
could adversely affect GB Foods' business and development. See "MANAGEMENT AFTER
THE MERGER" beginning on page 71.
GOVERNMENT REGULATION
GB Foods
The restaurant industry is subject to extensive federal, state, and local
regulation governing, among other things, health and sanitation standards, equal
opportunity, minimum wage and licensing for the sale of food. In addition, GB
Foods is subject to extensive federal and state regulations governing franchise
operations and sales which impose registration and disclosure requirements on
franchisors in the offer and sale of franchises and, in certain cases, dictating
substantive standards that govern the relationship between franchisor and
franchisees. Various federal and state labor laws govern relationships with
employees, including such matters as minimum wage requirements, overtime, and
other working conditions.
Timber Lodge
Timber Lodge is subject to various federal, state and local laws affecting
its business. Each of our restaurants is subject to licensing and regulation by
a number of government authorities, which may include alcoholic beverage
control, health and safety, and fire agencies in the state or municipality in
which the restaurant is located. Difficulties in obtaining, or failures to
obtain, the required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area.
Approximately 15% of Timber Lodge's steakhouse revenues are attributable to
the sale of alcoholic beverages. Alcoholic beverages control regulations require
each of our restaurants to apply to a state authority and, in certain locations,
county or municipal authorities for a license or permit to sell alcoholic
beverages on the premises and to provide service for extended hours and on
Sundays. Typically, licenses must be renewed
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annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily operation
of our restaurants. These aspects include the minimum age of patrons and
employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages. Failure of
a restaurant to obtain or retain liquor or food service licenses would adversely
affect its operations.
In certain states, we may be subject to "dram-shop" statutes, which
generally provide that a person injured by an intoxicated person has the right
to recover damages from an establishment which wrongfully served alcoholic
beverages to the intoxicated person. Timber Lodge carries liquor liability
coverage as part of its existing comprehensive general liability insurance and
has never been named in a lawsuit involving a "dram-shop" statute.
We are also subject to federal and state minimum wage laws governing such
matters as working conditions, overtime and tip credits. Significant numbers of
our personnel are paid at rates related to the federal minimum wage and
accordingly, further increases in the minimum wage could increase our labor
costs. Legislation is introduced from time to time in Congress to raise the
federal minimum wage. Minnesota is still considering legislation that could
change tip credit laws and raise the minimum wage for tipped employees. If such
an increase is enacted in the future, it would likely adversely affect us
because most of our wait staff are paid at the minimum wage.
The Americans with Disabilities Act (the "ADA") prohibits discrimination in
employment and public accommodations, such as restaurants, on the basis of
disability. Under the ADA, we are is required to provide service to, or make
reasonable accommodations for the employment and service of, disabled persons.
We believe our restaurants are in substantial compliance with the ADA.
FOOD SERVICE INDUSTRY
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions and demographic trends. The
performance of individual restaurants may be adversely affected by factors such
as traffic patterns, demographics and the type, number and location of competing
restaurants. Multi-unit food service businesses such as GB Foods can also be
materially and adversely affected by publicity resulting from poor food quality,
illness, injury or other health concerns or operating issues stemming from one
restaurant or a limited number of restaurants. Consumers may also raise concerns
about the nutritional value of quick-service food. Dependence on frequent
deliveries of fresh produce and groceries subjects food service businesses such
as ours to the risk that shortages or interruptions in supply, caused by adverse
weather or other conditions, could adversely affect the availability, quality
and cost of ingredients. In addition, unfavorable trends or developments
concerning factors such as inflation, increased food, labor and employee benefit
costs including increases in hourly wage and unemployment tax rates, increases
in the number and locations of competing quick-service restaurants, regional
weather conditions and the availability of experienced management and hourly
employees may also adversely affect the food service industry in general and our
financial condition and results of operations in particular. Changes in economic
conditions affecting our customers could reduce traffic in some or all of our
restaurants or impose practical limits on pricing, either of which could have a
material adverse effect on GB Foods' financial condition and results of
operations. Our continued success will depend in part on the ability of
management to anticipate, identify and respond to changing conditions.
ENVIRONMENTAL MATTERS
GB Foods and Timber Lodge are subject to federal, state, and local laws,
regulations, and ordinances that (i) govern activities or operations that may
have adverse environmental effects, such as discharges to air and water, as well
as handling and disposal practices for solid and hazardous wastes, and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from sites of past spills and disposals of other releases of hazardous
materials. In particular, under applicable environmental laws, each company may
be responsible for remediation of environmental conditions and may be subject to
associated liabilities. These associated liabilities include liabilities brought
by private litigants, relating to its restaurants and the land on which its
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restaurants are located, regardless of whether the company leases or owns the
restaurants or land in question, and regardless of whether such environmental
conditions were created by the company or by a prior owner or tenant. There can
be no assurances that environmental conditions relating to prior, existing, or
future restaurants or restaurant sites will not have a material adverse effect
on the earnings and financial position of GB Foods after the Merger.
RISKS ASSOCIATED WITH GROWTH STRATEGY
Each of GB Foods and Timber Lodge has, and will continue to, seek out and
evaluate opportunities to develop and expand its operations, brands, and
formats, whether by internal expansion, the acquisition of existing assets or
operations, or the acquisition of new brands or formats. Expansion, especially
by acquisition, involves a number of special risks that could adversely affect
the companies' operating results, including the diversion of management's
attention, the assimilation of acquired operations and personnel, the
amortization of acquired intangible assets, and the potential loss of key
employees. In addition, the assimilation of acquired operations can be delayed
for unforeseen reasons, and brand name changes or conversions may not be
received by customers as well as expected. No assurance can be given that the
Merger, the Timber Lodge/JB's Purchase, the JBRI Acquisition, or any other
acquisition by GB Foods after the Merger will not materially and adversely
affect GB Foods, or that any acquisition by GB Foods will enhance its business.
If GB Foods determines after the Merger to make any significant acquisitions of
other businesses, it may be required to issue additional equity or debt
securities or borrow additional money. The issuance, if any, of additional
equity or convertible debt securities could result in dilution of shareholders'
interests in GB Foods.
GB Foods' growth strategy includes, among other things, opening additional
GB Foods-operated and franchised restaurants, dual-branding its restaurant
concepts and remodeling its restaurants (GB Foods' dual-branding strategy, in
which franchisees operate a Green Burrito restaurant along with a second brand
in a single restaurant facility, is described in more detail in Annex E
beginning at page E-5 under the caption "Green Burrito Dual-Concept Stores").
The success of our growth strategy will depend on numerous factors. Many of
these factors are beyond the control of GB Foods and our franchisees, including
the hiring, training and retention of qualified management and other restaurant
personnel, the ability to obtain necessary governmental permits and approvals,
the availability of appropriate financing and general economic conditions. GB
Foods and our franchisees face competition from other restaurant operators,
retail chains, companies and developers for desirable site locations, which may
adversely affect the cost, implementation and timing of our expansion plans. To
manage our planned expansion, we must ensure the continuing adequacy of our
existing systems and procedures, including our supply and distribution
arrangements, restaurant management, financial controls and informational
systems.
Our growth will also depend in part on our ability to increase sales at
existing restaurants. In addition to its turnaround strategies for JBRI
(discussed at page 27 under the caption "UNCERTAINTIES IN INTEGRATING BUSINESS
OPERATIONS AND ACHIEVING COST SAVINGS"), we expect to continue remodeling and
upgrading equipment at our Green Burrito restaurants. We will incur significant
capital expenditures in remodeling and converting restaurants and will
experience a loss of revenues during the brief periods of time that restaurants
are closed for remodeling or conversion. There can be no assurance that such
remodeling and conversion will increase the revenues generated by these
restaurants or, even if revenues are increased, that such increases will be
sustainable. In addition, although the sales results experienced by the
franchised restaurants that have been remodeled or converted to dual-brand
restaurants have generally been favorable to date, there can be no assurance
that such favorable sales results are sustainable or that they are indicative of
sales results that will be achieved by restaurants to be remodeled or converted
in the future. There can also be no assurance that we will be able to achieve
same-store increases in our company-operated restaurants.
FORWARD-LOOKING STATEMENTS
GB Foods and Timber Lodge have made forward-looking statements in this
booklet, including documents that are incorporated by reference herein that are
subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of GB
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Foods, Timber Lodge, or JBRI as set forth under "THE MERGER -- REASONS FOR THE
MERGER AND BOARD RECOMMENDATIONS," "THE MERGER -- OPINIONS OF FINANCIAL
ADVISORS," "PROPOSAL NO. 2 TO GB FOODS MEETING -- APPROVAL OF JBRI
ACQUISITION -- REASONS FOR THE JBRI ACQUISITION AND BOARD RECOMMENDATION" and
"-- OPINION OF FINANCIAL ADVISOR," "JB's FAMILY RESTAURANTS, INC.; Annexes E and
F, and those statements preceded by, followed by, or that include the words
"will," "believes," "expects," "anticipates" or similar expressions. Such
forward-looking statements are based on the beliefs of GB Foods, Timber Lodge
and their respective Boards in which they attempt to analyze the companies'
competitive position in their respective industries and the factors affecting
their respective businesses. Shareholders should understand that each of the
foregoing risk factors, in addition to other factors discussed elsewhere in this
booklet and in the documents which are incorporated by reference herein, could
affect the future results of GB Foods or Timber Lodge and could cause those
results to differ materially from those expressed in the forward-looking
statements contained or incorporated by reference herein. Those other factors
include, among others, the following: general economic and business conditions;
the impact of competitive products and pricing; success of operating
initiatives; development and operating costs; advertising and promotional
efforts; adverse publicity; acceptance of new product offerings; consumer trial
and frequency; availability, locations, and terms of sites for restaurant
development; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; the results of
financing efforts; business abilities and judgment of personnel; availability of
qualified personnel; food, labor and employee benefit costs; changes in, or the
failure to comply with, government regulations; weather conditions; construction
schedules; and other factors referenced in this Joint Proxy Statement/Prospectus
booklet. In addition, there can be no assurance that (i) GB Foods, Timber Lodge
and their respective Boards have correctly identified and assessed all of the
factors affecting the companies' businesses; (ii) the publicly available and
other information with respect to these factors on which GB Foods, Timber Lodge
and their Boards have based their analyses is complete or correct; (iii) GB
Foods, Timber Lodge and their respective Boards' analyses are correct; or (iv)
GB Foods' strategy for itself and Timber Lodge, which is based in part on these
analyses, will be successful.
THE SHAREHOLDER MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of common stock of GB Foods
Corporation ("GB Foods") by the GB Foods Board for use at the 1998 GB Foods
annual meeting (the "GB Foods Meeting") and (ii) from the holders of common
stock of Timber Lodge Steakhouse, Inc. ("Timber Lodge") by the Timber Lodge
Board for use at a special meeting of Timber Lodge shareholders (the "Timber
Lodge Meeting").
TIMES AND PLACES; PURPOSES
GB FOODS
The GB Foods Meeting will be held at the Four Seasons Biltmore Hotel, 1260
Channel Drive, Santa Barbara, California 93108 on Tuesday, September 1, 1998,
starting at 10:00 a.m., local time. At the GB Foods Meeting, the stockholders of
GB Foods will be asked to consider and vote upon the Merger, the JBRI
Acquisition, the election of six directors, the amendment of an existing stock
option plan and ratification of prior grants, the approval of a new stock option
plan, the approval of a name change, and such other matters as may properly come
before the GB Foods Meeting.
TIMBER LODGE
The Timber Lodge Meeting will be held at the Timber Lodge Steakhouse at
5500 Excelsior Blvd., St. Louis Park, Minnesota 55416, on Friday, August 28,
1998, starting at 10:00 a.m., local time. At the Timber Lodge Meeting, the
stockholders of Timber Lodge will be asked to consider and vote upon the Merger
and such other matters as may properly come before the Timber Lodge Meeting.
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RECORD DATES
GB FOODS
The GB Foods Board has fixed the close of business on July 31, 1998 as the
"GB Foods Record Date." Only holders of shares of GB Foods common stock on the
GB Foods Record Date are entitled to notice of and to vote at the GB Foods
Meeting. As of July 31, 1998, there were 6,576,485 shares of GB Foods common
stock outstanding and entitled to vote held by approximately 199 stockholders of
record. However, GB Foods believes that the number of beneficial shareowners
exceeds 1,000 persons.
TIMBER LODGE
The Timber Lodge Board has fixed the close of business on July 20, 1998 as
the "Timber Lodge Record Date." Only holders of shares of Timber Lodge common
stock on the Timber Lodge Record Date are entitled to notice of and to vote at
the Timber Lodge Meeting. As of July 20, 1998, there were 3,637,415 shares of
Timber Lodge common stock outstanding and entitled to vote held by approximately
88 shareholders of record. However, Timber Lodge estimates its actual number of
shareholders to be in excess of 1,300.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
GB FOODS
Each GB Foods common shareholder of record at the close of business on the
GB Foods Record Date is entitled to cast one vote per share. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of GB
Foods common stock entitled to vote is necessary to constitute a quorum at the
GB Foods Meeting. The affirmative vote, in person or by proxy, of the holders of
a majority of the shares of GB Foods common stock which are voted (either "for"
or "against") is required to approve and adopt Proposals 1, 2, 4, and 5 at the
GB Foods Meeting. Proposal 6 (the name change) must be approved by 51% of the GB
Foods shares outstanding on the GB Foods Record Date. With respect to the
election of GB Foods directors (proposal 3), the stockholders have cumulative
voting rights, whereby any stockholder may multiply the number of shares he or
she is entitled to vote by the number of directors to be elected and allocate
his or her votes among the nominees in any manner. Proxies for shares of GB
Foods common stock which are marked "abstain" will be considered represented at
the GB Foods Meeting for purposes of establishing a quorum, but will not be
considered to have been voted. Shares registered in the names of brokers or
other "street name" nominees for which proxies are voted on some but not all
matters will be considered represented at the GB Foods Meeting but voted only as
to those matters actually voted.
As of December 31, 1997, directors and executive officers of GB Foods as a
group held 100,767 shares of GB Foods common stock (approximately 1.5% of the
outstanding shares). In addition, Fidelity held 1,039,500 shares of GB Foods
common stock, or approximately 15.8% of the outstanding shares. Messrs. Foley,
Puzder, and Willey are officers or directors of GB Foods; they also are officers
or directors of Fidelity and CKE. In addition, Mr. Foley is the Chief Executive
Officer of Fidelity and CKE and may be considered to be a controlling
shareholder of Fidelity. The exercise of the Fidelity Warrants will occur after
the GB Foods Record Date, and so will not affect the number of shares Fidelity
is able to vote in the Merger unless the GB Foods Meeting is postponed and a new
GB Foods Record Date is set.
TIMBER LODGE
Each Timber Lodge common shareholder of record at the close of business on
the Timber Lodge Record Date is entitled to cast one vote per share. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of Timber Lodge common stock entitled to vote is necessary to constitute
a quorum at the Timber Lodge Meeting. Under Minnesota law, the affirmative vote,
in person or by proxy, of the holders of a majority of the shares of Timber
Lodge common stock outstanding on the Timber Lodge Record Date is required to
approve and adopt the Merger. Proxies for shares of Timber Lodge common stock
which are marked "abstain" will be considered represented at the Timber Lodge
Meeting for purposes of establishing a quorum, but will not be considered to
have been voted. Shares registered in the names of brokers or other "street
name" nominees for which proxies are voted on some but not all matters will be
considered represented at the Timber Lodge Meeting but voted only as to those
matters actually voted. Because Minnesota law
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requires approval by the holders of a majority of all outstanding Timber Lodge
shares, an abstention or broker non-vote of Timber Lodge shares has the same
practical effect as a vote against the Merger.
As of December 31, 1997, directors and executive officers of Timber Lodge
as a group held 690,801 shares of Timber Lodge common stock (approximately 19.0%
of the outstanding shares). In addition, Fidelity owns 175,800 shares, and Mr.
William P. Foley, II owns 46,700 shares, of Timber Lodge common stock (together,
approximately 6.1% of the outstanding shares). The Timber Lodge/JB's Purchase
will occur after the Timber Lodge Record Date, and so will not affect the number
of shares able to be voted in connection with the approval of the Merger unless
the Timber Lodge Meeting is postponed and a new Timber Lodge Record Date is set
after that Purchase closes.
VOTING PROCEDURES
In order for shares to be voted at either the GB Foods or Timber Lodge
Meeting, the holder of record must either (i) complete, sign, and return the
enclosed proxy form prior to the vote or (ii) attend the Meeting and vote in
person. Any shares not represented at a Meeting by proxy or in person cannot be
voted. Any shareholder whose shares are held by a broker or other nominee must
instruct such nominee regarding how to vote such shares.
Each fully completed and signed proxy form which is received prior to the
vote, and not revoked prior to the vote, will be voted in accordance with the
instructions indicated on the proxy form. If no box is checked but the proxy
form otherwise is fully completed and signed, the shares represented by that
proxy will be voted FOR approval of the Merger and, in the case of the GB Foods
proxy form, FOR the other matters indicated on the proxy form and FOR the
nominees for director named on the proxy form. It is not expected that any
matters other than as indicated in this Joint Proxy Statement/Prospectus will
come before either Meeting; however, if other matters are properly presented at
a Meeting, the person named in the relevant proxy form will vote on such other
matters in his or her discretion. In addition, giving a proxy automatically
confers discretionary authority on such person to vote on procedural and all
other matters incident to the conduct of a Meeting.
A shareholder may revoke a proxy vote by submitting a new proxy form, fully
completed (with a later date) and signed, to GB Foods or Timber Lodge (as
applicable) prior to taking the vote at the relevant Meeting, or by attending
the Meeting and voting in person. Attendance at a Meeting will not (by itself)
automatically revoke a proxy, and any shareholder wishing to attend the Meeting
may vote by proxy without voting in person.
SOLICITATION OF PROXIES
Any costs of soliciting proxies for the GB Foods Meeting are being paid by
GB Foods, and any such costs relating to the Timber Lodge Meeting will be paid
by Timber Lodge, except that GB Foods has paid for (1) the costs of registering
its shares with the Securities and Exchange Commission, (2) the cost of printing
and mailing this Joint Proxy Statement/Prospectus, and (3) its own legal and
accounting expenses. Proxies are being solicited by mail; in addition, each
company may solicit proxies by telephone or in person using regular employees.
No director or officer of GB Foods or Timber Lodge will receive any special
compensation for any solicitation activities.
OTHER BUSINESS
Management of GB Foods does not know of any other business that may be
presented at the GB Foods Meeting. If any matter not described herein should be
presented for stockholder action at the Meeting, the persons named in the
enclosed GB Foods proxy form will vote the shares represented thereby in
accordance with their best judgment.
Management of Timber Lodge does not know of any other business that may be
presented at the Timber Lodge Meeting. If any matter not described herein should
be presented for shareholder action at the Meeting, the persons named in the
enclosed Timber Lodge proxy form will vote the shares represented thereby in
accordance with their best judgment.
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PROPOSAL NO. 1 -- THE MERGER
OVERVIEW
This Joint Proxy Statement/Prospectus booklet describes a proposed merger
(the "Merger") of Timber Lodge with TLS Acquisition Corp., a Minnesota
corporation ("Merger Sub"). Merger Sub is a newly-formed wholly-owned subsidiary
of GB Foods. The Merger is to occur pursuant to an Amended and Restated
Agreement and Plan of Merger dated as of June 9, 1998, as amended (the "Merger
Agreement"), among GB Foods, Merger Sub, and Timber Lodge. The Merger and Merger
Agreement are described in this section and under the section captioned "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT" beginning on page 60.
In addition, the occurrence of two important transactions are conditions to
the closing of the Merger. The first transaction is a proposed purchase by
Timber Lodge, prior to the Merger, of JB Parent Corp., a subsidiary of CKE
Restaurants, Inc. ("CKE"), in exchange for 687,890 shares of Timber Lodge common
stock. The CKE subsidiary's only assets at the time of purchase will be those
associated with 16 restaurants; in this booklet, the term "Sixteen Restaurants"
means both the 16 restaurants and the subsidiary of CKE which owns them. The
Sixteen Restaurants currently are operated as JB's Restaurants (14) and Galaxy
Diners (2), and are expected to be converted to the Timber Lodge Steakhouse(TM)
brand name and restaurant format during a transition period after their purchase
(the "Timber Lodge/JB's Purchase"). If the Timber Lodge/JB's Purchase fails to
close, GB Foods could elect to abandon the Merger. If the Merger is not approved
or otherwise fails to close, the Timber Lodge/JB's Purchase will not occur. See
"THE TIMBER LODGE/JB'S PURCHASE" beginning at page 58 for additional
information. The second transaction is a proposed exercise (the "Fidelity
Warrants Exercise") by Fidelity National Financial, Inc. ("Fidelity") of
presently outstanding warrants (the "Fidelity Warrants") to purchase up to
1,000,000 shares of GB Foods common stock for a total cash purchase price of at
least $5 million; Fidelity has agreed to such an exercise. GB Foods expects to
use the cash proceeds from the exercise primarily to renovate and convert the
Sixteen Restaurants. If the Fidelity Warrants are not exercised, either GB Foods
or Timber Lodge could elect to abandon the Merger. See "THE FIDELITY WARRANTS
EXERCISE" beginning at page 60 for additional information.
Under the Merger Agreement, subject to certain specified conditions, Merger
Sub will merge into Timber Lodge. Each outstanding share of Timber Lodge common
stock, par value $0.01 per share, will be converted into 0.8000 shares of GB
Foods common stock, par value $0.08 per share (the "Exchange Ratio").
Outstanding Timber Lodge stock options and warrants will be adjusted
appropriately and converted into options and warrants to purchase GB Foods
common stock. The Exchange Ratio is subject to possible adjustment. After the
Merger, Timber Lodge will be a wholly-owned subsidiary of GB Foods, and will
have no publicly-traded stock outstanding.
BACKGROUND OF THE MERGER
William P. Foley, II, Chairman of the Board of GB Foods, and Dermot F.
Rowland, Chief Executive Officer of Timber Lodge, began discussing the
possibility of merging GB Foods and Timber Lodge in the first week of November,
1997. Mr. Foley outlined his strategic vision of a combination between the two
companies, operating philosophies and objectives, and the potential strategic
benefits of such a combination. Preliminary proposals were discussed at that
time regarding the basic structure of a possible transaction. Follow-up
discussions and meetings led to the execution, on December 9, 1997, of a letter
of intent between GB Foods and Timber Lodge. Additional discussions immediately
followed concerning the operating results of one of the Timber Lodge stores, the
points at which the exchange ratio would be subject to adjustment, and certain
other matters. Those discussions and negotiations led to the execution, on
December 11, 1997, of a restated letter of intent, reflecting the material terms
of the Merger, including the structure, the exchange ratio, and certain
conditions to close the Merger. Among those conditions were the material terms
of Timber Lodge's acquisition of the Sixteen Restaurants and the Fidelity
Warrants Exercise. On the morning of December 12, 1997, the execution of the
letter of intent (as restated) was announced publicly. The material difference
between the original and restated letters of intent was the addition of the
pricing collar described in the next paragraph.
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The material terms outlined in the restated Letter of Intent included: an
Exchange Ratio of 0.8276 GB Foods shares for each outstanding Timber Lodge
share; adjustment of the Exchange Ratio if, at closing, the market price of GB
Foods' stock had been above $12.875 per share or below $8.875 per share for the
10 days ending 2 days before closing; a condition that Timber Lodge negotiate
and close the acquisition of between 12 and 20 JB's Restaurants from CKE in
exchange for Timber Lodge stock valued at $4.58 per share; a condition that
Fidelity exercise warrants for at least $5 million so as to permit GB Foods to
finance the renovation of the JB's Restaurants and their conversion to the
Timber Lodge Steakhouse(TM) format; and a break-up fee consisting of Timber
Lodge stock options which, upon exercise, would result in GB Foods owning 19.9%
of Timber Lodge. The closing market price of GB Foods stock on December 11, 1997
was $10.125 per share; the closing price on that date of Timber Lodge stock was
$4.8125 per share. The closing prices on December 12, the day the Merger was
publicly announced, were $9.75 per share for GB Foods and $6.56 per share for
Timber Lodge.
On December 16, 1997, a senior management team of GB Foods traveled to
Minneapolis, Minnesota to conduct an on-site due diligence review of Timber
Lodge and its operations. This on-site investigation, which included meetings
with Timber Lodge's outside counsel and accountants, lasted for three days. On
December 19, 1997, Mr. Foley and Carl A. Strunk, Executive Vice
President -- Finance of GB Foods, traveled to Minneapolis, Minnesota to review
the due diligence findings, to engage in further discussions with Mr. Rowland
and to conduct on-site inspections of certain Timber Lodge restaurants.
GB Foods' attorneys began drafting the definitive merger agreement
immediately after the Letter of Intent was announced. Final legal terms and
provisions were negotiated over the next five weeks. On January 16, 1998, the GB
Foods Board met telephonically to consider the proposed merger and its potential
benefits to the GB Foods stockholders. The GB Foods Board, after due
consideration, approved of the terms and conditions of the Merger Agreement and
authorized the appropriate officers of GB Foods to execute the Merger Agreement
and all other agreements related thereto on behalf of GB Foods.
On January 15, 1998, the Timber Lodge Board met to consider the proposed
merger and its potential benefits to the Timber Lodge stockholders. The Timber
Lodge Board, after due consideration, unanimously approved of the terms and
conditions of the Merger Agreement and authorized the appropriate officers of
Timber Lodge to execute the Merger Agreement and all other agreements related
thereto on behalf of Timber Lodge.
The Merger Agreement was executed on the evening of Friday, January 16,
1998, shortly following the completion of the GB Foods and Timber Lodge Board
meetings. On the morning of January 20, 1998, the signing of the Merger
Agreement was publicly announced.
Under the original Merger Agreement: the Exchange Ratio was set at 0.8276
GB Foods shares for each outstanding Timber Lodge share; the Exchange Ratio
would be subject to adjustment as described in the next paragraph; and GB Foods
could abandon the Merger unless the Merger was accounted for as a pooling of
interests. Other material terms in the original agreement were the same as in
the current agreement (which is included in Annex A). The closing price of GB
Foods' stock on January 16, 1998 was $9.125 per share, while the closing price
of Timber Lodge's stock was $5.875 per share on that date.
The original agreement's Exchange Ratio adjustment provisions were designed
to ensure that, if the merger closed, the value of the GB Foods shares received
by Timber Lodge shareholders would not be less than $7.34 and not more than
$10.66 per Timber Lodge share, based on the average market value of GB Foods
common stock shortly before the Effective Time. It was possible for the Merger
to close and for Timber Lodge shareholders to receive less in value than $7.34
under the original agreement, but only if the Timber Lodge Board of Directors
determined at that time that proceeding with the Merger was better for Timber
Lodge and its shareholders than abandoning it. Under the original Merger
Agreement, the Exchange Ratio would not be adjusted if the average closing price
of GB Foods' stock over the ten trading days ending two trading days before
closing was between $8.875 and $12.875 per share. If the ten-day average price
was less than $8.875 per share, then GB Foods had the right to do one of three
things: (1) it could have abandoned the Merger; (2) it could have done nothing
(in which case Timber Lodge could have abandoned the Merger); or, (3) it could
have increased the Exchange Ratio to a fraction. The numerator of that fraction
was to be $9.00, and the denominator was to be the ten-day average price. On the
other hand, if the ten-day average price was more
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than $12.875 per share, the original Merger Agreement provided that the Exchange
Ratio was to be reduced by multiplying it by a fraction. The numerator of that
fraction was to be $12.875, and the denominator was to be the ten-day average
price.
In February, 1998 the parties determined that a number of matters needed to
be amended due to changes in circumstances or expectations. Andrew F. Puzder
(Chief Executive Officer of GB Foods) and Dermot Rowland had several telephonic
meetings in February and early March to discuss amending the Merger Agreement
because: it was determined that GB Foods would have to use the less favorable
purchase method of accounting, rather than the pooling of interests method; GB
Foods was dissatisfied with the performance of a particular Timber Lodge
restaurant location; and, GB Foods' share price had fallen since January, when
the original agreement was signed. The change in accounting treatment gave GB
Foods the right to abandon the Merger immediately, but the other matters also
were a major focus of negotiation between the two chief executives. Mssrs.
Puzder and Rowland agreed to make several changes to the original Merger
Agreement, which were incorporated into a restated Merger Agreement which was
signed on March 12, 1998 (subject to Board approval). The restated Merger
Agreement was presented to the GB Foods Board for ratification on April 15, 1998
and to the Timber Lodge Board on April 15, 1998, and was approved by both
Boards. The closing price of GB Foods' stock on March 12, 1998 was $8.75 per
share.
The material changes made to the original Merger Agreement included: the
reduction of the basic Exchange Ratio to 0.8000; the amendment of the adjustment
provisions to $14.00 ($11.20 in value per Timber Lodge share) and $7.50 ($6.00
in value per Timber Lodge share); and the elimination of pooling-of-interests
accounting treatment as a condition to closing.
In June, 1998, all parties agreed to extend the date by which the Merger
was required to close from June 30 to July 31, 1998. Also, an unintended error
in the March 12 restated document was discovered and corrected. On June 9, a new
Amended and Restated Agreement and Plan of Merger was executed by the parties.
In July 1998, all parties agreed to extend the date again from July 31, 1998 to
September 15, 1998.
RELATIONSHIP OF GB FOODS AND TIMBER LODGE
GB Foods and Timber Lodge have no direct interests in each other. GB Foods
owns no shares and, other than through the Merger Agreement, has no economic
interest in Timber Lodge. Similarly, Timber Lodge owns no shares and has no
economic interest in GB Foods. Neither Company has any contractual relationship
with the other, except the Merger Agreement and related agreements. No member of
either company's board of directors sits on the other board, and no officer of
one company is an officer of the other.
After the GB Foods' Board approved the Merger Agreement in January, 1998,
GB Foods' Chairman of the Board, William P. Foley, II, personally acquired a
total of 46,700 shares of Timber Lodge, which constitute approximately 1.3% of
Timber Lodge's outstanding shares as of June 1, 1998.
As of December 31, 1997 Fidelity owned 175,800 shares of Timber Lodge
stock, which was then (and remains as of June 1, 1998) approximately 4.8% of
Timber Lodge's outstanding common stock. Fidelity's ownership of GB Foods at
December 31, 1997 and June 1, 1998 was 1,039,500 shares (15.8%) plus warrants to
purchase 3,470,000 additional shares (which, if fully exercised, would increase
its ownership to 44.9% as of both dates). Although Fidelity's investment in GB
Foods' shares was and remains many times more valuable than its investment in
Timber Lodge, a potential conflict of interest existed when GB Foods Board
approved the Merger in December, 1997 and January, 1998 because three of GB
Foods' five directors (Messrs. Puzder, Foley, and Willey) also are directors or
officers of Fidelity. If GB Foods' other two directors (Messrs. Haglund and
Anthony) had not both approved the Merger, the remaining three directors also
would not have approved it. Additionally, although not obtained primarily for
the purpose of avoiding this potential conflict of interest, GB Foods' Board
obtained an opinion of Piper Jaffray, dated April 14, 1998, to the effect that,
as of such date, the consideration proposed to be paid to Timber Lodge
shareholders in the Merger was fair to GB Foods from a financial point of view,
and also has asked the GB Foods' stockholders to approve the Merger.
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REASONS FOR THE MERGER AND BOARD RECOMMENDATIONS
GB FOODS
The GB Foods Board of Directors believes that the Merger and related
transactions will position GB Foods to become a consolidator in the casual
dining steakhouse segment of the restaurant market while it continues to grow
the existing Green Burrito business through the dual-concept restaurants,
especially the Carl's Jr./Green Burrito restaurants. (GB Foods' dual concept
restaurants are described in its annual report on Form 10-K/A, Item 1, which
appears as part of Annex E to this booklet.) The combined company, in the
Board's opinion, will be better positioned than GB Foods alone to capitalize on
growth opportunities in the northern and western United States. In addition, the
combination should favorably impact GB Foods' financial position, should
significantly diversify GB Foods in terms of market segment and geography, and
should result in cost savings due to overhead reductions and cost of sales
reductions (due to synergies in purchasing power). Saving costs, however, is not
the primary impetus for GB Foods to merge with Timber Lodge. Moreover, the
combination should complement the JBRI Acquisition, which is being proposed for
many of the same reasons as the Merger.
TIMBER LODGE
In 1997 Timber Lodge expanded from 12 to 16 restaurants, a 33% increase in
facilities. The Timber Lodge Board of Directors believes that the Merger, Timber
Lodge/JB's Purchase, and Fidelity Warrants Exercise will, taken together, allow
Timber Lodge to expand rapidly into a new geographic market in which it believes
its north woods concept should be well received. After conversion of the Sixteen
Restaurants, this expansion will approximately double the number of operating
Timber Lodge restaurants, and should give Timber Lodge a foothold in the
southwestern and western U.S. on which future expansion can be built. The
Sixteen Restaurants were selected based on Timber Lodge management's analysis
which suggests the demographic, competitive and physical characteristics of each
location are suitable for a Timber Lodge restaurant (see also "THE TIMBER
LODGE/JB's PURCHASE" beginning on page 58.) Timber Lodge is confident it can
meet the challenge of converting, staffing, and overseeing the new restaurants
within a workable time frame and, in meeting that challenge, establish practices
which can be used when future expansion opportunities present themselves for the
Timber Lodge Steakhouse(TM) format.
In addition, the combination with GB Foods will allow both companies to
share certain overhead costs, coordinate the purchase of supplies and services
(including marketing and advertising), and otherwise realize significant cost
savings once the two concepts are fully integrated. The combination with GB
Foods is intended to allow Timber Lodge to expand without substantial debt
financing, and to allow the Timber Lodge chain to be expanded more rapidly than
would otherwise be possible. That expansion, in turn, should increase the
possibility of further expansion in the future. Also, the expansion into former
JB's Restaurants market areas with the Sixteen Restaurants should be more
efficient than a slower expansion.
RECOMMENDATIONS
After considering these factors, the Boards of Directors of both GB Foods
and Timber Lodge unanimously approved the Merger Agreement. Both Boards of
Directors believe that the Merger Agreement is in the best interests of and fair
to the shareholders of GB Foods and Timber Lodge. ACCORDINGLY, EACH BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
MERGER (PROPOSAL 1 ON BOTH COMPANIES' PROXY FORMS).
REASONS FOR SEEKING SHAREHOLDER APPROVAL
GB Foods is seeking shareholder approval of the Merger because, under
Nasdaq rules, shareholder approval is required for any transaction in which GB
Foods' outstanding shares of common stock would increase by 20% or more. Nasdaq
rules apply to GB Foods because its stock is quoted on the Nasdaq Small Cap
Market.
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Timber Lodge is seeking shareholder approval of the Merger because
Minnesota corporate law requires such approval as a condition to any merger in
which Timber Lodge is one of the merging entities.
OPINIONS OF FINANCIAL ADVISORS
This section contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
set forth in "RISK FACTORS" beginning on page 27 and elsewhere herein.
OPINION OF GB FOODS' FINANCIAL ADVISOR
Piper Jaffray Inc. ("Piper Jaffray") was retained by GB Foods to render an
opinion to the GB Foods Board of Directors concerning the fairness, from a
financial point of view, of the consideration to be paid to the shareholders of
Timber Lodge in the proposed Merger.
Piper Jaffray delivered to the GB Foods Board on April 14, 1998, its
written opinion, to the effect that, as of the date of the written opinion,
based on and subject to the assumptions, factors and limitations set forth in
the opinion and as described below, the consideration proposed to be paid to the
shareholders of Timber Lodge in the Merger was fair, from a financial point of
view, to GB Foods. A copy of the opinion letter dated April 14, 1998 from Piper
Jaffray (the "Piper Jaffray Merger Opinion"), is attached as Annex C to this
Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Shareholders are urged to read the Piper Jaffray Merger Opinion in its entirety.
Among other things, the Piper Jaffray Merger Opinion was based on and
directed solely to an Exchange Ratio of 0.8000 of a share of GB Foods stock for
each share of Timber Lodge stock as set forth in the Amended and Restated
Agreement and Plan of Merger dated as of March 12, 1998 and did not address in
any way the fairness of a possible increase in the Exchange Ratio at the
election of GB Foods in accordance with the agreement. Subsequent to the date of
the Piper Jaffray Merger Opinion, that merger agreement was amended as of June
9, 1998 in certain respects. By supplemental letter (the "Supplemental Letter")
dated June 30, 1998, Piper Jaffray confirmed to the GB Foods Board that it would
have been the opinion of Piper Jaffray, as of April 14, 1998, had it assumed or
otherwise taken into account, as of the opinion's April 14, 1998 date, solely
the following information: (i) a ten-day average closing price (as required by
the Merger Agreement) of $6 3/8 (which was the actual closing price of GB Foods
stock on the Nasdaq Stock Market on June 29, 1998) and (ii) an election by GB
Foods to increase the 0.8000 Exchange Ratio to 0.9412 pursuant to the formula
set forth in Section 2.1(b)(i) of the Merger Agreement (such increased Exchange
Ratio being hereafter referred to as the "Adjusted Merger Consideration"), that
the Adjusted Merger Consideration was fair, from a financial point of view, to
GB Foods. At the direction and with the consent of GB Foods, for purposes of the
Supplemental Letter, Piper Jaffray did not undertake any additional review,
analyses, investigation or inquiries since the date of the Piper Jaffray Merger
Opinion, except to review its internal analyses prepared in connection with the
Piper Jaffray Merger Opinion, modified where appropriate to give effect to the
assumed ten-day average stock price and the assumed Adjusted Merger
Consideration. The Supplemental Letter was based solely on information available
to Piper Jaffray and facts and circumstances as they existed and were subject to
evaluation on April 14, 1998, except for the assumed ten-day average closing
price and the assumed Adjusted Merger Consideration. A copy of the Supplemental
Letter is included in this booklet beginning on Page C-5 of Annex C.
Piper Jaffray was not requested and did not make any recommendation to the
GB Foods Board as to the form or amount of the consideration to be paid to the
shareholders of Timber Lodge in the Merger, which was determined through
negotiations between the parties to the Merger. The Piper Jaffray Merger Opinion
and Supplemental Letter were rendered to the GB Foods Board and do not
constitute a recommendation to any stockholder of GB Foods as to how such
stockholder should vote at the Meeting. The Piper Jaffray Merger Opinion and
Supplemental Letter do not address GB Foods' underlying business decision to
proceed with or effect the Merger.
The Piper Jaffray Merger Opinion was rendered on April 14, 1998 and was
based on information available to Piper Jaffray at that time. Since that time,
among other things, the market price of GB Foods'
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stock has fallen below $7.50 per share. If the ten-day average price of GB
Foods' stock shortly before closing (as required by the Merger Agreement) is
below $7.50, GB Foods could elect to adjust the Exchange Ratio to a figure
higher than 0.8000, or elect to leave the Exchange Ratio unadjusted, or elect to
abandon the Merger. In that event, GB Foods' Board of Directors would have to
make that election in accordance with its fiduciary duties under Delaware law to
the GB Foods shareholders. The Board would be required to consider all relevant
information available at that time and make an independent judgment of what
action would be in the best interests of GB Foods and its shareholders. Part of
the information it would consider would include Piper Jaffray's Merger Opinion
and Supplemental Letter. However, the Supplemental Letter contemplates only an
Exchange Ratio of 0.9412 based on GB Foods' stock price on June 29, 1998 of
$6 3/8; it does not contemplate, and Piper Jaffray has expressed no opinion
regarding, any other Exchange Ratio or stock price and, if the ten-day average
closing price were lower than $6 3/8, the GB Foods Board would have to make an
election concerning the Exchange Ratio in the absence of an opinion from Piper
Jaffray which addresses the Exchange Ratio to which the Merger Agreement would
adjust at GB Foods' election.
In arriving at the Piper Jaffray Merger Opinion, Piper Jaffray undertook
such review, analyses and inquiries as it deemed necessary and appropriate under
the circumstances. Among other things, Piper Jaffray reviewed (i) copies of the
Merger Agreement (as amended and restated as of March 12, 1998), the Asset
Purchase Agreement dated as of February 10, 1998 (the "Summit/JB's Purchase
Agreement") between JBRI and Summit Family Restaurants, Inc. and the JBRI
Acquisition Agreement, (ii) certain publicly available financial, operating and
business information related to Timber Lodge, (iii) certain internal financial
information of Timber Lodge on a stand-alone basis, and as adjusted on a pro
forma basis for the Timber Lodge/JB's Purchase, prepared for financial planning
purposes and furnished by the management of Timber Lodge, (iv) to the extent
publicly available, financial terms of certain acquisition transactions
involving companies operating in industries deemed similar to that in which
Timber Lodge operates and selected public companies deemed comparable to Timber
Lodge, (v) certain publicly available financial, operating and business
information relating to GB Foods, (vi) certain internal financial information of
GB Foods on a stand-alone basis, as adjusted on a pro forma basis for the
Fidelity Warrant Exercise and the JBRI Acquisition, and as a combined company
with Timber Lodge, prepared by GB Foods management for financial planning
purposes and furnished by the management of GB Foods, and (vii) certain publicly
available market and securities data of Timber Lodge and GB Foods. Piper Jaffray
had discussions with members of the management of (a) GB Foods concerning the
financial condition, current operating results and business outlook for GB
Foods, the Sixteen Restaurants and Timber Lodge on a stand-alone basis and the
combined company resulting from the JBRI Acquisition, the Timber Lodge/JB's
Purchase and the Merger and GB Food's plans relating to such combined company,
(b) Timber Lodge concerning the financial condition, current operating results
and business outlook for Timber Lodge and the Sixteen Restaurants on a
stand-alone basis, Timber Lodge on a pro forma basis reflecting the Timber
Lodge/JB's Purchase, and the combined company resulting from the Merger, and (c)
CKE and JBRI concerning the financial condition, current operating results and
business outlook for the Sixteen Restaurants on a stand alone basis.
In connection with the Piper Jaffray Merger Opinion, Piper Jaffray prepared
and delivered to GB Foods' Board certain written materials containing various
analyses and other information as of the date of the Piper Jaffray Merger
Opinion material to the Piper Jaffray Merger Opinion. The following is a summary
of these written materials.
Market Analysis
Piper Jaffray reviewed general background information concerning each of GB
Foods and Timber Lodge and selected market trading data for each of GB Foods and
Timber Lodge.
Implied Purchase Price
Based on the closing price of GB Foods on April 13, 1998 of $7.56 and the
0.8000 Exchange Ratio, Piper Jaffray calculated an implied purchase price per
share of common stock of $6.05. The implied price per share yielded an aggregate
equity value of approximately $26.1 million and an aggregate company value
(aggregate equity value plus debt less cash) of approximately $25.6 million for
Timber Lodge.
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Dilution/Accretion Analysis
Piper Jaffray examined the hypothetical pro forma effect of the Fidelity
Warrant Exercise, the JBRI Acquisition and the Merger on GB Foods' earnings per
share for the fiscal years ending 1998 through 2002, including certain synergies
anticipated by GB Foods management. This analysis indicated that the combined
transaction would be accretive in each of such years as follows: 1998 -- 17.1%,
1999 -- 6.5%, 2000 -- 14.7%, 2001 -- 14.0% and 2002 -- 12.6%. Estimated earnings
for Timber Lodge were based on internal financial planning data furnished to
Piper Jaffray by management of Timber Lodge. Estimated earnings for GB Foods and
anticipated synergies resulting from the JBRI Acquisition and the Merger were
based on internal financial planning data furnished to Piper Jaffray by
management of GB Foods. Estimated earnings for JBRI and the Sixteen Restaurants
were based on internal financial planning data furnished to Piper Jaffray by
managements of CKE and JBRI.
Contribution Analysis
Piper Jaffray also analyzed the expected contributions of each of Timber
Lodge, on a pro forma basis to reflect the Timber Lodge/JB's Purchase, and GB
Foods, on a pro forma basis to reflect the JBRI acquisition, to revenue,
earnings before interest, taxes, depreciation and amortization ("EBITDA"),
earnings before interest and taxes ("EBIT") and net income of the combined
company for fiscal years ending 1998 through 2002 based on internal financial
planning data furnished by management of Timber Lodge, GB Foods, CKE and JBRI.
The analysis indicated that during these periods Timber Lodge would contribute
to the combined company revenues ranging from 48.1% to 64.8%, EBITDA ranging
from 47.9% to 66.3%, EBIT ranging from 46.3% to 66.4% and net income ranging
from 33.2% to 50.7%. Timber Lodge will account for approximately 28.9% of the
ownership of the combined company.
Multiples Paid Analysis
Piper Jaffray reviewed completed merger and acquisition transactions for
which information was publicly available accounted for as purchases, involving
targets which were stagnant or underperforming and otherwise deemed comparable
to Timber Lodge, announced since January 1, 1992 and involving transaction
values greater than $10.0 million. The review produced 10 transactions deemed
comparable to the Merger. These transactions included the Fresh Foods, Inc.
acquisition of Sagebrush Inc., the Investor Group acquisition of El Chico
Restaurants Inc., the Port Royal Holdings Inc. acquisition of Krystal Co., the
Koo Koo Roo acquisition of Hamburger Hamlet Restaurants, the Longhorn Steaks
Inc. acquisition of Bugaboo Creek Steak House Inc., the Landry's Seafood
Restaurants acquisition of Bayport Restaurant Group, the CKE Restaurants
acquisition of Summit Family Restaurants, the Denamerica Corp. acquisition of
Black-Eyed Pea Restaurants, the Flagstar Companies Inc. acquisition of Cocos
Restaurants, Jojos Restaurants, Carrows and the Quality Dining Inc. acquisition
of Gradys America Grill Restaurant. An analysis of the transactions produced
multiples of selected valuation data as follows: company value to last twelve
months ("LTM") net sales ranging from 0.3x to 1.2x, with a mean and a median of
0.7x and 0.6x, respectively, and for the Merger of 0.6x; company value to LTM
EBITDA ranging from 5.9x to 18.1x, with a mean and a median of 8.7x and 7.0x,
respectively, and for the Merger of 5.0x; and equity value to LTM net income
ranging from 14.2x to 30.1x, with a mean and a median of 23.6x and 6.6x,
respectively, and for the Merger was not meaningful.
Premiums Paid Analysis
Piper Jaffray reviewed completed mergers and acquisitions with a
transaction size of more than $15.0 million involving the sale of public
companies announced after January 1, 1997 that were accounted for as a purchase.
The review produced 103 transactions that satisfied the criteria. Piper Jaffray
then compared the premiums represented by the transaction values to the market
prices for the target companies at one day, one week and four weeks before the
announcement of the acquisition or merger. The analysis indicated premiums
(discounts) as follows: one day before announcement ranging from (59.7%) to
250.3%, with a mean and a median of 24.4% and 17.9%, respectively, and for the
Merger of 87.0%; one week before announcement ranging from (52.8%) to 265.8%,
with a mean and a median of 27.0% and 20.9%, respectively, and for the Merger of
87.0%; and four weeks before the announcement ranging from (52.2%) to 282.7%,
with
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a mean and a median of 33.9% and 27.5%, respectively, and for the Merger 84.6%.
Estimated premiums paid for the comparable transactions were based on
information obtained from public filings, public company disclosures, press
releases, industry and popular press reports, databases and other sources.
Discounted Cash Flow Analysis
Piper Jaffray estimated the present value of the projected future cash
flows of Timber Lodge on a stand-alone basis, and on a pro forma basis to
reflect the Timber Lodge/JB's Purchase, using internal financial planning data
furnished by Timber Lodge management for the years ending December 31, 1998
through 2002. Piper Jaffray applied a range of terminal value multiples of
forecasted 2002 earnings before interest and taxes of 5x to 7x and a range of
discount rates of 14% to 18%. This analysis yielded a range of estimated present
values of aggregate equity for Timber Lodge on a stand-alone basis of
approximately $25.7 million to $40.6 million or $7.09 per share to $11.20 per
share and on a pro forma basis of approximately $19 million to $35.3 million and
$5.23 per share to $9.73 per share.
Comparable Public Company Analysis
Piper Jaffray compared certain financial information and valuation ratios
relating to GB Foods and Timber Lodge to corresponding data and ratios from
groups of selected publicly traded companies deemed comparable to GB Foods and
to Timber Lodge.
The comparable companies selected for comparison to Timber Lodge included
six publicly traded companies in the restaurant business with revenues between
$66.5 and $1,151.6 million. These companies included Logan's Roadhouse Inc.,
Lone Star Steakhouse Saloon, Mortons Restaurant Group Inc., Outback Steakhouse
Inc., Roadhouse Grill and Rare Hospitality Inc. This analysis produced selected
valuation data and multiples of selected valuation data as follows: LTM
operating margin ranging from 2.2% to 18.1%, with a mean and median of 10.1% and
10.2%, respectively, and for Timber Lodge of 5.3%; LTM net margin ranging from
0.0% to 11.8%, with a mean and median of 5.9% and 5.2%, respectively, and for
Timber Lodge of 3.7%; equity value (market capitalization) to LTM earnings
ranging from 12.5x to 31.0x, with a mean and a median of 21.1x and 18.1x,
respectively, and for Timber Lodge of 22x; equity value to calendar 1998
earnings estimate ranging from 12.5x to 20.1x, with a mean and a median of 16.2x
and 16.0x, respectively, and for Timber Lodge of 14.1x; company value (market
capitalization plus debt less cash) to LTM revenue ranging from 0.6x to 2.3x,
with a mean and a median of 1.3x and 1.1x, respectively, and for Timber Lodge of
0.6x; company value to LTM EBITDA ranging from 5.3x to 11.6x, with a mean and a
median of 8.4x and 8.5x, respectively, and for Timber Lodge of 8.1x; company
value to LTM EBIT ranging from 6.9x to 28.7x, with a mean and median of 15.1x
and 13.2x, respectively, and for Timber Lodge of 15.2x. Earnings estimates for
Timber Lodge were based on published First Call estimates. Company value and
equity value for Timber Lodge were based on the implied purchase price per
share.
The comparable companies selected for comparison to GB Foods included six
publicly traded companies in the restaurant business with revenues between
$143.9 and $1,092 million. These companies included CKE Restaurants Inc., Papa
Johns International Inc., Sonic Corp., Rallys Hamburgers Inc., Checkers
Restaurants and Foodmaker Inc. This analysis produced multiples of selected
valuation data as follows: market capitalization to calendar 1998 earnings
estimate ranging from 5.9x to 33.1x, with a mean and median of 19.8x and 19.9x,
respectively, and for GB Foods of 25.2x; company value to LTM revenue ranging
from 0.4x to 2.5x, with a mean and a median of 1.4x and 1.4x, respectively, and
for GB Foods of 8.8x; company value to LTM EBITDA ranging from 4.3x to 19.3x,
with a mean and a median of 11.6x and 11.6x, respectively, and for GB Foods of
44.6x; and company value to operating income ranging from 12.8x to 29.4x, with a
mean and median of 19.0x and 15.5x, respectively, and for GB Foods was not
meaningful. Earnings estimates for GB Foods were based on published First Call
reports.
In reaching its conclusion as to the fairness of the consideration to be
paid in the Merger and in its presentation to GB Foods' Board, Piper Jaffray did
not rely on any single analysis or factor described above, assign relative
weights to the analyses or factors considered by it, or make any conclusions as
to how the results of any given analysis, taken alone, supported the Piper
Jaffray Merger Opinion or the Supplemental Letter.
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The preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analyses or summary description. Piper Jaffray believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, would create a misleading view of the processes underlying
the Piper Jaffray Merger Opinion or the Supplemental Letter. The analyses of
Piper Jaffray are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Analyses relating to the value of companies do not purport to be
appraisals or valuations or necessarily reflect the price at which companies may
actually be sold. No company or transaction used in any comparable analysis as a
comparison is identical to Timber Lodge, GB Foods or the Merger. Accordingly, an
analysis of the results is not mathematical; rather, it involves complex
considerations and judgments concerning differences in the various
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies to which Timber Lodge and
GB Foods were compared.
For purposes of the Piper Jaffray Merger Opinion and the Supplemental
Letter, Piper Jaffray relied upon and assumed the accuracy, completeness and
fairness of the financial and other information made available to it and did not
assume responsibility independently to verify such information. Piper Jaffray
relied upon the assurances of the respective managements of Timber Lodge, GB
Foods, CKE and JBRI that the information provided by Timber Lodge, GB Foods, CKE
and JBRI had a reasonable basis and, with respect to financial planning data and
other business outlook information, reflected the best available estimates, and
that they are not aware of any information or fact that would make the
information provided to Piper Jaffray incomplete or misleading. Financial
planning data was prepared based on numerous variables and assumptions that are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions, and actual results could vary significantly
from those set forth in such financial planning data. Piper Jaffray has assumed
no liability for such financial planning data. Upon the advice of Timber Lodge
and GB Foods and their legal advisors, Piper Jaffray assumed (i) the Merger
would be treated as a "purchase" for accounting purposes and (ii) the Merger
would qualify as a reorganization within the meaning of Section 368(a) of the
Code.
In arriving at the Piper Jaffray Merger Opinion and the Supplemental
Letter, Piper Jaffray did not perform and was not provided any appraisal or
valuation of specific assets or liabilities (contingent or otherwise) of Timber
Lodge, GB Foods or CKE and expressed no opinion regarding the liquidation value
of any entity. Piper Jaffray did not make any physical inspection of the
properties or assets of Timber Lodge, GB Foods, CKE or JBRI. No other
limitations were imposed by GB Foods on the scope of Piper Jaffray's
investigation or the procedures to be followed in rendering the Piper Jaffray
Merger Opinion. Piper Jaffray expressed no opinion as to the price at which
shares of GB Foods common stock may trade at any future time. The Piper Jaffray
Merger Opinion is based upon information available to Piper Jaffray and the
facts and circumstances as they existed and were subject to evaluation on the
date of the Piper Jaffray Merger Opinion. As described above, in delivering the
Supplemental Letter dated June 30, 1998, at the direction of and with the
consent of GB Foods, Piper Jaffray did not undertake any additional review,
analyses, investigation or inquiries since April 14, 1998, except to review its
internal analyses prepared in connection with the Piper Jaffray Merger Opinion,
modified where appropriate to give effect to the assumed ten-day average closing
price of $6 3/8 and the assumed Adjusted Merger Consideration. Events, other
than those assumed as indicated in the preceding sentence, occurring after April
14, 1998 could materially affect the facts and assumptions used in preparing the
Piper Jaffray Merger Opinion and the Supplemental Letter.
In addition, in arriving at its opinion, Piper Jaffray assumed that, in the
course of obtaining the necessary regulatory approvals for the Merger, no
restrictions, including any divestiture requirements, would be imposed that
would have a material adverse effect on the contemplated benefits of the Merger.
Further, Piper Jaffray assumed with the consent of GB Foods, that the
transactions (the "Additional Transactions") contemplated by the Timber
Lodge/JB's Purchase, the Summit/JB's Purchase Agreement and the JBRI Acquisition
Agreement would be consummated prior to the Merger in accordance with agreements
reviewed by or described to Piper Jaffray, and that, in the case of the Timber
Lodge/JB's Purchase, the number of shares of Timber Lodge Common Stock issued to
CKE will be 687,890 shares. Piper Jaffray also, with the consent of GB Foods,
assumed for purposes of the Piper Jaffray Merger Opinion, that neither the
Merger nor any of the
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Additional Transactions would, individually or in the aggregate, result in any
change of control of GB Foods under applicable state corporate laws.
Piper Jaffray, as a customary part of its investment banking business, is
engaged in the evaluation of businesses and other securities in connection with
mergers and acquisitions, underwritings and other distributions of securities,
private placements and evaluations for estate, corporate and other purposes. GB
Foods' Board selected Piper Jaffray because of its expertise, reputation and
familiarity with the restaurant industry in general. Piper Jaffray makes a
market in CKE's common stock. In the ordinary course of its market activities,
Piper Jaffray and its affiliates may, from time to time, have a long or short
position in and buy and sell CKE securities, which positions, on occasion, may
be material in size relative to the volume of trading activity.
For rendering its services to GB Foods' Board in connection with the
Merger, GB Foods paid Piper Jaffray a $25,000 non-refundable cash retainer and
$75,000 for rendering the Piper Jaffray Merger Opinion upon delivery of the
Piper Jaffray Merger Opinion and $40,000 for rendering the Supplemental Letter
upon delivery of the Supplemental Letter, which fees were not contingent on
consummation of the Merger. Whether or not the Merger is consummated, GB Foods
has agreed to pay the reasonable out-of-pocket expenses of Piper Jaffray and to
indemnify Piper Jaffray against certain liabilities incurred (including
liabilities under the federal securities laws) in connection with the engagement
of Piper Jaffray by GB Foods. Piper Jaffray was also engaged to provide, and has
provided, its opinion as to fairness, from a financial point of view, of the
consideration to be paid by GB Foods in the JBRI Acquisition. See "APPROVAL OF
JBRI ACQUISITION -- OPINION OF FINANCIAL ADVISOR" at page 86.
OPINION OF TIMBER LODGE'S FINANCIAL ADVISOR
Pauli & Company Incorporated ("PCI") was engaged by Timber Lodge to render
an opinion to the Timber Lodge Board with respect to the fairness, from a
financial point of view, of the consideration proposed to be received by the
Timber Lodge Shareholders from GB Foods in the Merger.
On March 26, 1998 PCI delivered a written opinion (the "PCI Opinion") to
the Timber Lodge Board to the effect that, as of such date, and based on the
assumptions made, matters considered and limits of review set forth in such
opinion, the consideration proposed to be paid by GB Foods to the Timber Lodge
Shareholders in the Merger was fair to such shareholders from a financial point
of view.
The PCI Opinion was rendered on March 26, 1998 and was based on information
available to PCI at that time. Since that time, among other things, the market
price of GB Food's stock has fallen below $7.50 per share. The PCI Opinion did
contemplate the possibility that if the ten-day average price of GB Foods' stock
shortly before closing is below $7.50, GB Foods could elect to adjust the
Exchange Ratio upwards in accordance with the Merger Agreement. The PCI Opinion
did not contemplate, and PCI has not been asked to express an opinion regarding,
the possibility that if the ten-day average price of GB Foods' stock shortly
before closing is below $7.50, GB Foods could elect to leave the Exchange Ratio
unadjusted at 0.8000 and Timber Lodge in turn could elect to accept the
unadjusted Ratio and close the Merger. In that event, Timber Lodge's Board of
Directors would have to determine whether to accept the unadjusted Exchange
Ratio, or to abandon the Merger, in accordance with its fiduciary duties under
Minnesota law to the Timber Lodge shareholders. The Board would be required to
consider all relevant information available at that time and make an independent
judgment of what action would be in the best interests of Timber Lodge and its
shareholders, and would have to make that judgment without an opinion from PCI
which addresses that situation. (On the other hand, if GB Foods elected to
adjust the Exchange Ratio in accordance with the Merger Agreement, Timber Lodge
could not abandon the Merger and so would have no election to make.)
THE FULL TEXT OF THE PCI OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY PCI, IS
ATTACHED AS ANNEX D TO THIS JOINT PROXY STATEMENT/ PROSPECTUS. THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
PCI ARE CONTAINED IN THE PCI OPINION. TIMBER LODGE SHAREHOLDERS SHOULD READ THE
PCI OPINION CAREFULLY AND IN
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ITS ENTIRETY. THE FOLLOWING SUMMARY OF THE PCI OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE PCI OPINION, WHICH
IS ADDRESSED TO THE TIMBER LODGE BOARD, IS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW TO THE TIMBER LODGE SHAREHOLDERS OF THE CONSIDERATION
PROPOSED TO BE PAID BY GB FOODS IN THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY TIMBER LODGE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE TIMBER LODGE MEETING.
In arriving at the PCI Opinion, PCI, among other things: (i) reviewed
certain publicly available financial, operating and other data with respect to
Timber Lodge and GB Foods, including the consolidated financial statements of
Timber Lodge and GB Foods through the fiscal year-end December 31, 1997, and
certain other relevant financial and operating data relating to Timber Lodge and
GB Foods made available to PCI from published sources and from the internal
records of Timber Lodge and GB Foods; (ii) reviewed the Merger Agreement (as
restated) and certain related documents; (iii) reviewed the current reports and
filings by Timber Lodge and GB Foods with respect to the Merger; (iv) reviewed a
draft of this Joint Proxy Statement/Prospectus; (v) reviewed the historical
market prices and trading activity for Timber Lodge's common stock and GB Foods'
common stock and compared them with those of certain other public companies
which PCI deemed to be reasonably similar to Timber Lodge or GB Foods,
respectively; (vi) compared the results of operations of Timber Lodge and GB
Foods with those of certain other public companies which PCI deemed to be
reasonably similar to Timber Lodge; (vii) compared the proposed financial terms
of the Merger with the financial terms, to the extent publicly available, of
other selected business combinations in the restaurant industry, which PCI
deemed to be relevant; (viii) reviewed and discussed with representatives of
management of Timber Lodge and management of GB Foods certain information
regarding the business and financial aspects of the Merger, including financial
forecasts relative to potential cost savings and other potential synergies
anticipated to result from the Merger and the underlying assumptions made; (ix)
made inquiries regarding and discussed the Merger, the Merger Agreement and
other matters related thereto with Timber Lodge; (x) discussed and reviewed with
Timber Lodge's and GB Foods' managements acquisition of JBRI, as well as Timber
Lodge's acquisition of certain JB's Restaurants; and (xi) reviewed such other
analyses and performed such other examinations and took into account such other
matters as PCI deemed appropriate.
In preparing the PCI Opinion, PCI did not assume any obligation to
independently verify any of the information supplied or otherwise made available
to PCI and relied on all such information as being complete and accurate in all
material respects. With respect to the financial forecasts for Timber Lodge and
GB Foods prepared by their respective managements, PCI assumed, with the consent
of Timber Lodge and GB Foods, that such forecasts were reasonably prepared on
bases reflecting at the time of preparation the best available estimates and
judgments of their respective managements as to (i) the expected future
financial performance of Timber Lodge and of GB Foods and (ii) the potential
cost savings, revenue enhancements and other potential synergies (including the
timing, amount and achievability thereof) anticipated to result from the Merger,
and that such forecasts provided a reasonable basis upon which PCI could, in
part, form its opinion. Such projections and estimates are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
PCI also assumed, with Timber Lodge's consent, that there were no material
changes in Timber Lodge's or GB Foods assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements as reviewed by PCI. PCI further assumed, with Timber
Lodge's consent, that (i) in the course of obtaining the necessary regulatory
and third party consents for the Merger, no restriction will be imposed that
will have a material adverse effect on the contemplated benefits of the Merger,
and (ii) the Merger will be consummated in accordance with the terms and
provisions of the Merger Agreement, including all amendments to as of March 26,
1998, and without any further amendments or waiver by GB Foods of any of the
material conditions to its obligations thereunder. In addition, PCI did not
assume
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responsibility for making an independent evaluation, appraisal or physical
inspection of the assets or individual properties of Timber Lodge or GB Foods,
nor was PCI furnished with any such evaluations or appraisals. Finally, the PCI
Opinion was necessarily based upon economic, monetary, market and other
conditions as they existed on and could be evaluated as of the date of such
opinion. The PCI Opinion did not address the merits of the underlying decision
by Timber Lodge and GB Foods to engage in the Merger. In addition, PCI expressed
no opinion as to what the value of the GB Foods Common Stock would be upon
consummation of the Merger or at any time thereafter.
Set forth below is a summary of the material analyses performed by PCI in
connection with the PCI Opinion. All closing stock prices used were as of March
25, 1998, which was one day prior to the delivery of the PCI Opinion to the
Timber Lodge board. The closing prices for Timber Lodge common stock of $5 15/16
and GB Foods common stock of $7 15/16 on March 25, 1998 were used to calculate
the appropriate transaction multiples and consideration value. In connection
with the PCI Opinion, PCI performed procedures to update certain of such
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith.
Comparable Company Analysis. Based on publicly available financial,
operating, and market information including earnings estimates and closing stock
prices as of March 25, 1998, PCI reviewed and analyzed selected historical and
estimated information relating to Timber Lodge, GB Foods and a group of six
other restaurant companies consisting of Logan's Roadhouse, Inc.; Lonestar
Hospitality Corp.; Outback Steakhouse, Inc.; Rare Hospitality International,
Inc.; Roadhouse Grill; and Ryan's Family Steakhouses, Inc. (the "Comparable
Companies"). The selected Comparable Companies represent a broad spectrum across
the industry at various points along their growth curves.
PCI noted for the Timber Lodge board that, among other things, on December
11, 1997 Timber Lodge's stock price closed at $4 13/16 per share. On December
12, 1997, the Company announced its intention to merge with GB Foods.
Furthermore, based on December 31, 1997 financial statements (the trailing 12
month period) and the Timber Lodge Common Stock closing price of $5 15/16 on
March 25, 1998: (i) Timber Lodge had an enterprise value of approximately $22.6
million (defined as the market value of equity plus long term debt) and
therefore an enterprise value to sales multiple of .85x compared to a median
range of .88x to 1.60x for the Comparable Companies; (ii) Timber Lodge had an
enterprise value to EBITDA multiple of 7.62x and the enterprise value to EBITDA
average multiple for the Comparable Companies of 7.01x; (iii) Timber Lodge had a
price to book value ratio of 1.95x at March 25, 1998, as compared to the median
range price to book ratio for the Comparable Companies of 1.37x to 1.70x; (iv)
Timber Lodge had a price to earnings ratio of 22x at March 25, 1998 based on the
earnings per share ("EPS") for the latest 12 months ended December 31, 1997, as
compared to the median range price to earnings ratio for the Comparable
Companies of 17.03x to 22.73x; and (v) Timber Lodge's LTM gross margin was
67.53%. For the Comparable Companies, LTM gross margin ranged from 60.43% to
67.17% with a mean of 63.96%. Timber Lodge's LTM pretax margin was 5.25%. For
the Comparable Companies, LTM pretax margin ranged from 2.60% to 21.10% with a
mean of 10.49%. Based on the multiples and ratios derived from analysis of the
Comparable Companies, PCI determined, after selectively weighting certain
ratios, that the value of the Timber Lodge common stock ranged from $5.47 to
$6.50 per share.
Discounted Cash Flow Analysis. PCI also performed a discounted cash flow
analysis to determine the present value per share of Timber Lodge common stock.
This analysis calculated the present value of Timber Lodge's projected cash
flows for 1998 through 2000 as well as the present value of Timber Lodge's
terminal value. For calculating Timber Lodge's terminal value, PCI assumed that
Timber Lodge's value at the end of fiscal 2000 would be equal to a price to
earnings multiple consistent with similar multiples for comparable companies in
the restaurant industry, after applying a slight discount to reflect Timber
Lodge's smaller size. PCI used a price to earnings multiple of 15.5. The cash
flow streams from Timber Lodge's forecasted periods and Timber Lodge's terminal
value were discounted at a rate of 14.9%. Under this type of analysis, PCI
believes the present value of Timber Lodge common stock to be approximately
$6.05 per share.
Analysis of Selected Comparable Restaurant Merger Transactions. PCI also
reviewed the consideration paid in the following five transactions
(Acquiror/Target): Apple South Inc./DF&R Restaurants, Inc.; CKE
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Restaurants/Summit Family Restaurants Inc.; Buffets Inc./HomeTown Buffet Inc.;
Longhorn Steaks, Inc./ Bugaboo Creek Steak Houses Inc.; and WSMP, Inc./Sagebrush
Inc. (collectively, the "Comparable Transactions"). For each company merged or
to be merged in such transactions, PCI compiled ratios illustrating, among other
things, enterprise value to latest 12 months net sales, enterprise value to
latest 12 months EBITDA and enterprise value to latest 12 months net income.
The ratios were as follows: (i) a median ratio of enterprise value to
latest 12 months' net sales of .99x; (ii) a median ratio of enterprise value to
EBITDA of 7.74x; and (iii) a median ratio of enterprise value to net income of
24.98x. The value of the consideration to be paid to the Timber Lodge
shareholders was calculated using the closing price of GB Foods one day prior to
delivery of the PCI Opinion of $7 15/16 x .8 exchange ratio, or $6.35 per Timber
Lodge share. This represented ratios of: enterprise value to latest 12 months'
net sales of .91x; enterprise value to latest 12 months' EBITDA of 8.4x and
equity value to latest 12 months' net income of 23.44x.
No specific restaurant company or transaction used in the above analyses as
a comparison was exactly identical to Timber Lodge, GB Foods or the proposed
Merger. Accordingly, an analysis of the results of the foregoing is not strictly
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the acquisition or public trading
multiples of the companies to which Timber Lodge, GB Foods and the proposed
Merger are being compared.
Pro Forma Dilution Analysis. Using earnings and estimates for earnings per
share of Timber Lodge in 1998 and estimates of GB Foods in 1998 and estimates as
to the anticipated cost savings and other potential synergies anticipated to
result from the Merger, PCI compared estimated EPS for GB Foods on a stand-along
basis to the estimated EPS for GB Foods on a pro forma combined basis for GB
Foods fiscal year 1998. PCI noted that, based upon estimates by GB Foods,
management of cost savings, revenue enhancements and operating synergies and
after giving effect to certain assumptions as to, among other things, the number
of shares to be outstanding in each period, the Merger could be expected to be
accretive to GB Foods EPS in fiscal year 1998 by approximately 31%.
The foregoing is a summary of the material analyses performed by PCI in
connection with preparing the PCI opinion. The preparation of a fairness opinion
does not lend itself to partial analysis or summary description. PCI believes
that the analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses and the factors considered, without
considering all analyses and all factors, would create an incomplete view of the
process underlying the analyses. In addition, PCI may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be PCI's view of the actual values of Timber Lodge, GB Foods or the
combined company. The fact that any specific analysis has been referred to in
the summary above is not meant to indicate that such analysis was given greater
weight than any other analysis.
In performing its analyses, PCI made numerous assumptions with respect to
industry performance, regulatory, general business and economic conditions and
other matters, many of which are beyond the control of Timber Lodge, GB Foods
and PCI. The analyses performed by PCI are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of PCI's analysis in connection with the delivery of PCI's
opinion relating to the fairness of the consideration to be paid by GB Foods to
Timber Lodge shareholders, from a financial point of view. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future.
Pursuant to the terms of PCI's engagement, Timber Lodge has agreed to pay
PCI a fee of $42,500. Timber Lodge also has agreed to reimburse PCI for its
reasonable out-of-pocket expenses and to indemnify PCI, its affiliates, and
their respective partners, directors, officers, agents, consultants, employees
and controlling persons against certain liabilities, including liabilities under
the federal securities laws. The payment of PCI's fee and expenses is not
contingent upon the Merger closing.
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PCI has, in the past, performed various investment banking and financial
advisory services for GB Foods and other related entities for which PCI has
received compensation and may continue to do so in the future and has published
independent research on Timber Lodge and GB Foods in the ordinary course of its
business, PCI makes a market in the shares of Timber Lodge common stock and GB
Foods common stock and trades for its own account and for the accounts of its
customers, and, accordingly, may at any time hold a long or short position in
such securities.
INFORMATION SUPPLIED TO FINANCIAL ADVISORS
Piper Jaffray and PCI relied upon internal financial planning information
prepared and furnished by management of Timber Lodge as part of the analysis
underlying their respective opinions. However, the financial projections for
Timber Lodge relied upon by Piper Jaffray and PCI differed in the following
respects: (i) the projections relied upon by Piper Jaffray reflect fiscal years
1998 through 2002, while the projections relied upon by PCI reflect fiscal years
1998 through 2000; (ii) the projections relied upon by Piper Jaffray reflect
slightly lower sales in fiscal 1998 and 1999 and slightly higher sales in fiscal
2000 as compared to the projections relied upon by PCI; (iii) the projections
relied upon by Piper Jaffray reflect slightly lower operating margin in fiscal
2000 as compared to the projections relied upon by PCI; and (iv) the projections
relied upon by Piper Jaffray reflect slightly lower earnings per share in fiscal
1998 and 2000 as compared to the projections relied upon by PCI.
FORM OF THE MERGER
The Merger Agreement provides that, as soon as practicable following the
satisfaction or waiver of specified conditions to the Merger, Merger Sub will be
merged with and into Timber Lodge, the separate corporate existence of Merger
Sub will cease, and Timber Lodge will continue as the surviving corporation. All
of the common stock of Timber Lodge will be owned by GB Foods after the Merger.
EFFECTIVE TIME
The "Effective Time" is that time when the Merger becomes effective under
Minnesota law. The Merger Agreement provides that the Effective Time is to be
when a certificate of merger is filed with the Secretary of State of Minnesota,
or at such later time as is specified in the certificate.
EXCHANGE RATIO
GENERAL
At the Effective Time of the Merger, each then-outstanding share of Timber
Lodge common stock will be converted into the right to receive 0.8000 shares of
GB Foods common stock, subject to adjustment as described below. No cash will be
paid to Timber Lodge shareholders in the Merger other than in connection with
payment for fractional GB Foods shares.
ADJUSTMENT
The adjustment provisions are designed to ensure that, if the merger
closes, the value of the GB Foods shares received by Timber Lodge shareholders
will not be less than $6.00 and not more than $11.20 per Timber Lodge share,
based on the average market value of GB Foods common stock shortly before the
Effective Time. It is possible for the Merger to close and for Timber Lodge
shareholders to receive less in value than $6.00, but only if the Timber Lodge
Board of Directors determines at that time that proceeding with the Merger is
better for Timber Lodge and its shareholders than abandoning it. These
provisions are contained in Section 2.1(b) of the Merger Agreement, and are
summarized in the following paragraphs.
GB Foods will calculate its average closing stock price over the ten full
trading days ending two trading days before the Effective Time. If that ten-day
average price is between $7.50 and $14.00 per share, the Exchange Ratio will not
be adjusted.
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If the ten-day average price is less than $7.50 per share, then GB Foods
may do one of three things: (1) it may abandon the Merger; (2) it may do nothing
(in which case the Exchange Ratio will remain 0.8000 and Timber Lodge may
abandon the Merger); or, (3) it may change (increase) the Exchange Ratio by
multiplying it by a fraction, the numerator of which will be $7.50 and the
denominator of which will be the ten-day average price.
On the other hand, if the ten-day average price is more than $14.00 per
share, the Exchange Ratio will be reduced by multiplying it by a fraction, the
numerator of which will be $14.00 and the denominator of which will be the
ten-day average price.
Any adjusted Exchange Ratio will be expressed as a decimal rounded to the
nearest 0.0001.
These provisions can be illustrated by the following examples:
If the ten-day average price per GB Foods share were $7.50 exactly,
the Exchange Ratio would remain at 0.8. In that case, each Timber
Lodge share would be converted into 0.8 shares of GB Foods; that
fractional share would have a value of $6.00, based on the ten-day
average price.
If the ten-day average price were $14.50 per share, the adjusted
Exchange Ratio would be 0.8 multiplied by $14.00 and divided by
$14.50, or 0.7724. In that case, each Timber Lodge share would be
converted into 0.7724 GB Foods shares; that fractional share would
have a value of about $11.20, again based on the ten-day average
price.
If the ten-day average price per GB Foods share were $7.00, GB Foods
would be entitled to abandon the Merger or it could allow the Exchange
Ratio to remain 0.8, in which case Timber Lodge would be entitled to
abandon the Merger. If GB Foods chose not to abandon the Merger but
instead elected to adjust the Exchange Ratio, Timber Lodge would lose
the right to abandon the Merger and the adjusted Exchange Ratio would
be 0.8 multiplied by $7.50 and divided by $7.00, or 0.8571. In that
case, each Timber Lodge share would be converted into 0.8571 GB Foods
shares; those 0.8571 shares would have a value of about $6.00 based on
the ten-day average price.
In any case, of course, the actual market price of GB Foods shares at the
Effective Time or afterwards may be more or less than the ten-day average price.
A table setting out the effects of changes in GB Foods' stock price on the
Exchange Ratio, the equivalent value per Timber Lodge share, and the total
number of new GB Foods shares issuable in the Merger, appears on page 8. A table
setting out the effects of changes in GB Foods' stock price on goodwill which GB
Foods will be required to recognize appears on page 9.
CONVERSION AND EXCHANGE OF SHARES
If the Merger closes, Timber Lodge shareholders will be required to deliver
their Timber Lodge stock certificates to American Securities Transfer and Trust,
Inc. (the "Exchange Agent") in order to receive the appropriate GB Foods shares.
Promptly after the Effective Time, the Exchange Agent will mail or make
available to each Timber Lodge shareholder a notice and letter of transmittal.
These documents will specify that delivery and risk of loss will pass to the
Exchange Agent only upon proper delivery of the certificates to the Exchange
Agent. They will also advise Timber Lodge shareholders that the Merger has
become effective, and the procedures to be used in effecting the exchange of
Timber Lodge stock certificates for GB Foods stock certificates.
If all or part of the GB Foods stock received in the Merger is to be issued
to a person other than the person in whose name the Timber Lodge stock
certificates are registered, the certificates surrendered must be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such issuance will be required to pay any transfer or other taxes required.
Until surrendered and exchanged in accordance with the Merger Agreement,
after the Effective Time each Timber Lodge stock certificate will represent only
the right to receive the appropriate GB Foods shares. At the Effective Time the
Timber Lodge stock transfer books shall be closed and no further transfers of
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Timber Lodge shares shall be registered. If, after the Effective Time, any
Timber Lodge stock certificate is presented for transfer, such certificate shall
be cancelled and exchanged for the appropriate GB Foods shares.
Timber Lodge shareholders should NOT deliver certificates for their Timber
Lodge shares at this time; only proxy forms should be returned now.
EFFECT ON TIMBER LODGE EMPLOYEE STOCK OPTIONS
At the Effective Time, each outstanding Timber Lodge employee stock option
will be adjusted so that, after the Merger, the holder of the option will be
able to purchase from GB Foods, for the total purchase price specified in the
original option, that number of GB Foods shares which the holder would have
received in the Merger if the option had been exercised immediately before the
Merger. For example, an option to purchase 10,000 Timber Lodge shares at $5.00
per share ($50,000 total purchase price) would be adjusted, after the Merger, to
entitle the holder to purchase 8,000 GB Foods common shares for $6.25 per share
($50,000 total purchase price). Due to certain tax law requirements, the number
of shares will be rounded down, and the option price will be rounded up, in each
case to the nearest 0.0001. After the Merger, GB Foods will be substituted for
Timber Lodge completely, and no Timber Lodge stock option will entitle the
holder to receive Timber Lodge stock or other Timber Lodge securities; only GB
Foods common stock will be payable upon exercise. The other terms and conditions
of options will not change. In particular, any time limits on or conditions to
exercise will continue in effect. As of the Timber Lodge Record Date, there were
outstanding Timber Lodge employee options to purchase 278,666 Timber Lodge
common shares.
EFFECT ON TIMBER LODGE STOCK PURCHASE WARRANTS
At the Effective Time, each outstanding Timber Lodge stock purchase warrant
will be adjusted in the same manner as employee stock options, discussed in the
section immediately preceding this one. After the Merger GB Foods will be
substituted for Timber Lodge completely, and no Timber Lodge stock purchase
warrant will entitle the holder to receive Timber Lodge stock or other Timber
Lodge securities; only GB Foods common stock will be payable upon exercise. The
other terms and conditions of warrants will not change. In particular, any time
limits on or conditions to exercise will continue in effect. As of the Timber
Lodge Record Date, there were outstanding Timber Lodge warrants to purchase
120,000 Timber Lodge common shares.
EFFECT ON TIMBER LODGE STOCK HELD IN 401(k) PLAN
At the Effective Time, all shares of Timber Lodge common stock held by the
trustee for the Timber Lodge 401(k) plan will be converted into GB Foods shares
using the Exchange Ratio. Shares held in the plan will be treated like any other
outstanding Timber Lodge shares.
ACCOUNTING TREATMENT
GB Foods intends to account for the Merger using the purchase method. The
pro forma information presented at "UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION" beginning on page 15 assumes that the purchase method of
accounting will be used. In connection with that method, GB Foods expects to
recognize goodwill as an intangible asset which it expects to amortize over a
period of 40 years. The amount of goodwill to be recognized will depend upon the
market value of the GB Foods' shares issued in the Merger. Total goodwill
related to the Merger is expected to be approximately $16 million if the
Exchange Ratio is unadjusted, $12.5 million if the Exchange Ratio increases, and
$35 million if the Exchange Ratio decreases. (The Exchange Ratio could increase
if GB Foods' average stock price is below $7.50, and would decrease if GB Foods'
average stock price is above $14.00, shortly before the Effective Time). See
"TABULAR GOODWILL ANALYSIS" on page 9 for additional information concerning
goodwill. The pro forma information beginning on page 15 assumes that goodwill
related to the merger will be approximately $16 million. Of the assumed
goodwill, $13.7 million is attributable to GB Foods' direct acquisition of
Timber Lodge, and $2.3 million is attributable to GB Foods' indirect acquisition
of the Sixteen Restaurants (through the Timber Lodge/JB's Purchase). Those
assumed amortizations would
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combine to reduce GB Foods' reported earnings by approximately $399,150 per year
during the amortization period.
FEDERAL INCOME TAX MATTERS
Timber Lodge shareholders should consider the federal income tax effects of
the Merger on them. Federal income tax considerations applicable to the Timber
Lodge shareholders, other than CKE, are discussed later in this booklet under
the caption "FEDERAL INCOME TAX CONSEQUENCES" beginning on page 78.
In the opinion of The Stolar Partnership, counsel to GB Foods, GB Foods
will not recognize gain or loss on the issuance of its common stock in the JBRI
Acquisition. For income tax purposes, GB Foods' acquisitions of Timber Lodge or
JBRI (or both) will not generate any amortizable goodwill (even though, for
financial accounting purposes, each acquisition will generate goodwill which
must be amortized).
The Stolar Partnership further is of the opinion that the Merger, the JBRI
Acquisition, the Timber Lodge/JB's Purchase, and the Fidelity Warrant Exercise
will result in a change in control (for tax purposes) causing an application of
Section 382 of the Internal Revenue Code of 1986, as amended. Section 382 will
limit the amount of GB Foods' accumulated net operating loss carryforward
($11,906,000, according to GB Foods' audited annual financial statements) which
may be used by the combined entity in any year to an amount equal to the value
of GB Foods on the date of the change in control (approximately $41.0 million as
of July 6, 1998) times the then-applicable federal long-term tax-exempt rate
(5.00% as of July 6, 1998), or approximately $2.1 million per year (if the
change in control had occurred on July 6, 1998). In addition, net operating loss
carryforwards can be deducted in future years only to the extent of GB Foods'
taxable income in those years.
GB Foods cannot accurately predict what its annual taxable income will be
after consummation of the Merger, the JBRI Acquisition, and the other
transactions discussed in this booklet. Thus, utilization of GB Foods net
operating loss cannot be assured.
In addition to limiting the dollar amount as described above, the Internal
Revenue Code also limits the time during which net operating losses may be
carried forward. The Stolar Partnership is of the opinion that, under present
law, net operating losses for any past tax year generally cannot be carried
forward more than 15 years. According to GB Foods' audited annual statements, GB
Foods' accumulated net operating losses expire between 2008 and 2012. Therefore,
if GB Foods' taxable income over the next several years were sufficiently low
(or negative), then GB Foods might permanently lose its ability to utilize all
or part of its accumulated net operating losses.
GB Foods has not recorded a deferred tax asset for the expected future tax
benefits related to accumulated net operating loss carryforwards and will
re-evaluate this position upon completion of the Merger and JBRI Acquisition.
The Stolar Partnership's opinion is limited to federal income tax matters.
However, according to its audited annual financial statements, GB Foods also has
an accumulated $5,694,000 net operating loss carryforward for state income tax
purposes, which will expire if unused between 1999 and 2002.
Additional information concerning GB Foods' accumulated federal and state
net operating losses is set forth in Note 6 of its "NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS" appearing in Annex E on page E-24.
DISSENTERS' RIGHTS OF APPRAISAL
GB FOODS
Under the Delaware General Corporation Law, GB Foods' shareholders are not
entitled to dissenters' appraisal rights in connection with the Merger.
TIMBER LODGE
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act, a
copy of which is included as Annex B hereto, grants to any Timber Lodge
shareholder who objects to the Merger and who follows the
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procedures specified in such sections the right to receive the fair value of his
or her Timber Lodge shares, determined as provided in such sections.
Summary of Actions Required
Timber Lodge must provide a notice to its shareholders who will vote on the
Merger with GB Foods of their right to dissent and must provide the shareholders
with a copy of Sections 302A.471 and 302A.473 and a description of the
procedures that a dissenter to the Merger must follow in order to preserve his
or her statutory rights. This booklet constitutes such notice. Basically, a
dissenter to the Merger must: (i) before the vote on approval of the Merger,
file a written notice of intent to demand the fair value of his or her shares
(see below); (ii) fail to vote in favor the Merger; and (iii) after the Merger
has been approved and within 30 days after the corporation gives notice to all
dissenters (the "Notice Date") that includes the information required by Section
302A.473 Subd. 4(a)(1-4), file a written demand for payment with GB Foods (see
below) and deposit his or her shares of Timber Lodge common stock owned by such
dissenter. After the Merger is approved or after GB Foods receives a valid
demand for payment, whichever is later, GB Foods shall pay the dissenter his or
her fair value of the shares plus interest (the "Remittance") and provide the
dissenter with certain documents and information as set forth in Section
302A.473 Subd. 5(a)(1-3). If the Remittance is not provided to the dissenter
within 60 days of the deposit of certificates or the imposition of transfer
restrictions on uncertificated shares, GB Foods shall return all deposited
certificates and cancel all transfer restrictions. If within 30 days after the
Remittance, a dissenter believes that he or she received less than fair value of
the shares, the dissenter may give written notice of the dissenter's estimate of
the fair value of the shares and demand payment of the difference. GB Foods must
then, within 60 days after receiving such demand, either pay the amount demanded
or an amount otherwise agreed to by GB Foods and the dissenter, or file a
petition in the court located in the county in which the last registered office
of Timber Lodge was located and request that the court determine the fair value
of the shares plus interest.
Any failure to observe any of these procedures could result in the total
loss of dissenters' rights under Sections 302A.471 and 302A.473. A dissenter who
loses his or her dissenters' rights would be bound by the Merger Agreement and
would have to accept the GB Foods shares as provided therein. Each of these
procedures is discussed in more detail below.
Actions Required Before and During the Timber Lodge Meeting
Prior to or at the Timber Lodge Meeting, but in any case before the Merger
is submitted to a vote, a dissenter entitled to dissent under Section 302A.471
must file with Timber Lodge a written objection to the Merger (described below).
In addition, the dissenter must not vote in favor of the Merger.
Written Objection
The written objection to the Merger must be separate from a dissenter's
vote or proxy relating to the Merger, and must be executed by the dissenting
shareholder of record, fully and correctly, as such shareholder's name appears
on his or her stock certificate. In case of fiduciaries or multiple co-owners of
record, the objection must be executed by all record owners in their proper
capacities. An agent for a record owner must specify the owner and the fact that
execution is by an agent. Written objections should be delivered to Dermot F.
Rowland at Timber Lodge, 4021 Vernon Avenue South, St. Louis Park, Minnesota
55416, before or at the Timber Lodge Meeting, but prior to the vote. Objections
must be received by Dermot F. Rowland before the vote is taken. Each dissenter
is solely responsible for timely delivery of the written objection.
Actions Required After Closing
Within 30 days after the Notice Date, a dissenter must make written demand
(described below) on GB Foods for payment of the fair value of the Timber Lodge
shares held by such shareholder and must deposit certificated shares or comply
with any transfer restrictions on uncertificated shares of Timber Lodge common
stock owned by such dissenter.
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Written Demand
The written demand must be executed by the same person(s) and in the same
manner as the written objection (described above). Written demands must be
received by Dermot F. Rowland within the 30-day period described in the
preceding paragraph. Each dissenter is solely responsible for timely delivery of
the written demand.
Determination of Value; Filing of Court Petition
After the later of the Effective Time or a written demand for payment
described in the preceding paragraph, GB Foods shall pay the dissenter the fair
value of his or her shares as determined by GB Foods, plus interest. If GB Foods
fails to remit payment to the dissenter within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertificated
shares, GB Foods will return all deposited certificates and cancel all transfer
restrictions. If within 30 days after the Remittance, a dissenter believes that
he or she received less than fair value of the shares plus interest, the
dissenter can give written notice to GB Foods of the dissenter's estimate of the
fair value of the shares plus interest and demand payment of the difference. GB
Foods must then, within 60 days, either pay the amount demanded or an amount
otherwise agreed to or file a petition in the court located in the county in
which the last registered office of Timber Lodge was located, requesting the
court determine the fair value of the shares plus interest. GB Foods must follow
the filing and notice provisions set forth in Section 302A.473 Subd. 7. The
court will follow the procedures set forth in Section 302A.473 Subd. 7 and may
assess court fees, costs, and expenses as set forth in Section 302A.473 Subd. 8.
THE VALUE DETERMINED IN THE APPRAISAL PROCESS COULD BE HIGHER OR LOWER THAN
THE MARKET VALUE OF THE GB FOODS SHARES WHICH WOULD HAVE BEEN RECEIVED UNDER THE
TERMS OF THE MERGER AGREEMENT.
Legal Advice
Any Timber Lodge shareholder who believes he or she might wish to exercise
dissenters' rights should review the provisions of Sections 302A.471 and
302A.473 carefully, and should consult with his or her own legal advisor. A
failure to comply with any of the requirements of Sections 302A.471 and 302A.473
could result in a total loss of the rights granted thereunder.
LIMITATION IN MERGER AGREEMENT
It is a condition to the obligations of GB Foods and Merger Sub to
consummate the Merger that holders of no more than 4% of Timber Lodge's
outstanding stock duly exercise their dissenters' rights as described above. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- CONDITIONS TO THE MERGER"
beginning at page 62 for a summary of other conditions to the Merger.
REGULATORY MATTERS AND THIRD PARTY APPROVALS
It is not expected that GB Foods or Timber Lodge will be required to obtain
the approval of any regulatory agency, or of any lender or other party to a
contract, in order to consummate the Merger. However, the consents of certain
landlords must be obtained prior to consummation of the Timber Lodge/JB's
Purchase. See "THE TIMBER LODGE/JB'S PURCHASE" beginning at page 58 for
additional information.
LITIGATION
Neither GB Foods nor Timber Lodge is aware of any pending or threatened
lawsuit or other legal proceeding which seeks to block, enjoin, or otherwise
materially and directly affect the ability of either company to proceed with the
Merger, the Timber Lodge/JB's Purchase, or the Fidelity Warrant Exercise.
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DELISTING OF TIMBER LODGE COMMON STOCK
It is expected that Timber Lodge common stock will be delisted from
quotation in the Nasdaq Small Cap Market at the Effective Time. If the Merger is
closed, Timber Lodge stock will cease to be traded publicly, and will cease to
be listed and quoted on Nasdaq. Timber Lodge will stop filing reports with the
SEC.
RESTRICTIONS ON RESALES OF GB FOODS COMMON STOCK
MERGER AGREEMENT
GB Foods shares issued in the Merger generally will be freely transferable
and will be quoted on the Nasdaq Small Cap Market. See "DESCRIPTION OF GB FOODS
CAPITAL STOCK" beginning at page 73 below. However, the Merger Agreement imposes
certain transfer restrictions on certain Timber Lodge shareholders who are legal
affiliates of Timber Lodge or GB Foods. Those restrictions, described briefly
below, are intended to ensure compliance with certain legal requirements. A
legend may be placed on GB Foods stock certificates issued to affected Timber
Lodge shareholders in order to help enforce those restrictions.
AFFILIATES
The transfer restrictions described below apply only to "affiliates" of
Timber Lodge, and to non-affiliates of Timber Lodge who become affiliates of GB
Foods after the Merger. A person would be considered an affiliate of Timber
Lodge if such person is a director or senior executive officer of Timber Lodge,
or otherwise controls, is controlled by, or is in control of Timber Lodge with
others, immediately prior to the Effective Time of the Merger. A similar
definition would apply with respect to GB Foods after the Merger.
Timber Lodge has identified its directors and executive officers (as
reported to the Securities and Exchange Commission) as being affiliates of it.
Timber Lodge also has identified Heartland Advisors, Inc. as a presumptive
affiliate. GB Foods intends to treat such person as being an affiliate unless it
is satisfied otherwise. All other Timber Lodge shareholders are expected to be
treated as being non-affiliates. GB Foods is not aware of any Timber Lodge
shareholder who is expected to become a GB Foods affiliate immediately after the
Merger, other than CKE and certain persons who already are Timber Lodge
affiliates. See "MANAGEMENT AFTER THE MERGER" beginning on page 71.
FEDERAL SECURITIES LAW RESTRICTIONS ON AFFILIATES
The Merger Agreement requires compliance with Rule 145 under the Securities
Act of 1933, as it may be amended from time to time. As currently amended, Rule
145 provides that a Timber Lodge affiliate may sell GB Foods shares received in
the Merger on the open market only in ordinary brokers' transactions, generally
may sell no more than 1% of GB Foods' outstanding common stock in any 3-month
period, and is subject to certain other restrictions. The Rule 145 restrictions
on Timber Lodge affiliates will lapse after two years, unless the person becomes
a GB Foods affiliate.
THE TIMBER LODGE/JB'S PURCHASE
Section 8.2(h) of the Merger Agreement requires, as a condition to GB
Foods' obligation to consummate the Merger, that Timber Lodge purchase the
Sixteen Restaurants, comprised of fourteen JB's Restaurants and two Galaxy Diner
restaurants. The Timber Lodge/JB's Purchase is governed by a Stock Exchange
Agreement, entered into as of May 12, 1998, as amended, among Timber Lodge, CKE,
and JB Parent Corp., a wholly owned subsidiary of CKE. The Stock Exchange
Agreement provides that CKE will exchange all of the stock of JB Parent Corp.
for 687,890 new shares of Timber Lodge common stock. At the time of the Timber
Lodge/JB's Purchase, the Sixteen Restaurants will be the sole assets of JB
Parent Corp. The Sixteen Restaurants currently are operated in four southwestern
and western states, including: ten restaurants in Arizona, two in Utah, two in
New Mexico, and two in Idaho.
The obligation of Timber Lodge to effect the Timber Lodge/JB's Purchase is
subject to the satisfaction or waiver by Timber Lodge of the following
conditions: (a) no government entity has taken any of various
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actions which (in Timber Lodge's reasonable judgment) is likely to have a
material adverse effect with respect to JB Parent Corp.; (b) CKE has performed
in all material respects its agreements under the Stock Exchange Agreement and
its representations and warranties remain materially true as of the closing
date; (c) no change or development has occurred or been threatened that Timber
Lodge reasonably judges has had or is likely to have a material adverse effect
with respect to JB Parent Corp.; (d) Timber Lodge has received certain
resolutions and certificates required by the Stock Exchange Agreement; (e)
nothing has come to Timber Lodge's attention in the course of its due diligence
investigation of JB Parent Corp. which could reasonably be expected to have a
material adverse effect with respect to JB Parent Corp.; and (f) Timber Lodge
stockholders have approved and authorized the Merger.
The obligation of CKE to effect the Timber Lodge/JB's Purchase is subject
to the satisfaction or waiver by CKE of the following conditions: (a) no
governmental entity has taken any of various actions which (in CKE's reasonable
judgment) is likely to have a material adverse effect; (b) Timber Lodge has
performed in all material respects its agreements under the Stock Exchange
Agreement and its representations and warranties remain materially true as of
the closing date; (c) no change or development has occurred or been threatened
that CKE reasonably judges has had or is likely to have a material adverse
effect with respect to Timber Lodge; and (d) CKE has received certain
resolutions and certificates required by the Stock Exchange Agreement.
For purposes of the Stock Exchange Agreement, to have a "material adverse
effect" with respect to either JB Parent Corp. or Timber Lodge means to (i) have
a material adverse effect on the value, condition (financial or otherwise),
prospects, business, insurability or results of operation of such company and
its subsidiaries (if any) as a whole, (ii) impair the ability of any party to
the Stock Exchange Agreement to perform its obligations under the Stock Exchange
Agreement, or (iii) prevent or materially delay consummation of any of the
transactions contemplated by the Stock Exchange Agreement.
Any condition to the Stock Exchange Agreement may be waived by any party
who has the right to insist on the satisfaction of that condition. Any decision
to waive any condition would be made by the chief executive officer and,
ultimately, by the Board of Directors, of the applicable party; shareholders
normally would have no right to approve a waiver. The parties have informally
agreed that if the Merger is terminated, the Stock Exchange Agreement also will
terminate.
The Sixteen Restaurants currently range in size from 4,200 square feet to
7,600 square feet with an average of 4,850 square feet. Seating capacity for the
restaurants currently ranges from 135 to 220. Timber Lodge intends to increase
the size of the smaller restaurants to approximately 6,500 square feet so that
they will seat 210 to 240 customers.
These restaurants, which are relatively similar in size and format to
existing Timber Lodge restaurants, have been selected for acquisition based on:
1) the location of the restaurant relative to other steakhouse restaurants, 2)
demographics, parking, visibility and similar factors; 3) the expectation that
the restaurant can be readily converted to the Timber Lodge concept, 4) the
expectation that the converted restaurant will generate significantly higher
revenues as a Timber Lodge restaurant than as a JB's Restaurant. GB Foods, after
completion of the Merger with Timber Lodge, expects to convert five of the
restaurants to the Timber Lodge format in 1998 and the remaining eleven
restaurants within 24 months of the Merger.
Timber Lodge has applied for necessary permits and liquor licenses,
equipment vendors and construction contractors have been identified and floor
plans have been drawn related to three of the five restaurants expected to be
converted in 1998. It is anticipated that all Sixteen Restaurants will initially
be operated by Timber Lodge as JB's Restaurants or Galaxy Diners (as applicable)
until the conversion is completed and it is anticipated that all restaurants
will be converted in 18 - 24 months from closing of the Merger. The restaurants,
as modified, will have the look and feel of the current Timber Lodge Steakhouses
but conforming in part to the communities where they are located (for example,
stucco exteriors and less exterior wood). The Sixteen Restaurants are primarily
in suburban areas of large cities with the five initial restaurants being
located in suburbs of Salt Lake City and Phoenix. The restaurants will conform,
particularly as to the inside, to the Timber Lodge style (the "lodge effect")
but, again, with local modifications (trout instead of walleye, appropriate
animals for local hunting, etc.). Although preliminary preparatory work (as
noted above) has
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commenced, no conversions are likely to take place prior to completion of the
Merger. As the necessary permits and liquor licenses are obtained, each of the
restaurants will be promptly closed and its employees laid off with an
anticipation that the Timber Lodge Steakhouse would open approximately 60 - 90
days later. Initially, experienced managers from existing Timber Lodge
Steakhouse restaurants will be relocated to manage the new restaurants with
assistance from other local hirees (probably persons previously employed by the
Sixteen Restaurants). The locations where the Sixteen Restaurants are located
are of significant population and, hopefully, will not suffer significant
seasonality. However, there may be an increase in business in winter. Conversion
costs for the restaurants will likely be less than the conversion costs for
current Midwest restaurants, ranging from $750,000 to $875,000 per restaurant
($300,000 to $350,000 for remodeling, $375,000 to $425,000 for equipment, and
$75,000 to $100,000 for pre-opening costs, including smallwares). The total
expected cost to convert the sixteen restaurants to the Timber Lodge format is
estimated to be $12 million to $14 million.
Of the Sixteen Restaurants, JB Parent Corp.: owns one outright in fee;
leases the ground under three; and leases the ground and buildings for the
remaining twelve. The landlord for each of the fifteen leased locations will
have to consent before that location can be converted and/or sold to Timber
Lodge. As of the date of this booklet, JBRI has contacted most of the landlords
regarding their consent. JBRI has informed Timber Lodge that there is reason to
believe that landlord consents will be obtained in a timely basis.
At the Effective Time, CKE's 687,890 Timber Lodge shares will be converted
into 550,312 GB Foods shares at the same Exchange Ratio as applies to all other
Timber Lodge shares. If the Merger closes with the Exchange Ratio remaining at
0.8000, and if the JBRI Acquisition closes with its purchase price remaining at
1,000,000 GB Foods shares, then CKE will own 1,550,312 GB Foods shares after the
Merger.
THE FIDELITY WARRANTS EXERCISE
Section 8.1(d) of the Merger Agreement requires, as a condition to all
parties' obligations to consummate the Merger, that Fidelity exercise Warrants
for a cash purchase price of at least $5 million. Fidelity presently holds
Warrants to purchase 3,470,000 shares of GB Foods stock at prices ranging from
$5.00 to $7.50 per share; 1,470,000 of those Warrants are priced at $5.00. (See
"GB FOODS CORPORATION -- RECENT DEVELOPMENTS" at page 65 for a description of
Fidelity's Warrants.) Fidelity has agreed to do this. Although Fidelity may
exercise whichever Warrants it chooses, it could exercise $5 Warrants for
1,000,000 GB Foods shares; that action would satisfy this condition and yield
Fidelity the greatest number of shares possible for a $5 million capital
contribution to GB Foods. It is assumed throughout this booklet that Fidelity
will in fact exercise $5 Warrants for 1,000,000 GB Foods shares.
GB Foods intends to use the cash proceeds of the Fidelity Warrant Exercise
primarily to allow Timber Lodge, as its wholly-owned subsidiary after the
Merger, to begin converting and renovating the Sixteen Restaurants discussed in
the section of this booklet immediately preceding this one.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
Summary descriptions of certain material provisions of the Merger Agreement
are presented in the following paragraphs; summary descriptions of the remaining
material provisions appear above under the caption "THE MERGER" beginning on
page 42. A copy of the Merger Agreement (excluding schedules) is included in
this Joint Proxy Statement/Prospectus booklet as Annex A. The summary
descriptions in this section and under "THE MERGER" are summaries only and are
qualified in their entirety by reference to the full text of the Merger
Agreement.
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CERTAIN COVENANTS
CONDUCT OF BUSINESS BY TIMBER LODGE
In Section 5.1 of the Merger Agreement Timber Lodge has agreed that, among
other things, prior to the Effective Time, except as contemplated by the Merger
Agreement or otherwise approved by GB Foods, Timber Lodge will not:
(a) declare dividends, split or otherwise adjust its capital stock or take
certain other actions having a similar effect, or purchase its stock
or any options or warrants to acquire its stock;
(b) issue, sell, or encumber shares of its stock or any options or
warrants, other than the issuance of stock upon exercise of certain
stock options and warrants;
(c) amend its charter or bylaws;
(d) amend or waive any provision of any material contract;
(e) encumber, sell, or otherwise dispose of any material properties,
except in the ordinary course of business or pursuant to certain
pre-existing contracts;
(f) amend or waive any material term of any outstanding security of Timber
Lodge;
(g) become obligated with respect to any debt, subject to certain
exceptions;
(h) make or agree to make any new capital expenditures or asset
acquisitions in excess of $20,000 individually or $50,000 in the
aggregate;
(i) make any material tax election or take any material tax position, or
change its fiscal year or accounting methods, policies, or practices,
or settle any material income tax liability (with certain exceptions);
(j) enter into or commit to any lease, loan, advance or capital
contribution to or investment in any person other than in the ordinary
course of business consistent with past practices;
(k) pay or satisfy any claims or obligations (subject to certain
exceptions) or release or waive any material rights or claims or waive
certain benefits;
(l) except for 40,000 stock options granted to Timber Lodge's directors on
January 15, 1998, (i) grant to any current or former director, officer
or employee of Timber Lodge any increase in compensation or benefits,
except as to employees who are not officers or directors in the
ordinary course of business but only consistent with past practice and
except for any grant pursuant to any existing contract or agreement,
(ii) grant to any such director, officer, or employee any increase in
severance or termination pay (including the grant of, or acceleration
in the exercisability of, Timber Lodge stock options or warrants or in
the vesting of Timber Lodge shares or other property except for
automatic acceleration in accordance with the terms of Timber Lodge's
options, option plan, or warrants), or (iii) enter into any
employment, deferred compensation, severance or termination agreement
or arrangement with or for the benefit of any such current or former
director, officer, or employee;
(m) take (or commit to) any action that would make any of its
representations or warranties under the Merger Agreement materially
inaccurate, or omit (or commit to omit) to take any action necessary to
prevent any such material inaccuracy; or
(n) authorize or commit to any of the foregoing.
NO SOLICITATION OF ACQUISITION PROPOSALS
In Section 5.3 of the Merger Agreement Timber Lodge agrees that neither it
nor any of its officers or directors will solicit, negotiate, or enter into any
acquisition proposal (by which Timber Lodge, or a significant portion of its
assets or securities, would be sold or transferred). Timber Lodge's obligations
with respect to negotiating or entering into an acquisition proposal are subject
to the fiduciary duties of Timber Lodge's Board of Directors under Minnesota
law. Section 5.3 contains significant notice and other procedural requirements
in the event an acquisition proposal arises.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the parties. The representations or warranties made by Timber
Lodge, GB Foods, and Merger Sub will not survive the Effective Time, subject to
certain exceptions specified in Section 10.2 of the Merger Agreement.
INDEMNIFICATION
All rights to indemnification existing in favor of present or former
directors, officers, employees, fiduciaries and agents of Timber Lodge
respecting matters occurring prior to the Merger, whether provided in Timber
Lodge's charter or bylaws or in any standing resolutions, will continue in full
force and effect after the Merger.
CONDITIONS TO THE MERGER
The obligations of all parties under the Merger Agreement are subject to
the satisfaction (or mutual waiver) of the following conditions (as provided in
Section 8.1 of the Merger Agreement): (a) no applicable law, order, or other
legal restraint prohibits consummating the Merger; (b) the GB Foods common stock
to be issued to Timber Lodge shareholders has been filed for listing and
quotation on Nasdaq Small Cap Market; (c) Fidelity has exercised the Fidelity
Warrants and paid GB Foods at least $5 million in cash upon exercise thereof;
and (d) the parties have received from counsel to Timber Lodge an opinion that
the Merger constitutes a tax-free reorganization as to shares held by Timber
Lodge shareholders other than CKE.
The obligations of GB Foods and the Merger Sub to effect the Merger are
subject to the satisfaction or waiver by GB Foods of the following conditions
(as provided in Section 8.2 of the Merger Agreement): (a) no governmental entity
has taken any of various actions which (in GB Food's reasonable judgment) is
likely to have a material adverse effect with respect to Timber Lodge; (b)
Timber Lodge has performed in all material respects its agreements under the
Merger Agreement, its representations and warranties remain materially true as
of the Effective Time, and GB Foods has received an officer's certificate to
that effect; (c) no change or development has occurred or been threatened that
GB Foods reasonably judges has had or is likely to have a material adverse
effect with respect to Timber Lodge; (d) GB Foods has received certain
resolutions and certificates required by the Merger Agreement; (e) GB Foods'
shareholders have approved the Merger; (f) holders of no more than 4% of Timber
Lodge's outstanding stock exercise their statutory dissenters' rights; (g) GB
Foods has received a fairness opinion from Piper Jaffray, Inc.; (h) Timber Lodge
has completed the Timber Lodge/JB's Asset Purchase; (i) Timber Lodge has entered
into a new lease for its home office facilities on terms reasonably acceptable
to GB Foods; (j) Peter Bedzyk has entered into an employment agreement with
Timber Lodge reasonably satisfactory to GB Foods and Mr. Bedzyk; (k) nothing has
come to GB Foods' attention in the course of its due diligence investigation of
Timber Lodge which could reasonably be expected to have a material adverse
effect with respect to Timber Lodge; and (l) GB Foods has received an opinion of
counsel for Timber Lodge as specified in the Merger Agreement.
The obligation of Timber Lodge to effect the Merger is subject to the
satisfaction or waiver by Timber Lodge of the following conditions (as provided
in Section 8.3 of the Merger Agreement): (a) no governmental entity has taken
any of various actions which (in Timber Lodge's reasonable judgment) is likely
to have a material adverse effect with respect to GB Foods; (b) GB Foods and
Merger Sub have performed in all material respects their agreements under the
Merger Agreement, their representations and warranties remain materially true as
of the Effective Time, and Timber Lodge has received an officer's certificate to
that effect; (c) Timber Lodge's shareholders have approved the Merger; (d) no
change or development has occurred or been threatened that Timber Lodge
reasonably judges has had or is likely to have a material adverse effect with
respect to GB Foods; (e) Timber Lodge has received certain resolutions and
certificates required by the Merger Agreement; (f) Timber Lodge has received a
fairness opinion from Pauli & Company; and (g) Timber Lodge has received an
opinion of counsel for GB Foods as specified in the Merger Agreement.
For purposes of the Merger Agreement, to have a "material adverse effect"
with respect to either GB Foods or Timber Lodge means to (i) have a material
adverse effect on the value, condition (financial or otherwise), prospects,
business, insurability or results of operation of such company and its
subsidiaries (if
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any) as a whole, (ii) impair the ability of any party to the Merger Agreement to
perform its obligations under the Merger Agreement, or (iii) prevent or
materially delay consummation of any of the transactions contemplated by the
Merger Agreement.
Any condition to the Merger Agreement may be waived by any party who has
the right to insist on the satisfaction of that condition. Any decision to waive
any condition would be made by the chief executive officer and, ultimately, by
the Board of Directors, of the applicable party; shareholders normally would
have no right to approve a waiver. If the condition being waived were to be
material to the shareholders, however, shareholders would be solicited for
approval of such waiver. In particular, a material adverse change in the tax
consequences of the Merger to Timber Lodge shareholders could not be waived
without soliciting approval of that waiver.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, notwithstanding approval by the stockholders of Timber Lodge and GB Foods:
(a) by mutual written agreement of Timber Lodge and GB Foods; (b) by Timber
Lodge or GB Foods, if the shareholders of either company meet and do not approve
the Merger; (c) by GB Foods or Timber Lodge, if the Merger has not been
consummated by September 15, 1998 (provided that the party seeking termination
has not breached the Merger Agreement); (d) by GB Foods, if Timber Lodge
breaches the Merger Agreement or if a Timber Lodge representation or warranty
becomes untrue which, in either case, has or could reasonably be expected to
have a material adverse effect; (e) by GB Foods, if Timber Lodge's Board of
Directors withdraws or adversely modifies its approval of the Merger or Merger
Agreement, or resolves to take any such action; (f) by Timber Lodge, if GB Foods
or Merger Sub breach the Merger Agreement or if a GB Foods or Merger Sub
representation or warranty becomes untrue which, in either case, has or could
reasonably be expected to have a material adverse effect; (g) by Timber Lodge,
if its Board of Directors determines in good faith that another acquisition
proposal is more favorable to Timber Lodge's shareholders than the Merger and
that to continue to recommend the Merger to shareholders would violate the
Board's fiduciary duties; or (h) by either GB Foods or Timber Lodge, if the
ten-day average price of GB Foods stock used to determine whether to adjust the
Exchange Ratio is less than $7.50 per share, unless GB Foods duly elects to
adjust the Exchange Ratio (see "THE MERGER -- EXCHANGE RATIO" at page 52 for
further information).
In the event of termination of the Merger Agreement, the Merger Agreement
will become void and have no effect, except for the provisions relating to
expenses, the Break-Up Options and the confidential treatment of information
exchanged by GB Foods and Timber Lodge in contemplation of the Merger, without
any liability on the part of any party or their respective officers, directors
or shareholders.
FEES AND EXPENSES
Section 10.4(a) of the Merger Agreement generally provides that all costs
and expenses incurred in connection with the transactions contemplated by the
Merger Agreement will be paid by the party incurring such costs and expenses.
However, in the case of a willful breach of the Merger Agreement the
non-breaching party may recover actual expenses and damages.
BREAK-UP OF THE MERGER
If certain events occur (described below), Section 10.4(b) of the Merger
Agreement requires Timber Lodge to issue to GB Foods options (the "Break-Up
Options") to purchase a number of shares which shall constitute 19.9% of Timber
Lodge's voting common stock outstanding after such exercise at an exercise price
of $4.625 per share. The Break-Up Options are to be immediately exercisable,
have a term of ten years from issuance, be fully vested and non-forfeitable, be
transferable, provide customary piggy-back registration rights for underlying
stock, and are to contain certain anti-dilution provisions.
Timber Lodge is required to issue the Break-Up Options only if one of the
following events occurs:
(1) Before the Effective Time any person beneficially acquires a majority
of Timber Lodge's outstanding common shares and either Timber Lodge's
shareholders do not approve the Merger or Timber Lodge's Board of
Directors changes or withdraws its recommendations in favor of the
Merger or Merger Agreement; or
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(2) GB Foods or Merger Sub terminates the Merger Agreement because Timber
Lodge's Board of Directors withdraws or adversely modifies its approval
of the Merger or Merger Agreement, or resolves to take any such action;
or
(3) Timber Lodge terminates the Merger Agreement because Timber Lodge's
Board of Directors determines in good faith that another acquisition
proposal is more favorable to Timber Lodge's shareholders than the
Merger and that to continue to recommend the Merger to shareholders
would violate the Board's fiduciary duties.
AMENDMENT
Section 10.3 of the Merger Agreement provides that it may not be amended
except by action of the Board of Directors of each of the parties; provided,
however, after approval of the Merger by the stockholders of GB Foods and Timber
Lodge, no amendment may be made that alters or changes (a) the amount or kind of
consideration to be received by Timber Lodge shareholders, or (b) any of the
terms of the Merger Agreement which are material to the stockholders of Timber
Lodge (as a group) or GB Foods without the further approval of such
stockholders.
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GB FOODS CORPORATION
GB Foods is engaged primarily in the business of operating Mexican
quick-service restaurants under the trade name "The Green Burrito" in Southern
California and the sale and supervision of Green Burrito franchises. If the JBRI
Acquisition closes, GB Foods also will be engaged, through its subsidiary JBRI,
in the business of operating full-service casual dining family restaurants in
eight states in the western and southwestern U.S. primarily under the trade name
"JB's Restaurants" and the sale and supervision of JB's Restaurants franchisees.
As of December 31, 1997, there were 181 Green Burrito stores, including seven
company-owned and operated restaurants and 174 stores owned by franchisees or
third parties; of the 174 stores, 134 were dual-concept stores of which 115 were
dual concept with CKE's Carl's Jr. chain.
The principal executive offices of GB Foods are located at 1200 North
Harbor Blvd., Anaheim, California 92803, telephone (714) 491-6400.
DESCRIPTION OF BUSINESS
The Green Burrito business and related significant properties are described
in Part I of its annual report on Form 10-K/A for the fiscal year ended December
31, 1997, which is included in this Joint Proxy Statement/Prospectus booklet as
part of Annex E. The descriptions appear on pages E-2 through E-7 of that Annex.
FINANCIAL INFORMATION
Annex E to this booklet is a copy of GB Foods' Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1997 and a copy of its Quarterly Report
on Form 10-Q, for the quarterly period ended March 31, 1998 (excluding
exhibits), as filed with the Securities and Exchange Commission. These reports
include additional information concerning the business and the historical
financial condition of GB Foods. A tables of contents for Annex E appears as the
first page of Annex E.
RECENT DEVELOPMENTS
CHANGE IN CONTROL IN 1997
On July 22, 1997, Fidelity purchased 1,000,000 shares of common stock of GB
Foods from William M. Theisen ("Theisen"), for a purchase price of $5,000,000
cash. At that time, Theisen was GB Foods' Chief Executive Officer and principal
shareholder. Fidelity also purchased common stock purchase warrants ("Warrants")
from Theisen pursuant to which Fidelity acquired the right to purchase 2,500,000
shares of GB Foods' common stock of which 1,500,000 are immediately exercisable
at $5.00 per share (the "$5.00 Warrants") and 1,000,000 are immediately
exercisable at $7.00 per share (the "$7.00 Warrants"). The $5.00 Warrants were
purchased for $600,000 cash and expire November 23, 2002; the $7.00 Warrants
were purchased for $100,000 cash and expire May 1, 2005. At the time of this
purchase, Fidelity transferred 30,000 of the $5.00 Warrants to PCI as a fee in
connection with the purchase.
Mr. Theisen retained 269,826 shares and 500,000 of the $5.00 Warrants.
In a separate transaction, Fidelity also acquired 1,000,000 Warrants
exercisable at $7.50 per share (the "$7.50 Warrants") from McGrath, North,
Mullin & Kratz, P.C. The purchase price of the $7.50 Warrants was $100,000 cash.
The $7.50 Warrants expire May 1, 2005.
REDEMPTION OF STOCKHOLDER RIGHTS PLAN
As a condition to the Theisen-Fidelity agreement, the Board of Directors of
GB Foods redeemed GB Foods' Stockholder Rights Plan at a redemption price of
$.001 per share of common stock to which the rights were attached.
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CHANGE OF MANAGEMENT IN 1997
In connection with the agreement with Fidelity, Mr. Theisen resigned as
Chief Executive Officer and a Director of GB Foods, George J. Kubat resigned as
Chief Financial Officer and a Director, and Michael J. Scherr resigned as a
Director.
Filling the vacancies on GB Foods' Board of Directors were William P.
Foley, II, Frank P. Willey, and Andrew F. Puzder. Messrs. Foley, Willey, and
Puzder. They have been nominated by the GB Foods Board for election at the GB
Foods Meeting. See "PROPOSAL NO. 3 TO GB FOODS MEETING -- ELECTION OF DIRECTORS"
beginning on page 123.
On August 4, 1997, Mr. Foley was elected Chairman of the Board, Mr. Puzder
was elected Chief Executive Officer, Gary R. Nelson was elected Executive Vice
President, Chief Financial Officer and Chief Accounting Officer, and M'Liss
Jones Kane was elected Senior Vice President and Secretary of GB Foods. Mr.
Foley is Chairman of the Board, Mr. Puzder is Executive Vice President, Mr.
Nelson is Vice President and Ms. Kane is the Senior Vice President, General
Counsel and Secretary of Fidelity. Mr. Foley is Chairman of the Board and Mr.
Puzder is the Executive Vice President -- General Counsel of CKE Restaurants,
Inc.
On December 23, 1997, Carl A. Strunk was elected Executive Vice
President -- Finance of GB Foods. Mr. Strunk is Executive Vice
President -- Chief Financial Officer of CKE Restaurants, Inc. and Executive Vice
President -- Finance of Fidelity.
JBRI ACQUISITION FOR STOCK
GB Foods has agreed to acquire all of the capital stock of JBRI from a
subsidiary of CKE in exchange for 1,000,000 shares of GB Foods common stock
(subject to possible adjustment). Approval of the JBRI Acquisition is Proposal
No. 2 to be considered by the GB Foods shareholders. See "PROPOSAL NO. 2 TO GB
FOODS MEETING -- APPROVAL OF JBRI ACQUISITION" beginning at page 80.
NEW CHIEF FINANCIAL OFFICER
GB Foods announced on May 29, 1998 that Theodore Abajian had been hired as
Executive Vice President, Chief Financial Officer and Chief Accounting Officer.
Gary R. Nelson, GB Foods' previous Chief Financial Officer, will continue to
serve as Treasurer.
Mr. Abajian is 34 years old. Prior to joining GB Foods, Mr. Abajian served
as the Chief Financial Officer of Star Buffet, Inc. since its formation in July
1997. Mr. Abajian also served as a director of Stacey's Buffet, Inc. from
October 31, 1997 to February 4, 1998. Mr. Abajian has been the Vice President
and Controller of Summit Family Restaurants Inc. (the predecessor to JBRI) since
1994 and continues in that capacity with JBRI. From 1983 to 1994, he held
several positions with Family Restaurants, Inc., including Director of Financial
Analysis, Planning and Reporting for the family restaurant division, which
included approximately 350 Carrows and Coco's restaurants.
Mr. Abajian presently owns no shares of GB Foods' stock, but will be
eligible to receive stock options and has been promised, as part of his initial
compensation, that he will be granted options to purchase 50,000 GB Foods
shares. That grant is subject to shareholder approval of GB Foods' 1998 Stock
Option Plan and approval of the grant by that Plan's administrative committee.
See "PROPOSAL NO. 5 TO GB FOODS' MEETING -- APPROVAL OF GB FOODS CORPORATION
1998 STOCK OPTION PLAN" beginning at page 130.
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<PAGE> 79
TIMBER LODGE STEAKHOUSE, INC.
Timber Lodge owns and operates 17 Timber Lodge Steakhouse(TM) restaurants.
Since Timber Lodge's initial public offering of its common stock in December,
1993, Timber Lodge has expanded and continues to expand its steakhouse
restaurant concept.
The principal executive offices of Timber Lodge are located at 4021 Vernon
Avenue South, St. Louis Park, Minnesota 55416, telephone (612) 929-9353.
DESCRIPTION OF BUSINESS
Timber Lodge's business and significant properties are described in Part I
of its annual report on Form 10-KSB/A-2 for the fiscal year ended December 31,
1997, which is included in this Joint Proxy Statement/Prospectus booklet as part
of Annex F. The descriptions appear on pages F-2 through F-7 of that Annex.
ANNUAL AND QUARTERLY REPORTS
Annex F to this booklet is a copy of Timber Lodge's annual report on Form
10-KSB/A-2 for the year ended December 31, 1997 and a copy of its quarterly
report on Form 10-Q, for the quarterly period ended March 25, 1998, excluding
exhibits, as filed with the Securities and Exchange Commission. That Annex
includes additional information concerning the business and historical financial
condition of Timber Lodge. A table of contents for Annex F appears as the first
page of Annex F.
WHERE YOU CAN FIND MORE INFORMATION
GB Foods and Timber Lodge file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by GB Foods and Timber Lodge at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information regarding
the operation of the Public Reference Room. Recent SEC filings of GB Foods and
Timber Lodge also are available to the public from commercial document retrieval
services and, free of charge, at the internet web site maintained by the SEC at
"www.sec.gov."
GB Foods filed a Registration Statement on Form S-4 to register with the
SEC the GB Foods common stock to be issued to Timber Lodge shareholders in the
Merger. This Joint Proxy Statement/Prospectus booklet is a part of that
Registration Statement and constitutes a prospectus of GB Foods in addition to
being a proxy statement of GB Foods and Timber Lodge for the two Special
Meetings. As allowed by SEC rules, this Joint Proxy Statement/Prospectus booklet
does not contain all the information you can find in the Registration Statement
or the exhibits to the Registration Statement.
The SEC allows GB Foods and Timber Lodge to "incorporate by reference"
information into this booklet, which means that they can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be a part of
this booklet, except for any information superseded by information in this
booklet. This booklet incorporates by reference the documents set forth below
that GB Foods and Timber Lodge have previously filed with the SEC. In addition,
GB Foods' and Timber Lodge's Annual and Quarterly Reports (without exhibits) are
presented in this booklet in Annexes E and F. These documents contain important
information about GB Foods and Timber Lodge and their finances.
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<PAGE> 80
<TABLE>
<CAPTION>
GB FOODS SEC FILINGS
(FILE NO. 1-10576) PERIOD
-------------------- ------
<S> <C>
Annual Report on Form 10-K/A (and exhibits) Year ended December 31, 1997
Current Reports on Form 8-K (and any exhibits) February 19, 1998
Quarterly Report on Form 10-Q (and exhibits) Quarter ended March 31, 1998
The description of GB Foods common shares set forth in Filed August 20, 1990
the registration statement on Form 8-A
</TABLE>
<TABLE>
<CAPTION>
TIMBER LODGE SEC FILINGS
(FILE NO. 0-22786) PERIOD
------------------------ ------
<S> <C>
Annual Report on Form 10-KSB/A-2 (and exhibits) Year ended December 31, 1997
Quarterly Report on Form 10-QSB (and exhibits) Quarter ended March 25, 1998
</TABLE>
GB Foods and Timber Lodge are also incorporating by reference all the
documents that they file with the SEC under Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act between the date of this Joint Proxy Statement/Prospectus
booklet and the dates of the Special Meetings.
GB Foods has supplied all information contained or incorporated by
reference in this booklet relating to GB Foods, and Timber Lodge has supplied
all such information relating to Timber Lodge.
If you are a shareholder, GB Foods and Timber Lodge may have sent you some
of the documents incorporated by reference, but you can obtain any of them
through GB Foods, Timber Lodge or the SEC. Documents incorporated by reference
are available from GB Foods and Timber Lodge without charge. Exhibits to the
documents will not be sent, however, unless those exhibits are specifically
requested. Shareholders may obtain documents incorporated by reference in this
booklet by requesting them as described on page ii of this booklet under the
caption "AVAILABLE INFORMATION."
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS BOOKLET TO VOTE ON THE MERGER
PROPOSAL. GB FOODS AND TIMBER LODGE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS BOOKLET. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS BOOKLET IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE SET FORTH ON ITS FRONT COVER, AND NEITHER THE
MAILING OF THIS BOOKLET TO SHAREHOLDERS NOR THE ISSUANCE OF GB FOODS COMMON
SHARES IN THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
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<PAGE> 81
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
GB FOODS
MARKET INFORMATION
GB Foods' common stock trades publicly in the over-the-counter market on
the Nasdaq Small Cap Market, under the symbol GBFC. The following table sets
forth the high and low sale price of GB Foods' common stock as reported on
Nasdaq for the calendar periods indicated. The prices represent quotations
between dealers, without adjustment for retail mark-up, mark-down, or
commission, and do not necessarily represent actual transactions.
GB FOODS STOCK PRICE SUMMARY
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1996
First Quarter............................................. 10.63 6.88
Second Quarter............................................ 10.38 6.00
Third Quarter............................................. 8.50 5.75
Fourth Quarter............................................ 7.38 5.50
1997
First Quarter............................................. 8.13 6.38
Second Quarter............................................ 6.25 4.75
Third Quarter............................................. 14.38 4.88
Fourth Quarter............................................ 14.25 9.50
1998
First Quarter............................................. 10.94 6.88
Second Quarter............................................ 8.13 6.25
Third Quarter (through July 8, 1998)...................... 6.25 5.94
</TABLE>
HOLDERS
At the GB Food Record Date, GB Foods had approximately 199 stockholders of
record. However, GB Foods believes that the number of beneficial shareowners
exceeds 1,000 persons.
DIVIDENDS
GB Foods has not paid dividends on its common stock since its incorporation
and anticipates that, for the foreseeable future, earnings, if any, will
continue to be retained for use in its business.
RECENT STOCK SALES
GB Foods has not issued or sold any shares of common stock, securities
convertible into common stock, or stock options or warrants since the end of its
most recent fiscal year, other than the issuance of employee stock options and
the issuance of shares upon exercise of outstanding stock options and warrants.
TIMBER LODGE
MARKET INFORMATION
Timber Lodge common stock trades publicly in the over-the-counter market on
the Nasdaq Small Cap Market under the symbol TBRL. The following table sets
forth, for the calendar quarters indicated, the high and low closing bid prices
of Timber Lodge common stock as quoted on Nasdaq. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.
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<PAGE> 82
TIMBER LODGE STOCK PRICE SUMMARY
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1996 (FYE 1/1/97)
First Quarter............................................. 4.25 3.00
Second Quarter............................................ 4.38 3.38
Third Quarter............................................. 4.63 3.50
Fourth Quarter............................................ 4.50 3.38
1997 (FYE 12/31/97)
First Quarter............................................. 5.13 3.19
Second Quarter............................................ 4.25 3.50
Third Quarter............................................. 5.25 3.38
Fourth Quarter............................................ 7.63 4.25
1998
First Quarter (ended March 25, 1998)...................... 6.56 5.50
Second Quarter (ended June 17, 1998)...................... 6.00 4.50
Third Quarter (through July 7, 1998)...................... 5.13 4.50
</TABLE>
HOLDERS
At the Timber Lodge Record Date, Timber Lodge had approximately 88
stockholders of record. However, Timber Lodge estimates its actual number of
shareholders to be in excess of 1,300.
DIVIDENDS
Timber Lodge has never paid or declared cash dividends on its common stock
and, if the Merger does not close, does not intend to pay cash dividends on its
common stock in the foreseeable future. In such case Timber Lodge expects to
retain its earnings to finance the development and expansion of its business.
The payment by Timber Lodge of cash dividends, if any, on its common stock in
the future (assuming the Merger does not close) is subject to the discretion of
its Board of Directors and will depend on Timber Lodge's earnings, financial
condition, capital requirements, and other relevant factors.
RECENT STOCK SALES
Timber Lodge has not issued or sold any shares of common stock, securities
convertible into common stock, or stock options or warrants since the end of its
most recent fiscal year, other than the issuance of employee stock options and
the issuance of shares upon exercise of outstanding stock options and warrants.
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<PAGE> 83
MANAGEMENT AFTER THE MERGER
After the Merger, assuming the nominees identified in this booklet are
elected by the GB Foods shareholders at the GB Foods Meeting, GB Foods' Board of
Directors will consist of seven members: William P. Foley, II; Andrew F. Puzder;
T. Anthony Gregory; Bruce H. Haglund; Dermot F. Rowland; C. Thomas Thompson; and
Frank P. Willey .
After the Merger, the officers of GB Foods are expected to be: William P.
Foley, II, Chairman of the Board; Andrew F. Puzder, Chief Executive Officer;
Nicolas J. Caddeo, Chief Operating Officer; Carl A. Strunk, Executive Vice
President-Finance; Theodore Abajian, Executive Vice President, Chief Financial
Officer and Chief Accounting Officer; Gary R. Nelson, Treasurer; and M'Liss
Jones Kane, Senior Vice President and Secretary. In addition, it is a condition
to GB Foods' obligation to consummate the Merger that Peter S. Bedzyk enter into
an employment agreement with Timber Lodge on terms reasonably satisfactory to GB
Foods.
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF GB FOODS
The only persons known to GB Foods to be the beneficial owners of more than
5% of its voting securities as of December 31, 1997 are:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP OF CLASS(3)
---- ----------------------- -----------
<S> <C> <C>
Fidelity National Financial, Inc............................ 4,509,500(1) 42.1%
17911 Von Karman Avenue
Irvine, California 92614
William M. Theisen.......................................... 769,826(2) 7.2%
c/o Business Ventures
210 Regency Parkway Suite 13
Omaha, Nebraska 68114
</TABLE>
- ---------------
(1) Includes 1,470,000 shares underlying currently exercisable warrants priced
at $5.00 per share, 1,000,000 shares underlying currently exercisable
warrants priced at $7.00 per share, and 1,000,000 shares underlying
currently exercisable warrants priced at $7.50 per share.
(2) Includes 500,000 shares underlying currently exercisable warrants. Also
includes 107,286 shares held by Gemini Aviation and Marine Services, Inc.
which is a corporation owned by Mr. Theisen.
(3) The percentage is calculated based upon 6,571,485 outstanding shares of
common stock as of the close of business on December 31, 1997, plus the
exercise of all warrants held by the named shareholder.
The following table sets forth information concerning the beneficial
ownership of GB Foods' common stock as of December 31, 1997 for each director
and executive officer of GB Foods, and for all directors and executive officers
as a group. Except as otherwise noted, the individuals have sole voting and
investment power with respect to such securities. Included in the common stock
totals are numbers of shares which may be acquired on December 31, 1997 or
within 60 days after that date pursuant to exercisable employee stock options or
stock purchase warrants.
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<PAGE> 84
GB FOODS STOCK BENEFICIALLY OWNED BY MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP OF CLASS(2)
---- ----------------------- -----------
<S> <C> <C>
William P. Foley, II(1)...................... 18,000 0.2%
Andrew F. Puzder(2).......................... 0 *
Frank P. Willey(3)........................... 0 *
T. Anthony Gregory(4)........................ 127,661 1.2%
Bruce H. Haglund(5).......................... 115,794 1.1%
Nicolas J. Caddeo(6)......................... 28,200 0.3%
Gary R. Nelson(7)............................ 0 *
Carl A. Strunk(8)............................ 0 *
M'Liss Jones Kane(9)......................... 0 *
All directors and executive officers as a
group (9 persons)(10)...................... 289,655 2.6%
</TABLE>
- ---------------
* Person beneficially owns less than 0.1% of that class of GB Foods'
outstanding stock.
(1) Excludes 4,509,500 shares beneficially owned by Fidelity, of which Mr.
Foley is the Chairman of the Board, Chief Executive Officer, and a
substantial shareholder. Mr. Foley does not have or share voting or
investment power over the GB Foods' stock held by Fidelity within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934. Also
excludes 350,000 stock options which are not exercisable.
(2) Excludes 200,000 stock options which are not exercisable.
(3) Excludes 80,000 stock options which are not exercisable.
(4) Includes 74,194 stock options which are exercisable and excludes 30,000
unexercisable stock options.
(5) Includes 89,194 stock options which are exercisable and excludes 30,000
unexercisable stock options.
(6) Includes 7,500 exercisable stock options and excludes 25,000 unexercisable
stock options.
(7) Excludes 75,000 stock options which are not exercisable.
(8) Excludes 75,000 stock options which are not exercisable.
(9) Excludes 35,000 stock options which are not exercisable.
(10) Includes an aggregate of 170,888 exercisable stock options; excludes all
unexercisable stock options and shares beneficially owned by Fidelity.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF TIMBER LODGE
The only persons known to Timber Lodge to be the beneficial owners of more
than 5% of its voting securities as of December 31, 1997 are:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP OF CLASS(3)
---- ----------------------- -----------
<S> <C> <C>
Heartland Advisors, Inc...................... 506,000(1) 14.0%
790 North Milwaukee St.
Milwaukee, Wisconsin 53202
Dermot F. Rowland............................ 595,119(2) 16.1%
4021 Vernon Avenue South
St. Louis Park, Minnesota 55416
</TABLE>
- ---------------
(1) According to a report filed by Heartland Advisors, Inc. dated January 8,
1998, Heartland Advisors, Inc. has sole voting and investment power over
426,000 shares, and sole investment but no voting power over 80,000 shares.
(2) Includes options to purchase 61,667 shares and 6,250 shares owned by Mr.
Rowland's spouse.
(3) The percentage is calculated based upon 3,625,750 outstanding shares of
common stock as of the close of business on December 31, 1997.
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<PAGE> 85
In addition, if the Timber Lodge/JB's Purchase closes as expected,
immediately prior to the Effective Time CKE will own 687,890 newly-issued shares
of Timber Lodge common stock. Had such new shares been issued on December 31,
1997, CKE would have owned 15.9% of Timber Lodge's outstanding shares, Heartland
Advisors, Inc. would have owned 11.7%, and Mr. Rowland would have owned 13.8%.
The following table sets forth information concerning the beneficial
ownership of Timber Lodge common stock as of December 31, 1997 for each director
and executive officer of Timber Lodge, and for all directors and executive
officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP OF CLASS(1)
---- ----------------------- -----------
<S> <C> <C>
Dermot F. Rowland............................ 595,119(2) 16.1%
Laurence F. LeJeune.......................... 161,500(3) 4.4%
John P. Uphoff............................... 35,000(4) 1.0%
Peter S. Bedzyk.............................. 40,042(5) 1.1
William J. Birmingham........................ 1,667(6) *
All directors and executive officers
as a group (five persons).................. 870,802(7) 22.8%
</TABLE>
- ---------------
* Person beneficially owns less than 0.1% of that class of Timber Lodge's
outstanding stock.
(1) The percentages are calculated based on 3,625,750 shares outstanding as of
the close of business on December 31, 1997 and assumes in each case the
exercise of options held by such persons which are vested or which will vest
within 60 days of that date.
(2) Includes options to purchase 61,667 shares and 6,250 shares owned by Mr.
Rowland's spouse.
(3) Includes options to purchase 50,000 shares.
(4) Includes options to purchase 30,000 shares.
(5) Includes options to purchase 36,667 shares.
(6) Represents options to purchase 1,667 shares. As of April 1998, Mr.
Birmingham is no longer employed by Timber Lodge.
(7) Includes options to purchase 180,001 shares.
DESCRIPTION OF GB FOODS CAPITAL STOCK
GB Foods is authorized to issue only one class of capital stock: common
stock having a par value of $0.08 per share. GB Foods is authorized to issue
50,000,000 shares of its common stock.
MARKET FOR STOCK
GB Foods' common stock is traded on the Nasdaq Small Cap Market under the
symbol GBFC. The following firms currently make a market in GB Foods stock:
<TABLE>
<S> <C>
Everen Securities Schneider Securities
Pauli & Company Nash Wiess Securities
Dougherty Summit Koonce Securities
Securities Wedbush Morgan
Cruttendon Roth JP Turner & Company
Troster Singer
Herzog, Heine, Geduld
</TABLE>
TRANSFER AGENT
The transfer agent for GB Foods' Common Stock is American Securities
Transfer and Trust, Inc., whose offices are located at 938 Quail Street, Suite
101, Lakewood, Colorado 80215.
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<PAGE> 86
DIFFERENCES IN SHAREHOLDER RIGHTS
The legal rights of Timber Lodge shareholders are governed by the Minnesota
Business Corporation Act and Minnesota common law (collectively, "Minnesota
Corporate Law"), the Timber Lodge Articles of Incorporation (the "Timber Lodge
Charter"), and the Timber Lodge Bylaws. The legal rights of GB Foods
shareholders are governed by the Delaware General Corporation Law and Delaware
common law (collectively, "Delaware Corporate Law"), the GB Foods Certificate of
Incorporation (the "GB Foods Charter"), and the GB Foods Bylaws. Upon
consummation of the Merger, the rights of GB Foods shareholders, including
Timber Lodge shareholders who become GB Foods shareholders in the Merger, will
be governed by Delaware Corporate Law, the GB Foods Charter, and the GB Foods
Bylaws. The following is a summary of all material differences between the
current rights of Timber Lodge shareholders and their rights after becoming GB
Foods shareholders in the Merger.
The following discussions are summaries only and are qualified by reference
to all applicable laws, Charters, and Bylaws. Copies of the GB Foods Charter and
Bylaws have been given to Timber Lodge and may be obtained (for the cost of
copying) by calling Dermot F. Rowland, the Chief Executive Officer of Timber
Lodge, at (612) 929-9353.
AMENDMENTS TO THE CHARTER
Both Minnesota and Delaware Corporate Law require shareholder approval of
amendments to corporate charters. Minnesota Corporate Law requires the approving
vote of a majority of the shares voting at a meeting, while Delaware Corporate
Law requires the approving vote of the holders of a majority of all outstanding
shares.
AMENDMENTS TO THE BYLAWS
Minnesota Corporate Law allows shareholders to vote on bylaw amendments
only: (i) upon petition by shareholders representing three percent of corporate
ownership or (ii) if such amendments affect the quorum required for meetings of
shareholders, procedures for removal of directors or filling of vacancies on the
board, or fixing the number, term, qualifications or classes of directors
(except that shareholder approval is not required to increase the number of
directors). In such instances, amendments are adopted if approved by a majority
of the shares voting at such meeting. Otherwise, the Board of Directors has the
sole power to alter the bylaws of a Minnesota corporation.
Delaware Corporate Law grants shareholders the sole power to amend the
bylaws unless a corporation's charter grants concurrent power to the Board of
Directors. The GB Foods Charter grants its Board of Directors the concurrent
power to amend its Bylaws. The GB Foods Charter provides, however, that its
shareholders must approve any amendment to the Bylaws that classifies the GB
Foods Board. If a Bylaw Amendment were submitted to shareholders, it would be
adopted if approved by a majority of the shares present at the meeting.
CUMULATIVE VOTING FOR DIRECTORS
Although Minnesota Corporate Law allows cumulative voting for directors,
the Timber Lodge Charter expressly prohibits its use. The GB Foods Charter
authorizes cumulative voting for its directors. Cumulative voting allows
shareholders to cumulate their votes for one or more nominees for director. This
practice allows a block of minority shareholders of a certain minimum size to
theoretically ensure the election of at least one director; in contrast, without
cumulative voting any person or block able to vote over 50% of the shares could
elect the entire Board.
REMOVAL OF DIRECTORS
Minnesota Corporate Law provides that a director may be removed by the
other directors with or without cause, if the director was named by the board to
fill a vacancy, the shareholders have not subsequently elected directors and the
majority of the remaining directors present at a meeting affirmatively vote to
remove the
74
<PAGE> 87
director. Both Delaware Corporate Law and Minnesota Corporate Law allow the
shareholders to remove directors.
Both Minnesota and Delaware Corporate Law allow classified Boards of
Directors, but neither Timber Lodge nor GB Foods currently has a classified
Board. In the event that GB Foods later classifies its Board, Delaware Corporate
Law provides that shareholders could remove the directors only for cause;
Minnesota Corporate Law has no such limitation.
SHAREHOLDER MEETINGS
Timber Lodge shareholders may call a regular meeting by petition signed by
shareholders representing 3% of the Company's ownership if a regular meeting has
not been held during the immediately preceding fifteen months. The Chief
Executive Officer, the Chief Financial Officer, or two or more members of the
Board of Directors may call a special shareholders' meeting. Shareholders
representing 10% of Timber Lodge ownership may call a special shareholders'
meeting, except that if the purpose of the meeting is related to a business
combination (including an action to change the Board of Directors) such meeting
must be called by shareholders holding 25% of Timber Lodge common stock.
In contrast, any GB Foods stockholder or director may petition a court to
call an annual meeting of stockholders (if one is not duly called by the full
Board) by petitioning a court under Delaware Corporate Law. Only the GB Foods
Board of Directors or officers designated by the Board may call a special
stockholders meeting.
ACTIONS WITHOUT MEETING
Delaware Corporate Law allows shareholders to act without an actual meeting
by the written consent of a majority of the shareholders entitled to vote. Under
Minnesota Corporate Law, Timber Lodge shareholders can act by the unanimous
written consent of all shareholders entitled to vote, without calling or holding
a meeting.
SHAREHOLDER PROPOSALS
The GB Foods Bylaws contain a provision authorizing any stockholder to
propose resolutions for consideration at an annual stockholder meeting. The
Bylaws require shareholders wishing to propose resolutions to meet stringent
notice requirements. Neither Minnesota Corporate Law, the Timber Lodge Charter,
nor the Timber Lodge Bylaws contain any explicit provisions or notice
requirements for shareholder proposals at annual meetings, although both GB
Foods and Timber Lodge are subject to SEC rules regarding such proposals.
RECORD INSPECTION RIGHT
Timber Lodge shareholders have the legal right to examine a wide variety of
corporate books and records under Minnesota Corporate Law. Delaware Corporate
Law gives stockholders the right to inspect corporate records only upon a
showing of a proper purpose.
INDEMNIFICATION
Both Minnesota and Delaware Corporate Law authorize corporations to
indemnify directors, officers, employees, and other agents against liability
arising from actions taken in connection with the performance of their duties,
subject to certain exceptions for which no indemnity is permitted. Both Timber
Lodge and GB Foods have implemented, in their Bylaws and Charter (respectively),
this authority. Both companies' indemnity provisions are basically the same,
except that Timber Lodge requires indemnity only in the case of a director or
officer, while GB Foods' indemnity provisions also cover employees and other
agents.
Similarly, each company's Charter also provides, to the maximum extent
permitted by relevant state law, that directors shall have no personal liability
for their actions as directors. Delaware and Minnesota law are virtually
identical as to the extent to which they allow limitation of personal liability
for corporate directors.
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<PAGE> 88
GREENMAIL AND TAKEOVER PROVISIONS
Both Minnesota and Delaware have enacted legislation aimed at regulating
takeovers of certain corporations and protecting shareholders of such
corporations in connection with certain business combinations. Under Minnesota
Corporate Law, if a Minnesota corporation having at least 50 shareholders
(Timber Lodge does) has an "interested shareholder" (i.e., a beneficial holder
of at least 10% of the outstanding voting shares or an affiliate or associate of
the corporation who, within the preceding four years, was a 10% shareholder
regardless of such person's present shareholdings), the corporation is precluded
from entering into certain specified business combinations (including mergers
and sales of substantially all assets) with, or proposed by, or on behalf of,
the interested shareholder (or affiliated or associated persons) for at least
four years after the shareholder acquired its 10% interest. The four-year
restriction does not apply, however, if a committee of the board of directors
consisting of all of its disinterested directors (excluding current officers and
employees of the corporation and persons who were officers or employees of the
corporation or a related organization within the preceding five years) approves
the acquisition of the 10% interest or the business combination before the date
on which the shareholder acquires its 10% interest.
A Minnesota corporation having at least 50 shareholders is also subject to
the control share acquisition provisions of Minnesota Corporate Law which,
subject to certain exceptions, requires the approval of the holders of a
majority of all the corporation's voting shares held by disinterested
shareholders, before a person acquiring 20% or more of the corporation's shares
can vote the shares in excess of 20%. Similar shareholder approvals are required
at the 33 1/3% and majority thresholds.
Both of the foregoing provisions are not applicable to the proposed merger
of Timber Lodge and TLS Acquisition Corp. because after the Merger, all of the
shares of Timber Lodge will be held by GB Foods.
Minnesota Corporate Law also contains a "fair-price" provision, which
provides that an offeror may not acquire shares of a publicly-held Minnesota
corporation within two years following the offeror's last purchase of shares
pursuant to a takeover offer with respect to that class, unless the
shareholder-offeree is afforded at that time a reasonable opportunity to dispose
of the shares to the offeror upon terms substantially equivalent to those
provided in the earlier takeover offer. Share acquisitions covered by the fair
price provision of Minnesota Corporate Law include those made by purchase,
exchange, merger, consolidation, partial or complete liquidation, redemption,
reverse stock split, recapitalization, reorganization, or any other similar
transaction. Minnesota Corporate Law's fair price provision does not apply,
however, if the acquisition is approved by a committee of the board's
disinterested directors before the purchase of any shares by the offeror
pursuant to a takeover offer. Also, for purposes of the fair price provision,
certain transactions are expressly excluded from the definition of a "takeover
offer." Such exempted transactions include (i) repurchase offers by the
corporation, unless made in response to hostile takeover bids and (ii) tender
offers which, if consummated, including the offeror's other share acquisitions
within the preceding 12 months, would not result in the acquisition of more than
two percent of a class of stock.
Although Delaware has not enacted provisions similar to the control share
acquisition provisions or "anti-greenmail" provisions contained in Minnesota
Corporate Law, it has enacted provisions that limit certain business
combinations of Delaware corporations with interested stockholders. Under
Delaware Corporate Law, an interested stockholder (a stockholder whose
beneficial ownership in the corporation is at least 15% of the outstanding
voting securities rather than the 10% provided in Minnesota Corporate Law) is
precluded from entering into certain business combinations with the corporation
for a period of three years (rather than the four-year restriction provided in
Minnesota Corporate Law) following the date on which the stockholder became an
interested stockholder unless, among other exceptions, prior to such date the
board of directors (rather than the committee of disinterested directors as
provided in Minnesota Corporate Law) approves either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder. Unlike Minnesota Corporate Law, Delaware Corporate Law provides
that the business combination provisions have no effect if (i) the tender offer
or other transaction by which the stockholder beneficially owning at least 85
percent of the voting securities of the corporation (exclusive of shares owned
by directors who are also officers and shares owned by certain employee stock
option plans) or (ii) the business
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combination is approved by the board of directors and two-thirds of the shares
held by stockholders other than the interested stockholder.
Minnesota Corporate Law prohibits Timber Lodge's purchase of any shares
from a shareholder who has owned a beneficial interest in Timber Lodge for a
period of less than two years. Timber Lodge's stockholders may override this
provision by majority vote. The Timber Lodge Board may override this provision
by making the same share purchase offer to all shareholders. Neither the GB
Foods Bylaws, the GB Foods Charter, nor Delaware Corporate Law contain such a
prohibition.
Minnesota Corporate Law requires makers of hostile tender offers to solicit
proxies separately from making the offer. Moreover, Minnesota Corporate Law
allows proxies to remain effective for a maximum of eleven months, with certain
exceptions. By contrast, Delaware Corporate Law contains none of these
requirements, and allows proxies to remain effective for three years.
STOCK SPLITS AND REVERSE STOCK SPLITS
Minnesota Corporate Law requires Timber Lodge shareholders to approve stock
splits, reverse stock splits, or stock dividends that would adversely affect
their rights, or which would cause the percentage of the authorized shares of
any class or series of stock which are unissued to increase as a result of the
transaction.
Delaware Corporate Law contains no similar express statutory provision, but
under certain circumstances adversely affected shareholders could seek and
obtain relief by petitioning the Delaware Court of Chancery.
DISSOLUTION
Timber Lodge's shareholders may voluntarily dissolve the corporation by the
approving vote of the holders of a majority of the shares entitled to vote,
whether or not approved by the Board.
Delaware Corporate Law, however, allows the shareholders of GB Foods to
dissolve GB Foods without Board approval only upon unanimous vote of the
shareholders entitled to vote. If first approved by the Board, however,
dissolution need only be approved by the holders of a majority of the shares.
LEGAL DISTRIBUTIONS
Minnesota Corporate Law provides that a corporation may pay dividends if,
after the distribution, the corporation has the ability to pay its debts in the
normal course of business. Delaware Corporate Law provides that a corporation
may pay dividends out of its surplus; in the event that the corporation does not
have a surplus, it may pay dividends out of its net profits for that year.
ISSUANCE OF UNISSUED STOCK; EFFECT OF PAR VALUE
Minnesota Corporate Law expressly allows Timber Lodge to issue stock for
less than par value in certain circumstances. Delaware Corporate Law prohibits
GB Foods from issuing stock for less than par value.
DIRECTORS' TERMS
At present, both Timber Lodge and GB Foods directors are elected for
one-year terms. Either company could increase the length of directors' terms.
Minnesota Corporate Law prohibits Timber Lodge directors from serving fixed
terms of more than five years. The GB Foods Bylaws, the GB Foods Charter, and
Delaware Corporate Law do not contain such a prohibition.
POTENTIAL FOR STATE COURT-ORDERED REORGANIZATION
The GB Foods Charter provides a process for judicially supervised
reorganization as part of a settlement between GB Foods and its stockholders or
between GB Foods and its creditors. This process allows a creditor class
representing three-fourths of the value of GB Foods' outstanding debt or a
shareholder class representing three-fourths of GB Foods' ownership to agree to
a court-approved settlement that will bind all other creditors and/or
stockholders respectively.
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Neither Minnesota Corporate Law nor the Timber Lodge Charter contains a
similar provision. In certain circumstances, however, federal bankruptcy law may
operate similarly to protect current shareholders of Timber Lodge. Moreover,
both Delaware and Minnesota Corporate Law provide specific procedures for
judicial supervision of corporate dissolutions.
FEDERAL INCOME TAX CONSEQUENCES
Neither GB Foods nor Timber Lodge have sought or obtained any ruling from
the Internal Revenue Service (the "Service") regarding the tax consequences to
Timber Lodge shareholders of the Merger, and neither intends to obtain any such
ruling. However, Timber Lodge has obtained an opinion from Larkin, Hoffman, Daly
& Lindgren, Ltd. regarding tax consequences to Timber Lodge shareholders who
receive GB Foods common stock.
The following summarizes the principal federal income tax consequences of
the Merger to Timber Lodge shareholders (other than CKE) based on the opinion of
Larkin, Hoffman, Daly & Lindgren, Ltd. This summary addresses only persons who
hold Timber Lodge shares as a capital asset and does not cover special tax
situations which may be unique to a particular person. Each Timber Lodge
shareholder is urged to consult his or her own tax advisor regarding how the
Merger may affect his or her specific situation.
Provided the Merger is consummated in accordance with the terms and
conditions set forth in the Merger Agreement, and conditioned on the accuracy of
certain representations made by the managements of GB Foods, Merger Sub, and
Timber Lodge, the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and GB Foods, Timber Lodge, and Merger Sub each will be a party to that
reorganization.
The federal income tax consequences of the Merger to a Timber Lodge
shareholder depend upon whether Timber Lodge shares actually owned by such
shareholder are exchanged for GB Foods shares or for cash (upon the exercise of
dissenters' rights).
TAX CONSEQUENCES TO TIMBER LODGE SHAREHOLDERS RECEIVING GB FOODS COMMON STOCK
In connection with the Merger, a Timber Lodge shareholder who receives GB
Foods shares in exchange for the Timber Lodge shares actually owned by such
shareholder will not recognize any gain or loss upon such exchange except for
the gain or loss resulting from the receipt of cash in lieu of fractional GB
Foods shares as discussed below. The aggregate basis of the GB Foods shares
received will be the same as the aggregate basis of the Timber Lodge shares
surrendered in the Merger (less any basis allocable to a fraction of a GB Foods
share). The holding period of the GB Foods shares received by each shareholder
will include the holding period of the Timber Lodge shares surrendered by such
shareholder.
TAX CONSEQUENCES TO TIMBER LODGE SHAREHOLDERS RECEIVING CASH
Cash generally will not be paid to Timber Lodge shareholders under the
Merger Agreement, except in lieu of fractional GB Foods shares to which the
holder otherwise would be entitled. Cash would be paid to any Timber Lodge
shareholder who properly exercised his or her statutory dissenters' rights.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES
No fractional GB Foods shares will be issued. Any Timber Lodge shareholder
entitled to receive a fraction of a GB Foods share instead will receive cash
representing the value of that fractional share, based on the actual closing
price of GB Foods common stock on the closing date of the merger. A Timber Lodge
shareholder who receives cash in lieu of a fractional share will be treated as
having received cash in redemption of such fractional share and will recognize
capital gain or loss on the redemption.
CASH RECEIVED UPON EXERCISE OF DISSENTERS' RIGHTS
Any Timber Lodge shareholder who properly exercises his or her dissenters'
rights under Minnesota law will be entitled to receive a cash payment for the
value of his or her Timber Lodge shares, as described in "THE MERGER --
DISSENTERS' RIGHTS OF APPRAISAL" beginning on page 55.
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The receipt of cash by a Timber Lodge shareholder who exercises his or her
statutory dissenters' rights will be treated as a taxable distribution in
redemption of such shares surrendered and will result in capital gain or loss or
ordinary income in accordance with the provisions of Section 302 of the Code.
The opinion of Larkin, Hoffman, Daly & Lindgren, Ltd. does not address the tax
consequences to a Timber Lodge shareholder who exercises dissenters' rights.
Dissenters are advised to consult with their advisors in deciding whether to
exercise such rights.
TIMBER LODGE SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES TO THEM OF
THE MERGER.
CERTAIN TRANSACTIONS AND INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of Timber Lodge have certain interests in
the Merger that are in addition to their interests as shareholders of Timber
Lodge. The Timber Lodge Board was aware of those interests and considered them,
among other things, in approving the Merger.
GB FOODS BOARD
The Merger Agreement specifies that Dermot F. Rowland will be named to the
GB Foods Board of Directors following the Merger. Mr. Rowland presently is
Chairman of the Board, Chief Executive Officer, and Secretary of Timber Lodge.
EMPLOYMENT AGREEMENTS
Mr. Rowland has been offered an employment agreement by GB Foods. The
employment agreement provides that Mr. Rowland would be employed by Timber Lodge
(which then would be a subsidiary of GB Foods) as an Executive Vice President
for a term of three years commencing October 1, 1998; however, Mr. Rowland would
have the status of being semi-retired and his duties would be limited to
providing consultation and advice to Timber Lodge. (Mr. Rowland intends to work
on a full-time basis until October 1.) Mr. Rowland's base salary under the
employment agreement would be $36,000 per year, and he would be entitled to
participate in or receive all regular benefits, plans, and perquisites ("TLS
plans") maintained by Timber Lodge immediately prior to the Merger. If, after
the Merger, GB Foods consolidates any TLS plans into similar arrangements
maintained by GB Foods ("GBF plans"), then Mr. Rowland is to be credited for all
prior service with Timber Lodge, credited for any deductibles paid for the plan
year under the TLS plans, and not excluded from any GBF plan for any
pre-existing condition if he was entitled to coverage under the TLS plans
immediately before the Merger. Mr. Rowland also would be entitled to
reimbursement for reasonable business expenses. Mr. Rowland is permitted to
terminate the agreement at any time for any reason; Timber Lodge is permitted to
terminate it only for cause. The agreement offered to Mr. Rowland also contains
confidentiality and non-compete covenants which by their terms would apply
during employment and for a period of two years thereafter. The agreement also
provides that if, during the term of the agreement, Timber Lodge determines to
open Timber Lodge Steakhouse restaurants in Sarasota, Naples, or Fort Meyers,
Florida, then Timber Lodge will either (i) offer to Mr. Rowland the opportunity
to franchise the first three such restaurants to Mr. Rowland or (ii) enter into
a joint venture or similar arrangement with Mr. Rowland concerning such first
three restaurants, in either case on terms mutually agreed at that time. The
agreement provides for no special death benefit, and contains no provision for
any benefit contingent upon a change in control of GB Foods or Timber Lodge.
The Merger Agreement requires, as a condition to GB Foods' obligation to
consummate the Merger, that Peter S. Bedzyk enter into an employment agreement
with Timber Lodge. Mr. Bedzyk presently is a director of Timber Lodge and is its
President and Chief Operating Officer. Mr. Bedzyk presently has an agreement
with Timber Lodge which, if not superseded by a new employment agreement,
requires Timber Lodge to pay Mr. Bedzyk an amount equal to 24 months of his
then-current base pay plus 20% of that amount in the event of a change in
control of Timber Lodge, or if Timber Lodge terminates his employment without
cause, or if Mr. Bedzyk resigns for certain "good reasons." GB Foods believes
that consummation of the Merger would be a change in control of Timber Lodge
under Mr. Bedzyk's current agreement.
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Mr. Bedzyk and GB Foods have orally agreed that, at the closing of the
Merger, they will enter into an employment agreement which would supersede his
current agreement (and so would terminate that agreement's change in control
payment provisions). Under the proposed employment agreement Mr. Bedzyk would be
employed by Timber Lodge (which then would be a subsidiary of GB Foods) as an
Executive Vice President for a term of three years commencing at the closing of
the Merger. Mr. Bedzyk's base salary under the employment agreement would be
$115,000 per year, and he would be entitled to participate in or receive all
regular benefits, plans, and perquisites maintained by Timber Lodge or GB Foods
from time to time during the term. Mr. Bedzyk would be entitled to receive an
option to purchase 40,000 shares of GB Foods' stock at the closing market price
on the date the Merger closes, which will become exercisable in equal
installments on each of the first three anniversaries of the grant date. Other
stock options may be granted later in the discretion of GB Foods' Board. If GB
Foods ever adopts a bonus program, Mr. Bedzyk would be entitled to participate;
until then, any bonus Mr. Bedzyk receives would be in the discretion of the GB
Foods Board. Mr. Bedzyk also would be entitled to regular vacation time (for
employees of his level) and reimbursement for reasonable business expenses.
Timber Lodge would be permitted to terminate the agreement for cause. Either
party would be entitled to terminate the agreement at any time without cause;
however, if Timber Lodge terminates Mr. Bedzyk without cause he would be
entitled to receive his base salary for the remainder of the term (or in a lump
sum, discounted to its present value) and his stock options immediately will
become exercisable. If Mr. Bedzyk becomes disabled, Timber Lodge would be
entitled to terminate his employment and he would be entitled to receive his
base salary for the remainder of the term (or in a lump sum, discounted to its
present value). The proposed agreement also contains confidentiality and
non-compete covenants which by their terms would apply during employment and for
a period of two years thereafter. The agreement would provide for no special
death benefit, and would contain no provision for any benefit contingent upon a
change in control of GB Foods or Timber Lodge.
CONVERSION ARRANGEMENTS
JB Parent Corp. has begun the process of renovating and converting five of
the Sixteen Restaurants to the Timber Lodge Steakhouse restaurant format on a
preliminary, preparatory basis. JB Parent Corp. and Timber Lodge have agreed
that if the Timber Lodge/JB's Purchase fails to close, JB Parent Corp. will
operate such restaurants as Timber Lodge franchises. Timber Lodge has no
franchisees at present, and therefore has no standard franchise arrangement. For
that reason, the parties have not yet agreed to franchise terms and have no
plans to negotiate this matter unless it appears likely that the Sixteen
Restaurant transaction will fail to close. The Timber Lodge/JB's purchase would
not close if any of the conditions to its closing were not satisfied or waived.
The conditions to closing are described under the caption "THE TIMBER LODGE/JB's
PURCHASE" beginning on page 58.
TIMBER LODGE GROUND LEASE
The ground under an existing Timber Lodge restaurant became available for
purchase and GB Foods bought it. If the Merger fails to close, Timber Lodge and
Mr. Dermot F. Rowland (personally) have an option to purchase the ground and
building from GB Foods for the amount paid by GB Foods; if neither Timber Lodge
or Mr. Rowland elects to purchase the ground and building, GB Foods and Timber
Lodge have agreed to negotiate a mutually acceptable lease.
PROPOSAL NO. 2 TO GB FOODS MEETING -- APPROVAL OF JBRI ACQUISITION
OVERVIEW OF TRANSACTION
Item 2 on the GB Foods proxy form for the GB Foods Meeting is a proposal by
GB Foods to issue 1,000,000 shares of its authorized but unissued common stock
in exchange for all outstanding shares of the capital stock of JBRI pursuant to
an Agreement and Plan of Reorganization dated as of February 19, 1998 (as
amended and supplemented, the "JBRI Acquisition Agreement"). The JBRI
Acquisition Agreement is among GB Foods, CKE, JB Parent Corp. (a subsidiary of
CKE), and JBRI. As a result of this transaction (the "JBRI Acquisition"), JBRI
will become a wholly-owned subsidiary of GB Foods. JBRI presently is an indirect
wholly-owned subsidiary of CKE, and does not own the Sixteen Restaurants which
are the subject of the
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Timber Lodge/JB's Purchase discussed above. Moreover, the JBRI Acquisition is
independent of the Merger; either may close or fail to close without affecting
the other.
JBRI HISTORY AND OVERVIEW
As of the date of this Joint Proxy Statement/Prospectus booklet, JBRI owns
and operates 48 restaurant facilities under the trade name "JB's Restaurants" in
five western and southwestern states, including: Arizona (24), Idaho (6), New
Mexico (4), Utah (11) and Wyoming (3). In addition, JBRI has franchised 20 JB's
Restaurants in Arizona (5), Idaho (3), Montana (2), New Mexico (1), South Dakota
(2), Utah (3), Washington (1) and Wyoming (3). JBRI also owns and operates 4
Galaxy Diner restaurants in Utah.
JB's Restaurants are family style restaurants offering a variety of
breakfast, lunch, and dinner selections at moderate prices. The JB's soup and
salad bar features homestyle soups, salads, fresh fruits, and vegetables. The
restaurants also feature the JB's Bakery with a full line of freshly baked
products. Galaxy Diners also are full-service casual dining restaurants. Galaxy
Diners feature a 1960s diner motif and menu.
The business of JBRI formerly was owned and conducted by an independent
company named Summit Family Restaurants, Inc., whose origins date back to 1963.
In 1996, CKE acquired Summit in a merger transaction. Summit owned and operated
16 Hometown Buffet Restaurants in addition to the JB's and Galaxy businesses. In
September, 1997, CKE spun off Summit and the Hometown Buffet operations to a new
company, Star Buffet, Inc., through the sale of Summit's stock. The JB's and
Galaxy businesses were transferred to JBRI prior to the spinoff. As of January
26, 1998 (the close of JBRI's fiscal year 1998), JBRI owned 74 JB's Restaurants
and 6 Galaxy Diners, and also franchised an additional 20 JB's Restaurants. In
March, 1998, CKE initiated several transactions which collectively will have the
effect of CKE disposing of the JB's Restaurant and Galaxy Diner businesses,
while GB Foods and Timber Lodge acquire a large portion of such businesses:
(1) JBRI sold twelve JB's Restaurant facilities to Star Buffet, Inc. The
effects of this transaction on the historical financial statements of
JBRI are described at Note 16 to JBRI's financial statements beginning
at page 118. The sold restaurants will operate under the JB's name as a
franchisee of JBRI until they are converted to another concept. This
franchise arrangement will not be affected by the Merger or the JBRI
Acquisition. The twelve restaurants sold to Star Buffet, Inc. were
selected based on the following criteria: 1) each restaurant must be at
least 25 miles away from an existing HomeTown Buffet restaurant, 2)
each restaurant must meet Star Buffet's criteria for conversion to a
buffet restaurant, and 3) if the selection of a restaurant or
restaurants by Star Buffet in a given geographic area left one or more
restaurants that were geographically difficult for JBRI to supervise,
then Star Buffet was required to acquire those restaurants that would
have been difficult for JBRI to supervise (i.e., Star Buffet acquired
all of the Company-operated JB's Restaurants in the State of Montana).
(2) CKE organized a new subsidiary, JB Parent Corp., and transferred to it
all of JBRI's capital stock. Initially, JB Parent Corp. had no assets
other than the capital stock of JBRI.
(3) JBRI transferred the Sixteen Restaurants to JB Parent Corp. The effects
of this transaction on the historical financial statements of JBRI are
described at Note 16 to JBRI's financial statements beginning at page
117.
(4) CKE and JB Parent Corp. agreed to sell all of JBRI's capital stock to
GB Foods in the JBRI Acquisition transaction. JB Parent Corp. intends
to transfer the GB Foods stock it receives in the transaction to CKE
immediately upon closing the JBRI Acquisition by GB Foods.
(5) CKE agreed to sell all of JB Parent Corp.'s capital stock to Timber
Lodge in the Timber Lodge/JB's Purchase transaction, so that JB Parent
Corp. will become a wholly-owned subsidiary of Timber Lodge shortly
before the Merger closes. This transaction will not close until after
the transactions and transfer of GB Foods stock referred to in item (4)
are consummated. As a result, JB Parent Corp.'s sole assets when the
Timber Lodge/JB's Purchase closes will be the Sixteen Restaurants.
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The first three of these transactions already have closed. As a result:
JBRI presently owns 48 JB's Restaurants and 4 Galaxy Diners, and is the
franchisor of an additional 20 JB's Restaurants; JB Parent Corp. presently is
the owner of the Sixteen Restaurants and of JBRI's capital stock; and CKE
presently is the owner of JB Parent Corp.'s capital stock. If the last two
transactions also close, then, as a result: GB Foods will own JBRI's capital
stock; Timber Lodge will own JB Parent Corp.'s capital stock and JB Parent Corp.
will own only the Sixteen Restaurants; and CKE will own 1,000,000 new shares of
GB Foods (assuming no adjustment is made) and 687,890 new shares of Timber
Lodge. If the Merger also closes and the Exchange Ratio remains 0.8000, CKE's
687,890 Timber Lodge shares will be converted into 550,312 GB Foods shares. The
effects of these completed and proposed transactions are illustrated in the
diagrams set forth at pages 23 through 26.
Other potentially significant events have occurred since JBRI's last fiscal
year ended. JBRI and GB Foods are discussing with JB's franchisees possible
changes to JBRI's standard franchise agreement, including a possible reduction
in JBRI's royalty fee. These events are discussed beginning on page 94 under the
caption "JB's FAMILY RESTAURANTS, INC. -- RECENT DEVELOPMENTS."
JBRI's principal executive offices are at 440 Lawndale Drive, Salt Lake
City, Utah 94115-2917, and its telephone number there is (801) 463-5500.
BACKGROUND OF THE JBRI ACQUISITION
On January 16, 1998, the GB Foods Board of Directors approved the Merger.
The approval of the Merger and its related transactions represented a major
shift in GB Foods' focus from being simply a franchisor to becoming a
consolidator of various restaurant brand names and concepts. The Board of
Directors at this time asked management to seek out other possible restaurant
chains which might fit well with the combined GB Foods/Timber Lodge entity. In
addition, Board members began to discuss among themselves possible opportunities
for further acquisitions.
On February 12, 1998, CKE publicly announced its sale of 12 JB's
Restaurants to Star Buffet, Inc. That sale, coupled with the
previously-announced sale of the Sixteen Restaurants to Timber Lodge, left CKE
with a JBRI organization consisting of 52 company-owned restaurants and 20
franchised JB's Restaurants. CKE, since its merger with Summit in July 1996, has
consistently publicly disclosed its desire to sell or otherwise dispose of its
JB's and Galaxy Diner restaurants in order to concentrate on its Carl's Jr. and
other quick serve brands. CKE invested management and capital resources in JBRI
in order to improve the operating results of JBRI. The operating results of JBRI
have improved since the merger with CKE and CKE has continued to seek a buyer
for JBRI.
During February 1998, William Foley informally suggested to GB Foods' other
Board members that JBRI, which had experienced improved operating results since
the merger with CKE, might be a good strategic fit for GB Foods. (See "REASONS
FOR THE JBRI ACQUISITION AND BOARD RECOMMENDATION" at page 83 for a summary of
the Board's reasons for approving and recommending the JBRI Acquisition to GB
Foods' shareholders.) The Board members asked Andy Puzder to discuss with CKE
the possibility of an acquisition for GB Foods stock.
Mr. Puzder promptly initiated discussions with CKE personnel concerning the
financial and strategic aspects of a possible JBRI acquisition. The parties
discussed JBRI's financial information including its assets, liabilities,
revenues and expenses and the fact that, under CKE's control, JBRI had become
profitable. They also noted the benefits of diversifying GB Foods both as to
area and market segment which would accrue to GB Foods if it owned JBRI and
Timber Lodge and the further benefits of owning all of JBRI if the conversions
of JB's restaurants to Timber Lodge restaurants were successful. Finally, CKE
stated its interest in becoming a substantial GB Foods shareholder given the
growing GB Foods/CKE franchisee/franchisor relationship due to the expanding
number of Carl's Jr./Green Burrito dual concept restaurants.
As a result of these negotiations, on February 19, 1998, the JBRI
Acquisition Agreement was signed and on February 27, 1998 the GB Foods Board of
Directors approved the acquisition of JBRI for a purchase price of 1,000,000 new
shares of GB Foods stock. Thereafter, the GB Foods Board requested and received
an opinion from Piper Jaffray as to the fairness, from a financial point of
view, to GB Foods of the consideration
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proposed to be paid in the JBRI Acquisition, which was presented to the Board on
April 15, 1998, at which time the Board re-affirmed its approval of the JBRI
Acquisition.
In June, 1998, all parties agreed to extend the date by which the JBRI
Acquisition was required to close from June 30, 1998 to July 31, 1998. In July
1998, all parties agreed to extend the date again from July 31, 1998 to
September 15, 1998.
REASONS FOR THE JBRI ACQUISITION AND BOARD RECOMMENDATION
GB Foods believes that the acquisition of JBRI will greatly increase GB
Foods' asset and capital base, diversify GB Foods in terms of market segment and
geography, and eventually should result in some cost savings such as reduced
corporate overhead and operating efficiencies such as food and supplies
purchasing economies resulting from the increased size of the combined entity.
Saving costs, however, is not the primary reason for GB Foods' acquisition of
JBRI. Moreover, the Board believes that the addition of JBRI will complement the
Timber Lodge acquisition and further GB Foods' goals in that transaction.
Based upon these factors, the Board of Directors of GB Foods unanimously
approved the JBRI Acquisition Agreement. The Board believes the JBRI Acquisition
is in the best interests of, and is fair to, the shareholders of GB Foods.
Accordingly, the Board unanimously recommends that GB Foods' shareholders vote
FOR approval of the JBRI Acquisition (proposal 2 on GB Foods' proxy form).
REASONS FOR SEEKING SHAREHOLDER APPROVAL
GB Foods is seeking shareholder approval of the JBRI Acquisition for two
reasons. First, Nasdaq rules require it. Nasdaq rules apply to GB Foods because
its stock is quoted on the Nasdaq Small Cap Market. Second, the Board of
Directors believes that the JBRI Acquisition represents a major shift in the
business and operations of GB Foods and recognizes that three of its five
members (Messrs. Foley, Puzder, and Willey) also serve on the Board or are
executive officers of CKE (which owns JBRI). The two disinterested directors on
the GB Foods' Board were aware of the relationship between CKE and JBRI when the
GB Foods' Board first considered the acquisition of JBRI. The GB Foods' Board
would not have approved the JBRI Acquisition if its disinterested directors had
not approved it. The GB Foods' Board also (1) obtained an opinion, dated April
14, 1998, from a financial advisor stating that, as of such date, the
consideration proposed to be paid in the JBRI Acquisition was fair to GB Foods
from a financial point of view and (2) is seeking the aforementioned shareholder
approval. (See "CERTAIN TRANSACTIONS AND INTERESTS OF CERTAIN PERSONS IN JBRI
ACQUISITION" beginning at page 90 for additional information concerning this
matter.) Because of those factors the Board desires the approval of GB Foods'
shareholders. If the JBRI transaction is approved and closes and if later it
were challenged in court by a dissident GB Foods' shareholder, the GB Foods'
Board would vigorously defend the merits of the JBRI Acquisition and the Board's
approval of it; in addition, however, the Board could consider defending its
actions on other legal grounds, one of which could be that the GB Foods'
shareholders approved the Acquisition.
JBRI FINANCIAL INFORMATION
Financial statements and other historical financial information of JBRI are
set forth under the caption "JB's FAMILY RESTAURANTS, INC." beginning at page
91. The financial statements and other financial information relate to dates and
periods prior to fiscal 1999, and so do not take account of JBRI's disposition
in fiscal year 1999 of 12 JB's Restaurant facilities (mentioned above).
Moreover, the financial statements relating to dates and periods prior to fiscal
1997-1998 do not take account of the 1997 spin-off of the Hometown Buffet
Restaurants (mentioned above). Footnote 16 to the financial statements
(beginning on page 117) shows some of the effects of such transactions on a
historical basis.
The proforma financial information set forth under the caption "UNAUDITED
PROFORMA COMBINED CONDENSED FINANCIAL INFORMATION" beginning on page 15 reflects
the effects of JBRI's divestiture of 12 JB's Restaurants (mentioned above), the
JBRI Acquisition by GB Foods, the consummation of the Timber Lodge/JB's
Purchase, and the consummation of the Merger, all as if they had occurred on
December 31, 1997. In addition, proforma financial information is provided
showing the separate effects of the JBRI Acquisition, the Timber Lodge/JB's
Purchase, and the Merger.
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JBRI ACQUISITION AGREEMENT
A conformed copy of the JBRI Acquisition Agreement is set forth as Annex G
to this booklet. Summary descriptions of all material provisions of the
Agreement appear in the following paragraphs. The summary descriptions are
summaries only and are qualified in their entirety by reference to the full text
of the JBRI Acquisition Agreement.
BASIC EXCHANGE
GB Foods has agreed to issue 1,000,000 shares of its common stock in
exchange for all of the capital stock of JBRI. As mentioned above, at the
closing JBRI will own 48 JB's Restaurants and 4 Galaxy Diners, and will be the
franchisor of another 20 JB's Restaurants. The 1,000,000 share price is subject
to possible adjustment. Under Section 2.1 of the JBRI Acquisition Agreement, CKE
is required to deliver a closing balance sheet evidencing that the existing
shareholders' equity of JBRI as of the closing date is not less than $5,000,000.
If such shareholders' equity is less than $5,000,000, the parties have agreed to
negotiate an adjustment to the number of shares of GB Stock to be issued.
Representatives of CKE have informed GB Foods that, if shareholders' equity at
closing otherwise is expected to be less than $5,000,000, it is CKE's intention
to make up the difference by leaving cash in JBRI at closing, reducing
liabilities, or taking one or more other actions in order to avoid any
adjustment. If for any reason there were any material adjustment in the
1,000,000 purchase price after the GB Foods meeting, GB Foods' Board of
Directors would re-solicit the shareholders for approval of the new price.
The 1,000,000 GB Foods shares to be acquired by CKE will not be registered
with the SEC, and will not be legally marketable in the U.S. until they are
registered or qualify for an exemption from registration. A limited exemption
from registration may become available under the SEC's Rules 144 or 145 after
the first anniversary of the closing of the JBRI Acquisition, and a broader
exemption may become available after the second anniversary. The SEC's rules do
not prohibit CKE from selling its GB Foods shares in private transactions.
CONDUCT OF BUSINESS BY JBRI
In Section 4.1 of the JBRI Acquisition Agreement CKE has agreed that, among
other things, prior to the closing date, except as contemplated by the JBRI
Acquisition Agreement or otherwise approved by GB Foods, JBRI will not:
(a) declare dividends, split or otherwise adjust its capital stock or take
certain other actions having a similar effect, or purchase its stock or
any options or warrants to acquire its stock;
(b) issue, sell, or encumber shares of its stock or any options or
warrants, other than the issuance of stock upon exercise of certain
stock options and warrants;
(c) amend its charter or bylaws;
(d) amend or waive any provision of any material contract;
(e) encumber, sell, or otherwise dispose of any material properties, except
in the ordinary course of business or pursuant to certain pre-existing
contracts;
(f) amend or waive any material term of any outstanding security of JBRI;
(g) become obligated with respect to any debt, subject to certain
exceptions;
(h) make or agree to make any new capital expenditures or asset
acquisitions in excess of $10,000 individually or $50,000 in the
aggregate;
(i) make any material tax election or take any material tax position, or
change its fiscal year or accounting methods, policies, or practices,
or settle any material income tax liability (with certain exceptions);
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(j) enter into or commit to any lease, loan, advance or capital
contribution to or investment in any person other than in the ordinary
course of business consistent with past practices;
(k) pay or satisfy any claims or obligations (subject to certain
exceptions) or release or waive any material rights or claims or waive
certain benefits;
(l) grant any increase in compensation or benefits (subject to certain
exceptions), grant any increase in severance pay, or enter into any
employment, severance, or other arrangement with any current or former
director, officer, or employee;
(m) take (or commit to) any action that would make any of its
representations or warranties under the JBRI Acquisition Agreement
materially inaccurate, or omit (or commit to omit) to take any action
necessary to prevent any such material inaccuracy; or
(n) authorize or commit to any of the foregoing.
NO SOLICITATION OF ACQUISITION PROPOSALS
In Section 4.3 of the JBRI Acquisition Agreement CKE agrees that neither it
nor JBRI or any of their officers or directors will solicit, negotiate, or enter
into any acquisition proposal (by which JBRI, or a significant portion of its
assets or securities, would be sold or transferred). CKE's obligations with
respect to negotiating or entering into an acquisition proposal are subject to
the fiduciary duties of CKE's Board of Directors under Delaware law. Section 4.3
contains significant notice and other procedural requirements in the event an
acquisition proposal arises.
REPRESENTATIONS AND WARRANTIES
The JBRI Acquisition Agreement contains various customary representations
and warranties of the parties. The representations or warranties made by CKE, GB
Foods, and JBRI will survive until the first anniversary of the closing date,
subject to certain exceptions specified in Section 8.1 of the JBRI Acquisition
Agreement. Customary indemnification obligations by CKE and GB Foods of each
other are set forth in Sections 8.1, 8.2, and 8.3 of the JBRI Acquisition
Agreement.
CONDITIONS TO THE JBRI ACQUISITION
CKE is required in Section 2.1 of the JBRI Acquisition Agreement to deliver
to GB Foods at closing a balance sheet of JBRI showing that JBRI's shareholders
equity is at least $5 million. If such equity is less than $5 million, the
parties have agreed to mutually determine an adjustment to the number of GB
Foods shares to be issued to CKE. See "BASIC EXCHANGE" beginning at page 84 for
additional information concerning a possible adjustment.
The obligations of GB Foods to effect the JBRI Acquisition are subject to
the satisfaction or waiver of the following conditions (as provided in Section
7.1 of the JBRI Acquisition Agreement): (a) no governmental entity has taken any
of various actions which (in GB Food's reasonable judgment) is likely to have a
material adverse effect; (b) CKE has performed in all material respects its
agreements under the JBRI Acquisition Agreement and its representations and
warranties remain materially true as of the closing date; (c) no change or
development has occurred or been threatened that GB Foods reasonably judges has
had or is likely to have a material adverse effect; (d) GB Foods has received
certain resolutions and certificates required by the JBRI Acquisition Agreement;
and (e) nothing has come to GB Foods' attention in the course of its due
diligence investigation of JBRI which could reasonably be expected to have a
material adverse effect.
The obligation of CKE to effect the JBRI Acquisition is subject to the
satisfaction or waiver of the following conditions (as provided in Section 7.2
of the JBRI Acquisition Agreement): (a) no governmental entity has taken any of
various actions which (in CKE's reasonable judgment) is likely to have a
material adverse effect; (b) GB Foods has performed in all material respects its
agreements under the JBRI Acquisition Agreement and its representations and
warranties remain materially true as of the closing date; (c) no change or
development has occurred or been threatened that CKE reasonably judges has had
or is
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likely to have a material adverse effect; (d) CKE has received certain
resolutions and certificates required by the JBRI Acquisition Agreement; and (e)
CKE has received a fairness opinion from Sun Trust Equitable.
For purposes of the JBRI Agreement, to have a "material adverse effect"
with respect to either GB Foods or CKE means to (i) have a material adverse
effect on the value, condition (financial or otherwise), prospects, business,
insurability or results of operation of such company and its subsidiaries (if
any) as a whole, (ii) impair the ability of any party to the JBRI Agreement to
perform its obligations under the JBRI Agreement, or (iii) prevent or materially
delay consummation of any of the transactions contemplated by the JBRI
Agreement.
Any condition to the JBRI Agreement may be waived by any party who has the
right to insist on the satisfaction of that condition. Any decision to waive any
condition would be made by the chief executive officer and, ultimately, by the
Board of Directors, of the applicable party; shareholders normally would have no
right to approve a waiver.
TERMINATION
The JBRI Acquisition Agreement may be terminated at any time prior to the
closing date: (a) by mutual written agreement of CKE and GB Foods; (b) by GB
Foods or CKE, if the JBRI Acquisition has not been consummated by September 15,
1998 (provided that the party seeking termination has not breached the JBRI
Acquisition Agreement); (c) by GB Foods, if CKE breaches the JBRI Acquisition
Agreement or if a CKE representation or warranty becomes untrue which, in either
case, has or could reasonably be expected to have a material adverse effect; (d)
by CKE, if GB Foods breaches the JBRI Acquisition Agreement or if a GB Foods
representation or warranty becomes untrue which, in either case, has or could
reasonably be expected to have a material adverse effect; (e) by CKE, if its
Board of Directors determines in good faith that another acquisition proposal is
more favorable to CKE than the JBRI Acquisition and that to fail to accept the
other proposal would violate the Board's fiduciary duties, subject to certain
procedural requirements.
In the event of termination of the JBRI Acquisition Agreement, the JBRI
Acquisition Agreement will become void and have no effect, except for the
provisions relating to expenses and the confidential treatment of information
exchanged by GB Foods and CKE in contemplation of the JBRI Acquisition, without
any liability on the part of any party or their respective officers, directors
or shareholders.
FEES AND EXPENSES
Section 10.3 of the JBRI Acquisition Agreement generally provides that all
costs and expenses incurred in connection with the transactions contemplated by
the JBRI Acquisition Agreement will be paid by the party incurring such costs
and expenses. However, in the case of a willful breach of the JBRI Agreement,
the non-breaching party may recover actual expenses and damages.
AMENDMENT
Section 10.2 of the JBRI Acquisition Agreement provides that it may not be
amended except in writing.
ASSIGNMENT TO JB PARENT CORP.
JB Parent Corp. has acquired the capital stock of JBRI by consent of the
parties, and has assumed CKE's obligation under the JBRI Acquisition Agreement
to deliver JBRI's capital stock to GB Foods.
OPINION OF FINANCIAL ADVISOR
This section contains forward looking statements that involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward looking statements as a result of certain factors, including those
set forth in "RISK FACTORS" beginning on page 27 and elsewhere herein.
Piper Jaffray Inc. was retained by GB Foods to render an opinion to the GB
Foods Board of Directors concerning the fairness, from a financial point of
view, of the consideration to be paid in the JBRI Acquisition.
Piper Jaffray delivered to the GB Foods Board its written opinion, dated
April 14, 1998, to the effect that, as of the date of the written opinion, based
on and subject to the assumptions, factors and limitations set forth
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in the opinion and as described below, the consideration proposed to be paid in
the JBRI Acquisition was fair, from a financial point of view, to GB Foods. A
copy of the opinion letter dated April 14, 1998 from Piper Jaffray (the "Piper
Jaffray JBRI Opinion"), is attached as Annex H to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Shareholders are
urged to read the Piper Jaffray JBRI Opinion in its entirety.
Piper Jaffray was not requested and did not make any recommendation to the
GB Foods Board as to the form or amount of the consideration to be paid in the
JBRI Acquisition, which was determined through negotiations between the parties
to the JBRI Acquisition. The Piper Jaffray JBRI Opinion was rendered to the GB
Foods Board and does not constitute a recommendation to any shareholder of GB
Foods as to how such shareholder should vote at the Meeting. The Piper Jaffray
JBRI Opinion does not address GB Foods' underlying business decision to proceed
with or effect the JBRI Acquisition.
In arriving at the Piper Jaffray JBRI Opinion, Piper Jaffray undertook such
review, analyses and inquiries as it deemed necessary and appropriate under the
circumstances. Among other things, Piper Jaffray reviewed (i) a copy of the JBRI
Acquisition Agreement, the Merger Agreement (as amended and restated March 12,
1998) and the Summit/JB's Purchase Agreement, (ii) certain financial, operating
and business information related to JBRI, (iii) certain internal financial
information of JBRI on a stand-alone basis, and as adjusted on a pro forma basis
for the sale of the 12 JB's restaurants to Star Buffet, Inc. and transfer of the
Sixteen Restaurants to JB Parent Corp (collectively the "JBRI Dispositions"),
prepared for financial planning purposes and furnished by the management of CKE
and JBRI, (iv) to the extent publicly available, financial terms of certain
acquisition transactions involving companies operating in industries deemed
similar to that in which JBRI operates and selected public companies deemed
comparable to JBRI, (v) certain publicly available information relating to GB
Foods, (vi) certain internal financial information of GB Foods on a stand-alone
basis and as a combined company with JBRI, prepared by GB Foods management for
financial planning purposes and furnished by the management of GB Foods, and
(vii) certain publicly available market and securities data of GB Foods. Piper
Jaffray had discussions with members of the management of (a) GB Foods
concerning the financial condition, current operating results and business
outlook for both GB Foods and JBRI on a stand-alone basis and the combined
company resulting from the JBRI Acquisition and GB Food's plans relating to such
combined company and (b) CKE and JBRI concerning the financial condition,
current operating results and business outlook for JBRI and the combined company
resulting from the JBRI Acquisition.
In connection with the Piper Jaffray JBRI Opinion, Piper Jaffray prepared
and delivered to GB Foods' Board certain written materials containing various
analyses and other information as of the date of the Piper Jaffray JBRI Opinion
material to the Piper Jaffray JBRI Opinion. The following is a summary of these
written materials.
Market Analysis
Piper Jaffray reviewed general background information concerning GB Foods
and selected market trading data for GB Foods.
Implied Purchase Price
Based on the closing price of GB Foods on April 13, 1998 of $7.56, Piper
Jaffray calculated an implied aggregate equity value for JBRI of $7.6 million
and an aggregate company value (aggregate equity value plus debt less cash) for
JBRI of $13.2 million.
Dilution/Accretion Analysis
Piper Jaffray examined the hypothetical pro forma effect of the JBRI
Acquisition on GB Foods' earnings per share for the fiscal years ending 1998
through 2002, including certain synergies anticipated by GB Foods management.
This analysis indicated that the transaction would be accretive in the years
ending 1998 through 2000 (1998 -- 13.9%, 1999 -- 21.5% and 2000 -- 2.5%) and
slightly dilutive in the years ending 2001 and 2002 (2001 -- 1.2% and
2002 -- 6.0%). Estimated earnings for GB Foods and anticipated synergies
resulting from the JBRI Acquisition were based on internal financial planning
data furnished to Piper Jaffray by
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management of GB Foods. Estimated earnings for JBRI were based on internal
financial planning data furnished to Piper Jaffray by management of CKE and
JBRI.
Contribution Analysis
Piper Jaffray also analyzed the expected contributions of each of JBRI and
GB Foods to revenue, EBITDA, EBIT and net income of the combined company for
fiscal years ending 1998 through 2002 based on internal financial planning data
furnished by management of GB Foods, CKE and JBRI. The analysis indicated that
during these periods JBRI would contribute to the combined company revenues
ranging from 86% to 88.4%, EBITDA ranging from 51.6% to 62%, EBIT ranging from
19.9% to 25.6% and net income ranging from 20.1% to 35.7%. JBRI will account for
approximately 13.4% of the ownership of the combined company.
Multiples Paid Analysis
Piper Jaffray reviewed completed merger and acquisition transactions for
which information was publicly available, accounted for as a purchase, involving
targets which were stagnant or underperforming and otherwise deemed comparable
to JBRI, announced since January 1, 1992 and involving transaction values
greater than $10 million. The review produced 10 transactions deemed comparable
to the JBRI Acquisition. These are the same transactions identified under "The
Merger -- Opinions of Financial Advisors -- Opinion of GB Foods Financial
Advisor -- Multiples Paid Analysis." An analysis of the transactions produced
multiples of selected valuation data as follows: company value to LTM net sales
ranging from 0.3x to 1.2x, with a mean and a median of 0.7x and 0.6x,
respectively, and for JBRI of 0.3x; company value to LTM EBITDA ranging from
5.9x to 18.1x, with a mean and a median of 8.7x and 7.0x, respectively, and for
JBRI of 5.0x; company value to LTM EBIT ranging from 8.6x to 30.8x, with a mean
and median of 15.6x and 14.3x, respectively, and for JBRI was not meaningful;
equity value to LTM net income ranging from 14.2x to 30.1x, with a mean and a
median of 23.6x and 26.6x, respectively, and for JBRI was not meaningful.
Discounted Cash Flow Analysis
Piper Jaffray estimated the present value of the projected future cash
flows of JBRI on a stand-alone basis using internal financial planning data
furnished by CKE and JBRI management for the fiscal years 1999 through 2003.
Piper Jaffray applied a range of terminal value multiples of forecasted 2003
earnings before interest and taxes of 5.0x to 7.0x and a range of discount rates
of 14% to 18%. This analysis yielded a range of estimated present values of
aggregate equity of approximately $5.5 million to $10.8 million.
Comparable Public Company Analysis
Piper Jaffray compared certain financial information and valuation ratios
relating to GB Foods and JBRI to corresponding data and ratios from groups of
selected publicly traded companies deemed comparable to GB Foods and JBRI. For
information relative to GB Foods comparable company analysis, see "The
Merger -- Opinions of Financial Advisors -- Opinions of GB Foods' Financial
Advisor -- Comparable Public Company Analysis."
The comparable companies selected for comparison to JBRI included nine
publicly traded companies in the family dining restaurant business with revenues
between $56.0 and $1,232 million. These companies included Buffets Inc.,
Friendly Ice Cream Corp., IHOP Corp., Shoney's Inc., Picadilly Cafeterias Inc.,
Bob Evans Farms, Cracker Barrel, Star Buffet and Luby's Cafeterias Inc. This
analysis produced selected valuation data and multiples of selected valuation
data as follows: LTM operating margin ranging from 3.5% to 31.3%, with a mean
and median of 9.4% and 6.0%, respectively, and for JBRI of 0.2%; LTM net margin
ranging from 1.4% to 9.7%, with a mean and median of 5.4% and 4.3%,
respectively, and for JBRI was not meaningful; equity value to LTM earnings
ranging from 12.8x to 25.4x, with a mean and a median of 19.9x and 21.0x,
respectively, and for JBRI was not meaningful; company value (market
capitalization plus debt less cash) to LTM revenue ranging from 0.5x to 2.8x,
with a mean and a median of 1.2x and 1.1x, respectively, and JBRI of 0.3x;
company value to LTM EBITDA ranging from 5.3x to 16.4x, with a mean and a median
of 9.0x and 1.7x, respectively, and JBRI of 5.0x; and company value to operating
income ranging from 8.8x to 39.5x, with a mean and median of 15.8x and 13.1x,
respectively, and for JBRI was not meaningful. Company value and equity value
for JBRI was based on the implied purchase price.
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In reaching its conclusion as to the fairness of the consideration to be
paid in the JBRI Acquisition and in its presentation to GB Foods' Board, Piper
Jaffray did not rely on any single analysis or factor described above, assign
relative weights to the analyses or factors considered by it, or make any
conclusions as to how the results of any given analysis, taken alone, supported
the Piper Jaffray JBRI Opinion. The preparation of a fairness opinion is a
complex process and not necessarily susceptible to partial analyses or summary
description. Piper Jaffray believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all factors and analyses, would create a misleading
view of the processes underlying the Piper Jaffray JBRI Opinion. The analyses of
Piper Jaffray are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Analyses relating to the value of companies do not purport to be
appraisals or valuations or necessarily reflect the price at which companies may
actually be sold. No company or transaction used in any comparable analysis as a
comparison is identical to JBRI, GB Foods or the JBRI Acquisition. Accordingly,
an analysis of the results is not mathematical; rather, it involves complex
considerations and judgments concerning differences in the various
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies to which JBRI and GB Foods
were compared.
For purposes of the Piper Jaffray JBRI Opinion, Piper Jaffray relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information made available to it and did not assume responsibility independently
to verify such information. Piper Jaffray relied upon the assurances of the
respective managements of JBRI, GB Foods and CKE that the information provided
by GB Foods, JBRI and CKE had a reasonable basis and, with respect to financial
planning data and other business outlook information, reflected the best
available estimates, and that they are not aware of any information or fact that
would make the information provided to Piper Jaffray incomplete or misleading.
Financial planning data was prepared based on numerous variables and assumptions
that are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions, and actual results could vary
significantly from those set forth in such financial planning data. Piper
Jaffray has assumed no liability for such financial planning data. Upon the
advice of CKE, JBRI and GB Foods and their legal and accounting advisors, Piper
Jaffray assumed (i) the JBRI Acquisition would be treated as a "purchase" for
accounting purposes and (ii) the JBRI Acquisition would qualify as a
reorganization within the meaning of Section 368(a) of the Code.
In arriving at the Piper Jaffray JBRI Opinion, Piper Jaffray did not
perform and was not provided any appraisal or valuation of specific assets or
liabilities (contingent or otherwise) of GB Foods or JBRI and expressed no
opinion regarding the liquidation value of any entity. Piper Jaffray did not
make any physical inspection of the properties or assets of GB Foods or JBRI. No
other limitations were imposed by GB Foods on the scope of Piper Jaffray's
investigation or the procedures to be followed in rendering the Piper Jaffray
JBRI Opinion. Piper Jaffray expressed no opinion as to the price at which shares
of GB Foods common stock may trade at any future time. The Piper Jaffray JBRI
Opinion is based upon information available to Piper Jaffray and the facts and
circumstances as they existed and were subject to evaluation on the date of the
Piper Jaffray JBRI Opinion. Events occurring after such date could materially
affect the assumptions used in preparing the Piper Jaffray JBRI Opinion. Without
limiting the generality of the foregoing, any decrease in shareholders' equity
of JBRI below the amount set forth in Section 2.1 of the JBRI Acquisition
Agreement and corresponding adjustment in the number of GB Foods shares to be
issued to CKE, could materially affect the assumptions used in preparing the
Piper Jaffray JBRI Opinion.
In addition, in arriving at its opinion, Piper Jaffray assumed that, in the
course of obtaining the necessary regulatory approvals for the JBRI Acquisition,
no restrictions, including any divestiture requirements, would be imposed that
would have a material adverse effect on the contemplated benefits of the JBRI
Acquisition. Further, because the JBRI Acquisition was not conditioned on
consummation of the Merger and was anticipated to close prior to the Merger,
Piper Jaffray assumed with the consent of GB Foods, that the Merger would not
occur. For a description of the financial analyses used in evaluating the
combined effect of the Merger and the JBRI Acquisition on GB Foods, see "THE
MERGER -- OPINIONS OF FINANCIAL ADVISORS -- OPINION OF GB FOODS FINANCIAL
ADVISOR" beginning on page 43. Piper Jaffray also, with the consent of GB Foods,
assumed for purposes of the Piper Jaffray JBRI Opinion, that the JBRI
Acquisition would not result in any change of control of GB Foods under
applicable state corporate laws.
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Piper Jaffray, as a customary part of its investment banking business, is
engaged in the evaluation of businesses and other securities in connection with
mergers and acquisitions, underwritings and other distributions of securities,
private placements and evaluations for estate, corporate and other purposes. GB
Foods' Board selected Piper Jaffray because of its expertise, reputation and
familiarity with the restaurant industry in general. Piper Jaffray makes a
market in CKE's common stock. In the ordinary course of its market activities,
Piper Jaffray and its affiliates may, from time to time, have a long or short
position in and buy and sell CKE securities, which positions, on occasion, may
be material in size relative to the volume of trading activity.
For rendering its services to GB Foods' Board in connection with the JBRI
Acquisition, GB Foods paid Piper Jaffray a $50,000 non-refundable cash retainer
and $50,000 for rendering the Piper Jaffray JBRI Opinion upon delivery of the
Piper Jaffray JBRI Opinion, which fee was not contingent on consummation of the
JBRI Acquisition. Whether or not the JBRI Acquisition is consummated, GB Foods
has agreed to pay the reasonable out-of-pocket expenses of Piper Jaffray and to
indemnify Piper Jaffray against certain liabilities incurred (including
liabilities under the federal securities laws) in connection with the engagement
of Piper Jaffray by GB Foods. Piper Jaffray was also engaged to provide, and has
provided, its opinion as to fairness, from a financial point of view, of the
consideration to be paid by GB Foods in the Merger. See "THE MERGER -- OPINION
OF FINANCIAL ADVISORS -- OPINION OF GB FOODS FINANCIAL ADVISOR" beginning on
page 43.
ACCOUNTING TREATMENT
GB Foods intends to account for the JBRI Acquisition using the purchase
method. The proforma information presented at "UNAUDITED PROFORMA COMBINED
CONDENSED FINANCIAL INFORMATION" beginning on page 15 assumes that the purchase
method of accounting will be used. In connection with that method, GB Foods
expects to recognize goodwill as an intangible asset which it expects to
amortize over a period of 40 years. The amount of goodwill depends upon the
market value of the GB Foods shares issued in the JBRI Acquisition. See "TABULAR
GOODWILL ANALYSIS" on page 9 for additional information concerning goodwill. The
pro forma information beginning on page 15 assumes that total goodwill related
to the JBRI Acquisition will be approximately $3.6 million. That assumed
amortization would reduce GB Foods' reported earnings by about $91,175 per year
during the amortization period. The goodwill recognized would change if the
1,000,000 share purchase price were adjusted; the total goodwill in that case
would equal the number of shares actually paid multiplied by the market value of
those shares on the date the parties agree to the adjustment, less the fair
value of assets acquired.
FEDERAL INCOME TAX MATTERS
The federal income tax consequences to GB Foods of the JBRI Acquisition are
discussed under the caption "THE MERGER -- FEDERAL INCOME TAX MATTERS" beginning
on page 55.
REGULATORY MATTERS AND THIRD PARTY APPROVALS
It is not expected that GB Foods or CKE will be required to obtain the
approval of any regulatory agency, or of any lender or other party to a
contract, in order to consummate the JBRI Acquisition.
LITIGATION
GB Foods is not aware of any pending or threatened lawsuit or other legal
proceeding which seeks to block, enjoin, or otherwise materially and directly
affect the ability of GB Foods to proceed with the JBRI Acquisition.
CERTAIN TRANSACTIONS AND INTERESTS OF CERTAIN PERSONS IN JBRI ACQUISITION
Messrs. Foley, Puzder, and Willey are directors of GB Foods, Fidelity, and
CKE. (See "RELATIONSHIPS BETWEEN GB FOODS AND CKE AND CKE'S RELATIONSHIP WITH
STAR BUFFET, INC." at page 3 for additional information concerning the
relationships of CKE with GB Foods.) GB Foods' other two directors, Messrs.
Haglund and Gregory, are not affiliated with CKE or Fidelity. All five directors
of GB Foods approved the JBRI Acquisition. The Board appointed Andrew F. Puzder
to represent
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GB Foods' interests in negotiating the terms of the JBRI Acquisition with
William P. Foley of CKE. However, the Board reserved to itself the ability to
approve the final, negotiated terms of the JBRI Acquisition Agreement. The Board
evaluated all of the following factors in reaching its decision: the impact JBRI
would have on GB Foods financially; and, the "fit" with GB Foods if GB Foods
successfully acquires Timber Lodge, and if it does not, including (in either
case) the "fit" of JBRI with the restaurant consolidator that the Board intends
GB Foods to become. These factors are discussed in more detail under the caption
"REASONS FOR THE JBRI ACQUISITION AND BOARD RECOMMENDATION" beginning at page
83. Additionally, GB Foods' Board sought and obtained the Piper Jaffray JBRI
Opinion. The three members of GB Foods Board who also sit on CKE's Board favor
the final terms of the JBRI Acquisition because they strongly believe that GB
Foods needs to acquire companies like JBRI and can take advantage of CKE's
desire to dispose of JBRI. However, those three directors would not have
approved the JBRI Acquisition if the remaining two GB Foods directors had not
been equally enthusiastic about GB Foods' new goal to become a restaurant
consolidator and its proposed first steps to realize that goal (those steps
being the Merger and the JBRI Acquisition). In addition to taking the above
actions, the GB Foods' Board is seeking the approval of its stockholders. For
all of these reasons, the GB Foods Board believes it has fairly and objectively
evaluated the JBRI Acquisition and acted in the best interests of GB Foods and
all of its stockholders.
JB'S FAMILY RESTAURANTS, INC.
DESCRIPTION OF BUSINESS
JB's Family Restaurants, Inc. is incorporated in the state of Delaware. The
business and operations of JBRI have undergone several changes in ownership in
the past two years. On July 15, 1996 Summit Family Restaurants, Inc. ("Summit")
was acquired by CKE. Summit was the parent corporation of HTB Restaurants, Inc.
("HTB") which operated 16 HomeTown Buffet restaurants as a franchisee of
HomeTown Buffet, Inc. On September 22, 1997, Summit transferred selected assets
and liabilities which included its JB's Restaurant system and Galaxy Diner
restaurants to JBRI, which was then a newly formed subsidiary of CKE. Concurrent
with this transfer, CKE contributed all of the issued and outstanding shares of
capital stock of Summit in exchange for 2,600,000 shares of common stock of Star
Buffet, Inc. ("Star") and thereby transferred all of the net assets of HTB to
Star at its book value. Star was incorporated on July 28, 1997, and was a wholly
owned subsidiary of CKE from July 28, 1997 until the stock offering of Star was
completed on September 29, 1997. The transfer of assets to Star was made at net
book value which management believes approximates fair market value. The
transactions represented the reorganization of entities under common control.
Prior to July 15, 1996, Summit operated independently and was not under common
control or management of CKE.
As of January 26, 1998, JBRI operated 74 JB's Restaurants: 35 in Arizona,
seven in Idaho, four in Montana, seven in New Mexico, 17 in Utah, and four in
Wyoming and franchised 20 JB's Restaurants: five in Arizona, three in Idaho, two
in Montana, one in New Mexico, two in South Dakota, three in Utah, one in
Washington and three in Wyoming. JBRI also operates six Galaxy Diner
restaurants: four in Utah, one in Arizona and one in Idaho.
Since January 26, 1998, JBRI has divested itself of 26 restaurant
facilities. See "RECENT DEVELOPMENTS" beginning on page 94 for additional
information. As a result, JBRI currently owns and operates 48 JB's Restaurants
and four Galaxy Diner restaurants. JBRI has also franchised an additional 20
JB's Restaurants.
JB'S RESTAURANTS
Menu and Format
JB's Restaurants are family style restaurants offering a variety of
breakfast, lunch and dinner selections at moderate prices. Over the past year,
JBRI has focused on improving its price/value relationship by upgrading food
quality and emphasizing customer service. The JB's Restaurants soup and salad
bar features homestyle soups, salads, fresh fruits and vegetables. The
restaurants also feature the JB's Bakery with a full line of freshly baked
products.
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JBRI's JB's Restaurants range in size from 3,800 square feet to 6,500
square feet with an average of 4,875 square feet. Seating capacity for JBRI's
JB's Restaurants ranges from approximately 110 to 180. The JB's Restaurant decor
is designed to provide an appealing and relaxed atmosphere.
JBRI's JB's Restaurants are typically open 18 hours a day, seven days a
week. With the exception of the breakfast buffet and the soup and salad bar, all
entrees are cooked to order and served by waiters and waitresses with an average
check of approximately $5.80.
JBRI seeks to locate its JB's Restaurants in commercial districts adjacent
to middle and upper income residential areas. The restaurant buildings are
typically free standing and located on the corner of main arteries.
Operations
Each JB's Restaurant has a general manager who directs the restaurant's
daily operations and two assistant managers. To become a general manager, an
employee generally must complete JBRI's management training program and, unless
previously experienced as a full service restaurant general manager, serve as an
assistant manager for approximately one year. General managers are responsible
for hiring, providing ongoing staff training, and for the overall operation of
the restaurant. General and assistant managers participate in a performance
based incentive program in addition to a competitive base salary.
Franchising
JBRI predominantly has franchised JB's Restaurants which were previously
operated by JBRI in small isolated cities and in certain other strategically
advantageous situations.
The majority of JBRI's franchise agreements require the payment of an
initial franchise fee of $35,000 per restaurant and requires the payment of
continuing royalty fees of 4% of gross revenues. The 4% continuing royalty fee
rate could be renegotiated to a lower rate in the near future. See the
discussion beginning on page 94 under the caption "RECENT DEVELOPMENTS" for
additional information. Under JBRI's "Employee Ownership Program", which is
designed to offer management employees the opportunity to become franchisees,
individuals receive a credit against the initial franchise fee for one
franchised restaurant based on the number of years of service with JBRI. A
credit of $12,500 is given for 10-14 years of service, $18,750 for 15-19 years
of service and $25,000 for over 20 years of service.
GALAXY DINER
In fiscal year 1994, JBRI developed the Galaxy Diner concept intended to be
used as a conversion vehicle for underperforming JB's Restaurants. JBRI
converted its first underperforming JB's Restaurant to a Galaxy Diner in June
1994 and five additional conversions were completed in fiscal year 1995.
Presently, JBRI has no plans to convert additional JB's Restaurants to Galaxy
Diners.
Menu and Format
Galaxy Diner is a 1950's theme restaurant with 1950's decor, menu and
music. The menu covers all dayparts -- breakfast, lunch and dinner, plus special
menus have been devised for the soda fountain and a full kids menu on a separate
activity sheet. The Galaxy Diner restaurants have an average check of
approximately $6.00.
Operations
Each Galaxy Diner has a general manager who directs the restaurant's daily
operations and three managers or assistant managers. Managers are required to
attend formal training sessions in management and operations of the restaurant.
In addition, each restaurant manager is required to comply with an extensive
operations manual to assure uniformity of operations and consistent high quality
products. JBRI has a performance based incentive program covering all its
restaurant managers in addition to a competitive base salary.
PURCHASING
Purchasing for all of JBRI's restaurants is supervised by the Senior Vice
President, Operations. Two national food service distributors distribute
substantially all non-perishable items to JBRI's restaurants twice
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per week. Perishable items are generally purchased locally. JBRI believes that
there are other distributors who are able to service JBRI's needs and that
alternative sources of supply are generally available for all items regularly
used in the restaurants.
INFORMATION AND REPORTING SYSTEMS
Through the use of management information systems including a computerized
point of sale system in each unit, JBRI maintains centralized financial and
accounting controls for all of its restaurants. Weekly reports of individual
restaurant sales, labor costs, food costs and other expenses, together with
comparisons to preceding weeks, give management current indications of its
operations on a per-unit basis as well as on a company-wide basis. See also
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Year 2000" on page 99.
LICENSES, TRADEMARKS AND SERVICE MARKS
JBRI believes that its rights in its trademarks and service marks are
important to its marketing efforts and a valuable part of its business. JBRI
owns a number of trademarks and service marks that have been registered, or for
which applications are pending, with the United States Patent and Trademark
Office including, but not limited to, JB's, JB's Restaurants, JB's Bakery, JB's
is family, fast break breakfast, fast break, and Galaxy Diner. It is JBRI's
policy to pursue registration of its marks whenever possible and to vigorously
oppose any infringement of its marks.
SEASONALITY
JBRI's business is seasonal in nature with the spring and summer quarters
being the highest volume periods. JBRI's lowest volume periods typically occur
during the fall and winter quarters.
COMPETITION
The restaurant business is highly competitive with respect to price,
service, restaurant location and food quality and is often affected by changes
in consumer tastes, economic conditions, population and traffic patterns. JBRI
competes within each market with locally-owned restaurants as well as with
national and regional restaurant chains, many of which operate more restaurants
and have greater financial resources and longer operating histories than JBRI.
There is also active competition for management and hourly personnel, as well as
for attractive commercial real estate sites suitable for restaurants.
GOVERNMENTAL REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and building and zoning requirements. In addition, the Company is subject
to laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Many of the Company's employees are paid hourly rates based upon
the federal and state minimum wage laws. Recent legislation increasing the
minimum wage has resulted in higher labor costs to the Company. An increase in
the minimum wage rate, employee benefit costs or other costs associated with
employees, could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of January 26, 1998 JBRI employed approximately 2,560 persons, of whom
approximately 30 were corporate personnel. All other employees are involved
directly in the operation of JBRI's restaurants. JBRI considers its employee
relations to be good and believes that its employee turnover rate is consistent
with the industry average. Most employees, other than restaurant management and
corporate personnel, are paid on an hourly basis. JBRI believes that it provides
working conditions and wages that are comparable with those of its competition.
JBRI's employees are not covered by a collective bargaining agreement.
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RECENT DEVELOPMENTS
RESTRUCTURING EVENTS
Since the end of JBRI's fiscal year, JBRI has entered into several
agreements which have transferred the ownership of a substantial number of
restaurants to other entities. In addition, JBRI has entered into an agreement
to sell the outstanding shares of JBRI to GB Foods Corporation. These
transactions are discussed at pages 82 and 83 under the heading "JBRI HISTORY
AND OVERVIEW"; additional related financial information is set forth in "Notes
to Financial Statements -- Note 16 -- Subsequent Events" beginning on page 117.
NEGOTIATIONS WITH FRANCHISEES
In late April, 1998, JBRI's franchisees began discussions with JBRI
regarding certain disagreements they have with JBRI and changes they want made
in their franchise relationship and agreements. At the heart of the disagreement
is the franchisees' assertion that their franchises have become less valuable in
recent years for several reasons, including the reduction in restaurants
operated as JB's and related reduction in advertising and promotion; therefore,
the franchisees have asked JBRI to decrease its basic royalty rate. As a result
of the discussions, JBRI (with GB Foods' consent) has offered JBRI's franchisees
a new franchise agreement which, among other things, provides for a reduction in
JBRI's basic royalty rate from 4% to 3.25%. That offer has not yet been accepted
and negotiations are continuing. JBRI and GB Foods hope that JBRI will be able
to resolve this matter in the third quarter of the current fiscal year; however,
JBRI and GB Foods are not able to predict the outcome of these negotiations
which, if not successfully concluded, could result in litigation with the
franchisees.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The business and operations of JBRI have undergone several changes in
ownership in the past two years. On July 15, 1996 Summit was acquired by CKE.
Summit was the parent corporation of HTB which operated 16 HomeTown Buffet
restaurants as a franchise of Hometown Buffet, Inc. On September 22, 1997,
Summit transferred selected assets and liabilities which included its JB's
Restaurant system and Galaxy Diner restaurants to JBRI, which then was a newly
formed subsidiary of CKE. Concurrent with this transfer, CKE contributed all of
the issued and outstanding shares of capital stock of Summit in exchange for
2,600,000 shares of common stock of Star and thereby transferred all of the net
assets of HTB to Star at its book value for $8,507,000. Star was incorporated on
July 28, 1997, and was a wholly owned subsidiary of CKE from July 28, 1997 until
the stock offering of Star was completed on September 29, 1997. The transfer of
assets to Star was made at net book value which management believes approximates
fair market value. The transactions represented the reorganization of entities
under common control.
Because of these changes in ownership, JBRI is referred to as follows:
"Summit predecessor" means Summit for all periods prior to July 16,
1996.
"CKE predecessor" means Summit (as a subsidiary of CKE) for the period
July 16, 1996 through September 22, 1997.
"Successor" means JBRI (as a subsidiary of CKE) for all periods from
and after September 23, 1997.
COMPONENTS OF INCOME FROM OPERATIONS
Total revenues include a combination of food and beverage sales, net of
applicable state and city sales taxes and royalties and rental payments from
franchisees.
Food and packaging costs primarily consist of the costs of food and
beverage items. Various factors beyond the Company's control, including adverse
weather and natural disasters, may affect food costs. Accordingly, the Company
may incur periodic fluctuations in food costs. Generally, these temporary
increases are absorbed by the Company and not passed on to customers; however,
management may adjust menu prices to compensate for increased costs of a more
permanent nature.
Payroll and other employee benefits costs include restaurant management
salaries, bonuses, hourly wages for unit level employees, various health, life
and dental insurance programs, vacations and sick pay and payroll taxes.
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RESULTS OF OPERATIONS
The following table summarizes results of operations as a percentage of
total revenues for the 16 weeks ended May 18, 1998, the 16 weeks ended May 19,
1997, the 18 weeks ended January 26, 1998, the 34 weeks ended September 22,
1997, the 28 weeks ended January 27, 1997, the 42 weeks ended July 15, 1996 and
the 52 weeks ended September 25, 1995 ("Fiscal 1995").
<TABLE>
<CAPTION>
CKE
SUCCESSOR PREDECESSOR SUCCESSOR CKE PREDECESSOR SUMMIT PREDECESSOR
--------- ----------- ------------ ----------------------------- --------------------------
16 WEEKS 16 WEEKS 18 WEEKS 34 WEEKS 28 WEEKS 42 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 18, MAY 19, JANUARY 26, SEPTEMBER 22, JANUARY 27, JULY 15, SEPTEMBER 25,
1998 1997 1998 1997 1997 1996 1995
--------- ----------- ------------ -------------- ------------ --------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- ----- -----
Operating costs and
expenses:
Restaurant operations:
Food and packaging...... 31.9 33.6 32.0 33.4 33.8 34.0 34.3
Payroll and other
employee benefits..... 36.0 33.9 39.6 34.6 35.4 34.9 35.0
Occupancy and other
operating expenses.... 21.7 22.2 23.6 22.9 24.2 22.6 23.8
----- ----- ----- ----- ----- ----- -----
89.6 89.7 95.2 90.9 93.4 91.5 93.1
Franchised and licensed
restaurants............... 0.9 0.6 1.0 0.6 0.8 1.2 0.9
Advertising expenses........ 2.9 1.7 -- 1.5 1.2 1.7 2.7
General and administrative
expenses.................. 4.8 3.5 4.6 4.0 4.2 9.9 7.5
----- ----- ----- ----- ----- ----- -----
Total operating
costs and
expenses.......... 98.2 95.5 100.8 97.0 99.6 104.3 104.2
----- ----- ----- ----- ----- ----- -----
Operating income (loss)..... 1.8 4.5 (0.8) 3.0 0.4 (4.3) (4.2)
Interest expense............ (0.9) (0.7) (1.0) (1.0) (0.8) (1.0) (1.2)
Other income, net........... 0.4 0.3 0.5 0.3 0.5 4.5 0.4
Income (loss) before income
taxes..................... 1.3 4.1 (1.3) 2.3 0.1 (0.8) (5.0)
Income tax expense
(benefit)................. 0.5 1.6 0.8 -- 1.0 (0.8)
----- ----- ----- ----- ----- ----- -----
0.1%
Net income (loss)........... 0.8% 2.5% (0.8)% 1.5% - - (1.8)% (4.2)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
The following table indicates the number of restaurants in operation at the
end of each period.
<TABLE>
<CAPTION>
CKE
SUCCESSOR PREDECESSOR SUCCESSOR CKE PREDECESSOR SUMMIT PREDECESSOR
--------- ----------- ------------ ----------------------------- --------------------------
16 WEEKS 16 WEEKS 18 WEEKS 34 WEEKS 28 WEEKS 42 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 18, MAY 19, JANUARY 26, SEPTEMBER 22, JANUARY 27, JULY 15, SEPTEMBER 25,
1998 1997 1998 1997 1997 1996 1995
--------- ----------- ------------ -------------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
JB's Restaurants............ 62 74 74 75 73 77 80
Galaxy Diner................ 6 6 6 6 6 6 6
HomeTown Buffet............. -- 16 -- 16 16 16 16
Franchised JB's
Restaurants............... 20 21 20 20 22 24 24
----- ----- ----- ----- ----- ----- -----
117 --
Total............... 88 117 100 117 ---- 123 126
===== ===== ===== ===== ===== ===== =====
</TABLE>
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COMPARISON OF SIXTEEN WEEKS ENDED MAY 18, 1998 TO SIXTEEN WEEKS ENDED MAY 19,
1997
Due to the transfer of the net assets of HTB to Star on September 22, 1997,
the comparison of these periods may not be meaningful or indicative of future
results.
Total revenues decreased from $35.9 million in the sixteen weeks ended May
19, 1997 to $20.5 million in the sixteen weeks ended May 18, 1998. The $15.4
million or 42.9% decrease in revenues was primarily attributable to the sale of
sixteen HomeTown Buffet restaurants on September 22, 1997 ($13.1 million) and a
11.6% decrease in restaurant operating weeks during the period ended May 18,
1998.
Food costs as a percentage of total revenues decreased from 33.6% in the
sixteen weeks ended May 19, 1997 to 31.9% in the sixteen weeks ended May 18,
1998. The decline in food cost as a percent of total revenues was attributable
to the sale of sixteen HomeTown Buffet restaurants on September 22, 1997, which
operate with a higher food cost than the JB's restaurants.
Payroll and other costs as a percentage of total revenues increased from
33.9% in the sixteen weeks ended May 19, 1997 to 36.0% in the sixteen weeks
ended May 18, 1998. The increase in payroll and other costs as a percent of
total revenues was attributable to the sale of sixteen HomeTown Buffet
restaurants on September 22, 1997, which, operate with a lower payroll cost than
the JB's restaurants.
Occupancy and other operating costs as a percentage of total revenues
decreased from 22.2% in the sixteen weeks ended May 19, 1997 to 21.7% in the
sixteen weeks ended May 18, 1998. The decrease in occupancy and other costs as a
percent of total revenues was attributable to the sale of sixteen HomeTown
Buffet restaurants, which, operate with a lower occupancy cost than the JB's
restaurants.
Advertising costs as a percentage of total revenues increased from 1.7% in
the sixteen weeks ended May 19, 1997 to 2.9% in the sixteen weeks ended May 18,
1998. The increase in advertising costs as a percent of total revenues resulted
from an overall increase in the amount of television advertising purchased
during the sixteen weeks ended May 18, 1998 as compared to the sixteen weeks
ended May 19, 1997.
General and administrative costs as a percentage of total revenues
increased from 3.5% in the sixteen weeks ended May 19, 1997 to 4.8% in the
sixteen weeks ended May 18, 1998. The increase in general and administrative
costs as a percent of total revenues was primarily attributable to the decrease
in revenues resulting from the sale of sixteen HomeTown Buffet restaurants on
September 22, 1997.
COMPARISON OF EIGHTEEN WEEKS ENDED JANUARY 26, 1998 TO THIRTY-FOUR WEEKS ENDED
SEPTEMBER 22, 1997 AND THIRTY-FOUR WEEKS ENDED SEPTEMBER 22 TO THE TWENTY-EIGHT
WEEKS ENDED JANUARY 27, 1997.
Food costs as a percentage of total revenues decreased from 33.4% in the
thirty-four weeks ended September 22, 1997 to 32.0% in the eighteen weeks ended
January 26, 1998. The decline in food cost as a percent of total revenues was
attributable to the sale of sixteen HomeTown Buffet restaurants on September 22,
1997, which operate with a higher food cost than the JB's restaurants. Food cost
as a percent of total revenues decreased from 33.8% in the twenty-eight weeks
ended January 27, 1997 to 33.4% in the thirty-four weeks ended September 22,
1997. The decrease in food cost as a percent of total revenues was attributable
to an overall decrease in food cost in the Hometown Buffet restaurants.
Payroll and other costs as a percentage of total revenues increased from
34.6% in the thirty-four weeks ended September 22, 1997 to 39.6% in the eighteen
weeks ended January 26, 1998. The increase in payroll and other costs as a
percent of total revenues was attributable to the sale of sixteen HomeTown
Buffet restaurants on September 22, 1997, which, operate with a lower payroll
cost than the JB's restaurants. Payroll and other costs as a percent of total
revenues decreased from 35.4% in the twenty-eight weeks ended January 27, 1997
to 34.6% in the thirty-four weeks ended September 22, 1997. The decrease in
payroll cost was attributable to seasonal fluctuations is revenues which cause
payroll costs to be lower as a percent of total revenues during the period ended
September 22, 1997 as compared to the period ended January 27, 1997.
Occupancy and other operating costs as a percentage of total revenues
increased from 22.9% in the thirty-four weeks ended September 22, 1997 to 23.6%
in the eighteen weeks ended January 26, 1998. The increase in occupancy and
other costs as a percent of total revenues was attributable to the sale of
sixteen HomeTown
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Buffet restaurants, which, operate with a lower occupancy cost than the JB's
restaurants. Occupancy and other costs as a percent of total revenues decreased
from 24.2% in the twenty-eight weeks ended January 27, 1997 to 22.9% in the
thirty-four weeks ended September 22, 1997. The decrease in occupancy cost was
attributable to seasonal fluctuations is revenues which cause occupancy costs to
be lower as a percent of total revenues during the period ended September 22,
1997 as compared to the period ended January 27, 1997.
Advertising costs as a percentage of total revenues decreased from 1.5% in
the thirty-four weeks ended September 22, 1997 to 0.0% in the eighteen weeks
ended January 26, 1998. The decrease in advertising costs as a percent of total
revenues resulted from JBRI not running television advertising during the
eighteen weeks ended January 26, 1998.
COMPARISON OF TWENTY-EIGHT WEEKS ENDED JANUARY 27, 1997 TO FORTY-TWO WEEKS
ENDED JULY 15, 1996 AND FORTY-TWO WEEKS ENDED JULY 15, 1996 TO FISCAL 1995
Due to the acquisition of Summit by CKE on July 15, 1996 and the differing
lengths of time included in each period presented, the comparison of these
periods may not be meaningful or indicative of future results.
Total revenues decreased from $94.1 million in the forty-two weeks ended
July 15, 1996 to $58.1 million in the twenty-eight weeks ended January 27, 1997.
The $36.0 million or 38.3% decrease in revenues was primarily due to a 35.8%
decrease in restaurant operating weeks and the closure of three JB's Restaurants
during the period ended January 27, 1997. Total revenues decreased from $121.1
million in the fifty-two weeks ended September 25, 1995 to $94.1 million in the
forty-two weeks ended July 15, 1996. The $27.0 million or 22.0% decrease was
primarily due to a 20.1% decrease in restaurant operating weeks and the closure
of three JB's Restaurants during the period ended July 15, 1996.
Food costs as a percentage of total revenues decreased from 34.0% in the
forty-two weeks ended July 15, 1996 to 33.8% in the twenty-eight weeks ended
January 27, 1997. Food costs as a percentage of total revenues decreased from
34.3% in Fiscal 1995 to 34.0% in the forty-two weeks ended July 15, 1996. The
decline in food cost as a percent of total revenues was primarily attributable
to a consistent improvement in food costs resulting from purchasing
efficiencies.
Payroll and other costs as a percentage of total revenues increased from
34.9% in the forty-two weeks ended July 15, 1996 to 35.4% in the twenty-eight
weeks ended January 27, 1997. The increase in payroll and other costs as a
percent of total revenues was primarily attributable to seasonal fluctuations is
revenues which cause payroll costs to be lower as a percent of total revenues
during the period ended July 15, 1996 as compared to the period ended January
27, 1997.
Occupancy and other costs as a percentage of total revenues increased from
22.6% in the forty-two weeks ended July 15, 1996 to 24.2% in the twenty-eight
weeks ended January 27, 1997. The increase in occupancy and other costs as a
percent of total revenues was primarily attributable to seasonal fluctuations in
revenues which cause occupancy costs to be lower as a percent of total revenues
during the period ended July 15, 1996 as compared to the period ended January
27, 1997. Occupancy and other costs as a percentage of total revenues decreased
from 23.8% in Fiscal 1995 to 22.6% in the forty-two weeks ended July 15, 1996.
The decrease in occupancy and other costs as a percent of total revenues was
primarily attributable to seasonal fluctuations in revenues which cause
occupancy costs to be lower as a percent of total revenues during the period
ended July 15, 1996 as compared to Fiscal 1995.
Advertising costs as a percentage of total revenues decreased from 1.7% in
the forty-two weeks ended July 15, 1996 to 1.2% in the twenty-eight weeks ended
January 27, 1997. Advertising costs as a percentage of total revenues decreased
from 2.7% in Fiscal 1995 to 1.7% in the forty-two weeks ended July 15, 1996. The
decrease in advertising costs as a percent of total revenues was primarily
attributable to reduced advertising expenditures immediately prior to and,
immediately after the acquisition of Summit by CKE.
General and administrative costs as a percentage of total revenues
decreased from 9.9% in the forty-two weeks ended July 15, 1996 to 4.2% in the
twenty-eight weeks ended January 27, 1997. The decrease in general and
administrative expenses as a percent of total revenues was primarily
attributable to staff and other cost reductions made by CKE after the
acquisition and non-recurring severance costs incurred during the period
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ended July 15, 1996. General and administrative costs as a percentage of total
revenues increased from 7.5% in Fiscal 1995 to 9.9% in the forty-two weeks ended
July 15, 1996. The increase in general and administrative costs was attributable
to non-recurring severance costs incurred in connection with the acquisition of
Summit by CKE.
Other income for the forty-two weeks ended July 15, 1996 includes a $4.0
million gain on the sale of 398,220 shares of HomeTown Buffet Inc. common stock.
See Note 7 -- Investment in HomeTown Buffet, Inc.
YEAR 2000
JBRI is currently working to resolve the potential impact of the year 2000
on the processing of data-sensitive information by JBRI's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of JBRI's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Based on preliminary information, costs of
addressing potential problems are not currently expected to have a material
adverse impact on JBRI's financial position, results of operations or cash flows
in future periods. However, the inability of JBRI or its suppliers or
distributors and other vendors to resolve such processing issues in a timely
manner could have a material adverse impact on JBRI. Accordingly, JBRI plans to
devote the necessary resources to resolve all significant year 2000 issues in a
timely manner.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, and
construction could affect JBRI's operations. Many of JBRI's employees are paid
hourly rates based on federal and state minimum wage laws. Recent legislation
increasing the minimum wage has resulted in higher labor costs to JBRI. In
addition, most of JBRI's leases require JBRI to pay taxes, insurance,
maintenance, repairs and utility costs, and these costs are subject to
inflationary pressures. JBRI may attempt to offset the effect of inflation
through periodic menu price increases, economies of scale in purchasing and cost
controls and efficiencies at existing restaurants. Management believes that
inflation has had no significant impact on costs during the last three years,
primarily because the largest single item of expense, food costs, has remained
relatively stable during this period.
IMPACT OF POSSIBLE REDUCTION TO ROYALTY RATE
As noted in "RECENT DEVELOPMENTS" on page 94, JBRI has offered to reduce
the royalty rate paid by existing franchisees from 4% to 3.25%. If all of the
existing franchisees agree to accept the new royalty rate, JBRI's revenue and
operating income would be reduced. Management of JBRI has estimated the
annualized reduction to revenue and operating income to be approximately
$135,000. Assuming a 40% effective tax rate, the annual reduction to net income
would be approximately $81,000.
LIQUIDITY AND CAPITAL RESOURCES
Summit predecessor, CKE predecessor and Successor have historically
financed their operations primarily through a combination of cash on hand, cash
provided from operations available borrowings under bank lines of credit and
borrowings from CKE. JBRI requires capital principally for the acquisition of
new equipment and remodeling of existing restaurants. JBRI anticipates that its
capital requirements will be funded primarily through cash on hand at the end of
the year, cash flow from operations and amounts available from GB Foods as a
result of the transaction described in Note 16 to the financial statements.
Cash and cash equivalents increased by 1.4 million during the 16 weeks
ended May 18, 1998. Total cash provided by operations was $2.4 million. JBRI
sold 12 restaurants to Star Buffet, Inc. and received $4.3 million in proceeds.
Financing activities used $5.4 million which include $4.7 million transferred to
CKE.
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Cash and cash equivalents decreased $2.0 million to $1.1 million during the
18 weeks ended January 26, 1998. Total cash provided by operations was $1.5
million and JBRI used $462,000 to fund capital additions. Financing activities
used $3.0 million which include $1.5 million transferred to CKE.
During the 34 weeks ended September 22, 1997, cash and cash equivalents
decreased $2.7 million. Total cash provided by operations was $5.7 million.
Investing activities used $3.2 million which includes a $3.5 million outflow to
fund capital additions. Financing activities used $5.2 million which include
$3.5 million transferred to CKE.
During the 28 weeks ended January 27, 1997, cash and cash equivalents
increased $2.4 million. Total cash provided by operations was $4.2 million.
Investing activities provided $756,000 which included a $1.0 million outflow to
fund capital additions offset by proceeds of $2.0 million from the sale of a
certain investment. Financing activities used $2.5 million which include $2.5
million transferred to CKE.
During the 42 week period ended July 15, 1996, cash and cash equivalents
increased $560,000. Total cash used in operations was $3.3 million. Investing
activities provided $3.1 million, which included a $1.5 million outflow for
capital expenditures offset by proceeds of $4.8 million from the sale of a
certain investment. Financing activities provided $710,000.
During the 52 weeks ended September 25, 1995 cash and cash equivalents
decreased $2.5 million. Total cash provided by operations was $4.0 million.
Investing activities used $5.5 million, which includes a $10.6 million outflow
for capital expenditures offset by $3.0 million from the sale of certain
restaurants. Financing activities used $1.0 million.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." This Statement is effective for fiscal years ending
after December 15, 1997. This statement, requiring only additional information
disclosures, is effective for the Company's fiscal year ended December 28, 1997.
The Company has complied with all requirements of this Statement.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of general-
purpose financial statements. SFAS 130 requires all items that are required to
be recognized under accounting standards as components of comprehensive income
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 does not require a specific
format for that financial statement, but requires that an enterprise display an
amount representing total comprehensive income for the period covered by that
financial statement. SFAS 130 requires an enterprise to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Management has determined that the adoption
of SFAS 130 will not have a material impact on JBRI's financial position or
results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the revenues derived from the enterprise's
100
<PAGE> 113
products or services and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated, SFAS 131 need not be applied to
interim financial statements in the initial year of application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. Management has determined that the adoption of SFAS 131 will not
have a material impact on JBRI's financial reporting.
In December 1997, the AICPA (American Institute of Certified Public
Accountants) approved for issuance the Statement of Position (SOP), Reporting on
the Costs of Start-Up Activities. The SOP requires that costs incurred during a
start-up activity (including organization costs) be expensed as incurred. The
SOP is effective for fiscal years beginning after December 15, 1998.
JBRI currently amortizes pre-opening costs over one year from the time they
are incurred. Management does not believe the impact of the adoption of this SOP
on JBRI's financial position or results of operation will be material.
101
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
JB'S FAMILY RESTAURANTS, INC. (see Note 1)
Independent Auditors' Report.............................. 103
Balance Sheets as of January 26, 1998 and January 27,
1997................................................... 104
Statements of Operations for the 16 weeks ended May 18,
1998 (unaudited), the 16 weeks ended May 19, 1997
(unaudited), the 18 weeks ended January 26, 1998, the
34 weeks ended September 22, 1997, the 28 weeks ended
January 27, 1997, the 42 weeks ended July 15, 1996 and
the 52 weeks ended September 25, 1995.................. 105
Statements of Stockholder's Equity for the 16 weeks ended
May 18, 1998 (unaudited), the 18 weeks ended January
26, 1998, the 34 weeks ended September 22, 1997, the 28
weeks ended January 27, 1997, the 42 weeks ended July
15, 1996 and the 52 weeks ended September 25, 1995..... 106
Statement of Cash Flows for the 16 weeks ended May 18,
1998 (unaudited), the 16 weeks ended May 19, 1997
(unaudited), the 18 weeks ended January 26, 1998, the
34 weeks ended September 22, 1997, the 28 weeks ended
January 27, 1997, the 42 weeks ended July 15, 1996 and
the 52 weeks ended September 25, 1995.................. 107
Notes to Financial Statements............................. 108
</TABLE>
102
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
The Board of Directors
JB's Family Restaurants, Inc., Salt Lake City, Utah
We have audited the accompanying financial statements of JB's Family
Restaurants, Inc. (see Note 1) as listed in the accompanying index. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JB's Family Restaurants, Inc.
as of January 26, 1998 and January 27, 1997, and the results of its operations
and its cash flows for the 18 weeks ended January 26, 1998, the 34 weeks ended
September 22, 1997, the 28 weeks ended January 27, 1997, the 42 weeks ended July
15, 1996 and the 52 weeks ended September 25, 1995, in conformity with generally
accepted accounting principles.
As described in Note 1 to the Financial Statements, effective July 15, 1996, CKE
Restaurants, Inc. acquired all of the outstanding stock of Summit Family
Restaurants, Inc. in a business combination accounted for as a purchase. As a
result of the acquisition, the financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 30, 1998
103
<PAGE> 116
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
BALANCE SHEETS
ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
SUCCESSOR CKE PREDECESSOR
-------------------------- ---------------
MAY 18, JANUARY 26, JANUARY 27,
1998 1998 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 2,513 $ 1,093 $ 5,869
Marketable securities................................. -- -- 180
Accounts and current portion of notes receivable...... 1,045 1,004 750
Inventories........................................... 662 769 996
Other current assets and prepaid expenses............. 630 625 863
------- ------- -------
Total current assets.......................... 4,850 3,491 8,658
Property and equipment, net............................. 14,665 18,567 30,089
Property under capital leases, net...................... 6,865 7,360 11,187
Notes receivable, net................................... 1,144 1,430 1,459
Costs in excess of net assets acquired, net............. 3,417 4,474 4,633
Other assets............................................ 161 288 1,818
------- ------- -------
$31,102 $35,610 $57,844
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt..................... $ 72 $ 76 $ 43
Current portion of capital lease obligations.......... 875 896 828
Accounts payable...................................... 3,602 2,951 8,783
Other current liabilities............................. 5,496 5,000 5,693
------- ------- -------
Total current liabilities..................... 10,045 8,923 15,347
Long-term debt.......................................... 587 699 302
Capital lease obligations............................... 6,196 6,606 10,121
Other long-term liabilities............................. 1,909 2,489 4,770
Stockholder's equity:
Common stock, $.001 par value; authorized 1,000
shares;
issued and outstanding 1,000 shares................ -- -- 1
Additional paid-in capital............................ 12,433 17,107 27,320
Retained earnings (accumulated deficit)............... (68) (214) (17)
------- ------- -------
Total stockholder's equity.................... 12,365 16,893 27,304
------- ------- -------
$31,102 $35,610 $57,844
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
104
<PAGE> 117
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CKE
SUCCESSOR PREDECESSOR SUCCESSOR CKE PREDECESSOR SUMMIT PREDECESSOR
--------- ----------- ----------- --------------------------- ------------------------
16 WEEKS 16 WEEKS 18 WEEKS 34 WEEKS 28 WEEKS 42 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 18, MAY 19, JANUARY 26, SEPTEMBER 22, JANUARY 27, JULY 15, SEPTEMBER 25,
1998 1997 1998 1997 1997 1996 1995
--------- ----------- ----------- ------------- ----------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Company-operated restaurants:
JB's Restaurants............. $18,516 $20,689 $21,525 $43,295 $33,517 $55,363 $76,314
Galaxy....................... 1,561 1,696 1,716 3,664 3,212 5,663 6,795
HomeTown Buffet.............. -- 13,130 -- 26,756 20,590 31,776 36,060
------- ------- ------- ------- ------- ------- -------
20,077 35,515 23,241 73,715 57,319 92,802 119,169
Franchised and licensed
restaurants:
JB's Restaurants............. 427 350 373 797 781 1,262 1,930
------- ------- ------- ------- ------- ------- -------
Total revenues.......... 20,504 35,865 23,614 74,512 58,100 94,064 121,099
------- ------- ------- ------- ------- ------- -------
Operating costs and expenses:
Restaurant operations:
Food and packaging........... 6,537 12,055 7,572 24,866 19,628 32,039 41,501
Payroll and other employee
benefits................... 7,390 12,171 9,337 25,832 20,550 32,823 42,376
Occupancy and other operating
expenses................... 4,482 7,998 5,609 17,104 14,126 21,267 28,809
------- ------- ------- ------- ------- ------- -------
18,409 32,224 22,518 67,802 54,304 86,129 112,686
Franchised and licensed
restaurants.................. 184 217 234 452 479 1,115 1,062
Advertising expenses........... 591 610 -- 1,118 711 1,571 3,311
General and administrative
expenses..................... 981 1,226 1,077 2,983 2,464 9,323 9,091
------- ------- ------- ------- ------- ------- -------
Total operating costs
and expenses.......... 20,165 34,277 23,829 72,355 57,958 98,138 126,150
------- ------- ------- ------- ------- ------- -------
Operating income (loss).......... 339 1,588 (215) 2,157 142 (4,074) (5,051)
Interest expense................. (182) (262) (236) (748) (491) (993) (1,535)
Other income, net................ 81 101 102 216 321 4,283 490
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 238 1,427 (349) 1,625 (28) (784) (6,096)
Income tax expense (benefit)..... 92 571 (135) 595 (11) 899 (1,052)
------- ------- ------- ------- ------- ------- -------
$ (17) -
Net income (loss)................ $ 146 $ 856 $ (214) $ 1,030 - $(1,683) $(5,044)
======= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
105
<PAGE> 118
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- ------------------ TREASURY ADDITIONAL
NUMBER OF PAR NUMBER OF STOCK PAID-IN UNREALIZED
SHARES VALUE SHARES AMOUNT AMOUNT CAPITAL GAIN
--------- ----- --------- ------ -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 26,
1994..................... 947 $ 947 5,289 $ 529 $(3,284) $ 29,581 $ 2,773
Common stock contributed to
employee benefit plan.... -- -- 5 -- 30 13 --
Retirement of treasury
stock.................... -- -- (495) (49) 3,254 (3,205) --
Net unrealized gain on
investment in HomeTown
Buffet, Inc.............. -- -- -- -- -- -- 792
Net loss................... -- -- -- -- -- -- --
---- ----- ------ ----- ------- -------- -------
Balance at September 25,
1995..................... 947 947 4,799 480 -- 26,389 3,565
Net loss................... -- -- -- -- -- -- --
Net change in unrealized
gain on investment in
HomeTown Buffet, Inc..... -- -- -- -- -- -- (2,639)
---- ----- ------ ----- ------- -------- -------
Balance at July 15, 1996... 947 947 4,799 480 -- 26,389 926
==== ===== ====== ===== ======= ======== =======
========================================================================================================
Capitalization of Summit... -- $ -- 1 $ 1 $ -- $ 29,055 $ --
Distribution to CKE, net
(see Note 1)............. -- -- -- -- -- (1,735) --
Net income................. -- -- -- -- -- -- --
---- ----- ------ ----- ------- -------- -------
Balance at January 27,
1997..................... -- -- 1 1 -- 27,320 --
Net income................. -- -- -- -- -- -- --
Distribution to CKE, net
(see Note 1)............. (10,048)
Elimination of historical
balances (see Note 1).... -- -- -- (1) -- -- --
---- ----- ------ ----- ------- -------- -------
Balance at September 22,
1997..................... -- -- 1 -- -- 17,272 --
Distribution to CKE, net
(see Note 1)............. -- -- -- -- -- (165) --
Net loss................... -- -- -- -- -- -- --
---- ----- ------ ----- ------- -------- -------
Balance at January 26,
1998..................... -- $ -- 1 $ -- $ -- $ 17,107 $ --
==== ===== ====== ===== ======= ======== =======
Distribution to CKE, net
(see Note 1)............. -- -- -- -- -- (4,674) --
Net income................. -- -- -- -- -- -- --
---- ----- ------ ----- ------- -------- -------
Balance at May 18, 1998
(unaudited).............. $ 1 $ $ -- $ 12,433 $ --
==== ===== ====== ===== ======= ======== =======
<CAPTION>
RETAINED
EARNINGS TOTAL
(ACCUMULATED STOCKHOLDERS'
DEFICIT) EQUITY
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at September 26,
1994..................... $13,790 $ 44,336
Common stock contributed to
employee benefit plan.... -- 43
Retirement of treasury
stock.................... -- --
Net unrealized gain on
investment in HomeTown
Buffet, Inc.............. -- 792
Net loss................... (5,044) (5,044)
------- --------
Balance at September 25,
1995..................... 8,746 40,127
Net loss................... (1,683) (1,683)
Net change in unrealized
gain on investment in
HomeTown Buffet, Inc..... -- (2,639)
------- --------
Balance at July 15, 1996... 7,063 35,805
======= ========
===========================
Capitalization of Summit... $ -- $ 29,056
Distribution to CKE, net
(see Note 1)............. -- (1,735)
Net income................. (17) (17)
------- --------
Balance at January 27,
1997..................... (17) 27,304
Net income................. 1,030 1,030
Distribution to CKE, net
(see Note 1)............. (10,048)
Elimination of historical
balances (see Note 1).... (1,013) (1,014)
------- --------
Balance at September 22,
1997..................... -- 17,272
Distribution to CKE, net
(see Note 1)............. -- (165)
Net loss................... (214) (214)
------- --------
Balance at January 26,
1998..................... $ (214) $ 16,893
======= ========
Distribution to CKE, net
(see Note 1)............. -- (4,674)
Net income................. 146 146
------- --------
Balance at May 18, 1998
(unaudited).............. $ (68) $ 12,365
======= ========
</TABLE>
See accompanying notes to financial statements.
106
<PAGE> 119
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CKE
SUCCESSOR PREDECESSOR SUCCESSOR CKE PREDECESSOR SUMMIT PREDECESSOR
----------- ----------- ----------- --------------------------- ------------------------
16 WEEKS 16 WEEKS 18 WEEKS 34 WEEKS 28 WEEKS 42 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 18, MAY 19, JANUARY 26, SEPTEMBER 22, JANUARY 27, JULY 15, SEPTEMBER 25,
1998 1997 1998 1997 1997 1996 1995
----------- ----------- ----------- ------------- ----------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash flows from operating
activities:
Net income (loss).............. $ 146 $ 856 $ (214) $ 1,030 $ (17) $(1,683) $ (5,044)
Adjustment to reconcile net
income (loss) to net cash
provided by (used in)
operating activities
excluding the effect of
disposition:
Depreciation and
amortization............. 1,086 1,806 1,156 3,561 3,424 5,654 6,585
Provision for losses on
accounts and notes
receivable............... -- -- -- -- -- -- --
Loss on sale of property
and equipment............ -- -- -- 12 289 -- 209
Net noncash investment and
dividend income.......... -- -- -- -- (65) -- --
Gain on sale of marketable
securities............... -- -- -- -- (164) (3,959) --
Net change in receivables
inventories and other
current assets........... 61 620 (896) 159 (792) 1,464 1,983
Net change in accounts
payable, other current
liabilities and
intercompany payables.... 1,147 1,542 1,405 966 1,531 (4,726) 217
------- ------ ------- -------- ------- ------- --------
Net cash provided by
(used in) operating
activities............. 2,440 4,824 1,451 5,728 4,206 (3,250) 3,950
------- ------ ------- -------- ------- ------- --------
Cash flows from investing
activities:
Purchases of:
Marketable securities...... -- -- -- -- -- -- 1,980
Property and equipment..... (147) (2,434) (462) (3,530) (1,046) (1,480) (10,620)
Proceeds from sale of:
Marketable securities and
long-term investments.... -- -- -- -- 1,968 4,755 --
Property and equipment..... 4,265 -- -- -- 499 269 3,028
Net change in other assets... 127 385 6 209 (708) (918) (45)
Collections on and sale of
notes receivable, related
party receivables and
leases receivable.......... 125 31 27 71 43 474 135
------- ------ ------- -------- ------- ------- --------
Net cash provided by
(used in) investing
activities............. 4,370 (2,018) (429) (3,250) 756 3,100 (5,522)
------- ------ ------- -------- ------- ------- --------
Cash flows from financing
activities:
Net change in bank
overdraft.................. 246 (916) (775) (1,514) 1,314 855 865
Short-term borrowings........ -- -- -- -- -- -- 815
Repayments of short-term
debt....................... -- -- -- -- -- -- (815)
Long-term borrowings......... -- -- -- 489 -- -- --
Repayment of long-term
debt....................... (112) (8) (8) (51) (12) (41) --
Repayments of capital lease
obligations................ (270) (342) (261) (742) (445) (141) (1,820)
Net change in other long-term
liabilities................ (580) (2,457) (504) 90 (886) -- --
Dividends paid to CKE........ (4,674) (1,000) (1,500) (3,500) (2,500) -- --
Exercise of stock options.... -- -- -- -- -- 37 --
------- ------ ------- -------- ------- ------- --------
Net cash provided by (used
in) financing
activities............... (5,390) (4,723) (3,048) (5,228) (2,529) 710 (955)
------- ------ ------- -------- ------- ------- --------
Net increase (decrease) in cash
and cash equivalents......... 1,420 (1,917) (2,026) (2,750) 2,433 560 (2,527)
Cash and cash equivalents at
beginning of period........ 1,093 5,869 3,119 5,869 3,436 2,876 5,403
------- ------ ------- -------- ------- ------- --------
Cash and cash equivalents at
end of period.............. $ 2,513 $3,952 $ 1,093 $ 3,119 $ 5,869 $ 3,436 $ 2,876
======= ====== ======= ======== ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
107
<PAGE> 120
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
A summary of certain significant accounting policies not disclosed
elsewhere in the footnotes to the financial statements is set forth below.
Description of Business
JBRI presently owns, operates, and franchises the JB's restaurant concept.
As of January 26, 1998 the JB's system included 94 restaurants, of which 74 were
operated by JB's and 20 were operated by JBRI's franchisees. The JB's
restaurants are located in eight western states with the highest concentration
in Arizona. The Company also owns and operates six Galaxy restaurants, mostly in
Utah.
The business and operations of JBRI have undergone several changes in
ownership in the past two years. On July 15, 1996 Summit, JB's predecessor, was
acquired by CKE. CKE acquired Summit for approximately $29.0 million in cash and
stock. The purchase price was allocated to assets and liabilities based on the
fair market value of the assets and liabilities. In connection with the
acquisition, certain reserves were established -- see note 10. Before and after
the acquisition of Summit by CKE, Summit was the parent corporation of HTB
Restaurants, Inc. ("HTB") which operated 16 HomeTown Buffet restaurants as a
franchisee of HomeTown Buffet, Inc. Summit continued operating as a subsidiary
of CKE until September 22, 1997, at which time Summit transferred selected
assets and liabilities which included its JB's Restaurant system and Galaxy
Diner restaurants to JB's Family Restaurants, Inc. a newly formed subsidiary of
CKE. Concurrent with this transfer, CKE exchanged all of the issued and
outstanding shares of capital stock of Summit for 2,600,000 shares of Common
Stock of Star Buffet, Inc. ("Star") and thereby transferred all of the remaining
net assets of HTB to Star at its book value of $8,507,000. Star was incorporated
on July 28, 1997, and was a wholly owned subsidiary of CKE from July 28, 1997
until the stock offering of Star was completed on September 29, 1997. The
transfer of assets to Star was made at net book value which management believes
approximates fair market value. The transactions represented the reorganization
of entities under common control. Because of these changes in ownership the
accompanying financial statements and these notes include results of operations
of Summit and it's wholly owned subsidiaries prior to CKE's acquisition (Summit
predecessor) and after its acquisition by CKE (CKE predecessor), and the Company
is referred to as follows:
"Summit predecessor" means Summit for all periods prior to July 16,
1996.
"CKE predecessor" means Summit (as a subsidiary of CKE) for the period
July 16, 1996 through September 22, 1997.
"Successor" means JB's (as a subsidiary of CKE) for all periods from
and after September 23, 1997.
Fiscal Year
JBRI utilizes a 52/53 week fiscal year which ends on the last Monday in
January. Summit predecessor had a 52/53 week fiscal year which ended on the last
Monday in September.
Cash and Cash Equivalents
Cash equivalents consist of short-term liquid assets with original
maturities of three months or less.
The Successor and CKE predecessor participate in a cash management program
with CKE whereby excess cash is distributed to CKE from time to time.
$4,674,000, $1,500,000, $3,500,000, and $2,500,000 were distributed during the
16 week period ended May 18, 1998, the 18 week period ended January 26, 1998,
the 34 week period ended September 22, 1997 and the 28 week period ended January
27, 1997, respectively, which are netted within Distribution to CKE on the
accompanying Statements of Stockholders' Equity.
108
<PAGE> 121
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Inventories
Inventories consist of food, beverages and restaurant supplies and are
valued at the lower of cost, determined by the first-in first-out method, or
market.
Marketable Securities
Marketable securities in the accompanying balance sheets (consisting
primarily of certificates of deposits, with original maturities of greater than
three months) represent held-to-maturity securities, and accordingly, have been
stated at their cost.
Property and Equipment
Property and equipment and real property under capitalized leases are
carried at cost, less accumulated depreciation and amortization. Depreciation
and amortization are provided using the straight-line method over the following
useful lives: buildings and leaseholds -- lesser of lease life or 20 years;
equipment -- five to eight years; capitalized leases -- lesser of lease life or
20 years.
Impairment of Long-Lived Assets
On July 15, 1996 and in conjunction with the acquisition of Summit by CKE,
JBRI adopted the provisions of Statement of Financial Accounting Standards No.
121 (SFAS No. 121) "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Pursuant to this statement, JBRI reviews
long-lived assets and certain identifiable intangibles to be held and used
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. In addition, long-lived assets and certain
identifiable intangibles to be disposed of are reported at the lower of carrying
amount or estimated fair value less cost to sell. No impairment loss has been
recognized subsequent to the acquisition by CKE.
Pre-Opening Costs
Pre-opening costs, which represent expenses incurred for hiring and
training personnel relating to new restaurants and expenses for promotion of new
store openings, are capitalized and amortized over the restaurant's first year
of operation.
Franchising Revenues and Expenses
JBRI is a franchisor of JB's Restaurants and Summit is a franchisee of
HomeTown Buffet restaurants. Gains or losses on JBRI operated JB's Restaurants
sold to franchisees are recognized as a gain or loss in the period the
transaction is completed provided the down payment received from the franchisee
represents 20% or more of the total purchase price. Otherwise, the gain or loss
is deferred and recognized over the period of the franchise agreement. Initial
franchise fees received are recognized as revenue in the period the franchised
restaurant opens. Franchise royalty revenues and all franchising costs are
recognized on the accrual basis.
Initial franchise fee payments related to HomeTown Buffet restaurants are
amortized using the straight-line method over the life of the franchise
agreement. Royalty costs and all other franchise costs are recognized as expense
on the accrual basis.
Advertising costs are expensed when incurred.
General and Administrative Expenses
JBRI operated as a separate public company until the acquisition by CKE on
July 15, 1996. Accordingly, the statements of operations for the periods ended
prior to the acquisition by CKE include all general and
109
<PAGE> 122
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
administrative expenses incurred by JBRI. Since the acquisition by CKE, CKE has
provided certain corporate services to JBRI but there have been no allocations
to JBRI for the cost of these services. These costs are considered to be
immaterial and therefore are not included in the accompanying financial
statements.
Costs in excess of net assets acquired
Costs in excess of net assets acquired represent expenses incurred by CKE
upon its acquisition of Summit. These costs are amortized over 40 years.
Income Taxes
The Summit Predecessor accounted for income taxes using the asset and
liability method. Under this method, income tax assets and liabilities are
recognized using enacted tax rates for the expected future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. A
change in tax rates is recognized in income in the period that includes the
enactment date. Given the changes in the business and operations of JB's,
detailed information related to Summit Predecessors income taxes is not
presented.
The Successor and CKE predecessor file a consolidated income tax return
with CKE; accordingly, many of the tax assets or liabilities may be utilized or
paid by its parent based upon the consolidated income tax return. In accordance
with the tax allocation policy, income expense/benefit is calculated by the
Successor and CKE predecessor based on the blended tax rate of CKE of 39% and
the related payable/receivable is recorded as amounts due to or from CKE.
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements
The accompanying unaudited condensed financial statements should be read in
conjunction with the audited combined financial statements and notes thereto,
included in this booklet. In the opinion of management, all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
the financial position and results of operations for the interim periods
presented have been reflected herein. Results of operations for such interim
periods are not necessarily indicative of results to be expected for the full
fiscal year or for any future periods.
NOTE 2 -- ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Franchise royalties and rents.......................... $ 306 $503
Note receivable, current............................... 352 178
Other.................................................. 346 69
------ ----
$1,004 $750
====== ====
</TABLE>
110
<PAGE> 123
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- OTHER CURRENT ASSETS AND OTHER CURRENT LIABILITIES
Other current assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Prepaid rent.......................................... $ 26 $531
Other................................................. 599 332
------ ----
$ 625 $863
====== ====
</TABLE>
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued sales tax..................................... $ 877 $ 639
Accrued payroll....................................... 1,683 1,720
Accrued liability insurance........................... 468 304
Accrued workers' compensation and group health
insurance........................................... 849 503
Accrued payroll tax................................... 316 436
Accrued property tax.................................. 546 842
Accrued rent.......................................... 177 485
Other................................................. 141 785
------ ------
$5,057 $5,714
====== ======
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Property and equipment:
Land................................................ $ 4,462 $ 4,451
Buildings and leasehold improvements................ 25,435 33,862
Equipment, furniture and fixtures................... 28,721 33,351
------- -------
58,618 71,664
Less accumulated depreciation and amortization........ 40,051 41,575
------- -------
$18,567 $30,089
======= =======
</TABLE>
NOTE 5 -- REAL PROPERTY UNDER CAPITAL LEASES
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real property under capital leases, net............... $17,648 $21,074
Less accumulated amortization....................... 10,288 9,887
------- -------
$ 7,360 $11,187
======= =======
</TABLE>
111
<PAGE> 124
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- NOTES RECEIVABLE
Notes receivable consist of amounts due from corporations and individuals
resulting primarily from the sale of property, buildings and equipment. The
components of notes receivable are as follows:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes receivable...................................... $2,206 $2,311
Allowance for doubtful accounts....................... (424) (674)
------ ------
1,782 1,637
Less current portion.................................. 352 178
------ ------
$1,430 $1,459
====== ======
</TABLE>
At January 26, 1998 and January 27, 1997 the Company has 14 notes relating
to the sales of restaurants to franchisees which are unsecured or secured by
receivables, inventory and equipment. 11 of the notes bear interest at 10.0%.
Two notes bear interest at prime plus 3.0% and another bears interest at prime
plus 0.5%.
NOTE 7 -- INVESTMENT IN HOMETOWN BUFFET, INC.
In November 1991, Summit Predecessor invested $3.8 million with Americana
Entertainment Group, Inc., the predecessor of HomeTown Buffet, Inc. ("HTBB"), in
exchange for 1,266,667 shares of convertible preferred stock. In July 1993,
Summit Predecessor sold 250,000 shares of its preferred stock investment in HTBB
for $2.5 million, resulting in a pre-tax gain of $1.7 million. In the fourth
quarter of fiscal 1993, HTBB concluded an initial public offering ("IPO") of its
common stock and commenced trading on NASDAQ under the symbol HTBB. At the
completion of the IPO the outstanding preferred stock automatically was
converted to common stock. During the second quarter of fiscal 1994, Summit
Predecessor exercised its option to purchase 60,000 shares of HTBB common stock
and HTBB announced a three for two stock split increasing Summit Predecessor's
ownership of HTBB common stock to 1,585,000 shares. In the third quarter of
fiscal 1994, Summit Predecessor sold 1,056,780 shares of HTBB common stock as a
selling shareholder in HTBB's secondary public offering for $16.8 million
resulting in a pre-tax gain of $14.7 million and leaving Summit Predecessor with
528,220 shares of HTBB common stock at September 25, 1995. During the period
ended July 15, 1996, Summit Predecessor sold 398,220 shares of HTBB common stock
for $4.8 million resulting in pre-tax gain of $4.0 million. During the period
ended January 27, 1997, CKE Predecessor sold its remaining 130,000 shares of
HTBB common stock for $1.9 million resulting in a pre-tax gain of $164,000. All
gains resulting from the sale of HTBB common stock have been reflected as other
income in JBRI's financial statements.
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes payable to individuals, financial institutions
and other companies payable in monthly, quarterly,
and annual installments through 2004, interest at
8.25% to 13.5%; unsecured or secured by land,
buildings and equipment............................. $775 $345
Less current portion.................................. 76 43
---- ----
$699 $302
==== ====
</TABLE>
Annual aggregate maturities of debt, are as follows: $76,000 in 1999;
$82,000 in 2000; $85,000 in 2001; $55,000 in 2002; $59,000 in 2003; and $418,000
thereafter.
112
<PAGE> 125
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM LEASES
The Company occupies certain of its restaurants under long-term leases
expiring at various dates through 2035. Most restaurant leases have renewal
options for terms of five to twenty years, and substantially all require the
payment of real estate taxes and insurance. Certain of the leases provide for
rent to be the greater of a stipulated minimum rent or a specified percentage of
sales.
Rent expense for the 12 weeks ended January 26, 1998 (unaudited), 14 weeks
ended January 27, 1997 (unaudited), 18 weeks ended January 26, 1998, 34 weeks
ended September 22, 1997, 28 weeks ended January 27, 1997, 42 weeks ended July
15, 1996, and 52 weeks ended September 25, 1995, was $893,000, $1,718,000,
$1,046,000, $4,818,000, $5,835,000, $5,888,000 and $6,942,000, respectively.
Contingent rentals, measured as a percentage of sales, included in rent expense
for the same periods were $48,000, $62,000, $61,000, $276,000, $320,000,
$320,000 and $292,000, respectively.
Future aggregate minimum rental payments on noncancellable leases as of
January 26, 1998, exclusive of taxes, insurance and percentage rentals based on
sales are as follows:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1999................................................... $ 1,463 $ 3,303
2000................................................... 1,408 3,122
2001................................................... 1,391 2,866
2002................................................... 1,291 2,709
2003................................................... 1,123 2,368
Aggregate thereafter..................................... 3,585 10,432
------- -------
Total minimum lease payments................... 10,261 $24,800
-------
Less amount representing interest...................... (2,759)
-------
Present value of minimum lease payments................ 7,502
Less current portion................................... 896
-------
Long-term obligation................................... $ 6,606
=======
</TABLE>
NOTE 10 -- OTHER LONG-TERM LIABILITIES
Other long term liabilities consists of the following:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred compensation obligation...................... $1,533 $1,551
Closure and other reserves............................ -- 1,356
Other................................................. 956 1,863
------ ------
$2,489 $4,770
====== ======
</TABLE>
The closure and other reserves consist of amounts provided for in the
acquisition of Summit Predecessor by CKE for the closure of certain restaurants
and corporate facilities. These reserves were fully utilized for their intended
purpose during the period ended January 26, 1998.
113
<PAGE> 126
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents information on the Company's financial
instruments:
<TABLE>
<CAPTION>
JANUARY 26, 1998 JANUARY 27, 1997
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................... $1,093 $1,093 $5,869 $5,869
Marketable securities....................... -- -- 180 180
Notes receivable, including current
portion.................................. 1,782 1,849 1,637 1,913
Financial liabilities:
Long-term debt, including current portion... 775 633 345 336
</TABLE>
The fair value of cash and cash equivalents approximates their carrying
amount due to their short maturity. The estimated fair values of marketable
securities were based on quoted market prices. The estimated fair values of
notes receivable were determined by discounting future cash flows using current
rates at which similar loans would be made to borrowers with similar credit
ratings. The estimated fair value of long-term debt was determined by
discounting future cash flows using rates currently available to the Company for
debt with similar terms and remaining maturities.
NOTE 12 -- OTHER INCOME, NET (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CKE
SUCCESSOR PREDECESSOR SUCCESSOR CKE PREDECESSOR SUMMIT PREDECESSOR
----------- ----------- ----------- --------------------------- ------------------------
12 WEEKS 14 WEEKS 18 WEEKS 34 WEEKS 28 WEEKS 42 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 26, JANUARY 27, JANUARY 26, SEPTEMBER 22, JANUARY 27, JULY 15, SEPTEMBER 25,
1998 1997 1998 1997 1997 1996 1995
----------- ----------- ----------- ------------- ----------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $58 $ 89 $ 85 $184 $153 $ 284 $452
Net gain on sale of
investments........ -- -- -- -- 164 3,959 --
Other gain........... 11 13 17 32 4 40 38
--- ---- ---- ---- ---- ------ ----
$69 $102 $102 $216 $321 $4,283 $490
=== ==== ==== ==== ==== ====== ====
</TABLE>
NOTE 13 -- EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan
Summit had an employee stock ownership plan to which Summit predecessor
contributed funds as authorized by the Board of Directors. This plan was
terminated on October 15, 1996. The plan had the authority to purchase shares of
the Summit predecessor's common stock. All employees of Summit predecessor who
had one year of service and were over age 21 participated in the plan.
Participant vesting began with the third year of participation in the plan
at the rate of 20 percent per year. Funds contributed to the plan were used to
retire debt previously incurred, to pay participants who are entitled to
benefits under the plan and to purchase shares of Summit predecessor's common
stock. As of January 26, 1998, $42,000 remains in the plan which will be
distributed to plan participants in calendar 1998.
401(k) Plan
The Company, including predecessors, has a 401(k) plan covering all
employees who have attained age 21 and completed one year of service. The plan
allows participants to allocate up to 10% of their annual compensation before
taxes for investment in several investment alternatives. From January 1, 1995,
until
114
<PAGE> 127
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 25, 1995, and in calendar 1994, the Summit predecessor made annual
matching contributions of its stock to the employees' investment portfolio of up
to 25% of the first 3% of annual compensation contributed by the employee.
Summit predecessor provided contributions of $26,000 in fiscal year 1995. No
contributions have been made since that time.
Deferred Compensation Plan
The Company has a deferred compensation plan covering certain former
executives, which requires payment upon retirement or disability. Under the
plan, participants receive benefits based upon a multiple of compensation prior
to retirement and years of service (not to exceed 50 percent of average annual
compensation for the highest five-year period) reduced for benefits payable from
the Company's profit sharing and employee stock ownership plans. Participation
in the plan will be limited to those individuals with previously approved
deferred compensation agreements. Accruals for this plan, were $1,533,000 and
$1,551,000 at January 26, 1998 and January 27, 1997, respectively.
Stock Incentive Plans
In connection with the acquisition of Summit, CKE assumed the options
outstanding under Summit's existing option plans: the 1984 Incentive Stock
Option Plan, the 1987 Nonqualified Stock Option Plan, the 1987 Employee
Incentive Stock Option Plan and the 1992 Stock Option Plan. Pursuant to the
terms of the acquisition, options under these plans became fully vested and were
converted to CKE options on July 15, 1996. The options granted in accordance
with these four plans generally had a term of five to ten years. Under these
plans, there were 20,993 stock options outstanding at January 26, 1998 with
exercise prices ranging from $13.24 to $23.45 per share. No further shares may
be granted under these plans. During fiscal year 1998, CKE granted options to
certain employees of the Company under CKE's 1994 stock incentive plans. As of
January 26, 1998, 14,850 stock options were outstanding with an exercise price
of $12.88. CKE's 1994 stock incentive plan was approved by stockholders in June
1994. Awards granted to eligible employees under the 1994 plan are not
restricted as to any specified form or structure, with such form, vesting and
pricing provisions determined by the compensation committee of the Board of
Directors. The 1994 plan also provides for the automatic annual award of stock
options to nonemployee directors and nonemployee director members of the
executive committee. Options generally have a term of five years from the date
of grant for the nonemployee directors and 10 years from the date of grant for
employees, become exercisable at a rate of 33 1/3% per year following the grant
date and are priced at the fair market value of the shares on the date of grant.
A total of 5,775,000 shares are available for grants of options or other awards
under this plan, of which 4,045,033 stock options were outstanding as of January
31, 1998 with exercise prices ranging from $4.09 per share to $39.09 per share.
Upon the completion of the sale of the Company's capital stock to GB Foods
Corporation (see Note 14), the CKE options terminate. The exercise price of the
stock options granted equals the market price of CKE's common stock on the date
of grant. As allowed by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS 123") no compensation expense
is recognized for these stock option grants. As earnings per share data for JBRI
is not presented, the pro forma disclosures required under SFAS 123 is not
presented.
Stock Purchase Plan
CKE operates an Employee Stock Purchase Plan ("ESPP"). Under the terms of
the ESPP and subsequent amendments, eligible employees may voluntarily purchase,
at current market prices, up to 750,000 shares of CKE's common stock through
payroll deductions. Pursuant to the ESPP, employees may contribute an amount
between 3% and 15% of their base salary. CKE contributes varying amounts as
specified in the ESPP. Company employees became eligible for the plan January
28, 1997. During the 18 weeks ended January 26, 1998 and the 34 weeks ended
September 22, 1997, 1,297 and 3,460 shares, respectively, were purchased and
allocated to employees, based upon their contributions, at an average price of
$40.97 and
115
<PAGE> 128
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
$27.83 per share, respectively. CKE made a contribution to the plan in the
amount of $15,621 on December 8, 1997 on behalf of the Company.
NOTE 14 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
42
18 WEEKS 34 WEEKS 28 WEEKS WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
JANUARY 26, SEPTEMBER 22, JANUARY 27, JULY 15, SEPTEMBER 25,
1998 1997 1997 1996 1995
----------- ------------- ----------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash paid for interest and income
taxes are as follows:
Interest (net of amount
capitalized)................ $232 $ 749 $ 470 $993 $1,535
Income taxes................... 3 12 10 270 1
Noncash investing and financing
activities are as follows:
Write-off of property and
equipment against store
closure reserve............. $ -- $ (287) $(262) $ -- $ --
Capital lease asset
termination................. -- -- (221) -- --
Capital lease obligation
termination................. -- -- 279 -- --
Net change in marketable
securities.................. -- -- (65) -- --
Termination of lease receivable,
net............................ -- (491) -- -- --
Disposition of HTB, net of cash
surrendered (see Note 1)....... -- (8,507) -- -- --
Capitalize acquisition costs
incurred by CKE on JBRI's
behalf......................... -- -- 765 -- --
Transfer tax assets of HTB and
Summit to CKE upon the sale of
HTB and the formation of
JB's........................... 1,079 840 -- -- --
Charge JBRI's for the following
expenses paid by CKE on JBRI's
behalf: bank charges, legal
fees, worker's compensation and
general liability insurance,
employee stock purchase plan
payments, and other
miscellaneous charges.......... 256 1,119 -- -- --
==== ======= ===== ==== ======
</TABLE>
During the 52 weeks ending September 25, 1995, stores were sold to
franchisees and notes receivable were recorded in exchange for equipment as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Notes receivable................. $ -- $ -- $ -- $ -- $ 377
Gain recognized.................. -- -- -- -- (38)
Gain deferred.................... -- -- -- -- (207)
Cash received.................... -- -- -- -- 98
---- ------- ----- ---- ------
Net book value of equipment
sold........................... $ -- $ -- $ -- $ -- $ 230
==== ======= ===== ==== ======
</TABLE>
116
<PAGE> 129
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
In connection with the sale of restaurants, the Company has assigned its
rights and obligations under real property leases to the buyer. As such, the
Company remains contingently liable for these obligations. Future minimum
payments, under these leases amount to $1,209,000 in 1999, $1,095,000 in 2000,
$907,000 in 2001, $769,000 in 2002, $698,000 in 2003 and $1,442,000 thereafter.
In addition, JBRI is engaged in ordinary and routine litigation incidental
to its business. Management does not anticipate that any amounts which it may be
required to pay by reason thereof will have a material effect on the Company's
statements of operations, financial position, or liquidity.
NOTE 16 -- SUBSEQUENT EVENTS
On February 24, 1998, the Company sold to a subsidiary of Star (Star Sub)
the net assets related to the operation of 12 JB's Restaurants for $4,265,000,
in cash. Additionally, JBRI and Star entered into a Franchise Agreement for each
of the purchased restaurants pursuant to which the Company granted to Buyer the
right to use the Intangible Property Rights in accordance with the terms and
conditions of the Franchise Agreement. At the Closing, Star Sub paid to JBRI
cash in the amount of $485,000 (the "Royalty Payment"), which satisfied all
royalty payments due under all of the Franchise Agreements for the purchased
restaurants through the first anniversary of the Closing. From and after the
Closing Date, Star Sub shall have one (1) year, at its sole option, to elect to
either (i) de-identify the purchased restaurants from the JB's Restaurant
concept, terminate the Franchise Agreement and immediately turn over to the
Company all signs, advertising materials, menus, and other materials bearing the
service marks or trademarks of "JB's" and cease to hold itself out as a
franchisee of JBRI, all in accordance with the terms of the Franchise Agreement,
or (ii) commencing on the first anniversary of the Closing Date, begin to pay to
JBRI for each of the purchased restaurants a royalty fee equal to 4% or such
lower royalty rate as is then generally in effect with respect to the Company's
other franchisees.
On March 12, 1998, CKE entered into an agreement to sell 16 JB's
restaurants to Timber Lodge Steakhouse, Inc. ("Timber Lodge"), in exchange for
687,890 shares of Timber Lodge common stock. On February 19, 1998, CKE entered
into an agreement to sell the outstanding capital stock of JBRI to GB Foods
Corporation in exchange for 1,000,000 shares of GB Foods Corporation common
stock.
The following table depicts certain balance sheet information related to
the Hometown Buffet restaurants, the 12 JB's restaurants sold to Star Sub, the
16 JB's restaurants to be acquired by Timber Lodge and the remaining operations
to be acquired by GB Foods as of January 26, 1998 and certain statement of
operations information for the 34 weeks ended September 22, 1997, the 18 weeks
ended January 26, 1998 and the 52 weeks ended January 26, 1998.
CONDENSED BALANCE SHEET AS OF JANUARY 26, 1998
<TABLE>
<CAPTION>
NET ASSETS NET ASSETS NET ASSETS
TO BE ACQUIRED TO BE ACQUIRED TO BE ACQUIRED
BY STAR BUFFET BY TIMBER LODGE BY GB FOODS
(12 UNITS) (16 UNITS) (52 UNITS) TOTAL
-------------- --------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash...................................... $ 160 $ 218 $ 715 $ 1,093
Short-term investments.................... -- -- -- --
Other current assets...................... 136 157 2,105 2,398
------ ------ ------- -------
Total current assets...................... 296 375 2,820 3,491
Non-current assets........................ 3,780 5,503 22,836 32,119
------ ------ ------- -------
Total assets.............................. $4,076 $5,878 $25,656 $35,610
====== ====== ======= =======
Accounts payable.......................... $ 387 $ -- $ 2,564 $ 2,951
Other current liabilities................. 808 553 4,611 5,972
</TABLE>
117
<PAGE> 130
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
NET ASSETS NET ASSETS NET ASSETS
TO BE ACQUIRED TO BE ACQUIRED TO BE ACQUIRED
BY STAR BUFFET BY TIMBER LODGE BY GB FOODS
(12 UNITS) (16 UNITS) (52 UNITS) TOTAL
-------------- --------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total current liabilities................. 1,195 553 7,175 8,923
------ ------ ------- -------
Long-term debt including capital lease
obligations............................. 244 1,383 5,678 7,305
Other non-current liabilities............. -- -- 2,489 2,489
------ ------ ------- -------
Total liabilities......................... 1,439 1,936 15,342 18,717
------ ------ ------- -------
Stockholder's equity...................... 2,637 3,942 10,314 16,893
------ ------ ------- -------
Total liabilities and stockholder's
equity.................................. $4,076 $5,878 $25,656 $35,610
====== ====== ======= =======
</TABLE>
CONDENSED BALANCE SHEET AS OF MAY 18, 1998
<TABLE>
<CAPTION>
NET ASSETS NET ASSETS NET ASSETS
TO BE ACQUIRED TO BE ACQUIRED TO BE ACQUIRED
BY STAR BUFFET BY TIMBER LODGE BY GB FOODS
(12 UNITS) (16 UNITS) (52 UNITS) TOTAL
-------------- --------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash...................................... $ -- $ 591 $ 1,922 $ 2,513
Short-term investments.................... -- -- -- --
Other current assets...................... -- 178 2,159 2,337
----- ------ ------- -------
Total current assets...................... -- 769 4,081 4,850
Non-current assets........................ -- 5,319 20,933 26,252
----- ------ ------- -------
Total assets.............................. $ -- $6,088 $25,014 $31,102
===== ====== ======= =======
Accounts payable.......................... -- 199 3,403 3,602
Other current liabilities................. -- 1,305 5,138 6,443
----- ------ ------- -------
Total current liabilities................. -- 1,504 8,541 10,045
----- ------ ------- -------
Long-term debt including capital lease
obligations............................. -- 1,427 5,356 6,783
Other non-current liabilities............. -- -- 1,909 1,909
----- ------ ------- -------
Total liabilities......................... -- 2,931 15,806 18,737
----- ------ ------- -------
Stockholder's equity...................... -- 3,157 9,208 12,365
----- ------ ------- -------
Total liabilities and stockholder's
equity.................................. $ -- $6,088 $25,014 $31,102
===== ====== ======= =======
</TABLE>
118
<PAGE> 131
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS FOR THE 34 WEEKS ENDED SEPTEMBER 22, 1997
<TABLE>
<CAPTION>
HOMETOWN STAR TIMBER LODGE GB FOODS
BUFFET (12 UNITS) (16 UNITS) (52 UNITS) TOTAL
-------- ---------- --------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues from company operated
stores.......................... $26,756 $8,002 $9,279 $29,678 $73,715
Franchised revenues............... -- -- -- 797 797
------- ------ ------ ------- -------
Total revenues.................... 26,756 8,002 9,279 30,475 74,512
------- ------ ------ ------- -------
Food and packaging................ 9,826 2,548 3,010 9,482 24,866
Payroll and other employee
benefits........................ 7,872 2,972 3,594 11,394 25,832
Occupancy and other costs......... 6,166 1,466 2,462 7,010 17,104
------- ------ ------ ------- -------
23,864 6,986 9,066 27,886 67,802
Franchised and licensed restaurant
expenses........................ -- -- -- 452 452
Advertising expenses.............. 276 120 172 550 1,118
General and administrative
expenses........................ 998 301 386 1,298 2,983
------- ------ ------ ------- -------
Total operating expense........... 25,138 7,407 9,624 30,186 72,355
------- ------ ------ ------- -------
Operating income.................. 1,618 595 (345) 289 2,157
Interest expense.................. (132) (26) (124) (466) (748)
Other income, net................. -- 9 12 195 216
------- ------ ------ ------- -------
Income (loss) before income
taxes........................... 1,486 578 (457) 18 1,625
Income taxes (benefit)............ 595 169 (177) 8 595
------- ------ ------ ------- -------
Net Income........................ $ 891 $ 409 $ (280) $ 10 $ 1,030
======= ====== ====== ======= =======
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS FOR THE 18 WEEKS ENDED JANUARY 26, 1998
<TABLE>
<CAPTION>
STAR TIMBER LODGE GB FOODS
(12 UNITS) (16 UNITS) (52 UNITS) TOTAL
---------- --------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from Company operated restaurants...... $3,967 $ 4,691 $14,583 $23,241
Franchised revenues............................. -- -- 373 373
------ ------- ------- -------
Total revenues.................................. 3,967 4,691 14,956 23,614
------ ------- ------- -------
Food and packaging.............................. 1,308 1,514 4,750 7,572
Payroll and other benefits...................... 1,564 1,866 5,907 9,337
Occupancy and other............................. 722 1,265 3,622 5,609
------ ------- ------- -------
3,594 4,645 14,279 22,518
Franchised and licensed restaurant expenses..... -- -- 234 234
Advertising expenses............................ -- -- -- --
General and administrative expenses............. 162 213 702 1,077
------ ------- ------- -------
Total operating expense......................... 3,756 4,858 15,215 23,829
------ ------- ------- -------
Operating income................................ 211 (167) (259) (215)
Interest expense................................ (10) (73) (153) (236)
Other income, net............................... 41 55 6 102
------ ------- ------- -------
Income (loss) before income taxes............... 242 (185) (406) (349)
Income taxes (benefit).......................... 95 (72) (158) (135)
------ ------- ------- -------
Net income...................................... $ 147 $ (113) $ (248) $ (214)
====== ======= ======= =======
</TABLE>
119
<PAGE> 132
JB'S FAMILY RESTAURANTS, INC. (SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 26, 1998
<TABLE>
<CAPTION>
HOMETOWN STAR TIMBER LODGE GB FOODS
BUFFET (12 UNITS) (16 UNITS) (52 UNITS) TOTAL
-------- ---------- --------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues from company operated stores...... $26,756 $11,969 $13,970 $44,261 $96,956
Franchised revenues........................ -- -- -- 1,170 1,170
------- ------- ------- ------- -------
Total revenues............................. 26,756 11,969 13,970 45,431 98,126
------- ------- ------- ------- -------
Food and packaging......................... 9,826 3,856 4,524 14,232 32,438
Payroll and other employee benefits........ 7,872 4,536 5,460 17,301 35,169
Occupancy and other costs.................. 6,166 2,188 3,727 10,632 22,713
------- ------- ------- ------- -------
23,864 10,580 13,711 42,165 90,320
Franchised and licensed restaurant
expenses................................. -- -- -- 686 686
Advertising expenses....................... 276 120 172 550 1,118
General and administrative expenses........ 998 463 599 2,000 4,060
------- ------- ------- ------- -------
Total operating expense.................... 25,138 11,163 14,482 45,401 96,184
------- ------- ------- ------- -------
Operating income........................... 1,618 806 (512) 30 1,942
Interest expense........................... (132) (36) (197) (619) (984)
Other income, net.......................... -- 50 67 201 318
------- ------- ------- ------- -------
Income (loss) before income taxes.......... 1,486 820 (642) (388) 1,276
Income taxes (benefit)..................... 595 264 (249) (150) 460
------- ------- ------- ------- -------
Net Income................................. $ 891 $ 556 $ (393) $ (238) $ 816
======= ======= ======= ======= =======
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS FOR THE 52 WEEKS ENDED JANUARY 28, 1998
<TABLE>
<CAPTION>
STAR TIMBER LODGE GB FOODS
(12 UNITS) (16 UNITS) (52 UNITS) TOTAL
---------- ------------ ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities......... $ 1,678 $(2,934) $ 8,435 $ 7,179
======= ======= ======= =======
Net cash provided by (used in) investing activities......... $ 652 $ 13 $(4,344) $(3,679)
======= ======= ======= =======
Net cash provided by (used in) financing activities......... $(3,953) $ 1,581 $(5,904) $(8,276)
======= ======= ======= =======
</TABLE>
120
<PAGE> 133
JB'S FAMILY RESTAURANTS, INC.(SEE NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS FOR THE 16 WEEKS ENDED MAY 18, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STAR TIMBER LODGE GB FOODS
(12 UNITS) (16 UNITS) (52 UNITS) TOTAL
------------ -------------------- -------------------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue for Company operated
restaurant..................... $850 $4,815 $14,412 $20,077
Franchised Revenues.............. -- -- 427 427
---- ------ ------- -------
Total Revenues................... 850 4,815 14,839 20,504
---- ------ ------- -------
Food and packaging............... 288 1,580 4,669 6,537
Payroll and other benefits....... 328 1,757 5,305 7,390
Occupancy and other.............. 190 1,114 3,178 4,482
---- ------ ------- -------
806 4,451 13,152 18,409
Franchised and licensed
restaurant expenses -- -- 184 184
Advertising expenses............. 26 129 436 591
General and administrative
expenses....................... 39 219 723 981
---- ------ ------- -------
Total operating expense.......... 871 4,799 14,495 20,165
---- ------ ------- -------
Operating income................. (21) 16 344 339
Interest expense................. (2) (37) (143) (182)
Other income, net................ 1 5 75 81
---- ------ ------- -------
Income (loss) before income
taxes.......................... (22) (16) 276 238
Income taxes, (benefit).......... (9) (6) 107 92
---- ------ ------- -------
Net Income....................... $(13) $ (10) $ 169 $ 146
==== ====== ======= =======
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS 16 WEEKS ENDED MAY 18, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TIMBER
STAR LODGE GB FOODS
(12 UNITS) (16 UNITS) (52 UNITS) TOTAL
---------- ---------- ---------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net cash provided by operating activities......... $ 35 $ 528 $1,877 $ 2,440
======= ===== ====== =======
Net cash (used in) investing activities........... $ 4,295 $ 23 $ 52 $ 4,370
======= ===== ====== =======
Net cash (used in) financing activities........... $(4,490) $(178) $ (722) $(5,390)
======= ===== ====== =======
</TABLE>
121
<PAGE> 134
The following table depicts the revenues and operating income for the 12
JB's restaurants sold to Star Sub for the 28 weeks ended January 27, 1997, the
42 weeks ended July 15, 1996 and the 52 weeks ended September 25, 1995 and the
revenues and operating income for HTB Restaurants, Inc. for the 28 weeks ended
January 27, 1997, the 42 weeks ended July 15, 1996, and the 52 weeks ended
September 25, 1995.
HISTORICAL REVENUES AND OPERATING INCOME
12 JB'S RESTAURANTS SOLD TO STAR SUB:
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
28 WEEKS ENDED 42 WEEKS ENDED 52 WEEKS ENDED
JANUARY 27, 1997 JULY 15, 1996 SEPTEMBER 25, 1995
---------------- -------------- ------------------
<S> <C> <C> <C>
Revenues.................................... $6,097 $9,552 $12,255
Operating Income............................ $ 419 $ 14 $ 314
</TABLE>
HISTORICAL REVENUES AND OPERATING INCOME
HTB RESTAURANTS, INC. (TRANSFERRED TO STAR BUFFET, INC. SEPTEMBER 22, 1997)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
28 WEEKS ENDED 42 WEEKS ENDED 52 WEEKS ENDED
JANUARY 27, 1997 JULY 15, 1996 SEPTEMBER 25, 1995
---------------- -------------- ------------------
<S> <C> <C> <C>
Revenues.................................... $20,599 $31,779 $35,949
Operating Income............................ $ 630 $ 557 $ (230)
</TABLE>
122
<PAGE> 135
PROPOSAL NO. 3 TO GB FOODS' MEETING -- ELECTION OF DIRECTORS
At the GB Foods' Meeting, the GB Foods' shareholders will elect six
directors to hold office until the next annual meeting of the shareholders of GB
Foods, until their successors have been duly elected and qualified or until they
resign, become disqualified or disabled, or are otherwise removed.
The GB Foods' Board of Directors will ultimately consist of seven
directors. If the Merger is approved and closes, Dermot F. Rowland will be
appointed to the GB Foods' Board in accordance with the Merger Agreement and
will occupy the seventh seat on the Board as if he had been elected at the GB
Foods' Meeting. Biographical information concerning Mr. Rowland appears in Annex
F at page F-25. If the Merger is not approved or otherwise fails to close, the
six persons elected to the GB Foods' Board at the GB Foods' Meeting may appoint
a seventh director by their majority vote.
The proxies solicited hereby are intended to be voted for the nominees
whose names are listed below. Discretionary authority to cumulate votes
represented by proxies is solicited by the Board of Directors because, in the
event nominations are made in opposition to the nominees of the Board of
Directors, it is the intention of the persons named in the accompanying GB
Foods' proxy card to cumulate votes represented by proxies for individual
nominees in accordance with their best judgment in order to assure the election
of as many of the Board's nominees as possible. Five of the six nominees are
presently directors of GB Foods and they, along with Mr. Thompson, have
indicated their willingness to serve as directors, if elected. The persons named
in the proxy card will have discretionary authority to vote for others if any
nominee becomes unable or unwilling to serve prior to the GB Foods Meeting. To
the knowledge of GB Foods, all six nominees are planning to and will be able to
serve.
INFORMATION CONCERNING NOMINEES
<TABLE>
<CAPTION>
FIRST YEAR
PRINCIPAL BECAME OTHER CORPORATE
NOMINEE NAME AGE OCCUPATION DIRECTOR DIRECTORSHIPS
------------ ----- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
William P. Foley 53 Chairman of the Board, GB Foods; 1997 Micro General
II Chairman of the Board and Chief Corporation; Rally's
Executive Officer, Fidelity Hamburgers, Inc.;
National Financial, Inc.; Chairman Checkers Drive-In
of the Board and Chief Executive Restaurants, Inc.;
Officer, CKE Restaurants, Inc. DataWorks Corporation;
Star Buffet, Inc.; Fresh
Foods, Inc.
Andrew F. Puzder 47 Chief Executive Officer, GB Foods; 1997 Javelin Systems, Inc.;
Executive Vice President, Fidelity Rally's Hamburgers,
National Financial, Inc.; Inc.; Fresh Foods, Inc.
Executive Vice President/General
Counsel, CKE Restaurants, Inc.
T. Anthony Gregory 59 Real estate developer 1989 --
Bruce H. Haglund 46 Principal, Gibson, Haglund & 1989 Aviation Distributors,
Johnson Inc.
C. Thomas Thompson 47 President and Chief Operating -- Checkers Drive-In
Officer, CKE Restaurants, Inc. Restaurants, Inc.;
Rally's Hamburgers,
Inc.; Star Buffet, Inc.
Frank P. Willey 44 President, Fidelity National 1997 CKE Restaurants, Inc.;
Financial, Inc. Southern Pacific Funding
Corporation; Ugly
Duckling Holdings, Inc.
</TABLE>
123
<PAGE> 136
William P. Foley, II became Chairman of the Board and a Director of GB
Foods in July 1997. Mr. Foley is also Chairman of the Board and Chief Executive
Officer of Fidelity, positions which he has held since 1981. Fidelity is a
company engaged in title insurance and related services. Mr. Foley is also the
Chairman of the Board and Chief Executive Officer of CKE.
Andrew F. Puzder became a Director of GB Foods in July 1997 and was
appointed Chief Executive Officer in August 1997. Mr. Puzder also serves as an
Executive Vice President and General Counsel for CKE, and as an Executive Vice
President for Fidelity. Mr. Puzder has been with Fidelity since January 1995.
From March 1994 to December 1994, he was a partner with the law firm of
Stradling, Yocca, Carlson & Rauth. Prior to that, he was a partner with the firm
of Lewis, D'Amato, Brisbois & Bisgard from September 1991 through March 1994,
and he was a partner of The Stolar Partnership law firm from February 1984
through September 1991.
Bruce H. Haglund has served as a Director of the Company since 1989. Mr.
Haglund is an attorney in private practice in Orange County, California and has
been a principal in the law firm of Gibson, Haglund & Johnson since April 1994.
He was a principal in the law firm of Phillips, Haglund, Haddan & Jeffers from
February 1991 to April 1994. From 1984 to February 1991, he was a partner in the
law firm of Gibson & Haglund, and from 1980 to 1984 was an associate with the
firm. He is also a director of Aviation Distributors, Inc.
T. Anthony Gregory has served as a Director of the Company since 1989.
Since 1962, Mr. Gregory has owned and operated U.S. Customs Air Bonded
Warehouse. In June 1989, Mr. Gregory opened U.S. Customs Bonded Container and
Freight Station, and in August 1989 opened Custom Air Trucking Company. Mr.
Gregory was Vice President and Secretary of Equitable Saving & Loan Association,
a holding company for several savings and loan companies from 1963 to 1965.
C. Thomas Thompson presently has no position with GB Foods. Mr. Thompson is
President and Chief Operating Officer of CKE, which position he attained in
October, 1994. Mr. Thompson has been a franchisee of CKE's Carl's Jr. restaurant
chain since 1984, and currently operates 15 Carl's Jr. restaurants in the San
Francisco Bay Area. Mr. Thompson previously held positions with Jack-in-the-Box
and Pacific Fresh Restaurants, a full-service restaurant chain in the Bay Area.
Frank P. Willey became a Director of GB Foods in July 1997. He is also the
President of Fidelity and has been a Director of Fidelity since February 1984.
He was the General Counsel of Fidelity from 1984 to January 1995.
THE BOARD OF DIRECTORS OF GB FOODS RECOMMENDS A VOTE "FOR" THE ELECTION OF
ALL OF THE ABOVE NOMINEES.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Compensation Committee. The Board
does not have a nominating or audit committee or other committee performing
similar functions. The Compensation Committee, whose current members are Messrs.
Willey (Chairman), Haglund and Gregory, considers the hiring and election of
corporate officers, salary and incentive compensation policies for officers and
directors, and the granting of stock options to employees.
During fiscal 1997, the Board of Directors held three meetings, and the
Compensation Committee held one meeting. During fiscal 1997, no director
attended fewer than 75% of the aggregate meetings of the Board of Directors and
the committee or committees on which he served.
COMPENSATION OF DIRECTORS
Directors receive no cash compensation for their services. Members of the
GB Foods' Board received nonstatutory stock options in the past in recognition
of their service on the Board. Beginning effective August, 1997, each Director
of GB Foods will receive an annual grant of 20,000 options per year.
124
<PAGE> 137
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Committee, comprised of three non-employee directors, is responsible
for administering the executive compensation policies, administering the various
management incentive programs (including option plans), and making
recommendations to the Board of Directors with respect to these policies and
programs. In addition, the Committee makes annual recommendations to the Board
of Directors concerning the compensation paid to the Chief Executive Officer and
the executive officers named in the Summary Compensation Table (the "Named
Executive Officers"). That Table is set forth under the caption "SUMMARY OF
COMPENSATION" beginning on page 127 in this booklet. Set forth below is a report
submitted by the Committee addressing compensation policies for fiscal 1997 as
they affected the Executive Officers.
Compensation Policies Towards Executive Officers. The Committee believes
that the most effective executive compensation program is one that provides
incentives to achieve both current and long-term strategic management goals,
with the ultimate objective of enhancing stockholder value. With respect to
equity-based compensation, the Committee believes that an integral part of GB
Foods' compensation program is the ownership and retention of GB Foods' Common
Stock by its Executive Officers. By providing Executive Officers with a
meaningful stake in GB Foods, the value of which is dependent on GB Foods'
long-term success, a commonality of interests between GB Foods' Executive
Officers and its stockholders is fostered.
Relationship of Performance to Compensation. Compensation that may be
earned by the Executive Officers under the current management team consists
primarily of stock options. The Committee, in its discretion, may apply
different factors, particularly different measures of company performance, in
setting executive compensation for future fiscal years, but all compensation
decisions will be designed to further the general compensation policies
indicated above. With regard to GB Foods' performance, the measures used for
determining appropriate levels of compensation for executive officers include GB
Foods' market share, net margin, quality of service, meeting strategic goals
within the current economic climate and industry environment, scope of
responsibilities, expansion by acquisition or otherwise, profit retention, and
profitability, all of which combine to enhance stockholder value.
-- Stock Options. Stock option grants motivate Executive Officers to manage
the business to improve long-term GB Foods performance and align the interests
of Executive Officers with stockholder value. Customarily, option grants are
made with exercise prices equal to the fair market value of the shares on the
grant date and will be of no value unless the market price of GB Foods' shares
of Common Stock appreciates, thereby aligning a substantial part of the
Executive Officer's compensation package with the return realized by the
stockholders. Options generally vest in equal installments over a period of
time, contingent upon the Executive Officer's continued employment with GB
Foods. Accordingly, an option will provide a return to the Executive Officer
only if the Executive Officer remains employed by GB Foods' and the market price
of the underlying shares appreciates over the option term. The size of an option
grant is designed to create a meaningful opportunity for stock ownership and is
based upon the individual's current position with GB Foods, internal
comparability with option grants made to other GB Foods executives and the
individual's potential for future responsibility and promotion over the option
term.
Chief Executive Officer Compensation. Andrew F. Puzder became GB Foods'
Chief Executive Officer in August 1997. Mr. Puzder did not receive any cash
compensation during fiscal 1997 for such position. Mr. Puzder received 100,000
stock options in 1997 and an additional 100,000 stock options in the first
quarter of 1998 to reward him for GB Foods' performance in 1997 and to
incentivize him to excel in 1998. GB Foods' former Chief Executive Officer,
William M. Theisen, received cash salary in 1997 commensurate with his cash
compensation in prior years. The Committee had kept cash compensation for Mr.
Theisen at relatively low levels due to his receipt of stock and stock purchase
warrants in 1994 and 1995.
Corporate Deduction for Compensation. Section 162(m) of the Internal
Revenue Code generally limits to $1.0 million the corporate deduction for
compensation paid to certain executive officers, unless certain requirements are
met. At this time, GB Foods' deduction for officer compensation is not limited
by the provisions of Section 162(m). The Committee intends to monitor
regulations issued pursuant to Sec-
125
<PAGE> 138
tion 162(m) and to take such actions with respect to the executive compensation
program as are reasonably necessary to preserve the corporate tax deduction for
executive compensation paid.
T. Anthony Gregory
Bruce H. Haglund
Frank P. Willey (Chairman)
---------------------
The report of the Compensation Committee of the Board of Directors shall
not be deemed incorporated by reference by any general statement incorporating
by reference this booklet into any filing under the Securities Act of 1933 or
under the Securities Exchange Act of 1934, except to the extent that GB Foods
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
126
<PAGE> 139
STOCKHOLDER PERFORMANCE
STOCKHOLDER PERFORMANCE GRAPH
<TABLE>
<CAPTION>
MEASUREMENT PERIOD GB FOODS
(FISCAL YEAR COVERED) S & P 500 INDEX CORPORATION S & P RESTAURANTS
<S> <C> <C> <C>
1992 108.8 108.8 108.8
1993 110.08 191.3 116.74
1994 111.53 179.7 116.38
1995 153.45 226.1 174.55
1996 188.68 171 172.45
1997 251.63 108.75 185.17
</TABLE>
The Stockholder Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that GB Foods specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
SUMMARY OF COMPENSATION
The following table sets forth certain information regarding the
compensation of GB Foods' Chairman of the Board and Director, Andrew F. Puzder,
GB Foods' Chief Executive Officer for the period August 1997 through December
31, 1997 and for the former Chief Executive Officer William M. Theisen, for each
of the three years in the period ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- -------------------
NAME AND PRINCIPAL POSITION YEAR SALARY OTHER(1) STOCK OPTIONS
--------------------------- ---- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
Andrew F. Puzder(2).................... 1997 $ 0 0 0 100,000
Chief Executive Officer.............. 1996 $ 0 0 0 0
1995 $ 0 0 0 0
William M. Theisen(3).................. 1997 $29,531 0 0 0
Chairman, President.................. 1996 $50,000 0 0 0
and Chief Executive Officer.......... 1995 $50,000 0 0 1,000,000
</TABLE>
- ---------------
(1) The remuneration described in the table does not include the cost to GB
Foods of benefit furnished to the named executive officer, including
premiums for health insurance and other personal benefits provided to
127
<PAGE> 140
such individual that are extended to employees of GB Foods in connection
with their employment. The value of such benefits cannot be precisely
determined; however, the executive officer named above did not receive other
compensation in excess of the lesser of $25,000 or 10% of such cash
compensation.
(2) Became a Director in August 1997 and Chief Executive Officer in August 1997.
Compensation in 1997 includes options to purchase 100,000 shares of GB Foods
stock; see the table entitled "Option Grants in Last Fiscal Year" below for
additional information.
(3) Resigned as Chairman, President and Chief Executive Officer in August 1997.
Compensation in 1995 includes presently exercisable warrants to purchase
1,000,000 shares of GB Foods stock at $7 per share, granted in May, 1995.
STOCK OPTIONS
During fiscal year 1997, non-qualified stock options were granted to Mr.
Puzder, at an exercise price of $8.63 per share. The options vest on August 26,
1998, one year from the date they were issued. The options were granted on the
condition that GB Foods' shareholders approve the grants. See "PROPOSAL NO. 4 TO
GB FOODS' MEETING" beginning at page 129 for additional information.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SHARES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------------
NAME GRANTED YEAR 1997 SHARE DATE 0% 5% 10%
---- ----------- ---------- ---------- ---------- --- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew F. Puzder 100,000 % $8.63 8/26/07 0 $542,736 $1,375,000
William M. Theisen 0 % -- -- -- -- --
</TABLE>
The following table sets forth the number of options, both exercisable and
unexercisable, held by the Chief Executive Officer and the former Chief
Executive Officer of GB Foods as of December 31, 1997 and the value of any
in-the-money options, assuming that the value of the shares was $10.88, the fair
market value of GB Foods' common stock on December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew F. Puzder 0 0 0 100,000 0 $224,500
William M. Theisen 0 0 500,000 0 $2,937,500 0
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the members of the Compensation Committee of GB Foods'
Board of Directors were Messrs. Willey, Chairman, Haglund and Gregory. None of
the Compensation Committee members were officers, former officers or employees
of GB Foods during fiscal 1997. Mr. Willey served as President and a Director of
Fidelity and a Director of CKE Restaurants, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires GB Foods'
executive officers and directors, and persons who own more than 10% of a
registered class of GB Foods' equity securities, to file reports of ownership
and changes in ownership with the SEC. Executive officers, directors and greater
than 10% stockholders are required by SEC regulations to furnish GB Foods with
copies of all Section 16(a) forms they file.
128
<PAGE> 141
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, GB Foods believes that, during fiscal 1997, all
filing requirements applicable to its executive officers, directors and greater
than 10% stockholders were satisfied.
PROPOSAL NO. 4 TO GB FOODS' MEETING --
AMENDMENTS TO GB FOODS CORPORATION
1989 NON-QUALIFIED STOCK OPTION PLAN
AND RATIFICATION OF PRIOR GRANTS
At the GB Foods' Meeting, the GB Foods' shareholders are being asked to
amend the GB Foods Corporation 1989 Non-Qualified Stock Option Plan (the "NQSO
Plan") by (i) increasing the number of shares of GB Foods' common stock
authorized under the NQSO Plan and (ii) authorizing and ratifying the grant of
certain options thereunder. To amend the NQSO Plan and to ratify the grants made
pursuant to it, an affirmative vote of the holders of at least a majority of the
GB Foods' common shares which are voted at the GB Foods' meeting is required.
PLAN AMENDMENTS
In 1989, GB Foods adopted the NQSO Plan to attract and retain qualified
persons for positions of substantial responsibility as officers, directors,
consultants, legal counsel and other positions of significance to GB Foods. The
NQSO Plan currently authorizes the grant of options up to a maximum of 125,000
shares of GB Foods' common stock. Option grants have been made in excess of the
125,000 share limit. These excess option grants were conditioned upon the
ratification and approval of GB Foods' shareholders. If approved by GB Foods'
shareholders, the NQSO Plan will be amended only to increase the maximum number
of shares available under the NQSO Plan from 125,000 shares to 975,000 shares.
This increase in the number of shares available under the NQSO Plan will cover
the options that have already been granted and that are discussed below.
GRANTS TO BE RATIFIED
The number of shares of GB Foods' common stock issuable pursuant to option
grants for which the GB Foods' Board of Directors is seeking ratification by the
GB Foods' shareholders is 900,000. Options were granted to the following
officers for the following number of shares:
<TABLE>
<CAPTION>
AUGUST 26, 1997(1) DECEMBER 23, 1997(2) FEBRUARY 27, 1998(3)
------------------ -------------------- --------------------
<S> <C> <C> <C>
William P. Foley II........... 150,000 200,000
Andrew F. Puzder.............. 100,000 100,000
Nicholas J. Caddeo............ 25,000
T. Anthony Gregory............ 20,000 10,000
Bruce Haglund................. 20,000 10,000
M'Liss Jones Kane............. 10,000 25,000
Gary R. Nelson................ 50,000 25,000
Carl A. Strunk................ 50,000 25,000
Frank P. Willey............... 70,000 10,000
</TABLE>
- ---------------
(1) Based on the Closing Price of the Company's Common Stock on August 26, 1997
which was $8.625.
(2) Based on the Closing Price of the Company's Common Stock on December 23,
1997 which was $10.375.
(3) Based on the Closing Price of the Company's Common Stock on February 27,
1998 which was $8.25.
No new or additional grants will be made to the individuals named above, or
to anyone else, under the NQSO Plan. GB Foods asks shareholders only to
retroactively authorize and ratify the grants already made.
129
<PAGE> 142
Any future option grants will be made pursuant to a new plan. Proposal No. 5
seeks shareholder approval of that new option plan, the GB Foods Corporation
1998 Stock Option Plan. See Proposal No. 5 and Annex I to this Joint Proxy
Statement/Prospectus for additional information.
In 1989, GB Foods also adopted the GB Foods' Corporation Incentive Stock
Option Plan (the "ISO Plan"). The ISO Plan terminates in 1999. As of December
31, 1997, GB Foods had 77,500 shares available for option grants under the ISO
Plan.
THE BOARD OF DIRECTORS OF GB FOODS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 4,
THE AMENDMENT OF GB FOODS CORPORATION NON-QUALIFIED STOCK OPTION PLAN AND THE
RATIFICATION OF CERTAIN OPTION GRANTS THEREUNDER.
PROPOSAL NO. 5 TO GB FOODS' MEETING -- APPROVAL OF GB FOODS CORPORATION 1998
STOCK OPTION PLAN
At the GB Foods Meeting, the stockholders will be asked to approve the 1998
Stock Option Plan (the "Plan"), which was adopted by the Board of Directors on
February 27, 1998. Unless instructed to the contrary, the shares represented by
the proxies will be voted in favor of the adoption of the Plan.
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the GB Foods Meeting is required to approve the Plan.
All material provisions of the Plan are summarized below. The summarized
descriptions are summaries only. A copy of the Plan is included in this booklet
as Annex I.
GENERAL NATURE AND PURPOSES
The Plan provides for the grant of options or restricted shares of GB
Foods' common stock, which had a market value as of the close of trading on
March 26, 1998 of $7.875 per share. Such grant may be made by GB Foods to GB
Foods' officers, directors and employees, and also to consultants, business
associates and others with important business relationships with GB Foods. The
number of shares available under the Plan for issuance shall initially be
1,000,000. No individual in any calendar year may receive options or restricted
shares representing, in the aggregate, more than 250,000 shares. The Plan is
administered by the Board of Directors.
The purposes of the Plan are to ensure the retention of the services of
existing executive personnel, key employees and nonemployee directors of GB
Foods or its affiliates, to attract and retain competent new executive personnel
and key employees, to provide incentive to all such personnel, employees and
nonemployee directors to devote their utmost effort and skill to the advancement
and betterment of GB Foods by permitting them to participate in the ownership of
GB Foods and thereby in the success and increased value of GB Foods and to allow
consultants, business associates and others with important business
relationships with GB Foods the opportunity to participate in the ownership of
GB Foods and thereby have an interest in the success and increased value of GB
Foods.
The Plan is not subject to any of the provisions of ERISA and is not a
qualified deferred compensation plan under Section 401(a) of the Code.
ADMINISTRATION
The Plan may be administered by the Board of Directors or by a Committee,
at least two persons of which shall be directors of GB Foods who shall be
appointed by, and serve at the pleasure of, the Board of Directors.
Subject to the limitations on eligibility discussed below and the specific
provisions of the Plan, the Board of Directors or the Committee, as the case may
be (hereinafter the administering body is referred to as the "Administrator"),
has the full and final authority to determine the persons to whom, and the time
or times at which, incentive options or nonqualified options shall be granted
and restricted shares issued, the number of
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shares to be represented by each incentive option or nonqualified option and the
number of restricted shares and the consideration to be received by GB Foods
upon the exercise or issuance thereof; to interpret the Plan; to amend and
rescind rules and regulations relating to the Plan; to determine the form and
content of the incentive options or nonqualified options to be issued and terms
and conditions of restricted shares to be offered under the Plan; to determine
the identity or capacity of any persons who may be entitled to exercise a
participant's rights under any incentive option, nonqualified option or
restricted share agreement under the Plan; to correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any incentive option,
nonqualified option or restricted share agreement in the manner and to the
extent the Administrator deems desirable to carry the Plan, incentive option,
nonqualified option or restricted share agreement into effect; to accelerate the
exercise date of any incentive option, nonqualified option or release and/or
waive any repurchase rights of GB Foods contained in any restricted share
agreement; to provide for an option to GB Foods to repurchase any shares issued
upon exercise of an option upon termination of employment; and to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan.
Determinations of the Administrator as to all matters of interpretation of the
Plan are final and binding upon all participants and prospective participants of
the Plan.
AMENDMENT AND TERMINATIONS OF THE PLAN
The Board of Directors may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board of Directors may deem
advisable; provided, however, that no such alteration, amendment, suspension or
termination shall be made that would substantially affect or impair the rights
of any person under any incentive option, nonqualified option or restricted
share theretofore granted to such person without his or her consent.
Unless previously terminated by the Board of Directors, the Plan will
terminate on April 14, 2008.
ELIGIBILITY
Incentive Options. Officers and other key employees of GB Foods (including
directors if they also are employees of GB Foods), as may be determined by the
Administrator, who qualify for incentive stock options under the applicable
provisions of the Code, will be eligible for selection to receive incentive
options under the Plan. An employee who has been granted an incentive option
may, if otherwise eligible, be granted an additional incentive option or options
and receive nonqualified options or restricted shares if the Administrator so
determines.
Nonqualified Options or Restricted Shares. Officers and other key employees
of GB Foods, any member of the Board of Directors, whether or not he or she is
employed by GB Foods, or consultants, business associates or others with
important business relationships with GB Foods will be eligible to receive
nonqualified options or restricted shares. An individual who has been granted a
nonqualified option or who has received restricted shares may, if otherwise
eligible, be granted an incentive option or an additional nonqualified option or
options or restricted shares if the Administrator so determines.
TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED SHARES
Exercise and Purchase Price. The exercise price of the shares of common
stock covered by each nonqualified option granted and the purchase price of
restricted shares under the Plan shall be determined by the Administrator;
provided, that the exercise price of the shares of common stock covered by each
incentive option granted under the Plan shall not be less than the fair market
value of such shares on the date on which the incentive option is granted; and
provided further, that the exercise price with respect to incentive options
shall not be less than 110% of the fair market value if the person to whom
shares are granted own 10% or more of the outstanding stock of GB Foods. Such
fair market value shall, if the common stock is not listed or admitted to
trading on a stock exchange or the Nasdaq SmallCap Market, be the average of the
closing bid price and asked price of the common stock in the over-the-counter
market on the date the incentive option or nonqualified option is granted or
restricted share is offered, or if the common stock is then listed or admitted
to trading on any stock exchange or on the Nasdaq SmallCap Market, the closing
sale price on such date on the
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principal stock exchange or national market system on which the common stock is
then listed or admitted to trading, or, if no sale takes place on such day on
such principal exchange or national market system, then the closing sale price
of the common stock on such exchange or national market system on the next
preceding day on which a sale occurred. During such times as no market price is
available, the fair market value of the common stock shall be determined by the
Administrator, which shall consider, among other facts that it considers to be
relevant, the book value of the common stock and the earnings of GB Foods. The
exercise price or the purchase price, as the case may be, shall be subject to
the anti-dilution provisions of the Plan.
Payment. Payment for shares upon exercise of an option or upon issuance of
restricted shares must be made in full at the time of exercise, or issuance with
respect to restricted shares. The consideration payable upon exercise of an
option shall, at the discretion of the Administrator, be paid: (i) in United
States dollars payable in cash, check, or bank draft; (ii) subject to any legal
restrictions on the acquisition or purchase of its shares by GB Foods, by the
delivery of shares of common stock which shall be deemed to have a value to GB
Foods equal to the aggregate fair market value of such shares determined at the
date of such exercise; (iii) by the issuance of a promissory note in a form
acceptable to the Administrator; (iv) by cancellation of indebtedness of GB
Foods to the optionee; (v) by waiver of compensation due or accrued to the
optionee for services rendered; (vi) provided that a public market for GB
Foods's stock exists, through a "same day sale" commitment from the optionee and
a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the optionee irrevocably elects to exercise
his option and to sell a portion of the shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such shares to forward the exercise price directly to the Company; (vii)
provided that a public market for GB Foods' stock exists, through a "margin"
commitment from the optionee and a NASD Dealer whereby the optionee irrevocably
elects to exercise his option and to pledge the shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such shares to forward the exercise price directly to GB Foods;
or (viii) any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by applicable corporate
law, all as the Administrator shall in its discretion determine. The
consideration payable upon purchase of restricted shares shall, at the
discretion of the Administrator, be paid by any of the methods set forth in
clauses (i), (iii), (iv) or (v) above or any combination of such methods of
payment or any other consideration or method of payment as shall be permitted by
applicable corporate law.
Term of Options. The term of each option granted under the Plan is
determined by the Administrator at the time the option is granted; provided,
however, that no option granted under the Plan may have a term in excess of ten
years; and provided further, that incentive options shall expire within a period
of not more than five years if granted to a person who is the beneficial owner
of 10% or more of the outstanding stock of GB Foods.
Termination of Employment. In the event that an optionee who is an employee
of GB Foods shall cease to be employed by GB Foods for any reason, including,
without limitation, as a result of his or her death or disability, (i) all
incentive and nonqualified options granted to any such optionee pursuant to the
Plan which are not exercisable at the date of such cessation shall terminate
immediately and become void and of no effect, (ii) all incentive options granted
to any such optionee pursuant to the Plan which are exercisable at the date of
such cessation may be exercised at any time within such period to be determined
by the Administrator at the time of grant (which in the case of death or a
disability may be a different period), but in any event no later than the date
of expiration of the incentive option period, and if not so exercised within
such time shall become void and of no effect at the end of such time; provided,
however, that if any such incentive option is in fact exercised at any time
after three (3) months following the date of such cessation (or one year in the
case of death or disability), such option shall be a nonqualified option and not
an incentive option and (iii) all nonqualified options granted to any such
optionee pursuant to the Plan which are exercisable at the date of such
cessation may be exercised at any time within such period to be determined by
the Administrator at the time of grant, but in any event no later than the date
of expiration of the nonqualified option period, and if not so exercised within
such time shall become void and of no effect at the end of such time.
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Limitation on Incentive Options. To the extent the aggregate fair market
value of the shares of common stock with respect to which incentive stock
options are exercisable for the first time by the optionee during any calendar
year exceeds $100,000, such stock options representing such excess shall be
nonqualified stock options.
Continuance of Employment. Neither the Plan nor the granting of any
incentive option, nonqualified option or restricted share under the Plan imposes
any obligation on GB Foods to continue the employment of any optionee or
offeree.
No Obligation to Exercise Option or Issue Restricted Share. Neither the
granting of an incentive option or nonqualified option nor the offer of a
restricted share under the Plan shall impose any obligation upon the optionee to
exercise such an incentive option or nonqualified option or upon the offeree to
purchase such restricted shares.
Withholding. GB Foods has the power to withhold, or require an optionee or
offeree to remit to GB Foods, an amount sufficient to satisfy Federal, state and
local withholding tax requirements with respect to any incentive option or
nonqualified option exercised or restricted shares issued. To the extent
permissible under applicable tax, securities and other laws, the Administrator
may permit the optionee or offeree to satisfy an obligation to pay any such tax,
up to an amount determined on the basis of the highest marginal tax rate
applicable to such optionee or offeree, in whole or in part, by (i) directing GB
Foods to apply shares of common stock to which the optionee or offeree is
entitled as a result of the exercise of an incentive option or nonqualified
option or as a result of the lapse of restrictions on restricted shares or (ii)
delivering to GB Foods shares of common stock owned by the optionee or offeree.
ADJUSTMENTS UPON CHANGES OF CAPITALIZATION AND REORGANIZATIONS
In the event that the outstanding shares of common stock are increased or
decreased or changed into or exchanged for a different number of kind of shares
or other securities of GB Foods by reason of merger, consolidation or
reorganization in which GB Foods is the surviving corporation, or of a
recapitalization, stock split, combination of shares, reclassification,
reincorporation, stock dividend (in excess of 2%) or other change in the
corporate structure of GB Foods while the Plan is in effect, appropriate
adjustments shall be made by the Board of Directors to the aggregate number and
kind of shares subject to the Plan, and the number and kind of shares and the
price per share subject to outstanding incentive options, nonqualified options
and restricted shares in order to preserve, but not to increase, the benefits to
persons then holding incentive options, nonqualified options or restricted
shares.
In the event that GB Foods at any time proposes to sell substantially all
of its assets, merge into, consolidate with or to enter into any other
reorganization in which GB Foods is not the surviving corporation, or if GB
Foods is the surviving corporation and the ownership of the outstanding capital
stock of GB Foods following the transaction changes by 50% or more as a result
of such transaction, the Plan and all unexercised incentive options or
nonqualified options granted thereunder and all offers to purchase restricted
shares shall terminate, unless provision is made in writing in connection with
such transaction for (i) the continuance of the Plan and for the assumption of
incentive options and nonqualified options theretofore granted, and all
outstanding offers to purchase restricted shares, or the substitution for such
incentive options, nonqualified options and offers to purchase restricted shares
of new options covering, and new offers to purchase, shares of a successor
corporation, with appropriate adjustments as to number and kind of shares and
prices, in which event the Plan and the incentive options, nonqualified options
and offers to purchase restricted shares theretofore granted or the new
incentive options, nonqualified options and new offers to purchase restricted
shares substituted therefor, shall continue in the manner and under the terms so
provided or (ii) the substitution for the Plan and all outstanding incentive
options and nonqualified options of a program or plan to provide rights to the
holders of such options to receive on exercise of such rights, the type and
amount of consideration they would have received had they exercised all options
prior to such transaction and less the aggregate exercise price of such options
(which rights shall vest and be generally subject to the terms of such options
in the case of unvested options). If such provision is not made in such
transaction, then the Administrator shall cause written notice of the proposed
transaction to be given to the persons holding
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incentive options, nonqualified options or rights of purchase not less than
thirty (30) days prior to the anticipated effective date of the proposed
transaction, and all incentive options, nonqualified options and rights of
purchase shall be accelerated and, concurrent with the effective date of the
proposed transaction, such persons shall have the right to exercise incentive
options, nonqualified options and accept rights of purchase with respect to any
or all shares then subject thereto. The Administrator shall have the right, with
respect to any specific incentive option, nonqualified option or rights of
purchase granted under the Plan, to provide that all incentive options,
nonqualified options, or rights of purchase shall be accelerated in any event
upon the effective date of the proposed transaction.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of all material United States federal income tax
consequences of participation in the Plan. The summary is a summary only.
Federal tax laws are complex and subject to change. Moreover, participation in
the Plan may also have consequences under state and local tax laws which may
vary from the federal tax consequences described below. For such reasons, GB
Foods recommends that each participant consult his or her personal tax advisor
to determine the specific tax consequences applicable to him or her.
The United States 1997 Tax Act changed, among other things, the federal
income tax treatment of capital gains. Generally, the federal tax rate on gains
from the sale of shares of GB Foods' stock depends upon how long the shares have
been held at the time of sale. For shares held less than 12 months, the gain
("short-term capital gain") is taxed at ordinary income tax rates. For sales
made after July 28, 1997, where the shares have been held more than 12 months
but less than 18 months, the gain ("mid-term capital gain") is subject to
federal income tax at a maximum rate of 28 percent, and for shares held more
than 18 months, the gain ("long-term capital gain") is subject to federal income
tax at a maximum rate of 20 percent.
Incentive Stock Options. No taxable income will be recognized by an
optionee under the Plan upon either the grant or the exercise of an incentive
option. Instead, a taxable event will occur upon the sale or other disposition
of the shares acquired upon exercise of an incentive option, and the tax
treatment of the gain or loss realized will depend upon how long the shares were
held before their sale or disposition. As is discussed below, the exercise of an
incentive option also may result in items of "tax preference" for purposes of
the "alternative minimum tax."
If a sale or other disposition of the shares received upon the exercise of
an incentive option occurs more than (i) one year after the date of exercise of
the option and (ii) two years after the date of grant of the option, the holder
will recognize either mid-term or long-term capital gain or loss (depending upon
whether the shares were held more than 12 or more than 18 months after exercise)
at the time of sale equal to the full amount of the difference between the
proceeds realized and the exercise price paid. However, a sale, exchange, gift
or other transfer of legal title of such stock before the expiration of either
the one-year or two-year period described above will constitute a "disqualifying
disposition." A disqualifying disposition involving a sale or exchange will
result in ordinary income to the optionee in an amount equal to the lesser of
(i) the fair market value of the stock on the date of exercise minus the
exercise price, or (ii) the amount realized on disposition minus the exercise
price. If the amount realized in a disqualifying disposition exceeds the fair
market value of the stock on the date of exercise, the gain realized, in excess
of the amount taxed as ordinary income as indicated above, will be taxed as
capital gain. A disqualifying disposition as a result of a gift will result in
ordinary income to the optionee in an amount equal to the difference between the
exercise price and the fair market value of the stock on the date of exercise.
Any loss realized upon a disqualifying disposition will be treated as a capital
loss. Capital gains and losses resulting from disqualifying dispositions will be
treated as long-term, mid-term or short-term depending upon whether the shares
were held for more or less than the applicable statutory holding period (which
is currently more than one year but less 18 months for mid-term capital gains
and more than 18 months for long-term capital gains). GB Foods will be entitled
to a tax deduction in an amount equal to the ordinary income recognized by the
optionee as a result of the disqualifying disposition.
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If legal title to any shares acquired upon exercise of an incentive option
is transferred by sale, gift or exchange, such transfer will be treated as a
disposition for purposes of determining whether a "disqualifying disposition"
has occurred. However, certain transfers will not be treated as dispositions for
such purposes, such as transfers to an estate or by inheritance upon an
optionee's death, a mere pledge or hypothecation, or a transfer into the name of
the optionee and another person as joint tenants.
Section 55 of the Internal Revenue Code of 1986 imposes an "alternative
minimum tax" on an individual's income to the extent the amount of the
alternative minimum tax exceeds the individual's regular tax for the year. For
purposes of computing the alternative minimum tax, the excess of the fair market
value (on the date of exercise) of the shares received upon the exercise of an
incentive option over the exercise price paid is included in alternative minimum
taxable income in the year the option is exercised. If the shares are sold in
the same year that the option is exercised, the regular tax treatment and the
alternative tax treatment will be the same. If the shares are sold during a year
subsequent to that in which the option was exercised, the basis of the stock
acquired will equal its fair market value on the date of exercise for purposes
of computing alternative minimum taxable income in the year of sale. For
example, assume that an individual pays an exercise price of $10 to purchase
stock having a fair market value of $15 on the date of exercise. The amount
included in alternative minimum taxable income is $5, and the stock has a basis
of $10 for regular tax purposes and $15 for alternative minimum tax purposes. If
the individual sells the stock in a subsequent year for $20, the gain recognized
is $10 for regular tax purposes and $5 for alternative minimum tax purposes.
An optionee who is subject to the alternative minimum tax in the year of
exercise of an incentive option may claim as a credit against the optionee's
regular tax liability in future years, the amount of alternative minimum tax
paid that is attributable to the exercise of the incentive option. This credit
is available in the first year following the year of exercise in which the
optionee has a regular tax liability.
Under the Plan the Board of Directors may permit an optionee to pay the
exercise price of an incentive option by delivering shares of common stock of GB
Foods already owned by the optionee, valued at their fair market value on the
date of exercise. Generally, if the exercise price of an incentive option is
paid with already-owned shares or by a combination of cash and already-owned
shares, there will be no current taxable gain or loss recognized by the optionee
on the already-owned shares exchanged. A special rule applies, however, if the
shares exchanged were previously acquired through the exercise of an incentive
option and the applicable holding period requirements for favorable tax
treatment of such shares have not been met at the time of the exchange. In such
event, the exchange will be treated as a disqualifying disposition of such
shares and will result in the recognition of income to the optionee, in
accordance with the rules described above for disqualifying dispositions. If
this special rule does not apply, then the new shares received by the optionee
upon the exercise of the option equal in number to the old shares exchanged will
have the same tax basis and holding period for capital gain purposes as the
optionee's basis and holding period in the old shares. The balance of the shares
received by the optionee upon exercise of the option will have a tax basis equal
to any cash paid by the optionee, and if no cash was paid, the tax basis of such
shares will be zero. The holding period of the additional shares for capital
gain purposes will commence on the date of exercise. The holding period for
purposes of the one-year and two-year periods described above will commence on
the date of exercise as to all of the shares received upon the exercise of an
incentive option. If any of the shares subject to the basis allocation rules
described above are subsequently transferred in a disqualifying disposition, the
shares with the lowest tax basis will be treated as being transferred first.
Nonqualified Stock Options. No taxable income is recognized by an optionee
upon the grant of a nonqualified option. Upon exercise, however, the optionee
will recognize ordinary income in the amount by which the fair market value of
the shares purchased exceeds, on the date of exercise, the exercise price paid
for such shares. The income recognized by an optionee who is an employee will be
subject to income tax withholding by GB Foods out of the optionee's current
compensation. If such compensation is insufficient to pay the taxes due, the
optionee will be required to make a direct payment to GB Foods for the balance
of the tax withholding obligation. GB Foods will be entitled to a tax deduction
equal to the amount of ordinary income recognized by the optionee, provided
certain reporting requirements are satisfied.
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If the exercise price of a nonqualified option is paid by the optionee in
cash, the tax basis of the shares acquired will be equal to the cash paid plus
the amount of income recognized by the optionee as a result of such exercise. If
the exercise price is paid by delivering shares of common stock of GB Foods
already owned by the optionee or by a combination of cash and already-owned
shares, there will be no current taxable gain or loss recognized by the optionee
on the already-owned shares exchanged (however, the optionee will nevertheless
recognize ordinary income to the extent that the fair market value of the shares
purchased on the date of exercise exceeds the price paid, as described above).
The new shares received by the optionee equal in number to the old shares
exchanged will have the same tax basis and holding period as the optionee's
basis and holding period in the old shares. The balance of the shares received
will have a tax basis equal to any cash paid by the optionee plus the amount of
income recognized by the optionee as a result of such exercise, and will have a
holding period commencing with the date of exercise.
Upon the sale or disposition of shares acquired pursuant to the exercise of
a nonqualified option, the difference between the proceeds realized and the
optionee's basis in the shares will be a capital gain or loss and will be
treated as long-term, mid-term or short-term capital gain or loss if the shares
have been held for more than the applicable statutory holding period (which is
currently more than one year but less 18 months for mid-term capital gains and
more than 18 months for long-term capital gains).
OPTIONS GRANTED TO DATE
No options have yet been granted under the Plan. However, as part of his
initial compensation as GB Foods' new Chief Financial Officer, Theodore Abajian
has been promised a future grant of options to purchase 50,000 GB Foods shares.
That grant has not yet occurred, and is subject to shareholder approval of the
Plan and approval of the grant by the Committee.
THE BOARD OF DIRECTORS OF GB FOODS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 5,
APPROVAL OF THE GB FOODS CORPORATION 1998 STOCK OPTION PLAN.
PROPOSAL NO. 6 TO GB FOODS MEETING -- APPROVAL OF NAME CHANGE TO
SANTA BARBARA RESTAURANT GROUP, INC.
As GB Foods Corporation adds restaurant concepts to its core business,
management has determined that changing the name GB Foods Corporation to Santa
Barbara Restaurant Group, Inc. to reflect the broader scope of its operations
will more appropriately characterize its future marketing and growth strategy.
THE BOARD OF DIRECTORS OF GB FOODS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 6,
APPROVAL OF NAME CHANGE TO SANTA BARBARA RESTAURANT GROUP, INC.
INDEPENDENT AUDITORS
Selection of an independent auditor is made by the Board of Directors. GB
Foods' independent auditor for the fiscal year ended December 31, 1997 was Grant
Thornton LLP. The Board of Directors will vote upon the selection of an auditor
for the current fiscal year at a future Board meeting.
Representatives of Grant Thornton LLP are expected to attend the Meeting
and be available to respond to appropriate questions. The representatives of
Grant Thornton LLP also will have an opportunity to make a formal statement, if
they so desire.
GB Foods dismissed its former principal accountants, Cacciamatta
Accountancy Corporation (formerly known as Saddington-Cacciamatta), on October
23, 1996. The decision to dismiss the former principal accountants was
recommended by the then-existing GB Foods' Audit Committee and approved by the
Board of Directors.
The reports of Cacciamatta Accountancy Corporation on the financial
statements of GB Foods for each of the years ended December 31, 1995 and 1994
did not contain an adverse opinion or disclaimer of opinion, nor were such
reports qualified or modified as to uncertainty, audit scope, or accounting
principles. During the
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two most recent years ended December 31, 1995 and through October 23, 1996, GB
Foods had no disagreements with the former principal accountants on any matters
of accounting principles or practices, financial statement or disclosure or
auditing scope or procedure or any reportable events.
GB Foods' Board of Directors approved the decision to change accounting
firms and engage the firm of Grant Thornton LLP, effective October 24, 1996.
STOCKHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
Pursuant to the rules of the Securities and Exchange Commission, proposals
by eligible stockholders (as defined below) which are intended to be presented
at GB Foods' Annual Meeting of Stockholders in 1999 must be received by GB Foods
by April 2, 1999 in order to be considered for inclusion in GB Foods' proxy
materials. The Board of Directors of GB Foods will determine whether any such
proposal will be included in its 1999 proxy solicitation materials. An eligible
stockholder is one who is the record or beneficial owner of at least 1% or
$1,000 in market value of securities entitled to be voted at the 1999 Annual
Meeting and has held such securities for at least one year, and who shall
continue to own such securities through the date on which the meeting is held.
ANNUAL AND QUARTERLY REPORTS
A copy of GB Foods' Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997 and a copy of its Quarterly Report on Form 10-Q, for the
quarterly period ended March 31, 1998 (excluding exhibits), as filed with the
Securities and Exchange Commission, are included in this Joint Proxy Statement/
Prospectus as Annex E. Please consult it for additional information about GB
Foods.
LEGAL MATTERS
The legality of the shares of GB Foods common stock to be issued in the
Merger will be passed upon for GB Foods by The Stolar Partnership, St. Louis,
Missouri.
Larkin, Hoffman, Daly & Lindgren, Ltd., Bloomington, Minnesota, will issue
an opinion to Timber Lodge regarding the federal income tax consequences of the
Merger to Timber Lodge shareholders who do not exercise dissenters' rights.
EXPERTS
The consolidated balance sheets of GB Foods Corporation as of December 31,
1997 and 1996 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended have been included
herein and in the Registration Statement in reliance upon the report of Grant
Thornton LLP, Independent Certified Public Accountants, appearing elsewhere
herein, and upon the authority of such firm as experts in accounting and
auditing.
The consolidated statements of operations, shareholders' equity and cash
flows for the year ended December 31, 1995 have been included herein in reliance
upon the report of Cacciamatta Accountancy Corporation, Independent Certified
Public Accountants, appearing elsewhere herein, and upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Timber Lodge Steakhouse, Inc. at December 31,
1997 and January 1, 1997 and for each of the years then ended have been included
in the Joint Proxy Statement/Prospectus, which is referred to and made a part of
this Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein and is
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated balance sheets of JB's Family Restaurants, Inc. and
subsidiaries as of January 26, 1998 and January 27, 1997, and the related
statements of operations, stockholders' equity and cash flows for each of the
following periods: the 18 weeks ended January 26, 1998, the 34 weeks ended
September 22, 1997, the
137
<PAGE> 150
28 weeks ended January 27, 1997, the 42 weeks ended July 15, 1996 and the 52
weeks ended September 25, 1995 have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, Independent Certified Public Accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
DEFINITIONS OF TERMS USED IN THIS BOOKLET
The following is a list of words and phrases which are used in this Joint
Proxy Statement/Prospectus and have a particular or technical meaning, along
with the page where the definition is given or the term first is used.
<TABLE>
<S> <C>
ADA.................................... 34
Administrator.......................... 130
Additional Transactions................ 47
Break-up Options....................... 63
CKE.................................... 39
CKE Predecessor........................ 12, 95
Code................................... 78
Comparable Companies................... 50
Comparable Transactions................ 50
Delaware Corporate Law................. 74
EBIT................................... 45
EBITDA................................. 45
Effective Time......................... 52
EPS.................................... 50
ESPP................................... 115
Exchange Agent......................... 53
Exchange Ratio......................... 39
Fidelity............................... 39
Fidelity Warrants...................... 39
Fidelity Warrants Exercise............. 39
Fiscal 95.............................. 96
GB Foods............................... 36
GB Foods Charter....................... 74
GB Foods Meeting....................... 36
GBF Plans.............................. 79
GB Foods Record Date................... 37
HTB.................................... 12, 91, 108
HTBB................................... 112
IPO.................................... 112
ISO Plan............................... 130
JBRI................................... 12
JBRI Acquisition....................... 80
JBRI Acquisition Agreement............. 80
JBRI Dispositions...................... 87
Lodge effect........................... 59
Long-term capital gain................. 134
LTM.................................... 45
Merger................................. 39
Merger Agreement....................... 39
Merger Sub............................. 39
Mid-term capital gain.................. 134
Minnesota Corporate Law................ 74
Named Executive Officers............... 125
NASD Dealer............................ 132
Notice Date............................ 56
NQSO Plan.............................. 129
PCI.................................... 48
PCI Opinion............................ 48
Plan................................... 130
Piper Jaffray.......................... 43
Piper Jaffray JBRI Opinion............. 87
Piper Jaffray Merger Opinion........... 43
Remittance............................. 56
Royalty Payment........................ 117
SEC.................................... ii
Service................................ 78
SFAS 121............................... 109
SFAS 123............................... 115
SFAS 130............................... 100
SFAS 131............................... 100
Short-term capital gain................ 134
Sixteen Restaurants.................... 39
Star................................... 12, 91, 108
Successor.............................. 12, 95
Summit................................. 12, 91
Summit/JB's Purchase Agreement......... 44
Summit Predecessor..................... 12, 95
Theisen................................ 65
Timber Lodge........................... 36
Timber Lodge Charter................... 74
Timber Lodge Meeting................... 36
Timber Lodge/JB's Purchase............. 39
Timber Lodge Record Date............... 37
TLS Plans.............................. 79
Warrants............................... 65
$5.00 Warrants......................... 65
$7.00 Warrants......................... 65
$7.50 Warrants......................... 65
</TABLE>
138
<PAGE> 151
ANNEXES
All Annexes are an integral part of this Joint Proxy Statement/Prospectus
booklet. They appear as "Annexes" solely for convenient presentation.
<TABLE>
<S> <C> <C>
ANNEX A -- Conformed copy of Amended and Restated Agreement and Plan of
Merger dated as of June 9, 1998, excluding schedules; and
First Amendment to Amended and Restated Agreement and Plan
of Merger dated as of July 8, 1998
ANNEX B -- Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act (relating to the rights of dissenting Timber
Lodge shareholders)
ANNEX C -- Copy of Fairness Opinion of Piper Jaffray Inc. (relating to
the Merger), and its Supplemental Letter
ANNEX D -- Copy of Fairness Opinion of Pauli & Company Incorporated
(relating to the Merger)
ANNEX E -- Copy of GB Foods' annual report on Form 10-K/A for the
fiscal year ended December 31, 1997, including financial
statements and auditors' report thereon and its quarterly
report on Form 10-Q, for the quarterly period ended
March 31, 1998, excluding exhibits
ANNEX F -- Copy of Timber Lodge's annual report on Form 10-KSB/A-2 for
the fiscal year ended December 31, 1997, including financial
statements reports of independent auditors thereon, plus
additional financial statements for a prior period and
auditors' report thereon and its quarterly report on Form
10-Q, for the quarterly period ended March 25, 1998,
excluding exhibits
ANNEX G -- Conformed copy of Agreement and Plan of Reorganization dated
as of February 19,1998 among GB Foods, CKE, and JBRI
(relating to the JBRI Acquisition), excluding schedules;
Assignment of Agreement and Plan of Reorganization, dated as
of March 26, 1998, by which JB Parent Corp. was permitted to
acquire the capital stock of JBRI and assumed CKE's
obligations to deliver that stock to GB Foods; First
Amendment to Agreement and Plan of Reorganization dated as
of March 27, 1998; Second Amendment to Agreement and Plan of
Reorganization dated as of June 3, 1998; and Third Amendment
to Agreement and Plan of Reorganization, dated as of July 8,
1998
ANNEX H -- Copy of Fairness Opinion of Piper Jaffray Inc. (relating to
the JBRI Acquisition)
ANNEX I -- Copy of GB Foods Corporation 1998 Stock Option Plan
</TABLE>
139
<PAGE> 152
ANNEX A
CONFORMED COPY OF
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 9, 1998
AMONG
GB FOODS CORPORATION
TLS ACQUISITION CORP.
AND
TIMBER LODGE STEAKHOUSE, INC.
------------------------------
FIRST AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JULY 8, 1998
<PAGE> 153
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
1.1 The Merger.................................................. A-1
1.2 Closing..................................................... A-1
1.3 Effective Time of the Merger................................ A-2
1.4 Effects of the Merger....................................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
2.1 Conversion of Shares........................................ A-2
2.2 Surrender and Payment....................................... A-2
2.3 Fractional Shares........................................... A-3
2.4 Stock Options............................................... A-4
2.5 Warrants.................................................... A-4
ARTICLE III
THE SURVIVING CORPORATION
3.1 Articles of Incorporation................................... A-4
3.2 Bylaws...................................................... A-4
3.3 Directors................................................... A-4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company............... A-4
(a) Organization, Standing and Corporate Power............. A-4
(b) Capital Structure...................................... A-5
(c) Authority; Noncontravention............................ A-5
(d) SEC Documents; Financial Statements; No Undisclosed A-6
Liabilities.................................................
(e) Nature of Business and Assets.......................... A-6
(f) Inventory.............................................. A-7
(g) Licenses, Approvals, etc............................... A-7
(h) Real Properties........................................ A-7
(i) Tangible Personal Property............................. A-8
(j) Intellectual Property.................................. A-8
(k) Environmental Compliance............................... A-8
(l) Absence of Certain Changes or Events................... A-9
(m) Litigation............................................. A-9
(n) Compliance with Laws................................... A-10
(o) Absence of Changes in Stock or Benefit Plans........... A-10
(p) ERISA Compliance....................................... A-10
(q) Taxes.................................................. A-11
(r) Contracts; Debt Instruments............................ A-13
(s) Insurance.............................................. A-14
(t) Interests of Officers and Directors.................... A-14
(u) Approval by Board...................................... A-14
(v) Brokers................................................ A-14
(w) Fairness Opinion....................................... A-14
(x) Disclosure............................................. A-14
</TABLE>
(i)
<PAGE> 154
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.2 Representations and Warranties of Parent and Merger A-14
Subsidiary..................................................
(a) Organization, Standing and Corporate Power............. A-14
(b) Capital Structure...................................... A-15
(c) Authority; Noncontravention............................ A-15
(d) SEC Documents; Financial Statements; No Undisclosed A-16
Liabilities.................................................
(e) Nature of Business..................................... A-16
(f) Litigation............................................. A-16
(g) Absence of Changes..................................... A-16
(h) Exchange Act Reports................................... A-16
(i) Brokers................................................ A-16
(j) Fairness Opinion....................................... A-16
(k) Disclosure............................................. A-17
4.3 Disclosure Schedules........................................ A-17
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Conduct of Business......................................... A-17
5.2 Access to Information....................................... A-18
5.3 No Solicitation............................................. A-18
5.4 Tax Treatment............................................... A-19
ARTICLE VI
COVENANTS OF PARENT
6.1 Conduct of Business......................................... A-19
6.2 Confidentiality............................................. A-19
6.3 Obligations of Merger Subsidiary............................ A-19
6.4 Employee Benefit Plans...................................... A-19
6.5 Indemnification and Insurance............................... A-20
6.6 Nasdaq Listing.............................................. A-20
6.7 Registration Relating to Company Options.................... A-20
6.8 Access to Information....................................... A-20
6.9 Tax Treatment............................................... A-20
6.10 Board of Directors Approval................................. A-20
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
7.1 Reasonable Efforts; Notification; HSR Act Filings........... A-20
7.2 Stockholder Meeting; Proxy Material......................... A-21
7.3 Press Releases.............................................. A-23
7.4 Securities Reports.......................................... A-23
7.5 Stockholder Approvals....................................... A-23
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party................. A-23
8.2 Conditions to the Obligations of Parent and Merger A-23
Subsidiary..................................................
8.3 Conditions to the Obligations of the Company................ A-25
ARTICLE IX
TERMINATION
9.1 Termination................................................. A-26
9.2 Effect of Termination....................................... A-27
</TABLE>
(ii)
<PAGE> 155
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE X
MISCELLANEOUS
10.1 Notices..................................................... A-28
10.2 Survival of Representations and Warranties.................. A-28
10.3 Amendments; No Waivers...................................... A-28
10.4 Fees and Expenses........................................... A-29
10.5 Successors and Assigns; Parties in Interest................. A-29
10.6 Severability................................................ A-29
10.7 Governing Law............................................... A-29
10.8 Entire Agreement............................................ A-29
10.9 Counterparts: Effectiveness; Interpretation................. A-30
</TABLE>
(iii)
<PAGE> 156
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"),
is entered into as of June 9, 1998, among TIMBER LODGE STEAKHOUSE, INC., a
Minnesota corporation (the "Company"), GB FOODS CORPORATION, a Delaware
corporation ("Parent"), and TLS ACQUISITION CORP., a Minnesota corporation and a
wholly-owned subsidiary of Parent ("Merger Subsidiary").
WHEREAS, as of January 16, 1998, Parent, Merger Subsidiary and the Company
entered into an Agreement and Plan of Merger (the "Agreement") providing for the
merger of Merger Subsidiary into the Company as set forth therein (the
"Merger"), upon the terms and subject to the conditions set forth therein and
the Minnesota Business Corporation Act (the "MBCA"), whereby each issued and
outstanding share of common stock, par value $0.01 per share, of the Company
(the "Shares") shall be converted into the Merger Consideration (as defined
herein);
WHEREAS, the Board of Directors of the Company had theretofore unanimously
(i) determined that the Agreement and the transactions contemplated thereby,
including the Merger, were fair to and in the best interests of the stockholders
of the Company, (ii) determined that the consideration to be paid in the Merger
was fair to and in the best interests of the stockholders of the Company, (iii)
approved the Agreement and the transactions contemplated thereby, including the
Merger, and (iv) resolved to recommend approval and adoption of the Agreement,
the Merger and the other transactions contemplated hereby by such stockholders;
WHEREAS, the Board of Directors of Parent had also unanimously (i)
determined that the Agreement and the transactions contemplated thereby,
including the Merger, were fair to and in the best interests of the stockholders
of the Parent, (ii) approved the Agreement and the transactions contemplated
hereby, including the Merger, and (iii) resolved to recommend approval of the
issuance of the Parent Common Stock (as defined therein) in connection with the
Merger by the Parent's stockholders;
WHEREAS, Fidelity National Financial, Inc. ("Fidelity") intends to exercise
options to purchase shares of stock of the Parent as more particularly described
in Article VIII;
WHEREAS, the parties have heretofore amended the Agreement by a First
Amendment dated as of February 17, 1998, and made certain additional amendments
in an Amended and Restated Agreement and Plan of Merger dated as of March 12,
1998 and a First Amendment to Amended and Restated Agreement and Plan of Merger
dated as of June 3, 1998;
WHEREAS, the parties have recently discovered that the scrivener of the
Amended and Restated Agreement and Plan of Merger inadvertently made a mistake
reflecting the parties' intent regarding the adjustment provisions in Section
2.1 and, for convenience, the parties have determined to restate the Agreement
in its entirety.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree that the Agreement
is hereby amended and restated in its entirety as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the MBCA, Merger Subsidiary shall be
merged with and into the Company at the Effective Time (as defined herein). At
the Effective Time, (i) the separate corporate existence of Merger Subsidiary
shall cease, and (ii) the Company shall continue as the surviving corporation as
a direct wholly-owned subsidiary of Parent (Merger Subsidiary and the Company
are sometimes hereinafter referred to as "Constituent Corporations" and, as the
context requires, the Company, after giving effect to the Merger, is sometimes
hereinafter referred to as the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") shall take place as
soon as practicable, but in any case on or prior to the third business day after
which all of the conditions set forth in Article VIII hereof
A-1
<PAGE> 157
shall be fulfilled or waived in accordance with this Agreement (the "Closing
Date"). At the time of the Closing, the Company and Merger Subsidiary will file
a certificate of merger with the Secretary of State of the State of Minnesota
(the "Certificate of Merger") and make all other filings or recordings required
by the MBCA in connection with the Merger.
1.3 Effective Time of the Merger. The Merger shall, subject to the MBCA,
become effective as of such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Minnesota or at such later time as is
specified in the Certificate of Merger (the "Effective Time").
1.4 Effects of the Merger. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and shall be subject to all of the restrictions, disabilities, duties
and liabilities of the Company and Merger Subsidiary shall cease to exist, all
as provided under the MBCA.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any Shares or the holder of
any shares of capital stock of Merger Subsidiary:
(a) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one fully paid and nonassessable share of common stock of the Surviving
Corporation and such shares shall constitute the only outstanding shares of
capital stock of the Surviving Corporation; and
(b) each Share outstanding immediately prior to the Effective Time
shall be converted into the right to receive 0.8000 of a share (the
"Exchange Ratio") of Parent's common stock, par value $0.08 per share (the
"Parent Common Stock"), without interest, together with cash in lieu of any
fractional share of Parent Common Stock as provided in Section 2.3 below
(the "Merger Consideration"); provided however, that the Exchange Ratio
shall be subject to adjustment as follows:
(i) If the Average Parent Common Stock Price (as defined in Section
9.1(vi) below) is less than $7.50, Parent or the Company may terminate
this Agreement as provided in Section 9.1(vi) below or, alternatively,
Parent may elect to increase the Exchange Ratio to a number (rounded to
the nearest 1/10000) equal to the product of the Exchange Ratio
multiplied by a fraction, the numerator of which is $7.50 and the
denominator of which is the Average Parent Common Stock Price, in which
event the Company shall not have the right to terminate this Agreement;
and
(ii) If the Average Parent Common Stock Price is more than $14.00,
the Exchange Ratio shall be reduced to a number (rounded to the nearest
1/10000) equal to the product of the Exchange Ratio multiplied by a
fraction, the numerator of which is $14.00 and the denominator of which
is the Average Parent Common Stock Price.
In the event, prior to the Effective Time, of any recapitalization of
Parent through a subdivision of its outstanding shares into a greater number of
shares, or a combination of its outstanding shares into a lesser number of
shares, or any reorganization reclassification or other change in its
outstanding shares into the same or a different number of shares of other
classes, or a declaration of or dividend on its outstanding shares payable in
shares of its capital stock (a "Capital Change"), then the Exchange Ratio shall
be appropriately adjusted so as to maintain after such Capital Change the
relative proportionate interests in the number of shares of Parent Common Stock
(assuming consummation of the Merger) which the holders of Shares and the
holders of shares of Parent Common Stock had immediately prior to such Capital
Change.
2.2 Surrender and Payment.
(a) Prior to the Effective Time, Parent shall appoint a bank or trust
company (the "Exchange Agent") for the purpose of exchanging certificates
representing Shares for the Merger Consideration. Parent will make available to
the Exchange Agent the Merger Consideration to be paid in respect of the Shares
(the "Exchange Fund"). Promptly after the Effective Time, Parent will send, or
will cause the Exchange Agent to send, to each holder of Shares as of the
Effective Time a letter of transmittal for use in such exchange (which shall
A-2
<PAGE> 158
specify that the delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of the certificates representing Shares to the
Exchange Agent). The Exchange Agent shall, pursuant to irrevocable instructions,
make the payments provided in this Section 2.2. The Exchange Fund shall not be
used for any other purpose, except as provided in this Agreement.
(b) Each holder of Shares that have been converted into the Merger
Consideration, upon surrender to the Exchange Agent of a certificate or
certificates representing such Shares, together with a properly completed letter
of transmittal covering such Shares and other customary documentation, will be
entitled to receive the Merger Consideration payable in respect of such Shares.
As of the Effective Time, all such Shares shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate previously representing any such Shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration upon surrender of the certificates representing such Shares, as
contemplated hereby.
(c) If any portion of the Merger Consideration is to be paid to a person
other than the registered holder of the Shares represented by the certificate or
certificates surrendered in exchange therefor, it shall be a condition to such
payment that the certificate or certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment shall pay to the Exchange Agent any transfer or other
taxes required as a result of such payment to a person other than the registered
holder of such Shares or establish to the satisfaction of the Parent and the
Exchange Agent that such tax has been paid or is not required. For purposes of
this Agreement, "person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof.
(d) After the Effective Time, there shall be no further transfers of
Shares. If, after the Effective Time, certificates representing Shares are
presented to the Surviving Corporation, they shall be canceled and exchanged for
the consideration provided for, and in accordance with, the procedures set forth
in this Article II.
(e) Any portion of the Exchange Fund made available to the Exchange Agent
pursuant to this Agreement that remains unclaimed by the holders of Shares
twelve months after the Effective Time shall be returned to Parent, upon
Parent's demand, and any such holder who has not exchanged his Shares for the
Merger Consideration in accordance with this Section 2.2 prior to that time
shall thereafter look only to Parent for payment of the Merger Consideration in
respect of such holder's Shares. Notwithstanding the foregoing, Parent shall not
be liable to any holder of Shares for any amount paid to a public official
pursuant to and in accordance with the requirements of applicable abandoned
property, escheat or similar laws.
(f) No dividends or other distributions declared or made after the
Effective Time with respect to the Parent Common Stock for which the record date
is after the Effective Time shall be paid to the holder of any certificate
formerly representing Shares until such certificate is surrendered to the
Exchange Agent as provided herein. Following surrender of any such certificate,
there shall be paid to the holder of record thereof (i) certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (ii) as promptly as practicable the amount of dividends or
other distributions having a record date after the Effective Time paid with
respect to such whole shares of Parent Common Stock prior to their surrender and
(iii) on the appropriate payment date, the amount of dividends or other
distributions payable with respect to such whole shares of Parent Common Stock
and having a record date after the Effective Time but a payment date subsequent
to their surrender.
2.3 Fractional Shares. No fractional shares of Parent Common Stock will be
issued in connection with the Merger. In lieu of any fractional share of Parent
Common Stock to which the holder of any Share would otherwise be entitled to
receive, such holder shall be entitled to receive an amount of cash equal to the
value of such fractional shares of Parent Common Stock, which value shall be
based upon the Average Parent Common Stock Price (as defined in Section 9.1(vi)
below). The fractional interests of each holder of Shares will be aggregated so
that no holder of Shares will receive cash in an amount equal to or greater than
the value of one whole share of Parent Common Stock. Parent shall provide
sufficient funds to the Exchange Agent to make the payments contemplated by this
Section 2.3.
A-3
<PAGE> 159
2.4 Stock Options. At the Effective Time, each Company Option and NQSO
(as defined below) shall be assumed by the Parent and shall thereafter be deemed
to constitute an option to purchase, on the same terms and conditions as were
applicable under such Company Option, the same Merger Consideration as the
holder of such Company Option would have been entitled to receive pursuant to
the Merger had such holder exercised such Company Option in full immediately
prior to the Effective Time and been the holder of the Shares issuable upon
exercise of such Company Option, at an exercise price per share calculated by
dividing the aggregate exercise price for the Shares otherwise purchasable
pursuant to such Company Option by the number of full shares of Parent Common
Stock deemed purchasable pursuant to such option; provided, however, that in the
case of any Company Option to which Section 421 of the Code applies by reason of
its qualification as an "incentive stock option" the exercise price and the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code. "Company Option" means any option granted,
whether or not exercisable, and not exercised or expired, to a current or former
employee, director or independent contractor of the Company or any predecessor
thereof to purchase Shares pursuant to the Company's 1995 Stock Option Plan, as
amended (the "Option Plan"). "NQSO" means the non-qualified stock options
granted to the Company's officers in November, 1992.
2.5 Warrants. At the Effective Time, the warrant to purchase 120,000
Shares, dated December 9, 1993, issued to John G. Kinnard and Company,
Incorporated (the "Warrants") shall be assumed by the Parent in accordance with
the provisions of such Warrant and shall thereafter be deemed to constitute a
warrant to purchase, on the same terms and conditions as were applicable under
such Warrant, the same Merger Consideration as the holder of such Warrant would
have been entitled to receive pursuant to the Merger had such holder exercised
such Warrant in full immediately prior to the Effective Time and been the holder
of the Shares issuable upon exercise of such Warrant, at an exercise price to be
determined in accordance with the provisions of such Warrant.
ARTICLE III
THE SURVIVING CORPORATION
3.1 Articles of Incorporation. The Articles of Incorporation of the
Company in effect at the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until amended in accordance with applicable law.
3.2 Bylaws. The bylaws of the Merger Subsidiary in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
3.3 Directors. Upon the Effective Time, the Board of Directors of the
Surviving Corporation shall consist of five (5) members, and the initial
directors of the Surviving Corporation shall, until successors are duly elected
and qualified in accordance with applicable law, be William P. Foley, II, Andrew
F. Puzder, Frank P. Willey, Dermot F. Rowland, and Tom Thompson.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Merger Subsidiary, as of the date hereof and as of
the Closing Date, subject to the exceptions and qualifications set forth in the
disclosure schedule delivered by the Company to Parent and Merger Subsidiary
pursuant to Section 4.3 of this Agreement (the "Disclosure Schedule"), as
follows (whenever the representations or warranties of the Company are qualified
by the knowledge of the Company, knowledge shall mean actual knowledge after
reasonable investigation of the fact or matter in question of the management
employees of the Company identified in Section 4.1 of the Disclosure Schedule):
(a) Organization, Standing and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of Minnesota and has the requisite corporate power and authority to
carry on its business as now being conducted. The Company is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or
A-4
<PAGE> 160
the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) could not
reasonably be expected to have a "Company Material Adverse Effect," which
for purposes of this Agreement means to (i) have a material adverse effect
on the value, condition (financial or otherwise), prospects, business,
insurability or result of operations of the Company, (ii) impair the
ability of any party hereto to perform its obligations under this Agreement
or (iii) prevent or materially delay consummation of any of the
transactions contemplated by this Agreement. The Company has delivered to
Parent complete and correct copies of its Articles of Incorporation and
bylaws. The Company is not a party to any joint venture, partnership or
similar business or entity (the "Joint Ventures"). The Company does not
have any subsidiary. For purposes of this Agreement, a "subsidiary" of any
person means another person in which such first person, directly or
indirectly, owns 50% or more of the equity interests or has the right,
through ownership of equity, contractually or otherwise, to elect at least
a majority of its Board of Directors or other governing body.
(b) Capital Structure. The authorized capital stock of the Company
consists of 10,000,000 Shares par value $0.01 per share. As of December 31,
1997, (i) 3,625,750 Shares were issued and outstanding, (ii) Company
Options to Purchase 247,500 Shares were outstanding, (iii) no Shares were
reserved for issuance pursuant to the NQSO, and (iv) 120,000 Shares were
reserved for issuance upon exercise of the Warrants. Except as set forth
above, no shares of capital stock or other equity or voting securities of
the Company are authorized, issued, reserved for issuance or outstanding.
All outstanding shares of capital stock of the Company are, and all Shares
which may be issued pursuant to the Company Options or the Warrants will,
when issued, be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are not any
bonds, debentures, notes or other indebtedness or securities of the Company
having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above in this Section 4.1(b)
and in Section 4.1(b) of the Disclosure Schedule, there are not any
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company is a party or
by which it is bound obligating the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock
or other equity or voting securities of the Company or obligating the
Company to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
Section 4.1(b) of the Disclosure Schedule also sets forth a true and
correct list of the Company Options and Warrants which are outstanding as
of the date hereof, which list sets forth, for each holder of a Company
Option or Warrant, the number of Shares subject thereto, the exercise price
and the expiration date thereof. There are no outstanding rights,
commitments, agreements, arrangements or undertakings of any kind
obligating the Company to repurchase, redeem or otherwise acquire or
dispose of any shares of capital stock or other equity or voting securities
of the Company or any securities of any type described in the two
immediately preceding sentences.
(c) Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
the Company Stockholder Approval (as defined below) required in connection
with the consummation of the Merger, to consummate the transactions
contemplated by this Agreement. The Merger requires the approval by the
affirmative vote of the holders of a majority of the outstanding Shares
(the "Company Stockholder Approval"), which approval is the only vote of
the holders of any class or series of the capital stock of the Company
necessary to approve the Merger and this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, except for the Company
Stockholder Approval in connection with the consummation of the Merger.
This Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of
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termination, cancellation, modification or acceleration of any obligation
or to a loss of a material benefit under, or result in the creation of any
Lien (as defined below) upon any of the properties or assets of the Company
under, (i) except as disclosed in Section 4.1(c)(i) of the Disclosure
Schedule, the Articles of Incorporation or bylaws of the Company, (ii)
except as disclosed in Section 4.1(c)(ii) of the Disclosure Schedule, any
loan or credit agreement, note, bond, mortgage, indenture, Lien, lease or
any other contract, agreement, instrument, permit, commitment, concession,
franchise or license applicable to the Company, its properties or assets,
or (iii) subject to the governmental filings and other matters referred to
in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties
or assets, other than any such conflicts, violations, or defaults that,
individually or in the aggregate, would not have a Company Material Adverse
Effect. No consent, approval, franchise, order, license, permit, waiver or
authorization of, or registration, declaration or filing with or exemption,
notice, application, or certification by or to (collectively, "Consents")
any federal, state or local government or any arbitration panel or any
court, tribunal, administrative or regulatory agency or commission or other
governmental authority, department, bureau, commission or agency, domestic
or foreign (a "Governmental Entity"), is required by or with respect to the
Company in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions
contemplated by this Agreement except for (i) the required Consents listed
in Section 4.1(c)(i) and 4.1(c)(ii) of the Disclosure Schedule, (ii) the
filing of the Certificate of Merger in accordance with the MBCA and similar
documents with the relevant authorities of other states in which the
Company is qualified to do business, (iii) compliance with any applicable
requirements of the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), and the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and (iv) such other Consents as to which the failure to
obtain or make, individually or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect. The term "Lien" means
any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other) or preference, priority or other
security agreement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same effect as any of the
foregoing.
(d) SEC Documents; Financial Statements; No Undisclosed
Liabilities. The Company has timely filed all reports, schedules, forms,
statements, exhibits and other documents required to be filed with the
Securities and Exchange Commission ("SEC") by the Company (the "Company SEC
Documents") under or pursuant to the Exchange Act or the Securities Act.
True and correct copies of each of the Company SEC Documents have been
provided or made available to Parent. As of their respective dates, or as
subsequently amended prior to the date of this Agreement, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act as the case may be, applicable to such
Company SEC Documents, and none of the Company SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Company
SEC Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") (except in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis throughout the periods involved (except as specified on
the Disclosure Schedule) and fairly present the financial position of the
Company as of the dates thereof and the results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in
the Company SEC Documents, the Company has no liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise), except for
liabilities and obligations which, individually or in the aggregate, could
not reasonably be expected to have a Company Material Adverse Effect.
(e) Nature of Business and Assets. The Company is engaged in the
business (the "Business") of owning and operating seventeen full-service
steakhouse restaurants (the "Restaurants"), under the name "Timber Lodge
Steakhouse." All assets used in the operation of the Business (the
"Restaurant Assets")
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constitute all of the assets necessary to conduct the operations of the
Restaurants in the ordinary course of business. All of the assets owned and
leased by the Company that are used or held for use in the operation of the
Restaurants are included in the Restaurant Assets and, except as set forth
in Sections 4.1(h) and 4.1(i)(ii) below, at the Effective Time good and
marketable title to the Restaurant Assets will be vested in the Surviving
Corporation, free and clear of all claims, indebtedness, liabilities, Liens
and rights of any third party. All of the Restaurant Assets, including all
equipment, machinery and other items of tangible property, have
continuously been maintained by the Company in the ordinary course of
business. As of the Effective Time, the Restaurant Assets will be in good
working condition and repair (ordinary wear and tear excepted) and are
suitable for use in connection with the operation of the Restaurants. The
Restaurant Assets do not require any material repair other than in the
normal course of business which would require an expenditure in excess of
$5,000 per Restaurant or $25,000 in the aggregate. Schedule 4.1(e) of the
Disclosure Schedule sets forth a true, correct and complete list of each
item of personal property representing Restaurant Assets having a net book
value of more than $5,000.
(f) Inventory. The Company's inventory of food, beverages, utensils
and supplies (the "Inventory") for each Restaurant, as of the Effective
Time, is (i) sufficient for the operation of such Restaurant consistent
with the ordinary course of business; (ii) consists of items which are good
and merchantable within commercially reasonable standards in the restaurant
industry; and (iii) are of a quality and quantity presently usable or
saleable in the ordinary course of business.
(g) Licenses, Approvals, etc. The Company possesses or has been
granted all registrations, filings, applications, certifications, notices,
consents, licenses, permits, approvals, certificates, franchises, orders,
qualifications, authorizations and waivers of any Governmental Entity
(federal, state and local) necessary to enable it to conduct its business
in the manner in which it is presently being conducted (the "Licenses"),
which Licenses are listed in Section 4.1(g) of the Disclosure Schedule.
Except as described in Section 4.1(g) of the Disclosure Schedule, all of
the Licenses are in full force and effect. Except as described in Section
4.1(g) of the Disclosure Schedule, no action of any kind is pending or, to
the knowledge of the Company, threatened seeking the revocation or
limitation of any of the Licenses.
(h) Real Properties. The Company does not own any real property.
Section 4.1(h) of the Disclosure Schedule lists all real property
(including all land and buildings, "Real Estate") leased by the Company,
stating the name of the lessor or sublessor, whether the property is leased
as lessee or sublessee, and giving each property's address. The Company has
delivered or caused to be delivered to Parent complete and accurate copies
of the written leases and subleases which relate to the Real Estate,
together with all amendments or supplements thereto (the "Leases"). The
Company has not received written notice of condemnation or eminent domain
proceedings and is not aware of any such proceedings pending or threatened
against any Real Estate property. Except as disclosed in Section 4.1(h) of
the Disclosure Schedule, the Company has not received any notice from any
city, village or other Governmental Entity of any zoning, ordinance,
building, fire or health code or other legal violation in respect of any
Real Estate. The Leases are in full force and effect and are valid, binding
and enforceable in accordance with their respective terms; no amount
payable under any Lease is past due; the Company is in compliance in all
material respects with all commitments and obligations on its part to be
performed or observed under each Lease and is not aware of the failure by
any other party to any Lease to comply in all material respects with all of
its commitments and obligations; the Company has not received any written
notice (A) of a default (which has not been cured), offset or counterclaim
under any Lease, or, any other communication calling upon it to comply with
any provision of any Lease or asserting noncompliance, or asserting the
Company has waived or altered its rights thereunder, and no event or
condition has happened or presently exists which constitutes a default or,
after notice or lapse of time or both, would constitute a default under any
Lease on the part of the Company or any other party, or (B) of any
complaint, claim, prosecution, indictment, action, suit, arbitration,
investigation or proceeding by or before any Governmental Entity (an
"Action") against any party under any Lease which if adversely determined
would result in such Lease being terminated or cut off; and (v) the Company
has not assigned, mortgaged, pledged or otherwise encumbered its interest,
if any, under any Lease.
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(i) Tangible Personal Property. Except as disclosed in Section 4.1(i)
of the Disclosure Schedule, the Company (i) has good and valid title to all
the tangible personal property material to its business and reflected in
the latest audited financial statements included in the Company SEC
Documents as being owned by the Company or acquired after the date thereof
(except properties consumed, sold or otherwise disposed of in the ordinary
course of business since the date thereof), free and clear of all Liens
except (A) statutory Liens securing payments not yet due and (B) such
imperfections or irregularities of title or Liens as do not materially
affect the use of the properties or assets subject thereto or affected
thereby or otherwise materially impair its Business operations, and (ii) is
the lessee of all tangible personal property material to the Company's
Business and reflected as leased in the latest audited financial statements
included in the Company SEC Documents (or on the books and records of the
Company as of the date thereof or acquired after the date thereof, except
for leases that have expired by their terms or that have been transferred
in the ordinary course of business) and is in possession of the properties
purported to be leased thereunder, and each such lease is valid and in full
force and effect without default thereunder by the lessee or, to the
Company's knowledge, the lessor. The Company enjoys peaceful and
undisturbed possession under all such leases. Such owned and leased
tangible personal property is in good working order, reasonable wear and
tear excepted.
(j) Intellectual Property. The Company has presently effective federal
and state registrations of its trade marks, trade names and service marks
(the "Registered Marks") as listed in Section 4.1(j) of the Disclosure
Schedule, and the same are adequate for use in, and the protection of, the
Business. No person other than the Company has any right to use any
Registered Mark in any fashion other than as described on Schedule 4.1(j),
no person has claimed or is claiming that any Registered Mark infringes any
property or right of such person, and no person is engaged in any
infringing use of a Registered Mark or uses any name or mark confusingly
similar to any Registered Mark. The Company does not own any patents
(including design patents) except as listed in Schedule 4.1(j) of the
Disclosure Schedule.
(k) Environmental Compliance.
(i) For purposes of this Section 4.1(k), (A) "Hazardous Substance"
means any pollutant contaminant, hazardous or toxic substance or waste,
solid waste, petroleum or any fraction thereof, or any other chemical
substance or material listed or identified in or regulated by or under
any Environmental Law; (B) "Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
sec. 9601 et seq., the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act, 42 U.S.C. sec. 6901 et seq., the
Clean Water Act, 33 U.S.C. sec. 1251 et seq., the Clean Air Act, 42
U.S.C. sec. 7401 et seq., the Toxic Substances Control Act, 15 U.S.C.
sec. 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. sec. 300f et
seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C.
sec. 11001 et seq., the Occupational Safety and Health Act, 29 U.S.C.
sec. 651 et seq., the Oil Pollution Act, 33 U.S.C. sec. 2701 et seq., in
each case as amended from time to time, and all regulations promulgated
thereunder, and any other statute, law, regulation, ordinance, bylaw,
rule, judgment, order, decree or directive of any Governmental Entity
dealing with pollution or the protection of natural resources or the
indoor or ambient environment or with the protection of human health or
safety, and (C) "RCRA Hazardous Waste" means a solid waste that is
listed or classified as a hazardous waste, as that term is defined in or
pursuant to the Resource Conservation and Recovery Act, as amended,
42 U.S.C. sec. 6901 et seq.
(ii) Except as set forth on Section 4.1(k) of the Disclosure
Schedule: (A) there are no claims pending against the Company, or any of
its predecessors (the "Company Interests") relating to or arising out of
a Hazardous Substance nor are any such claims, to the Company's
knowledge, threatened against Company Interests, nor has the Company
received any notice, alleging or warning that any Real Estate or any
real property previously operated by any Company Interests is, has been
or may be in violation of or in noncompliance with any Environmental
Law; (B) to the Company's knowledge, no Hazardous Substance is now
present in amounts, concentrations or conditions requiring removal,
remediation or any other response, action or corrective action under, or
forming the basis of a claim pursuant to, any Environmental Law, in, on,
from or under the Real Estate or
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any real property previously owned or operated by any Company Interests;
(C) the Real Estate is not being and has not been during the period of
time they have been leased by any Company Interests used in connection
with the business of manufacturing, storing or transporting Hazardous
Substances, and no RCRA Hazardous Wastes are being or have been during
the period of time operated by any Company Interests treated, stored or
disposed of there in violation of any Environmental Law; and (D) there
neither are now nor have there been during the period of time they have
been operated by any Company Interests any underground storage tanks,
lagoons or other containment facilities of any kind which contain or
contained any Hazardous Substances on the Real Estate.
(iii) The Company has made available to the Parent true and correct
copies of any and all written communications received by the Company
from any Governmental Entity relating in whole or in part to the
existence of Hazardous Substances at any Real Estate or any real
property previously owned or operated by any Company Interests or the
compliance of the owners, operators or lessees thereof with respect to
any Environmental Law.
(l) Absence of Certain Changes or Events. Except as contemplated by
this Agreement or disclosed in Section 4.1(l) of the Disclosure Schedule,
since September 10, 1997, the Company has conducted the Business only in
the ordinary course consistent with past practice, and there has not been
(i) any event, occurrence or development which, individually or in the
aggregate, has had or could reasonably be expected to have a Company
Material Adverse Effect, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property)
with respect to any of the Company's capital stock or any repurchase,
redemption or other acquisition by the Company of any outstanding shares of
capital stock or other securities of the Company, (iii) any adjustment,
split, combination or reclassification of any of its capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
(iv) (A) any granting by the Company to any current or former director,
officer or employee of the Company of any material increase in compensation
or benefits, except for grants to employees who are not officers or
directors in the ordinary course of business consistent with past practice,
(B) any granting by the Company to any such director, officer or employee
of any increase in severance or termination pay (including the acceleration
in the vesting of Shares (or other property) or the provision of any tax
grossup), or (C) any entry by the Company into any employment, deferred
compensation, severance or termination agreement or arrangement with or for
the benefit of any such current or former director, officer or employee,
(v) any damage, destruction or loss, whether or not covered by insurance,
that has had or could have a material adverse effect on the Restaurants or
a Company Material Adverse Effect, (vi) any change in accounting methods,
principles or practices by the Company, (vii) any amendment, waiver or
modification of any material term of any outstanding security of the
Company, (viii) any incurrence, assumption or guarantee by the Company of
any material indebtedness for borrowed money or other material obligations,
other than in the ordinary course of business consistent with past
practice, (ix) any creation or assumption by the Company of any Lien on any
asset, other than financing transactions in the ordinary course of business
consistent with past practice, (x) any making of any lease, loan, advance
or capital contributions to or investment in any person other than in the
ordinary course of business consistent with past practice, but in no event
in the amount of more than $10,000 for any one transaction or $50,000 in
the aggregate, (xi) any transaction or commitment made, or any contract or
agreement entered into, by the Company relating to its assets or business
of more than $10,000 for any one transaction or $50,000 for any series of
transactions, (xii) any acquisition or disposition of any assets involving
more than $10,000 per transaction or $50,000 in the aggregate or any merger
or consolidation with any person, (xiii) any relinquishment by the Company
of any contract or other right, in either case, material to the Company,
other than transactions and commitments in the ordinary course of business
consistent with past practice, or (xiv) any agreement, commitment,
arrangement or undertaking by the Company to perform any action described
in clauses (i) through (xiii).
(m) Litigation. Except as disclosed in Section 4.1(m) of the
Disclosure Schedule, there are no actions or proceedings pending or, to the
knowledge of the Company, threatened against the Company.
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(n) Compliance with Laws. The conduct by the Company of the Business
is and has been in compliance with (i) all statutes and laws, (ii) all
regulations, ordinances, and rules, and (iii) all judgments, orders or
decrees to which the Company is subject or is a party, except for
violations or failures so to comply, if any, that, individually or in the
aggregate, could not reasonably be expected to have a Company Material
Adverse Effect or to give rise to material fines or other material civil
penalties or any criminal liabilities. Except as set forth on Section
4.1(n) of the Disclosure Schedule, the Company has not received any notice
or other communications relating to any alleged violation of any statute,
law, regulation, ordinance, rule, judgment, order or decree from any
Governmental Entity, or of any investigation with respect thereto,
applicable to the Company.
(o) Absence of Changes in Stock or Benefit Plans. Except as disclosed
in Section 4.1(o) of the Disclosure Schedule or as required under this
Agreement, since January 1, 1997, there has not been (i) any acceleration,
amendment or change of the period of exercisability or vesting of any
Warrant, NQSO, or Company Options under the Option Plan (including any
discretionary acceleration of the exercise periods or vesting by the
Company's Board of Directors or any committee thereof or any other persons
administering the Option Plan) or any authorization of cash payments in
exchange for the Warrant, the NQSO, or any Company Options under the Option
Plan, (ii) any adoption or material amendment by the Company of any
collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, stock appreciation right,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical, worker's compensation, disability, supplementary
unemployment benefits, or other plan, arrangement or understanding (whether
or not legally binding) or any employment agreement providing compensation
or benefits to any current or former employee, officer, director or
independent contractor of the Company or any beneficiary thereof or entered
into, maintained or contributed to, as the case may be, by the Company
(collectively, "Benefit Plans"), or (iii) any adoption of, or amendment to,
or change in employee participation or coverage under, any Benefit Plans
which would increase materially the expense of maintaining such Benefit
Plans above the level of the expense incurred in respect thereof for the
fiscal year ended on January 1, 1997.
(p) ERISA Compliance.
(i) Section 4.1(p) of the Disclosure Schedule contains a list of
all "employee pension benefit plans" (defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
"employee welfare benefit plans" (defined in Section 3(1) of ERISA) and
all other employee benefit plans (collectively the "Benefit Plans").
With respect to each Benefit Plan, the Company has delivered or made
available to Parent a true, correct and complete copy of: (A) each
writing constituting a part of such Benefit Plan, including without
limitation all plan documents, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (B) the most recent
Annual Report (Form 5500 Series) and accompanying schedule, if any; (C)
the current summary plan description, if any; (D) the most recent annual
financial report, if any; and (E) the most recent determination letter
from the Internal Revenue Service, if any.
(ii) Section 4.1(p) of the Disclosure Schedule identifies each
Benefit Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code ("Qualified Plans"). No request
for a favorable determination letter has been filed with the Internal
Revenue Service with respect to any such Qualified Plan, but the Company
believes that each such Qualified Plan is in fact so "qualified" within
the meaning of Section 401(a) of the Code, and there are no existing
circumstances nor any events that have occurred that could adversely
affect the qualified status of any Qualified Plan or the related trust.
(iii) The Company has complied, and is now in compliance, in all
material respects with all provisions of ERISA, the Code, and all laws
and regulations applicable to the Benefit Plans of which the failure to
comply would have a Company Material Adverse Effect. Except as set forth
in Section 4.1(p) of the Disclosure Schedule, no prohibited transaction
has occurred with respect to any Benefit Plan. All contributions
required to be made to any Benefit Plan by applicable law or regulation
or by any plan document or other contractual undertaking, and all
premiums due or
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payable with respect to insurance policies funding any Benefit Plan, for
any period through the date hereof have been timely made or paid in full
or, to the extent not required to be made or paid on or before the date
hereof, have been fully reflected in the Company SEC Documents.
(iv) No Benefit Plan is subject to Title IV or Section 302 of ERISA
or Section 412 or 4971 of the Code. Neither the Company nor any of its
ERISA Affiliates (as defined below) has at any time since January 1,
1993, contributed to or been obligated to contribute to any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
or any plan with two or more contributing sponsors at least two of whom
are not under common control, within the meaning of Section 4063 of
ERISA. There does not now exist, nor do any circumstances exist that
could result in, any Controlled Group Liability (as defined below) that
would be a liability of the Company following the Closing. "ERISA
Affiliate" means, with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described in
Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of
ERISA that includes the first entity, trade or business, or that is a
member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA. "Controlled Group
Liability" means any and all liabilities under (i) Title IV of ERISA,
(ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code, (iv)
the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code, and (v) corresponding or similar
provisions of foreign laws or regulations, other than such liabilities
that arise solely out of, or relate solely to, the Benefit Plans.
(v) Except as set forth in the Company SEC Documents or in Section
4.1(p) of the Disclosure Schedule, the Company does not have any
liability for life, health, medical or other welfare benefits to former
employees or beneficiaries or dependents thereof, except for health
continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA and at no expense to the Company.
(vi) Except as set forth in Section 4.1(p) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone
or in conjunction with any other event) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment
or benefit to any employee of the Company. Without limiting the
generality of the foregoing, no amount paid or payable by the Company in
connection with the transactions contemplated hereby (either solely as a
result thereof or as a result of such transactions in conjunction with
any other event) will be an "excess parachute payment" within the
meaning of Section 280G of the Code.
(vii) No labor organization or group of employees of the Company
has made a pending demand for recognition or certification, and there
are no representation or arbitration proceedings or petitions seeking a
representation proceeding presently pending or threatened to be brought
or filed, with the National Labor Relations Board or any other labor
relations tribunal or authority. There are no organizing activities,
strikes, work stoppages, slowdowns, lockouts, material arbitrations or
material grievances, or other material labor disputes pending or, to the
knowledge of the Company, threatened against or involving the Company.
(viii) There are no pending or threatened claims, and the
fiduciaries of the Benefit Plans have not advised the Company that, with
respect to their duties to the Benefit Plans or the assets or any of the
trusts under any of the Benefit Plans, there are any pending or
threatened claims (other than claims for benefits in the ordinary
course), lawsuits or arbitrations which have been asserted or instituted
against the Benefit Plans, which could reasonably be expected to result
in any material liability of the Company to the Pension Benefit Guaranty
Corporation, the Department of Treasury, the Department of Labor or any
multiemployer Benefit Plan.
(q) Taxes. For purposes of this Agreement, (A) the term "Returns"
shall mean all returns, declarations, reports, statements, and other
documents required to be filed with respect to federal, state, local and
foreign Taxes (as defined below) or for information purposes, and the term
"Return" means any one of the foregoing Returns, and (B) the term "Taxes"
shall mean all federal, state, local and foreign net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits,
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license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties, and any and all other taxes, together with any interest
and any penalties, additions to tax, or additional amounts with respect
thereto, and the term "Tax" means any one of the foregoing Taxes.
(i) Except as set forth in Section 4.l(q)(i) of the Disclosure
Schedule, the Company has duly prepared and timely filed all federal,
state, local and foreign Returns which were required to be filed by or
in respect of the Company, or any of its properties, income and/or
operations. As of the time they were filed, such Returns accurately
reflected the material facts regarding the income, business, assets,
operations, activities, status of the entity on whose behalf the Return
was filed and any other information required to be shown thereon. No
extension of time within which the Company may file any Return is
currently in force.
(ii) With respect to all amounts in respect of Taxes, including
interest and penalties imposed on the Company or for which the Company
is or could be liable, whether to taxing authorities or to other
persons, all material amounts required to be paid by or on behalf of the
Company to taxing authorities or to other persons have been paid.
(iii) The Company has not been advised that there is any review or
audit in progress by any taxing authority of any Tax liability of the
Company currently in progress. Except as disclosed in Section
4.l(q)(iii) of the Disclosure Schedule, the Company has not received any
written notice of any pending or threatened audit by the Internal
Revenue Service or any state, local or foreign agency of any Returns or
Tax liability of the Company for any period. The Company currently has
no unpaid deficiencies assessed by the Internal Revenue Service or any
state, local or foreign taxing authority arising out of any examination
of any of the Returns of the Company nor, to the knowledge of the
Company, is there reason to believe that any material deficiency will be
assessed.
(iv) No agreements are in force or are currently being negotiated
by or on behalf of the Company for any waiver or for the extension of
any statute of limitations governing the time of assessments or
collection of any Tax. No closing agreements or compromises concerning
Taxes of the Company are currently pending.
(v) The Company has withheld from each payment made to any of its
officers, directors and employees, the amount of all applicable Taxes,
including, but not limited to, income tax, social security
contributions, unemployment contributions, backup withholding and other
deductions required to be withheld therefrom by any Tax law and have
paid the same to the proper Taxing authorities within the time required
under any applicable Tax law.
(vi) There are no tax Liens, whether imposed by any federal, state,
local or foreign taxing authority, outstanding against any assets owned
by the Company, except for Liens for Taxes that are not yet due and
payable. None of the assets owned by the Company is property that is
required to be treated as being owned by any other person pursuant to
the safe harbor lease provisions of former Section 168(f)(8) of the
Code. None of the assets owned by the Company directly or indirectly
secures any debt, the interest on which is tax-exempt under Section
103(a) of the Code. None of the assets owned by the Company is
"tax-exempt use property" within the meaning of Section 168(h) of the
Code. The Company is a "United States person" within the meaning of the
Code.
(vii) Except as set forth in Section 4.1(q)(vii) of the Disclosure
Schedule, the Company is not a party to any agreement, contract, or
arrangement that, individually or collectively, could give rise to the
payment of any amount (whether in cash or property, including Shares or
other equity interests) that would not be deductible pursuant to the
terms of Sections 162(a)(l), 162(m), 162(n) or 280G of the Code.
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(r) Contracts; Debt instruments.
(i) Except as otherwise disclosed in Section 4.l(r)(i) of the
Disclosure Schedule, the Company is not a party to or subject to:
(A) any collective bargaining or other agreements with labor
unions, trade unions, employee representatives, work committees,
guilds or associations representing employees of the Company;
(B) any employment, consulting, severance, termination, or
indemnification agreement, contract, lease or arrangement, including
any oral agreement, contract, lease or arrangement which requires the
payment of over $5,000 per annum, with any current or former officer,
consultant, agent, director or employee;
(C) any lease for real or personal property which requires the
Company to pay, or under which the Company is expected to receive, on
an annual basis, in excess of $100,000;
(D) any agreement, contract, instrument, arrangement or
commitment to repurchase assets previously sold or leased, or to
indemnify or otherwise compensate the purchaser in respect thereof;
(E) any agreement, contract, policy, License, document,
instrument, arrangement or commitment that materially limits the
freedom of the Company to compete in any line of business or with any
person or in any geographic area or which would so materially limit
the freedom of the Parent or any of their subsidiaries after the
Effective Time;
(F) any agreement or contract relating to any outstanding
commitment for material capital expenditures, or any partially or
fully executory agreement or contract relating to the acquisition or
disposition of rights or assets other than those entered into in the
ordinary course consistent with past practices;
(G) any sale-leaseback, conditional sale, exclusive dealing,
brokerage, finder's fee contract or agreement; or
(H) any other agreement, contract, policy, license, document,
instrument, arrangement or commitment not made in the ordinary course
of business which is material to the Company or any one or more of
the Restaurants and which is not otherwise disclosed in the
Disclosure Schedules.
(ii) The Company and, to the knowledge of the Company, none of the
other parties to any of the contracts and agreements identified in
Section 4.l(r)(i) of the Disclosure Schedule or otherwise disclosed in
the Company SEC Documents, is in default under (or, with the giving of
notice or passage of time or both would be in default under) or has
terminated any such contract or agreement, or in any way expressed to
the Company an intent to materially reduce or terminate the amount of
its business with the Company in the future.
(iii) Set forth in Section 4.1(r)(iii) of the Disclosure Schedule
is (A) a list of all sale-leaseback, loan or credit agreements, notes,
bonds, mortgages, indentures and other agreements and instruments
pursuant to which any indebtedness of the Company is outstanding or may
be incurred, (B) the respective principal amounts currently outstanding
thereunder, and (C) any interest rate swaps, caps, floors or option
agreements or similar interest rate risk management agreements. Except
as set forth in Section 4.1(r)(iii) of the Disclosure Schedule, all such
indebtedness is prepayable at any time without penalty, subject to the
notice provisions of the agreements governing such indebtedness (which,
except as set forth in Section 4.1(r)(iii) of the Disclosure Schedule,
do not require a notice period of more than thirty days). For purposes
of this Section 4.1(r)(iii), "indebtedness" shall mean, with respect to
any person, without duplication, (A) all obligations of such person for
borrowed money, or with respect to deposits or advances of any kind to
such person, (B) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (C) all obligations of such
person upon which interest charges are customarily paid, (D) all
obligations of such person under conditional sale or other title
retention agreements relating to
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property purchased by such person, (E) all obligations of such person
issued or assumed as the deferred purchase price of property or services
(excluding obligations of such person to creditors for raw materials,
inventory, services and supplies incurred in the ordinary course of such
person's business), (F) all capitalized lease obligations of such
person, (G) all indebtedness of others secured by any Lien on property
or assets owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (H) all obligations of
such person under interest rate or currency swap transactions (valued at
the termination of value thereof), (I) all letters of credit issued for
the account of such person, (J) all obligations of such person to
purchase securities (or other property) which arises out of or in
connection with the sale of the same or substantially similar securities
or property, and (K) all guarantees and arrangements having the economic
effect of a guarantee of such person of any indebtedness of any other
person.
(s) Insurance. The Company is covered by valid and currently effective
insurance policies issued in favor of the Company as listed on the
Disclosure Schedule. To the best knowledge and belief of the Company, such
insurance is adequate to protect Company from all normal industry
exposures. All such policies are in full force and effect, all premiums due
thereon have been paid and the Company has complied with the provisions of
such policies with respect to which the failure to comply would result in a
cancellation of, or increase in premium in connection with, such policies.
The Company has not received any written notice from or on behalf of any
insurance carrier issuing policies or binders relating to or covering the
Company that there will be a cancellation or non-renewal of existing
policies or binders, or that a material modification of any of the methods
of doing business will be required.
(t) Interests of Officers and Directors. Except as disclosed in the
Company SEC Documents, neither the Company's officers or directors, nor any
member of their respective immediate families, or any entity with respect
to which any such person is an affiliate, has any material interest in any
property, real or personal, tangible or intangible, used in or pertaining
to the business of the Company, or any other business relationship with the
Company.
(u) Approval by Board. The Board of Directors of the Company duly
authorized and approved the execution and delivery of this Agreement by the
Company and the transactions contemplated hereby prior to the execution by
the Company of this Agreement.
(v) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the
Company.
(w) Fairness Opinion. Pauli & Company has been engaged to deliver its
opinion regarding the fairness, from a financial point of view, to the
holders of Shares of the consideration to be paid in the Merger, which
opinion shall be delivered in writing to the Company's Board of Directors
immediately prior to the date the Company mails the Prospectus/Proxy
Statement to the Company's stockholders, as provided in Section 7.2 below.
(x) Disclosure. The representations and warranties of the Company
contained in this Agreement are true and correct in all material respects
and do not omit any material fact necessary to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading. There is no fact known to the Company which has not
been disclosed to Parent in the Disclosure Schedule which has had, or would
reasonably be expected to have, a Company Material Adverse Effect.
4.2 Representations and Warranties of Parent and Merger Subsidiary. Parent
and Merger Subsidiary represent and warrant to the Company, as of the date
hereof and as of the Closing Date, subject to the exceptions and qualifications
set forth in the disclosure schedule delivered by the Parent to the Company
pursuant to Section 4.3 of this Agreement (the "Parent Disclosure Schedule"):
(a) Organization, Standing and Corporate Power. Each of Parent and
Merger Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of its respective state of incorporation and
has the requisite corporate power and authority to carry on its business as
now being conducted. Each of the Parent and its subsidiaries is duly
qualified or licensed to do business and is in
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good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) could not
reasonably be expected to be a "Parent Material Adverse Effect," which
means to (i) have a material adverse effect on the value, condition
(financial or otherwise), prospects, business, or results of operations of
the Parent and its subsidiaries as a whole, (ii) impair the ability of any
party hereto to perform its obligations under this Agreement or (iii)
prevent or materially delay consummation of any of the transactions
contemplated by this Agreement. The Parent has delivered to the Company
complete and correct copies of its Certificate of Incorporation and bylaws
and of the Articles of Incorporation and bylaws of Merger Subsidiary.
(b) Capital Structure. The authorized capital stock of the Parent
consists of 50,000,000 Shares par value $0.08 per share. As of December 31,
1997, (i) 6,570,984 Shares were issued and outstanding, (ii) no Shares were
held by the Parent, and (iii) there were outstanding options to purchase
998,012 shares and warrants to purchase 4,000,000 shares of Parent Common
Stock. Except as set forth above, no shares of capital stock or other
equity or voting securities of the Parent are issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of the Parent are,
and all shares of Parent Common Stock to be issued in the Merger will, when
issued, be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. There are not any bonds, debentures,
notes or other indebtedness or securities of the Parent having the right to
vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which stockholders of the Parent may vote. The
authorized capital stock of Merger Subsidiary consists of 1,500 shares,
without par value. As of the date hereof, 100 such shares were issued and
outstanding.
(c) Authority, Noncontravention. Parent and Merger Subsidiary have all
requisite corporate power and authority to enter into this Agreement and,
subject to the Parent Common Stockholder Approval (as defined below), to
consummate the transactions contemplated by this Agreement. The affirmative
vote of the holders of a majority of the shares of Parent Common Stock
represented and voted on a proposal to approve the merger is required to
complete the Merger (the "Parent Common Stockholder Approval"), which
approval is the only vote of the holders of any class or series of the
capital stock of Parent necessary to approve the transactions contemplated
hereby. Except for Parent Common Stockholder Approval, the execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Parent and Merger Subsidiary. This
Agreement has been duly executed and delivered by Parent and Merger
Subsidiary and, assuming this Agreement constitutes a valid and binding
agreement of the Company, constitutes a valid and binding obligation of
such party, enforceable against such party in accordance with its terms.
The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification
or acceleration of any obligation or to a loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of Parent or any of its subsidiaries under, (i) the Certificate or Articles
of Incorporation or bylaws of Parent or Merger Subsidiary, (ii) except as
to be disclosed in Section 4.2(c) of the Parent's Disclosure Schedule, any
loan or credit agreement, note, bond, mortgage, indenture, leases or other
contract, agreement, instrument, permit, concession, franchise or license
applicable to Parent or Merger Subsidiary or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent, Merger
Subsidiary or any other subsidiary of Parent or their respective properties
or assets, other than any such conflicts, violations or defaults that,
individually or in the aggregate, would not have a "Parent Material Adverse
Effect". Other than those Consents referred to in the Disclosure Schedule
on the part of the Company, no Consent of any Governmental Entity is
required by or with respect to Parent, Merger Subsidiary or any other
subsidiary of Parent in connection with the execution and delivery of this
Agreement or the consummation by Parent or Merger Subsidiary, as the case
may be, of any of the transactions contemplated by this Agreement, except
for (i) the Consents disclosed in Section 4.2(b) of the Parent Disclosure
Schedule, (ii) the filing of the Certificate of Merger in accordance with
the MBCA
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and similar documents with the relevant authorities of other states in
which the Company is qualified to do business, (iii) compliance with
applicable requirements of the Exchange Act and the Securities Act, and
applicable state blue sky laws, with respect to the Registration Statement
and the Prospectus/Proxy Statement, (iv) if required, the filing of a
premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (v)
such other Consent as to which the failure to obtain or make, individually
or in the aggregate, could not reasonably be expected to have a Parent
Material Adverse Effect.
(d) SEC Documents; Financial Statements; No Undisclosed
Liabilities. Parent has provided or made available to the Company true and
correct copies of all reports, schedules, forms, statements, exhibits and
other documents filed with the SEC by Parent under or pursuant to the
Exchange Act since January 1, 1996 (the "Parent SEC Documents"), all of
which were timely filed with the SEC. As of their respective dates, or as
subsequently amended prior to the date of this Agreement, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act applicable to such Parent SEC Documents, and none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Parent included in the Parent SEC Documents comply in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except as specified on the Parent Disclosure
Schedule) and fairly present the consolidated financial position of the
Parent and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for periods then
ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(e) Nature of Business. The Parent is engaged in the business of
operating Mexican quick-service restaurants under the trade name "The Green
Burrito" at leased facilities, and the sale and supervision of franchises
to operate such restaurants under that trade name. As of December 31, 1997,
there were 7 Green Burrito stores owned by the Parent, 40 stand-alone
stores operated by franchisees and 134 dual-concept (i.e., incorporated
into existing quick-service restaurants) stores operated by franchisees.
(f) Litigation. Except as reflected in the financial and other
information delivered to the Company by Parent as referred to above, or
except as otherwise described by Parent in writing to the Company, there is
no judicial or administrative action, suit, proceeding or investigation
pending or, to the knowledge of Parent, threatened, which would be required
to be reported by Parent in its annual report on Form 10-K (under the
Exchange Act) if such 10-K were filed with the SEC on the date hereof.
(g) Absence of Changes. Since September 10, 1997, there has not been
any material adverse change in the business, financial condition or
operations or prospects of Parent, or any event or condition (other than
changes in legal, economic or other conditions which are not specially
applicable to Parent) which has materially and adversely affected the
business or financial condition of Parent and its subsidiaries, taken as a
whole.
(h) Exchange Act Reports. Parent has filed in a timely manner all
reports required to be filed by it under the Exchange Act during at least
the 12-month period preceding the date of this Agreement, and agrees to
give the Company a copy of each such report filed between the date hereof
and the Closing Date.
(i) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the
Parent or any of its subsidiaries.
(j) Fairness Opinion. Piper Jaffray Inc. has been engaged to deliver
its opinion regarding the fairness, from a financial point of view, of the
consideration to be paid in the Merger to the holders of Parent Common
Stock, which opinion shall be delivered in writing to the Parent's Board of
Directors
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immediately prior to the date the Parent mails the Prospectus/Proxy
Statement to the Parent's stockholders.
(k) Disclosure. The representations and warranties of the Parent
contained in this Agreement are true and correct in all material respects,
and do not omit any material fact necessary to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading. There is no fact known to the Parent which has not
been disclosed to the Company in the Parent Disclosure Schedule and the
Parent SEC Documents, taken as a whole, which has had, or would reasonably
be expected to have, a Parent Material Adverse Effect.
4.3 Disclosure Schedules. Each of Company and Parent delivered its
respective Disclosure Schedules to the other party within five business days
after the execution of this Agreement prior to its restatement, such Disclosure
Schedules are unchanged by such restatement and are attached to this Restated
Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that:
5.1 Conduct of Business. During the period from the date of this Agreement
to the Effective Time, the Company shall carry on the Business in the ordinary
course of business in substantially the same manner as heretofore conducted and,
to the extent consistent therewith, use all reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers (as a group) and employees, at reasonably required staffing
levels, and preserve its relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with it. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time, except as contemplated by this Agreement
or as set forth in Section 5.1 of the Disclosure Schedule, the Company shall
not, without the prior written approval of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its capital stock; (ii) adjust, split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
or (iii) purchase, redeem or otherwise acquire any shares of capital stock
of the Company or any other securities thereof, or any rights, warrants or
options to acquire any such shares or other securities;
(b) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options, including Company
Options, to acquire, any such shares, voting securities or convertible
securities (other than the issuance of Shares upon the exercise of the
NQSOs, Company Options, or Warrants outstanding as of the date hereof or as
contemplated by Section 5.1(l) hereof);
(c) amend its Articles of Incorporation, bylaws or other comparable
charter or organizational documents;
(d) amend, modify or waive any provision of any material contract or
agreement to which the Company is a party, including, without limitation,
any such agreements identified in the Disclosure Schedule;
(e) mortgage or otherwise encumber or subject to any Lien or sell,
lease, license, transfer or otherwise dispose of any material properties or
assets, except in the ordinary course of business consistent with past
practice or pursuant to existing contracts or commitments which were
delivered to Parent prior to its execution of this Agreement;
(f) amend, modify or waive any material term of any outstanding
security of the Company.
(g) incur, assume, guarantee or become obligated with respect to any
indebtedness (as defined in Section 4.1(r) hereof), other than drawings on
existing revolving credit facilities listed in Section 4.1(r) of the
Disclosure Schedule in the ordinary course of business, consistent with
past practice and in
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accordance with the terms thereof or incur, assume, guarantee or become
obligated with respect to any other material obligations other than in the
ordinary course of business and consistent with past practice;
(h) make or agree to make any new capital expenditures or acquisitions
of assets or property or other acquisitions or commitments in excess of
$20,000 individually or $50,000 in the aggregate or otherwise acquire or
agree to acquire any material assets or property;
(i) make any material tax election or take any material tax position
(unless required by law and then only with prior or concurrent notice to
Parent) or change its fiscal year or accounting methods, policies or
practices (except as required by changes in GAAP and then only with prior
or concurrent notice to Parent) or settle or compromise any material income
tax liability;
(j) enter into or commit to enter into, any lease, loan, advance or
capital contributions to or investment in any person other than in the
ordinary course of business consistent with past practices;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction thereof, in the ordinary course
of business consistent with past practice and in accordance with their
terms, or release or waive any material rights or claims, or waive the
benefits of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement to which the Company is a party;
(l) except as described in the Disclosure Schedule, (i) grant to any
current or former director, officer or employee of the Company any increase
in compensation or benefits, except for employees who are not officers or
directors in the ordinary course of business consistent with past practice
or any grant pursuant to any existing contract or agreement, (ii) grant to
any such director, officer, or employee any increase in severance or
termination pay (including the grant of, or acceleration in the
exercisability of, any stock options or warrants (including the NQSOs,
Company Options or Warrant) or in the vesting of Shares or other property
except for automatic acceleration in accordance with the terms of the
NQSOs, Option Plan, or Warrant), or (iii) enter into any employment,
deferred compensation, severance or termination agreement or arrangement
with or for the benefit of any such current or former director, officer, or
employee;
(m) (i) take or agree or commit to take any action that would make any
representation or warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time or (ii)
omit or agree or commit to omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any material
respect at any such time; or
(n) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 Access to Information. From the date hereof until the Effective Time,
the Company will (i) give Parent, its counsel, financial advisors, auditors and
other authorized representatives full access (during normal business hours and
upon reasonable notice) to the offices, properties, officers, employees,
accountants, auditors, counsel and other representatives, books and records of
the Company (including to perform any environmental studies), (ii) furnish to
Parent, its counsel, financial advisors, auditors and other authorized
representatives such financial operating and property related data and other
information as such persons may reasonably request, and (iii) instruct the
Company's employees, counsel and financial advisors to cooperate with Parent in
its investigations of the Business; provided that no investigation pursuant to
Section 5.2 shall affect any representation or warranty given by the Company
hereunder.
5.3 No Solicitation. The Company agrees that neither the Company nor any
of its officers and directors shall, and the Company shall direct and use its
best efforts to cause its employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by
the Company) not to, initiate, continue, solicit, or encourage, directly or
indirectly, any inquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to stockholders of the Company) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of the Company (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal") or, subject to the fiduciary duties of the
Board of Directors of the Company under the MBCA, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal or otherwise
facilitate any effort or attempt to
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make or implement an Acquisition Proposal or, enter into any agreement or
understanding with any other person or entity with the intent to effect any
Acquisition Proposal. The Company will take all necessary steps to inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 5.3. The Company will notify Parent
immediately, orally and in writing (including the names of any party making and
the principal terms of any such proposal), if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company. Immediately following the execution of this Agreement, the Company will
request each person which has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring the Company or any portion
thereof (the "Confidentiality Agreements") to return all confidential
information heretofore furnished to such person by or on behalf of the Company.
Subject to the fiduciary duties of the Board of Directors of the Company under
the MBCA, the Company will keep Parent fully informed of the status and details
(including amendments or proposed amendments) of any such request, proposal or
inquiry.
5.4 Tax Treatment. The Company shall not take any action which would
disqualify the Merger as a "reorganization" that would be tax free to the
stockholders of the Company pursuant to Section 368 of the Code.
ARTICLE VI
COVENANTS OF PARENT
Parent and Merger Subsidiary agree that:
6.1 Conduct of Business. During the period from the date of this Agreement
to the Effective Time, the Parent shall carry on the business in which it is
presently engaged in the ordinary course of business in substantially the same
manner as heretofore conducted and, to the extent consistent therewith, use all
reasonable efforts to preserve intact its current business organization, keep
available the services of its current officers (as a group) and employees, at
reasonably required staffing levels, and preserve its relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with it.
6.2 Confidentiality. Prior to the Effective Time and after any termination
of this Agreement, Parent will hold, and will use its reasonable best efforts to
cause its officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
documents and information concerning the Company furnished to Parent in
connection with the transactions contemplated by this Agreement except to the
extent that such information can be shown to have been (i) previously known on a
nonconfidential basis by Parent, (ii) in the public domain through no fault of
Parent or (iii) later lawfully acquired by Parent from sources other than the
Company; provided that Parent may disclose such information to its officers,
directors, employees, accountants counsel, consultants, advisors and agents in
connection with the transactions contemplated by this Agreement so long as such
persons have a need to know such information, are informed by Parent of the
confidential nature of such information and are directed by Parent to treat such
information confidentially. Parent's obligation to hold any such information in
confidence shall be satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of its own similar
information. If this Agreement is terminated, Parent will, and will use its best
efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, deliver to the Company, upon request, or,
at the election of Parent, destroy, all documents and other materials and all
copies thereof, obtained by Parent or on its behalf from the Company in
connection with this Agreement that are subject to such confidentiality.
6.3 Obligations of Merger Subsidiary. Parent will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
6.4 Employee Benefit Plans. Parent shall have the right to continue, amend
or terminate any of the Benefit Plans in accordance with the terms thereof and
subject to any limitation arising under applicable law.
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6.5 Indemnification and Insurance.
(a) From and after the Effective Time, the Parent shall cause the Company
to indemnify, defend and hold harmless each person who is now, or who becomes,
prior to the Effective Time, an officer, director, employee or agent of the
Company (the "Indemnified Parties") against losses, claims, damages, costs,
expenses (including attorneys' fees), liabilities or judgments or amounts that
are paid in settlement (which settlement shall require the prior written consent
of Parent which shall not be unreasonably withheld) of or in connection with any
claim, action, suit, proceeding or investigation (a "Claim") at least to the
same extent as the officers, directors, employees and agents of the Parent are
indemnified pursuant to the Parent's Articles of Incorporation, Bylaws and any
standing shareholder and director resolutions. As long as any person who is now
or has ever been a director of the Company is a director of the Surviving
Corporation, the Parent will cause the Surviving Corporation to maintain a
provision in its Articles of Incorporation excluding director liability for good
faith actions to the extent and as permitted by Section 302A.251 Subd(4) of the
MBCA.
(b) The contractual obligation provided under paragraph (a) of this Section
6.5 is intended to benefit, and be enforceable directly by, the Indemnified
Parties, and shall be binding on all respective successors of Parent and the
Company.
6.6 Nasdaq Listing. Parent shall use its best efforts to list for
quotation on the Nasdaq Small Cap Market, subject to official notice of
issuance, the shares of Parent Common Stock to be issued in the Merger.
6.7 Registration Relating to Company Options. Parent shall register the
shares of Parent Common Stock issuable upon exercise of the Company Options
after the Effective Time in either the Registration Statement or in a
registration statement on Form S-8 to be filed as soon as practicable following
the Effective Time, and shall cause the shares of Parent Common Stock issuable
upon exercise thereof from and after the Effective Time, when issued, to be
listed for quotation on the Nasdaq Small Cap Market.
6.8 Access to Information. From the date hereof until the Effective Time,
the Parent will give the Company, its counsel, financial advisors, auditors and
other authorized representatives full access (during normal business hours and
upon reasonable advance notice) to the offices, properties, officers, employees,
accountants, auditors, counsel and other representatives, books and records of
the Parent and its subsidiaries, will furnish to the Company, its counsel,
financial advisors, auditors and other authorized representatives such
financial, operating and property related data and other information as such
persons may reasonably request and will instruct the Parent's and its
subsidiaries' employees, counsel and financial advisors to cooperate with the
Company in its investigation of the business of the Parent and its subsidiaries;
provided that no investigation pursuant to this Section 6.8 shall affect any
representation or warranty given by the Parent hereunder.
6.9 Tax Treatment The Parent shall not take any action which would
disqualify the Merger as a "reorganization" that would be tax free to the
stockholders of the Company pursuant to Section 368(a) of the Code.
6.10 Board of Directors Approval. The Parent shall use its best efforts to
obtain the Board of Directors' authorization and approval of the execution and
delivery of this Agreement by the Parent and the transactions contemplated
hereby.
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
7.1 Reasonable Efforts; Notification; HSR Act Filings.
(a) Subject to the fiduciary duties of their respective Boards of
Directors, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all other
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necessary registrations and filings (including other filings with
Governmental Entities, if any), (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the preparation,
filing and dissemination of the Registration Statement and the
Prospectus/Proxy Statement, and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
If, in the reasonable opinion of the Parent, the Merger or any other
transaction contemplated hereby as a condition precedent to the Merger
requires a filing under the Hart-Scott-Rodino Antitrust Improvements Act or
any similar act, the Parent will make (or will cause the appropriate party,
if not the Parent, to make) such filing in a timely manner consistent with
the intended Closing Date and expend reasonable efforts to obtain an
outcome which would permit the consummation of the Merger on the terms
stated in this Agreement.
(b) Notwithstanding anything to the contrary in Section 7.1(a)(i)
neither Parent nor any of its subsidiaries shall be required to divest, or
cause or permit the Company or its affiliates to divest, any of their
respective businesses, product lines or assets, or to make or agree to take
any other action or agree to any limitation that could reasonably be
expected to have a material adverse effect on the value, condition
(financial or otherwise), prospects, business or results of operations of
Parent and its subsidiaries taken as a whole or of the Company or all such
entities taken together, and neither Parent or Merger Subsidiary shall be
required to waive any of the conditions to the Merger set forth in Article
VIII.
(c) Each party shall give prompt notice to the other party of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect or (ii) the failure by it to comply
with or satisfy in any respect any covenant, condition or agreement to be
compiled with or ratified by it under this Agreement; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations
of the parties under this Agreement.
(d) The Company shall give prompt notice to Parent, and Parent or
Merger Subsidiary shall give prompt notice to the Company, of:
(i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental Entity
in connection with the transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating
to or involving or otherwise affecting it which, if pending on the date
of this Agreement would have been required to have been disclosed
pursuant to Section 4.1(m) or Section 4.2(f) or which relate to the
consummation of the transactions contemplated by this Agreement.
7.2 Stockholder Meeting; Proxy Material.
(a) For the purpose (i) of holding meetings of stockholders of Parent
and the Company to approve this Agreement, the Merger and, with respect to
Parent, the issuance of shares of Parent Common Stock in the Merger, and
(ii) of registering under the Securities Act the Parent Common Stock to be
issued as contemplated by this Agreement, the parties hereto shall
cooperate in the preparation of an appropriate registration statement (such
registration statement, together with all and any amendments and
supplements thereto, being herein referred to as the "Registration
Statement"), which shall include a prospectus/joint proxy statement
satisfying all applicable requirements of the Securities Act, the Exchange
Act, and the rules and regulations thereunder (such prospectus/joint proxy
statement, together with any and all amendments or supplements thereto,
being herein referred to as the "Prospectus/Proxy Statement"). At the time
the Registration Statement or any amendment or supplement thereto is first
mailed to stockholders of the Company and Parent, at all time subsequent to
such mailing (including, without limitation, the time such stockholders
vote upon a proposal to approve and adopt this Agreement and the Merger),
and at the Effective Time, the Registration Statement and the
Prospectus/Proxy Statement, as supplemented or amended, if applicable, will
(i) comply in all material respects with applicable provisions of the
Securities Act and the Exchange Act, and (ii) not contain any untrue
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statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Parent shall furnish such information concerning Parent and Merger
Subsidiary as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to Parent and Parent Common Stock or the
Merger Subsidiary, to be prepared in accordance with Section 7.2(a). Parent
agrees promptly to advise the Company if at any time prior to the Parent or
Company stockholders' meetings held to consider and vote on the Merger any
information provided by Parent or the Merger Subsidiary in the
Prospectus/Proxy Statement becomes incorrect or incomplete in any material
respect.
(c) The Company shall furnish Parent with such information concerning
the Company as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to the Company to be prepared in
accordance with Section 7.2(a). Parent agrees to provide the Company with
reasonable opportunity to review and comment on the Prospectus/Proxy
Statement. The Company agrees promptly to advise Parent if at any time
prior to the Parent or Company stockholders' meetings any information
provided by the Company in the Prospectus/Proxy Statement becomes incorrect
or incomplete in any material respect, and to provide Parent with the
information needed to correct such inaccuracy or omission.
(d) Parent shall promptly file the Registration Statement with the
SEC. Parent shall use reasonable efforts to cause the Registration
Statement to become effective under the Securities Act at the earliest
practicable date. The Company authorizes Parent to utilize in the
Registration Statement the information concerning the Company provided to
Parent for the purpose of inclusion in the Prospectus/Proxy Statement,
provided that the Company and its counsel shall have an opportunity to
review the Registration Statement prior to filing with the SEC and shall
otherwise participate in responding to the comments of the SEC and the
process of achieving the effectiveness of the Registration Statement.
Parent shall promptly furnish copies of all written communications from the
SEC, and written summaries of all oral communications with the SEC, to the
Company and its counsel. Parent shall advise the Company promptly when the
Registration Statement has become effective and of any supplements or
amendments thereto, and Parent shall furnish the Company with copies of all
such documents. Prior to the Effective Time or the termination of this
Agreement, each party shall consult with the other with respect to any
material (other than the Prospectus/Proxy Statement) that might constitute
a "prospectus" relating to the Merger within the meaning of the Securities
Act prior to using or disseminating such prospectus. Parent shall also take
all steps necessary to comply with any applicable state securities laws
("Blue Sky Laws"), for which an exemption is not available, with respect to
the Parent Common Stock to be issued in the merger.
(e) Parent shall use reasonable efforts to cause to be delivered to
the Company a letter relating to the Registration Statement from Grant
Thornton LLC, Parent's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall
become effective and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(f) The Company shall use reasonable efforts to cause to be delivered
to Parent a letter relating to the Registration Statement from Ernst &
Young LLP, the Company's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall
become effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
(g) Parent and the Company shall each bear 50% of all SEC and state
Blue Sky Laws filing fees with respect to the Registration Statement and
all printing and mailing costs in connection with the preparation of the
Prospectus Proxy Statement. Each party shall bear the expenses of mailing
of the Prospectus/Proxy Statement to its respective stockholders (including
multiple copies to brokers and other nominees). Parent and the Company
shall bear their own legal and accounting expenses in connection with the
Registration Statement.
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7.3 Press Releases. Parent and the Company shall agree with each other as
to the form and substance of any press release related to this Agreement or the
transactions contemplated hereby, and shall consult with each other as to the
form and substance of other public disclosures which may relate to the
transactions contemplated by this Agreement, provided, however, that nothing
contained herein shall prohibit either party, following notification to the
other party and reasonable opportunity to comment from making any disclosure
which is required by law, regulation or stock exchange requirements.
7.4 Securities Reports. Each of Parent and Company agrees to timely file
all reports required to be filed by it pursuant to the Exchange Act between the
date of this Agreement and the Effective Time. Each of Parent and the Company
agree to provide the other party with copies of all reports and other documents
filed under the Securities Act or Exchange Act with the SEC by it between the
date hereof and the Effective Time within five days after the date such reports
or other documents are filed with the SEC.
7.5 Stockholder Approvals. Each of Parent and the Company shall call a
meeting of its stockholders for the purposes of voting upon this Agreement and
the Merger, and shall schedule such meeting based on consultation with the other
party.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party. The obligations of the
Company, Parent and Merger Subsidiary to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) the Registration Statement shall have been declared effective and
shall not be subject to any stop orders of the SEC;
(b) no provision of any applicable law or regulation and no judgment,
injunction, order, decree or other legal restraint shall prohibit the
consummation of the Merger;
(c) the Parent Common Stock to be issued to holders of Shares in the
Merger shall have been filed for listing and quotation on the Nasdaq Small
Cap Market, subject to official notice of issuance;
(d) Fidelity National Financial, Inc. shall have exercised currently
outstanding warrants to purchase shares of Parent Common Stock for a cash
purchase price aggregating not less than $5,000,000;
(e) the parties shall have received from Larkin, Hoffman, Daly &
Lindgren, Ltd., counsel to the Company, a written opinion to the effect
that the Merger constitutes a tax-free reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended; and
(f) if, in the opinion of the Parent, the Merger or any other
transaction contemplated hereby as a condition precedent to the Merger
requires a filing under the Hart-Scott-Rodino Antitrust Improvements Act or
any similar act, such filing shall have been made, all waiting periods
shall have expired, and no action shall have been taken to delay or prevent
the Merger or such other transaction(s).
8.2 Conditions to the Obligations of Parent and Merger Subsidiary. The
obligations of Parent and Merger Subsidiary to consummate the Merger are further
subject to the satisfaction of the following conditions:
(a) there shall not be instituted or pending any action by any
Governmental Entity (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by Parent or Merger Subsidiary of the Merger, seeking to
obtain material damages or imposing any material adverse conditions in
connection therewith or otherwise directly or indirectly relating to the
transactions contemplated by this Agreement or the Merger, (ii) seeking to
restrain or prohibit Parent's or Merger Subsidiary's ownership or operation
(or that of their respective subsidiaries or affiliates) of all or any
portion of the business or assets of the Company, or of Parent and its
subsidiaries or affiliates, or to compel Parent or any of its subsidiaries
or affiliates to dispose of or hold separate all or any material portion of
the business or assets of the Company, or of Parent and its subsidiaries
and affiliates, (iii) seeking to impose limitations on the ability of
Parent and its subsidiaries or affiliates effectively to exercise full
rights of ownership of the Shares, including, without limitation, the right
to
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vote any Shares acquired or owned by Parent or any of its subsidiaries or
affiliates on all matters properly presented to the Company's stockholders,
(iv) seeking to require divestiture by Parent or any of its subsidiaries or
affiliates of any Shares, or (v) that otherwise, in the reasonable judgment
of Parent, is likely to have a Company Material Adverse Effect or a Parent
Material Adverse Effect;
(b) the Company shall have performed in all material respects its
covenants and agreements under this Agreement, and the representations and
warranties of the Company set forth in this Agreement shall be true in all
material respects when made and at and as of the Effective Time as if made
at and as of such time; and Parent and Merger Subsidiary shall have
received a certificate of the Chief Executive Officer and the Chief
Financial Officer of the Company to that effect;
(c) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change) that, in the reasonable judgment of Parent, has or is likely to
have a Company Material Adverse Effect.
(d) Parent shall have been furnished with (i) copies of the text of
the resolutions by which the corporate action on the part of the Company
necessary to approve this Agreement, the Affiliates Agreements and the
transactions contemplated hereby and thereby were taken, together with a
certificate dated as of the Effective Time executed on behalf of the
Company by its corporate secretary certifying to Parent that such copies
are true, correct and complete copies of such resolutions and that such
resolutions were duly adopted and have not been amended or rescinded;
(e) the Parent Common Stockholder Approval shall have been obtained;
(f) shareholders (if any) of the Company who have objected to the
merger and taken steps necessary to exercise their dissenting stockholders'
rights of appraisal shall hold in the aggregate no more than 4% of the
outstanding Stock of the Company;
(g) Parent shall have received from Piper Jaffray Inc. the "fairness"
opinion contemplated by Section 4.2(j) hereof;
(h) the Company shall have completed the acquisition of the JB's
restaurants described on Section 8.2 of the Company's Disclosure Schedule;
(i) the Company shall have entered into a written lease for its home
office facilities at 4021 Vernon Avenue South, St. Louis Park, Minnesota,
on terms and conditions reasonably acceptable to Parent;
(j) Peter Bedzyk shall have entered into a written employment
agreement with the Company on terms and conditions, including length of
time and compensation, reasonably satisfactory to Parent and Mr. Bedzyk;
(k) the Board of Directors of the Parent shall have duly authorized
and approved the execution and delivery of this Agreement by the Parent and
the transactions contemplated;
(l) nothing shall have come to the attention of the Parent in the
course of its due diligence investigation of the Company which could
reasonably be expected to have a Company Material Adverse Effect; and
(m) Parent shall have received an opinion of counsel from Larkin,
Hoffman, Daly & Lindgren, Ltd., counsel to the Company, in form and
substance reasonably satisfactory to Parent and its counsel, and dated the
Closing Date, to the effect that:
(i) The Company is duly organized and existing under the laws of
the State of Minnesota and has the power and authority to engage in its
business as presently conducted, and is a corporation in good standing
under the laws of the State of Minnesota and is qualified as a foreign
corporation in good standing under the laws of any state or jurisdiction
where the ownership or the conduct of its business require such
qualification.
(ii) The Company has the corporate power and authority to execute
and deliver, and perform its obligations under, this Agreement.
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(iii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company, has been duly executed and
delivered by the Company and is a valid and binding obligation of the
Company enforceable against it in accordance with its terms.
(iv) The execution, delivery and performance of this Agreement by
the Company, and the consummation of the Merger by the Company, will not
violate the articles of incorporation and by-laws of the Company and, to
such counsel's knowledge after due inquiry, will not violate any
agreement to which the Company is a party or by which the Company's
assets are bound;
(v) Except as may be specified by such counsel or set forth on the
Disclosure Schedule, such counsel knows of no litigation, proceeding or
governmental investigation pending or threatened against or relating to
the Company, or any of its respective assets and businesses, or the
Company Stock; and
(vi) The authorized and outstanding capital stock of the Company is
as specified in Section 4.1(b) hereof, of which all such outstanding
shares are validly issued and outstanding, fully paid and nonassessable.
In rendering the foregoing opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, as to matters of fact,
upon certificates of government officials or of any officer or officers of the
Company, copies of which shall be expressly referred to in such opinion and
shall accompany such opinion. In addition, such counsel, in rendering such
opinion, shall be permitted to assume the authenticity of the Company's stock
book or records of its stock transfer agent and, if found in the Company's
minute book and otherwise proper in form and appearance, the authenticity of the
minutes of any directors' meetings and shareholders' meetings.
8.3 Conditions to the Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the further satisfaction of the
following conditions:
(a) there shall not be instituted or pending any action by any
Governmental Entity (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by the Company of the Merger, seeking to obtain material
damages or imposing any material adverse conditions in connection therewith
or otherwise directly or indirectly relating to the transactions
contemplated by this Agreement or the Merger, (ii) that otherwise, in the
reasonable judgment of Company, is likely to have a Company Material
Adverse Effect or a Parent Material Adverse Effect;
(b) Parent and Merger Subsidiary shall have performed in all material
respects their covenants and agreements under this Agreement, and the
representations and warranties of Parent and Merger Subsidiary set forth in
this Agreement that are qualified as to materiality shall be true in all
material respects when made at and as of the Effective Time as if made and
at and as of such time, and the representations and warranties set forth in
this Agreement that are not so qualified shall be true when made and at and
as of the Effective Time as if made at and as of such time; and the Company
shall have received a certificate of the Chief Executive Officer of Parent
and Merger Subsidiary to that effect;
(c) the Company Stockholder Approval shall have been obtained;
(d) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change), other than changes resulting from changes in interest rates, that,
in the reasonable judgment of the Company, has or is likely to have a
Parent Material Adverse Effect;
(e) the Company shall have been furnished with (i) copies of the text
of the resolutions by which the corporate action on the part of the Company
and Merger Subsidiary necessary to approve this Agreement and the
transactions contemplated hereby were taken, together with a certificate
dated as of the Effective Time executed on behalf of the Company and Merger
Subsidiary by the respective corporate secretaries certifying to the
Company that such copies are true, correct and complete copies of such
resolutions and that such resolutions were duly adopted and have not been
amended or rescinded.
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(f) the Company shall have received from Pauli & Company the
"fairness" opinion contemplated by Section 4.1(w) hereof; and
(g) the Company shall have received an opinion of The Stolar
Partnership, dated the Closing Date, to the effect that:
(i) Each of Parent and Merger Subsidiary is a corporation organized
and existing and in good standing under the laws of its State of
incorporation.
(ii) Each of Parent and Merger Subsidiary has the corporate power
and authority to execute and deliver, and perform its obligations under,
this Agreement.
(iii) This Agreement has been duly authorized by all necessary
corporate action on the part of Parent and Merger Subsidiary, has been
executed and delivered by Parent and Merger Subsidiary, and is the valid
and binding obligation of Parent and Merger Subsidiary, and this
Agreement is enforceable against Parent and Merger Subsidiary, as the
case may be, in accordance with its terms.
(iv) The execution, delivery and performance of this Agreement by
the Parent do not violate the Certificate of Incorporation or By-Laws of
Parent, and, to such counsel's knowledge, will not violate any agreement
or instrument to which Parent is a party or by which it or its property
is bound. The execution, delivery and performance of this Agreement by
Merger Subsidiary will not violate the Articles of Incorporation or
By-Laws of Merger Subsidiary, and, to such counsel's knowledge, will not
violate any agreement or instrument to which Merger Subsidiary is a
party or by which it or its property is bound.
(v) Except as may be specified by such counsel or set forth on the
Disclosure Schedule, such counsel knows of no litigation, proceeding or
governmental investigation pending or threatened against or relating to
the Parent or Merger Subsidiary, or any of their respective assets and
businesses, or the Parent Common Stock; and
(vi) Based solely on such counsel's review of the minute books and
stock transfer records of Parent and Parent's filings with the Secretary
of State of Delaware, the issuance of the Parent Common Stock in the
Merger has been duly authorized by all necessary corporate action on the
part of Parent. The Parent Common Stock has been duly issued in
accordance with the Certificate of Incorporation and By-Laws of Parent
and with applicable law, and upon delivery of such in accordance with
this Agreement, such Parent Common Stock is or will be outstanding,
fully-paid and non-assessable.
In rendering the foregoing opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, as to matters of fact,
upon certificates of government officials and of any officer or officers of
Parent and Merger Subsidiary, which shall be expressly referred to in such
opinion and copies of which shall accompany such opinion. In addition, such
counsel, in rendering such opinions, shall be permitted to assume the
authenticity of Parent's stock book or records of its stock transfer agent and,
if found in Parent's minute book and otherwise proper in form and appearance,
the authenticity of the minutes of any directors' meetings and shareholders'
meetings.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding the Company
Stockholder Approval or the Parent Common Stockholder Approval):
(i) by mutual written consent of the Company and Parent;
(ii) by either Parent or the Company, if at the meeting, or at any
adjournment thereof, at which the Company Stockholder Approval or the
Parent Common Stockholder Approval is proposed and voted upon, the Company
Stockholder Approval or the Parent Common Stockholder Approval shall have
not have been obtained;
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(iii) by either the Company or Parent, if the Merger has not been
consummated by July 31, 1998 (provided that the party seeking to terminate
the Agreement shall not have breached its obligations under this Agreement
in any material respect);
(iv) by Parent, at any time prior to the Effective Time, by action of
the Board of Directors of Parent, if (x) there has been a breach by the
Company of any of the representations, warranties, covenants or agreements
contained in this Agreement, or if any representation or warranty of the
Company shall have become untrue, in either case which has or could
reasonably be expected to have a Company Material Adverse Effect, or (y)
the Board of Directors of the Company shall have withdrawn or modified in a
manner adverse to Parent or Merger Subsidiary its approval of
recommendation of this Agreement or the Merger, or shall have resolved to
do any of the foregoing;
(v) by the Company, at any time prior to the Effective Time, by action
of the Board of Directors of the Company, if (A) there has been a breach by
the Parent or Merger Subsidiary of any of the representations, warranties,
covenants or agreements contained in this Agreement or if any
representation or warranty of the Parent or Merger Subsidiary shall have
become untrue, in either case which has or could reasonably be expected to
have a Parent Material Adverse Effect, or (B) the Company receives an
Acquisition Proposal on terms the Company's Board of Directors (after
consultation with its independent financial advisors) determines in good
faith to be more favorable to the Company's stockholders than the terms of
the Merger, and the Company's Board of Directors determines, upon the
written advice of its legal counsel, that to continue to recommend that
holders of Shares vote in favor of the Merger, notwithstanding the receipt
of such offer with respect to an Acquisition Proposal, or to fail to
recommend or accept the Acquisition Proposal, would violate the fiduciary
duties of the Company's Board of Directors; provided, however, that the
Company shall not be permitted to terminate this Agreement pursuant to this
Section 9.1(v)(B) unless it has provided Parent and Merger Subsidiary with
three (3) business days prior written notice of its intent to so terminate
this Agreement together with a detailed summary of the terms and conditions
(including proposed financing, if any) of such Acquisition Proposal;
provided, further, that Parent shall receive the options set forth in
Section 10.4(b) immediately prior to or concurrently with any termination
pursuant to this Section 9.1(v)(B); or
(vi) by either the Parent or the Company, by written notice to the
other, if the Average Parent Common Stock Price (as defined below) is less
than $7.50 per share, unless by written notice to the Company given not
later than three (3) business days after receipt of a termination notice
from the Company, the Parent agrees to increase the Exchange Ratio as
permitted by Section 2.1(b)(i). For purposes of this Agreement, the
"Average Parent Common Stock Price" shall be the average of the daily
closing sales price of the Parent Common Stock in the over-the-counter
market (as reported by The Wall Street Journal or, if not reported thereby,
as reported by another authoritative source as mutually agreed by Parent
and the Company) for the 10 consecutive full trading days ending on the
second business day prior to the Effective Time.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, this Agreement shall become void and of no effect with no liability
on the part of any party hereto or their respective officers and directors,
except that the agreements contained in Sections 6.2, 7.2(g) and 10.4 shall
survive the termination hereof. Specifically, and without limiting the
generality of the foregoing, Parent and Merger Subsidiary agree that, except as
expressly provided in this Section 9.2 or Section 10.4(b), termination of this
Agreement shall be their sole and exclusive remedy for any nonwillful breach by
the Company of its representations, warranties and covenants under this
Agreement and the Company agrees that except as provided in this Section 9.2
termination of this Agreement shall be its sole and exclusive remedy for any
nonwillful breach by Parent or Merger Subsidiary of their representations,
warranties and covenants under this Agreement. If this Agreement is terminated
by reason of a willful breach by a party, then the breaching party shall be
liable to the non-breaching party for all actual, consequential and incidental
damages suffered by the non-breaching party (including, but not limited to,
reasonable attorneys', accountants' and investment brokers' fees, costs and
expenses) arising from such willful breach.
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ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including telecopy or similar writing) and shall
be given,
if to Parent or Merger Subsidiary, to:
GB Foods Corporation
1200 N. Harbor Blvd.
Anaheim, CA 92803-61093
Telecopy: (714) 491-6415
Attn: Andrew F. Puzder
Chief Executive Officer
with a copy to:
The Stolar Partnership
911 Washington Avenue
St. Louis, Missouri 63101
Telecopy: (314) 436-8400
Attn: Thomas E. Lowther, Esq.
if to the Company, to:
Timber Lodge Steakhouse
4021 Vernon Avenue South
St. Louis Park, MI 55416
Telecopy: (612) 929-5658
Attn: Mr. Dermot F. Rowland
Chief Executive Officer
with a copy to:
Larkin, Hoffman, Daly & Lindgren, Ltd.
1500 Norwest Financial Center
7900 Xerxes Avenue South
Bloomington, Minnesota 55431
Telecopy: (612) 896-3333
Attn: Michael W. Schley, Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose of notice to the other parties. Each such notice, request or other
communication shall be effective when delivered at the address specified in this
Section 10.1.
10.2 Survival of Representations and Warranties. The representations and
warranties and agreements contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time except
for the representations, warranties and agreements set forth in Sections 6.2,
6.5, 6.6, 6.7, 7.2(g), 10.2, 10.4, 10.5, 10.6, 10.7, 10.8 and 10.9.
10.3 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company, Parent and Merger
Subsidiary or in the case of a waiver, by the party against whom the waiver is
to be effective, provided, that after the adoption of this Agreement by the
stockholders of the Company or the Parent, no such amendment or waiver shall,
without the further approval of such stockholders, alter or change (i) the
amount or kind of consideration to be received in exchange for any Shares, or
(ii) any of the terms of the Merger which are material to the stockholders of
the Company (as a group) or the Parent.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
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10.4 Fees and Expenses.
(a) Except as otherwise provided in Sections 7.2(g) and 10.4(b) of this
Agreement, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense.
(b) If (w)(1) any person or group (as contemplated by Section 13(d)(3) of
the Exchange Act) other than Parent or Merger Subsidiary or any of their
respective subsidiaries or affiliates (collectively, an "Acquiring Person")
shall have become the beneficial owner of a majority of the outstanding Shares,
and (2) either the Company shall fail to obtain the Company Stockholder Approval
or the Company's Board of Directors shall have withdrawn or changed its
recommendation or refused to make a recommendation in favor of this Agreement
and the Merger, or (x) Parent shall have terminated this Agreement pursuant to
Section 9.1(iv)(y), or (y) the Company shall have terminated this Agreement
pursuant to Section 9.1(v)(B), then the Company shall promptly, but in no event
later than five (5) days after the date of any request therefor, issue to the
Parent options to purchase such number of shares of the Company's voting common
stock as shall, after exercise of all such options, equal 19.9% of all such
voting common stock then outstanding, at an exercise price (subject to customary
adjustments for stock split, stock dividends and similar reclassifications or
adjustments) of $4.625 per share. Such options shall be immediately exercisable
without condition (other than payment of the exercise price), shall expire ten
years after their date of issue, shall be fully vested and nonforfeitable, shall
have customary anti-dilution provisions acceptable to Parent, shall be
transferable by their holder (subject to customary restrictions relating to
compliance with the Securities Act) in whole or part, and shall provide
customary piggyback registration rights so that the holder may sell the shares
received upon exercise in the public markets. The Company acknowledges that the
agreements contained in this Section 10.4(b) are an integral part of the
transactions contemplated in this Agreement, and that, without these agreements,
Parent and Merger Subsidiary would not enter into this Agreement; accordingly,
if the Company fails to promptly issue the options as described above or
otherwise perform its obligations pursuant to this Section 10.4(b), and, in
order to obtain such performance, Parent or Merger Subsidiary Commences a suit
against the Company for the options set forth this paragraph (b), the prevailing
party shall pay to the other party or parties their costs and expenses
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on the amount thereof at the prime rate of the
Citibank, N.A. on the date such payment was required to be made.
10.5 Successors and Assigns; Parties in Interest. The provisions of this
Agreement shall be binding, upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto except that Merger
Subsidiary may transfer or assign, in whole or, from time to time, in part, to
one or more of Parent or any of its wholly-owned subsidiaries, any or all of its
rights or obligations, but any such transfer or assignment will not relieve
Merger Subsidiary of its obligations under this Agreement. Except as expressly
set forth herein, nothing in this Agreement, express or implied, is intended to
or shall confer upon any person not a party hereto any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, including to
confer third party beneficiary rights.
10.6 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
10.7 Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the State of Minnesota, without giving
effect to the principles of conflicts of laws thereof, except that the
consummation and effectiveness of the Merger shall be governed by, and construed
in accordance with, the MBCA.
10.8 Entire Agreement. This Amended and Restated Agreement, including
Exhibits and Schedules hereto, constitutes the entire agreement, and supersedes
all other prior agreements, written and oral among the parties, with respect to
the subject matter hereof, including, specifically, the original Agreement dated
as of January 16, 1998, and the First Amendment thereto dated as of February 17,
1998.
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<PAGE> 185
10.9 Counterparts; Effectiveness; Interpretation. This Agreement may be
signed and delivered, in person or by facsimile transmission, in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto. When a reference is made in
this Agreement to an Article or Section, such reference shall be to an Article
or Section of this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
The parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
GB FOODS CORPORATION
By: /s/ ANDREW F. PUZDER
------------------------------------
Name: Andrew F. Puzder
----------------------------------
Title:Chief Executive Officer
--------------------------------------
TLS ACQUISITION CORP.
By: /s/ M'LISS JONES KANE
------------------------------------
Name: M'Liss Jones Kane
----------------------------------
Title:Vice President and Secretary
--------------------------------------
TIMBER LODGE STEAKHOUSE, INC.
By: /s/ DERMOT F. ROWLAND, CEO
------------------------------------
Name: Dermot F. Rowland
----------------------------------
Chief Executive Officer and
Title:Chairman
--------------------------------------
Fidelity National Financial, Inc. is executing this Agreement solely for
the purposes of agreeing that, if the Company's stockholders approve the Merger
at the meeting held for that purpose, it will exercise currently outstanding
warrants to acquire Parent Common Stock as contemplated by Section 8.1(d).
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ M'LISS JONES KANE
------------------------------------
Name: M'Liss Jones Kane
----------------------------------
Senior Vice President, Corporate
Title:Counsel
--------------------------------------
and Corporate Secretary
--------------------------------------
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<PAGE> 186
The undersigned is executing this Agreement solely for the purposes of
acknowledging its agreement to negotiate in good faith to sell JB Restaurants to
the Company as contemplated by Section 8.2(h).
CKE ENTERPRISES, INC.
By: /s/ ANDREW F. PUZDER
------------------------------------
Name: Andrew F. Puzder
----------------------------------
Title:Executive Vice President
--------------------------------------
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<PAGE> 187
FIRST AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
(the "First Amendment") is made and entered into as of this 8th day of July,
1998, by and among GB FOODS CORPORATION, a Delaware corporation ("GBFC"), TLS
ACQUISITION CORP., a Minnesota corporation ("TLSA"); AND TIMBER LODGE
STEAKHOUSE, INC., a Minnesota corporation ("TLSI").
WHEREAS, GBFC, TLSA and TLSI entered into that certain Amended and Restated
Agreement and Plan of Merger, dated as of June 9, 1998 (the "Agreement"),
pursuant to which TLSA shall merge with and into TLSI and become a wholly-owned
subsidiary of GBFC.
WHEREAS, the parties hereto desire to amend the Agreement upon the terms
and conditions set forth below.
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth and set forth in the Agreement, the parties hereto hereby amend the
Agreement as follows:
1. Definitions. Capitalized terms not specifically defined herein shall
have the meanings ascribed such terms in the Agreement.
2. Amendment. Section 9.1(iii) of the Agreement shall be amended and
restated in its entirety as follows:
"by either the Company or Parent, if the Merger has not been consummated
by September 15, 1998 (provided that the party seeking to terminate this
Agreement shall not have breached its obligations under this Agreement
in any material respect);"
3. Effect of Amendment. Except as expressly amended and restated herein,
each term and condition of the Agreement shall remain in full force and effect.
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<PAGE> 188
IN WITNESS WHEREOF, the foregoing First Amendment is hereby executed as of
the date first above written.
GBFC:
GB FOODS CORPORATION, a Delaware
corporation
By: /s/ ANDREW F. PUZDER
------------------------------------
Its: Chief Executive Officer
TLSA:
TLS ACQUISITION CORP., a Minnesota
corporation
By: /s/ ANDREW F. PUZDER
------------------------------------
Its: Executive Vice President
TLSI:
TIMBERLODGE STEAKHOUSE, INC., a
Minnesota corporation
By: /s/ DERMOT F. ROWLAND
------------------------------------
Its: Chief Executive Officer
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<PAGE> 189
ANNEX B
COPY OF
SECTIONS 302A.471 AND 302A.473
OF
THE MINNESOTA BUSINESS CORPORATION ACT
RELATING TO DISSENTERS' RIGHTS
<PAGE> 190
SECTIONS 302A.471 AND 302A.473
OF
THE MINNESOTA BUSINESS CORPORATION ACT
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS. Subdivision 1. Actions creating
rights. A shareholder of a corporation may dissent from, and obtain payment for
the fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting rights;
except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.75, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name
of the shareholder, unless the shareholder dissents with respect to all the
shares that are beneficially owned by another person but registered in the
name of the shareholder and discloses the name and address of each
beneficial owner on whose behalf the shareholder dissents. In that event,
the rights of the dissenter shall be determined as if the shares as to
which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of
this section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws, or
a resolution approved by the board otherwise provide, the right to obtain
payment under this section does not apply to a shareholder of the surviving
corporation in a merger, if the shares of the shareholder are not entitled
to be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders entitled to receive notice of and to
vote on an action described in subdivision 1, only
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<PAGE> 191
shareholders as of the date fixed, and beneficial owners as of the date
fixed who hold through shareholders, as provided in subdivision 2, may
exercise dissenters' rights.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a
right at law or in equity to have a corporate action described in
subdivision 1 set aside or rescinded, except when the corporate action is
fraudulent with regard to the complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS. Subdivision 1.
Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1
or the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1
up to and including the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is
to be voted upon, the notice of the meeting shall inform each shareholder
of the right to dissent and shall include a copy of section 302A.471 and
this section and a brief description of the procedure to be followed under
these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by
the shareholders, a shareholder who is entitled to dissent under section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and
must not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have
complied with subdivision 3 and to all shareholders entitled to dissent if
no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date
by which they must be received;
(2) Any restrictions on transfer of uncertified shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents,
acquired the shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice was given, but the dissenter retains all other rights of a
shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting
shareholder who has complied with subdivisions 3 and 4 the amount the
corporation estimates to be the fair value of the shares, plus interest,
accompanied by:
(1) the corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective
date of the corporate action, together with the latest available interim
financial statements;
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<PAGE> 192
(2) an estimate by the corporation of the fair value of the shares
and a brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action
dissented from was first announced to the public or who is dissenting on
behalf of a person who was not a beneficial owner on that date. If the
dissenter has complied with subdivisions 3 and 4, the corporation shall
forward to the dissenter the materials described in paragraph (a), a
statement of the reason for withholding the remittance, and an offer to pay
to the dissenter the amount listed in the materials if the dissenter agrees
to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
cancel all transfer restrictions. However, the corporation may again give
notice under subdivision 4 and require deposit or restrict transfer at a
later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the
corporation of the dissenter's owner estimate of the fair value of the
shares, plus interest, within 30 days after the corporation mails the
remittance under subdivision 5, and demand payment of the difference.
Otherwise, a dissenter is entitled only to the amount remitted by the
corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the
dissenter after discussion with the corporation or file in court a petition
requesting that the court determine the fair value of the shares, plus
interest. The petition shall be filed in the county in which the registered
office of the corporation is located, except that a surviving foreign
corporation that receives a demand relating to the shares of a constituent
domestic corporation shall file the petition in the county in this state in
which the last registered office of the constituent corporation was
located. The petition shall name as parties all dissenters who have
demanded payment under subdivision 6 and who have not reached agreement
with the corporation. The corporation shall, after filing the petition,
serve all parties with a summons and copy of the petition under the rules
of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The
court shall determine whether the shareholder or shareholders in question
have fully complied with the requirements of this section, and shall
determine the fair value of the shares, taking into account any and all
factors the court finds relevant, computed by any method or combination of
methods that the court, in its discretion, sees fit to use, whether or not
used by the corporation or by a dissenter. The fair value of the shares as
determined by the court is binding on all shareholders, wherever located. A
dissenter is entitled to judgment in cash for the amount by which the fair
value of the shares as determine by the court, plus interest, exceeds the
amount, if any, remitted under subdivision 5, but shall not be liable to
the corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the cost
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and
shall assess those costs and expenses against the corporation, except that
the court may
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<PAGE> 193
assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may be also be assessed against a person who has acted
arbitrarily, vexatiously, or not in good faith in bringing the proceeding,
and may be awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to any
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
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<PAGE> 194
ANNEX C
COPY OF
FAIRNESS OPINION AND SUPPLEMENTAL LETTER OF
PIPER JAFFRAY INC.
DATED APRIL 14, 1998 AND
JUNE 30, 1998, RESPECTIVELY
TO THE BOARD OF DIRECTORS OF
GB FOODS CORPORATION
RELATING TO
THE MERGER
<PAGE> 195
[PIPER JAFFRAY LETTERHEAD]
April 14, 1998
The Board of Directors
GB Foods Corporation
1200 North Harbor Boulevard
P.O. Box 61093
Anaheim, California 92803-61093
Members of the Board:
You are a party to an Amended and Restated Agreement and Plan of Merger
dated March 12, 1998 (the "Merger Agreement"), among Timber Lodge Steakhouse,
Inc. ("Timber Lodge"), GB Foods Corporation ("GB Foods") and TLS Acquisition
Corp. ("TLS"), a wholly-owned subsidiary of GB Foods, pursuant to which TLS will
be merged into Timber Lodge (the "Merger"). Under the terms of the Merger
Agreement, each outstanding share of Timber Lodge Common Stock will be exchanged
for 0.80 shares of GB Foods Common Stock, subject to adjustment in certain
events. The Merger is intended to qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and will be treated as a purchase for accounting purposes. You have requested
our opinion as to the fairness, from a financial point of view, to GB Foods of
the proposed consideration to be paid in the Merger to holders of outstanding
shares of Common Stock of Timber Lodge.
In connection with the Merger and on or prior to its consummation, the
following additional transactions (the "Additional Transactions") have or will
have occurred: (i) GB Foods has acquired (the "JBRI Acquisition") the
outstanding capital stock of JB's Restaurants, Inc. ("JBRI"), a wholly-owned
subsidiary of CKE Restaurants, Inc. ("CKE"), pursuant to an Agreement and Plan
of Reorganization dated as of February 19, 1998 (the "JBRI Acquisition
Agreement"), among GB Foods, JBRI and CKE, (ii) Timber Lodge has acquired from
CKE (the "Timber Lodge/JB's Purchase") 16 JB's Restaurants (the "Sixteen
Restaurants"), pursuant to an agreement between Timber Lodge and CKR, which
provides for the exchange by Timber Lodge of a number of shares of Timber Lodge
Common Stock equal to the net book value of the Sixteen Restaurants at the
closing of the Timber Lodge/JB's purchase divided by $4.625, and which number of
shares is presently estimated by management of GB Foods to aggregate 687,890
shares, (iii) JBRI has sold 12 JB's restaurants to Summit Family Restaurants,
Inc. ("Summit"), pursuant to an Asset Purchase Agreement dated as of February
10, 1998 (the "Summit/JB's Purchase Agreement") , between JBRI and Summit, and
(iv) Fidelity National Financial, Inc., a shareholder of GB Foods, shall have
exercised an outstanding warrant (the "Fidelity Warrant Exercise") to purchase
1,000,000 shares of GB Foods Common Stock for an aggregate cash consideration of
$5.0 million. Subsequent to the execution of the JBRI Acquisition Agreement, CKE
formed a new wholly-owned subsidiary named JB Parent Corp. ("JBPC") and intends
to capitalize JBPC with all of JBRI's capital stock. CKE also intends to enter
into an Assignment of Agreement and Plan of Reorganization, pursuant to which
CKE will assign all of its rights and interest in the JBRI Acquisition Agreement
to JBPC.
Piper Jaffray Inc., as a customary part of its investment banking business,
is engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. We will receive a fee for providing this opinion. This opinion fee is
not contingent upon the consummation of the
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<PAGE> 196
Merger. GB Foods has also agreed to indemnify us against certain liabilities in
connection with our services. Piper Jaffray was also engaged to provide, and has
provided, its opinion as to fairness from a financial point of view of the
proposed consideration to be paid by GB Foods in the JBRI Acquisition. Piper
Jaffray received additional fees for its opinion rendered in connection with the
JBRI Acquisition. Piper Jaffray makes a market in CKE Common Stock and provides
research coverage for CKE. In the ordinary course of our business, we and our
affiliates may actively trade securities of CKE for our own account or the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) copies of the Merger Agreement, the JBRI
Acquisition Agreement and the Summit/JB's Purchase Agreement, (ii) certain
publicly available financial, operating and business information related to
Timber Lodge, (iii) certain internal financial information of Timber Lodge on a
stand-alone basis, and as adjusted on a pro forma basis for the Timber
Lodge/JB's Purchase prepared for financial planning purposes and furnished by
the management of Timber Lodge, (iv) to the extent publicly available, financial
terms of certain acquisition transactions involving companies operating in
industries deemed similar to that in which Timber Lodge operates and selected
public companies deemed comparable to Timber Lodge, (v) certain publicly
available financial, operating and business information relating to GB Foods,
(vi) certain internal financial information of GB Foods on a stand-alone basis,
as adjusted on a pro forma basis for the Fidelity Warrant Exercise and the JBRI
Acquisition, and as a combined company with Timber Lodge, prepared by GB Foods
management for financial planning purposes and furnished by the management of GB
Foods, and (vii) certain publicly available market and securities data of Timber
Lodge and GB Foods. We had discussions with members of the management of (a) GB
Foods concerning the financial condition, current operating results and business
outlook for GB Foods, the Sixteen Restaurants and Timber Lodge on a stand-alone
basis and the combined company resulting from the JBRI Acquisition, the Timber
Lodge/JB's Purchase and the Merger and GB Food's plans relating to such combined
company, and (b) Timber Lodge concerning the financial condition, current
operating results and business outlook for Timber Lodge and the Sixteen
Restaurants on a stand-alone basis, Timber Lodge on a pro forma basis reflecting
the Timber Lodge/JB's Purchase, and the combined company resulting from the
Merger, and (c) CKE and JBRI concerning the financial condition, current
operating results and business outlook for the Sixteen Restaurants on a
stand-alone basis.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided to us by GB Foods,
Timber Lodge and CKE/JBRI or otherwise made available to us, and have not
assumed responsibility for the independent verification of such information.
Neither GB Foods, Timber Lodge or CKE publicly disclose internal financial
information of the type provided to Piper Jaffray in connection with Piper
Jaffray's review of the Merger. Such information was prepared for financial
planning purposes and was not prepared with the expectation of public
disclosure. We have relied upon the assurances of the managements of GB Foods,
Timber Lodge and CKE/JBRI that the information provided to us as set forth above
by GB Foods, Timber Lodge and CKE has been prepared on a reasonable basis, and,
with respect to financial planning data and other business outlook information,
reflects the best currently available estimates, and that they are not aware of
any information or facts that would make the information provided to us
incomplete or misleading.
We have also assumed that the transactions contemplated by the Merger
Agreement will constitute a "reorganization" within the meaning of Section
368(a) of the Code and that the transaction will be treated as a purchase for
accounting purposes. In addition, in arriving at our opinion, we have assumed
that, in the course of obtaining the necessary regulatory approvals for the
Merger, no restrictions, including any divestiture requirements, will be imposed
that will have a material adverse effect on the contemplated benefits of the
Merger.
In arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of GB Foods, Timber Lodge or
CKE, and have not been furnished with any such appraisals or valuations. We
express no opinion regarding the liquidation value of any entity. We have, with
your consent, assumed for purposes of our analyses, that any Additional
Transactions which have not been consummated will be consummated in accordance
with agreements reviewed by or described to us, and that, in the case of the
Timber Lodge/JB's Purchase the number of shares of Timber Lodge Common Stock
issued to CKE will
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<PAGE> 197
be 687,890 shares. We have also, with your consent, assumed for purposes of this
opinion, that neither the Merger nor any of the Additional Transactions will,
individually or in the aggregate, result in any change of control of GB Foods
under applicable state corporate laws.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof, and events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of GB Foods Common Stock have traded or
may trade at any future time. We have not undertaken to reaffirm or revise this
opinion or otherwise comment upon any events occurring after the date hereof and
do not have any obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of GB Foods and is not
intended to be and does not constitute a recommendation to any stockholder of GB
Foods as to how such stockholder should vote in respect of the Merger Agreement.
We were not requested to opine as to, and this opinion does not address, the
basic business decision to proceed with or effect the Merger. This opinion shall
not be published or otherwise used, nor shall any public references to us be
made without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors
as we consider relevant, it is our opinion that the proposed consideration be
paid in the Merger for the outstanding shares of Timber Lodge Common Stock is
fair, from a financial point of view, to GB Foods as of the date hereof.
Sincerely,
/s/ PIPER JAFFRAY INC.
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<PAGE> 198
[PIPER JAFFRAY LETTERHEAD]
CONFIDENTIAL
June 30, 1998
The Board of Directors
GB Foods Corporation
1200 North Harbor Boulevard
P.O. Box 61093
Anaheim, California 92803-61093
Re: Opinion of Piper Jaffray Inc. dated April 14, 1998
Gentlemen:
We have rendered to you our opinion dated April 14, 1998 (the "Opinion") as to
the fairness, from a financial point of view, to GB Foods of the 0.8000 exchange
ratio (the "Exchange Ratio") set forth in the Amended and Restated Agreement and
Plan of Merger dated March 12, 1998 (the "Merger Agreement"). Since that time,
what would be the Average Parent Common Stock Price (as defined in the Merger
Agreement) if the Effective Time (as defined in the Merger Agreement) occurred
as of a current date has decreased below the point at which GB Foods or Timber
Lodge would have the right to terminate the Merger Agreement, unless the
Exchange Ratio were adjusted by GB Foods in accordance with the terms of Section
2.1 of the Merger Agreement. Additionally, since April 14, 1998, the Merger
Agreement has been amended pursuant to that certain Amended and Restated
Agreement and Plan of Merger dated June 9, 1998 (the "Amended Merger
Agreement"), among Timber Lodge, GB Foods and TLS.
The Opinion addressed solely the Merger Agreement and an Exchange Ratio of
0.8000. It did not consider or address in any way the Amended Merger Agreement
or any possible adjustment to the Exchange Ratio.
You have requested our confirmation that our conclusion as to fairness from a
financial point of view expressed in the Opinion would not have been different
had it assumed and otherwise taken into account, as of such Opinion's April 14,
1998 date, solely the following two additional factors (i) an Average Parent
Common Stock Price of $6 3/8 (the closing price of GB Foods Common Stock on the
Nasdaq Stock Market on June 29, 1998) and (ii) the election by GB Foods to
increase the Exchange Ratio to .9412 pursuant to the formula set forth in
Section 2.1(b)(i) of the Amended Merger Agreement (such increased Exchange Ratio
being hereinafter referred to as the "Adjusted Merger Consideration"). Giving
effect to the foregoing, we hereby confirm that it would have been our opinion,
as of April 14, 1998, that the Adjusted Merger Consideration was fair, from a
financial point of view, to GB Foods.
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<PAGE> 199
GB Foods Corporation
June 30, 1998
Page 2
At your direction and with your consent, for purposes of this letter we have not
undertaken any additional review, analyses, investigation or inquiries since the
date of the Opinion, except to review our internal analyses prepared in
connection with the Opinion, modified where appropriate to give effect to the
assumed Average Parent Common Stock Price of $6 3/8 and the Adjusted Merger
Consideration. This letter is based solely on information available to us and
facts that circumstances as they existed and were subject to evaluation on April
14, 1998, except for the assumed Average Parent Common Stock Price of $6 3/8 and
the Adjusted Merger Consideration. Events, other than the assumed Average Parent
Common Stock Price of $6 3/8 and the Adjusted Merger Consideration, occurring
after April 14, 1998, could materially affect the facts and assumptions used in
preparing the Opinion and relied upon for purposes of this letter.
Capitalized terms used herein, which are not otherwise defined, shall have the
same meaning as in the Opinion.
Sincerely,
PIPER JAFFRAY, INC.
/s/ PIPER JAFFRAY INC.
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<PAGE> 200
ANNEX D
COPY OF
FAIRNESS OPINION OF
PAULI & COMPANY INCORPORATED
DATED MARCH 26, 1998
TO THE BOARD OF DIRECTORS OF
TIMBER LODGE STEAKHOUSE, INC.
<PAGE> 201
LOGO
[PAULI & COMPANY LETTERHEAD]
March 26, 1998
Board of Directors
Timber Lodge Steakhouse, Inc.
4021 Vernon Avenue South
St. Louis Park, MN 55416
Members of the Board:
You have requested our opinion (the "Opinion") expressed below, on behalf
of the shareholders of Timber Lodge Steakhouse, Inc. (the "Company" or "TBRL"),
as to whether the consideration to be received by the shareholders of the
Company pursuant to the Agreement and Plan of Merger dated January 16, 1998,
including amendments through the date hereof (the "Agreement"), between GB Foods
Corporation ("GBFC") and the Company is fair from a financial point of view.
Pursuant to the Agreement and upon the effectiveness of the merger (the
"Merger"), the Company will be merged with and into GBFC and each of the issued
and outstanding shares of the Company will be converted into the right to
receive 0.8 shares of common stock of GBFC (the "Exchange Ratio"), subject to
adjustment if the average closing price of GBFC is greater than $14.00 or less
than $7.50 for the ten consecutive trading days ending two days before closing.
As of March 25, 1998, the closing price of TBRL and GBFC shares was $5 15/16 and
$7 15/16 per share, respectively.
Pauli & Company Incorporated ("PCI") is an independent investment banking
and research firm headquartered in St. Louis, Missouri. As part of its
investment banking and research activities, PCI regularly evaluates securities
in connection with small cap and emerging growth companies, as well as,
underwritings, leveraged buyouts, secondary distributions, private placements,
estate and gift valuations, mergers and acquisitions, employee stock ownership
plans and other activities.
We have developed our Opinion based on the findings and conclusions arising
from our conduct of due diligence and analyses with respect to the Company and
GBFC and the proposed Merger. In arriving at our Opinion, we have, among other
things:
(1) reviewed the terms and conditions of the Agreement;
(2) analyzed certain historical business, financial and market information
relating to the Company and GBFC;
(3) reviewed the historical market prices and trading volumes of the common
stocks of both the Company and GBFC;
(4) conducted discussions with members of the senior management of the
Company and GBFC with respect to the current business and prospects of
the Company and GBFC and the strategic objectives of the Merger;
(5) reviewed the historical financial and market information as to certain
other publicly traded companies believed by us to be reasonably
comparable to the Company and GBFC;
D-2
<PAGE> 202
(6) reviewed the financial terms of other recent selected mergers and
acquisition transactions within the restaurant industry believed by us
to be reasonably comparable to the proposed Merger;
(7) performed standalone and pro-forma combined cash flow analyses of the
Company and GBFC using historical and projected information provided to
us by the Company and GBFC. The latter analysis included therein
estimates of merger costs, potential cost savings and synergies; and
(8) conducted such other financial reviews, analyses and investigations as
we deemed to be appropriate and relevant as to assist us in making the
conclusion set forth in this Opinion.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information furnished to us
by the Company and GBFC including, without limitation, all financial projections
provided to us by the respective companies. Such projections and estimates were
based on numerous variables and assumptions which are inherently unpredictable
and must be considered not certain as to occurrence as projected. Accordingly,
actual results may vary significantly from those set forth in such projections.
We do not make any warranties, nor do we express any opinion regarding the
accuracy of such projections. We have also relied upon the assurances of
managements of the Company and GBFC that they are unaware of any material facts
or omissions that would make any information provided to us incomplete or
misleading.
Therefore, based upon and subject to the foregoing and such other matters
as we considered relevant, it is our opinion that, as of the date hereof, the
consideration to be received by the shareholders of the Company, is fair from a
financial point of view to the shareholders of the Company.
Our fees for rendering this Opinion are not contingent upon the Opinion
expressed herein. This Opinion letter, which is being furnished to the Board of
Directors of the Company as of the date hereof pursuant to an engagement letter
dated December 22, 1997 and executed December 26, 1997, is our conclusion to the
underlying analyses and may be included in communications to the shareholders of
the Company provided that PCI approves of such disclosures prior to publication.
Very truly yours,
/s/ PAULI & COMPANY INCORPORATED
D-3
<PAGE> 203
ANNEX E
FINANCIAL AND OTHER INFORMATION OF
GB FOODS CORPORATION
TABLE OF CONTENTS TO ANNEX E
<TABLE>
<S> <C> <C>
Annual Report on Form 10-K/A, for the Year Ended December 31, 1997*
Front Cover Page........................................................ E-1
Part I.................................................................. E-2
Item 1. Business.................................................... E-2
Item 2. Properties.................................................. E-7
Item 3. Legal Proceedings........................................... E-7
Item 4. Submission of Matters to a Vote of Security Holders......... E-7
Part II................................................................. E-7
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... E-7
Item 6. Selected Financial Data..................................... E-9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... E-9
Item 8. Financial Statements and Supplementary Data................. E-14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... E-36
Item 10. Directors and Executive Officers of the Registrant.......... E-36
Item 11. Executive Compensation...................................... E-37
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. E-38
Item 13. Certain Relationships and Related Transactions.............. E-40
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... E-41
Signatures............................................................ E-42
Quarterly Report on Form 10-Q, for the Quarterly Period Ended March 31,
1998*
Front Cover Page........................................................ E-43
Index................................................................. E-44
Part I.................................................................. E-45
Item 1. Financial Statements........................................ E-45
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... E-50
Part II................................................................. E-52
Item 6. Exhibits and Reports on Form 8-K............................ E-52
</TABLE>
- ---------------
* Excluding exhibits.
<PAGE> 204
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
to
Commission File Number 1-10576
GB FOODS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0403086
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
<TABLE>
<S> <C>
1200 N. HARBOR BLVD. 92803
ANAHEIM, CALIFORNIA (Zip Code)
(Address of Principal Executive Office)
</TABLE>
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 491-6400
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
------------------- ---------------------
<S> <C>
Common Stock -- $.08 Par Value Boston Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained in this form, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of
the registrant on February 19, 1998 was approximately $41,936,000 based upon the
closing price of the common stock, as reported on the NASDAQ Small Cap Market.
The number of shares of the common stock of the registrant outstanding on
February 19, 1998 was 6,571,485.
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<PAGE> 205
PART I
All statements, other than statements of historical fact, included in this
Form 10-K, including without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). Such forward-looking statements involve assumptions, known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of GB Foods Corporation (the "Company") to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements contained in this Form
10-K. Such potential risks and uncertainties include, without limitation,
competitive pricing and other pressures from other restaurant operators,
economic conditions generally and in the Company's primary markets, consumer
spending patterns, perceived quality and value of the Company's products,
availability of capital, cost of labor, food costs, occupancy costs and other
risk factors detailed herein and in other of the Company's filings with the
Securities and Exchange Commission. The forward-looking statements are made as
of the date of this Form 10-K and the Company assumes no obligation to update
the forward-looking statements or to update the reasons actual results could
differ from those projected in such forward-looking statements. Therefore,
readers are cautioned not to place undue reliance on these forward-looking
statements.
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The Company is engaged in the business of operating Mexican quick-service
restaurants under the trade name "The Green Burrito" at leased facilities in
Southern California and the sale and supervision of Green Burrito franchises.
The Company's strategic plan is to maintain a base of Company-owned and operated
restaurants ("Company Stores") in Southern California sufficient for training,
product development and testing, while developing additional Green Burrito
franchise restaurants through expansion of the Green Burrito free-standing and
dual-concept franchise businesses. As of December 31, 1997, there were 181 Green
Burrito stores, including seven Company Stores and 174 stores owned by
franchisees or third parties ("Franchise Stores"), 134 of which were Green
Burrito dual-concept stores.
On July 22, 1997, Fidelity National Financial, Inc. ("Fidelity") purchased
1,000,000 shares of Common Stock of GB Foods Corporation (the "Company") from
the former Chief Executive Officer and principal stockholder ("Controlling
Shareholder"), for a purchase price of $5,000,000 cash. Fidelity also purchased
Common Stock Purchase Warrants ("Warrants") from the Company's Controlling
Shareholder pursuant to which Fidelity has the right to acquire 2,500,000 shares
of the Company's Common Stock, of which 1,500,000 are immediately exercisable at
$5.00 per share (the "$5.00 Warrants") and 1,000,000 are immediately exercisable
at $7.00 per share (the "$7.00 Warrants"). The $5.00 Warrants were purchased for
$600,000 cash and expire November 23, 2002; the $7.00 Warrants were purchased
for $100,000 cash and expire May 1, 2005. Simultaneously with the closing of the
transaction, Fidelity transferred 30,000 $5.00 Warrants to its investment
advisor.
In a separate transaction, Fidelity also acquired 1,000,000 Warrants
exercisable at $7.50 per share (the "$7.50 Warrants") from a law firm which has
provided services to the Company. The purchase price of the $7.50 Warrants was
$100,000 cash. The $7.50 Warrants expire May 1, 2005.
As a result of the purchase of the Shares and the Warrants, Fidelity
beneficially owns 42.1% of the Company, based on 6,571,485 shares outstanding at
December 31, 1997 and including the Warrants pursuant to which Fidelity has the
right to acquire an additional 3,470,000 shares. In conjunction with the
Fidelity purchases, three of the Company's Directors have resigned which
included both the Chief Executive Officer and Chief Financial Officer of the
Company. Key officers of Fidelity have filled the Director and Officer
vacancies. Several of the Directors and Officers are also Directors and/or
Officers of CKE with whom the Company has entered into a recent acquisition
agreement and with whom the Company has dual-concept franchise agreements.
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<PAGE> 206
On December 12, 1997, the Company announced the execution of a letter of
intent to acquire all the outstanding capital stock of Timber Lodge Steakhouse,
Inc. ("TBRL"). TBRL is a public company traded on Nasdaq under the symbol TBRL
and is the operator of the Timber Lodge Steakhouse family-style restaurants. As
of December 31, 1997, TBRL was operating a total of 16 restaurants which were
located in the states of Minnesota, Wisconsin, Illinois, Western New York and
South Dakota. TBRL's revenues and net income for the fiscal year ended January
1, 1997 were $20,637,000 and $983,000 respectively.
On January 16, 1998, the Company executed a definitive Agreement and Plan
of Merger ("Merger Agreement") with TBRL, pursuant to which the Company will
acquire one hundred percent of the outstanding capital stock of TBRL. The
parties expect to close the transaction in April 1998. Under the terms of the
agreement, each share of TBRL common stock will be converted into the right to
receive .80 of a share of the Company's common stock together with cash in lieu
of any fractional shares (the "Exchange Ratio"). In addition, the agreement has
established a collar for the Exchange Ratio of $14.00 on the high end and $7.50
on the low end. If the Company's average closing common stock price during the
ten day trading period ending on the second business day prior to the closing,
("Average Closing Stock Price"), exceeds the limits of the collar then the
Exchange Ratio will be adjusted. If the Average Closing Stock Price is more than
$14.00, the Exchange Ratio shall be reduced to a number (rounded to the nearest
1/10000) equal to the product of the Exchange Ratio multiplied by a fraction,
the numerator of which is $14.00 and the denominator of which is the Average
Closing Stock Price. If the Average Closing Stock Price is less than $7.50, the
Company may elect to increase the Exchange Ratio to the number (rounded to the
nearest 1/10000) determined by dividing $7.61 by the Average Closing Stock
Price.
The Merger is subject to certain customary conditions, including (i)
Fairness Opinions; (ii) approvals from the shareholders of the Company and TBRL;
and (iii) the parties obtaining all regulatory approvals, including the
Securities and Exchange Commission declaring effective a Registration Statement
covering the shares of the Company's common stock to be issued in the Merger.
The Merger is also subject to the purchase by TBRL from CKE Restaurants, Inc.
("CKE") (NYSE:CKR) or its affiliate of between twelve (12) and (20) JB's
Restaurants for conversion to Timber Lodge Steakhouse restaurants. In this
regard, CKE has agreed under the Merger Agreement to negotiate in good faith
with TBRL to consummate such purchase and sale. In addition, Fidelity National
Financial, Inc. (NYSE:FNF) has agreed under the Merger Agreement that, subject
to the approval of the Merger by TBRL's shareholders, it will exercise currently
outstanding warrants to purchase shares of the Company's common stock for a cash
purchase price aggregating not less than $5,000,000. The Company plans to
utilize such proceeds, in part, for the conversion of the JB's Restaurants
acquired by TBRL into Timber Lodge Steakhouse restaurants.
On February 19, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement"), pursuant to which the Company shall acquire
one hundred percent (100%) of the issued and outstanding capital stock of JB's
Restaurants, Inc. (JB's), a wholly owned subsidiary of CKE. Under the Agreement,
GBFC shall acquire JB's for one million (1,000,000) shares of GBFC Common Stock.
GBFC and CKE anticipate that the acquisition will Close on or before March 1,
1998. At the Closing, the business of JB's shall be comprised of forty-eight
(48) JB's company-owned restaurants, twenty (20) JB's franchise restaurants, and
four (4) Galaxy diner restaurants. The acquisition is subject to certain
conditions, including the satisfactory completion of due diligence, delivery by
CKE and the approval by GBFC of certain disclosure schedules, the issuance of
Fairness Opinions, approvals from the respective Boards of Directors of GBFC and
CKE, regulatory approvals, the closing of the previously announced acquisition
of twelve (12) JB's restaurants by Star Buffet, Inc., the upstream transfer by
way of dividend of sixteen (16) JB's restaurants and certain other assets to
CKE. It is the intent of the parties that the transaction qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company is engaged in one industry segment. Financial information
concerning the Company's business is included and incorporated by reference in
Part II and Part IV of this Form 10-K.
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<PAGE> 207
(c) NARRATIVE DESCRIPTION OF BUSINESS
GREEN BURRITO CONCEPT. The Green Burrito stores feature a menu of
traditional Mexican food items including burritos, tostadas, enchiladas, tacos,
gorditas, chili rellenos, appetizers, soft drinks and non-alcoholic Mexican
drinks. A variety of condiments, such as jalapeno peppers, hot sauce, and mild
and hot salsa, are available at self-serve salsa bars enabling customers to
spice and garnish their food according to individual tastes. In addition, the
Company has a Mexican breakfast menu, including huevos rancheros, breakfast
burritos, chorizo and egg burritos, tostadas rancheros and orange juice.
Although Green Burrito stores offer traditional Mexican food, the Company's
recipes are specially formulated to produce milder flavors than the flavors
typically associated with Mexican food. Emphasis is on serving substantial
portions of high-quality food using only top grade ingredients, including USDA
loin steak, USDA ground beef, USDA pork, grade "A" chicken meat, real cheddar
and Monterey Jack cheese, #1-long grain rice and triple-cleaned beans. The
Company believes the prices for its menu items give customers good value; entree
selections at Company Stores currently range in price from $.99 for a "super
value menu" item to $3.99 for a combination plate including two steak tacos,
salad, rice and beans. The most popular menu items include the "Big Ed" burrito,
a burrito weighing over two pounds consisting of steak, carnitas, refried beans,
rice, lettuce, tomato, guacamole, cheese and double tortillas at a price of
$4.69, and "wet burritos," consisting of refried beans, rice, cheese, and a
choice of steak, chicken, beef or pork covered with either green chili sauce or
enchilada sauce, and cheese, served with tortilla chips at a price of $3.99. The
menu also features special family prices which discount some of the menu items
for large quantity orders.
The Company has established certain criteria which, if met, allow the sale
of alcoholic beverages for consumption on store premises with prior approval
from the Company. Several Franchise Stores serve alcoholic beverages; however,
the Company may rescind the right to serve alcoholic beverages on 30 days'
written notice if the criteria are not being met.
COMPANY STORES. As of December 31, 1997, the Company operates seven Company
Stores, six of which are wholly-owned and one of which is owned by a limited
partnership of which the Company is the general partner. See "Properties" below.
The wholly-owned Company Stores in Anaheim Hills, Corona, Glendale, La Crescenta
and Long Beach were purchased from franchisees in October 1990, December 1991,
April 1994, November 1994 and December 1994, respectively.
The Company, as general partner of a store (Glendora) owned by a limited
partnership, receives 76.1% of the profits, subject to a non-cumulative
preference on cash distributions to the limited partner of $8,280 per annum
against the limited partner's 23.9% interest in the profits.
FRANCHISE PROGRAM. As of December 31, 1997, the Company had 174 operating
franchises, 134 of which were Green Burrito dual-concept restaurants. See "Green
Burrito Dual-Concept Stores" below. Since the inception of the franchise program
47 franchise restaurants have been closed and the Company has reacquired seven
franchises, five of which are currently operated as Company Stores.
When the Company commenced its franchise expansion, the initial franchise
fee was $10,000. Under the current standard Franchise Agreement for a
free-standing franchise (the "Franchise Agreement"), franchisees pay an initial
fee of $25,000 for each site at the time the Franchise Agreement is signed. The
Company treats the initial franchise fee as fully earned for financial statement
purposes upon the opening of the Franchise store. Franchisees also pay a weekly
franchise royalty equal to the greater of 5% of gross Franchise Store revenues
or $300 per week for each Franchise Store. An advertising fund contribution
equal to the greater of 1.5% of gross Franchise Store revenues or $450 is due
monthly for each Franchise Store. The Company has developed a separate Franchise
Agreement for dual-concept franchise stores. Dual-concept franchisees pay
similar fees related to the sale of Green Burrito proprietary products and
related items. The Company may from time to time change the amount of the
franchise fee, the franchise royalty and the advertising fund contribution to be
charged to franchisees.
The Franchise Agreement for free-standing stores grants the franchisee the
right to operate a Green Burrito store at specified locations and obligates the
Company to perform training and certain other assistance in consideration of the
franchisee's payment of the franchise fees, the franchise royalty and the
advertising fund contribution. The term of the Franchise Agreement is 10 years,
subject to renewal by the franchisee for
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<PAGE> 208
two additional five-year periods, provided that, among other things, the
franchisee has fulfilled all the terms and conditions of the Franchise
Agreement, enters into the then current Franchise Agreement with the Company and
pays a renewal fee in accordance with their initial franchise agreement. The
Franchise Agreement requires franchisees to purchase most equipment, food,
supplies and products from sources approved by the Company in order to maintain
consistency and quality from store to store.
GREEN BURRITO DUAL-CONCEPT STORES. Since 1992, the Company has pursued the
franchising of Green Burrito products alongside an existing quick-service
restaurant line thereby enabling one restaurant facility to offer two restaurant
concepts (the "dual concept"). Dual concept stores are not owned by the Company,
they are all owned and operated by third parties who pay an initial franchise
fee to sell the Green Burrito products in their operations and pay continuing
royalties and advertising fees based on a percentage of the gross sales of Green
Burrito products. The Company has entered into the following dual-concept
arrangements since 1992:
Arby's/Green Burrito. During August 1992, the Company issued a franchise to
an Arby's, Inc. ("Arby's") franchisee for a restaurant located in Long Beach,
California. The Arby's franchisee remodeled an existing Arby's unit to include
the Green Burrito dual-concept in the same facility. A second Arby's/Green
Burrito store, located in Santa Maria, California, opened in January 1994.
Carl's Jr./Green Burrito. During May 1995, the Company reached an agreement
with Carl Karcher Enterprises, Inc., the operator and franchisor of Carl's Jr.
restaurants, and CKE Restaurants, Inc., its parent company (hereinafter jointly
referred to as "CKE"), pursuant to which CKE agreed to convert a minimum of 40
CKE-owned Carl's Jr. restaurants per year into Carl's Jr./Green Burrito
dual-concept stores over a five-year period commencing July 15, 1995. In
February 1997, the Company and CKE modified the agreement to provide for the
conversion of a minimum of 60 Carl's Jr. restaurants per year to Carl's
Jr./Green Burrito dual-concept stores. CKE also agreed to allow its franchisees
to convert their restaurants into Carl's Jr./Green Burrito dual-concept stores.
The initial term of the franchise agreements for CKE-owned locations is 15 years
with a 10-year renewal period. The franchise agreements also allow for an early
termination on a per-store basis if royalties payable to the Company for such
location are less than an average of $250 per month for any calendar year. As of
December 31, 1997, all Carl's Jr./Green Burrito stores were in compliance with
this requirement. As of December 31, 1997, there were 115 Carl's Jr./Green
Burrito restaurants in operation in California and Arizona.
Rally's/Green Burrito. The Company executed a development agreement in June
1995 with Rally's Hamburger's Inc. ("Rally's") for the development of
Rally's/Green Burrito dual-concept restaurants to be located primarily in the
Midwest. The Company also granted Rally's a conditional 10-year warrant to
purchase 1,000,000 shares of the Company's common stock at an exercise price of
$7.50 per share. In April 1996, the Company and Rally's executed an agreement
providing for the termination of the development agreement and the cancellation
of the outstanding warrant. As of December 31, 1996, all 14 of the Rally's
dual-concept stores had been closed.
WSMP/Green Burrito. During July 1995, the Company entered into a test-store
agreement with WSMP, Inc. ("WSMP"), a North Carolina-based food manufacturing
and restaurant company. WSMP restaurant operations include company-owned and
franchise units, primarily in the Southeast. The majority of these restaurants
are Western Steer units, including their traditional Western Steer Family
Restaurant and newer remodels known as Western Steer Steak, Buffet and Bakery
Restaurants. Prime Sirloin and Bennett's are the other two main segments of the
WSMP restaurant division. Pursuant to the test-store agreement, six store
locations were mutually selected for the test, one of which is still currently
operating. The test, as provided in the test-store agreement, concluded on
December 26, 1995. As of December 31, 1997, the parties had evaluated the
results of the test and determined not to progress to a formal franchise
relationship.
Hardee's/Green Burrito. During November 1995, the Company entered into a
test-store agreement with Hardee's Food System, Inc. ("Hardee's"). Pursuant to
the test-store agreement, 20 Hardee's store locations (14 in Tulsa, Oklahoma
area and six in Nebraska and/or Southeastern states) will be converted to
Hardee's/ Green Burrito restaurants. As of December 31, 1996, fifteen Hardee's
dual-concept stores were in operation. The duration of the test, as provided in
the test-store agreement, will continue until July 1, 1997. However, the test
period has been informally extended as a result of the recent acquisition of
Hardee's by CKE. The
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<PAGE> 209
continued conversion of additional Hardee's stores will be contingent upon the
success and consumer acceptance of the converted stores.
Long John Silvers/Green Burrito. During July 1997, the company executed a
dual-concept franchise agreement with American Seafoods Partners ("ASP"), which
is a wholly owned subsidiary of Restaurant Management Company ("RMC") a
Franchisee operator of 120 Pizza Hut stores and 30 Long John Silver stores. One
store was converted in LasVegas New Mexico and opened in September 1997. The
continued conversion of additional Long John Silver dual-concept stores will be
contingent upon the success and consumer acceptance of the converted store.
Texaco/CKE/Green Burrito. During October 1997, the Company executed a
dual-concept franchise agreement with CKE and Texaco Refining and Marketing
("Texaco") where by they will co-develop 50 Carl's Jr./Texaco dual-brand
locations including 15 branded with Green Burrito. The new locations will be
developed in the Western United States over the next three years.
FRANCHISE PROMOTION. The Company is discussing arrangements for
dual-concept store franchises with other quick-service franchisors and intends
to pursue the sale of franchises to operators of free-standing restaurants as
well as operators of other franchises for dual-concept purposes.
COMPETITION. The quick-service restaurant industry is intensely competitive
in the attraction of consumers and franchisees and in obtaining suitable sites
for new stores. Some of the key competitive factors in the restaurant industry
are the quality and value of the food products offered, quality of service,
cleanliness, name identification, restaurant location, price and attractiveness
of facilities. The Company and its franchisees compete with restaurants of all
types in the local market areas surrounding individual stores and particularly
with quick-service restaurants and Mexican restaurants for a share of the
consumers' restaurant food dollars.
The Company believes its primary competition in the quick-service segment
of the restaurant industry is from established national quick-service restaurant
chains offering Mexican food, hamburgers, pizza, and chicken such as Taco Bell,
El Pollo Loco, Del Taco, Burger King, McDonalds, Wendy's, Pizza Hut and KFC.
These restaurants offer strong competition and have national name recognition
and greater advertising, financial, and other resources than the Company. These
competitors also have a far greater density of store sites and substantially
larger facilities. The Company also competes with local quick-service restaurant
chains and both quick-service and full-service "mom-and-pop" restaurants in
specific local markets.
The Company believes that its product is distinguishable from its
competitors because (i) the Green Burrito menu is different than menus of most
Mexican quick-service restaurants; (ii) Green Burrito food is prepared with
high-quality, natural ingredients resulting in food quality comparable to a
full-service restaurant; and (iii) the Company generally has larger portioning
standards giving the customer a good value overall for the price.
FRANCHISE AND OTHER GOVERNMENTAL REGULATION. The restaurant industry is
subject to extensive federal, state, and local regulation governing, among other
things, health and sanitation standards, equal opportunity employment, minimum
wage and licensing for the sale of food. In addition, the Company is subject to
extensive federal and state regulations governing franchise operations and sales
which impose registration and disclosure requirements on franchisors in the
offer and sale of franchises and, in certain cases, dictating substantive
standards that govern the relationship between franchisor and franchisees.
Various federal and state labor laws govern relationships with employees,
including such matters as minimum wage requirements, overtime, and other working
conditions.
MATERIALS. The Company's ability to maintain consistent quality throughout
its restaurants depends in part upon the ability to acquire food products and
related items from reliable vendors in accordance with Company specifications.
The Company has no long-term contracts for any food items used in its
restaurants and the Company is not dependent upon any single source for
ingredients. All essential ingredients for the Company's specially-formulated
recipes, beverage products, and other supplies are available, or upon short
notice could be made available, from alternative qualified suppliers.
EMPLOYEES. On December 31, 1997, the Company had 78 employees, of whom 12
were employed in the corporate office and 66 were employed in the seven Company
Stores. Of the total employees in the Company Stores, 9 were employed as
salaried managers and 57 were employed as hourly food handlers. The Company
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has never experienced a work stoppage and believes its employee relations to be
good. No employee of the Company is represented by a union.
ITEM 2. PROPERTIES
The Company leases retail locations for its restaurant operations as
described below:
<TABLE>
<CAPTION>
MONTHLY APPROXIMATE LEASE OPTIONAL RENEWAL
LOCATION RENTAL SQUARE FOOTAGE EXPIRATION DATE PERIOD (YEARS)
-------- ------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Anaheim Hills.............................. $ 3,465 2,100 January 2000 10
Corona..................................... 4,153 2,500 March 2001 10
Downey..................................... 3,475 1,000 January 1998 0
Glendale................................... 2,773 1,470 March 1999 0
Glendora................................... 2,214 1,000 April 1998 5
La Crescenta............................... 3,505 1,400 January 1999 0
Long Beach................................. 3,168 1,200 May 1998 5
-------
Total............................ $22,753
=======
</TABLE>
The leases for the retail locations generally contain rent escalation
provisions, most of which are tied to increases in the consumer price index.
Some of the leases also provide for payment of additional rent based on a
percentage of sales. No additional rents have been required pursuant to these
provisions.
All of the Franchise Stores are located in leased premises not owned by the
Company. Franchise Store leases typically run for five to 10 years with one or
two five-year renewal options. As a condition of the Franchise Agreement, each
lease for a Franchise Store must contain language granting an option to the
Company to assume the lease if the Agreement is terminated for any reason or if
the franchisee is in default under the lease.
The Company's principal executive office is located in Anaheim, California
in a 650 square foot facility which is leased through October 1998, at the rate
of approximately $2,500 per month from CKE.
The Company is also the primary lessee of four facilities, formerly
occupied by the Company, which have been subleased to unrelated third parties. A
2,800 square foot facility in Newport Beach, California is leased through June
1998 with payments of approximately $5,200 per month and is subleased by the
Company through the lease term for approximately $4,800 per month. An 8,800
square foot facility also in Newport Beach, California is leased through
September 2000 for payments of approximately $16,000 per month and is subleased
by the Company through the lease term for approximately $16,000 per month. A
20,000 square foot building in Anaheim, California is leased through May 1998
for payments of approximately $9,200 per month, substantially all of which is
subleased by the Company through the lease term for approximately $8,700 per
month. The Company continues to utilize approximately 500 square feet of the
Anaheim facility. A 5,300 square foot facility which is leased through July 1998
at the rate of $9,300 per month and is subleased by the Company through the
lease terms for an amount in excess of the Company's obligation
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the Nasdaq Small Cap Market tier of
the Nasdaq Stock Market, under the symbol "GBFC." The Company's common stock is
also listed on the Boston Stock Exchange under the symbol "GBF." The following
table sets forth, for the calendar periods indicated, the high and low sales
price for the Company's common stock as reported on the Nasdaq Small Cap Market.
The
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<PAGE> 211
prices represent quotations between dealers, without adjustment for retail mark
up, mark down or commission, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
SALES PRICE
------------
HIGH LOW
---- ----
<S> <C> <C>
1996
First Quarter.................................. 10 5/8 6 7/8
Second Quarter................................. 10 3/8 6
Third Quarter.................................. 8 1/2 5 3/4
Fourth Quarter................................. 7 3/8 5 1/2
1997
First Quarter.................................. 8 1/8 6 3/8
Second Quarter................................. 6 1/4 4 3/4
Third Quarter.................................. 14 3/8 4 7/8
Fourth Quarter................................. 14 1/4 9 1/2
</TABLE>
The Company has not paid dividends on its common stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in its business. On December 31, 1997,
the approximate number of record holders of the Company's common stock was 209;
however, the Company believes that the number of beneficial owners exceeds 1,000
persons.
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<PAGE> 212
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1997 is derived from the Consolidated Financial Statements of the Company. The
following information should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this report. The data has been adjusted to take into
account the discontinuance of the Commissary operations in the fourth quarter of
1992.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 5,380 $ 4,994 $ 6,599 $ 6,612 $ 5,469
Total expenses excluding litigation
settlement and related costs....... (4,526) (5,042) (7,716) (8,287) (6,351)
Litigation settlements and related
costs.............................. -- -- (805) (2,869) (4,195)
Income (loss) from continuing
operations......................... 854 (48) (1,922) (4,544) (5,077)
Income on disposal of commissary
operations......................... -- -- -- -- 87
Net income (loss).................... 854 (48) (1,922) (4,544) (4,990)
Basic net income (loss) per share
from continuing operations......... 0.14 (0.01) (0.32) (0.90) (1.05)
Diluted net income (loss) per share
from continuing operations......... 0.11 (0.01) (0.32) (0.90) (1.05)
Basic net income (loss) per share.... 0.14 (0.01) (0.32) (0.90) (1.05)
Diluted net income (loss) per
share.............................. 0.11 (0.01) (0.32) (0.90) (1.05)
Basic weighted average shares
outstanding........................ 6,292,691 6,177,716 5,982,673 5,029,437 4,762,574
Diluted weighted average shares
outstanding........................ 7,751,921 6,177,716 5,982,673 5,029,437 4,762,574
Total assets......................... 4,802 3,462 3,277 4,267 5,007
Long-term debt....................... -- 15 25 8 11
</TABLE>
No dividends were paid or declared during the five years ended December 31,
1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
This discussion and analysis contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are subject to the "safe harbor" created by those sections. The
Company's actual future results could differ materially from those projected in
the forward-looking statements. The Company assumes no obligation to update the
forward-looking statements or such factors.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996. Total revenues from operations for the year ended December 31, 1997
were $5,380,000, an increase of 8% from $4,994,000 earned in the comparable
period in 1996. Revenues for the years ended December 31, 1997 and 1996,
respectively, included $3,019,000 and $2,988,000 from restaurant operations,
$1,229,000 and $1,069,000 from royalties, $409,000 and $390,000 from franchise
fees, $495,000 and $349,000 from other sources, $143,000 and $105,000 from
interest income, and $85,000 and $93,000 from frozen food operations.
Revenues from restaurant operations for 1997 increased 1% to $3,019,000
compared to $2,988,000 earned in 1996, as the result of an increase in same
store sales. Store-operating months decreased to 84 in 1997 from 86 in 1996. The
Company anticipates revenues from restaurant operations in 1998 to remain
consistent with revenues from 1997. At December 31, 1997 and 1996, respectively,
seven Company Stores were open (including the one consolidated partnership-owned
store in both years).
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<PAGE> 213
Revenues from franchise royalties increased 15% to $1,229,000 for the year
ended December 31, 1997 from $1,069,000 earned in the comparable period in 1996.
Royalties from dual-concept Franchise Stores range from 3% to 4% of Green
Burrito sales while royalties from free-standing Franchise Stores are typically
5% of sales. The following table is a summary of Franchise Store activity during
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- --------
<S> <C> <C>
DUAL-CONCEPT FRANCHISE STORES
Stores at beginning of year.............................. 84 41
Stores opened during year................................ 53 59
Stores closed during the year............................ (3) (16)
-------- --------
Stores at end of year.................................... 134 84
======== ========
Number of dual-concept
Franchise Store operating months....................... 1,291 833
======== ========
Royalty income........................................... $579,000 $387,000
======== ========
FREE-STANDING FRANCHISE STORES
Stores at beginning of year.............................. 43 47
Stores closed during the year............................ (3) (4)
-------- --------
Stores at end of year.................................... 40 43
======== ========
Number of free-standing
Franchise Store operating months....................... 503 532
======== ========
Royalty income........................................... $650,000 $682,000
======== ========
</TABLE>
Royalty income from dual-concept Franchise Stores for the year ended
December 31, 1997 increased $192,000, to $579,000 in 1997 from $387,000 earned
in 1996, as the result of the increase in store operating months to 1,291 in
1997 compared with 833 in 1996. The increase in store operating months is the
result of a net increase of 50 dual-concept franchise stores during 1997. The
net increase of 50 dual-concepts stores in 1997 is the result of 52 CKE openings
plus 1 Long John Silver opening, less 3 WSMP closings. Royalty income from
free-standing Franchise Stores for the year ended December 31, 1997 decreased
$32,000 from the amount earned in 1996 as a result of the reduction in
store-operating months. The store operating months decreased as a result of the
closure of 3 stores. The Company anticipates royalties earned from dual-concept
Franchise Stores to grow in 1998 while royalties earned in 1998 from
free-standing Franchise Stores are anticipated to remain comparable to 1997
royalties.
Revenues from franchise fees increased 5% to $409,000 for the year ended
December 31, 1997 from $390,000 earned in the comparable period in 1996,
primarily due to the opening of 53 dual-concept stores during 1997 as compared
to a net 44 openings in 1996. Although there were 59 openings in 1996, the 15
Hardee's store openings were considered "test stores" and did not pay any
franchise fees. Franchise fees from dual-concept stores range from $5,000 to
$7,500 per store. At a minimum, the Company expects to earn franchise fees in
the year ended December 31, 1998 at a level comparable to 1997.
Revenues from other sources increased $145,000 to $494,000 for the year
ended December 31, 1997 from $349,000 earned in the comparable period in 1996.
Included in other revenue are volume incentives received from various vendors.
Volume incentives which cannot be directly related to company owned and operated
stores are recorded as other income. Volume incentives which are directly
related to the company owned stores are recorded as reductions to either food
costs or paper costs depending on the source of the respective volume incentive.
Revenues from frozen food operations decreased 9% to $85,000 for the year
ended December 31, 1997 from $93,000 earned in the comparable period in 1996.
Late in the second quarter of 1995, the Company made a strategic decision to
discontinue its retail frozen burrito business for the time being while the
Company focuses on other growth plans. The Company is continuing to sell a small
quantity of frozen burritos through various channels, but is not actively
pursuing the development of this business.
On an aggregate basis, cost of sales from restaurant operations (food,
packaging, payroll and other employee benefits), expressed as a percentage of
sales, averaged 65% for December 31, 1997 and 67% for
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<PAGE> 214
1996. Cost of sales for the years ended December 31, 1997 and 1996,
respectively, included $1,077,000 and $1,132,000 from food and packaging and
$871,000 and $880,000 from payroll and other employee benefits. The favorable
decrease in cost of sales was the direct result of lower food and packaging
costs negotiated with vendors in 1997.
On an aggregate basis, occupancy and other operating costs (including
utilities, housekeeping, liability insurance, repairs and maintenance, and other
miscellaneous items), expressed as a percentage of sales, averaged approximately
27% for both the years ended December 31, 1997 and 1996. Occupancy and other
operating costs for the years ended December 31, 1997 and 1996 totaled $821,000
and $810,000, respectively.
The frozen foods division incurred operating costs of $76,000 and $81,000
resulting in income of $9,000 and $12,000 for the years ended December 31, 1997
and 1996 respectively.
General and administrative expense for the years ended December 31, 1997
and 1996 was $1,667,000 and $2,123,000, respectively, representing 31% and 43%
of total revenue for each respective year. The decrease in general and
administrative expenses is primarily the result of decreased corporate expenses
relating to the change of control and relocation and downsizing of the corporate
office and staff.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995. Total revenues from operations for the year ended December 31, 1996
were $4,994,000, a decrease of 24% from $6,599,000 earned in the comparable
period in 1995. Revenues for the years ended December 31, 1996 and 1995,
respectively, included $2,988,000 and $4,818,000 from restaurant operations,
$1,069,000 and $845,000 from royalties, $390,000 and $322,000 from franchise
fees, $349,000 and $305,000 from other sources, $105,000 and $89,000 from
interest income, and $93,000 and $220,000 from frozen food operations.
Revenues from restaurant operations for 1996 decreased 38% to $2,988,000
compared to $4,818,000 earned in 1995, as a result of a decrease in
store-operating months to 86 in 1996 from 144 in 1995. This decrease in
store-operating months is due to the sale of five Company stores in late 1995
and the closure of one Company store in February 1996. In addition, same-store
sales decreased 4%. Management believes same-store sales decreased primarily
because of increased competition from new fast-food restaurant openings in close
proximity to the Company Stores. At December 31, 1996 and 1995, respectively,
seven and eight Company Stores were open (including the one consolidated
partnership-owned store in both years).
Revenues from franchise royalties increased 27% to $1,069,000 for the year
ended December 31, 1996 from $845,000 earned in the comparable period in 1995.
Royalties from dual-concept Franchise Stores range from 3% to 4% of Green
Burrito sales while royalties from free-standing Franchise Stores are typically
5% of sales. The following table is a summary of Franchise Store activity during
1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
DUAL-CONCEPT FRANCHISE STORES
Stores at beginning of year............................ 41 5
Stores opened during year.............................. 59 37
Stores closed during the year.......................... (16) (1)
-------- --------
Stores at end of year.................................. 84 41
======== ========
Number of Dual-concept
Franchise Store operating months..................... 833 220
======== ========
Royalty income......................................... $387,000 $ 78,000
======== ========
Free-standing Franchise Stores
Stores at beginning of year............................ 47 45
Stores closed during year.............................. (4) (3)
Stores purchased from Company by franchisee............ -- 5
-------- --------
Stores at end of year.................................. 43 47
======== ========
Number of Free-standing
Franchise Store operating months..................... 532 540
======== ========
Royalty income......................................... $682,000 $767,000
======== ========
</TABLE>
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<PAGE> 215
Royalty income from dual-concept Franchise Stores for the year ended
December 31, 1996 increased $309,000, to $387,000 in 1996 from $78,000 earned in
1995, as the result of the increase in store operating months to 833 in 1996
compared with 220 in 1995. The increase in store operating months is the result
of a net increase of 43 dual-concept franchise stores during 1996. The net
increase of 43 dual-concepts stores in 1996 is the result of 43 CKE openings
plus 15 Hardee's store openings and one WSMP opening, less 14 Rally's closings
and two WSMP closings. However, the 15 Hardee's store openings are considered
"test-stores" and do not earn royalties. Royalty income from free-standing
Franchise Stores for the year ended December 31, 1996 decreased $85,000 over the
amount earned in 1995 as a result of the reduction in store-operating months.
The store operating months decreased as a result of the closure of four stores.
Revenues from franchise fees increased 21% to $390,000 for the year ended
December 31, 1996 from $322,000 earned in the comparable period in 1995,
primarily due to the opening of 59 dual-concept stores during 1996. Of the 59
dual-concept stores opened in 1996, 15 were considered test-stores and were not
required to pay a franchise fee and the balance paid franchise fees ranging from
$5,000 to $7,500 per store.
Revenues from other sources increased $44,000 to $349,000 for the year
ended December 31, 1996 from $305,000 earned in the comparable period in 1995.
Included in other revenue are volume incentives received from various vendors.
Also included in other revenue in 1995 is a non-recurring workers compensation
refund totaling $115,000.
Revenues from frozen food operations decreased 58% to $93,000 for the year
ended December 31, 1996 from $220,000 earned in the comparable period in 1995.
Late in the second quarter of 1995, the Company made a strategic decision to
discontinue its retail frozen burrito business for the time being while the
Company focuses on other growth plans. The Company is continuing to sell a small
quantity of frozen burritos through various channels, but is not actively
pursuing the development of this business.
On an aggregate basis, cost of sales from restaurant operations (food,
packaging, payroll and other employee benefits), expressed as a percentage of
sales, averaged 67% for both the years ended December 31, 1996 and 1995. Cost of
sales for the years ended December 31, 1996 and 1995, respectively, included
$1,132,000 and $1,795,000 from food and packaging and $880,000 and $1,443,000
from payroll and other employee benefits.
On an aggregate basis, occupancy and other operating costs (including
utilities, housekeeping, liability insurance, repairs and maintenance, and other
miscellaneous items), expressed as a percentage of sales, averaged approximately
28% for both the years ended December 31, 1996 and 1995. Occupancy and other
operating costs for the years ended December 31, 1996 and 1995 totaled $810,000
and $1,363,000 respectively.
The frozen foods division incurred operating costs of $81,000 and $228,000
resulting in income of $12,000 and a loss of $8,000 for the years ended December
31, 1996 and 1995 respectively.
General and administrative expense for the years ended December 31, 1996
and 1995 was $2,123,000 and $2,872,000, respectively, representing 43% and 44%
of total revenue for each respective year. The decrease in general and
administrative expenses is primarily the result of decreased legal and
accounting fees. During 1995, a large amount of legal and accounting fees were
incurred related to litigation settlements.
There were no litigation settlements for the year ended December 31, 1996,
compared with $805,000 for comparable period in 1995. In 1995, the Company
incurred expenses of approximately $648,000 related to certain settlements with
non-litigating franchisees and incurred other legal settlement costs totaling
$157,000.
Impact of Company Expansion Plans on Operations. The management of the
Company anticipates that continued expansion of the dual-concept restaurant
business will improve the Company's liquidity and profitability by generating
additional franchise fees and royalties. The Company anticipates that its
existing management will be able to supervise the additional franchise sales and
existing Franchise Stores, as well as manage the Company Stores without the
addition of significant personnel in the next 12 months.
Utilization of Net Operating Loss Carryforwards. At December 31, 1997 and
1996, the Company had net operating loss carryforwards for federal tax purposes
of approximately $11,906,000 and $12,846,000 respectively, which if unused to
offset future taxable income, will expire between 2008 and 2012. At December 31,
1997 and 1996, the Company had state net operating loss carryforwards of
approximately
E-12
<PAGE> 216
$5,694,000 and $6,656,000 respectively, which if unused will expire between 1999
and 2002. Utilization of the carryforwards can be limited to specific amounts
each year. These net operating loss carryforwards resulted in a potential
deferred tax asset of approximately $4.4 million as of December 31, 1997.
However, SFAS No. 109 requires that a valuation allowance be recorded against
tax assets which are not likely to be realized. Due to the uncertain nature of
the ultimate realization of the deferred tax asset, based upon the Company's
past operating performance and expiration dates of the loss carryforwards, the
Company established a full valuation allowance, for both December 31, 1997 and
1996, against these carryforward benefits and is recognizing the benefits only
as reassessment demonstrates they are realizable. Realization is entirely
dependent upon future earnings in specific tax jurisdictions. While the need for
this valuation allowance is subject to period review, if the allowance is
reduced, the tax benefits of the carryforwards will be recorded in future
operations as a reduction of the Company's income tax expense.
Effect of Inflation. Food and labor costs are significant inflationary
factors in the Company's operations. Many of the Company's employees are paid
hourly rates related to the statutory minimum wage, therefore, increases in the
minimum wage increase the Company's costs. On October 1, 1996, the federal
statutory minimum wage was increased to $4.75 per hour. This increase in the
statutory minimum wage has not had a material impact on the Company's current
operations as the majority of the Company's hourly employees have been paid in
excess of the statutory minimum wage. On March 1, 1997 the California statutory
minimum wage was increased to $5.00 per hour and again increased on September 1,
1997 to $5.15 per hour. At September 1, 1997, approximately 20 of the 57 hourly
employees are paid the California statutory minimum wage. In addition, most of
the Company's leases require it to pay base rents with escalation provisions
based on the consumer price index, in addition to percentage rentals based on
revenues, and to pay taxes, maintenance, insurance, repairs, and utility costs,
all of which are expenses subject to inflation. The Company has been able to
offset the effects of inflation to date through small price increases and
economies resulting from the purchase of food products in increased quantities
due to the increased number of Green Burrito stores.
Liquidity and Capital Resources. The Company's cash and short-term
investments increased $1,678,000 to $3,453,000 at December 31, 1997 compared to
$1,775,000 at December 31, 1996, due to increases in cash flow from operations
and issuances of common stock. Net cash provided by operating activities was
$1,142,000 in 1997 as compared to $265,000 in 1996. The increase was attributed
to improved operating results and collections of notes receivable.
Management believes the Company's cash, cash equivalents and short-term
investments will be sufficient to finance current and forecasted operations and
obligations. It is anticipated that long-term cash requirements will be funded
by the implementation of the Company's current expansion plans, which primarily
involve the expansion of the number of Green Burrito dual-concept stores through
franchising. These expansion plans are not anticipated to require significant
increases in personnel prior to achieving positive cash flow from such
dual-concept franchising efforts. It is anticipated that these expansion plans
will significantly improve the Company's cash flow from operations once they are
fully achieved. If the Company's expansion plans are neither completed nor
successful, the Company will rely on cash, cash equivalents and short-term
investments and will pursue other financing alternatives to fund operations
until such time as alternative expansion plans can be formulated and achieved.
E-13
<PAGE> 217
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Schedule:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Certified Public Accountants......... E-15
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... E-17
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................... E-18
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995.............. E-19
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... E-20
Notes to Consolidated Financial Statements.................. E-21
Schedule II -- Valuation and Qualifying Accounts............ E-35
</TABLE>
Schedules not included above have been omitted because of the absence of
the conditions under which they are required or because the information called
for is shown in the consolidated financial statements or in the notes thereto.
E-14
<PAGE> 218
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of
GB Foods Corporation
We have audited the accompanying consolidated balance sheets of GB Foods
Corporation as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GB Foods
Corporation as of December 31, 1997 and 1996, and the consolidated results of
its operations and its consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles.
We have also audited Schedule II of GB Foods Corporation for the years
ended December 31, 1997 and 1996. In our opinion, this schedule presents fairly,
in all material respects, the information required to be included therein.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Irvine, California
January 30, 1998, except for Note 16 as to
which the date is February 19, 1998
E-15
<PAGE> 219
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of
GB Foods Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of GB Foods Corporation and its subsidiary
(the "Company") for the year ended December 31, 1995. In connection with our
audit of the consolidated financial statements, we also have audited the
consolidated financial statement schedule for the year ended December 31, 1995.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of the Company's operations
and their cash flows for the year ended December 31, 1995, in conformity with
generally accepted accounting principles. Also in our opinion, the related
consolidated financial statement schedule taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ CACCIAMATTA ACCOUNTANCY CORPORATION
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
February 23, 1996
E-16
<PAGE> 220
GB FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 1,129,536 $ 753,601
Short-term investments.................................... 2,323,181 1,020,893
Accounts receivable, net of allowance for doubtful
accounts of $81,613 in 1997 and $75,613 in 1996........ 198,076 185,465
Current portion of notes receivable....................... 78,703 179,583
Other assets.............................................. 218,849 81,003
------------ ------------
Total current assets.............................. 3,948,345 2,220,545
Equipment and improvements, net............................. 449,144 739,005
Notes receivable, net....................................... 338,763 399,098
Other assets................................................ 65,379 103,448
------------ ------------
$ 4,801,631 $ 3,462,096
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt.................... $ -- $ 10,538
Accounts payable and accrued expenses..................... 283,668 359,329
Accrued salaries, wages and employee benefits............. 114,347 109,649
Deferred franchise fees................................... 25,000 12,500
------------ ------------
Total current liabilities......................... 423,015 492,016
Long-term debt, less current installments................... -- 14,835
Minority interest in consolidated partnership............... 60,687 60,149
Commitments and contingencies
Stockholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares;
6,571,485 and 6,440,414 shares issued and outstanding
in
1997 and 1996, respectively............................ 525,719 515,232
Additional paid-in capital................................ 16,329,617 15,770,983
Accumulated deficit....................................... (12,537,407) (13,391,119)
------------ ------------
Total shareholders' equity........................ 4,317,929 2,895,096
------------ ------------
$ 4,801,631 $ 3,462,096
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
E-17
<PAGE> 221
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Restaurant operations............................... $3,018,949 $2,987,609 $ 4,818,483
Franchise royalties................................. 1,229,498 1,069,190 845,059
Franchise fees...................................... 409,253 389,392 322,165
Frozen food operations.............................. 85,142 93,250 220,116
Interest............................................ 143,097 105,299 88,795
Other............................................... 494,365 348,939 304,354
---------- ---------- -----------
5,380,304 4,993,679 6,598,972
---------- ---------- -----------
Restaurant operating costs:
Food and packaging.................................. 1,077,433 1,132,226 1,794,864
Payroll and other employee benefits................. 870,533 879,830 1,442,601
Occupancy and other operating costs................. 820,704 810,437 1,363,245
Frozen food operating costs:
Food and packaging.................................. 74,228 78,787 218,375
Other operating costs............................... 1,280 2,524 9,299
General and administrative............................ 1,667,063 2,123,068 2,871,507
Litigation settlements and related costs.............. -- -- 804,753
---------- ---------- -----------
4,511,241 5,026,872 8,504,644
---------- ---------- -----------
Income (loss) before minority interest in consolidated
partnership......................................... 869,063 (33,193) (1,905,672)
Minority interest in consolidated partnership......... (15,351) (15,252) (16,774)
---------- ---------- -----------
Net income (loss)..................................... $ 853,712 $ (48,445) $(1,922,446)
========== ========== ===========
Basic net income (loss) per share..................... $ .14 $ (.01) $ (.32)
========== ========== ===========
Diluted net income (loss) per share................... $ .11 $ (.01) $ (.32)
========== ========== ===========
Basic weighted average shares......................... 6,292,691 6,177,716 5,982,673
========== ========== ===========
Diluted weighted average shares....................... 7,751,921 6,177,716 5,982,673
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
E-18
<PAGE> 222
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
NUMBER LITIGATION DEFERRED PAID-IN ACCUMULATED SHAREHOLDERS'
OF SHARES AMOUNT SETTLEMENTS COMPENSATION CAPITAL DEFICIT EQUITY
--------- -------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994... 5,671,556 $453,724 $ 2,523,000 $(52,175) $11,780,200 $(11,420,228) $ 3,284,521
Settlement of litigation... -- -- 648,000 -- -- -- 648,000
Issuance of common stock... 108,000 8,640 (648,000) -- 639,360 -- --
Issuance of common stock... 400,000 32,000 (2,523,000) -- 2,491,000 -- --
Issuance of common stock
under stock option
plans.................... 105,128 8,410 -- -- 358,154 -- 366,564
Amortization of stock
awards................... -- -- -- 52,175 -- -- 52,175
Net loss................... -- -- -- -- -- (1,922,446) (1,922,446)
--------- -------- ----------- -------- ----------- ------------ -----------
Balance, December 31, 1995... 6,284,684 502,774 -- -- 15,268,714 (13,342,674) 2,428,814
Issuance of common stock
under stock option
plans.................... 155,730 12,458 -- -- 502,269 -- 514,727
Net loss................... -- -- -- -- -- (48,445) (48,445)
--------- -------- ----------- -------- ----------- ------------ -----------
Balance, December 31, 1996... 6,440,414 515,232 -- -- 15,770,983 (13,391,119) 2,895,096
Issuance of common stock
under stock option
plans.................... 131,071 10,487 -- -- 558,634 -- 569,121
Net income................. -- -- -- -- -- 853,712 853,712
--------- -------- ----------- -------- ----------- ------------ -----------
Balance, December 31, 1997... 6,571,485 $525,719 $ -- $ -- $16,329,617 $(12,537,407) $ 4,317,929
========= ======== =========== ======== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
E-19
<PAGE> 223
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 853,712 $ (48,445) $(1,922,446)
Adjustments to reconcile net income (loss) to net
cash flows provided by (used in) operating
activities:
Litigation settlements....................... -- -- 648,000
Stock issued in exchange for services........ -- -- 39,130
Amortization of stock awards................. -- -- 52,175
Provision for doubtful accounts.............. 790 87,663 84,051
Depreciation and amortization................ 296,857 344,573 438,453
Minority interest in consolidated
partnership............................... 14,210 15,252 16,774
Loss on disposal of equipment and
improvements.............................. -- 154,123 65,072
Changes in operating assets and liabilities:
Accounts and current notes receivable........ 67,680 (100,209) (171,421)
Other current assets......................... (150,926) 44,838 25,831
Non-current notes receivable................. 80,135 40,867 10,608
Other non-current assets..................... 38,069 (3,330) 9,079
Accounts payable and accrued expenses........ (75,661) (203,080) (52,891)
Salaries, wages and employee benefits........ 4,698 450 (5,103)
Deferred franchise fees...................... 12,500 (67,500) (95,000)
----------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. 1,142,064 265,202 (857,688)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from short-term investments.............. 5,175,131 2,082,108 1,921,481
Purchases of short-term investments............... (6,477,419) (2,339,171) (1,304,313)
Proceeds from equipment and improvements.......... 69,209 76,351 207,727
Expenditures for equipment and improvements....... (63,126) (36,319) (494,241)
----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. (1,296,205) (217,031) 330,654
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt...................... -- -- 31,098
Repayments of revolving line of credit and
long-term debt................................. (25,373) (10,202) (11,645)
Proceeds from issuance of common stock primarily
under stock option plans....................... 569,121 514,727 327,434
Distributions to minority partner................. (13,672) (15,823) (17,695)
----------- ----------- -----------
Net cash provided by financing
activities.............................. 530,076 488,702 329,192
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 375,935 536,873 (197,842)
Cash and cash equivalents at beginning of year...... 753,601 216,728 414,570
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 1,129,536 $ 753,601 $ 216,728
=========== =========== ===========
Supplemental Information:
Cash paid during the year for:
Interest.......................................... $ 1,266 $ 2,719 $ 2,234
Income taxes...................................... $ 1,600 $ 1,600 $ 1,600
Non-cash investing and financing activities:
Assets sold for notes receivable.................. $ -- $ -- $ 465,056
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
E-20
<PAGE> 224
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business activities
GB Foods Corporation and its wholly-owned subsidiary GB Franchise
Corporation (the "Company") sell and supervise Mexican quick-service franchise
restaurants, primarily in Southern California, under the trade name "The Green
Burrito." The Company is currently expanding its franchise business in certain
regional markets throughout the country. The Company also owns and operates a
small number of Green Burrito restaurants in Southern California.
Principles of consolidation
The consolidated financial statements include the accounts of GB Foods
Corporation, GB Franchise Corporation and an investment in a partnership-owned
restaurant in which the Company has a majority interest. All significant
intercompany balances and transactions have been eliminated.
Cash, cash equivalents and short-term investments
All highly liquid investments with an original maturity of three months or
less at the date of purchase are considered cash equivalents. Investments with
original maturities between three and 12 months are considered short-term
investments. Short-term investments, consisting of U.S. government and agency
securities, are classified as held to maturity and are carried at cost which
approximates market.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents.
Long-lived assets
Equipment and improvements are recorded at cost and depreciated over their
estimated useful lives, ranging from two to seven years, using the straight-line
method. Leasehold improvements are amortized over the lesser of the estimated
useful life of the related asset or the respective lease term.
All of the Company's long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount may not be
recovered. If the sum of the expected future cash flows is less than the
carrying amount of the asset, a loss is recognized.
Advertising costs
Advertising costs are charged to operations when incurred. Advertising
expense for the years ended December 31, 1997, 1996 and 1995 was $55,347,
$56,913, and $86,873, respectively.
Income taxes
The Company recognizes income taxes using the liability method, under which
deferred tax assets and liabilities are determined based on the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Deferred tax assets are reduced by a valuation allowance when it is more likely
than not that they will not be realized.
Basic and diluted net income (loss) per share
Net income (loss) per share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), which
superseded APB Opinion No. 15. Net income
E-21
<PAGE> 225
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(loss) per share for all periods presented has been restated to reflect the
adoption of SFAS 128. Basic net income (loss) per share is based upon the
weighted average number of common shares outstanding. Diluted net income (loss)
per share is based on the assumption that all dilutive convertible shares and
stock options were converted or exercised. Dilution is computed by applying the
treasury stock method. Under this method, options and warrants are assumed to be
exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the
average market price during the period.
Restaurant Operations
At December 31, 1997, the Company currently owns and operates seven Company
owned stores, which includes one consolidated partnership owned 52.2% by the
Company. Revenues and operating costs from such operations are depicted as
"Restaurant Operations" and "Restaurant Operating Costs," respectively in the
accompanying financial statements.
Franchise revenues
Franchise arrangements, with franchises who operate in various states
generally provide for initial fees and continuing royalty payments to the
Company based upon a percent of sales. Franchise royalties are recognized as
earned on a monthly basis. For the majority of the Franchise Stores currently in
operation, they are required to pay a weekly franchise royalty equal to the
greater of 5% of gross Franchise Store revenues or a minimum per week as
specified in each franchise agreement. The Company has developed a separate
Franchise Agreement for dual-concept franchise stores. Dual-concept franchisees
pay similar fees related to the sale of Green Burrito proprietary products and
related items. The Company may from time to time change the amount of the
franchise royalty fee charged to the franchisees.
The Company generally charges an initial franchise fee for each new
franchised restaurant that is added. The Company recognizes initial franchise
fees when substantially all services required by the Company are complete and
when the related franchise store commences operations. Initial franchise fees
currently range from $5,000 to $25,000 for each franchise restaurant pursuant to
the respective franchise agreement.
The Franchise Agreement for free-standing stores grants the franchisee the
right to operate a Green Burrito store at specified locations and obligates the
Company to perform training and certain other assistance in consideration of the
franchise's payment of the franchise fees, the franchise royalty and the
advertising fund contribution. The term of the Franchise Agreement is 10 years,
subject to renewal by the franchisee for two additional five-year periods,
provided that, among other things, the franchisee has fulfilled all the terms
and conditions of the Franchise Agreement, enters into the then current
Franchise Agreement with the Company and pays a renewal fee in accordance with
their initial franchise agreement. The Franchise Agreement requires franchisees
to purchase most equipment, food, supplies and products from sources approved by
the Company in order to maintain consistency and quality from store to store.
Following is a summary of franchise store activity:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Franchise stores at beginning of year................... 127 88 50
Franchise stores opened during year..................... 53 59 37
Franchise stores closed during year..................... (6) (20) (4)
Company stores sold to franchisee....................... -- -- 5
--- --- --
Franchise stores at end of year......................... 174 127 88
=== === ==
</TABLE>
E-22
<PAGE> 226
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of December 31, 1997, CKE Restaurants, Inc. (CKE) owned and operated 115
dual-concept franchise stores. Franchise revenues generated from the CKE
dual-concept franchise stores were approximately $942,000 for the year ended
December 31, 1997, which represented approximately 18% of total revenues.
Stock-based compensation
Statement of Financial Accounting Standard (SFAS) No. 123 "Accounting for
Stock-Based Compensation" was issued by the Financial Accounting Standards Board
(FASB) in October 1995, and is effective for transactions entered into after
December 15, 1995. SFAS No. 123 provides for companies to recognize compensation
expense associated with stock-based compensation plans over the anticipated
service period based on the fair value of the award at the date of grant.
However, SFAS No. 123 allows for companies to continue to measure compensation
costs as prescribed by APB Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." The Company has elected to continue its current policy, which is to
account for stock-based compensation plans under APB No. 25.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
2. NOTES RECEIVABLE
Notes receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Notes receivable...................................... $499,835 $ 666,260
Less allowance for doubtful notes..................... (82,369) (87,579)
-------- ---------
417,466 578,681
Less current portion of notes receivable.............. (78,703) (179,583)
-------- ---------
$338,763 $ 399,098
======== =========
</TABLE>
Included in notes receivable at December 31, 1997 and 1996, is an
installment note receivable totaling $384,197 and $454,829, respectively, from a
franchisee and current shareholder who purchased the assets of and franchise
rights to five Company-owned restaurants from the Company in October 1995. The
note bears interest at 8% per annum and requires principal and interest payments
of $8,009 until the note is paid in full in October 2002. The note is
collateralized by the assets of the related restaurants and a pledge of company
common stock.
Also included in notes receivable at December 31, 1997 and 1996, is an
installment note totaling $91,424 and $98,787, respectively. The note arose when
the Company sold the assets of its restaurant located in Paramount, California
and entered into a franchise agreement with the purchaser of the assets for a
franchise fee of $10,000. The note bears interest at 8% per annum and is payable
in monthly principal and interest installments of $1,250 until paid in full in
May 2006. The note is substantially reserved as of December 31, 1997 and 1996.
E-23
<PAGE> 227
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements, at cost, are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Vehicles.......................................... $ 53,460 $ 124,644
Equipment, furniture and fixtures................. 1,174,602 1,200,109
Leasehold improvements............................ 735,063 884,884
----------- -----------
1,963,125 2,209,637
Less accumulated depreciation and amortization.... (1,513,981) (1,470,632)
----------- -----------
Net equipment and improvements.................... $ 449,144 $ 739,005
=========== ===========
</TABLE>
In October 1996, the Company signed a lease for a new Corporate office with
a commencement date of January 15, 1997. Consequently, the Company has written
off the leasehold improvements and built-in furniture at the old Corporate
office that had a net book value of $128,278 as of December 31, 1996.
In October 1995, the Company sold the assets of five Company-owned
restaurants and the franchise rights to operate the restaurants for $52,262 in
cash and an installment note of $500,000. Included in the installment note
balance is an aggregate franchise fee of $50,000 for the five stores related to
the sales of the franchise rights by the Company to the purchaser of the assets.
The Company recorded a loss on the sales of the assets of $31,414.
4. LONG-TERM DEBT
Long-term debt at December 31, 1996 was comprised of notes payable to banks
at interest rates ranging from 7% to 9%, which were collateralized by
automobiles. All the notes were paid off during 1997.
5. MINORITY INTEREST
Green Burrito-Glendora #21, a California limited partnership
("GB-Glendora") comprised of the Company and one other limited partner, owns and
operates a Green Burrito store located in Glendora, California. The Company has
controlling interest in GB-Glendora and accordingly, the related assets,
liabilities and results of operations are consolidated. The limited partner's
ownership interest in the store is recorded as minority interest. The limited
partner has a non-cumulative preference on cash distributions of $8,280 per year
against the limited partner's 23.9% interest in the profits of the store.
GB-Glendora had net income of $48,910, $53,064 and $59,403 in 1997, 1996 and
1995, respectively.
6. INCOME TAXES
A reconciliation between the actual income tax provision (benefit) and the
federal statutory rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
--------- --- -------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C>
Computed income tax provision
(benefit) at statutory rate....... $ 290,000 34% $(16,000) (34)% $(654,000) (34)%
Operating loss (with) without
current tax benefit............... (290,000) (34)% 16,000 34% 654,000 34%
--------- --- -------- --- --------- ---
Income tax benefit.................. $ -- -- $ -- -- $ -- --
========= === ======== === ========= ===
</TABLE>
At December 31, 1997 and 1996, the Company had net operating loss
carryforwards for federal tax purposes of approximately $11,906,000 and
$12,846,000 respectively, which if unused to offset future taxable income, will
expire between 2008 and 2012. At December 31, 1997 and 1996, the Company had
state net operating loss carryforwards of approximately $5,694,000 and
$6,656,000 respectively, which if unused will
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<PAGE> 228
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONT.)
expire between 1999 and 2002. Utilization of the carryforwards can be limited to
specific amounts each year. These net operating loss carryforwards resulted in a
potential deferred tax asset of approximately $4.4 million as of December 31,
1997. However, SFAS No. 109 requires that a valuation allowance be recorded
against tax assets which are not likely to be realized. Due to the uncertain
nature of the ultimate realization of the deferred tax asset, based upon the
Company's past operating performance and expiration dates of the loss
carryforwards, the Company established a full valuation allowance, for both
December 31, 1997 and 1996, against these carryforward benefits and is
recognizing the benefits only as reassessment demonstrates they are realizable.
Realization is entirely dependent upon future earnings in specific tax
jurisdictions. While the need for this valuation allowance is subject to
periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense.
Significant components of the Company's deferred tax assets as of December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.................. $ 4,381,000 $ 4,756,000
Receivables and other reserves.................... 65,000 65,000
Other............................................. 53,000 67,000
----------- -----------
Current deferred tax assets....................... 4,499,000 4,888,000
Depreciation...................................... 236,000 325,000
----------- -----------
4,735,000 5,213,000
Valuation allowance............................... (4,735,000) (5,213,000)
----------- -----------
Total deferred tax assets......................... $ -- $ --
=========== ===========
</TABLE>
7. LITIGATION SETTLEMENTS
In 1995, the Company issued 108,000 shares of Company common stock to
certain Green Burrito franchisees in exchange for a release of potential claims
against the Company, and, in certain instances, as recognition for a reduction
in the radius protection clause of the related franchise agreements.
Accordingly, the Company recorded a charge of $648,000 in the year ended
December 31, 1995.
Also in 1995, the Company concluded an agreement with certain Green Burrito
franchisees and former franchisees to settle all outstanding claims against the
Company and certain former officers and directors of the Company. During 1995,
the Company issued 400,000 shares of Company common stock to the franchisees in
full satisfaction of the settlement agreement. The Company recorded a charge of
$2,523,000 in the year ended December 31, 1994 relating to this settlement
agreement. The recorded charge represented the fair value of the stock agreed to
be issued at the settlement date. Shares were ultimately issued in 1995.
8. STOCKHOLDER RIGHTS AGREEMENT
On July 9, 1996 the Company adopted a Stockholder Rights Agreement designed
to protect stockholders from abusive takeover tactics and to preserve for
stockholders the long-term value of the Company. The Rights Agreement was not
adopted in response to any effort to acquire control of the Company, and the
Board of Directors is not aware of any such effort.
Under the Stockholder Rights Agreement, the Company's stockholders (with
the exception of the Company's former Chief Executive Officer and Chairman, his
related interests, and current holders of warrants to purchase 1,000,000 or more
shares of the Company's common stock) received one right for each outstanding
share of the Company's common stock. Each right entitles its holder to buy one
share of the Company's common stock at an exercise price of $29. The Company can
redeem the rights at $.001 each at
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<PAGE> 229
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDER RIGHTS AGREEMENT (CONT.)
any time before a non-exempt person acquires 15% of the Company's common stock.
The rights will trade with, and are not detachable from, the Company's common
stock until the rights become exercisable.
The rights also become exercisable if a person or group (other than certain
exempt persons) acquires 15% or more of the Company's common stock or announces
a tender offer for 15% or more of the Company's common stock. If such a person
acquires 15% or more of the Company's common stock, each right would then enable
a Company stockholder to acquire such number of shares of the Company's common
stock having a market value of twice the right's exercise price, or in effect,
at a 50% discount to the market price. If the Company were acquired by a merger
or similar transaction after such an event, each right would then enable a
Company stockholder to buy such number of shares of the acquiring company having
a market value of twice the right's exercise price, or in effect, at a 50%
discount to the market price.
The rights dividend distribution was made on August 1, 1996 payable to
eligible stockholders of record on August 1, 1996. The rights expire on July 9,
2006.
On July 22, 1997, the Company exercised its right to redeem all the rights
under the July 9, 1996 Stockholders Rights Agreement for an exercise price of
$.001 per right or total consideration of $6,494.
9. ISSUANCE OF COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
In May 1995, the Company authorized the issuance of three common stock
purchase warrants to acquire a total of 3,000,000 shares of Company common
stock. These three warrants were granted at an exercise price that exceeded the
closing market price of the Company's common stock on the grant date. Each of
these common stock purchase warrants is further discussed below.
In May 1995, as partial consideration for legal services rendered in
connection with the negotiation of the settlement and development agreement with
Carl Karcher Enterprises, Inc. ("CKE"), the Company agreed to issue a common
stock purchase warrant to the law firm representing the Company. The warrant had
a purchase price of $100 and provides for the purchase of 1,000,000 shares of
Company common stock at an exercise price of $7.50 per share, exercisable after
May 1, 1996 and expiring on April 30, 2005.
In May 1995, the Company authorized a common stock purchase warrant
agreement with Rally's Restaurants, Inc. ("Rally's") as part of the
consideration for entering into a development agreement with the Company. The
conditional warrant had a purchase price of $100 and provides for the purchase
of 1,000,000 shares of Company common stock at an exercise price of $7.50 per
share expiring June 7, 2005. Exercisability was contingent upon Rally's
compliance with the development agreement. In April 1996, the Company and
Rally's executed an agreement providing for the termination of the development
agreement. Consequently, the 1,000,000 common stock purchase warrants that were
granted to Rally's were canceled.
In May 1995, in recognition of extraordinary personal efforts in connection
with the negotiations of the settlement and development agreement with CKE, and
the development agreement with Rally's, and in accordance with the incentive
component of the Company's compensation philosophy for its former President and
Chief Executive Officer, the Company issued a common stock purchase warrant to
its then President and Chief Executive Officer. The warrant had a purchase price
of $100 and provides for the purchase of 1,000,000 shares of Company common
stock at an exercise price of $7.00 per share expiring May 1, 2005.
On July 22, 1997, Fidelity National Financial, Inc. ("Fidelity") purchased
1,000,000 shares of Common Stock of GB Foods Corporation (the "Company") from
the former Chief Executive Officer and principal stockholder ("Controlling
Shareholder"), for a purchase price of $5,000,000 cash. Fidelity also purchased
Common Stock Purchase Warrants ("Warrants") from the Company's Controlling
Shareholder pursuant to which Fidelity has the right to acquire 2,500,000 shares
of the Company's Common Stock, of which 1,500,000 are immediately exercisable at
$5.00 per share (the "$5.00 Warrants") and 1,000,000 are immediately
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<PAGE> 230
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ISSUANCE OF COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS (CONT.)
exercisable at $7.00 per share (the "$7.00 Warrants"). The $5.00 Warrants were
purchased for $600,000 cash and expire November 23, 2002; the $7.00 Warrants
were purchased for $100,000 cash and expire May 1, 2005. Simultaneously with the
closing of the transaction Fidelity transferred 30,000 Warrants with an exercise
price of $5.00 to its investment advisor.
In a separate transaction, Fidelity also acquired 1,000,000 Warrants
exercisable at $7.50 per share (the "$7.50 Warrants") from the aforementioned
law firm which had provided services to the Company. The purchase price of the
$7.50 Warrants was $100,000 cash. The $7.50 Warrants expire May 1, 2005.
As a result of the purchase of the Shares and the Warrants, Fidelity
beneficially owns 42.1% of the Company, based on 6,571,485 shares outstanding at
December 31, 1997 and including the Warrants pursuant to which Fidelity has the
right to acquire an additional 3,470,000 shares. In conjunction with the
Fidelity purchases, three of the Company's Directors have resigned which
included both the Chief Executive Officer and Chief Financial Officer of the
Company. Key officers of Fidelity have filled the Director and Officer
vacancies. Several of the Directors and Officers are also Directors and or
Officers of CKE with whom the Company has entered into a recent acquisition
agreement and with whom the Company has dual-concept franchise agreements.
In conjunction with its 1990 initial public offering, the Company entered
into an escrow agreement with three former executives pursuant to which the
former executives deposited certain shares of the Company's common stock,
originally acquired by them in 1988, into an escrow account to be released upon
the achievement of certain income levels by the Company. These shares were owned
by certain executives and shareholders prior to the initial public offering and
the underwriters requested that these shares be placed into escrow until certain
earning goals were achieved. The respective shareholders have retained full
voting rights and full dividend rights to the shares. These restricted shares
continue to be included in shares outstanding but have been excluded when
calculating basic earnings per share. As of December 31, 1997 and 1996, 178,571
shares were in the escrow account to be returned to the Company for cancellation
if the Company has not reported earnings of $1,500,000 for any twelve-month
period concluding with the twelve-month period ending June 30, 1997. On May 5,
1997, the Board of Directors extended the terms of the escrow through June 30,
1998. The Company is currently evaluating the continued extension of the escrow
terms and conditions.
Warrant transactions for 1997, 1996 and 1995 described above are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ----------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- ---------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Warrants outstanding
January 1,......... 4,000,000 $6.12 5,000,000 $6.40 2,000,000 $5.00
Granted.............. -- -- -- -- 3,000,000 7.33
Canceled............. -- -- (1,000,000) 7.50 -- --
--------- ---------- ---------
Warrants outstanding
December 31,....... 4,000,000 $6.12 4,000,000 $6.12 5,000,000 $6.40
========= ========== =========
</TABLE>
10. STOCK-BASED COMPENSATION PLANS
The Company has two stock option plans and from time-to-time grants other
nonstatutory options. Options are granted to eligible employees and directors,
officers and consultants who are actively involved in the development of the
business of the Company. Generally, the exercise price of options granted
E-27
<PAGE> 231
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS (CONTINUED)
approximates the fair market value of the Company's common stock on the date of
grant. Currently outstanding options become exercisable either immediately or
over a period of up to three years and expire five-to-ten years after the grant
date. The following provides additional information on these plans and other
options:
Incentive stock option plan
In 1989, the Board of Directors of the Company adopted an Incentive Stock
Option Plan ("ISOP"). Under the ISOP, all key employees, including officers and
directors (who are also employees) of the Company are eligible to receive
options to purchase up to an aggregate of 125,000 shares for any one person. To
be eligible to receive options under the ISOP, an employee must have been a
full-time employee in good standing with the Company for one year. The total
number of options authorized under the plan is 312,500. During 1995, the Company
granted options for the purchase of 44,000 shares of the Company's common stock
to employees. The exercise price of the options were $5.75. As of December 31,
1997, the Company has 77,555 options available for future grant under the plan.
Non -- qualified stock option plan
In October 1989, the Company adopted a non-qualified stock option plan (the
"NQSOP") for directors who are not full-time employees of the Company and
individuals who act as consultants to the Company or who are actively involved
in the development of the business of the Company. The plan provides for the
issuance of a maximum of 125,000 shares of Company common stock at the market
price thereof on the date of grant. Each option lapses, if not previously
exercised or extended, on the tenth anniversary of the date of grant or 90 days
after the optionee has terminated continuous activity with the Company. As of
December 31, 1997, there are no remaining options available for grant under this
plan.
Other options issued
On December 23, 1997, the Company granted an option for the purchase of
50,000 shares of the Company's common stock at its market price of $10.38 per
share to an officer of the Company. The shares vest one year from the date of
grant.
On August 26, 1997, the Company granted options for the purchase of 445,000
shares of the Company's common stock at its market price of $8.63 per share to
officers and directors of the Company. The shares vest one year from the date of
grant.
In October 1996, the Company granted options for the purchase of 100,000
shares of Company common stock at $6.50 per share to an officer and director of
the Company, with 50,000 shares vesting immediately, and 50,000 shares vesting
one year from the date of grant. The officer resigned in July 1997 and the
unvested shares were immediately vested. No options have been exercised.
During 1995, the Company also granted options for the purchase of 260,000
shares of Company common stock to other directors, officers and consultants that
immediately vested. The exercise price of the options ranged from $5.75 to
$7.00.
E-28
<PAGE> 232
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS (CONTINUED)
Combined plan transactions for 1997, 1996 and 1995 for the ISOP's, NQSOP's,
and other options described above are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- ----------------- -------- ----------------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
January 1,......... 634,083 $5.66 705,167 $5.00 426,224 $3.63
Granted............ 495,000 8.80 100,000 6.50 304,000 6.78
Canceled............. -- -- (1,667) 5.75 (2,000) 5.75
Exercised............ (131,071) 4.34 (169,417) 3.45 (23,057) 2.95
-------- -------- -------
Options outstanding
December 31,....... 998,012 $7.39 634,083 $5.66 705,167 $5.00
======== ======== =======
</TABLE>
The following information applies to options outstanding at December 31,
1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------------------
NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Range of exercise
prices
$1.80 - $ 2.70....... 48,388 2 $ 1.80 48,388 $1.80
$2.71 - $ 4.05....... 42,000 4 3.46 42,000 3.46
$4.06 - $ 6.08....... 30,000 4 5.75 30,000 5.75
$6.09 - $ 7.00....... 382,624 7 6.82 382,624 6.82
$7.01 - $ 8.63....... 445,000 10 8.63 -- --
$8.64 - $10.38....... 50,000 10 $10.38 -- --
------- -------
998,012 503,012 $5.99
======= =======
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock.
E-29
<PAGE> 233
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS (CONTINUED)
Had compensation cost for the plan been determined based on the fair value
of options and warrants at the grant dates consistent with the method of SFAS
No. 123, the Company's net earnings and earnings per share would have been:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- -----------
<S> <C> <C> <C>
Net income (loss) As reported........... $853,712 $ (48,445) $(1,922,446)
Pro forma............................... $216,867 $(154,989) $(8,861,577)
Basic earnings per share As reported.... .13 (.01) (.31)
Pro forma............................... .03 (.02) (1.44)
Diluted earnings per share
As reported............................. .11 (.01) (.31)
Pro forma............................... .03 (.02) (1.44)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before 1995. The fair value of these options was estimated at the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1997, 1996, and 1995:
<TABLE>
<S> <C>
Expected life (years)............................ 3 - 10
Risk-free interest rate.......................... 5.5%
Volatility....................................... 30% - 70%
</TABLE>
The weighted fair value of options granted during the years ended December
31, 1997, 1996, and 1995 for which the exercise price approximated the market
price on the grant date was $3.22, $1.86, and $5.37 respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Management also believes that if the model took into consideration other
important factors, such as the block size of an option granted to an individual,
transferability restrictions on the sale of stock by CEO's or directors, or
other relevant factors, the fair value measurement of these options would be
substantially less.
E-30
<PAGE> 234
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Basic Earnings per share:
Numerator
Net income (loss)................................... $ 853,712 $ (48,445) $(1,922,446)
========== ========== ===========
Denominator
Basic weighted average number of common shares
outstanding during the period.................... 6,471,262 6,356,287 6,161,244
Escrowed restricted shares issued and outstanding
excluded from basic earnings per share.............. (178,571) (178,571) (178,571)
---------- ---------- -----------
6,292,691 6,177,716 5,982,673
========== ========== ===========
Basic net income (loss) per share..................... $ .14 $ (.01) $ (.32)
========== ========== ===========
Diluted Earnings per share:
Numerator
Net income (loss)................................... $ 853,712 $ (48,445) $(1,922,446)
========== ========== ===========
Denominator
Basic weighted average number of common shares
outstanding during the period.................... 6,292,691 6,177,716 5,982,673
Incremental common shares attributable to exercise of:
escrowed restricted shares(a).................. 178,571 -- --
outstanding options............................ 140,225 -- --
outstanding warrants........................... 1,140,434 -- --
---------- ---------- -----------
1,280,659 -- --
---------- ---------- -----------
Diluted weighted average shares....................... 7,751,921 6,177,716 5,982,673
========== ========== ===========
Diluted net income (loss) per share................... $ .11 $ (.01) $ (.32)
========== ========== ===========
</TABLE>
- ---------------
(a) Escrowed restricted shares have not been included in loss years because the
effect would be antidilutive.
12. OTHER RELATED PARTY TRANSACTIONS
During 1994, an officer and director (who resigned his positions with the
Company in June 1994), purchased three existing Franchise Stores paying the
Company a $2,500 transfer fee for two of the stores and paying no transfer fee
for the third. The Company's standard transfer fee is $5,000. Further, the
royalty fee for one of these stores was waived by the Company from September 1,
1994 through February 28, 1995, while the royalty fee for another was waived
from September 1, 1994 through August 31, 1995. The third store pays the
standard 5% royalty fee. A director of the Company provided legal services to
the Company valued at $55,261, $48,467 and $95,055 during 1997, 1996 and 1995,
respectively.
13. COMMITMENTS AND CONTINGENCIES
The Company's executive offices and all properties used for restaurant
operations are leased under operating leases expiring on various dates through
2001. Certain leases require payment of contingent rentals based upon a
percentage of restaurant sales. No contingent rentals were required in 1997,
1996, or 1995.
E-31
<PAGE> 235
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONT.)
In October 1997, the Company relocated the Corporate office and signed a
new one year lease. The old office has been subleased for an amount greater than
the Company's current obligation.
As of December 31, 1997, future minimum rental payments and sublease income
under all non-cancelable operating leases for years ending December 31 are as
follows:
<TABLE>
<CAPTION>
RENTAL SUBLEASE
PAYMENTS INCOME
---------- --------
<S> <C> <C>
1998................................. $ 599,417 $383,494
1999................................. 358,793 234,569
2000................................. 222,484 150,921
2001................................. 14,015 --
2002................................. -- --
---------- --------
$1,194,709 $768,984
========== ========
</TABLE>
Rental expense under all agreements for the years ended December 31, 1997,
1996, and 1995 was $383,674, $489,046, and $624,787, respectively. Sublease
rental income for the years ended December 31, 1997, 1996 and 1995 was $383,405,
$167,556 and $115,163 respectively.
The Company sold five operating restaurants in 1995 and one in 1993 and
assigned the related leases to the respective purchasers. The Company remains
liable pursuant to the original lease agreements under the respective leases in
the event of a default by the purchasers. Following is a summary of the
Company's commitment pursuant to these leases.
<TABLE>
<CAPTION>
RENTAL
PAYMENTS
--------
<S> <C>
1998............................................ $210,028
1999............................................ 197,400
2000............................................ 152,900
2001............................................ 20,000
2002............................................ 13,600
Thereafter...................................... --
--------
$593,928
========
</TABLE>
The Company has not incurred expenses in any of the years presented related
to these assigned leases.
The Company is involved in legal proceedings, claims and litigation arising
in the ordinary course of business. Management believes that any resulting
liability should not materially affect the Company's financial position or
results of operations.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments approximates
their estimated fair value at December 31, 1997 and 1996. The fair value of cash
and cash equivalents was based on the carrying value of such assets. The
estimated fair value of short-term investments were based on quoted market
prices. The fair value of notes receivable and long-term debt, were estimated
based on discounted cash flows using market rates at the balance sheet date. The
use of discounted cash flows can be significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. The
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument.
E-32
<PAGE> 236
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of general-
purpose financial statements. SFAS 130 requires all items that are required to
be recognized under accounting standards as components of comprehensive income
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 does not require a specific
format for that financial statement, but requires that an enterprise display an
amount representing total comprehensive income for the period covered by that
financial statement. SFAS 130 requires an enterprise to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Management has determined that the adoption
of SFAS 130 will not have a material impact on the Company's financial position
or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information'
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise, but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. Management has determined that the adoption of SFAS 131 will not
have a material impact on the Company's financial reporting.
16. SUBSEQUENT EVENTS
On December 12, 1997, the Company announced the execution of a letter of
intent to acquire all the outstanding capital stock of Timber Lodge Steakhouse,
Inc. ("TBRL"). TBRL is a public company traded on Nasdaq under the symbol TBRL
and is the operator of the Timber Lodge Steakhouse family-style restaurants. As
of December 31, 1997, TBRL was operating a total of 16 restaurants which were
located in the states of Minnesota, Wisconsin, Illinois, Western New York and
South Dakota. TBRL's revenues and net income for the fiscal year ended January
1, 1997 were $20,637,000 and $983,000 respectively.
On January 16, 1998, the Company executed a definitive Agreement and Plan
of Merger ("Merger Agreement") with TBRL, pursuant to which the Company will
acquire one hundred percent of the outstanding capital stock of TBRL. The
parties expect to close the transaction in April 1998. Under the terns of the
agreement, each share of TBRL common stock will be converted into the right to
receive .80 of a share of the Company's common stock together with cash in lieu
of any fractional shares (the "Exchange Ratio"). In addition, the agreement has
established a collar for the Exchange Ratio of $14.00 on the high end and $7.50
E-33
<PAGE> 237
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONT.)
on the low end. If the Company's average closing common stock price during the
ten day trading period ending on the second business day prior to the closing,
("Average Closing Stock Price"), exceeds the limits of the collar then the
Exchange Ratio will be adjusted. If the Average Closing Stock Price is more than
$14.00, the Exchange Ratio shall be reduced to a number (rounded to the nearest
1/10000) equal to the product of the Exchange Ratio multiplied by a fraction,
the numerator of which is $14.00 and the denominator of which is the Average
Closing Stock Price. If the Average Closing Stock Price is less than $7.50, the
Company may elect to increase the Exchange Ratio to the number (rounded to the
nearest 1/10000) determined by dividing $7.61 by the Average Closing Stock
Price.
The Merger is subject to certain customary conditions, including (i)
Fairness Opinions; (ii) approvals from the shareholders of the Company and TBRL;
and (iii) the parties obtaining all regulatory approvals, including the
Securities and Exchange Commission declaring effective a Registration Statement
covering the shares of the Company's common stock to be issued in the Merger.
The Merger is also subject to the purchase by TBRL from CKE Restaurants, Inc.
("CKE") (NYSE:CKR) or its affiliate of between twelve (12) and (20) JB's
Restaurants for conversion to Timber Lodge Steakhouse restaurants. In this
regard, CKE has agreed under the Merger Agreement to negotiate in good faith
with TBRL to consummate such purchase and sale. In addition, Fidelity National
Financial, Inc. (NYSE:FNF) has agreed under the Merger Agreement that, subject
to the approval of the Merger by TBRL's shareholders, it will exercise currently
outstanding warrants to purchase shares of the Company's common stock for a cash
purchase price aggregating not less than $5,000,000. The Company plans to
utilize such proceeds, in part, for the conversion of the JB's Restaurants
acquired by TBRL into Timber Lodge Steakhouse restaurants. The Chairman and
Chief Executive Officer of Fidelity is also the Chairman and Chief Executive
Officer of CKE.
On February 19, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement"), pursuant to which the Company shall acquire
one hundred percent (100%) of the issued and outstanding capital stock of JB's
Restaurants, Inc. ("JB's"), a wholly owned subsidiary of CKE. Under the
Agreement, GBFC shall acquire JB's for one million (1,000,000) shares of GBFC
Common Stock. GBFC and CKE anticipate that the acquisition will Close on or
before March 1, 1998. At the Closing, the business of JB's shall be comprised of
forty-eight (48) JB's company-owned restaurants, twenty (20) JB's franchise
restaurants, and four (4) Galaxy diner restaurants. The acquisition is subject
to certain conditions, including the satisfactory completion of due diligence,
delivery by CKE and the approval by GBFC of certain disclosure schedules, the
issuance of Fairness Opinions, approvals from the respective Boards of Directors
of GBFC and CKE, regulatory approvals, the closing of the previously announced
acquisition of twelve (12) JB's restaurants by Star Buffet, Inc., the upstream
transfer by way of dividend of sixteen (16) JB's restaurants and certain other
assets to CKE. It is the intent of the parties that the transaction qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended.
E-34
<PAGE> 238
GB FOODS CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AMOUNTS AT END
DESCRIPTION OF PERIOD EXPENSES WRITTEN-OFF OTHER OF PERIOD
----------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes....................... $ 163,192 $ 790 $ -- $ -- $ 163,982
========== ========= ========= ======== ==========
Allowance for deferred tax
assets.......................... $5,213,000 $(478,000) $ -- $ -- $4,735,000
========== ========= ========= ======== ==========
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes....................... $ 196,918 $ 87,663 $ (88,457) $(32,932) $ 163,192
========== ========= ========= ======== ==========
Allowance for deferred tax
assets.......................... $5,178,000 $ 35,000 $ -- $ -- $5,213,000
========== ========= ========= ======== ==========
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes....................... $ 242,455 $ 84,051 $(129,588) $ -- $ 196,918
========== ========= ========= ======== ==========
Allowance for deferred tax
assets.......................... $4,476,000 $ 702,000 $ -- $ -- $5,178,000
========== ========= ========= ======== ==========
</TABLE>
E-35
<PAGE> 239
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 28, 1996, the Company filed a Special Report on Form 8-K
reporting the change of its principal accountants from Cacciamatta Accountancy
Corporation (formerly known as SaddingtonoCacciamatta), to Grant Thornton LLP.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following sets forth certain information for each director of the
Company as of December 31, 1997.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE SINCE POSITION WITH THE COMPANY
--------------- --- -------- -------------------------
<S> <C> <C> <C>
William P. Foley, II 53 1997 Chairman and Director
Andrew F. Puzder 47 1997 Chief Executive Officer and Director
Frank P. Willey 44 1997 Director
Bruce H. Haglund 46 1989 Director
T.Anthony Gregory 59 1989 Director
</TABLE>
William P. Foley, II became Chairman of the Board and a Director of the
Company in July 1997. Mr. Foley is also Chairman of the Board and Chief
Executive Officer of Fidelity, a company engaged in title insurance and related
services. Mr. Foley is also the Chairman of the Board and Chief Executive
Officer of CKE, a company engaged in the fast food business. He is also a member
of the Boards of Directors of Rally's, Checkers, Data Works Corporation and
Micro General Corporation.
Andrew F. Puzder became a Director of the Company in July 1997 and
appointed Chief Executive Officer in August 1997. Mr. Puzder also serves as an
Executive Vice President and General Counsel for CKE. Mr. Puzder is also an
Executive Vice President for Fidelity. Mr. Puzder has been with Fidelity since
January 1995. From March 1994 to December 1994, he was a partner with the law
firm of Stradling, Yocca, Carlson & Rauth. Prior to that, he was a partner with
the law firm of Lewis, D'Amato, Brisbois & Bisgard, from September 1991 through
March 1994, and he was a partner of the Stolar Partnership from February 1984
through September 1991. Mr. Puzder is also a Director for Javelin Systems, Inc.
and Rally's Hamburgers, Inc.
Frank P. Willey became a Director in July 1997. He is also the President of
Fidelity National Financial, Inc. and has been a director since February 1984.
He was the General Counsel of Fidelity National Financial, Inc. from 1984 to
January 1995. Mr. Willey also serves on the Boards of Directors of CKE, Southern
Pacific funding Corporation, and Ugly Duckling Holdings, Inc.
Bruce H. Haglund has served as a Director of the Company since 1989. Mr.
Haglund is an attorney in private practice in Orange County, California and has
been a principal in the law firm of Gibson, Haglund & Johnson since April 1994.
He was a principal in the law firm of Phillips, Haglund, Haddan & Jeffers from
February 1991 to April 1994. From 1984 to February 1991, he was a partner in the
law firm of Gibson & Haglund, and from 1980 to 1984 was an associate with the
firm. He is also a director of Aviation Distributors, Inc.
T. Anthony Gregory has served as a Director of the Company since 1989.
Since 1962, Mr. Gregory has owned and operated U.S. Customs Air Bonded
Warehouse. In June 1989, Mr. Gregory opened U.S. Customs Bonded Container and
Freight Station, and in August 1989 opened Custom Air Trucking Company. Mr.
Gregory was Vice President and Secretary of Equitable Saving & Loan Association,
a holding company for several savings and loan companies from 1963 to 1965.
Executive Officers
Andrew F. Puzder, see "Directors" above.
Nicholas J. Caddeo, 51 has been an Executive Vice President and Chief
Operating Officer of the Company since August 1992. Prior to joining the
Company, he was employed for more than 20 years by
E-36
<PAGE> 240
Foodmaker, Inc., the corporate operator of Jack-in-the-Box restaurants, serving
as a Regional Manager for the Los Angeles area from January 1985 to July 1992.
Gary R. Nelson, 50 was appointed Executive Vice President, Chief Financial
Officer in August 1997. Mr. Nelson also serves as the Senior Vice President of
Mergers and Acquisitions for Fidelity National Title Insurance Company since
1992. Mr. Nelson previously served as the Senior Vice President, Chief Financial
Officer and Treasurer of Fidelity National Financial, Inc. from 1988 to 1991.
Mr. Nelson is a Certified Public Accountant.
M'Liss Jones Kane, 45 was appointed Vice President-Secretary in August
1997. Mrs. Kane also serves as the Senior Vice President Corporate Counsel and
Corporate Secretary for Fidelity National Financial, Inc. since 1995. Mrs. Kane
also serves as Corporate Counsel and Assistant Secretary of CKE. Mrs. Kane
previously served as Vice President, General Counsel and Secretary of ICN
Biomedicals, Inc. and subsequently in addition became Vice President, general
Counsel of SPI Pharmaceuticals, Inc.
Carl A. Strunk, 59 was appointed Executive Vice President, Finance in
December 1997. Mr. Strunk also serves as Executive Vice President , Chief
Financial Officer for CKE. He also serves as the Executive Vice President,
Finance for Fidelity National Financial, Inc. and has been with Fidelity since
1992. Mr. Strunk previously served as President of Land Resources Corporation
from 1986 to 1991. Mr. Strunk is a Certified Public Accountant and is also a
member of the Board of Directors of Micro General Corporation.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation of William P. Foley, II, the Company's Chairman of the Board and
Director, Andrew F. Puzder, the Company's Chief Executive Officer and Director,
Nicholas J. Caddeo, the Company's Chief Operating Officer, and Gary R. Nelson,
the Company's Chief Financial Officer, for each of the three years in the period
ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------------
NAME AND PRINCIPAL POSITION YEAR SALARY OTHER(1) STOCK OPTIONS
--------------------------- ---- ------- -------- ----- -------
<S> <C> <C> <C> <C> <C>
William P. Foley, II(2)................ 1997 $ 0 0 0 0
Chairman of the Board and 1996 $ 0 0 0 0
Director 1995 $ 0 0 0 0
Andrew F. Puzder(3).................... 1997 $ 0 0 0 0
Chief Executive Officer 1996 $ 0 0 0 0
1995 $ 0 0 0 0
Nicholas J. Caddeo..................... 1997 $92,900 $ 9,600 0 0
Chief Operating Officer 1996 $82,800 $11,800 0 0
and Executive Vice President 1995 $92,600 $11,205 0 0
Gary R. Nelson(4)...................... 1997 $10,000 0 0 0
Chief Financial Officer and 1996 $ -- 0 0 0
Executive Vice President 1995 $ -- 0 0 0
</TABLE>
- ---------------
(1) The remuneration described in the table does not include the cost to the
Company of benefit furnished to the named executive officer, including
premiums for health insurance and other personal benefits provided to such
individual that are extended to employees of the Company in connection with
their employment. The value of such benefits cannot be precisely determined;
however, the executive officer named above did not receive other
compensation in excess of the lesser of $25,000 or 10% of such cash
compensation.
(2) Became Chairman of the Board and a Director in July 1997.
(3) Became a Director in July 1997 and Chief Executive Officer in August 1997.
(4) Became Chief Financial Officer in August 1997.
E-37
<PAGE> 241
OPTIONS GRANTED IN FISCAL YEAR 1997
During the fiscal year ended December 31, 1997, non-qualified stock options
were granted to William P. Foley, II, Andrew F. Puzder, Nicholas J. Caddeo and
Gary R. Nelson at an exercise price of $8.63 per share, 150,000, 100,000, 25,000
and 50,000 shares respectively. The options vest at the end of one year from
issuance.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of options, both exercisable and
unexercisable, held by each of the executive officers of the Company as of
December 31, 1997 and the value of any in-the-money options, assuming that the
value of the shares was $10.88, the fair market value of the Company's common
stock on December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Foley, II....... 0 0 0 150,000 0 $337,500
Andrew F. Puzder........... 0 0 0 100,000 0 $225,000
Nicholas J. Caddeo......... 0 0 7,500 25,000 $ 81,563 $ 56,250
Gary R. Nelson............. 0 0 0 50,000 0 $112,500
</TABLE>
COMPENSATION OF THE BOARD OF DIRECTORS
The members of the Board of Directors who are not employees receive $1,000
for their attendance in person at Board meetings and $500 if they are present at
a Board meeting telephonically. Members of the Board of Directors have also
received nonstatutory stock options in the past in recognition of their service
as members of the Board of Directors. Effective August 1997, Members of the
Board of Directors were granted an annual grant of 20,000 options per year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1997,
relating to the beneficial ownership of the Company's common stock by (i) all
persons known by the Company to beneficially own more than 5% of the outstanding
shares of the Company's common stock, (ii) each director, director nominee and
officer of the Company and, (iii) all officers and directors of the Company as a
group. Unless otherwise
E-38
<PAGE> 242
noted, each of the shareholders listed owns less than 1% of the outstanding
common stock of the Company. The Company had 6,571,485 shares outstanding as of
December 31, 1997.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER(1)(2)(3) BENEFICIALLY OWNED(1) OUTSTANDING(4)
------------------------- --------------------- --------------------
<S> <C> <C>
Fidelity National Financial, Inc.(5)...... 4,509,500 42.1%
17911 Von Karman Ave
Irvine, CA 92614
William M. Theisen(6)..................... 769,826 7.2%
c/o Business Ventures
210 Regency Parkway, Suite 12
Omaha, NE 68114
T. Anthony Gregory(7)..................... 127,661 1.2%
25651 Paseo de la Paz
San Juan Capistrano, CA 92675
Bruce H. Haglund (8)...................... 115,794 1.1%
2010 Main St., Suite 400
Irvine, CA 92614
Nicholas J. Caddeo(9)..................... 28,200 0.3%
William P. Foley, II(10).................. 0 0.0%
All officers and directors as a group (4
persons)(11)............................ 4,781,155 44.6%
</TABLE>
- ---------------
(1) Unless otherwise noted, the Company believes that all shares are
beneficially owned and that all persons named in the table have sole voting
and investment power with respect to all shares of Company common stock
owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from December 31, 1997 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from December 31, 1997 have been exercised.
(3) Unless otherwise indicated, the address of each stockholder listed is 1200
North Harbor Blvd., Anaheim, California 92803.
(4) Assumes 10,712,373 shares outstanding, including 6,571,485 shares currently
outstanding and 4,140,888 issuable upon exercise of presently exercisable
stock options and warrants held by the above-listed shareholders.
(5) Includes 3,470,000 shares issuable upon the exercise of presently
exercisable warrants on the basis of 10,712,373 shares outstanding as set
forth in footnote 4 above.
(6) Includes 500,000 shares issuable upon the exercise of presently exercisable
warrants. Also includes 107,286 shares held by Gemini Aviation and Marine
Services, Inc. which is a corporation wholly owned by Mr. Theisen.
(7) Includes 74,194 shares issuable upon the exercise presently exercisable
nonstatutory stock options.
(8) Includes 89,194 shares issuable upon the exercise of presently exercisable
nonstatutory stock options.
(9) Includes 7,500 shares issuable upon the exercise of presently exercisable
incentive stock options.
(10) Excludes the 4,509,500 beneficial shares held by Fidelity, of which William
P. Foley, II. is the Chairman of the Board and Chief Executive Officer.
(11) Includes an aggregate of 170,888 shares issuable upon the exercise of
presently exercisable stock options and all beneficial shares held by
Fidelity, of which William P. Foley, II. is the Chairman of the Board and
Chief Executive Officer.
E-39
<PAGE> 243
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
The Company believes that the transactions hereunder were the result of
arm's-length negotiations, and the terms of each such transaction was no less
favorable to the Company as would have been available from an unaffiliated third
party. The transactions discussed below were negotiated either (i) before the
parties became affiliates; (ii) after the parties ceased to be affiliates; or
(iii) with a majority of a disinterested members of the Company's Board of
Directors. Furthermore, it is the policy of the Company that a majority of the
disinterested members of the Company's Board of Directors must approve
related-party transactions.
During May 1995, the Company reached an agreement with Carl Karcher
Enterprises, Inc., the operator and franchisor of Carl's Jr. restaurants, and
CKE Restaurants, Inc., its parent company (hereinafter jointly referred to as
"CKE"), pursuant to which CKE agreed to convert a minimum of 40 CKE-owned Carl's
Jr. restaurants per year into Carl's Jr./Green Burrito dual-concept stores over
a five-year period commencing July 15, 1995. In February 1997, the Company and
CKE modified the agreement to provide for the conversion of a minimum of 60
Carl's Jr. restaurants per year to Carl's Jr./Green Burrito dual-concept stores.
CKE also agreed to allow its franchisees to convert their restaurants into
Carl's Jr./Green Burrito dual-concept stores. The initial term of the franchise
agreements for CKE-owned locations is 15 years with a 10-year renewal period.
The franchise agreements also allow for an early termination on a per-store
basis if royalties payable to the Company for such location are less than an
average of $250 per month for any calendar year. As of December 31, 1997, all
Carl's Jr./Green Burrito stores were in compliance with this requirement. As of
December 31, 1997, there were 115 Carl's Jr./Green Burrito restaurants in
operation in California and Arizona.
Payments to Director for Professional Services
The law firm of Gibson, Haglund & Johnson, of which Mr. Haglund, the
Company's Secretary and a Director, is a principal, received compensation in the
form of legal fees for services rendered to the Company in 1997 of $33,886.
Carl's Jr/Green Burrito Settlement and Development Agreement
CKE Restaurants, Inc. and GB Foods Corporation are parties to a Settlement
and Development Agreement dated May 30, 1995 as amended by letter dated February
20, 1997, whereby CKE is to develop and operate Carl's Jr./Green Burrito dual
concept restaurants and pay GB Foods a $7,500 franchise fee per restaurant and a
4% royalty on Green Burrito sales in such restaurants. As of June 1, 1998, there
were 139 Carl's Jr./Green Burrito dual concept restaurants.
E-40
<PAGE> 244
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-K:
1. Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public
Accountants....................................... E-15
Balance Sheets.................................... E-17
Statements of Operations.......................... E-18
Statements of Stockholders' Equity................ E-19
Statements of Cash Flows.......................... E-20
Notes to Financial Statements..................... E-21
2. Schedule to Consolidated Financial Statements
Schedule II -- Valuation and Qualifying
Accounts.......................................... E-35
3. Index to Exhibits
</TABLE>
(b) Reports on Form 8-K
On July 22, 1997, the Company filed a Special Report on Form 8-K regarding
a change of control which occurred on July 22, 1997 when Fidelity National
Financial Inc. purchased 1,000,000 shares of the Company's common stock and
3,500,000 common stock purchase warrants.
On December 12, 1997, the Company filed a Special Report on Form 8-K
announcing the execution of a Letter of Intent whereby the Company will acquire
all the outstanding capital stock of Timber Lodge Steakhouses, Inc. a public
company trading under the symbol TBRL on the Nasdaq Exchange.
SUPPLEMENTAL INFORMATION
An annual report and an information statement shall be furnished to the
security holders of the Company subsequent to the filing of this Form 10-K. The
Company shall furnish copies of the annual report to security holders and the
proxy statement to the Securities and Exchange Commission when it is sent to the
security holders.
E-41
<PAGE> 245
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GB FOODS CORPORATION
By: /s/ ANDREW F. PUZDER
------------------------------------
Andrew F. Puzder
Chief Executive Officer
Date: July 10, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
Chairman of the Board,
- --------------------------------------------------- Director
William P. Foley, II
/s/ ANDREW F. PUZDER Chief Executive Officer, Director July 10, 1998
- --------------------------------------------------- (Principal Executive Officer)
Andrew F. Puzder
/s/ THEODORE ABAJIAN Chief Financial Officer, July 10, 1998
- --------------------------------------------------- (Principal Financial and Accounting
Theodore Abajian Officer)
/s/ FRANK P. WILLEY Director July 10, 1998
- ---------------------------------------------------
Frank P. Willey
/s/ BRUCE H. HAGLUND Director July 10, 1998
- ---------------------------------------------------
Bruce H. Haglund
/s/ T. ANTHONY GREGORY Director July 10, 1998
- ---------------------------------------------------
T. Anthony Gregory
</TABLE>
E-42
<PAGE> 246
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------- --------------.
COMMISSION FILE NUMBER 1-10576
GB FOODS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0403086
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1200 N. HARBOR BLVD 92803
P.O. BOX 61093 (ZIP CODE)
ANAHEIM, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 491-6400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 14, 1998, the registrant had 6,576,485 shares outstanding of its
Common Stock, $.08 par value.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-43
<PAGE> 247
GB FOODS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1998 and December
31, 1997.................................................... E-45
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997............................... E-46
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997............................... E-47
Notes to Consolidated Financial Statements.................. E-48
Item 2. Management's Discussion and Analysis of Financial
Condition................................................... E-50
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ E-52
Signatures.................................................. E-52
</TABLE>
E-44
<PAGE> 248
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GB FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 228,667 $ 1,129,536
Short-term investments.................................... 3,713,342 2,323,181
Accounts and notes receivable, net........................ 295,042 276,779
Other assets.............................................. 212,648 218,849
------------ ------------
Total current assets.............................. 4,449,699 3,948,345
Equipment and improvements, net............................. 439,068 449,144
Notes receivable, net....................................... 244,118 338,763
Other assets................................................ 95,282 65,379
------------ ------------
$ 5,228,167 $ 4,801,631
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................... $ 463,220 $ 283,668
Accrued salaries, wages and employee benefits............. 83,289 114,347
Deferred franchise fees................................... 25,000 25,000
------------ ------------
Total current liabilities......................... 571,509 423,015
Minority interest in consolidated partnership............... 57,437 60,687
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares; 6,576,485 and 6,571,485 shares issued and
outstanding at March 31, 1998 and December 31, 1997,
respectively........................................... 526,119 525,719
Additional paid-in capital................................ 16,357,967 16,329,617
Accumulated deficit....................................... (12,284,865) (12,537,407)
------------ ------------
Total shareholders' equity........................ 4,599,221 4,317,929
------------ ------------
$ 5,228,167 $ 4,801,631
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
E-45
<PAGE> 249
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Restaurant operations..................................... $ 698,607 $ 737,499
Franchise royalties....................................... 261,208 274,486
Franchise fees............................................ 139,326 60,709
Interest.................................................. 61,624 30,991
Other..................................................... 131,307 107,722
---------- ----------
1,292,072 1,211,407
---------- ----------
Restaurant operating costs:
Food and packaging........................................ 286,100 274,616
Payroll and other employee benefits....................... 223,082 208,790
Occupancy and other....................................... 211,876 197,604
General and administrative.................................. 316,035 423,245
---------- ----------
1,037,093 1,104,255
---------- ----------
Income (loss) before minority interest in consolidated
partnership............................................... 254,979 107,152
Minority interest in consolidated partnership............... (2,437) (7,896)
---------- ----------
Net income.................................................. $ 252,542 $ 99,256
========== ==========
Basic earnings per share.................................... $ .04 $ .02
========== ==========
Diluted earnings per share.................................. $ .03 $ .01
========== ==========
Basic weighted average shares............................... 6,395,970 6,261,843
========== ==========
Diluted weighted average shares............................. 7,813,151 7,194,907
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
E-46
<PAGE> 250
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 252,542 $ 99,256
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization............................. 62,223 87,316
Write off of uncollectible accounts....................... (23,613) (3,600)
Minority interest in consolidation partnership............ (3,250) 3,888
Changes in operating assets and liabilities:
Accounts and notes receivable............................. 99,995 22,534
Accounts payable and accrued expenses..................... 179,552 (13,627)
Other assets.............................................. (26,972) (56,495)
Salaries, wages and employee benefits..................... (31,058) (35,884)
Deferred franchise fees................................... 0 (12,500)
----------- ---------
Net cash provided by operating activities................... 509,419 90,888
Cash flows from investing activities:
Proceeds from short-term investments...................... 5,851,175 329,645
Expenditures for short-term investments................... (7,241,336) (345,683)
Expenditures for equipment and improvements............... (48,877) (24,365)
----------- ---------
Net cash used in investing activities....................... (1,439,038) (40,403)
----------- ---------
Cash flows from financing activities:
Repayments of long-term debt.............................. 0 (2,597)
Proceeds from issuance of common stock under stock option
plan................................................... 28,750 0
----------- ---------
Net cash provided by financing activities................... 28,750 (2,597)
----------- ---------
Net increase in cash and cash equivalents................... (900,869) 47,888
Cash and cash equivalents at beginning of period............ 1,129,536 753,601
----------- ---------
Cash and cash equivalents at end of period.................. $ 228,667 $ 801,489
=========== =========
Supplemental Information:
Cash paid during the period for:
Interest.................................................. $ 0 $ 633
Income taxes.............................................. $ 6,100 $ 800
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
E-47
<PAGE> 251
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements of GB Foods
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles, the instructions to Form 10-Q and Article 10 of
Regulation S-X. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1997.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation have been
included. Operating results for interim periods are not necessarily indicative
of results expected for a full year.
2. FRANCHISE STORE ACTIVITY
The following is a summary of dual-concept franchise store activity during
the three months ended March 31, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Dual-concept stores at beginning of period.................. 134 84
Dual-concept stores opened during period.................... 17 5
Dual-concept stores closed during period.................... (1) 0
--- --
Dual-concept stores at end of period........................ 150 89
=== ==
</TABLE>
As of March 31, 1998 and 1997, the total number of free-standing franchise
stores were 40 and 43, respectively.
3. BASIC AND DILUTED NET INCOME PER SHARE
Net income per share has been calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). Basic
net income per share is based upon the weighted average number of common shares
outstanding. Diluted net income per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
Basic net income per share was calculated using the average number of shares
outstanding for the respective three month period ended March 31, 1998 and 1997
of 6,395,970 and 6,261,843, respectively. Diluted net income per share was
calculated using the average number of shares outstanding for the respective
three month period ended March 31, 1998 and 1997 of 7,813,151 and 7,194,907,
respectively.
E-48
<PAGE> 252
GB FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. BASIC AND DILUTED NET INCOME PER SHARE (CONTINUED)
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Basic Earnings per share:
Numerator
Net income................................................ $ 252,542 $ 99,256
========== ==========
Denominator
Basic weighted average number of common shares outstanding
during the period...................................... 6,574,541 6,440,414
Escrowed restricted shares issued and outstanding excluded
from basic earnings per share.......................... (178,571) (178,571)
---------- ----------
6,395,970 6,261,843
========== ==========
Basic net income per share.................................. $ 0.04 $ 0.02
========== ==========
Diluted Earnings per share:
Numerator
Net income................................................ $ 252,542 $ 99,256
========== ==========
Denominator
Basic weighted average number of common shares outstanding
during the period...................................... 6,395,970 6,261,843
Incremental common shares attributable to exercise of:
escrowed restricted shares................................ 178,571 178,571
outstanding options....................................... 254,150 120,515
outstanding warrants...................................... 984,461 633,978
---------- ----------
1,417,782 933,064
---------- ----------
Diluted weighted average shares............................. 7,813,151 7,194,907
========== ==========
Diluted net income per share................................ $ 0.03 $ 0.01
========== ==========
</TABLE>
4. INCOME TAXES
At March 31, 1998, the Company had net operating loss carryforwards for
federal tax purposes of approximately $11,906,000 which, if unused to offset
future taxable income, will expire between 2008 and 2012, and approximately
$5,694,000 for state tax purposes which will expire if unused between 1999 and
2002. No significant provision for income taxes has been provided due to the
utilization of net operating loss carryforwards.
As of March 31, 1998, the Company has continued to provide a valuation
allowance to offset the related deferred tax assets due to the uncertainty of
realizing any benefit therefrom. The Company will continue to evaluate the need
for a 100% valuation allowance.
5. STOCK-BASED COMPENSATION PLANS
On February 26, 1998, the Company granted options to officers and directors
of the Company to purchase 405,000 shares of the Company's common stock at $8.25
per share, which represented the fair market value of the Company's common stock
on such date.
E-49
<PAGE> 253
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements, other than statements of historical fact, included in this
Form 10-Q are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934. Such forward-looking statements
involve assumptions, known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of GB Foods
Corporation ("the Company") to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements contained in this Form 10-Q. Such potential risks and uncertainties
include, without limitation, competitive pricing and other pressures from other
restaurant operations, economic conditions generally and in the Company's
primary markets, consumer spending patterns, perceived quality and value of the
Company's products, availability of capital, cost of labor, food costs,
occupancy costs and other risk factors detailed herein and in other of the
Company's filings with the Securities and Exchange Commission. The
forward-looking statements are made as of the date of this Form 10-Q and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons actual results could differ from those projected in such
forward-looking statements. Therefore, readers are cautioned not to place undue
reliance on these forward-looking statements.
RESULTS OF OPERATIONS
The Company's revenues are primarily derived from restaurant operations at
Company-owned stores and franchise royalties and fees received from franchise
stores. Total revenues for the first quarter of 1998 increased $80,665, or 7%,
to $1,292,072 compared with revenues of $1,211,407 during the same period in
1997.
Revenues from restaurant operations for the first quarter of 1998 decreased
$38,892, or 5%, to $698,607 compared with $737,499 for the corresponding period
in 1997. The decrease was the result of unusually heavy rain in Southern
California throughout the first quarter of 1998. As of March 31, 1998 and 1997
the Company owned 7 stores.
Franchise royalties earned in the first quarter of 1998 decreased $13,278,
or 5%, to $261,208 from $274,486 for the first quarter in 1997. The decrease in
royalties earned was primarily due to the lower revenue at both dual-concept and
franchise stores as a result of the unusually heavy rain in Southern California
throughout the first quarter of 1998.
Franchise fee income increased $78,617 to $139,326 in the first quarter of
1998 as compared with $60,709 in the first quarter of 1997. This favorable
increase was the result of increased dual-concept store openings in the first
quarter of 1998 of 17 as compared to 5 in the first quarter of 1997.
On an aggregate basis, cost of sales and occupancy and other operating
costs expressed as a percentage of sales for the Company owned restaurants have
increased during the three month period ended March 31, 1998 as compared with
the same periods in 1997. Cost of sales from restaurant operations (food,
packaging, payroll and other employee benefits) as a percentage of revenues were
69% and 64% for the first quarters of 1998 and 1997, respectively. Occupancy and
other operating costs from restaurant operations expressed as a percentage of
revenues were 30% and 27% for the first quarter of 1998 and 1997, respectively.
The percentage increases were the direct result of lower revenues in the first
quarter of 1998.
General and administrative expenses decreased $113,310, or 27%, to $309,935
in the first quarter of 1998 compared with $423,245 incurred in the first
quarter of 1997. The decrease is primarily due to a general reduction in payroll
expenses, legal and consulting fees, and other costs related to the development
of the dual-concept business.
IMPACT OF COMPANY EXPANSION PLANS ON OPERATIONS
The management of the Company anticipates that continued expansion of the
dual-concept restaurant business would improve the Company's liquidity and
profitability by generating additional franchise fees and royalties.
E-50
<PAGE> 254
EFFECT OF INFLATION
The Company's food and labor costs are subject to inflation. Many of the
Company's employees are paid hourly rates related to the statutory minimum wage,
therefore, increases in the minimum wage increase the Company's costs. On
October 1, 1996, the federal statutory minimum wage was increased to $4.75 per
hour. On March 1, 1997 the California statutory minimum wage was increased to
$5.00 per hour and again increased on September 1, 1997 to $5.15 per hour. The
California minimum wage was again increased on March 1, 1998 to $5.75 per hour.
The continued increase in the statutory minimum wage has not had a material
impact on the Company's current operations. At March 31, 1998, approximately 45
of the 56 hourly employees were paid the California statutory minimum wage. In
addition, most of the Company's leases have escalation provisions based on the
consumer price index and increases in store revenues. Most leases also require
the Company to pay taxes, maintenance, insurance, repairs, and utility costs,
all of which are expenses subject to inflation. The Company has been able to
offset the effects of inflation to date through small price increases and
economies resulting from the purchase of food products in increased quantities
due to the increased number of franchise stores.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of
$3,942,009 at March 31, 1998 and $3,452,717 at December 31, 1997. The increase
in cash, cash equivalents and short-term investments is primarily the result of
the operating income generated for the three months ended March 31, 1998.
Management believes the Company's cash; cash equivalents and short-term
investments will be sufficient to finance current and forecasted operations and
obligations.
E-51
<PAGE> 255
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Exhibit 27 Financial Data Schedule (included in electronic filing only)
(b) REPORTS ON FORM 8-K:
On March 4, 1998, the Company filed a report on Form 8-K regarding the
execution of a definitive Agreement and Plan of Reorganization to acquire 100%
of the outstanding capital stock of JB's Restaurants, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GB FOODS CORPORATION
By: /s/ GARY NELSON
------------------------------------
Gary Nelson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date:
May 14, 1998
E-52
<PAGE> 256
ANNEX F
FINANCIAL AND OTHER INFORMATION CONCERNING
TIMBER LODGE STEAKHOUSE, INC.
TABLE OF CONTENTS TO ANNEX F
<TABLE>
<S> <C> <C>
Annual Report on Form 10-KSB/A-2, for the Year Ended December 31, 1997*
Front Cover Page........................................................ F-1
Part I.................................................................. F-2
Item 1. Description of Business..................................... F-2
Item 2. Description of Properties................................... F-7
Item 3. Legal Proceedings........................................... F-7
Item 4. Submission of Matters to a Vote of Security Holders......... F-8
Part II................................................................. F-8
Item 5. Market for the Common Equity and Related Stockholder
Matters..................................................... F-8
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... F-8
Item 7. Financial Statements........................................ F-13
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... F-13
Part III................................................................ F-25
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act......................................................... F-25
Item 10. Executive Compensation...................................... F-26
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. F-28
Item 12. Certain Relationships and Related Transactions.............. F-29
Item 13. Exhibits and Reports on Form 8-K............................ F-29
Signatures.............................................................. F-30
</TABLE>
<TABLE>
<S> <C> <C>
Quarterly Report on Form 10-Q, for the Quarterly Period Ended March 25,
1998*
Front Cover Page........................................................ F-31
Table of Contents..................................................... F-32
Part I.................................................................. F-33
Item 1. Financial Statements........................................ F-33
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... F-37
Part II................................................................. F-39
Item 6. Exhibits and Reports on Form 8-K............................ F-39
Signatures.............................................................. F-40
</TABLE>
- ---------------
* Excluding exhibits.
<PAGE> 257
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB/A-2
FILED JULY 10, 1998
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1933
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-22786
------------------------
TIMBER LODGE STEAKHOUSE, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MINNESOTA 41-1810126
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
4021 VERNON AVENUE SOUTH, ST. LOUIS PARK, MINNESOTA 55416
(612) 929-9353
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes A No ____
Check if disclosure of delinquent filers in response to item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. ____
The Issuer's revenues for its most recent fiscal year were $26,535,788.
On March 3, 1998, the Issuer had 3,634,417 shares of common stock, $.01 par
value, issued and outstanding, and the aggregate market value of the common
stock as of that date (based on the average of the closing bid and asked prices
as of that date as reported by the Nasdaq SmallCap Market), excluding
outstanding shares beneficially owned by directors and officers, was
approximately $19,377,000.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes ____ No A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-1
<PAGE> 258
PART I
This Form 10-KSB contains certain forward-looking statements. For this
purpose, any statement contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
or "continue" or the negative or other variation thereof or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and the
actual results may differ materially depending on a variety of factors.
ITEM 1. DESCRIPTION OF BUSINESS
General
Timber Lodge Steakhouse, Inc. (the "Company") currently manages and
operates seventeen (17) Timber Lodge Steakhouse(TM) restaurants. Since the
Company's initial public offering of its Common Stock in December 1993, the
Company has expanded and continues to expand its steakhouse restaurant concept.
On December 12, 1997, G B Foods Corporation (Nasdaq: "GBFC") of Anaheim,
California announced the execution of a letter of intent to acquire all the
outstanding capital stock of Timber Lodge Steakhouse, Inc. (Nasdaq: "TBRL").
On January 16, 1998, G B Foods Corporation and Timber Lodge Steakhouse,
Inc. executed a Definitive Merger Agreement whereby G B Foods Corporation will
acquire all of the outstanding common stock of Timber Lodge Steakhouse, Inc. The
parties expect to close the transaction in July 1998. Under the terms of the
agreement, each share of Timber Lodge will be converted into the right to
receive .80 of a share of G B Foods Corporation common stock together with cash
in lieu of any fractional shares (the "Exchange Ratio"). In addition, the
agreement has established a collar for the Exchange Ratio of "GBFC" common stock
of $14.00 on the high end and $7.50 on the low end. If the average closing
common stock price for "GBFC" during the ten day trading period ending on the
second business day prior to the closing, ("Average Closing Stock Price"),
exceeds the limits of the collar, then the Exchange Ratio will be adjusted. If
the Average Closing Stock Price is more than $14.00, the Exchange Ratio shall be
reduced to a number (rounded to the nearest 1/10000) equal to the product of the
Exchange Ratio multiplied by a fraction, the numerator of which is $14.00 and
the denominator of which is the Average Closing Stock Price. If the Average
Closing Stock price is less than $7.50, G B Foods Corporation may elect to
increase the Exchange Ratio to the number (rounded to the nearest 1/10000)
determined by dividing $7.61 by the Average Closing Stock Price.
The Merger is subject to certain customary conditions, including (i)
Fairness Opinions; (ii) approvals from the shareholders of the Company and GBFC;
and (iii) the parties obtaining all regulatory approvals, including the
Securities and Exchange Commission declaring effective a Registration Statement
covering the shares of GBFC's common stock to be issued in the Merger. The
Merger is also subject to the purchase by the Company from CKE Restaurants, Inc.
("CKE") (NYSE:CKR) or its affiliate of between twelve (12) and twenty (20) JB's
Restaurants for conversion to Timber Lodge Steakhouse restaurants. In this
regard, CKE has agreed under the Merger Agreement to negotiate in good faith
with the Company to consummate such purchase and sale. In addition, Fidelity
National Financial, Inc. (NYSE:FNF) has agreed under the Merger Agreement that,
subject to the approval of the Merger by the Company's shareholders, it will
exercise currently outstanding warrants to purchase shares of GBFC's common
stock for a cash purchase price aggregating not less than $5,000,000. G B Foods
Corporation plans to utilize such proceeds, in part, for the conversion of the
JB's Restaurants acquired by the Company into Timber Lodge Steakhouse
restaurants.
The Company's full-service steakhouse restaurants offer dinners of generous
portions at moderate prices. Menu selections include steaks, which are selected,
aged and trimmed to the Company's customized specifications, prime rib,
barbecued ribs, fresh seafood, chicken, pork chops, pasta and specialty regional
dishes and appetizers. The Company's restaurants appeal to a broad range of
patrons by emphasizing casual dining, high quality food, limited menu selections
to ensure consistency in preparation and a well-trained staff for attentive and
quality service. This appeal is enhanced by the restaurants' "north woods"
atmosphere which
F-2
<PAGE> 259
features log-framed interiors, fireplaces, hardwood floors, wood tables, chairs
and booths, and memorabilia reflecting the history of northern tier states.
Based upon the Company's current operations and experience, it believes
that its steakhouse restaurants can be expanded to markets across the northern
and western United States. Although competition in the restaurant industry is
intense, the Company believes its "north woods" steakhouse concept competes
favorably. Its growth strategy is to continue to develop a sufficient number of
Company-managed steakhouse restaurants in regional areas in order to provide
economies of scale in advertising, procurement and management, along with
greater exposure in each region. The Company believes it has accomplished this
in the Minnesota, South Dakota and Wisconsin region (thirteen restaurants).
The Company operates one steakhouse in upstate New York (Niagara Falls)
that the Company continues to believe has long-term potential. During fiscal
year 1997 revenues increased 26% over fiscal year 1996 at the Niagara Falls
restaurant. Although the revenue increase helped the operating picture,
unit-level profitability and positive cash flow still has not been achieved at
the Niagara Falls site. The Company will continue to monitor its strategy and
marketing programs for this restaurant location, and will make the appropriate
business decision on long-term potential after the 1998 peak tourist season in
that market.
THE COMPANY'S STEAKHOUSE CONCEPT
General. The Company believes that many restaurants expanded their menus in
an attempt to reach a broader market, but lost their distinctiveness and blurred
their market niche as a result. The Company's steakhouse restaurants offer a
limited number of menu selections allowing it to ensure consistent high-quality
dishes and, more importantly, to retain its focus as a steakhouse. Traditional
American meals at moderate prices and in generous portions are viewed by the
Company as attractive to a large segment of the population. In addition to
offering quality food for the money, the Company's "north woods," log cabin
design promotes a casual and comfortable atmosphere. The Company trains its
employees to provide excellent service, enhancing the distinctive dining
experience.
All of the Company's restaurants' hours are limited to the service of
dinner. Such limited hours tend to reduce expenses associated with restaurant
management and employees, while still serving what is usually a restaurant's
most profitable meal. The Company expects most of its future restaurants will
similarly be limited to dinner.
The Company selects and hires experienced general managers for its
restaurants, who are motivated to provide excellent service and efficient
management through a bonus compensation plan based on restaurant unit-level
profitability and improvement in sales performance. Purchasing decisions are
made by the Company's home office management to ensure uniformity of food
quality among all of the steakhouse restaurants at competitive prices. Each
restaurant also provides daily reports to the home office so that changes
regarding operation of any or all the restaurants can be made immediately.
North Woods Atmosphere. Each restaurant incorporates a "north woods' theme
with its log-framed interior, fireplaces, hardwood floors and wood tables,
chairs and booths, all of which help to create a cozy feeling of dining in a
warm, comfortable north woods log cabin. Hunting, fishing, trapping, logging and
other memorabilia reflecting the history particular to northern tier states
adorn the walls, together with murals depicting regional folklore such as Paul
Bunyan. Oversized silverware, plates, and food portions are consistent with a
hunting lodge atmosphere. The casual atmosphere makes the restaurants
appropriate for a number of occasions.
Menu. The menu is designed to appeal to a broad range of tastes, although
it contains a limited number of selections. The Company's menu provides
entertaining descriptions of the selections. Steaks, the restaurants' featured
entrees, are selected, aged and trimmed to the Company's customized
specifications. The menu also offers prime rib, barbecued ribs, fresh seafood,
chicken, pork chops and pasta. As part of the Company's commitment to quality,
it emphasizes fresh ingredients and uses beef that has never been frozen. The
Company offers daily specials, and regularly tests new menu selections which, if
well received, are added to the menu or replace less popular entrees.
Accompaniments such as Golden Wheat bread and specialty
F-3
<PAGE> 260
appetizers such as the "Paul Bunyan Onion," as well as desserts and full liquor
service, are also offered. Menu items range from $7.95 to $18.95 in price with
the average dining check per customer totaling approximately $17 to $18
(including beverages served with dinner, but excluding drinks served while
customers are awaiting seating). A children's menu with lower-priced selections
is also available.
Advertising. The Company advertises through television, radio, newspapers
and billboards. In the Minneapolis/St. Paul market, the Company has recently
increased the use of television advertising. The Company currently has eight (8)
restaurants in the Twin Cities of Minneapolis / St. Paul, and the St. Cloud
restaurant is approximately 70 miles north west of Minneapolis and Twin City
television stations are carried into the St. Cloud market providing a total of
nine (9) restaurants that can be reached with Twin City television campaigns.
The Company currently has no billboard advertising in the Minneapolis / St. Paul
market, but may choose such advertising media in the future. The Company expects
to develop additional restaurants in the suburban Chicago and northern Illinois
market to make television advertising in that market place a viable option in
the near future. Billboard advertising is currently used in Duluth and St.
Cloud, Minnesota and Sioux Falls, South Dakota. During fiscal year 1997 the
Company spent approximately $893,000 in total for all forms of advertising, or
3.4% of net sales. The comparable number for fiscal year 1996 was approximately
$538,000, or 2.6% of net sales. The comparable number for fiscal 1995 was
approximately $420,000, or 2.5% of net sales.
Target Market. The Company's target market is adults 25-65 with a primary
focus on the "early middle aged group" and moderate to moderately-high incomes.
The Company believes that its steakhouse restaurants, menu, pricing and
atmosphere appeal to this group and distinguishes them from other moderately
priced restaurants, as well as from other steakhouses. Because the restaurants'
patrons are likely to have children or grandchildren, the Company caters to
families as well with its children's menus, reasonable prices and casual
atmosphere. While each of the restaurants contains a bar, the Company believes
that its restaurants are generally selected for dining.
Restaurant Site Development. The success of the Company's steakhouse
restaurants is highly dependent on suitable locations. The Company's management
focuses substantial effort and time on the investigation and evaluation of
potential restaurant sites. Site selection involves the analysis of area
demographics, population density and household income levels, as well as site
characteristics including visibility, accessibility and traffic volume. The
Company also considers the competition from existing restaurants, both
steakhouses and others, in the market of each proposed site.
The Company's current and planned steakhouse restaurants range between
6,300 and 9,000 square feet, and seat an average of 230 persons, including
approximately 20 seats in the bar area. All of the Company's current restaurant
sites are leased. The Company's existing steakhouse restaurants are generally
located in suburban locations in strip centers or in free-standing buildings.
One steakhouse restaurant, located in Duluth, Minnesota, is located in a
renovated warehouse. The Company plans to develop additional steakhouses in
similar settings, with an emphasis on free-standing buildings and will consider,
when appropriate, end locations in strip centers.
Based on past experience, the Company has generally been able to complete
preparations to open a restaurant in 17 to 21 weeks, as to existing buildings,
and 26 to 30 weeks when located in a building built to the Company's
specifications. These times can vary significantly depending on the time
required to obtain necessary permits and licenses, including liquor licenses,
from governmental authorities. The cost of developing four steakhouse
restaurants during fiscal 1997 (three of which were free-standing locations and
one was an end-cap in a new retail strip center) was approximately $1,565,000
per restaurant, including pre-opening expenses of approximately $134,000 per
restaurant. Such cost includes spending related to construction, furnishings,
equipment, permits and licenses, among others. As the Company has opened
additional steakhouse restaurants and gained more experience, the Company has
concluded that the cost of developing such restaurants can vary considerably
based upon various factors including: free-standing vs. located in strip
centers, new construction vs. conversion; and time of year during construction
activity.
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EXPANSION STRATEGY
The Company anticipates it will open five or six steakhouse restaurants by
the end of fiscal 1998. The Company opened a Timber Lodge Steakhouse on January
15, 1998, in Arlington Heights, Illinois (suburban Chicago) and currently is
constructing a new Timber Lodge Steakhouse in Rochester, Minnesota. The
Rochester site is expected to open mid-year of fiscal 1998. The majority of the
anticipated expansion during fiscal 1998 and fiscal 1999 will involve the
purchase and conversion of approximately sixteen JB's restaurants into the
Timber Lodge Steakhouse concept. This strategy is part of the pending merger
with G B Foods Corporation mentioned elsewhere in this Form 10-KSB.
RESTAURANT OPERATIONS
Management and Employees. The management staff of each restaurant consists
of a general manager, assistant manager, kitchen manager and assistant kitchen
manager. Each general manager is generally assigned one restaurant for a minimum
of four years, which the Company believes promotes stability and accountability.
The general managers are paid a base salary and a performance bonus based on
unit-profitability and improved sales performance of the restaurant which they
manage. The Company has traditionally hired general managers who have restaurant
management experience, and plans to do so for future restaurants.
Each restaurant employs approximately 55 hourly employees, most of whom are
employed part-time. The Company limits the number of tables served by its wait
staff in order to maintain high customer service and satisfaction.
Supervision and Training. The restaurants are closely supervised by the
general managers with guidance from the Company's home office management.
General managers are directly responsible for each restaurant's success.
Moreover, home office management visits each restaurant on a periodic basis to
oversee operations.
The Company uses "secret diners," provided by an independent company, who
regularly visit and critique each restaurant three times per month. These
"secret diners" prepare a detailed report of their visit, including impressions
of the restaurant's service, food and cleanliness. The Company uses these
reports to monitor each restaurant's performance and to refine service policies
and procedures, food quality and preparation specifications, and the appearance
and appeal of all restaurants in general. The Company expects to continue to use
this practice in the future.
The Company conducts a significant amount of training of its employees.
Although the Company generally hires general managers with restaurant
experience, each general manager spends up to ten weeks training in an
established Company restaurant before being assigned to a new restaurant.
Kitchen managers undergo similar training. Detailed policy and procedure manuals
provide a blueprint for restaurant operations for all levels of employees, from
greeting a customer to preparing a meal.
Purchasing. The Company's home office management negotiates directly with
suppliers for most food and beverage products on behalf of the restaurants to
ensure uniformity of product quality at competitive prices. Restaurant managers
then place orders as needed from these pre-approved suppliers. Prices charged by
other suppliers for comparable products are monitored by the home office to
verify competitive pricing. Although the Company typically uses the same
suppliers, the Company has no long-term contracts with any of its food or
beverage suppliers. It believes alternative suppliers are available, if
necessary. The Company intends to use its existing suppliers as it continues to
expand, but if this practice becomes uneconomical, the Company will engage
suitable regional suppliers in the new areas.
Meat is currently supplied primarily by one vendor (Westlunds's), which
delivers fresh supplies several times per week to the restaurants. The Company
has provided its meat supplier with customized specifications as to cut,
selection, trimming and aging in order to maintain the high quality and
consistency of its meat entrees. The Company believes alternative meat suppliers
are available which would be able to provide comparable cuts of meat at
competitive prices if the need arises. Timber Lodge Steakhouse, with the support
of its meat supplier, was awarded the 1996 Beef Backer Award from the Minnesota
Beef Council. The Beef
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Backer Award, established by the National Cattleman's Beef Association, honors
food service operations on a regional and national level that enthusiastically
promote beef.
Restaurant Reporting. Each restaurant has a point-of-sale system that is
monitored by its restaurant managers. This allows daily cash and other reports
to be prepared regarding the total amount and comparison of sales. Weekly and
monthly profit and loss reports are also compiled by each restaurant for review
and analysis by the home office management, which compares such reports with its
own internally generated profit and loss analysis so as to respond to
inefficiencies and make necessary adjustments at each restaurant on a weekly
basis.
REGULATION
The Company is subject to various federal, state and local laws affecting
its business. Each of the Company's restaurants is subject to licensing and
regulation by a number of government authorities, which may include alcoholic
beverage control, health and safety, and fire agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining, or
failures to obtain, the required licenses or approvals could delay or prevent
the development of a new restaurant in a particular area.
Approximately 15% of the Company's steakhouse revenues are attributable to
the sale of alcoholic beverages (including alcoholic beverages sold while
customers are awaiting seating). Alcoholic beverage control regulations require
each of the Company's restaurants to apply to a state authority and, in certain
locations, county or municipal authorities for a license or permit to sell
alcoholic beverages on the premises and to provide service for extended hours
and on Sundays. Typically, licenses must be renewed annually and may be revoked
or suspended for cause at any time. Alcoholic beverage control regulations
relate to numerous aspects of the daily operation of the Company's restaurants,
including minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control and handling, storage and dispensing of
alcoholic beverages. Failure of a restaurant to obtain or retain liquor or food
service licenses would adversely affect its operations.
In certain states, including Minnesota, the Company may be subject to
"dram-shop" statutes, which generally provide that a person injured by an
intoxicated person has the right to recover damages from the establishment which
wrongfully served alcoholic beverages to the intoxicated person. The Company
carries liquor liability coverage as part of its existing comprehensive general
liability insurance and never has been named in a lawsuit involving a
"dram-shop" statute.
The Company's restaurant operations are also subject to federal and state
minimum wage laws governing such matters as working conditions, overtime and tip
credits. Significant numbers of the Company's employees are paid at rates
related to the federal minimum wage and, accordingly, further increases in the
minimum wage could increase the Company's labor costs. Minnesota is one of the
few states that does not permit "tip credit" (the practice of employers paying
tipped employees below the minimum wage, with tips from customers making up the
balance of the minimum wage obligation). Currently ten of the Company's
seventeen restaurants are located in Minnesota, and further increases in the
minimum wage could significantly increase labor costs for the Company.
The American with Disabilities Act (the "ADA") prohibits discrimination in
employment and public accommodations, such as restaurants, on the basis of
disability. Under the ADA, the Company is required to provide service to, or
make reasonable accommodations, for the employment and service of, disabled
persons. The Company believes its restaurants are in substantial compliance with
the ADA.
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location and food quality. There are several well-established
competitors with substantially greater financial and other resources than the
Company. In the Company's view, its principal competitors are not only other
steakhouses but also any other restaurants which offer a casual atmosphere and
moderately-priced meals.
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Expansion of the steakhouse concept has increased in recent years. In
addition to traditional steakhouse restaurants, the Company expects to face
competition from new entries into the steakhouse market, such as national
steakhouse chains which have greater name recognition, are more well-established
and have significantly greater resources than the Company. Other competitors
include a large number of national and regional restaurant chains, many of which
have been in existence for a substantially longer period than the Company and
may be better established in the markets where the Company's restaurants are or
may be located. During the past year, Outback Steakhouse entered the
Minneapolis/St. Paul market and currently has three restaurants in operation in
that market.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, traffic
patterns, and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased food, labor and benefits costs
and the lack of experienced management and hourly-paid employees may adversely
affect the restaurant industry in general and the Company's restaurants in
particular.
TRADEMARKS
The Company holds federal registrations from the United States Patent and
Trademark Office for "Timber Lodge Steakhouse(TM)" and "The Lodge in the Heart
of the City."
EMPLOYEES
The Company currently employs approximately 940 employees, 298 of whom are
full-time and the balance of 642 are part-time persons. Of the full-time
employees, 68 are restaurant management personnel and 13 work in the
home/corporate office. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes it maintains good
relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTIES
Properties/Restaurant Locations
The Company's seventeen Timber Lodge Steakhouse restaurants are located in
the Minneapolis/St. Paul metropolitan area (Burnsville, Roseville, Eden Prairie,
West St. Paul, St. Louis Park, Spring Lake Park, Woodbury, and Crystal) of
Minnesota, with outstate Minnesota locations in Duluth and St. Cloud, Sioux
Falls, South Dakota, Niagara Falls, New York, Green Bay and Madison, Wisconsin
and the suburban Chicago area (Naperville, Vernon Hills and Arlington Heights).
All of these locations are occupied under leases which will expire between the
years 2001 and 2017, with renewal options of between three and ten years. The
leases for the Company's current restaurants provide for an average rent, as
measured over the term of each lease, of between $9 and $28 per square foot,
plus charges for real estate taxes and common area maintenance based on the
number of square feet leased. These long-term leases are non-cancelable.
Accordingly, if an existing or future restaurant is not profitable and the
decision is made to close the restaurant, the Company could be required to
perform its obligations under the lease. Such an event would likely have a
significant adverse impact on the Company's operations.
The Company's corporate offices in St. Louis Park, Minnesota are leased
from a related party.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business. Restaurant operators, such as the Company, are from time to time
involved in suits incidental to their business, which are generally covered by
insurance.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters which were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended December 31, 1997. The
Company is currently in the process of preparing for a vote by security holders
for the pending merger with G B Foods Corporation of Anaheim, California.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company trades on the Nasdaq SmallCap Market under
the symbol "TBRL." The following table sets forth, for the calendar quarters
indicated, the high and low closing bid prices for the Company's Common Stock as
quoted by Nasdaq. These quotations reflect inter-dealer prices, without retail
markup, markdown or commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- -----
<S> <C> <C>
Fiscal year ended January 3, 1996
First quarter............................................. $5 1/4 $4 1/4
Second quarter............................................ $4 7/8 $3 3/4
Third quarter............................................. $4 3/8 $ 3
Fourth quarter............................................ $3 1/4 $2 5/8
Fiscal year ended January 1, 1997
First quarter............................................. $4 1/4 $ 3
Second quarter............................................ $4 3/8 $3 3/8
Third quarter............................................. $4 5/8 $3 1/2
Fourth quarter............................................ $4 1/2 $3 3/8
Fiscal year ended December 31, 1997
First quarter............................................. $5 1/8 $3 3/16
Second quarter............................................ $4 1/4 $3 1/2
Third quarter............................................. $5 1/4 $3 3/8
Fourth quarter............................................ $7 5/8 $4 1/4
</TABLE>
As of March 3, 1998, the Company had 98 shareholders of record of its
Common Stock. The Company estimates its actual number of shareholders to be in
excess of 1,300.
In connection with the Company's 401 (k) program, participants have the
option to purchase Timber Lodge common stock as an investment option. As of
December 31, 1997, 7,102 shares of Timber Lodge common stock were allocated to
the accounts of 47 participants.
The Company has never paid or declared cash dividends on its Common Stock
and does not intend to pay cash dividends on its common stock in the foreseeable
future. The Company expects to retain its earnings to finance the development
and expansion of its business. The payment by the Company of cash dividends, if
any, on its Common Stock in the future is subject to the discretion of the Board
of Directors and will depend on the Company's earnings, financial condition,
capital requirements and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
As of December 31, 1997, the ending date of fiscal 1997, the Company
operated sixteen steakhouse restaurants. On January 15, 1998, the Company opened
its seventeenth restaurant in Arlington Heights, Illinois. The locations of the
other sixteen restaurants include eight in the Minneapolis-St. Paul metropolitan
area, and one each in Niagara Falls, New York, Duluth and St. Cloud, Minnesota,
Sioux Falls, South Dakota, Green Bay and Madison, Wisconsin, and Naperville and
Vernon Hills, Illinois. The Company uses a
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<PAGE> 265
52/53 week fiscal year ending on the Wednesday nearest the end of the calendar
year. Both fiscal 1997 and fiscal 1996 consisted of 52 weeks of business and
fiscal 1995 consisted of 53 weeks of business.
The Company capitalizes pre-opening costs and amortizes them over a
twelve-month period commencing with the restaurant opening. Pre-opening costs
consist of direct costs of hiring and training the initial work force and other
direct costs associated with opening a new restaurant. The Company's revenues
and expenses can be significantly affected by the number and timing of the
opening of additional restaurants. The timing of restaurant openings can also
affect net sales and other period-to-period comparisons.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of items in the Company's statements of operations.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
--------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Restaurant costs and expenses:
Food and beverage costs................................... 37.5 37.6 38.8
Labor and related benefit costs........................... 28.6 28.5 28.9
Restaurant operating expenses............................. 10.0 8.7 8.6
Occupancy costs........................................... 11.1 10.9 11.5
----- ----- -----
Restaurant costs and expenses.......................... 87.2 85.7 87.8
----- ----- -----
Restaurant operating income................................. 12.8 14.3 12.2
Operating expenses:
General and administrative................................ 6.1 7.0 9.1
Amortization of pre-opening costs......................... 1.3 1.5 2.8
Loss on sale and abandonment of restaurants, net.......... -- -- 1.9
----- ----- -----
Operating income............................................ 5.3 5.8 (1.6)
Interest expense............................................ 0.3 0.2 0.1
Interest and other income................................... (0.3) (0.5) (1.1)
----- ----- -----
Income before income taxes.................................. 5.3 6.1 (0.6)
Income taxes................................................ 1.6 1.3 (0.1)
----- ----- -----
Net income.................................................. 3.7% 4.8% (0.5)%
===== ===== =====
</TABLE>
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net Sales. The Company achieved an increase in net sales of 28.6% to
$26,535,788 for fiscal 1997 compared with $20,636,760 for fiscal 1996. The sales
increase is the result, in part, of opening four new restaurants during fiscal
1997 and the full year impact of the three restaurants that opened during fiscal
1996. The balance of the sales increase is attributed to a 4.4% sales increase
in same store sales for the eleven restaurants that have been open for eighteen
months or more. The Company made selective price increases to its Minnesota menu
during September 1997 to offset the impact of the September 1, 1997, increase in
the federal minimum wage to $5.15 an hour. The wage increase represents an 8.4%
increase over the previous minimum wage of $4.75 an hour that became effective
October 1, 1996. Minnesota is one of the few states that does not permit "tip
credit" (the practice of employers paying tipped employees below the minimum
wage, with tips from customers making up the balance of the minimum wage
obligation). The Company estimates the effect of these selective price increases
to be in the range of 1.5% to 2.0% for its Minnesota operations.
Costs and Expenses. Cost of restaurant sales, consisting of food and
beverage costs, decreased to 37.5% of net sales for fiscal 1997 compared to
37.6% for the same period last year. Increased business volume and the
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related increase in purchase quantities of selected food items permitted the
Company to enjoy an improved volume pricing schedule and rebates from some of
its food suppliers during fiscal 1997.
Labor and related employee benefit costs increased slightly to 28.6% of net
sales during fiscal 1997 compared to 28.5% for fiscal 1996. No single cost
category exhibited a significant relative change in labor and benefit costs
during fiscal 1997.
Restaurant operating expenses include utilities, supplies, maintenance and
repairs, liquor licenses and the service fees and charges for credit card
transactions. In fiscal 1997 restaurant operating expenses increased to 10.0%
compared to 8.7% for fiscal 1996. The increase is attributable primarily to a
change in charging the service fees for credit card transactions to the
individual restaurants as part of restaurant operating expenses in fiscal 1997.
In the prior year these expenses were part of general and administrative
expenses, and in both periods, represent approximately 1.0% of net sales. The
Company also experienced a modest increase in maintenance expenses during fiscal
1997.
Occupancy costs include rents, real estate taxes, common area maintenance,
building and contents insurance and depreciation on equipment and leasehold
improvements. Occupancy costs increased to 11.1% during fiscal 1997 compared to
10.9% for fiscal 1996. The increase is due to increased equipment rent expense
for the equipment operating leases used to help finance the five newest
restaurants
General and Administrative Expenses. General and administrative expenses
decreased to 6.1% of net sales in 1997 compared to 7.0% for fiscal 1996. The
decrease is due principally to the expense classification change for the service
fees for credit card transactions previously described. Advertising is a
significant component of general and administrative expenses, and during fiscal
1997 the advertising expense was approximately $893,000 in total, or 3.4% of net
sales. The comparable advertising expense for fiscal 1996 was $538,000, or 2.6%
of net sales.
Amortization of Pre-opening Costs. Amortization of pre-opening costs
decreased to 1.3% of net sales compared to 1.5% for the same period last year.
The modest change is driven by revenue growth in 1997.
Interest Expense and Other Income. Interest expense was paid to the
Company's bank for short-term borrowings during fiscal 1997. The Company has a
$500,000 credit line facility with its bank, and interest is charged at prime
plus one percent, or 9.5% at December 31,1997. The Company's bank also provided
a construction loan in the amount of $1,375,000 for the new restaurant in St.
Cloud, Minnesota. Interest on the construction loan was at a rate of 10.25%. The
maximum borrowed from the Company's bank during fiscal 1997 for both the credit
line facility and construction loan was $1,829,987. All bank borrowings were
repaid by December 31, 1997. Total interest paid to the bank in fiscal 1997 was
$110,939, of which approximately $22,736 was capitalized during the construction
period. A minor amount of interest was also paid to the state of Minnesota on a
tax adjustment.
Interest income was earned on the promissory note related to the Q. Cumbers
sale. The note earns interest at the prime rate, or 8.5% on December 31, 1997.
Interest income was also earned on money market accounts. During fiscal 1997 the
Company's cash balances were below the levels of the previous year, resulting in
less interest income.
Provision for Income Taxes. The Company's effective tax rate is estimated
at 29.5% for fiscal 1997 compared to 22% for fiscal 1996.
Net Income. The Company's net income for fiscal 1997 was $982,213 compared
to $982,981 for fiscal 1996. Basic earnings per share for fiscal 1997 was $.27,
compared to $.28 for fiscal 1996. Basic earnings per share have been calculated
for both fiscal 1997 and 1996 using the Financial Accounting Standards Board
Statement No. 128 (FASB 128). The lack of growth in net income for fiscal 1997
when compared to fiscal 1996 was principally affected because of the increase
during fiscal 1997 in four expense categories: the effective income tax rate of
29.5% versus 22%, increased interest expense from short-term borrowings, an
increase in monthly rent expenses for equipment operating leases for the five
newest restaurants and increased advertising expenses.
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FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net Sales. The Company achieved an increase in net sales of 21% to
$20,636,760 for fiscal 1996 compared with $17,040,506 for fiscal 1995. The sales
increase is attributable in part to the full year impact of two new steakhouses
which opened in 1995 and to the opening of three new restaurants in 1996. Fiscal
1995 contained 53 fiscal weeks ending January 3, 1996. After adjusting for the
additional week in fiscal 1995, net sales grew 24% in 1996 on a comparable
basis. Same store sales for stores open at least 18 months were down 2.4%. The
Company believes that a reduction in sales is typical after an initial period of
high sales from a newly-opened restaurant. Two restaurants which opened toward
the end of 1994 experienced very high initial sales in 1995 and the Company may
report, in future periods, similar reductions in same store sales as long as it
continues to open new restaurants and stable sales patterns are established..
The Company increased menu prices less than 1% in 1996.
Costs and Expenses. Cost of restaurant sales, consisting of food and
beverage costs, decreased to 37.6% of net sales for fiscal 1996 compared to
38.8% for fiscal 1995. This decrease is due in part to favorable prices of
produce along with the addition of temporary menu items that had a lower than
average food cost. These decreases more than offset the rise in meat and seafood
prices during the year.
Labor and related benefit costs decreased as a percentage of sales by .4%
to 28.5% for 1996 compared to 28.9% for fiscal 1995. The decrease is due
primarily to the Company achieving improved hourly store productivity as new
restaurants mature and stabilize along with the benefit of a higher tip credit
from the two new restaurants that opened outside Minnesota. These savings offset
the increased cost of more employees entering the Company's health insurance
programs as eligibility requirements were met.
Restaurant operating expenses and occupancy costs include rents, real
estate taxes, utilities, store supplies, smallwares, and other occupancy related
costs. Restaurant operating costs are semi-variable while most of the occupancy
expenses are fixed. In the aggregate for 1996, restaurant operating expenses and
occupancy costs decreased to 19.6% of net sales compared to 20.1% for fiscal
1995. The decrease is attributed to lower liability and building insurance
premiums compared to last year.
General and Administrative Expenses. General and administrative expenses
decreased to 7.0% of net sales in 1996 compared to 9.1% for fiscal 1995. The
decrease is due, in part, to the Company changing the name of its restaurants to
"Timber Lodge Steakhouse" during 1995, resulting in one-time costs to execute
the change, including new signage, printing expenses, and advertising costs to
communicate the new identity. The Company increased its advertising in 1996 as a
result of adding two new markets to its store base.
Amortization of Pre-Opening Costs. Amortization of pre-opening costs
decreased to 1.5% of net sales compared to 2.8% for fiscal 1995. The decrease is
due to fewer steakhouses opened during the period compared to the same period
last year. The Company amortizes pre-opening costs associated with new
restaurants over a twelve-month period commencing with the first full period
after the restaurant's opening.
Loss on Sale and Abandonment of Restaurants. In June 1995, the Company sold
Q. Cumbers, an upscale salad bar restaurant that resulted in a pre-tax gain of
$278,120. In July 1995, the Company closed its Williamsville, New York
steakhouse which resulted in a loss of $607,164. No similar activity occurred in
1996.
Interest and Other Income. Interest was earned on marketable securities
consisting of short-term government securities and a promissory note related to
the Q. Cumbers sale. Interest was paid on short term borrowing via a Line of
Credit the Company has with a local bank. Net interest income and other income
was $98,513 for fiscal 1996 compared with $179,902 for fiscal 1995. This
decrease is due to a reduction of marketable securities used to finance new
restaurant construction.
Provision for Income Taxes. In 1996, the effective tax rate decreased due
to the reversal of cumulative, excess tax accruals provided for in prior years.
In the future, the Company expects its tax rate to approximate 30%.
Net Income (Loss). The Company's net income for the year was $982,981
compared to net loss of ($88,231) for fiscal 1995. Basis earnings per share were
$.28 compared to ($.02) per share loss fiscal 1995.
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<PAGE> 268
Basic earnings per share have been calculated for both fiscal 1996 and 1995
using the Financial Accounting Standards Board Statement No. 128 (FASB 128). The
net loss for 1995 is attributable primarily to the one-time costs associated
with the name change conversion and the costs related to closing the
Williamsville, New York store.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has leased its restaurant sites under
non-cancelable leases for periods of six to twenty years, with renewal options
of three and ten years. In fiscal 1997, the Company funded the development of
its new restaurants through a combination of internally generated cash from
operations, short-term bank borrowings, sale/leaseback financing and equipment
leasing.
Cash provided by operating activities was $1,792,886 for fiscal 1997
compared to $3,052,701 for fiscal 1996 and $731,342 for fiscal 1995. The Company
had a net working capital deficit of ($1,034,045) at December 31, 1997, compared
to a net working capital deficit of ($337,912) at January 1, 1997. New
restaurant development has caused the reductions in working capital. The Company
continues to draw on its $500,000 bank line of credit to meet short-term cash
needs. At the end of fiscal 1997 this credit line did not have an outstanding
balance. Most of the Company's sales are paid in cash or credit card and the
Company generally receives 30 days credit from trade suppliers.
Sale/leaseback financing with AEI Fund Management, Inc. of St. Paul,
Minnesota provided $1,575,000 for the November 1997 purchase of the St. Cloud,
Minnesota restaurant. The financing agreement between the Company and AEI Fund
Management, Inc. executed on September 23, 1997, provides for funding of up to
four restaurants/parcels. The Rochester, Minnesota site that is under
construction is being financed pursuant to that agreement between the Company
and AEI. This financing facility could fund two more new restaurants beyond the
St. Cloud and Rochester sites.
The planned purchase and conversion of approximately sixteen (16) JB
restaurants into Timber Lodge Steakhouse restaurants has its own financing plan
as previously described for the pending Merger with G B Foods Corporation. If
for some reason, the pending Merger would not take place, the Company would slow
down its new restaurant growth strategy to match funding that would be provided
by internally generated cash, AEI sale/leaseback financing, and the use of
equipment leasing. The Company believes that these funding sources will fund
operations for at least the next twelve months.
IMPACT OF INFLATION
Inflation has not significantly impacted the Company's operations during
fiscal 1997, 1996 and 1995. Substantial increases in either food costs,
particularly meat prices, or labor costs could negatively impact the Company in
the future. Because many of the Company's employees are paid at the federal
minimum wage levels, a continued trend in rising federal minimum wage levels
could have an adverse impact on future operating costs. In the event that
inflation increases future operating costs, there is no assurance that the
Company could fully recover such increases by raising menu prices.
YEAR 2000
The year 2000 software issue is not expected to have a material impact on
the Company. Future developments may have a material adverse effect on the
Company.
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ITEM 7. FINANCIAL STATEMENTS
The following Financial Statements and Independent Auditor's Report thereon
are included herein (page numbers refer to pages in this Report on Form 10-KSB):
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Auditors.............................. F-14
Balance Sheets as of December 31, 1997, and January 1,
1997...................................................... F-15
Statements of Operations for the years ended December 31,
1997, January 1, 1997, and January 3, 1996................ F-16
Statements of Changes in Shareholders' Equity for the years
ended December 31, 1997, January 1, 1997, and January 3,
1996...................................................... F-17
Statements of Cash Flows for the years ended December 31,
1997, January 1, 1997, and January 3, 1996................ F-18
Notes to Financial Statements............................... F-19 - F-24
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Timber Lodge Steakhouse, Inc.
We have audited the accompanying balance sheets of Timber Lodge Steakhouse,
Inc. as of December 31, 1997, and January 1, 1997, and the related statements of
operations, changes in shareholders' equity and cash flows for the years ended
December 31, 1997, January 1, 1997, and January 3, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Timber Lodge Steakhouse,
Inc. at December 31, 1997, and January 1, 1997, and the results of its
operations and its cash flows for the years ended December 31, 1997, January 1,
1997, and January 3, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Minneapolis, Minnesota
February 13, 1998
F-14
<PAGE> 271
TIMBER LODGE STEAKHOUSE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1997 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 482,598 $ 1,178,373
Accounts receivable....................................... 227,473 136,576
Inventories............................................... 352,289 203,268
Pre-opening costs, net.................................... 450,510 168,933
Deferred tax assets....................................... -- 64,300
Prepaid expenses and other current assets................. 541,529 366,240
----------- -----------
2,054,399 2,117,690
Property and equipment, net................................. 12,463,740 10,970,370
Deferred tax assets......................................... 132,400 23,200
Note receivable............................................. 346,000 396,000
Other assets................................................ 221,639 190,182
----------- -----------
Total assets...................................... $15,218,178 $13,697,442
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,512,713 $ 1,127,673
Accrued salaries and wages................................ 386,371 262,346
Sales tax payable......................................... 187,153 136,327
Deferred revenue -- gift certificates..................... 871,360 535,997
Income taxes payable...................................... -- 295,690
Deferred tax liabilities.................................. 59,000 --
Accrued expenses and other liabilities.................... 71,847 97,569
----------- -----------
3,088,444 2,455,602
Deferred rent............................................... 1,063,429 1,248,224
----------- -----------
Total liabilities................................. 4,151,873 3,703,826
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares -- 10,000,000
Issued shares -- 3,566,833 at January 1, 1997 and
3,625,750 at December 31, 1997........................ 36,257 35,668
Additional paid-in capital............................. 8,883,701 8,793,814
Retained earnings...................................... 2,146,347 1,164,134
----------- -----------
Total shareholders' equity........................ 11,066,305 9,993,616
----------- -----------
Total liabilities and shareholders' equity........ $15,218,178 $13,697,442
=========== ===========
</TABLE>
See accompanying notes.
F-15
<PAGE> 272
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 3,
1997 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net sales............................................... $26,535,788 $20,636,760 $17,040,506
Costs and expenses:
Food and beverage costs............................... 9,944,401 7,767,907 6,613,278
Labor and related benefit costs....................... 7,599,884 5,873,869 4,929,462
Restaurant operating expenses......................... 2,648,596 1,805,317 1,466,891
Occupancy costs....................................... 2,957,428 2,234,300 1,944,446
----------- ----------- -----------
23,150,309 17,681,393 14,954,077
----------- ----------- -----------
Restaurant operating income............................. 3,385,479 2,955,367 2,086,429
Operating expenses:
General and administrative............................ 1,617,984 1,445,313 1,556,485
Amortization of pre-opening costs..................... 353,336 316,077 469,290
Loss on sale and abandonment of restaurants, net...... -- -- 329,044
----------- ----------- -----------
Operating income........................................ 1,414,159 1,193,977 (268,390)
Interest expense........................................ 89,068 31,269 7,493
Interest and other income............................... (68,828) (98,513) (179,902)
----------- ----------- -----------
Income before income taxes.............................. 1,393,919 1,261,221 (95,981)
Income taxes............................................ 411,706 278,240 (7,750)
----------- ----------- -----------
Net income.............................................. $ 982,213 $ 982,981 $ (88,231)
=========== =========== ===========
Basic earnings per share................................ $ .27 $ .28 $ (.02)
=========== =========== ===========
Diluted earnings per share.............................. $ .27 $ .27 $ (.02)
=========== =========== ===========
Basic weighted average shares........................... 3,604,791 3,571,167 3,607,123
=========== =========== ===========
Diluted weighted average shares......................... 3,675,857 3,659,782 3,607,123
=========== =========== ===========
</TABLE>
See accompanying notes.
F-16
<PAGE> 273
TIMBER LODGE STEAKHOUSE, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 28, 1994........... 3,617,500 $36,175 $8,959,859 $ 269,384 $ 9,265,418
Purchase and retirement of common
stock............................. (42,000) (420) (134,844) -- (135,264)
Net loss............................. -- -- -- (88,231) (88,231)
--------- ------- ---------- ---------- -----------
Balance at January 3, 1996............. 3,575,500 35,755 8,825,015 181,153 9,041,923
Purchase and retirement of common
stock............................. (10,000) (100) (34,687) -- (34,787)
Exercise of stock options............ 1,333 13 3,486 -- 3,499
Net income........................... -- -- -- 982,981 982,981
--------- ------- ---------- ---------- -----------
Balance at January 1, 1997............. 3,566,833 35,668 8,793,814 1,164,134 9,993,616
Purchase and retirement of common
stock............................. (2,000) (20) (7,293) -- (7,313)
Exercise of stock options............ 60,917 609 97,180 -- 97,789
Net income........................... -- -- -- 982,213 982,213
--------- ------- ---------- ---------- -----------
Balance at December 31, 1997........... 3,625,750 $36,257 $8,883,701 $2,146,347 $11,066,305
========= ======= ========== ========== ===========
</TABLE>
See accompanying notes.
F-17
<PAGE> 274
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 3,
1997 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 982,213 $ 982,981 $ (88,231)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 1,100,410 926,815 710,915
Amortization.............................................. 353,336 316,077 465,375
Deferred rent............................................. (184,795) 421,812 223,062
Deferred taxes............................................ 14,100 142,800 (124,200)
Loss on sale and abandonment of assets, net............... -- -- 100,885
Changes in operating assets and liabilities:
Receivables............................................. (90,897) (48,860) 19,619
Inventories............................................. (149,021) (37,266) 9,142
Pre-opening costs....................................... (631,013) (328,466) (240,923)
Prepaid expenses and other current assets............... (175,289) (91,544) (146,630)
Accounts payable........................................ 385,040 350,344 (252,045)
Accrued salaries and wages.............................. 124,025 75,433 (6,017)
Sales taxes payable..................................... 50,826 19,995 30,467
Deferred revenue -- gift certificates................... 335,363 106,671 167,867
Income taxes payable.................................... (295,690) 281,093 (261,111)
Accrued expenses and other liabilities.................. (25,722) (65,184) 123,167
----------- ----------- -----------
Net cash provided by operating activities................... 1,792,886 3,052,701 731,342
INVESTING ACTIVITIES
Purchases of property and equipment......................... (4,168,780) (3,924,964) (3,047,925)
Sales of property and equipment............................. -- -- 65,546
Proceeds used in restaurant development..................... -- -- 943,893
Cash from sale of restaurant................................ -- -- 125,000
Purchases of marketable securities.......................... -- -- (1,532,000)
Sales of marketable securities.............................. -- -- 4,504,161
Other assets................................................ (35,357) 51,828 (15,300)
----------- ----------- -----------
Net cash (used in) provided by investing activities......... (4,204,137) (3,873,136) 1,043,375
FINANCING ACTIVITIES
Proceeds from short-term borrowings......................... 1,829,987 -- --
Repayment of short-term borrowings.......................... (1,829,987) -- --
Proceeds from sale/leaseback transaction.................... 1,575,000 -- --
Exercise of stock options................................... 97,789 3,499 --
Principal collected on long-term note....................... 50,000 10,000 --
Common stock repurchased.................................... (7,313) (34,787) (135,264)
----------- ----------- -----------
Net cash provided by (used in) financing activities......... 1,715,476 (21,288) (135,264)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents........ (695,775) (841,723) 1,639,453
Cash and cash equivalents at beginning of year.............. 1,178,373 2,020,096 380,643
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 482,598 $ 1,178,373 $ 2,020,096
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid........................................... $ 806,697 $ 15,324 $ 364,159
Interest paid............................................... $ 110,939 $ 31,269 $ 7,493
</TABLE>
See accompanying notes.
F-18
<PAGE> 275
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS -- The Company manages and
operates full-service steakhouse restaurants. The Company currently has
restaurants in Minnesota, Wisconsin, New York, South Dakota and Illinois.
ACCOUNTING PERIOD -- The Company uses a 52/53 week fiscal year ending on
the Wednesday nearest to the end of the calendar year. Both fiscal 1997 and
fiscal 1996 included 52 weeks of business activity and fiscal 1995 included 53
weeks of business activity.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents are carried at amortized cost which approximates
market value and are considered available-for-sale.
INVENTORIES -- Inventories consist principally of food, beverages and
supplies and are stated at the lower of cost (first-in, first-out) or market.
PRE-OPENING COSTS -- Pre-opening costs consist of direct costs of hiring
and training the initial workforce, smallwares, printing, lodging, travel,
office supplies and other direct costs associated with opening a new restaurant.
Such costs are amortized over a twelve-month period commencing with the
restaurant opening.
Accumulated amortization of pre-opening costs totaled $1,325,308 and
$975,872 at December 31, 1997, and January 1, 1997, respectively.
ADVERTISING COSTS -- The Company capitalizes the production costs of
advertising and expenses those costs upon the first running of the ad. For the
years ended December 31, 1997, January 1, 1997, and January 3, 1996, the company
incurred advertising expenses of approximately $893,000, $538,000 and $420,000,
respectively.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from five to ten years. Leasehold
improvements are amortized using the straight-line method over the shorter of
their estimated useful lives or the lease term, including option periods.
EARNINGS PER SHARE -- Earnings per share has been calculated based on the
guidelines established by the Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic
earnings per share was calculated by dividing income available to common
stockholders by the weighted average common shares outstanding. Diluted earnings
per share was calculated using the dilutive effect of stock options and warrants
using the treasury stock method. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to Statement 128
requirements.
INCOME TAXES -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases.
IMPAIRMENT OF LONG-LIVED ASSETS -- The Company will record impairment
losses on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.
STOCK BASED COMPENSATION -- The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," but applies Accounting Principles Board Opinion
No. 25 (APB 25) and related interpretations in accounting for its plans. Under
F-19
<PAGE> 276
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
APB 25, when the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from the
estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1997 1997
------------ -----------
<S> <C> <C>
Leasehold improvements...................................... $10,753,653 $ 8,432,010
Equipment................................................... 3,721,525 3,518,824
Furniture and fixtures...................................... 1,131,202 1,073,938
Office equipment............................................ 152,080 139,909
----------- -----------
15,758,460 13,164,681
Less accumulated depreciation and amortization.............. (3,294,720) (2,194,311)
----------- -----------
$12,463,740 $10,970,370
=========== ===========
</TABLE>
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
--------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Net income (loss)................................. $ 982,213 $ $982,981 $ (88,231)
Denominator:
Denominator for basic earnings per
share -- weighted average shares............. 3,604,791 3,571,167 3,607,123
Effect of dilutive securities:
Stock options................................... 71,066 88,615 --
---------- ---------- ----------
Denominator for diluted earnings per
share -- weighted average shares and assumed
conversion...................................... 3,675,857 3,659,782 3,607,123
========== ========== ==========
Basic earnings (loss) per share................... $ .27 $ .28 $ (.02)
========== ========== ==========
Diluted earnings (loss) per share................. $ .27 $ .27 $ (.02)
========== ========== ==========
</TABLE>
4. STOCK OPTIONS AND WARRANTS
Under the Company's stock option plan, the Company may grant either
incentive based or non-qualified options to employees, management and Directors.
Under the plan, options may be granted at prices not less than fair market value
of the Company's common stock at the grant date. Options become exercisable at
the rate of one-third of the granted shares after six, eighteen and thirty
months from the date of grant. The options are outstanding for ten years
following the date of grant.
F-20
<PAGE> 277
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES AVAILABLE OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
---------------- ----------- ----------------
<S> <C> <C> <C>
Balance at December 28, 1994.......................... 434,500 190,500 $2.74
Granted............................................. (47,500) 47,500 2.63
Canceled............................................ 25,500 (25,500) 2.63
------- -------
Balance at January 3, 1996............................ 412,500 212,500 2.73
Granted............................................. (59,500) 59,500 3.59
Canceled............................................ 50,500 (50,500) 3.06
Exercised........................................... -- (1,333) 2.63
------- -------
Balance at January 1, 1997............................ 403,500 220,167 2.88
Granted............................................. (68,500) 68,500 3.81
Canceled............................................ 14,500 (14,500) 2.88
Exercised........................................... -- (27,167) 2.68
------- -------
Balance at December 31, 1997.......................... 349,500 247,000 $3.21
======= =======
</TABLE>
In November 1992, the Company granted a non-qualified option to an officer
to purchase 33,750 shares at $.74 per share. This option was exercised in total
in February 1997.
At December 31, 1997, January 1, 1997, and January 3, 1996, options of
189,166, 194,250 and 194,750, respectively, were exercisable at weighted average
prices of $3.04, $2.30 and $2.37, respectively.
The weighted average fair value of options granted during the years ended
December 31, 1997, January 1, 1997, and January 3, 1996, was $1.53, $1.43 and
$1.13 per share, respectively.
PRO FORMA DISCLOSURES
Pro forma information regarding net income and earnings per share is
required by Statement 123, and is determined as if the Company had accounted for
its employee stock options under the fair value method of the Statement. The
fair value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal 1997, 1996 and 1995: risk free interest rate of 6%;
dividend yield of 0%; volatility factor of the expected market price of the
Company's stock of .461; and a weighted-average expected life of the option of 4
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different than those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-21
<PAGE> 278
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense, net of the related pro forma tax benefits, over
the options' vesting period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Pro forma net income (loss)......................... $933,955 $957,821 $(100,916)
Pro forma earnings (loss) per share:
Basic............................................. $ .26 $ .27 $ (.03)
Diluted........................................... $ .25 $ .26 $ (.03)
</TABLE>
Note: The pro forma effect on net income (loss) for fiscal 1997, 1996 and
1995 is not representative of the pro forma effects on net income (loss) in
future years because it does not take into consideration pro forma compensation
expense related to grants made prior to 1995.
WARRANTS
In connection with the Company's initial public offering in December 1993,
the Company issued to the underwriter a warrant to purchase 120,000 shares of
common stock. The warrant became exercisable on December 9, 1994, and remains
outstanding until December 9, 1998. The warrant is exercisable at $7.20 per
share. The warrant contains antidilution provisions and is non-transferable.
5. LINE OF CREDIT
The Company has a $500,000 line of credit facility with its bank. The line
of credit bears interest at the prime rate plus 1%, or 9.5% at December 31,
1997. The line of credit expires in June 1998. At December 31, 1997, there were
no borrowings outstanding against the line of credit.
6. INCOME TAXES
The components of income tax expense for the years ended December 31, 1997,
January 1, 1997, and January 3, 1996, are as follows:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996 FISCAL 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................................. $311,589 $101,600 $ 87,450
State............................................... 86,017 33,840 29,000
Deferred:
Federal............................................. 10,850 121,380 (103,100)
State............................................... 3,250 21,420 (21,100)
-------- -------- ---------
$411,706 $278,240 $ (7,750)
======== ======== =========
</TABLE>
F-22
<PAGE> 279
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The tax effects of significant components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1997 1997
------------ ----------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit carryforwards.............. $90,700 $190,600
General business credit carryforwards..................... 417,600 279,800
Other..................................................... 18,800 20,400
------- --------
Total deferred tax assets......................... 527,100 490,800
Deferred tax liabilities:
Depreciation.............................................. 300,600 345,900
Pre-opening costs......................................... 153,100 57,400
------- --------
Total deferred tax liabilities.................... 453,700 403,300
------- --------
Net deferred tax assets..................................... $73,400 $ 87,500
======= ========
</TABLE>
At December 31, 1997, the Company had AMT credit carryforwards and the
general business credit carryforwards of $508,300. These credits expire at
various times through the year 2011.
A reconciliation of statutory federal income taxes to the actual income tax
expense is as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
--------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 3,
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Income taxes at statutory rate....................... $473,932 $428,815 $(32,635)
State income taxes, net of federal benefit........... 60,733 54,950 (5,068)
Alternative minimum tax.............................. -- -- 116,450
Reduction of taxes previously provided for........... -- (142,825) --
Effects of Fica Tip Credit........................... (91,000) (62,700) --
Other................................................ (31,959) -- (86,497)
-------- -------- --------
$411,706 $278,240 $ (7,750)
======== ======== ========
</TABLE>
7. RELATED PARTY TRANSACTIONS
Two nephews of the Company's chief executive officer, Dermot F. Rowland,
own a construction company that managed the construction of some of the
Company's restaurants. Payments to this construction company totaled $1,056,011
in fiscal 1997. The accounts payable balance of the Company on December 31,
1997, included an amount of $432,634 that was payable to that construction
company.
The Company rents office space for $3,660 per month in a building owned by
the Company's chief executive officer.
8. LEASE COMMITMENTS
The Company leases restaurant facilities and equipment under noncancelable
operating leases that expire at various dates, including renewal options,
through 2017. In addition, certain leases contain escalation clauses based upon
a fixed percentage increase and provisions for contingent rentals based on a
percentage of gross revenues, as defined. The Company also pays real estate
taxes, insurance and common area maintenance expenses related to these leases.
F-23
<PAGE> 280
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. LEASE COMMITMENTS (CONTINUED)
During 1997, the Company entered into a sale/leaseback in connection with
the development of the St. Cloud, Minnesota restaurant. The Company sold the
property, having a book value of $1,575,000, to a third party leasing company
for a selling price of $1,575,000. The Company then leased the property back
under lease terms similar to its other restaurants.
Rental expense under these lease agreements was $1,346,101, $901,115 and
$745,768 for the years ended December 31, 1997, January 1, 1997, and January 3,
1996, respectfully.
At December 31, 1997, future minimum lease payments under all noncancelable
lease agreements are as follows:
<TABLE>
<S> <C>
Period Ending:
1998..................................................... $ 1,860,009
1999..................................................... 1,880,277
2000..................................................... 1,914,721
2001..................................................... 1,888,092
2002..................................................... 1,635,044
Thereafter............................................... 13,814,066
-----------
$22,992,209
===========
</TABLE>
9. 401(K) PLAN
In 1995, the Company adopted a defined contribution benefit plan that
covers virtually all full-time employees. Under the plan, eligible employees can
elect to contribute up to 15% of their annual compensation to the plan. The
Company is permitted, but not required, to make a matching contribution to the
plan up to a maximum of 6% of each participating employee's annual compensation.
The Company has not made a matching contribution since the plan's inception.
10. SALE AND ABANDONMENT OF RESTAURANTS
The Company sold its Q. Cumbers unit to the existing store manager, who was
then a related party, on June 14, 1995. The Company retained the services of an
independent consultant to assess the fair market value of the business and
validate the Company's selling price. The store was sold for $531,000. The
Company received $125,000 in cash and a promissory note for $406,000. The sale
resulted in a pre-tax gain of $278,120. The promissory note bears interest at
the prime rate. Interest is payable monthly. The buyer is required to make
future principal payments of an annual amount of $50,000 from 1998-2002. In
2003, the remaining principal balance is due in full. The balance of the note
receivable at December 31, 1997, was $346,000.
In May, 1995, the Company closed its Williamsville, NY restaurant. The
abandonment costs of $607,164 consist of the write-off of non-reusable assets
and related close down costs.
The pre-tax gain of $278,120 on the sale of Q. Cumbers and the pre-tax loss
of $607,164 on the closing of the Williamsville, NY restaurant resulted in a net
loss on sale and abandonment of restaurants of $329,044 in fiscal 1995.
11. SUBSEQUENT EVENT
On January 16, 1998, G B Foods Corporation and the Company executed a
Definitive Merger Agreement whereby G B Foods Corporation will acquire all of
the Company's outstanding common stock. The parties expect to close the
transaction in July 1998.
F-24
<PAGE> 281
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(A) DIRECTORS, EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
<S> <C> <C> <C>
Dermot F. Rowland 60 Chairman of the Board, Chief Executive Officer, 1989
Secretary and Director
Peter S. Bedzyk 46 President, Chief Operating Officer and Director 1996
William J. Birmingham 56 Chief Financial Officer --
Laurence F. LeJeune(1) 60 Director 1991
John P. Uphoff(1) 65 Director 1994
</TABLE>
- ---------------
(1) Member of the Audit Committee and the Compensation Committee
DERMOT F. ROWLAND, a founder of the Company, has served as Chairman of the
Board, Chief Executive Officer, Secretary and as a Director of the Company since
1989. Prior to establishing the Company, Mr. Rowland was involved in the
formation and management of Homestyle Buffet, Inc., which subsequently changed
its name to Staceys Buffet Inc. ("Staceys"). Staceys, based in Largo, Florida,
develops and operates buffet restaurants. He co-founded Staceys in 1986 and
served as its President and Chief Executive Officer from 1986 to 1987. In 1987,
he became its Chairman of the Board and continued as a consultant and Director
until 1991.
PETER S. BEDZYK has served the Company in several executive and management
positions since 1991. Mr. Bedzyk has been the Company's President and Chief
Operating Officer since February 1997 and a Director since May 1996. From June
1995 to February 1997 he served as Executive Vice President of Operations and
from 1991 to June 1995, Mr. Bedzyk served as the Company's Operations Manager as
well as General Manager of the Minnesota Steakhouse ( a predecessor of the
Company). From 1985 through 1990, Mr. Bedzyk was an Operating Partner of a
Bonanza Family Restaurant franchisee in St. Louis, Missouri. Mr. Bedzyk has
previously been employed by various restaurants, including Ponderosa Steakhouse
and Cracker Barrel Restaurants.
WILLIAM J. BIRMINGHAM joined the Company in September 1997 as its Chief
Financial Officer. From July 1996 to May 1997 Mr. Birmingham served as Chief
Financial Officer of XOX Corporation, a St. Paul, Minnesota-based software
company that provides proprietary software for geometric computing. From January
1995 to March 1996, he served as Chief Financial Officer for B-Tree Verification
Systems, Inc., a Minneapolis-based company that provides test stations that
validate the software in devices containing embedded microprocessors. From
December 1992 through December 1994, he was Chief Financial Officer of Waters
Instruments, Inc., Rochester, Minnesota, a company that manufactures
electro-mechanical devices for the medical, computer, communications and
agriculture markets. Prior to this time, Mr. Birmingham was Chief Financial
Officer of a start-up medical device company in Minneapolis (f/k/a Cherne
Medical) and had an extended career with 3M Company, St. Paul, Minnesota
involving financial and marketing management positions. Mr. Birmingham left the
employ of the Company in April 1998.
LAURENCE F. LEJEUNE has, since 1981, been the owner, and has served as
Chairman of the Board, of LeJeune Investment, Inc., a corporate holding company
which operates Carousel Automobiles and Maplewood Imports, both of which are
automobile dealerships located in the Minneapolis -- St. Paul metropolitan area.
He served as President and Chief Executive Officer of L.L. LeJeune Co., a
Minneapolis -- based structural steel fabricator, from 1967 to 1989. Mr. LeJeune
currently serves as a Director of Vaughn Communications, Inc. based in Edina,
Minnesota, which provides video duplication services and broadcast video
equipment rental.
F-25
<PAGE> 282
JOHN P. UPHOFF has served since 1993 as President and Chief Executive
Officer of Uphoff Capital Management, Inc., an investment firm. He also is
active as a private investor. Mr. Uphoff served as Senior Vice President and a
Director of Leisure Research for Raymond James & Associates, Inc. from 1984 to
1993. Prior to 1984, he served as President and Chief Executive Officer of
Uppy's Family Restaurants, Inc., a chain of multi-concept restaurants located in
Wisconsin and Florida. Mr. Uphoff currently serves as a Director of Monarch
Casino & Resort, Inc., a publicly-held gaming company based in Reno, Nevada.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board has an Audit Committee comprised of Mr. LeJeune
and Mr. Uphoff. The Audit Committee reviews the results and scope of the audit
and other services provided by the Company's independent auditors, as well as
the Company's accounting principles and its system of internal controls, and
reports the results of its review to the Board. The Audit Committee held three
meetings during the fiscal year ended December 31, 1997.
Compensation Committee. The Board has a Compensation Committee comprised of
Mr. LeJeune and Mr. Uphoff who are responsible for setting the compensation of
the executive officers of the Company. The Compensation Committee met three
times during the fiscal year ended December 31, 1997.
(B) SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and all persons who beneficially
own more than 10% of the outstanding shares of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of the Company's Common Stock. Officers,
directors and persons owning more than 10 percent of the Company's outstanding
Common Stock are required by Securities and Exchange Commission regulation to
furnish the Company with copies of all Section 16(a) forms filed. Based solely
on a review of the copies of such reports and amendments thereto furnished to or
obtained by the Company or written representations that no other reports were
required, the Company believes that during the fiscal year ended December 31,
1997, the Company's directors, officers and beneficial owners of more than 10
percent of the Company's shares of Common Stock complied with all applicable
filing requirements, except that Mr. Rowland, Mr. Bedzyk, Mr. LeJeune and Mr.
Uphoff did not timely file one report each. All such reports have now been
filed.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain summary information for the past three
years ended December 31 concerning executive compensation paid or accrued by the
Company to the Company's Chief Executive Officer (the "Named Executive
Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
----------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
--------------------------- ---- ------ ----- ---------------------
<S> <C> <C> <C> <C>
Dermot F. Rowland 1997 52,516(1) -- 10,000(2)
(Chief Executive Officer) 1996 84,808 -- 15,000
1995 67,212 -- 50,000(3)
</TABLE>
- ---------------
(1) Mr. Rowland was on disability for a portion of fiscal year 1997 and under
terms of the Company's disability benefit program, received those benefit
payments directly from the insurance company.
(2) In addition to the options for 10,000 shares granted in fiscal year 1997,
Mr. Rowland was granted options for 10,000 shares at an exercise price of
$5.91 per share on January 15, 1998.
F-26
<PAGE> 283
(3) Represents 50,000 options previously granted to Mr. Rowland which were
repriced from exercise prices of $5.55 and $4.95 per share to an amended
exercise price of $2.89 per share.
STOCK OPTION GRANTS DURING FISCAL YEAR 1997
The following table provides information regarding stock options granted
during fiscal year 1997 to the Named Executive Officer in the Summary
Compensation Table.
<TABLE>
<CAPTION>
OPTIONS % OF TOTAL OPTIONS EXERCISE PRICE
NAME GRANTED GRANTED IN FISCAL YEAR PER SHARE EXPIRATION DATE
---- ------- ---------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Dermot F. Rowland................ 10,000(1) 14.6% $4.125 May 29, 2007
</TABLE>
- ---------------
(1) The date of grant of the stock option was May 30, 1997. Options become
exercisable at the rate of one-third of the granted shares after six,
eighteen and thirty months from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF UNEXERCISED VALUE (1) OF UNEXERCISED
SHARES OPTIONS AT DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997
ACQUIRED VALUE (1) ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dermot F. Rowland..... 33,750 $196,425 61,667 13,333 $215,472 $35,215
</TABLE>
- ---------------
(1) Value is the difference between the exercise price of the option and the
closing price of the common stock on December 31, 1997 of $6.56 per share.
DIRECTOR COMPENSATION
During the fiscal year ended December 31, 1997, the Company paid no fees or
compensation or expense reimbursement to each non-employee director. The Company
grants to its non-employee directors non-qualified stock options to purchase
shares of the Company's Common Stock at prices which are equal to the fair
market value on the date of grant. These non-qualified stock options are
exercisable at any time from the date of grant and have a ten-year life. During
the fiscal year ended December 31, 1997, the Company granted to each of its
non-employee directors, Laurence F. LeJeune and John P. Uphoff, options to
purchase 5,000 shares of Common Stock at exercise prices of $3.375 per share and
5,000 shares of Common Stock at an exercise price of $3.75, the respective
closing bid prices of the Company's Common Stock on the date of such grants. On
January 15, 1998, Mr. LeJeune and Mr. Uphoff were each granted non-qualified
options to purchase 10,000 shares of Common Stock at exercise prices of $5.375
per share, the closing bid price on January 15, 1998.
F-27
<PAGE> 284
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date of this
Form 10-KSB, the number of shares of the Company's Common Stock beneficially
owned by (i) each executive officer and director of the Company; (ii) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock; and (iii) all executive officers and directors as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON SHARES(9)
------------------------------------ ---------------------- -------------------------
<S> <C> <C>
Dermot F. Rowland.................................... 595,119(2) 16.1%
4021 Vernon Avenue South
Minneapolis, Minnesota 55416
Peter S. Bedzyk...................................... 40,042(3) 1.1%
4021 Vernon Avenue South
Minneapolis, Minnesota 55416
William J. Birmingham................................ 1,667(4) *
4021 Vernon Avenue South
Minneapolis, Minnesota 55416
Laurence F. LeJeune.................................. 161,500(5) 4.4%
8989 Wayzata Boulevard
Minneapolis, Minnesota 55426
John P. Uphoff....................................... 35,000(6) 1.0%
P.O. Box 6611
Incline Village, Nevada 89450
All executive officers and directors as a group (5
persons)........................................... 833,328(7) 21.8%
Heartland Advisors, Inc.............................. 506,000(8) 13.9%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
</TABLE>
- ---------------
* less than one percent
(1) Shares of Common Stock subject to options exercisable within 60 days after
the date of this Form 10-KSB are deemed to be outstanding for purposes of
computing the percentage of shares beneficially owned by the person holding
such options but are not deemed to be outstanding for purposes of computing
such percentage for any other person. Except as indicated by footnote, each
person or group identified has sole voting and investment powers with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Includes options to purchase up to 61,667 shares of Common Stock and 6,250
shares of Common Stock owned by Mr. Rowland's spouse.
(3) Includes options to purchase up to 36,667 shares of Common Stock.
(4) Represents options to purchase up to 1,667 shares of Common Stock. Mr.
Birmingham left the employ of the Company in April 1998.
(5) Includes options to purchase up to 50,000 shares of Common Stock.
(6) Includes options to purchase up to 30,000 shares of Common Stock.
(7) Includes options to purchase up to 180,001 shares of Common Stock.
(8) Based on information supplied on Schedule 13G, filed with the Securities and
Exchange Commission on January 8, 1998.
(9) The percentage of outstanding shares of Common Stock shown in the table
above is calculated based on 3,634,417 shares outstanding as of the date of
this Form 10-KSB and assumes that in each case the person or group exercised
his or its outstanding options which have vested or will vest within 60 days
of this Form 10-KSB.
F-28
<PAGE> 285
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Two nephews of the Company's Chairman and Chief Executive Officer, Dermot
F. Rowland, own a construction company that managed the construction of some of
the Company's restaurants. Payments to this construction company totaled
$1,056,011 in fiscal 1997. The accounts payable balance of the Company on
December 31, 1997, included an amount of $432,634 that was payable to that
construction company.
The Company rents office space for $3,660 per month in a building owned by
the Company's Chairman and Chief Executive Officer, Dermot F. Rowland.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
3.1 Articles of Incorporation of Timber Lodge Steakhouse, Inc.
(1)
3.2 Bylaws (2)
10.4 Agreement and Plan of Merger dated as of January 16, 1998
among G B Foods Corporation TLS Acquisition Corp. and Timber
Lodge Steakhouse, Inc. (5)
23.1 Consent of Independent Auditors (4)
24.1 Power of Attorney (3)
27.1 Financial Data Schedule (5)
</TABLE>
- ---------------
(1) Incorporated by reference to the specific exhibit included in the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 14, 1995.
(2) Incorporated by reference to the specific exhibit included in the Company's
Registration Statement on Form SB-2, SEC File No. 33-71176-C.
(3) Previously filed.
(4) Filed herewith electronically.
(5) Previously filed.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the
fourth quarter of fiscal 1997.
F-29
<PAGE> 286
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: July 10, 1998 Timber Lodge Steakhouse, Inc.
By /s/ DERMOT F. ROWLAND
------------------------------------
Dermot F. Rowland
Chief Executive Officer
In accordance with the requirements of the Exchange Act, this Report has
been signed below by the following persons on behalf of the Company and in the
capacities indicated on July 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ DERMOT F. ROWLAND Director, Chairman of the Board, Chief
- ----------------------------------------------------- Executive Officer and Secretary
Dermot F. Rowland
/s/ PETER S. BEDZYK Director, President and Chief Operating
- ----------------------------------------------------- Officer
Peter S. Bedzyk
* Director
- -----------------------------------------------------
Laurence F. LeJeune
* Director
- -----------------------------------------------------
John P. Uphoff
/s/ JAMES KELZER Chief Accounting Officer
- -----------------------------------------------------
James Kelzer
</TABLE>
*Signed by Dermot F. Rowland pursuant to a power of attorney on file.
F-30
<PAGE> 287
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
FOR THE QUARTERLY PERIOD ENDED MARCH 25, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
---------------.
COMMISSION FILE NUMBER: 0-22786
TIMBER LODGE STEAKHOUSE, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MINNESOTA 41-1810126
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
4021 VERNON AVENUE SOUTH
ST. LOUIS PARK, MINNESOTA 55416
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(612) 929-9353
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
As of May 1, 1998, there were outstanding 3,636,082 shares of the issuer's
Common Stock, $.01 par value per share.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-31
<PAGE> 288
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Item 1. Financial Statements................................ F-33
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations.......................... F-37
PART II
Item 6. Exhibits and Reports on Form 8-K.................... F-39
Signatures........................................... F-40
</TABLE>
F-32
<PAGE> 289
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIMBER LODGE STEAKHOUSE, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 25, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 125,279 $ 482,598
Accounts receivable.................................... 169,731 227,473
Inventory.............................................. 295,046 352,289
Pre-opening costs...................................... 394,064 450,510
Pre-paid expenses and other current assets............. 567,249 541,529
----------- -----------
Total current assets.............................. 1,551,369 2,054,399
Property and equipment, net................................. 12,652,903 12,463,740
Note receivable, related party.............................. 346,000 346,000
Deferred tax assets......................................... 132,400 132,400
Other assets................................................ 218,038 221,639
----------- -----------
Total assets...................................... $14,900,710 $15,218,178
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 1,069,577 $ 1,512,713
Short-term borrowing................................... 150,000 --
Accrued salaries and wages............................. 400,885 386,371
Sales tax payable...................................... 150,585 187,153
Gift certificates payable.............................. 504,187 871,360
Deferred tax liabilities............................... 59,000 59,000
Accrued expenses and other liabilities................. 86,263 71,847
----------- -----------
Total current liabilities......................... 2,420,497 3,088,444
Deferred rent............................................... 1,177,220 1,063,429
----------- -----------
Total liabilities................................. 3,597,717 4,151,873
Shareholders' equity:
Common stock, $0.01 par value Authorized
shares -- 10,000,000
Issued shares -- 3,634,415 at March 25, 1998 and
3,625,750 at December 31, 1997................. 36,344 36,257
Additional paid-in capital............................. 8,909,052 8,883,701
Retained earnings...................................... 2,357,597 2,146,347
----------- -----------
Total shareholders' equity.................................. 11,302,993 11,066,305
----------- -----------
Total liabilities and shareholders' equity........ $14,900,710 $15,218,178
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-33
<PAGE> 290
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
------------------------
MARCH 25, MARCH 26,
1998 1997
---------- ----------
<S> <C> <C>
Net sales................................................... $7,399,440 $5,214,308
Costs and expenses:
Food and beverage costs................................... 2,808,566 1,927,169
Labor and benefits costs.................................. 2,163,907 1,473,588
Restaurant operating expenses............................. 738,272 538,430
Occupancy costs........................................... 884,213 584,314
---------- ----------
Restaurant costs and expenses............................. 6,594,958 4,523,501
---------- ----------
Restaurant operating income................................. 804,482 690,807
General and administrative.................................. 392,180 339,536
Amortization of pre-opening costs........................... 124,777 76,625
---------- ----------
Operating income.......................................... 287,525 274,646
Interest expense............................................ 4,597 5,330
Interest and other (income) expense......................... (18,922) (19,568)
---------- ----------
Income before income taxes.................................. 301,850 288,884
Income taxes.............................................. 90,600 86,700
---------- ----------
Net income.................................................. $ 211,250 $ 202,184
========== ==========
Basic earnings per share.................................... $ 0.06 $ 0.06
========== ==========
Diluted earnings per share.................................. $ 0.06 $ 0.06
========== ==========
Basic weighted average shares............................... 3,632,641 3,584,747
========== ==========
Diluted weighted average shares............................. 3,740,334 3,658,804
========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-34
<PAGE> 291
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
------------------------
MARCH 25, MARCH 26,
1998 1997
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $211,250 $ 202,184
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 279,667 238,350
Amortization.............................................. 124,777 76,625
Deferred rent............................................. 113,791 (114,893)
Changes in operating assets and liabilities:
Receivables............................................ 57,742 5,514
Inventories............................................ 57,243 17,655
Pre-opening costs...................................... (67,431) (130,188)
Prepaid expenses and other current assets.............. (25,720) (49,211)
Accounts payable....................................... (443,136) 135,982
Accrued salaries and wages............................. 14,514 55,829
Sales tax payable...................................... (36,568) (22,290)
Gift certificates payable.............................. (367,173) (250,651)
Income taxes payable................................... -- (232,482)
Other accrued expenses................................. 14,416 (62,590)
-------- -----------
Net cash used in operating activities....................... (66,628) (130,166)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (468,830) (1,383,614)
Other assets................................................ 2,701 970
-------- -----------
Net cash used in investing activities....................... (466,129) (1,382,644)
FINANCING ACTIVITIES
Proceeds from short-term borrowings......................... 150,000 938,425
Exercise of stock options................................... 25,438 24,975
Common stock repurchased.................................... -- (7,313)
-------- -----------
Net cash provided by financing activities................... 175,438 956,087
Net decrease in cash and cash equivalents................... (357,319) (556,723)
Cash and cash equivalents at the beginning of the year...... 482,598 1,178,373
-------- -----------
Cash and cash equivalents at end of period.................. $125,279 $ 621,650
======== ===========
</TABLE>
See accompanying notes to the financial statements.
F-35
<PAGE> 292
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 25, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-KSB/A-1
for the year ended December 31, 1997.
In the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation have been
included. Operating results for the twelve weeks ended March 25, 1998, are not
necessarily indicative of the results that may be expected for the year ended
December 30, 1998.
2. EARNINGS PER SHARE
Earnings per share have been calculated based on the guidelines established
by the Financial Accounting Stands Board (FASB) Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic earnings per share were
calculated by dividing income available to common stockholders by the weighted
average common shares outstanding. Diluted earnings per share were calculated
using the dilutive effect of stock options and warrants using the treasury stock
method. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to Statement 128 requirements.
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
------------------------
MARCH 25, MARCH 26,
1998 1997
---------- ----------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Numerator
Net income................................................ $ 211,250 $ 202,184
========== ==========
Denominator
Basic weighted average number of common shares outstanding
for the period......................................... 3,632,641 3,584,747
========== ==========
Basic earnings per share.................................... $ 0.06 $ 0.06
========== ==========
DILUTED EARNINGS PER SHARE:
Numerator
Net income................................................ $ 211,250 $ 202,184
========== ==========
Denominator
Basic weighted average number of common shares outstanding
for the period......................................... 3,632,641 3,584,747
Incremental common shares attributable to exercise of:
outstanding options............................... 107,693 74,057
outstanding warrants.............................. -- --
---------- ----------
Diluted weighted average number of common shares
outstanding for the period............................. 3,740,334 3,658,804
========== ==========
Diluted earnings per share.................................. $ 0.06 $ 0.06
========== ==========
</TABLE>
3. RECLASSIFICATION
Certain prior year items have been reclassified to conform with the current
year presentation.
F-36
<PAGE> 293
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain items included in the Company's statements of operations.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
----------------------
MARCH 25, MARCH 26,
1998 1997
--------- ---------
<S> <C> <C>
Net sales.............................................. 100.0% 100.0%
Costs and expenses:
Food and beverage costs.............................. 38.0 37.0
Labor and benefits costs............................. 29.2 28.3
Restaurant operating expenses........................ 10.0 10.3
Occupancy costs...................................... 11.9 11.1
----- -----
Restaurant costs and expenses..................... 89.1 86.7
----- -----
Restaurant operating income............................ 10.9 13.3
General and administrative............................. 5.3 6.5
Amortization of pre-opening costs...................... 1.7 1.5
----- -----
Operating income..................................... 3.9 5.3
Interest expense....................................... 0.1 0.1
Interest and other (income)/expense.................... (0.3) (0.4)
----- -----
Income before income taxes............................. 4.1 5.6
Income taxes......................................... 1.2 1.7
----- -----
Net income............................................. 2.9% 3.9%
===== =====
Number of restaurants open at end of period............ 17 12
</TABLE>
TWELVE WEEKS ENDED MARCH 25, 1998, COMPARED TO TWELVE WEEKS ENDED MARCH 26,
1997.
Net Sales. The Company's net sales increased 41.9% to $7,399,440 compared
to $5,214,308 for the first quarter last year. The increase is attributable to
the five new restaurants opened since the beginning of the first quarter of
fiscal 1997. Same store sales for stores open at least 18 months were up 1.3%.
The Company continues to use television as its primary media vehicle in its core
market of Minneapolis/St. Paul and has expanded television advertising to Sioux
Fall, SD and Duluth, MN. The Company uses radio advertising in the Wisconsin
market and print advertising in the Illinois and New York markets. The Company's
management feels confident, that despite increased direct competition in its
markets, same store sales will continue to be positive.
Costs and Expenses. Cost of restaurant sales, consisting of food and
beverage costs, increased 1.0% to 38.0% compared to 37.0% for the same period
last year. This increase is due in part to the Company experiencing higher costs
of meat, produce, and dairy in the early part of the current year quarter.
Labor and related benefit costs increased 0.9% to 29.2% compared to 28.3%
for the same period last year. The increase is attributable to the higher
minimum wage paid to Minnesota servers. Minnesota is one of a few states that
does not permit "tip credit" (the practice of employers paying tipped employees
below the federal minimum wage, with tips from customers making up the balance
of the minimum wage). These increases were offset somewhat by the Company
implementing a partially self-insured health and dental insurance program for
all eligible and participating employees.
Restaurant operating expenses and occupancy costs include all other
unit-level costs, the major components of which are rents, real estate taxes,
utilities, store supplies, repairs and maintenance and other related occupancy
costs. Restaurant operating costs are semi-variable while most of the occupancy
expenses are fixed. In the aggregate for the first quarter, restaurant operating
expenses and occupancy costs increased 0.5% to 21.9% of net sales compared to
21.4% for the same period last year. The increase is attributable to
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occupancy costs, mainly equipment leases, being higher for new stores added in
the past year compared to the mature existing stores operating during the same
period.
General and Administrative Expenses. General and administrative expenses
decreased 1.2% to 5.3% of net sales compared to 6.5% for the same period last
year. This decrease is due to the first time cost of television in the
Minneapolis/St. Paul market in the first quarter of 1997. Also, the Company has
experienced increased efficiencies while adding new stores without adding
corporate personnel and overhead.
Amortization of Pre-Opening Costs. Amortization of pre-opening costs
increased to 1.7% of net sales compared to 1.5% for the same period last year.
The increase is attributable to the pre-opening costs for the latest five new
stores (three were outstate locations) being higher than the three new
restaurants being amortized for the same period last year. The Company amortizes
pre-opening costs for new restaurants over a twelve month period commencing with
the first full period after the restaurant's opening.
Interest and Other Income. Interest was paid on short term borrowings via a
line of credit the Company has with a local bank. The increase in short term
borrowings was used to meet the Company's needs in funding new restaurant
construction and to pay income taxes. Income was earned on marketable securities
and a promissory note related to the 1995 Q. Cumbers sale. Interest income
combined with other miscellaneous income was $18,922 for the first quarter
compared to $19,568 for the same period last year. The decrease is due to a
reduction of marketable securities used to finance new restaurant construction.
Provision for Income Taxes. The Company's effective tax rate is estimated
at 30% for the first quarter, which is the same as first quarter 1997. The
company's tax rate is impacted by tax credits for FICA taxes paid on tips
received by restaurant employees.
Net Income. The Company's net income was $211,250 in the first fiscal
quarter of 1998 compared to $202,184 for the same period last year. Basic and
diluted earnings per share were $.06 in the first quarter 1998 compared to $.06,
respectively, for the same quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has leased its restaurant sites under
non-cancelable leases for periods of six to twenty years, with renewal options
of between three and ten years. The Company plans to continue leasing sites for
expansion in the foreseeable future.
Cash used in operating activities was $66,628 compared to cash used of
$130,166 for the same period last year. The Company had a net working capital
deficit of ($869,128) at March 25, 1998, compared to a deficit of ($1,034,045)
at December 31, 1997. The increase in working capital is a result of the Company
paying down its accounts payable and customers redeeming gift certificates. The
Company has a $500,000 bank line of credit that it has used to fund short-term
cash needs. At the end of first quarter 1998 this line had an outstanding
balance of $150,000. This balance is planned to be paid down in subsequent
quarters. Most of the Company's sales are paid by cash or credit card and the
Company generally receives 30 days credit from trade suppliers.
Sale leaseback financing with AEI Fund Management, Inc. of St. Paul,
Minnesota provided $1,575,000 for the November 1997 purchase of the St. Cloud,
Minnesota restaurant. The financing agreement between the Company and AEI Fund
Management, Inc. executed on September 23, 1997, provided for the funding of up
to four restaurants/parcels. The Rochester, Minnesota site that is under
construction is being financed pursuant to that agreement between the Company
and AEI. This financing facility could fund two more restaurants beyond the St.
Cloud and Rochester sites.
The Company currently intends to focus its expansion on steakhouse
restaurants and estimates that the average costs of developing a new steakhouse
restaurant to be approximately $1,200,000. The actual cost will vary depending
on the size of the restaurant, the amount of landlord contributions, if any, and
whether extensive renovation or remodeling is required. Pre-opening costs,
primarily labor, advertising, travel and other costs related to the four new
steakhouses opened in 1997 were approximately $130,000 per restaurant.
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Expenses for new restaurants opening in the future are expected to be lower as
training and general start-up efficiencies are achieved from the Company opening
additional restaurants in markets away from Minnesota.
The Company believes that cash generated from operations and funds
available under its line of credit will be sufficient to finance current and
forecasted operations and obligations.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) No reports on Form 8-K have been filed during the quarter for which
this report was filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIMBER LODGE STEAKHOUSE, INC.
Date: May 8, 1998 By: /s/ DERMOT F. ROWLAND
------------------------------------
Dermot F. Rowland
Its: Chief Executive Officer
Date: May 8, 1998 By: /s/ PETER S. BEDZYK
------------------------------------
Peter S. Bedzyk
Its: President
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<PAGE> 297
ANNEX G
CONFORMED COPIES OF:
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
FEBRUARY 19, 1998
AMONG
GB FOODS CORPORATION
AND
CKE RESTAURANTS, INC.
(THE SOLE STOCKHOLDER OF JB'S RESTAURANTS, INC.)
AND
JB'S RESTAURANTS, INC.
------------------------
ASSIGNMENT OF
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
MARCH 26, 1998
------------------------
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
MARCH 27, 1998
------------------------
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
JUNE 3, 1998
------------------------
THIRD AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
JULY 8, 1998
<PAGE> 298
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS
1.1 Defined Terms......................................... G-1
ARTICLE II
EXCHANGE OF SHARES
2.1 Exchange of Shares.................................... G-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of CKE................. G-4
(a) Organization, Standing and Corporate Power... G-4
(b) Capital Structure............................ G-4
(c) Authority; Noncontravention.................. G-4
(d) Financial Statements; No Undisclosed
Liabilities....................................... G-5
(e) Nature of Business and Assets................ G-5
(f) Inventory.................................... G-5
(g) Licenses, Approvals, etc..................... G-5
(h) Real Properties.............................. G-6
(i) Tangible Personal Property.................. G-6
(j) Intellectual Property....................... G-6
(k) Environmental Compliance..................... G-6
(l) Absence of Certain Changes or Events........ G-7
(m) Litigation.................................... G-8
(n) Compliance with Laws......................... G-8
(o) Absence of Changes in Stock or Benefit
Plans............................................. G-8
(p) ERISA Compliance............................. G-8
(q) Taxes........................................ G-9
(r) Contracts; Debt Instruments.................. G-10
(s) Insurance.................................... G-11
(t) Interests of Officers and Directors.......... G-11
(u) Approval by Board............................ G-11
(v) Brokers...................................... G-11
(w) Fairness Opinion............................. G-11
(x) Disclosure................................... G-11
3.2 Representations and Warranties of GB.................. G-12
(a) Organization, Standing and Corporate Power... G-12
(b) Capital Structure............................ G-12
(c) Authority; Noncontravention.................. G-12
(d) SEC Documents; Financial Statements; No
Undisclosed Liabilities........................... G-12
(e) Nature of Business........................... G-13
(f) Litigation................................... G-13
(g) Absence of Changes........................... G-13
(h) Exchange Act Reports......................... G-13
(i) Brokers..................................... G-13
(j) Disclosure.................................. G-13
3.3 Delivery of Disclosure Schedules...................... G-13
</TABLE>
(i)
<PAGE> 299
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IV
COVENANTS OF CKE
4.1 Conduct of Business................................... G-14
4.2 Access to Information................................. G-15
4.3 No Solicitation....................................... G-15
ARTICLE V
COVENANTS OF GB
5.1 Conduct of Business................................... G-16
5.2 Confidentiality....................................... G-16
5.3 Employee Benefit Plans................................ G-16
5.4 Indemnification and Insurance......................... G-16
5.5 Access to Information................................. G-16
5.6 Board of Directors Approval........................... G-17
ARTICLE VI
COVENANTS GENERALLY
6.1 Reasonable Efforts; Notification...................... G-17
6.2 CKE Investment Representation......................... G-17
6.3 Press Releases........................................ G-18
6.4 Securities Reports.................................... G-18
ARTICLE VII
CONDITIONS TO THE EXCHANGE
7.1 Conditions to the Obligations of GB................... G-18
7.2 Conditions to the Obligations of CKE.................. G-19
ARTICLE VIII
INDEMNITIES
8.1 Survival of Representations and Agreements............ G-19
8.2 Indemnification....................................... G-19
8.3 Limitations and Conditions Respecting Indemnity....... G-20
ARTICLE IX
TERMINATION
9.1 Termination........................................... G-21
9.2 Effect of Termination................................. G-22
ARTICLE X
MISCELLANEOUS
10.1 Notices............................................... G-22
10.2 Amendments; No Waivers................................ G-22
10.3 Fees and Expenses..................................... G-23
10.4 Successors and Assigns; Parties in Interest........... G-23
10.5 Severability.......................................... G-23
10.6 Governing Law......................................... G-23
10.7 Entire Agreement...................................... G-23
10.8 Counterparts: Effectiveness; Interpretation........... G-23
10.9 Anti-Dilution Provision............................... G-23
</TABLE>
(ii)
<PAGE> 300
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), is entered
into as of February 19, 1998, among GB FOODS CORPORATION, a Delaware corporation
("GB"), CKE RESTAURANTS, INC., a Delaware corporation ("CKE") and JB'S
RESTAURANTS, INC., a Delaware corporation and a wholly-owned subsidiary of CKE
("JB").
WHEREAS, CKE owns all of presently issued and outstanding stock of every
kind, class and series of JB (the "JB Stock"), and desires to exchange the JB
Stock for shares of GB common stock (the "GB Stock") on the terms and subject to
the conditions herein set forth (the "Exchange"); and
WHEREAS, the respective Boards of Directors of CKE (as sole stockholder of
JB) and GB have approved and adopted, or are expected to approve and adopt, this
Plan and Agreement of Reorganization as contemplated by Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Exchange and also to prescribe
various conditions to the consummation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. In addition to terms which are defined as they are
introduced in the text, the words and terms defined in this Article shall have
the meanings specified below unless the context or use clearly indicates another
or different meaning or intent:
"Action" means any complaint, claim, prosecution, indictment, action, suit,
arbitration, investigation or proceeding by or before any Governmental Entity.
"Benefit Plans" means, collectively, all "employee pension benefit plans"
(defined in Section 3(2) of ERISA), "employee welfare benefit plans" (defined in
Section 3(1) of ERISA) and all other employee benefit plans.
"Blue Sky Law" means any state securities law.
"Business" means JB's ownership and operation of the Restaurants under the
names "JB's" and variants thereof and "Galaxy Diner".
"Claim" means any claim, action, suit, proceeding or investigation.
"Closing" means the consummation of the exchange transaction contemplated
hereby.
"Closing Date" means March 1, 1998 or such other date as the parties may
establish by mutual written agreement on which the transaction hereunder will be
consummated.
"Consent" means any approval, franchise, order, license, permit, waiver or
authorization of, or registration, declaration or filing with or exemption,
notice, application, or certification by or to any Governmental Entity.
"Controlled Group Liability" means any and all liabilities under (i) Title
IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code,
(iv) the continuation coverage requirements of Section 601 et seq. of ERISA and
Section 4980B of the Code, and (v) corresponding or similar provisions of
foreign laws or regulations, other than such liabilities that arise solely out
of, or relate solely to, the Benefit Plans.
G-1
<PAGE> 301
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same "controlled
group" as the first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. sec. 9601 et seq., the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. sec. 6901 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq., the
Clean Air Act, 42 U.S.C. sec. 7401 et seq., the Toxic Substances Control Act, 15
U.S.C. sec. 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. sec. 300f et
seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C.
sec. 11001 et seq., the Occupational Safety and Health Act, 29 U.S.C. sec. 651
et seq., the Oil Pollution Act, 33 U.S.C. sec. 2701 et seq., in each case as
amended from time to time, and all regulations promulgated thereunder, and any
other statute, law, regulation, ordinance, bylaw, rule, judgment, order, decree
or directive of any Governmental Entity dealing with pollution or the protection
of natural resources or the indoor or ambient environment or with the protection
of human health or safety.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"GAAP" means United States generally accepted accounting principles.
"GB Material Adverse Effect" means to (i) have a material adverse effect on
the value, condition (financial or otherwise), prospects, business, or results
of operations of GB and its subsidiaries as a whole, (ii) impair the ability of
GB to perform its obligations under this Agreement or (iii) prevent or
materially delay consummation of any of the transactions contemplated by this
Agreement.
"GB SEC Documents" means all reports, schedules, forms, statements,
exhibits and other documents filed with the SEC by GB under or pursuant to the
Exchange Act since January 1, 1996.
"Governmental Entity" means any government or any arbitration panel or any
court, tribunal, administrative or regulatory agency or commission or other
governmental authority, department, bureau, commission or agency, domestic or
foreign.
"Hazardous Substance" means any pollutant, contaminant, hazardous or toxic
substance or waste, solid waste, petroleum or any fraction thereof, or any other
chemical substance or material listed or identified in or regulated by or under
any Environmental Law.
"Indebtedness" means, with respect to any person or entity, without
duplication, (i) all obligations of such person for borrowed money, or with
respect to deposits or advances of any kind to such person, (ii) all obligations
of such person evidenced by bonds, debentures, notes or similar instruments,
(iii) all obligations of such person upon which interest charges are customarily
paid, (iv) all obligations of such person under conditional sale or other title
retention agreements relating to property purchased by such person, (v) all
obligations of such person issued or assumed as the deferred purchase price of
property or services (excluding obligations of such person to creditors for raw
materials, inventory, services and supplies incurred in the ordinary course of
such person's business), (vi) all capitalized lease obligations of such person,
(vii) all indebtedness of others secured by any Lien on property or assets owned
or acquired by such person, whether or not the obligations secured thereby have
been assumed, (viii) all obligations of such person under interest rate or
currency swap transactions (valued at the termination of value thereof), (ix)
all letters of credit issued for the account of such person, (x) all obligations
of such person to purchase securities (or other property) which arises out of or
in connection with the sale of the same or substantially similar securities or
property, and (xi) all guarantees and arrangements having the economic effect of
a guarantee of such person of any indebtedness of any other person.
"Inventory" means all food, beverages, materials and supplies.
G-2
<PAGE> 302
"JB Financial Statements" means the audited financial statements for the
three (3) years ended December 31, 1997.
"JB Material Adverse Effect" means to (i) have a material adverse effect on
the value, condition (financial or otherwise), prospects, business, insurability
or result of operations of JB or any of the Restaurants, (ii) impair the ability
of JB to perform its obligations under this Agreement or (iii) prevent or
materially delay consummation of the transaction contemplated by this Agreement.
"JB Interests" means JB and each of its predecessors, taken collectively.
"Joint Venture" means a partnership or similar business or entity.
"Leases" means all leases and subleases which relate to the Real Estate,
together with all amendments or supplements thereto.
"Licenses" means registrations, filings, applications, certifications,
notices, consents, licenses, permits, approvals, certificates, franchises,
orders, qualifications, authorizations and waivers of any Governmental Entity.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or preference, priority or
other security agreement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same effect as any of the foregoing.
"Qualified Plan" means each Benefit Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code.
"RCRA Hazardous Waste" means a solid waste that is listed or classified as
a hazardous waste, as that term is defined in or pursuant to the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. sec. 6901 et seq.
"Real Estate" means all real property of every kind, including land and
buildings, used in the operation of the Business.
"Registered Marks" means the presently effective federal and state
registrations of JB's trade marks, trade names and service marks listed in
Section 3.1(j) of the Disclosure Schedule).
"Restaurants" means the 48 JB's Restaurants and 4 Galaxy Diner Restaurants
which will constitute the Business following the disposition of the restaurants
to be transferred in the transaction described in Section 3.1(l) of the JB
Disclosure Schedule.
"Restaurant Assets" means the assets used in the operation of the Business.
"Returns" means all returns, declarations, reports, statements, and other
documents required to be filed with respect to federal, state, local and foreign
Taxes or for information purposes.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means The Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Subsidiary" of any person means another person in which such first person,
directly or indirectly, owns 50% or more of the equity interests or has the
right, through ownership of equity, contractually or otherwise, to elect at
least a majority of its Board of Directors or other governing body.
"Taxes" means all federal, state, local and foreign net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties, and any and all other taxes, together with any interest and any
penalties, additions to tax, or additional amounts with respect thereto, and the
term "Tax" means any one of the foregoing Taxes.
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ARTICLE II
EXCHANGE OF SHARES
2.1 Exchange of Shares. On the Closing Date, and upon the terms,
conditions, representations and warranties herein set forth, CKE will transfer
all of the issued and outstanding JB Stock to GB in exchange for 1,000,000
shares of GB Stock. Prior to the Closing, CKE will deliver to GB a closing
balance sheet evidencing that the existing shareholders' equity of JB, as of the
Closing date, is not less than $5,000,000. If such shareholders' equity is less
than $5,000,000, then the parties will mutually agree upon an adjustment to the
number of shares of GB Stock to be issued in the transaction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of CKE. CKE represents and warrants to
GB, as of the date hereof and as of the Closing Date, subject to the exceptions
and qualifications set forth in the disclosure schedule delivered by CKE to GB
pursuant to Section 3.3 of this Agreement (the "JB Disclosure Schedule"), as
follows (whenever the representations or warranties of CKE are qualified by the
knowledge of CKE, knowledge shall mean actual knowledge after reasonable
investigation of the fact or matter in question by the management employees of
CKE identified in Section 3.1 of the JB Disclosure Schedule):
(a) Organization, Standing and Corporate Power. JB is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and has the requisite corporate power and authority to carry on
its business as now being conducted. JB is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) could not reasonably be expected to have a JB Material Adverse
Effect. CKE has delivered to GB complete and correct copies of JB's
Articles of Incorporation and bylaws. JB is not a party to any Joint
Venture. JB does not have any Subsidiary.
(b) Capital Structure. The authorized capital stock of JB consists of
1,000 Shares. As of December 31, 1997, all 1,000 Shares were issued and
outstanding and owned by CKE. Except as set forth above, no shares of
capital stock or other equity or voting securities of JB are authorized,
issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of JB are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness or securities of JB having the
right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of JB may vote.
Except as set forth above in this Section 3.1(b) and in Section 3.1(b) of
the JB Disclosure Schedule, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which JB is a party or by which it is bound obligating JB to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of JB or
obligating JB to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding rights, commitments, agreements,
arrangements or undertakings of any kind obligating JB to repurchase,
redeem or otherwise acquire or dispose of any shares of capital stock or
other equity or voting securities of JB or any securities of any type
convertible into or exchangeable for, under any circumstances or upon any
contingency, any such equity or voting securities.
(c) Authority; Noncontravention. CKE has the requisite corporate power
and authority to enter into this Agreement and consummate the transaction
contemplated hereby, and no approval of the holders of any class or series
of the capital stock of CKE is necessary to approve this Agreement and the
transaction contemplated hereby. The execution and delivery of this
Agreement by CKE and the consummation by CKE of the transaction
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of CKE. This Agreement has been duly executed
and delivered
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by CKE and constitutes a valid and binding obligation of CKE, enforceable
against CKE in accordance with its terms. The execution and delivery of
this Agreement does not, and the consummation of the transaction
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation, modification or acceleration
of any right or obligation or to a loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of
JB under, (i) except as disclosed to GB management prior to its execution
hereof the Articles of Incorporation or bylaws of JB, (ii) except as
disclosed to GB management prior to its execution hereof any loan or credit
agreement, note, bond, mortgage, indenture, Lien, lease or any other
contract, agreement, instrument, permit, commitment, concession, franchise
or license applicable to JB, its properties or assets, or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to JB or its properties or assets, other than any
such conflicts, violations, or defaults that, individually or in the
aggregate, would not have a JB Material Adverse Effect. No Consent of any
Governmental Entity is required by or with respect to CKE or JB in
connection with the execution and delivery of this Agreement by CKE or the
consummation by CKE of the transaction contemplated by this Agreement
except for (i) the required Consents listed in Section 3.1(c)(i) and
3.1(c)(ii) of the JB Disclosure Schedule, (ii) compliance with any
applicable requirements of the Securities Act, the Exchange Act and any
applicable Blue Sky Law, and (iv) such other Consents as to which the
failure to obtain or make, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect.
(d) Financial Statements; No Undisclosed Liabilities. CKE has
delivered the JB Financial Statements to GB prior to the execution of this
Agreement, and such JB Financial Statements comply in all material respects
with applicable accounting requirements, have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved
(except as specified in such JB Financial Statements or the footnotes
thereto) and fairly present the financial position of JB as of the dates
thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the JB Financial
Statements, JB has no liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise), except for liabilities and
obligations which, individually or in the aggregate, could not reasonably
be expected to have a JB Material Adverse Effect.
(e) Nature of Business and Assets. JB is engaged only in the Business
under the name "JB's Restaurants, "JB's Restaurants and Bakery," "JB's
Family Restaurants" and "Galaxy Diner." The Restaurant Assets constitute
all of the assets necessary to conduct the operations of the Restaurants in
the ordinary course of business. All of the assets owned and leased by JB
that are used or held for use in the operation of the Restaurants are
included in the Restaurant Assets and, subject only to those matters
described in the JB Financial Statements or the footnotes thereto, on the
Closing Date good and marketable title to the Restaurant Assets will be
vested in JB, free and clear of all claims, indebtedness, liabilities,
Liens and rights of any third party. All of the Restaurant Assets,
including all equipment, machinery and other items of tangible property,
have continuously been maintained by JB in the ordinary course of business.
On the Closing Date, the Restaurant Assets will be in good working
condition and repair (ordinary wear and tear excepted) and suitable for use
in connection with the operation of the Restaurants. The Restaurant Assets
do not require any material repair, other than in the normal course of
business.
(f) Inventory. JB's Inventory for each Restaurant, as of the Closing
date, will (i) be sufficient for the operation of such Restaurant
consistent with the ordinary course of business; (ii) consist of items
which are good and merchantable within commercially reasonable standards in
the restaurant industry; and (iii) be of a quality and quantity presently
usable or saleable in the ordinary course of business.
(g) Licenses, Approvals. etc. JB possesses or has been granted all
Licenses necessary to enable it to conduct its business in the manner in
which it is presently being conducted, and except as disclosed to GB
management prior to its execution hereof, all of the Licenses are in full
force and effect, no action of any
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<PAGE> 305
kind is pending or, to the knowledge of CKE, threatened seeking the
revocation or limitation of any of the Licenses.
(h) Real Properties. Section 3.1(h) of the JB Disclosure Schedule
lists all Real Estate owned or leased by JB, giving each property's address
and stating, in the case of leased property, whether the property is leased
as lessee or sublessee and the name of the lessor or sublessor. CKE has
delivered or caused to be delivered to GB complete and accurate copies of
the Leases. JB has not received written notice of condemnation or eminent
domain proceedings and is not aware of any such proceedings pending or
threatened against any Real Estate. Except as disclosed to GB management
prior to its execution hereof, JB has not received any notice from any
city, village or other Governmental Entity of any zoning, ordinance,
building, fire or health code or other legal violation in respect of any
Real Estate. The Leases are in full force and effect and are valid, binding
and enforceable in accordance with their respective terms; no amount
payable under any Lease is past due; JB is in compliance in all material
respects with all commitments and obligations on its part to be performed
or observed under each Lease and is not aware of the failure by any other
party to any Lease to comply in all material respects with all of its
commitments and obligations; JB has not received any written notice (A) of
a default (which has not been cured), offset or counterclaim under any
Lease, or, any other communication calling upon it to comply with any
provision of any Lease or asserting noncompliance, or asserting that JB has
waived or altered its rights thereunder, and no event or condition has
happened or presently exists which constitutes a default or, after notice
or lapse of time or both, would constitute a default under any Lease on the
part of JB or any other party, or (B) of any Action against any party under
any Lease which if adversely determined would result in such Lease being
terminated or cut off or which would otherwise adversely affect or limit
JB's use or enjoyment of the Real Estate; and (v) JB has not assigned,
mortgaged, pledged or otherwise encumbered its interest, if any, under any
Lease.
(i) Tangible Personal Property. Except as disclosed in the JB
Financial Statements or the footnotes thereto, JB (i) has good and valid
title to all the tangible personal property material to the Business and
reflected in the latest of the JB Financial Statements as being owned by JB
or acquired after the date thereof (except properties consumed, sold or
otherwise disposed of in the ordinary course of business since the date
thereof), free and clear of all Liens except (A) statutory Liens securing
payments not yet due and (B) such imperfections or irregularities of title
or Liens as do not materially affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair JB's
Business operations, and (ii) is the lessee of all tangible personal
property material to the Business and reflected as leased in the latest of
the JB Financial Statements (or on the books and records of JB as of the
date thereof or acquired after the date thereof, except for leases that
have expired by their terms or that have been transferred in the ordinary
course of business) and is in possession of the properties purported to be
leased thereunder, and each such lease is valid and in full force and
effect without default thereunder by the lessee or, to JB's knowledge, the
lessor. JB enjoys peaceful and undisturbed possession under all such
leases. Such owned and leased tangible personal property is in good working
order, reasonable wear and tear excepted.
(j) Intellectual Property. JB's Registered Marks are adequate for use
in, and the protection of, the Business. No person other than JB has any
right to use any Registered Mark in any fashion except as disclosed to GB
management prior to its execution hereof, no person has claimed or is
claiming that any Registered Mark infringes any property or right of such
person, and no person is engaged in any infringing use of a Registered Mark
or uses any name or mark confusingly similar to any Registered Mark, except
as set forth in Section 3.1(j) of the JB Disclosure Schedule. JB does not
own any patents (including design patents).
(k) Environmental Compliance.
(i) Except as disclosed to GB management prior to its execution
hereof: (A) there are no claims pending against any of the JB Interests
relating to or arising out of a Hazardous Substance nor are any such
claims, to knowledge of CKE or JB, threatened against any of the JB
Interests, nor has JB received any notice, alleging or warning that any
Real Estate or any real property previously
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operated by any of the JB Interests is, has been or may be in violation
of or in noncompliance with any Environmental Law; (B) to knowledge of
CKE or JB, no Hazardous Substance is now present in amounts,
concentrations or conditions requiring removal, remediation or any other
response, action or corrective action under, or forming the basis of a
claim pursuant to, any Environmental Law, in, on, from or under the Real
Estate or any real property previously owned or operated by any of the
JB Interests; (C) the Real Estate is not being and has not been during
the period of time they have been leased by any of the JB Interests used
in connection with the business of manufacturing, storing or
transporting Hazardous Substances, and no RCRA Hazardous Wastes are
being or have been during the period of time operated by any of the JB
Interests treated, stored or disposed of there in violation of any
Environmental Law; and (D) there neither are now nor have there been
during the period of time they have been operated by any of the JB
Interests any underground storage tanks, lagoons or other containment
facilities of any kind which contain or contained any Hazardous
Substances on the Real Estate.
(ii) JB has made available to CKE true and correct copies of any
and all material written communications received by JB within the past
one (1) year from any Governmental Entity relating in whole or in part
to the existence of Hazardous Substances at any Real Estate or any real
property previously owned or operated by any of the JB Interests or the
compliance of the owners, operators or lessees thereof with respect to
any Environmental Law.
(l) Absence of Certain Changes or Events. Except as contemplated by
this Agreement or disclosed in Section 3.1(l) of the JB Disclosure
Schedule, since January 1, 1997, JB has conducted the Business only in the
ordinary course consistent with past practice, and there has not been (i)
any event, occurrence or development which, individually or in the
aggregate, has had or could reasonably be expected to have a JB Material
Adverse Effect, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of JB's capital stock or any repurchase, redemption or other
acquisition by JB of any outstanding shares of capital stock or other
securities of JB, (iii) any adjustment, split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (iv) (A) any
granting by JB to any current or former director, officer or employee of JB
of any material increase in compensation or benefits, except for grants to
employees who are not officers or directors in the ordinary course of
business consistent with past practice, (B) any granting by JB to any such
director, officer or employee of any increase in severance or termination
pay (including the acceleration in the vesting of Shares (or other
property) or the provision of any tax grossup), or (C) any entry by JB into
any employment, deferred compensation, severance or termination agreement
or arrangement with or for the benefit of any such current or former
director, officer or employee, (v) any damage, destruction or loss, whether
or not covered by insurance, that has had or could have a material adverse
effect on any of the Restaurants or a JB Material Adverse Effect, (vi) any
change in accounting methods, principles or practices by JB, (vii) any
amendment, waiver or modification of any material term of any outstanding
security of JB, (viii) any incurrence, assumption or guarantee by JB of any
material Indebtedness for borrowed money or other material obligations,
other than in the ordinary course of business consistent with past
practice, (ix) any creation or assumption by JB of any Lien on any asset,
other than financing transactions in the ordinary course of business
consistent with past practice, (x) any making of any lease, loan, advance
or capital contributions to or investment in any person or entity other
than in the ordinary course of business consistent with past practice, but
in no event in the amount of more than $10,000 for any one transaction or
$50,000 in the aggregate, (xi) any transaction or commitment made, or any
contract or agreement entered into, by JB relating to its assets or
business of more than $10,000 for any one transaction or $50,000 for any
series of transactions, (xii) any acquisition or disposition of any assets
involving more than $10,000 per transaction or $50,000 in the aggregate or
any merger or consolidation with any person, (xiii) any relinquishment by
JB of any contract or other right, in either case, material to JB, other
than transactions and commitments in the ordinary course of business
consistent with past practice, or (xiv) any agreement, commitment,
arrangement or undertaking by JB to perform any action described in clauses
(i) through (xiii).
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(m) Litigation. Except as disclosed to GB management prior to its
execution hereof, there are no actions or proceedings pending or, to the
knowledge of CKE or JB, threatened against JB or any of its assets or
Restaurants.
(n) Compliance with Laws. The conduct by JB of the Business is and has
been in compliance with (i) all statutes and laws, (ii) all regulations,
ordinances, and rules, and (iii) all judgments, orders or decrees to which
JB is subject or is a party, except for violations or failures so to
comply, if any, that, individually or in the aggregate, could not
reasonably be expected to have a JB Material Adverse Effect or to give rise
to material fines or other material civil penalties or any criminal
liabilities. Except as disclosed to GB management prior to its execution
hereof, JB has not received any notice or other communications relating to
any alleged violation of any statute, law, regulation, ordinance, rule,
judgment, order or decree from any Governmental Entity, or of any
investigation with respect thereto, applicable to JB.
(o) Absence of Changes in Stock or Benefit Plans. Except as disclosed
in Section 3.1(o) of the JB Disclosure Schedule, since January 1, 1997,
there has not been (i) any adoption or material amendment by JB of any
collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, stock appreciation right,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical, worker's compensation, disability, supplementary
unemployment benefits, or other plan, arrangement or understanding (whether
or not legally binding) or any employment agreement providing compensation
or benefits to any current or former employee, officer, director or
independent contractor of the Company or any beneficiary thereof or entered
into, maintained or contributed to, as the case may be, by JB
(collectively, "Benefit Plans"), or (ii) any adoption of, or amendment to,
or change in employee participation or coverage under, any Benefit Plans
which would increase materially the expense of maintaining such Benefit
Plans above the level of the expense incurred in respect thereof for the
fiscal year ended on December 31, 1997.
(p) ERISA Compliance.
(i) CKE has heretofore caused the JB personnel manager to convey to
the GB personnel department copies of each Benefit Plan, including each
Qualified Plan, maintained by JB or to which JB contributes. With
respect to each Benefit Plan, JB has delivered or made available to GB a
true, correct and complete copy of: (A) each writing constituting a part
of such Benefit Plan, including without limitation all plan documents,
benefit schedules, trust agreements, and insurance contracts and other
funding vehicles; (B) the most recent Annual Report (Form 5500 Series)
and accompanying schedule, if any; (C) the current summary plan
description, if any; (D) the most recent annual financial report, if
any; and (E) the most recent determination letter from the Internal
Revenue Service, if any.
(ii) JB has received a favorable determination letter from the
Internal Revenue Service with respect to each Qualified Plan, each such
letter is presently in full force and effect and has not been revoked,
and there are no existing circumstances nor any events that have
occurred that could adversely affect the qualified status of any
Qualified Plan or the related trust.
(iii) JB has complied, and is now in compliance, in all material
respects with all provisions of ERISA, the Code, and all laws and
regulations applicable to the Benefit Plans of which the failure to
comply would have a JB Material Adverse Effect. No prohibited
transaction has occurred with respect to any Benefit Plan. All
contributions required to be made to any Benefit Plan by applicable law
or regulation or by any plan document or other contractual undertaking,
and all premiums due or payable with respect to insurance policies
funding any Benefit Plan, for any period through the date hereof have
been timely made or paid in full or, to the extent not required to be
made or paid on or before the date hereof, have been fully reflected in
the JB Financial Statements.
(iv) No Benefit Plan is subject to Title IV or Section 302 of ERISA
or Section 412 or 4971 of the Code. Neither JB nor any of its ERISA
Affiliates (as defined below) has at any time since January 1, 1993,
contributed to or been obligated to contribute to any "multiemployer
plan" within
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the meaning of Section 4001(a)(3) of ERISA or any plan with two or more
contributing sponsors at least two of whom are not under common control,
within the meaning of Section 4063 of ERISA. There does not now exist,
nor do any circumstances exist that could result in, any Controlled
Group Liability that would be a liability of JB following the Closing.
(v) Except as set forth in the JB Financial Statements or the
footnotes thereto, JB does not have any liability for life, health,
medical or other welfare benefits to former employees or beneficiaries
or dependents thereof, except for health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of ERISA and
at no expense to JB.
(vi) Neither the execution and delivery of this Agreement nor the
consummation of the transaction contemplated hereby will (either alone
or in conjunction with any other event) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment
or benefit to any employee of JB. Without limiting the generality of the
foregoing, no amount paid or payable by JB in connection with the
transaction contemplated hereby (either solely as a result thereof or as
a result of such transactions in conjunction with any other event) will
be an "excess parachute payment" within the meaning of Section 280G of
the Code.
(vii) No labor organization or group of employees of JB has made a
pending demand for recognition or certification, and there are no
representation or arbitration proceedings or petitions seeking a
representation proceeding presently pending or threatened to be brought
or filed, with the National Labor Relations Board or any other labor
relations tribunal or authority. There are no organizing activities,
strikes, work stoppages, slowdowns, lockouts, material arbitrations or
material grievances, or other material labor disputes pending or, to the
knowledge of CKE or JB, threatened against or involving JB.
(viii) There are no pending or threatened claims, and the
fiduciaries of the Benefit Plans have not advised JB that, with respect
to their duties to the Benefit Plans or the assets or any of the trusts
under any of the Benefit Plans, there are any pending or threatened
claims (other than claims for benefits in the ordinary course), lawsuits
or arbitrations which have been asserted or instituted against the
Benefit Plans, which could reasonably be expected to result in any
material liability of JB to the Pension Benefit Guaranty Corporation,
the Department of Treasury, the Department of Labor or any multiemployer
Benefit Plan.
(q) Taxes.
(i) JB has duly prepared and timely filed all federal, state, local
and foreign Returns which were required to be filed by or in respect of
JB, or any of its properties, income and/or operations. As of the time
they were filed, such Returns accurately reflected the material facts
regarding the income, business, assets, operations, activities, status
of the entity on whose behalf the Return was filed and any other
information required to be shown thereon. No extension of time within
which JB may file any Return is currently in force.
(ii) With respect to all amounts in respect of Taxes, including
interest and penalties imposed on JB or for which JB is or could be
liable, whether to taxing authorities or to other persons, all material
amounts required to be paid by or on behalf of JB to taxing authorities
or to other persons have been paid.
(iii) Neither CKE nor JB has been advised that there is any review
or audit in progress by any taxing authority of any Tax liability of JB
currently in progress. JB has not received any written notice of any
pending or threatened audit by the Internal Revenue Service or any
state, local or foreign agency of any Returns or Tax liability of JB for
any period. JB currently has no unpaid deficiencies assessed by the
Internal Revenue Service or any state, local or foreign taxing authority
arising out of any examination of any of the Returns of JB nor, to the
knowledge of CKE or JB, is there reason to believe that any material
deficiency will be assessed.
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(iv) No agreements are in force or are currently being negotiated
by or on behalf of JB for any waiver or for the extension of any statute
of limitations governing the time of assessments or collection of any
Tax. No closing agreements or compromises concerning Taxes of JB are
currently pending.
(v) JB has withheld from each payment made to any of its officers,
directors and employees, the amount of all applicable Taxes, including,
but not limited to, income tax, social security contributions,
unemployment contributions, backup withholding and other deductions
required to be withheld therefrom by any Tax law and have paid the same
to the proper Taxing authorities within the time required under any
applicable Tax law.
(vi) There are no tax Liens, whether imposed by any federal, state,
local or foreign taxing authority, outstanding against any assets owned
by JB, except for Liens for Taxes that are not yet due and payable. None
of the assets owned by JB is property that is required to be treated as
being owned by any other person pursuant to the safe harbor lease
provisions of former Section 168(f)(8) of the Code. None of the assets
owned by JB directly or indirectly secures any debt, the interest on
which is tax-exempt under Section 103(a) of the Code. None of the assets
owned by JB is "tax-exempt use property" within the meaning of Section
168(h) of the Code. JB is a "United States person" within the meaning of
the Code.
(vii) JB is not a party to any agreement, contract, or arrangement
that, individually or collectively, could give rise to the payment of
any amount (whether in cash or property, including Shares or other
equity interests) that would not be deductible pursuant to the terms of
Sections 162(a)(l), 162(m), 162(n) or 280G of the Code.
(r) Contracts; Debt instruments.
(i) Except as disclosed to GB management prior to its execution
hereof, JB is not a party to or subject to:
(A) any collective bargaining or other agreements with labor
unions, trade unions, employee representatives, work committees,
guilds or associations representing employees of the Company;
(B) any employment, consulting, severance, termination, or
indemnification agreement, contract, lease or arrangement, including
any oral agreement, contract, lease or arrangement which requires the
payment of over $5,000 per annum, with any current or former officer,
consultant, agent, director or employee;
(C) any lease for real or personal property which requires JB to
pay, or under which JB is expected to receive, on an annual basis, in
excess of $100,000;
(D) any agreement, contract, instrument, arrangement or
commitment to repurchase assets previously sold or leased, or to
indemnify or otherwise compensate the purchaser in respect thereof;
(E) any agreement, contract, policy, License, document,
instrument, arrangement or commitment that materially limits the
freedom of JB to compete in any line of business or with any person
or in any geographic area or which would so materially limit the
freedom of the GB or any of their subsidiaries after the Effective
Time;
(F) any agreement or contract relating to any outstanding
commitment for material capital expenditures, or any partially or
fully executory agreement or contract relating to the acquisition or
disposition of rights or assets other than those entered into in the
ordinary course consistent with past practices;
(G) any sale-leaseback, conditional sale, exclusive dealing,
brokerage, finder's fee contract or agreement; or
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(H) any other agreement, contract, policy, license, document,
instrument, arrangement or commitment not made in the ordinary course
of business which is material to JB or any one or more of the
Restaurants and which is not otherwise disclosed in the JB Disclosure
Schedules.
(ii) JB and, to the knowledge of CKE, none of the other parties to
any of the contracts and agreements identified in Section 3.l(r)(i) of
the JB Disclosure Schedule or otherwise disclosed in the JB Financial
Statements, is in default under (or, with the giving of notice or
passage of time or both would be in default under) or has terminated or
amended any such contract or agreement, or in any way expressed to JB an
intent to materially reduce or terminate the amount of its business with
JB in the future.
(iii) CKE has heretofore caused JB to deliver to GB management
information concerning all sale-leaseback, loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and instruments
pursuant to which any Indebtedness of JB is outstanding or may be
incurred, including (A) the respective principal amounts currently
outstanding thereunder, and (B) any interest rate swaps, caps, floors or
option agreements or similar interest rate risk management agreements.
Except as disclosed to GB management prior to its execution hereof, all
such Indebtedness is prepayable at any time without penalty, subject to
the notice provisions of the agreements governing such Indebtedness
(which, except as disclosed to GB management prior to its execution
hereof, do not require a notice period of more than thirty days).
(s) Insurance. JB is covered by valid and currently effective
insurance policies issued in favor of JB, and CKE has heretofore caused JB
to deliver to GB a digest of such policies. To the best knowledge and
belief of CKE, such insurance is adequate to protect the Business from all
normal industry exposures. All such policies are in full force and effect,
all premiums due thereon have been paid and JB has complied with the
provisions of such policies with respect to which the failure to comply
would result in a cancellation of, or increase in premium in connection
with, such policies. Neither CKE nor JB has received any written notice
from or on behalf of any insurance carrier issuing policies or binders
relating to or covering JB that there will be a cancellation or non-renewal
of existing policies or binders, or that a material modification of any of
the methods of doing business will be required.
(t) Interests of Officers and Directors. No officer or director of JB,
and no member of the immediate family of any such officer or director, or
any entity with respect to which any such person is an affiliate, has any
material interest in any property, real or personal, tangible or
intangible, used in or pertaining to the Business, or any other business
relationship with JB.
(u) Approval by Board. The Boards of Directors of both CKE and JB have
duly authorized and approved the execution and delivery of this Agreement
and the transaction contemplated hereby.
(v) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transaction contemplated
by this Agreement which is payable.
(w) Fairness Opinion. Sun Trust Equitable has been engaged to deliver
its opinion regarding the fairness, from a financial point of view, of the
Exchange to CKE and its stockholders, which opinion shall be delivered in
writing to CKE's Board of Directors prior to the Closing Date.
(x) Disclosure. The representations and warranties of CKE contained in
this Agreement are true and correct in all material respects and do not
omit any material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made, not misleading.
There is no fact known to CKE which has not been disclosed to GB in the JB
Disclosure Schedule which has had, or would reasonably be expected to have,
a JB Material Adverse Effect.
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3.2 Representations and Warranties of GB. GB represents and warrants to
CKE, as of the date hereof and as of the Closing Date, subject to the exceptions
and qualifications set forth in the disclosure schedule to be delivered by the
GB to CKE pursuant to Section 3.3 of this Agreement (the "GB Disclosure
Schedule"):
(a) Organization, Standing and Corporate Power. GB is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted. GB is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) could not reasonably be expected to have
a GB Material Adverse Effect. GB has delivered to CKE complete and correct
copies of its Certificate of Incorporation and bylaws.
(b) Capital Structure. The authorized capital stock of the GB consists
of 50,000,000 shares of GB Stock par value $0.08 per share. As of December
31, 1997, (i) 6,570,984 Shares were issued and outstanding, (ii) no shares
were held by GB, and (iii) there were outstanding options to purchase
998,012 shares and warrants to purchase 4,000,000 shares of GB Stock.
Except as set forth above, no shares of capital stock or other equity or
voting securities of GB are issued, reserved for issuance or outstanding.
All outstanding shares of capital stock of GB are, and all shares of GB
Stock to be issued hereunder will, when issued, be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness or securities
of GB having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders
of GB may vote.
(c) Authority, Noncontravention. GB has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action
on the part of GB. This Agreement has been duly executed and delivered by
GB and, assuming this Agreement constitutes a valid and binding agreement
of CKE, constitutes a valid and binding obligation of GB, enforceable
against it in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation, modification or acceleration of any rights or
obligation or to a loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of GB under, (i)
its Certificate of Incorporation or bylaws of GB, (ii) except as to be
disclosed in Section 3.2(c) of the GB's Disclosure Schedule, any loan or
credit agreement, note, bond, mortgage, indenture, leases or other
contract, agreement, instrument, permit, concession, franchise or license
applicable to GB or its properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to GB or its properties or assets, other than any
such conflicts, violations or defaults that, individually or in the
aggregate, would not have a GB Material Adverse Effect. Other than those
Consents referred to in the GB Disclosure Schedule, no Consent of any
Governmental Entity is required by or with respect to GB in connection with
the execution and delivery of this Agreement or the consummation by GB of
any of the transactions contemplated by this Agreement, except for (i) the
Consents disclosed in Section 3.2(b) of the GB Disclosure Schedule, (ii)
compliance with applicable requirements of the Exchange Act, Securities Act
and applicable Blue Sky Laws, and (iii) such other Consents as to which the
failure to obtain or make, individually or in the aggregate, could not
reasonably be expected to have a GB Material Adverse Effect.
(d) SEC Documents; Financial Statements; No Undisclosed
Liabilities. GB has provided or made available to CKE true and correct
copies of the GB SEC Documents, all of which were timely filed with the
SEC. As of their respective dates, or as subsequently amended prior to the
date of this Agreement, the GB SEC Documents complied in all material
respects with the requirements of the Exchange Act applicable to such GB
SEC Documents, and none of the GB SEC Documents contained any untrue
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statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of GB included in the GB SEC Documents comply in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except as specified in Section 3.2(d) of
the GB Disclosure Schedule) and fairly present the consolidated financial
position of GB and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(e) Nature of Business. GB is engaged in the business of operating
Mexican quick-service restaurants under the trade name "The Green Burrito"
at leased facilities, and the sale and supervision of franchises to operate
such restaurants under that trade name. As of December 31, 1997, there were
7 Green Burrito stores owned by GB, 40 stand-alone stores operated by
franchisees and 134 dual-concept (i.e., incorporated into existing
quick-service restaurants) stores operated by franchisees.
(f) Litigation. Except as reflected in the financial and other
information delivered to CKE by GB as referred to above, or except as
otherwise described by GB in writing to CKE, there is no judicial or
administrative action, suit, proceeding or investigation pending or, to the
knowledge of GB, threatened, which would be required to be reported by GB
in its annual report on Form 10-K (under the Exchange Act) if such 10-K
were filed with the SEC on the date hereof.
(g) Absence of Changes. Except as described in Section 3.2(g) of the
GB Disclosure Schedule, since December 31, 1997, there has not been any
material adverse change in the business, financial condition or operations
or prospects of GB, or any event or condition (other than changes in legal,
economic or other conditions which are not specially applicable to GB)
which has materially and adversely affected the business or financial
condition of GB and its subsidiaries, taken as a whole.
(h) Exchange Act Reports. GB has filed in a timely manner all reports
required to be filed by it under the Exchange Act during at least the
12-month period preceding the date of this Agreement, and agrees to give
CKE a copy of each such report filed between the date hereof and the
Closing Date.
(i) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transaction contemplated
by this Agreement based upon arrangements made by or on behalf of GB.
(j) Disclosure. The representations and warranties of GB contained in
this Agreement are true and correct in all material respects, and do not
omit any material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made, not misleading.
There is no fact known to GB which has not been disclosed to CKE in the GB
Disclosure Schedule and GB SEC Documents, taken as a whole, which has had,
or would reasonably be expected to have, a GB Material Adverse Effect.
3.3 Delivery of Disclosure Schedules. CKE and GB each agree to deliver its
Disclosure Schedule to the other party within ten business days after the
execution of this Agreement. Failure to so deliver shall be a breach of this
Agreement and shall permit the non-breaching party to terminate this Agreement
in accordance with Article IX. Upon receipt of the other party's Disclosure
Schedule, either of CKE or GB (respectively) may object to any matter disclosed
therein and terminate this Agreement, provided that such objection is made and
termination effected not later than the tenth business day after receipt of the
JB Disclosure Schedule from the other party or the fifteenth business day after
the execution of this Agreement, whichever is later.
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ARTICLE IV
COVENANTS OF CKE
CKE agrees that:
4.1 Conduct of Business. During the period from the date of this Agreement
to the Closing date it will cause JB to carry on the Business in the ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use all reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers (as a group) and employees, at reasonably required staffing levels, and
preserve its relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with it. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Closing Date, except as contemplated by this Agreement, JB shall not,
without the prior written approval of GB:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its capital stock; (ii) adjust, split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
or (iii) purchase, redeem or otherwise acquire any shares of its capital
stock or any other securities thereof, or any rights, warrants or options
to acquire any such shares or other securities;
(b) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities;
(c) amend its Certificate or Articles of Incorporation, bylaws or
other comparable charter or organizational documents;
(d) amend, modify or waive any provision of any material contract or
agreement to which JB is a party, including, without limitation, any such
agreements identified in the JB Disclosure Schedule;
(e) mortgage or otherwise encumber or subject to any Lien or sell,
lease, license, transfer or otherwise dispose of any material properties or
assets, except for the transfer of the restaurants listed in Section 3.1(l)
of the JB Disclosure Schedule or otherwise in the ordinary course of
business consistent with past practice or pursuant to existing contracts or
commitments which were delivered to GB prior to its execution of this
Agreement;
(f) amend, modify or waive any material term of any outstanding
security of the Company.
(g) incur, assume, guarantee or become obligated with respect to any
Indebtedness other than drawings on existing revolving credit facilities in
the ordinary course of business, consistent with past practice and in
accordance with the terms thereof or incur, assume, guarantee or become
obligated with respect to any other material obligations other than in the
ordinary course of business and consistent with past practice;
(h) make or agree to make any new capital expenditures or acquisitions
of assets or property or other acquisitions or commitments in excess of
$10,000 individually or $50,000 in the aggregate or otherwise acquire or
agree to acquire any material assets or property;
(i) make any material tax election or take any material tax position
(unless required by law and then only with prior or concurrent notice to
GB) or change its fiscal year or accounting methods, policies or practices
(except as required by changes in GAAP and then only with prior or
concurrent notice to GB) or settle or compromise any material income tax
liability;
(j) enter into or commit to enter into, any lease, loan, advance or
capital contributions to or investment in any person other than in the
ordinary course of business consistent with past practices;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction thereof, in the
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ordinary course of business consistent with past practice and in accordance
with their terms, or release or waive any material rights or claims, or
waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which JB is a party;
(l) except in accordance with existing commitments heretofore
disclosed to GB which the aggregate, will not have a JB Material Adverse
Effect, (i) grant to any current or former director, officer or employee of
JB any increase in compensation or benefits, except for employees who are
not officers or directors in the ordinary course of business consistent
with past practice or any grant pursuant to any existing contract or
agreement, (ii) grant to any such director, officer, or employee any
increase in severance or termination pay (including the grant of, or
acceleration in the exercisability of, any stock options or warrants, or
(iii) enter into any employment, deferred compensation, severance or
termination agreement or arrangement with or for the benefit of any such
current or former director, officer, or employee;
(m) (i) take or agree or commit to take any action that would make any
representation or warranty of CKE or JB hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time or (ii)
omit or agree or commit to omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any material
respect at any such time; or
(n) authorize any of, or commit or agree to take any of, the foregoing
actions.
4.2 Access to Information. From the date hereof until the Closing Date,
CKE will, or will cause JB to, (i) give GB, its counsel, financial advisors,
auditors and other authorized representatives full access (during normal
business hours and upon reasonable notice) to the offices, properties, officers,
employees, accountants, auditors, counsel and other representatives, books and
records of JB (including access to perform any environmental studies), (ii)
furnish to GB, its counsel, financial advisors, auditors and other authorized
representatives such financial operating and property related data and other
information as such persons may reasonably request, and (iii) instruct JB's
employees, counsel and financial advisors to cooperate with GB in its
investigations of the Business; provided that no investigation pursuant to this
Section 4.2 shall affect any representation or warranty given by CKE or JB
hereunder.
4.3 No Solicitation. CKE agrees that neither it nor any of its officers
and directors shall, and CKE shall direct and use its best efforts to cause its
employees, agents and representatives, and JB and its employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by CKE or JB) not to, initiate, continue, solicit, or
encourage, directly or indirectly, any inquiries or the making of any proposal
or offer with respect to a merger, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, JB (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or, subject to the fiduciary duties of
the Board of Directors of CKE under the Delaware Corporation Law, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal or, enter into any agreement or understanding with any other person or
entity with the intent to effect any Acquisition Proposal. CKE will take all
necessary steps to inform the individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 4.3. CKE will
notify GB immediately, orally and in writing (including the names of any party
making and the principal terms of any such proposal), if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with CKE.
Subject to the fiduciary duties of the Board of Directors of CKE under the
Delaware Corporation law, CKE will keep GB fully informed of the status and
details (including amendments or proposed amendments) of any such request,
proposal or inquiry.
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ARTICLE V
COVENANTS OF GB
GB agrees that:
5.1 Conduct of Business. During the period from the date of this Agreement
to the Closing Date, GB shall carry on the business in which it is presently
engaged in the ordinary course of business in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all reasonable
efforts to preserve intact its current business organization, keep available the
services of its current officers (as a group) and employees, at reasonably
required staffing levels, and preserve its relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with it.
5.2 Confidentiality. Prior to the Closing Date and after any termination
of this Agreement, GB will hold, and will use its reasonable best efforts to
cause its officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
documents and information concerning JB furnished to GB in connection with the
transaction contemplated by this Agreement except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by GB, (ii) in the public domain through no fault of GB or (iii) later
lawfully acquired by GB from sources other than JB or CKE; provided that GB may
disclose such information to its officers, directors, employees, accountants
counsel, consultants, advisors and agents in connection with the transaction
contemplated by this Agreement so long as such persons have a need to know such
information, are informed by GB of the confidential nature of such information
and are directed by GB to treat such information confidentially. GB's obligation
to hold any such information in confidence shall be satisfied if it exercises
the same care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is terminated,
GB will, and will use its best efforts to cause its officers, directors,
employees, accountants, counsel, consultants, advisors and agents to, deliver to
CKE or JB, upon request, or, at the election of GB, destroy, all documents and
other materials and all copies thereof, obtained by GB or on its behalf from CKE
or JB in connection with this Agreement that are subject to such
confidentiality.
5.3 Employee Benefit Plans. GB shall have the right to continue, amend or
terminate any of the Benefit Plans in accordance with the terms thereof and
subject to any limitation arising under applicable law.
5.4 Indemnification and Insurance.
(a) From and after the Closing Date, GB shall cause JB to indemnify, defend
and hold harmless each person who is now, or who becomes, prior to the Closing
Date, an officer, director, employee or agent of JB (the "Indemnified Parties")
against losses, claims, damages, costs, expenses (including attorneys' fees),
liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of GB which shall not be
unreasonably withheld) of or in connection with a Claim at least to the same
extent as the officers, directors, employees and agents of the GB are
indemnified pursuant to GB's Certificate of Incorporation, Bylaws and any
standing shareholder and director resolutions.
(b) The contractual obligation provided under paragraph (a) of this Section
5.4 is intended to benefit, and be enforceable directly by, the Indemnified
Parties, and shall be binding on all respective successors of GB and JB.
5.5 Access to Information. From the date hereof until the Closing Date, GB
will give CKE, its counsel, financial advisors, auditors and other authorized
representatives full access (during normal business hours and upon reasonable
advance notice) to the offices, properties, officers, employees, accountants,
auditors, counsel and other representatives, books and records of GB, will
furnish to CKE, its counsel, financial advisors, auditors and other authorized
representatives such financial, operating and property related data and other
information as such persons may reasonably request and will instruct GB's
employees, counsel and financial advisors to cooperate with CKE in its
investigation of the business of GB; provided that no investigation pursuant to
this Section 5.5 shall affect any representation or warranty given by GB
hereunder.
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5.6 Board of Directors Approval. GB shall use its best efforts to obtain
promptly from its Board of Directors authority to execute and deliver this
Agreement and approval of transaction contemplated hereby, or retroactive
ratification thereof.
ARTICLE VI
COVENANTS GENERALLY
The parties hereto agree that:
6.1 Reasonable Efforts; Notification.
(a) Subject to the fiduciary duties of their respective Boards of
Directors, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable the transaction contemplated by this Agreement, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all other necessary
registrations and filings (including other filings with Governmental Entities,
if any), (ii) the obtaining of all necessary consents, approvals or waivers from
third parties, and (iii) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement.
(b) Notwithstanding anything to the contrary in Section 6.1(a)(i) neither
GB nor any of its subsidiaries shall be required to divest, or cause or permit
CKE or its affiliates to divest, any of their respective businesses, product
lines or assets, or to make or agree to take any other action or agree to any
limitation that could reasonably be expected to have a material adverse effect
on the value, condition (financial or otherwise), prospects, business or results
of operations of GB and its subsidiaries taken as a whole or of CKE and its
subsidiaries taken as a whole or all such entities taken together, and neither
party shall be required to waive any of the conditions to the transaction
hereunder set forth in Article VII.
(c) Each party shall give prompt notice to the other party of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect or (ii) the failure by it to comply with or
satisfy in any respect any covenant, condition or agreement to be complied with
or ratified by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(d) CKE shall give prompt notice to GB, and GB shall give prompt notice to
CKE, of:
(i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental Entity in
connection with the transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting it which, if pending on the date of
this Agreement would have been required to have been disclosed pursuant to
Section 3.1(m) or Section 3.2(f) or which relate to the consummation of the
transaction contemplated by this Agreement.
6.2 CKE Investment Representation. GB is agreeing to issue its stock in
exchange for all the outstanding shares of JB in reliance upon CKE's
representation that the GB Shares are being acquired by CKE for its own account
for investment and not with a view to, or for sale in connection with, any
distribution of such GB Shares or any part thereof. CKE agrees that the
certificates for the GB Shares to be issued to CKE shall bear the following
legend:
The shares represented by this certificate have not been registered
under the Securities Act of 1933 and have been acquired for investment
and not for resale. No disposition will be made of any such shares
except as may be permitted under the Securities Act of 1933 within the
limits and in
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accordance with the applicable provisions of the General Rules and
Regulations under the Securities Act of 1933.
In reliance upon this representation, GB has not registered the GB Shares
to be issued to CKE and CKE agrees that such GB Shares will not be sold or
offered for sale without registration under such Securities Act or the
availability of an exemption therefrom.
6.3 Press Releases. GB and CKE shall agree with each other as to the form
and substance of any press release related to this Agreement or the transactions
contemplated hereby, and shall consult with each other as to the form and
substance of other public disclosures which may relate to the transactions
contemplated by this Agreement, provided, however, that nothing contained herein
shall prohibit either party, following notification to the other party and
reasonable opportunity to comment from making any disclosure which is required
by law, regulation or stock exchange requirements.
6.4 Securities Reports. Each of GB and CKE agrees to timely file all
reports required to be filed by it pursuant to the Exchange Act between the date
of this Agreement and the Closing Date. Each of GB and CKE agree to provide the
other party with copies of all reports and other documents filed under the
Securities Act or Exchange Act with the SEC by it between the date hereof and
the Closing Date within five days after the date such reports or other documents
are filed with the SEC.
ARTICLE VII
CONDITIONS TO THE EXCHANGE
7.1 Conditions to the Obligations of GB. The obligations of GB to
consummate the transaction hereunder are subject to the satisfaction of the
following conditions:
(a) there shall not be instituted or pending any action by any
Governmental Entity (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by GB of such transaction, (ii) seeking to obtain material
damages or imposing any material adverse conditions in connection therewith
or otherwise directly or indirectly relating to the transaction, (iii)
seeking to restrain or prohibit GB's ownership or operation (or that of
their respective subsidiaries or affiliates) of all or any portion of the
Business, or the business or assets of GB and its subsidiaries or
affiliates, or to compel GB or any of its subsidiaries or affiliates to
dispose of or hold separate all or any material portion of the Business, or
the business or assets of GB and its subsidiaries and affiliates, (iv)
seeking to impose limitations on the ability of GB and its subsidiaries or
affiliates effectively to exercise full rights of ownership of the Business
with JB Shares, including, without limitation, the right to vote any JB
Shares acquired or owned by GB or any of its subsidiaries or affiliates on
all matters properly presented to JB's stockholders, (v) seeking to require
divestiture by GB or any of its subsidiaries or affiliates of any JB Shares
or the Business, or (vi) that otherwise, in the reasonable judgment of GB,
is likely to have a JB Material Adverse Effect or a GB Material Adverse
Effect;
(b) CKE shall have performed in all material respects its covenants
and agreements under this Agreement, and the representations and warranties
of CKE set forth in this Agreement shall be true in all material respects
when made and at and as of the Closing Date as if made at and as of such
time;
(c) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change) that, in the reasonable judgment of GB, has or is likely to have a
JB Material Adverse Effect.
(d) GB shall have been furnished with copies of the text of the
resolutions by which the corporate action on the part of CKE necessary to
approve this Agreement and the transaction contemplated hereby was taken;
(e) JB shall have completed the disposition of the JB's restaurants
described in Section 3.1(l) of the JB Disclosure Schedule;
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(f) the Board of Directors of GB shall have duly authorized and
approved the execution and delivery of this Agreement by GB and the
transactions contemplated herein and;
(g) nothing shall have come to the attention of GB in the course of
its due diligence investigation of JB which could reasonably be expected to
have a JB Material Adverse Effect.
7.2 Conditions to the Obligations of CKE. The obligations of CKE to
consummate the transaction hereunder are subject to the further satisfaction of
the following conditions:
(a) there shall not be instituted or pending any action by any
Governmental Entity (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by CKE of such transaction, seeking to obtain material damages
or imposing any material adverse conditions in connection therewith or
otherwise directly or indirectly relating to the transaction, or (ii) that
otherwise, in the reasonable judgment of CKE, is likely to have a JB
Material Adverse Effect or a GB Material Adverse Effect;
(b) GB shall have performed in all material respects its covenants and
agreements under this Agreement, and the representations and warranties of
GB set forth in this Agreement that are qualified as to materiality shall
be true in all material respects when made at and as of the Closing Date as
if made at and as of such date, and the representations and warranties set
forth in this Agreement that are not so qualified shall be true when made
and at and as of the Closing Date as if made at and as of such date;
(c) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change), other than changes resulting from changes in interest rates, that,
in the reasonable judgment of CKE, has or is likely to have a GB Material
Adverse Effect.
(d) CKE shall have been furnished with (i) copies of the text of the
resolutions by which the corporate action on the part of GB necessary to
approve this Agreement and the transactions contemplated hereby were taken;
(e) CKE shall have received from Sun Trust Equitable the "fairness"
opinion contemplated by Section 4.1(w) hereof.
ARTICLE VIII
INDEMNITIES
8.1 Survival of Representations and Agreements. The respective
representations, warranties, obligations, covenants and agreements of the
parties contained herein shall survive until the first anniversary of the
Closing Date; provided that CKE's representations and warranties concerning the
Federal and state income tax liabilities of JB for taxable years to and
including 1997 shall survive until the appropriate statutes of limitations
(exclusive of any waiver or extension thereof unless, and only to the extent
that, such waiver or extension is granted by or with the consent of GB on
assessment and collection of such taxes have expired; and provided further, that
as regards any claim asserting a misrepresentation or a breach of warranty or a
default in the performance of any obligation, covenant or agreement, made in
writing by one party to the other within thirty (30) days after the date on
which the noticed party's responsibility therefor would otherwise expire, such
noticed party's obligation as regards the subject matter of such claim shall
survive until the matter has been finally determined.
8.2 Indemnification. CKE and GB shall each indemnify and hold the other
harmless, during the period provided for in Section 8.1, against and in respect
of:
(a) any damage resulting from any misrepresentation, breach of
warranty or non-fulfillment of any agreement on the part of the
indemnifying party under this Agreement, or from any misrepresentation in
or omission from any schedule, certificate or other instrument furnished or
to be furnished to such other party hereunder; or
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(b) all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses incident to any of the foregoing.
8.3 Limitations and Conditions Respecting Indemnity.
(a) Anything contained herein to the contrary notwithstanding, neither
party shall be obligated to pay indemnity until the cumulative amount of
losses, liabilities, costs and expenses for which, but for this provision,
indemnity would be payable, exceeds $1,000 and then the obligation to pay
indemnity shall be limited to the excess of such cumulative amount over
$25,000.
(b) In order for each party to be fully informed at all times
concerning its possible obligation to pay indemnity (the "Indemnifying
Party"), and to permit the amounts thereof to be minimized by the
Indemnifying Party, the Party asserting an indemnifable claim (the
"Indemnified Party") with reasonable promptness after the Indemnified Party
first becomes aware thereof, shall furnish the Indemnifying Party with
evidence demonstrating the Indemnified Party's right or possible right to
receive indemnity. Such evidence must be provided not later than thirty
days after the Indemnified Party becomes aware of such claim or, if the
claim is asserted by the filing by a third party of any action at law or in
equity, not later than ten days prior to the date by which a responsive
pleading must be filed, whichever is earlier, and with respect to any third
party claim, the Indemnified Party shall also furnish the Indemnifying
Party with the original or a copy of such claim (if made in writing) and of
all documents received from the third party in support of his claim, and
shall otherwise make available to the Indemnifying Party all relevant
information material to the defense of such claim. If the Indemnifying
Party requests in writing that such third party claim not be paid, the
Indemnified Party shall not pay such claim and the Indemnifying Party
shall, at its expense (including employment of counsel) settle, compromise
or litigate such claim in good faith, and shall keep the Indemnified Party
adequately informed of all actions taken and the progress of such actions;
provided, that the Indemnified Party shall have the right to participate at
its expense and with counsel of its choice in any such settlement,
compromise or litigation; and provided further that the Indemnified Party
shall not be required to refrain from paying any such claim which has
matured by a court judgment or decree unless a timely appeal is taken
therefrom and a proper appeal bond posted by the Indemnifying Party, nor
shall the Indemnified Party be required to refrain from paying any claim
where such action would result in the foreclosure of a lien upon any of its
property or assets. If by the expiration of thirty days after notice of
such a claim is given to the Indemnifying Party, its has not notified the
Indemnified Party that it will undertake to settle, compromise or litigate
such claim, such action shall be deemed a direction to the Indemnified
Party to pay such claim, and upon receipt of proof of payment, indemnity
shall then be immediately due and payable. The parties acknowledge that
there may be instances in which an Indemnified Party may,in its business
judgment, prefer that such a third party claim be contested, even though
the Indemnifying Party is agreeable to having payment made, and in any such
case, the Indemnified Party may itself elect to contest or litigate such
claim in lieu of paying the same, in which event any loss ultimately
arising from such claim, and any attorney's fees and other expenses of the
Indemnified Party incurred in connection therewith, to the extent such
loss, fees and expenses exceed the indemnity which the Indemnifying Party
had agreed to pay, shall not be items for which indemnity is payable. The
parties further acknowledge that there may be instances in which an
Indemnified Party may, in its business judgment, prefer that a claim be
paid, even though the Indemnifying Party wishes to contest the claim, and
in any such case, the Indemnified Party may itself elect to pay, settle or
compromise such claim in lieu of contesting the same, in which event the
loss arising from such payment, settlement or compromise shall not be a
loss for which indemnity is payable. Each party will cooperate with the
other in resolving or attempting to resolve any claim, and will permit the
other party access to its books and records, during normal business hours
and at the place where the same are normally kept, with full right to make
copies thereof or extracts therefrom.
(c) Indemnity shall be due hereunder only to the extent of the actual
loss or damage suffered by the Indemnified Party (i.e., reduced by any
recovery from any third party, such as an insurer or reinsurer, or, in the
case of an unrecorded liability, for which there is a corresponding
unrecorded asset, by the book value of such asset), net after an amount
equal to any reduction in Federal, state and local income taxes occasioned
by such loss or damage (even though the tax return by which such reduction
would have been
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realized is not yet due); provided that if a right to indemnity arises from
a determination that receipts are includable, or expenses deductible or
amortizable, either in a period different from the period originally
claimed for such inclusion or deduction, or over a period of time different
from the period originally selected for such amortization, or by a
corporation different from the corporation originally including, deducting,
or amortizing such amount, whether or not in the same or a different
period, the Indemnified Party shall nonetheless be entitled to
indemnification, but only to the extent of any net income taxes (plus
interest thereon) that may become payable as a result thereof, the intent
being that if, as a further result of such determination, the Indemnified
Party shall realize directly or indirectly a tax saving or reduction in a
year prior to, or anticipate such a saving or reduction in the year of or a
year subsequent to, the year in question, the Indemnifying Party's
obligation to pay indemnity hereunder shall, to that extent, be reduced.
(d) In view of CKE's representation under Section 6.2 hereof, and
recognizing that the GB Shares to be delivered to CKE will not be
registered under the Securities Act of 1933, it is agreed that, if CKE is
obligated to indemnify GB for any reason hereunder, CKE may, at its
election, in lieu of paying cash indemnity, satisfy all or any part of its
obligation to give indemnity by delivering GB Shares, and for such purpose,
such GB Shares shall be valued at $8.50 each (such value to be
appropriately and equitably adjusted to reflect stock dividends, stock
splits and similar transactions after the Closing Date affecting the number
of shares of GB Common Stock held by GB common stockholders generally).
(e) Any matter or fact disclosed in any section or portion of this
Agreement or in any schedule, certificate or other instrument furnished or
to be furnished hereunder shall be deemed to have been disclosed for all
purposes, and no misrepresentation under any one portion of this Agreement,
and no breach of or failure to perform any one representation, warranty,
obligation, covenant or agreement shall be deemed a breach or failure to
perform more than one such representation, warranty, obligation, covenant
or agreement, to the end that neither party shall be obligated to indemnify
the other more than one time for any particular misrepresentation, breach
or failure.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated and the transaction
contemplated hereby abandoned at any time prior to the Closing Date:
(i) by mutual written consent of CKE and GB;
(ii) by either party, if such transaction has not been consummated by
May 31, 1998 (provided that the party seeking to terminate the Agreement
shall not have breached its obligations under this Agreement in any
material respect);
(iii) by GB, at any time prior to the Closing Date, by action of the
Board of Directors of GB, if there has been a breach by CKE of any of the
representations, warranties, covenants or agreements contained in this
Agreement, or if any representation or warranty of CKE shall have become
untrue, in either case if such circumstance has or could reasonably be
expected to have a JB Material Adverse Effect;
(iv) by CKE, at any time prior to the Closing Date, by action of the
Board of Directors of CKE, if (A) there has been a breach by GB of any of
the representations, warranties, covenants or agreements contained in this
Agreement or if any representation or warranty of GB shall have become
untrue, in either case if such circumstance has or could reasonably be
expected to have a GB Material Adverse Effect, or (B) CKE receives an
Acquisition Proposal on terms CKE's Board of Directors (after consultation
with its independent financial advisors) determines in good faith to be
more favorable to CKE than the terms of this Agreement, and CKE's Board of
Directors determines, upon the written advice of its legal counsel, that to
fail to accept the Acquisition Proposal would violate the fiduciary duties
of CKE's Board of Directors; provided, however, that CKE shall not be
permitted to terminate this
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Agreement pursuant to this Section 9.1(v)(B) unless it has provided GB with
three (3) business days prior written notice of its intent to so terminate
this Agreement, together with a detailed summary of the terms and
conditions (including proposed financing, if any) of such Acquisition
Proposal.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, this Agreement shall become void and of no effect with no liability
on the part of any party hereto or their respective officers and directors,
except that the agreements contained in Sections 5.2, and 10.3 shall survive the
termination hereof. Specifically, and without limiting the generality of the
foregoing. GB agrees that, except as expressly provided in this Section 9.2,
termination of this Agreement shall be its sole and exclusive remedy for any
nonwillful breach by CKE of its representations, warranties and covenants under
this Agreement, and CKE agrees that, except as provided in this Section 9.2,
termination of this Agreement shall be its sole and exclusive remedy for any
nonwillful breach by GB of its representations, warranties and covenants under
this Agreement. If this Agreement is terminated by reason of a willful breach by
a party, then the breaching party shall be liable to the non-breaching party for
all actual, consequential and incidental damages suffered by the non-breaching
party (including, but not limited to, reasonable attorneys', accountants' and
investment brokers' fees, costs and expenses) arising from such willful breach.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including telecopy or similar writing) and shall
be given,
if to GB, to:
GB Foods Corporation
1200 N. Harbor Blvd.
Anaheim, CA 92803-61093
Telecopy: (714) 491-6415
Attn: Andrew F. Puzder, Chief Executive Officer
with a copy to:
The Stolar Partnership
911 Washington Avenue
St. Louis, Missouri 63101
Telecopy: (314) 436-8400
Attn: Thomas E. Lowther, Esq.
if to CKE, to:
CKE Restaurants, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Telecopy: (805) 898-7149
Attn: Carl A. Strunk, Executive
Vice President and Chief Financial Officer
or such other address or telecopy number as such party may hereafter specify for
the purpose of notice to the other parties. Each such notice, request or other
communication shall be effective when delivered at the address specified in this
Section 10.1.
10.2 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Closing Date if, and only if, such amendment or waiver is in writing and signed,
in the case of an amendment, by CKE, JB and GB or in the case of a waiver, by
the party against whom the waiver is to be effective.
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<PAGE> 322
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
10.3 Fees and Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
10.4 Successors and Assigns; Parties in Interest. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto. Except as expressly
set forth herein, nothing in this Agreement, express or implied, is intended to
or shall confer upon any person not a party hereto any right (including third
party beneficiary rights), benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
10.5 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
10.6 Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the State of California, without giving
effect to the principles of conflicts of laws thereof.
10.7 Entire Agreement. This Agreement, including the Schedules hereto,
constitutes the entire agreement, and supersedes all other prior agreements,
written and oral among the parties, with respect to the subject matter hereof.
10.8 Counterparts; Effectiveness; Interpretation. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
When a reference is made in this Agreement to an Article or Section, such
reference shall be to an Article or Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
10.9 Anti-Dilution Provision. The number of shares of GB Stock to be
delivered at closing in exchange for the JB stock which is the subject of this
Agreement shall be appropriately and equitably adjusted to reflect stock
dividends, stock splits and similar transactions after December 31, 1997,
affecting the number of shares of GB Stock held by GB common stockholders
generally, unless such transaction, though authorized by appropriate corporate
action, has not been completed and the Closing Date is a date prior to the
Record Date for determining the identity of stockholders of GB who will
participate in such transaction. The issuance of shares by GB pursuant to the
exercise of stock options shall not require any adjustment hereunder.
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<PAGE> 323
The parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
GB FOODS CORPORATION
By: /s/ ANDREW F. PUZDER
------------------------------------
Name: Andrew F. Puzder
Title: Chief Executive Officer
CKE RESTAURANTS, INC.
By: /s/ CARL A. STRUNK
------------------------------------
Name: Carl A. Strunk
Title: Executive Vice President
Chief Financial Officer
JB'S RESTAURANTS, INC.
By: /s/ TED ABAJIAN
------------------------------------
Name: Ted Abajian
Title: Vice President
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<PAGE> 324
ASSIGNMENT OF AGREEMENT AND PLAN OF REORGANIZATION
THIS ASSIGNMENT, dated as of March 26, 1998, is from CKE RESTAURANTS, INC.,
a Delaware corporation ("Assignor"), to JB PARENT CORP. ("Assignee").
Assignor and its subsidiary, JB's Restaurants, Inc. ("JB"), are parties to
an Agreement and Plan of Reorganization, along with GB Foods Corporation, a
Delaware corporation ("GB Foods"), dated as of February 19, 1998 (the
"Agreement"), pursuant to which Assignor has agreed to exchange all of the
issued and outstanding stock of JB for shares of GB Foods common stock in a
transaction intended to constitute a tax-free reorganization within the meaning
of Section 368(a)(1)(B) of the Internal Revenue Code of 1986.
Subsequent to the execution and delivery of the Agreement, Assignor caused
Assignee to be incorporated under the laws of the State of Delaware and
transferred to Assignee all of the shares of stock of JB, with the understanding
that Assignee would carry out and perform all of Assignor's obligations under
the Agreement.
The Agreement specifically provides that a party may assign its rights and
obligations thereunder with the consent of the other parties to the Agreement.
Assignor believes that it is in the best interests of all parties to the
Agreement that the transfer of ownership of the JB stock from Assignor to
Assignee be formally recognized, and that the obligation of the owner of such JB
stock to carry out and perform the Agreement be acknowledged, pursuant to a
written assignment of Assignor's rights and obligations under the Agreement.
NOW, THEREFORE, for $10.00 and other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Assignor does hereby GRANT,
BARGAIN, SELL, ASSIGN, TRANSFER, CONVEY and CONFIRM unto Assignee all of
Assignor's rights and interest under the Agreement, to have and to hold the same
unto Assignee and its successors and (as and to the extent permitted by the
Agreement) assigns, and any corporation into which or with which Assignee may be
liquidated, merged or consolidated.
SUBJECT, HOWEVER, to Assignor's obligations under the Agreement, which
Assignee hereby assumes and agrees to carry out, on the terms and subject to the
conditions set out in the Agreement, as if Assignee were the original party
thereto in the place of Assignor.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date first above written.
CKE RESTAURANTS, INC.
By: /s/ CARL A. STRUNK
------------------------------------
Name: Carl A. Strunk
Title: SVP & CFO
JB Parent Corp.
By: /s/ CHARLOTTE L. MILLER
------------------------------------
Name: Charlotte L. Miller
Title:
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<PAGE> 325
The UNDERSIGNED, being the other parties to the Agreement hereby consent to
the foregoing Assignment as of the day and year first above written.
GB FOODS CORP.
By: /s/ ANDREW F. PUZDER
------------------------------------
Name: Andrew F. Puzder
Title: CEO
JB's RESTAURANTS, INC.
By: /s/ TED ABAJIAN
------------------------------------
Name: Ted Abajian
Title: V.P. Controller
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<PAGE> 326
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the "First
Amendment") is made and entered into as of this 27th day of March, 1998, by and
among GB FOODS CORPORATION, a Delaware corporation ("GBFC"), JB PARENT
CORPORATION, a Delaware corporation ("JBPC"); and JB'S RESTAURANTS, INC., a
Delaware corporation ("JB's").
WHEREAS, GBFC, CKE Restaurants, Inc., a Delaware corporation ("CKE"), and
JB's entered into that certain Agreement and Plan of Reorganization, dated
February 19, 1997 (the "Agreement"), pursuant to which GBFC shall acquire all of
the outstanding capital stock of JB's.
WHEREAS, subsequent to the execution of the Agreement, CKE formed JBPC as a
wholly-owned subsidiary and capitalized JBPC with the JB's Stock;
WHEREAS, pursuant to that certain Assignment of Agreement and Plan of
Reorganization, dated March 26, 1998 (the "Assignment"), CKE assigned all of its
rights and interests under the Agreement to JBPC.
WHEREAS, the parties hereto now desire to amend the Agreement upon the
terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth and set forth in the Agreement, the parties hereto amend the Agreement
as follows:
1. Definitions. Capitalized terms not specifically defined herein
shall have the meanings ascribed such terms in the Agreement.
2. Amendment. Section 9.1(ii) of the Agreement shall be amended and
restated in its entirety as follows:
"by either party, if such transaction has not been consummated by June
30, 1998 (provided that the party seeking to terminate this Agreement
shall not have breached its obligations under this Agreement in any
material respect);"
3. Effect of Amendment. Except as expressly amended and restated
herein, each term and condition of the Agreement and the Assignment shall
remain in full force and effect.
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<PAGE> 327
IN WITNESS WHEREOF, the foregoing First Amendment is hereby executed as of
the date first above written.
GBFC
GB FOODS CORPORATION,
a Delaware corporation
By: /s/ ANDREW F. PUZDER
--------------------------------------
Its: Chief Executive Officer
JBPC:
JB PARENT CORP.,
a Delaware corporation
By: /s/ CARL A. STRUNK
--------------------------------------
Its: Executive Vice President
JB'S:
JB'S RESTAURANTS, INC.,
a Delaware corporation
By: /s/ CARL A. STRUNK
--------------------------------------
Its: Executive Vice President
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<PAGE> 328
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the "Second
Amendment") is made and entered into as of this 3rd day of June, 1998, by and
among GB FOODS CORPORATION, a Delaware corporation ("GBFC"), JB PARENT
CORPORATION, a Delaware corporation ("JBPC"); and JB'S RESTAURANTS, INC., a
Delaware corporation ("JB's").
WHEREAS, GBFC, CKE Restaurants, Inc., a Delaware corporation ("CKE"), and
JB's entered into that certain Agreement and Plan of Reorganization, dated
February 19, 1997 (the "Agreement"), pursuant to which GBFC shall acquire all of
the outstanding capital stock of JB's.
WHEREAS, subsequent to the execution of the Agreement, CKE formed JBPC as a
wholly-owned subsidiary and capitalized JBPC with the outstanding capital stock
of JB's;
WHEREAS, pursuant to that certain Assignment of Agreement and Plan of
Reorganization, dated March 26, 1998 (the "Assignment"), CKE assigned all of its
rights and interests under the Agreement to JBPC.
WHEREAS, pursuant to that First Amendment to Agreement and Plan of
Reorganization, dated March 27, 1998, the parties hereto amended the Agreement
by extending the date after which either party may terminate the Agreement if
the transactions contemplated thereby have not been consummated to June 30, 1998
(the "Outside Closing Date").
WHEREAS, the parties hereto now desire to amend the Agreement by further
extending the Outside Closing Date to July 31, 1998, upon the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth and set forth in the Agreement, the parties hereto hereby amend the
Agreement as follows:
1. Definitions. Capitalized terms not specifically defined herein shall
have the meanings ascribed such terms in the Agreement.
2. Amendment. Section 9.1(ii) of the Agreement shall be amended and
restated in its entirety as follows:
"by either party, if such transaction has not been consummated by July
31, 1998 (provided that the party seeking to terminate this Agreement
shall not have breached its obligations under this Agreement in any
material respect);"
3. Effect of Amendment. Except as expressly amended and restated herein,
each term and condition of the Agreement and the Assignment shall remain in full
force and effect.
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<PAGE> 329
IN WITNESS WHEREOF, the foregoing Second Amendment is hereby executed as of
the date first above written.
GBFC:
GB FOODS CORPORATION, a Delaware
corporation
By: /s/ ANDREW F. PUZDER
------------------------------------
Name: Andrew F. Puzder
Title: Chief Executive Officer
JBPC:
JB PARENT CORP., a Delaware
corporation
By: /s/ M'LISS JONES KANE
------------------------------------
Name: M'Liss Jones Kane
Title: Vice President Secretary
JB'S:
JB'S RESTAURANTS, INC., a Delaware
corporation
By: /s/ TED ABAJIAN
------------------------------------
Name: Ted Abajian
Title: Vice President
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<PAGE> 330
THIRD AMENDMENT TO
AGREEMENT AND PLAN OR REORGANIZATION
THIS THIRD AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the "Third
Amendment") is made and entered into as of this 8th day of July, 1998, by and
among GB FOODS CORPORATION, a Delaware corporation ("GBFC"), JB PARENT
CORPORATION, a Delaware corporation ("GBFC"); and JB'S FAMILY RESTAURANTS, INC.,
a Delaware corporation, formerly known as JB's Restaurants, Inc. ("JB's").
WHEREAS, GBFC, CKE Restaurants, Inc., a Delaware corporation ("CKE"), and
JB's entered into that certain Agreement and Plan of Reorganization, dated as of
February 19, 1997 (as amended, the "Agreement"), pursuant to which GBFC shall
acquire all of the outstanding capital stock of JB's;
WHEREAS, subsequent to the execution of the Agreement, CKE formed JBPC as a
wholly-owned subsidiary and capitalized JBPC with all of the capital stock of
JB's;
WHEREAS, pursuant to that certain Assignment of Agreement and Plan of
Reorganization, dated as of March 16, 1998 (the "Assignment"), CKE assigned all
of its rights and interests under the Agreement to JBPC;
WHEREAS, pursuant to that Second Amendment to Agreement and Plan of
Reorganization, dated as of June 3, 1998, the parties hereto amended the
Agreement by extending the date after which either party may terminate the
Agreement if the transactions contemplated thereby have not been consummated to
July 31, 1998 (the "Outside Closing Date");
WHEREAS, the parties hereto now desire to amend the Agreement by further
extending the Outside Closing Date to September 15, 1998, upon the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth and set forth in the Agreement, the parties hereto hereby amend the
Agreement as follows:
1. Definitions. Capitalized terms not specifically defined herein shall
have the meanings ascribed such terms in the Agreement.
2. Amendment. Section 9(ii) of the Agreement shall be amended and restated
in its entirety as follows:
"by either party, if such transaction has not been consummated by
September 15, 1998 (provided that the party seeking to terminate this
Agreement shall not have breached its obligations under this Agreement
in any material respect);"
3. Effect of Amendment. Except as expressly amended and restated herein,
each term and condition and the Assignment shall remain in full force and
effect.
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<PAGE> 331
IN WITNESS WHEREOF, the foregoing Third Amendment is hereby executed as of
the date first above written.
GBFC:
GB FOODS CORPORATION, a Delaware
corporation
By: /s/ ANDREW F. PUZDER
--------------------------------------
Its: Chief Executive Officer
JBPC:
JB PARENT CORP., a Delaware
corporation
By: /s/ M'LISS JONES KANE
--------------------------------------
Its: Vice President - Secretary
JB'S:
JB'S FAMILY RESTAURANTS, INC., a
Delaware corporation
By: /s/ M'LISS JONES KANE
--------------------------------------
Its: Vice President - Secretary
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<PAGE> 332
ANNEX H
COPY OF
FAIRNESS OPINION OF
PIPER JAFFRAY INC.
DATED APRIL 14, 1998
TO THE BOARD OF DIRECTORS OF
GB FOODS CORPORATION
RELATING TO
THE JBRI ACQUISITION
<PAGE> 333
[PIPER JAFFRAY LETTERHEAD]
April 14, 1998
The Board of Directors
GB Foods Corporation
1200 North Harbor Boulevard
P.O. Box 61093
Anaheim, California 92803-61093
Members of the Board:
You are a party to an Agreement and Plan of Reorganization dated as of
February 19, 1998 (the "JBRI Acquisition Agreement"), among GB Foods Corporation
("GB Foods"), JB's Restaurants, Inc. ("JBRI"), and CKE Restaurants, Inc.
("CKE"), pursuant to which GB Foods proposes to exchange (the "JBRI
Acquisition") shares of GB Foods Common Stock for all the issued and outstanding
shares of capital stock of JBRI ("JBRI Stock"). As of the date of the JBRI
Acquisition Agreement, JBRI was a wholly-owned subsidiary of CKE. Subsequent to
the execution of the JBRI Acquisition Agreement, CKE formed a new wholly-owned
subsidiary named JB Parent Corp. ("JBPC") and intends to capitalize JBPC with
the JBRI Stock. CKE also intends to enter into an Assignment of Agreement and
Plan of Reorganization, pursuant to which CKE will assign all of its rights and
interests in the JBRI Acquisition Agreement to JBPC. Under the terms of the JBRI
Acquisition Agreement, the outstanding shares of JBRI Stock will be exchanged
for 1,000,000 shares of GB Foods Common Stock. The JBRI Acquisition is intended
to qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and will be treated as a
purchase for accounting purposes. In connection with the JBRI Acquisition and
prior to its consummation, JBRI will convey by dividend to JBPC (the "JBRI
Dispositions") (i) 16 restaurants for eventual sale to Timber Lodge Steak House,
Inc. ("Timber Lodge") and (ii) the cash proceeds from the recently consummated
sale of 12 restaurants to Summit Family Restaurants, Inc. pursuant to an Asset
Purchase Agreement dated as of February 10, 1998 (the "Summit/JB's Purchase
Agreement"), which proceeds will then be conveyed by dividend from JBPC to CKE.
You have requested our opinion as to the fairness, from a financial point of
view, to GB Foods of the proposed consideration to be paid in the JBRI
Acquisition.
Piper Jaffray Inc., as a customary part of its investment banking business,
is engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. We will receive a fee for providing this opinion. This opinion fee is
not contingent upon the consummation of the JBRI Acquisition. GB Foods has also
agreed to indemnify us against certain liabilities in connection with our
services. Piper Jaffray has also been engaged to provide its opinion as to
fairness, from a financial point of view, of the proposed consideration to be
paid by GB Foods in the proposed merger (the "Merger") of Timber Lodge into TLS
Acquisition Corp. ("TLS"), a wholly-owned subsidiary of GB Foods, pursuant to an
Amended and Restated Agreement and Plan of Merger dated March 12, 1998 (the
"Merger Agreement"), among Timber Lodge, TLS and GB Foods. Consummation of the
JBRI Acquisition is not conditioned on consummation of the Merger. Piper Jaffray
will receive additional fees for any opinion rendered in connection with the
Merger. Piper Jaffray makes a market in CKE Common Stock and provides research
coverage for CKE. In the ordinary course of our business, we and our affiliates
may actively trade securities of CKE for our
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<PAGE> 334
own account or the account of our customers and, accordingly, may at any time
hold a long or short position in such securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) a copy of the JBRI Acquisition Agreement, the
Merger Agreement and the Summit/JB's Purchase Agreement, (ii) certain financial,
operating and business information related to JBRI, (iii) certain internal
financial information of JBRI on a stand-alone basis, and as adjusted on a pro
forma basis for the JBRI Dispositions, prepared for financial planning purposes
and furnished by the management of CKE and JBRI, (iv) to the extent publicly
available, financial terms of certain acquisition transactions involving
companies operating in industries deemed similar to that in which JBRI operates
and selected public companies deemed comparable to JBRI, (v) certain
publicly-available information relative to GB Foods, (vi) certain internal
financial information of GB Foods on a stand-alone basis and as a combined
company with JBRI prepared by GB Foods management for financial purposes and
furnished by the management of GB Foods, and (vii) certain publicly-available
market and securities data of GB Foods. We had discussions with members of the
management of (a) GB Foods concerning the financial condition, current operating
results and business outlook for both GB Foods and JBRI on a stand-alone basis
and the combined company resulting from the JBRI Acquisition and GB Foods' plans
relating to such combined company, and (b) CKE and JBRI concerning the financial
condition, current operating results and business outlook for JBRI and the
combined company resulting from the JBRI Acquisition.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided to us by GB Foods and
CKE and JBRI or otherwise made available to us, and have not assumed
responsibility for the independent verification of such information. Neither GB
Foods nor CKE publicly disclose internal financial information of the type
provided to Piper Jaffray in connection with Piper Jaffray's review of the JBRI
Acquisition. Such information was prepared for financial planning purposes and
was not prepared with the expectation of public disclosure. We have relied upon
the assurance of the management of GB Foods and CKE that the information
provided to us as set forth above by GB Foods and CKE has been prepared on a
reasonable basis, and, with respect to financial planning data and other
business outlook information, reflects the best currently available estimates,
and that they are not aware of any information or facts that would make the
information provided to us incomplete or misleading.
We have also assumed that the transactions contemplated by the JBRI
Acquisition Agreement will constitute a "reorganization" within the meaning of
Section 368(a) of the Code and that the JBRI Acquisition will be treated as a
purchase for accounting purposes. In addition, in arriving at our opinion, we
have assumed that, in the course of obtaining the necessary regulatory approvals
for the JBRI Acquisition, no restrictions, including any divestiture
requirements, will be imposed that will have a material adverse effect on the
contemplated benefits of the JBRI Acquisition.
In arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of GB Foods or JBRI, and have
not been furnished with any such appraisals or valuations. We express no opinion
regarding the liquidation value of any entity. We have, with your consent,
assumed for purposes of our analyses, that the Merger will not occur. We have
also assumed, with your consent, that for purposes of this opinion the JBRI
Acquisition does not result in any change of control in GB Foods pursuant to
applicable state corporate law.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof, events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of GB Foods Common Stock have traded or
may trade at any future time. We have not undertaken to reaffirm or revise this
opinion or otherwise comment upon any events occurring after the date hereof and
do not have any obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of GB Foods and is not
intended to be and does not constitute a recommendation to any stockholder of GB
Foods. We were not requested to opine as to, and this opinion does not address,
the basic business decision to proceed with or effect the JBRI Acquisition. This
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<PAGE> 335
opinion shall not be published or otherwise used, nor shall any public
references to us be made without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors
as we consider relevant, it is our opinion that the proposed consideration to be
paid in the JBRI Acquisition for the JBRI Stock is fair, from a financial point
of view, to GB Foods as of the date hereof.
Sincerely,
/s/ PIPER JAFFRAY INC.
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<PAGE> 336
ANNEX I
COPY OF
GB FOODS CORPORATION
1998 STOCK OPTION PLAN
<PAGE> 337
GB FOODS CORPORATION
1998 STOCK INCENTIVE PLAN
This 1998 STOCK INCENTIVE PLAN (the "Plan") is hereby established by GB
FOODS CORPORATION, a Delaware corporation (the "Company") and adopted by its
Board of Directors as of the fifteenth (15th) day of April, 1998 (the "Effective
Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 Purposes. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, consultants
and other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 Administrator. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 Affiliated Company. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 Board. "Board" means the Board of Directors of the Company.
2.4 Change in Control. "Change in Control" shall have the meaning ascribed
thereto in Section 8.1.
2.5 Code. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.6 Committee. "Committee" means a committee of two or more members of the
Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 Common Stock. "Common Stock" means the Common Stock, par value $0.08
per share, of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 Disability. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 Effective Date. "Effective Date" means the date on which the Plan is
adopted by the Board, as set forth on the first page hereof.
2.10 Exercise Price. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.11 Fair Market Value. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
NASDAQ market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the closing sale price on the date of
valuation on such NASDAQ market system or principal stock exchange on which
the Common Stock is then listed or admitted to trading, or, if no closing
sale price is quoted on such day,
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then the Fair Market Value shall be the closing sale price of the Common
Stock on such NASDAQ market system or such exchange on the next preceding
day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to trading on a
NASDAQ market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of evaluation, which determination shall
be conclusive and binding on all interested parties.
2.12 Incentive Option. "Incentive Option" means any Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
2.13 Incentive Option Agreement. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.14 NASD Dealer. "NASD Dealer" means a broker-dealer that is a member of
the National Association of Securities Dealers, Inc.
2.15 Nonqualified Option. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 Nonqualified Option Agreement. "Nonqualified Option Agreement" means
an Option Agreement with respect to a Nonqualified Option.
2.17 Offeree. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 Option. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 Option Agreement. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 Optionee. "Optionee" means a Participant who holds an Option.
2.21 Participant. "Participant" means an individual or entity who holds an
Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 Purchase Price. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 Restricted Stock. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
established pursuant to such Article 6.
2.24 Right to Purchase. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 Service Provider. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 Stock Purchase Agreement. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
2.27 10% Shareholder. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock
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possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of an Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 Incentive Options. Officers and other key employees of the Company or
of an Affiliated Company (including members of the Board if they are employees
of the Company or of an Affiliated Company) are eligible to receive Incentive
Options under the Plan.
3.2 Nonqualified Options and Rights to Purchase. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 Limitation on Shares. In no event shall any Participant be granted
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds two hundred fifty thousand (250,000) shares.
ARTICLE 4.
PLAN SHARES
4.1 Shares Subject to the Plan. A total of one million (1,000,000) shares
of Common Stock may be issued under the Plan, subject to adjustment as to the
number and kind of shares pursuant to Section 4.2 hereof. For purposes of this
limitation, in the event that (a) all or any portion of any Option or Right to
Purchase granted or offered under the Plan can no longer under any circumstances
be exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 Changes in Capital Structure. In the event that the outstanding shares
of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
ARTICLE 5.
OPTIONS
5.1 Option Agreement. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, vesting provisions relating to such Option, the Exercise Price
per share, and whether the Option is an Incentive Option or Nonqualified Option.
As soon as is practical following the grant of an Option, an Option Agreement
shall be duly executed and delivered by or on behalf of the Company to the
Optionee to whom such Option was granted. Each Option Agreement shall be in such
form and contain such additional terms and conditions, not inconsistent with the
provisions of this Plan, as the Administrator shall, from time to time, deem
desirable, including, without limitation, the imposition of any rights of first
refusal and resale obligations upon any shares of Common Stock acquired pursuant
to an Option Agreement. Each Option Agreement may be different from each other
Option Agreement.
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5.2 Exercise Price. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Option is granted is a 10% Shareholder on the date of grant,
the Exercise Price shall not be less than 110% of Fair Market Value on the date
the Option is granted.
5.3 Payment of Exercise Price. Payment of the Exercise Price shall be made
upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin' commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 Term and Termination of Options. The term and provisions for
termination of each Option shall be as fixed by the Administrator, but no Option
may be exercisable more than ten (10) years after the date it is granted. An
Incentive Option granted to a person who is a 10% Shareholder on the date of
grant shall not be exercisable more than five (5) years after the date it is
granted.
5.5 Vesting and Exercise of Options. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator;
provided, however, in no event shall any Option vest as to less than 20% of the
shares represented thereby in each of the five years following grant until such
Option is fully vested.
5.6 Annual Limit on Incentive Options. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 Nontransferability of Options. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, an Option may be assigned
or transferred in any manner which an such option is permitted to be assigned or
transferred under the Code.
5.8 Rights as Shareholder. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a shareholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
5.9 Company's Repurchase Right. In the event of termination of a
Participant's employment or service as a director of the Company for any reason
whatsoever (including death or disability), the Option Agreement may provide, in
the discretion of the Administrator, that the Company, or its assignee, shall
have the right, exercisable at the discretion of the Administrator, to
repurchase shares of Common Stock acquired pursuant to the exercise of an Option
at any time prior to the consummation of the Company's initial public offering
of
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securities in an offering registered under the Securities Act of 1933, as
amended, and at the price equal to the Fair Market Value per share of Common
Stock (determined in accordance with Section 2.11 hereof) as of the date of
termination of Optionee's employment. The repurchase right provided in this
Section 5.9 shall terminate and be of no further force or effect following the
consummation of an underwritten public offering of the Company's Common Stock.
In any event, the right to repurchase must be exercised within ninety (90)
days of the termination of Participant's employment and may be paid by the
Company, or its assignee, by cash, check, or cancellation of indebtedness.
5.10 Restrictions on Underlying Shares of Common Stock. Shares of Common
Stock issued pursuant to the exercise of an Option may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Option Agreement.
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 Nature of Right to Purchase. A Right to Purchase granted to an Offeree
entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 Acceptance of Right to Purchase. An Offeree shall have no rights with
respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 Payment of Purchase Price. Subject to any legal restrictions, payment
of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock
may be made, in the discretion of the Administrator, by: (a) cash; (b) check;
(c) the surrender of shares of Common Stock owned by the Offeree that have been
held by the Offeree for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 Rights as a Shareholder. Upon complying with the provisions of Section
6.2 hereof, an Offeree shall have the rights of a shareholder with respect to
the Restricted Stock purchased pursuant to the Right to Purchase, including
voting and dividend rights, subject to the terms, restrictions and conditions as
are set forth in the Stock Purchase Agreement. Unless the Administrator shall
determine otherwise, certificates evidencing shares of Restricted Stock shall
remain in the possession of the Company until such shares have vested and are no
longer subject to any repurchase rights or restrictions on transfer in
accordance with the terms of the Stock Purchase Agreement.
6.5 Restrictions and Repurchase Right. Shares of Restricted Stock may not
be sold, assigned, transferred, pledged or otherwise encumbered or disposed of
except as specifically provided in the Stock Purchase Agreement. In the event of
termination of a Participant's employment, service as a director of the Company,
or Service Provider status for any reason whatsoever (including death or
disability), the Stock
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Purchase Agreement may provide, in the discretion of the Administrator, that the
Company, or its assignees, shall have the right, exercisable at the discretion
of the Administrator, to repurchase any shares of Restricted Stock which are
Unvested at the original Purchase Price and shares of Restricted Stock which are
Vested at a price that is equal to the Fair Market Value per share of Restricted
Stock (determined in accordance with Section 2.11 hereof) as of the date of
termination of Participant's employment. The repurchase right provided in this
Section 6.5 shall terminate and be of no further force or effect following the
consummation of an underwritten public offering of the Company's Common Stock.
In any event, the right to repurchase upon termination of Participant's
employment must be exercised within ninety (90) days of the termination of
employment and may be paid by the Company, or its assignee, by cash, check, or
cancellation of indebtedness.
6.6 Vesting of Restricted Stock. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 Dividends. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 Nonassignability of Rights. No Participant's Right to Purchase shall
be assignable or transferable except by will or the laws of descent and
distribution or as otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 Administrator. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
7.2 Powers of the Administrator. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or Right to Purchase and
to release, waive, or assign any repurchase rights of the Company with respect
to Restricted Stock or shares issued pursuant to the exercise of an Option; (h)
to extend the exercise date of any Option or acceptance date of any Right to
Purchase; (i) to provide for rights of first refusal and/or repurchase rights;
(j) to amend outstanding Option Agreements and Stock Purchase Agreements to
provide for, among other things, any change or modification which the
Administrator could have provided for upon the grant of an Option or Right to
Purchase or in furtherance of the powers provided for herein; (k) to assign any
of the Company's rights to repurchase shares of Common Stock, with or without
any consideration for the assignment; and (l) to make all other determinations
necessary or advisable for the administration of the Plan, but only to the
extent not contrary to the express provisions of the Plan. Any action, decision,
interpretation or determination made in good faith by the Administrator in the
exercise of its authority conferred upon it under the Plan shall be final and
binding on the Company and all Participants.
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7.3 Limitation on Liability. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
8.1 Change in Control. In the event that the Company at any time proposes
to enter into any transaction approved by the Board to sell substantially all of
its assets or merge or consolidate with any other entity as a result of which
either the Company is not the surviving corporation or the Company is the
surviving corporation and the ownership of the voting power of the Company's
capital stock changes by more than 50% as a result of such transaction, or in
the event of a "Recommended Share Purchase Offer" (as defined below) (a "Change
in Control"), the time period relating to the exercise or realization of all
outstanding Options, Rights to Purchase and Restricted Stock shall automatically
accelerate immediately prior to the consummation of such Change in Control,
unless the Administrator, in its discretion, shall specifically determine to the
contrary with respect to all outstanding Options, Rights to Purchase and
Restricted Stock. In addition, in the event of a Change in Control of the
Company, with respect to Options and Rights to Purchase, the Administrator may,
in its discretion, at the time any Option or Right to Purchase is granted, or at
any time thereafter, take one or more of the following actions: (i) provide for
the purchase or exchange of each Option or Right to Purchase for an amount of
cash or other property having a value equal to the difference, or spread,
between (x) the value of the cash or other property that the Participant would
have received pursuant to such Change in Control transaction in exchange for the
shares issuable upon exercise of the Option or Right to Purchase had the Option
or Right to Purchase been exercised immediately prior to such Change in Control
transaction and (y) the Exercise Price of such Option or the Purchase Price
under such Right to Purchase; (ii) adjust the terms of the Options and Rights to
Purchase in a manner determined by the Administrator to reflect the Change in
Control; (iii) cause the Options and Rights to Purchase to be assumed, or new
rights substituted therefor, by another entity, through the continuance of the
Plan and the assumption of outstanding Options and Rights to Purchase, or the
substitution for such Options and Rights to Purchase of new options and new
rights to purchase of comparable value covering shares of a successor
corporation, with appropriate adjustments as to the number and kind of shares
and Exercise Prices, in which event the Plan and such Options and Rights to
Purchase, or the new options and rights to purchase substituted therefor, shall
continue in the manner and under the terms so provided; or (iv) make such other
provision as the Administrator may consider equitable. If the Administrator does
not take any of the forgoing actions, all Options and Rights to Purchase shall
terminate upon the consummation of the Change in Control and the Administrator
shall cause written notice of the proposed transaction to be given to all
Participants not less than fifteen (15) days prior to the anticipated effective
date of the proposed transaction. For purposes of this Section 8.1, a
"Recommended Share Purchase Offer" shall be a transaction in which an offer is
made to purchase outstanding securities of the Company constituting more than
50% of the voting power of the Company's capital stock, which offer is
recommended to the Company's securityholders by the Company's Board.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendments. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionees more favorable tax treatment than that applicable
to Options granted under this
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Plan as of the date of its adoption. Upon any such alteration or amendment, any
outstanding Option granted hereunder may, if the Administrator so determines and
if permitted by applicable law, be subject to the more favorable tax treatment
afforded to an Optionee pursuant to such terms and conditions.
9.2 Plan Termination. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 Withholding. The Company shall have the power to withhold, or require
a Participant to remit to the Company, an amount sufficient to satisfy any
applicable Federal, state, and local tax withholding requirements with respect
to any Options exercised or Restricted Stock issued under the Plan. To the
extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 Benefits Not Alienable. Other than as provided above, benefits under
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.
Any unauthorized attempt at assignment, transfer, pledge or other disposition
shall be without effect.
11.2 No Enlargement of Employee Rights. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right of the Company or any Affiliated Company to discharge any
Participant at any time.
11.3 Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware, as currently amended,
permits the indemnification by a Delaware corporation of its directors,
officers, employees and other agents against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with
specified actions, suits or proceedings, whether civil, criminal, administrative
or investigative (other than derivative actions which are by or in the right of
the corporation) if they acted in good faith in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was illegal. A similar standard of care is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with defense or
settlement of an action or requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation.
Article Ninth of the Restated Certificate of Incorporation of the Registrant
provides that the Registrant shall indemnify to the fullest extent permitted by
Delaware law any persons that it has the power to indemnify under Delaware law
and also permits indemnification under the Registrant's bylaws, any agreements,
votes by stockholders or disinterested directors, or otherwise, for actions
committed in the person's official capacity or in another capacity while holding
such office.
Item 21. Exhibits and Financial Statement Schedules.
SEE EXHIBIT INDEX
The Registrant is eligible to use Form S-2 for primary securities offerings. In
accordance with the notes to the Exhibit Table set forth in Item 601 of
Regulation S-K, the Registrant elects to provide information at the level
prescribed by Form S-2.
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Item 22. Undertakings.
(a) Undertakings required by Item 512 of Regulation S-K:
(A) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Section 210.3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Section 210.3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3.
(B) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE> 347
(C) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the registrant undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(D) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(E) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 348
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anaheim, State of
California, on July 9, 1998.
GB FOODS CORPORATION
By: ANDREW F. PUZDER
----------------------------------
Andrew F. Puzder
President, Chief Executive
Officer, and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
as of the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ----------------- ---------------------- -----------------
<S> <C> <C>
WILLIAM P. FOLEY, II* Chairman of the Board July 9, 1998
- --------------------- and Director
William P. Foley, II
ANDREW F. PUZDER* President, Chief Executive July 9, 1998
- --------------------- Officer, and Director
Andrew F. Puzder (Principal Executive Officer)
THEODORE ABAJIAN* Executive Vice President, July 9, 1998
- --------------------- Chief Financial Officer and
Theodore Abajian Accounting Officer (Principal
Financial and Accounting Officer)
T. ANTHONY GREGORY* Director July 9, 1998
- ---------------------
T. Anthony Gregory
BRUCE H. HAGLUND* Director July 9, 1998
- ---------------------
Bruce H. Haglund
FRANK P. WILLEY* Director July 9, 1998
- ---------------------
Frank P. Willey
*By: ANDREW F. PUZDER
-----------------
Andrew F. Puzder
Attorney in fact
</TABLE>
II-4
<PAGE> 349
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exh.
No. Description
- ---- -----------
<C> <S>
2.1 Conformed Copy of Amended and Restated Agreement and Plan of Merger dated
as of June 9, 1998, excluding schedules (Included in Annex A to the Joint
Proxy Statement/Prospectus).
2.2 Conformed copy of First Amendment to Amended and Restated Agreement and
Plan of Merger, dated as of July 8, 1998 (Included as pages A-32 and A-33
in Annex A to the Joint Proxy Statement/Prospectus).
2.3 Conformed Copy of Agreement and Plan of Reorganization dated as of
February 19, 1998, excluding schedules (Included in Annex G to the Joint
Proxy Statement/Prospectus).
2.4 Conformed Copy of Assignment of Agreement and Plan of Reorganization,
dated as of March 26, 1998 (Included as pages G-25 and G-26 in Annex G
to the Joint Proxy Statement/Prospectus).
2.5 Conformed Copy of First Amendment to Agreement and Plan of
Reorganization, dated as of March 27, 1998 (Included as pages G-27 and
G-28 in Annex G to the Joint Proxy Statement/Prospectus).
2.6 Conformed copy of Second Amendment to Agreement and Plan of
Reorganization, dated as of June 3, 1998 (Included as pages G-29 and
G-30 in Annex G to the Joint Proxy Statement/Prospectus).
2.7 Conformed copy of Third Amendment to Agreement and Plan of
Reorganization, dated as of July 8, 1998 (Included as pages G-31 and G-32
in Annex G to the Joint Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation; filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991, and
incorporated by reference.
3.2 Bylaws of the Company, as amended; filed with the Registrant's
Registration Statement on Form S-18, dated August 18, 1990 and
incorporated by reference.
5.1 Opinion and consent of The Stolar Partnership, counsel to the Registrant,
concerning the legality of the shares of common stock being registered
hereunder.
8.1 Opinion and consent of Larkin, Hoffman, Daly & Lindgren, Ltd.
relating to certain federal income tax matters.
8.2 Opinion and consent of The Stolar Partnership relating to the federal
income tax effects of the Merger and certain other transactions on the
Registrant.
8.3 Supplemental opinion and consent of The Stolar Partnership relating to
certain other federal income tax effects on the Registrant.
10.1 Incentive Stock Option Plan and form of Non-qualified Stock Option
Agreement; filed with the Registrant's Registration Statement on Form
S-18, dated August 21, 1990 and incorporated by reference.
10.2 Non-qualified Stock Option Plan and form of Non-Qualified Stock Option
Agreement; filed with the Registrant's Registration Statement on Form
S-18, dated August 21, 1990, and incorporated by reference.
</TABLE>
II-5
<PAGE> 350
<TABLE>
<CAPTION>
Exh.
No. Description
- ---- -----------
<C> <S>
10.3 Form of Franchise Agreement; filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by
reference.
10.4 Form of Dual-concept Franchise Agreement; filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference.
10.5 Green Burrito-Glendora #21 Limited Partnership Agreement; filed with the
Registrant's Registration Statement on Form S-18, dated August 21, 1990,
and incorporated by reference.
10.6 Operations Support Agreement between GB Foods, Inc. and GB Franchise
Corporation dated April 1, 1989; filed with the Registrant's Registration
Statement on Form S-18, dated August 21, 1990, and incorporated by
reference.
10.7 Office Lease between the Registrant and The Irvine Company dated July 1,
1994; filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated by reference.
10.8 Stock Purchase Agreement between William M. Theisen and the Registrant
dated October 29, 1992, including Amendment to Stock Purchase Agreement
dated November 4, 1992 and Second Amendment to Stock Purchase Agreement
dated November 23, 1992; filed with the Registrant's Report on Form 8-K
dated November 23, 1992, and incorporated by reference.
10.9 Amended Warrant Agreement and Form of Warrant Certificate between the
Registrant and William M. Theisen dated November 23, 1992; filed with the
Registrant's Annual report on Form 10-K for the year ended December 31,
1995, and incorporated by reference.
10.10 Form of Irrevocable Proxy Agreement between Ruben M. Rodriguez, Gary A.
McArthur, and Robert V. Gibson, as "Stockholders," and William M.
Theisen; filed with the Registrant's Report on Form 8-K dated November
23, 1992, and incorporated by reference.
10.11 Sub-Lease dated March 29, 1993 between the Registrant and T&J Sausage
Kitchen, Inc.; filed with the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, and incorporated by reference.
10.12 Warrant agreement dated May 1, 1995 between the Registrant and McGrath,
North, Mullin & Kratz, P.C. The Warrant was purchased by Fidelity on July
22, 1997. The warrant agreement was filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference. The purchase was described in the Registrant's
Report on Form 8-K dated July 22, 1997 and incorporated by reference.
10.13 Stock Option Agreement between the Registrant and George J. Kubat dated
October 3, 1996; filed with the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated by reference.
</TABLE>
II-6
<PAGE> 351
<TABLE>
<CAPTION>
Exh.
No. Description
- ---- -----------
<S> <C>
10.14 Fidelity Stock and Warrant Purchase Agreements dated July 22, 1997; filed
with the Registrant's report on Form 8-K for July 22, 1997 and
incorporated by reference.
10.15 Letter of Intent to acquire stock of Timber Lodge Steakhouse dated
December 12, 1997; filed with the Registrant's Report on Form 8-K for
December 12, 1997 and incorporated by reference.
10.16 Form of employment agreement proposed to be executed by Dermot F. Rowland
and Timber Lodge Steakhouse, Inc. in connection with the merger.
10.17 GB Foods Corporation 1998 Stock Option Plan (included as Annex I to the
Joint Proxy Statement/Prospectus).
11 Statement regarding Calculation of Earnings Per Share; filed as Exhibit
11 to Registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated by reference.
13 Registrant's annual report on Form 10-K/A for the fiscal year ended
December 31, 1997, including financial statements and auditors' report
thereon and its quarterly report on Form 10-Q, for the quarterly period
ending March 31, 1998, excluding exhibits (Included as Annex E in the
Joint Proxy Statement/Prospectus); Registrant issues no separate annual
report to its shareholders.
21 List of Subsidiaries of the Registrant; filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990,
and incorporated by reference.
23.1 Consent of Grant Thornton LLP, independent auditors for the Registrant.
23.2 Consent of Cacciamatta Accountancy Corporation, independent auditors for
the Registrant.
23.3 Consent of Ernst & Young LLP, independent auditors for Timber Lodge
Steakhouse, Inc., the company to be acquired in the merger.
23.4 Consent of KPMG Peat Marwick LLP, independent auditors for JB's Family
Restaurants, Inc., the company to be acquired in a private transaction
which the registrant's shareholders are being asked to approve apart from
the merger transaction.
23.5 Consents of The Stolar Partnership (included in Exhibits 5, 8.2 and 8.3).
23.6 Consent of Larkin, Hoffman, Daly & Lindgren, Ltd.
(included in Exhibit 8.1).
23.7 Consent of Piper Jaffray Inc., financial advisor to the registrant.
23.8 Consent of Pauli & Company Incorporated, financial advisor to Timber
Lodge Steakhouse, Inc.
24.1 Power of Attorney executed by certain of the officers and directors of
the Registrant.
24.2 Power of Attorney executed by the principal financial and accounting
officer of the Registrant.
</TABLE>
II-7
<PAGE> 352
<TABLE>
<CAPTION>
Exh.
No. Description
- ---- -----------
<S> <C>
99.1 Form of Proxy for shareholders' meeting of Registrant.
99.2 Form of Proxy for shareholders' meeting of Timber Lodge Steakhouse, Inc.
99.3 Opinion of Piper Jaffray, Inc., financial advisor to the Registrant,
relating to the Merger, and its Supplemental Letter (Included as Annex C
to the Joint Proxy Statement/Prospectus).
99.4 Opinion of Pauli & Company Incorporated, financial advisor to Timber
Lodge Steakhouse, Inc., relating to the Merger (included as Annex D to
the Joint Proxy Statement/Prospectus).
99.5 Consent of Dermot F. Rowland (filed pursuant to Rule 438).
99.6 Opinion of Piper Jaffray, Inc., financial advisor to the Registrant,
relating to the Registrant's acquisition of JB's Family Restaurants, Inc.
(included as Annex H to the Joint Proxy Statement/Prospectus).
</TABLE>
All Exhibits not incorporated by reference are filed electronically.
II-8
<PAGE> 1
EXHIBIT 5.1
THE STOLAR PARTNERSHIP
911 Washington Avenue, 7th Floor
St. Louis, Missouri 63101-1290
(314) 231-2800
Telefax: (314) 436-8400
July 9, 1998
GB Foods Corporation
1200 North Harbor Blvd.
Anaheim, California 92803
Re: Registration Statement on Form S-4 Relating to Shares of Common Stock
to be issued pursuant to an Amended and Restated Agreement of Merger
Dated as of June 9, 1998, as amended, among GB Foods Corporation, TLS
Acquisition Corp., and Timber Lodge Steakhouse, Inc.
---------------------------------------------------------------------
Ladies and Gentlemen:
GB Foods Corporation, a Delaware corporation ("GBF") proposes to file with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, a Registration Statement on Form S-4 relating to an indeterminate
number of shares (the "Shares") of common stock, par value $0.08 per share
("Common Stock"), which are proposed to be issued to shareholders of Timber
Lodge Steakhouse, Inc., a Minnesota corporation ("Timber Lodge") pursuant to an
Amended and Restated Agreement and Plan of Merger dated March 12, 1998 among
GBF, Timber Lodge (the "Merger Agreement"). The Shares will be offered pursuant
to a Joint Proxy Statement/Prospectus, which will constitute the proxy statement
and prospectus of GBF and the proxy statement of Timber Lodge.
In connection with the proposed registration, we have examined corporate
records of GBF and such other documents and materials as we have considered
relevant to the matters set forth below, and we have made such investigation of
matters of law and fact as we have considered appropriate. Based on the
foregoing, we are of the opinion that:
1. GBF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and (subject to
the next paragraph) has the authority to issue the Shares pursuant
to the Merger Agreement.
2. The Shares, when issued or sold pursuant to the provisions, terms,
and conditions of the Merger Agreement, will be legally issued,
fully paid, and non-assessable shares of common stock of GBF
(subject to the next paragraph).
Our enumerated opinions are based on the following representations to us by
GBF [as to (a), (b) and (c)] and Timber Lodge [as to (d) and (e)]: (a) the
number of shares of Common Stock outstanding today is 6,576,485 shares; (b) the
number of shares of common stock reserved for future issuance under GBF's
outstanding stock options and warrants, its new 1998 Stock Option Plan, its
commitment to purchase JB's Family Restaurants, Inc., and all other reservations
and commitments except the Merger is not more than 8,000,000 shares; (c) GBF has
assured us that it will elect to abandon the Merger rather than permit the
exchange ratio to increase to the point where more than 30 million shares are
issued in the Merger; (d) the number of shares of Timber Lodge common stock,
options, and warrants currently outstanding are 3,637,415 shares plus 398,666
options and warrants; and (e) the only other Timber Lodge shares reserved for
issuance are the 687,890 shares to be issued to acquire JB Parent Corp. from CKE
Restaurants, Inc.
We consent to the filing of this opinion as an exhibit to the aforesaid
proposed Registration Statement, and we consent to the use of our name in such
Registration Statement.
Very truly yours,
THE STOLAR PARTNERSHIP
By: /s/ JOHN A. NIEMOELLER
---------------------------
John A. Niemoeller
<PAGE> 1
EXHIBIT 8.1
[Larkin, Hoffman, Daly & Lindgren, Ltd. Letterhead]
July 10, 1998
Timber Lodge Steakhouse, Inc.
4021 Vernon Avenue South
St. Louis Park, Minnesota 55416
Dear Gentlemen:
You have requested our opinion regarding the material federal income tax
consequences of the proposed merger (the "Merger") of TLS Acquisition Corp., a
Minnesota corporation (the "Merger Subsidiary"), with and into Timber Lodge
Steakhouse, Inc., a Minnesota corporation (the "Company"). The Merger Subsidiary
is a wholly owned subsidiary of GB Foods Corporation, a Delaware corporation
(the "Parent"). Capitalized terms used herein and not otherwise defined herein
have the meanings specified in the Amended and Restated Agreement and Plan of
Merger among the Company, the Parent and the Merger Subsidiary dated June 9,
1998 and subsequently amended by a First Amendment dated as of July 9, 1998 (the
"Merger Agreement).
In formulating our opinion, we have examined and relied upon such documents as
we deemed appropriate, including the Merger Agreement and the Form S-4
Registration Statement/Proxy Statement, dated July 10, 1998 (the "Registration
Statement"). In addition, we have obtained and relied upon such additional
information as we have deemed relevant and necessary through consultation with
various officers, shareholders and representatives of the Company and the
Parent.
Our opinion set forth below assumes (1) the accuracy of the statements and facts
concerning the Merger as set forth in the Merger Agreement and the Registration
Statement; (2) the consummation of the Merger in the manner contemplated by, and
in accordance with the terms set forth in, the Merger Agreement and the
Registration Statement, without any amendment or waiver of any provisions of
such Merger Agreement or Registration Statement subsequent to the date hereof;
(3) the representations made by the Company, as set forth in the Officer's
Certificate delivered to us by the Company as of this date, were true and
correct when made and will be true and correct at the Effective Time; (4) the
representations made by the Parent, as set forth in the Officer's Certificate
delivered to us by the Parent as of this date, were true and correct when made
and will be true and correct at the Effective Time; and (5) the representations
made by certain
<PAGE> 2
Timber Lodge Steakhouse, Inc.
July 10, 1998
Page 2
- -----------------------------
shareholders of the Company, as set forth in the Shareholders' Certificates
delivered to us by such shareholders as of this date, were true and correct when
made and will be true and correct at the Effective Time.
In connection with the Merger, the shareholders of the Company will exchange, in
the aggregate, all of the shares of the Company's common stock, One Cent ($.01)
par value per share (the "Common Stock"), for the right to receive, in the
aggregate, except for cash paid in lieu of fractional shares or cash paid to
dissenting shareholders, solely shares of the Parent's common stock, Eight Cent
($.08) par value per share (the "GB Foods Common Stock").
We have assumed, without independent verification, the genuineness of all
signatures and authenticity of all documents submitted to us. As to various
matters of fact material to this opinion, we have relied upon certificates of
officers of the Company and the Parent, and certificates of certain shareholders
of the Company. In addition, we have neither investigated nor verified the
accuracy of any of the assumptions upon which this opinion is based.
Based upon the facts and statements set forth above, our examination and review
of the documents referred to above and subject to the assumptions set forth
above, we are of the opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. No gain or loss will be recognized by the Company as a result of the
Merger.
3. No gain or loss will be recognized by the shareholders of the Company
upon the receipt of GB Foods Common Stock solely in exchange for their
Common Stock.
4. The basis of the GB Foods Common Stock received by a shareholder of the
Company will be the same as the basis of the Common Stock that was
exchanged therefor.
5. A dissenting shareholder of the Company who receives cash in exchange
for his or her Common Stock will be treated as having received a
distribution from the Company in redemption of his or her Common Stock
subject to the provisions and limitations of Section 302 of the Code.
6. The holding period of the GB Foods Common Stock received by a
shareholder of the Company will include the period during which the
Common Stock surrendered in exchange therefor was held by a shareholder
of the Company provided that the Common Stock surrendered was a capital
asset in the hands of the shareholder of the Company on the date of the
exchange.
7. Any cash received by a holder of the Common Stock in lieu of a
fractional share will be treated as received in exchange for such
fractional share, and any gain or loss recognized as a result of the
receipt of such cash will be capital gain or loss equal to the
difference between the cash received and the portion of the
shareholder's basis in the Common Stock allocable to such fractional
share
<PAGE> 3
Timber Lodge Steakhouse, Inc.
July 10, 1998
Page 3
- -----------------------------
interest provided that the Common Stock surrendered was a capital asset
in the hands of the shareholder of the Company on the date of the
exchange.
We express no opinion concerning any tax consequences of the Merger other than
those specifically set forth herein. In particular, this opinion does not
address all aspects of federal income taxation that may be relevant to a
shareholder of the Company that is subject to special treatment under the
federal income tax laws (including life insurance companies, foreign persons,
tax-exempt entities, financial institutions, broker-dealers, or holders who
acquired the Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation). The opinion further assumes that the Common Stock
will be held as a capital asset by a shareholder of the Company at the Effective
Time of the Merger.
In addition, we express no opinion concerning, and specifically exclude from
this opinion, all aspects of federal income taxation relating to the Merger, and
any transaction related thereto, for any and all shares of Common Stock owned,
directly or indirectly, by or on behalf of CKE Restaurants, Inc.
The federal income tax consequences discussed above depend upon the particular
tax status of each of the shareholders of the Company. Each such shareholder
should consult his or her own tax advisor for advice on the tax consequences of
the Merger to the shareholder in light of such shareholder's particular tax
circumstances.
Our opinion is based on present law and existing interpretations thereof by the
courts and the Internal Revenue Service. Any change in the facts, currently or
in the future, or any change in the law or existing interpretations thereof, may
adversely affect our opinion. Further, our opinion is not binding on the
Internal Revenue Service and the tax effects discussed above are not subject to
absolute resolution prior to the running of the statute of limitations or the
rendering of a final determination by a court of law or by closing agreement
with the Internal Revenue Service. Finally, it should be noted that we have
expressed no opinion except as specifically set forth herein.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to this Firm under such headings. However, in
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933 or the
rules and regulations promulgated thereunder by the Securities and Exchange
Commission. This opinion is not to be quoted, in whole or in part, nor filed
with any other governmental agency or any other person without the prior written
consent of this Firm.
Sincerely,
/s/ LARKIN, HOFFMAN, DALY & LINDGREN, Ltd.
- ---------------------------------------------
LARKIN, HOFFMAN, DALY & LINDGREN, Ltd.
<PAGE> 1
EXHIBIT 8.2
THE STOLAR PARTNERSHIP
911 Washington Avenue, 7th Floor
St. Louis, Missouri 63101-1290
(314) 231-2800
Telefax: (314) 436-8400
July 9, 1998
GB Foods Corporation
1200 N. Harbor Blvd.
Anaheim, California 92803
Re: GB Foods -- Acquisition of Timber Lodge
---------------------------------------
Ladies and Gentlemen:
This letter sets forth our opinion with regard to certain federal
income tax consequences to GB Foods Corporation, a Delaware corporation ("GB
Foods") with respect to the merger (the "Merger") of Timber Lodge Steakhouses,
Inc., a Minnesota corporation ("Timber Lodge") into TLS Acquisition Corp., a
Minnesota corporation and a wholly-owned subsidiary of GB Foods.
Our opinion is based upon our review of the Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 3) (the "Prospectus") which describes the Merger and certain
other related transactions, and upon certain facts represented to us by GB Foods
and Timber Lodge that we have not independently confirmed. Specifically, in
rendering this opinion, we rely on representations that:
(1) The attached schedule of share ownership ("Schedule") is an accurate
and complete representation of the share ownership of GB Foods and
Timber Lodge before and after the Merger.
(2) Each of the shareholders listed individually as a 5% shareholder on the
Schedule previously owned, currently owns and/or, after the Merger,
will own, 5% or more of the outstanding stock of GB Foods.
Assuming application of current statutory, regulatory, and judicial
law, and assuming that the Merger ultimately occurs as described in the
Prospectus, it is the opinion of The Stolar Partnership that the Merger will
constitute a change of control as defined in Section 382 of the Internal Revenue
Code of 1986, as amended, which will limit the amount of GB Foods net operating
loss which may be used by the combined entity after the Merger in any one year
to an amount equal to the value of GB Foods on the date the Merger occurs times
the then-applicable Federal long-term tax-exempt rate. We note that the current
applicable Federal long-term tax-exempt rate is 5.00%; if that rate applied at
closing, and if GB Foods aggregate value at closing were $41.0 million (which,
assuming 6,571,485 shares were outstanding, was the case on July 6, 1998), then
the annual limit would be approximately $2.1 million.
The Stolar Partnership is not expressing any opinion with respect to
any matters other than those expressly set forth above. The opinion set forth
above is based upon the documents reviewed by us and the facts presented to us.
Any material amendments to such documents or changes in any significant fact
could affect the opinion expressed herein. No person or entity other than the
addressee may rely on this opinion, and this letter may not be quoted or used,
in whole or in part, for any purpose, without our express prior written consent.
We consent to the filing of this opinion as an exhibit to the
registration statement of which the Prospectus is a part, and we consent to the
use of our name in such registration statement.
THE STOLAR PARTNERSHIP
By: /s/ AMY M. FABER
----------------------
Amy M. Faber
<PAGE> 1
EXHIBIT 8.3
THE STOLAR PARTNERSHIP
911 Washington Avenue, 7th Floor
St. Louis, Missouri 63101-1290
(314) 231-2800
Telefax: (314) 436-8400
July 9, 1998
GB Foods Corporation
1200 N. Harbor Drive
Anaheim, California 92803
Re: GB Foods -- Acquisition of JB's Family Restaurants, Inc.
--------------------------------------------------------
Ladies and Gentlemen:
This letter sets forth our opinion with regard to certain federal income
tax consequences to GB Foods Corporation, a Delaware corporation ("GB Foods")
with respect to the issuance of its stock in exchange for all of the stock of
JB's Family Restaurants, Inc., a Delaware corporation (the "Exchange").
Our opinion is based upon our review of the Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 3) (the "Prospectus") which describes the Exchange and certain
other related transactions.
Assuming application of current statutory, regulatory, and judicial
law, and assuming that the Exchange ultimately occurs as described in the
Prospectus, it is the opinion of The Stolar Partnership that under Section 1032
of the Internal Revenue Code of 1986, as amended, GB Foods will not recognize
gain or loss on the issuance of its stock in the Exchange.
The Stolar Partnership is not expressing any opinion with respect to
any matters other than those expressly set forth above. The opinion set forth
above is based upon the documents reviewed by us and the facts presented to us.
Any material amendments to such documents or changes in any significant fact
could affect the opinion expressed herein. No person or entity other than the
addressee may rely on this opinion, and this letter may not be quoted or used,
in whole or in part, for any purpose, without our express prior written consent.
We consent to the filing of this opinion as an exhibit to the
registration statement of which the Prospectus is a part, and we consent to the
use of our name in such registration statement.
THE STOLAR PARTNERSHIP
By: /s/ THOMAS E. VENKER, JR.
---------------------------
Thomas E. Venker, Jr.
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into to be
effective as of October 1, 1998 (the "Effective Date"), by and between TIMBER
LODGE STEAKHOUSE, INC., a Minnesota corporation (the "Company"), GB FOODS
CORPORATION, a Delaware corporation ("GBFC"), and DERMOT F. ROWLAND, a Minnesota
resident (the "Employee"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
l. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to serve as an Executive Vice
President of the Company, and the Employee accepts such employment. In addition,
the Employee shall serve on the Board of Directors of the Company for each year
during the Term. Notwithstanding anything to the contrary above, however, the
Company and GBFC expressly acknowledge and agree that the Employee is
semi-retired and that his duties as an employee hereunder shall be limited to
providing consultation and advice to the Company from time to time.
2. Term. The term of employment under this Agreement shall be for a
period of three (3) years (the "Term") commencing on the Effective Date, subject
to termination pursuant to Section 4, below. The Term may be extended upon
mutual agreement of the parties.
3. Compensation.
3.1 Annual Salary. During the Term of this Agreement, the Company
shall pay the Employee a base annual salary, before deducting all applicable
withholdings, of Thirty-Six Thousand Dollars ($36,000) per year (the "Base
Salary"), payable at the times and in the manner dictated by the Company's
standard payroll policies.
3.2. Benefits. During the Term, the Employee shall be entitled to
participate in and receive all benefits under any Company benefit plan or
program (including, without limitation, medical, health, dental, disability, and
group life), any retirement savings plan or program (including, without
limitation, 401(k) and employee stock purchase plan), and such other perquisites
of office maintained by the Company immediately prior to the Effective Time (the
"Company Benefit Plans"). If, at any time after the Effective Time, GBFC elects
to consolidate the Company Benefit Plans into similar plans and arrangements
provided by GBFC (the "GBFC Benefit Plans"), then the Employee shall (i) be
credited for all prior service with the Company to be applied against all
service and waiting periods under the GBFC Benefit Plans; (ii) be credited for
any deductibles paid for the plan year under the Company Benefit Plans to be
applied against any deductibles under the GBFC Benefit Plans; and (iii) not
excluded from any GBFC Benefit Plan for any pre-existing condition if the
Employee was entitled to coverage under the Company Benefit Plans immediately
prior to the Effective Time.
1
<PAGE> 2
3.3 Expense Reimbursement. In addition to the compensation and
benefits provided herein, the Company shall, upon receipt and approval of
appropriate documentation, reimburse the Employee each month for his reasonable
travel, lodging, entertainment, promotion and other ordinary and necessary
business expenses. The arrangement set forth in this Section 3.4 is intended to
constitute an accountable plan within the meaning of Section 162 of the Code and
the accompanying regulations, and the Employee agrees to comply with all
reasonable guidelines established by the Company from time to time to meet the
requirements of Section 162 of the Code and the accompanying regulations.
4. Termination.
4.1 Termination by Employee or the Company. The Employee may
terminate this Agreement at any time and for any reason. The Company may only
terminate this Agreement for "cause" upon written notice to the Employee. For
purposes of this Agreement, "cause" shall mean: misconduct, dishonesty,
insubordination, or other act by Employee that in any way has a direct,
substantial and adverse effect on the Company's reputation or its relationship
with its customers or employees, including, without limitation, (i) use of
alcohol such as to interfere with the Employee's obligations hereunder, (ii) the
use of illegal drugs; (iii) conviction of a felony or of any crime involving
moral turpitude or theft, and (iv) material failure by Employee to comply with
applicable laws or governmental regulations pertaining to Employee's employment
hereunder. In the event of a termination of this Agreement pursuant to this
Section 4.1, the Company shall only be obligated to pay to the Employee the Base
Salary due him through the date of termination.
4.2 Death. Notwithstanding any other provisions to the contrary
contained herein, if the Employee dies during the Term of this Agreement, this
Agreement shall terminate immediately, and the Employee's legal representatives
or designated beneficiary shall be entitled to receive the unpaid Base Salary
earned through the date of the Employee's death.
4.3 Effect of Termination. Termination for any cause or without
cause shall not constitute a waiver of the Company's rights under this Agreement
as specified in Section 6 nor a release of the Employee from any obligation
hereunder except his obligation to perform his day-to-day duties as an employee.
5. Non-Delegation of Employee's Rights. The obligations, rights and
benefits of the Employee hereunder are personal and may not be assigned or
transferred in any manner whatsoever, nor are such obligations, rights or
benefits subject to involuntary alienation, assignment or transfer.
6. Covenants of Employee.
6.1 Confidentiality. The Employee acknowledges that in his
capacity as an employee of the Company he will occupy a position of trust and
confidence, and he further acknowledges that he will have access to and learn
substantial information about the Company and its operations that is
confidential or not generally known in the industry including, without
2
<PAGE> 3
limitation, information that relates to purchasing, sales, customers, marketing,
the Company's financial position and financing arrangements. The Employee agrees
that all such information is proprietary or confidential or constitutes trade
secrets and is the sole property of the Company. Accordingly, during the
Employee's employment by the Company and for a period of two (2) years
thereafter, the Employee will keep confidential, and will not without the
Company's permission reproduce, copy or disclose to any other person or firm,
any such information or any documents or information relating to the Company's
methods, processes, customers, accounts, analyses, systems, charts, programs,
procedures, correspondence, or records, or any other documents used or owned by
the Company, nor will the Employee advise, discuss with or in any way assist any
other person or firm in obtaining or learning about any of the items described
in this Section 6.1, either alone or with others, outside the scope of his
duties and responsibilities with the Company unless otherwise required by law or
court ordered subpoena.
6.2 Competitive Activities During Employment The Employee will
not, during his employment by the Company, engage in any way whatsoever,
directly or indirectly, in any business that is competitive with the Company,
nor solicit, or in any other manner work for or assist any business which is
competitive with the Company. During his employment by the Company, the Employee
will undertake no planning for or organization of any business activity
competitive with the work he performs as an employee of the Company, and the
Employee will not, during his employment by the Company, combine or conspire
with any other employee of the Company or any other person for the purpose of
organizing any such competitive business activity.
6.3 Non-Competition After Employment. For a period of two (2)
years from and after the expiration of the Term or the prior termination of this
Agreement, the Employee will not, for any reason whatsoever, directly or
indirectly, for the Employee or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor in any business in direct
competition with the current business or any related business of the Company,
within 50 miles of where the Company anywhere conducts such business (the
"Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of the Company in a managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the employ of
the Company;
(c) call upon any person or entity which is, at that time,
or which has been within one (1) year prior to that time, a customer of the
Company within the Territory for the purpose of soliciting or selling products
or services in competition with the Company within the Territory; or
3
<PAGE> 4
(d) call upon any prospective acquisition candidate, on
the Employees own behalf or on behalf of any competitor, which candidate was
either called upon by the Company or for which the Company made an acquisition
analysis.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Employee from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business whose stock is traded on a
national securities exchange or over-the-counter.
The Employee expressly agrees that the foregoing covenants impose a reasonable
restraint on the Employee in light of the activities and business of the Company
on the date of the execution of this Agreement and the current plans of the
Company. The covenants in this Section 6.3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Section 6.3 shall thereby be reformed. All of the covenants in this Section 6.3
shall be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action by the Employee
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of such covenants.
The Employee specifically agrees that the duration of the covenants stated at
the beginning of this Section 6.3 shall be computed by adding to such time
periods any time during which the Employee is found by a court of competent
jurisdiction to have been in violation of any provision of this Section 6.3. The
Employee expressly agrees that the covenants set forth in this Section 6.3 are a
material and substantial part of this Agreement and that certain Agreement and
Plan of Merger, dated January 16, 1998, by and among GBFC, TLS Acquisition Corp.
and the Company.
6.4 Remedy for Breach. The Employee acknowledges that the Company
will be irrevocably damaged if all of the provisions of this Section 6 are not
specifically enforced. Accordingly, the Employee agrees that, in addition to any
other relief to which the Company may be entitled, the Company will be entitled
to seek and obtain injunctive relief without bond from a court of competent
jurisdiction for the purpose of restraining the Employee from any actual or
threatened breach of this Section 6. The Employee's obligations under this
Section 6 shall survive the Employee's termination of employment with the
Company for the periods of time specified in this Section 6.
7. Return of Company Documents. Upon termination of this Agreement, the
Employee shall return immediately to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.
8. Florida Restaurants. If, during the Term of this Agreement, the
Company determines to open Timber Lodge Steakhouse restaurants in the greater
metropolitan areas of Sarasota, Naples or Fort Meyers, Florida, then, with
respect to the first three (3) such restaurants, the Company shall either (i)
franchise such restaurants to the Employee; or (ii) enter into a joint venture
or similar
4
<PAGE> 5
relationship with the Employee with respect to the ownership and operation of
such restaurants, in each case on terms and conditions mutually agreed upon by
the Employee and the Company. The obligations of the Company under this Section
8 shall not survive the prior termination of this Agreement, provided, however,
that the terms and conditions of any franchise, joint venture or similar
agreement entered into between the Employee and the Company prior to such
termination shall survive.
9. Miscellaneous.
9.1 Entire Agreement; Amendment. This Agreement constitutes the
entire agreement between the parties with respect to the Employee's employment
with the Company and supersedes any and all prior or contemporaneous agreements
or understandings, whether oral or written, relating to the Employee's
employment. This Agreement may be amended, modified, supplemented, or changed
only by a written document signed by all parties to this Agreement.
9.2 Governing Law and Venue. This Agreement, and any dispute
arising from the relationship between the parties to this Agreement, shall be
governed by California law. Venue for any dispute arising from the relationship
between the parties to this Agreement or for any action to enforce or defend the
terms of this Agreement shall be in Santa Barbara County, California.
9.3 Attorneys' Fees. In any arbitration or other proceeding by
which one party either seeks to enforce its rights under this Agreement (whether
in contract, tort, or both) or seeks a declaration of any rights or obligations
under this Agreement, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable attorney fees, together with any costs and
expenses, to resolve the dispute and to enforce the final judgment.
9.4 Severability. If any section, subsection or provision hereof
is found for any reason whatsoever to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of the Company and the Employee in this Agreement
shall each be construed as an agreement independent of any other provision in
this Agreement, and the existence of any claim or cause of action of the
Employee against the Company or of the Company against the Employee, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company or the Employee of the covenants in this Agreement.
9.5 Notices. Any notice, request, or instruction to be given
hereunder shall be in writing and shall be deemed given when personally
delivered or three (3) days after being sent by United States certified mail,
postage prepaid, with return receipt requested, to the parties at their
respective addresses set forth below:
5
<PAGE> 6
To the Company:
Timber Lodge Steakhouse, Inc.
4021 Vernon Avenue South
Minneapolis, Minnesota 55416
Attention: President
With a Copy to:
GB Foods Corporation
3916 State Street
Santa Barbara, California 93105
Attn: Andrew F. Puzder
Chief Executive Officer
To the Employee:
Dermot F. Rowland
------------------
------------------
9.6 Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
9.7 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties and their permitted assigns. Neither this Agreement
nor any of the rights of the parties hereunder may be transferred or assigned by
either party without the consent of the other party. Notwithstanding the
preceding sentence, the Company may assign this agreement without the consent of
the Employee to any related entity in connection with a reorganization or
restructuring of the Company or GBFC. Any assignment or transfer in violation of
this Section 9.7 shall be void.
9.8 Captions and Headings. The captions and headings are for
convenience of reference only and shall not be used to construe the terms or
meaning of any provisions of this Agreement.
9.9 Legal Counsel/Mutual Drafting. Each party hereto acknowledges
and represents that it has been represented by its own legal counsel in
connection with the terms and conditions of this Agreement, with the opportunity
to seek advice as to its legal rights and obligations from such counsel. This
Agreement is the mutual product of the parties hereto, and each provision hereof
has been subject to the mutual consultation, negotiation and agreement of each
of the parties, and shall not be construed for or against any party hereto.
6
<PAGE> 7
IN WITNESS WHEREOF the parties have executed this Employment
Agreement as of the date set forth above.
COMPANY:
TIMBER LODGE STEAKHOUSE, INC.,
a Minnesota corporation
By:
--------------------------------------
Its:
------------------------------------
GBFC:
GB FOODS CORPORATION,
a Delaware corporation
-----------------------------------------
Andrew F. Puzder, Chief Executive Officer
EMPLOYEE:
-----------------------------------------
Dermot F. Rowland
7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our report dated January 30, 1998, except for Note 16 as to which
the date is February 19, 1998, accompanying the 1997 and 1996 consolidated
financial statements of GB Foods Corporation contained in the Registration
Statement and Joint Proxy Statement/Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Joint Proxy
Statement/Prospectus, and to the use of our name as it appears under the caption
"Experts."
/s/ GRANT THORNTON LLP
---------------------------------------------
Grant Thornton LLP
Irvine, California
July 9, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our report dated February 23, 1996, accompanying the consolidated
statement of operations, shareholders' equity and cash flows of GB Foods
Corporation for the year ended December 31, 1995 contained in the Registration
Statement and Joint Proxy Statement/Prospectus. We consent to the use of the
aforementioned report in the Registration Statement/Joint Proxy
Statement/Prospectus and to the use of our name as it appears under the caption
"Experts."
/s/ CACCIAMATTA ACCOUNTANCY CORPORATION
---------------------------------------------
Cacciamatta Accountancy Corporation
Irvine, California
July 9, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 13, 1998, with respect to the financial
statements of Timber Lodge Steakhouse, Inc. included in the Joint Proxy
Statement/Prospectus of GB Foods Corporation, that is made a part of the
Registration Statement (Form S-4) of GB Foods Corporation.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
Minneapolis, Minnesota
July 9, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
JB's Family Restaurants, Inc., Salt Lake City
We consent to the use of our report dated March 30, 1998, with respect to the
financial statements of JB's Family Restaurants, Inc., included herein and to
the reference to our firm under the headings "Experts" and "Selected Historical
Financial Data Regarding JBRI" in the Joint Proxy Statement/Prospectus for a
Proposal to Merge. Our report refers to a business combination accounted for as
a purchase that occurred on July 15, 1996, the result of which renders the
financial information for the periods before and after the acquisition not
comparable.
/s/ KPMG PEAT MARWICK LLP
---------------------------------------------
KPMG Peat Marwick LLP
Salt Lake City, Utah
July 9, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF PIPER JAFFRAY INC.
We hereby consent to the inclusion in the Registration Statement of GB Foods
Corporation ("GB Foods") relating to the proposed merger of Timber Lodge Steak
House, Inc. with and into a wholly owned subsidiary of GB Foods, of our opinion
letter dated April 14, 1998 appearing as Annex C to the Joint Proxy
Statement/Prospectus which is part of the Registration Statement, our
supplemental letter dated June 30, 1998 appearing as part of Annex C, and our
opinion letter dated April 14, 1998 appearing as Annex H and to the references
of our firm name therein. In giving such consent, we do not thereby admit that
we come within the category of person whose consent is required under Section 7
or Section 11 of the Securities Act of 1933, as amended, or the rules and
regulations adopted by the Securities and Exchange Commission thereunder nor do
we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
By /s/ PIPER JAFFRAY INC.
-------------------------------------
Piper Jaffray Inc.
Minneapolis, Minnesota
July 9, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF PAULI & COMPANY INCORPORATED
July 9, 1998
We hereby consent to the inclusion in the Registration Statement of GB Foods
Corporation ("GB Foods") on Form S-4, relating to the proposed merger of Timber
Lodge Steakhouse, Inc. with and into a subsidiary of GB Foods, of our opinion
letter appearing as Annex D to the Joint Proxy Statement/Prospectus which is a
part of the Registration Statement, and to the references to our opinion and our
firm therein. In giving such consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations adopted by the
Securities and Exchange Commission thereunder nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
PAULI & COMPANY INCORPORATED
By: /s/ SELMAN AKYOL
------------------------
Selman Akyol
Vice President
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
Each of the undersigned directors and officers of GB Foods Corporation,
a Delaware corporation (the "Company"), hereby appoints Andrew F. Puzder, Gary
R. Nelson, and M'Liss J. Kane, and each of them acting singly, the true and
lawful agents and attorneys of the undersigned, with full power of substitution,
to do all things and to execute all instruments which any of them may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
proposed registration under said Act, pursuant to a Registration Statement on
Form S-4, of that number of shares of the common stock of the Company which are
to be issued pursuant to an Agreement and Plan of Merger, as it may be amended
from time to time, among the Company, TLS Acquisition Corp., and Timber Lodge
Restaurants, Inc., all as authorized by the Board of Directors of the Company;
this authorization to include the authority to sign the name of each of the
undersigned in the capacities indicated below to the said Registration Statement
to be filed with the Securities and Exchange Commission in respect of said
securities, and to any amendments thereto.
IN WITNESS WHEREOF, each of the undersigned has executed a copy of this
Power of Attorney as of January 30, 1998.
/S/ WILLIAM P. FOLEY, II
William P. Foley, II
Chairman of the Board
and Director
/S/ ANDREW F. PUZDER
Andrew F. Puzder
President, Chief Executive Officer,
and Director (Principal Executive Officer)
/S/ GARY R. NELSON
Gary R. Nelson
Chief Financial Officer and Chief
Accounting Officer (Principal Financial
and Accounting Officer)
/S/ T. ANTHONY GREGORY
T. Anthony Gregory
Director
/S/ BRUCE H. HAGLUND
Bruce H. Haglund
Director
/S/ FRANK P. WILLEY
Frank P. Willey
Director
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned officer of GB Foods Corporation, a Delaware corporation
(the "Company"), hereby appoints Andrew F. Puzder, Gary R. Nelson, and M'Liss J.
Kane, and each of them acting singly, the true and lawful agents and attorneys
of the undersigned, with full power of substitution, to do all things and to
execute all instruments which any of them may deem necessary or advisable to
enable the Company to comply with the Securities Act of 1933, as amended, and
any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the proposed registration
under said Act, pursuant to a Registration Statement on Form S-4, of that number
of shares of the common stock of the Company which are to be issued pursuant to
an Agreement and Plan of Merger, as it may be amended from time to time, among
the Company, TLS Acquisition Corp., and Timber Lodge Restaurants, Inc., all as
authorized by the Board of Directors of the Company; this authorization to
include the authority to sign the name of the undersigned in the capacities
indicated below to the said Registration Statement to be filed with the
Securities and Exchange Commission in respect of said securities, and to any
amendments thereto.
IN WITNESS WHEREOF, the undersigned has executed a copy of this Power of
Attorney as of July 7, 1998.
/S/ THEODORE ABAJIAN
Theodore Abajian
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
(Principal Financial and
Accounting Officer)
<PAGE> 1
EXHIBIT 99.1
PROXY
GB FOODS CORPORATION
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GB FOODS
CORPORATION. The undersigned hereby appoints William P. Foley II and Andrew F.
Puzder, and each of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote as
designated below, all the shares of Common Stock of GB Foods Corporation held of
record by the undersigned on July 31, 1998, at the Annual Meeting of
Stockholders to be held on September 1, 1998 and any postponements or
adjournments thereof.
PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE.
1. Approval of Amended and Restated Agreement and Plan of Merger dated as of
June 9, 1998, as amended, among GB Foods Corporation, Timber Lodge
Steakhouse, Inc. and TLS Acquisition Corp., and the issuance thereunder of an
indeterminate number of shares of the common stock of GB Foods Corporation,
par value $0.08 per share, in accordance with such Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of the issuance of 1,000,000 shares of common stock of GB Foods
Corporation, par value $0.08 per share, to CKE Restaurants, Inc. in exchange
for all of the capital stock of JB's Restaurants, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<TABLE>
<S> <C> <C>
3. ELECTION OF DIRECTORS: [ ]FOR all of the nominees [ ]WITHHOLD AUTHORITY to vote
(INSTRUCTION: To withhold listed below (except as marked for all nominees listed below
authority to vote for any to the contrary below)
individual nominee strike a
line through the nominee's name
in the list below.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
WILLIAM P. FOLEY II ANDREW F. PUZDER T. ANTHONY GREGORY BRUCE H. HAGLUND
C. THOMAS THOMPSON FRANK P. WILLEY
</TABLE>
4. Approval of the amendment to the GB Foods Corporation Non-Qualified Stock
Option Plan to increase the options authorized to be granted by
shares, and ratification of the prior grant of those
options.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Approval of the GB Foods Corporation 1998 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Approval of name change to Santa Barbara Restaurant Group, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before such meeting or any and all
postponements or adjournments thereof.
THIS PROXY FORM, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THE
PROXIES WILL VOTE FOR EACH PROPOSAL LISTED IN ITEMS 1, 2, 4, 5, AND 6 ABOVE, FOR
THE NOMINEES LISTED IN ITEM 3 ABOVE, AND IN THEIR DISCRETION ON MATTERS
DESCRIBED IN ITEM 7.
DO YOU PLAN TO ATTEND THE MEETING?
YES [ ] NO [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature
- --------------------------------------------------------------------------
Signature if held jointly
- ------------------------------------------------------------
Dated:
- ------------------------------, 1998
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give your full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in the partnership name by an
authorized person.
<PAGE> 1
EXHIBIT 99.2
PROXY
TIMBER LODGE STEAKHOUSE, INC.
4021 VERNON AVENUE SOUTH
ST. LOUIS PARK, MINNESOTA 55416
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TIMBER LODGE
STEAKHOUSE, INC. The undersigned hereby appoints Dermot F. Rowland and Peter S.
Bedzyk, and each of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote as
designated below, all the shares of Common Stock of Timber Lodge Steakhouse,
Inc. held of record by the undersigned on July 20, 1998, at the Special Meeting
of Stockholders to be held on August 28, 1998 and any postponements or
adjournments thereof.
PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE.
1. Approval of the merger of Timber Lodge Steakhouse, Inc. with TLS Acquisition
Corp. pursuant to the Amended and Restated Agreement and Plan of Merger dated
as of June 9, 1998, as amended, among GB Foods Corporation, Timber Lodge
Steakhouse, Inc., and TLS Acquisition Corp.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before such meeting or any and all
postponements or adjournments thereof.
THIS PROXY FORM, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THE
PROXIES WILL VOTE FOR THE PROPOSAL LISTED IN ITEM 1 ABOVE, AND IN THEIR
DISCRETION ON MATTERS DESCRIBED IN ITEM 2.
DO YOU PLAN TO ATTEND THE MEETING?
YES [ ] [ ] NO
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature
- ---------------------------------------------
Signature if held jointly
- ---------------------------------------------
Dated:
- ------------------, 1998
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give your full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in the partnership name by an
authorized person.
<PAGE> 1
Exhibit 99.5
I consent to being named as a director nominee of GB Foods Corporation in
the Joint Proxy Statement/Prospectus of GB Foods Corporation and Timber Lodge
Steakhouse, Inc. If the merger described in the Joint Proxy Statement/Prospectus
closes, I will be appointed to, and will serve on, the Board of Directors of GB
Foods Corporation, which, if shareholder approval is obtained, will change its
name to Santa Barbara Restaurant Group, Inc.
/s/ DERMOT F. ROWLAND
-----------------------------
Dermot F. Rowland
Chief Executive Officer
Timber Lodge Steakhouse, Inc.
